Chapter 1 - Consumer Behavior Meeting Changes and Challenges PDF

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CHAPTER 1Consumer Behavior: Meeting Changes and ChallengesLEARNING OBJECTIVESAfter studying this chapter students should be able: To understand what consumer behavior is and the different types of consumers. To understand the relationship between consumer behavior and the marketing concept, the soci...

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CHAPTER 1 Consumer Behavior: Meeting Changes and Challenges LEARNING OBJECTIVES After studying this chapter students should be able: 1. To understand what consumer behavior is and the different types of consumers. 2. To understand the relationship between consumer behavior and the marketing concept, the societal marketing concept, as well as segmentation, targeting, and positioning. 3. To understand the relationship between consumer behavior and customer value, satisfaction, trust and retention. 4. To understand how new technologies are enabling marketers to better satisfy the needs and wants of consumers. 5. To understand how marketers are increasingly able to reach consumers wherever consumers wish to be reached. 6. To understand how the world’s economic condition is leading to consumption instability and change. 7. To understand the makeup and composition of a model of consumer behavior. 8. To understand the structure of this book.

CHAPTER SUMMARY The study of consumer behavior enables marketers to understand and predict consumer behavior in the marketplace; it is concerned not only with what consumers buy but also with why, when, where, and how they buy it. Consumer research is the methodology used to study consumer behavior; it takes place at every phase of the consumption process: before the purchase, during the purchase, and after the purchase. The field of consumer behavior is rooted in the marketing concept, a business orientation that evolved in the 1950s through several alternative approaches, referred to, respectively, as the production concept, the product concept, and the selling concept. The three major strategic tools of marketing are market segmentation, targeting, and positioning. The marketing mix consists of a company’s service and/or product offerings to consumers and the pricing, promotion, and distribution methods needed to accomplish the exchange. Consumer behavior is interdisciplinary; that is, it is based on concepts and theories about people that have been developed by scientists in such diverse disciplines as psychology, sociology, social psychology, cultural anthropology, and economics. Skilled marketers make the customer the core of the company’s organizational culture and ensure that all employees view any exchange with a customer as part of a customer relationship, not as a transaction. The three drivers of successful relationships between

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marketers and customers are customer value, high levels of customer satisfaction, and building a structure for customer retention. Digital technologies allow much greater customization of products, services, and promotional messages than do older marketing tools. They enable marketers to adapt the elements of the marketing mix to consumers’ needs more quickly and efficiently, and to build and maintain relationships with customers on a much greater scale. However, these technologies also represent significant challenges to marketers and to business models that have been used for decades. Consumer behavior has become an integral part of strategic market planning. The belief that ethics and social responsibility should also be integral components of every marketing decision is embodied in a revised marketing concept—the societal marketing concept— that calls on marketers to fulfill the needs of their target markets in ways that improve society as a whole.

CHAPTER OUTLINE INTRODUCTION 1. Consumer behavior is defined as the behavior that consumers display in searching

for, purchasing, using, evaluating, and disposing of products and services that they expect will satisfy their needs. *****Use Key Term consumer behavior Here, Use Learning Objective #1.1 Here; Use Table #1.1 Here; Use Figure #1.1 and #1.2 Here***** Consumer behavior focuses on how individuals make decisions to spend their available resources on consumption-related items. b) As consumers, we play a vital role in the health of the economy—local, national, and international. c) Marketers need to know everything they can about consumers. d) Marketers need to understand the personal and group influences that affect consumer decisions and how these decisions are made. e) Marketers need to not only identify their target audiences, but they need to know where and how to reach them. 2. The term consumer behavior is often used to describe two different kinds of consuming entities: the personal consumer and the organizational consumer. a) The personal consumer buys goods and services for his or her own use, for the use of the household, or as a gift for a friend. i) Products are bought for final use by individuals (referred to as end users or ultimate consumers). a)

*****Use Key Term personal consumer Here*****

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b) The organizational consumer—includes profit and not-for-profit businesses,

government agencies, and institutions, all of which must buy products, equipment, and services in order to run their organizations6. Despite the importance of both categories of consumers, individuals and organizations, this book will focus on the individual consumer, who purchases for his or her own personal use or for household use. ii) End-use consumption is perhaps the most pervasive of all types of consumer behavior. *****Use Key Term organizational consumer Here*****

CONSUMER BEHAVIOR AND THE MARKETING CONCEPT *****Use Learning Objective #1.2 Here ***** 1. The strategic and applied field of consumer behavior is rooted in three philosophically

different business orientations that lead up to an extremely important business orientation known as the marketing concept. 2. The production orientation focused on gearing up manufacturing skills in order to

expand production. a) An additional focus was on perfecting the production capabilities of the company. b) The production orientation extended from the 1850s to the late-1920s. c) During this time period, demand exceeded supply. 3. The sales orientation focus was to sell more of what the manufacturing department was

able to produce. a) The orientation shifted from producing to selling. b) At some point, supply increasingly reached a point where it was greater than demand. c) The sales orientation began in the 1930s and extended to the 1950s. 4. In the mid-1950’s there was a shift from the sales orientation to the marketing orientation. a) Businesses realized the importance of focusing on consumers and their preferences. What Is The Marketing Concept *****Use Key Term marketing concept Here; Use Discussion Question #1 Here***** 1. The field of consumer behavior is rooted in a marketing strategy that evolved in the

late 1950s.

