Consumer Behavior Analysis- (BMN-524)

Introduction to Consumer Behavior

• Marketing is the activity, set of institutions, and processes for creating,
communicating, delivering, and exchanging offerings that have value for
customers, clients, partners, and society. Consumer behavior is the study of
consumers’ actions during searching for, purchasing, using, evaluating, and
disposing of products and services that they expect will satisfy their needs.

• The core of marketing is identifying unfilled needs and delivering products and
services that satisfy these needs.
Introduction to Consumer Behavior
• Consumer behavior explains how individuals make decisions to spend their
available resources (i.e., time, money, effort) on goods that marketers offer for
sale.

• The study of consumer behavior describes what products and brands consumers
buy, why they buy them, when they buy them, where they buy them, how often
they buy them, how often they use them, how they evaluate them after the
purchase, and whether or not they buy them repeatedly.
Introduction to Consumer Behavior

• Consumer behavior is woven in almost every aspect of our everyday lives.

Whether we're deciding on a career to pursue, food to eat, clothes to wear, or a
movie to watch, we're engaging in behaviors critical to the study of consumer
behavior.

• But where do we place consumer behavior in the marketing decision process?

Introduction to Consumer Behavior

• If we look at the marketing decision process, it mainly has three components:

• First is identifying the market opportunities;

• Second one is setting the strategy, and,

• The third one is setting the marketing mix.

• When we consider these three processes, consumer behavior immediately

becomes relevant at the stage of identifying market opportunities because this is
where the company tries to look at who its customers are, what is the company
internally like, and what is the competition?
Introduction to Consumer Behavior

• Consumer behavior is central to the marketing concept — the process of

planning and executing the conception, pricing, promotion and the distribution of
ideas, goods, and services to create exchanges that satisfy individual and
organizational objectives.

• Satisfaction with an exchange depends on satisfaction with consumption of

product and the exchange of money.
Introduction to Consumer Behavior
• People buy cars because they need personal transportation. However, the types
of cars people buy are determined not by needs alone, but also by how cars
express their owners’ characteristics. Therefore, car marketers differentiate their
products by how specific car brands and models appeal to buyers’ psychology
 Part 2

Course Overview Consumer

Psychology/
Individual
Determinants of
CB
Motivation &Personality
Part 1 Perception Part 4
Knowledge
Learning
Marketing Other Memory
Buying Purchase
Stimuli Stimuli Attitude, Beliefs and Decision Process Decision
Feelings, Intentions

Problem Recognition Product Choice

Product & Services Economic Information search Brand Choice
Price Technological Part 3 Evaluation of Dealer Choice
Distribution Political alternatives Purchase amount
Communications Cultural Consumer Purchase decision Purchase Timing
Characteristics/ Post Purchase behavior Payment Method
Environmental
Influences on
CB
Cultural
Social
Personal
 Part 1: Introduction to Consumer Behavior
Chapter 1: An Overview of Consumer behavior and Consumer Research
Chapter 2: Creating Marketing Strategies for Consumer Centric Organization

Part 2: Individual Determinants of CB (Consumer Psychology)

Chapter 3: Consumer Motivation and Personality
Chapter 4: Consumer Perception
Chapter 5: Consumer Learning, Memory and Knowledge
Chapter 6: Consumer Beliefs, Feelings, Attitudes and Intentions

Part 3: External Determinants of CB (Consumer Characteristics)

Chapter 7: Culture, Ethnicity
Chapter 8: Social – Social Class, Family and Household Influence
Chapter 9: Group and Personal Influence

Part 4: Consumer Decision Making

Chapter 10 : Consumer Decision process
Chapter 11: Pre-Purchase Process: Need Recognition
Chapter 12: Purchase
Chapter 13 : Consumption and Post Consumption Evaluations Post Purchase Processes
Introduction to Consumer Behavior

• The starting point for understanding consumer behavior for this course, is the
Stimulus-Organism-Response model.

• As shown in the course overview, marketing and environmental stimuli enter the
consumer’s consciousness and a set of psychological processes combine with
certain consumer characteristics to result in decision processes and purchase
decisions.
Introduction to Consumer Behavior

• Part 1 gives a brief overview of consumer behavior analysis (Ch-1) and discusses
different components of marketing and environmental stimuli while discussing
market analysis, market segmentation and marketing mix strategies (Ch-2).

• Part 2 discusses key consumer psychological processes — motivation and

personality (Ch-3), perception (Ch-4), learning, memory and knowledge (Ch-5),
beliefs, feelings, attitudes and intentions (Ch-6).
Introduction to Consumer Behavior

• Part 3 describes different consumer characteristics that influence decision making

process — culture and ethnicity (Ch-7), social factors – social class, family and
household influence (Ch-8), group and personal influence (Ch-9).

• Part 4 discusses the consumer decision making process (Ch-10) which includes
pre-purchase processes: need recognition, search and evaluation (Ch-11),
purchase processes (Ch-12) and post purchase processes: consumption and
post consumption evaluations (Ch-13).
 Part -1
Introduction to Consumer Behavior
 Part 1: Introduction to Consumer Behavior
Chapter 1: An Overview of Consumer behavior and Consumer Research
Chapter 2: Creating Marketing Strategies for Consumer Centric Organization

Part 2: Individual Determinants of CB (Consumer Psychology)

Chapter 3: Consumer Motivation and Personality
Chapter 4: Consumer Perception
Chapter 5: Consumer Learning, Memory and Knowledge
Chapter 6: Consumer Beliefs, Feelings, Attitudes and Intentions

Part 3: External Determinants of CB (Consumer Characteristics)

Chapter 7: Culture, Ethnicity
Chapter 8: Social – Social Class, Family and Household Influence
Chapter 9: Group and Personal Influence

Part 4: Consumer Decision Making

Chapter 10 : Consumer Decision process
Chapter 11: Pre-Purchase Process: Need Recognition
Chapter 12: Purchase
Chapter 13 : Consumption and Post Consumption Evaluations Post Purchase Processes
Introduction to Consumer Behavior

• Chapter 1 lays the foundation for studying consumer decisions by identifying the
activities included in Consumer behavior and the methods used to observe,
record, and analyze consumer reactions, behaviors, and trends.

• These activities affect many areas of consumer’s life and lives of others.

• They provide information to develop marketing strategy and influence consumers

to buy from your organization but also use to become a smarter consumer
yourself.
Introduction to Consumer Behavior

• Chapter 2 describes how to create customer-centric organizations, incorporating

consumer behavior into strategic planning for both nonprofit and for-
profit organizations. In today’s hypercompetitive business environment, delighting
consumers is required to remain competitive, regardless of the size or scope of
the organization. Some of the most successful firms are striving to
become customer-centric, which involves organizing every activity around the
needs and behavior of key customers.
Introduction to Consumer Behavior

• That’s accomplished by identifying consumers’ needs, formulating strategies to

fulfill those needs, and monitoring changing trends through consumer research
and analysis to keep consumer behavior at the top of all executives’ list of
priorities.

• At the forefront of implementation is the concept of segmentation—the reality

that, although they may share some similarities, people are not all alike. The most
effective organizations focus on consumer groups with similar behavior, not just
common characteristics.
Introduction to Consumer Behavior

• As you read this course, ask your-self how its content relates to your life and
career. You may find that consumer behavior touches and mirrors your daily life
more than any other course you will take.

• Welcome to what we hope will be a great adventure and a lifelong topic of

interest.
Successive Sets Involved In Consumer Decision
Making
 Chapter -1
Consumer Behavior and Consumer Research
Chapter Outline

1. What is Consumer Behavior?

1.1 Who is a Consumer?
1.1.1. Types of Consumers
1.2 Types of Variables that Influence Consumer Behavior
1.3 Three Primary Activities of Consumer Behavior
1.4 Consumption Analysis
2. Models of Consumer Behavior
3. Outcomes of Consumer Decision
3.1 Firm Outcomes
3.2 Individual Outcomes
3.3 Societal Outcomes
Chapter Outline

4. Why Study Consumer Behavior?

5. Evolution of Consumer Behavior
6. Contemporary Trends in Consumer Behavior
7. Consumer Research
7.1. Classification of Marketing Research
7.2. The Marketing Research Process
7.2.1. The Problem Definition Process
7.2.2. Develop the Research Plan
7.3. Consumer Research Methods
8. The Underlying Principles of Consumer Behavior
9. Challenges for the Future
What is Consumer Behavior?

• Activities people undertake when obtaining, consuming, and disposing of

products and services (shown in Fig.1).

• A field of study that focuses on consumer activities.

• The study of how individuals, groups, and organizations select, buy, use and
dispose of goods, services, ideas or experiences to satisfy their needs and
wants.
What is Consumer Behavior?
Consumer Organizational
Influences Influences

Obtaining Consuming Disposing

Consumer Behavior

Figure 1. Overview of Consumer Behavior Process

Who is a Consumer?

• In general usage, the terms ‘consumer’ and ‘customer’ are often used
interchangeably.

• In simple terms, a consumer is someone who consumes a product while, a

customer is someone who buys or purchases a product.

• For instance, a mother bought candies for her child. In this case, the mother is
the customer, while her child is the consumer.
Who is a Consumer?

• However, ‘consumer’ is a broader term than ‘customer’.

• The term ‘consumer’ can be used to imply the buyer or decision maker as well as
the ultimate user while ‘customer’ is the actual or prospective purchaser of
products or service.

• Thus, in the aforementioned example, the mother can also be called the
consumer although she may not be the ultimate user because she is the decision
maker, but the child can not be considered as ‘customer’.
Types of Consumers

Personal Consumer

• The individual who buys goods and services for his or her own use, for
household use, for the use of a family member, or for a friend.

Organizational Consumer

• A business, government agency, or other institution (profit or nonprofit)

that buys the goods, services, and/or equipment necessary for the
organization to function.
What is Consumer Behavior?
Consumer Organizational
Influences Influences

Obtaining Consuming Disposing

Consumer Behavior

Figure 1. Overview of Consumer Behavior Process

Types of Variables that Influence Consumer
Behavior

Consumer Organizational
Influences Influences

Culture Attitudes Brand Service

Ethnicity Opinions Product Features Store Ambiance
Personality Feelings Advertising Convenience
Family Motivation Word of Mouth Loyalty Programs
Life-stage Past Experiences Promotions Packaging
Values Peer Groups Retail Displays Product Availability
Income Knowledge Price
Available Resources Quality
What is Consumer Behavior?
Consumer Organizational
Influences Influences

Obtaining Consuming Disposing

Consumer Behavior

Figure 1. Overview of Consumer Behavior Process

Three Primary Activities of Consumer Behavior

• Three primary activities are included in the definition of consumer behavior—

obtaining, consuming and disposing.

Obtaining Consuming Disposing

the activities leading up to how, where, when and how consumers get rid of
and including the under what products and packaging.
purchase or receipt of a circumstances
product. consumers use products.
Three Primary Activities of Consumer Behavior

Obtaining Consuming Disposing

• How you decide you • How you use the • How you get rid of
want to buy product remaining product
• Other products you • How you store the • How much you throw
consider buying product in your home away after use
• Where you buy • Who uses the product • If you resell items
• How you pay for • How much you yourself or through a
product consume consignment store
• How you transport • How product compares • How you recycle some
product home with expectations products
 Consumer Influences Organizational Influences
Culture Opinions Brand Service
Ethnicity Feelings Product Features Store Ambiance
Personality Motivation Advertising Convenience
Family Past Experiences Word of Mouth Loyalty Programs
Life-stage Peer Groups Promotion Packaging
Values Knowledge Retail Displays Product
Income Available Resources Price Availability
Attitudes Quality

Obtaining Consuming Disposing

• How you decide you want • How you use the product • How you get rid of
to buy • How you store the product remaining product
• Other products you in your home • How much you throw
consider buying • Who uses the product away after use
• Where you buy • How much you consume • If you resell items yourself
• How you pay for product • How product compares or through a consignment
• How you transport product with expectations store
home • How you recycle some
products

Consumer Behavior
Consumption Analysis

• Historically, the study of consumer behavior focused on buyer behavior, i.e. “why
people buy.” However, the scope goes beyond just why and how people buy to
include consumption analysis.

• Consumption analysis refers to “why and how people use products” in addition to
“why and how they buy.”

• It is a broader conceptual framework than buyer behavior because it includes

issues that arise after the purchase process occurs—issues that often affect how
people buy and the satisfaction they receive from their purchases.
Models of Consumer Behavior
• Pavlovian Model of Consumer Behavior
Models of Consumer Behavior
• Nicosia Model of Consumer Decision Process
Models of Consumer Behavior
• Input Process Output Model
Models of Consumer Behavior
• Howard-Sheth Model of Consumer Behaviour
Models of Consumer Behavior
• Engel-Kolatt-Blackwell Model of Consumer Behaviour
Models of Consumer Behavior
• Engel-Blackwell-Miniard Model of Consumer Behavior
Models of Consumer Behavior
• Hawkins and Mothersbaugh’s Overall Model of Consumer Behavior
Models of Consumer Behavior
• Black Box Model of Consumer Behavior
Models of Consumer Behavior
• Stimuli-Organism-Response Model of Consumer Behavior
Outcomes of Consumer Decisions

Firm Outcomes

• Product position is an image of the product or brand in the consumer’s mind

relative to competing products and brands.

• It is made up of customer beliefs, perceptions, and graphic depictions with

respect to the product or brand.

• A brand position that compliments the preferred position of a target market would
increase the chances of the product being purchased.
Outcomes of Consumer Decisions

Firm Outcomes

• Sales and profits are vital to a firm’s existence, and the accomplishments of
marketing programs of organizations are assessed in terms of sales revenues
and profits.

• Customer satisfaction is a primary goal of marketers. Retaining existing

customers has been found to be more profitable as compared to acquiring new
ones. Customer retention warrants that customers be satisfied with product
purchase and use.
Outcomes of Consumer Decisions

Individual Outcomes

• Need satisfaction is what an individual seeks the most from a purchase decision.

• The degree of satisfaction may vary from no satisfaction to complete satisfaction.

• Two elements - actual need fulfillment and perceived need fulfillment are crucial
to need satisfaction and are generally identical, but they may differ at times.

• Injurious consumption takes place when people individually or in groups make

such consumption decisions that negatively impact their well-being in the long
run. Examples of such consumption include use of cigarettes, alcohol, etc.
Outcomes of Consumer Decisions

Societal Outcomes

• Economic outcomes: People’s decisions to buy or save influence economic

growth, availability and cost of capital, levels of employment, etc.

• The brands and products purchased affect balance of payments, wage levels,
and industrial growth.
Outcomes of Consumer Decisions

Societal Outcomes

• Physical environment outcomes: Consumer decisions significantly influence the

physical environments of societies to which they and others belong.

• For example, people’s decision to consume meat in various developed and

developing nations leads deforestation for grazing land, water shed pollution, and
wasteful utilization of water, power and grain for protein production.

• Such effects garner significant negative publicity.

Outcomes of Consumer Decisions

Societal Outcomes

• Social welfare: Decisions of consumers impact the general well-being of a

community or society.

• Usually, representatives elected by consumers indirectly decide what to spend on

public and private goods. Such decisions influence a society’s quality of life.

• Further, the degree to which marketing activities enhance or inhibit injurious

consumption significantly influences societal welfare.
Why Study Consumer Behavior?

People study consumer behavior for many reasons, some of which are listed
below:

• Consumer Behavior Determines the Economic Health of a Nation

• Consumer Behavior Determines the Success of Marketing Programs

• Consumer Behavior Determines the Economic Health of Everyone

• Consumer Behavior Helps Formulate Public Policy

• Consumer Behavior Affects Personal Policy

Why Study Consumer Behavior?

Consumer Behavior Determines the Economic Health of a Nation

• Consumers via their purchasing decisions determine the survival and growth of
companies.

• They determine which nations will obtain needed capital and revenue, yielding
jobs and prosperity.

• On a macroeconomic level, consumers’ buying power determine which

businesses will prosper and which workers will have more jobs; which companies
will have rising share prices, and which will go out of business.
Why Study Consumer Behavior?

Consumer Behavior Determines the Economic Health of a Nation

• For instance, several international automobile companies such as Honda,

General Motors, Ford, Suzuki and so on came to India since 1990s, hoping to tap
into one of the world's biggest vehicle markets, and ensure long-term profitability.

• However, only a few of them succeeded in India and US auto giants such as Ford
and GM recently withdrew from Indian markets despite several government
incentives in place.
Why Study Consumer Behavior?

Consumer Behavior Determines the Economic Health of a Nation

• Indian consumers through their purchase decisions decided that Japanese

automobile company Suzuki dominates India's automobile market of passenger
vehicle sales with low-priced cars.

• Automakers such as Ford and GM, struggled to boost their low market share in
the price-sensitive South Asian nation and suffered huge losses.
Why Study Consumer Behavior?

Consumer Behavior Determines the Success of Marketing Programs

• People who study consumer behavior generally desire to influence or change the
behavior of consumers in some way.

• Some marketers, such as manufactures, want to use marketing to influence

brand choice and purchase, while others, such as public health advocates, use
demarketing to influence people to stop harmful consumption such as drugs.
Why Study Consumer Behavior?

Consumer Behavior Determines the Success of Marketing Programs

• Marketing is the process of transforming or changing an organization to have

what people will buy.

• Organizations are influenced by consumer needs and wants and successful

organizations recognize that in today’s world “The Customer is King.”

• Customer-centric organizations use a total marketing approach to focus their

resources on satisfying customers.
Why Study Consumer Behavior?

Consumer Behavior Determines the Success of Marketing Programs

• Rather than attempting to influence consumers, the most successful

organizations develop marketing programs influenced by consumers.

• In essence, consumer behavior analysis helps firms know how to understand and
satisfy consumers, develop effective marketing programs and ensure long term
profits.
Why Study Consumer Behavior?

Consumer Behavior Determines the Economic Health of Everyone

• The individual’s decisions as a consumer determine their economic health by

making more effective consumption decisions while avoiding deceptive practices
harmful to them.

• Public policy leaders and social commentators study consumer behavior to

alleviate overconsumption and under-consumption by educating consumers
about problems and providing assistance.
Why Study Consumer Behavior?

Consumer Behavior Determines the Economic Health of Everyone

• Understanding consumers’ issues or problems helps policy makers, interest

groups and businesses develop best methods to reach consumers and assist
them in minimizing harmful practices such as alcohol and drug abuse while
encouraging healthy practices such as exercising.
Why Study Consumer Behavior?

Consumer Behavior Helps Formulate Public Policy

• Organizations and individuals interested in public policy need to understand

consumers’ needs when formulating public policy and know how to predict
behavioral changes that follow their policies.

Consumer Behavior Affects Personal Policy

• Personal policy includes how a person behave towards others and in buying
situations, his/her values and beliefs, and how the person lives his/her life.

• A person’s economic quality of life is determined by personal policy.

Evolution of Consumer Behavior

• Consumers face an almost infinite number of possibilities, but who determines

the final selection of what is available for consumers to snatch off retail shelves?

• That has also changed over time, as consumers force marketers to evolve from
supply chains to demand chains

• We can study the evolution of consumer behavior by examining “Who determines

what consumers can buy?” and their relative prominence over the years.

• Everyone involved in determining what consumers are able to buy are included in
the supply chain.
Evolution of Consumer Behavior

• Supply Chain: all the organizations involved in taking a product from inception to
final consumption. These organizations include—
• Manufacturers

• Wholesalers (or other forms of distributors)

• Retailers

• Facilitating Organizations

• The focus and power within the supply chain determines what is offered to the
consumers and has shifted throughout history, as summarized in Fig. 2.
Consumers’ influence on business has increased overtime.
Evolution of Consumer Behavior
Low High
Influence of
consumers

Wholesaler Manufacturers Retailers Consumer

Orientation Manufacturing Selling Marketing Consumer

Orientation Orientation Orientation Orientation

Time Period 1750-1850 1850-WW II 1970-2000 2000 onwards

Figure 2. Who determines what consumers can buy?

