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Consumer and Business Buyer BehaviourConsumer Buyer Behaviour: households and individuals that purchase goods for personal consumption, in doing so they create a consumer market.Consumer Market: How individuals and households acquire, use, consume, and dispose of goods and services.Acquisition proce...

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Consumer and Business Buyer Behaviour

Consumer Buyer Behaviour: households and individuals that purchase goods for personal consumption, in doing so they create a consumer market. Consumer Market: How individuals and households acquire, use, consume, and dispose of goods and services. Acquisition process: 1.) Motive development: Needs awareness/trigger i.e recognising a problem, addressing a lack, something new or a replacement. 2.) Information gathering: process of researching information regarding the good or service 3.) Proposition Evaluation: assessing alternatives that are available 4.) acquisition/purchase: the act of purchasing if this decision is made in previous step 5.) Re-evaluation: post purchase rationalisation ●

The type of purchase affects how buyers move through this process, it might be different and not in linear steps.

Habitual behaviour: cognitive bias/tendency to purchase with little conscious evaluation or consideration, automated decision making Types of buying behaviour: ●

Routine: frequently purchased, low cost, low risk, little research, habitual in nature, low involvement (milk, standard groceries)

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Extensive decision making: Not bought frequently, high risk, expensive, high involvement, lots of information needed to compare alternatives (choosing university, cars, houses) ● Impulse buying: unplanned, no information gathered prior to acquisition, low involvement (sweets, candies)

Utilitarian value: purchasing as a result of the utility that can be extracted from usage Hedonic value: other properties that add to the value of consuming a good or service

External factors: cultural/social factors that influence buying behaviour ●

Reference groups: ○ Social identification groups - friends, aspirational groups, membership groups

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Roles and Family ○ Social self and actual self ○ Family - arguably the most important consumer buying unit in marketing ○ Roles and status - the perception of how what we purchase portrays an image of ourselves to others

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Social classes: ○ Income, education, occupation, interests, values. Those who belong to common social classes tend to have the same consumer buying behaviour.

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Culture and subcultures ○ Creates learned values ○ Subcultures - smaller groups of people with shared values, experiences and preferences

Personal Factors: Those unique to the individual ●

Demographic factors ○ Age, sex, race, ethnic origin ○ Income, occupation ○ Family

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Environmental factors ○ Those that surround the individual (subject to the stage in their life) when a consumer is making a purchasing decision i.e single/becoming a parent etc.

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Personality factors ○ Independent, dominant, sociable ○ Personality traits are highly important in creating preference for brands ○ Different marketing approaches are developed to market the same product consumed ○ I.e holiday ads/campaigns targeting extraverts/introverts

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Psychological factors ○ Perceptions - interpretations of reality ■ Selective attention: screening out most of the information expose to and paying attention to the most relevant ■ Selective distortion:  interpreting info in a way that supports what you already believe ■ Selective retention: remembering good points about a brand and overlooking the negatives ○ Motives - innate drive for rewards, hidden motives ■ Freud - subconscious subliminal motives that aren't conscious of in affecting our behaviours and decisions (Id, ego, superego) ○ Learning - change of behaviour from previous experience (classical learning conditioning theories, social learning theories) ○ Opinions: quick responses to issues or debates held with conviction as an underlying attitude on the issue is yet to be formed ○ Attitudes: By comparison are held with greater degrees of conviction, over a longer duration, more likely to influence behaviour than opinions ○ Values: are held even more strongly than attitudes, underpinning our attitudinal and behavioural systems

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Level of involvement ○ Emotional commitment and time spent researching a product for a particular situation. This commitment derives from individuals personality traits.

Lecture 3: Market Research and Customer Insight

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Research: the systematic investigation into and study of materials and sources in order to establish facts and reach new conclusions ○ Business research: systematic process that involves collecting analysing and interpreting data for decision making and recommendations

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Market research: conducted to understand markets, customers, competitors and the industries in which a firm competes/targets. ● Marketing research: also determines the impact of marketing strategies, campaigns and tactics and whether or not they are successful. The importance of market and marketing research: ●

Gathering accurate information to enable and facilitate decision making ○ Problem identification research ○ Problem-solving research (e.g testing a new marketing campaign)

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Understanding key characteristics of new markets ○ Demographic characteristics ○ Market size and identifying potential for growth ○ Understand more about consumers and their perceptions towards their offerings

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Legitimise potential opportunities and identify potential threats in new markets Identify potential partners and collaborative opportunities Conduct cost estimations of proposed strategies Identify distribution channels Local and international production and logistics Marketing research process:

1.) Defining a problem a.) I.e a management problem whereby sales at a new physical store has not met expectations and projected sales, possibly owing to the emergence of a new competitor 2.) Deciding a research plan a.) Marketing research questions: is a newly emerged customer gaining greater market share within our segment, has customers disposable income declined in this particular area, are customers bored of the existing products we offer, are customers doing more shopping online vs physical, did we overestimate our sales projections?

b.) Deciding on the type of sources (primary vs secondary data) and quantitative/qualitative data. Market research companies? c.) Compare the research methods at hand and select the one that is most appropriate for the intended research 3.) Undertaking data collection a.) Determining the sample plan (probability: random, stratified, clustered vs non probability, convenience, quota, judgement) b.) Research instrument: questionnaires, or mechanical (technical, i.e brain scans, people meters, checkout meters) c.) Big data 4.) Undertaking data analysis, evaluation and interpretation 5.) Writing a report and delivering a final presentation Types of marketing research objectives ●

Exploratory research: enable the development of hypotheses. Main emphasis here is to gain ideas and insights into the problem at hand.

