Behavioral psychology of a Consumer

Consumer behavior is the study of how people buy, what they buy, when they buy and why they buy.
It attempts to understand the buyer decision making process, both individually and in groups. It
studies characteristics of individual consumers such as demographics, psycho graphics, and
behavioral variables in an attempt to understand people's wants. It also tries to assess influences on
the consumer from groups such as family, friends, reference groups, and society in general.

Activities directly involved in obtaining, consuming and disposing of products and

services, including the decision processes that precede and follow these actions.
This study draws on concepts from various other disciplines like Psychology, Sociology,
Anthropology, Economics and Marketing.

Customer behavior study is based on consumer buying behavior, with the customer
playing the three distinct roles of user, payer and buyer. Relationship marketing is an influential asset
for customer behavior analysis as it has a keen interest in the re-discovery of the true meaning of
marketing through the re-affirmation of the importance of the customer or buyer. A greater importance
is also placed on consumer retention, customer relationship management, personalization,
customization and one-to-one marketing. Social functions can be categorized into social choice and
welfare functions.
Each method for vote counting is assumed as a social function but if Arrow’s possibility
theorem is used for a social function, social welfare function is achieved. Some specifications of the
social functions are decisiveness, neutrality, anonymity, monotonicity, unanimity, homogeneity and
weak and strong Pareto optimality. No social choice function meets these requirements in an ordinal
scale simultaneously.
The most important characteristic of a social function is identification of the interactive
effect of alternatives and creating a logical relation with the ranks. Marketing provides services in order
to satisfy customers. With that in mind, the productive system is considered from its beginning at the
production level, to the end of the cycle, the consumer (Kioumarsi et al., 2009).
“Belch and Belch” define consumer behavior as 'the process and activities people
engage in when searching for, selecting, purchasing, using, evaluating, and disposing of products and
services so as to satisfy their needs and desires'.

Why We Need To Study Consumer Behavior?

You cannot take the consumer for granted any more.

Therefore a sound understanding of consumer behavior is essential for the long run success of any
marketing program “Consumers” or the

“Customers” play a very critical role as these are the people who finally BUY the goods & services of
the organization, and the firm is always on the move to make them buy so as to earn revenue. It's
crucial from both the points of view as given below:
 1. From the customers' point of view: Customers today are in a tough spot. Today, in the highly
developed & technologically advanced society, the customers have a great deal of choices &
options (and often very close & competing) to decide on.
1. They have the products of an extreme range of attributes (the 1st P - Product),
2. they have a wide range of cost and payment choices (the 2nd P - Price),
3. they can order them to be supplied to their door step or anywhere else (the 3rd P - Place),
4. And finally they are bombarded with more communications from more channels than
ever before (the 4th P - Promotion).
How can they possibly decide where to spend their time and money, and where they should give their
loyalty?

1. From the marketers' point of view: "The purpose of marketing is to sell more stuff to more
people more often for more money in order to make more profit". This is the basic principle of
requirement for the marketers in earlier days where aggressive selling was the aim. Now it can't
be achieved by force, aggression or plain alluring. For the customers are today more informed,
more knowledgeable, more demanding, and more discerning. And above all there is no dearth of
marketers to buy from. The marketers have to earn them or win them over.
The global marketplace is a study in diversity, diversity among consumers, producers, marketers,
retailers, advertising media, cultures, and customs and of course the individual or psychological
behavior. However, despite prevailing diversity, there also are many similarities. The object of the
study of consumer behavior is to provide conceptual and technical tools to enable the marketer to apply
them to marketing practice, both profit & non-profit.
The study of consumer behavior is very important to the marketers because it enables
them to understand and predict buying behavior of consumers in the marketplace; it is concerned not
only with what consumers buy, but also with why they buy it, when and where and how they buy it,
and how often they buy it, and also how they consume it & dispose 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. Research shows that two
different buyers buying the same product may have done it for different reasons; paid different prices,
used in different ways, have different emotional attachments towards the things and so on.

According to Professor Theodore Levitt of the Harvard Business School, the study of
Consumer Behavior is one of the most important in business education, because the purpose of a
business is to create and keep customers. Customers are created and maintained through marketing
strategies. And the quality of marketing strategies depends on knowing, serving, and influencing
consumers. In other words, the success of a business is to achieve organizational objectives, which can
be done by the above two methods. This suggests that the knowledge & information about consumers
is critical for developing successful marketing strategies because it challenges the marketers to think
about and analyze the relationship between the consumers & marketers, and the consumer behavior &
the marketing strategy.

Consumer behavior is interdisciplinary; that is, it is based on concepts and theories about
people that have been developed by scientists, philosophers & researchers in such diverse disciplines as
psychology, sociology, social psychology, cultural anthropology, and economics. The main objective of
the study of consumer behavior is to provide marketers with the knowledge and skills that are
necessary to carry out detailed consumer analyses which could be used for understanding markets and
developing marketing strategies. Thus, consumer behavior researchers with their skills for the
naturalistic settings of the market are trying to make a major contribution to our understanding of
human thinking in general.

The study of consumer behavior helps management understand consumers' needs so as to recognize the
potential for the trend of development of change in consumer requirements and new technology. And
also to articulate the new thing in terms of the consumers' needs so that it will be accepted in the
market well.

The following are a few examples of the benefits of the study of consumer behavior derived by the
different categories of people:

1. A marketing manager would like to know how consumer behavior will help him to design better
marketing plans to get those plans accepted within the company.

2. In a non-profit service organization, such as a hospital, an individual in the marketing

department would like to know the patients' needs and how best to serve those needs.

3. Universities & Colleges now recognize that they need to know about consumer behavior to aid
in recruiting students. "Marketing Admissions" has become an accepted term to mean marketing
to potential students.

Consumer behavior has become an integral part of strategic market planning. It is also the
basis of the approach to the concept of Holistic Marketing.
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 -
which calls on marketers to fulfill the needs of their target markets in ways that improve society as a
whole.

STUDY OF CONSUMERS PSYCHOLOGY

The study of consumers helps firms and organizations improve their marketing strategies by
understanding issues such as how

• The psychology of how consumers think, feel, reason, and select between different alternatives
(e.g., brands, products);
• The psychology of how the consumer is influenced by his or her environment (e.g., culture,
family, signs, media);
• The behavior of consumers while shopping or making other marketing decisions;
• Limitations in consumer knowledge or information processing abilities influence decisions and
marketing outcome;
 • How consumer motivation and decision strategies differ between products that differ in their
level of importance or interest that they entail for the consumer; and
• How marketers can adapt and improve their marketing campaigns and marketing strategies to
more effectively reach the consumer.

One "official" definition of consumer behavior is "The study of individuals, groups, or

organizations and the processes they use to select, secure, use, and dispose of products, services,
experiences, or ideas to satisfy needs and the impacts that these processes have on the consumer and
society." Although it is not necessary to memorize this definition, it brings up some useful points:

• Behavior occurs either for the individual, or in the context of a group (e.g., friends’ influence
what kinds of clothes a person wears) or an organization (people on the job make decisions as to
which products the firm should use).
• Consumer behavior involves the use and disposal of products as well as the study of how they
are purchased. Product use is often of great interest to the marketer, because this may influence
how a product is best positioned or how we can encourage increased consumption. Since many
environmental problems result from product disposal (e.g., motor oil being sent into sewage
systems to save the recycling fee, or garbage piling up at landfills) this is also an area of
interest.
• Consumer behavior involves services and ideas as well as tangible products.
• The impact of consumer behavior on society is also of relevance. For example, aggressive
marketing of high fat foods, or aggressive marketing of easy credit, may have serious
repercussions for the national health and economy.

There are four main applications of consumer behavior:

• The most obvious is for marketing strategy—i.e., for making better marketing campaigns. For
example, by understanding that consumers are more receptive to food advertising when they are
hungry, we learn to schedule snack advertisements late in the afternoon. By understanding that
new products are usually initially adopted by a few consumers and only spread later, and then
only gradually, to the rest of the population, we learn that
• Companies that introduce new products must be well financed so that they can stay afloat until
their products become a commercial success
• It is important to please initial customers, since they will in turn influence many subsequent
customers’ brand choices.
• A second application is public policy. In the 1980s, Acutance, a near miracle cure for acne, was
introduced. Unfortunately, Acutance resulted in severe birth defects if taken by pregnant
women. Although physicians were instructed to warn their female patients of this, a number still
became pregnant while taking the drug. To get consumers’ attention, the Federal Drug
Administration (FDA) took the step of requiring that very graphic pictures of deformed babies
be shown on the medicine containers.
• Social marketing involves getting ideas across to consumers rather than selling something.
Marty Fishbein, a marketing professor, went on sabbatical to work for the Centers for Disease
Control trying to reduce the incidence of transmission of diseases through illegal drug use. The
best solution, obviously, would be if we could get illegal drug users to stop. This, however, was
deemed to be infeasible. It was also determined that the practice of sharing needles was too
 ingrained in the drug culture to be stopped. As a result, using knowledge of consumer attitudes,
Dr. Fishbein created a campaign that encouraged the cleaning of needles in bleach before
sharing them, a goal that was believed to be more realistic.
• As a final benefit, studying consumer behavior should make us better consumers. Common
sense suggests, for example, that if you buy a 64 liquid ounce bottle of laundry detergent, you
should pay less per ounce than if you bought two 32 ounce bottles. In practice, however, you
often pay a size premium by buying the larger quantity. In other words, in this case, knowing
this fact will sensitize you to the need to check the unit cost labels to determine if you are really
getting a bargain.

