Module 4

1. Module 4 Understanding Consumer and Industrial Markets Kotler’s Chapters 6 and 7

2. Chapter 6: Analyzing Consumer Markets and Buyer Behavior • Learning Objectives • 1. Describe and apply the cultural, social, personal, and psychological factors that influence buying behavior of consumers. • 2. Describe and apply the four categories of consumer buying behavior (complex, dissonance-reducing, habitual, and variety-seeking buying behavior). • 3. Describe and apply the stages of the buying process.

3. Chapter 6/Objective 1: The factors that influence buying behavior of consumers. • Cultural: culture, subculture, social class • Social: reference groups, family, roles and statuses • Personal: age/stage in life cycle, occupation and economic circumstances, lifestyle, personality and self-concept • Psychological: motivation, perception, learning, beliefs and attitudes

4. Chapter 6/Objective 1: The factors that influence buying behavior of consumers. • Culture: Is what binds a society together. It’s the values, ideas, perceptions, and experiences we hold in common. The most fundamental determinant of a person’s wants and behaviors. • Subculture: provides more specific identification and socialization for their members; based on nationality, ethnicity, religion, age, and geographic region. • Social Class: relatively homogeneous and enduring divisions in society, which are hierarchically ordered and whose members share similar values, interests, and behavior;based not just on wealth but also on the source of wealth, education, neighborhood.

5. Chapter 6/Objective 1: The factors that influence buying behavior of consumers. • Social Factors • Reference Groups: groups that have a direct or indirect influence on a person’s attitudes or behaviors; can be membership, secondary, aspirational,or dissociative. Focus on opinion leaders who can spread word of mouth. • Family: the most influential primary reference group • Roles and Statuses: a role consists of the activities that a person is expected to perform and each role carries a status. Need to be aware of status symbols.

6. Chapter 6/Objective 1: The factors that influence buying behavior of consumers. • Personal Factors • Age/Stage in the Life Cycle - family life cycle • Occupation and Economic Circumstances - product choice affected by income, savings and assets, debts, borrowing power, and attitude toward spending/saving • Lifestyles - the person’s pattern of living in the world as expressed in AIO (activities, interests, and opinions) • Personality(distinguishing psychological characteristics that lead to consistent and enduring responses to the environment)and Self Concept

7. Chapter 6/Objective 1: The factors that influence buying behavior of consumers. • Psychological Factors • Motivation - a need becomes a motive when it is aroused to a sufficient level of intensity; presses the person to act • Perception - the process by which an individual selects, organizes, and interprets information inputs to create a meaningful picture of the world; selective attention, selective distortion, and selective retention • Learning - involves changes in an individual’ls behavior arising from experience • Beliefs - a descriptive thought that a person holds about something • Attitudes - a person’s enduring favorable/unfavorable evaluations, emotional feelings, and action tendencies toward some object

8. Chapter 6/Objective 2: The four categories of consumer buying behavior. • Complex - high involvement with significant differences between brands; think-feel-do; usually product is expensive, bought infrequently, risky and self-expressive. • Dissonance-Reducing - high involvement with few differences between brands; usually product is expensive, infrequent, and risky; consumer wants info to support decision • Habitual - low involvement with few differences between brands; ad repetition creates brand familiarity • Variety-Seeking - low involvement with significant differences between brands; brand switching common.

9. Chapter 6/Objective 3: The 5 Stages of the Buying Process. • Problem Recognition - recognizes need; marketers need to identify circumstances that trigger need. • Information Search - 4 groups of sources: personal (most effective), commercial, public, experiential. Need to get brand into awareness set, consideration set, and choice set. • Evaluation of Alternatives - compare benefits/attributes • Purchase Decision - purchase intention and buy • Postpurchase Behavior - postpurchase satisfaction a function of buyers’ expectation versus product perceived performance.

10. Chapter 7: Analyzing Business Markets and Business Buying Behavior • Learning Objectives • 1. Describe how the business market differs from the consumer market. • 2. Describe and apply the major influences (environmental, organizational, interpersonal, and individual) in the business buying process. • 3. Describe the purchasing/procurement process (including purchasing orientation and the 8 stages in the process).

