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The slides are in the following order 1.` 2. 3. Consumer Behavior Industrial Buying Behavior Marketing Strategies Consumer Buying Behavior Analyzing Consumer Markets and Buying Behavior Interest in examining aggregate market response to firm specific decision variables understanding explaining predicting Method analyze individual level behavior analyse aggregate market behavior Analysing Consumer Markets and Buying Behavior Translation of individual level behavioral analysis to aggregate level market response is faced with the issues of aggregation bias and consumer heterogeneity A prime characteristic of consumers is their variation in preferences, tastes, likes, dislikes, purchase behavior patterns. Meaning thereby that markets are heterogenous and consumers exhibit heterogeneity Object of consumer behavior analysis - buyer or user ? answer - both with emphasis on decision maker Behavioral processes of consumers An integrative conceptual framework Communication sensitivity Accultured individuality Rational and Economic Decision making Society and Market Environment () – Behavioral Process of Consumers Behavioral Processes of ConsumersCommunication Sensitivity Within Market Within Market Communication sensitivity Firm To Market Word of Mouth Diffusion Processes Firm to Market -Consumer Behaviour Concepts -One way/Two way. Behavioral Processes of ConsumersCommunication sensitivity Consumer Behaviour Concepts – Endogenous Factors Selectivity Involvement Persuasion Selectivity Selective attention – Marketers have to work hard to get consumer’s notice – consumers are more likely to notice stimuli of current need, stimuli they anticipate, stimuli whose deviations are large e.g. $25 off $100 rather than $5 Selective distortion – tendency to twist information into personal meanings that will fit our preconceptions e.g. A customer of LG may interpret an advertisement saying that they are No. 1 company in Microelectronics to be No.1 company in all of consumer durables Selective Retention – consumers likely to remember good points of products they like and forget good points of competing products e.g. a user may remember that Pears soap is the only soap good for dry skin though in the market Dove and Mysore Sandal Gold is also good for dry skin Involvement Krugman proposed the concept of level of involvement influencing buyer behavior. Products purchased are either low involvement Or high involvement. Assael has classified types of buying behavior based on involvement – See slide next Persuasion Low Involvement products use the peripheral route to persuasion e.g. celebrity endorsements High Involvement products use both the central route (cognitive reason) to persuasion and the peripheral route to persuasion. Assael’s Classification of types of Buying Behaviour High Involvement Significant Difference Between Brands Few Difference Between Brands Complex Buying Behaviour Dissonance Reducing Behaviour Low Involvement Variety-Seeking’ Buying Behaviour Habitual Buying Behaviour Assael’s Classification of types of Buying Behaviour Complex: First develop beliefs about product. Then develop attitudes and then make a choice Dissonance: First Act, then develop beliefs. Then end up with attitudes Habitual: salt- out of habit, beliefs from passive learning-choice- evaluation/attitudes Variety seeking- lot of brand switchingchocolates (Low involvement)-Beliefs-ChoiceAttitudes. Behavioral Processes of ConsumersAccultured Individuality Culture Sub Culture Social Class Personal - Age and Life cycle - Occupation - Economic Circumstances Accultured Individuality Consumer Behaviour Concepts •Personality and Self concept •Life style •Motivation Social -Reference groups -Family -Roles and Status Independent Factors 1. Culture – a) Cultural factors exert the deepest and broadest influence on buyer behavior. Culture is fundamental determinant of a person’s wants and behavior b) Subculture – countries, regions, races, religions c) Social class 2. Social factors a. Reference groups – primary (family, coworkers), secondary (religious groups) b. Reference groups – aspirational groups and disassociative groups c. Three influences of reference groups – 1. individual exposed to new behaviors, lifestyle 2. create pressures for conformity (affects choice thereby) 3. influence attitudes and self concept 2. Social Factors - Family - Family of orientation – influences beliefs, values, attitudes - Family of procreation – influences day-to-day living and purchases 3. People buy products that communicate their role and status in society Endogenous Factors – Accultured Individuality Lifestyle A lifestyle is a person’s pattern of living in the world as expressed in activities, interests, opinions. Lifestyle portrays the ‘whole person’. Marketers search for relationships between their products and lifestyle groups. If it is found that most computer buyers for home purpose are achievement oriented, then