Consumer behaviour (Mod. 1)

Prepared By-

Prof. Niraj RajyaguruNET (Management)

NET (Commerce)

MBA (Marketing)

M.com (Marketing)

M. Phil (Pursuing)

Mod. 1 – Understanding the Consumer

The terms "consumer" and "customer" are often used interchangeably, but a consumer and customer are not always the same entity. In essence, consumers use products while customers buy them. A consumer may also be a customer and a customer can also be a consumer, but situations occur where this is not the case. In general, your marketing efforts should be geared toward the consumer, rather than the customer.

“It is the response of the system or organism to various stimuli or inputs, whether internal or external, conscious or sub conscious, overt or covert, and voluntary or involuntary.”

“Consumer behaviour is the behaviour that consumers display in searching for, purchasing, using, evaluating, and disposing of products and services that they expect will satisfy their needs.”

Consumer behaviour focuses on how individual consumers and families or households make decisions to spend their available resources on consumption related items.

Consumers will favour those products that are widely available and low in cost.

Therefore increase production and cut down costs.

And build profit through volume.

Produce

Sell

Consumers

Company

Produce more & more

Practically sells itself

Consumers will favour those products that offer the most quality, performance, or innovative features.

Therefore, improve quality, performance and features.

This would lead to increased sales and profits.

Produce Quality Products

SellConsumers

Practically sells itself,if it gives most quality for money

Buyers admire well-made products and can appraise product quality and performance.

Consumers , if left alone , will not buy enough of company’s products.

Therefore, promote sales aggressively.

And,build profit through quick turnover.

Consumers have normal tendency to resist.

Prod

uce

Sell itConsumers

Aggressive selling & promotion efforts

Making sales becomes primary function and consumer satisfaction secondary .

The key to achieving organizational goals consist in determining the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitors.

And build profit through customer satisfaction and loyalty.

“ LOVE THE CUSTOMER , NOT THE PRODUCT ”

Consumers Produce it

Mark

et it

Learn what they want

Sell what they want(Satisfy needs of customers)

It is Marketing Concept (+) Society’s well being.

Balancing of following three considerations while setting marketing policies : -Customer’s want satisfaction -Society’s well being -Company’s profits

The societal marketing concept holds that the organization’s task is to determine the needs, wants, and interests of target markets and to deliver the desired satisfactions more effectively and efficiently than competitors in a way that preserves or enhances the consumer’s and the society’s well being.

Value is the bundle of benefits the customer derives from a purchase

Customer value can be thought of as the ratio between the customers’ perceived benefits (economic, functional, and psychological) and resources (monetary, time, effort, psychological) used to obtain that benefits.

How does McDonald’s create value for the consumer?

How do they communicate this value?

A value proposition in business and marketing is the emotional & rational statement set summarizing the customer segment and the core differentiation of one's product/service from the offerings of competitors.

A value proposition is a clear statement of the tangible results a customer gets from using your products or services.

How Value Proposition is Different than Unique selling proposition?

Unique selling proposition means The factor or consideration presented by a seller as the reason that one product or service is different from and better than that of the competition.

Part of a firm’s business model An element of strategy A reflection of the value a firm offers its customers And finally… A carefully crafted marketing message

› Communicates a clear point of differentiation› Is highly persuasive› Supports sales› And more…

A value proposition describes why a customer should buy a product or service

It targets a well defined customer segment

It convinces prospective customers that a particular product or service will add more value or better solve a problem than competitive products or services

Harley Davidson› "Harley-Davidson stands for independence,

freedom, individuality, expressing one’s self, adventure on the open road, and experiencing life to its fullest. This is what people are buying when they buy a Harley."

Walmart› Leader in low prices and huge selection

McDonald’s› As introduced by their founder, Ray Kroc, many

years ago: "friendliness, cleanliness, consistency, and convenience."

Customer satisfaction is the individual consumer’s perception of the performance of the product or service in relation to his or her expectations.

A customer whose experience falls below expectations will be dissatisfied.

And a customer whose expectations are exceeded will be very satisfied or even Delighted.

