CHAPTER 6: CONSUMER DECISION MAKING L1 : The Importance of Understanding Consumer Behavior Marketing managers must understand consumers product

t and service preference in order to create a proper marketing mix for a well-defined market. * consumer decision-making process a five-step process used by consumers when buying goods or services * consumer behaviour processes a consumer uses to make purchase decisions and to use and dispose of the purchased goods or services; it also includes factors that influence purchase decisions and product use If the firm cannot change the design of the product in the short run, it can use promotion in an effort to change consumers decision making criteria. L2 : The Consumers Decision-Making Process

1.Need Recognition occurs when consumers are faced with an imbalance between actual and desired states that arouses and activates the consumer decision process triggered when consumers is exposed to either an internal or external stimulus * internal stimulus occurrences that are experienced * external stimulus influences from an outside source such as someones recommendation of a product Marketing managers objective is to get consumers to recognize an imbalance between their present status and preferred state. Advertisement and sales promotion stimulates consumers decision. What gives marketers information about consumers wants and needs: surveying buyers preferences observing trends in marketplace Consumers recognize unfulfilled needs in various ways: current product isnt performing properly consumer is about to run out of something that is generally kept on hand awareness of a product that seems superior to the one currently used 2.Infromation Search

 Consumers seek for alternatives. Kinds of information search: o internal information search recalls information stored in the memory and from previous

experiences with a product o external information search seek information from outside environment nonmarketing-controlled information source a product information source that is not associated with advertising or promotion; controlled information sources personal experiences personal sources public sources marketing-controlled information sources a product information source that originates with marketing promoting the product; biased toward a specific product sales promotion mass-media advertising sales people product labels packaging internet Extent of an external information search is affected by: Consumers knowledge Confidence in decision making ability Product experience Amount of interest a consumer has in a product Consumers information search can result to an evoked set (consideration set) which is a group of brands from which a buyer can choose. It is a consumers most preferred alternatives. 3.Evaluation of Alternatives and Purchase After getting information and constructing an evoked set of alternative products, consumers are ready to make a decision. How to narrow choices: pick a product attribute and exclude all products in the set that dont have that attribute. cut-offs minimum or maximum levels of an attribute that an alternative must pass to be considered piecemeal process comparison of specific attributes of a product categorization process classifying products according to attributes o SOLUTION: brand extensions a well-known and respected brand name from one product category is extended into other product categories 4.Purchase To Buy or Not to Buy? whether to buy when to buy what to buy (product type and brand) where to buy (type of retailer, specific retailer, online or in-store) how to pay Modes of purchasing:

 fully planned

partially planned unplanned L3 : Postpurchase Behavior

What determines whether a consumer is satisfied or dissatisfied with the purchase? Answer:

Expectations
* cognitive dissonance inner tension a consumer experiences after recognizing inconsistency

between their behaviour and their values or opinions How marketers reduce cognitive resonance: sending postpurchase thank you letter display product superiority in ads offer guarantees L4 : Types of Consumer Buying Decisions and Consumer Involvement
* involvement the amount of time and effort a buying invests in the search, evaluation and

decision processes of consumer behavior * routine response behavior occurs with frequently purchased, low-cost goods and services behavior wherein consumers spend little time on search and decision before making the purchase * limited decision making occurs when a consumer has previous product experience but is unfamiliar with the current brands available also associated with lower levels of involvement * extensive decision making occurs when buying unfamiliar, expensive product or an infrequently bought item associated with high-involvement on the part of the consumer Factors Determining the Level of Consumer Involvement o previous experience o interest o perceived Risk of Negative Consequences Financial Social Psychological o situation o social visibility
Marketing Implications of Involvement

o Marketing strategy varies according to the level of involvement associated with the product. extensive and informative promotion for high-involvement products in-store promotion to promote low-involvement products linking a product to a higher-involvement issue