Evolution of Consumer Behavior

• Manufacturing Orientation

• Selling Orientation

• Marketing Orientation
• Motivation research

• Positivism

• Postmodernism

• Consumer Orientation
Evolution of Consumer Behavior

Manufacturing Orientation:

• This orientation focused on how to manufacture goods.

• In this orientation, manufacturers had the ability to decide which products to

make, color and size of packages, how they should be advertised and where
retailers should place them on shelves.

• Manufacturers dominated what was produced and made available for

consumers to buy.
Evolution of Consumer Behavior

Selling Orientation:

• This orientation focused on how to sell goods.

• The concept of unique selling proposition (USP) was devised to describe the
importance of selecting a benefit of the product and repeating that phrase so
often that consumers uniquely associate that benefit with a particular brand.

• In this orientation, selling became prominent and retailers dominated the

supply chain because they provided the essential connection between
production and consumption.
Evolution of Consumer Behavior

Marketing Orientation

• This orientation focuses on how an organization adapts to consumers.

• As the focus on consumer increased, switching from sales to marketing

orientation required more sophisticated tools to understand consumers and
what products or services will satisfy them.

• Behavioural sciences provide a toolbox of theories and methodologies which

are used for studying consumer behaviour, including: Motivation research,
Positivism, Postmodernism.
Evolution of Consumer Behavior

Marketing Orientation

• Motivation research:

• Derived from Psychoanalytic theories of Sigmund Freud.

• Goal was to uncover hidden or unrecognized motivations through guided

interviewing.

• For instance, women bake cakes out of the unconscious desire to give birth.
Perhaps that’s why Pillsbury created the Doughboy icon with the appeal of a
cuddly baby that appears in ads and on merchandise to build its brand.
Evolution of Consumer Behavior

Marketing Orientation

• Positivism:

• Process of using rigorous empirical techniques to discover generalizable

explanations and laws. It takes the view that if results can’t be proven in the
lab, the data are not useful.

• The goals are twofold:

1. to understand and predict consumer behavior, and

2. to discover cause-and-effect relationships that govern persuasion and

education.
Evolution of Consumer Behavior

Marketing Orientation

• Postmodernism:

• Uses qualitative and other research methods to understand consumer

behavior.

• It may include understanding the emotion involved in choosing a brand.

• Postmodern research led to ethnographic and other research methods to

understand daily life and the influence of the culture on how people consume
products.
Evolution of Consumer Behavior

Consumer Orientation

• Focuses on how all organizations in a demand chain adapt to changing

consumer lifestyles and behaviors.

• A comprehensive consumer orientation brings product design, logistics,

manufacturing, and retailing together as a consumer centric demand chain.

• It recognizes the role of consumers in shaping many aspects of life—society,

government, social programs, health cares, and other areas of life.
Evolution of Consumer Behavior

Manufacturing Selling Marketing Consumer

orientation orientation orientation orientation

How to sell What to sell What to make

How to make
products (product and (creating
products
selection) consumer-
driven products
and
organizations)
Behaviourism

Final power shift in

Marketing focus and marketing Postmodernism the supply chain
research
Internet for consumer
1969 founding of buying and
Association of Consumer Positivism Total Consumption communication
Research Research

Consumer Retention
Programs

Figure 3. Evolution of Business Orientation and Consumer Behavior Studies

Contemporary Trends in Consumer Behavior

• Increased value orientation

• Increased interest and access to online information

• Fragmentation of marketplace

• Scarcity of time

• Increasing practice of product customization

Consumer Research

Consumer Research is a part of market research in which the preferences, motivations,

and buying behavior, of the targeted customer are identified through

• direct observation,

• mail surveys,

• telephone or

• face to face interviews, and

• from published sources (such as demographic data).

The goal is to understand how to study consumer behavior and implement a strategy that is
best for specific situations.
Classification of Marketing Research

Marketing Research

Problem Identification Problem Solving

Research Research

Market Potential Research Segmentation Research

Market Share Research Product Research
Market Characteristics Research Pricing Research
Sales Analysis Research Promotion Research
Forecasting Research Distribution Research
Business Trends Research
Problem Solving Research

SEGMENTATION RESEARCH PRODUCT RESEARCH PRICING RESEARCH

• Determine the basis of • Test concept • Pricing policies

segmentation • Determine optimal product • Importance of price in brand
• Establish market potential and design selection
responsiveness for various
• Package tests • Product line pricing
segments
• Select target markets • Product modification • Price elasticity of demand
• Create lifestyle profiles: • Brand positioning and • Initiating and responding to
demography, media, and product repositioning price changes
image characteristics • Test marketing
• Control score tests
Problem Solving Research

DISTRIBUTION RESEARCH PROMOTIONAL RESEARCH

Determine… • Optimal promotional budget

• Types of distribution • Sales promotion relationship
• Attitudes of channel members • Optimal promotional mix
• Intensity of wholesale & resale
• Copy decisions
coverage
• Channel margins • Media decisions
• Location of retail and wholesale • Creative advertising testing
outlets • Evaluation of advertising
effectiveness
• Claim substantiation
The Marketing Research Process

Define the problem

Develop research plan

Collect information Make

decision
Analyze information

Present findings
The Problem Definition Process
Tasks involved
Discussion with Interviews with Secondary Data Qualitative
Decision Maker(s) Experts Analysis Research

Environmental Context of the Problem

Step 1: Problem Definition

Management Decision Problem

Marketing Research Problem

Step 2: Approach to the Problem

Objective/ Analytical Model: Research Hypothesis Specification of
Theoretical Verbal, Graphical, Questions information
Foundations Mathematical needed

Step 3: Research Design

Tasks Involved and Environmental Context of the
Problem

Tasks Involved
• Understanding management decision problem and conducting problem audit, i.e., a
comprehensive examination of the problem to understand its origin.

Environmental Context of the Problem

• Past information and forecasts • Legal environment
• Resources and constraints • Economic environment
• Objectives • Marketing and technological skills
• Buyer behavior
Definition of the Research Problem

• The first step in any marketing research study is to define the problem.

• Problem Definition: A broad statement of the general problem and identification of

the specific components of the marketing research problem.
Step 1: Problem Definition
Management Decision Problem
Marketing Research Problem

Broad
Statement

Specific Components
Definition of the Research Problem

• For instance, a company ABC is facing problem with its distribution system.

• Here, management decision problem could be: What to do to revamp the

distribution system?

• A broad problem statement (initial statement of the problem that provides an

appropriate perspective) could be: What may be the appropriate distribution
channel for ABC, India to reach to the remotest part?
Definition of the Research Problem

• Specific components: 1) Is the existing system really bad? What the stakeholders
say about that? 2) How many intermediaries should they use? 3) What type of
commission is required for that? 4) will that have an impact on total reach and
total cost structures?

• Based on the aforementioned information, the marketing research problem

can be stated as: Explore the strengths and weaknesses of the existing
distribution channel. Investigate the responses of the customers and other
stakeholders.
The Problem Definition Process
Tasks involved
Discussion with Interviews with Secondary Data Qualitative
Decision Maker(s) Experts Analysis Research

Environmental Context of the Problem

Step 1: Problem Definition

Management Decision Problem

Marketing Research Problem

Step 2: Approach to the Problem

Objective/ Analytical Model: Research Hypothesis Specification of
Theoretical Verbal, Graphical, Questions information
Foundations Mathematical needed

Step 3: Research Design

Development of Research Questions and
Hypotheses
Components of Marketing Research
Problem

Objective/
Theoretical
Foundations

Research Questions

Analytical Model:
Verbal, Graphical,
Mathematical
Hypothesis

Step 2: Approach to the Problem

The Marketing Research Process

Define the problem

Develop research plan

Collect information Make

decision

Analyze information

Present findings
Develop the Research Plan

Research Data
Design Sources

Research Sampling
Approach Plan

Research Contact
Instruments Methods
Develop the Research Plan

• A research design is a framework or

blueprint for conducting the marketing
research project.
Research
Design • It details the procedures necessary for
obtaining the information needed to
structure or solve marketing research
problems.
Develop the Research Plan

Research Design

Exploratory Conclusive
Research Design Research Design

Research
Descriptive Causal
Design Research Research

Cross-Sectional Longitudinal
Design Design

Single Cross- Multiple Cross-

Sectional Design Sectional Design

Figure 4: Types of Research Design

Develop the Research Plan

• Secondary Data: Data that was

collected for another purpose, and
Data already exists somewhere.
Sources
• Primary Data: Freshly gathered data
for a specific purpose.
Develop the Research Plan

• Observation
• Ethnographic
Research • Focus Group
Approach • Survey
• Behavioral Data
• Experimentation
Develop the Research Plan

It includes decisions regarding:

• Sampling unit: Who is to be surveyed?
Sampling • Sample size: How many people should
Plan be surveyed?
• Sampling procedure: How should the
respondents be chosen?
Develop the Research Plan

• Questionnaires
• Qualitative Measures
• Word Association
Research
• Projective Techniques
Instruments
• Visualization
• Brand Personification
• Laddering
Develop the Research Plan

• Technological Devices
• Galvanometers
• Tachistoscope
Research • Eye cameras
Instruments
• Audiometers
• GPS
Consumer Research Methods

Observation

• Observing consumer behaviors in different situations such as natural or artificial

settings.

• Different types of observation techniques are:

• In-home observation

• Shadowing

• Physiological methods
Consumer Research Methods

Observation

• In-home observation: examining how and when consumers use and consume
products in their households.

• Shadowing: following and observing consumers in the shopping and consumption

processes. Researchers may ask questions about reasons for behaviors.

• Physiological methods: Techniques borrowed from medicine, psychology and

other sciences including cameras to measure eye movement, galvanic skin
response, and MRI.
Consumer Research Methods

Interviews and Surveys

• Surveys: efficient method for gathering information from a large sample of

consumers by asking questions and recording responses (telephone and Internet
surveys, mall intercepts, and mail questionnaires).

• Focus Groups: a group discussion led by a moderator skilled in persuading

consumers to thoroughly discuss a topic of interest.

• Longitudinal Studies: repeated measures of activities over time to determine

changes in opinions, buying, and consumption behaviors.
Consumer Research Methods

Experimentation

• Attempts to understand cause-and-effect relationships by carefully manipulating

independent variables to determine how these changes affect dependent
variables.

• Independent variables might include number of advertisements and package

design. Dependent variables might include purchase intent or behavior.

• Types of experiments: 1) Laboratory experiment 2) Field experiment

Consumer Research Methods

Consumption Research

• Builds on the three primary research methods to examine how people use
products and services rather than how they buy them.

• May use ethnographic tools to under-stand how values and culture influence
usage of products and other behaviors.

• May identify new uses for existing products or new product to satisfy unmet or
changing consumer needs.
Consumer Research Methods

• Consider the problem facing a marketing manager who wants to increase sales
of a household appliance such as a dishwasher.

• How can a firm like Whirlpool increase sales in the U.S. market when most
families who can afford a dishwasher already own one?
Consumer Research Methods

• Possible courses of action

• Expanding in less-developed countries

• Try price-cutting, or

• they might sell in other countries where the need for dishwashers is
increasing.

• Although these might be reasonable, analyzing consumption patterns of high-

income consumers offers another way to expand consumption of the product
category.
The Underlying Principles of Consumer Behavior

• The Consumer Is Sovereign

• The Consumer Is Global

• Consumers Are Different; Consumers Are Alike

• The Consumer Has Rights

The Underlying Principles of Consumer Behavior

• Marketers must dive deeper in their understanding of consumer behavior to

identify groups of people—called market segments—spanning demographic
characteristics and geographical boundaries.

• Consumer analysts focus on similarities within groups of consumers, while

recognizing the differences between groups.
Consumer Bill of Rights
Challenges for the Future

• Gathering and interpreting information that organizations need to meet changing

needs of consumers.

• Developing effective consumer research methods to capture changes in trends

and lifestyles.

• Understanding consumer behavior from a broader perspective as an important

part of life.
Think

• What are consumers really purchasing when they buy the following (Consumers
do not buy drill bits-they buy ways to make holes):

• A pair of Sport Shoes

• Lipstick

• A Life Insurance policy

• Fogg Deodorant

• Socks
Consumer Behavior Analysis- (BMN-524)
 Course Overview
Part 2
Consumer
Psychology/
Individual
Determinants of CB
Part 1 Part 4
Chapter- 2 : Creating Marketing Strategies for Motivation and Personality
Customer Centric Organizations Perception Consumer Purchase
Decision Process Decision
Marketing Other Knowledge, Learning and

Stimuli Stimuli Memory

Beliefs Feelings, Attitude Pre-purchase Processes:
Product Choice
and Intention Need Recognition, Search
Product & Services Economic Brand Choice
and Evaluation
Price Technological Dealer Choice
Part 3 Purchase
Place Political Purchase Amount
Consumer Post Purchase Processes:
Promotion Cultural Purchase Timing
Characteristics/ Consumption and Post
Payment Method
External Consumption Evaluations
Determinants of CB
Culture and Ethnicity
Social
Personal
 Part 1: Introduction to Consumer Behavior
Chapter 1: An Overview of Consumer behavior and Consumer Research
Chapter 2: Creating Marketing Strategies for Customer Centric Organization

Part 2: Individual Determinants of CB (Consumer Psychology)

Chapter 3: Consumer Motivation and Personality
Chapter 4: Consumer Perception
Chapter 5: Consumer Learning, Memory and Knowledge
Chapter 6: Consumer Beliefs, Feelings, Attitudes and Intentions

Part 3: External Determinants of CB (Consumer Characteristics)

Chapter 7: Culture, Ethnicity
Chapter 8: Social – Social Class, Family and Household Influence
Chapter 9: Group and Personal Influence

Part 4: Consumer Decision Making

Chapter 10 : Consumer Decision Process
Chapter 11: Pre-Purchase Processes: Need Recognition, Search and Evaluation
Chapter 12: Purchase
Chapter 13 : Post Purchase Processes: Consumption and Post Consumption Evaluations
 Part -1
Introduction to Consumer Behavior
Introduction to Consumer Behavior

• Chapter 2 describes how to create customer centric organizations, incorporating

consumer behavior into strategic planning, organizing every activity around the
needs and behavior of key customers.

• That is accomplished by identifying consumers needs, formulating strategies for

fulfilling those needs, monitoring changing trends through consumer research
and analysis.

• From SOR model perspective, this chapter discusses the marketing and
environmental stimuli which influence consumer behavior while discussing
market analysis, market segmentation and marketing mix strategies.
 Chapter -2
Creating Marketing Strategies for Customer
Centric Organization
Chapter Outline

1. Consumer Analysis
2. What is Strategy?
3. Customer-Centric Organizations
3.1 Value
3.2 Customer Value Proposition
3.3 Characteristics of Customer-Centric Organizations
4. Overview of Marketing Management Concepts
5. Marketing Strategy
5.1 Market Analysis
5.1.1 Consumer Analysis: Environment and Demographic Analysis
5.1.2 Corporate Strengths and Resources
5.1.3 Current and Potential Competitors
5.1.4 Market Environment
Chapter Outline

5. Marketing Strategy
5.2 Market Segmentation, Targeting and Positioning
5.2.1 Market Segmentation
5.2.2 Market Aggregation
5.2.3 Identifying Segments
5.2.3.1 Demographic Segmentation
5.2.3.2 Geographic Segmentation
5.2.3.3 Psychographic Segmentation
5.2.4 Addressing Needs of Market Segment
5.2.5 Profitability of Market Segmentation
5.2.6 Criteria for Choosing Segments
5.2.7 Targeting
5.2.8 Positioning
Chapter Outline

5. Marketing Strategy
5.3 Marketing Mix
5.3.1 Product
5.3.2 Place
5.3.3 Price
5.3.4 Promotion
5.3.5 Brand
5.3.6 Seven R’s of Marketing Mix
5.4 Marketing Implementation
6. Customer Experience
7. Customer Value and Satisfaction
8. Customer Engagement
Chapter Outline

9. Customer Loyalty and Retention

10. Customer Relationship Management
10.1 Implementing Customer Relationship Management
10.2 Strengthening Customer Relationship
11.Global Marketing Strategy
11.1 Global Market Analysis
11.2 Intermarket Segmentation
11.3 Localization
11.4 Global Advertising Effectiveness
Consumer Analysis

• The process of understanding consumer trends, global consumer markets,

models to predict purchase and consumption patterns, and communication
methods to reach target markets most effectively.

• This chapter focuses on the concepts, methods, and skills that you, as a
consumer analyst, will need to be effective in formulating and implementing
marketing strategies in customer-centric organizations.

• These concepts and methods include customer relationship management, market

segmentation, brand strategy, customer retention and loyalty programs, and
global marketing and communication strategies.
What is Strategy?

• A decisive allocation of resources (capital, technology, and people) in a particular

direction.

• In customer-centric organizations, the direction in which resources should be

committed is determined by consumers.

• The job of consumer analysts is to understand consumers well enough to predict

what direction they will lead the organization.
What is Strategy?

• The process is similar in business-to-business (B2B) marketing organizations

because industrial demand is ultimately created by consumer demand.

• For B2B marketers, the challenge is not only to understand the minds of
customers, but also to understand the minds of customers’ customers.

• Marketing Strategy is a long-range, time-phased plan designed to achieve,

usually at a high rate of return on investment, a market position so advantageous
that competitors can retaliate only at prohibitively high costs.
Customer-Centric Organizations

• Customer-centricity is a strategic commitment to focus every resource of the

firm on serving and delighting profitable customers.

• It involves producing new or improved products with evolving marketing methods

focused on core, but sometimes changing, market targets.
• For instance, Amazon.com’s original mission in 1995 was “The Earth’s largest
bookstore” however, today’s mission is “The most customer-centric organization.”

• The goal of a customer-centric organization is to provide a consumer with more

value than its competitors.
Value

• The difference between what consumers give up (pay with time, money, or other
resources) for a product and the benefits they receive.

• Quality, often thought to be synonymous with value, is not enough to sustain

competitive advantage in today’s environment, but the combination of other
components of value, such as brand, image, price, and product features, does
provide an advantage.

• However, it must be clear how these components communicate value to

customers.
Value

• For example, both Nike and Reebok athletic shoes provide the same basic
functions and quality.

• However, Nike’s shoes might have a special air-cushioning feature in their soles,
the brand endorsement of Michael Jordan, and bear the famous “swoosh” logo.
Reebok’s might feature a nighttime reflector and a lower price.

• Consumers choose products that provide the greatest value—not necessarily in

terms of cost savings, but in terms of overall benefits, which might include the
approval of peers.
Customer Value Proposition

• The customer value proposition (CVP) has a critical role in communicating how a
company aims to provide value to customers.

• The concept of CVP develops from the ‘proposition’ concept. As the company
orientation shifted from manufacturing oriented to consumer centric, the concept
of proposition evolved into holistic concept of CVP.

