Buyer behavior

The decision-making processes of buyers in purchasing and using goods and

services. Buyers may be either ultimate consumers or agents or dealers who
purchase goods for resale to ultimate consumers

ORGANIZATIONAL BUYING vs. CONSUMER BUYING

Organizational consumers purchase for:

• further production,
• usage in operating the organization, and/or
• resale to other consumers

Final (or ultimate) consumers purchase for:

• personal,
• family, or
• household use

buyer behavior - stimulus-response model

Introduction

A well-developed and tested model of buyer behavior is known as the stimulus-response model,
which is summarized in the diagram below:
In the above model, marketing and other stimuli enter the customers “black box” and produce
certain responses.

Marketing management must try to work out what goes on the in the mind of the customer –
the “black box”.

The Buyer’s characteristics influence how he or she perceives the stimuli; the decision-making
process determines what buying behavior is undertaken.

Characteristics that affect customer behavior

The first stage of understanding buyer behavior is to focus on the factors that determine he
“buyer characteristics” in the “black box”. These can be summarized as follows:
Each of these factors is discussed in more detail in our other revision notes on buyer behaviour.

Market Segment
It is a group of people or organizations sharing one or more characteristics that cause
them to have similar product and/or service needs. A true market segment meets all of the
following criteria: it is distinct from other segments (different segments have different
needs), it is homogeneous within the segment (exhibits common needs); it responds
similarly to a market stimulus, and it can be reached by a market intervention. The term is
also used when consumers with identical product and/or service needs are divided up into
groups so they can be charged different amounts. These can broadly be viewed as
'positive' and 'negative' applications of the same idea, splitting up the market into smaller
groups.

"Positive" market segmentation

Market segmenting is dividing the market into groups of individual markets with similar
wants or needs that a company divides the market into distinct groups who have
distinct needs, wants, behavior or who might want different products & services.
Broadly, markets can be divided according to a number of general criteria, such as
by industry or public versus private although industrial market segmentation is
quite different from consumer market segmentation, both have similar objectives.
 All of these methods of segmentation are merely proxies for true segments, which
don't always fit into convenient demographic boundaries.

Consumer-based market segmentation can be performed on a product specific basis, to

provide a close match between specific products and individuals. However, a number of
generic market segment systems also exist

The process of segmentation is distinct from targeting (choosing which segments to

address) and positioning (designing an appropriate marketing mix for each segment). The
overall intent is to identify groups of similar customers and potential customers; to
prioritize the groups to address; to understand their behavior; and to respond with
appropriate marketing strategies that satisfy the different preferences of each
chosen segment. Revenues are thus improved.

Improved segmentation can lead to significantly improved marketing effectiveness.

Distinct segments can have different industry structures and thus have higher or lower
attractiveness . With the right segmentation, the right lists can be purchased,
advertising results can be improved and customer satisfaction can be increased
leading to better reputation.

Positioning

Once a market segment has been identified, and targeted (in which the viability of
servicing the market intended), the segment is then subject to positioning. Positioning
involves ascertaining how a product or a company is perceived in the minds of
consumers. This part of the segmentation process consists of drawing up a
perceptual map, which highlights rival goods within one's industry according to
perceived quality and price. After the perceptual map has been devised, a firm
would consider the marketing communications mix best suited to the product in
question.

Top-Down and Bottom-Up

In top-down approach: You start with the total population and divide it into segments. in
bottom-up approach. you start with a single customer and build on that profile. This
typically requires the use of customer relationship management software or a database of
some kind. Profiles of existing customers are created and analyzed. Various
demographic, behavioral, and psychographic patterns are built up using techniques such
as cluster analysis. This process is sometimes called database marketing or micro-
marketing. Its use is most appropriate in highly fragmented markets.

Creating a market segment will allow you to set yourself apart from other competitors.

Using Segmentation in Customer Retention

Segmentation is commonly used by organizations to improve their customer retention
programs and help ensure that they are:

• Focused on retaining their most profitable customers

• Employing those tactics most likely to retain these customers

The basic approach to retention-based segmentation is that a company tags each of its
active customers with 3 values:

Tag #1: Is this customer at high risk of canceling the company's service? (Or
becoming a non-user)
One of the most common indicators of high-risk customers is a drop off in usage of the
company's service. For example, in the credit card industry this could be signaled through
a customer's decline in spending on his card.

Tag #2: Is this customer worth retaining?

This determination boils down to whether the post-retention profit generated from the
customer is predicted to be greater than the cost incurred to retain the customer.[1]

Tag #3: What retention tactics should be used to retain this customer?
For customers who are deemed “save-worthy”, it’s essential for the company to know
which save tactics are most likely to be successful. Tactics commonly used range from
providing “special” customer discounts to sending customers communications that
reinforce the value proposition of the given service.

Price Discrimination
Where a monopoly exists, the price of a product is likely to be higher than in a
competitive market and the quantity sold less, generating monopoly profits for the
seller. These profits can be increased further if the market can be segmented with
different prices charged to different segments (referred to as price discrimination),
charging higher prices to those segments willing and able to pay more and charging
less to those whose demand is price elastic. The price discriminator might need to
create rate fences that will prevent members of a higher price segment from
purchasing at the prices available to members of a lower price segment. This
behavior is rational on the part of the monopolist, but is often seen by competition
authorities as an abuse of a monopoly position, whether or not the monopoly itself
is sanctioned. Examples of this exist in the transport industry (a plane or train
journey to a particular destination at a particular time is a practical monopoly)
where Business Class customers who can afford to pay may be charged prices
many times higher than Economy Class customers for essentially the same service.
Market segment analysis is one of the fundamental tools for a sales
and marketing professional. Very few products can be all things to all people;
hence, it is important to accurately analyze a market, and then choose the
appropriate segment to target. A market segment analysis includes demographic
and psychographic information as well as estimates of consumer purchasing
power…

Market Metrics---1. Determine the appropriate metric to use to segment the

market. Some of the most commonly used metrics include age, gender or income
bracket. The specific metric will depend on the product. For example, if you are
introducing a line of clothing, you may want to segment the market according to
income since it will help determine if you should introduce luxury, everyday use
or affordable clothing.

2. Carry out a consumer behavior survey to determine their purchasing

habits. You could conduct the survey yourself, or hire a professional
consultant to do it. A good survey will identify how frequently customers
purchase a given item, how much they spend on the item per year, and
what factors cause them to purchase the item.

3. Supplement the consumer survey with your own research. Nielsen is a

marketing and advertising research firm that provides demographic information
on consumers.

4. Download the data from the consumer behavior survey into Excel, and
use the "Sort" function (under the "Data" tab in the tool bar) to organize
the data according to the specific parameters you outline.

5. Run a series of regressions in Excel using the specific parameters as

independent variables and the predicted amount spent on the product as the
dependent variable…

6. Select which market segment to target based on the regression data. If

the variable for income has a large, positive coefficient, it probably makes
sense to zero in on consumers in the high-income market segment…

Market estimation-market potential

Estimated maximum total sales revenue of all the suppliers of a product in
market during a certain period..