Lesson 5 Buying behavior of consumers and organizations – Analyzing consumer and business markets Consumers´ decision process and buying behavior Types of consumers´purchasing decisions Nature of organizational markets (b2b markets) and goods and services purchased Organizational buying behavior

Consumer behaviour study of how people buy, what they buy, when they buy and why they buy it blends elements from psychology, sociology, sociopsychology, anthropology and economics it attempts to understand the buyer decision processes/buyer decision making process it studies characteristics of consumers such as demographics, psychology,...

The Consumer Buying Process Marketing Inputs Product Price Promotion Place Purchase Decisions Product Choice Location Choice Brand Choice Other Choices Consumer Psychological Inputs Culture Attitude Learning Perception Based on Cohen (1991)

Demographic Factors Age  Stage in family life cycle (single, married, married with children, „empty nest“, retired Occupation Economic circumstances Lifestyle social influence variables family background reference groups roles and status

Reference groups/opinion leader This slide relates to the material on pp. 165-168. Instructor’s Note: This slide corresponds to Exhibit 6-6 on p. 166 and Overhead 62. See also Overheads 61 and 63. reference group – people to whom an individual looks when forming attitudes about a particular topic opinion leader – a person who influences others (each social class and age group tends to have its own opinion leader) culture – beliefs , attitudes and ways of doing things Summary Overview Perceived and actual social standing have powerful influences on consumers. It is important to remember when considering the influences below that who is chosen or appointed to fill each social influence role is largely determined by the social class to which the consumer belongs. Social Influences Social Class. A social class is a group of people who have approximately equal social position as viewed by others in the society. Reference Group. A reference group consists of the people to whom an individual looks when forming attitudes about a particular topic. Opinion Leader. An opinion leader is a person who influences others. Culture. Underpinning all social influences is the culture of a society -- the whole set of beliefs, attitudes, and ways of doing things of a reasonably homogeneous people.

Family as a Purchasing Unit This slide relates to the material on pp. 168-169. Summary Overview The particular situation a consumer is in during or around the time of purchase can also have significant effects on the actual purchase. Purchase Situation Influences Purchase Reason. Why a consumer makes a purchase can affect buying behavior. In gift giving behavior in particular, the reason behind the purchase is significant. Time. The time available for the purchase is also important. A leisure dinner induces different behavior than grabbing a quick cup of 7-Eleven coffee on the way to work. Surroundings. The physical surroundings and the emotional responses they elicit or encourage can also affect the purchase. Instructor’s Note: Ask students if they’ve ever been in a store known for its sophisticated use of surroundings to enhance sales such as Nike Town, The Disney Store, or Victoria Secrets. All these retailers make manipulation of the surroundings (“atmospherics”) a key part of their overall marketing strategy. Úplné rodiny = mother-and-father families Neúplné rodiny = single parent families Nerodinné domácnosti = unmarried couples Domácnosti jednotlivců = singles

The PSSP Hierarchy of Needs This slide relates to the material on pp. 156-158. Instructor’s Note: This slide corresponds to Exhibit 6-3 on p. 158 and Transparency 47. See also Overhead 59. Physiological Needs Safety Needs Social Needs Personal Needs Summary Overview Many different levels of needs can appeal to or motivate a person. The PSSP pyramid on the slide helps apply motivation theory to the particular needs of consumers and marketing managers trying to develop marketing mixes to meet those needs. PSSP Hierarchy of Needs Thinking of needs as being linked to one of these four levels helps explain why some marketing mix variations work in one context and not in another. But other influences also come into play which is why marketers don’t rely solely on motivation theory for understanding and responding to consumer behavior. Physiological Needs. Physiological needs are the most basic needs people experience. These include biological needs for food, drink, rest, and sex. Safety Needs. Safety needs come into play next. These are concerned with protection and physical well-being. Social Needs. Social needs are concerned with love, friendship, social status and esteem. These are derived from a person’s interactions with others. Personal Needs. Personal needs are concerned with an individual’s need for personal satisfaction, unrelated to what others do. They include self-esteem, fun, and freedom. 6-4

Maslow’s Hierarchy of Needs Self Actualisation Esteem Social Safety Physiological