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Descriptive research: involves describing issues related to the research problem - i.e target population/segment, international markets etc. Useful when the firm has a reasonable understanding of the problem at hand.

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Causal research: research in which major emphasis is placed on trying to establish a cause and effect relationship with regards to the causal factors of the problem at hand.

Market research organisations: companies that frequently undertake research into industry specific sectors and products, they offer their 3rd party consulting services to undertake highly specialised marketing research for their needs i.e Mintel and Passport ●

Big data: refers to a more comprehensive set of data than that traditionally used to provide marketing information and customer insights. Extremely large sets of data that may be analysed computationally to reveal patterns, trends and associations. ● Patterns and connections that can improve marketing strategies

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Challenges for organisations information use ○ Collating too much data ○ Data that is too narrow ○ Not a wide enough mix of minds and perspectives involved in data collection ○ Not keeping pace with the speed of change

The marketing environment External (Macro) Environment ● Political: political stability, regime orientations, pressure groups/lobbying, trade unions ● Economic: wage & price inflation, GDP, corporate tax environments, exchange rates, trade policies (quotas, tariffs, controls) ● Socio-cultural: demographics, lifestyles, social mobility, education, attitudes, consumerisms ● Technological: government and industrial R&D, speed of technology transfer, product life cycles ● Legal: legislative structures, product safety, antitrust laws, trade policies, employment and labour laws, foreign trade regulations ● Environmental: sustainability legislation, green marketing strategies, energy supply etc ●

Environmental scanning: is the process of gathering information about a company’s events and relationships, to assist top management in its decision making and the development of course of actions ○ 1.) data gathering phase ○ 2.) environmental analysis interpretation phase ○ 3.) Strategy formulation phase

The performance (Micro) Environment ●

performance(micro) environment: are the forces, groups and organisations which directly and indirectly influence an organization's major operations. ● The performance environment is known as the industry in which the organisation operates ● Kotler and Keller (2002) define an industry as different competitive set of companies that satisfy the varying needs of customers. ○ Industry can be defined and analysed in terms of four levels of competition ○ 1.) brand competition ○ 2.) product competition ○ 3.) form competition ○ 4.) generic competition ●

Porter’s Five Force Model: Porter (1979) developed a model which outlines how competitive forces shape strategy, these 5 forces determine the profit structure of an industry by determing how economic value is apportioned ● Strategy can be viewed as the process of building defences against the competitive forces of other firms or as finding a position in an industry where the competitive forces are weaker ● Competition is more of a key player than size when analysing competition within a market

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Strategy can be viewd as building defences against the 5 forces and finding a position in an industry where these forces are weaker (Reduce competitive intensity)

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Porter's five forces model outlines that profit and competition is driven by five key forces ○ 1.) buyers ■ Customers will always be happiest to pay as little as possible to extract as much value as possible ● Buying power is determined by bargaining leverage (buyers purchasing behaviours) and price sensitivity ○ 2.) suppliers ■ Ideally suppliers would like to be paid more and deliver less, suppliers can develop a strong position within an industry, particularly where they obtain most of the resources needed, have some degree of monopolistic power, they can bargain for higher prices ● Determinants of supplier power: differentiation of inputs, cost of switching suppliers/clients in an industry, supplier concentration, important of volume to a supplier, presence of substitute suppliers ○ 3.) substitutes ■ A third source of competition comes from substitute products that meet the same basic needs of the consumer, these aren’t necessarily from within the same industry and can be the greatest source of competition ● Determinants of substitution threats: relative price performance of substitutes ● Switching costs for consumers ● Buyers propensity to substitute ○ 4.) new entrants ■ New entrants serve as a threat and can create tension via unique offerings and better deals i.e through better marketing strategies and innovation ● The extent to which new entrants can be a threat depends on entry barriers within that market or industry i.e the presence of economies of scale, brand identity, purchasing economies, access to distribution channels, absolute cost advantages, government legislations, access and ownership of inputs ○ 5.) existing rivals

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Porter believes that these 5 forces are the backbone to what defines any industry, once a company truly understands these forces at play and can identify and evaluate them, companies can make better decisions regarding their future, their competitive strategies to find a position where these forces are weaker and maximise profits

Internal analysis: evaluates a firm's activities, capabilities and potential of the products, human, marketing and financial resources ● ●

The most widely used model and approach is the Value Chain Approach (Porter) Value Chain Approach (Porter) to strategy: suggests that primary activities consist of operations, marketing & sales, inbound and outbound logistics and services. ○ Support activities: HR management, infrastructure, procurement, tech development ● All in all these activities act towards the competitive advantage a firm is able to achieve and their position within an industry henceforth determining the margin they are able to obtain.