the marketer may aim his brand at achiever lifestyle Psychographics is a way of using psychology and demographics for understanding consumers. VALS of SRI consulting is a useful framework Accultured Individuality – Endogenous factors Personality and Self Concept Personality is a set of distinguishing human psychological traits that lead to Consistent responses to environmental stimuli. E.g. Self Confidence, dominance Autonomy, sociability, defensiveness Brand Personality is a specific mix of human traits attributable to a particular brand Consumers choose brands which have a personality similar to that of their own. Self Concept - Actual self concept – how he/she views him/herself - ideal self-concept – how she/he likes to view her/himself - others self concept – how he/she thinks others see him/her A marketer has to judge the form of self concept from the above to market his brand Endogenous Factors – Accultured Individuality Motivation A person has many needs (biogenic, psychogenic). A need becomes a motive When it is aroused to a sufficient level of intensity. In other words a motive is a need that is sufficiently pressing to drive the person to act. Freud’s Theory Motivation Theories Maslow’s Theory Herzberg Theory H e r z b Freud’s Theory Consumers’ behavior is shaped largely by unconscious psychological forces. A technique called LADDERING is used to trace the person’s motivation From the stated ones to the terminal ones. The marketer can then decide to Target his appeal to the most appropriate level. Motivation researchers also use projective techniques such as word association Sentence completion, picture interpretation etc. Maslow’s Theory Self Actualization Needs Esteem Needs S Social Needs o c Safety Needs i Physiological Needs a l This helps how various products fit into lives, goals and plans of consumers. Consumers fill their needs starting from lowest to highest. So it is not of much use to target a high end need product to a person who is still satisfying his lower end need. Endogenous Factors – Accultured Individuality – Motivation Herzberg Theory Factors for buyer motivation are of two types – hygiene factors (or Dissatisfier removers) and motivators (satisfiers). It is not enough if hygiene Factors are present. Motivators must be present for a purchase. Behavioral Processes of Consumers- Beliefs and Attitudes Communicati Accultured on Individuality sensitivity Beliefs/Values Experience & usage In Decision making For consumption Society & Mkt. Environment Attitudes Inputs from rational and Economic Decision Making Beliefs / Values and Attitudes A Belief is a descriptive thought that a person holds about something. On Blind Test Diet Coke and Diet Pepsi are equally preferred. But on revealing brand Names Diet Coke was preferred by 65% of consumers and Diet Pepsi by 35%. This is an illustration of role of beliefs. An attitude is a person’s enduring favorable or unfavorable evaluations, emotional feelings and action tendencies toward some object or idea. A marketer is well advised to fit his product into existing attitudes rather than try To change attitudes, which take a long time. Sometimes it pays to change Attitudes 1. Buying New in exchange for old – pays to change attitude as market is going to be large 2. These days food brands should have a diet variety as there is health consciousness in the market – pays to fit product Behavioral Processes of ConsumersRational and Economic Decision making Decision making process - Need Recognition - Information Search - Evaluation (perception) - Purchase (Preference) - Post-Purchase Behavioral Processes of ConsumersRational and Economic Decision Making Consumer Behaviour Processes/Concepts Individual constraints Budget constraints Situational factors Beliefs and values Attitudes Market environment Store Environment Firm decision variable Competitor decision variable Rational and Economic Decision making Post Purchase Feelings -Cognitive Dissonance -Contrast Theory Behavioral Outcomes of Rational and Economic Decision making Process Evoked set Consideration set Rational and Economic Decision making Post purchase feelings Purchase intention Purchase preference Purchase Behaviour Purchase behaviour decisions What to Buy (Basket of goods decision) Where to Buy (Store choice) Which brands to buy (Brand choice) How much to Buy (purchase quantity) How often to Buy (Purchase timing) Industrial Buying Behavior Issues in Industrial Markets Institutional markets Large organizational Organizational markets markets Government markets Small business market 1. Fewer, Larger Buyers – Tire manufacturers have OEM contracts with few automobile manufacturers. 2. Close supplier customer relationship – as there are fewer customers, suppliers tend to develop a closer customer relationship. WIPRO’s close relationship with IIMB, for the sale of computers 3. Professional purchasing – use of buying instruments such as quotations, proposals and purchasing contracts; buyers guided by firm’s purchasing policies, constraints and requirements 4. Several buying influences – the buying committee may consist of technical experts, senior management, gatekeepers from consultancies etc. Thus the seller should send trained sales people. 