The Learning Process Drive Cues Response Reinforcement This slide relates to the material on pp. 158-163. Instructor’s Note: This slide corresponds to Exhibit 6-4 on p. 160 and Transparency 49. See also Transparency 48. Drive Cues Response Reinforcement Summary Overview Learning is a complex interaction of experience and cultural expectations based upon attitudes, beliefs, and actions. The Learning Process Perception. Perception refers to how we gather and interpret information from the world around us. Because we do not process or even attend to all incoming sensory stimuli equally, marketers are very much interested in the selective processes we use to handle incoming marketing mix stimuli: Selective Exposure. We seek out and notice only information that interests us. Selective Perception. We screen out or modify ideas, messages, and information that conflict with previously learned attitudes and beliefs. Selective Retention. If all of this weren’t enough, we remember only what we want to remember. Learning. Learning is a change in a person’s thought processes caused by prior experience. Key concepts of the learning process include: Cues. These are stimuli in the environment that trigger a drive or response. Response. This is an effort to satisfy a drive. Reinforcement. This occurs when the response is followed by satisfaction, which reduces the drive. Cultural Influences. Learning does not take place in a vacuum. A person’s culture plays a large role in making some wants more available than others: Attitude. This is a person’s point of view toward something. Belief. This is a person’s opinion about something. Expectation. This is an outcome or event that a person anticipates or looks forward to. 6-5

??????? Lifestyle Dimensions Activities Interests Opinions This slide relates to the material on pp. 163-164. See also Overhead 60 and Transparency 50. Opinions Interests Activities ??????? Summary Overview Psychographics or lifestyle analysis examines a person’s day-to-day pattern of living as expressed in AIO statements (Activities, Interests, and Opinions). When this information is linked to demographic information, marketers have the basis for very accurate segmentation of markets for some products. Lifestyle Dimensions Activities. Activities identify what people do. Activities are an important variable because behavior is objectively observable. Interests. People also have interests. Stronger interests tend to create stronger drives that may pinpoint market opportunities. Opinions. How people feel about things also affects their relative motivation to take action. By combining these opinions with interests and activities, marketers can develop a robust view of some target market segments. Discussion Note: While lifestyles can be very useful for some types of products, it is important to remind students, as the text points out, that lifestyle segmentation may not match true target markets for all products. 6-6

Social Class Dimensions This slide relates to the material on pp. 165-168. Instructor’s Note: This slide corresponds to Exhibit 6-6 on p. 166 and Overhead 62. See also Overheads 61 and 63. 1.5% 32% 12.5% 38% 16% Lower-middle class Upper-middle class Upper-class Lower-lower class Upper-lower (“working”) class Summary Overview Perceived and actual social standing have powerful influences on consumers. It is important to remember when considering the influences below that who is chosen or appointed to fill each social influence role is largely determined by the social class to which the consumer belongs. Social Influences Social Class. A social class is a group of people who have approximately equal social position as viewed by others in the society. Reference Group. A reference group consists of the people to whom an individual looks when forming attitudes about a particular topic. Opinion Leader. An opinion leader is a person who influences others. Culture. Underpinning all social influences is the culture of a society -- the whole set of beliefs, attitudes, and ways of doing things of a reasonably homogeneous people. Exhibit 6-6 6-7

The Consumer Problem Solving Process This slide relates to the material on pp. 169-170. Instructor’s Note: This slide corresponds to Exhibit 6-7 on p. 170 and Transparency 51. Purchase Situation Social Influences Psychological Variables Need-want Awareness Information Search Set Criteria Decide on Solution Purchase Product Routinized Response Postpone Decision Postpurchase Evaluation Response Feedback of information as attitudes Person making decision Marketing mixes and other stimuli Summary Overview It is often useful to view consumer behavior in terms of specific characteristics of the purchase situation. This can include marketing stimuli and other variables present in the retail environment. It can also include seeing the purchase itself as the culmination of a series of steps that solves a problem for the consumer. Consumer Problem-Solving 1. Awareness. Here consumers are attentive to a need or problem and interested in ways to satisfy the need. 2. Gathering Information. Here consumers search internal (memory, personal) sources and may investigate external sources (friends, articles, demonstrations) for more information about the problem and/or the kinds of solutions available. 3. Evaluating Alternatives. Here consumers decide which different product choices might be capable of solving their problem. 4. Choosing a Solution. Here consumers select one ("the best") of the alternatives. 5. Evaluating the Decision. During this stage the consumer assesses the outcome of his or her decision.