11. Chp 7/Obj 1: How the Business Market differs From the Consumer Market • Fewer and Larger buyers • Closer supplier-customer relationship • Geographically concentrated buyers (7 key states) • Derived, Inelastic, and Fluctuating Demand • Professional Purchasing w/ Several Buying Influences • Need for Multiple Sales Calls - 4-5 calls to close • Direct Purchasing - buy from manufacturers rather than intermediaries • Reciprocity - select suppliers who buy from them • Leasing - lease instead of buy

12. Chapter 7/Objective 2: The 4 major influences in the buying process • Environmental • Current and expected economic factors, supply of key materials; Technological; Political/ legal; Competitive; Social responsibility - ex. environmental concerns • Organizational • Interpersonal • Individual

13. Chapter 7/Objective 2: The 4 major influences in the buying process • Organizational - objectives, policies, procedures, organizational structures, and systems • Trends Include Purchasing-Department Upgrading (more strategic oriented); Cross-Functional Roles (more responsibility); Centralized Purchasing (fewer, higher level buyers); Decentralized Purchasing of Small-Ticket Items (ex. use of corporate purchasing cards to empower employees to buy smaller items); Internet Purchasing; Long-Term Contracts; Purchasing-Performance; Evaluation, and Buyers’ Professional Development; and Lean Production (ex. JIT).

14. Chapter 7/Objective 2: The 4 major influences in the buying process • Interpersonal - interests, authority, status, empathy, and persuasiveness • Recognize several participants that may differ • Individual - age, income, education, job position, personality, risk attitudes, and culture • Recognize individuals have different styles • Also have to address Cultural Factors in doing business globally.

15. Chapter 7/Objective 3: The Purchasing/Procurement Process • Business buyers seek to obtain the highest benefit package (economic, technical, service, and social) in relation to a market offering’s costs.Incentive higher if benefit>cost. • Purchasing Orientation • Buying - executing discrete transactions with suppliers where the relationships are arms-length and possibly adversarial; focus short-term and tactical. • Procurement - seek quality improvements and cost reductions; more collaborative with smaller # suppliers. • Supply Management - purchasing becomes strategic value-added; improve entire value chain from raw materials to end users.

16. Chapter 7/Objective 3: The Purchasing/Procurement Process • 8 Stages in Process • 1. Problem Recognition • 2. General Need Description • 3. Product Specification • 4. Supplier Search • 5. Proposal Solicitation • 6. Supplier Selection • 7. Order-Routine Specification • 8. Performance Review

17. Chapter 7/Objective 3: The Purchasing/Procurement Process • 8 Stages in More Detail • 1. Problem Recognition • Recognize a problem due to creating a new product, break down of equipment, unsatisfactory material, and opportunity for lower prices or better quality. • 2. General Need Description • Determine general characteristics and required quantity.

18. Chapter 7/Objective 3: The Purchasing/Procurement Process • 3. Product Specification • Product Value Analysis - an approach to cost reduction in which components are carefully studied to determine if they can be redesigned or standardized or made by cheaper methods of production. • 4. Supplier Search • Use trade directories, computer search, trade shows and ads, www.wiznet.net, etc...

19. Chapter 7/Objective 3: The Purchasing/Procurement Process • 5. Proposal Solicitation • Qualified suppliers invited to submit proposals. • 6. Supplier Selection - price still key • Rate suppliers on specific, weighted attributes. • Companies reducing # of suppliers. • 7. Order-Routine Specification • Negotiate final order, list technical specs, quantity needed, expected time of delivery, return policies, warranties, etc . . .

20. Chapter 7/Objective 3: The Purchasing/Procurement Process • 8. Performance Review • Contact end users and ask for their evaluations. • Rate supplier on several criteria using a weighted score method. • Aggregate the cost of poor supplier performace to come up with adjusted cost of purchase, including price. • May result in continuing, modifying, or ending relationship with supplier.

21. Module 4: Understanding Consumer and Industrial Markets • Chapter 6: • Consumer Markets and Buying Behavior • Chapter 7: • Business Markets and Buying Behavior • Any Questions