THEORIES OF CONSUMER BEHAVIOR The factors that affect

THEORIES OF CONSUMER BEHAVIOR The factors that affect the demands of the consumers Trends in the consumer behavior in 2011 - 2012 HON. EDUARDO G. ONG BSC, MBA, LLB, Ph. D, DPA, DBA Diplomate in Business Education Fellow in Personnel Management Fellow in Real Estate Management & Academic Consultant Professor of Business & Public Administration Chairman Professional Board of Real Estate Service-PRC President Phil. Association of Professional Regulatory Boards

WHAT WOULD YOU CHOOSE? ? ?

CONSUMER BEHAVIOR Involves the psychological processes that consumers go through in recognizing needs, finding ways to solve these needs, making purchase decisions (e. g. , whether or not to purchase a product and, if so, which brand where). Interpret information, make plans, and implement these plans (e. g. , by engaging in comparison shopping or actually purchasing a product).

CONSUMER BUYING BEHAVIOR Consumer Buying Behavior Refers to the buying behavior of final consumers individuals & households who buy goods and services for personal consumption.

INFLUENCES ON AND OF CONSUMER BEHAVIOR PERCEPTION/ SENSATION MARKET RESEARCH INFO SEARCH COGNITION STRATEGY CHOICES AFFECT PREFERENCES BELIEFS CONSUMER COMMUNICATION SOCIAL AND OTHER INFLUENCE

TRUE OR FALSE? Ø Ø Ø If you have bad breath, you cannot smell it yourself. If you eat a balanced diet, you do not need vitamin supplements. Using a razor with five blades will reduce the likelihood of cutting yourself and will result in less skin irritation. Dell Computers tend to be of higher quality than those made by HP and Sony. Rust stains on clothes can be removed with the use of lemon juice. Bleach actually makes these stains worse.

QUESTIONS FACED BY CONSUMERS Ø Ø Ø Ø Are veggie burgers actually healthy? What makeup should you use to get an “even” skin tone? Do I get any useful benefits from spending more than Php 5, 000. 00 on a digital camera? Should I get a “make-over? ” What am I looking for? What should I do? Is my mechanic honest? Which tie should I wear for a job interview? Should I give my wife roses, chocolate, or software?

CONSUMER PROBLEMS AND RECOGNITION § Consumer problem: Discrepancy between ideal and actual state--e. g. , consumer: Ø Has insufficient hair Ø Is hungry Ø Has run out of ink in his or her inkjet cartridge § Problems can be solved in several ways--e. g. , stress reduction <----- vacation, movie, hot bath, medication

CONSUMER DECISIONS: THEORY AND REALITY IN CONSUMER BUYING PROBLEM RECOGNITION INFORMATION SEARCH EVALUATION OF ALTERNATIVES PURCHASE POSTPURCHASE EVALUATION/ BEHAVIORS Theory Complications

APPROACHES TO SEARCH FOR PROBLEM SOLUTIONS INTERNAL Memory Thinking EXTERNAL Word of mouth, media, store visits, trial CATALOG

OPTIONS IDENTIFIED AND CONSIDERED UNIVERSAL SET All possible options RETRIEVED SET Options that readily come to mind Options that will be considered by the consumer Note: Retrieved and evoked sets will vary among different consumers EVOKED SET

REMINDER Ø For low involvement products, efforts aimed at affecting internal search tend to be more effective—the consumer is usually not willing to expend energy on external search. Ø External search is more likely for higher involvement products.

