Chapter 5 Buying Dynamics of Consumers and Businesses

Learning objectives • • • Factors influencing consumer behavior Key psychological processes The buying decision process The business market versus consumer market Participants in the business buying process 2

Factors affecting consumer behavior A consumer’s buying behavior is influenced by cultural, social, and personal factors. 3

Cultural factors Culture, subculture, and social class are particularly important influences on consumer buying behavior. Culture is the fundamental determinant of a person’s wants and behavior. The growing child acquires a set of values, perceptions, preferences, and behaviors through his or her family and other institutions. Each culture consists of smaller subcultures that provide more specific identification and socialization for their members. Subcultures include nationalities, religions, racial groups, and geographic regions. When subcultures grow large and affluent enough, companies often design specialized marketing program to serve them. This is called multicultural marketing. 4

Cultural factors Social classes are society’s relatively permanent and ordered divisions whose members share similar values, interests, and behaviors. They are measured by a combination of occupation, income, education, wealth, and other variables. People within a social class exhibit similar behavior including similar buying behavior. Social classes differ in dress, speech pattern, recreational preferences, and many other characteristics. Social classes in U. S. are: (1)lowers, (2)upper lowers, (3)working class, (4)middle class, (5)upper middles, (6)lower uppers, and (7)uppers. 5

Social factors Reference groups: A person’s reference group consists of all the groups that have a direct(face-to-face) or indirect influence on his/her attitudes or behavior. Groups having a direct influence are called membership groups. Some membership groups are primary groups, such as family, friends, neighbors, and co-workers. People also belong to secondary groups, such as religious, professional, and trade-union groups, which tend to be more formal and require less continuous interaction. 6

Social factors People are significantly influenced by their reference groups in at least three ways. Reference groups expose an individual to new behaviors and lifestyles, and influence attitudes and selfconcept. They create pressures for conformity that may affect actual product and brand choices. People are also influenced by groups to which they do not belong. Aspirational groups are those people hopes to join; dissociative groups are those whose values or behavior an individual rejects. An opinion leader is the person in informal, product-related communications who offers advice or information about a specific product or product category. 7

Social factors Family is the most important consumer-buying organization in society, and family members constitute the most influential primary reference groups. The family of orientation consists of parents and siblings. From parents a person acquires and orientation toward religion, politics, and economics, and a sense of personal ambition, self-worth, and love. A more direct Influence on everyday buying behavior is the family procreation namely, one spouse and children. Social roles and status are the groups, family, clubs, and organizations that a person belongs to. The person’s position in each group can be defined in terms of role and status. A role consists of the activities a person expected to perform. Each roles carries a status. 8

Personal factors A buyer’s decision are also influenced by personal characteristics. These include age and life cycle stage, occupation and economic circumstances, personality, and self-concept, and lifestyle and values. 9

Personal factors Age and stage in the lifecycle: People buy different goods and services over a lifetime. Consumption is also shaped by the family life cycle and the number, age, and gender of people in the household at any point in time. In addition, psychological life-cycle stages may matter. Marketers should also consider critical life events or transitions, such as marriage, childbirth, divorce etc. 10

Personal factors Occupation affects the goods and services bought by consumers. Product choice is greatly affected by economic circumstances: spendable income, savings and assets, debts, borrowing power, and attitudes towards spending and saving. 11

Personal factors Personality is the Individual’s unique psychological characteristics that lead to relatively consistent and lasting responses to one’s own environment, such as self-confidence, sociability, aggressiveness, etc. Personality can be useful variable in Analyzing consumer brand choices. The idea is that brands also have personalities and consumers are likely to choose brands whose personalities match their own. Brand personality refers to the specific mix of human traits that can be attributed to a particular brand. 12

Personal factors People from the same subculture, social class, and occupation may lead quite different lifestyle. A Lifestyle is a person’s pattern of living as expressed in his or her psychographics (AIO’s) – Activities (work, shopping, hobbies etc. ) – Interests (food, fashion, recreation, sports, etc. ) – Opinions (about themselves, social issues, business, etc. ) Lifestyles are shaped partly by whether consumers are money-constrained or time-constrained. Consumers who experience time famine are prone to multitasking- doing two or more things at the same time. 13

Key psychological processes The starting point for understanding consumer behavior is the stimulus-response model. Marketing and other stimuli enter the consumer’s consciousness, and a set of psychological processes combine with certain consumer characteristics to result in decision processes and purchase decisions. 14

Key psychological processes Motivation: We all have many needs at any given time. Some needs are biogenic; they arise from physiological states of tension such as hunger, thirst, or discomfort. Other needs are psychogenic; they arise from psychological states of tension such as the need for recognition, esteem, or belonging. A need becomes a motive when it is aroused to a sufficient level of intensity to drive us to act. 15