Consumer Research Methods

Market research is often needed to ensure that we produce what customers really want and not what
we think they want.
Primary vs. secondary research methods.
There are two main approaches to marketing.
Secondary research involves using information that others have already put together. For example, if
you are thinking about starting a business making clothes for tall people, you don’t need to question
people about how tall they are to find out how many tall people exist—that information has already
been published by the U.S. Government.
Primary research, in contrast, is research that you design and conduct yourself. For example, you may
need to find out whether consumers would prefer that your soft drinks be sweater or tarter.
Research will often help us reduce risks associated with a new product, but it cannot take the risk away
entirely. It is also important to ascertain whether the research has been complete. For example, Coca
Cola did a great deal of research prior to releasing the New Coke, and consumers seemed to prefer the
taste. However, consumers were not prepared to have this drink replace traditional Coke.
Primary Methods. Several tools are available to the market researcher—e.g., mail questionnaires,
phone surveys, observation, and focus groups.
Surveys are useful for getting a great deal of specific information. Surveys can contain open-ended
questions (e.g., “In which city and state were you born? ____________) or closed-ended, where the
respondent is asked to select answers from a brief list (e.g., “__Male ___ Female.” Open ended
questions have the advantage that the respondent is not limited to the options listed, and that the
respondent is not being influenced by seeing a list of responses. However, open-ended questions are
often skipped by respondents, and coding them can be quite a challenge. In general, for surveys to yield
meaningful responses, sample sizes of over 100 are usually required because precision is essential. For
example, if a market share of twenty percent would result in a loss while thirty percent would be
profitable, a confidence interval of 20-35% is too wide to be useful.
Surveys come in several different forms. Mail surveys are relatively inexpensive, but response rates are
typically quite low—typically from 5-20%. Phone-surveys get somewhat higher response rates, but not
many questions can be asked because many answer options have to be repeated and few people are
willing to stay on the phone for more than five minutes. Mall intercepts are a convenient way to reach
consumers, but respondents may be reluctant to discuss anything sensitive face-to-face with an
interviewer.
Surveys, as any kind of research, are vulnerable to bias. The wording of a question can influence the
outcome a great deal. For example, more people answered no to the question “Should speeches against
democracy be allowed? Than answered yes to “Should speeches against democracy be forbidden?” For
face-to-face interviews, interviewer bias is a danger, too. Interviewer bias occurs when the interviewer
influences the way the respondent answers. For example, unconsciously an interviewer that works for
the firm manufacturing the product in question may smile a little when something good is being said
about the product and frown a little when something negative is being said. The respondent may catch
on and say something more positive than his or her real opinion. Finally, a response bias may occur—if
only part of the sample responds to a survey, the respondents answers may not be representative of the
population.
Focus groups are useful when the marketer wants to launch a new product or modify an existing one.
A focus group usually involves having some 8-12 people come together in a room to discuss their
consumption preferences and experiences. The group is usually led by a moderator, who will start out
talking broadly about topics related broadly to the product without mentioning the product itself. For
example, a focus group aimed at sugar-free cookies might first address consumers snacking
preferences, only gradually moving toward the specific product of sugar-free cookies. By not
mentioning the product up front, we avoid biasing the participants into thinking only in terms of the
specific product brought out. Thus, instead of having consumers think primarily in terms of what might
be good or bad about the product, we can ask them to discuss more broadly the ultimate benefits they
really seek. For example, instead of having consumers merely discuss what they think about some
sugar-free cookies that we are considering releasing to the market, we can have consumers speak about
their motivations for using snacks and what general kinds of benefits they seek. Such a discussion
might reveal a concern about healthfulness and a desire for wholesome foods. Probing on the meaning
of wholesomeness, consumers might indicate a desire to avoid artificial ingredients. This would be an
important concern in the marketing of sugar-free cookies, but might not have come up if consumers
were asked to comment directly on the product where the use of artificial ingredients is, by virtue of the
nature of the product, necessary.
Focus groups are well suited for some purposes, but poorly suited for others. In general, focus groups
are very good for getting breadth—i.e., finding out what kinds of issues are important for consumers in
a given product category. Here, it is helpful that focus groups are completely “open-ended: The
consumer mentions his or her preferences and opinions, and the focus group moderator can ask the
consumer to elaborate. In a questionnaire, if one did not think to ask about something, chances are that
few consumers would take the time to write out an elaborate answer. Focus groups also have some
drawbacks, for example:
• They represent small sample sizes. Because of the cost of running focus groups, only a few
groups can be run. Suppose you run four focus groups with ten members each. This will result
in an n of 4(10) =40, which is too small to generalize from. Therefore, focus groups cannot give
us a good idea of:
• What proportion of the population is likely to buy the product?
• What price consumers are willing to pay?
• The groups are inherently social. This means that:
• Consumers will often say things that may make them look good (i.e., they watch public
television rather than soap operas or cook fresh meals for their families daily) even if that is not
true.
• Consumers may be reluctant to speak about embarrassing issues (e.g., weight control, birth
control).
Personal interviews involve in-depth questioning of an individual about his or her interest in or
experiences with a product. The benefit here is that we can get really into depth (when the respondent
says something interesting, we can ask him or her to elaborate), but this method of research is costly
and can be extremely vulnerable to interviewer bias.
To get a person to elaborate, it may help to try a common tool of psychologists and psychiatrists—
simply repeating what the person said. He or she will often become uncomfortable with the silence that
follows and will then tend to elaborate. This approach has the benefit that it minimizes the interference
with the respondent’s own ideas and thoughts. He or she is not influenced by a new question but will;
instead, go more in depth on what he or she was saying.
Personal interviews are highly susceptible to inadvertent “signaling to the respondent. Although an
interviewer is looking to get at the truth, he or she may have a significant interest in a positive
consumer response. Unconsciously, then, he or she may inadvertently smile a little when something
positive is said and frown a little when something negative is said. Consciously, this will often not be
noticeable, and the respondent often will not consciously be aware that he or she is being “reinforced
and “punished for saying positive or negative things, but at an unconscious level, the cumulative effect
of several facial expressions are likely to be felt. Although this type of conditioning will not get a
completely negative respondent to say all positive things, it may “swing the balance a bit so that
respondents are more likely to say positive thoughts and withhold, or limit the duration of, negative
thoughts.
Projective techniques are used when a consumer may feel embarrassed to admit to certain opinions,
feelings, or preferences. For example, many older executives may not be comfortable admitting to
being intimidated by computers. It has been found that in such cases, people will tend to respond more
openly about “someone else.” Thus, we may ask them to explain reasons why a friend has not yet
bought a computer, or to tell a story about a person in a picture who is or is not using a product. The
main problem with this method is that it is difficult to analyze responses.
Projective techniques are inherently inefficient to use. The elaborate context that has to be put into
place takes time and energy away from the main question. There may also be real differences between
the respondent and the third party. Saying or thinking about something that “hits too close to home may
also influence the respondent, who may or may not be able to see through the ruse.
Observation of consumers is often a powerful tool. Looking at how consumers select products may
yield insights into how they make decisions and what they look for. For example, some American
manufacturers were concerned about low sales of their products in Japan. Observing Japanese
consumers, it was found that many of these Japanese consumers scrutinized packages looking for a
name of a major manufacturer—the product specific-brands that are common in the U.S. (e.g., Tide)
were not impressive to the Japanese, who wanted a name of a major firm like Mitsubishi or Proctor &
Gamble. Observation may help us determine how much time consumers spend comparing prices, or
whether nutritional labels are being consulted.
A question arises as to whether this type of “spying inappropriately invades the privacy of consumers.
Although there may be cause for some concern in that the particular individuals have not consented to
be part of this research, it should be noted that there is no particular interest in what the individual
customer being watched does. The question is what consumers—either as an entire group or as
segments—do. Consumers benefit, for example, from stores that are designed effectively to promote
efficient shopping. If it is found that women are more uncomfortable than men about others standing
too close, the areas of the store heavily trafficked by women can be designed accordingly. What is
being reported here, then, are averages and tendencies in response. The intent is not to find “juicy
observations specific to one customer.
The video clip with Paco Under hill that we saw in class demonstrated the application of observation
research to the retail setting. By understanding the phenomena such as the tendency toward a right turn,
the location of merchandise can be observed. It is also possible to identify problem areas where
customers may be overly vulnerable to the “but brush, or overly close encounter with others. This
method can be used to identify problems that the customer experiences, such as difficulty finding a
product, a mirror, a changing room, or a store employee for help.
On line research methods: The Internet now reaches the great majority of households in the U.S., and
thus, online research provides new opportunity and has increased in use.
One potential benefit of online surveys is the use of “conditional branching.” In conventional
paper and pencil surveys, one question might ask if the respondent has shopped for a new car during
the last eight months. If the respondent answers “no, he or she will be asked to skip ahead several
questions—e.g., going straight to question 17 instead of proceeding to number 9. If the respondent
answered “yes, he or she would be instructed to go to the next question which, along with the next
several ones, would address issues related to this shopping experience. Conditional branching allows
the computer to skip directly to the appropriate question. If a respondent is asked which brands he or
she considered, it is also possible to customize brand comparison questions to those listed. Suppose, for
example, that the respondent considered Ford, Toyota, and Hyundai, it would be possible to ask the
subject questions about his or her view of the relative quality of each respective pair—in this case, Ford
vs. Toyota, Ford vs. Hyundai, and Toyota vs. Hyundai.
There are certain drawbacks to online surveys. Some consumers may be more comfortable with
online activities than others—and not all households will have access. Today, however, this type of
response bias is probably not significantly greater than that associated with other types of research
methods. A more serious problem is that it has consistently been found in online research that it is very
difficult—if not impossible—to get respondents to carefully read instructions and other information
online—there is a tendency to move quickly. This makes it difficult to perform research that depends
on the respondent’s reading of a situation or product description.
On line search data and page visit logs provides valuable ground for analysis. It is possible to
see how frequently various terms are used by those who use a firm’s web site search feature or to see
the route taken by most consumers to get to the page with the information they ultimately want. If
consumers use a certain term frequently that is not used by the firm in its product descriptions, the need
to include this term in online content can be seen in search logs. If consumers take a long, “torturous
route to information frequently accessed, it may be appropriate to redesign the menu structure and/or
insert hyper links in “intermediate pages that are found in many users routes.
Scanner data:
Many consumers are members of supermarket “clubs.” In return for signing for a card and
presenting this when making purchases, consumers are often eligible for considerable discounts on
selected products.
Researchers use a more elaborate version of this type of program in some communities. Here, a
number of consumers receive small payments and/or other incentives to sign up to be part of a research
panel. They then receive a card that they are asked to present any time they go shopping. Nearly all
retailers in the area usually cooperate. It is now possible to track what the consumer bought in all stores
and to have a historical record.
The consumer’s shopping record is usually combined with demographic information (e.g., income,
educational level of adults in the household, occupations of adults, ages of children, and whether the
family owns and rents) and the family’s television watching habits. (Electronic equipment run by firms
such as A. C. Nielsen will actually recognize the face of each family member when he or she sits down
to watch).
 It is now possible to assess the relative impact of a number of factors on the consumer’s choice
—e.g,
 What brand in a given product category was bought during the last, or a series of past, purchase
occasions;
 Whether, and if so, how many times a consumer has seen an ad for the brand in question or a
competing one;
 Whether the target brand (and/or a competing one) is on sale during the store visit;
 Whether any brand had preferential display space;
 The impact of income and/or family size on purchase patterns; and
 Whether a coupon was used for the purchase and, if so, its value.