DECISION MAKING ISSUES § § Involvement level Ø Temporary Ø Enduring Consumer locus of control Ø Internal Ø External Product category complexity Consumer knowledge

EVALUATION TYPE IMPORTANT Ø Ø LESS IMPORTANT Compensatory: Decision based on overall value of alternatives (good attribute can outweigh bad ones) Non-compensatory: Absolutely must meet at least one important criterion (e. g. , car must have automatic transmission) Hybrid: Combination of the two (e. g. , one non-compensatory measure, then compensatory tradeoffs on other attributes Abandoned strategy: Consumer finds initial criteria unrealistic and proceeds to less desirable solution

HEURISTICS—LOW INVOLVEMENT DECISION RULES Ø If either Coke or Pepsi is on sale, buy that brand; otherwise, buy Coke Ø The larger the navels, the better the orange Ø The larger package is likely to offer a lower unit price (not true in reality)

ATTITUDES―COMPONENTS AFFECT (FEELING) BELIEFS BEHAVIORAL INTENTIONS

ATTITUDE COMPONENTS § Beliefs Ø Ø Ø § Can be positive, negative, or neutral May or may not be accurate May contradict other beliefs held by the other person Affect Ø Ø May be positive or negative May take on specific dimension (e. g. , pleasure, disgust) § Behavioral Intentions Ø Ø Ø An individual’s plan or expectations of what he or she will do May appear inconsistent with beliefs May not predict well what the individual will do in reality

GENERATING BELIEFS THROUGH ADVERTISING § Statements must be Perceived Ø Comprehended Ø Remembered Ø Believed (at least in part) Ø

Model of Buyer Behavior Product Price Place Promotion Buying Decision Process Product Choice Brand Choice Dealer Choice Marketing and Other Stimuli Buyer’s Black Box Buyer’s Response Economic Technological Political Cultural Buyer Characteristics Purchase Timing Purchase Amount

Factors Influencing Consumer Behavior Cultural Social Culture Reference groups Subculture Family Social class Roles and status Individual/Personal Age and life-cycle Occupation Economic situation Lifestyle Personality and self-concept Psychological Motivation Perception Learning Beliefs and attitudes Buyer

Culture Most basic cause of a person's wants and behavior. Subculture Social Class • Groups of people with shared value systems based on common life experiences. • Society’s relatively permanent & ordered divisions whose members share similar values, interests, and behaviors. • Hispanic Consumers • African American Consumers • Asian American Consumers • Measured by: Occupation, Income, Education, Wealth and Other Variables.

CELL PHONE CRAZE “ In Filipino Culture everything new and shiny is attractive”

Factors Affecting Consumer Behavior: Social Groups • Membership • Reference Family • Husband, wife, kids • Influencer, buyer, user Roles and Status Social Factors

Reference Group are groups that have direct (face to face)or indirect influence on the person’s attitudes or behavior “ People are often influenced by reference groups to which they do not belong”

Family members can strongly influence Buyer behavior Role – consists of the activities people are expected to perform according to the persons around them Each role carries a status reflecting the general esteem given to it by society People often choose products that show their status in society

Factors Affecting Consumer Behavior: Individual/ Personal Influences Age and Life Cycle Stage Occupation Economic Situation Personality & Self-Concept Lifestyle Identification Opinions Activities Interests

Factors Affecting Consumer Behavior: Psychological Motivation Beliefs and Attitudes Psychological Factors Learning Perception

BELIEFS & ATTITUDE A persons beliefs and attitude are acquired through acting and learning. A belief is a descriptive thought that a person has about something An attitude is a person’s consistency favorable or Unfavorable evaluations , feelings and tendencies Toward an object or idea.

PERCEPTION Is the process by which people select, organize, and interpret information to form a meaningful picture of the world. The marketer must remember that two people with the same motivation and in the same situation may act differently because they perceive the situation differently.

LEARNING Is described as changes in an individual behavior arising from experience.

MOTIVATION The process of motivation is initiated by the Tensions an unsatisfied want creates motive (drive) – is a need that is sufficiently pressing to direct the person to seek satisfaction of the need.

