KARNATAKA STATE OPEN UNIVERSITY

Mukthagangothri, Mysore-570006

DEPARTMENT OF STUDIES AND RESEARCH IN MANAGEMENT

M.B.A III SEMESTER

ELECTIVE : MARKETING

COURSE - 18B

CONSUMER BEHAVIOUR AND MARKETING RESEARCH

BLOCK

1
INTRODUCTION TO CONSUMER BEHAVIOUR

Unit-1
Introduction to Consumer Behaviour 01-21
Unit -2
Individual Determinants of Consumer Behaviour 22-38
Unit -3
Environmental Influences on Consumer Behaviour 39-60
Unit -4
Consumer Decision Making Process 61-76

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Course Design and Editorial Committee

Prof. D. Shivalingaiah Prof. T.D.Devegowda

Vice-Chancellor & Chairperson Dean (Academic)(I/C)& Convenor
Karanataka State Open University Karnataka State Open University
Muktagangotri, Mysore – 570 006 Muktagangotri, Mysore – 570 006

Editor and Course Co-Ordinator

Dr. C. Mahadevamurthy Dr. H. Rajeshwari

Associate Professor and Chairman Assistant Professor
Dos & Research in Management,
DOS in Management
KSOU, Mysuru
Karnataka State Open University,
Mukthagangothri, Mysore – 570 006

Course Writers

Dr. Mustiary Begum Block - I Units 1-4

Professor,
Dept. of Business Administration
Mangalore University,
Mangalagangotri - 574 199

Publisher

Registrar

Karnataka State Open University, Mukthagangothri, Mysore - 6

Developed by Academic Section, KSOU, Mysore- 6, 2016

All rights reserved. No part of this work may be reproduced in any form, by mimeograph or any
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Printed and Published on behalf of Karnataka State Open University, Muktagangotri, Mysore -
6

2
BLOCK-1 : INTRODUCTION TO CONSUMER BEHAVIOUR

Consumer behaviour reflects totality of consumer’s decisions with respect to the

acquisition, consumption and disposition of goods, services time and ideas by human decisions
making over time.

The study of consumer behaviour helps the marketer to formulate marketing strategies.
New products to be launched, price to be fixed, promotional methods to be employed, design
of package, optimal way of distribution and so on. It is through the study of consumer behaviour
only, the marketers could know the innovators (who prefer to buy new products) always
search internet to know about new products. Hence few companies including Google launched
particular brands of mobile exclusively through on line selling.

In the first module, let us try to understand who is consumer, why he behaves as he
behaves and some other fundamental issues in consumer behaviour.

The first module consists of four units. They are

UNIT – 1: INTRODUCTION TO CONSUMER BEHAVIOUR

UNIT – 2 INDIVIDUAL DETERMINANTS OF CONSUMER BEHAVIOUR

UNIT – 3 ENVIRONMENTAL INFLUENCES ON CONSUMER BEHAVIOUR

UNIT – 4 CONSUMER DECISION MAKING PROCESS

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4
UNIT – 1: INT RODUCTI O N T O CO NS UM ER
BEHAVIOUR

Structure

1.0 Objectives

1.1 Introduction

1.2 Definitions

1.3 Significance of consumer behaviour

1.4 Nature of consumer behaviour

1.5 Application of consumer behaviour in marketing

1.6 Notes

1.7 Summary

1.8 Keywords

1.9 Self Assessment Questions

1.10 References

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1.0 OBJECTIVES

After studying this unit you should be able to:

· Explain consumer behaviour;

· Appreciate the significance and nature of consumer behaviour;

· Mention the terminologies in consumer behaviour;

· Analyze the application of consumer behaviour in marketing and

· Identify the differences between consumer and customer.

1.1 INTRODUCTION TO CONSUMER BEHAVIOUR

Consumer behaviour 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. It blends
elements from psychology, sociology, social anthropology, marketing and economics. It
attempts to understand the decision-making processes of buyers, both individually and in
groups such as how emotions affect buying behaviour. It studies characteristics of individual
consumers such as demographics and behavioural variables in an attempt to understand
people’s wants. It also tries to assess influences on the consumer from groups such as family,
friends, sports, reference groups, and society in general.

Before understanding consumer behaviour let us first go through few more terminologies:

Any individual who purchases goods and services from the market for his/her end-use is
called a consumer.

In simpler words a consumer is one who consumes goods and services available in the market.

Example - Tom might purchase a tricycle for his son or Mike might buy a shirt for himself. In
the above examples, both Tom and Mike are consumers.

According to the consumer protection act, 1986, “Consumer means any person who buys
goods or hires any services for a consideration which has been paid, or promised , or partly
paid and partly promised, or under any system of deffered payment, and includes any user o
f such goods other than the person who buys such goods for consideration”.

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The term customer is typically used to refer to someone who regularly purchases from a
particular store or company.

A customer is the recipient of a good or a service, or a product, or an idea, obtained from a

seller, vendor or supplier via a financial transaction or exchange for money or some other
valuable considerastion. Today customers are generally categorized into two types:

· An entrepreneur or trader who is a dealer that purchases goods foe re-sale.

· An end user or ultimate customer who does not re-sell the things bought but is the
actual consumer.

Every customer shows inclination towards particular products and services which is referred
as cusotmer interest. Consumer interest is nothing but willingness of consumers to purchase
products and services as per their taste, need and of course pocket.

Consumer Behaviour is a branch which deals with the various stages a consumer goes through
before purchasing products or services for his end use. Consumer is the central point and all
the marketing activities revolve around him.

Why do you think an individual buys a product ?

• Need

• Social Status

• Gifting Purpose

Why do you think an individual does not buy a product ?

• No requirement

• Income/Budget/Financial constraints

• Taste

When do you think consumers purchase products ?

• Festive season

• Birthday

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 • Anniversary

• Marriage or other special occasions

There are infact several factors which influence buying decision of a consumer ranging from
psychological, social, economic and so on.

The study of consumer behaviour explains as to:

• Why and why not a consumer buys a product?
• When a consumer buys a product?
• How a consumer buys a product?
In a layman’s language consumer behaviour deals with the buying behaviour of individuals.
The main catalyst which triggers the buying decision of an individual is need for a particular
product/service. Consumers purchase products and services as and when need arises.
According to Belch and Belch, whenever need arises; a consumer searches for several
information which would help him in his purchase.

Following are the sources of information:

• Personal Sources
• Commercial Sources
• Public Sources
• Personal Experience
Consumer behaviour study is based on consumer buying behaviour, with the customer playing
the three distinct roles of user, payer and buyer. Research has shown that consumer behaviour
is difficult to predict, even for experts in the field. Relationship marketing is an influential
asset for customer behaviour 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

Consumer behaviour is the study of how individual customers, groups or organizations

select, buy, use, and dispose ideas, goods, and services to satisfy their needs and wants. It
refers to the actions of the consumers in the marketplace and the underlying motives for those
actions.

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Marketers expect that by understanding what causes the consumers to buy particular goods
and services, they will be able to determine—which products are needed in the marketplace,
which are obsolete, and how best to present the goods to the consumers.

The study of consumer behaviour assumes that the consumers are actors in the
marketplace. The per-spective of role theory assumes that consumers play various roles in
the marketplace. Starting from the information provider, from the user to the payer and to the
disposer, consumers play these roles in the decision process.

The roles also vary in different consumption situations; for example, a mother plays
the role of an influencer in a child’s purchase process, whereas she plays the role of a disposer
for the products consumed by the family.

1.2 DEFINITIONS

The term consumer behaviour is defined as the behaviour that consumers display in
searching for, purchasing, using, evaluating and disposing of products and services that they
expect will satisfy their needs. Conusmer behaviour focuses on how individuals make decisions
to spend their available resources (time, money, effort) on consumption related items.

The term consumer behaviour describes two different kinds of consuming entities: the
personal consumer and the organizational consumers. The personal consumer buys goods
and services for his or her own use, for the use of the household or as a gift for a friend. In
each of these contexts, individuals, who are referred to as end users or ultimate consumers,
buy the products for fine use.