Positive side:-

Loyalists- They are completely satisfied customers who keep purchasing.

Apostles- whose experiences exceed their expectations, and who provide very positive word-of- mouth about the company to others.

Negative side:- Defector- who feel neutral or merely satisfied.

Hostages- who are unhappy customers who stay with the company because of a monopolistic environment or low prices and who are difficult and costly to deal with because of their frequent complaints.

Terrorists- who have had negative experiences with the company and who spread negative word of mouth.

Mercenaries- who while being satisfied customers, really do not have any real loyalty and may defect at any point for a lower price elsewhere.

Trust is the foundation for maintaining a long standing relationship with customers, and it helps to increase the chances that customers will remain loyal. If for some reasons a situation occur where a customer’s relationship is at risk in terms of trust, there is also the related concept of delight, in which company seeks to recover in the eyes and minds of consumers by setting things right with the customer, and further demonstrates to that customer that he or she is valued as a customer.

The overall objective of providing value to customers continuously and more effectively than the competitors is to have and to retain highly satisfied and trusting customers, and from time to time even surprise them by providing the element of delight to their dealings with the company.

“A strategy of customer retention is designed to make it in the best interest of customers to stay with a company rather than switch to another company”

Loyal customers buy more products.

Loyal customers are less price sensitive and pay less attention to competitor’s advertising.

Servicing existing customers, who are familiar with the company’s offering and processes, is cheaper.

Loyal customers spread positive word of mouth and refer other customers.

Sophisticated marketers build selective relationships with customers, based on where customers rank in terms of profitability, rather than try hard to retain all customers.

These marketers closely monitors its customer’s consumption volume and patterns, establishes tiers of customers according to their profitability levels, and develops distinct strategies for each group of customers

Customer profitability focused marketing tracks cost and revenues of individual customers and then categorizes customers into tiers based on consumption behaviours that are specific to the company’s offerings.

“Customer Pyramid”

The Platinum tier- it includes heavy users who are not price sensitive and who are willing to try new offerings.

The Gold tier- it consist of customers who are heavy users but not as profitable because they are more price sensitive than those in the higher tier, ask for more discounts.

The Iron tier- It consist of customers whose spending volume and profitability do not merit special treatment from the company.

The Lead tier- it includes customers who actually cost the company money because they claim more attention than is merited by their spending, tie up company resources and spread negative word of mouth.

The Traditional Marketing concept

Value and Retention Focused Marketing

“Make only what you can sell” Use technology that enables customers to customize what you can make

Do not focus on the product, focus on ‘need’,

Focus on product’s perceived value, as well as the need that it satisfies.

Market products and services that match customers needs better than competitors offerings.

Utilize an understanding of customer needs to develop offerings that customers perceive as more valuable than competitor’s offerings.

Research consumer needs and characteristics.

Research the levels of profit associated with various consumer needs and characteristics.

Understand the purchase behaviour process and the influences on consumer behaviour.

Understand consumer behaviour in relation to the company’s product.

Realize that each customer transaction is a discrete sale.

Make each customer transaction part of an ongoing relationship with the customer.

Create loyalty programmes based on the volume purchased.

Create customer tiers based on both volume and consumption patterns.



Segment the market based on customer’s geographic, demographic, psychological, socio cultural, lifestyle.

Use hybrid segmentation that combines the traditional segmentation bases with data on the customer’s purchase levels and patterns of use of the company’s product.

Target large groups of customers that share common characteristics with message transmitted through mass media.

Invest in technologies that enable you to send one-to-one promotional messages via digital channel.

Use one way promotions whose effectiveness is measured through sales data.

Use interactive communications in which message to customers are tailored according to their response to previous communications.

Encourage customers to stay with the company and buy more.

Make it very unattractive for your customers to switch to a competitors.



Conduct customer satisfaction surveys and present the result to management.

Conduct customer satisfaction surveys including components like customers word of mouth about the company, and use result immediately to enhance customer relationship.

Determine Marketing budgets on the basis of the numbers of customers you are trying to reach.

Determine marketing budget on the “life time” value of typical customers in each of targeted segments compared with the resources needed to acquire them as customer.

