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Consumer Behavior

Consumer behavior is the study of how people buy, what they buy, when they buy and
why they buy. It attempts to understand the buyer decision making process, both
individually and in groups. It studies characteristics of individual consumers such as
demographics, psycho graphics, and behavioral variables in an attempt to understand
people's wants. It also tries to assess influences on the consumer from groups such as
family, friends, reference groups, and society in general.

Activities directly involved in obtaining , consuming and disposing of


products and services, including the decision processes that precede and follow these
actions.
This study draws on concepts from various other disciplines like
Psychology, Sociology, Anthropology, Economics and Marketing.

Customer behaviour study is based on consumer buying behaviour, with the


customer playing the three distinct roles of user, payer and buyer. Relationship
marketing is an influential asset for customer behavior analysis as it has a keen interest
in the re-discovery of the true meaning of marketing through the re-affirmation of the
importance of the customer or buyer. A greater importance is also placed on consumer
retention, customer relationship management, personalization, customization and one-to-
one marketing. Social functions can be categorized into social choice and welfare
functions.
Each method for vote counting is assumed as a social function but if
Arrow’s possibility theorem is used for a social function, social welfare function is
achieved. Some specifications of the social functions are decisiveness, neutrality,
anonymity, monotonicity, unanimity, homogeneity and weak and strong Pareto
optimality. No social choice function meets these requirements in an ordinal scale
simultaneously.
The most important characteristic of a social function is identification of the
interactive effect of alternatives and creating a logical relation with the ranks. Marketing
provides services in order to satisfy customers. With that in mind, the productive system
is considered from its beginning at the production level, to the end of the cycle, the
consumer (Kioumarsi et al., 2009).
“Belch and Belch” define consumer behaviour as 'the process and activities
people engage in when searching for, selecting, purchasing, using, evaluating, and
disposing of products and services so as to satisfy their needs and desires'.
Why We Need To Study Consumer Behaviour?
You cannot take the consumer for granted any more.
Therefore a sound understanding of consumer behaviour is essential
for the long run success of any marketing program
“Consumers” or the “Customers” play a very critical role as these are the people who
finally BUY the goods & services of the organization, and the firm is always on the
move to make them buy so as to earn revenue. It's crucial from both the points of view
as given below :

1. From the customers' point of view : Customers today are in a tough spot. Today, in
the highly developed & technologically advanced society, the customers have a
great deal of choices & options (and often very close & competing) to decide on.
1. They have the products of an extreme range of attributes (the 1st P -
Product),
2. they have a wide range of cost and payment choices (the 2nd P - Price),
3. they can order them to be supplied to their door step or anywhere else (the
3rd P - Place),
4. and finally they are bombarded with more communications from more
channels than ever before (the 4th P - Promotion).

How can they possibly decide where to spend their time and money, and
where they should give their loyalty ?

1. From the marketers' point of view : "The purpose of marketing is to sell more
stuff to more people more often for more money in order to make more profit".
This is the basic principle of requirement for the marketers in earlier days where
aggressive selling was the aim. Now it can't be achieved by force, aggression or
plain alluring. For the customers are today more informed, more knowledgeable,
more demanding, more discerning. And above all there is no dearth of marketers
to buy from. The marketers have to earn them or win them over.

The global marketplace is a study in diversity, diversity among consumers,


producers, marketers, retailers, advertising media, cultures, and customs and of course
the individual or psychological behaviour. However, despite prevailing diversity, there
also are many similarities. The object of the study of consumer behaviour is to provide
conceptual and technical tools to enable the marketer to apply them to marketing
practice, both profit & non-profit.
The study of consumer behaviour is very important to the marketers
because it enables them to understand and predict buying behaviour of consumers in the
marketplace; it is concerned not only with what consumers buy, but also with why they
buy it, when and where and how they buy it, and how often they buy it, and also how
they consume it & dispose it. Consumer research is the methodology used to study
consumer behaviour; it takes place at every phase of the consumption process: before
the purchase, during the purchase, and after the purchase. Research shows that two
different buyers buying the same product may have done it for different reasons, paid
different prices, used in different ways, have different emotional attachments towards
the things and so on.

According to Professor Theodore Levitt of the Harvard Business School,


the study of Consumer Behaviour is one of the most important in business education,
because the purpose of a business is to create and keep customers. Customers are created
and maintained through marketing strategies. And the quality of marketing strategies
depends on knowing, serving, and influencing consumers. In other words, the success of
a business is to achieve organizational objectives, which can be done by the above two
methods. This suggests that the knowledge & information about consumers is critical for
developing successful marketing strategies because it challenges the marketers to think
about and analyze the relationship between the consumers & marketers, and the
consumer behaviour & the marketing strategy.

Consumer behaviour is interdisciplinary; that is, it is based on concepts and


theories about people that have been developed by scientists, philosophers & researchers
in such diverse disciplines as psychology, sociology, social psychology, cultural
anthropology, and economics. The main objective of the study of consumer behaviour is
to provide marketers with the knowledge and skills, that are necessary to carry out
detailed consumer analyses which could be used for understanding markets and
developing marketing strategies. Thus, consumer behaviour researchers with their skills
for the naturalistic settings of the market are trying to make a major contribution to our
understanding of human thinking in general.

The study of consumer behaviour helps management understand consumers'


needs so as to recognize the potential for the trend of development of change in
consumer requirements and new technology. And also to articulate the new thing in
terms of the consumers' needs so that it will be accepted in the market well.
The following are a few examples of the benefits of the study of consumer behaviour
derived by the different categories of people :

1. A marketing manager would like to know how consumer behaviour will help him
to design better marketing plans to get those plans accepted within the company.

2. In a non-profit service organization, such as a hospital, an individual in the


marketing department would like to know the patients' needs and how best to
serve those needs.

3. Universities & Colleges now recognize that they need to know about consumer
behaviour to aid in recruiting students. "Marketing Admissions" has become an
accepted term to mean marketing to potential students.

Consumer behaviour has become an integral part of strategic market planning. It


is also the basis of the approach to the concept of Holistic Marketing.
The belief that ethics and social responsibility should also be integral components
of every marketing decision is embodied in a revised marketing concept - the societal
marketing concept - which calls on marketers to fulfill the needs of their target markets
in ways that improve society as a whole.

STUDY OF CONSUMERS PSYCHOLOGY


The study of consumers helps firms and organizations improve their marketing
strategies by understanding issues such as how

• The psychology of how consumers think, feel, reason, and select between
different alternatives (e.g., brands, products);
• The psychology of how the consumer is influenced by his or her environment
(e.g., culture, family, signs, media);
• The behavior of consumers while shopping or making other marketing decisions;
• Limitations in consumer knowledge or information processing abilities influence
decisions and marketing outcome;
• How consumer motivation and decision strategies differ between products that
differ in their level of importance or interest that they entail for the consumer; and
• How marketers can adapt and improve their marketing campaigns and marketing
strategies to more effectively reach the consumer.

One "official" definition of consumer behavior is "The study of individuals,


groups, or organizations and the processes they use to select, secure, use, and dispose of
products, services, experiences, or ideas to satisfy needs and the impacts that these
processes have on the consumer and society." Although it is not necessary to memorize
this definition, it brings up some useful points:

• Behavior occurs either for the individual, or in the context of a group (e.g., friends
influence what kinds of clothes a person wears) or an organization (people on the
job make decisions as to which products the firm should use).
• Consumer behavior involves the use and disposal of products as well as the study
of how they are purchased. Product use is often of great interest to the marketer,
because this may influence how a product is best positioned or how we can
encourage increased consumption. Since many environmental problems result
from product disposal (e.g., motor oil being sent into sewage systems to save the
recycling fee, or garbage piling up at landfills) this is also an area of interest.
• Consumer behavior involves services and ideas as well as tangible products.
• The impact of consumer behavior on society is also of relevance. For example,
aggressive marketing of high fat foods, or aggressive marketing of easy credit,
may have serious repercussions for the national health and economy.

There are four main applications of consumer behavior:


• The most obvious is for marketing strategy—i.e., for making better marketing
campaigns. For example, by understanding that consumers are more receptive to
food advertising when they are hungry, we learn to schedule snack advertisements
late in the afternoon. By understanding that new products are usually initially
adopted by a few consumers and only spread later, and then only gradually, to the
rest of the population, we learn that
• Companies that introduce new products must be well financed so that they can
stay afloat until their products become a commercial success
• It is important to please initial customers, since they will in turn influence many
subsequent customers’ brand choices.
• A second application is public policy. In the 1980s, Accutane, a near miracle cure
for acne, was introduced. Unfortunately, Accutane resulted in severe birth defects
if taken by pregnant women. Although physicians were instructed to warn their
female patients of this, a number still became pregnant while taking the drug. To
get consumers’ attention, the Federal Drug Administration (FDA) took the step of
requiring that very graphic pictures of deformed babies be shown on the medicine
containers.
• Social marketing involves getting ideas across to consumers rather than selling
something. Marty Fishbein, a marketing professor, went on sabbatical to work for
the Centers for Disease Control trying to reduce the incidence of transmission of
diseases through illegal drug use. The best solution, obviously, would be if we
could get illegal drug users to stop. This, however, was deemed to be infeasible. It
was also determined that the practice of sharing needles was too ingrained in the
drug culture to be stopped. As a result, using knowledge of consumer attitudes, Dr.
Fishbein created a campaign that encouraged the cleaning of needles in bleach
before sharing them, a goal that was believed to be more realistic.
• As a final benefit, studying consumer behavior should make us better consumers.
Common sense suggests, for example, that if you buy a 64 liquid ounce bottle of
laundry detergent, you should pay less per ounce than if you bought two 32 ounce
bottles. In practice, however, you often pay a size premium by buying the larger
quantity. In other words, in this case, knowing this fact will sensitize you to the
need to check the unit cost labels to determine if you are really getting a bargain.

Consumer Research Methods


Market research is often needed to ensure that we produce what customers really want
and not what we think they want.

Primary vs. secondary research methods.


There are two main approaches to marketing.
Secondary research involves using information that others have already put together.
For example, if you are thinking about starting a business making clothes for tall people,
you don’t need to question people about how tall they are to find out how many tall
people exist—that information has already been published by the U.S. Government.
Primary research, in contrast, is research that you design and conduct yourself. For
example, you may need to find out whether consumers would prefer that your soft
drinks be sweater or tarter.
Research will often help us reduce risks associated with a new product, but it cannot
take the risk away entirely. It is also important to ascertain whether the research has
been complete. For example, Coca Cola did a great deal of research prior to releasing
the New Coke, and consumers seemed to prefer the taste. However, consumers were not
prepared to have this drink replace traditional Coke.

Primary Methods. Several tools are available to the market researcher—e.g., mail
questionnaires, phone surveys, observation, and focus groups.

Surveys are useful for getting a great deal of specific information. Surveys can contain
open-ended questions (e.g., “In which city and state were you born? ____________) or
closed-ended, where the respondent is asked to select answers from a brief list (e.g.,
“__Male ___ Female.” Open ended questions have the advantage that the respondent is
not limited to the options listed, and that the respondent is not being influenced by
seeing a list of responses. However, open-ended questions are often skipped by
respondents, and coding them can be quite a challenge. In general, for surveys to yield
meaningful responses, sample sizes of over 100 are usually required because precision is
essential. For example, if a market share of twenty percent would result in a loss while
thirty percent would be profitable, a confidence interval of 20-35% is too wide to be
useful.

Surveys come in several different forms. Mail surveys are relatively inexpensive, but
response rates are typically quite low—typically from 5-20%. Phone-surveys get
somewhat higher response rates, but not many questions can be asked because many
answer options have to be repeated and few people are willing to stay on the phone for
more than five minutes. Mall intercepts are a convenient way to reach consumers, but
respondents may be reluctant to discuss anything sensitive face-to-face with an
interviewer.