The second kind of consumer the organizational consumer includes profit and non-
profit businesses, government agencies (local, state and national) and institutions (e.g. schools,
hospitals, and prisons), all of which must buy products, equipments and services in order to
run their organization.
Some of the definitions are:
1. According to Engel, Blackwell, and Mansard, “Consumer behaviour refers to the actions
and decision processes of people who purchase goods and services for personal consumption”.

2. According to Louden and Bitta, “Consumer behaviou r is the decision process and physical
activity, which individuals engage in when evaluating, acquiring, using or disposing of goods
and services”.

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3. According to Bearden et al. “The mental and emotional processes and the physical activities
of people who purchase and use goods and services to satisfy particular needs and wants”.

1.3 SIGNIFICANCE OF CONSUMER BEHAVIOUR

Consumer behaviour is a significant theory for marketers who intend to improve their
marketing strategies. For understanding the consumer behaviour marketer try to know how
consumer feels, how they think. Consumer behaviour plays a vital role in the success of a
product. Marketers largely depend upon consumer behaviour. There are several dynamics of
consumer behaviour, some cultural issues, family values, decision making process of consumer
the factors which affected consumer behaviour.

Consumer also have special consideration on cultural and special occasions where
marketers seems to highlight their product in special manner along with they offer free gifts
and limited time scheme so consumer prefer to buy them.

Consumer behaviour can change in different periods of time, for example if they like
to take tea or fresh juices in the evening so marketers feel better to show such type of
advertisement in this specific period. However the opt time for purchase has to be considered.

For example, you may like to have tea or coffee in the early morning. But may not
prefere tp go out and buy tea or coffee powder.

Media has been playing specific role for changing the consumer behaviour but some
time immature marketing for some diet products or some time marketers seems to provide
easy way to obtained credit at flexible terms for consumers without having any precautions.

For understanding the consumer behaviour we need to understand the reason where
consumer prefer to buy comfortably and which factors are attractive for consumer for buying
a product.

Significance of study of consumer behaviour can be explained with reference to the

following points:
1.3.1. Modern Philosophy
It concerns with modern marketing philosophy – identify consumers’ needs and satisfy
them more effectively than competitors. It makes marketing consumer-oriented. It is the key
to succeed.

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1.3.2. Achievement of Goals

The key to a company’s survival, profitability, and growth in a highly competitive

marketing environment is its ability to identify and satisfy unfulfilled consumer needs better
and sooner than the competitors. Thus, consumer behaviour helps in achieving marketing
goals.

1.3.3. Useful for Dealers and Salesmen

The study of consumer behaviour is not useful for the company alone. Knowledge of
consumer behaviour is equally useful for middlemen and salesmen to perform their tasks
effectively in meeting consumers needs and wants successfully. Consumer behaviour, thus,
improves performance of the entire distribution system.

1.3.4. More Relevant Marketing Programme

Marketing programme, consisting of product, price, promotion, and distribution

decisions, can be prepared more objectively. The programme can be more relevant if it is
based on the study of consumer behaviour. Meaningful marketing programme is instrumental
in realizing marketing goals.

1.3.5. Adjusting Marketing Programme over Time

Consumer behaviour studies the consumer response pattern on a continuous basis.

So, a marketer can easily come to know the changes taking place in the market. Based on the
current market trend, the marketer can make necessary changes in marketing programme to
adjust with the market.

1.3.6. Predicting Market Trend

Consumer behaviour can also aid in projecting the future market trends. Marketer
finds enough time to prepare for exploiting the emerging opportunities, and/or facing challenges
and threats.
1.3.7. Consumer Differentiation:
Market exhibits considerable differentiations. Each segment needs and wants different products.
For every segment, a separate marketing programme is needed. Knowledge of consumer

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differentiation is a key to fit marking offers with different groups of buyers. Consumer behaviour
study supplies the details about consumer differentiations.

1.3.8. Creation and Retention of Consumers

Marketers who base their offerings on a recognition of consumer needs find a ready
market for their products. Company finds it easy to sell its products. In the same way, the
company, due to continuous study of consumer behaviour and attempts to meet changing
expectations of the buyers, can retain its consumers for a long period.

1.3.9. Competition

Consumer behaviour study assists in facing competition, too. Based on consumers’

expectations, more competitive advantages can be offered. It is useful in improving competitive
strengths of the company.

1.3.10. Developing New Products

New product is developed in respect of needs and wants of the target market. In
order to develop the best-fit product, a marketer must know adequately about the market.
Thus, the study of consumer behaviour is the base for developing a new product successfully.

1.3.11. Dynamic Nature of Market

Consumer behaviour focuses on dynamic nature of the market. It helps the manager to
be dynamic, alert, and active in satisfying consumers better and sooner than competitors.
Consumer behaviour is indispensable to watch movements of the markets.

1.3.12. Effective Use of Productive Resources

The study of consumer behaviour assists the manager to make the organisational efforts
consumer-oriented. It ensures an exact use of resources for achieving maximum efficiency.
Each unit of resources can contribute maximum to objectives.

It is to be mentioned that the study of consumer behaviour is not only important for the
current sales, but also helps in capturing the future market. Consumer behaviour assumes:
Take care of consumer needs, the consumers, in return, will take care of your needs. Most of

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problems can be reasonably solved by the study of consumer behaviour. Modern marketing
practice is almost impossible without the study of consumer behaviour.

1.4 NATURE OF CONSUMER BEHAVIOUR

The individual, the product category and the present scenario is involved in consumer
behaviour. The field of consumer behaviour is the study of individuals, groups or organizations
and the processes they use to select, secure, use and dispose of products, services, experience
or ideas to satisfy the needs of the consumer and society.

1.4.1 Influenced by various factors

The various factors that influence the consumer behaviour are as follows:

a. Marketing factors such as product design, price, promotion, packaging, positioning and
dis-tribution.

b. Personal factors such as age, gender, education and income level.

c. Psychological factors such as buying motives, perception of the product and attitudes
towards the product.

d. Situational factors such as physical surroundings at the time of purchase, social surroundings
and time factor.

e. Social factors such as social status, reference groups and family.

f. Cultural factors, such as religion, social class—caste and sub-castes.

1.4.2 Undergoes a constant change

Consumer behaviour is not static. It undergoes a change over a period of time depending
on the nature of products. For example, kids prefer colourful and fancy footwear, but as they
grow up as teenagers and young adults, they prefer trendy footwear, and as middle-aged and
senior citizens they prefer more sober footwear. The change in buying behaviour may take
place due to several other factors such as increase in income level, education level and
marketing factors.

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1.4.3 Varies from consumer to consumer

All consumers do not behave in the same manner. Differ-ent consumers behave
differently. The differences in consumer behaviour are due to individual factors such as the
nature of the consumers, lifestyle and culture. For example, some consumers are technoholics.
They go on a shopping and spend beyond their means.

They borrow money from friends, relatives, banks, and at times even adopt unethical
means to spend on shopping of advance technologies. But there are other consumers who,
despite having surplus money, do not go even for the regular purchases and avoid use and
purchase of advance technologies.

1.4.4 Varies from region to region and country to country

The consumer behaviour varies across states, regions and countries. For example, the
behaviour of the urban consumers is different from that of the rural consumers. A good number
of rural consumers are conservative in their buying behaviours.

The rich rural consumers may think twice to spend on luxuries despite hav-ing sufficient
funds, whereas the urban consumers may even take bank loans to buy luxury items such as
cars and household appliances. The consumer behaviour may also varies across the states,
regions and countries. It may differ depending on the upbringing, lifestyles and level of
development.

1.4.5 Information on consumer behaviour is important to the marketers

Marketers need to have a good knowledge of the consumer behaviour. They need to study
the various factors that influence the consumer behaviour of their target customers.

The knowledge of consumer behaviour enables them to take appropriate marketing

decisions in respect of the following factors:

a. Product design/model

b. Pricing of the product

c. Promotion of the product

d. Packaging

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e. Positioning

f. Place of distribution

1.4.6. Leads to purchase decision

A positive consumer behaviour leads to a purchase decision. A consumer may take the decision
of buying a product on the basis of different buying motives. The purchase decision leads to
higher demand, and the sales of the marketers increase. Therefore, marketers need to influence
consumer behaviour to increase their purchases.