FACTORS INFLUENCING CONSUMER BUYING DECISIONS L5 : Cultural Influences on Consumer Buying Decisions
* culture essential character of a society that distinguishes it from other societal groups

set of values, norms, attitude, and other meaningful symbols that shape human behavior, and the artifacts, or products, of that behavior as they are transmitted from one generation to the next pervasive, functional, learned, and dynamic underlying elements: values language myths customs rituals laws material artifacts Most defining element of a culture is its values. * values the enduring beliefs shared by a society that a specific mode of conduct is personally or socially preferable to another mode of conduct
* subculture a homogenous group of people who share elements of the overall culture as well as

cultural elements of unique to their own group

* social classes a group of people who are considered nearly equal in status or community esteem, who

regularly socialize among themselves both formally and informally and who share behavioral norms typically measured as a combination of occupation, income, education, wealth, and other variables upper-class middle-class lower-class Social Class and Marketing o Social class indicates which medium to use for advertising. o Social classes can help marketers determine where to best distribute their products. L6 : Social Influences on Consumer Buying Decisions
* reference groups all formal and informal groups in society that influence the buying behavior

of an individual o direct reference groups face-to-face membership groups that touch peoples lives directly primary membership group a reference group with which people interact regularly in an informal, face-to-face manner [family, friends, coworkers]

secondary membership group a reference group with which people associate less consistently and more formally than a primary membership group [clubs, professional groups, religious groups] o indirect reference groups nonmembership groups aspirational reference group a group that someone would like to join influences your behavior when you want to join them you try to conform to the norms (values or attitudes deemed acceptable by a group) to join the group nonaspirational reference group (dissociative group) a group with which an individual does not want to associate influences your behavior when you want to stay away from them Implications of reference groups: they serve as information sources and influence perceptions they affect an individuals aspiration levels their norms either constrain or stimulate consumer behavior
* opinion leader an individual who influences the opinion of others; frequently included in

reference groups and knwon as group leaders [movie stars, athletes, celebrities, respected organizations]
* family the most important social institution for many consumers; strongly influencing values,

attitudes, self-concept and buying behavior ; responsible for the socialization process o socialization process how cultural values and norms are passed down to children (children learn by observing their parents consumption patterns and tend to shop in a similar pattern) Decision-Making Roles in the Family o initiators suggest or initiate to purchase a product o influencers members of the family whose opinions are valued o decision maker the family member who actually makes the decision to buy or not to buy o purchaser the one who actually exchanges money for the product o consumer the actual user Marketers should consider family purchase situations and distribution of consumer and decisionmaker roles among family members. Children can have great influence on purchasing decisions. L7 : Individual Influences on Consumer Buying Decisions Gender Physiological differences between men and women result in different needs. [health, beauty products] Changing roles of men and women: More men shop for themselves. More women work alongside their husbands. Age and Family Life-Cycle Stage

how old a consumer is generally indicates what products he or she may be interested in buying [food, clothing, cars, furniture] * family life cycle an orderly series of stages through which consumers attitudes and behavioral tendencies evolve through maturity, experience, and changing income and status young singles spend more than the average on alcoholic beverages, education and entertainment new parents spend more on health care, clothing, housing, food households with older children spend more on food, cars and gas having children would determine what kind of car to buy * life events major events in ones life over time o death, moving to another house, birth or adoption of a child, retirement, divorce, marriage, getting fired from a job o usually influence new consumption patterns

Personality, Self-Concept, and Lifestyle Each person has a unique personality. * personality a way of organizing and grouping the consistencies of an individuals reactions to situations; influences the type and brands of products purchased * self-concept/self-perception how consumers perceive themselves in terms of attitudes, perceptions, beliefs, and self-evaluations; combines ideal self-image and real self-image o ideal self-image the way an individual would like to be o real self-image the way an individual actually perceives himself/herself o explains the relationship between individuals perception of themselves and their consumer behavior * lifestyle a mode of living as identified by a persons activities, interests, and opinions; reflects personality and self-concept [food, health, clothing] L8 : Psychological Influences on Consumer Buying Decisions
* perception the process by which people select, organize, and interpret stimuli into a

meaningful and coherent picture o selective exposure a process whereby consumers notice certain stimuli and ignore others o selective distortion a process whereby consumers change information that conflicts with their feelings or beliefs o selective retention a process whereby consumers remember only information that supports personal feelings or beliefs Marketing Implications of Perception o price or quality o brand names o threshold level of perception minimum difference in a stimulus that the consumers will notice o product change

* motivation motive a driving force that causes a person to take action to satisfy specific

needs o Maslows hierarchy of needs a theory classifying human needs and motivations into five categories in ascending order of importance. physiological needs the most basic human needs (food, water and shelter); essential to survival safety needs security and protection social needs sense of belonging, love esteem needs self-respect, recognition, status self-actualization self-development, self-realization, self-fulfillment
SelfActualization Estee m Social Safety Physiological

* learning a process that creates changes in behavior, immediate or expected, through

experience and practice o experiential learning a type of learning that occurs when an experience changes your behavior o conceptual learning a type of learning that is not acquired through direct experience o stimuli generalization a form of learning that occurs when one response is extended to a second stimulus similar to the first o stimuli discrimination a learned ability to differentiate among similar products
* belief an organized pattern of knowledge that an individual holds as true about his or her world * attitude learned tendency to respond consistently toward a given object changing beliefs about attributes turning neutral or negative beliefs about product

attributes into positive ones changing the importance of beliefs changing relative importance of belief about an attribute adding new beliefs transforming attitudes to new beliefs

CHAPTER 7: BUSINESS MARKETING L1 : What Is Business Marketing?