Surveys, as any kind of research, are vulnerable to bias. The wording of a question can
influence the outcome a great deal. For example, more people answered no to the
question “Should speeches against democracy be allowed? than answered yes to
“Should speeches against democracy be forbidden?” For face-to-face interviews,
interviewer bias is a danger, too. Interviewer bias occurs when the interviewer
influences the way the respondent answers. For example, unconsciously an interviewer
that works for the firm manufacturing the product in question may smile a little when
something good is being said about the product and frown a little when something
negative is being said. The respondent may catch on and say something more positive
than his or her real opinion. Finally, a response bias may occur—if only part of the
sample responds to a survey, the respondents answers may not be representative of the
population.

Focus groups are useful when the marketer wants to launch a new product or modify an
existing one. A focus group usually involves having some 8-12 people come together in
a room to discuss their consumption preferences and experiences. The group is usually
led by a moderator, who will start out talking broadly about topics related broadly to the
product without mentioning the product itself. For example, a focus group aimed at
sugar-free cookies might first address consumers snacking preferences, only gradually
moving toward the specific product of sugar-free cookies. By not mentioning the
product up front, we avoid biasing the participants into thinking only in terms of the
specific product brought out. Thus, instead of having consumers think primarily in terms
of what might be good or bad about the product, we can ask them to discuss more
broadly the ultimate benefits they really seek. For example, instead of having consumers
merely discuss what they think about some sugar-free cookies that we are considering
releasing to the market, we can have consumers speak about their motivations for using
snacks and what general kinds of benefits they seek. Such a discussion might reveal a
concern about healthfulness and a desire for wholesome foods. Probing on the meaning
of wholesomeness, consumers might indicate a desire to avoid artificial ingredients. This
would be an important concern in the marketing of sugar-free cookies, but might not
have come up if consumers were asked to comment directly on the product where the
use of artificial ingredients is, by virtue of the nature of the product, necessary.

Focus groups are well suited for some purposes, but poorly suited for others. In general,
focus groups are very good for getting breadth—i.e., finding out what kinds of issues are
important for consumers in a given product category. Here, it is helpful that focus groups
are completely “open-ended: The consumer mentions his or her preferences and
opinions, and the focus group moderator can ask the consumer to elaborate. In a
questionnaire, if one did not think to ask about something, chances are that few
consumers would take the time to write out an elaborate answer. Focus groups also have
some drawbacks, for example:
• They represent small sample sizes. Because of the cost of running focus groups,
only a few groups can be run. Suppose you run four focus groups with ten
members each. This will result in an n of 4(10)=40, which is too small to
generalize from. Therefore, focus groups cannot give us a good idea of:
• What proportion of the population is likely to buy the product.
• What price consumers are willing to pay.
• The groups are inherently social. This means that:
• Consumers will often say things that may make them look good (i.e., they watch
public television rather than soap operas or cook fresh meals for their families
daily) even if that is not true.
• Consumers may be reluctant to speak about embarrassing issues (e.g., weight
control, birth control).

Personal interviews involve in-depth questioning of an individual about his or her


interest in or experiences with a product. The benefit here is that we can get really into
depth (when the respondent says something interesting, we can ask him or her to
elaborate), but this method of research is costly and can be extremely vulnerable to
interviewer bias.

To get a person to elaborate, it may help to try a common tool of psychologists and
psychiatrists—simply repeating what the person said. He or she will often become
uncomfortable with the silence that follows and will then tend to elaborate. This
approach has the benefit that it minimizes the interference with the respondent’s own
ideas and thoughts. He or she is not influenced by a new question but will, instead, go
more in depth on what he or she was saying.

Personal interviews are highly susceptible to inadvertent “signaling to the respondent.


Although an interviewer is looking to get at the truth, he or she may have a significant
interest in a positive consumer response. Unconsciously, then, he or she may
inadvertently smile a little when something positive is said and frown a little when
something negative is said. Consciously, this will often not be noticeable, and the
respondent often will not consciously be aware that he or she is being “reinforced and
“punished for saying positive or negative things, but at an unconscious level, the
cumulative effect of several facial expressions are likely to be felt. Although this type of
conditioning will not get a completely negative respondent to say all positive things, it
may “swing the balance a bit so that respondents are more likely to say positive thoughts
and withhold, or limit the duration of, negative thoughts.

Projective techniques are used when a consumer may feel embarrassed to admit to
certain opinions, feelings, or preferences. For example, many older executives may not
be comfortable admitting to being intimidated by computers. It has been found that in
such cases, people will tend to respond more openly about “someone else.” Thus, we
may ask them to explain reasons why a friend has not yet bought a computer, or to tell a
story about a person in a picture who is or is not using a product. The main problem
with this method is that it is difficult to analyze responses.

Projective techniques are inherently inefficient to use. The elaborate context that has to
be put into place takes time and energy away from the main question. There may also be
real differences between the respondent and the third party. Saying or thinking about
something that “hits too close to home may also influence the respondent, who may or
may not be able to see through the ruse.

Observation of consumers is often a powerful tool. Looking at how consumers select


products may yield insights into how they make decisions and what they look for. For
example, some American manufacturers were concerned about low sales of their
products in Japan. Observing Japanese consumers, it was found that many of these
Japanese consumers scrutinized packages looking for a name of a major manufacturer—
the product specific-brands that are common in the U.S. (e.g., Tide) were not impressive
to the Japanese, who wanted a name of a major firm like Mitsubishi or Proctor &
Gamble. Observation may help us determine how much time consumers spend
comparing prices, or whether nutritional labels are being consulted.

A question arises as to whether this type of “spying inappropriately invades the privacy
of consumers. Although there may be cause for some concern in that the particular
individuals have not consented to be part of this research, it should be noted that there is
no particular interest in what the individual customer being watched does. The question
is what consumers—either as an entire group or as segments—do. Consumers benefit,
for example, from stores that are designed effectively to promote efficient shopping. If it
is found that women are more uncomfortable than men about others standing too close,
the areas of the store heavily trafficked by women can be designed accordingly. What is
being reported here, then, are averages and tendencies in response. The intent is not to
find “juicy observations specific to one customer.
The video clip with Paco Under hill that we saw in class demonstrated the application of
observation research to the retail setting. By understanding the phenomena such as the
tendency toward a right turn, the location of merchandise can be observed. It is also
possible to identify problem areas where customers may be overly vulnerable to the “but
brush, or overly close encounter with others. This method can be used to identify
problems that the customer experiences, such as difficulty finding a product, a mirror, a
changing room, or a store employee for help.

On line research methods: The Internet now reaches the great majority of households
in the U.S., and thus, online research provides new opportunity and has increased in use.
One potential benefit of online surveys is the use of “conditional branching.” In
conventional paper and pencil surveys, one question might ask if the respondent has
shopped for a new car during the last eight months. If the respondent answers “no, he or
she will be asked to skip ahead several questions—e.g., going straight to question 17
instead of proceeding to number 9. If the respondent answered “yes, he or she would be
instructed to go to the next question which, along with the next several ones, would
address issues related to this shopping experience. Conditional branching allows the
computer to skip directly to the appropriate question. If a respondent is asked which
brands he or she considered, it is also possible to customize brand comparison questions
to those listed. Suppose, for example, that the respondent considered Ford, Toyota, and
Hyundai, it would be possible to ask the subject questions about his or her view of the
relative quality of each respective pair—in this case, Ford vs. Toyota, Ford vs. Hyundai,
and Toyota vs. Hyundai.
There are certain drawbacks to online surveys. Some consumers may be more
comfortable with online activities than others—and not all households will have access.
Today, however, this type of response bias is probably not significantly greater than that
associated with other types of research methods. A more serious problem is that it has
consistently been found in online research that it is very difficult—if not impossible—to
get respondents to carefully read instructions and other information online—there is a
tendency to move quickly. This makes it difficult to perform research that depends on
the respondent’s reading of a situation or product description.
On line search data and page visit logs provides valuable ground for analysis. It is
possible to see how frequently various terms are used by those who use a firm’s web site
search feature or to see the route taken by most consumers to get to the page with the
information they ultimately want. If consumers use a certain term frequently that is not
used by the firm in its product descriptions, the need to include this term in online
content can be seen in search logs. If consumers take a long, “torturous route to
information frequently accessed, it may be appropriate to redesign the menu structure
and/or insert hyper links in “intermediate pages that are found in many users routes.

Scanner data:
Many consumers are members of supermarket “clubs.” In return for signing p for
a card and presenting this when making purchases, consumers are often eligible for
considerable discounts on selected products.
Researchers use a more elaborate version of this type of program in some
communities. Here, a number of consumers receive small payments and/or other
incentives to sign up to be part of a research panel. They then receive a card that they are
asked to present any time they go shopping. Nearly all retailers in the area usually
cooperate. It is now possible to track what the consumer bought in all stores and to have
a historical record.
The consumer’s shopping record is usually combined with demographic
information (e.g., income, educational level of adults in the household, occupations of
adults, ages of children, and whether the family owns and rents) and the family’s
television watching habits. (Electronic equipment run by firms such as A. C. Nielsen
will actually recognize the face of each family member when he or she sits down to
watch).

It is now possible to assess the relative impact of a number of factors on the consumer’s
choice—e.g.,
 What brand in a given product category was bought during the last, or a series of
past, purchase occasions;
 Whether, and if so, how many times a consumer has seen an ad for the brand in
question or a competing one;
 Whether the target brand (and/or a competing one) is on sale during the store visit;
 Whether any brand had preferential display space;
 The impact of income and/or family size on purchase patterns; and
 Whether a coupon was used for the purchase and, if so, its value.
A “split cable technology allows the researchers to randomly select half the panel
members in a given community to receive one advertising treatment and the other half
another. The selection is truly random since each household, as opposed to
neighborhood, is selected to get one treatment or the other. Thus, observed differences
should, allowing for sampling error, the be result of advertising exposure since there are
no other systematic differences between groups.
Interestingly, it has been found that consumers tend to be more influenced by
commercials that they “zap through while channel surfing even if they only see part of
the commercial. This most likely results from the reality that one must pay greater
attention while channel surfing than when watching a commercial in order to determine
which program is worth watching.

Scanner data is, at the present time, only available for certain grocery item product
categories—e.g., food items, beverages, cleaning items, laundry detergent, paper towels,
and toilet paper. It is not available for most non-grocery product items. Scanner data
analysis is most useful for frequently purchased items (e.g., drinks, food items, snacks,
and toilet paper) since a series of purchases in the same product category yield more
information with greater precision than would a record of one purchase at one point in
time. Even if scanner data were available for electronic products such as printers,
computers, and MP3 players, for example, these products would be purchased quite
infrequently. A single purchase, then, would not be as effective in effectively
distinguishing the effects of different factors—e.g., advertising, shelf space, pricing of
the product and competitors, and availability of a coupon—since we have at most one
purchase instance during a long period of time during which several of these factors
would apply at the same time. In the case of items that are purchased frequently, the
consumer has the opportunity to buy a product, buy a competing product, or buy nothing
at all depending on the status of the brand of interest and competing brands. In the case
of the purchase of an MP3 player, in contrast, there may be promotions associated with
several brands going on at the same time, and each may advertise. It may also be that the
purchase was motivated by the breakdown of an existing product or dissatisfaction or a
desire to add more capabilities.

Physiological measures are occasionally used to examine consumer response. For


example, advertisers may want to measure a consumer’s level of arousal during various
parts of an advertisement. This can be used to assess possible discomfort on the negative
side and level of attention on the positive side.