Types of Buying Decisions This CTR corresponds to Figure 6-8 on p. 203 and relates to the material on pp. 202-204. Types of Buying Decisions Expensive Risky Infrequent Self-Expressive Low cost Low risk Frequent Complex Buying Behaviour Dissonance- Reducing Buying Variety- Seeking Habitual High Involvement Significant differences between brands Few Low Types of Buying Decision Behaviour Complex Buying Behaviour. Consumers undertake this type of Behaviour when they are highly involved in a purchase and perceive differences among brands. Involvement increases with the product is expensive, infrequently purchased, risky, and highly self-expressive. Dissonance-Reducing Buying Behaviour. Consumers engage in this Behaviour when they are highly involved with an expensive, infrequent, or risky purchase, but see little difference among brands. Without objective differentiation to confirm the purchase, buyers often seek support to reduce postpurchase dissonance -- the feeling they may have made the wrong decision. Habitual Buying Behaviour. This Behaviour occurs under conditions of low consumer involvement and little significant brand differences. Consumers do not search extensively for information about brands. Brand familiarity aids in promoting products under essentially passive learning conditions. Variety-Seeking Buying Behaviour. Consumers may seek variety when involvement is low and there are significant perceived differences among brands. Differences may be product features -- new taste, improvements, extra ingredients -- or promotional benefits such as coupons, rebates, and price reductions.

The Adoption Process Awareness Interest Evaluation Trial Decision This slide relates to the material on pp. 172-173. Awareness Interest Evaluation Trial Decision Confirmation Summary Overview For many extensive problem-solving situations, consumers may pass through a series of steps used to investigate and evaluate, and ultimately accept or reject, an idea or product as a solution to their problem. This process is referred to as the adoption process. The Adoption Process 1. Awareness. Here the potential customer first learns about the existence of a product but may lack more details. 2. Interest. If this step is reached, the consumer will gather general information and facts about the product. Teaching Tip: You might link the “if” to the selective processes discussed earlier under perception. 3. Evaluation. Here the consumer gives the product a mental trial, applying it to his or her own personal situation. 4. Trial. Here the consumer may buy the product to experiment with it in use. 5. Decision. Here the consumer decides on either adoption and continued use or rejection of the product from further consideration. 6. Confirmation. Here the adopter continues to rethink the decision and searches for further support that it was correct. Dissonance may set in after the decision. The buyer may have chosen from among several attractive alternatives--weighing the pros and cons and finally making a decision. Later doubts, however, may lead to dissonance--tension caused by uncertainty about the rightness of a decision.

Adoption of Innovations This CTR corresponds to Figure 6-10 on p. 210 and relates to the material on pp. 210-211. Adoption of Innovations Percentage of Adopters Time of Adoption Early Late Innovators Adopters Early Majority 2.5% 13.5% 34% 16% Laggards Late Majority Individual Differences in Innovativeness Innovators. Innovators include the first 2.5% of buyers who adopt a new product idea. Innovators help get the product exposure but are not often perceived by the majority of potential buyers as typical consumers. Innovators like risk taking and enjoy buying new products. Innovators may purchase at skimming prices. Discussion Note: You might discuss the ethical implications of skimming. Is it fair? Also, are there cost considerations associated with new product development that make skimming to recover high start up costs more ethical than it may seem? Early Adopters. Early Adopters comprise about 13.5% of the buyers who adopt new products. This group serves as opinion leaders to the rest of the market and their product usage outcomes serve as motivation to later buyers to get the product. Early Majority. Early Majority are some 34% of buyers adopting the product. They are deliberate consumers who adopt new ideas before the average person but seldom lead the market. Late Majority. Late Majority comprise another 34% of buyers adopting the product. This group is skeptical of new products and only buys after the majority of the market has tried it. Laggards. Laggards are the final 16% of adopters and are tradition-bound. They are suspicious of change and only adopt innovation that have already become something of a tradition.

Organisational Buyer Behaviour ‘The decision-making process by which formal organisations establish the need for purchased products and services, and identify, evaluate, and choose among alternative brands and suppliers’ Kotler and Armstrong 1989

Few customers Big customers (size of contract) Strong relations in B2B B2B related to B2C Professional teams of negotiators

Customer satisfaction Overlapping Needs This slide relates to the material on pp. 187-188. Instructor’s Note: This slide corresponds to Exhibit 7-3 on p. 188 and Transparency 55. See also Overhead 68. Innovation Survival Customer satisfaction Growth Profit Other needs Company’s Needs Overlap in Needs Individual’s Needs Risk Job security Comfort Career advancement Money-rewards Summary Overview Different people involved in purchase decisions are also human with respect to protecting their own interests. As Exhibit 7-3 illustrates, it is possible to distinguish where individual’s needs and the company’s needs are separate and where they overlap. Although most buyers in organizational markets are professionals, a comprehensive vendor analysis will consider how individual differences on a needs level may affect decision making.