* business marketing marketing of goods and services to individuals and organizations for

purposes other than personal consumption

business products include those that are used to manufacture other products, become part of another product, or aid the normal operations of an organization

L2 : Business Marketing on the Internet

* business-to-business electronic commerce (B-to-B / B2B e-commerce) the use of the Internet

to facilitate activities between organizations This method of conducting business has evolved and grown rapidly. Examples: www.adobe.com (developers, creative professionals, IT professionals), www.infocus.com (IT professionals), www.usps.com (consumers and businesses) Measuring Online Success Three most important measurements of online success: 1. recency consumers who have made a purchase recently are more likely to purchase again in the near future than are consumers who havent purchased for a while 2. frequency help marketers identify frequent purchasers who are definitely more likely to repeat their purchasing behavior in the future 3. monetary value of sales important because big spenders can be the most profitable customers of a business * stickiness a number of a Web sites effectiveness frequency x duration x site reach (pages viewed during each visit) By measuring the stickiness factor of a Web site before and after a design or function change, the marketer can quickly determine whether visitors liked the change. Trends in B2B Internet Marketing RSS (real simple syndication) feeds used to publish frequently updated materials such as blogs, news headlines, audio, and video in a standard format example: W.W. Grainger Inc. a distributor of facility maintenance supplies provides RSS feeds on its Web site supplylink.com to help maintenance professionals identify and solve issues such as security, energy efficiency, etc L3 : Relationship Marketing and Strategic Alliances Relationship Marketing a strategy that entails seeking and establishing ongoing partnerships with customers has become important business marketing strategy as customers have become more demanding and competition has become more intense Loyal customers are more profitable than those who are price-sensitive and perceive little or no difference among brands or suppliers. Example: FedEx Powership program (includes a series of automated shipping, tracking, and invoicing systems that save customers time and money while solidifying their loyalty to FedEx.)
* strategic alliances (strategic partnership)

 a cooperative agreement between business firms can take form of licensing or distribution agreements, joint ventures, research and development and partnerships may be formed between different manufacturers, manufacturers and consumers, manufacturers and suppliers o Business marketers form strategic alliances to strengthen operations and better compete. Example: DHL forms an alliance with rival company UPS with the agreement that UPS will provide all the airlift services in the USA. * relation commitment a firms belief that an ongoing relationship with another firm is so important that the relationship warrants maximum efforts at maintaining it indefinitely * trust the condition that exists when one party has confidence in an exchange partners reliability and integrity Relationships in Other Cultures The concepts of relationship marketing have long been familiar in other cultures. (Mexico, China, Japan, Korea and Europe) Example: In Japan, exchange between firms is based on personal relationships that are developed through amae, or indulgent dependency. Amae is the feeling of nurturing concerned for, dependence on, another. Relationships between companies can develop into a keiretsu: within it, executives may sit on the boards of their customers or their suppliers. They trade with each other whenever possible and engage in joint product development, finance, and marketing activity. L4 : Major Categories of Business Customers Producers profit-oriented individuals and organizations that use purchased goods and service to produce other products, to incorporate into other products, or to facilitate the daily operations of the organizations examples: construction, manufacturing, real estate, transportation, finance, food service firms * original equipment manufacturers (OEMS) individuals and organizations that buy business goods and incorporate them into the products that they produce for eventual sale to other producers or to consumers Resellers retail and wholesale businesses that buy finished goods and resell them for a profit o retailers sell to final consumers o wholesalers sell to retailers and other organizational customers business product distributors wholesalers that buy business products and resell them to business customers; carry thousands of items in stock and employ sales forces to call on business customers Governments

