The slides are in the following order

1.` Consumer Behavior2. Industrial Buying Behavior3. Marketing Strategies

Consumer Buying Behavior

Analyzing Consumer Markets and Buying Behavior

Interest in examining aggregate market response to firm specific decision variables understanding explaining predicting

Method analyze individual level behavior analyse aggregate market behavior

Analysing Consumer Markets and Buying Behavior

Translation of individual level behavioral analysis to aggregate level market response is faced with the issues of aggregation bias and consumer heterogeneity

A prime characteristic of consumers is their variation in preferences, tastes, likes, dislikes, purchase behavior patterns. Meaning thereby that markets are heterogenous and consumers exhibit heterogeneity

Object of consumer behavior analysis - buyer or user ? answer - both with emphasis on decision maker

Behavioral processes of consumersAn integrative conceptual framework

Communicationsensitivity

Acculturedindividuality

Rational and EconomicDecision making

Society andMarket Environment

() – Behavioral Process of Consumers

Behavioral Processes of Consumers- Communication Sensitivity

WithinMarket

Communication sensitivity

Firm To Market

Communication

Within Market

Word of Mouth

Diffusion Processes

Firm to Market

-Consumer Behaviour Concepts-One way/Two way.

Behavioral Processes of Consumers- Communication sensitivity

Consumer Behaviour Concepts – Endogenous Factors

SelectivityInvolvementPersuasion

Selectivity

Selective attention – Marketers have to work hard to get consumer’s notice – consumers are more likely to notice stimuli of current need, stimulithey anticipate, stimuli whose deviations are large e.g. $25 off $100 rather than $5

Selective distortion – tendency to twist information into personal meanings thatwill fit our preconceptions e.g. A customer of LG may interpret an advertisement saying that they are No. 1 company in Microelectronics tobe No.1 company in all of consumer durables

Selective Retention – consumers likely to remember good points of products theylike and forget good points of competing products e.g. a user may remember that Pears soap is the only soap good for dry skin though in the market Dove and Mysore Sandal Gold is also good for dry skin

Involvement

Krugman proposed the concept of level of involvement influencingbuyer behavior. Products purchased are either low involvement Or high involvement. Assael has classified types of buying behaviorbased on involvement – See slide next

Persuasion

Low Involvement products use the peripheral route to persuasione.g. celebrity endorsements

High Involvement products use both the central route (cognitive reason)to persuasion and the peripheral route to persuasion.

Assael’s Classification of types of Buying Behaviour

Complex Buying Behaviour

Variety-Seeking’Buying Behaviour

DissonanceReducing Behaviour

Habitual BuyingBehaviour

SignificantDifferenceBetweenBrands

Few DifferenceBetweenBrands

High Involvement Low Involvement

Assael’s Classification of types of Buying Behaviour

Complex: First develop beliefs about product. Then develop attitudes and then make a choiceDissonance: First Act, then develop beliefs. Then end up with attitudesHabitual: salt- out of habit, beliefs from passive learning-choice- evaluation/attitudesVariety seeking- lot of brand switching- chocolates (Low involvement)-Beliefs-Choice-Attitudes.

Behavioral Processes of Consumers- Accultured Individuality

Accultured Individuality

Culture Sub CultureSocial Class

Personal - Age and Life cycle - Occupation - Economic Circumstances

Social -Reference groups-Family-Roles and Status

Consumer BehaviourConcepts•Personality and Self concept•Life style•Motivation

Independent Factors

1. Culture –a) Cultural factors exert the deepest and broadest influence onbuyer behavior. Culture is fundamental determinant of a person’s wantsand behaviorb) Subculture – countries, regions, races, religionsc) Social class

2. Social factorsa. Reference groups – primary (family, coworkers), secondary

(religious groups)b. Reference groups – aspirational groups and disassociative groups

c. Three influences of reference groups –1. individual exposed to new behaviors, lifestyle2. create pressures for conformity (affects choice thereby)3. influence attitudes and self concept

2. Social Factors- Family

- Family of orientation – influences beliefs, values, attitudes- Family of procreation – influences day-to-day living and

purchases

3. People buy products that communicate their role and status in society

Endogenous Factors – Accultured Individuality

Lifestyle

A lifestyle is a person’s pattern of living in the world as expressed inactivities, interests, opinions. Lifestyle portrays the ‘whole person’.Marketers search for relationships between their products and lifestylegroups. If it is found that most computer buyers for home purpose areachievement oriented, then the marketer may aim his brand at achiever lifestyle

Psychographics is a way of using psychology and demographics for understanding consumers. VALS of SRI consulting is a useful framework

Accultured Individuality – Endogenous factors

Personality and Self Concept

Personality is a set of distinguishing human psychological traits that lead to Consistent responses to environmental stimuli. E.g. Self Confidence, dominanceAutonomy, sociability, defensiveness

Brand Personality is a specific mix of human traits attributable to a particular brandConsumers choose brands which have a personality similar to that of their own.