A “split cable technology allows the researchers to randomly select half the panel members in a given
community to receive one advertising treatment and the other half another. The selection is truly
random since each household, as opposed to neighborhood, is selected to get one treatment or the other.
Thus, observed differences should, allowing for sampling error, the be result of advertising exposure
since there are no other systematic differences between groups.
Interestingly, it has been found that consumers tend to be more influenced by commercials that they
“zap through while channel surfing even if they only see part of the commercial. This most likely
results from the reality that one must pay greater attention while channel surfing than when watching a
commercial in order to determine which program is worth watching.
Scanner data is, at the present time, only available for certain grocery item product categories—
e.g., food items, beverages, cleaning items, laundry detergent, paper towels, and toilet paper. It is not
available for most non-grocery product items. Scanner data analysis is most useful for frequently
purchased items (e.g., drinks, food items, snacks, and toilet paper) since a series of purchases in the
same product category yield more information with greater precision than would a record of one
purchase at one point in time. Even if scanner data were available for electronic products such as
printers, computers, and MP3 players, for example, these products would be purchased quite
infrequently. A single purchase, then, would not be as effective in effectively distinguishing the effects
of different factors—e.g., advertising, shelf space, pricing of the product and competitors, and
availability of a coupon—since we have at most one purchase instance during a long period of time
during which several of these factors would apply at the same time. In the case of items that are
purchased frequently, the consumer has the opportunity to buy a product, buy a competing product, or
buy nothing at all depending on the status of the brand of interest and competing brands. In the case of
the purchase of an MP3 player, in contrast, there may be promotions associated with several brands
going on at the same time, and each may advertise. It may also be that the purchase was motivated by
the breakdown of an existing product or dissatisfaction or a desire to add more capabilities.
Physiological measures are occasionally used to examine consumer response. For example,
advertisers may want to measure a consumer’s level of arousal during various parts of an
advertisement. This can be used to assess possible discomfort on the negative side and level of
attention on the positive side.
By attaching a tiny camera to plain eye glasses worn by the subject while watching an advertisement, it
is possible to determine where on screen or other ad display the subject focuses at any one time. If the
focus remains fixed throughout an ad sequence where the interesting and active part area changes, we
can track whether the respondent is following the sequence intended. If he or she is not, he or she is
likely either not to be paying as much attention as desired or to be confused by an overly complex
sequence. In situations where the subject’s eyes do move, we can assess whether this movement is
going in the intended direction.
Mind-reading would clearly not be ethical and is, at the present time, not possible in any event.
However, it is possible to measure brain waves by attaching electrodes. These readings will not reveal
what the subject actually thinks, but it is possible to distinguish between beta waves—indicating active
thought and analysis—and alpha waves, indicating lower levels of attention.
An important feature of physiological measures is that we can often track performance over time. A
subject may, for example, be demonstrating good characteristics—such as appropriate level of arousal
and eye movement—during some of the ad sequence and not during other parts. This, then, gives some
guidance as to which parts of the ad are effective and which ones need to be reworked.
In a variation of direct physiological measures, a subject may be asked, at various points during an
advertisement, to indicate his or her level of interest, liking, comfort, and approval by moving a lever
or some instrument (much like one would adjust the volume on a radio or MP3 player). Republican
strategist used this technique during the impeachment and trial of Bill Clinton in the late 1990s. By
watching approval during various phases of a speech by the former President, it was found that viewers
tended to respond negatively when he referred to “speaking truthfully but favorably when the President
referred to the issues in controversy as part of his “private life.” The Republican researchers were able
to separate average results from Democrats, Independents, and Republicans, effectively looking at
different segments to make sure that differences between each did not cancel out effects of the different
segments. (For example, if at one point Democrats reacted positively and Republicans responded
negatively with the same intensity, the average result of apparent indifference would have been very
misleading).
Research sequence. In general, if more than one type of research is to be used, the more flexible and
less precise method—such as focus groups and/or individual interviews—should generally are used
before the less flexible but more precise methods (e.g., surveys and scanner data) are used. Focus
groups and interviews are flexible and allow the researcher to follow up on interesting issues raised by
participants who can be probed. However, because the sample sizes are small and because participants
in a focus group are influenced by each other, few data points are collected. If we run five focus groups
with eight people each, for example, we would have a total of forty responses. Even if we assume that
these are independent, a sample size of forty would give very imprecise results. We might conclude, for
example, that somewhere between 5% and 40% of the target market would be interested in the product
we have to offer. This is usually no more precise than what we already reasonably new. Questionnaires,
in contrast, are highly inflexible. It is not possible to ask follow-up questions. Therefore, we can use
our insights from focus groups and interviews to develop questionnaires that contain specific questions
that can be asked to a larger number of people. There will still be some sampling error, but with a
sample size of 1,000+ responses, we may be able to narrow the 95% confidence interval for the
percentage of the target market that is seriously interested in our product to, say, 17-21%, a range that is
much more meaningful.
Cautions:
Some cautions should be heeded in marketing research. First, in general, research should only be
commissioned when it is worth the cost. Thus, research should normally be useful in making specific
decisions (what size should the product be? Should the product be launched? Should we charge $1.75
or $2.25?)
Secondly, marketing research can be, and often is, abused. Managers frequently have their own
“agendas (e.g., they either would like a product to be launched or would prefer that it not be launched
so that the firm will have more resources left over to tackle their favorite products). Often, a way to get
your way is to demonstrate through “objective research that your opinions make economic sense. One
example of misleading research, which was reported nationwide in the media, involved the case of
“The Pentagon Declares War on Rush Limbaugh.” The Pentagon, within a year of the election of
Democrat Bill Clinton, reported that only 4.2% of soldiers listening to the Armed Forces Network
wanted to hear Rush Limbaugh. However, although this finding was reported without question in the
media, it was later found that the conclusion was based on the question “What single thing can we do to
improve programming?” If you did not write in something like “Carry Rush Limbaugh, you were
counted as not wanting to hear him.

Overall Model of Consumer Behavior

Overall Model of Consumer Behavior

External Influence
Culture
Sub-Culture
Demographics Decision Process
Social Status
Problem Recognition
Reference Groups Self Concept Information Research
Family And Learning Alternate Evaluation and
Marketing Activities
Selection
Internal Influence Outlet Select and Purchase
Perception Post Purchase Processes
Learning
Memory
Motives
Personality
Emotions
Attitudes

Influence on the consumer

Often, we take cultural influences for granted, but they are significant. An American will usually not
bargain with a store owner. This, however, is a common practice in much of the World.

Physical factors also influence our behavior. We are more likely to buy a soft drink when we are thirsty,
for example, and food manufacturers have found that it is more effective to advertise their products on
the radio in the late afternoon when people are getting hungry.

A person’s self-image will also tend to influence what he or she will buy—an upwardly mobile
manager may buy a flashy car to project an image of success.

Social factors also influence what the consumers buy—often, consumers seek to imitate others whom
they admire, and may buy the same brands. The social environment can include both the mainstream
culture (e.g., Americans are more likely to have corn flakes or ham and eggs for breakfast than to have
rice, which is preferred in many Asian countries) and a subculture (e.g., rap music often appeals to a
segment within the population that seeks to distinguish itself from the mainstream population). Thus,
sneaker manufacturers are eager to have their products worn by admired athletes.

Finally, consumer behavior is influenced by learning—you try a hamburger and learn that it satisfies
your hunger and tastes good, and the next time you are hungry, you may consider another hamburger.

Article Based on Consumer Behavior.

Analyzing consumer behavior (Vineet Hemrajani)(The author is Business Analytics Manager, GE-
SBI Credit Cards.)
To reap the maximum benefits from data analytics, firms have to invest in the right
technology, hire the right people and develop standardized and robust processes of data collection, data
retrieval, data analysis and strategy implementation.

UNDERSTANDING consumer behavior is the key to success in the marketplace. Companies are
constantly looking at customer behavioral patterns to predict future trends. Among the many tools is
data analytics. Broadly speaking, data analytics can be described as the process of collecting, analyzing
and using data (related to demographic information, past behavior trends, etc) to better understand and
predict the behavior of existing and prospective customers for business decision-making.
The common tools used to conduct data analytics range from simple cross tabulations and segmentation
analysis to more sophisticated statistical methods such as multivariate and logistic regression,
discriminant analysis and cluster analysis. In the last few years, optimization tools and machine
learning algorithms such as neural networks and genetic algorithms have also been used to perform
advanced data analysis.
The recent years have seen increased use of data analytics in driving business strategies across various
industries. While the data analytics methods have been extensively used in FMCG, pharmaceutical and
telecoms companies, their mainstay has been the consumer finance industry.
The wide scale applications of predictive data analytics started almost four
decades ago in the form of credit scoring models pioneered by Fair, Isaac & Company (FICO) in the
United States. These credit scoring models or scorecards were used to predict customer default. Today,
the FICO Risk score is the benchmark for credit decision process in the US, so much so that the `Prime'
and `Sub Prime' markets are defined on the basis of this score.
With the exponential increase in computing power and application of information
technology in business processes, more and more data analytics techniques and statistical tools are now
being applied for Marketing, Risk Management, Pricing and NPI functions in the consumer finance
industry.
In India, it is common for major banks and financial services companies to use data analytics to better
manage their credit card, housing, personal and auto loan and insurance portfolios.
But why are businesses increasingly adopting the use of data analytics in their
day-to-day working? Clearly because it allows these firms to predict the behavior of existing and
potential customers. Empowered with this information, firms are able to devise suitable strategies to
better manage their respective businesses.
On the risk management front, data analytics techniques can help a bank develop an approval strategy
for its mortgage and auto loan applications and also help to determine the optimal lending rate.
The same techniques can help an insurance firm decide the premium for its
policyholders. The data analytics techniques have been extensively used in the credit card businesses to
decide on credit and cash line assignments and dynamic authorization and fraud detection activities.
Data analytics is also effectively used in managing the collections functions of the
consumer finance companies. Using statistical modeling, the companies are able to predict the
likelihood of contacting a customer and chances of receiving a payment from him. This information is
helpful in choosing the right collections strategies that optimize collection efficiency and effectiveness.
On the marketing side, the uses of data analytics in the form of response models helps
companies design and execute cross sell, up sell, deep sell and retention strategies. In the long run,
creative use of past customer data through predictive modeling helps companies in building powerful
and effective analytical CRM (customer relationship management) platforms.
These analytical CRM platforms allow firms to make suitable offers to its customers and
optimize campaigns through e-mail, direct mail, telemarketing and inbound call channels. Consumer
finance companies in the US, where the credit bureaus are fairly developed, use data analytics to
evaluate the quality of consumer loan and insurance portfolios during mergers, acquisitions and
securitization deals. What do companies need to do to use data analytics effectively? Experts believe
that to reap the maximum benefits from data analytics, firms have to invest in the right technology, hire
the right people and last but not the least develop standardized and robust processes of data collection,
data retrieval, data analysis and strategy implementation.
For example, a company may invest in a separate analytics data mart to capture the
relevant customer data. This data are mainly of three types: demographic, behavioral and contact
information. While demographic data refers to information about customer characteristics like age,
income, etc., behavioral data includes information of customer's prior performance like transaction
history and delinquency behavior. Contact information includes history of prior offers and contacts
made to the customer.
Once the data mart is ready, the company needs to build efficient and robust systems for
extracting and analyzing data from the data mart. After the required data analysis is completed and a
suitable strategy using data analytics has been devised, it is important to ensure that strategies are
implemented efficiently and accurately.
The implementation of analytically driven strategies has been rather `painful' process for most
companies. However if the right IT infrastructure exists and process planning is rigorous then
implementation can be accomplished with minimal disruption of business processes and limited impact
on the company's resources.

To facilitate easier and faster implementation, software that integrate with a company's
work flow and account receivable systems to implement the risk and marketing strategies are now
available. Campaign management packages, systems that enable easy execution and tracking of
analytically driven targeted marketing campaigns are also being increasingly used by consumer finance
companies.
After a particular business strategy (a new risk policy or marketing campaign) has been
implemented, the companies need to measure the performance of the business strategy and make sure
that the results can be tracked effectively for future use. The process of continuous designing,
executing, and tracking and allows companies to `test and learn' and thereby helps them gain a
competitive edge.
The above process requires firms to make investments in technology — database packages, statistical
software, implementation platforms, and reporting and analysis tools. Most major software companies
have developed data mining and analytics software, however the use of specialized statistical software
such as SAS, SPSS for predictive modeling and of reporting and analysis tools such as Business
Objects and COGNOS is common.
A team of systems specialists and data analysts is required to develop and maintain
efficient data marts and robust implementation and analysis systems. To conduct data analytics, teams
of econometric and statistical modelers and business analysts that can effectively perform strategic
analysis and build predictive models need to be developed.
Major financial services firms in India have built internal data analytics and business
intelligence teams of data analysts and statistical modelers that support marketing and risk management
activities. A significant number of independent third party data analytics companies that provide end-
to-end data analytics solutions have also mushroomed in the last couple of years.
The market for consumer finance products is growing at a rapid rate in India. To seize
this opportunity, new financial services firms are entering the industry and the existing banks are
increasingly focusing on retail portfolios. The pressures to make high profits remain high in the face of
increasing competition. For consumer finance companies, use of data analytics is no more a luxury but
a necessity. Firms that invest in data analytics now will reap in the benefits for a long time to come.

Major Factors Influencing Consumer Behavior

Consumers do not make their decisions in a vacuum. Their purchases are highly influenced by cultural
social, personal, and psychological factors. For the most part, they are “non controllable” by the
marketer but must be taken in to account. We want to examine the influence of each factor on a buyer’s
behavior.