 federal, state, and local buying units

make up what may be the largest single market for goods and services in the world o Contracts for government purchases are put out for bid. (lowest bidder is awarded the contract) Grounds for rejecting the lowest bid are lack of experience, inadequate financing, poor past performance Federal Government worlds largest customer; combination of several large companies with overlapping responsibilities and thousands of small independent units State, County, and City Government paperwork is more simple, more manageable and less frustrating when selling to them Institutions seek to achieve goals rather than the standard business goals include schools, hospitals, colleges, churches, labor unions, fraternal organizations, civic clubs, foundations and nonbusiness organizations L5 : The North American Industry Classification System (NAICS) a detailed numbering system developed by the United States, Canada and Mexico to classify North American business establishments by their main production processes introduced in 1997 to replace SIC (Standard Industrial Classification) o provides a common industry classification system for the NAFTA o extremely valuable tool for business marketers engaged in analyzing, segmenting and targeting markets o Classification groups are homogeneous in terms of raw materials required, manufacturing process employed and problems faced. L6 : Business versus Consumer Markets Demand Business demand is derived, inelastic, joint and fluctuating. * derived demand the demand for business products o Organizations buy products to be used in producing their customers products. o They must carefully monitor demand patterns and changing preferences in final consumer markets because derived demand based on expectations of future demand for those customers products. o Business marketers also try to influence final consumer demand. * inelastic demand an increase or decrease in the price will not significantly affect demand for the product * joint demand occurs when two or more items are used together in a final product * fluctuating demand demand for business products tends to be less stable than the demand for consumer products o multiplier effect (accelerator principle) phenomenon in which a small increase or decrease in consumer demand can produce a much larger change in demand for the facilities and equipment needed to make the consumer product

Purchase Volume Business customers buy in much large quantities than consumers. Number of Customers Business marketers have fewer customers than consumer markets. Advantage: easier to indentify prospective buyers, monitor current customers needs and levels of satisfaction Disadvantage: customer becomes crucial Location of Buyers Business customers tend to be more geographically concentrated than consumers. Distribution Structure Channels of distributions are typically shorter. Direct channels are much more common. * business-to-business online exchange an electronic trading floor that provides companies with integrated links to their customers and suppliers Nature of Buying Business buyers usually approach purchasing formally. They get to know the items and the sellers well. Type of Negotiations Consumers negotiate price on automobiles and real estate. In, America, consumers expect sellers to set the price and other conditions of sale. Buyers and Sellers negotiate product specifications, delivery dates, payment terms and pricing matters. Use of Reciprocity * reciprocity the practice of business purchasers choosing to buy from their own customers It is neither unethical nor illegal unless one party persuades the other and the result is unfair competition. It is considered a reasonable business practice. Use of Leasing Buy products rather than lease them Computers, constructions equipment and vehicles and automobile. Reduce capital outflow, acquire a sellers latest product, receive better services, and gain tax advantages Primary Promotional Method Business marketers tend to emphasize personal selling in their promotion efforts, especially for expensive items, customer-designed products, large-volume purchases, and situations requiring negotiations. L7 : Types of Business Products

* major equipment (installations) capital goods (large/expensive machines, mainframe

computers, blast furnaces, generators, airplanes, buildings)

* accessory equipment goods, such as portable tools and office equipment, that are less

expensive and shorter-lived than major equipment (portable drills, power tools, microcomputers, fax machines)
* raw materials unprocessed extractive or agricultural products which become part of finished

products (mineral ore, timber, wheat, corn, fruits, vegetables, fish)

* component parts either finished items ready for assembly or products that need very little

processing before becoming part of some other product

* processed materials products used directly in manufacturing other products; have had some

processing, unlike raw materials

* supplies consumable items that do not become part of the final product; generally categorized

into maintenance, repair and operating supplies

* business services expense items that do not become part of a final product

L8 : Business Buying Behavior Buying Centers * buying center all those persons in an organization who become involved in the purchase decision Roles in the Buying Center o initiator the person who first suggests making a purchase o influencers/evaluators people who influence the buying decisions o gatekeepers group members who regulate the flow of information o decider the person who has the formal or informal power to choose or approve the selection of the supplier or brand o purchaser the person who actually negotiates the purchase o users members of the organization who will actually use product Evaluative Criteria (What Business Buyers Want) quality technical suitability service satisfactory service price lowest prices Buying Situations * new buy the purchase of a product for the first time * modified rebuy the purchaser wants some change in the original good or service; normally less critical and less time-consuming than a new buy * straight rebuy the purchaser reorders the same goods or services without looking for new information or other suppliers

Business Ethics Many companies also have codes of ethics or business conduct that help guide buyers and sellers. Customer Service Business marketers are increasingly recognizing the benefits of developing a formal system to monitor customer opinions and perceptions of the quality of customer service.