By attaching a tiny camera to plain eye glasses worn by the subject while watching an
advertisement, it is possible to determine where on screen or other ad display the subject
focuses at any one time. If the focus remains fixed throughout an ad sequence where the
interesting and active part area changes, we can track whether the respondent is
following the sequence intended. If he or she is not, he or she is likely either not to be
paying as much attention as desired or to be confused by an overly complex sequence. In
situations where the subject’s eyes do move, we can assess whether this movement is
going in the intended direction.

Mind-reading would clearly not be ethical and is, at the present time, not possible in any
event. However, it is possible to measure brain waves by attaching electrodes. These
readings will not reveal what the subject actually thinks, but it is possible to distinguish
between beta waves—indicating active thought and analysis—and alpha waves,
indicating lower levels of attention.

An important feature of physiological measures is that we can often track performance


over time. A subject may, for example, be demonstrating good characteristics—such as
appropriate level of arousal and eye movement—during some of the ad sequence and
not during other parts. This, then, gives some guidance as to which parts of the ad are
effective and which ones need to be reworked.

In a variation of direct physiological measures, a subject may be asked, at various points


during an advertisement, to indicate his or her level of interest, liking, comfort, and
approval by moving a lever or some instrument (much like one would adjust the volume
on a radio or MP3 player). Republican strategist used this technique during the
impeachment and trial of Bill Clinton in the late 1990s. By watching approval during
various phases of a speech by the former President, it was found that viewers tended to
respond negatively when he referred to “speaking truthfully but favorably when the
President referred to the issues in controversy as part of his “private life.” The
Republican researchers were able to separate average results from Democrats,
Independents, and Republicans, effectively looking at different segments to make sure
that differences between each did not cancel out effects of the different segments. (For
example, if at one point Democrats reacted positively and Republicans responded
negatively with the same intensity, the average result of apparent indifference would
have been very misleading).
Research sequence. In general, if more than one type of research is to be used, the more
flexible and less precise method—such as focus groups and/or individual interviews—
should generally be used before the less flexible but more precise methods (e.g., surveys
and scanner data) are used. Focus groups and interviews are flexible and allow the
researcher to follow up on interesting issues raised by participants who can be probed.
However, because the sample sizes are small and because participants in a focus group
are influenced by each other, few data points are collected. If we run five focus groups
with eight people each, for example, we would have a total of forty responses. Even if
we assume that these are independent, a sample size of forty would give very imprecise
results. We might conclude, for example, that somewhere between 5% and 40% of the
target market would be interested in the product we have to offer. This is usually no
more precise than what we already reasonably new. Questionnaires, in contrast, are
highly inflexible. It is not possible to ask follow-up questions. Therefore, we can use our
insights from focus groups and interviews to develop questionnaires that contain specific
questions that can be asked to a larger number of people. There will still be some
sampling error, but with a sample size of 1,000+ responses, we may be able to narrow
the 95% confidence interval for the percentage of the target market that is seriously
interested in our product to, say, 17-21%, a range that is much more meaningful.

Cautions:
Some cautions should be heeded in marketing research. First, in general, research should
only be commissioned when it is worth the cost. Thus, research should normally be
useful in making specific decisions (what size should the product be? Should the product
be launched? Should we charge $1.75 or $2.25?)

Secondly, marketing research can be, and often is, abused. Managers frequently have
their own “agendas (e.g., they either would like a product to be launched or would prefer
that it not be launched so that the firm will have more resources left over to tackle their
favorite products). Often, a way to get your way is to demonstrate through “objective
research that your opinions make economic sense. One example of misleading research,
which was reported nationwide in the media, involved the case of “The Pentagon
Declares War on Rush Limbaugh.” The Pentagon, within a year of the election of
Democrat Bill Clinton, reported that only 4.2% of soldiers listening to the Armed Forces
Network wanted to hear Rush Limbaugh. However, although this finding was reported
without question in the media, it was later found that the conclusion was based on the
question “What single thing can we do to improve programming?” If you did not write
in something like “Carry Rush Limbaugh, you were counted as not wanting to hear him.

Overall Model Of Consumer Behaviour


Overall Model of Consumer Behaviour

External Influence Decision Process


Culture

Sub-Culture

Demographics

Social Status

Reference Groups Self Concept Problem Recognition


and Learning
Family
Information Research
Marketing Activities
Alternate Evaluation and Selection

Internal Influence Outlet Select and Purchase

Perception Post Purchase Processes

Learning

Memory
Motives

Personality
Emotions
Attitudes

Influence on the consumer


Often, we take cultural influences for granted, but they are significant. An American
will usually not bargain with a store owner. This, however, is a common practice in
much of the World.

Physical factors also influence our behavior. We are more likely to buy a soft drink
when we are thirsty, for example, and food manufacturers have found that it is more
effective to advertise their products on the radio in the late afternoon when people are
getting hungry.

A person’s self-image will also tend to influence what he or she will buy—an upwardly
mobile manager may buy a flashy car to project an image of success.

Social factors also influence what the consumers buy—often, consumers seek to imitate
others whom they admire, and may buy the same brands. The social environment can
include both the mainstream culture (e.g., Americans are more likely to have corn flakes
or ham and eggs for breakfast than to have rice, which is preferred in many Asian
countries) and a subculture (e.g., rap music often appeals to a segment within the
population that seeks to distinguish itself from the mainstream population). Thus,
sneaker manufacturers are eager to have their products worn by admired athletes.

Finally, consumer behavior is influenced by learning—you try a hamburger and learn


that it satisfies your hunger and tastes good, and the next time you are hungry, you may
consider another hamburger.

Article Based on Consumer Behaviour.


Analyzing consumer behaviour ( Vineet Hemrajani )
(The author is Business Analytics Manager, GE-SBI Credit Cards.)

To reap the maximum benefits from data analytics, firms have to invest in
the right technology, hire the right people and develop standardized and robust processes
of data collection, data retrieval, data analysis and strategy implementation.

UNDERSTANDING consumer behaviour is the key to success in the


marketplace. Companies are constantly looking at customer behavioral patterns to
predict future trends. Among the many tools is data analytics. Broadly speaking, data
analytics can be described as the process of collecting, analyzing and using data (related
to demographic information, past behaviour trends, etc) to better understand and predict
the behaviour of existing and prospective customers for business decision-making.
The common tools used to conduct data analytics range from simple cross tabulations
and segmentation analysis to more sophisticated statistical methods such as multivariate
and logistic regression, discriminant analysis and cluster analysis. In the last few years,
optimization tools and machine learning algorithms such as neural networks and genetic
algorithms have also been used to perform advanced data analysis.
The recent years have seen increased use of data analytics in driving business strategies
across various industries. While the data analytics methods have been extensively used
in FMCG, pharmaceutic and telecoms companies, their mainstay has been the consumer
finance industry.
The wide scale applications of predictive data analytics started almost
four decades ago in the form of credit scoring models pioneered by Fair, Isaac &
Company (FICO) in the United States. These credit scoring models or scorecards were
used to predict customer default. Today, the FICO Risk score is the benchmark for credit
decision process in the US, so much so that the `Prime' and `Sub Prime' markets are
defined on the basis of this score.
With the exponential increase in computing power and application of
information technology in business processes, more and more data analytics techniques
and statistical tools are now being applied for Marketing, Risk Management, Pricing and
NPI functions in the consumer finance industry.
In India, it is common for major banks and financial services companies to use data
analytics to better manage their credit card, housing, personal and auto loan and
insurance portfolios.
But why are businesses increasingly adopting the use of data
analytics in their day-to-day working? Clearly because it allows these firms to predict
the behaviour of existing and potential customers. Empowered with this information,
firms are able to devise suitable strategies to better manage their respective businesses.
On the risk management front, data analytics techniques can help a bank develop an
approval strategy for its mortgage and auto loan applications and also help to determine
the optimal lending rate.
The same techniques can help an insurance firm decide the premium for its
policyholders. The data analytics techniques have been extensively used in the credit
card businesses to decide on credit and cash line assignments and dynamic authorization
and fraud detection activities.
Data analytics is also effectively used in managing the collections functions
of the consumer finance companies. Using statistical modelling, the companies are able
to predict the likelihood of contacting a customer and chances of receiving a payment
from him. This information is helpful in choosing the right collections strategies that
optimize collection efficiency and effectiveness.
On the marketing side, the use of data analytics in the form of response
models helps companies design and execute cross sell, up sell, deep sell and retention
strategies. In the long run, creative use of past customer data through predictive
modeling helps companies in building powerful and effective analytical CRM (customer
relationship management) platforms.
These analytical CRM platforms allow firms to make suitable offers to its
customers and optimize campaigns through e-mail, direct mail, telemarketing and
inbound call channels. Consumer finance companies in the US, where the credit bureaus
are fairly developed, use data analytics to evaluate the quality of consumer loan and
insurance portfolios during mergers, acquisitions and securitization deals. What do
companies need to do to use data analytics effectively? Experts believe that to reap the
maximum benefits from data analytics, firms have to invest in the right technology, hire
the right people and last but not the least develop standardized and robust processes of
data collection, data retrieval, data analysis and strategy implementation.
For example, a company may invest in a separate analytics data mart to
capture the relevant customer data. This data are mainly of three types: demographic,
behavioural and contact information. While demographic data refers to information
about customer characteristics like age, income, etc., behavioural data includes
information of customer's prior performance like transaction history and delinquency
behaviour. Contact information includes history of prior offers and contacts made to the
customer.
Once the data mart is ready, the company needs to build efficient and robust
systems for extracting and analyzing data from the data mart. After the required data
analysis is completed and a suitable strategy using data analytics has been devised, it is
important to ensure that strategies are implemented efficiently and accurately.
The implementation of analytically driven strategies has been rather `painful' process for
most companies. However if the right IT infrastructure exists and process planning is
rigorous then implementation can be accomplished with minimal disruption of business
processes and limited impact on the company's resources.

To facilitate easier and faster implementation, software that integrate with a


company's work flow and account receivable systems to implement the risk and
marketing strategies are now available. Campaign management packages, systems that
enable easy execution and tracking of analytically driven targeted marketing campaigns
are also being increasingly used by consumer finance companies.
After a particular business strategy (a new risk policy or marketing
campaign) has been implemented, the companies need to measure the performance of
the business strategy and make sure that the results can be tracked effectively for future
use. The process of continuous designing, executing, and tracking and allows companies
to `test and learn' and thereby helps them gain a competitive edge.
The above process requires firms to make investments in technology — database
packages, statistical software, implementation platforms, and reporting and analysis
tools. Most major software companies have developed data mining and analytics
software, however the use of specialized statistical software such as SAS, SPSS for
predictive modelling and of reporting and analysis tools such as Business Objects and
COGNOS is common.
A team of systems specialists and data analysts is required to develop and
maintain efficient data marts and robust implementation and analysis systems. To
conduct data analytics, teams of econometric and statistical modellers and business
analysts that can effectively perform strategic analysis and build predictive models need
to be developed.
Major financial services firms in India have built internal data analytics and
business intelligence teams of data analysts and statistical modellers that support
marketing and risk management activities. A significant number of independent third
party data analytics companies that provide end-to-end data analytics solutions have also
mushroomed in the last couple of years.
The market for consumer finance products is growing at a rapid rate in
India. To seize this opportunity, new financial services firms are entering the industry
and the existing banks are increasingly focusing on retail portfolios. The pressures to
make high profits remain high in the face of increasing competition. For consumer
finance companies, use of data analytics is no more a luxury but a necessity. Firms that
invest in data analytics now will reap in the benefits for a long time to come.
Major Factors Influencing Consumer Behavior
Consumers do not make their decisions in a vacuum. Their purchases are highly
influenced by cultural social, personal, and psychological factors. For the most part, they
are “non controllable” by the marketer but must be taken in to account. We want to
examine the influence of each factor on a buyer’s behavior.