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Resource based approach to strategy: (Grant, 1991): this approach focuses on a firm's current internal resources and capabilities which would create a stronger base for competitive advantage. ○ This is opposed to outward facing strategies like porter (1985) designed to manage competitive forces or strategies designed to improve positioning against competitors 1.) Firms identify and classify their resources: aprase strengths and weaknesses of their resources relative to their competitors. Identify 2.) Firms then identify their capabilities: (skills, learning and knowledge processes used to create an advantage) identify what they can do more effectively than rivals, firms identify the inputs to each capability and the complexity of the capability 3.) Appraise the rent-generating potential of resources and capabilities: identify their potential for sustainable competitive advantages 4.) Select a strategy: selecting the strategy that best exploits the firm’s resources and capabilities relative to external strategies and opportunities

Internal Portfolio Analysis - Boston Consulting Group Matrix ●

In a collection of market offerings (i.e multiple product offerings) the relative performance of each must be assessed ● The ideal: a product mix balancing mature, established, growing and new offerings with incoming profis and future flows - this will minimise risk ● BCG matrix: defines axes of relative market share (X) and rate of market growth (Y)

Marketing strategy and Ansoff Matrix:

Segmentation: identifying and dividing a market into groups who have distinctly similar product/service requirements. What is the purpose of segmenting a market? -

Efficiency: to leverage scarce resources by focusing exactly on a specific type of customers needs and to do so segmentation is necessary Effectiveness: to ensure that elements of a brands marketing mix are designed effectively to meet the particular needs of different customer groups

The aim of market segmentation is to identify segments where: ● There are identifiable differences that exist between segments (segment heterogeneity) ○ I.e potential customers from different segments have different quality preferences ● Similarities exist between members within each segment (members homogeneity) ○ Potential customers from within the same segment prefer the same product qualities Types of market segmentation (process) Breakdown method: This involves a breakdown of the market by assuming that customers are the same. Segmentation here is facilitated by identifying those individuals who share particular differences and grouping them - All consumers are the same, identify those who share particular differences and group them accordingly Build up method: treats the market as being comprised of consumers with distinct differences and thus seeks to segment groups via identifying common similarities amongst each other. - All customers are different, identify those who share things in common and group them accordingly. How exactly do we define and find segments? Via Segmentation variables: These are the dimensions or characteristics of individuals, groups or businesses that are used to help define and identify these distinct differences or similarities. Segmentation variable criteria: 1.) Profile criteria: concerns who the market are and where they are essentially the market demographics (i.e age, gender, social status, class, geographical location etc) ○ Demographics ○ Socio-economic status

Marketing Mix - Product & Price Two ways to obtain new products either ‘make’ or ‘buy’ ●

New product development: the development of innovative original products, product modifications, and new brands through the firm’s own efforts ● Acquisition: buying a company, patent or license to produce someone else’s products Types of products: ●

convenience goods (low involvement) ○ I.e newspaper, food & beverage ● Shopping products (durables) ○ Clothes, furniture etc ● Speciality products: that are made for a specific purpose i.e bespoke products (high involvement, more time to evaluate etc) ○ Spec’d car ● Unsought products ○ Insurance

Levels of product offer: ● Core: the core purpose of the existence of a product ● Embodied proposition: these consist of the direct attributes associated with the product i.e design, color, packaging, reliability ● Augmented proposition (marketing support): consists of less tangible aspects of a product i.e brand, warranty, after sales services, credit facilities etc Servitization: service is the basis of exchange and the product behind it is just the vehicle of this exchange i.e the sharing economy

The need for product innovation: Businesses need to be dynamic, standing still is not an option if a businesses wants to succeed in the long run. Successful innovations will: ● ● ● ● ●

Restimulate interest with existing customers - cross selling and up selling for extra sales Added value to customers enables higher prices and profit margins Attracting new customer segments with product variants Maintain brand & p  rotect past investments Attract and retain q  uality personnel

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Build company reputation

Successful new product development should be: ● Customer centered - new solutions and experiences for customers ● Systematic - an innovation culture created to evaluate, review and manage new product ideas beyond a formal R&D department helping to yield new product ideas. -

Customer centered in the sense that if focuses on creating new solutions and experiences for customers and systematic in the sense that it goes beyond formal R&D activities and seeks to yield new product ideas - a culture to collect, review and evaluate large no of ideas

What exactly is innovation? There are different Kinds of innovation; ● Additions to existing product and service lines ● improvements/revisions to ^ ● New product development ● Cost reducing additions ● New to the world i.e disruptive business models, technologies or products ● repositioning

New product development (NPD)stages New Product Strategy – Innovators have clearly defined their goals and objectives for the new product. 1.) Idea Generation – Collective brainstorming ideas through internal and external sources. ● Systematic search for new products, the sources of these can be both internal and external. Internal = company’s own formal R&D, management, staff etc as well as external = open innovation, crowdsourcing info from customers, competitors, distributors, suppliers etc ● Systematic thinking: ○ Subtraction: removi...