Principles of Consumer Behaviour
Chapter 1 – Technology-Driven Consumer Behaviour
Marketing is the activity, set of institutions and processes for creating, communicating, delivering,
and exchanging offerings that have value for customers, clients, partners, and society. Consumer
behaviour is the study of consumers’ actions during searching for, purchasing, using, evaluating, and
disposing of products and services that they expect will satisfy their needs. It explains how individuals
make decisions to spend their available resources on goods that marketers offer for sale. The core of
marketing is identifying unfilled needs and delivering products and services that satisfy these needs.
The marketing concept
There are different concepts or orientations that an organisation can occupy:
Marketing concept – The essence of marketing consists of satisfying consumers’ needs, creating
value and retaining customers
Production concept – Consumers are mostly interested in product availability at low prices; its
implicit marketing objectives are cheap, efficient production and intensive distribution
Product concept – Consumers will buy the product that offers them the highest quality, the best
performance, and the most features
o This concept/orientation can lead to marketing myopia: focus on the product rather than
on the needs it presumes to satisfy. ‘Looking through the mirror rather than the window’
Selling concept – Marketers’ primary focus is selling products that they have decided to produce,
assuming that customers are aggressively persuaded to buy it
Consumer research & Marketing Segmentation, Targeting, and Positioning
Consumer research refers to the process and tools used to study consumer behaviour, and is a form
of market research, a process that links the consumer, customer, and public to the marketer through
information in order to identify marketing opportunities and problems, evaluate marketing actions
and judge the performance of marketing strategies.
Marketing segmentation, targeting, and positioning are the foundation of turning consumers into
customers. Market segmentation is the process of dividing a market into subsets of consumers with
common needs or characteristics. Targeting means selecting the segments that the company views
as prospective customers and pursuing them. Positioning is the process by which a company creates
a distinct image and identity for its products, services, and brands in consumers’ minds.
The Marketing Mix
The marketing mix (four p’s) consists of four elements:
1. Product or service – The features, packaging etc. offered along with benefits such as return policy
2. Price – The list price, including discounts, allowances and payment methods
3. Place – The distribution of the product or service through stores and other outlets.
4. Promotion – Advertising, sales promotion etc. to build awareness of and demand for the product
Socially Responsible Marketing
,Because all companies prosper when society prospers, marketers would be better off if they
integrated social responsibility into their marketing strategies. The societal marketing concept
requires marketers to fulfil the needs of the target audience in ways that improve, preserve, and
enhance society’s well-being while simultaneously meeting their business objectives. It maintains
that companies would be better off in a stronger, healthier society and that marketers that
incorporate ethical behaviour and social respo9bsibility attract and maintain loyal consumer support
over the long term.
Technology Enriches the Exchange between Consumers and Marketers
Online technologies create “value exchange”. Marketers provide value to consumers in the form of
information that turns shoppers into sophisticated customers, including opportunities to customise
products easily, entertainment content, and more. It also enables marketers to refine their strategies
because the can readily customise their offerings and promotional messages offer more effective
pricing and shorter distribution channels.
Behavioural Information and Targeting & Interactive and Novel Communication Channels
Because of cookies, the Internet enables marketers to gather truly behavioural data about
consumers, because they can observe shopping behaviour.
Traditional advertising is a one-way process in which the marketer pays large sums of money to reach
large numbers of potential buyers via mass media, and can assess the means only by looking at sales
and post-marketing research. In contrast, electronic communications enable a two-way interactive
exchange in which consumers instantly react to marketers’ messages, by e.g. clicking on links. Even
further, promotional messages are sometimes designed largely by the customers themselves. Cross-
screen marketing consists of tracking and targeting users across their technological devices. This
enables advertisers to “push” ads to one based on his interests expressed while surfing the internet.
Better Prices and Distribution
In trying to find the best deals, more shoppers are now going online to research groceries, personal
grooming items, and household maintenance products before buying the products. By advanced
technology, marketers are now able to scan and react to that.
Customer Value, Satisfaction, and Retention
Customer value is the ratio between customers’ perceived benefits and the resources they use to
obtain those benefits. Customer satisfaction refers to customers’ perceptions of the performance of
the product or service in relation to their expectations. Customer retention involves turning
individual consumer transactions into long-term customer relationships by persuading them to stay.
It is more expensive to win new customers than retaining existing customers, because loyal
customers are less price-sensitive, buy more products, spread positive word-of-mouth, etc.