Cultural Factors:

In a diversified country like India cultural factors exert the broadest and deepest
influence on consumer behavior; we will look at the role played by the buyer’s culture,
subculture, and social class.
Culture is part of the external influences that impact the consumer. That is, culture
represents influences that are imposed on the consumer by other individuals.
The definition of culture offered in one textbook is “That complex whole which includes
knowledge, belief, art, morals, custom, and any other capabilities and habits acquired by
man person as a member of society.” From this definition, we make the following
observations:
 Culture, as a “complex whole, is a system of interdependent components.
 Knowledge and beliefs are important parts. In the U.S., we know and believe that
a person who is skilled and works hard will get ahead. In other countries, it may
be believed that differences in outcome result more from luck. “Chunking, the
name for China in Chinese, literally means “The Middle Kingdom.” The belief
among ancient Chinese that they were in the center of the universe greatly
influenced their thinking.
 Other issues are relevant. Art, for example, may be reflected in the rather arbitrary
practice of wearing ties in some countries and wearing turbans in others. Morality
may be exhibited in the view in the United States that one should not be naked in
public. In Japan, on the other hand, groups of men and women may take steam
baths together without perceived as improper. On the other extreme, women in
some Arab countries are not even allowed to reveal their faces. Notice, by the
way, that what at least some countries view as moral may in fact be highly
immoral by the standards of another country. For example, the law that once
banned interracial marriages in South Africa was named the “Immorality Act,
even though in most civilized countries this law, and any degree of explicit racial
prejudice, would itself be considered highly immoral.
Culture has several important characteristics:

 Culture is comprehensive. This means that all parts must fit together in some
logical fashion. For example, bowing and a strong desire to avoid the loss of face
are unified in their manifestation of the importance of respect.

 Culture is learned rather than being something we are born with. We will consider
the mechanics of learning later in the course.

 Culture is manifested within boundaries of acceptable behavior. For example, in


American society, one cannot show up to class naked, but wearing anything from
a suit and tie to shorts and a T-shirt would usually be acceptable. Failure to behave
within the prescribed norms may lead to sanctions, ranging from being hauled off
by the police for indecent exposure to being laughed at by others for wearing a
suit at the beach.

 Conscious awareness of cultural standards is limited. One American spy was


intercepted by the Germans during World War II simply because of the way he
held his knife and fork while eating.

 Cultures fall somewhere on a continuum between static and dynamic depending


on how quickly they accept change. For example, American culture has changed a
great deal since the 1950s, while the culture of Saudi Arabia has changed much
less.
Dealing with culture.
Culture is a problematic issue for many marketers since it is inherently nebulous and
often difficult to understand. One may violate the cultural norms of another country
without being informed of this, and people from different cultures may feel
uncomfortable in each other’s presence without knowing exactly why (for example, two
speakers may unconsciously continue to attempt to adjust to reach an incompatible
preferred interpersonal distance).

Warning about stereotyping.


When observing a culture, one must be careful not to over-generalize about traits that
one sees. Research in social psychology has suggested a strong tendency for people to
perceive an “out group as more homogeneous than an “in group, even when they knew
what members had been assigned to each group purely by chance. When there is often a
“grain of truth to some of the perceived differences, the temptation to over-generalize is
often strong. Note that there are often significant individual differences within cultures.

Cultural lessons.
We considered several cultural lessons in class; the important thing here is the big
picture. For example, within the Muslim tradition, the dog is considered a “dirty animal,
so portraying it as “man’s best friend in an advertisement is counter-productive.
Packaging, seen as a reflection of the quality of the “real product, is considerably more
important in Asia than in the U.S., where there is a tendency to focus on the contents
which “really count.” Many cultures observe significantly greater levels of formality
than that typical in the U.S., and Japanese negotiator tend to observe long silent pauses
as a speaker’s point is considered.

Cultural characteristics as a continuum. There is a tendency to stereotype cultures as


being one way or another (e.g., individualistic rather than collectivist). Note, however,
countries fall on a continuum of cultural traits. Hofstede’s research demonstrates a wide
range between the most individualistic and collectivist countries, for example—some
fall in the middle.

Hofstede’s Dimensions. Gert Hofstede, a Dutch researcher, was able to interview a


large number of IBM executives in various countries, and found that cultural differences
tended to center around four key dimensions:
• Individualism vs. collectivism: To what extent do people believe in individual
responsibility and reward rather than having these measures aimed at the larger
group? Contrary to the stereotype, Japan actually ranks in the middle of this
dimension, while Indonesia and West Africa rank toward the collectivist side. The
U.S., Britain, and the Netherlands rate toward individualism.

• Power distance: To what extent is there a strong separation of individuals based


on rank? Power distance tends to be particularly high in Arab countries and some
Latin American ones, while it is more modest in Northern Europe and the U.S.

• Masculinity vs. femininity involves a somewhat more nebulous concept.


“Masculine” values involve competition and “conquering nature by means such as
large construction projects, while “feminine values involve harmony and
environmental protection. Japan is one of the more masculine countries, while the
Netherlands rank relatively low. The U.S. is close to the middle, slightly toward
the masculine side. ( The fact that these values are thought of as “masculine or
“feminine does not mean that they are consistently held by members of each
respective gender—there are very large “within-group differences. There is,
however, often a large correlation of these cultural values with the status of
women.

• Uncertainty avoidance involves the extent to which a “structured situation with


clear rules is preferred to a more ambiguous one; in general, countries with lower
uncertainty avoidance tend to be more tolerant of risk. Japan ranks very high. Few
countries are very low in any absolute sense, but relatively speaking, Britain and
Hong Kong are lower, and the U.S. is in the lower range of the distribution.

Although Hofstede’s original work did not address this, a fifth dimension of long term
vs. short term orientation has been proposed. In the U.S., managers like to see quick
results, while Japanese managers are known for take a long term view, often accepting
long periods before profitability is obtained.

High vs. low context cultures: In some cultures, “what you see is what you get”

Social Class:
Virtually all human societies exhibit social stratification. Stratification sometimes takes
the form of a caste system where the member of different caste are reared for certain
roles and cannot change their caste membership .More frequently, stratification takes the
form of social classes .
Social Classes have several characteristics. First, Person with in each social class tend to
behave more alike than persons from two different social classes. Second, persons are
perceived as occupying inferior or superior positions according to their social class.
Third, a person’s social class is indicated by a number of variables, such as occupation,
income, wealth, education , and value orientation, rather than by any single variable ,
fourth, individuals are able to move from one social class to another up or down during
their lifetime. The Extent of this mobility varies according to the rigidity of social
stratification a given society.

Social Factors:
A consumer’s behavior is also influenced by social factors, such as the consumer’s
reference group, family, and social roles and statuses.
Group influences on consumer behavior can impact motivation, values, and individual
information processing; they can come from groups to which consumers already belong
or from groups to which they aspire to belong (aspirational groups). Groups can exert a
variety of influences on individuals, including: (1) informational influences where the
group acts as a source for expert opinions; (2) comparative influences such that the
group provides opportunities to manage the individual's self-concept with respect to the
group's identity; and, (3) normative influences, whereby the group specifies guidelines
and sanctions for appropriate or inappropriate individual behaviors.
The influence of groups on consumer behavior tends to vary with a variety of group and
product-related factors. For example, the more the group is perceived to be a credible,
valued source of approval or disapproval to the consumer, the more likely that consumer
is to conform to group values. In addition, the more frequently group members interact,
and the more outwardly visible use of the product is to group and non-group members,
the greater the group's influence on individual consumption behavior.

Family Group:
Members of the buyer’s family can exercise a strong influence on the buyer’s behavior.
we can distinguish between two families in the buyer’s life . The family of orientation
consists of one’s parents. From parents a persons acquires an orientation towards
religious, politics, and economics and a sense of personal ambitions, self –worth, and
love. Even if the buyer no longer interacts very much with his or her parents, the parents
influence on the unconscious behavior of the buyer can be significant. In countries
where parents continue to live with their children, their influence can be substantial.
In case of expensive products and services, husband and wives engage in more joint
decision making. The market needs to determine which member normally has the greater
influence in the purchase of a particular products or services. either the husband or the
wife , or they have equal influence . The following products and services fall under such:
Husband – dominant: life insurance, automobiles, television
Wife – dominant: washing machines, carpeting, non –living – room furniture,
kitchenware
Equal: Living – room furniture, vacation, Housing, outside entertainment.
Internal Influence:

Perception:
Perception is how we see ourselves and the world we live in. However, what ends up
being stored inside us doesn’t always get there in a direct manner. Often our mental
makeup results from information that has been consciously or subconsciously filtered as
we experience it, a process we refer to as a perceptual filter. To us this is our reality,
though it does not mean it is an accurate reflection on what is real. Thus, perception is
the way we filter stimuli (e.g., someone talking to us, reading a newspaper story) and
then make sense out of it.
Perception has several steps.
• Exposure – sensing a stimuli (e.g. seeing an ad)
• Attention – an effort to recognize the nature of a stimuli (e.g. recognizing it is an
ad)
• Awareness – assigning meaning to a stimuli (e.g., humorous ad for particular
product)
• Retention – adding the meaning to one’s internal makeup (i.e., product has fun
ads)
How these steps are eventually carried out depends on a person’s approach to learning.
By learning we mean how someone changes what they know, which in turn may affect
how they act. There are many theories of learning, a discussion of which is beyond the
scope of this tutorial, however, suffice to say that people are likely to learn in different
ways. For instance, one person may be able to focus very strongly on a certain
advertisement and be able to retain the information after being exposed only one time
while another person may need to be exposed to the same advertisement many times
before he/she even recognizes what it is. Consumers are also more likely to retain
information if a person has a strong interest in the stimuli. If a person is in need of new
car they are more likely to pay attention to a new advertisement for a car while someone
who does not need a car may need to see the advertisement many times before they
recognize the brand of automobile.

Consumer motivation:
A marketer's job is to figure out what needs and wants the consumer has,
and what motivates the consumer to purchase. Motivation is the drive that initiates all
our consumption behaviors, and consumers have multiple motives, or goals. Some of
these are overt, like a physiological thirst that motivates a consumer to purchase a soft
drink or the need to purchase a new suit for an interview. Other motives are more
obscure, like a student's need to tote a Kate Spade bookbag or wear Doc Martens to gain
social approval. Most consumption activities are the result of several motives operating
at the same time. Researchers specially trained in uncovering motives often use
qualitative research techniques in which consumers are encouraged to reveal their
thoughts (cognitions) and feelings (affect) through probing dialogue. Focus groups and
in-depth interviews give consumers an opportunity to discuss products and express
opinions about consumption activities. Trained moderators or interviewers are often able
to tap into preconscious motives that might otherwise go undetected. Sentence
completion tasks (e.g., Men who wear Old Spice are . . .) or variants of the Thematic
Apperception Tests (TAT), in which respondents are shown a picture and asked to tell a
story surrounding it, are additional techniques that provide insight into underlying
motives.
Consumer motives or goals can be represented by the values they hold.
Values are people's broad life goals that symbolize a preferred mode of behaving (e.g.,
independent, compassionate, honest) or a preferred end-state of being (e.g., sense of
accomplishment, love and affection, social recognition). Consumers buy products that
will help them achieve desired values; they see product attributes as a means to an end.
Understanding the means-end perspective can help marketers better position the product
and create more effective advertising and promotion campaigns.

