Chapter 5 Consumer & Business Buyer Behavior

1. Chapter 5Consumer & Business Buyer Behavior Professor Marshall Queens College

2. Consumer Buying Behavior • Refers to the buying behavior of people who buy goods and services for personal use. • These people make up the consumer market. • The central question for marketers is: • “How do consumers respond to various marketing efforts the company might use?”

3. Consider • People who buy Harley Davidson motorcycles • People who buy Mercedes • What is the buying behavior of these two types of people? • Would the same marketing strategy work for both groups?

4. Culture • Culture is the Most Basic Cause of a Person's Wants and Behavior. • Culture is learned from family, church, school, peers, colleagues. • Culture includes basic values, perceptions, wants, and behaviors.

5. Culture • Subculture • Groups of people with shared value systems based on common life experiences. • Major Groups • Hispanic Consumers • African-American Consumers • Asian-American Consumers • Generational: ex Mature Consumers • Gay/Lesbian Consumers

6. Social Class • Society’s relatively permanent and ordered divisions whose members share similar values, interests, and behaviors. • Measured by a combination of: occupation, income, education, wealth, and other variables.

7. Social Class Upper Class Upper Upper: Social elite who live on inherited wealth Lower Upper: Earned high income or wealth through exceptional ability Middle Class Upper Middle: professionals, independent business people, & corporate managers - believe in education Middle: Average pay white & blue collar who live on the ‘better side of town’ Working Class Lead a ‘working class lifestyle’ irrespective of income, education, or job. Depend on relatives for economic and emotional support Lower Class Upper Lower: The working poor. They lack education and are poorly paid for unskilled work. They strive toward a higher class. Lower Lower: Visibly poor. Often out of work and some depend on public assistance. Live day-to-day.

8. U.S. Population by Class

9. Social Class affects Purchasing Decisions • Class attitudes are reflected in what we buy • Cars, magazines, and even types of bread are consumed based on social lines. For a game designed to test your social class awareness: http://www.pbs.org/peoplelikeus/games/index.html

10. Social Factors • Groups: • Membership (direct membership, ex AARP) • Reference (indirect points of comparison, ex sports team) • Opinion Leaders – people with special skill, knowledge or personality, who exert influence on others • Aspirational – a group which someday one hopes to belong • Family: • Most important consumer buying organization • Roles & Status: • Role = Expected activities • Status = Esteem given to role by society

11. Age and Life-Cycle Stage Occupation Economic Situation These personal characteristics also affect buyers’ decisions. Personal Factors

12. Personal Factors • Lifestyle: • Pattern of living as expressed in psychographics • Activities • Interests • Opinions

13. SRI Consulting’s Values & Lifestyles (VALS) • Need-Driven • Survivor lifestyle – most disadvantaged • Sustainer lifestyle – still disadvantaged • Outer-Directed • Belonger lifestyle – comfortable middle class • Emulator lifestyle – strive to be achievers • Achiever lifestyle – leaders of business & government • Inner-Directed • I-Am-Me lifestyle – egocentric, young and individualistic • Experiential lifestyle – want experience and involvement • Societally Conscious lifestyle – sense of social responsibility • Combined Outer- and Inner-Directed • Integrated lifestyle – they have put it all together Source: http://www.context.org/ICLIB/IC03/SRIVALS.htm

14. Personality & Self-Concept • Personality refers to the unique psychological characteristics that lead to relatively consistent and lasting responses to one’s own environment. • Generally defined in terms of traits. • Self-concept (or self-image) suggests that people’s possessions contribute to and reflect their identities.

15. Maslow’s Hierarchy of Needs Self-actualization needs (self development & realization) Only when the rest have been satisfied, can a person make the most of his or her unique abilities & be at peace. Esteem needs (self esteem, recognition, status) Social needs (love, sense of belonging) Safety needs (security, protection) Physiological needs (hunger, thirst) Must satisfy these needs first

16. Perception Smell The process by which people select, organize, and interpret information. Hearing Taste Sight Touch Information Inputs Selective Exposure Selective Distortion Selective Retention Interpretation

17. Learning • A relatively permanent change in behavior due to experience. • Interplay of drives, stimuli, cues, responses, and reinforcement. • Strongly influenced by the consequences of an individual’s behavior • Behaviors with satisfying results tend to be repeated. • Behaviors with unsatisfying results tend not to be repeated.

18. Beliefs & Attitudes • A belief is a descriptive thought that a person holds about something. • An attitude is a person’s consistently favorable or unfavorable evaluations, feelings, and tendencies toward an object or idea.

19. Buying Decision Process The buying process starts long before purchase and lasts long after. Need Recognition Evaluation of Alternatives Purchase Decision Postpurchase Behavior Information Search Triggered by internal or external stimuli Personal sources, commercial sources, public sources (consumer rating sources), experiential sources (testing it out) Depends on the individual & the specific buying situation Two factors can come between the purchase intention & the purchase decision: attitudes of others & unexpected situational factors Satisfied or dissatisfied with the purchase? A routine purchase (ex milk, or toothpaste) might skip from need recognition to purchase decision.