Cultural Factors:

In a diversified country like India cultural factors exert the broadest and deepest influence on consumer
behavior; we will look at the role played by the buyer’s culture, subculture, and social class.
Culture is part of the external influences that impact the consumer. That is, culture represents
influences that are imposed on the consumer by other individuals.
The definition of culture offered in one textbook is “That complex whole which includes knowledge,
belief, art, morals, custom, and any other capabilities and habits acquired by man person as a member
of society.” From this definition, we make the following observations:
 Culture, as a “complex whole, is a system of interdependent components.
 Knowledge and beliefs are important parts. In the U.S., we know and believe that a person who
is skilled and works hard will get ahead. In other countries, it may be believed that differences
in outcome result more from luck. “Chunking, the name for China in Chinese literally means
“The Middle Kingdom.” The belief among ancient Chinese that they were in the center of the
universe greatly influenced their thinking.
 Other issues are relevant. Art, for example, may be reflected in the rather arbitrary practice of
wearing ties in some countries and wearing turbans in others. Morality may be exhibited in the
view in the United States that one should not be naked in public. In Japan, on the other hand,
groups of men and women may take steam baths together without perceived as improper. On
the other extreme, women in some Arab countries are not even allowed to reveal their faces.
Notice, by the way, that what at least some countries view as moral may in fact be highly
immoral by the standards of another country. For example, the law that once banned interracial
marriages in South Africa was named the “Immorality Act, even though in most civilized
countries this law, and any degree of explicit racial prejudice, would itself be considered highly
immoral.
Culture has several important characteristics:
 Culture is comprehensive. This means that all parts must fit together in some logical fashion.
For example, bowing and a strong desire to avoid the loss of face are unified in their
manifestation of the importance of respect.
 Culture is learned rather than being something we are born with. We will consider the
mechanics of learning later in the course.
 Culture is manifested within boundaries of acceptable behavior. For example, in American
society, one cannot show up to class naked, but wearing anything from a suit and tie to shorts
and a T-shirt would usually be acceptable. Failure to behave within the prescribed norms may
lead to sanctions, ranging from being hauled off by the police for indecent exposure to being
laughed at by others for wearing a suit at the beach.
 Conscious awareness of cultural standards is limited. One American spy was intercepted by the
Germans during World War II simply because of the way he held his knife and fork while
eating.
 Cultures fall somewhere on a continuum between static and dynamic depending on how quickly
they accept change. For example, American culture has changed a great deal since the 1950s,
while the culture of Saudi Arabia has changed much less.
Dealing with culture.
Culture is a problematic issue for many marketers since it is inherently nebulous and often difficult to
understand. One may violate the cultural norms of another country without being informed of this, and
people from different cultures may feel uncomfortable in each other’s presence without knowing
exactly why (for example, two speakers may unconsciously continue to attempt to adjust to reach an
incompatible preferred interpersonal distance).
Warning about stereotyping.
When observing a culture, one must be careful not to over-generalize about traits that one sees.
Research in social psychology has suggested a strong tendency for people to perceive an “out group as
more homogeneous than an “in group, even when they knew what members had been assigned to each
group purely by chance. When there is often a “grain of truth to some of the perceived differences, the
temptation to over-generalize is often strong. Note that there are often significant individual differences
within cultures.
Cultural lessons.
We considered several cultural lessons in class; the important thing here is the big picture. For example,
within the Muslim tradition, the dog is considered a “dirty animal, so portraying it as “man’s best friend
in an advertisement is counter-productive. Packaging, seen as a reflection of the quality of the “real
product, is considerably more important in Asia than in the U.S., where there is a tendency to focus on
the contents which “really count.” Many cultures observe significantly greater levels of formality than
that typical in the U.S., and Japanese negotiator tend to observe long silent pauses as a speaker’s point
is considered.
Cultural characteristics as a continuum. There is a tendency to stereotype cultures as being one way
or another (e.g., individualistic rather than collectivist). Note, however, countries fall on a continuum
of cultural traits. Hofstede’s research demonstrates a wide range between the most individualistic and
collectivist countries, for example—some fall in the middle.
Hofstede’s Dimensions. Gert Hofstede, a Dutch researcher, was able to interview a large number of
IBM executives in various countries, and found that cultural differences tended to center around four
key dimensions:
• Individualism vs. collectivism: To what extent do people believe in individual responsibility and
reward rather than having these measures aimed at the larger group? Contrary to the stereotype,
Japan actually ranks in the middle of this dimension, while Indonesia and West Africa rank
toward the collectivist side. The U.S., Britain, and the Netherlands rate toward individualism.
• Power distance: To what extent is there a strong separation of individuals based on rank? Power
distance tends to be particularly high in Arab countries and some Latin American ones, while it
is more modest in Northern Europe and the U.S.
• Masculinity vs. femininity involves a somewhat more nebulous concept. “Masculine” values
involve competition and “conquering nature by means such as large construction projects, while
“feminine values involve harmony and environmental protection. Japan is one of the more
masculine countries, while the Netherlands rank relatively low. The U.S. is close to the middle,
slightly toward the masculine side. (The fact that these values are thought of as “masculine or
“feminine does not mean that they are consistently held by members of each respective gender
—there are very large “within-group differences. There is, however, often a large correlation of
these cultural values with the status of women.
• Uncertainty avoidance involves the extent to which a “structured situation with clear rules is
preferred to a more ambiguous one; in general, countries with lower uncertainty avoidance tend
to be more tolerant of risk. Japan ranks very high. Few countries are very low in any absolute
sense, but relatively speaking, Britain and Hong Kong are lower, and the U.S. is in the lower
range of the distribution.
Although Hofstede’s original work did not address this, a fifth dimension of long term vs. short term
orientation has been proposed. In the U.S., managers like to see quick results, while Japanese
managers are known for take a long term view, often accepting long periods before profitability is
obtained.
High vs. low context cultures: In some cultures, “what you see is what you get”
Social Class:
Virtually all human societies exhibit social stratification. Stratification sometimes takes the form of a
caste system where the members of different caste are reared for certain roles and cannot change their
caste membership .More frequently; stratification takes the form of social classes.
Social Classes have several characteristics. First, Person with in each social class tends to behave more
alike than persons from two different social classes. Second, persons are perceived as occupying
inferior or superior positions according to their social class. Third, a person’s social class is indicated
by a number of variables, such as occupation, income, wealth, education , and value orientation, rather
than by any single variable , fourth, individuals are able to move from one social class to another up or
down during their lifetime. The Extent of this mobility varies according to the rigidity of social
stratification a given society.
Social Factors:
A consumer’s behavior is also influenced by social factors, such as the consumer’s reference group,
family, and social roles and statuses.
Group influences on consumer behavior can impact motivation, values, and individual information
processing; they can come from groups to which consumers already belong or from groups to which
they aspire to belong (aspirational groups). Groups can exert a variety of influences on individuals,
including: (1) informational influences where the group acts as a source for expert opinions; (2)
comparative influences such that the group provides opportunities to manage the individual's self-
concept with respect to the group's identity; and, (3) normative influences, whereby the group specifies
guidelines and sanctions for appropriate or inappropriate individual behaviors.
The influence of groups on consumer behavior tends to vary with a variety of group and product-
related factors. For example, the more the group is perceived to be a credible, valued source of
approval or disapproval to the consumer, the more likely that consumer is to conform to group values.
In addition, the more frequently group members interact, and the more outwardly visible use of the
product is to group and non-group members, the greater the group's influence on individual
consumption behavior.
Family Group:
Members of the buyer’s family can exercise a strong influence on the buyer’s behavior. We can
distinguish between two families in the buyer’s life. The family of orientation consists of one’s parents.
From parents a persons acquires an orientation towards religious, politics, and economics and a sense
of personal ambitions, self –worth, and love. Even if the buyer no longer interacts very much with his
or her parents, the parents influence on the unconscious behavior of the buyer can be significant. In
countries where parents continue to live with their children, their influence can be substantial.
In case of expensive products and services, husband and wives engage in more joint decision making.
The market needs to determine which member normally has the greater influence in the purchase of a
particular products or services. Either the husband or the wife, or they have equal influence. The
following products and services fall under such:
Husband – dominant: life insurance, automobiles, television
Wife – dominant: washing machines, carpeting, non –living – room furniture, kitchenware
Equal: Living – room furniture, vacation, Housing, outside entertainment.
Internal Influence:

Perception:
Perception is how we see ourselves and the world we live in. However, what ends up being stored
inside us doesn’t always get there in a direct manner. Often our mental makeup results from
information that has been consciously or subconsciously filtered as we experience it, a process we refer
to as a perceptual filter. To us this is our reality, though it does not mean it is an accurate reflection on
what is real. Thus, perception is the way we filter stimuli (e.g., someone talking to us, reading a
newspaper story) and then make sense out of it.
Perception has several steps.
• Exposure – sensing a stimuli (e.g. seeing an ad)
• Attention – an effort to recognize the nature of a stimuli (e.g. recognizing it is an ad)
• Awareness – assigning meaning to a stimuli (e.g., humorous ad for particular product)
• Retention – adding the meaning to one’s internal makeup (i.e., product has fun ads)
How these steps are eventually carried out depends on a person’s approach to learning. By learning we
mean how someone changes what they know, which in turn may affect how they act. There are many
theories of learning, a discussion of which is beyond the scope of this tutorial, however, suffice to say
that people are likely to learn in different ways. For instance, one person may be able to focus very
strongly on a certain advertisement and be able to retain the information after being exposed only one
time while another person may need to be exposed to the same advertisement many times before he/she
even recognizes what it is. Consumers are also more likely to retain information if a person has a strong
interest in the stimuli. If a person is in need of new car they are more likely to pay attention to a new
advertisement for a car while someone who does not need a car may need to see the advertisement
many times before they recognize the brand of automobile.