Consumer information processing:


The consumer information-processing approach aids in
understanding consumptive behavior by focusing on the sequence of mental activities
that people use in interpreting and integrating their environment.
The sequence begins with human perception of external stimuli.
Perception is the process of sensing, selecting, and interpreting stimuli in one's
environment. We begin to perceive an external stimulus as it comes into contact with
one of our sensory receptors—eyes, ears, nose, mouth, or skin. Perception of external
stimuli influences our behavior even without our conscious knowledge that it is doing
so. Marketers and retailers understand this, and they create products and stores
specifically designed to influence our behavior. Fast-food chains paint their walls in
"hot" colors, like red, to speed up customer turnover. Supermarkets steer entering
customers directly into the produce section, where they can smell and touch the food,
stimulating hunger. A hungry shopper spends more money.

Close your eyes and think for a moment about the hundreds of objects,
noises, and smells surrounding you at this very moment. In order to function in this
crowded environment, we choose to perceive certain stimuli while ignoring others. This
process is called selectivity. Selectivity lets us focus our attention on the things that
provide meaning for interpreting our environment or on the things that are relevant to us,
while not wasting our limited information-processing resources on irrelevant items. Did
you even notice that after you decide on, say, Florida, for your vacation destination,
there seems to be an abundance of ads for Florida resorts, airline promotions for Florida,
and articles about Florida restaurants and attractions everywhere? Coincidence? Not
really. There are just as many now as there were before, only now you are selectively
attending to them, whereas you previously filtered them out. Marketers continuously
struggle to break through the clutter and grab consumers' attention. Advertising and
packaging is designed to grab our attention through a host of techniques, like the use of
contrast in colors and sound, repetition, and contextual placement.
Did you watch TV last night? You may have paid attention to many of the
ads you saw during the commercial breaks; you may even have laughed out loud at a
few of them. But how many can you recall today? Consumers' ability to store, retain,
and retrieve product information is critical to a brand's success. When information is
processed, it is held for a very brief time (less than one minute) in working, or short-
term, memory. If this information is rehearsed (mentally repeated), it is transferred to
long-term memory; if not, the information is lost and forgotten. Once transferred to long-
term memory, information is encoded or arranged in a way that provides meaning to the
individual. Information in long-term memory is constantly reorganized, updated, and
rearranged as new information comes in, or learning takes place. Information-processing
theorists represent the storage of information in long-term memory as a network
consisting of nodes (word, idea, or concept) and links (relationships among them).
Nodes are connected to each other depending on whether there is an association between
concepts, with the length of the linkages representing the degree of the association.
Figure 2 illustrates a network model of long-term memory. When Edwin Land invented
the first Polaroid instant camera, knowledge structures for cameras changed to reflect
the association between photography and instant output. Now, knowledge structures are
changing to reflect the new I-Zone camera.
The complete network brought to mind when a product is activated is called
the product schema. Knowing the set of associations that consumers retrieve from long-
term memory about a particular product or category is critical to a successful marketing
strategy. For new products or services, marketers must first select the set of associations
they want consumers to have. This is called positioning the product, or selecting the
brand image.
Peak Freans' unique positioning as an adult cookie was accomplished by
establishing a link between the concept "serious" and "cookie." The brand position is
then translated into clever ads, reinforced on product packaging, and integrated into all
promotion and communication strategies. Over time, a brand's image can fade or
become diluted. Sometimes consumers associate concepts that are not favorable to a
brand. When this occurs, marketers reposition the brand, using advertising and other
marketing tools to help consumers create new links to positive association and discard
links to the unfavorable ones. In the mid-1990s, Hush Puppies shoes made a comeback
after decades of low sales. Introducing exciting, vibrant colors, Hush Puppies
repositioned their basic comfort shoe as fashionable, youth-oriented, and "cool."
Strategies for successful brand extensions also depend on the brand schema. Generally
speaking, a brand extension is more likely to be successful if the set of associations for
the extension matches the set of associations of the core product. Would Lifesavers
brand toothpaste sell? Probably not, because the associations for Lifesavers (sweet,
candy, sugar, fruity) are not the same as those for toothpaste (mint, clean, noncandy). On
the other hand, a Lifesavers brand sugared children's cereal with colorful, fruity rings
has a much better match of associations.

Attitude formation and change:


The set of beliefs consumers have stored in long-term memory provides
another critical function to marketers: It provides the basis for a consumer's attitude
toward a brand or an ad. An attitude is an overall evaluation of an object, idea, or action.
Attitudes can be positive or negative, and weakly or strongly held. The statement "I love
Ben & Jerry's Vanilla Toffee Crunch" is a strong, positively valenced attitude toward a
product. The statement "I dislike the new Toyota ad" is a weak, negatively valanced
attitude toward an advertisement. Marketers work hard to continuously monitor
consumer attitudes toward their products. Among other things, attitudes can indicate
problems with a product or campaign, success with a product or campaign, likelihood of
future sales, and overall strength of the brand or brand equity.
A popular perspective is that attitude has three components: cognitive,
affective, and co native. The cognitive component reflects the knowledge and beliefs
one has about the object (e.g., "Digital Club Network is an on-line live music Internet
site."), the affective component reflects feelings (e.g., "I like the Digital Club Network
site") and the co native component reflects a behavioral tendency toward the object (e.g.,
"I will become a registered user of digitalclubnetwork.com"). Thus, attitudes are
predispositions to behave in a certain way. If you have a favorable attitude toward a
politician, you will likely vote for him or her in the next election. Because of this, many
marketers use attitude measures for forecasting future sales. It is important to note,
however, that the link between attitudes and behavior is far from perfect. Consumers can
hold positive attitudes toward multiple brands but intend to purchase only one. External
economic, social, or personal factors often alter behavioral plans.
Attitudes are dynamic, which means they are constantly changing. As an
individual learns new information, as fads change, as time goes on, the attitudes you
once held with confidence may no longer exist. Did you ever look at old photos of
yourself and wonder "What was I thinking wearing clothes like that? And look at my
hairstyle!"
Buyer Decision Process
Buyer decision processes are the decision making processes undertaken by consumers in
regard to a potential market transaction before, during, and after the purchase of a
product or service.

More generally, decision making is the cognitive process of selecting a


course of action from among multiple alternatives. Common examples include shopping
and deciding what to eat. Decision making is said to be a psychological construct. This
means that although we can never “see” a decision, we can infer from observable
behaviour that a decision has been made. Therefore we conclude that a psychological
event that we call “decision making” has occurred. It is a construction that imputes
commitment to action. That is, based on observable actions, we assume that people have
made a commitment to effect the action.

In general there are three ways of analyzing consumer buying decisions. They are:

• Economic models - These models are largely quantitative and are based on the
assumptions of rationality and near perfect knowledge. The consumer is seen to
maximize their utility. See consumer theory. Game theory can also be used in
some circumstances.

• Psychological models - These models concentrate on psychological and cognitive


processes such as motivation and need recognition. They are qualitative rather
than quantitative and build on sociological factors like cultural influences and
family influences.

• Consumer behaviour models - These are practical models used by marketers.


They typically blend both economic and psychological models.

Nobel laureate Herbert Simon sees economic decision making as a vain attempt to
be rational. He claims (in 1947 and 1957) that if a complete analysis is to be done, a
decision will be immensely complex. He also says that peoples' information processing
ability is very limited. The assumption of a perfectly rational economic actor is
unrealistic. Often we are influenced by emotional and non-rational considerations. When
we try to be rational we are at best only partially successful.
Consumer Decision-Making Models, Strategies,
and Theories

How do consumers make decisions?

This question is at the core of much of marketing examination over the past 60 or 70
years. As marketers manipulate the various principles of marketing, so do the consumers
they seek to reach–choosing which products and services to buy, and which not to buy,
choosing which brands to use, and which brands to ignore. The focus of this paper is to
examine the major decision-making models, strategies, and theories that underlie the
decision processes used by consumers and to provide some clarity for marketing
executives attempting to find the right mix of variables for their products and services.

Three Decision-Making Models

Early economists, led by Nicholas Bernoulli, John von Neumann, and Oskar
Morgenstern, puzzled over this question. Beginning about 300 years ago, Bernoulli
developed the first formal explanation of consumer decision making. It was later
extended by von Neumann and Morgenstern and called the Utility Theory. This theory
proposed that consumers make decisions based on the expected outcomes of their
decisions. In this model consumers were viewed as rational actors who were able to
estimate the probabilistic outcomes of uncertain decisions and select the outcome which
maximized their well-being. However, as one might expect, consumers are typically not
completely rational, or consistent, or even aware of the various elements that enter into
their decision making. In addition, though consumers are good at estimating relative
frequencies of events, they typically have difficulty translating these frequencies into
probabilities. This Utility model, even though had been was viewed as the dominant
decision-making paradigm, had serious shortcomings that could not be explained by the
model.
Nobel Laureate Herbert Simon proposed an alternative, simpler model in the mid-1950s.
This model was called Satisficing, in which consumers got approximately where they
wanted to go and then stopped the decision-making process. An example of this would
be in the search for a new apartment. Under the Utility Theory, consumers would
evaluate every apartment in a market, and form a linear equation based on all the
pertinent variables, and then select the apartment that had the highest overall utility
score. With Satisficing, however, consumers might just evaluate apartments within a
certain distance to their desired location, stopping when they found one that was “good
enough.” This theory, though robust enough to encompass many of the shortcomings of
Utility Theory, still left significant room for improvement in the area of prediction. After
all, if a marketing executive can’t predict consumer behavior, then what use is a
decision-making paradigm. Simon and others have extended this area in the
investigation of the field of bounded rationality. Following Simon, additional efforts
were made to develop better understandings of consumer decision making, extending
beyond the mathematical optimization of Utility Theory and the somewhat unsatisfying
Satisficing Theory. In the late 1970s, two leading psychologists, Daniel Kahneman and
Amos Tversky, developed the Prospect Theory, which expanded upon both the Utility
Theory and Satisficing Theory to develop a new theory that encompassed the best
aspects of each, while solving many of the problems that each presented.

Two major elements that were added by Kahneman and Tversky were the
concepts of value (replacing the utility found in Utility Theory) and endowment, in
which an item is more precious if one owns it than if someone else owns it. Value
provided a reference point and evaluated both gains and losses from that reference point.
Additionally, gains and losses have a marginally decreasing increase from the
reference point. For example, there is a much greater value for the first incremental gain
from the reference point than for subsequent gains.

Seven Decision-Making Strategies:

What this all led to was the development and exploration of a series of
useful consumer decision-making strategies that can be exploited by marketers. For each
product, marketers need to understand the specific decision-making strategy utilized by
each consumer segment acquiring that product. If this is done, marketers can position
their product in such a manner that the decision-making strategy leads consumers to
select their product. The first two strategies are called compensatory strategies. In these
strategies, consumers allow a higher value of one attribute to compensate for a lesser
value of another attribute. For example, if a consumer is looking at automobiles, a high
value in gas mileage might compensate for a lower value in seating space. The
attributes might have equal weight (EQUAL WEIGHT STRATEGY) or have different
weights for the attributes (WEIGHTED ADDITIVE STRATEGY).An example of the
latter might be to place twice as much importance on gas mileage than seating space.
The next three strategies are called non compensatory strategies. In these strategies, each
attribute of a specific product is evaluated without respect to the other attributes, and
even though a product may have a very high value on one attribute, if it fails another
attribute, it is eliminated from consideration.
From Simon, the first of these is SATISFICING, in which the first product
evaluated to meet cutoff values for all attributes is chosen, even if it is not the best.
The second of these strategies, ELIMINATION BY ASPECTS, sets a
cutoff value for the most important attribute, and allows all competing products that
meet that cutoff value to go to the next attribute and its cutoff value.
The third strategy, LEXICOGRAPHIC, evaluates the most important
attribute, and if a product is clearly superior to others, stops the decision process and
selects that product; otherwise, it continues to the next most important attribute.