1.4.7. Varies from product to product

Consumer behaviour is different for different products. There are some consumers who may
buy more quantity of certain items and very low or no quantity of other items. For example,
teenagers may spend heavily on products such as cell phones and branded wears for snob
appeal, but may not spend on general and academic reading. A middle- aged person may
spend less on clothing, but may invest money in savings, insurance schemes, pension schemes,
and so on.

1.4.8. Improves standard of living

The buying behaviour of the consumers may lead to higher stan-dard of living. The more a
person buys the goods and services, the higher is the standard of living. But if a person spends
less on goods and services, despite having a good income, they deprives themselves of higher
standard of living.

1.4.9. Reflects status

The consumer behaviour is not only influenced by the status of a consumer, but it also reflects
it. The consumers who own luxury cars, watches and other items are considered belonging to
a higher status. The luxury items also give a sense of pride to the owners.

1.5 APPLICATION OF CONSUMER BEHAVIOUR IN MARKETING

Consumer behaviour principles are applied in many areas of marketing as discussed below:

1.5.1 Analyzing market opportunity: Consumer behaviour study helps in identifying the
unfulfilled needs and wants of consumers. This requires examining the trends and

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 conditions operating in the marketplace, consumers’ lifestyles, income levels and
emerging influences. This may reveal unsatisfied needs and wants. the trend towards
increasing number of dual income households and greater emphasis on convenience
and leisure have led to emerging needs for household gadgets such as washing machine,
mixer grinder, vacuum cleaner and childcare centers etc. Mosquito repellents have
been marketed in response to a genuine and unfulfilled consumer need.

1.5.2 Selecting target market: A review of market opportunities often helps in

identifying distinct consumer segments with very distinct and unique wants and need.
Identifying these groups, learning how they behave and how they make purchase
decisions enables the marketer to design and market products or services particularly
suited to their wants and needs. For example, consumer studies revealed that many
existing and potential shampoo users did not want to buy shampoo packs priced at
Rs. 60 or more and would rather prefer a low priced sachet containing enough quantity
for one or two washes. The finding led companies to introduce the shampoo sachet
which became a good seller.

1.5.3 Marketing-mix decisions: Once unsatisfied needs and wants are identified, the
marketer has to determine the right mix of product, price, distribution and promotion.
Here too, consumer behaviour study is very helpful in finding answers to many
perplexing questions.

· Product: The marketer designs the product or services that would satisfy unfulfilled
needs or wants. Further decisions regarding the product concern to size, shape and
features. The marketer has also to decide about packaging important aspects of service,
warranties and accessories etc. Nestle first introduced Maggie noodles in masala and
capsicum flavors. Subsequently, keeping in view the consumer preferences in some
regions, the company introduced garlic, Shabhar and other flavors.

· Price: The second important component of marketing mix is price. Marketers must
decide what price to charge for the product or service. These decisions will influence
the flow of revenue to the company.

o Should the marketer consumer price sensitive and would a lower price stimulate
sales?

o Should there be any price discounts?

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 o Do consumers perceive lower price as being indicative of poor quality?

To answer such questions, the marketer must understand the way the company’s product
is perceived by consumers, the importance of price as a purchase decision variable and
how different price levels would affect sales. It is only through consumer behaviour study
in actual buying situations that the marketer can hope to find answers to these important
issues.

· Distribution: The next decision relates to the distribution channel, that is,

o where and how to offer products and services for sale.

o Should the products be sold through all the retail outlets or only through selected
ones?

o Should the marketer use only the existing outlets, which also sell competing
brands, or

o Should new exclusive outlets selling only the marketer’s brands are created?

o Is the location of retail outlets important from consumers’ point of view?

o Should the company think of direct marketing?

The answers to these questions are furnished by consumer behaviour research.

· Promotion: Promotion is concerned with marketing communications to consumers,

the more important methods are advertising, personal selling, sales promotion, publicity
and direct marketing. The marketer has to decide

o Which method would be most suitable to effectively reach the consumers.

o Should it be advertising alone or should it be combined with sales promotion?

o Where the target consumers are located,

o What media do they have access to and what are their media preferences, etc.

In most cases of industrial products there is very little or no advertising. Brochures

containing technical specifications are often posted to the clients and the salespeople
make follow-up visits. Consumer products get the maximum share of advertising.

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 Pharmaceutical industry exclusively uses personal selling for prescription drugs.
Insurance companies use both advertising and personal selling.

1.5.4 Use in Social and Non-profits Marketing: Consumer behaviour studies are useful
to design marketing strategies by social, governmental and not-for-profit organizations
to make their programmes such as family planning, awareness about AIDS, crime
against women, safe driving, environmental concerns and other more effective.
UNICEF (greeting cards), Red Cross and CRY etc. make use of consumer behaviour
to sell their services and products and also try to motivate people to support these
institutions.

1.6 NOTES

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1.7 SUMMARY

Customers set up a hierarchy of values, wants and needs based on empirical data,
opinions, word-of-mouth references and previous experiences with products and services.
They use that information to make purchasing decisions.

Consumer behaviour is comparatively a new field of study which evolved just after the
Second World War. The seller’s market has disappeared and buyers market has come up.
This led to paradigm shift of the manufacturer’s attention from product to consumer and specially
focused on the consumer behaviour. The heterogeneity among people makes understanding
consumer behaviour a challenging task to marketers. Hence marketers felt the need to obtain
an in-depth knowledge of consumers buying behaviour. Finally this knowledge acted as an
imperative tool in the hands of marketers to forecast the future buying behaviour of customers.

Businesses stay in business by attracting and retaining customers. They do this by

engaging in exchanges of resources including information, money, goods, services, status, and
emotions with consumers, exchanges that both businesses and customers perceive to be
beneficial.

1.8 KEYWORDS

Consumer consumer behaviour customer

Marketing mix decisions analyzing market opportunity selecting target market

Achievement of goals dynamics nature of market developing new product

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1.9 SELF ASSESSMENT QUESTIONS

1) Define consumer behaviour.

2) Differentiate between consumer and customer

3) Explain the significance of consumer behaviour.

4) Briefly explain the nature of consumer behaviour.

5) Discuss in detail the application of consumer behaviour in marketing.

6) Do a critical analysis of the concept of consumer behaviour.

7) Explain the challenges and difficulties in understanding the consumers.

1.10 REFERENCES

1. Assael, H. Consumer Behaviour and marketing Action, USA: Ohio- South Western
College pub., 1995
2. Engle, J F. Consumer behaviour, Chicago: Dryden Press, 1993
3. Howard, John.A. Consumer behaviour in Marketing, New Delhi: Prentice Hall.
1989
4. Mowen, John C. Consumer Behaviour, New York: Mach Millan, 1993.
5. Schiffman, L G and Kanuk, L L. Consumer behaviour, New Delhi: PHI, 1994.
6. Consumer Behaviour, Raju&Xardel, New Delhi: Vikas Publications 2004
7. Kazmi&Batra , Consumer Behaviour, New Delhi: Excel Books, 2009

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UNIT – 2 INDIVIDUAL DETERMINANTS OF CONSUMER BEHAVIOUR

Structure

2.0 Objectives

2.1 Introduction

2.2 Consumer Motivation

2.3 Personality

2.4 Self Concept

2.5 Consumer Perception

2.6 Consumer Learning

2.7 Consumer Attitude

2.8 Notes

2.9 Summary

2.10 Key Words

2.11 Self Assessment Questions

2.12 References

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2.0 OBJECTIVES

After studying this unit you should be able to:

· Assess the individual influences on consumer behaviour;

· Identify the elements of motivation;

· Analyze the personality perspectives;

· Explain the self concept development;

· Describe the elements of perception;

· Discuss about the consumer learning and

· Narrate the models of attitude.

2.1 INTRODUCTION

The impact of external environment on individual determinants demonstrates that

environmental stimuli do not directly influence consumers. Instead, the stimuli are modified by
internal influences such as learning, personally, attitudes, information processing, and motives.

There are five major groups of individual determinants: personality and self concept,
motivation and involvement, information processing, learning and memory, and attitudes.

