Marketing Management MKT 600

1. Marketing Management MKT 600 Consumer / Buyer behaviour

2. Analysing Customer/Industrial Markets Lecture Overview • Introduction • Consumer/Buyer Behaviour - Models of Consumer Behaviour - Factors Influencing Behaviour - Types of Buyer Behaviour - The Adoption Process • Organisational/Industrial Buyer Behaviour - Characteristics of Business Markets - Models of Organisational Buyer Behaviour - What buying decisions do Organisational Buyers make? - Who participates in the Buying Process? - What are the main influences on Organisational Buyers? 2

3. INTRODUCTION The process of buying goods or services is not as simple as it might seem. People in organisations do not just go to their supplier without thinking carefully about what they want. Wherever there is a choice, decisions are involved and these may be influenced by complex motives. Markets as we have seen in the previous lesson can fall into two broad categories of consumer and organisational or industrial, and the buying patterns within each are quite different. For example, a consumer buying a television for their home may determine that the size, shape and decorative design to be key characteristics or product attributes they seek. However, for a retail buyer, buying television sets for resale, the decision may be based more on the quality or brand of the televisions in respect of their own retail image, the price and discounts that can be obtained, delivery and often after sales service. Businesses when buying must determine what products and services their potential customers need and want and then make these items available to them. This is why organisations require detailed knowledge about the age, sex, occupation, social groupings and buying motives of their customers. Such details enable them to match the needs of each group of their consumers with an appropriate product. 3

4. MODELS OF CONSUMER BEHAVIOUR The 4 O’s model In earlier times, marketers could understand consumers well through daily experience of selling to them. But as organisations and markets have grown in size, many marketing decision makers have lost contact with these customers and have to turn to consumer research. The question they need answers are demonstrated through the concept of the 4 O’s • What do they buy? - Objects of purchase • Why do they buy? - Objectives of purchase • Who buys? - Operation of purchase • How do they buy? - Organisation of purchase • When do they buy? - Occasions of purchase 4 O’s frameworks to understanding buyer behaviour 4

5. MODELS OF CONSUMER BEHAVIOUR • Objectives of purchase -Convenience, shopping, speciality goods/services • Objectives of purchase -Economic, sociological, personal, psychological • Organisations of purchase -Family, reference group, roles and status • Operation of purchase - Buyer decision processes The central question to the above is understanding how consumers respond to various marketing stimuli that the company may use. The company that really understands how consumers will respond to different product features, prices and advertising appeals has a great advantage over its competitors. 5

6. STIMULUS RESPONSE MODEL Stimuli Decision making Process Problem recognition Information evaluation Decision Factors influencing behaviour • Personal influences • age and occupation • psychological • personality • perception • Motivation • attitude Macro forces Socio/cultural Technological Economic/competitive Political Product choice Brand choice Dealer choice Purchase timing Purchase amount • Marketing Mix • Product • Price • Place • Promotion • Sociological influences • culture/sub-culture • social class • reference groups • roles and status 6

7. FACTORS INFLUENCING BEHAVIOUR Sociological Influences • Culture – this is the most basic cause of a persons wants and behaviour. Human Behaviour is largely learned by growing up in a society and learning the basic values, perceptions, wants and behaviours from the family and other institutions (e.g. cultural behaviour in terms of the way we behave towards each other, rights and wrongs, equality for all, healthy living.) • Sub-culture – each culture contains smaller sub-cultures or groups of people with shared value systems based on common life experiences. For example, religions or racial groups, nationalities and geographic regions. • Social class – almost all societies have some form of class structure. The classes represent dimensions in society whose values, interests and behaviours are similar. In Britain 6 social classes are widely used, as shown below. • Reference groups – these groups serve as points of comparison or reference in forming a persons attitudes or behaviour and include informal regular interaction with religions, professional associations and even membership of a golf club These groups are influenced by – • Exposing the person to new behaviour and lifestyles • Influencing their attitudes and self-concept because most of us want to ‘fit in’ • Creating pressure within us to conform and so accept the group wisdom for buying a or b brand. 7

8. SOCIOLOGICAL INFLUENCES • Roles and Status – a person belongs to many groups. The person’s positions in each group can be defined in terms of both role and status. With your parents You play the role of their daughter or son, but with your children you play the role of a parent, while at work you may play the role as a brand manager. The role consists of activities that people are expected to perform according to the people around you and each role confers status which each of us needs to convey to others. Similarly, in the decision making process people may play more than one or more roles as shown below. • Initiator - person who suggest idea of buying product or brand • Influencer - person whose view influences the purchase decision • Decider - person who ultimately makes the buying decision • Buyer - person who makes the purchase • User - person who consumes the product or service In deciding on joining the MBA programme what roles did you play? Did you play all the roles or were some of the roles played by others that influenced your purchase behaviour? 8