5. Multiple sales calls – sales cycles extends from few days to few years; thus seller needs to make multiple sales calls to win orders. 6. Derived demand – The demand for industrial goods is driven by the demand for consumer goods. The boom in the construction industry is driving the demand for cement and steel. 7. Inelastic demand – Demand for many business goods and services is inelastic - that is not much affected by price changes. For example the demand for batteries is not going to change much with price as the demand of batteries is driven by the demand for automobiles. 8. Fluctuating demand – A small increase in the consumer demand can give rise to a significantly large increase in industrial demand – this effect is called the acceleration effect. Similarly a 10% fall in consumer demand can cause a significant decrease of the industrial demand. 9. Geographically concentrated buyers – there is clustering to rationalize production – software in Bangalore; hosiery in Coimbatore; auto-ancillaries in Pune and Nasik etc. 10. Direct Purchasing – Firms buy direct mostly rather than thru intermediaries Key Elements of Industrial Buying Behavior Buy Situations Buying Process Straight Re-buy – routine order – consumables, office supplies; outside Suppliers tend to get in on dissatisfac tion of existing supplier Modified Rebuy – Modify specs, Prices, delivery requirements. InSuppliers have to protect an account; Out-suppliers try for an opportunity e.g. computers New Task – Buy for first time; greater the cost / risk –longer it takes to decide Pass through stages – awareness, interest, evaluation, trial, adoption. Includes setting specs, price limits, delivery terms, order qty, acceptable Suppliers and selected supplier(s). Because of complex selling use of Dedicated missionary sales force. Systems Buying and Selling – also called turnkey solutions – key industrial Marketing strategy in bidding large projects – dams, steel factories etc. Buying Centre - Includes all members of the organization who play any of seven roles in the purchase decision process 1. Initiators – those who put up the request 2. Users - Those who use the product; many times the user is the initiator 3. Influencers – help define specs, provide info for evaluating alternatives, technical people are good influencers 4. Deciders – those who decide on requirements. 5. Approvers – those who authorize deciders and buyers 6. Buyers – members authorized to select supplier and decide terms 7. Gatekeepers – Members who are info conduits to other members of buy center e.g. receptionists , agents Characteristics of BUY CENTER Several individuals can occupy a given role (e.g. many users / influencers) and one individual can occupy multiple roles. The buying center may include people outside the organization such as government officials, consultants, technical advisors and other members of the marketing channel. Different members of the buy centre have different influences, for e.g. the engineering department may be concerned with actual performance of the product, whereas production may be more interested in ease of use and reliability of supply. Members of buy centre – different personal motivations, perceptions and Preferences which in turn are dependent on - age, income, education, job position, personality, attitudes towards risk and culture Characteristics of BUY CENTER ……….. Cont……. Small sellers are advised to concentrate on key buying influencers. Large sellers Go for multilevel in-depth selling Sellers are advised to periodically question or revise their assumptions about the Buy center to adapt to organizational changes Purchasing / Buying Orientations 1. Buying Orientation – Buy at lowest price given a quality level . Use two Techniques (a) commoditization – regard the product is only a commodity and care only about price (b) multisourcing to bring in competition among vendors 2. Procurement Orientation – look for collaborative relationships and seek savings through better management – such as material requirements planning, just-in-time management and even product design. 3. Supply Chain Management Orientation – purchasing is a strategic value adding operation and purchase department betters its role as a part of the value chain from raw materials to finished goods BUYGRID FRAMEWORK BUYCLASSES New Modified Task Rebuy 1. 2. BUY PHASES 3. 4. 5. 6. 7. 