Personality and self concept provide the consumer with a central theme. That is, they
provide structure for the individual so that a consistent pattern of behaviour can be developed.
Several major personality theories are examined for their usefulness in understanding
consumers. How the self concept develops, its role in influencing purchase decisions and the
practical relevance of the subject to the marketer are reviewed in this unit.

Motives are internal factors that energize behaviour and provide guidance to direct
the activated behaviour. Involvement describes the personal relevance or importance that the
consumers perceives in a given purchase situation. High involvement will lead to a motivated

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state. Various types of involvement and motive situation factors that influence them, and their
influence on the behaviour of consumer are also discussed in this unit.

The term information processing refers to the activities that consumers engage in when acquiring
integrating and evaluating information. These activities involve actively seeking information or
passively receiving it, attending to only certain parts of the information, integrating that which
has been attended to with information from other sources, and evaluating the information for
the purposes of making decisions. Such activities are varied and occur at all stages of the
decision process. They also strongly involve some individual factors, including motivation,
learning and attitudes. Information processing, introduces these issues and also discuss several
marketing strategy areas in which an understanding of the progress can be of considerable
benefit to the marketer.

The following illustration shows the determinants of consumer behaviour.

FIG 2.1 Determents of Buyer Behaviour

What consumers learn, how they learn, and what factors govern the retention of learned
material in memory are all issues of considerable importance for understanding consumers.
Not only do consumers acquire and remember product names and characteristics, but they
also learn standards for judging products, places to shop, and problem solving abilities,
behaviour patterns, and tastes. Such learned material stored in memory significantly influences
how consumers react to each situation that they confront.

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 Attitudes guide our basic orientation toward objects, people, events, and our activities.
As such, attitudes strongly influence how consumers will act and react to products and services,
and how they will respond to communications that marketers develop to convince them to
purchase their products. After a review of the nature and function of attitudes, attention is
turned to how attitudes are formed and how they are related to purchase behaviour.

2.2 CONSUMER MOTIVATION

Motivation is an inner drive that reflects goal-directed arousal. In a consumer behaviour

context, the result is a desire for a product, service, or experience. It is the drive to satisfy
needs and wants, both physiological and psychological, through the purchase and use of
products and services.

2.2.1 Basics of Motivation:

People are motivated by many things, some positive others not. Some motivating
factors can move people only a short time, like hunger which will last only until you are fed.
Others can drive a person onward for years.

Motivation is the driving force within individuals that impels them to action. Motivation
is the activation or energization of goal-oriented behaviour. Motivation may be intrinsic or
extrinsic. The term is generally used for humans but, theoretically, it can also be used to
describe the causes for animal behaviour as well. According to various theories, motivation
may be rooted in the basic need to minimize physical pain and maximize pleasure, or it may
include specific needs such as eating and resting, or a desired object, hobby, goal, state of
being, ideal, or it may be attributed to less-apparent reasons such as altruism, morality, or
avoiding mortality.

Needs:

Needs are the essence of the marketing concept. Marketers do not create needs but can
make consumers aware of needs. A need is something that is necessary for humans to live a
healthy life. Needs are distinguished from wants because a deficiency would cause a clear
negative outcome, such as dysfunction or death. Needs can be objective and physical, such

25
as food and water, or they can be subjective and psychological, such as the need for self-
esteem. On a societal level, needs are sometimes controversial, such as the need for a
nationalized health care system. Understanding needs and wants is an issue in the fields of
politics, social science, and philosophy.

Types of Needs

• Innate Needs: Physiological (or biogenic) needs that are considered primary needs
or motives

• Acquired Needs: Learned in response to our culture or environment. They are

generally psychological and considered secondary needs

Goals:

A goal or objective is a projected state of affairs that a person or a system plans or intends to
achieve—a personal or organizational desired end-point in some sort of assumed development.
It is the sought-after results of motivated behaviour.

Types of goals:

• Generic goals: Are general categories of goals that consumers see as a way to fulfill
their needs

• Product-specific goals: Are specifically branded products or services that consumers

select as their goals.

2.2.2 Rational versus Emotional Motives

• Rationality implies that consumers select goals based on totally objective criteria
such as size, weight, price, or miles per gallon. It is a conscious, logical reason for a
purchase. It is a motive that can be defended by reasoning or logical argument.

• Emotional motives imply the selection of goals according to personal or subjective

criteria. It is a feeling experienced by a customer through association with a product.

2.2.3 The Dynamic Nature of Motivation

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· Needs are never fully satisfied.

· New needs emerge as old needs are satisfied.

· People who achieve their goals set new and higher goals for themselves.

2.2.4 Arousal of Motives:

The arousal of any particular set of needs at a specific moment in time may be caused by
internal stimuli found in the individual’s physiological condition, by emotional or cognitive
processes or by stimuli in outside environment.

• Physiological arousal

• Emotional arousal

• Cognitive arousal

• Environmental arousal

1. Physiological Arousal Bodily needs at any one specific moment in time are based on
the individual physiological condition at the moment. E.g. A drop in blood sugar level
or stomach contractions will trigger awareness of a hunger need. E.g. A decrease in
body temperature will induce shivering, which makes individual aware of the need for
warmth

2. Emotional Arousal Sometime daydreaming results in the arousal (autistic thinking) or

stimulation of latent needs. People who are bored or who are frustrated in trying to
achieve their goals or often engage in daydreaming, in which they imagine themselves
in all sorts of desirable situations. E.g. A young woman who may spend her free time in
internet single chat room.

3. Cognitive arousal Sometime random thoughts can lead to a cognitive awareness of

needs. An advertisement that provides reminders of home might trigger instant yearning
to speak with ones parents.

4. Environment arousal The set of needs an individual experiences at particular time

are often activated by specific cues in the environment. Without these cues the needs
might remain dormant, e.g. The 8’o clock news, the sight or smell of bakery goods,

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 fast food commercials on television, all these may arouse the need for food Ex..New
cell phone model display in the store window.

2.2.5 Frustration:

Failure to achieve a goal often result in feeling of frustration (inability to attain goal-frustration
comes) Limited physical or Financial resources, obstacle in the physical or social environment.
In such frustration people are likely to adopt a defense mechanism to protect their egos from
feelings of inadequacy.
2.3 PERSONALITY
To understand a buyer needs and convert them into customers is the main purpose of
the consumer behaviour study. To understand the buyer habits and his priorities, it is required
to understand and know the personality of the buyer.

Personality signifies the inner psychological characteristics that reflect how a person reacts to
his environment. Personality shows the individual choices for various products and brands. It
helps the marketers in deciding when and how to promote the product. Personality can be
categorized on the basis of individual traits, likes, dislikes etc.

Though personality is static, it can change due to major events such as death, birth or
marriage and can also change gradually with time. By connecting with the personality
characteristics of an individual, a marketer can conveniently formulate marketing strategies.
You must have read various persoanlity theories in your first semester.
2.4 SELF CONCEPT
Self concept is defined as the way, in which we think, our preferences, our beliefs, our
attitudes, our opinions arranged in a systematic manner and also how we should behave and
react in various roles of life. Self concept is a complex subject as we know the understanding
of someone’s psychology, traits, abilities sometimes are really difficult. Consumers buy and
use products and services and patronize retailers whose personalities or images relate in some
way or other to their own self-images.
Traditionally, individuals are considered to be having a single self-image which they
normally exhibit. Such type of consumers are interested in those products and services which
match or satisfy these singleselves. However, as the world became more and more complex,
it has become more appropriate to think of consumers as having multipleselves.

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2.4.1 What is Self-Concept?

Self-concept can be viewed as a person’s perception of himself which includes his physical
being, other characteristics such as strength and good humor in relation to others, and even
extending to include certain possessions and his creataions. Although the self-concept is highly
complex, it is well organized and works in a consistent way. To the outside observer, a person
may appear irrational and inconsistent in his/her behaviour, but the individual taking such
action is behaving in the only way he/she knows, given his/her fame of reference. When this
individual’s point of view is known, it usually becomes clear that she is not acting in an
inconsistent way.
2.4.2 Self-Concept is Organized
We all have various views about ourselves. We all may think we are kind, calm, patient,
selfish, rude and what not. It doesn’t matter what perception you have about yourself, but the
one perception that facilitates all these insights is organized self concept. When a person
believes in something that matches his self concept he sticks to his view and does not agree to
change the same and even if does, it takes a lot of time.
2.4.3 Self Concept is Learned

It is believed that self concept is learned and no person is born with a self concept. It develops
as and when we grow old. Our self concept is built when we meet people socially and interact
with them. We are the ones who shape or alter our self concept and its quite natural that we
may have a self concept different for ourselves as compared to what people think about us.