The next two strategies are called partially compensatory strategies, in that
strategies are evaluated against each other in serial fashion and higher values for
attributes are considered. The first of these strategies is called MAJORITY OF
CONFORMING DIMENSIONS, in which the first two competing products are
evaluated across all attributes, and the one that has higher values across
more dimensions, or attributes, is retained. This winner is then evaluated against the next
competitor, and the one that has higher values across more dimensions is again retained.

The second partially compensatory strategy is called FREQUENCY OF


GOOD AND BAD FEATURES, in which all products are simultaneously compared to
the cutoff values for each of their relevant attributes, and the product that has the most
“good” features that exceed the cutoff values is the winner. There are other expansions
upon these seven basic consumer decision- making strategies, but they are generally
captured as shown above. However, two major areas of marketing theory also help to
provide additional explanatory power to these strategies.

Two Marketing Theories:


The first marketing theory is called Consideration. In this theory, consumers
form a subset of brands from which the decision-making strategies are applied. For
example, if asked to enumerate all the restaurants that one could recall, the list might be
quite extensive for most consumers. However, when a consumer first addresses the
question of where to dine that evening,a short list of restaurants that are actively
considered is utilized for the decision-making process. Multistage decision-making
models were summarized by Allan Shocker, in which the increasing complexity of a
decision produces more steps in the decision process. In essence, more cognitive effort
would be expended in evaluating members of the consideration set and reducing that
number to an eventual choice.

The second marketing theory is called Involvement, in which the amount of


cognitive effort applied to the decision-making process is directly related to the level of
importance that the consumer places on acquisition of the specific product.

For example, there is rarely a significant amount of decision-making


applied to the selection of a pack of chewing gum at the grocery store checkout counter,
but there is a much greater amount of decision-making effort applied to the purchase of a
new cellphone. This degree of involvement is not necessarily a function of the price, but
is more related to the perceived impact on the quality of life of the consumer. The
quality of life can come directly from the benefits supplied by the product, or can come
indirectly from the social accolades or sanctions provided by members of the peer group.

Summary
Application of the three decision making models, the seven decision-
making strategies, and the two marketing theories can be seen in current efforts by
marketing practitioners and academicians to tease apart the complex decisions made by
consumers. For example,choice models and conjoint models are multivariate analysis
techniques based on these understandings. Consumers are presented with choices in
controlled environments that, hopefully, control for other confounding variables, and
then the choices are decomposed to understand both the conscious and unconscious
elements driving the consumer’s choices. One caveat for practitioners is important to
address at this point. When one is attempting to manipulate marketing variables such as
price or promotion, or even conduct research into consumer decision-making, it is
critical that a solid theoretical base be used. Without this base, the surveys have the
potential of producing contradictory or misleading answers, and the attempts to
manipulate the variables at hand may produce less.

AIUAPR Model:
Most directly links to the steps in the marketing/promotional process is often seen as the
most generally useful:

• AWARENESS - before anything else can happen the potential customers must
become aware that the product or service exists. Thus, the first task must be to
gain the attention of the target audience. All the different models are,
predictably, agreed on this first step. If the audience never hears the message,
they will not act on it, no matter how powerful it is

• INTEREST - but it is not sufficient to grab their attention. The message must
interest them and persuade them that the product or service is relevant to their
needs. The content of the message(s) must therefore be meaningful and clearly
relevant to that target audience's needs, and this is where marketing research
can come into its own.

• UNDERSTANDING - once an interest is established, the prospective


customer must be able to appreciate how well the offering may meet his or her
needs, again as revealed by the marketing research. This may be no small
achievement where the advertiser has just a few words, or ten seconds, to
convey their message.
• ATTITUDES - but the message must go even further; to persuade the reader
to adopt a sufficiently positive attitude towards the product or service that he or
she will purchase it, albeit as a trial. There is no adequate way of describing
how this may be achieved. It is simply down to the magic of the advertiser's
art, or based on the strength of the product or service itself.

• PURCHASE - all the above stages might happen in a few minutes while the
reader is considering the advertisement; in the comfort of his or her favorite
armchair. The final buying decision, on the other hand, may take place some
time later; perhaps weeks later, when the prospective buyer actually tries to
find a shop which stocks the product.

• REPEAT PURCHASE - but in most cases this first purchase is best viewed as
just a trial purchase. Only if the experience is a success for the customer will it
be turned into repeat purchases. These repeats, not the single purchase which is
the focus of most models, are where the vendors focus should be, for these are
where the profits are generated. The earlier stages are merely a very necessary
prerequisite for this.

This is a very simple model, and as such does apply quite generally. Its
lessons are that you cannot obtain repeat purchasing without going through the stages of
building awareness and then obtaining trial use; which has to be successful. It is a
pattern which applies to all repeat purchase products and services; industrial goods just
as much as baked beans. This simple theory is rarely taken any further - to look at the
series of transactions which such repeat purchasing implies. The consumer's growing
experience over a number of such transactions is often the determining factor in the later
- and future - purchases. All the succeeding transactions are, thus, interdependent - and
the overall decision-making process may accordingly be much more complex than most
models allow for
Problem Recognition:

The Crucial First Stage of the Consumer Decision Process.

Problem recognition results when there is a difference between one's desired state
and one's actual state. Consumers are motivated to address this discrepancy and
therefore they commence the buying process.

Sources of Problem Recognition:

• An item is out of stock


• Dissatisfaction with a current product or service
• Consumer needs and wants
• Related products/purchases
• Marketer-induced
• New products

How can you measure problem recognition?

 Activity analysis: This method focuses on a particular activity such as preparing


dinner, maintaining a lawn, or lighting a fireplace fire. This method attempts to
determine what problems the consumer encounters in performing a particular
activity.

 Product analysis: This method focuses on the purchase and/or use of a particular
product or brand in an attempt to determine what problems a consumer may
encounter in purchasing or using this product.

 Problem analysis: This method takes an opposite approach in that it starts with a
list of problems and asks consumers to indicate activities, products, or brands that
are associated with these problems.

 Human factors research: This approach looks at the capabilities of humans, and
attempts to design products in light of these capabilities.
 Emotion research: Focus groups and projective techniques are beginning to be
used to help us understand the role of emotion in problem recognition.

Ways can marketers react to problem recognition:

 Modify the marketing mix (product, price, place or promotion) to resolve a


particular problem and improve on the existing level of performance (actual
state).
 In the case of latent problem recognition, the marketer may stimulate problem
recognition and direct search, evaluation, and purchase of a product that resolves
the problem.
 For a problem recognition of little importance, the marketer may bring greater
attention to this problem (increase its perceived importance) while indicating a
solution to this problem.
 In some instances a marketer may try to either reduce the discrepancy that is the
cause of the problem recognition and/or attempt to reduce the importance attached
to it, thereby reducing the intensity of the problem. Many cigarette manufacturers
attempt to do both in their cigarette advertising.

Generic problem recognition


Generic problem recognition refers to a problem that a particular type of product (like
milk or tuna) can solve.

Selective problem recognition


Selective problem recognition refers to a problem that can only be solved by a specific
brand or product like Good pasture Milk or Al’s Tuna.

Generally, a firm will attempt to influence generic problem recognition when the
problem is latent or of low importance and:
1. It is early in the product life cycle.
2. The firm has a very high percentage of the market.
3. External search after problem recognition is apt to be limited.
4. It is an industry wide cooperative effort.
Causes of problem recognition
Problem recognition is a function of the
(1) Importance
(2) Magnitude of a discrepancy between the desired state and an existing state.
Thus, the firm can attempt to influence the size of the discrepancy by altering the
desired state or the perceptions of the existing state. Or, the firm can attempt to
influence the perception of the importance of an existing discrepancy.

Marketers often advertise the benefits their products will provide, hoping that
these benefits will become desired by consumers. It is also possible to influence
perceptions of the existing state through advertisements. Many personal care and social
products take this approach. "Even your best friend won't tell you . . .”or “Kim is a great
worker but this coffee . . .” are examples of messages designed to generate concern
about an existing state.

Suppress problem recognition?


Advertisements can be designed that will aid in the
suppression of problem recognition. Such an ad would directly or indirectly indicate that
a potential problem is not really a problem. Some would say that ads showing healthy
active people smoking cigarettes is an attempt to suppress problem recognition about
health and smoking. Also, effective quality control, distribution, packaging, and package
inserts are commonly used for this purpose.

Information Search:

Seeking Value The information search stage clarifies the options open to the
consumer and may involve.

Once the consumer has recognized a problem, they search for information on
products and services that can solve that problem. Belch and Belch (2007) explain that
consumers undertake both an internal (memory) and an external search.

Sources of information include:


• Personal sources
• Commercial sources
• Public sources
• Personal experience
The relevant internal psychological process that is associated with information search is
perception. Perception is defined as 'the process by which an individual receives, selects,
organizes, and interprets information to create a meaningful picture of the world'

The selective perception process


Stage Description
- Selective exposure consumers select which promotional messages they will expose
themselves to.
- Selective attention consumers select which promotional messages they will pay
attention to
- Selective comprehension consumer interpret messages in line with their beliefs,
attitudes, motives and experiences
- Selective retention consumers remember messages that are more meaningful or
important to them

The implications of this process help develop an effective promotional strategy, and
select which sources of information are more effective for the brand CV.

Two steps of
information search

• Scanning one’s memory to recall previous


experiences with products or brands.
Internal
• Often sufficient for frequently purchased
search
products.

External • When past experience or knowledge is


search insufficient
• The risk of making a wrong purchase decision is
high
• The cost of gathering information is low.
The primary sources of external information are:

1. Personal sources, such as friends and family.


2. Public sources, including various product-rating
organizations such as Consumer Reports.
3. Marketer-dominated sources, such as advertising,
company websites, and salespeople

ALTERNATIVE EVALUATION

At this time the consumer compares the brands and products that are in their evoked set.
How can the marketing organization increase the likelihood that their brand is part of the
consumer's evoked (consideration) set? Consumers evaluate alternatives in terms of the
functional and psychological benefits that they offer. The marketing organization needs
to understand what benefits consumers are seeking and therefore which attributes are
most important in terms of making a decision.
The information search clarifies the problem for the consumer by

(1) Suggesting criteria to use for the purchase.


(2) Yielding brand names that might meet the criteria.
(3) Developing consumer value perception.

• A consumer's evaluative criteria represent both


• the objective attributes of a brand (such as locate speed on a portable CD
player)
• the subjective factors (such as prestige).

• These criteria establish a consumer's evoked set


• the group of brands that a consumer would consider acceptable from among
all the brands in the product class of which he or she is aware

Measurement of Evaluative Criteria:


• Direct methods:
• ask consumers what information they use in a particular purchase
• observe what consumers say about products and their attributes;
e.g., focus groups

• Indirect methods:
• projective techniques:
allow a person to indicate what criteria someone else might use
• perceptual mapping:
consumers judge the similarity of alternative brands (often by ranking),
which is processed by a computer to derive a spatial configuration

Purchase decision:
Once the alternatives have been evaluated, the consumer is ready to
make a purchase decision. The process of going to the shop to buy the product, which
for some consumers can be as just as rewarding as actually purchasing the product.
Purchase of the product can either be through the store, the web, or over the phone.
Sometimes purchase intention does not result in an actual purchase. The marketing
organization must facilitate the consumer to act on their purchase intention. The
provision of credit or payment terms may encourage purchase, or a sales promotion such
as the opportunity to receive a premium or enter a competition may provide an incentive
to buy now. The relevant internal psychological process that is associated with purchase
decision is integration.