8. Problem recognition General need description Product specification Supplier Search Proposal Solicitation Supplier selection Order-routine specification Performance review Yes Yes Yes Yes Yes Yes Yes Yes Maybe Maybe Yes Maybe Maybe Maybe Maybe Yes Straight Rebuy No No Yes No No No No Yes Marketer stimulates problem recognition by Direct mail, telemarketing, calling on prospects Internal stimuli – new product development for which parts are needed, breakdown of equipment, existing suppliers unsatisfactory Problem recognition Buyer attends a trade show Purchase Manager senses an opportunity to get lower prices or better quality Standard items – go as per internal records or as per specs laid out in ISI documents Complex items – collaborate with engineers, users; else sit with marketer’s application engineers who do consultative selling and work out specs and likely price General need description and product specification Certain buying organizations attach a PVA or product value analysis team to the project who will conduct extensive analysis to arrive at specs that will lead to minimum cost Supplier Search Identify suppliers - trade directories, hunt online catalogs for suppliers - trade shows - trade advertisements - Internet search – Websites have two types of e-hubs Vertical hubs centered on industries -plastics, steel, paper Functional hubs centered on logistics media buying, advertising -Direct extranet links to major suppliers (WalMart – P&G) -Buying alliances to get best price. Coca-Cola, Sara Lee, Kraft, PepsiCo, Gillette P&G, have joined to form alliance – Transora -Company buying sites – Firms like GE have their own site where it places Requests for Proposal, negotiate terms, place orders Invite suppliers to make detailed proposals Set up quality standards if any e.g ISO 9000 or ISI etc. Proposal Solicitation Large technology systems need a detailed Techno-Commercial proposal. The technical quote will be cleared first and after that only qualified technical bidders will be called for commercial negotiation Buyers can invite suppliers to make presentations. A supplier rating list is made by some companies based on relative importance given to a select set of attributes. For routine order products the factors are : price, supplier reputation, delivery . Supplier Selection For procedural problem products such as copiers the important attributes are : technical service, supplier flexibility, reliability and price For political problem products such as choice of a set of computers the factors are price, reputation, reliability and flexibility One way to encounter price factor from supplier side is to talk of total cost of product or life cycle cost. Buyers negotiate the final order with the selected suppliers, and details the tech. specs., the quantity the delivery time, return policies, warranties etc. For maintenance and repair items , firms are moving towards a blanket contract that establishes a long run relation. Such contracts are called stockless purchase plans as the stock is held by the supplier Order routine specification Long run contracts are also agreed upon in case of shortage raw materials / inputs so that there is a steady flow of material. In many cases the supplier locates his factory near the buyer for bringing down inventory and transport costs. Vendor managed inventory is when the responsibility rests with the vendor for maintaining inventory Important parameters to see are OT – deliver on time IF – in full, NE – No error Three methods of review 1 2 3. Performance Review 4. Ask for evaluation from buyers Buyer rates supplier on weighted score method Based on drawbacks of performance the buyer may come up with adjusted cost of purchase including price Managers are rewarded for good buying performance Institutional and Government Markets 1. 2. 3. 4. 5. 6. 7. Institutional Markets are – schools, colleges, universities, hospitals, nursing homes. Institutions normally ask for lowest price given a minimum quality In government organizations the normal process is bidding with the order going to the lowest bidder(s) Negotiated contracts are applicable where the project is complex and risky. Governments tend to favor domestic suppliers Government decisions are subject to review, so there is lot of paperwork in contracting Director General of Supplies and Disposals is the central purchasing unit of Indian Government. Marketing Strategies Strategy the art or skill of using stratagems in business, politics, courtship or like (American Heritage Dictionary of the English Language, 1973, p 1273) a plan of action resulting from the practice of this art or science the set of strategic decisions for a particular marketing situation guidelines for decision making in a contingent framework apportionment of relative emphasis among the different elements of the strategic decision set Marketing Strategy Business Strategy Technology Strategy Sourcing Strategy Other functional Strategies Marketing Conceptualization Design Build Up of Marketing to Programs Identify and satisfy customer needs and wants Through exchange processes simultaneously Fulfilling organizational objectives Execution Monitor Strategy Long term implications Huge Investments Contingency Build Up Market Orientation = Customer Orientation + Competitor Focus + Inter-Organization