Theories of Motivation Sigmund Freud's Theory – Assumes that people are largely unconscious about the real psychological forces shaping their behavior. Accordingly, a person does not fully understand his or her motivation. id - is an important part of our personality because as newborns it allows us to get basic needs

Sigmund Freud's Theory – Ego- based on reality principle the ego understands that other people have needs and desires and that something being impulsive or selfish can hurt us in a long run Superego moral parts of us are develops due to moral and ethical restraints placed on us by our caregivers

The role of the unconscious is only one part of the model. Freud also believed that everything we are aware of is stored in our conscious. Our conscious makes up a very small part of who we are. In other words, at any given time, we are only aware of a very small part of what makes up our personality; most of what we are is buried and inaccessible. The final part is the preconscious or subconscious. This is the part of us that we can access if prompted, but is not in our active conscious. Its right below the surface, but still buried somewhat unless we search for it. Information such as our telephone number, some childhood memories, or the name of your

HENRY MURRAY’s THEORY Henry Alexander Murray (May 13, 1893 – June 23, 1988) was an American psychologist who taught for over 30 years at Harvard University. He was founder of the Boston Psychoanalytic Society and developed a theory of personality based on "need" and "press". He also is developer of the Thematic Apperception Test (TAT) which is widely used by psychologists.

Murray classified needs as being either: Primary needs (which are biologically based): food, water, air, sex, avoidance of pain Secondary needs (which either derive from our biological needs or are inherent in our psychological nature): achievement, recognition, acquisition dominance, aggression, autonomy affiliation, play, cognizance (asking questions of others) Murray believed that stronger needs are expressed more often over time and lead to more intense behaviour.

WILLIAM MCGUIRE William Mc. Guire has described the steps an individual must be persuaded to pass through to assimilate a desired behavior. These steps are: Exposure to the message Attention to the message Interest in or personal relevance of the message Understanding of the message Personalizing the behavior to fit one’s life Accepting the change Remembering the message and continuing to agree with it Being able to think of it Making decisions based on bringing the message to mind Behaving as decided Receiving positive reinforcement for behavior Accepting the behavior into one’s life

Maslow’s Hierarchy of Needs Self Actualization (Self-development) Esteem Needs (self-esteem, status) Social Needs (sense of belonging, love) Safety Needs (security, protection) Physiological Needs (hunger, thirst)

Consumer Decision-Making Process Need Recognition Information Search Cultural, Social, Individual and Psychological Factors affect all steps Evaluation of Alternatives Purchase Postpurchase Behavior

Complete model of consumer behavior Start Need recognition Internal search Search Exposure Stimuli (marketer dominated, other) External search Attention Comprehension Memory Alternative evaluation Acceptance Purchase Retention Outcomes Dissatisfaction Satisfaction Influences • culture • social class • family • situation Individual differences • resources • motivation & involvement • knowledge • attitudes • personality, values, lifestyle

• How do you know when to shop? What are the triggers that initiate an awareness & search? • What are the internal & external sources of these triggers?

Need Recognition Marketing helps consumers recognize (or create) an imbalance between present status and preferred state • When a current product isn’t performing properly • When the consumer is running out of an product • When another product seems superior to the one currently used

The information search stage An internal search involves the scanning of one's memory to recall previous experiences or knowledge concerning solutions to the problem-- often sufficient for frequently purchased products. An external search may be necessary when past experience or knowledge is insufficient, the risk of making a wrong purchase decision is high, and/or the cost of gathering information is low. Personal sources (friends and family) Public sources (rating services like Consumer Reports) Marketer-dominated sources (advertising or sales people) The evoked set: a group of brands from which the buyer can choose

• go back to your past purchase– what were the specific internal and external sources of information that influenced your decision? • how do you determine (and rate) the credibility of these sources? • what specific information influenced you?

Determinants of External Search

Buyer Behavior Other people often influence a consumers purchase decision. The marketer needs to know which people are involved in the buying decision and what role each person plays, so that marketing strategies can also be aimed at these people. (Kotler et al, 1994). • Initiator: the person who first suggests or thinks of the idea of buying a particular product or service. • Influencer: a person whose views or advice carry weight in making the final buying decision • Decider: the person who ultimately makes the final buying decision or any part of it • Buyer: the person who makes the actual purchase • User: the person who consumes the product or service Note: teens are increasingly assuming more of these roles Think about your past purchase– who was in which role?