Create customers trust and loyalty to the company and high level of customer satisfaction.

Create customer intimacy and bonds with completely satisfied, “delighted” customers.

On Marketer- Customize their product, service and

promotional message Adapt Marketing mix to specific customers

needs Quick and efficiently build and maintain

relationship with customers Collecting and analysing complex data on

consumers buying pattern and characteristics Marketer can offer more services and products

than ever before

On Customer- Search information about goods and services more easily and

efficiently Consumers can enjoy more power than ever before Impact reaches beyond the PC-Based connection of the Web.

Iams, a Procter & Gamble brand that makes pet food, noticed that some consumers were supplementing dry pet food with some form of treat, particularly to get older pets with dental problems to eat it. Iams then conducted quantitative research to determine if this practice was common among consumers. The research indicated that 40% of pet owners use such methods. In response, Iams launched Savory Sauce, a more convenient alternative to table scraps. The product has been so successful that Iams has since extended this line to include eight varieties, including sauces for use with puppies.

“Consumer research is the action or activity of gathering information about consumers needs and preferences, especially in relation to a product or service.”

Research means to search again..

Marketers must understand customers to design effective:› marketing strategies› products› promotional messages

Primary Research- “New research especially designed and collected for purposes of a current research problem.”

Secondary Research- “Research that is carried out by information already collected for some other purpose, but able to provide in part or even in full answers about a current problem.”

The ConsumerResearch process

Defining the objectives of Research Collecting and evaluating secondary

data Designing a primary research study Collecting primary data Analyzing the data Preparing a report of the findings

The first and most difficult step in the consumer research process is to accurately define the objectives of the research.

A carefully thought out statement of research objectives helps to insure that the information needed is secured, and that costly errors are avoided.

Consider your customer research goals and define a clear set of objectives that identify what you need to know and what you're going to do with the information. The Objective of research should be S-M-A-R-T.

• Specific - state clearly what you want to achieve• Measurable - set tangible measures so you know when you've

achieved your goals• Achievable - set goals that are within your capacity and

budget• Relevant - set goals that will help you improve particular

aspects of your business• Time-bound - set goals you can achieve within the time you

need them.

If the purpose of a particular study is to come up with new ideas for product extensions or concepts for future promotional campaigns, then a qualitative study, consisting of focus group or one-on-one depth interviews are usually undertaken.

If the purpose of the study is to find out how many target consumers there are in the population (i.e. What percentage of consumers) who use a particular product, and how frequently they use it, then a quantitative study should be conducted. Because the research task is to provide quantitative information upon which a marketer take strategic decisions.

Before undertaking a full scale quantitative study, the researcher is likely to conduct a small-scale exploratory study.

Exploratory Research- Exploratory research is research conducted for a problem that has not been clearly defined. Exploratory research helps determine the best research design, data collection method and selection of subject.

Second step in the consumer research process is to search for the availability of secondary data.

Secondary data is already existing information that was originally gathered for a research purpose other than the present research.

Secondary consumer related data can be secured from either internal sources within the company or organization, or external sources for free or at a cost.

Internal Secondary Data-

Such information or data could consist of previously collected in house information that was originally used for some other purpose.

It might have originally been gathered as part of a sales audit, or from past customer service calls, or letters of inquiry from customers, or data collected via warranty cards.

Companies use internal secondary data to compute customers lifetime value profiles. (customer acquisition cost, profit generated from individual sales, cost of handling orders, expected duration of the relationship)

Disadvantage-• Time frame• Less reliable• Not collected for particular research

Advantage-• Availability• Less expensive• Less time intensive• Less efforts

External Secondary Data-

• Such information or data on consumer behaviour comes from sources outside of the firm or organization.

• That can be collected from public library, business journals, publishing groups, books, periodicals, newspapers, consumer panels etc.

• Secondary Research is also provided by companies that routinely monitor a particular consumption related behaviour, and sell their data to marketing companies who use insights to make more informed strategic decision.