9. Personal/Psychological • Age and life cycle – people change the goods and services they buy over their life times. Tastes in food, recreations and homes are often related. Buying is shaped by the family life cycle as shown below. • Family – sociologists often refer to the ‘nuclear’ family as a model for the modern day family. This typically comprises of a mother, father and 2 children. The family life cycle takes this concept one step further, by dividing the family into different life cycle stages. It is useful for the leisure provider to be able to identify the stages of the family life cycle as each stage has specific needs and characteristics. Bachelor stage, young single people Young couples, no children Full nest 1, young couples with children Single parent families Full nest 2, older couples still with dependent children Empty nest: older couple with no children living with them Older single people, still working or retired 9

10. Economic – a persons economic situation will affect product choice. Marketers of income sensitive goods closely watch trends in personal income, savings and interest rates so that they can take steps to redesign, reposition and reprice these products. • Lifestyle – this represents a persons pattern of living as expressed in his or her activities, interests and opinions. The technique for measuring lifestyles is known as psychographics, from which lifestyle classification groups can be developed according to whether consumers were inner directed (e.g. experiments), outer directed (e.g. achievers, belongers) or drivers (e.g. survivors). A bank found by using this classification, that the businessmen they were targeting consisted mainly of achievers who were strongly competitive individuals. The bank designed highly successful ads showing men taking part in solo sports such as sailing, jogging and skiing. • Motivation – a person has many needs at any given time. Some are biological, arising from the tension such as hunger or thirst. Others are psychological arising from the need for recognition, esteem and belonging. • Level of Importance – for example, a starving man will not be interested in a new painting or how he is seen by or esteemed by others. But as each important need is satisfied, the next important need will come into play. 10

11. Level of Importance Maslow developed a model, ‘A Hierarchy of needs’, which arranged our personal needs based on an order of importance, as shown below. Self actualisation needs (self fulfilment/development and realisation) 5 4 Esteem needs (self esteem- recognition, status) 3 Social needs (sense of belonging and love) 2 Safety needs (protection, security) 1 Physiological needs (basic drives), (thirst, hunger, warmth) 11

12. Perception A motivated person is ready to act. How a person acts is however influenced by his or her perception of the situation. Two people with the same motivation and in the same situation may react differently because of perception. Perception is the process by which people select, organise and interpret information to form a meaningful picture of the world. Why? Because of, • Selective attention – we are all exposed to so much stimuli that we screen out most of the information we are exposed to. Only that information that interests us gets through. • Selective distortion – even the information that’s gets through can be misinterpreted because of a persons mind-set. People tend to interpret information in a way that supports what they already believe. To be effective our stimuli must therefore understand the mind-set of the target audience. • Selective retention – most of us forget much of what we learn, but we tend to retain information that supports our attitude and beliefs. Marketers very often have to remind their customers why they should buy their products. 12

13. Beliefs and attitudes Through doing and learning people acquire beliefs and attitudes. A belief is a descriptive thought that a person has about something. Beliefs make up peoples views or images of a product or brand. If a belief is wrong marketers must campaign to change the belief to correct it. An attitude describes a person's relatively consistent evaluation or feelings and tendencies towards an object or idea. Attitudes put people in a frame of mind of liking or disliking. Attitudes are difficult to change so companies need to try and fit its products into existing attitudes rather than try to change attitudes. 13

14. TYPES OF BUYER BEHAVIOUR Consumers decision making varies with the type of buying decision (i.e. what they buy). The diagram below shows types of buyer behaviour based on the degree of buyer Involvement. High involvement Low involvement Significant differences between brands Few differences between brands Habitual – occurs under conditions of low consumer involvement and little or no significant brand difference (e.g. convenience items such as salt, flour, coffee, bus fare etc). Here consumers don’t actively seek information or evaluate brands, instead they passively receive information as they watch TV or read magazines. Ad repetition creates brand familiarity rather than brand conviction. Because buyers are not highly committed to any brand, marketers use price and sales promotion to stimulate product trial. Gaining distribution and attention at point of sale is crucial. 14