• In next slide we discuss evolution of Customer Value Proposition concept along

with the different company orientations which was discussed in the last chapter in
‘evolution of consumer behaviour’.
 Evolution of Consumer Value Proposition
Low High
Influence of consumers

Wholesaler Manufacturers Retailers Consumer

Orientation

Manufacturing Selling Marketing Consumer

Orientation Orientation Orientation Orientation

1750-1850 1850-WW II 1970-2000 2000 onwards

Period
Time

1910s–1930s 1940s–1960s 1970s–1980s 1980s- late 1990s 2000s onwards

Use of the concept of a Unique selling Emotional selling Core benefits Customer Value
Proposition concept

proposition in proposition proposition (ESP):related proposition: the product Proposition includes

advertising. (USP) and basic selling to consumers’ emotional benefits promised by dimensions valued by
proposition (BSP): bond with a product. physical features. customers that achieve
comprises the functional competitive advantage.
unique benefit that is The four categories of
highly relevant to value propositions
consumers and that include functional,
differentiates it from economic, emotional, and
competitors. symbolic.
Characteristics of Customer-Centric Organizations
Shared Vision and Values System-Wide Simultaneous Training

• The essence of customer-centricity is not • This concept involves face-to-face

software to aid in customer relationship interaction or total organizational meetings,

management (CRM). on a global basis, probably delivered by

• It’s a vision, a set of values, and a belief satellite, Internet, or other

Shared Vision System-Wide
and Values Simultaneous technologies in customer-centric
that the future of the firm is embedded
Training
in the minds of consumers. organizations.

Characteristics
of Customer
Centric
Organization
Customer Based Metrics Cross-Functional Integration
• Progress toward customer-centricity Cross- • Customer-centricity breaks down
Customer Functional
requires changing from metrics based Based Metrics “silos” in organizations, focusing
Integration
on product lines, geographic divisions, or everyone on core customers.
business units—including profitability, productivity,
• Providing all functional areas with easily
and customer satisfaction—to metrics based on
understandable information on all other business
core customers and segments.
functions is a characteristic of customer-centricity.
Some Overview
The Marketing Process

Demographic- Marketing Technological-

Economic Intermediaries Natural
Environment Environment

Product

Suppliers Target
Place Price Publics
Consumers

Promotion

Political- Social-
Legal Competitors Cultural
Environment Environment
Schematic of Marketing Process
Marketing Analysis (the 5 Cs)

Customer Company Competitor Collaborator Context

Product and
Market Target Market
Choosing Value Service
Segmentation Selection
Positioning

Marketing Mix (the 4 Ps)

Designing Value Product and Service Pricing

Delivering Value Promotion Place/Channel

Sustaining Value Customer Acquisition Customer Retention

Profit
Marketing Framework

• Start with a Situational Analysis using the 5Cs

• Context is the climate or the external environment: PEST Analysis

5 Types of Needs
Stated needs
The customer wants an inexpensive car.

Real needs
The customer wants a car whose operating cost, not its initial price, is low.

Unstated needs
The customer expects good service from the dealer.

Delight needs
The customer expects the dealer to include a GPS.

Secret needs
The customer wants friends to see him as a savvy consumer.
From Market Analysis to Market Strategy:
Where Does Consumer Behavior Fit?
Marketing Strategy

• Involves the allocation of resources to develop and sell products or services that
consumers will perceive to provide more value than competitive products or
services.

• The process includes:

• market analysis,

• market segmentation,

• brand strategy, and

• implementation with the consumer at the core.

Marketing Strategy
Market Analysis
Consumer
Company
Environmental
Political/Legal

Segmentation
Demographic
Implementation
Situational
in Marketplace
Psychographic

Marketing Mix
Product, Brand,
Price, Place
Promotion, and
7Rs

Figure 2.1. Customer-Centric Marketing Strategy

Marketing Strategy

• As seen in the figure 2.1, the consumer relates directly with each of these areas
of strategy formulation and implementation.

• To reap the rewards of consumer research and market planning, marketers must
understand how consumer behavior fits into the marketing process.

• The figure shows four major steps of marketing any product or service and
introducing it to the marketplace: market analysis, market segmentation,
marketing mix strategies, implementation.
Market Analysis
Market Analysis
Consumer
Company
Environmental
Political/Legal

Segmentation
Demographic
Implementation
Situational
in Marketplace
Psychographic

Marketing Mix
Product, Brand,
Price, Place
Promotion, and
7Rs

Figure 2.1. Customer-Centric Marketing Strategy

Market Analysis

• The process of analyzing changing consumer trends, current and potential

competitors, company strengths and resources, and the technological, legal, and
economic environments.

• One goal is to minimize the number of failed products introduced to the market by
better understanding the wants and needs of the market.

• Researchers and marketers often search for ways to channel ideation (the
process of forming and relating ideas) to allow consumers to be more focused
and productive, providing better information to marketers.
Market Analysis: Consumer Environment

• When marketers study the consumer environment, they examine many issues,
including:

• demographic trends; changing consumer needs, wants, and lifestyles;

purchase and consumption patterns; motivations; personal and group
influences; and consumers’ knowledge, attitudes.

• Few issues such as demographic trends; changing consumer needs, wants, and
lifestyles of consumer analysis are discussed in next few slides of this chapter,
while other variables such as motivation, personal and group influences are
discussed in other chapters related to those topics.
Market Analysis: Consumer Environment

• Understanding changes in the consumer environment can lead to new product

ideas, product adaptations, new packaging, or even new services to help
consumers meet their changing needs.

• For example, Netflix realized as early as in 2007 that the DVD rental business
was not profitable anymore.
Market Analysis: Consumer Environment

• They recognized that customers not only want to rent

videos but want a large and user-friendly offering that
allows for the convenience of renting a video from the
comfort of one's couch and eliminates the
inconvenience of returning videos.

• They foresaw the change in consumer needs and

lifestyle, used their IT-background to create fitting
digital solutions and rolled out a subscription-based
video streaming model.
Market Analysis: Consumer Environment

• In fact, there are a total of four elements that are

making all the difference:
• Affordable price (curating different price offers for
customers).

• Accessibility (on all devices, when and where you want).

• Original content (based on the analysis of their own

customer data).

• Large amount of high-quality content in many different

genres.
Market Analysis: Consumer Demographic Analysis

• Market analysis requires information about

• people with needs

• ability to buy

• willingness to buy

• authority to buy

• Understanding the demographics of markets, both now and in the future, is

essential to understanding the types of products people will need, where they are
likely to buy them, and the attributes most likely to delight them.
Market Analysis: Consumer Demographic Analysis

• Demographics is the size, structure, and distribution of a population.

• Marketers use demographic analysis in two ways: for trend analysis and as
market segment descriptors (which discussed in market segmentation).

• Market analysis begins with understanding how people’s needs relate to variables
such as age and other demographic factors and understanding the changes in
these variables along with other individual variables such as personality, personal
values, and lifestyles.
Market Analysis: Consumer Demographic Analysis

• Demographic analysis answers such question as: How many people will there
be? What will be their age distribution? Where will they live? or What will be their
economic condition?

• Ordinarily three variables determine the size and nature of population — birth,
deaths and net migration.

• Several statistical parameters exist for measuring these variables such as:
birthrate, natural increase, fertility rate, total fertility rate, population momentum
and so on.
Market Analysis: Consumer Demographic Analysis

• Birthrate: number of live births per 1,000 population in a given year.

• Natural increase: surplus of births over death in a given period.

• Fertility rate: number of live births per 1,000 women of childbearing age(15-44 years).

• Total fertility rate: average number of children that would be born alive to a woman
during her lifetime if she were to pass through all of her childbearing years
conforming to age-specific fertility rates of a given year.

• Population momentum: future growth of any population will be influenced by its

present age distribution.
Market Analysis: Consumer Demographic Analysis

• Changing age distribution

• Changes in age distribution affects the types of products and services that will
be bought and consumed in the future.

• Cohort analysis is fundamental to understanding changing consumer

markets.

• A cohort is any group of individuals linked as a group in some way.

Market Analysis: Corporate Strengths and Resources

• A company can have several resources such as:

Development
Technological and Design

Marketing/
Financial Production Advertising

Personnel /
Managerial Research
Market Analysis: Corporate Strengths and Resources

• Developing marketing strategy is a process of balancing market opportunities

with corporate resources and strengths.

• This process involves examining the financial stability and resources of the
company, as well as its technological, personnel, managerial, production,
research, and marketing abilities.

• Great opportunities may exist, but a firm may simply lack key resources to pursue
them and determine that lesser opportunities more closely fit the firm’s
capabilities.
Market Analysis: Corporate Strengths and Resources

• A company needs to consider—

• How much can the company invest of these various resources into the development
and marketing of a product?

• What resources does the company lack, and how might it overcome its weaknesses
internally or through relationships with strategic partners?

For example, Proctor and Gamble once

developed everything internally.
Currently 35% of its innovations are
based on licensing and strategic
acquisitions.
Market Analysis: Current and Potential Competitors

• Who are current competitors and which firms are likely to become competitors?

• What are advantages/disadvantages of competitors and competitive products?

• What do alternative scenarios show of how competitors react to new products or

innovations?
Market Analysis: Current and Potential Competitors

• A traditional approach to this type of analysis focuses strategic thinking on

staying ahead of the competition.

• That include looking at existing competitive products and figuring out how to add
a feature that might make a product “just a little better” in the mind of consumers.

• Other, more innovative firms pay less attention to matching or beating their rivals,
but focus instead on using innovation to weaken or make competitors irrelevant in
the marketplace.
Market Analysis: Current and Potential Competitors

• How does a firm accomplish this?,

• How easy will it be for competitors to enter the market, and

• How will current competitors react?

• Firms can construct alternative scenarios to anticipate reactions of current

competitors and anticipate how firms, though not necessarily competitors at
present, might respond with similar products.
Market Analysis: Market Environment

Government
State of Economy Stability and
Regulations

Market
Environment

Physical
Technology
Conditions
Market Analysis: Market Environment

• Marketers also must examine the condition of the overall market environment into
which the product or service will be introduced.

• Factors such as the state of the economy, government regulations, physical

conditions, and technology play an important role in the potential success of a
product or service.

• If the economy is not good—unemployment is high, inflation is high, or wages are

declining—introducing relatively expensive products may fail.
Market Analysis: Market Environment

• Although segments of the market may buy high end products regardless of
overall economic conditions, volume may be too small to justify introduction or
price and distribution strategies may need to be changed.

• Legal and governmental factors that must be considered, especially when selling
in global markets, include local ordinances, tariffs and trade agreements, and
currency fluctuations.
Market Analysis: Market Environment

• Physical conditions, including a country’s political stability and infrastructure

reliability, the availability of technology, and overall personal health (including the
prevalence of HIV/AIDS and obesity), are all factors that create both market
problems and strategic opportunities for firms that understand them.

• Natural disasters such as hurricanes and ice storms may disrupt the sales of
many firms, but they also generate opportunities for retailers who have a strategic
plan.
Market Analysis: Market Environment

• These conditions serve as other stimuli for consumer (as per SOR model) and all
elements in the marketing environment affect consumer needs and ability to buy.

• Many also affect consumer mood and willingness to buy, both at a macro-level
affecting total retail sales and at a micro-level affecting specific products and
retailers.
Market Segmentation
Market Analysis
Consumer
Company
Environmental
Political/Legal

Segmentation
Demographic
Implementation
Situational
in Marketplace
Psychographic

Marketing Mix
Product, Brand,
Price, Place
Promotion, and
7Rs

Figure 2.1. Customer-Centric Marketing Strategy

Market Segmentation

• The next step in creating market strategy is market segmentation, the process of
identifying groups of people who behave in similar ways to each other, but
somewhat differently than other groups.

• This process results in development of market segment : a group of consumers

with similar behaviors and needs that differ from those of the entire mass market.

• Identifying groups of people with similar behavior enables product, packaging,

communications, and other elements of the marketing mix to be focused on
creating a special appeal that meets the group’s specific needs.
Market Segmentation

• The need for segmentation is rooted in the fact that people are different—if all
humans were identical in their preferences and behaviors, every product would
be the same.

• But because people differ so much in their motivations, needs, and decision
processes, custom-tailoring products and services maximizes consumer
satisfaction.

• The goal in measuring market segments is to allocate consumers into categories

that minimize variance within groups and maximize variance between groups.
Market Segmentation

• By identifying market segments that are similar in their behavior, products can be
developed that are closely matched to the preferences of that group.

• By maximizing variance between segments, a differential advantage is obtained

that, ideally, will be so appealing that it will command a premium price greater
than the cost of catering to the specialized preferences of a particular segment.
Market Aggregation

• The opposite of market segmentation is market aggregation: when

organizations choose to market and sell the same product or service to all
customers (also known as mass marketing).

• This strategy may be effective in emerging economies where there exists pent-up
demand for basic products and services. Consumers in these markets want
functional benefits at the lowest possible prices.

• This usually calls for a standardized product, produced at low cost in long,
homogeneous production runs and sold through basic distribution channels with
few added features.
Market Aggregation

• Although some firms still choose a market aggregation approach, the reality is
that mass markets are obsolete in industrially advanced countries.

• This is due to the following factors:

• Affluence: Consumers can afford products that are more customized to suit their
individual tastes, needs, and lifestyles.

• Manufacturing technology: Production processes can be computer controlled

and tailored to smaller production runs without corresponding cost increases.
Market Aggregation

• Consumer databases: Product designers have the information required to

address variations in consumers’ consumption and behavior patterns, and
marketers have the information needed to advertise and communicate with
individual consumers.

• Multiple distribution channels: Multiple methods of retailing, including direct

sales and the internet, allow distribution to be closely related to the needs and
desires of specific segments.
Market Segmentation: Identifying Segments

• In marketing strategy applications, it is essential to remember that segmentation

is based on identifying and appealing to consumers with similar behavior, not
necessarily similar characteristics.

• When consumer analysts use consumer characteristics for segmentation, it’s

because they are correlates, or “proxies,” for behavior—not because the
characteristics are determinants of why people buy.

• For example, market segments that buy a stereo priced at $3,000 are much
different from those that buy a stereo priced at $300.
Market Segmentation: Identifying Segments

• Not only will the product and price be different, based upon different music-
listening behavior, but the distribution channels and promotional components of
the marketing mix likely will be different.

• At first glance, one might conclude (falsely) that the segments buying the $3,000
stereo would all be high income and the segments buying the $300 stereo would
be low income.

• In fact, a few low-income consumers might buy the expensive stereo (leaving
other needs unfulfilled).
Market Segmentation: Identifying Segments

• While many high-income consumers might buy the lower-priced stereo (providing
future savings for consumption of other things).

• Measuring behavior for the purpose of developing a targeted marketing mix is

difficult, but it’s relatively easy to measure consumer characteristics such as
income, age, or gender.

• Therefore, the basis for developing marketing strategy frequently relies on these
types of consumer characteristics because they are often correlated with
consumer behaviors.
Market Segmentation: Identifying Segments
Consumer Characteristics
Demographics
Age Income Nationality Occupation
Gender Education Life stage Religion
Ethnicity Family size Marital status Living arrangements
Psychographics
Activities Interests Opinions
Purchase and consumption behaviour
Shopping location preferences Media used Brand loyalty How used
Frequency of purchase Price sensitivity Benefits sought Rate of use
Situational Characteristics
Work versus leisure usage Time Where used
Geographical Characteristics
National boundaries State and regional boundaries Urban versus rural Zip code

Values
Culture
Personality
Market Segmentation: Identifying Segments

• Demographics, psychographics, purchase and consumption behaviors,

geographical characteristics, and situational factors are the variables typically
used to define segments of potential customers with similar behavior.

• These variable-based segments overlap, yielding a highly targeted segment,

which may improve the predictability and sensitivity of how segments will respond
to specific types of advertising, promotions, product variations, and distribution
channels.
Market Segmentation: Demographic Segmentation

• Demographics affect a firm’s current and future segmentation strategies and

demographic variables such as age, family size, gender, income, occupation,
income, race, generation are popular with marketers for segmentation.

• As descriptors of market segments, marketers match demographic and

psychographic profiles of a segment with its consumer behaviors, keeping in
mind that demographics are merely proxies for what really needs to be
measured, i.e. behavior.
Market Segmentation: Demographic Segmentation

• Even when marketers describe the target market in non-demographic terms (say
by personality), they need to link back to demographic characteristics in order to
estimate the size of the market and the media used to reach it efficiently.

• Here, we discuss few demographic variables such as consumer age and

generation, income for segmentation.

• For example, the importance of children as consumers has increased even more,
with the higher proportion of first-order babies generating higher demand for
quality products and services.
Market Segmentation: Demographic Segmentation

• Most parents do most of the buying, but children are often involved in family
purchasing decisions. Further, children often have their own ability to buy, giving
businesses a golden opportunity to encourage a retail-consumer bonding that
could last for a lifetime.

• Similarly, each generation or cohort is profoundly influenced by the times in which

it grows up.

• Members share the same major cultural, political, and economic experiences and
often have similar outlooks and values.
Demographic Segmentation: Generation

• Generation Y (Millennials)

• Born in the 1980s and early 1990s with 83.1 million members in US alone,
this is the largest current generation.

• Greater need for peer acceptance, which often guides product and brand
choice.

• More likely to switch brands quicker than other segments and like the social
aspects of shopping with friends.
Demographic Segmentation: Generation

• Generation X

• Segment of 25-to-34 year olds is declining but will have a slight increase with
the inclusion of older Gen Y consumers.

• Need to buy products to set up households and for young children.

• With many needs and greater financial restraints, they often shop at value-
oriented retailers.

• This is an important segment for many home-related products.

Demographic Segmentation: Generation

• Baby Boomers or Muppies

• This group includes approximately 76 million US consumers born between

1946 and1964.

• Good market for luxury travel, spas, health clubs, cosmetics, salons, diet
plans foods, and health foods.

• Group represents the greatest share of the workforce, the greatest share of
income, and the greatest share of voting power, and political influence.
Demographic Segmentation: Generation

• Young Again Market

• Another rapid growth segment, also referred to as mature market, seniors,

and elderly. These segments are expected to grow substantially.

• Despite advanced chronologic age, many in this segment feel, think, and buy
young and are sensitive to revealing their age.

• Cognitive age: the age one perceives one’s self to be. Cognitive age is
measured in terms of how people feel and act, express interests, and
perceive their looks.
Demographic Segmentation: Generation

• Young Again Market

• Cognitive age can be used with chronologic age to better target segments,
create more effective content, and select the most efficient media channels.

• Important segmentation variables for this group include health, activity level,
discretionary time, engagement in society, and gender.

• Communicating with this segment often requires alteration of traditional

messages and materials such as
• larger type and bright colors,

• newspapers and AM radio.

 Demographic Segmentation: Generation
Free Gens Gen X E- gen Gen Y Gen Z
Birth
Year

1945-60 1961-70 1971-80 1981-90s Late 1990s-2012

• Service oriented • Adaptable • Flexible • Collective action • Technologically
Consumer Attributes

• Naturally relationship • Techno-literate • Global thinking • Optimism advanced

driven • Multi-tasking • Techno-savvy • Techno-brilliant • Self Reliant
• Very good team players • Aggressive in driving • Environmentally • Resilience • Environmentally
• Conflict wary growth conscious • Need for supervision conscious
• Social shyness • Leads with ease • Focus on Education and structure • Diverse
• Gives more importance • Values self-reliance • Hates • Inexperienced • Pragmatic
to process rather than • Pragmatic micromanagement • Delayed transition to • Highly competitive
results • Strongly polarized likes adulthood • Well-informed
and dislikes
• Frugal in shopping • Ensure their risk • Most lucrative target • Biggest segment in • Alignment with US
• Focus on traditional averseness is segment that has terms of size, have cohort is strong.
Targeting this

methods such as adequately addressed money but less time. more time to spend on • Conscious
segment

newspapers and mails. by your product. • Provide helpful your product. consumerism -Your
• Use promotions and information dedicated to • Focus on mobile and product shall have
discounts. improving lifestyle. capitalize on social greater purpose.
• Give great customer media.
service.

Figure 2.2. Indian generation cohort based demographic segmentation

Demographic Segmentation: Income

• Income segmentation is a long-standing practice in product categories such as

automobiles, clothing- cosmetics, financial services and travel.