Consumer motivation:
A marketer's job is to figure out what needs and wants the consumer has, and what
motivates the consumer to purchase. Motivation is the drive that initiates all our consumption
behaviors, and consumers have multiple motives, or goals. Some of these are overt, like a physiological
thirst that motivates a consumer to purchase a soft drink or the need to purchase a new suit for an
interview. Other motives are more obscure, like a student's need to tote a Kate Spade book bag or wear
Doc Martens to gain social approval. Most consumption activities are the result of several motives
operating at the same time. Researchers specially trained in uncovering motives often use qualitative
research techniques in which consumers are encouraged to reveal their thoughts (cognitions) and
feelings (affect) through probing dialogue. Focus groups and in-depth interviews give consumers an
opportunity to discuss products and express opinions about consumption activities. Trained moderators
or interviewers are often able to tap into preconscious motives that might otherwise go undetected.
Sentence completion tasks (e.g., Men who wear Old Spice are . . .) or variants of the Thematic
Apperception Tests (TAT), in which respondents are shown a picture and asked to tell a story
surrounding it, are additional techniques that provide insight into underlying motives.
Consumer motives or goals can be represented by the values they hold. Values are
people's broad life goals that symbolize a preferred mode of behaving (e.g., independent,
compassionate, honest) or a preferred end-state of being (e.g., sense of accomplishment, love and
affection, social recognition). Consumers buy products that will help them achieve desired values; they
see product attributes as a means to an end. Understanding the means-end perspective can help
marketers’ better position the product and create more effective advertising and promotion campaigns.
Consumer information processing:
The consumer information-processing approach aids in understanding
consumptive behavior by focusing on the sequence of mental activities that people use in interpreting
and integrating their environment.
The sequence begins with human perception of external stimuli. Perception is the
process of sensing, selecting, and interpreting stimuli in one's environment. We begin to perceive an
external stimulus as it comes into contact with one of our sensory receptors—eyes, ears, nose, mouth,
or skin. Perception of external stimuli influences our behavior even without our conscious knowledge
that it is doing so. Marketers and retailers understand this, and they create products and stores
specifically designed to influence our behavior. Fast-food chains paint their walls in "hot" colors, like
red, to speed up customer turnover. Supermarkets steer entering customers directly into the produce
section, where they can smell and touch the food, stimulating hunger. A hungry shopper spends more
money.
Close your eyes and think for a moment about the hundreds of objects, noises, and smells
surrounding you at this very moment. In order to function in this crowded environment, we choose to
perceive certain stimuli while ignoring others. This process is called selectivity. Selectivity lets us focus
our attention on the things that provide meaning for interpreting our environment or on the things that
are relevant to us, while not wasting our limited information-processing resources on irrelevant items.
Did you even notice that after you decide on, say, Florida, for your vacation destination, there seems to
be an abundance of ads for Florida resorts, airline promotions for Florida, and articles about Florida
restaurants and attractions everywhere? Coincidence? Not really. There are just as many now as there
were before, only now you are selectively attending to them, whereas you previously filtered them out.
Marketers continuously struggle to break through the clutter and grab consumers' attention. Advertising
and packaging is designed to grab our attention through a host of techniques, like the use of contrast in
colors and sound, repetition, and contextual placement.
Did you watch TV last night? You may have paid attention to many of the ads you saw
during the commercial breaks; you may even have laughed out loud at a few of them. But how many
can you recall today? Consumers' ability to store, retain, and retrieve product information is critical to a
brand's success. When information is processed, it is held for a very brief time (less than one minute) in
working, or short-term, memory. If this information is rehearsed (mentally repeated), it is transferred to
long-term memory; if not, the information is lost and forgotten. Once transferred to long-term memory,
information is encoded or arranged in a way that provides meaning to the individual. Information in
long-term memory is constantly reorganized, updated, and rearranged as new information comes in, or
learning takes place. Information-processing theorists represent the storage of information in long-term
memory as a network consisting of nodes (word, idea, or concept) and links (relationships among
them). Nodes are connected to each other depending on whether there is an association between
concepts, with the length of the linkages representing the degree of the association. Figure 2 illustrates
a network model of long-term memory. When Edwin Land invented the first Polaroid instant camera,
knowledge structures for cameras changed to reflect the association between photography and instant
output. Now, knowledge structures are changing to reflect the new I-Zone camera.
The complete network brought to mind when a product is activated is called the product
schema. Knowing the set of associations that consumers retrieve from long-term memory about a
particular product or category is critical to a successful marketing strategy. For new products or
services, marketers must first select the set of associations they want consumers to have. This is called
positioning the product, or selecting the brand image.
Peak Freans' unique positioning as an adult cookie was accomplished by establishing a
link between the concept "serious" and "cookie." The brand position is then translated into clever ads,
reinforced on product packaging, and integrated into all promotion and communication strategies. Over
time, a brand's image can fade or become diluted. Sometimes consumers associate concepts that are not
favorable to a brand. When this occurs, marketers reposition the brand, using advertising and other
marketing tools to help consumers create new links to positive association and discard links to the
unfavorable ones. In the mid-1990s, Hush Puppies shoes made a comeback after decades of low sales.
Introducing exciting, vibrant colors, Hush Puppies repositioned their basic comfort shoe as fashionable,
youth-oriented, and "cool." Strategies for successful brand extensions also depend on the brand
schema. Generally speaking, a brand extension is more likely to be successful if the set of associations
for the extension matches the set of associations of the core product. Would Lifesavers brand toothpaste
sell? Probably not, because the associations for Lifesavers (sweet, candy, sugar, fruity) are not the same
as those for toothpaste (mint, clean, noncandy). On the other hand, a Lifesavers brand sugared
children's cereal with colorful, fruity rings has a much better match of associations.
Attitude formation and change:
The set of beliefs consumers have stored in long-term memory provides another critical
function to marketers: It provides the basis for a consumer's attitude toward a brand or an ad. An
attitude is an overall evaluation of an object, idea, or action. Attitudes can be positive or negative, and
weakly or strongly held. The statement "I love Ben & Jerry's Vanilla Toffee Crunch" is a strong,
positively valence attitude toward a product. The statement "I dislike the new Toyota ad" is a weak,
negatively valence attitude toward an advertisement. Marketers work hard to continuously monitor
consumer attitudes toward their products. Among other things, attitudes can indicate problems with a
product or campaign, success with a product or campaign, likelihood of future sales, and overall
strength of the brand or brand equity.
A popular perspective is that attitude has three components: cognitive, affective, and co
native. The cognitive component reflects the knowledge and beliefs one has about the object (e.g.,
"Digital Club Network is an on-line live music Internet site."), the affective component reflects feelings
(e.g., "I like the Digital Club Network site") and the co native component reflects a behavioral
tendency toward the object (e.g., "I will become a registered user of digitalclubnetwork.com"). Thus,
attitudes are predispositions to behave in a certain way. If you have a favorable attitude toward a
politician, you will likely vote for him or her in the next election. Because of this, many marketers use
attitude measures for forecasting future sales. It is important to note, however, that the link between
attitudes and behavior is far from perfect. Consumers can hold positive attitudes toward multiple
brands but intend to purchase only one. External economic, social, or personal factors often alter
behavioral plans.
Attitudes are dynamic, which means they are constantly changing. As an individual
learns new information, as fads change, as time goes on, the attitudes you once held with confidence
may no longer exist. Did you ever look at old photos of yourself and wonder "What was I thinking
wearing clothes like that? And look at my hairstyle!"
Buyer Decision Process

Buyer decision processes are the decision making processes undertaken by consumers in regard to a
potential market transaction before, during, and after the purchase of a product or service.
 More generally, decision making is the cognitive process of selecting a course of action
from among multiple alternatives. Common examples include shopping and deciding what to eat.
Decision making is said to be a psychological construct. This means that although we can never “see” a
decision, we can infer from observable behavior that a decision has been made. Therefore we conclude
that a psychological event that we call “decision making” has occurred. It is a construction that imputes
commitment to action. That is, based on observable actions, we assume that people have made a
commitment to effect the action.

In general there are three ways of analyzing consumer buying decisions. They are:

• Economic models - These models are largely quantitative and are based on the assumptions of
rationality and near perfect knowledge. The consumer is seen to maximize their utility. See
consumer theory. Game theory can also be used in some circumstances.
• Psychological models - These models concentrate on psychological and cognitive processes
such as motivation and need recognition. They are qualitative rather than quantitative and build
on sociological factors like cultural influences and family influences.
• Consumer behavior models - These are practical models used by marketers. They typically
blend both economic and psychological models.

Nobel laureate Herbert Simon sees economic decision making as a vain attempt to be rational.
He claims (in 1947 and 1957) that if a complete analysis is to be done, a decision will be immensely
complex. He also says that peoples' information processing ability is very limited. The assumption of a
perfectly rational economic actor is unrealistic. Often we are influenced by emotional and non-rational
considerations. When we try to be rational we are at best only partially successful.

Consumer Decision-Making Models, Strategies, and Theories

How do consumers make decisions?

This question is at the core of much of marketing examination over the past 60 or 70 years. As
marketers manipulate the various principles of marketing, so do the consumers they seek to reach–
choosing which products and services to buy, and which not to buy, choosing which brands to use, and
which brands to ignore. The focus of this paper is to examine the major decision-making models,
strategies, and theories that underlie the decision processes used by consumers and to provide some
clarity for marketing executives attempting to find the right mix of variables for their products and
services.

Three Decision-Making Models

Early economists, led by Nicholas Bernoulli, John von Neumann, and Oscar Morgenstern, puzzled over
this question. Beginning about 300 years ago, Bernoulli developed the first formal explanation of
consumer decision making. It was later extended by von Neumann and Morgenstern and called the
Utility Theory. This theory proposed that consumers make decisions based on the expected outcomes of
their decisions. In this model consumers were viewed as rational actors who were able to estimate the
probabilistic outcomes of uncertain decisions and select the outcome which maximized their well-
being. However, as one might expect, consumers are typically not completely rational, or consistent, or
even aware of the various elements that enter into their decision making. In addition, though consumers
are good at estimating relative frequencies of events, they typically have difficulty translating these
frequencies into probabilities. This Utility model, even though had been was viewed as the dominant
Decision-making paradigm, had serious shortcomings that could not be explained by the model.
Nobel Laureate Herbert Simon proposed an alternative, simpler model in the mid-1950s. This model
was called Satisfying, in which consumers got approximately where they wanted to go and then
stopped the decision-making process. An example of this would be in the search for a new apartment.
Under the Utility Theory, consumers would evaluate every apartment in a market, and form a linear
equation based on all the pertinent variables, and then select the apartment that had the highest overall
utility score. With Satisfying, however, consumers might just evaluate apartments within a certain
distance to their desired location, stopping when they found one that was “good enough.” This theory,
though robust enough to encompass many of the shortcomings of Utility Theory, still left significant
room for improvement in the area of prediction. After all, if a marketing executive can’t predict
consumer behavior, then what use is a decision-making paradigm? Simon and others have extended this
area in the investigation of the field of bounded rationality. Following Simon, additional efforts were
made to develop better understandings of consumer decision making, extending beyond the
mathematical optimization of Utility Theory and the somewhat unsatisfying Satisfying Theory. In the
late 1970s, two leading psychologists, Daniel Kahneman and Amos Tversky, developed the Prospect
Theory, which expanded upon both the Utility Theory and Satisfying Theory to develop a new theory
that encompassed the best aspects of each, while solving many of the problems that each presented.

Two major elements that were added by Kahneman and Tversky were the concepts of
value (replacing the utility found in Utility Theory) and endowment, in which an item is more precious
if one owns it than if someone else, owns it. Value provided a reference point and evaluated both gains
and losses from that reference point. Additionally, gains and losses have a marginally decreasing
increase from the
Reference point. For example, there is a much greater value for the first incremental gain from the
reference point than for subsequent gains.

Seven Decision-Making Strategies:

What this all led to was the development and exploration of a series of useful consumer
decision-making strategies that can be exploited by marketers. For each product, marketers need to
understand the specific decision-making strategy utilized by each consumer segment acquiring that
product. If this is done, marketers can position their product in such a manner that the decision-making
strategy leads consumers to select their product. The first two strategies are called compensatory
strategies. In these strategies, consumers allow a higher value of one attribute to compensate for a
lesser value of another attribute. For example, if a consumer is looking at automobiles, a high value in
gas mileage might compensate for a lower value in seating space. The attributes might have equal
weight (EQUAL WEIGHT STRATEGY) or have different weights for the attributes (WEIGHTED
ADDITIVE STRATEGY).An example of the latter might be to place twice as much importance on gas
mileage than seating space. The next three strategies are called non compensatory strategies. In these
strategies, each attribute of a specific product is evaluated without respect to the other attributes, and
even though a product may have a very high value on one attribute, if it fails another attribute, it is
eliminated from consideration.
From Simon, the first of these is SATISFICING, in which the first product evaluated to
meet cutoff values for all attributes is chosen, even if it is not the best.
The second of these strategies, ELIMINATION BY ASPECTS, sets a cutoff value for
the most important attribute, and allows all competing products that meet that cutoff value to go to the
next attribute and its cutoff value.
The third strategy, LEXICOGRAPHIC, evaluates the most important attribute, and if a
product is clearly superior to others, stops the decision process and selects that product; otherwise, it
continues to the next most important attribute.
 The next two strategies are called partially compensatory strategies, in that strategies are
evaluated against each other in serial fashion and higher values for attributes are considered. The first
of these strategies is called MAJORITY OF CONFORMING DIMENSIONS, in which the first two
competing products are evaluated across all attributes, and the one that has higher values across
More dimensions, or attributes, are retained. This winner is then evaluated against the next competitor,
and the one that has higher values across more dimensions is again retained.

