Marketing exam II

Consumer behavior

Consumer behavior

The process individuals or groups go through to select, purchase, use and dispose of goods, services, ideas or experiences to satisfy their needs and desires.

Internal influences in the decision process

Perception

Motivation

Learning

Attitudes

Personality

Age groups

Lifestyle

External influences in the decision process

Situational influences

-Physical environment

-Time

Social influences

-Culture

-Subculture

-Social class

-Group memberships

-Opinion leaders

-Gender roles

Level of involvement

How important we perceive the consequences of the purchase to be

Perceived risk

The belief that choice of a product has potentially negative consequences, whether financial, physical, or social.

Habitual decision making

Level of involvement - low

Risk - low

Information search - Respond to environmental cues

Marketing actions - Provide environmental cues at point of purchase, such as product displays

Limited problem solving

LOI - moderate

Risk - Low to moderate

Information search - moderate search

Extensive problem solving

LOI- High

Risk - High

Information search - extensive search and careful processing

Marketing actions - provide information via advertising salespeople, websites, social media, etc. Educate consumers on product benefits, risks of wrong decisions, etc.

The consumer decision-making process

Problem recognition, information search, evaluation of alternatives, product choice, post purchase evaluation

I. Problem recognition

Occurs whenever a consumer sees a significant difference between his or her current state of affairs and some desired or ideal state.

II. Information search

Consumers need adequate information to make good decisions.

Search includes discovering alternatives available.

◦ Evoked set – all of the alternative brands a consumer is aware of when making a decision.

◦ Consideration set – the alternative brands a consumer seriously considers when making a decision.

Consumers search memory and environment for information.

◦ If information is inadequate, consumers seek out additional sources, frequently using the Internet.

Online Search

◦ Google, Bing, Yahoo,

III. Evaluation of alternatives

Identifying a small number of products for closer consideration

Determinant attributes: most important features to differentiate and compare among the product choices.

Evaluate criteria: dimensions consumers use to compare competing product alternatives.

IV. Product choice

Consumers often rely on mental shortcuts, or heuristics, in making decisions.

Heuristics are rules of thumb used by individuals to arrive at good decision with less mental effort:

◦ Price equals quality – the belief that high prices reflects better quality.

◦ Brand loyalty – a pattern of repeat product purchases coupled with a positive attitude toward the brand

◦ Country of origin – assumption that that a product has certain characteristics if it comes from a certain county.

V. Post purchase evaluation

Consumer satisfaction/dissatisfaction following purchase of product is critical.

◦ Level of satisfaction is influenced by whether or not expectations of quality are met or exceeded.

◦ Marketing communications must create accurate expectations for the product.

Buyer’s remorse

The anxiety or regret a consumer may feel after choosing from among several similar alternative choices.

Motivation

An internal state that drives us to satisfy needs by activating goal-oriented behavior.

Maslow’s hierarchy of needs

Self-actualization - self fulfillment, enriching experiences

Ego needs - prestige, status, accomplishment

Belongingness- love, friendship, acceptance by others

Safety - security, shelter, protection

Physiological - water, sleep, food

Cognitive learning theory

views people as problem-solvers who do more than passively react to associations between stimuli. Cognitive learning takes place when consumers make a connection between ideas or by observing things in their environment. Marketing messages facilitate this process when they provide factual information, such as the nutrition facts shown in an ad.

Observational learning

occurs when people watch the actions of others and note what happens to them as a result. This is why many TV ads show the product being used, and the positive benefits that result from that usage.

Age and family life cycle

• Singles (of any age) are more likely to spend money

on expensive cars, entertainment, and recreation.

• Couples with small children purchase baby furniture,

insurance, and a larger house.

• Older couples whose children have “left the nest”

are more likely to buy a retirement home in Florida.

Internal influences on consumer decisions : Lifestyles

• Lifestyles reflect a pattern of living that determines how people choose to spend their time, money, and energy. For Two consumers can share the same demographic characteristics yet be totally different people—all 20-year-old college students are hardly identical to one another. That’s why marketers often further profile consumers in terms of their lifestyles.

Culture

represents the shared values, beliefs, customs, and tastes produced or practiced by a group of people.

◦ Includes rituals such as weddings and funerals

◦ Marketers tailor products to cultural values

Subculture

◦ Coexists with other groups within a larger culture

◦ Have members that share a distinctive set of beliefs, characteristics, or common experiences

◦ For example, members of a religious or ethnic group

Microcultures

are groups of individuals who identify based on a common activity or art form, for instance:

◦ Swifties

◦ Candy Crush Players

Social class

the overall rank or social standing of groups of people within a society, according to factors such as:

◦ Family background

◦ Occupation

◦ Education

◦ Income

Luxury products serve as status symbols.