For example “ If an individual thinks, he is very generous and helpful, it may not necessarily
be the case with others. Others may see him as a selfish person.

2.4.4 Self Concept is Dynamic

Our self concept in life is not constant and it may change with instances that take place in our
lives. When we face different situations and new challenges in life, our insight towards things
may change. We see and behave according to the things and situations.

Thus, it is observed that self concept is a continuous development where we let go things that
don’t match our self concept and hold on those things that we think are helpful in building our
favorable perception.

Self concept is the composite of ideas, feelings, emotions and attitudes that a person has
about their identity and capabilities.

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2.5 CONSUMER PERCEPTION

Our human brain attempts to make sense out of the stimuli to which we are exposed and our
perception is an approximation of reality.
2.5.1 Perception Influencers

The following are the factors/theories, which can influence our perception:

Exposure: Exposure is the extent to which it encounters stimulus. Exposure is not enough to
significantly impact the individual.

For example, in our daily life, we come across a number of hoardings, advertisements,
banners etc. However, we don’t pay much attention to them or tend to seek it out, but, if we
want to purchase something, say, a motorbike, we may deliberately take effort and seek out
such advertisements. Attention is a matter of degree. Our attention may be quite high when
we read the directions mentioned on a road map and quite low when a commercial comes on
the T.V.

Weber’s Law: Weber’s law gives a theory concerning the perceived differences between
similar stimuli of varying intensities. The stronger is the initial stimulus, the greater is the
additional intensity needed for the second stimulus to be perceived as different.

For example, If there is a one and half inch reduction in the size of a five inch candy
bar, it won’t get noticed a bit but if the two inch long chewing gum gets reduced, then it would
be noticed.

Subliminal Stimuli: Subliminal Stimuli represent the words or pictures so as to be unidentifiable

to the viewer’s conscious perception. Images may be flashed before the eye too quickly for
the conscious mind to apprehend.

2.5.2 Elements of Perception

Sensation

Sensation is the immediate and direct response of the sensory organs to stimuli. A stimulus
may be any unit of input to any of these senses.
Examples of stimuli include products, packages, brand names, advertisements and
commercials. Sensory receptors are the human organs that receive sensory inputs. Their

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sensory functions are to see, hear, smell, taste and feel. All of these functions are called into
play, either singly or in combinations, in the evaluation and use of most consumer products.
Attention

Attention always precedes perception. Attention is the central process and perception is not
at all possible without attention. The process of attention serves the various functions in the
organization of our perception and other cognitive functions.

Functions of Attention

The following are some of the key functions relating to Attention, which are listed below “

Alerting Function

Attention here refers to a state of focused awareness with the readiness to respond. Distraction
in such a case occurs with some interference which prevents the individual to continue with
the task.

Selective Function

The most important function of attention is selectivity. The selective function acts as a
filter that allows information in and the unwanted information out. Here, the attention is focused
on stimulus of ongoing interest, others being ignored.

For example, when you are in a tea party organized by your friend, you take a plate of
snacks and cup of tea and stand chatting in your group of friends. While you are chatting, if
you suddenly hear your name from some other group, your attention is diverted and you might
start paying attention towards the group where you heard your name. This example shows
that we can selectively attend to one task at a time and the ongoing task in this case is ignored.

Limited Capacity Channel

It has been observed that we have quite limited capacity to process information that is
available in the outside world. It means, we can process one task at a time. The task that
requires multi-tasking cannot be carried out simultaneously because we have limited capacity
to process the information.

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 For example, it is difficult to study or learn something from your book while you are
listening to music. It is difficult as the task requires a lot of attention, so it is difficult to perform
both simultaneously unless one task is highly practiced and done in routine to carry out these
functions.

Vigilance Function

Maintaining attention on a continuous task for a long time leads to vigilance. It has
been observed that, attending to a task for long, particularly if the task is monotonous leads to
poor performance.

For example “ When you go on writing the same thing for 700 times, you tend to make
mistakes after some time and this is because of central fatigue occurring due to monotonous
task.

Thus, attentional processes serves the tuner function in filtering information selected for further
processing that finally leads to perception.
2.6 CONSUMER LEARNING
According to Kotler’s Definition, learning involves changes in an individual’s behaviour
arising out of the experience. Most of the human behaviour is learned over time, out of the
experience.

Following are the features of consumer learning.

· Consumer learning is a process. A process which continually changes and acquires

new knowledge.

· This knowledge can be obtained from reading, discussing, observing, thinking, etc.

· Newly acquired knowledge or personal experience, both serve as feedback.

2.6.1 Elements of Consumer Learning

Motivation is the driving force of all important things to be learnt. Motives allow individuals
to increase their readiness to respond to learning. It also helps in activating the energy to do
so. Thus the degree of involvement usually determines the motivation to search information
about a product.

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For example, showing advertisements for summer products just before summer season or for
winter clothes before winters.

Motives encourage learning and cues stimulate the direction to these motives.

Cues are not strong as motives, but their influence in which the consumer responds to these
motives.

For example, in a market, the styling, packaging, the store display, prices all serve as cues to
help consumers to decide on a particular product, but this can happen only if the consumer
has the motive to buy. Thus, marketers need to be careful while providing cues, especially to
consumers who have expectations driven by motives.

Response signifies how a consumer reacts to the motives or even cues. The response can be
shown or hidden, but in either of the cases learning takes place. Often marketers may not
succeed in stimulating a purchase but the learning takes place over a period of time and then
they may succeed in forming a particular image of the brand or product in the consumer’s
mind.

Reinforcement is very important as it increases the probability of a particular response in

the future driven by motives and cues.
2.7 CONSUMER ATTITUDE
Consumer attitude may be defined as a feeling of favorableness or unfavorableness that an
individual has towards an object. As we, all know that an individual with a positive attitude is
more likely to buy a product and this results in the possibility of liking or disliking a product.

Consumer attitude basically comprises of beliefs towards, feelings towards and behavioural
intentions towards some objects.
FIGURE 14.3 : COMPONENTS OF SERVICE BLUEPRINT

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 FIG 2.2 CONSUMER ATTITUTDE

Belief plays a vital role for consumers because, it can be either positive or negative towards
an object. For example, some may say tea is good and relieves tension, others may say too
much of tea is not good for health. Human beliefs are not accurate and can change according
to situations.

Consumers have certain specific feelings towards some products or brands. Sometimes
these feelings are based on certain beliefs and sometimes they are not. For example, an
individual feels uneasy when he thinks about cheese burst pizza, because of the tremendous
amount of cheese or fat it has.

Behavioural intentions show the plans of consumers with respect to the products. This is
sometimes a logical result of beliefs or feelings, but not always. For example, an individual
personally mayt not like a restaurant, but may visit it because it is the hangout place for his
friends.

2.7.1 Models of Attitude

The following are the models of attitude.

· Tri-component Model “ According to tri-component model, attitude consists of the

following three components.

· Cognitive Component “ The first component is cognitive component. It consists of

an individual’s knowledge or perception towards few products or services through
personal experience or related information from various sources. This knowledge,
usually results in beliefs, which a consumer has, and specific behaviour.

· Affective Component “ The second part is the affective component. This consists of
a person’s feelings, sentiments, and emotions for a particular brand or product. They
treat them as the primary criteria for the purpose of evaluation. The state of mind also
plays a major role, like the sadness, happiness, anger, or stress, which also affects the
attitude of a consumer.

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 · Conative Component “ The last component is conative component, which consists
of a person’s intention or likelihood towards a particular product. It usually means the
actual behaviour of the person or his intention.