20. Buying Decision Process • Consumer satisfaction is a function of consumer expectations and perceived product performance. • Performance < Expectations ----- Disappointment • Performance = Expectations ----- Satisfaction • Performance > Expectations ----- Delight

21. Buying Decision Process • Cognitive dissonance: a buyer’s doubts shortly after a purchase about whether it was the right decision.

22. Stages in the Adoption Process 34%Early Majority 34%Late Majority 2.5% Innovators 13.5%Early Adopters 16%Laggards X - 2σX - σ X X + σ Time of adoption of innovations Suspicious of change Try new ideas at some risk. Before the average person Opinion Leaders – adopt new ideas early but carefully Only after majority has tried it

23. Influence of Product Characteristics on Rate of Adoption Example: HDTV • Relative Advantage: Is the innovation superior to existing products? • Compatibility: Does the innovation fit the values and experience of the target market? • Complexity: Is the innovation difficult to understand or use? • Divisibility: Can the innovation be used on a limited basis? • Communicability: Can results be easily observed or described to others? Picture quality & ease of viewing Programming & broadcasting systems are not very compatible HDTV is not complex HDTVs are expensive, but leasing extends the adoption Lends itself to demonstration

24. Business Markets & Business Buyer Behavior • The business market is vast and involves far more dollars and items than do consumer markets. • Many sets of business purchases are often necessary just to prepare for one customer purchase • Business buyer behavior refers to the buying behavior of the organizations that buy goods and services for use in the production of other products and services that are sold, rented, or supplied to others. Most large companies sell to other companies (B2B). Examples: Boeing, Cisco Systems, even things like milk and bread have to be sold to retailers.

25. Market Structure and Demand: Contains far fewer but larger buyers. Customers are more geographically concentrated (CA, NY, OH, IL, MI, TX, PA, NJ). Business demand is derived from consumer demand (derived demand). Business Markets • Nature of the Buying Unit: • Business purchases involve more decision participants. • Business buying involves a more professional purchasing effort (purchasing agents or buying committees are usually in charge of business purchases – the field is known as supply management or procurement). Think back to Intel. They increased demand for Intel chips inside PCs. They promoted their product directly to consumers even though the result was an increase in business demand because Dell and other PC manufacturers had to buy more Intel chips.

26. Business buyers usually face more complex buying decisions. Business buying process tends to be more formalized. Buyers and sellers are much more dependent on each other. Types of Decisions and the Decision Process

27. Decision-making unit of a buying organization is called its buying center. Not a fixed and formally identified unit. Membership will vary for different products and buying situations. Participants in the Business Buying Process • Buying Center Members: • Users • Deciders • Influencers • Buyers • Gatekeepers The buying center is made up of all of the people involved in the buying decision (users, purchasers, people who influence the decision, even legal or accounting personnel depending on purchase).

28. Model of Business Buyer Behavior The buying Organization The buying center Buying Decision Process (interpersonal & individual preferences) (Organizational influences) The environment Buyer Responses Product of service choice Supplier choice Order Quantities Delivery Terms & times Service Terms Payment Marketing Stimuli Product Price Place Promotion Other Stimuli Economic Technological Political Cultural Competitive What buying decisions do business buyers make? Who participates in the buying process? What are the major influences on buyers? How do business buyers make their buying decisions?

29. Types of Buying Situations • Straight rebuy – reorders something with no modifications (fewest decisions) • Modified rebuy – modifies price, terms, or suppliers (more decisions making than a straight rebuy) • New Task – buying a product or service for the first time (greatest cost/risk, large number of decision participants, large amount of information must be collected).

30. Influences on Business Buyer Behavior • Environmental – economic developments, supply conditions, technological change, regulatory environments • Organizational, objectives, policies, procedures, organizational structure • Interpersonal – authority, status, persuasiveness • Individual – age, income, job position, personality & risk attitudes

31. The Business Buying Process Problem recognition Product Specification Supplier Search General Need Description Proposal Solicitation Supplier Selection Order-routine Specification Performance Review

32. e-Procurement • Advantages for buyers: • Access to new suppliers • Lowers purchasing costs • Hastens order processing and delivery • Advantages for vendors: • Share information with customers • Sell products and services • Provide customer support services • Maintain ongoing customer relationships GE set up Global eXchange Services Network for all GE business units to make purchases online. It is now open to other companies: http://www.gxs.com/ see Services, Trading Grid to

33. Video Case Sony Metreon (8 minutes)

34. Thoughts • Do you think that a kid playing at Metreon’s Playstation bar will eventually buy the game he liked or is he just taking advantage of Sony’s hospitality? • To what type of people do these stores appeal? • What is the relationship between a store like Sony Metreon and the types of people discussed in the model of “adoption of innovations”?