• Income: money from wages and salaries as well as interest and welfare
payments.

• Wealth: a measure of a family’s net worth or assets in things such as bank

accounts, stocks, and a home, minus its liabilities such as home mortgage and
credit card balances.

• The ability to buy is typically measured by income and wealth.

Demographic Segmentation: Income

• Net worth influences willingness to spend but not necessarily ability to spend,
because much wealth is not liquid and cannot be spent easily.

• How much people accumulate over the years is more a function of how much
they save rather than how much they earn.

• What consumers think will happen in the future (consumer confidence) heavily
influences consumption.

• Measures of consumer confidence are important in making decisions about

inventory levels, staffing, or promotional budgets.
Demographic Segmentation: Income

• Targeting the Up Market:

• The super affluent represent the top quintile of consumers in terms of income.

• Households often consists of two income earners who place a high value on
time.

• They value extra services provided by some retailers.

• Saving money is as important as spending it for many individuals in this

group.
Demographic Segmentation: Income

• Targeting the Up Market:

• Shop discount stores, use coupons, and wait for sales.

• More print oriented in communications.

• Simple ads that promote image.

• Credibility of source selling product.

• Product reviews influence this group.

Demographic Segmentation: Income

• Targeting the Down Market:

• Throughout the world, the majority of consumers are low income.

• Retailers such as Wal Mart have found success by providing good products at
reasonable prices.

• Closeout stores offer brand name products at deep discounts to at all income-
level consumers.

• Dollar stores are one of the fastest growing retail categories.

Demographic Segmentation: Income

• Targeting the Down Market:

• Provide good products at reasonable prices.

• Maintaining attractive stores.

• Offering stylish and up-to-date products.

• Have friendly employees that treat customers with respect.

Market Segmentation: Geographic Segmentation

• Geodemography, refers to where people live, how they earn and spend their
money, and other socioeconomic factors.

• The study of demand related to geographic areas assumes that people who live
in proximity to one another also share similar consumption patterns and
preferences.

• Geographic segmentation divides the market into geographic units such as

nations, states, regions, cities or neighborhoods. Cities are the most important
unit of analysis in most marketing plans.
Market Segmentation: Geographic Segmentation

• Growth rate may be deceptive unless the size of the population is also taken into
account.

• Geographic variables affect many components of a firm’s marketing strategy.

• For instance, the greatest gains in population in US are expected in California,

Texas and Florida.

• Thus, marketers segmenting on geographic basis would consider these states as

prime candidates for new stores compared to other states where populations may
be declining.
Market Segmentation: Psychographic Segmentation

• Psychographics is the science of using psychology and demographics to better

understand consumers.

• In psychographic segmentation, buyers are divided into different groups on the

basis of psychological/personality traits, lifestyle, or values.

• People within the same demographic group can exhibit very different
psychographic profiles.

• Psychographic measures are more comprehensive, as psychographics focus on

why people buy whereas demographics profile only focus on who buys products.
Market Segmentation: Psychographic Segmentation

• Psychographics: an operational technique to measure lifestyles; it provides

quantitative measures and can be used with the large samples needed for
definition of market segments.

• Lifestyle: patterns in which people live and spend time and money.

• Reflects a person’s activities, interests, and opinions (AIO) as well as

demographic variables.

• Since lifestyles change readily, marketers must keep research methods and
marketing strategies current.
Market Segmentation: Psychographic Segmentation

• Psychographics can also be used in qualitative research techniques such as

focus groups or in-depth interviews.

• The term psychographics is often used interchangeably with AIO measures—

activities, interests, and opinions of consumers.

AIO Categories of Lifestyle Studies

ACTIVITIES INTEREST OPINIONS
Work Sports Family Fashion Themselves Education
Hobbies Shopping Home Food Social Issues Products
Vacation Community Job Media Politics Future
Social Events Club Membership Community Achievements Business Culture
Entertainment Recreation Economics
Psychographic Segmentation

• Develop a deeper understanding of a segment or define segments.

• Use Likert scale to answer various AIO statements.

• Gain understanding of core customers lifestyles better and develop packaging

and communication strategies that position products to their various lifestyle
attributes.

• A widely used approach to lifestyle marketing is the Values and Lifestyle

System (VALS™).
Psychographic Segmentation: VALS™

• VALS™ suggests that consumer buy products and services and seek
experiences that fulfill their characteristic preference and give shape, substance,
and satisfaction to their lives.

• The main dimensions of the VALS segmentation framework are:

• Consumer motivation (the horizontal dimension) and

• Consumer resources (the vertical dimension).

Psychographic Segmentation: VALS™

• Consumer motivation:

• An individual’s primary motivation determines what in particular about the self or the world
governs his or her activities.

• Consumers are inspired by one of three primary motivations: ideals, achievement, and
self-expression.

• Those primarily motivated by ideals are guided by knowledge and principles.

• Those motivated by achievement look for products and services that demonstrate
success to their peers.

• Those motivated by self-expression desire social or physical activity, variety, and risk.
Psychographic Segmentation: VALS™

• Consumer resources:

• Personality traits such as energy, self-confidence, intellectualism, novelty seeking,

innovativeness, impulsiveness, leadership, and vanity—in conjunction with key
demographics—determine an individual’s resources.

• Different levels of resources enhance or constrain a person’s expression of his or her

primary motivation.
 Psychographic Segmentation: VALS™

Consumer Resources

Consumer Motivation
Psychographic Segmentation: VALS™ Types

• One of the most popular commercially

available classification systems based
on psychographic measurements is
Strategic Business Insight’s (SBI)
VALS™ framework.

• VALS, signifying values and lifestyles.

You can find out which VALS type you
are by going to the SBI Web site.
Psychographic Segmentation: VALS™ Types

• Innovators: successful, sophisticated, take-charge consumers with many

resources and high self-esteem. Image is important.

• Thinkers: satisfied, mature, comfortable, practical people who look for durability,
value, and functionality in products.

• Achievers: motivated by the desire for achievement, career-oriented, and prefer

prestige brands that signal success. Social lives revolve around family, place of
worship, and work.
Psychographic Segmentation: VALS™ Types

• Experiencers: young, enthusiastic, impulsive, and like risk taking, variety, and
excitement. Like new and off-beat products and activities.

• Like Thinkers: conservative, conventional, and motivated by ideals, with beliefs

based on codes of church, community, family, and nation. Buy proven brands
from home country and are generally loyal consumers.

• Strivers: concerned about approval and opinions of others and seek self-
definition, security, and image of success. Emulate those they want to be like, but
lack resources.
Psychographic Segmentation: VALS™ Types

• Like Experiencers: express themselves and experience the world by working on

it. Practical people who are self-sufficient, live within a traditional context, and
prefer value to luxury.

• Survivors: live narrowly focused lives with few resources and represent a
modest market for most products. They are cautious consumers and seek safety
and security.
Addressing the Needs of Market Segment

• As consumers are becoming more sophisticated, they are increasingly

demanding more customized and personalized products to fit their individual
needs, preferences, and tastes.

• In order to be more consumer-centric, many successful businesses have begun

to offer products or services tailored to different market segments using —

• Customization and

• Personalization.
Addressing the Needs of Market Segment

• Customization and personalization are often thought to be synonymous, as both

aim to tailor marketing experiences to a user’s interest and improve their
experience. In fact, customization could lead to more powerful personalization.

• However, they have inherent differences. While customization is initiated by the

user, personalization is done for the user.
• Personalization is required to make sure that the right content is reaching out to the
right audience and,

• Customization allows people to make changes based on their interests or

preferences.
Mass Customization

• Producing goods and services to meet individual customer’s need with near mass
production efficiency.

• For successful implementation of mass customization, firstly, a product should

have independent modules which could be easily assembled into different forms
of the product inexpensively.

• Secondly, a supply network should have two capabilities: 1) Supply basic product
/ Service and 2) Take individual orders → Deliver customized goods /services.
Mass Customization

• Key is understanding which customized features customers value the most and
allowing customers to select from a variety of options for that customized feature.

• The ultimate form of market segmentation and customization is creating and

ability to reach “segment of one.”

• For example, when customers sign up for Netflix, the service asks users to select
a few shows they like and then displays a list of options based on those choices.
Then, Netflix customizes the user’s account based on the identified preferences.
Personalization

• Personalization is a special form of product differentiation where in, a standard

product is transformed into a specialized solution for an individual.

• For successful implementation of personalization, marketers have to leverage

consumer data by providing each consumer with a relevant experience in real-
time according to their segment.

• For example, unlike the customization where in, the ‘user’ selected titles; Netflix,
is able to personalize each user experience by estimating the likelihood that a
consumer will watch a particular title in their catalog based on a number of
factors.
Personalization

• These factors include:

• consumer interactions with their service (such as viewing history and ratings for other
titles),

• other members with similar tastes and preferences,

• information about the titles, such as their genre, categories, actors, release year, etc.

• the time-of-day that consumer watches,

• the devices consumer is watching Netflix on, and

• how long he/she watches.

• All of these pieces of data are used as inputs for personalizing user experience.
Profitability of Market Segmentation

• Segmentation can increase customer satisfaction and profitability if it,

• decreases marketing expenses

• increases value (and therefore price) to consumers

• For example, a computer program might be adapted to the special needs of

some users and positioned based on benefits most desired by this specific
segment.

• Even if the cost of adaptation was high but increased the value for many
consumers, higher price could be charged compared to standardized product and
profitability increased.
Criteria for Choosing Segments

• Measurability: ability to obtain information about the size, nature, and behavior of
a market segment.

• Accessibility: degree to which segments can be reached, either through targeted

advertising and communication programs or multiple retail channels.

• Substantiality: size of the market—is it large enough to be profitable?

• Congruity: how similar members within the segment exhibit behaviors or

characteristics that correlate with consumption behavior.
Criteria for Choosing Segments

• Segmentation methods and strategies are continuously refined by marketers.

• In an era characterized by increasing market diversity resulting in market

fragmentation, segmentation strategy (based on data mining), customized
manufacturing technology, and targeted distribution allows firms to reach smaller
but potentially more profitable segments.

• In recent years, the analytical process has begun to move from traditional
statistical methods to Bayesian methods.
Criteria for Choosing Segments: Bayesian Analysis

• Marketing researchers have long used probability theory to explain how

consumers may react to marketing strategy, but in recent years have turned for
help to Thomas Bayes, an eighteenth-century mathematician and theologian.

• He formulated an equation that expresses uncertainty using the same kind of

language that describes the outcome of a coin toss or a roll of the dice in
probability terms.

• Bayesian analysis—a tool for exploring the human mind and defining market
segments that has attracted the attention of marketers in recent years.
Criteria for Choosing Segments: Bayesian Analysis

• Consumer analysts recognized that human decisions are often nonlinear,

multifaceted phenomena that are nearly impossible to analyze with classical
statistical methods, they turned to Bayesian statistical techniques.

• Statistical technique based on a theorem that expresses uncertainty in probability

terms allows consumer analysts to make “educated guesses” on how the human
mind affects behavior or “why people buy.”

• Analyzes data collected from point-of-sale (POS) scanners to identify patterns of

behavior that define market segments.
Targeting

• After identification of relevant market segments, a firm has to decide which

segments to target.

• Marketers seek combinations of various variables to determine smaller, well-

defined target segments. The aim is to approach the right consumer at right time.

• To illustrate, a bank might identify a set of affluent and retired adults, and within
that set, establish numerous other consumer segments on the basis of their
present incomes, assets, savings, and risk preferences.
Positioning

• After identifying target prospects, marketers need to convince prospective

customers to purchase their products over those of competitors.

• Positioning refers to creating a clear identity and image of products, brands or

services in the minds of consumers by a company. The unique image and identity
(of a product, service or brand), thus, created is called a “position”.

• This position is non-physical and exists in the minds of the consumers only. It
reflects the way marketers wish that consumers perceive their products and
brands.
Marketing Mix
Market Analysis
Consumer
Company
Environmental
Political/Legal

Segmentation
Demographic
Implementation
Situational
in Marketplace
Psychographic

Marketing Mix
Product, Brand,
Price, Place
Promotion, and
7Rs

Figure 2.1. Customer-Centric Marketing Strategy

Schematic of Marketing Process
Marketing Analysis (the 5 Cs)

Customer Company Competitor Collaborator Context

Product and
Market Target Market
Choosing Value Service
Segmentation Selection
Positioning

Marketing Mix (the 4 Ps)

Designing Value Product and Service Pricing

Delivering Value Promotion Place/Channel

Sustaining Value Customer Acquisition Customer Retention

Profit
Market Mix Strategies: Product

• Product: the total bundle of utilities (or benefits) obtained by consumers in the
exchange process.

• Products include both goods and services with both tangible and intangible
attributes.

• Products may be purchased for a variety of reasons ranging from satisfying a

basic need (e.g., food) to indulging in something that just feels good (e.g.,
massage).
Market Mix Strategies: Product

• Internal considerations
• What are the costs of developing, producing, distributing, and selling the product?

• External considerations
• What form of product best serves consumption patterns for the target segment?

• What packaging will most likely attract consumers and fulfill transportation, usage,
and disposal of the product?

• How will consumers compare this product to competitive or substitute products?

Market Mix Strategies: Place

• Place: physical distribution and location of sale

• Where will consumers expect and want to buy this product?

• What are the most effective outlets through which to sell the product and how
best to get it there?

• An expensive or highly complex product like jewellery might sell better in a

specialty store, whereas simple, everyday products might sell better in mass
retail outlets.
Market Mix Strategies: Price

• Price: the total bundle of disutilities (costs) given up by consumers in exchange

for a product.

• Disutility usually refers to cash paid (or credit card debt incurred) for the product,
but includes other disutilities such as time, inconvenience, and psychological risk
that add to the price of a product.

• From a consumer standpoint, firms must anticipate the reactions consumers

might have to certain prices and the image associated with different price points -
if a product is priced too low, it might be perceived as lower quality.
Market Mix Strategies: Promotion

• Promotion: activities involved in selling a product, including advertising, public

relations, sales promotions, and personal sales
• What message should be sent to consumers?

• Which forms of communication will best reach specific segments?

• What type of communication should occur at various stages of purchase and

consumption

• How should different product attributes be positioned through different forms of

media?
Market Mix Strategies: Brand

• Brand: A product or product line, store, or service with an identifiable set of

benefits, wrapped in a recognizable personality.

• Functional elements

• Emotional elements

• Developing brands that create brand equity requires excellence with both the
functional elements and emotional elements of the brand.
Market Mix Strategies: Brand

• Functional elements
• Performance, quality, price, reliability, logistics.

• Does the brand solve a problem as expected and do what it is supposed to do?

• Emotional elements
• Image, personality, style, evoked feelings.

• Does the brand create an emotional connections between the customer and the
product or firm?
Market Mix Strategies: Brand

• Brand Promise: What can consumer expect in exchange for their money?

• Although a powerful brand creates an image and an identity for a product or a

company, it also connotes a brand promise, describing what consumers can
expect in exchange for their money.

• If the promise is kept, brands save customers the time spent deciding between
various alternatives because there is little question in the minds of consumers as
to final outcome of their decision.
Market Mix Strategies: Brand

• Brand Equity

Difference in value created by the brand minus the cost of creating the brand

• Brand Personality

Reflection consumers see of themselves, or think will develop by using a brand

• Brand Protection

By promising a certain outcome, brands reduce the risk to consumers that the
product may not deliver as expected
Transforming Customers into Friends and Fans
The Seven Rs of the Marketing Mix
Marketing Implementation
Market Analysis
Consumer
Company
Environmental
Political/Legal

Segmentation
Demographic
Implementation
Situational
in Marketplace
Psychographic

Marketing Mix
Product, Brand,
Price, Place
Promotion, and
7Rs

Figure 2.1. Customer-Centric Marketing Strategy

Marketing Implementation

• The final stage of marketing strategy in customer-centric organizations is

implementation.

• Even if you understand perfectly why consumers behave as they do and are
successful in developing strategies based on that understanding, the best
strategies are worthless if not implemented well in the marketplace.

• The ability to implement marketing programs with distinction at the point of

interaction with consumers transforms strategy into reality.
Customer Experience

• Customer experience refers to customers’ subjective and internal responses

towards an indirect or direct association or contact with a firm.

• A direct contact is usually commenced from the customer end, and takes place
during purchase, use and service.

• On the other hand, indirect contact generally entails accidentally coming across a
firm’s brand, services, or products, and appears as word-of-mouth (positive or
negative), advertising, news reports, reviews, etc.
Customer Experience

• One’s prior experiences with a firm’s offerings partially form one’s expectations
with the brand.

• Expectations may also be influenced by market situations, competition, and a

customer’s personal condition.

• Even if it is the firm’s own brand that sets up customers’ expectations, the
customers may be disappointed if they are not met by another product of the
same firm.
Customer Value and Satisfaction

• Customer value refers to the ratio between customer perceived benefits

(economic, functional, and psychological) and the resources (monetary, time,
effort, psychological) used by the customer to obtain such benefits.

• Customer satisfaction means how the service or product performed in the eyes of
the consumer with respect to the consumer’s expectations.

• Any two consumers may have completely different expectations from a product or
service say McDonald’s restaurant and thus, different satisfaction levels.
Customer Value and Satisfaction

• Customers who feel that their expectations (such as standard, low-cost meals)
were met with their actual experience would be satisfied.

• A consumer who feels that his or her expectations were not met (due to say, cold
food served at a McDonald’s outlet) would be dissatisfied.

• Further, if consumers feel that the experience, they had really exceeded
expectations (due to say, very well-behaved staff or a well laid play area for kids
at a McDonald’s) would be very satisfied, even delighted, possibly.
Customer Engagement

• Customer engagement refers to customers’ cognitive, emotional, and behavioral

investments in a given brand/organizational interaction.

• It may be understood as the degree of willingness of consumers to invest their

resources (time, money, and energy) for a brand (besides the resources spent
during purchasing).

• Customer engagement builds customer loyalty and is vital to forging customer-

brand associations.
Customer Loyalty & Retention

• Customer retention refers to converting particular consumer dealings into long-

run consumer associations by convincing consumers that it is most beneficial or
advantageous to them if they choose to stay with the company and not associate
with some other firm.

• Recent developments in marketing strategy place more attention on customer

retention than new customer acquisition as it is generally less costly and easier to
keep a customer than it is to create a new one.

• Loyal customers generate superior margins and recruit additional customers.

Customer Loyalty & Retention

• Customer loyalty based on genuine and ongoing satisfaction is one of the

greatest assets a firm can develop.

• However, with increased choices, consumers are becoming more fickle and less
loyal.

• Evidence shows that many consumers are becoming less loyal and more
resistant to brands, indicating that many firms have little or no deep emotional
connection with consumers.
Customer Loyalty & Retention

• What is causing this decline in loyalty, and what does it mean to organizations?

• As consumers are given more choices, distinctions between brands fade, and
people try new things.

• Consumers feel entitled to try new brands, especially if they don’t feel “rewarded”
for remaining loyal, and they perceive many brands to be equal in terms of quality
and value received.

• As a result, switching behavior (also known as defection) increases, as do

complaints, cynicism toward the concept of loyalty, and litigious activities.
Customer Loyalty & Retention

• Marketers have moved from a world in which a static understanding of customers

(e.g., demographics, psychographics, current satisfaction, current purchase
patterns) is sufficient.

• To understanding customers in a dynamic, changing environment in which future

expectations (of themselves and of the firm) determine whether they continue to
do business with a firm.

• If a firm wants to retain current customers, customer expectations of future

benefits should be the primary focus.
Customer Loyalty & Retention

• In summary, customer loyalty is less costly and easier to keep a customer than it
is to create a new one.

• Loyal customers generate superior margins and recruit additional customers.