Self Concept - Actual self concept – how he/she views him/herself- ideal self-concept – how she/he likes to view her/himself- others self concept – how he/she thinks others see him/her

A marketer has to judge the form of self concept from the above to market his brand

Endogenous Factors – Accultured Individuality

Motivation

A person has many needs (biogenic, psychogenic). A need becomes a motiveWhen it is aroused to a sufficient level of intensity. In other words a motive is a need that is sufficiently pressing to drive the person to act.

Motivation Theories

Freud’s Theory

Maslow’s Theory

Herzb

Herzberg Theory

Freud’s Theory

Consumers’ behavior is shaped largely by unconscious psychological forces.A technique called LADDERING is used to trace the person’s motivationFrom the stated ones to the terminal ones. The marketer can then decide toTarget his appeal to the most appropriate level.

Motivation researchers also use projective techniques such as word associationSentence completion, picture interpretation etc.

Maslow’s Theory

Physiological Needs

Safety Needs

Social

Social Needs

Esteem Needs

Self Actualization Needs

This helps how various products fit into lives, goals and plans of consumers.Consumers fill their needs starting from lowest to highest. So it is not of much useto target a high end need product to a person who is still satisfying his lower end need.

Endogenous Factors – Accultured Individuality – Motivation

Herzberg Theory

Factors for buyer motivation are of two types – hygiene factors (orDissatisfier removers) and motivators (satisfiers). It is not enough if hygieneFactors are present. Motivators must be present for a purchase.

Behavioral Processes of Consumers- Beliefs and Attitudes

Society & Mkt. Environment

Beliefs/Values Experience & usageIn Decision making

For consumption

Attitudes

Inputs from rational and Economic Decision Making

Communicationsensitivity

AcculturedIndividuality

Beliefs / Values and Attitudes

A Belief is a descriptive thought that a person holds about something. On BlindTest Diet Coke and Diet Pepsi are equally preferred. But on revealing brand Names Diet Coke was preferred by 65% of consumers and Diet Pepsi by 35%.This is an illustration of role of beliefs.

An attitude is a person’s enduring favorable or unfavorable evaluations, emotional feelings and action tendencies toward some object or idea.

A marketer is well advised to fit his product into existing attitudes rather than tryTo change attitudes, which take a long time. Sometimes it pays to change Attitudes

1. Buying New in exchange for old – pays to change attitude as marketis going to be large

2. These days food brands should have a diet variety as there is health consciousness in the market – pays to fit product

Behavioral Processes of Consumers-Rational and Economic Decision making

Decision making process

- Need Recognition- Information Search- Evaluation (perception)- Purchase (Preference)- Post-Purchase

Behavioral Processes of Consumers-Rational and Economic Decision Making

Consumer Behaviour

Processes/ConceptsIndividual constraints

Budget constraints

Situational factors Beliefs and valuesAttitudes

Market environment

Store Environment

Firm decision variable

Competitor decision variable

Rational and

Economic

Decision making

Post Purchase

Feelings

-Cognitive Dissonance

-Contrast Theory

Behavioral Outcomes of Rational and Economic Decision making Process

Rational and

Economic

Decision making

Post purchase feelings

Evoked set

Consideration set

Purchase intention

Purchase preference

Purchase Behaviour

Purchase behaviour decisions

What to Buy (Basket of goods decision)

Where to Buy (Store choice)

Which brands to buy (Brand choice)

How much to Buy (purchase quantity)

How often to Buy (Purchase timing)

Industrial Buying Behavior

Issues in Industrial Markets

Organizational markets

Institutionalmarkets

Smallbusinessmarket

Large organizationalmarkets

Government markets

1. Fewer, Larger Buyers – Tire manufacturers have OEM contracts with fewautomobile manufacturers.

2. Close supplier customer relationship – as there are fewer customers, supplierstend to develop a closer customer relationship. WIPRO’s close relationshipwith IIMB, for the sale of computers

3. Professional purchasing – use of buying instruments such as quotations, proposals and purchasing contracts; buyers guided by firm’s purchasingpolicies, constraints and requirements

4. Several buying influences – the buying committee may consist of technicalexperts, senior management, gatekeepers from consultancies etc. Thus the sellershould send trained sales people.