Key psychological processes Abraham Maslow sought to explain why people are driven by particular needs by particular times. According to him, human needs are arranged in a hierarchy from most to least pressingfrom physiological needs to safety needs, social needs, esteem needs, and self-actualization needs. People will try to satisfy their most important need first and then move to the next. Frederick Herzberg developed a two-factor theory that distinguishes dissatisfiers (factors that cause dissatisfaction) from satisfiers (factors that cause satisfaction). The absence of dissatisfiers is not enough to motivate a purchase; satisfiers must be present. 16

Maslow’s hierarchy of needs 17

Key psychological processes Perception: Perception is the process by which people select, organize, and interpret information inputs to create a meaningful picture of the world. There are three perceptual processes: • Selective Attention: Screen out most info that one is exposed to. • Selective Distortion: Interpret info to support what is already believed. • Selective Retention: Remember good points about a brand you favor. Learning: Learning is the change in an individual’s behavior arising from experience and occurs through interplay of: Drives Stimuli Cues Responses Reinforcem ent 18

Key psychological processes Emotions: Consumer response is not all cognitive and rational; much may be emotional and invoke different kinds of feelings. A brand or product may make a consumer feel proud, excited, or confident. An ad may create feelings of amusement, disgust, or wonder. Memory: Cognitive psychologists distinguish between short-term memory (STM)- a temporary and limited repository of information and long-term memory-a more permanent, essentially unlimited repository. 19

The buying decision process 20

Problem recognition The buying process starts when the buyer recognizes a problem or need. The need can be triggered by: – Internal stimuli • Normal needs, such as hunger, thirst become strong enough to drive behavior – External stimuli • Advertisements • Friend’s comments. Marketers need to identify the circumstances that triggered a particular need by gathering information from a number of customers. 21

Information search An aroused consumer will be inclined to search for more information. These information sources fall into four groups: • Personal sources: family and friends • Commercial sources: advertising, Internet • Public sources: mass media, consumer organizations • Experiential sources: handling, examining, using the product • Word-of-mouth 22

Evaluation of alternatives Evaluations often reflect beliefs and attitudes. Through experience and learning, people acquire beliefs and attitudes. A belief is a descriptive thought that a person holds about something. People’s beliefs about the attributes and benefits of a product or brand influence their buying decisions. An attitude is a person’s enduring favorable or unfavorable evaluation, emotional feeling, and action tendencies toward some object or idea. 23

Expectancy-value model Suppose a consumer has narrowed his/her choice set to four laptop computers (A, B, C, D). Assume that this consumer is interested in four attributes (memory capacity, graphic capability, size and weight, and price). The table shows his/her beliefs about how each brand rates on the four attributes. If one computer dominated the others on all the criteria, we would predict that this consumer will choose that computer. However, it is not often the case. If this consumer wants the best memory capacity he/she should choose A. if he/she wants the best graphic capability, he/she should buy C. 24

Expectancy-value model 25

Expectancy-value model Most buyers consider several attributes in their purchase decision. Suppose same consumer assigned 40 percent of the importance to the computer’s memory capacity. , 30 percent to graphic capability, 20 percent to size and weight and 10 percent to price. To find this consumer’s perceived value for each computer, according to expectancy value model, we multiply his/her weights by his/her beliefs for each computer’s attributes. Computer A= 0. 4 (10)+ 0. 3 (8)+ 0. 2 (6)+ 0. 1 (4)=8. 0 Computer B= 0. 4 (8)+ 0. 3 (9)+ 0. 2(8)+ 0. 1(3)=7. 8 Computer C= 0. 4(6)+ 0. 3(8)+ 0. 2(10)+ 0. 1(5)=7. 3 Computer D= 0. 4(4)+ 0. 3(3)+ 0. 2(7)+ 0. 1(8)=4. 7 26

Purchase decision The act by the consumer to buy the most preferred brand. The purchase decision can be affected by: • Attitudes of others • Unexpected situational factors 27

Postpurchase behavior Postpurchase satisfaction: Satisfaction is a function of the closeness between expectations and the product’s perceived performance. If performance falls short of expectations, the consumer will be disappointed; if it meets expectations, the consumer is satisfied; if it exceeds expectations, the consumer is delighted. Postpurchase actions: If the consumer is satisfied, he/she will exhibit a higher probability of purchasing the product again. Dissatisfied consumers may abandon or return the product. They may seek information confirms its high value. They may take public action by complaining to the company or complaining to other groups. Postpurchase use and disposal: Marketers should monitor how buyers use and dispose a product. A key driver of sales frequency is product consumption rate-the more quickly buyers consume a product, the sooner they may repurchase it. 28