• With increased choices, consumers are becoming more fickle and less loyal.

• Consumer feel entitled to try new brands and switching behavior increases.

• To retain current customers, firms must focus on customer expectations of future

benefits.
Customer Relationship Management

• Marketing academics and practitioners have focused on customer retention, but it

can also be highly profitable to win back customers who have lapsed or defected.

• To address the problem of customer defection, researchers are beginning to use

changes in customer transaction patterns as a basis for identifying likely defectors
(even before defection occurs) and gearing promotions or special incentives to
these consumers.

• In general sense, software to manage these relationships is called customer

relationship management.
Customer Relationship Management

• CRM is the process of managing all the elements of the relationship a firm has
with its customers and potential customers with CRM solutions and enterprise
systems.

• CRM enhances the ability to calculate the Customer Lifetime Value (CLV).

• CLV is the value to the company of a customer over the whole time the customer
relates to the company.

• CLV is an important metric in long-term strategies to acquire, grow, and retain the
“right” customers in customer relationship management programs.
Implementing Customer Relationship Management

• Identify all customers and the nature of contacts with them.

• Identify which types of customers are most profitable.

• Identify and understand behaviors of the most profitable customers.

• Manage contact with most profitable customers.

• Manage firm activities including strategies and tactics to please the most
profitable customers.
Strengthening Customer Relationships

• Make individualized marketing a reality

• Institute a total quality control policy

• Introduce an early warning system to identify problems

• Build realistic expectations

• Provide guarantees
Global Marketing Strategy

• Thinking Globally: involves ability to understand markets beyond one’s own

country of origin with respect to:

• Sources of demand

• Sources of supply

• Management & marketing methods

Global Market Analysis

• Global market analysis starts with understanding markets on a global basis in

terms of people.

• What are their needs, ability and authority to buy, and willingness to spend?

• How do they differ from consumers to whom we already sell?

• Which countries will grow the most in the future?

• Which countries have the highest per capita income?

Global Marketing Strategy

• Today’s consumers have the opportunity to choose from a myriad of foreign-

made and globally branded products.

• But consumers also must choose from ideas, advertisements, and friends
representing a diversity of nations and cultures.

• Cultural, ethnic, and motivation variables affect how consumers make purchase
decisions, thus increasing the need for consumer analysts and researchers to
help design global marketing strategies.
Global Market Strategy

• Firms look to consumer analysts to help identify growing populations and

segments of consumers economically able to buy products, and strategies for
how to reach them effectively.

• The most attractive markets are countries that are growing both in population and
in economic resources.

• Low income countries offer an advantage to firms looking to buy products from
the lowest-cost source. There are pockets of consumers who are able to buy
products, even in the poorest countries.
Global Marketing Strategy

• Can marketing be standardized?

• Can a firm use the same marketing program in all target countries, or must it
create a different program for each?

• Which are greater—the similarities among or differences between consumers

in different countries?

• How do advantages of economies of scale and unified brand image

compared to advantages of culture-specific messages?
Global Marketing Strategy

• Cross-Cultural analysis: the comparison of similarities and differences in

behavioral and physical aspects of cultures.

• Cultural empathy: the ability to understand the inner logic and coherence of other
ways of life and refrain from judging other value systems.

• Ethnography: describing and understanding consumer behavior by interviewing

and observing consumers in real-world situations.
Global Marketing Strategy

• Intermarket segmentation: the identification of groups of customers who

transcend traditional market or geographic boundaries (similar segments around
the world).

• Intermarket segmentation plays a key role in understanding the similarities and

differences between consumers and countries that become the foundation of
market standardization.
Global Marketing Strategy

• Localization: identifying the needs and wants of specific markets and to adapt
products, packaging, and advertising based on the differences between markets and
the consumer behavior patterns of the target markets.

• Marketing programs for emerging markets —

• Marketing programs should focus on creating brand awareness (because competitors
will follow) and stimulating product trial.

• Marketers may have to teach consumers about products taken for granted
(deodorant). Products need to be adapted to local values.
Global Marketing Strategy

• Global Advertising Effectiveness: When is global advertising most effective?

• Message is based on similar lifestyle

• Ad appeals to basic human needs and emotions

• Product satisfies universal needs and desires

• Global advertising sends the same message to consumers around the world.

• Localized campaigns adapt messages to the norms of the different cultures.

• Language problems may occur, but back- translation, visual language, and local
experts (advice) helps overcome them.
Global Marketing Strategy

• Before choosing a brand name, marketers should consider the following:

• Does the name of the product have another meaning in one or more of the countries
where it might be marketed?

• Can the name be pronounced everywhere?

• Is the name close to that of a foreign brand, or does it duplicate another product sold
in other markets?

• If the product is distinctly American, will national pride and prejudice work against the
acceptance of the product?
Consumer Behavior Analysis- (BMN-524)
Course Overview Part 2
Consumer
Psychology

Chapter- 3: Motivation
Perception
Part 1 Learning Part 4
Memory
Attitude, Beliefs and Buying Purchase
Marketing Other Feelings
Stimuli Stimuli Decision Process Decision

Problem Recognition Product Choice

Product & Services Economic Information search Brand Choice
Price Technological Part 3 Evaluation of Dealer Choice
Distribution Political alternatives Purchase amount
Communications Cultural Consumer Purchase decision Purchase Timing
Characteristics Post Purchase Behavior Payment Method

Cultural
Social
Personal
 Part 1: Introduction to Consumer Behavior
Chapter 1: An Overview of Consumer behavior and Consumer Research
Chapter 2: Creating Marketing Strategies for Consumer Centric Organization

Part 2: Individual Determinants of CB (Consumer Psychology)

Chapter 3: Consumer Motivation and Personality
Chapter 4: Consumer Perception
Chapter 5: Consumer Learning, Memory and Knowledge
Chapter 6: Consumer Beliefs, Feelings, Attitudes and Intentions

Part 3: External Determinants of CB (Consumer Characteristics)

Chapter 7: Culture, Ethnicity
Chapter 8: Social – Social Class, Family and Household Influence
Chapter 9: Group and Personal Influence

Part 4: Consumer Decision Making

Chapter 10 : Consumer Decision process
Chapter 11: Pre-Purchase Process: Need Recognition
Chapter 12: Purchase
Chapter 13 : Consumption and Post Consumption Evaluations Post Purchase Processes
 Part-2
Individual Determinants of Consumer
Behavior
(Consumer Psychology)
 Introduction to Individual Determinants of CB
(Consumer Psychology)

▪ Consumers are like diamonds. Each is extremely valuable to marketers, but no

two are exactly the same.

▪ One person may have lots of time but little money, whereas the next person may
have lots of money but little time.

▪ One buyer may have years of experience in purchasing and using a product.
Another may be looking to try something new. And what motivates one person to
buy is not necessarily what leads the next person to do so.
 Introduction to Individual Determinants of CB
(Consumer Psychology)

▪ These individual differences makes life a bit more complicated for those wishing
to influence consumers and their behaviors.

▪ Consequently, when developing a business strategy, it is important to understand

the key characteristics of target consumers.

▪ This part focuses on some of the individual characteristics that are particularly
useful for analyzing consumer behavior.
 Introduction to Individual Determinants of CB
(Consumer Psychology)

▪ Chapter 3 looks at consumer motivation and the diversity of needs that motivate
purchase behavior. It discusses different tactics through which marketers can
motivate consumers.

▪ It also explains the fundamental motives framework which provides an

evolutionary perspective to understand modern consumer behavior.

▪ Finally, this chapter focuses on the personality variables useful in understanding

consumer behavior.
 Chapter -3
Consumer Motivation and Personality
Chapter Outline

3.1 What is Consumer Motivation

3.1.1 Types of Consumer Needs
3.1.2 Motivational Conflict and Need Priorities
3.1.3 Motivational Intensity
3.1.4 The Challenges of Understanding Consumer Motivation
3.2 Motivating Consumers
3.2.1 Motivating with Money
3.2.2 Providing Other Incentives
3.2.3 Implementing a Loyalty Program
3.2.4 Enhancing Perceived Risk
3.2.5 Arousing Consumers’ Curiosity
Chapter Outline

3.3 Fundamental Motives Framework- Evolutionary Perspective

3.4 What is Personality?
3.4.1 Psychoanalytic Theory
3.4.2 Sociopsychological Theory
3.4.3 Trait-Factor Theory
3.4.4 Predicting Buyer Behavior
3.4.5 Facets of Personality
3.4.6 The Self And Self-image
3.4.6.1 The Extended Self
3.4.6.2 Altering The Self
Chapter Outline

3.4 What is Personality?

3.4.7 Personal Traits And Consumer Behavior
3.4.7.1 Consumer Innovators And Innovativeness
3.4.7.2 Dogmatism
3.4.7.3 Social Character: Inner-directedness VS Other- directedness
3.4.7.4 Need For Uniqueness
3.4.7.5 Need For Cognition
3.4.7.6 Visualizers versus Verbalizers
3.4.7.7 Consumer Materialism
Consumer Motivation

▪ Why do people buy product? It is one of the fundamental question that

companies must answer about consumer behavior.

▪ Answering this question requires understanding consumer motivation.

▪ Consumer Motivation: It represents the drive to satisfy both physiological and

psychological needs through product purchase and consumption.

▪ Providing products that satisfy consumers’ needs must first begin with an
understanding of what these needs are:
Types of Consumer Needs

Physiological Needs Safety and Health Love and Need for Financial Social Image Needs
Needs Companionship Resources and
Needs Security

Need for Pleasure Need to Posses Need to Give Need for Information Need for Variety
Physiological Needs

▪ It includes fundamental human needs.

a. Food

b. Water

c. Sleep

▪ Our survival depends on satisfying these needs.

For example, many people will spend 1/3rd or more of their lives sleeping. This
need has given birth to many products, including beds, mattresses, pillows, etc.
Safety and Health Needs

▪ Threats to our safety and health motivate purchases for personal

security and protection.

▪ Protecting our personal information and computers represent new

types of safety needs. For example, protection against computer
virus, phishing, etc.

▪ Business provide a variety of products and services to appeal to

safety and health-conscious consumers. For example, Tropicana
juice released a low sugar formula to appeal to consumers’ health
concerns.
Need for Love and Companionship

▪ Humans are social creatures who need to experience and

express love and companionship.

▪ Services and products help individuals find and attract others.

For example, dating services, bars, vacation cruises, resorts.

▪ Also, products are often used as symbols of love such as

greeting cards, flowers.

▪ For instance, ‘Tanishq’ jewelry advertisement proclaims, “Show

her how much you care without saying a word.”
Need for Financial Resources and Security

▪ It involves satisfying current and future financial needs.

▪ The current financial needs depend primarily on paycheck.

▪ The future need for financial resources is met by

establishing adequate funds to help one sustain when they
have left the work force.

▪ The need for financial security also extends to our

important others i.e., our family. For this reason,
consumers buy life insurance.
Social Image Needs

▪ These are based on a person’s concerns about how he or she is

perceived by others, and a desire to project a certain image.

▪ The term conspicuous consumption is often used to describe

purchases motivated to some extent by the desire to show other
people just how successful we are.

▪ Companies continually reinforce the notion that their products

enable users to communicate their social image. For instance, an ad
for Marlboro cigarettes -“You can tell a lot about a man by his brand.”
Need for Pleasure

▪ Consumers satisfy their need for pleasure in many ways.

▪ Many consumption activities are valued because of the fun and

excitement they offer.

▪ For instance, the entertainment industry is built on consumer’s

need for pleasure.

▪ Television, movies, and nightclubs are popular because of the

pleasures they deliver. Same is true for the toy and electronic
games industries.
Need to Possess

▪ Consumers often acquire products simply because of their need

to own such products.

▪ The need to posses can be driven by comfort, historical

significance of objects, self-concept.

▪ It plays an important role in impulse buying: where consumers

unexpectedly experience a sudden and powerful urge to buy
something immediately.

▪ For example, people engage in collecting coins, luxury items,

antique paintings, etc.
Need to Give

▪ The need to give is driven by giving something back to others or

to reward ourselves.

▪ People often engage in charity, contributing to the college one

graduated from, and so on.

▪ The need to give is not limited to money. It also encompasses

products and gifts that are given to others or to reward
ourselves known as self-gifts.

▪ For instance, Mother’s day, Valentine’s day, birthdays,

anniversaries are celebrated through gift giving rituals.
Need for Information

▪ Making reasoned choices requires being informed. And being

informed requires information. Purchase and consumption of many

products can be attributed to this need.

▪ The need for information is the reason why we watch news

programs, newspapers, go to colleges and universities, use internet.

▪ This need plays an important role in persuasion (if an ad appears

when consumers need information, they are more likely to pay

attention).
Need for Variety

▪ “Variety is the spice of life”- Doing the same thing over

and over again can be boring and people are willing to
do a lot to feel lively.

▪ Companies respond to consumers’ need for variety in

several ways.

▪ For example, marketers add more flavors, packages,

formulations.
Motivational Conflict and Need Priorities

▪ Fulfilling one need often comes at the expense of another need.

▪ Money spent on one need leaves less for the rest. The time allocated to one
need means there’s less time for fulfilling others.

▪ The tradeoffs in our ability to satisfy various needs cause motivational conflicts.

▪ Motivational conflicts are of three basic forms.

Types of Motivational Conflict

Approach-Approach Conflict
➢It occurs when the person decide between two or more desirable alternatives.
➢Example, between buying new car and taking a cruise.

Avoidance-Avoidance Conflict
➢ It involves deciding between two or more undesirable alternatives.
➢ Example, choosing between unemployment and a salary cut.

Approach-Avoidance Conflict
➢ Exists when a chosen course of action has both positive and negative consequences.
➢ Example, if a person wants to eat cake but also wants to avoid gaining weight.
Motivational Conflict and Need Priorities

▪ Resolving conflicts requires people to prioritize their needs. Doing so means that
people must decide on the relative importance of each of their needs.

▪ These decisions will be both:

❖ Short-term Nature: which needs to satisfy now (example, the rumblings in

your stomach may motivate you to satisfy your need for food at that moment).

❖ Long-term Nature: which needs to satisfy in the future (example, concerns

about financial security during retirement may motivate years of saving
money).
Maslow’s Hierarchy

▪ Like most things, consumers differ in the priorities they assign to their needs.
What is vital to one person may be trivial to another.

▪ One well-known approach to specifying the relative priority to different needs is

Maslow’s hierarchy.

▪ According to Abraham Maslow, some needs take precedence over other needs.

▪ Physiological needs are the most basic in the hierarchy; they take top priority.

▪ Only after these needs have been fulfilled do people progress up the hierarchy to
the next level of needs.
Maslow’s Hierarchy
Maslow’s Hierarchy

▪ Maslow’s need hierarchy does not reflect everyone’s priorities in all situations.
Sometimes people ignore lower-order needs in pursuit of higher-order needs.

▪ For example, a mother’s love may lead to disregard her own safety when the life of
her child is at risk.

▪ Differences in the importance consumers attach to various needs ultimately affect

how they evaluate products.
Maslow’s Hierarchy

▪ For instance, car buyers that are strongly motivated by a desire to project a certain
image are looking for a different benefit from those more concerned about safety.

▪ Because of consumers’ different motivational priorities, companies use benefit

segmentation: dividing consumers into different market segments based on
benefits they seek from purchase and consumption.
Motivational Intensity

▪ It represents how strongly consumers are motivated to satisfy a particular need. Sometimes
fulfilling a need pre-empts all else. At other times, motivational intensity is much more
modest.

▪ Motivational intensity also depends on the need’s importance. The needs most important
are pursued more intensively. Another way of thinking about motivational intensity is
through the concept of involvement.

▪ Involvement represents the degree to which an object or behavior is personally relevant.

Involvement and motivational intensity are important because they determine the amount of
effort consumers exert when trying to satisfy their needs.
Challenges of Understanding Consumer Motivation

▪ Humans are complex creatures and engage in behaviors for reasons that
sometimes are less than transparent. This truism also applies to consumer
behavior.

▪ The motivation for buying and consuming can be downright surprising

sometimes. Understanding why people behave as they do is often a challenging
endeavor.

▪ One reason is that people may not be willing to disclose the real reasons behind
their actions.
Challenges of Understanding Consumer Motivation

▪ For example, how many charitable donors motivated by the need to display their
wealth would be willing to admit this?

▪ Also, when people believe that their answers to a question may cast a less than
favorable light on themselves, they may decide not to tell the truth. Rather, they
provide answers that, to them, are socially acceptable.

▪ Another complicating factor is that people may not be able to tell why they
behave the way they do- unconscious motivation.
Challenges of Understanding Consumer Motivation

▪ Unconscious Motivation: people are unaware of what really

motivates their behavior.

▪ For instance, motivational researchers were posed the

question, “Why do women bake cakes?”

▪ According to some of the researchers, women baked cakes

because of their unconscious desire to give birth. Perhaps this
is the reason that Pillsbury invested its famous “Doughboy”
character.
Challenges of Understanding Consumer Motivation

▪ Another challenge for understanding consumer motivation stems from the reality
that it can change. What motivates purchase today may not be what motivates
purchase in the future.

▪ For instance, What about going to the dentist? One dentist explains that when he
started out, “people came to the dentist for health reasons. They were in pain. In
the last five or six years, people come to the dentist, really, to enhance their
smile. It’s the No. 1 reason people go to the dentist.”
Motivating Consumers

▪ Companies often try to motivate consumer buying by linking their products to

important needs.

▪ Some of these methods are:

Providing Implementing
Motivating
Other Loyalty
with Money
Incentives Program

Enhancing Arousing
Perceived Consumers’
Risk Curiosity
Motivating with Money

▪ This involves offering consumers rebates, price cuts, and coupons to motivate
purchases. However, motivating consumers through price is a dangerous proposition
as —

▪ Sales may increase, profitability may not. Since at least some of the consumers
who buy at the reduced price would have done so even at the full price.

▪ As a result, unless the profit received from incremental customers is large enough
to cover the losses incurred by selling to those who would have paid more, the
company loses money.
Motivating with Money

▪ Secondly, attracting customers who would have otherwise purchased another

product requires a substantial discount.

▪ According to Charles Brown, vice president of marketing for NCH marketing

services (a clearing house that processes coupons for retailers) advises that it
takes 40-50% discount on a product before consumers will switch from the
products they regularly purchase.

▪ Another concern with price reductions involves the type of customer they attract.
Consumers motivated today by price are less likely to repeat.
Motivating with Money

▪ Further, incentives based on price reductions may increase the price sensitivity of
both loyal and non loyal customers.

▪ Consumers may use price as a signal of product quality. If so, then price
reductions may produce a similar reduction in perceived quality of the product
that, in turn, will undermine consumers attitude towards the product.
Providing Other Incentives

▪ It involves offering premiums (when one product is offered as an incentive for the
purchase of another product), contests and sweepstakes.

▪ Sometimes the premium is offered for free, sometimes at a discounted price. For
example, McDonald’s in its happy meals included toys.

▪ However, premiums also have their share of possible shortcomings both for the
promoted product and the product used as the premium. A particular premium
may actually hurt a product’s sale.
Providing Other Incentives

▪ The value discounting hypothesis- predicts that products offered as a free

premium will be valued less.

▪ Contests and sweepstakes are other types of incentives used to motivate

consumers. A sweepstake is a type of contest where a prize or prizes may be
awarded to a winner or winners.

▪ Following is a Facebook sweepstakes example from Cupcake Coffee Box. The

Cupcake Coffee Box is a local coffee shop in the McDonalds Mall in Kirkcaldy,
Scotland.
Providing Other Incentives: Example

▪ Special evenings and events happen on a weekly basis and they support other
local businesses in the mall, by mentioning them in posts on their Facebook
page.