2.8 NOTES

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2.9 SUMMARY

There are several factors contributing to the difficulty in studying consumer behaviour.
In the first place, consumer behaviour is mostly about the psychological processes that underlie
consumer choice. These processes are generally difficult to fathom. Besides the psychological
processes, the individual determinants too impact the behaviour. His/her needs and desires
are innumerable, varying from security needs to aesthetic needs. They are also at different
stages of emergence and actualization at a given point of time. In addition, they occupy different
priorities in the buyer’s scheme of things and the buyer has his/her own ideas and plans about
realizing them. Uncovering this process is a difficult task. No wonder, the buyer is described
as a riddle, an enigma.

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2.10 KEY WORDS

Motivation personality self-concept

Perception Consumer learning consumer attitude

Trait theory tri-component model cues

Response reinforcement attitude change

Maslow’s need hierarchy theory Classical conditioning theory

2.11 SELF ASSESSMENT QUESTIONS

1) Define and explain motivation with diagrammatic representation.

2) What is frustration?

3) Define personality.

4) What is Id, Ego and Superego?

5) What do you mean by self-concept?

6) List out the elements of perception.

7) Briefly explain Maslow’s need hierarchy theory.

8) “Learning leads to change in behaviour” – Explain.

9) What is attitude?

10) Briefly explain the models of attitude.

2.12 REFERENCES

1. Assael, H. Consumer Behaviour and marketing Action, USA: Ohio- South Western
College pub., 1995
2. Engle, J F. Consumer behaviour, Chicago: Dryden Press, 1993
3. Howard, John.A. Consumer behaviour in Marketing, New Delhi: Prentice Hall.
1989

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4. Mowen, John C. Consumer Behaviour, New York: Mach Millan, 1993.
5. Schiffman, L G and Kanuk, L L. Consumer behaviour, New Delhi: PHI, 1994.
6. Consumer Behaviour, Raju&Xardel, New Delhi: Vikas Publications 2004
7. Kazmi&Batra , Consumer Behaviour, New Delhi: Excel Books, 2009

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UNIT -3: ENVIRONMENTAL INFLUENCES ON
CONSUMER BEHAVIOUR

Structure :

3.0 Objectives

3.1 Introduction

3.2 Culture

3.3 Sub-culture

3.4 Social Class

3.5 Group

3.6 Reference group

3.7 Family influences

3.8 Personal Influences

3.9 Diffusion of Innovation

3.10 Notes

3.11 Summary

3.12 Key Words

3.13 Self Assessment Questions

3.14 References

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3.0 OBJECTIVES

After studying this unit you should be able to:

· Assess the environmental influences on consumer behaviour;

· Explain the culture and sub-culture;

· Identify the characteristics of culture;

· Analyze the role of family in changing consumer behaviour;

· Describe the concept of the diffusion of innovation;

· Measure the personal influences on consumer behaviour and

· Discuss about the reference group.

3.1 INTRODUCTION

An individual has his own choice and mindset. Consumer buying behaviour eventually
refers to the buying behaviour of an individual. An individual can get affected by the environment
in which he lives, his culture, his social class, his psychology and his personality. Now, marketers
need to understand this psychology and the mindset of these consumers, also, understand
what all factors influence their behaviour to develop effective marketing strategies. The task
becomes particularly difficult in present times, firstly, today, markets everywhere present a
highly diverse consumer base. Second, today’s consumers are characterised by a greater
amount of complexity. It springs out of the environemnt in which they operate today.

On the one hand, they are knowledgeable and aware. At the same time, they have to
cope with the information overload. They enjoy a multitude of choices. At the same time, the
choices often confuse them. The sales environment around them is also complex, with large
number of competitors in each category and a multitude of ways for connecting with companies,
products and brands.

3.2 CULTURE

It is defined as a complex sum total of knowledge, belief, traditions, customs, art,

moral law or any other habit acquired by people as members of society. Our consumer

40
behaviour, that is the things we buy are influenced by our background or culture. Different
emphasis is given by different cultures for the buying, use, and disposing of products. People
in South India have a certain style of consumption of food, clothing, savings, etc. This differs
from the people in the North of India. Different cultures and habits are predominant in different
parts of the world. Japanese have a different culture from that of USA, England or Arabian
countries. Therefore, in consumer behaviour culture plays a very important part.

Culture is a very important aspect to understand the behaviour of a consumer. It

signifies the set of values of a particular community.

An individual decides to behave in a certain manner because of his culture. He gets all
these values from his parents and family. Every individual has different sets of values as
compared to others, what they see from their childhood when they start practicing those
habits, they become their culture.

Culture does vary from individual to individual, region to region, and country to country,
so the marketer needs to pay a lot of attention in analyzing the culture of various regions and
groups. Throughout the process, the consumer is under influence of his culture as his friends,
family, society, and his prestige influence him.

For a marketer, it is very crucial to take all these things into consideration while analyzing
or observing a consumer’s behaviour as they play a vital role in his behaviour, perception and
expectations.

For example, if we observe the taste and preferences, people in southern India prefers
rice to roti whereas north Indian people prefer roti than rice.

3.2.1 Characteristics of Culture

· Culture is learned

· Culture regulates society – norms, standards of behaviour, rewards and punishments

· Culture makes life more efficient

· Culture is adaptive

· Culture is environmental

Culture also determines what is acceptable with product advertising. Culture determines what
people wear, eat, reside and travel. Cultural values in India are good health, education, respect

41
for age and seniority. But in our culture today, time scarcity is a growing problem, which
implies a change in meals.
3.2.2 Some changes in our culture are:
1. Convenience: As more and more women are joining the work force there is an
increasing demand for products that help lighten and relieve the daily household chores,
and make life more convenient. This is reflected in the soaring sale of washing machines,
micriwaves, pressure cookers, mixer-grinders, food processors, frozen food etc.

2. Education: People in our society today wish to acquire relevant education and skills
that would help improve their career prospects. This is evident from the fact that so
many professional, career oriented educational centers are coming up, and still they
cannot seem to meet the demand. As a specific instance count the number of institutional
offering cources and trsining in computers that has opened in your city.

3. Physical Appearance: Today, physical fitness, good health and smart appearance
are on premium today. Slimming centers and beauty parlors are mushrooming in all
major cities of the country. Cosmetics for both women and men are being sold in
increasing numbers. Even exclusive shops are reatiling designer clothes.

4. Materialism: There is a very definite shift in the people’s cultural value from spiritualism
towards materialism. We are spending more money than ever before on acquiring
products such as air-conditions, cars, CD players etc, which adds to our physical
comfort as well as status.

3.3 SUB-CULTURE
Within a culture, there are many groups or segments of people with distinct customs,
traditions and behaviour. In the Indian culture itself, we have many subcultures, the culture of
the South, the North, East and the West. Hindu culture, Muslim culture, Hindus of the South
differ in culture from the Hindus of the North and so on. Products are designed to suit a target
group of customers which have similar cultural background and are homogeneous in many
respects.
Culture can be divided into subcultures. A subculture is an identifiable distinct, cultural
group, which, while following the dominant cultural values of the overall society also has its
own belief, values and customs that set apart from other members of the same society.

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 Regional, Ethnic and Religious influences on consumer behaviour: The three major
aspects of culture that have important effects on consumer behaviour are regional, ethnic and
religious differences. Firstly, consumption patterns may differ in various regions of India and
the world, and marketing strategy can sometimes be tailored specifically to these regions.

Secondly, our country has a number of different ethnic groups, and population trends
will dramatically alter the demographics profile of the country in the next 50 years.
The very diverse Asian American subculture is described as young and having higher
socioeconomic status, placing strong value on the family and the group, and being
strongly brand loyal.

Finally, religious beliefs and values can influence consumer. Many marketers are now
becoming multicultural in their marketing activities by trying to appeal to a variety of
cultures at the same time. Although the diversiy of the Indian melting pot may be unique,
there are many important ethnic groups in other areas of the world.

3.3.1 Age, Gender, and Household influences on consumer behaviour: Among the four
major age groups, Teens, who need to establish an identity, are the consumers of
tomorrow and have an increasing influence on family decisions. The somewhat
disillusioned Generation X consists of smart and cynical consumers who can easily see
through obvious marketing attempts. Baby boomers grew up in a very dynamic and
fast-changing world, and this has affected their values for individualism and freedom.
The 50 and older segment can be divided into two groups – the young again and the
gray market.