Buying Center Buying Center Influencers End Users Gatekeepers Deciders This slide relates to the material on pp. 185-187. Instructor’s Note: This slide corresponds to Exhibit 7-2 on p. 187 and Transparency 54. See also Overhead 67. Buying Center Influencers End Users Gatekeepers Deciders Buyers Summary Overview Organizations differ from individual consumers in relation to buying behavior in some important ways. One of them is the fact that organizations use professional buyers or purchasing managers who specialize in buying activities for their employers. Further, organizations are characterized by multiple buying influences -- which means that several people share in making a purchase decision. When marketing to organizations, it is useful to think of these influences as buying centers. Buying Centers Users. These are the people who will actually use the product. They may be production workers or support staff. Influencers. These are people whose expertise is used to help determine which products are needed. Influencers are often technical people who help write specifications for suppliers to meet. Buyers. These are the purchasing managers who are responsible for working with suppliers and arranging for the terms of the sale. Deciders. These are the people in the organization who have the power to select or approve the supplier. Gatekeepers. These are people in key positions in the organization who control the flow of information. Gatekeepers can include receptionists, secretaries, researchers, and others who the marketer must “go through” to reach other members of the buying center. Teaching Tip: Point out to students the importance of establishing a good rapport with gatekeepers when selling or marketing to organizations. It is crucial that students understand that marketing is concerned with every contact, not just with the purchasing manager.

Organizational Buying Processes This slide relates to the material on pp. 188-190. Instructor’s Note: This slide corresponds to Exhibit 7-4 on p. 189 and Transparency 56. See also Overheads 69-70. Little Some Much None Medium Information Needed Review of Suppliers Multiple Influences Time Required Characteristics New-Task Buying Modified Rebuy Straight Type of Process Summary Overview Like individual consumers, organizational buyers are problem-solvers. Problem-solving in organizational markets uses three kinds of buying processes: new-task, modified rebuy, or straight rebuy. Organizational Buying Processes New-Task Buying. New-task buying occurs when an organization has a new need and the customer wants a great deal of information. New-task buying often involves setting product specifications, evaluating sources of supply, and establishing an order routine to follow in the future if the initial purchase is successful at solving the problem. Discussion Note: New-task buying may take a lot of organizational resources and is typically reserved for situations where there is some need and some risk involved in making the right decision. If successful, new-task buying can lead to strong relationships because the supplier is helping the customer solve problems. Straight Rebuy. A straight rebuy is a routine repurchase that uses existing suppliers to fill a standard order. For many organizations, the straight rebuy is virtually automatic and may have been made many times before. Today, many straight rebuys are made by computers linking the buyer and the supplier directly. Modified Rebuy. A modified rebuy is the in-between process. Some review of the buying process is done but not as much as in a new-task buy. With this buying process, it is essential for the supplier to identify what criteria are being used for the buying review and to make sure that the right people in the organization know about the supplier's performance on those dimensions.

Buyer-Seller Relationships This slide relates to the material on pp. 193-198. Instructor’s Note: This slide corresponds to Exhibit 7-6 on p. 194 and Transparency 57. Information sharing Linkages Cooperation Legal bonds Adaptations Relationship Supplier Customer Salesperson Quality R&D Accounting Marketing Production Purchasing manager Finance Engineering Summary Overview In business markets, both buyers and sellers may be motivated to develop a close working relationship for the benefit of both. Such relationships may help both firms improve profits, decrease costs, and reduce relative risk. Buyer-Seller Relationships in Business Markets: Key Dimensions Information Sharing. Both supplier and buyer benefit when they can share information. Information about customer needs helps motivate suppliers to improve their end of the bargain. Other areas may include cost data, demand forecasts, and new-product design. Operational Linkages. Operational linkages are direct ties between the internal operations of the buyer and seller firms. These formal arrangements require extensive coordination. One goal of such linkages can be just-in-time delivery by suppliers of materials as they are needed in the buyer’s production processes. This arrangement reduces inventory and carrying costs. Discussion Note: Operational linkages can also be computer connections between buyers and suppliers. For example, Wal-Mart has a direct computer connection to Procter and Gamble to speed up order and delivery of their products. Cooperation. Cooperation between buyer and supplier may be critical to making the relationship a success. Here both sides need to be aware of the effect of different company cultures and different individual personalities. Legal Bonds. Contracts spell out the obligations of each party in the relationship and provide protection to both. Clear contracts can help build a relationship because they reduce the chance of misunderstandings. Relationship-Specific Adaptations. These involve changes in a firm’s product or procedures that are unique to the needs or capabilities of a relationship partner. Discussion Note: For example, Campbell’s Soup requires growers to meet precise standards for farming, harvesting, and shipping vegetables but then guarantees a minimum level of business to growers who meet those standards.

Conclusions Many variables influencing the behaviour of people The sum of variables will result to a byuing decision Most purchasing has several steps, begins with a need and finished with reconfirmation Organizational behaviour is different as the motivation is different too