▪ This includes running Facebook Timeline Sweepstakes where winners receive

gift vouchers for various stores in the mall. They also raffle vouchers to their
coffee shop.

▪ The goal for sweepstakes: increase Facebook reach, increase sales, and build
the brand’s reputation by supporting other local businesses.
Providing Other Incentives: Example

▪ Sweepstakes are used as part of a long-term strategy to

increase engagement on their posts and to increase
sales.

▪ The picture shows how the brand ran a giveaway for a

£25 gift voucher to the soon-opening Puddledub butcher
shop.
Implementing Loyalty Program

▪ It involves an attempt to motivate repeat buying by providing rewards to customers

based on how much business they do with the company.

▪ Loyalty programs have the distinct advantage of providing useful information to

marketers.

▪ Tracking consumer purchases provides estimates of Customer Lifetime Value (CLV).

It can also help identify customer segments that can be targeted with special offers or
perks more likely to be of value to them.
Implementing Loyalty Program: Example

▪ Sephora’s Beauty Insider rewards program is wildly popular. The program

boasts more than 17 million loyal customers, and members make up as much as
80% of Sephora’s annual sales.

▪ Customers earn rewards for each purchase based on a traditional point system.
The innovative part is that members can choose how to use their reward points.

▪ One of the biggest barriers for a large swath of Sephora customers is price-
Sephora products aren’t cheap.
Implementing Loyalty Program: Example

▪ Beauty Insider members can redeem their rewards points for things like gift cards
and discounts, helping to offset purchase prices without devaluing the products.

▪ Loyalty members can also redeem points for more exclusive things like limited
edition products or in-store beauty tutorials.

▪ Giving loyalty members the flexibility to choose enables Sephora to offer

customers the deals and products they really want without cheapening the
perceived value of their products.
Implementing Loyalty Program: Example
Enhancing Perceived Risk

▪ Perceived risk represents consumers’ apprehensions about the consequences of

their behavior (buying and consuming the product). Consumers may have
reservations about whether a product will live up to their expectations.

▪ Greater risk causes more search. One way consumers try to reduce risk is by
acquiring more information about the purchase decision.
Enhancing Perceived Risk

▪ Educating consumers about risks may motivate them to make more informed
choices that reduce exposure to risk.
▪ According to the headline of one car ad, “Most accidents happen in the showroom.”
The ad went on to describe the negative consequences (e.g., spending too much for
too little) that consumers might experience for doing a less than thorough search.

▪ Presumably, the ad tries to motivate consumers to undertake greater external search

as a way of increasing the chances of the advertised carmaker being considered
during decision making.
Informing Consumers of Their Risks
Arouse Consumers’ Curiosity

▪ Curiosity often motivates us to learn more about what has aroused our interest.

▪ For new products( e.g., electrical cars, digital cameras), which need to educate
potential customers about the product’s benefits and attributes, motivating
consumers to acquire and learn product information is critical.

▪ Arousing curiosity may activate the need for information. One way of doing this is
by advertising a benefit that is not normally associated with the product (such as
a camera that allows the user to delete part of the picture).
Fundamental Motive Framework-
An Evolutionary Perspective
 Can We Better Understand Modern
Consumer Behavior By Examining Its Links
To Our Ancestral Past?
One Might Argue

▪ Cave-dwelling hunter did not shop at the Apple Store or Wal-Mart.

▪ They did not face decisions about whether to drive a green Prius or a red
Porsche.

▪ They didn’t have to worry about online classes or do work from home.
Introduction

▪ The choices made by modern consumers are strongly connected to the

motivations that drove our ancestors' choices about everyday decisions.

But How?
Introduction

▪ Motivational underpinnings of consumer behavior can be understood from the

perspective of the fundamental motives framework.

▪ This framework maintains that humans have inherited psychological adaptations

for solving a set of specific ancestral social challenges.

▪ This implies that modern humans are endowed with psychological mechanisms
that incline them to process information and make decisions in ways that have
enabled our ancestors to survive, thrive, and replicate.
Distinguishing Proximate And Ultimate Motive

▪ From this perspective, cognition, motivation, and behavior are inherently

intertwined—they are parts of adaptive systems designed to solve recurrent
ancestral problems.

▪ To understand how those systems work, it is essential to ask questions about

their ultimate function: What problem might a given psychological system have
helped human beings solve in order to survive and reproduce successfully?

▪ When asking questions about a behavior's function and its causes, it is

paramount to recognize a critical distinction between proximate and ultimate
causes.
Example

Why would someone buy a chocolate brownie?

Let us get to the reasons behind the purchase

Example

List all the reasons why you would buy a chocolate brownie?

“I was hungry”

If looking for a more analytical reason-

“I love the taste of chocolate and couldn't resist the delectable scent of a
warmly baked brownie”
Proximate Explanation To A Behavior

▪ The kind of explanation we just listed for behavior (buying a chocolate brownie)
are known as a proximate explanation.

▪ The word proximate here is related to the word proximity. These causes point to
relatively up-close and immediately present influences—to what people are
presently feeling or thinking.
Proximate Vs Ultimate Explanation To Behavior

▪ Proximate reasons are important, but they only tell the surface part of the story.
Proximate reasons don't address the deeper question of :

“why brownies taste good to humans in the first place”

▪ Understanding the deeper reasons for preferences and behavior requires an

ultimate explanation.

▪ Ultimate explanations focus not on the relatively immediate triggers of a

behavior, but on its evolutionary function.
Example

▪ In the brownie case

Humans have psychological mechanisms that respond positively to the sight,

smell, and taste of foods rich in sugars and fats.
Example

▪ These mechanisms exist

because an attraction to such
calorie dense foods helped our
ancestors obtain calories and
survive in an environment that
was often scarce in calories.
Proximate Vs Ultimate Explanation To Behavior

▪ Sometimes the ultimate and proximate reason for a behavior might be closely
connected. In the brownie case, the proximate reason (feeling hunger) is directly
connected to the ultimate function of obtaining calories to survive.

▪ But most of the time, the connection between proximate and ultimate reasons will
not be that clear. From evolutionary perspective one can understand that
behavior has both proximate and ultimate causes.

▪ Consumers often have multiple motives for a behavior, even if they are not
always aware of the ultimate reasons for their choices.
Example - Bentley

https://www.bentleymotors.com/en.html
Example - Bentley

▪ A consumer can be consciously motivated to buy a sporty luxury car because its
expensive leather interior and peppy acceleration makes him feel good (a
proximate reason).
Example - Bentley

▪ But subconsciously motivated to buy that luxury car because owning such a car
can increase his desirability as a potential mate and thereby enhances his
reproductive fitness (an ultimate reason).
Importance To Evolutionary Perspective

▪ An evolutionary perspective highlights that there is a deeper level of explanation

rooted in the adaptive function of behavior.

This is a useful lens through which to look at motivation because,

“there could be innumerable proximate motives for behavior, there is a much

smaller set of ultimate evolutionary functions that behavior might serve.”
The Fundamental Motives Framework

Fundamental challenges include:

Self- protection Mate Acquisition

Disease Avoidance Mate Retention

Affiliation Kin Care

Status
The Fundamental Motives Framework

Evolutionary Motive Cue Triggering System Example of Behavioral Tendencies

Self-protection Possibility of physical danger: • Increased aversion to losses

Evade physical • Angry faces, outgroup males • Increased tendency to conform
danger to remain safe • Darkness, loud noises • Decreased risk-seeking
• Interacting with threatening person

Disease avoidance Potential presence of pathogens: • Become more introverted

Avoid infections to • Coughing, sneezing, foul smells • Seek “clean” and familiar products
stay healthy • Dirtiness, deformity, foreignness • Avoid used product
• Interacting with sick person
The Fundamental Motives Framework

Evolutionary Motive Cue Triggering System Example of Behavioral Tendencies

Status Status threat or opportunity: • Seek products that signal prestige

Gain and maintain • Competition, success • Seek exclusive, up-to-date features
respect and prestige • Prestigious people or objects • Increased prosocial choices
• Interacting with rivals

Affiliation Friendship threat or opportunity: • Seek products to connect with others

Form and maintain • Social rejection, loneliness • Susceptibility to word-of-mouth
cooperative alliances • Concerns about fairness • Seek reviews for others' opinions
• Interacting with friends, co-workers
The Fundamental Motives Framework

Evolutionary Motive Cue Triggering System Example of Behavioral Tendencies

Mate acquisition Desirable members of opposite sex: • Interacting with potential mate
Acquire a desirable • Sexy images, products • Increased male impulsivity, risk-taking, &
romantic partner • Romantic stories conspicuous consumption
• Interacting with potential mate • Increased public altruism by females

Mate retention Relationship threat or celebration: • Seek gifts to foster relationship

Foster long-term • Anniversary, reminisce old times • Women's attention to other women's
mating bond • Interloper, wandering eye attractiveness
• Interacting with spouse/partner • Men's attention to other men's status
The Fundamental Motives Framework

Evolutionary Motive Cue Triggering System Example of Behavioral Tendencies

Kin care Family or vulnerable others: • Increased trust of others

Invest in and care for • Vulnerable babies and children • Increased nurturance
family and kin • Suffering family members • Increased giving without expectation of
• Interacting with family members reciprocation
The Fundamental Motives Framework

▪ The fundamental motives framework highlights that people everywhere have the
same ultimate motives.

▪ From Afghanistan to Zimbabwe, all humans have evolved motivations to evade

physical harm, avoid disease, make friends, attain status, acquire a mate, keep
that mate, and care for family.

▪ These deep-seated ancestral motives continue to shape modern consumer

preferences and decision-making, albeit not always in obvious or conscious
ways.
The Fundamental Motives Framework

▪ A core implication of the framework is that the same person might make
different—and sometimes entirely inconsistent—choices depending on which
fundamental motive is currently active.

▪ To fully understand the present, it is essential to understand the past. By

connecting our modern behaviors to their ancestral roots, we can more clearly
see the fundamental motives for why we buy.
The Fundamental Motives Framework

▪ Where does fundamental motives framework align with the Maslow needs
hierarchy?
The Fundamental Motives Framework-Maslow
Need Hierarchy
▪ Maslow's hierarchy comprises a set of five basic needs which people should
aspire to satisfy: physiological, safety, love, esteem, and self‐actualization.

▪ The fundamental motive framework proposes a revamped hierarchy by infusing

Maslow's foundational structure with advances in evolutionary psychology.

▪ Maslow’s hierarchy understand needs as goals humans aspire for however, in

the fundamental motives framework each of these needs is not perceived as a
goal to be aspired to but rather a functional motive that humans evolved to
experience.
Personality
Personality

▪ Personality is defined as consistent responses to environmental stimuli.

▪ It is an individual’s unique psychological makeup, which consistently influences

how the person responds to his or her environment.

▪ Why do some people like to go to movies or walk during their free time and
others like to run marathons or go skydiving? We often say it is because of their
personality.

▪ Consumer analysts approach the answer by applying three major theories.

Personality Theories

Psychoanalytic Theory

Sociopsychological Theory

Trait-Factor Theory
Psychoanalytic Theory

▪ Personality is a result of more than just subconscious drives.

▪ This theory recognizes that the human personality system consists of the id, ego,
and superego.
Psychoanalytic Theory
Psychoanalytic Theory

▪ Id: It is the source of psychic energy and seeks immediate gratification for
biological and instinctual needs. E.g., our animalistic urges like hunger, thirst.

▪ Ego: The ego mediates the hedonistic demands of the id and the moralistic
prohibitions of the superego. Ideally, the ego works by reason, whereas the id is
chaotic and unreasonable. The ego considers social realities and norms,
etiquette and rules in deciding how to behave.

▪ Superego: It represents societal or personal norms and serves as an ethical

constraint on behavior.
Psychoanalytic Theory: Example

▪ Id (Meeting basic needs): In line at the salad bar, Amy was so hungry that she
shoved a handful of carrots in her mouth as she waited for the line to move.

▪ Ego (Dealing with reality): In line at the salad bar, Amy really wanted to shove a
handful of carrots into her mouth. However, since her boss was there, she
decided to wait another minute or two until she sat down to eat.
Psychoanalytic Theory: Example

▪ Superego (Adding Morals): The cashier only charged the couple for one meal
even though they had eaten two.

They could have gotten away with only paying for one, but they pointed out the
cashier's mistake and offered to pay for both meals.

They wanted to be honest, and they knew that the restaurant owner and
employees needed to make a living.
Psychoanalytic Theory

▪ Some advertising is influenced by psychoanalytic approach.

▪ For example, in a classic ad for for Mac computers,

PC(dressed in a suit) is given an iPhoto. PC ‘id’ dressed in
red (the devil) asks to rip the iPhoto up.

▪ However, he is prodded by his ‘superego’, PC dressed in

white (an angel) to compliment MAC. PC says the book is
nice, a moderate or controlled position by the ‘ego’.
Sociopsychological Theory

▪ This theory recognizes interdependence of the individual and society—individual

strives to meet needs of society, whereas society helps individual attain personal
goals. Through this interaction, the personality of an individual is determined.
Sociopsychological Theory

▪ According to this theory, the social variables and not the biological instincts, are
the important determinants in shaping the individual’s personality.

▪ Here, the motivation is conscious, i.e., an individual knows what are his needs
and wants and what kind of behavior is required to meet these needs.

▪ Hence, behavioral motivation is directed to meet those needs.

Sociopsychological Theory

▪ For example, a person may buy a product that symbolizes an unattainable or

socially unacceptable goal. Although the consumer might not admit why he or she
bought the product, we know that the acquisition fulfills some subconscious
“forbidden desire”

▪ An example of sociopsychological personality theory is the Karen Horney

paradigm, which suggests that human behavior results from three predominant,
interpersonal orientations: compliant, aggressive, and detached.
Sociopsychological Theory

▪ Compliant: Individuals are ones who are compassionate about being loved by
others. They relish care and attention given by others. They are highly compliant
on all their activities and can be termed as conformists.

▪ Aggressive: Individuals are those who act against the intention of others. They
enjoy power and being at authoritative positions. Consumers who fall under this
type go in only for branded products owing to their desire to be noticed.

▪ Detached: Individuals least care for brands. Freedom is important to them.

Trait-Factor Theory

▪ It is quantitative approach to personality, which proposes that individual’s

personality is composed of pre-dispositional attributes called traits.

▪ A trait is any distinguishable, relatively enduring way in which one individual

differs from another. Examples of such traits might be sociability, risk-taking, self-
consciousness, and need for cognition.

▪ Understanding consumer traits can be useful in marketing planning.

▪ It assumes that traits are common to many individuals and vary in absolute
amounts among individuals and therefore, can be used to segment markets.
Trait-Factor Theory

▪ Traits are relatively stable and exert fairly universal effects on behavior
regardless of the environmental situation. Therefore, traits can predict a wide
variety of behaviors.

▪ Traits can be inferred from the measurement of behavioral indicators.

▪ Trait theory is most useful to marketing strategists in developing brand

personality—the personality consumers interpret from a specific brand.

▪ Brands may be characterized as old-fashioned, modern, fun, provocative,

masculine, or glamorous.
Predicting Buyer Behavior

▪ Research typically attempts to find relationships between personality variables

and assorted consumer behaviors such as purchases, media choice, innovation,
fear, and social influence.

▪ Predicting consumer behavior was often the objective of personality research in

the early years. Studies attempted to predict brand or store preference and other
buyer activity, but usually found only very small amounts of variance in product
choice explained by personality.
Predicting Buyer Behavior

▪ The failure of personality measures to predict consumer behavior has stimulated

development of more recent approaches.

▪ One approach is to relate personality measures to mediating variables or stages

within the decision process, such as need recognition, and to understand the role of
personality in information processing.

▪ Another approach incorporates personality data with information about individuals’

social and economic conditions.

▪ And another approach is to use broader concepts such as values and

psychographics.
Facets of Personality

▪ Psychological study on human personality has given varying results. While some
psychologists have stressed the impact of heredity and early childhood
experiences on the development of personality, others have emphasized wider
societal and environmental effects.

▪ On the one hand, personality is seen as a combined whole by a few theorists; on

the other, many experts prefer to concentrate on specific personality traits.

▪ However, there seems to be a general agreement on the following:

Facets of Personality

Personality Reflects Individual Personality Is Generally

Personality Can Change
Differences Consistent And Enduring
• No two people are exactly similar. This is • One’s personality is both consistent and • Significant life events (marriage, birth of a
why several people might have personality generally enduring. child, death of a parent or a loved one,
traits that others don’t. • Consider the following statement of a sibling change of job and/or profession) may
• For example, some individuals might display referring to the behaviour of her sister: “She strongly impact personality.
“high” consumer ethnocentrism has always cared a great deal about her • Change in personality may occur not only
(unwillingness to accept foreign-made clothes from the time she was a toddler”; the due to sudden and impactful life events, but
products) while others might exhibit “low” statement supports the argument that also as the result of a gradual and natural
ethnocentrism (no reluctance in buying personality is enduring and consistent. maturing process.
foreign-made products). • As an example, if a marketer understands • “He’s more mature, and now he’s willing to
that a product of the firm appeals to listen to point of view that differ from his
consumer innovators, efforts may be made to own,” says an aunt after not seeing her
formulate and convey marketing messages nephew for several years.
to such consumers.
The Self and Self-Image

▪ Self-image refers to how one views oneself. Perception of the self is usually
associated with the purchase of services and products. This is because
consumers generally buy such goods that they identify with, and enhance their
self-image.

▪ Indeed, consumers have several “selves” which is evident by the fact that people
behave differently in different circumstances.

▪ This may be understood by considering that one behaves differently at work,

school, or a party, and with kids, friends and parents.
The Self and Self-Image

▪ Several brands and products possess symbolic value for people because the images of
these products and brands match people’s perceptions of themselves, and people
purchase offerings consistent with their self-image while avoiding brands and goods
which are not.

Researchers of consumer behavior have recognized four elements of self-image:

▪ Actual self-image
▪ Ideal self-image
▪ Social self-image
▪ Ideal social self-image
The Self and Self-Image

How consumers view themselves.

Actual-self
Example, with everyday household products, consumers might be guided by their actual
Image
self-image.

Ideal Self The way consumers would like to view themselves.

Image Example, when it comes to an important and strong personal goal, like losing weight and
feeling better about oneself, people are often guided by ideal self-image.

Social Self How consumers feel others view them.

Image Example, for some socially enhancing or socially conspicuous products, one might be
guided by their social self-images.

Ideal Social The way consumers would like others to see.

Example, when it comes to feeling better about oneself and one’s appearance, people are
Self Image
often guided by ideal social self-images.
The Extended Self

▪ Possessions of consumers may corroborate or enlarge their self-images.

▪ For example, buying a much desired pair of “vintage” Levi’s jeans may enhance a
young teenager’s self-image as she might perceive herself as more attractive,
stylish and successful after wearing the jeans.

▪ Studies have suggested that possessions are extensions of self in ways

mentioned in next slide.
The Extended Self

By enabling an individual to accomplish tasks that would otherwise be

Actually extremely challenging or even impossible to carry out
E.g., solving problems with the help of a computer

By causing one to feel better

Symbolically E.g., being seen as “best dressed” at the workplace

Conferring status As when being a collector of art and possessing a rare and famous
or rank masterwork.

Feelings of By leaving behind a significant inheritance after one’s death

immorality
Altering the Self

▪ At times, consumers desire to alter or better their selves. Clothing, grooming aids
or cosmetics, accessories (for example, sunglasses, jewelry, tattoos, or colored
contact lenses), and makeovers provide consumers the chance to improve their
appearance by altering their selves.