Organizational buying Organizational Buying Process: The process where organization and business buyers determine which products and services are needed to purchase, and then find, evaluate, and choose among alternative brands. The business market consists of all the organizations that acquire goods and services used in the production of other products or services that are sold, rented, or supplied to others. 29

Characteristics of business market Marketing Structure and Demand § Business markets contain fewer but larger buyers § Business buyer demand is derived from final consumer demand § Demand in many business markets is more inelastic – not affected as much in the short run by price changes § Demand in business markets fluctuates more, and more quickly Nature of the Buying Unit § Business purchase unit involve more buyers § Business buying process involves a more professional purchasing effort Types of Decisions and the Decision Process § Business buyers usually face more complex buying decisions § The business buying process is more formalized § In business buying, buyers and sellers work closely together and build long -term relationships 30

Buying situations There are three types of buying situations in business markets: • Straight rebuy is a routine purchase decision such as reorder without any modification • Modified rebuy is a purchase decision that requires some research where the buyer wants to modify the product specification, price, terms, or suppliers • New task is a purchase decision that requires thorough research such as a new product. 31

Buying situations Systems buying involves the purchase of a packaged solution from a single seller • Two-step process of selling: – Interlocking products – System of production, inventory control, distribution, and other services to meet the buyer’s need for a smooth-running operation. 32

The buying center Buying Center is all of the individuals and units that participate in the business decision-making process. 33

Participants in the buying center • Initiators are users or others in the organization who request that something to be purchased • Users are those that will use the product or service • Influencers help define specifications and provide information for evaluating alternatives • Deciders have formal or informal power to select and approve final suppliers • Approvers are people who authorize the proposed actions of deciders or buyers • Buyers have formal authority to select the supplier and arrange terms of purchase • Gatekeepers control the flow of information Several people may occupy a given role such as user or influencer, and one person may play multiple roles. 34

Buying center influences Buying center usually include several participants with differing interest, authority, status, and persuasiveness. Each member of the buying center is likely to give priority to very different decision criteria. Business buyers also respond to many influences when they make their decisions. Each buyer has personal motivations, perceptions, and preferences, which are influenced by the buyer’s age, income, education, job position, personality, attitudes toward risk, and culture. Buyers definitely exhibit different buying styles. There are “keep-it-simple buyers”, own-expert-buyers”, “want-the-best buyers”, and “want everything-done” buyers. 35

Buying center targeting • • Who are the major decision participants? What decisions do they influence? What is their level of influence? What evaluation criteria do they use? 36

Types of business customers • Price-oriented customers (transactional selling): price is everything • Solution-oriented customers (consultative selling): they want low prices but will respond to arguments about lower total cost or more dependable supply or service • Gold-standard customers (quality selling): they want the best performance in terms of product quality, assistance, reliable delivery, and so on • Strategic-value customers (enterprise selling): they want a fairly permanent sole-supplier relationship with your company 37

Types of purchasing processes There are four product-related purchasing processes: • routine products: these products have low value and cost to the customer and involve little risk (e. g. office supplies). • leverage products: these products have high value and cost to the customer but involve little risk of supply (e. g. engine pistons). • strategic products: these products have high value and cost to the customer and also involve high risk • bottleneck products: these products have low value and cost to the customer but they involve some risk. 38

The business buying process 39

Problem recognition occurs when someone in the company recognizes a problem or need. It is triggered by: -Internal stimuli • Identify the need for a new product or production equipment -External stimuli • Get an idea from a trade show or from advertising. 40

General need description and product specification The buyer describes the characteristics and quantity of the needed item. For standard items, this is simple. For complex items, the buyer will work with others (engineers, users) to define characteristics such as durability, reliability, or price. The buying organization now describes the item’s technical specifications. Often, the company will assign a product-valueanalysis engineering team to the project. Product value analysis is a cost reduction approach where components are studied to determine if they can be redesigned, standardized, or made with less costly methods of production 41

Supplier search Buyer tries to identify the most appropriate suppliers through trade directories, contacts with other companies, trade advertisements, trade shows, and the internet. Companies that purchase over the internet are utilizing electronic marketplaces in several forms: • Catalog sites • Vertical markets • Pure play auction sites • Spot (exchange) markets • Private exchanges • Barter markets • Buying alliances 42

E-Procurement • • • Websites organized using vertical hubs Websites organized using functional hubs Direct extranet links to major suppliers Buying alliances Company buying sites 43

Proposal solicitation is the process of requesting proposals from qualified suppliers. After evaluating the proposals, the buyer will invite a few suppliers to make formal presentation. 44

Supplier selection is when the buying center creates a list of desired supplier attributes and negotiates with preferred suppliers for favorable terms and conditions. 45

Order routine specifications Order-routine specifications is the final order with the chosen supplier and lists all of the specifications and terms of the purchase. 46

Performance review involves a critique of supplier performance compared to the purchase terms. 47

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