5. Multiple sales calls – sales cycles extends from few days to few years; thus sellerneeds to make multiple sales calls to win orders.

6. Derived demand – The demand for industrial goods is driven by thedemand for consumer goods. The boom in the construction industry is driving the demand for cement and steel.

7. Inelastic demand – Demand for many business goods and services is inelastic - that is not much affected by price changes. For example the demand for batteries is not going to change much with price as the demand of batteries is driven by the demand for automobiles.

8. Fluctuating demand – A small increase in the consumer demand can give riseto a significantly large increase in industrial demand – this effect is called theacceleration effect. Similarly a 10% fall in consumer demand can cause asignificant decrease of the industrial demand.

9. Geographically concentrated buyers – there is clustering to rationalize production – software in Bangalore; hosiery in Coimbatore; auto-ancillariesin Pune and Nasik etc.

10. Direct Purchasing – Firms buy direct mostly rather than thru intermediaries

Key Elements of Industrial Buying Behavior

Buying Process

Buy Situations Straight Re-buy – routine order – consumables, office supplies; outsideSuppliers tend to get in on dissatisfaction of existing supplier

Modified Rebuy – Modify specs, Prices, delivery requirements. In-Suppliers have to protect an account;Out-suppliers try for an opportunity e.g. computers

New Task – Buy for first time; greater the cost / risk –longer it takes to decidePass through stages – awareness, interest, evaluation, trial, adoption.Includes setting specs, price limits, delivery terms, order qty, acceptableSuppliers and selected supplier(s). Because of complex selling use of Dedicated missionary sales force.

Systems Buying and Selling – also called turnkey solutions – key industrialMarketing strategy in bidding large projects – dams, steel factories etc.

Buying Centre - Includes all members of the organization who play any of sevenroles in the purchase decision process

1. Initiators – those who put up the request

2. Users - Those who use the product; many times the user is the initiator

3. Influencers – help define specs, provide info for evaluatingalternatives, technical people are good influencers

4. Deciders – those who decide on requirements.

5. Approvers – those who authorize deciders and buyers

6. Buyers – members authorized to select supplier and decide terms

7. Gatekeepers – Members who are info conduits to othermembers of buy center e.g. receptionists , agents

Several individuals can occupy a given role (e.g. many users / influencers) and one individual can occupy multiple roles.

The buying center may include people outside the organization such as government officials, consultants, technical advisors and other members of the marketing channel.

Different members of the buy centre have different influences, for e.g. the engineering department may be concerned with actual performance of theproduct, whereas production may be more interested in ease of use and reliabilityof supply.

Members of buy centre – different personal motivations, perceptions and Preferences which in turn are dependent on - age, income, education, job position,personality, attitudes towards risk and culture

Characteristics of BUY CENTER

Characteristics of BUY CENTER ……….. Cont…….

Small sellers are advised to concentrate on key buying influencers. Large sellersGo for multilevel in-depth selling

Sellers are advised to periodically question or revise their assumptions about theBuy center to adapt to organizational changes

Purchasing / Buying Orientations

1. Buying Orientation – Buy at lowest price given a quality level . Use twoTechniques (a) commoditization – regard the product is only a commodity andcare only about price (b) multisourcing to bring in competition among vendors

2. Procurement Orientation – look for collaborative relationships and seeksavings through better management – such as material requirements planning, just-in-time management and even product design.