▪ By employing self-altering products, consumers often seek to project their new

selves or assume the forms of certain kinds of people (for instance, a military
person, doctor, business executive, or college professor).
Altering the Self

▪ Personal vanity closely associates with both self-image and modification of self.
Vanity is usually linked with behaving in a self-important and self-interested
manner or thinking highly of one’s own looks or accomplishments.

▪ Researchers have determined two kinds of vanity:

▪ Physical Vanity referring to excessive involvement with or having a grandiose opinion
of one’s physical appearance.

▪ Achievement Vanity reflecting grandiose views with respect to one’s personal

accomplishments.
Altering the Self

▪ Both kinds of vanity have been found to correlate with high degrees of
materialism, greater cosmetics use, concern with clothing, and significance of
being a part of prominent country clubs.

Vanity

Physical Vanity
Achievement Vanity
(referring to excessive
(reflecting grandiose views with
involvement with, or having a
respect to one’s personal
grandiose opinion of one’s
accomplishments)
physical appearance)
Personal Traits and Consumer Behavior

Personality
Traits

Consumer
Social Need for Need for Visualizers vs Consumer
Innovators and Dogmatism
Character Uniqueness Cognition Verbalizers Materialism
Innovativeness
Innovators and Innovativeness

Innovators Innovativeness
Being open to novel practices and It is the extent of consumers’
ideas, become the first to test new willingness to adopt new services and
services, products and product products soon after the introduction of
line extensions. The way they the products. In a study, four
respond is vital to the success of motivational factors were found to
newly introduced products. encourage consumer innovativeness

Social factors
Functional factors Hedonic factors Cognitive factors
Refers to one’s desire for
Are reflective of the Associate with feeling Reflect the mental
recognition by others due
interest in carrying out an satisfied after employing stimulus felt after the use
to one’s quest for
innovation. the innovation. of innovation.
innovations.
Dogmatism- The Degree Of Rigidity One Has

▪ It is the other extreme of being open to opinions and information opposing the
views and beliefs held by one (i.e., closed-mindedness). Consumers that are not
dogmatic give a greater preference to the innovative products as compared to the
conventional ones.

▪ Consumers that are greatly dogmatic generally respond to advertisements from

authoritative figures(e.g., experts and celebrities). Whereas, consumers that are
not dogmatic might be more responsive to messages that convey objective facts,
benefits of products, and other information related to product use.
Social Character

Inner-Directedness Other-Directedness

Inner-directed consumers depend on inner values or Other-directed consumers seek external direction to
standards of their own for assessing new products. decide what is appropriate (or otherwise).

Such consumers are more likely to become consumer Such consumers are not likely to become consumer
innovators. innovators.

Inner-directed persons favour advertisements Other-directed individuals favour ads featuring social
emphasizing product attributes and personal benefits. acceptance and exhibit favourable responses towards
messages depicting societal or group interactions.
Need for Uniqueness

▪ It is the quest for differentness with respect to other people, which is achievable
through acquisitions carried out with the aim of enhancing societal and personal
identity.

▪ Such people are likely to adopt new brands and products more quickly. The
understanding of this personality trait is very important to the fashion industry as
clothing styles and trends keep changing.

▪ Several marketers seek to target individuals with higher need for uniqueness
through marketing stimuli devised to augment self-perceptions of uniqueness.
Need For Cognition

▪ Need for Cognition (NFC) assesses one’s longing for or pleasure of thinking.

▪ Individuals with high NFC show responses towards advertisements with plenty of
product related information and explanations.

▪ Whereas consumers with comparatively low NFC respond to aspects related to

the background or periphery of an advertisement (for example, charming models
or famous celebrities). NFC has a role in people’s internet use also.
Visualizers vs Verbalizers

▪ Verbalizers better respond to promotional messages comprising significant

amounts of written, textual, and verbal information. Whereas, visualizers exhibit
greater sensitivity towards pictorial data and include:

1. Object visualizers – those processing and encoding images as one perceptual

unit.

2. Spatial visualizers – those processing images part by part.

▪ Individuals that score high on spatial visualization are more likely to exhibit lower
scores in object visualization, and vice versa.
Consumer Materialism

▪ It is the degree to which one is engrossed in buying and displaying material

possessions which are by and large non-essential and usually visibly luxury
items.

▪ Such consumers, characterize themselves through their acquisition of

possessions. They attach more value to the purchase and display of their
possessions and are usually selfish and self-centered.

▪ A Canadian study discovered that 25% of people who remembered dreams

recalled dreams about buying things.
Consumer Behavior Analysis- (BMN-524)
Course Overview Part 2
Consumer
Psychology

Motivation
Chapter- 4 : Perception
Part 1 Learning Part 4
Memory
Attitude, Beliefs and Buying Purchase
Marketing Other Feelings
Stimuli Stimuli Decision Process Decision

Problem Recognition Product Choice

Product & Services Economic Information search Brand Choice
Price Technological Part 3 Evaluation of Dealer Choice
Distribution Political alternatives Purchase amount
Communications Cultural Consumer Purchase decision Purchase Timing
Characteristics Post Purchase Behavior Payment Method

Cultural
Social
Personal
 Part 1: Introduction to Consumer Behavior
Chapter 1: An Overview of Consumer behavior and Consumer Research
Chapter 2: Creating Marketing Strategies for Consumer Centric Organization

Part 2: Individual Determinants of CB (Consumer Psychology)

Chapter 3: Consumer Motivation and Personality
Chapter 4: Consumer Perception
Chapter 5: Consumer Learning, Memory and Knowledge
Chapter 6: Consumer Beliefs, Feelings, Attitudes and Intentions

Part 3: External Determinants of CB (Consumer Characteristics)

Chapter 7: Culture, Ethnicity
Chapter 8: Social – Social Class, Family and Household Influence
Chapter 9: Group and Personal Influence

Part 4: Consumer Decision Making

Chapter 10 : Consumer Decision process
Chapter 11: Pre-Purchase Process: Need Recognition
Chapter 12: Purchase
Chapter 13 : Consumption and Post Consumption Evaluations Post Purchase Processes
 Part-2
Individual Determinants of Consumer
Behavior
(Consumer Psychology)
 Introduction to Individual Determinants of CB
(Consumer Psychology)

▪ Chapter 4 discusses the elements of perception and their role in consumer

behavior. It explains how consumers organize consumption-related information
and why and how consumers “add” biases to stimuli.

▪ It also explains the elements of consumers’ imagery and describes how

consumers determine the quality of products and services.

▪ Finally, this chapter focuses on consumers’ perceived risks and how they handle
and reduce those risks.
 Chapter -4
Consumer Perception
Chapter Outline

4.1 Introduction
4.1.1 What is Perception?
4.2 Elements of Perception
4.2.1 Sensory Input
4.2.2 Absolute Threshold
4.2.3 Differential Threshold
4.2.4 Subliminal Perception
4.3 Perception and Attention
4.3.1 Grabbing Consumer’s Attention
Chapter Outline

4.4 Aspects of Perception

4.4.1 Perceptual Selection
4.4.1.1 Stimulus
4.4.1.2 Expectations
4.4.1.3 Motives
4.4.2 Perceptual Organization
4.4.2.1 Figure and Ground
4.4.2.2 Grouping
4.4.2.3 Closure
4.4.3 Perceptual Interpretation
4.4.3.1 Stereotypes
Chapter Outline

4.5 Consumer Imagery

4.5.1 Product Positioning
4.5.2 Brand Image
4.5.3 Product Re-Positioning
4.5.4 Perceptual Mapping
4.5.5 Perceived Prices
4.5.5.1 Reference Prices
Chapter Outline

4.6 Perceived Quality

4.6.1 Perceived Quality of Services
4.6.2 Price/Quality Relationship
4.6.3 Store Image and Perceived Quality
4.6.4 Manufacturers’ Image and Perceived Quality
4.7 Perceived Risk
4.7.1 Perception of Risk Varies
4.7.2 How Consumers Handle Risk
Introduction

▪ Consumers act and react on the basis of their perceptions, not on the basis of
objective reality.

▪ For each individual, “reality” is a totally personal phenomenon, based on that

person’s needs, wants, values, and personal experiences.

▪ Therefore, consumers’ perceptions are much more important to a marketer than

consumer’s knowledge of objective reality because people make decisions based
on their perceptions.
Introduction: What is Perception?

▪ It is the process by which individuals select, organize, and interpret stimuli into a
meaningful and coherent picture of the world. It can be described as “how we see
the world around us.”

▪ Perception is a result of two different kinds of inputs:

▪ Physical stimuli from outside environment i.e., sensory input.

▪ People’s expectations, motivations and insights from previous experiences.

▪ The combination of these two very different kinds of input produces unique
individual perceptions.
Elements of Perception

Sensory Input

Absolute Threshold

Differential Threshold

Subliminal Perception
Elements of Perception: Sensory Input

▪ A stimulus (sensory input) is any unit of input to any of the senses. Examples of
stimuli include products, packages, brand names, advertisements, and
commercials etc.

▪ The stimulus from external environment is received by a person through sensory

receptors, i.e. human organs such as eyes, ears, nose, mouth and skin.

▪ Sensation is the immediate and direct response of the sensory organs to stimuli.
This is the raw data which forms the basis of perception.
Elements of Perception: Sensory Input

▪ Human sensory sensitivity refers to the experience of sensation.

▪ Sensitivity to stimuli varies with the quality of an individual’s sensory receptors

(e.g., eyesight and hearing) and the amount or intensity of the stimuli to which
he/she is exposed.

▪ Sensation itself depends on energy change, or the difference of input. An

unchanging environment, regardless of the strength of sensory input would
provide little or no sensation.

▪ Thus, on a heavy traffic road (environment), loud or low horn sound (sensory
input) would almost never be noticed and generate little sensation.
Elements of Perception: Sensory Input

▪ As sensory input decreases, the ability to detect changes in input or intensity

increases such as one could easily hear the distant train sound in silent night in
contrast to daytime.

▪ The ability to accommodate one-self to varying levels of sensitivity as external

conditions change

▪ provides more sensitivity, when needed, and

▪ protects us from damaging, disruptive, or irrelevant bombardment when the

input level is high.
Elements of Perception: Sensory Input

▪ Companies invest large amount of resources in designing experiences, products

and packages that appeal to consumer senses.

▪ Most marketing communications appeal to sight and sound. However, smell and
touch also represent considerable opportunities for targeting consumers. For e.g.
use of ambient smell in retail environment enhances the shopping experience for
consumers.

▪ Another example of increasing sensory input is to add more merchandise and

create more clutter in existing spaces.
Elements of Perception: Sensory Input

▪ Exposure: occurs when there is physical proximity to a stimulus that allows one
or more of our five senses the opportunity to be activated.

▪ Firms must bring their messages and products into sufficient physical proximity
for consumers to have the opportunity to notice them.

▪ Companies must identify those advertising mediums, promotional programs, and

distribution channels that provide access to their target market.

▪ Even though advertisers may get their message out, exposure may still not occur
because consumers sometimes avoid exposure which reduces the size of
audience being reached.
Elements of Perception: Absolute Threshold

▪ The lowest level at which an individual can experience a sensation is called the
absolute threshold.

▪ The point at which a person can detect the difference between “something” and
“nothing” is that person’s absolute threshold for the stimulus.

▪ For example, the distance at which a driver can note a specific billboard on a
highway is that individual’s absolute threshold.

▪ Two people driving together may have different absolute thresholds depending on
when they detect the billboard.
Elements of Perception: Absolute Threshold

▪ Under conditions of constant stimulation or overexposure, such as driving

through a “corridor” of billboards, the absolute threshold increases (that is, the
senses tend to become increasingly dull).

▪ In other words, as our exposure to the stimulus increases, we notice it less.

▪ Sensory adaptation refers specifically to “getting used to” certain sensations, or

becoming accustomed to a certain level of stimulation.

▪ Advertising wear out occurs when ads lose their effectiveness because of
overexposure.
Elements of Perception: Absolute Threshold

▪ It is a problem that causes many advertisers to change their advertising

campaigns regularly.

▪ Marketers try to increase sensory input in order to cut through the daily clutter
consumers experience in the consumption of advertising.

▪ Many of the promotional methods aimed at increasing sensory input, take the
form of —

▪ Ambush marketing or

▪ Experiential marketing.
Elements of Perception: Absolute Threshold

▪ Ambush marketing consists of placing ads in places where consumers do not

expect to see them and cannot readily avoid them. For e.g., brand names
stamped on eggs in supermarket or featured on video screens in taxis.
Elements of Perception: Absolute Threshold

▪ Experiential marketing allows customers to

engage and interact with brands, products, and
services in sensory ways in order to create
emotional bonds between consumers and
marketing offerings.

▪ For e.g., during one winter month, Kraft Foods

heated several Chicago bus stops, featuring
ads for the brand, in order to convey the
product’s “warmth” to waiting passengers.
Elements of Perception: Differential Threshold

▪ The minimal difference that can be detected between two similar stimuli is called
the differential threshold or the just noticeable difference (JND).

▪ Weber’s law —

▪ The JND between two stimuli is not an absolute amount, but an amount
relative to the intensity of the first stimulus.

▪ The stronger the initial stimulus, the greater the additional intensity needed for
the second stimulus to be perceived as different.
Elements of Perception: Differential Threshold

▪ Manufacturers and marketers endeavor to determine the relevant JNDs for their
products for two reasons —

1. To prevent changes (e.g., reductions in product size or quality, or increase

in product price) from becoming readily discernible to the public (i.e. remain
below JND).

2. To ensure that product improvements (e.g. improved or updated packaging,

larger size, or lower price) are very apparent to consumers, but without
being wastefully extravagant (i.e. they are at or just above the JND).
Elements of Perception: Differential Threshold

▪ Implications for Product Pricing and Improvement:

▪ For product improvements marketers want to meet or exceed the consumer’s

differential threshold.

▪ Improvements below the JND will not be perceived by consumers and will
hurt credibility of a marketer promoting product as “new or improved.”

▪ For example, when Apple launched iPhone 13, many consumers were
disappointed because, apparently the improvements were below JND and
therefore unperceived.
What Is ‘New’ in iPhone 13?
Elements of Perception: Differential Threshold

▪ Implications for Logos and Packaging:

▪ Marketers often want to update their existing package designs without losing
the recognition of loyal customers.

▪ They usually make a number of small changes, each carefully designed to fall
below the JND so that consumers will perceive only minimal difference
between succeeding versions.

▪ Marketers who do not consider the impact of JND when introducing new
logos may anger their loyal customers.
Elements of Perception: Differential Threshold

▪ Implications for Logos and Packaging:

▪ For example, The Gap received negative comments expressing resentment

from customers.

▪ Apparently, the new logo was too far beyond the JND of many customers and
too great a change in Gap’s visual identity.
 Successful Logo Changes Designed to
Fall Below JND

1971
1978
Now
1985 1971
1991
Now
2006 1971
1987
Now
1992
Successful Logo Changes Designed to
Fall Below JND
1971 1978 1985 Now

1971 1991 2006 Now

1971 1987 1992 Now

Elements of Perception: Subliminal Perception

▪ People are also “stimulated” below their level of conscious awareness—they can
perceive stimuli without being consciously aware of it.

▪ Stimuli that are too weak or brief to be consciously seen or heard, may be strong
enough to be perceived by one or more receptor cells.

▪ This process is called subliminal perception because the stimulus is beneath the
threshold, or “limen,” of conscious awareness, though obviously not beneath the
absolute threshold of the receptors involved.
Elements of Perception: Subliminal Perception

▪ Over the years, there have been sporadic reports of marketers using subliminal
messages in their efforts to influence consumption behavior.

▪ Some studies indicate that subliminal advertising could persuade people to buy
goods or services and broadcasting subliminal anti-social messages in malls,
may even reduce anti-social behavior such as shoplifting.

▪ However, when most of the methods were tested using scientific research
procedures, the results did not support the notion that subliminal messages can
persuade consumers to act in a given manner.
Perception and Attention

▪ Human beings are constantly bombarded with stimuli during every minute and
every hour of every day. However, not all sensory inputs leads to perception
formation.

▪ Attention getting is a pre-requisite to consumer’s perceptions. Attention is the

amount of thinking focused in a particular direction.

▪ It may be voluntary or involuntary and occurs when we notice a stimulus.

▪ Companies have the formidable task of breaking through the clutter to attract
consumers’ attention
Grabbing Consumer’s Attention

▪ Connect with consumers’ needs:

▪ People are attentive to stimuli perceived as relevant to their needs.

▪ Gaining consumers’ attention might require reminding them of their needs.

▪ Use permission marketing: asking consumers for their permission to send them
product-related materials.

▪ Pay consumers to pay attention.

▪ Use isolation: Place only a few stimuli in an otherwise barren perceptual field.
Grabbing Consumer’s Attention

▪ Getting attention with motion:

▪ Stimuli in motion are more likely to attract consumers than stationary ones.

▪ POP displays may use moving parts and ads may use simulated motion.

▪ Make it bigger:

▪ Larger ads and larger pictures within those ads tend to grab more attention
than smaller ones.

▪ Products have a greater chance of being noticed as the size or amount of

shelf space allotted to them increases.
Grabbing Consumer’s Attention

▪ Colors are nice: The attention-grabbing and holding power of an ad may be

increased sharply with use of color.

▪ Make it more intense: Loud sounds and bright colors are more likely to attract
attention.

▪ Include surprise factor:

▪ Stimuli congruent with our expectations may receive less attention than those
which deviate from what is expected.

▪ Ads and packaging may feature unusual elements to gain attention.

Grabbing Consumer’s Attention

▪ Location affects attention:

▪ Products may gain more attention depending on where in the store they are
located (end-of-aisle or eye-level).

▪ More attention is given to ads appearing in the front of magazines.

▪ Upper-left corner gets most attention.

▪ Distinctiveness:

▪ Products, ads, and packaging may be altered to stand-out from others using
color and other elements of design.
Grabbing Consumer’s Attention

▪ The human attraction:

▪ Celebrities can attract attention in ads and on packaging.

▪ Attractive people, often scantly dressed, attract attention for a variety of

products and brands.

▪ The entertainment factor:

▪ Stimuli that entertain and amuse us draw our attention, even if they happen to
come in the form of an ad.
Grabbing Consumer’s Attention

▪ The use of attention-getting stimuli carries some risks:

▪ A stimulus might gain so much attention that the rest of the message is
ignored.

▪ A stimulus may interfere with information processing if it requires too many

cognitive resources.

▪ If consumers perceive the stimulus as manipulative, it can reduce advertising

effectiveness.
Aspects of Perception

Selection

Organization

Interpretation
Aspects of Perception

▪ There are three aspects to perception—selection, organization, and interpretation

of stimuli.

▪ Individuals are very selective as to which stimuli they “recognize.”

▪ They subconsciously organize the stimuli they do recognize according to

widely held psychological principles.

▪ They interpret such stimuli (i.e., they give meaning to them) subjectively in
accordance with their needs, expectations, and experiences.
Perceptual Selection

▪ Consumers, subconsciously, are very selective when exposed to stimuli. In

actuality, people receive (perceive) only a small fraction of stimuli to which they
are exposed.
Stimulus

Selection depends on Expectations

Motives
Perceptual Selection: Stimulus

▪ Marketing stimulus contains an enormous number of variables.

▪ Examples include:
▪ Nature of the product

▪ Its physical attributes

▪ The package design

▪ The brand name

▪ The advertisements and commercials

▪ The position of a print ad or commercial

▪ The advertisement environment

Perceptual Selection: Stimulus

▪ Contrast is one of the most attention-compelling attributes of a stimulus.

▪ Advertisers often use extreme attention-getting devices to achieve maximum

contrast and penetrate the consumer’s perceptual “screen”.

▪ Advertisers use color contrasts, size, etc., to create stopping power and gain
attention.

▪ Other forms of contrast are unexpected and unrealistic images.