15. Variety seeking – consumers are again characterised by low consumer involvement, the difference being they perceive brand differences. Here consumers often do a lot of brand switching. For example, buying a chocolate bar, a consumer may hold some belief about the chocolate brand, such as Mars, or the retail outlet, such as Thorntons. But the next time, the consumer might pick up another brand out of boredom or the item not being immediately available. In such cases, the market leader (Mars) my try to encourage habitual buying behaviour by dominating shelf space, avoiding out of stock situations and running frequent reminder advertising. Challenger firms will encourage variety seeking by lowering price, deals, coupons and free samples and by advertising reasons for trying something new. • Dissonance reducing – this occurs when buyers are highly involved with an expensive, often infrequent and possibly risky purchase, but see little difference between brands. For example, buying a piece of furniture, carpet, electrical appliance etc. Here buyers may consider brands based on the economic influence of prices brands/range. They respond primarily to post-purchase dissonance when they discover more favourable things about other brands or an even better price deal. To counter, marketers should provide after sales communications to provide evidence in support of their brand so as to make the consumers feel good about their purchase. 15

16. Complex – complex buying behaviour is heavily involved in the purchase of an item because buyers perceive significant differences among brands, or when the product is expensive, risky and purchased infrequently. Marketers of high involvements (speciality products) must understand the information gathering and evaluation behaviour of high involvement customers. They need to help buyers learn about product attributes so they can differentiate their brand from the competitors. Advertising will carry detailed messages and reference groups including salespeople will be motivated to influence brand choice. 16

17. THE ADOPTION PROCESS People differ greatly in their readiness to try new products. In each product area there are pioneers and early adopters. But some people take a long time to try new products. This has led to a classification of people into the adopter categories shown below. 2½% innovations 13½% early adoptions 34% early majority 34% late majority 16% Laggards Adopter categorisation, Rogers 1983 It is important for marketers to recognise who are the opinion leaders in each of these groups who can influence the adoption of the new product 17

18. CHARACTERISTICS OF BUSINESS /Industrial MARKETS In some ways business markets are similar to consumer markets. Both involve people who assume buying roles and make purchase decisions to satisfy needs. However, business markets differ in terms of market structure and demand, the nature of buying and the types of decision. • Market structure and demand – • Buyers are far fewer but often much larger. • Business markets are more geographically concentrated. • Business demand is derived demand. • Many business markets have inelastic demand. • Nature of buying – • Business purchases usually involve more professional buyers or even buying committees or buying centres. • Business buying is often more complex and can involve many people at different levels in the organisation i.e. more formalised. • Decisions to buy can take some time • The buying process may involve close working relations between the buyer and the seller 18

19. CHARACTERISTICS OF BUSINESS MARKETS • Other characteristics – • Buyers often buy directly from producers rather than through Intermediaries. • Business buyers will often practice reciprocity, selecting suppliers who also buy from them. • Business buyers are increasingly leasing equipment instead of buying it outright. 19

20. MODELS OF BUSINESS BUYER BEHAVIOUR As with consumer buying, marketers want to understand how business buyers will respond to various marketing stimuli. As with consumer buying, the marketing stimuli for business buying consists of the 4 P’s: product, price, place and promotion. Other stimuli include influential forces in the environment as shown below. The Buying Centre Interpersonal& Individual influences Buying decision process Within the organisation, buying activity consists of 2 main parts, the buying centre made up of the people involved in the buying decisions and the buying decision process – Both of which are influenced by internal organisation, interpersonal and individual factors as well as external environmental factors. 20

21. WHAT BUYING DECISIONS DO ORGANISATIONAL BUYERS MAKE? There are 3 main types of buying decision • Straight Rebuy – buyer reorders something on a routine basis. • Modified Rebuy – buyer wants to modify the product specification process, prices, terms etc. this usually involves more decision participants. • New Task – buyers are buying something new for the first time. The greater the cost or risk, the lager will be the number of participant decision makers and the greater the effort to collect and evaluate the information. 21

22. WHO PARTCIPATES IN THE BUYING PROCESS? The decision making unit of a buying organisation is called its buying centre, defined as all the individuals that participate in the business decision making process. The buying centre includes members of the organisation who play any of the 5 roles in the purchase process. • Users – members of the organisation who use the product or service. • Influences – members who help define specifications and provide information for evaluating alternatives • People with the formal authority to select the supplier and arrange terms of purchase • Deciders – people who have the power to select and approve final suppliers • Gatekeepers – people who control the flow of information to others (e.g. purchasing agents, secretaries etc) 22

23. WHAT ARE THE MAIN INFLUENCES ON ORGANISATIONAL BUYERS? These can be summarised below as follows: Main influences on organisational buyer behaviour 23

24. Lets not forget Institutional and Government markets 40% of the UK’s GNP is spent by public/government bodies. Despite this the institutional markets (i.e. hospitals, schools, prisons etc) are characterised by low budgets and captive patrons. Like consumer and business buyers, government buyers are influenced by environment, organisational and interpersonal factors. But one thing unique to government in that all buying decisions are carefully watched by outside publics. All spending decisions are therefore subject to public scrutiny involving mountains of paperwork, bureaucracy and political sensitivities. 24