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2. Companies determined, that in order to be successful, they must determine the needs

and wants of specific target markets and deliver the desired satisfactions better than the competition. 3. Instead of trying to persuade customers to buy what the firm had already produced, marketing-oriented firms found that it was a lot easier to produce only products they had first confirmed, through research, that consumers wanted. 4. Recently there has been an important modification to the marketing concept called the societal marketing concept. a) The concept suggests that consumers may respond to their immediate needs or wants, while overlooking what is in their own long-run best interest, or the best interest of their family and neighbors, the best interest of their country or region or the entire planet. b) Enlightened marketers take it upon themselves to remind consumers as to what is in the consumer’s long-run best interest; at the same time they set out what their own company is doing in order to be a good corporate citizen. *****Use Key Term societal marketing concept Here; Use Exercise #2 Here***** Embracing the Marketing Concept 1. It is often important for companies to continuously conduct marketing research studies

to monitor consumers’ needs and preferences with respect to the products and services that they currently market and what they might develop in the future. 2. They discovered that consumers were highly complex individuals, subject to a variety of psychological and social needs quite apart from their basic functional needs. a) The needs and priorities of different consumer segments differed dramatically. b) The objectives of a company should be to target different products and services to different market segments in order to better satisfy different needs. c) In order to design new products and marketing strategies that would fulfill consumer needs, they had to study consumers and their consumption behavior in depth. 3. The term consumer research represents the process and tools used to study consumer behavior. *****Use Key Term consumer research Here; Use Exercise #3 Here***** Segmentation, Targeting, and Positioning 1. The focus of the marketing concept is to know consumers current needs, and to secure,

a picture of their likely future needs. 2. Market and consumer researchers seek to identify the many similarities and differences that exist among the peoples of the world. 3. The marketer must adapt the image of its product so that each market segment perceives the product as better fulfilling its specific needs than competitive products. a) The three elements of this strategic framework are: market segmentation, targeting, and positioning.

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4. Market segmentation is the process of dividing a market into subsets of consumers

with common needs or characteristics. 5. Market targeting is the selection of one or more of the segments identified for the

company to pursue. 6. Positioning refers to the development of a distinct image for the product or service in

the mind of the consumer, an image that will differentiate the offering from competing ones and faithfully communicate to the target audience that the particular product or service will fulfill their needs better than competing brands. a) Successful positioning centers around two key principles: i) The first principle says that the marketer should communicate the benefits that the product will provide rather than the product’s features. ii) The second principle states that because there are many similar products in almost any marketplace, an effective positioning strategy must develop and communicate a “unique selling proposition”—a distinct benefit or point of difference—for the product or service. *****Use Key Terms market segmentation, market targeting, and positioning Here; Use Discussion Question #2 Here***** The Marketing Mix 1. The marketing mix consists of a company’s service and/or product offerings to

consumers and the methods and tools it selects to accomplish the exchange. 2. Four basic elements (known as the four Ps) include: a) The product—features, designs, brands, packaging, etc. b) The price—list price (including discounts, allowances, and payment methods). c) The place—distribution of the product or service. d) Promotion—advertising, sales promotion, public relations, and sales efforts designed to build awareness of and demand for the product or service. *****Use Key Terms marketing mix and four Ps Here***** CUSTOMER VALUE, SATISFACTION, TRUST, AND RETENTION *****Use Learning Objective #1.3 Here; Use Discussion Question #3 & #4 Here; Use Exercise #1 Here***** 1. Since the 1950s many companies have successfully adopted the marketing concept. 2. The marketplace is now increasingly competitive. 3. Savvy marketers today realize that in order to outperform competitors they must

achieve full profit potential from each and every consumer. a) An exchange with a consumer is part of a customer relationship, not just a transaction. 4. Four drivers of successful relationships between marketers and consumers are: a) Customer value.

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b) c) d)

High levels of customer satisfaction. A strong sense of customer trust. Building a structure of customer retention.

*****Use Learning Objective #7 Here; Use Exercise #1 Here***** Providing Customer Value 1. Customer value is defined as the ratio between the customer’s perceived benefits

(economic, functional, and psychological) and the resources (monetary, time, effort, psychological) used to obtain those benefits. a) Perceived value is relative and subjective. b) Developing a value proposition is the core of successful positioning. c) Looking for the impact of emerging “megatrends” is a factor in attaining successful positioning of a brand. *****Use Key Term customer value Here***** Ensuring Customer Satisfaction 1. Customer satisfaction is the individual’s perception of the performance of the product

or service in relation to his or her expectations. 2. The concept of customer satisfaction is a function of customer expectations. 3. With respect to customer satisfaction there might be several types of customers: a) Loyalists—completely satisfied customers who keep purchasing. b) Apostles—those whose experiences exceed their expectations and who provide

very positive word of mouth about the company to others. Defectors—those who feel neutral or merely satisfied and are likely to stop doing business with the company. d) Terrorists—those who have had negative experiences with the company and who spread negative word of mouth. e) Hostages—unhappy customers who stay with the company because of no choice (or other reasons). f) Mercenaries—very satisfied customers but who have no real loyalty to the company and may defect.

c)

*****Use Key Term customer satisfaction Here***** Building Customer Trust 1. Closely related to the challenge of satisfying consumers is the challenge of

establishing and maintaining consumer trust. a) Trust is the foundation for maintaining a long-standing relationship with customers, and it helps to increase the chances that customers will remain loyal.