The second partially compensatory strategy is called FREQUENCY OF GOOD AND

BAD FEATURES, in which all products are simultaneously compared to the cutoff values for each of
their relevant attributes, and the product that has the most “good” features that exceed the cutoff values
is the winner. There are other expansions upon these seven basic consumer decision- making strategies,
but they are generally captured as shown above. However, two major areas of marketing theory also
help to provide additional explanatory power to these strategies.

Two Marketing Theories:

The first marketing theory is called Consideration. In this theory, consumers form a
subset of brands from which the decision-making strategies are applied. For example, if asked to
enumerate all the restaurants that one could recall, the list might be quite extensive for most consumers.
However, when a consumer first addresses the question of where to dine that evening, a short list of
restaurants that are actively considered is utilized for the decision-making process. Multistage decision-
making models were summarized by Allan Shocker, in which the increasing complexity of a decision
produces more steps in the decision process. In essence, more cognitive effort would be expended in
evaluating members of the consideration set and reducing that number to an eventual choice.

The second marketing theory is called Involvement, in which the amount of cognitive
effort applied to the decision-making process is directly related to the level of importance that the
consumer places on acquisition of the specific product.

For example, there is rarely a significant amount of decision-making applied to the

selection of a pack of chewing gum at the grocery store checkout counter, but there is a much greater
amount of decision-making effort applied to the purchase of a new cell phone. This degree of
involvement is not necessarily a function of the price, but is more related to the perceived impact on the
quality of life of the consumer. The quality of life can come directly from the benefits supplied by the
product, or can come indirectly from the social accolades or sanctions provided by members of the peer
group.

Summary
Application of the three decision making models, the seven decision-making
strategies, and the two marketing theories can be seen in current efforts by marketing practitioners and
academicians to tease apart the complex decisions made by consumers. For example, choice models
and conjoint models are multivariate analysis techniques based on these understandings. Consumers are
presented with choices in controlled environments that, hopefully, control for other confounding
variables, and then the choices are decomposed to understand both the conscious and unconscious
elements driving the consumer’s choices. One caveat for practitioners is important to address at this
point. When one is attempting to manipulate marketing variables such as price or promotion, or even
conduct research into consumer decision-making, it is critical that a solid theoretical base be used.
Without this base, the surveys have the potential of producing contradictory or misleading answers, and
the attempts to manipulate the variables at hand may produce less.
AIUAPR Model:
Most directly links to the steps in the marketing/promotional process is often seen as the most generally
useful:

• AWARENESS - before anything else can happen the potential customers must become
aware that the product or service exists. Thus, the first task must be to gain the attention of
the target audience. All the different models are, predictably, agreed on this first step. If the
audience never hears the message, they will not act on it, no matter how powerful it is
• INTEREST - but it is not sufficient to grab their attention. The message must interest them
and persuade them that the product or service is relevant to their needs. The content of the
message(s) must therefore be meaningful and clearly relevant to that target audience's needs,
and this is where marketing research can come into its own.
• UNDERSTANDING - once an interest is established, the prospective customer must be
able to appreciate how well the offering may meet his or her needs, again as revealed by the
marketing research. This may be no small achievement where the advertiser has just a few
words, or ten seconds, to convey their message.
• ATTITUDES - but the message must go even further; to persuade the reader to adopt a
sufficiently positive attitude towards the product or service that he or she will purchase it,
albeit as a trial. There is no adequate way of describing how this may be achieved. It is
simply down to the magic of the advertiser's art, or based on the strength of the product or
services itself.
• PURCHASE - all the above stages might happen in a few minutes while the reader is
considering the advertisement; in the comfort of his or her favorite armchair. The final
buying decision, on the other hand, may take place some time later; perhaps weeks later,
when the prospective buyer actually tries to find a shop which stocks the product.
• REPEAT PURCHASE - but in most cases this first purchase is best viewed as just a trial
purchase. Only if the experience is a success for the customer will it be turned into repeat
purchases. These repeats, not the single purchase which is the focus of most models, are
where the vendors focus should be, for these are where the profits are generated. The earlier
stages are merely a very necessary prerequisite for this.
This is a very simple model, and as such does apply quite generally. Its lessons are that you cannot
obtain repeat purchasing without going through the stages of building awareness and then obtaining
trial use; which has to be successful. It is a pattern which applies to all repeat purchase products and
services; industrial goods just as much as baked beans. This simple theory is rarely taken any further -
to look at the series of transactions which such repeat purchasing implies. The consumer's growing
experience over a number of such transactions is often the determining factor in the later - and future -
purchases. All the succeeding transactions are, thus, interdependent - and the overall decision-making
process may accordingly be much more complex than most models allow for

Problem Recognition:

The Crucial First Stage of the Consumer Decision Process.

Problem recognition results when there is a difference between one's desired state and one's
actual state. Consumers are motivated to address this discrepancy and therefore they commence
the buying process.

Sources of Problem Recognition:

• An item is out of stock

• Dissatisfaction with a current product or service
• Consumer needs and wants
• Related products/purchases
• Marketer-induced
• New products

How can you measure problem recognition?

 Activity analysis: This method focuses on a particular activity such as preparing dinner,
maintaining a lawn, or lighting a fireplace fire. This method attempts to determine what
problems the consumer encounters in performing a particular activity.
 Product analysis: This method focuses on the purchase and/or use of a particular product or
brand in an attempt to determine what problems a consumer may encounter in purchasing or
using this product.
 Problem analysis: This method takes an opposite approach in that it starts with a list of
problems and asks consumers to indicate activities, products, or brands that are associated with
these problems.
 Human factors research: This approach looks at the capabilities of humans, and attempts to
design products in light of these capabilities.
 Emotion research: Focus groups and projective techniques are beginning to be used to help us
understand the role of emotion in problem recognition.
Ways can marketers react to problem recognition:
 Modify the marketing mix (product, price, place or promotion) to resolve a particular problem
and improve on the existing level of performance (actual state).
 In the case of latent problem recognition, the marketer may stimulate problem recognition and
direct search, evaluation, and purchase of a product that resolves the problem.
 For a problem recognition of little importance, the marketer may bring greater attention to this
problem (increase its perceived importance) while indicating a solution to this problem.
 In some instances a marketer may try to either reduce the discrepancy that is the cause of the
problem recognition and/or attempt to reduce the importance attached to it, thereby reducing the
intensity of the problem. Many cigarette manufacturers attempt to do both in their cigarette
advertising.
Generic problem recognition
Generic problem recognition refers to a problem that a particular type of product (like milk or tuna) can
solve.
Selective problem recognition
Selective problem recognition refers to a problem that can only be solved by a specific brand or
product like Good pasture Milk or Al’s Tuna.

Generally, a firm will attempt to influence generic problem recognition when the problem is latent or of
low importance and:
1. It is early in the product life cycle.
2. The firm has a very high percentage of the market.
3. External search after problem recognition is apt to be limited.
4. It is an industry wide cooperative effort.
Causes of problem recognition
Problem recognition is a function of the
(1) Importance
(2) Magnitude of a discrepancy between the desired state and an existing state.
Thus, the firm can attempt to influence the size of the discrepancy by altering the desired state
or the perceptions of the existing state. Or, the firm can attempt to influence the perception of
the importance of an existing discrepancy.
Marketers often advertise the benefits their products will provide, hoping that these benefits will
become desired by consumers. It is also possible to influence perceptions of the existing state through
advertisements. Many personal care and social products take this approach. "Even your best friend
won't tell you . . .”or “Kim is a great worker but this coffee . . .” are examples of messages designed to
generate concern about an existing state.
Suppress problem recognition?
Advertisements can be designed that will aid in the suppression of problem recognition. Such an ad
would directly or indirectly indicate that a potential problem is not really a problem. Some would say
that ads showing healthy active people smoking cigarettes are an attempt to suppress problem
recognition about health and smoking. Also, effective quality control, distribution, packaging, and
package inserts are commonly used for this purpose.
Information Search: Seeking Value The information search stage clarifies the options open to the
consumer and may involve.Once the consumer has recognized a problem, they search for information
on products and services that can solve that problem. Belch and Belch (2007) explain that consumers
undertake both an internal (memory) and an external search.

Sources of information include:

• Personal sources
• Commercial sources
• Public sources
• Personal experience
The relevant internal psychological process that is associated with information search is perception.
Perception is defined as 'the process by which an individual receives, selects, organizes, and interprets
information to create a meaningful picture of the world'

The selective perception process

Stage Description
- Selective exposure consumers select which promotional messages they will expose themselves to.
- Selective attention consumers select which promotional messages they will pay attention to
- Selective comprehension consumer interpret messages in line with their beliefs, attitudes, motives
and experiences
- Selective retention consumers remember messages that are more meaningful or important to them

The implications of this process help develop an effective promotional strategy, and select which
sources of information are more effective for the brand CV.

• Scanning one’s memory to recall previous

Internal experiences with products or brands.
search • Often sufficient for frequently purchased
•
products.
When past experience or knowledge is
insufficient
Two steps • The risk of making a wrong purchase decision is
of
information The primary sources of external information are:
search External
search 1. Personal sources, such as friends and family.
2. Public sources, including various product-rating
organizations such as Consumer Reports.
3. Marketer-dominated sources, such as advertising,
company websites, and salespeople

ALTERNATIVE EVALUATION
At this time the consumer compares the brands and products that are in their evoked set. How can the
marketing organization increase the likelihood that their brand is part of the consumer's evoked
(consideration) set? Consumers evaluate alternatives in terms of the functional and psychological
benefits that they offer. The marketing organization needs to understand what benefits consumers are
seeking and therefore which attributes are most important in terms of making a decision.
The information search clarifies the problem for the consumer by
(1) Suggesting criteria to use for the purchase.
(2) Yielding brand names that might meet the criteria.
(3) Developing consumer value perception.

• A consumer's evaluative criteria represent both

• the objective attributes of a brand (such as locate speed on a portable CD player)
• The subjective factors (such as prestige).

• These criteria establish a consumer's evoked set

• the group of brands that a consumer would consider acceptable from among all the
brands in the product class of which he or she is aware

Measurement of Evaluative Criteria:

• Direct methods:
• ask consumers what information they use in a particular purchase
• observe what consumers say about products and their attributes;
e.g., focus groups
• Indirect methods:
• projective techniques:
allow a person to indicate what criteria someone else might use
• perceptual mapping:
consumers judge the similarity of alternative brands (often by ranking), which is
processed by a computer to derive a spatial configuration

Purchase decision:
Once the alternatives have been evaluated, the consumer is ready to make a
purchase decision. The process of going to the shop to buy the product, which for some consumers can
be as just as rewarding as actually purchasing the product. Purchase of the product can either be
through the store, the web, or over the phone.
Sometimes purchase intention does not result in an actual purchase. The marketing organization must
facilitate the consumer to act on their purchase intention. The provision of credit or payment terms may
encourage purchase, or a sales promotion such as the opportunity to receive a premium or enter a
competition may provide an incentive to buy now. The relevant internal psychological process that is
associated with purchase decision is integration.
Purchase Decision: Buying Value
 • which depends on such considerations
From whom to • Terms of sale
buy • Past experience buying from the seller
• Return policy.