Mass class

This term refers to the of purchasing power that’s sufficient to let them afford high-quality products offered by well-known multinational companies.

Group membership

Anyone who’s ever “gone along with the crowd” knows that people act differently in groups than they do on their own. In many cases, group members show a greater willingness to consider riskier alternatives than they would if each member made the decision alone.

Reference group

A set of people that a consumer wants to please or imitate. Consumers refer to these groups when they decide what to wear, where they hang out, and what brands they buy. Ex. A sorority or fraternity, a respected salesman.

Classical conditioning

a person perceives two stimuli at about the same time. After a while, the person transfers his response from one stimulus to the other. For example, an ad shows a product and a breathtakingly beautiful scene so that (the marketer hopes) you will transfer the positive feelings you get when you look at the scene to the advertised product

Operant conditioning

which occurs when people learn that their actions result in rewards or punishments. This feedback influences how they will respond in similar situations in the future. Just as a rat in a maze learns the route to a piece of cheese, consumers who receive a reward such as a prize in the bottom of a box of cereal will be more likely to buy that brand again.

Market fragmentation

When diverse interests and backgrounds of individuals create greater diversity in needs and wants.

Target marketing strategy

Dividing the total market into different segments on the basis of customer characteristics, selecting one or more segments, and developing products to meet the needs of those specific segments

Step 1 - Segmentation

Identify and describe market segment

Targeting

Evaluate segments and decide which to go after

Positioning

Developing a marketing mix that will create a competitive advantage in the minds of the selected target market

Demographic segmentation by family life cycle

◦ As families move through stages, different product categories ascend or descend in importance.

◦ Even if importance is constant, needs within category may change (e.g., furniture).

Demographic segmentation by income

Strongly connected to buying power, used by marketers to better match products to consumer groups based on their discretionary and non-discretionary income.

Demographic segmentation by social class

Upper class, middle class, and lower class

◦ Many consumers buy according to an image they’d like to portray, not their actual level.

◦ For instance, “easy credit” may lead consumers to buy cars and homes they can’t truly afford.

Geographic segmentation

facilitated by GIS tailors products to specific geographic area based on people’s preferences.

Geodemographic segmentation

◦ Combines demographics with geography

◦ Basic assumptions is that people who live near one another share similar characteristics.

◦ PRIZM provides detailed segment profiles by zip code based on geodemography and lifestyle.

◦ Enables marketers to practice micromarketing

Geotargeting

Marketing to a set of specific users based on their current real-time location

Psychographics

Uses psychological, sociological, and anthropological factos to categorize customers.

Gamification

the process of adding games or gamelike elements to something (such as a task) so as to encourage participation. Ex. Loyalty programs

Behavioral segmentation

Categorizes consumers based on how they act toward, feel about, or use a good or service

Step 2 - Targeting

when marketers evaluate the attractiveness of each potential segment and decide in which groups of the groups they will invest marketing resources to try to turn them into customers.

Target markets

the segments on which an organization focuses its marketing efforts.

Undifferentiated targeting strategy

A broad spectrum of people

Benefits from economies of scale

Differentiated targeting strategy

One or more products for each of several customer groups with different needs

• Must make sure offerings retain distinctive images

Concentrated targeting strategy

One or more products to a single segment

Customized marketing strategy

Tailoring specific needs to individual customers

Common in personal and professional services, and in industrial marketing

Mass customization

The extreme case, which involves modifying a basic product to meet the needs and tastes of an individual customer.

Step 3. Positioning

The process by which marketers develop a marketing strategy to influence how a particular market segment perceives a good or service in comparison to the competition.

Positioning

Step 1: Analyze competitors’ positions

Step 2. Define your competitive advantage

Step 3. Finalize the marketing mix

Step 4. Evaluate responses and modify as needed

Perceptual map

A technique used to visually describe where brands are “located” in a consumers mind relative to competing brands. Helps marketers find a neglected segment.

Users/non users

marketers may attempt to reward current users or try to win over new ones

80/20 rule

20% of purchasers account for 80% of sales

Customer loyalty

Highly engage and connected to a brand, low likelihood that you will switch to a competitor.

Customer stickiness

Likely to follow though on an intended purchase repeat purchases and will recommend it to others

Experiential loyalty

Customer loyalty that results not just in increased purchases but also in an enhanced broader experience for the customer.

Usage rate

The quantity purchased of frequency of use among consumers of a particular product or service

Long tail approach

a new approach to segmentation based on the idea that companies can make money by selling small amounts of items that only a few people want, provided they sell enough different items.