Gender is consistent throughout lifetime, influencing customer values and preferences.

Gender shows different consumption patterns and perceptions of consumption situations
– e.g. the wedding ceremony.

Households play a key role in consumer behaviour. The proportion of non-traditional

households has increased due to factors such as later marriages, co-habitation, dual-
career families, increased divorce and fewer children. Households also exert an
important influence on acquisiiton and consumption patterns.

3.3.2 Psychographics: values, personality and lifestyles: the roles of psychographics

in affecting consumer behaviour are detailed below. Values are enduring beliefs about
things that are imporatnt. They are learned through the processes of socialization and
acculturing. Our values exist in an organized value system, with some values being

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 viewed as more imporatnt than others. Some are reagrded as terminal values and reflect
desired end states that guide beahviour across many different situations.

Personality consists of the distinctive patterns of behaviours, tendencies, qualities and

personal dispositions that make people different from one another. Approaches to the
study of personality include:
· The psychoanalytic appraoch, which sees personality arising from unconscious
internal struggles within the mind at key stages of development.
· Trait theories, which attempt to identify a set of personality characteristics that
describe and differentiate individuals, such as introversion, extroversion and
stability.
· Behavioural appraoches, which view an individual’s personality in terms of past
rewards and punishments.
Marketers also measure lifestyles, which are patterns of behaviour (or activities,
interests and opinions). These lifestyles can provide some additional insight into
consumer’s consumption patterns. Finally, some marketing researchers use
psychographic techniques that involve all of these factors to predict consumer behaviour.

3.4 SOCIAL CLASS

The social groups or membership groups to which an individual belongs are the social
classes that influence him. In the social classes, we usually find people with similar values,
lifestyle and behaviour. Now a marketer or a researcher needs to pay attention here because
generally the buying behaviour of people in a particular social class to some extent is similar,
though the level of influence may be low or high, he can tailor his marketing activities according
to different social classes. Social perception is a very important attribute that influences the
buying behaviour of an individual.
Example “ A person from a low-income group may focus on price while making the purchase
while a person from a higher income group may consider the quality and uniqueness of the
product.
Sometimes an individual also is influenced by a social group to which he does not belong, but
wishes to get connected with others. For example, in a college a student is in no need to buy
a smart phone but purchases it to be part of that group and be accepted by them.

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Marketers need to understand these situations well and plan their strategies accordingly for
such social benefits. Individuals play various roles in the consumer buying process “

· Initiator “ Initiator is usually the person who comes up with an idea and suggests the
purchase.

· Influencer “ He is the individual who actually pushes for the purchase. He highlights
the benefits of the product. This individual can be from the family or friend or outside
the group too.

· Decision Maker “ He is generally the person who takes the final decision or the final
call after analyzing all the pros and cons of the product. He may not necessarily be the
final buyer as he may also take the decision on behalf of the consumer.

For example, a father might decide on buying a laptop for his son or a brother might
decide on the best career option for his sister.

· Buyer “ Buyer is generally the end user or the final consumer who uses the product.

By social class we refer to the group of people who share equal positions in a society. Social
class is defined by parameters like income, education, occupation, etc. Within a social class,
people share the same values and beliefs and tend to purchase similar kinds of products.
Their choice of residence, type of holiday, entertainment, leisure all seem to be alike. The
knowledge of social class and their consumer behaviour is of great value to a marketeer.

3.4.1 Social Group Influences

A group is a collection of individuals who share some consumer relationship, attitudes and
have the same interest. Such groups are prevalent in societies. These groups could be primary
where interaction takes place frequently and, consists of family groups. These groups have a
lot of interaction amongst themselves and are well knit. Secondary groups are a collection of
individuals where relationship is more formal and less personal in nature.

These could be political groups, work group and study groups, service organisations like the
Lions, Rotary, etc. The behaviour of a group is influenced by other member of the group. An
individual can be a member of various groups and can have varied influences by different
members of groups in his consumption behaviour. An individual can be an executive in a
company, can be a member of a political party. He may be a member of a service organisation

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and of entertainment clubs and study circles. These exert different influences on his
consumption.

3.4.2 Social Status

A social status of an individual usually comprises of an individual’s attitude, class and

prestige. It depends on the way he carries himself socially or the position at which he is in his
work or family or even in his group of friends. The social status of an individual influences his
consumption pattern.

Example “ A CEO may want to have a celebration and give a party to his colleagues, friends
and family, so for his social status he may want to book a five star hotel, something like Taj or
Oberoi instead of any other normal hotel.

A purchase decision takes place because of the above-mentioned factors. A consumer

is influenced by his culture, environment, family, social status and groups. Companies need to
understand these factors and develop strategies and market themselves accordingly to meet
the needs of the consumers and increase sales.

3.5 GROUP

Group consists of people who have a sense of realtedness as a result of interation with each
other. Not every collection of individuals is a group, as the term is used by sociologists.
Actually, we can distinguish three different collections of people: aggregations, categories
and groups. An aggregation is any number of people who are in close proximity to one another
at a given time. While, a category is any number of people who have some particular attributes
in common.

Classification of Group

3.5.1 Primary Group: The hallmark of a primary group is that interpersonal relationships
taking place usually on face-to-face basis, with great frequency, and on an intimate level.
These groups have shared norms and interlocking roles. Families, work groups and even
recreational groups are examples of such groups.

3.5.2 Secondary Group: Secondary groups are those in which the relationship among
members is relatively impersonal and formalized. This amounts to a residual category

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 that includes all groups that are not primary, such as political parties, unions, occasional
sports groups. Although such groups are secondary, the interpersonal realtionships
that occur may nevertheless be face-to-face. The distinction lies in the lack of intimacy
of personal involvement.

3.5.3 Formal Groups: are those with a definite structure, for example they may have a
president, vice president, secretary and treasurer. They are likely to be secondary
groups designed to accomplish specific goals, whether economic, social, political or
altruistic.

3.5.4 Informal Groups: are typically primary groups, characterised by a realtively loose
structure, a lack of clearly defined goals or objectives, unstructured interactions and
written rules. Because of the extent of their influence on individual’s values and activities,
informal groups are probably of greater imporatnce in seeking to understand consumer
beahviour.

3.6 REFERENCE GROUP

A reference group is the group whose perspective we consider. Now our reference
could be very large or very small including few of our family members or few close friends.
Reference groups influence people a lot in their buying decisions. They set the levels of lifestyle,
purchasing patterns, etc.
A reference group is a group to which an individual or another group is compared.

Sociologists call any group that individuals use as a standard for evaluating themselves and
their own behaviour a reference group.

Reference groups are used in order to evaluate and determine the nature of a given
individual or other group’s characteristics and sociological attributes. It is the group to which
the individual relates or aspires to relate him or herself psychologically. It becomes the
individual’s frame of reference and source for ordering his or her experiences, perceptions,
cognition, and ideas of self. It is important for determining a person’s self-identity, attitudes,
and social ties. It becomes the basis of reference in making comparisons or contrasts and in
evaluating one’s appearance and performance.

Reference groups provide the benchmarks and contrast needed for comparison and
evaluation of group and personal characteristics. Robert K. Merton hypothesized that

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individuals compare themselves with reference groups of people who occupy the social role
to which the individual aspires.

According to William Thompson & Joseph Hickey “Reference groups are groups that
people refer to when evaluating their own qualities, circumstances, attitudes, values and
behaviours”.

Reference groups act as a frame of reference to which people always refer to evaluate
their achievements, their role performance, aspirations and ambitions. A reference group can
be either from a membership group or non-membership group.

An example of a reference group being used would be the determination of affluence.

An individual with an annual income of Rs 5,00,000, may consider himself affluent if he
compares himself to those in the middle of the income strata, who earn roughly Rs 2,40,000
a year. If, however, the same person considers the relevant reference group to be those in the
top 0.1% of households in India, those making Rs 12 Lakh or more, then the individual’s
income of Rs 5,00,000 would make him or her seem rather poor.