▪ Packaging is also differentiated sufficiently to ensure rapid consumer perception.

Perceptual Selection: Expectations

▪ People see what they expect to see. What they expect to see is usually based on
familiarity, previous experience, or pre-conditioned set expectations.

▪ In marketing context, a person tends to perceive products and product attributes

according to his or her own expectations.

▪ Stimuli that conflict sharply with expectations often receive more attention than
those that conform to expectations.
Perceptual Selection: Expectations

▪ For years, certain advertisers have used blatant sexuality in advertisements for
products to which sex was not relevant in the belief that such advertisements
would attract a high degree of attention.

▪ However, ads with irrelevant sexuality often defeat the marketer’s objectives,
because readers tend to remember the sexual aspects of the ad, but not the
product or brand advertised.
Perceptual Selection: Motives

▪ People tend to perceive things they need or want.

▪ The stronger the need, the greater the tendency to ignore unrelated stimuli in
the environment.

▪ An individual’s perceptual process attunes itself more closely to those elements

of the environment that are important to that person.

▪ As discussed in the previous chapter, marketing managers recognize the

efficiency of targeting their products to the perceived needs of consumers.
Perceptual Selection: Selective Perception

▪ The consumer’s “selection” of stimuli (selective perception) from the environment

is based on the interaction of expectations and motives with the stimulus itself.
These factors give rise to four important concepts concerning perception.

▪ Selective exposure—consumers actively seek out messages that they find

pleasant or with which they are sympathetic, and they actively avoid painful or
threatening messages.

▪ Selective attention—consumers’ heightened awareness of the stimuli that

meet their needs or interests and minimal awareness of stimuli irrelevant to
their needs.
Perceptual Selection: Selective Perception

▪ People also vary in terms of the kind of information in which they are interested
and the form of message and type of medium they prefer.

▪ Perceptual defense — when consumers subconsciously screen out stimuli

that they find psychologically threatening, even though exposure has already
taken place. Individuals unconsciously may distort information that is not
consistent with their needs, values, and beliefs.

▪ Perceptual blocking —intentionally “blocking” some stimuli from conscious

awareness or avoiding exposure to unwanted stimuli such as taking
subscriptions for skipping ads.
Perceptual Organization

▪ People do not experience the numerous stimuli they select from the environment
as separate and discrete sensations.

▪ People tend to organize stimuli into groups and perceive them as unified wholes.

▪ Thus, the perceived characteristics of any stimulus are viewed as a function of

the whole to which the stimulus appears to belong.

▪ The principles underlying perceptual organization are often called Gestalt

psychology (means “pattern or configuration” in German).
Perceptual Organization

Figure and ground

Three Basic Principles of

Perceptual Organization Grouping

Closure
Perceptual Organization: Figure and Ground

▪ The term ‘figure and ground’ refers to the inter-relationship between the stimulus
(i.e., figure) and the environment or context within which it appears (i.e., ground).

▪ The simplest example is the contrast between a figure and the ground on which it
is placed.

▪ The figure is usually perceived clearly.

▪ The ground is usually perceived as indefinite, hazy, and continuous.

▪ The figure is more clearly perceived because it appears to be dominant—the

ground appears to be subordinate and less important.
Perceptual Organization: Figure and Ground

▪ As mentioned earlier, stimuli that contrast with their environment are more likely
to be noticed.

▪ Advertisers have to plan their advertisements carefully to make sure that the
stimulus they want noted is seen as figure and not as ground.

▪ Print advertisers often silhouette their products against a non distinct background
to make sure that the features they want noted are clearly perceived.

▪ The background of an advertisement must not detract from the product.

Perceptual Organization: Figure and Ground

▪ Another marketing technique that stems from the figure-and-ground concepts is

product placement (or “branded entertainment”).

▪ When this method is used, the advertised product (i.e., the figure) is deliberately
integrated into the TV show or film (i.e., the ground) in one or more of the
following ways:

▪ The product is used by the cast

▪ The product is integrated into the plot

▪ The product is associated with a character

Perceptual Organization: Figure and Ground

▪ A recent study found that a brand integrated and prominently featured in a TV

program may produce negative feelings toward the brand among viewers who
liked the program a lot.

▪ But those who liked the program less were more likely to develop positive
attitudes toward the brand.

▪ Thus, advertisers must be extremely careful in using product placement.

Perceptual Organization: Grouping

▪ Individuals tend to group stimuli in “chunks” rather than as discrete bits of

information, which facilitates memory and recall.

▪ Grouping refers to people's instinctive tendency to group stimuli together so that

they become a unified picture or impression.

▪ Grouping can be used advantageously by marketers to imply certain desired

meanings in connection with their products.

▪ For example, in supermarkets, family-size coke bottles are placed next to takeout
counters containing large portions of prepared foods and frozen foods.
Perceptual Organization: Closure

▪ Closure is people's instinct to organize pieces of sensory input into a complete

image or feeling.

▪ Individuals have a need for closure.

▪ As a result, people organize a perception so that they see a complete picture.

▪ If the pattern of stimuli to which they are exposed is incomplete, they tend to
perceive it as complete—they fill in the missing pieces.

▪ The very act of completion serves to involve the consumer more deeply in the
message.
Perceptual Interpretation

▪ The interpretation of stimuli is uniquely individual because it is based on what

individuals expect to see in light of their previous experiences, the number of
plausible explanations they can envision, and their motives and interests at the
time of perception.

▪ Stimuli are often highly ambiguous. Some stimuli are weak because of such
factors as poor visibility, brief exposure, high noise level, or constant fluctuation.
Perceptual Interpretation

▪ When stimuli are highly ambiguous, individuals usually interpret them in such a
way that they serve to fulfill personal needs, wishes, and interests.

▪ How close a person’s interpretations are to reality depends on the clarity of the
stimulus, the past experiences of the perceiver, and his or her motives and
interests at the time of perception.
Perceptual Interpretation: Stereotypes

▪ Individuals tend to carry biased “pictures” in their minds of the meanings of

various kinds of stimuli, which are termed stereotypes.

▪ Sometimes, when presented with sensory stimuli, people “add” biases to what
they see or hear, and form distorted impressions.

▪ Marketers must be aware of possible stereotypes because these images reflect

people’s expectations and influence how stimuli are subsequently perceived.
Perceptual Interpretation: Stereotypes

▪ The main factors that can trigger stereotypes are:

▪ Physical Appearances—people tend to attribute the qualities they associate

with certain people to others who may resemble them.

▪ Culturally attractive models are likely to be more persuasive and have a more
positive influence on consumer attitudes and behavior than do average-
looking models.

▪ Products’ physical appearance and the shape of packages has great

influence on consumers’ impression and affects consumers’ expectations.
Perceptual Interpretation: Stereotypes

▪ Descriptive Terms—stereotypes are often reflected in verbal messages.

▪ Distinct brand names are important to all products or services, associations

that consumers make with certain names are particularly crucial in marketing
services due to the abstract and intangible nature of many services.

▪ First Impressions—often tend to be lasting.

▪ No amount of subsequent information about a product’s advantages could

possibly negate the memory of its early poor performance and the marketer
would face difficulty in dispelling this initial impression.
Perceptual Interpretation: Stereotypes

▪ Halo Effect—describes situations where the overall evaluation of an object or

person is based on the evaluation of just one or a few dimensions.

▪ In marketing, the term refers to a prestigious image of a product that is

transferred onto other products marketed under the same brand name.

▪ Consumers often evaluate an entire product line on the basis of the one
product within the product line.

▪ Licensing also is based on the halo effect—associating products with a well-

known celebrity or designer name.
Consumer Imagery

▪ It refers to consumers perception of all the components of products, services and

brands, and to how consumers evaluate the quality of marketers offering.

▪ Consumers have a number of enduring perceptions, or images, that are

particularly relevant to the study of consumer behavior.

▪ Products and brands have symbolic value for individuals who evaluate them on
the basis of their consistency with their personal pictures of themselves.

▪ The following section examines consumers’ perceived images of products,

brands, services, prices, product quality, retail stores, and manufacturers.
Consumer Imagery: Product Positioning

▪ Positioning strategy (product positioning) is the essence of the marketing mix.

▪ Positioning is the image that a product holds in the mind of the consumer.

▪ It conveys the concept, or meaning, of the product or service in terms of how

it fulfills a consumer need.

▪ The marketer must create a distinctive product image.

▪ A good positioning strategy should fulfill two purposes: one that is congruent
with the consumer’s needs and two, differentiates the brand against its
competition.
Consumer Imagery: Brand Image

▪ The desired outcome of effective positioning is a distinctive brand image on which

consumers rely to make choices.

▪ This mental “position” must be unique and represent the core benefit the brand
provides.

▪ Most new products fail because they do not offer consumers any advantage or
unique benefits over competitive products.

▪ In order to stand out from its competition, a brand's perceived image must be
unique in both its advantage and the manner it is presented to customers.
Consumer Imagery: Brand Image

▪ How a product is positioned in the mind of the consumer is more important to the
product’s success than are the product’s actual characteristics.

▪ Thus, marketers try to differentiate their products by stressing benefits that their
brand provide rather than their products’ physical features.

▪ A positive brand image is associated with consumer loyalty where consumers buy
the product consistently and refrain from switching to other brands, hold positive
beliefs about brand value, and actively search for the brand.
Consumer Imagery: Brand Image

▪ A positive brand image also serves to promote consumer interest in future brand
promotions and protects against competitors’ marketing activities.

▪ As products become more complex and the marketplace more crowded,

consumers rely more on the brand’s image and claimed benefits than on
product’s actual attributes in making purchase decisions.

▪ In today’s highly competitive marketplace, a distinctive brand image is very

difficult to crate and maintain and has to be updated from time to time.
Consumer Imagery: Product Re-Positioning

▪ Repositioning is more complex as it has to take into account the perceptions

already created in consumers’ minds.

▪ Regardless of how well positioned a product appears to be, the marketer may be
forced to reposition it in response to market events, such as—
▪ a competitor cutting into the brand’s market share or,

▪ too many competitors stressing the same attribute or,

▪ to satisfy changing consumer preferences or,

▪ emergence of other categories that create a generic competition in terms of share

of the consumers wallet.
Consumer Imagery: Product Re-Positioning

▪ Over a period of time, contemporary offerings could erase the consumer’s

memory of traditional offerings or brands, if it is not repositioned (with or without
product attribute improvement).

▪ The timing of repositioning should be done to ensure that the category does not
fade out of consumer's mind.

▪ Several brands such as Eno, Dairy-Milk, Vaseline, Maruti are some of the brands
of yesteryear that could maintain their dominance of the consumers memory with
appropriate repositioning strategy.
Consumer Imagery: Perceptual Mapping

▪ Perceptual mapping allows marketers to determine how their products appear to

consumers in relation to competitive brands on one or more relevant
characteristics.

▪ Perceptual mapping enables the marketer to see gaps in the positioning of all
brands in the product class and to identify areas in which consumer needs are
not being adequately met.

▪ Because unfilled gaps or “unowned” perceptual positions present opportunities

for competitors, sophisticated marketers create several distinct offerings, often in
the form of different brands, to fill several identified niches.
Consumer Imagery: Service Image

▪ Compared with manufacturing firms, service marketers face several unique

problems in positioning and promoting their offerings.

▪ Services are intangible; image becomes a key factor in differentiating a service

from its competition.

▪ The marketing objective is to enable the consumer to link a specific image

with a specific brand name.

▪ Many service marketers have developed strategies to provide customers with

visual images and tangible reminders of their service offerings.
Consumer Imagery: Service Image

▪ Examples of such tangible cues would include painted delivery vehicles,

restaurant matchbooks, packaged hotel soaps and shampoos, and a variety of
other specialty items.

▪ The design of the service environment is an important aspect of service

positioning strategy and sharply influences consumer impressions.

▪ The arousal level within the store environment must match the expectations of
the shopppers in order to avoid perceived over- or understimulation.
Consumer Imagery: Perceived Price

▪ Perceived price is customer’s view of the value that the customer receives from the
purchase.

▪ How a consumer perceives a price (perceived price)—as high, as low, as fair—has a

strong influence on both purchase intentions and purchase satisfaction.

▪ Consider, perception of price fairness—customers pay attention to the prices paid by

other customers (e.g., senior citizens, frequent fliers, affinity club members).

▪ Customers perceive differential pricing strategies used by some marketers as unfair.

▪ Perceptions of price unfairness affect consumers’ perceptions of product value, and

ultimately, their willingness to patronize a store or a service.
Consumer Imagery: Reference Prices

▪ A reference price is any price that a consumer uses as a basis for comparison in
judging another price.

▪ Reference prices can be external or internal —

▪ An advertiser generally uses a higher external reference price (“sold

elsewhere at...”) in an ad in which a lower sales price is being offered to
persuade the consumer.

▪ Internal reference prices are those prices (or price ranges) retrieved by the
consumer from memory.
Consumer Imagery: Reference Prices

▪ Internal reference points are thought to play a major role in consumers’

evaluations and perceptions of value of an advertised (i.e., external) price deal,
as well as in the believability of any advertised reference price.

▪ Consumers’ internal reference prices are dynamic and change over time.

▪ The issue of reference prices is complex and the focus of many studies.

▪ When an advertised reference price is within a given consumer’s acceptable

price range, it is considered plausible and credible.
Perceived Quality

▪ Consumers often judge the quality of a product (perceived quality) on the basis of
a variety of informational cues.

▪ Some of these cues are intrinsic to the product or service; others are extrinsic.

▪ Intrinsic cues are physical characteristics of the product itself such as size, color,
flavor or aroma.

▪ Consumers like to believe that they base quality evaluations on intrinsic cues
because that enables them to justify their product decisions as being “rational” or
“objective.”
Perceived Quality

▪ However, quite often, they use extrinsic cues to judge quality. Extrinsic cues are
the characteristics that are not inherent in the product.

▪ In the absence of actual experience with a product, consumers often evaluate

quality on the basis of extrinsic cues such as price, brand image, store image,
perceived country of origin etc.
Perceived Quality of Services

▪ It is more difficult for consumers to evaluate the quality of services than the
quality of products.

▪ Evaluation is difficult because of service characteristics such as—intangibility,

variability, perishability, simultaneously produced and consumed.

▪ Consumers are unable to compare services side-by-side as they do products, so

consumers rely on surrogate or extrinsic cues when purchasing services.

▪ Marketers try to standardize their services in order to provide consistency of

quality.
Perceived Quality of Services

▪ Service is consumed as it is being produced.

▪ As a result, defective services are difficult to correct.

▪ Researchers have concluded that the service quality that a customer perceives is
a function of the magnitude and direction of the gap between expected service
and the customer’s assessment of the service actually delivered.

▪ The expectations of a given service vary widely among different consumers of the
same service.
Perceived Quality of Services

▪ SERVQUAL scale, measures the gap between customers’ expectations of

services and their perceptions of the actual service.

▪ These perceptions are based on the dimensions of tangibles, reliability,

responsiveness, assurance, and empathy and tangibility.

▪ Two dimensions used to measure service quality are outcome dimensions—the

reliable delivery of the core service—and process dimensions—how the core
service is delivered.
Price/Quality Relationship

▪ Perceived product value has been described as a trade-off between the product’s
perceived benefits (or quality) and perceived sacrifice required to acquire it.

▪ A price quality relationship forms when consumers rely on price as an indicator of

product quality, in short, they believe more expensive products are better.

▪ A number of research studies support the view that consumers rely on price as
an indicator of product quality.

▪ Because price is so often considered to be an indicator of quality, some products

deliberately emphasize a high price to underscore their claims of quality.
Price/Quality Relationship

▪ Marketers have used the price/quality relationship to position their products as

the top-quality offering in their product category.

▪ In addition to price, consumers also use cues such as the brand and the store in
which the product is bought to evaluate quality.

▪ Consumers rely on the price and brand name when evaluating the product’s
prestige and symbolic value and use more concrete attributes of a product, such
as performance and durability, to judge its overall performance.
Price/Quality Relationship

▪ Marketers must understand all the attributes that customers use to evaluate a
given product and include all applicable information in order to counter any
perceptions of negative quality associated with a lower price.

▪ Consumers use price as a surrogate indicator of quality if they have little

information or little confidence in their ability to make a choice.

▪ When the consumer is familiar with the brand name or has experience with the
product or service or the store where it is purchased, price declines as a
determining factor in product evaluation and purchase.
Store Image and Perceived Quality

▪ Retail stores have images of their own that influence the perceived quality of the
products they carry and the decisions of consumers as to where to shop.

▪ These images stem from the merchandise they carry, the brands sold and their
prices, the level of service, the store’s physical environment and ambiance, and
its typical clientele.

▪ The width and type of product assortment affects retail store image.

▪ The unique benefit that a store provides is more important than the number of
items it carries in forming a favorable store image in consumers’ minds.
Manufacturers’ Image and Perceived Quality

▪ Manufacturers who enjoy a favorable image generally find that their new products
are accepted more readily than those of manufacturers who have a less
favorable or even a “neutral” image.

▪ Consumers generally have favorable perceptions of brands that are the first in a
product category and are more likely to purchase.

▪ Some major marketers introduce new products under the guise of supposedly
smaller, pioneering (and presumably more forward-thinking) companies.
Manufacturers’ Image and Perceived Quality

▪ The goal of this so-called stealth parentage is to persuade consumers

(particularly young consumers) that the new brands are produced by
independent, nonconformist free spirits, rather than by giant corporate entities
such as their parents might patronize.

▪ Companies sometimes use stealth parentage when they enter a product category
totally unrelated to the one with which their corporate name has become
synonymous.

▪ Today, companies use advertising, exhibits, and sponsorship of community

events to enhance their images.
Perceived Risk

▪ Perceived risk is the uncertainty that consumers face when they cannot foresee
the consequences of their purchase decision.

▪ The degree of risk that consumers perceive and their own tolerance for risk
taking are factors that influence their purchase strategies.

▪ Consumers are influenced by risks that they perceive, whether or not such risks
actually exist. Risk that is not perceived will not influence consumer behavior.

▪ Types of risk include— functional risk, physical risk, financial risk, social risk,
psychological risk, and time risk.
Perception of Risk Varies

▪ Consumer perception of risk varies, depending on the specific consumer, the

product, the situation, and the culture.

▪ Some consumers tend to perceive high degrees of risk in various consumption

situations, others tend to perceive little risk.

▪ High-risk perceivers are described as narrow categorizers because they limit their
choices.

▪ Low-risk perceivers are broad categorizers because they make their choice from
a wide range of alternatives.
Perception of Risk Varies

▪ Individual perception of risk varies by product category as well.

▪ Consumers are likely to perceive a higher degree of risk in the purchase of a

high definition television set (e.g., functional risk, financial risk, time risk) than
in the purchase of a grocery product such as salt.

▪ Moreover, consumers generally perceive service decisions to be riskier than

product decisions.

▪ Perception of the degree of risk is also affected by the shopping situation such as
shopping online.
How Consumers Handle Risk

▪ Consumers characteristically develop their own strategies for reducing perceived

risk and handle perceived risk differently.

▪ These risk-reduction strategies enable them to act with increased confidence

when making product decisions, even though the consequences of such
decisions remain somewhat uncertain.

▪ The concept of perceived risk has major implications for the introduction of new
products. High-risk perceivers are less likely than low-risk perceivers to purchase
new or innovative products.
How Consumers Handle Risk

▪ Marketers need to provide consumers with persuasive risk-reduction strategies such as:

▪ A well-known brand name

▪ Distribution through reputable retail outlets

▪ Informative advertising

▪ Publicity

▪ Impartial test results

▪ Free samples

▪ Money-back guarantees

▪ Online technologies enable consumers to generate side-by-side comparisons.