Three • which can be influenced by

possibilities • store atmosphere
When to buy • time pressure
• a sale
• Pleasantness of the shopping experience.

Do not buy

Post-purchase Behavior: Value in Consumption or Use

Ever have doubts about the product after you purchased it? This simply is post purchase behavior and
research shows that it is a common trait amongst purchasers of products. Manufacturers of products
clearly want recent consumers to feel proud of their purchase; it is therefore just as important for
manufacturers to advertise for the sake of their recent purchaser so consumers feel comfortable that
they own a product from a strong and reputable organization. This limits post purchase behavior. i.e.
you feel reassured that you own the latest advertised product.

It is common for customers to experience concerns after making a purchase decision. This arises from a
concept that is known as “cognitive dissonance”. The customer, having bought a product, may feel that
an alternative would have been preferable. In these circumstances that customer will not repurchase
immediately, but is likely to switch brands next time.
To manage the post-purchase stage, it is the job of the marketing team to persuade the potential
customer that the product will satisfy his or her needs. Then after having made a purchase, the
customer should be encouraged that he or she has made the right decision. It is not affected by
advertisement.
• After buying a product, the consumer compares it with expectations and is either satisfied or
dissatisfied.
• Satisfaction or dissatisfaction affects
• consumer value perceptions
• consumer communications
• Repeat-purchase behavior.
• Many firms work to produce positive post purchase communications among consumers and
contribute to relationship building between sellers and buyers.
• Cognitive Dissonance. The feelings of post purchase psychological tension or anxiety a
consumer often experiences
• Firms often use ads or follow-up calls from salespeople in this post purchase stage to try to
convince buyers that they made the right decision.

Customer Relationship Management

Customer relationship management is a broadly recognized, widely-implemented strategy for
managing and nurturing a company’s interactions with customers and sales prospects. It involves using
technology to organize, automate, and synchronize business processes—principally sales related
activities, but also those for marketing, customer service, and technical support. The overall goals are to
find, attract, and win new customers, nurture and retain those the company already has, entice former
customers back into the fold, and reduce the costs of marketing and customer service.
According to Forrester Research, spending on customer relationship management is expected to top
$11 billion annually by 2010, as enterprises seek to grow top-line revenues, improve the customer
experience, and boost the productivity of customer-facing staff

Overview
Once simply a label for a category of software tools, CRM has matured and broadened
as a concept over the years. Today, customer relationship management generally denotes a company-
wide business strategy embracing all customer-facing departments and even beyond. When an
implementation is effective, people, processes, and technology work in synergy to develop and
strengthen relationships, increase profitability, and reduce operational costs.

Challenges
Tools and work flows can be complex to implement, especially for large enterprises.
While some companies report great success, initiatives have also been known to fail—mainly owing to
poor planning, a mismatch between software tools and company needs, roadblocks to collaboration
between departments, and a lack of workforce buy-in and adoption. [Citation needed]
Tools and Trends
Previously these tools were generally limited to contact management: monitoring and recording
interactions and communications with customers. Software solutions then expanded to embrace deal
tracking and the management of accounts, territories, opportunities, and—at the managerial level—the
sales pipeline itself. Next came the advent of tools for other customer-facing business functions, as
described below.
Perhaps the most notable trend has been the growth of tools delivered via the Web, also
known as cloud computing and software as a service (SaaS). In contrast with conventional on-premises
software, cloud-computing applications are sold by subscription, accessed via a secure Internet
connection, and displayed on a Web browser. Companies don’t incur the initial capital expense of
purchasing software; neither must they buy and maintain IT hardware to run it on. For these and other
reasons, the SaaS option has proven very attractive, and SaaS applications have garnered a large share
of the market. They are currently its fastest-growing segment. Vendors include: Salesforce.com, Right
Now and Sugar CRM.
CRM technology has been, and still is, offered as on-premises software that companies
purchase and run on their own IT infrastructure. Vendors include: Oracle Corporation, SAP AG, and
Amdocs.
In 2009, SaaS represented approximately 20% of all customer relationship management
spending, and continued its trajectory of outselling on-premises software by a ratio of 3-to-1.
Types/variations

Sales Force Automation

As its name implies, a sales force automation (SFA) system provides an array of
capabilities to streamline all phases of the sales process, minimizing the time that reps need to spend on
manual data entry and administration. This allows them to successfully pursue more customers in a
shorter amount of time than would otherwise be possible. At the heart of SFA is a contact management
system for tracking and recording every stage in the sales process for each prospective customer, from
initial contact to final disposition. Many SFA applications also include features for opportunity
management, territory management, sales forecasting and pipeline, work flow automation, quote
generation, and product knowledge. Newly-emerged priorities are modules for Web 2.0 e-commerce
and pricing management.

Marketing
Systems for marketing (also known as marketing automation) help the enterprise
identify and target its best customers and generate qualified leads for the sales team. A key marketing
capability is managing and measuring multichannel campaigns, including email, search, social media,
and direct mail. Metrics monitored include clicks, responses, leads, deals, and revenue. Marketing
automation also encompasses capabilities for managing customer loyalty, lists, collateral, and internal
marketing resources.
As marketing departments are increasingly obliged to demonstrate revenue impact, today’s systems
typically include performance management features for measuring the ROI of campaigns.

Customer Service and Support:

Recognizing that customer service is an important differentiator, organizations are increasingly turning
to technology platforms to help them improve their customers’ experience while increasing efficiency
and keeping a lid on costs. Even so, a 2009 study revealed that only 39% of corporate executives
believe their employees have the right tools and authority to solve customer problems.“.
The core for customer service has been and still is comprehensive call center management, including
such features as intelligent call routing, computer telephone integration (CTI), and escalation
capabilities. More recently, e-service capabilities—Web self-service, knowledge management, email
response management, Web chat, collaborative browsing and virtual assistants—are gaining in
importance. In fact, today’s profusion of customer service channels has prompted many companies to
deploy integrated support applications that deliver knowledge-enabled solutions across all of them.
Another key trend is the increasing popularity of SaaS platforms for customer service, owing to
their rapid deployment, low initial cost, and now-established efficacy for large and complex contact
centers.

Analytics
Relevant analytics capabilities are often interwoven into applications for sales,
marketing, and customer service. These features can be complemented and augmented with links to
separate, purpose-built applications for analytics and business intelligence.
Sales analytics let companies monitor and understand customer actions and preferences, through sales
forecasting, data quality management, and dashboards that graphically display key performance
indicators (KPIs).
Marketing applications generally come with predictive analytics to improve customer
segmentation and targeting, and features for measuring the effectiveness of online, off line, and search
marketing campaign Web analytics have evolved significantly from their starting point of merely
tracking mouse clicks on Web sites. By evaluating customer “buy signals,” marketers can see which
prospects are most likely to transact and also identify those who are bogged down in a sales process
and need assistance. Marketing and finance personnel also use analytics to assess the value of multi-
faceted programs as a whole.
Customer service analytics are increasing in popularity as companies demand greater
visibility into the performance of call centers and other support channels, in order to correct problems
before they affect customer satisfaction levels. Support-focused applications typically include
dashboards similar to those for sales, plus capabilities to measure and analyze response times, service
quality, agent performance, and the frequency of various customer issues.

Integrated/Collaborative
 Departments within enterprises—especially large enterprises—tend to function in their
own little worlds. Traditionally, inter-departmental interaction and collaboration have been infrequent
and rivalries not uncommon.
More recently, the development and adoption of the tools and services has fostered
greater fluidity and cooperation among sales, customer service, and marketing. This finds expression in
the concept of collaborative customer relationship management, which uses technology to build bridges
between departments. The objective is sharing and harnessing information from all quarters to improve
the quality of customer service, and increase customer satisfaction and loyalty as a result.
For example, feedback from a technical support center can enlighten marketers about
specific services and product features customers are asking for. Similarly, demand generation strategies
need to marry marketing programs with structured sales processes —that is, campaign-engendered
leads must be quickly and efficiently funneled to sales. Reps, in their turn, want to be able to pursue
these opportunities without the time-wasting burden of re-entering records and contact data into a
separate SFA system. Conversely, lack of integration can have negative consequences: If a sales force
automation or customer relationship management system isn’t adopted and integrated among all
departments, several sources might contact the same customers for an identical purpose.

Owing to these and related factors, many of the top-rated and most popular products
come as integrated suites.
Despite all this, many companies are still not fully leveraging these tools and services to align
marketing, sales, and service to best serve the enterprise and its customers. Often, implementations are
fragmented; isolated initiatives by individual departments to address their own needs. Systems that start
disunited usually stay that way: Siloed thinking and decision processes frequently lead to separate and
incompatible systems, an incomplete customer view, and dysfunctional processes.

Small Business
Basic customer management can be accomplished by a contact management system, an
integrated solution that lets organizations and individuals efficiently track and record customer and
supplier interactions, including emails, documents, jobs, faxes, scheduling, and more.
This kind of solution is gaining traction with even very small businesses, thanks to the
ease and time savings of handling customer contact through a centralized application rather than
several different pieces of software, each with its own data collection system.
In contrast with contact managers, bona fide customer relationship management tools
usually focus on accounts rather than individual contacts. They also generally include opportunity
management for tracking sales pipelines plus added functionality for marketing and customer service.
As with larger enterprises, small businesses are finding value in online management solutions,
especially for mobile and telecommuting workers.

Social Media
Social media sites like Twitter and Face book are greatly amplifying the customer voice
in the marketplace, and are predicted to have profound and far-reaching effects on the ways companies
manage their customer relationships. This is because customers are using these social media sites to
share opinions and experiences on companies, products, and services. As social media isn’t moderated
or censored, individuals can say anything they want about a company or brand, whether pro or con.
Increasingly, companies are looking to gain access to these conversations and take part
in the dialog. More than a few systems are now integrating to social networking sites. Social media
promoters cite a number of business advantages, such as using online communities as a source of high-
quality leads and a vehicle for crowd sourcing solutions to customer-support problems. Companies can
also leverage customers’ stated habits and preferences to personalize and even “hyper-target” their sales
and marketing communications.
Some analysts take the view that business-to-business marketers should proceed
cautiously when weaving social media into their business processes. These observers recommend
careful market research to determine if and where the phenomenon can provide measurable benefits for
customer interactions, sales, and support.

Strategy
Choosing and implementing a system is a major undertaking. For enterprises of any
appreciable size, a complete and detailed plan is required to obtain the funding, resources, and
company-wide support that can make the initiative successful. Benefits must be defined, risks assessed,
and cost quantified in three general areas:
• Processes: Though customer relationship management has many technological components,
business processes lie at its core. It can be seen as a more customer-centric way of doing
business, enabled by technology that consolidates and intelligently distributes pertinent
information about customers, sales, marketing effectiveness, responsiveness, and market trends.
Therefore, before choosing a technology platform, a company needs to analyze its business
work flows and processes; some will likely need re-engineering to better serve the overall goal
of winning, managing, and satisfying customers. Moreover, planners need to determine the
types of customer information that are most relevant, and how best to employ them.
• People: For an initiative to be effective, an organization must convince its staff that change is
good and that the new technology and work flows will benefit employees as well as customers.
Senior executives need to be strong and visible advocates who can clearly state and support the
case for change. Collaboration, teamwork, and two-way communication should be encouraged
across hierarchical boundaries, especially with respect to process improvement.
• Technology: In evaluating technology, key factors include alignment with the company’s
business process strategy and goals; the ability to deliver the right data to the right employees;
and sufficient ease of use that users won’t balk. Platform selection is best managed by a
carefully chosen group of executives who understand the business processes to be automated as
well as the various software issues. Depending upon the size of the company and the breadth of
data, choosing an application can take anywhere from a few weeks to a year or more.

