© 2008 by Nelson, a division of Thomson Canada Limited 1 Customer Behaviour A Managerial Perspective First Canadian Edition Jagdish N. Sheth Emory University Banwari Mittal Northern Kentucky University Michel Laroche Concordia University

© 2008 by Nelson, a division of Thomson Canada Limited 2 CHAPTER 3 Trends in Determinants of Customer Behaviour

© 2008 by Nelson, a division of Thomson Canada Limited 3 Factors that Influence Customer Behaviour Three factors that are expected to cause the most significant change in customer behaviour are: Three factors that are expected to cause the most significant change in customer behaviour are:  Changes in demographics  Advances in technology  Changes in public policy

© 2008 by Nelson, a division of Thomson Canada Limited 4 Conceptual Framework Payer UserBuyer Demographics Aging population Women in the workforce Single-person households Declining middle-class Ethnic diversity Geographic distribution Public Policy Pragmatism over ideology Rights of passive consumers Regional economic integration Technology Control over information Smart products Access to products Mass customization

© 2008 by Nelson, a division of Thomson Canada Limited 5 Benefits of Anticipating Trends in Customer Behaviour Anticipating trends can give companies a key strategic advantage Anticipating trends can give companies a key strategic advantage By sighting a trend, the industry can create a market by channeling a latent need By sighting a trend, the industry can create a market by channeling a latent need Anticipating trends creates positive public opinion for the company and the industry, portraying them as responsive Anticipating trends creates positive public opinion for the company and the industry, portraying them as responsive

© 2008 by Nelson, a division of Thomson Canada Limited 6 Demographic Trends Aging of the population Aging of the population Rise in number of working women Rise in number of working women Increase in single-person households Increase in single-person households Decline of the middle class Decline of the middle class Increase in ethnic diversity Increase in ethnic diversity Geographic redistribution Geographic redistribution

© 2008 by Nelson, a division of Thomson Canada Limited 7 Aging of the Population Populations age for two key reasons Populations age for two key reasons  Birth rate is declining  Life expectancy is rising The aging population has concerns: The aging population has concerns:  Wellness  Financial well-being  Safety and security  Recreational needs

© 2008 by Nelson, a division of Thomson Canada Limited 8 Women in the Workforce Effects of the working women trend: Effects of the working women trend:  A significant change in the resources of a household  Time shortage: lack of free time  Time shift: the time when nonwork-related activities may be pursued  A shift in the lifestyle of families  With both spouses working, households have turned into roommate families

© 2008 by Nelson, a division of Thomson Canada Limited 9 Single-person Household Implications of the living alone trend include: Implications of the living alone trend include:  Loneliness  Self-respect and autonomy  Cocooning  Impulse buying

© 2008 by Nelson, a division of Thomson Canada Limited 10 The Declining Middle Class Four key implications: Four key implications:  An increasing range in prices of products  More customer militancy  Affordability  The neo rich

© 2008 by Nelson, a division of Thomson Canada Limited 11 Ethnic Diversity Two distinct implications: Two distinct implications:  Segmented markets  Cultural diversity

© 2008 by Nelson, a division of Thomson Canada Limited 12 Geographic Redistribution Geographical redistribution separates different generations in different space and time zones Geographical redistribution separates different generations in different space and time zones  Increases gaps both within and between generations People living in different areas of the country reflect different values, lifestyles, and attitudes People living in different areas of the country reflect different values, lifestyles, and attitudes  Regional marketing responds to and feeds the differences by exposing newly arrived residents to regional tastes

© 2008 by Nelson, a division of Thomson Canada Limited 13 Technological Trends Technology is shaping future customer values Technology is shaping future customer values Advances in technology have already given customers Advances in technology have already given customers  Increased access to information  Newer generations of products  Automation of transaction processes to provide customers with greater flexibility and control  Access to some customized products

© 2008 by Nelson, a division of Thomson Canada Limited 14 Customer Responses to New Technology Technological developments will stimulate changes in customer behaviour Technological developments will stimulate changes in customer behaviour  Customers will:  Take on the role of coproducers  Engage in disintermediation  Engage in outsourcing  Engage in automation of consumption

© 2008 by Nelson, a division of Thomson Canada Limited 15 Trends in Public Policy Economic pragmatism is prevailing over ideology Economic pragmatism is prevailing over ideology Many governments are concerned with protection of passive consumers Many governments are concerned with protection of passive consumers Governments on an international level are pursuing regional economic integration Governments on an international level are pursuing regional economic integration

© 2008 by Nelson, a division of Thomson Canada Limited 16 The Government’s Role in the National Economy Historically, three ideologies have shaped the government’s role in national economic affairs Historically, three ideologies have shaped the government’s role in national economic affairs  Political  Religious  Central planning

© 2008 by Nelson, a division of Thomson Canada Limited 17 Implications of Ideology vs. Economic Pragmatism Economic Pragmatism Government ownership and regulation Limited product and service offerings Locally produced products Ideology (political, religious, central planning) Greater competition due to privatization and deregulation Better products and lower prices due to greater competition Internationalization of products due to open boundaries Economic Pragmatism

© 2008 by Nelson, a division of Thomson Canada Limited 18 Implications for Customer Behaviour Greater competition Greater competition  Customer orientation is a must All three customer roles will benefit All three customer roles will benefit  The payer by lower prices  The user by better products  The buyer by ease of doing business More standardization More standardization

© 2008 by Nelson, a division of Thomson Canada Limited 19 Implications of the Trends for the Three Customer Roles The foregoing trends in demographics, technology, and public policy will influence all three customer roles The foregoing trends in demographics, technology, and public policy will influence all three customer roles  User  Payer  Buyer

© 2008 by Nelson, a division of Thomson Canada Limited 20 Influence of Major Trends in Demographics on the Three Customer Roles UserPayerBuyer DEMOGRAPHICS Aging population Increased health and security and recreational needs. Cost containment for health-care needs a high concern. Home delivery and convenience in buying important. Working women Time-saving appliances; cooking, cleaning, child care outsourced. Affordability somewhat improved. Male-female role specialization in buying further diluted. Single-person households Social and emotional values in products acquire prominence. Better affordability. More impulse and experiential buying. Declining middle class Demand for extreme upscale and downscale merchandise. Financing progressively more important. More diligent buying effort among the expanded downscale customer groups. Increasing ethnic diversity Greater ethnic diversity in customer tastes. Cross-ethnic differences in affordability. Expected customer service levels differ across ethnic groups. Geographic redistribution Greater regional diversity in customer tastes.

© 2008 by Nelson, a division of Thomson Canada Limited 21 UserPayerBuyer TECHNOLOGY Access to information More customized products. Better information on competitor prices. Product search on the Internet. Product information on demand. Smart products Smart products with memory for users preferences. New methods of identity verification ensure security against frauds. Automated purchase Buying direct from the factory. Liberated customer behaviour Buyers will need to be technology-savvy. Mass customized lifestyles Influence of Major Trends in Technology on the Three Customer Roles

© 2008 by Nelson, a division of Thomson Canada Limited 22 Influence of Major Trends in Public Policy on the Three Customer Roles UserPayerBuyer PUBLIC POLICY Economic pragmatism Better products due to open-market economy. Better prices due to competitive economy. Easier access to global products. Easier to do business with companies. Rights of passive consumers Consumers assured protection against passive consumption. Financial penalties for offensive consumption. Access to societally harmful product made more difficult. Regional economic integration Seasonal products available for year round consumption. Exposure to diverse consumption cultures. More economically produced and more economically priced products. Easier to acquire products from diverse consumption cultures Local availability of global products.