Purchase Decision: Buying Value

• which depends on such considerations


• Terms of sale
Three From whom to
• Past experience buying from the seller
possibilities buy
• Return policy.
• which can be influenced by
• store atmosphere
• time pressure
When to buy • a sale
• pleasantness of the shopping
experience.

Do not buy

Post-purchase Behavior: Value in Consumption or Use

Ever have doubts about the product after you purchased it? This simply is post purchase
behaviour and research shows that it is a common trait amongst purchasers of products.
Manufacturers of products clearly want recent consumers to feel proud of their purchase,
it is therefore just as important for manufacturers to advertise for the sake of their recent
purchaser so consumers feel comfortable that they own a product from a strong and
reputable organization. This limits post purchase behaviour. i.e. You feel reassured that
you own the latest advertised product.

It is common for customers to experience concerns after making a purchase decision.


This arises from a concept that is known as “cognitive dissonance”. The customer,
having bought a product, may feel that an alternative would have been preferable. In
these circumstances that customer will not repurchase immediately, but is likely to
switch brands next time.
To manage the post-purchase stage, it is the job of the marketing team to persuade the
potential customer that the product will satisfy his or her needs. Then after having made
a purchase, the customer should be encouraged that he or she has made the right
decision. It is not effected by advertisement.

• After buying a product, the consumer compares it with expectations and is either
satisfied or dissatisfied.

• Satisfaction or dissatisfaction affects


• consumer value perceptions
• consumer communications
• repeat-purchase behavior.
• Many firms work to produce positive post purchase communications among
consumers and contribute to relationship building between sellers and buyers.

• Cognitive Dissonance. The feelings of post purchase psychological tension or


anxiety a consumer often experiences
• Firms often use ads or follow-up calls from salespeople in this post purchase stage
to try to convince buyers that they made the right decision.

Customer Relationship Management

Customer relationship management is a broadly recognized, widely-


implemented strategy for managing and nurturing a company’s interactions with
customers and sales prospects. It involves using technology to organize, automate, and
synchronize business processes—principally sales related activities, but also those for
marketing, customer service, and technical support. The overall goals are to find, attract,
and win new customers, nurture and retain those the company already has, entice former
customers back into the fold, and reduce the costs of marketing and customer service.
According to Forrester Research, spending on customer relationship management is
expected to top $11 billion annually by 2010, as enterprises seek to grow top-line
revenues, improve the customer experience, and boost the productivity of customer-
facing staff

Overview
Once simply a label for a category of software tools, CRM has matured and
broadened as a concept over the years. Today, customer relationship management
generally denotes a company-wide business strategy embracing all customer-facing
departments and even beyond. When an implementation is effective, people, processes,
and technology work in synergy to develop and strengthen relationships, increase
profitability, and reduce operational costs.

Challenges
Tools and work flows can be complex to implement, especially for large
enterprises. While some companies report great success, initiatives have also been
known to fail—mainly owing to poor planning, a mismatch between software tools and
company needs, roadblocks to collaboration between departments, and a lack of
workforce buy-in and adoption.[citation needed]
Tools and Trends
Previously these tools were generally limited to contact management: monitoring and
recording interactions and communications with customers. Software solutions then
expanded to embrace deal tracking and the management of accounts, territories,
opportunities, and—at the managerial level—the sales pipeline itself. Next came the
advent of tools for other customer-facing business functions, as described below.
Perhaps the most notable trend has been the growth of tools delivered via
the Web, also known as cloud computing and software as a service (SaaS). In contrast
with conventional on-premises software, cloud-computing applications are sold by
subscription, accessed via a secure Internet connection, and displayed on a Web browser.
Companies don’t incur the initial capital expense of purchasing software; neither must
they buy and maintain IT hardware to run it on. For these and other reasons, the SaaS
option has proven very attractive, and SaaS applications have garnered a large share of
the market. They are currently its fastest-growing segment. Vendors include:
Salesforce.com, RightNow and SugarCRM.
CRM technology has been, and still is, offered as on-premises software that
companies purchase and run on their own IT infrastructure. Vendors include: Oracle
Corporation, SAP AG, and Amdocs.
In 2009, SaaS represented approximately 20% of all customer relationship
management spending, and continued its trajectory of outselling on-premises software
by a ratio of 3-to-1.
Types/variations

Sales Force Automation


As its name implies, a sales force automation (SFA) system provides an
array of capabilities to streamline all phases of the sales process, minimizing the time
that reps need to spend on manual data entry and administration. This allows them to
successfully pursue more customers in a shorter amount of time than would otherwise be
possible. At the heart of SFA is a contact management system for tracking and recording
every stage in the sales process for each prospective customer, from initial contact to
final disposition. Many SFA applications also include features for opportunity
management, territory management, sales forecasting and pipeline, work flow
automation, quote generation, and product knowledge. Newly-emerged priorities are
modules for Web 2.0 e-commerce and pricing management.

Marketing
Systems for marketing (also known as marketing automation) help the
enterprise identify and target its best customers and generate qualified leads for the sales
team.A key marketing capability is managing and measuring multichannel campaigns,
including email, search, social media, and direct mail. Metrics monitored include clicks,
responses, leads, deals, and revenue. Marketing automation also encompasses
capabilities for managing customer loyalty, lists, collateral, and internal marketing
resources.
As marketing departments are increasingly obliged to demonstrate revenue impact,
today’s systems typically include performance management features for measuring the
ROI of campaigns.

Customer Service and Support:

Recognizing that customer service is an important differentiator,


organizations are increasingly turning to technology platforms to help them improve
their customers’ experience while increasing efficiency and keeping a lid on costs. Even
so, a 2009 study revealed that only 39% of corporate executives believe their employees
have the right tools and authority to solve customer problems.“.
The core for customer service has been and still is comprehensive call
center management, including such features as intelligent call routing, computer
telephone integration (CTI), and escalation capabilities. More recently, e-service
capabilities—Web self-service, knowledge management, email response management,
Web chat, collaborative browsing and virtual assistants—are gaining in importance. In
fact, today’s profusion of customer service channels has prompted many companies to
deploy integrated support applications that deliver knowledge-enabled solutions across
all of them.
Another key trend is the increasing popularity of SaaS platforms for
customer service, owing to their rapid deployment, low initial cost, and now-established
efficacy for large and complex contact centers.

Analytics
Relevant analytics capabilities are often interwoven into applications for
sales, marketing, and customer service. These features can be complemented and
augmented with links to separate, purpose-built applications for analytics and business
intelligence.
Sales analytics let companies monitor and understand customer actions and preferences,
through sales forecasting, data quality management, and dashboards that graphically
display key performance indicators (KPIs).
Marketing applications generally come with predictive analytics to improve
customer segmentation and targeting, and features for measuring the effectiveness of
online, off line, and search marketing campaign Web analytics have evolved
significantly from their starting point of merely tracking mouse clicks on Web sites. By
evaluating customer “buy signals,” marketers can see which prospects are most likely to
transact and also identify those who are bogged down in a sales process and need
assistance. Marketing and finance personnel also use analytics to assess the value of
multi-faceted programs as a whole.
Customer service analytics are increasing in popularity as companies
demand greater visibility into the performance of call centers and other support
channels, in order to correct problems before they affect customer satisfaction levels.
Support-focused applications typically include dashboards similar to those for sales, plus
capabilities to measure and analyze response times, service quality, agent performance,
and the frequency of various customer issues.

Integrated/Collaborative

Departments within enterprises—especially large enterprises—tend to


function in their own little worlds. Traditionally, inter-departmental interaction and
collaboration have been infrequent and rivalries not uncommon.
More recently, the development and adoption of the tools and services has
fostered greater fluidity and cooperation among sales, customer service, and marketing.
This finds expression in the concept of collaborative customer relationship management,
which uses technology to build bridges between departments. The objective is sharing
and harnessing information from all quarters to improve the quality of customer service,
and increase customer satisfaction and loyalty as a result.
For example, feedback from a technical support center can enlighten
marketers about specific services and product features customers are asking for.
Similarly, demand generation strategies need to marry marketing programs with
structured sales processes —that is, campaign-engendered leads must be quickly and
efficiently funneled to sales. Reps, in their turn, want to be able to pursue these
opportunities without the time-wasting burden of re-entering records and contact data
into a separate SFA system. Conversely, lack of integration can have negative
consequences: If a sales force automation or customer relationship management system
isn’t adopted and integrated among all departments, several sources might contact the
same customers for an identical purpose.

Owing to these and related factors, many of the top-rated and most popular
products come as integrated suites.
Despite all this, many companies are still not fully leveraging these tools and services to
align marketing, sales, and service to best serve the enterprise and its customers. Often,
implementations are fragmented; isolated initiatives by individual departments to
address their own needs. Systems that start disunited usually stay that way: Siloed
thinking and decision processes frequently lead to separate and incompatible systems, an
incomplete customer view, and dysfunctional processes.
Small Business
Basic customer management can be accomplished by a contact management
system, an integrated solution that lets organizations and individuals efficiently track
and record customer and supplier interactions, including emails, documents, jobs, faxes,
scheduling, and more.
This kind of solution is gaining traction with even very small businesses,
thanks to the ease and time savings of handling customer contact through a centralized
application rather than several different pieces of software, each with its own data
collection system.
In contrast with contact managers, bona fide customer relationship
management tools usually focus on accounts rather than individual contacts. They also
generally include opportunity management for tracking sales pipelines plus added
functionality for marketing and customer service.
As with larger enterprises, small businesses are finding value in online management
solutions, especially for mobile and telecommuting workers.

Social Media
Social media sites like Twitter and Facebook are greatly amplifying the
customer voice in the marketplace, and are predicted to have profound and far-reaching
effects on the ways companies manage their customer relationships. This is because
customers are using these social media sites to share opinions and experiences on
companies, products, and services. As social media isn’t moderated or censored,
individuals can say anything they want about a company or brand, whether pro or con.
Increasingly, companies are looking to gain access to these conversations
and take part in the dialog. More than a few systems are now integrating to social
networking sites. Social media promoters cite a number of business advantages, such as
using online communities as a source of high-quality leads and a vehicle for crowd
sourcing solutions to customer-support problems. Companies can also leverage
customers’ stated habits and preferences to personalize and even “hyper-target” their
sales and marketing communications.
Some analysts take the view that business-to-business marketers should
proceed cautiously when weaving social media into their business processes. These
observers recommend careful market research to determine if and where the
phenomenon can provide measurable benefits for customer interactions, sales, and
support.

Strategy
Choosing and implementing a system is a major undertaking. For
enterprises of any appreciable size, a complete and detailed plan is required to obtain the
funding, resources, and company-wide support that can make the initiative successful.
Benefits must be defined, risks assessed, and cost quantified in three general areas:
• Processes: Though customer relationship management has many technological
components, business processes lie at its core. It can be seen as a more customer-
centric way of doing business, enabled by technology that consolidates and
intelligently distributes pertinent information about customers, sales, marketing
effectiveness, responsiveness, and market trends. Therefore, before choosing a
technology platform, a company needs to analyze its business work flows and
processes; some will likely need re-engineering to better serve the overall goal of
winning, managing, and satisfying customers. Moreover, planners need to
determine the types of customer information that are most relevant, and how best
to employ them.
• People: For an initiative to be effective, an organization must convince its staff
that change is good and that the new technology and work flows will benefit
employees as well as customers. Senior executives need to be strong and visible
advocates who can clearly state and support the case for change. Collaboration,
teamwork, and two-way communication should be encouraged across hierarchical
boundaries, especially with respect to process improvement.
• Technology: In evaluating technology, key factors include alignment with the
company’s business process strategy and goals; the ability to deliver the right data
to the right employees; and sufficient ease of use that users won’t balk. Platform
selection is best managed by a carefully chosen group of executives who
understand the business processes to be automated as well as the various software
issues. Depending upon the size of the company and the breadth of data, choosing
an application can take anywhere from a few weeks to a year or more.