Technology and Customer Relationships
It’s the marketer’s objective to feature lifestyles that its customers care about, engage them with the
brand, and build brand awareness and loyalty, for which technology can also be used. Social media
include means of interaction among people in which they create, share and exchange information
,and ideas in virtual communities and networks. Researchers have identified two interrelated forms of
customer engagement with marketers. Emotional bonds represent a customer’s high level of
personal commitment/attachment to the company. Transactional bonds are the mechanics/
structures that facilitate exchanges between consumers and sellers. On the basis of these two
concept, four types of customers are separated:
Transaction-based and Emotional Bond Based Customer relationships
High bonds
Fans: “I always buy it there” Loyal customers: check first elsewhere
High purchase levels
Delighted customers: Don’t buy loads Transactional customers: Price-sensitive
The following determinants of customer satisfaction were identified:
Adaptation Network Loyalty
Interactivity Assortment Trust
Nurturing Transaction ease
Commitment Engagement
Inertia – Changing to a new merchant would be not worth the bother, costs of changing are high
Customer loyalty and satisfaction & Customer Loyalty and Profitability
There are five types of customers on the basis of loyalty and satisfaction:
1. The Loyalists – Completely satisfied customers who keep purchasing
2. The Defectors feel merely satisfied with the company and likely switch between companies
3. The Terrorists – These had negative experiences with the company -> negative word-of mouth
4. The Hostages – Unhappy customers who stay with the company because they are a monopoly
5. The Mercenaries are very satisfied, but have no real loyalty to the company
There are four types or tiers of customers on the basis of loyalty and profitability:
1. The Platinum Tier – Heavy, not price-sensitive consumers and willing to try new offerings
2. The Gold Tier – Heavy, but price-sensitive consumers, and likely to buy from several providers
3. The Iron Tier – Those whose spending volume and profitability do not merit special treatment
4. The Lead Tier – Those who cost the company money; they claim more attention than merited
Measures of Customer Retention & Internal marketing
Companies must develop measures to assess their customer retention strategies :
1. Customer Valuation – Value and classify customers based on their financial and strategic worth
2. Retention Rates – The percentage of customers that are still customers at the end of the year
3. Analysing Defections – Look for the root causes, and not just the mere symptoms
Internal marketing consists of marketing the organisation to its personnel. Experts agree that
employees will ‘go the extra mile’ to try and retain customers only if they are treated like valued
“internal customers” by their employers.
Consumer Behaviour is Interdisciplinary
,Consumer Behaviour stems from four
disciplines: psychology, sociology,
anthropology (comparing human societies’
culture and development) and
communication. The process of consumer
decision-making (see image next page):
Input stage – Consumer decision-making,
incusing the firm’s marketing efforts and
socio-cultural influences
Process stage – How do consumers make
decisions? (psychological factors →
learning)
Output stage consist of two activities: purchase behaviour and post-purchase evaluation
Chapter 2 – Segmentation, targeting, and positioning
Market segmentation is the process if dividing a market into subsets of consumers with common
needs or characteristics. Targeting consists of selecting the segments that the company views as
prospective customers and pursuing them. Positioning is the process by which a company creates a
distinct image and identity for its products, services, and brands in customers’ minds.
Marketing segmentation
To be an effective target group, a market segment needs to be identifiable, sizeable, stable and
growing, reachable, and congruent with the marketer’s objectives and resources.
Identifiable – Separation on the basis of things like demographics, lifestyle or education
Sizeable – It must consist of enough customers to make it profitable
Stable and growing – Marketers prefer stable segments in terms of lifestyle and consumption
patterns
Reachable – Marketers must be able to communicate with its consumers effectively and
economically
Congruency between objectives and resources – Not every market segment is interesting for the
company
Bases for Segmentation
A segmentation strategy begins by dividing the market for a product into groups that are relatively
homogeneous and share characteristics different from other groups, which generally can be classified
into behavioural data and cognitive factors. Behavioural data is evidence-based; it can be determined
from direct questioning, categorised using objective and measurable criteria:
Consumer intrinsic factors, such as a person’s age, gender, marital state, income, etc.
Consumption-based factors: quantity of products purchased, frequency of buying a given product
, Cognitive factors are abstracts that “reside” in the consumer’s mind, and can be determined only
through psychological ant attitudinal questioning:
Consumer-intrinsic factors, e.g. personality traits, cultural values, attitudes towards politics, etc.
Consumption-specific attitudes and preferences, such as benefits sought in products, attitudes
towards shopping, etc.
Whereas demographics determine consumers’ needs for products (men and women buy different
products) and the ability to buy them, psychographics explain buyers’ purchase decisions.
Demographics
Demographic segmentation divides consumers according to age, gender, as said. All segmentation
plans include demographics for the following reasons:
1. The easiest and most logical way to classify people and can be measured precisely
2. They offer the most cost-effective way to locate and reach specific segments’
3. Marketers can identify new segments created by shifts in populations’ age, income and location
4. They determine many consumption behaviours, attitudes and media exposure patterns
Family and households, and social class regarding segmentation
The family life cycle is a classification of the phases that most families go through, ranging from a
marriage to the death of a relative. Social class is a hierarchy in which individuals in the same class
generally have the same degree of status.
Geodemographics
Geodemographics is a hybrid segmentation scheme based on the premise that people who live close
to another are likely to have similar financial means, tastes, preferences, lifestyles, and consumption
habits. The primary application of geodemographics is PRIZM, which is a household segmentation
model that groups consumers into 66 PRIZM segments based on socioeconomic ranking, consumer
behaviour, and media exposure patterns.
Green consumers
Green customers are attractive prospects for many products and marketers have explored targeting
them. One study identified three types of green consumers:
1. Environmental activists – People who adopt lifestyles focused on health and sustainability
2. Organic eaters – Concerned about sustaining their health, not so much the planet
3. Economisers – Experimenting with buying eco-friendly products in order to save money
Another study found four groups of green consumers:
1. True Greens – People who have adopted environmentally friendly behaviours
2. Donor Greens – People feeling guilty about their lack of environmentally sound buying behaviour
3. Learning Greens – People that are learning about environmental issues, but not actively engaged
4. Non-greens – People who do not care about wildlife or environmental issues