Usage occasions

An indicator used in behavioral market segmentation based on when consumers use a product most.

Layers of the product concept

A product represents all that a customer receives in a purchase.

Basic benefits

Relate to the primary reason why consumers purchase a given product within a product category.

Three layers of the product

Core product, actual product, augmented product

Core product

All the benefits the product will provide for consumer or business customers.

Actual product

The physical good or service that supplies the desired benefit

Augmented product

The actual product plus other supporting features such as warranty and delivery

Durable goods

Last much longer and almost always cost more than non durable goods. Ex. Keurig

• cost and longevity differences are 2 reasons why durable goods are usually purchased under conditions of high involvement.

Non durable goods

Sometimes called consumables, because they are typically depleted or used up in a relatively short amount of time. Ex. Kpods.

• Low involvement levels characterize non durable good purchases.

Staple products

Are basic or necessary items that we simply can’t do without. Ex. Gas and milk.

Impulse products

Are bought on the spur of the moment. Package has to be bright and colorful so they catch the consumers’ attention. In-store placement is also important; they are stocked near the cash registers.

Geofencing

The use of GPS or RFID technology to create a virtual geographic boundary, enabling software to trigger a response when a mobile device enters or leaves a particular area.

Emergency products

Are items that have to be purchased inmmediately because of dire need. Consumers may not consider price or quality.

Convenience products

Typically non-durable products that are purchased with minimal effort.

• consumers expect them to be low priced and widely available.

Shopping products

are goods and service that consumers will spend time and effort gathering information on price, product attributes, and product quality.

Consumers are more likely to compare alternatives before they buy

Computers, smartphones, appliances, cars

Specialty products

Have unique characteristics that are important to buyers at almost any price.

• Extended problem-solving purchase that requires a lot of effort to choose.

• Marketers have to go to a lot of effort to make their products stand out.

• Tend to be very loyal to brands they have previously purchased and been satisfied with.

Unsought products

Goods and services for which a consumer has little awareness or interest until a need arises.

• retirement plans

• Life insurance

• New tires for a car

  Require a good dear of advertising to interest buyers.

Innovation

Anything customers perceive as new or different.

• May be a minor or game changing alteration to an existing good or service.

• May be a brand new product.

Design thinking

A process that draws upon logic, imagination, intuition, and systemic reasoning to explore possibilities of what could be, and to create desired outcomes that benefit the end user (consumer). Requires an organizational culture that values ideation which means idea generation through a process characterized by the alternation of divergent and convergent thinking.

Divergent thinking

Means coming up with as many new ideas as possible and exploring new “out-of-the-box” alternatives. To achieve divergent thinking, it is important to have a diverse group of people involved in the process.

Convergent thinking

Moves toward a more analytical focus on the different ideas in order to come to a decision on the best choice.

Types of innovations

• Dynamically continuous

• Discontinuous

• Continuous

Continuous innovation

A modification to an existing product.

Knockoff

A new product that copies, with slight modification, the design of an original product.

Dynamically continuos innovations

Are characterized by a major product change. These types of innovators are adopted more slowly than continuous innovations.

• A modest amount of learning is required before consumers can learn how to use the item.

Discontinuous innovation

The product must create major change in the way people live.

• consumers have to learn a lot to use the product effectively.

• Ex. Cars

Convergence

The coming together of 2 or more technologies to create a new system.

Disruptive innovation

Creates a new market and value chain and eventually disrupts an existing one.

• A firm that leads a disruptive innovation can gain a first-mover advantage.

New product development

Phase 1: idea generation

Phase 2: product concept development and screening

Phase 3: marketing strategy development

Phase 4: business analysis

Phase 5: technical development

Phase 6: test marketing

Phase 7: commercialization

R&D investment

A central metric for measuring an organization’s commitment to innovation relative to its rivals.

Phase 1. Idea generation (ideation)

• Marketers use a variety of sources to come up with ideas for new products.

• Value co-creation via collaboration with customers, salespeople, service personnel

Phase 2. Product-concept development and screening

The marketer takes the ideas generated in phase 1 of the process, and expands these ideas into more complete product concepts. Product concepts are tested for technical and commercial success.

Phase 3. Marketing strategy development

Developing a plan including identifying the target market and developing strategies for the 4 p’s

Phase 4. Business analysis

The product’s commercial viability is assessed. Management looks to see if this product will cannibalize sales of the company’s existing products.

Phase 5. Technical development

Engineers work to develop and refine a working prototype

Phase 6. Test marketing

The complete marketing plan is tested in a small geographic area similar to the larger market or via a simulated test market

Phase 7. Commercialization

The new product is launched into the market.