3. Supply Chain Management Orientation – purchasing is a strategic value adding operation and purchase department betters its role as a part of the value chain from raw materials to finished goods

BUYGRID FRAMEWORK

BUYPHASES

BUYCLASSES

New Modified Straight Task Rebuy Rebuy

1. Problem recognition2. General need description3. Product specification4. Supplier Search5. Proposal Solicitation6. Supplier selection7. Order-routine specification8. Performance review

Yes Maybe NoYes Maybe NoYes Yes YesYes Maybe NoYes Maybe NoYes Maybe NoYes Maybe NoYes Yes Yes

Problem recognition

Marketer stimulates problem recognition byDirect mail, telemarketing, calling on prospects

Internal stimuli – new product developmentfor which parts are needed, breakdown ofequipment, existing suppliers unsatisfactory

Buyer attends a trade showPurchase Manager senses an opportunity toget lower prices or better quality

General need descriptionand product specification

Standard items – go as per internal records oras per specs laid out in ISI documents

Complex items – collaborate with engineers,users; else sit with marketer’s applicationengineers who do consultative selling and work out specs and likely price

Certain buying organizations attach a PVA orproduct value analysis team to the projectwho will conduct extensive analysis to arriveat specs that will lead to minimum cost

Supplier Search

Identify suppliers- trade directories, hunt online catalogs for suppliers- trade shows- trade advertisements- Internet search – Websites have two types of e-hubs

Vertical hubs centered on industries-plastics, steel, paper

Functional hubs centered on logisticsmedia buying, advertising

-Direct extranet links to major suppliers (WalMart – P&G)

-Buying alliances to get best price.Coca-Cola, Sara Lee, Kraft, PepsiCo, GilletteP&G, have joined to form alliance – Transora

-Company buying sites – Firms like GE have theirown site where it places Requests for Proposal,negotiate terms, place orders

Proposal Solicitation

Invite suppliers to make detailed proposals

Set up quality standards if any e.g ISO 9000 orISI etc.

Large technology systems need a detailedTechno-Commercial proposal. The technicalquote will be cleared first and after that onlyqualified technical bidders will be called forcommercial negotiation

Buyers can invite suppliers to make presentations.

Supplier Selection

A supplier rating list is made by some companiesbased on relative importance given to a select setof attributes.

For routine order products the factors are : price,supplier reputation, delivery .

For procedural problem products such as copiers theimportant attributes are : technical service, supplierflexibility, reliability and price

For political problem products such as choice of a set of computers the factors are price, reputation, reliability and flexibility

One way to encounter price factor from supplier sideis to talk of total cost of product or life cycle cost.

Order routinespecification

Buyers negotiate the final order with the selected suppliers, and details the tech. specs., the quantitythe delivery time, return policies, warranties etc.

For maintenance and repair items , firms are moving towards a blanket contract that establishes a long runrelation. Such contracts are called stockless purchase plans as the stock is held by the supplier

Long run contracts are also agreed upon in case of shortage raw materials / inputs so that there is a steady flow of material. In many cases the supplierlocates his factory near the buyer for bringing downinventory and transport costs.

Vendor managed inventory is when the responsibility rests with the vendor for maintaining inventory

Important parameters to see are OT – deliver on timeIF – in full, NE – No error

Performance Review

Three methods of review

1 Ask for evaluation from buyers2 Buyer rates supplier on weighted score

method3. Based on drawbacks of performance the

buyer may come up with adjusted cost of purchase including price

4. Managers are rewarded for good buyingperformance

Institutional and Government Markets

1. Institutional Markets are – schools, colleges, universities, hospitals, nursing homes.

2. Institutions normally ask for lowest price given a minimum quality3. In government organizations the normal process is bidding with the

order going to the lowest bidder(s)4. Negotiated contracts are applicable where the project is complex and

risky.5. Governments tend to favor domestic suppliers6. Government decisions are subject to review, so there is lot of paperwork

in contracting7. Director General of Supplies and Disposals is the central purchasing unit of

Indian Government.

Marketing Strategies

Strategy

the art or skill of using stratagems in business, politics, courtship or like (American Heritage Dictionary of the English Language, 1973, p 1273)a plan of action resulting from the practice of this art or science

the set of strategic decisions for a particular marketing situation

guidelines for decision making in a contingent framework

apportionment of relative emphasis among the different elements of the strategic decision set

Business Strategy

Marketing Strategy

Technology Strategy

Sourcing Strategy

Other functional Strategies

Marketing

Conceptualization

Design

Build Up

Execution

Monitor

ofMarketingPrograms

toIdentify and satisfy customer needs and wantsThrough exchange processes simultaneouslyFulfilling organizational objectives

Long term implications

Huge Investments

Contingency Build Up

Strategy

Market Orientation

=

Customer Orientation+

Competitor Focus+

Inter-Organization Orientation

Marketing Strategy

Integration of the elements of marketing into a marketing mix that includes :Market entry / timingMarket selection encompassing segmentationDifferentiation and PositioningProduct planningPricingDistribution systemsMarketing communicationsFunctionalities Market exit