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b)

Efforts to provide true customer delight in the face of an event that had extremely dissatisfied the customer can be turned around by the marketer, and present a positive win-win outcome for both the consumer and the marketer.

*****Use Key Term consumer trust Here; Use Table #1.2 Here***** Securing Customer Retention 1. The overall objective of providing value to customers continuously and more 2. 3. 4.

5.

6.

effectively than the competition is to have and to retain highly satisfied customers. This strategy of customer retention makes it in the best interest of customers to stay with the company rather than switch to another company. In almost all business situations, it is more expensive to win new customers than to keep existing ones. Studies have shown that small reductions in customer defections produce significant increases in profits because: a. Loyal customers buy more products. b. Loyal customers are less price sensitive and pay less attention to competitors’ advertising. c. Servicing existing customers, who are familiar with the firm’s offerings and processes, is cheaper. d. 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 merely strive to “to retain customers.” Customer profitability-focused marketing tracks costs and revenues of individual customers and then categorizes them into tiers based on consumption behaviors that are specific to a company’s offerings.

*****Use Key Term customer retention Here; Use Table #1-3 Here; Use Discussion Questions #5 and #6 Here***** THE IMPACT OF DIGITAL TECHNOLOGIES ON MARKETING STRATEGIES 1. Digital technologies have allowed marketers to customize their products, services, and

promotional messages. 2. They enable marketers to adapt the elements of the marketing mix to consumer’s needs

more quickly and efficiently, and to build and maintain relationships with customers. 3. Marketers are collecting and analyzing increasingly complex data on consumers’ buying patterns and personal characteristics, and quickly analyzing and using this information to target smaller and more focused groups of consumers. 4. Technology enables consumers to find more information. *****Use Key Term digital technologies Here*****

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Consumers Have More Power Than Ever Before 1. Consumer can use “intelligent agents” to locate the best prices for products or services,

2. 3. 4. 5.

bid on various marketing offering, bypass distribution outlets and middlemen, and shop for goods around the globe and around the clock from the convenience of their homes. Marketers must offer more competitively priced products, with more options. Through devices like TiVo, consumers have more power over what they see or hear in the marketplace. Consumers have access to more information then ever before. Marketers have been reducing their advertising expenditures on major networks and investing their advertising dollars in newer media.

Consumers Have More Access To Information Than Ever Before 1. Reviews of products are easily found.

Marketers Can And Must Offer More Services And Products Than Ever Before 1. The digitization of information enables sellers to customize the products and services

they are selling and still sell them at reasonable prices. 2. Marketers can customize promotional messages.

Increasing Instantaneous Exchanges Between Marketers and Customers 1. Digital or new media communication enables a two-way interactive exchange in which

consumers can instantly react to the marketer’s message. 2. Marketers can quickly gauge the effectiveness of their promotional messages.

Impact Reaches Beyond the PC-Based Connection Of The Web 1. While computer access to the Internet is extensive and growing, in the future we are

likely to see the mobile phone or PDA emerge as the preferred access too, as it brings e-mail and text messaging to one particular device. 2. The large numbers of highly mobile consumers are making a cell device a preferred communication tool. THE EXPANDING MOBILE CONSUMER 1. Cellular service providers are increasingly seeing the cell phone’s screen as an

opportunity to secure advertising revenue. 2. We can expect expanded use of wireless media messages as: a) The availability of flat-rate data traffic to consumers increases. b) With creation of enhanced screen image quality. c) Increased consumer-user experiences with improved Web-related applications.

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*****Use Figure #1.3 Here***** CONSUMER BEHAVIOR IN A WORLD OF ECONOMIC INSTABILITY 1. This edition of Consumer Behavior was written in a time of recession and widespread

economic downturn in consumer confidence. 2. Economic events will impact what and how much consumers are able to purchase. 3. Some consumers really suffer in times of recession and widespread economic downturn. 4. Much of the process of consumer decision making and the dynamics of consumer research and shopping will still go on, but it will be different. *****Use Learning Objective #1.6 Here***** CONSUMER BEHAVIOR INTERDISCIPLINARY

AND

DECISION

MAKING

ARE

1. Consumer behavior was a relatively new field of study in the mid-to-late 1960s. 2. Marketing theorists borrowed heavily from concepts developed in other scientific

disciplines: a) Psychology—the...