Business Jouranls

Research Agencies

News Papers Business Magazines

Business world’s The Marketing Whitebook

NCAER Wall street Journal

Business weel

Journal of Marketing Research

Hansa Research Group

New York TImes Forbes

Journal of Consumer Research

Pathfinders India

Fortune

Sources of External Secondary Data

Established in 1956, NCAER is India’s oldest and largest independent, non-profit, economic policy research institute. Six decades in the life of a nation is a long time. It is even longer in the life of an institution. But the promise of NCAER—to ask the right questions, gather good evidence, analyse it well, and share the results widely—has endured. India has achieved much, and much remains undone. As the economy has changed, so too has NCAER, to continue to help understand India’s rapid economic and social transformation. As newer and more complex economic challenges emerge, NCAER will have to do more to keep its promise. To do this well, that is NCAER’s promise renewed.

NCAER’s work falls into four thematic areas:• Growth, Macro, Trade, and Economic Policy • Investment Climate, Industry, Infrastructure, Labour, and Urban • Agriculture and Rural Development, Natural Resources, and Environment • Poverty, Equity, Human Development, and Consumers

The focus of NCAER’s work in these areas is on generating and analysing empirical evidence to support and inform policy choices. It is also one of a handful of think tanks globally that combine rigorous analysis and policy outreach with deep data collection capabilities, especially for household surveys

Hansa Research is a global Market research agency conducting market research in 77 countries with offices in India and the US. It is the only global market research agency headquartered in India. Under the leadership of Mr. Ashok Das, the Managing Director, Hansa Research became one of the fastest growing market research agencies in India.

Nielsen Media Research (www.nielsenmedia.com) Whether you’re eyeing markets in the next town or across continents, we understand

the importance of knowing what consumers watch and buy. That’s our passion and the very heart of our business.

We study consumers in more than 100 countries to give you the most complete view of trends and habits worldwide. And we’re constantly evolving, not only in terms of where we measure, or who we measure, but in how our insights can help you drive profitable growth.

Whether your business is a multinational enterprise or a single storefront, we believe innovation is the key to success, in both what you create and how you market your products and ideas. That’s why we continue to develop better solutions to help you meet the needs of today’s consumers, and find out where they’re headed next.

So let’s put our heads together. We’ll bring our insight to your business and help you grow.

Consumer Panel-

Secondary data provider company generally collect consumer behaviour data from household or family consumer panels.

The members of these consumer panels are paid for recording their purchases and/or media viewing habits in diaries that are then combined with thousands of households and analyzed by the data providers. On the other hand marketers and advertising agencies pay the panel providers a subscription fee for the regular flow of reports of research findings.

Evaluation of the collecting secondary data-

Advantage-• Eliminate need for primary data• Help to clarify and redefine Objectives of primary study

Disadvantage-• Some secondary data may not be accurate• Data has been collected in a biased pattern in order to support

a particular point• Data may be outdated

After considering the collection of secondary research, the diagram splits into two paths, with the left side route taking a path of qualitative research, and the right side route taking a path of quantitative research.

If the purpose is to get new ideas then a Qualitative study is often undertaken; and if quantitative information is sought, then some form of a Quantitative study is likely to be undertaken.

Qualitative researchers aim to gather an in-depth understanding of human behaviour and the reasons that govern such behaviour. The qualitative method investigates the why and how of decision making, not just what, where, when. Hence, smaller but focused samples are more often used than large samples.

Focus groups and depth interviews are very well established tools that are regularly used to take insights about developing new product and future promotional campaign.

Depth Interviews-

A depth interview is frequently referred to as a “one to one” interview, is a somewhat lengthy non-structural interview between a single respondent and a highly trained researcher.

Depth interview takes place in a professionally set up interviewing room. These rooms are designed to provide audio and video recording equipment.

Stimulus material like photos, drawings, samples, videos etc. Can be used.

Focus Group-

A Discussion group or focus group often consists of 8 to 10 participants who meet with a moderato-researcher-analyst to ‘focus on’ or ‘explore’ a particular product or product category.

Like depth interviews, focus group sessions are invariably audio taped and videotaped.

Focus groups are usually held in specially designed conference rooms with one-way mirrors that enable marketers and advertising agency staff to observe sessions without disrupting the responses.