Evolution of marketing strategy as the market grows and matures -Introduction - market developmentRapid growth - expansion of primary demand, product proliferationLevelling - off - maximize market share as total demand has levelledMarket maturity - maintain mkt share, customer service / satisfaction

Marketing Strategy

Marketing Strategy Formulation

- STP- Decisions in the Marketing Consideration set

as outlined in the previous slide- Communication of the Value

Value PropositionPositioningSlogan Writing Branding

Marketing Strategy Implementation

Growth Opportunities

Intensive Growth Opportunities

Integrative Growth Opportunities

Diversification Growth Opportunities

Intensive Growth Strategies – Ansoff’s Product-Market Expansion Grid

CurrentMarkets

NewMarkets

Current Products New Products

Market Product Development StrategyPenetration Strategy

Market Development Strategy (Diversification Strategy)

Identification of Growth Opportunities … cont

Integrative growth opportunitiesbackward (acquiring suppliers) , forward (acquiring channel members) and horizontal integration (acquiringcompetitors)

Diversification growth opportunitiesconcentric – technological or marketing synergies to a new

group of consumers e.g. audio cassettes froma firm making computer tape

Conglomerate – new opportunities which have no relationto current technologies, products or marketsReliance into Telecom

Horizontal diversification – Appeal to current customerswith new technologies e.g. Music company produces CD / Cassette racks

The strategic square of marketing strategy

Market Leader

Market Followers

Market Challengers

Market Nichers

Market Leaders

Expand the total Market

Defend Market Share

Increase Market share if that is profitable

Expand total market

New users

New uses

More usage

Penetrate those who might use it but do not e.g.mobile usage among housewives when they go shopping

Those who have never used it – toothpowder among hard rural

In another geographical market – use of paan inwestern markets

Use product development – email for computer

Increase quantity of consumption e.g. Vicks originallyOn nose, later on chest and back

Increase frequency of consumption e.g. UsePepsi / Coke as light user to medium and heavy user

Competitor or

potentialcompetitor

Con- FrontationStrategyProactiveReactive

Fortress or Position

Defense strategy

Leader

Flanking Defense

Contraction or Strategic withdrawal

MobileDefense

Pre emptivedefense Counter

Offensivedefense

Defend Market Share

Expand Market ShareIf profitable

Possibility of invoking dominant firm action as laid out in theCompetition Act of India

economic cost of obtaining market share may exceed the resultingprofit. The incremental customers’ conditions for adopting the firm’sproducts may not be attractive – loyal to competitors, have unique Needs. Sometimes profit can be improved by decreasing mkt. share

Inappropriate marketing mix – as in excessive expenditures on advertising

System problems on high growth, effects on maintaining quality

Challenger Strategies

Target Competitor

ChallengerFrontalattack

Leapfrog strategy

Flanking attack

Encirclement Strategy

Guerillaattack

Specific attack strategies of Challengers

- Price discount – Big Bazaar

- Low Price Goods – Ruf and Tuf Jeans

- Value Priced goods – Nirma, Subhiksha

- Prestige goods – Challenger can offer higher quality product at higher price – Apartment market in Bangalore, better amenity flats are coming up

- Product proliferation – Baskin-Robbins offered more flavors to beat competition

- Product Innovation – 3M enters new markets with an innovation

- Improved services – Avis vs Hertz

- Distribution Innovation – Avon vs leading cosmetic firms

- Intensive advertising promotion – HLL in toothpastes vs Colgate

Market Follower Strategies

Follower Strategies

Counterfeiter- duplicates product and sells in black market thru Disreputable dealers – Apple Computer, Rolex watches

Cloner – emulates leader’s product – PC Market

Imitator – copies but maintains differentiation in packaging, advertisingPricing, location e.g. Matsushita in Japanese is ‘maneshita denki’ meaningElectronics copied.

Adapter – adapts or improves leader’s products e.g. Sony Innovates then LG, Samsung bring out improved versions

Nicher – leader in a small market or niche. Better margin than mass marketer as end user needs served better by nicher

Nicher

Some useful Nicher roles

- end user specialist – software for banks

- vertical level specialist – copper company concentrates on producing finished goods

- Specific Customer specialist – P&G – WalMart

- Service specialist – banks take loan requests over phone and delivers money personally