Implementation

Implementation Issues

Many enterprises have derived great benefit from customer relationship


management: dramatic increases in revenue, higher rates of customer satisfaction, and
significant savings in operating costs. For others, however, the benefits have been
limited and disappointing. Under-performing deployments peaked in the early 2000’s,
when a number of companies spent large sums on CRM only to have it fail to deliver the
hoped-for results.
Proponents emphasize that technology should be implemented only in the context of
careful strategic and operational planning. Implementations almost invariably fall short
when one or more facets of this prescription are ignored:
• Poor planning: Initiatives can easily fail when efforts are limited to choosing and
deploying software, without an accompanying rationale, context, and support for
the work force.In other instances, enterprises simply automate flawed customer-
facing processes rather than redesign them according to best practices.[8]
• Poor adoption: In an early-2000’s survey of more than 600 enterprises, Gartner
reported that 42% of all purchased licenses had become “shelf-ware”—software
paid for but never installed. This often stems from a poor technology fit: A
company compromises on capabilities or else tries to achieve too much in a single
stroke, ending up with an overly complex and costly deployment that yields scant
ROI.
• Poor integration: For many companies, customer relationship management
manifests in the form of piecemeal initiatives that address a glaring need:
improving a particular customer-facing process or two (via simple contact
management or sales planning), or automating a favored sales or customer support
channel. Such “point solutions” offer little or no integration or alignment with a
company’s overall strategy. They offer a less than complete customer view and
often lead to unsatisfactory user experiences.
• Toward a solution: overcoming siloed thinking. Experts advise organizations to
recognize the immense value of integrating their customer-facing operations. In
this view, internally-focused, department-centric views should be discarded in
favor of reorienting processes toward information-sharing across marketing, sales,
and service.[8] For example, sales representatives need to know about current
service issues and relevant marketing promotions before attempting to cross-sell
to a specific customer. Marketing managers should be able to leverage customer
information from sales and service to better target campaigns and offers. And
support agents require quick and complete access to a customer’s sales and service
history.

Adoption Issues
Historically, the landscape is littered with instances of low adoption rates.
In 2003, a Gartner report estimated that more than $1 billion had been spent on software
that wasn’t being used. A contemporaneous AMR Research study found that of 80 large
customers surveyed, 47% had difficulty with end-user adoption, leading to abandoned
projects or unused software modules.
More recent research indicates that the problem, while perhaps less severe, is a long way
from being solved. According to a CSO Insights less than 40 percent of 1,275
participating companies had end-user adoption rates above 90 percent.
In a 2007 survey from the U.K., four-fifths of senior executives reported that their
biggest challenge is getting their staff to use the customer relationship management
systems they’d installed. Further, 43 percent of respondents said they use less than half
the functionality of their existing system; 72 percent indicated they’d trade functionality
for ease of use; 51 percent cited data synchronization as a major issue; and 67 percent
said that finding time to evaluate systems was a major problem. With expenditures
expected to exceed $11 billion in 2010, enterprises need to address and overcome
persistent adoption challenges. Specialists offer these recommendations for boosting
adoptions rates and coaxing users to blend these tools into their daily work flow:
• Choose a system that’s easy to use: All customer relationship management
solutions are not created equal. Some vendors offer more user-friendly
applications than others, and simplicity should be as important a decision factor as
functionality.
• Choose the right capabilities: Employees need to know that time invested in
learning and usage will yield personal advantages. If not, they will work around or
ignore the system.
• Provide training: Changing the way people work is no small task, and help is
usually a requirement. Even with today’s more usable customer relationship
management systems, many staffers still need assistance with learning and
adoption.
Provide consistent support. Prompt, expert, always-accessible technical support goes a
long way to facilitate use and confidence with a new system.

Privacy and data security system


One of the primary functions of CRM software is to collect information
about customers. When gathering data as part of a CRM solution, a company must
consider the desire for customer privacy and data security, as well as the legislative and
cultural norms. Some customers prefer assurances that their data will not be shared with
third parties without their prior consent and that safeguards are in place to prevent illegal
access by third parties.
Market structures
The following table lists the top CRM software vendors in 2006-2008 (figures in
millions of US dollars) published in Gartner studies.

2008 2008 2007 2007 2006 2006


Vendor Share (%) Revenue Share (%) Revenue
Revenue Share (%)
Oracle 1,475 16.1 1,319.8 16.3 1,016.8 15.5
SAP 2,055 22.5 2,050.8 25.3 1,681.7 26.6
Salesforce.co
965 10.6 676.5 8.3 451.7 6.9
m
Amdocs 451 4.9 421.0 5.2 365.9 5.6
Microsoft 581 6.4 332.1 4.1 176.1 2.7
Others 3,620 39.6 3,289.1 40.6 2,881.6 43.7
Total 9,147 100 8,089.3 100 6,573.8 100

The following table lists of the top software vendors for CRM projects completed in
2006 using external consultants and system integrators, according to a 2007 Gartner
study.
Case Study
Levi strauss & Co.

The marketer has to learn about the needs and changing of the consumer behaviour and
practice the Marketing Concept. Levi strauss & Co. were selling jeans to a mass market
and did not bother about segmenting the market till their sales went down.
The study into consumer behaviour showed their greatest market of the baby boomers
had outgrown and their NEEDs had changed. They therefore came out with Khaki or
dockers to different segments and comfortable action stocks for the consumers in the 50
age group. Thus by separating the market and targetting various groups and fulfilling
their needs, they not only made up for the lost sales but
far exceeded the previous sales. They also targeted the women consumers for jeans and
both men and women started wearing jeans in greater numbers. The offering given by
the company must be enlarged to suit various segments.

Maruti Udyog

For example Maruti Udyog Ltd has come out with many models. Maruti 800,
Maruti Van, Zen, Alto, Veagon R, Versa Gypsy, Esteem, Boleno and other models.
For successful marketing one should:
1. Find consumer needs of various segments.
2. Position Products (new & existing) to these segments.
3. Develop strategies for these segments. Practice greater selectivity in
advertising and personal selling and creating more selective media and
distribution outlets.
Consumer perceptions on the incorporation of established brands : The acquisition
of Body Shop by L’Oréal

This thesis aims at investigating consumers’ perceptions on the incorporation of an


established brand and how the general attitude and buying behaviour is altered in the
course of an acquisition. The combination of two or more brands in a newly formed
conglomerate implies a combination of values, principles and associations that might
affect a company’s appeal. Therefore, underlying reasons for M&As will be elaborated
upon as well as branding concepts based on brand image, loyalty and reputation in order
to bridge the two theoretical areas with a case study. The acquisition of Body Shop
International by L’Oréal represents the practical case, which will be analysed in
reference to consumers’ reactions towards it. Quantitative consumer questionnaires will
be conducted in order to collect representative data on consumers’ perceptions and
associations of the brand Body Shop. Moreover, an expert interview with a Body Shop
representative will be executed in order to add the company’s perspective. By analysing
the results of the questionnaire, the thesis reveals an observable trend towards a
correlation of the awareness of the acquisition and a negative shift in customer
perception. The buying behaviour is however not found to be influenced by the
combination of the two firms. In conclusion, it can be stated that the need for pre-
acquisition analysis regarding strategic fit and compatibility of values and associations is
assured. The study clearly identifies that brand dilution is a possible threat for
established brands and implies the risk of lost credibility and loyalty.

The Role of Cultural Differences in the Product and Promotion Adaptation


Strategy: A L'Oreal Paris Case Study

Nowadays, firms are becoming more and more global. However, are consumers
becoming global too? Therefore, the challenge for the firms consists in determining if
they should adapt their products or if they should consider the consumers as being
global, and keep their product standardized.
The purpose of this paper is to investigate adaptation strategy in South Korea, Japan and
People’s Republic of China (PRC) for make-up products and its promotion considering
the influence of culture on the consumer behaviour. This is studied referring to the
European market. L’Oréal Paris is used as an example to illustrate the study.
This study is a case study about L’Oréal Paris. To conduct it, we chose to use qualitative
interviews and document analysis. Different kinds of interviews have been done in order
to know more about the company adaptation strategy, the culture and the consumer
behaviour in Asia. Written sources as external documents from L’Oréal Paris, websites,
press articles, scientific articles and literature have been used to complete the primary
data.
Culture is a system of meanings shared by members of a group. It is an important part of
marketing because it influences the consumers’ wants and needs and because it impacts
on the interpretations of products’ communication. This demonstrates that the culture
impacts consumer behaviour. The study of the consumer behaviour conducts companies
to adapt their products features, their packaging, their symbolic attributes, their service
attributes and their promotion.
The empirical data comes from various sources. We interviewed three managers from
L’Oréal Paris and as well girls from the following nationalities: three Japanese girls, one
Chinese girl and two Korean girls. We also interviewed a specialist of cosmetics. All
these interviews were conducted in order to answer our objectives. The interviews with
the Asian girls and with the specialist of cosmetics were conducted in order to collect
data on the culture and on the consumer behaviour. The interviews with the managers of
L’Oréal Paris were conducted in order to collect data on their adaptation and
standardization strategies on the studied markets.
Cultural aspects impact directly or indirectly on the consumer behaviour. The culture
diversity creates the consumer behaviour diversity as it can be noticed in South Korea,
Japan and PRC where the culture and the behaviours are very different than in Europe.
L’Oréal Paris is trying to know more about these consumer behaviour differences in
order to answer the consumers’ demands and to adapt its products and promotion
strategy.
L’Oréal Paris is adapting some elements of its product range and its promotion. The
three countries studied are very different culturally speaking. However, the adaptations
on products and promotion made by L’Oréal Paris do not take fully into account these
cultural and consumer behaviour differences. Moreover, many promotion and products
aspects are standardized. Thus, the L’Oréal Paris adaptation strategy in the Asian zone is
a mix between standardization and adaptation. In its adaptation strategy, the firm
considers some elements of the consumer behaviour therefore of the culture. To
conclude, the cultural differences may influence the make-up products and promotion
adaptation strategy.

Practice what you preach!? : A study of the gap between attitude and behaviour
towards organic milk
The trend of environmentally friendly consumption permeates our whole society and the
general attitude towards the consumption of it is strongly positive. However, the
existence of an attitude-behaviour gap became clear to us since the actual green
consumption does not reflect the positive attitude. In this thesis focus is on one specific
product - organic milk. Therefore, the purpose of this thesis is to explain the dissonance
between attitude and behaviour towards organic milk. In order to reach our purpose we
chose to perform a pilot study targeting students at the University of Linkoping. Both
qualitative and quantitative methods have been used in the collection of data. It has been
done using a survey and interviews. We were able to establish the existence of an
attitude-behaviour gap towards organic milk amongst students at the university, and that
this gap in fact arises before an intention to buy organic milk is even formed. Since a
behavioral intention is not formed, an actual corresponding behaviour will not occur.
The attitude-behaviour gap is explained by the fact that other factors than attitude
influence the formation of the intention. In this case the factors strongly counteracting
the attitude are consumer habits, social influence, to what extent the consumer feels an
ethical obligation to buy organically and whether the consumer identifies herself with
the issue. Together, these factors are so strong that they succeed in neutralizing the
positive attitude.