Online focus group-

Over the past 5 to 10 years, there has been a increase in online focus groups.

Consumers can provide a “virtual focus group room” environment – one where consumer participants and a moderator can log on to participate in an online focus group session. In certain ways, it can be similar to a regular off-line focus group session.

Discussion Guides-

A discussion guide is step by step outline that sets out the line of questioning that the researcher needs to cover with the respondent in a depth interview or a group of respondent in the case of a focus group session.

It is a kind of “agenda” of topics and issues that need to be covered.

Some emerging Qualitative research tool Projective Techniques- Projective exercise consist of a variety of disguised ‘tests’

that contains ambiguous stimuli, such as incomplete sentences, untitled pictures or cartoons, and other person characterizations. They are all designed to make it easier for consumer to express themselves and reveal their inner motivations.

Projective techniques are generally part of depth interviews. Exercises covered under projective techniques-

I. Word associations

II. Sentence completionsIII. Photo for story telling

IV. Role playing

Metaphor Analysis-

The use of one form of expression to describe or represent feelings about another is called a metaphor.

Since most communications are non verbal and that people do not think in words but in images, it is important to use a set of engaging tasks and exercises to get consumer participants to get in touch with their own inner feelings.

Moreover if consumers thought process consist of a series of images or pictures in their minds, then it is likely that many respondents cannot adequately convey their feelings and attitudes about the research subject through the words only.

A substantial portion of quantitative research is used by consumer researcher to better understand the acceptance of various products or specific brands, as well as the impact of promotional messages on consumers.

Quantitative research includes Experimentation, survey techniques, and observations.

Observational Research- Watching or carefully observing consumer’s actions of

purchasing and consuming, especially in realistic surrounding. (in stores, malls, watching TV, and even in their home environment)

Observational research is an important research tool because marketers recognize that often the best way to gain an in-depth understanding of the relationship between people and product is by watching them in the process of buying and/or using the product.

Experimentation-

It is possible to test the relative sales appeal of many types of variables, such as package design, prices, promotional offers by experiments designed to identify cause and effect.

In the simplest form of such experiments (causal research) only one variable is manipulated (called independent variable), while all other elements are kept constant.

A controlled experiment of this type ensure that any differences in the outcome (dependent variable) is due to different treatments of the variable under study and not to extraneous factors.

A major application of causal research is test marketing, in which prior to launching a new product, elements such as package, price, promotion, are manipulated in a controlled setting in order to predict sales and possible responses to the product.

Surveys- It includes direct interaction with respondents and it includes

survey method. In research surveys are most commonly used and most common means of collecting primary data.

Types of surveys

1) Personal Interview survey

2) Telephone interview survey

3) Mail survey

4) E-mail survey

QUANTITATIVE RESEARCH DATA COLLECTION INSTRIMENTS-

Questionnaire- For quantitative research, the primary data collection

instrument is the questionnaire, which can be sent through mail or online.

Questions can be..

I. Open ended

II. Close ended

Attitude scales- Researchers often present respondents with a list of products

or product attributes for which they are asked to indicate their relative feelings or evaluations.

Types of scales

I. Likert scale

II. Sementic differential scale

III. Behaviour intension scale

IV. Rank order scales

Sampling and Data collection- A sample is the subset of the population that is used to

estimate the characteristics of the entire population. Therefore the sample must be representative of the universe under study.

Probability sample Non probability sample

Simple random sampling Convenience sample

Systematic random sampling Judgement sample

Stratified random sampling Quota sample

Cluster sample

It is quite common for marketers, to frequently combine both a qualitative component and a quantitative component.

The predictions made possible by quantitative research and the understanding provided by qualitative research together produce richer and more robust profile of consumer behaviour.

In qualitative research, the moderator-researcher usually analyzes the responses received.

In quantitative research, the researcher supervise the analysis.

Open ended responses are first coded and quantified.

All the responses are tabulated and analyzed using sophisticated analytical programs.

Research Report must include- Brief executive summary Recommendation Tables and graphs to support findings Description of the methodology used.

Consumer behaviour (Mod. 1)

Education

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