Orientation Marketing Strategy Integration of the elements of marketing into a marketing mix that includes : Market entry / timing Market selection encompassing segmentation Differentiation and Positioning Product planning Pricing Distribution systems Marketing communications Functionalities Market exit Evolution of marketing strategy as the market grows and matures Introduction - market development Rapid growth - expansion of primary demand, product proliferation Levelling - off - maximize market share as total demand has levelled Market maturity - maintain mkt share, customer service / satisfaction Marketing Strategy Formulation Marketing Strategy - STP - Decisions in the Marketing Consideration set as outlined in the previous slide - Communication of the Value Value Proposition Positioning Slogan Writing Branding Marketing Strategy Implementation Intensive Growth Opportunities Growth Opportunities Integrative Growth Opportunities Diversification Growth Opportunities Intensive Growth Strategies – Ansoff’s Product-Market Expansion Grid Current Products Current Markets Market Penetration Strategy New Markets Market Development Strategy New Products Product Development Strategy (Diversification Strategy) Identification of Growth Opportunities … cont Integrative growth opportunities backward (acquiring suppliers) , forward (acquiring channel members) and horizontal integration (acquiring competitors) Diversification growth opportunities concentric – technological or marketing synergies to a new group of consumers e.g. audio cassettes from a firm making computer tape Conglomerate – new opportunities which have no relation to current technologies, products or markets Reliance into Telecom Horizontal diversification – Appeal to current customers with new technologies e.g. Music company produces CD / Cassette racks The strategic square of marketing strategy Market Leader Market Nichers Market Followers Market Challengers Expand the total Market Market Leaders Defend Market Share Increase Market share if that is profitable Penetrate those who might use it but do not e.g. mobile usage among housewives when they go shopping New users Those who have never used it – toothpowder among hard rural In another geographical market – use of paan in western markets Expand total market New uses Use product development – email for computer Increase quantity of consumption e.g. Vicks originally On nose, later on chest and back More usage Increase frequency of consumption e.g. Use Pepsi / Coke as light user to medium and heavy user Defend Market Share Flanking Defense ConFrontation Strategy Proactive Reactive Competitor or potential competitor Fortress or Position Defense strategy Leader Pre emptive defense Counter Offensive defense Mobile Defense Contraction or Strategic withdrawal Possibility of invoking dominant firm action as laid out in the Competition Act of India economic cost of obtaining market share may exceed the resulting profit. The incremental customers’ conditions for adopting the firm’s products may not be attractive – loyal to competitors, have unique Needs. Sometimes profit can be improved by decreasing mkt. share Expand Market Share If profitable Inappropriate marketing mix – as in excessive expenditures on advertising System problems on high growth, effects on maintaining quality Challenger Strategies Leapfrog strategy Flanking attack Guerilla attack Target Competitor Frontal Challenger attack Encirclement Strategy Specific attack strategies of Challengers - Price discount – Big Bazaar - Low Price Goods – Ruf and Tuf Jeans - Value Priced goods – Nirma, Subhiksha - Prestige goods – Challenger can offer higher quality product at higher price – Apartment market in Bangalore, better amenity flats are coming up - Product proliferation – Baskin-Robbins offered more flavors to beat competition - Product Innovation – 3M enters new markets with an innovation - Improved services – Avis vs Hertz - Distribution Innovation – Avon vs leading cosmetic firms - Intensive advertising promotion – HLL in toothpastes vs Colgate Follower Strategies Counterfeiter- duplicates product and sells in black market thru Disreputable dealers – Apple Computer, Rolex watches Cloner – emulates leader’s product – PC Market Market Follower Strategies Imitator – copies but maintains differentiation in packaging, advertising Pricing, location e.g. Matsushita in Japanese is ‘maneshita denki’ meaning Electronics copied. Adapter – adapts or improves leader’s products e.g. Sony Innovates then LG, Samsung bring out improved versions Nicher Nicher – leader in a small market or niche. Better margin than mass marketer as end user needs served better by nicher Some useful Nicher roles - end user specialist – software for banks - vertical level specialist – copper company concentrates on producing finished goods - Specific Customer specialist – P&G – WalMart - Service specialist – banks take loan requests over phone and delivers money personally