Relative influence of husbands & wives Child clothing Final decision Information search groceries Wife Dominant Women’s clothing Pots & pans Non. Rx lamps Toys/games furniture luggage carpet refrigerator Paint wallpaper vacations Men’s leisure clothing Joint Men’s business clothing TV sets stereo camera Financial planning Family car Sport equipment hardware Lawn mower Husband Dominant Extent of role specialization 100 75 50 25 0

Consumer decision making varies with the level of involvement in the purchasing decision • Extensive: problem solving occurs when buyers purchase more expensive, less frequently purchased products in an unfamiliar product category requiring information search & evaluation; may experience cognitive dissonance. • Limited: problem solving occurs when buyers are confronted with an unfamiliar brand in a familiar product category • Routine: response behavior occurs when buyers purchase low cost, low risk, brand loyal, frequently purchased, low personal identification or relevance, items with which they are familiar. Increase in Consumer evaluation processes

Factors affecting Consumer involvement • Previous experience: low level involvement • Interest: high involvement • Perceived risk of negative consequences: high involvement • Situation: low to high due to risk • Social visibility: involvement increases with product visibility So… • Offer extensive information on high involvement products • In-store promotion & placement is important for low involvement products • Linking low-involvement product to high-involvement issue can increase sales

Types of consumer involvement and decision making Routine Limited Extensive Involvement Short Low to moderate High Time Low Short to moderate Long Cost Short Low to moderate High Information Search Internal only Mostly internal Internal & external Number of alternatives one few many

Compensatory Decision: Using product characteristics to guide decision • Select the best overall brand-- evaluates brand options in terms of each relevant • Compensatory model because a positive score on one attribute can outweigh a attribute and computes a weighted or summated score for each brand. The consumer chooses the brand with the highest score. negative score on another attribute. • Conjunctive Decision Rule (cutoff criteria)-- Consumer sets a minimum standard for each attribute and if a brand fails to pass any standard, it is dropped from consideration. • • Reduces a large consideration set to a manageable size. Often used in conjunction with another decision rule. • Disjunctive Decision Rule (rank by importance)-- sets a minimum acceptable standard as the cutoff point for each attribute--any brand that exceeds the cutoff point is accepted. • • Reduces large consideration set to a more manageable number of alternatives. Consumer may settle for the first satisfactory brand as final choice or may use another decision rule. • Synthesized decision rule-- Consumers maintain overall evaluations of brands in their long term memories. Brands on not evaluated on individual attributes but on the highest perceived overall rating.

• think of an important purchasing decision you have made • what are some of the thoughts you have had following your purchase? Any regrets? • what has influenced those thoughts? • how have you dealt with the discomfort? • how has the company anticipated or dealt with your discomfort?

Post purchase Behavior ? Cognitive Dissonance Did I make a good decision? Did I buy the right product? Did I get a good value? Can minimize through: Effective Communication Follow-up Guarantees Warranties Under promise & over deliver

Sour Grapes– a story of cognitive dissonance …after being unable to reach the grapes the fox said, “these grapes are probably sour, and if I had them I would not eat them. ” --Aesop

Cognitive Dissonance • psychological discomfort caused by inconsistencies among a person’s beliefs, attitudes, and actions • varies in intensity based on importance of issue and degree of inconsistency • induces a “drive state” to avoid or reduce dissonance by changing beliefs, attitudes, or behaviors and thereby restore consistency Applications: Tendency to avoid information can be countered by eliciting interest, norm of fairness, or perceive usefulness of information Post-decision “buyer’s remorse” may be increased by importance or difficulty or irreversibility of decision Counter-attitudinal action, freely chosen with little incentive or justification, leads to attitude change (e. g. , new product at special low price)

• think of an innovation in your field • describe different groups of employees in your organization who would respond early and favorably, as well as later and unfavorably • what are the differences between these groups? • how could you use this information to market the innovation to them more effectively?

• Identify an innovation in your organization or an organization you are familiar with • Identify the subgroups who responded to the innovation using the Rogers & Shoemaker stakeholder model • What could have been done to facilitate acceptance by each of these groups?

Decision Processing

THANK YOU for listening! HON. EDUARDO G. ONG BSC, MBA, LLB, PHD, DPA, DBA Professor of Business Management & Public Administration