Implementation

Implementation Issues

Many enterprises have derived great benefit from customer relationship management:
dramatic increases in revenue, higher rates of customer satisfaction, and significant savings in
operating costs. For others, however, the benefits have been limited and disappointing. Under-
performing deployments peaked in the early 2000’s, when a number of companies spent large sums on
CRM only to have it fail to deliver the hoped-for results.
Proponents emphasize that technology should be implemented only in the context of careful strategic
and operational planning. Implementations almost invariably fall short when one or more facets of this
prescription are ignored:
• Poor planning: Initiatives can easily fail when efforts are limited to choosing and deploying
software, without an accompanying rationale, context, and support for the work force. In other
instances, enterprises simply automate flawed customer-facing processes rather than redesign
them according to best practices.[8]
• Poor adoption: In an early-2000’s survey of more than 600 enterprises, Gartner reported that
 42% of all purchased licenses had become “shelf-ware”—software paid for but never installed.
This often stems from a poor technology fit: A company compromises on capabilities or else
tries to achieve too much in a single stroke, ending up with an overly complex and costly
deployment that yields scant ROI.
• Poor integration: For many companies, customer relationship management manifests in the
form of piecemeal initiatives that address a glaring need: improving a particular customer-
facing process or two (via simple contact management or sales planning), or automating a
favored sales or customer support channel. Such “point solutions” offer little or no integration
or alignment with a company’s overall strategy. They offer a less than complete customer view
and often lead to unsatisfactory user experiences.
• Toward a solution: overcoming siloed thinking. Experts advise organizations to recognize the
immense value of integrating their customer-facing operations. In this view, internally-focused,
department-centric views should be discarded in favor of reorienting processes toward
information-sharing across marketing, sales, and service. [8] For example, sales representatives
need to know about current service issues and relevant marketing promotions before attempting
to cross-sell to a specific customer. Marketing managers should be able to leverage customer
information from sales and service to better target campaigns and offers. And support agents
require quick and complete access to a customer’s sales and service history.

Adoption Issues
Historically, the landscape is littered with instances of low adoption rates. In 2003, a
Gartner report estimated that more than $1 billion had been spent on software that wasn’t being used. A
contemporaneous AMR Research study found that of 80 large customers surveyed, 47% had difficulty
with end-user adoption, leading to abandoned projects or unused software modules.
More recent research indicates that the problem, while perhaps less severe, is a long way from being
solved. According to a CSO Insights less than 40 percent of 1,275 participating companies had end-
user adoption rates above 90 percent.
In a 2007 survey from the U.K., four-fifths of senior executives reported that their biggest challenge is
getting their staff to use the customer relationship management systems they’d installed. Further, 43
percent of respondents said they use less than half the functionality of their existing system; 72 percent
indicated they’d trade functionality for ease of use; 51 percent cited data synchronization as a major
issue; and 67 percent said that finding time to evaluate systems was a major problem. With
expenditures expected to exceed $11 billion in 2010, enterprises need to address and overcome
persistent adoption challenges. Specialists offer these recommendations for boosting adoptions rates
and coaxing users to blend these tools into their daily work flow:
• Choose a system that’s easy to use: All customer relationship management solutions are not
created equal. Some vendors offer more user-friendly applications than others, and simplicity
should be as important a decision factor as functionality.
• Choose the right capabilities: Employees need to know that time invested in learning and usage
will yield personal advantages. If not, they will work around or ignore the system.
• Provide training: Changing the way people work is no small task, and help is usually a
requirement. Even with today’s more usable customer relationship management systems, many
staffers still need assistance with learning and adoption.
Provide consistent support. Prompt, expert, always-accessible technical support goes a long way to
facilitate use and confidence with a new system.

Privacy and data security system

One of the primary functions of CRM software is to collect information about
customers. When gathering data as part of a CRM solution, a company must consider the desire for
customer privacy and data security, as well as the legislative and cultural norms. Some customers
prefer assurances that their data will not be shared with third parties without their prior consent and that
safeguards are in place to prevent illegal access by third parties.
Market structures
The following table lists the top CRM software vendors in 2006-2008 (figures in millions of US
dollars) published in Gartner studies.

Vendor 2008 Revenue 2008 Share 2007 Revenue 2007 Share 2006 Revenue 2006 Share
(%) (%) (%)
Oracle 1,475 16.1 1,319.8 16.3 1,016.8 15.5
SAP 2,055 22.5 2,050.8 25.3 1,681.7 26.6
Salesforce.com 965 10.6 676.5 8.3 451.7 6.9
Amdocs 451 4.9 421.0 5.2 365.9 5.6
Microsoft 581 6.4 332.1 4.1 176.1 2.7
Others 3,620 39.6 3,289.1 40.6 2,881.6 43.7
Total 9,147 100 8,089.3 100 6,573.8 100

The following table lists of the top software vendors for CRM projects completed in 2006 using
external consultants and system integrators, according to a 2007 Gartner study.

Case Study

Levi Strauss & Co.

The marketer has to learn about the needs and changing of the consumer behavior and practice the
Marketing Concept. Levi Strauss & Co. was selling jeans to a mass market and did not bother about
segmenting the market till their sales went down.
The study into consumer behavior showed their greatest market of the baby boomers had outgrown and
their Needs had changed. They therefore came out with Khaki or Dockers to different segments and
comfortable action stocks for the consumers in the 50 age group. Thus by separating the market and
targeting various groups and fulfilling their needs, they not only made up for the lost sales but
Far exceeded the previous sales. They also targeted the women consumers for jeans and both men and
women started wearing jeans in greater numbers. The offering given by the company must be enlarged
to suit various segments.

Maruti Udyog

For example Maruti Udyog Ltd has come out with many models. Maruti 800,
Maruti Van, Zen, Alto, wagon R, Versa Gypsy, Esteem, Boleno and other models.
For successful marketing one should:
1. Find consumer needs of various segments.
2. Position Products (new & existing) to these segments.
3. Develop strategies for these segments. Practice greater selectivity in
Advertising and personal selling and creating more selective media and
distribution outlets.
Consumer perceptions on the incorporation of established brands: the acquisition of Body Shop
by L’Oreal
This thesis aims at investigating consumers’ perceptions on the incorporation of an established brand
and how the general attitude and buying behavior is altered in the course of an acquisition. The
combination of two or more brands in a newly formed conglomerate implies a combination of values,
principles and associations that might affect a company’s appeal. Therefore, underlying reasons for
M&As will be elaborated upon as well as branding concepts based on brand image, loyalty and
reputation in order to bridge the two theoretical areas with a case study. The acquisition of Body Shop
International by L’Oreal represents the practical case, which will be analyzed in reference to
consumers’ reactions towards it. Quantitative consumer questionnaires will be conducted in order to
collect representative data on consumers’ perceptions and associations of the brand Body Shop.
Moreover, an expert interview with a Body Shop representative will be executed in order to add the
company’s perspective. By analyzing the results of the questionnaire, the thesis reveals an observable
trend towards a correlation of the awareness of the acquisition and a negative shift in customer
perception. The buying behavior is however not found to be influenced by the combination of the two
firms. In conclusion, it can be stated that the need for pre-acquisition analysis regarding strategic fit and
compatibility of values and associations is assured. The study clearly identifies that brand dilution is a
possible threat for established brands and implies the risk of lost credibility and loyalty.

The Role of Cultural Differences in the Product and Promotion Adaptation Strategy: A L'Oreal
Paris Case Study
Nowadays, firms are becoming more and more global. However, are consumers becoming global too?
Therefore, the challenges for the firms consists in determining if they should adapt their products or if
they should consider the consumers as being global, and keep their product standardized.
The purpose of this paper is to investigate adaptation strategy in South Korea, Japan and People’s
Republic of China (PRC) for make-up products and its promotion considering the influence of culture
on the consumer behavior. This is studied referring to the European market. L’Oreal Paris is used as an
example to illustrate the study.
This study is a case study about L’Oreal Paris. To conduct it, we chose to use qualitative interviews and
document analysis. Different kinds of interviews have been done in order to know more about the
company adaptation strategy, the culture and the consumer behavior in Asia. Written sources as
external documents from L’Oreal Paris, websites, press articles, scientific articles and literature have
been used to complete the primary data.
Culture is a system of meanings shared by members of a group. It is an important part of marketing
because it influences the consumers’ wants and needs and because it impacts on the interpretations of
products’ communication. This demonstrates that the culture impacts consumer behavior. The study of
the consumer behavior conducts companies to adapt their products features, their packaging, their
symbolic attributes, their service attributes and their promotion.
The empirical data comes from various sources. We interviewed three managers from L’Oreal Paris and
as well girls from the following nationalities: three Japanese girls, one Chinese girl and two Korean
girls. We also interviewed a specialist of cosmetics. All these interviews were conducted in order to
answer our objectives. The interviews with the Asian girls and with the specialist of cosmetics were
conducted in order to collect data on the culture and on the consumer behavior. The interviews with the
managers of L’Oreal Paris were conducted in order to collect data on their adaptation and
standardization strategies on the studied markets.
Cultural aspects impact directly or indirectly on the consumer behavior. The culture diversity creates
the consumer behavior diversity as it can be noticed in South Korea, Japan and PRC where the culture
and the behaviours are very different than in Europe.
L’Oreal Paris is trying to know more about these consumer behavior differences in order to answer the
consumers’ demands and to adapt its products and promotion strategy.
L’Oreal Paris is adapting some elements of its product range and its promotion. The three countries
studied are very different culturally speaking. However, the adaptations on products and promotion
made by L’Oreal Paris do not take fully into account these cultural and consumer behavior differences.
Moreover, many promotion and products aspects are standardized. Thus, the L’Oreal Paris adaptation
strategy in the Asian zone is a mix between standardization and adaptation. In its adaptation strategy,
the firm considers some elements of the consumer behavior therefore of the culture. To conclude, the
cultural differences may influence the make-up products and promotion adaptation strategy.

Practice what you preach!? : A study of the gap between attitude and behavior towards organic
milk
The trend of environmentally friendly consumption permeates our whole society and the general
attitude towards the consumption of it is strongly positive. However, the existence of an attitude-
behavior gap became clear to us since the actual green consumption does not reflect the positive
attitude. In this thesis focus is on one specific product - organic milk. Therefore, the purpose of this
thesis is to explain the dissonance between attitude and behavior towards organic milk. In order to
reach our purpose we chose to perform a pilot study targeting students at the University of Linkoping.
Both qualitative and quantitative methods have been used in the collection of data. It has been done
using a survey and interviews. We were able to establish the existence of an attitude-behavior gap
towards organic milk amongst students at the university, and that this gap in fact arises before an
intention to buy organic milk is even formed. Since a behavioral intention is not formed, an actual
corresponding behavior will not occur. The attitude-behavior gap is explained by the fact that other
factors than attitude influence the formation of the intention. In this case the factors strongly
counteracting the attitude are consumer habits, social influence, to what extent the consumer feels an
ethical obligation to buy organically and whether the consumer identifies herself with the issue.
Together, these factors are so strong that they succeed in neutralizing the positive attitude.