A reference group is the group whose perspective an individual takes on in forming

values, beliefs, attitudes, opinions, and overt behaviours. One considers this group as a “point
of reference” when evaluating how they view their own existence in the world. Reference
groups can be very small (just a few close friends) or fairly large (a sports team fan club or
even a political party). For example, an aspiring politician may choose her clothing carefully
so as to gain the respect of her political party.

Reference groups influence consumer behaviour in two ways. First, they set levels of
aspiration, offering cues of what lifestyle and related purchasing patterns we should strive to
achieve. Second, they help define the actual items/services considered acceptable for displaying
those aspirations—the kind of housing, clothing, or car, for example, deemed appropriate for
a member of the group.

Research has also suggested that the reference group can also be a deterrent to
innovation and innovative behaviours. “Reference Group and Social Influence” provides an
overview of reference group influences and the ways in which they affect behaviour. Nowadays
those reference groups can exist in both our physical and digital worlds. We have seen the
explosion of online realities in such places as Facebook, which, though digital, bring with
them almost all the elements that exist in a physical reference group world.

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Types of reference groups:

3.6.1 Primary reference groups

Primary reference groups are basically the set of people whom you meet every day. They can
be from your family, your close friends, your roommates, etc. These people from primary
groups may have a direct and strong impact in your lives and your buying decisions since they
are very significant to you. Primary groups make you comfortable and give you a feeling that
they are with you when you are confused about a purchase. These people give you very
honest and clear advices as they are so close to you, due to which you could be more confident
about the purchase. Research shows that the bond between people leads people to be effective
social and satisfied consumers.

3.6.2 Secondary reference groups

Secondary reference groups are usually formal and they speak less frequently. They might be
professionals, your collogues, your seniors at work or your acquaintance at club, etc. In
secondary reference groups the power to influence people is quite less as compared to primary
reference groups as people in these groups are not that comfortable in sharing their thoughts
or views on the purchase.

3.6.3 Aspirational Group

Aspirational group is the one to which a person may want to become part of. They currently
are not part of that group but wish to become and get with that group. For doing the same,
they try to dress, talk, act and even think the way the members of that group do.

For example, people who like Madhuri Dixit wish to become like her and meet her and so
start purchasing and using all those products that she endorses.

3.6.4 Dissociative Group

The people in these groups are totally opposite to the people in the aspirational group. Here
people deny of becoming or getting connected to a particular group. They just hate being
related to that group.

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For example, if people don’t like a particular community, they would never like being connected
to them. So they would try all the possible ways to avoid the way in which they dress, think or
act.

For example you may not like to ware a particular dress or shirt if your house maid or watch
man has same type of dress or shirt.

Thus marketers need to understand the likes and dislikes of the consumers and also the groups
to which they belong. Marketers should recognize the extent to which a reference group
influences the consumer and he should also understand out of all the groups which group
influences him the most.

3.7 FAMILY INFLUENCES

It is defined as two or more persons related by blood, marriages or adoption who

reside together. Although families sometimes are referred to as households, not all households
are families.As we, all know family plays a very important role in making a purchase. The
family is responsible for shaping up the personality of an individual. Our attitude, perception
and values are inculcated through our family.

An individual tends to have similar buying habits and similar taste and preference and
consumption patterns as he gets to see within the family. Perception and family values have
strong influence on the buying behaviour of an individual which they tend to keep constant.

Family of a consumer plays an important role in the decision making process. The
parents, siblings, relatives all have their own views about a particular purchase.

3.7.1 Following are the roles in the family decision making process

· Influencers “ Influencers are the ones who give ideas or information about the product
or service to the consumer. Those family members who provide information and advice
and influence the purchase. The housewife tells her family about the new eatery that
has opened in the neighborhood and her favorable description about it influences her
husband and teenaged children.

· Gate Keepers “ Gatekeepers are the family members who usually panel the
information. They can be our parents or siblings too who can in any form provide us
the information about the product. Those family members who control the flow of

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 information about a product/service thus influencing the decisions of other family
members.

· Decision Makers “ Family or our parents who usually have the power to take decisions
on our behalf are the decision makers. After completing the research they may decide
to purchase a particular product or dispose a product. The husband and wife may
jointly decide to buy a product or not.

· Buyers “ Buyer is the one who actually makes the purchase of the product. A housewife
may be the person who actually buys all the food stuffs, rations and toileteries, which
are consumed by all the family members.

· End Users “ The person who finally uses the product or consumes the service is the
ultimate consumer also called as End user as per the context. All family members may
use the car, watch the television and listen to the stereo music system.

3.7.2 Family Life Cycle

The traditional FLC describes family patterns as consumers marry, have children, leave home,
lose a spouse and retire. These stages are described below. But consumers do not necessarily
have to pass through all these stages, they can skip multiple stages.

1. Bachelorhood: Young singles may live alone, with their nuclear families, or with friends,
or they may co-habitate with partners in this age. Although earnings tend to be relatively
low, these consumers usually do not have many financial obligations and do not feel
the need to save for their futures or retirement. Many of them find themselves spending
as much as they make on two wheelers, furnishings for first residense away from home,
fashions, recreation, alcoholic beverages, food away from home, vacations and other
products.

2. Newly married couples and parenthood: Newly married couples without children
are usually better off financially than they were when they were single, since they often
have two incomes available to spend on one household. These families tend to spend
a substantial amount of their incomes on cars, clothing, vacations and other leisure
activities.

With the arrival of the first child, parents begin to change their roles in the family, and
decide if one parent will stay to take care of the child or if they will both work and

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 buy day care services. In this stage, families are likely to move into their first home;
purchases furniture and furnishings for the child; and purchase new items such as baby
food, toys, sleds and skates.

3. Post parenthood: As the family grows older and parents enter their mid-40s, their
financial position usually continues to improve because the primary wage earner’s
income rises, the second wage earner is receiving a higher salary.

4. Dissolution: At this time, the income earners have retired, usually rsulting in a reduction
in income and disposable income. Expenditures become health oriented, centering on
such items as medical appliances and health, and medicines. But many of these families
continue to be active and in good health, allowing them to spend time on travelling,
exercising and volunteering. Many continue working part time to supplement their
retirement and keep them socially involved.

A consumer gets influenced by his family members as well as friends. Since childhood
the culture which he follows or the rituals which he observes and the moral values and the
religious principles he usually receives are from his family. However, the individual learns
fashion, attitude or style from his friends. All these attributes or traits together influence the
buyer’s decision making.

As has already been said, the family is the most important primary group and is the
strongest source of influence on consumer behaviour. The family tradition and customs are
learnt by children, and they imbibe many behavioural patterns from their family members,
both consciously and unconsciously. These behaviour patterns become a part of children’s
lives. In a joint family, many decisions are jointly made which also leave an impression on the
members of the family.

These days the structure of the family is changing and people are going in more for
nucleus families which consists of parent, and dependent children. The other type of family is
the joint family where mother, father, grandparents and relatives also live together.

3.8 PERSONAL INFLUENCES

Each individual processes the information received in different ways and evaluates the
products in his own personal way. This is irrespective of the influence of the family, social
class, cultural heritage, etc. His own personality ultimately influences his decision. He can

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have his personal reasons for likes, dislikes, price, convenience or status. Some individuals
may lay greater emphasis on price, others on quality, still others on status, symbol, convenience
of the product, etc. Personal influences go a long way in the purchase of a product.

Personal factors influencing consumer behaviour are:

3.8.1 Age and stage in the life cycle: As a person passes through different stages of his
life he needs different set of products. Further the tastes, habits of persons change
with age. They eat baby food in the early years, most foods in the growing and mature
years, and special diets in the later years. Taste, clothes, furniture and recreation is
also age related. Consumption is shaped by the family life cycle.

3.8.2 Occupation and economic circumstances: Occupation also influences a person’s

consumption pattern. A blue-collar worker will buy clothes, work shoes and lunch
boxes. A comapny president will buy expensive suits, air travel, country club
membership, and large sailboat. Marketers try to identify the occupational groups that
have above-average interest in their products and services.

3.8.3 Lifestyle: People from the same subculture, social class and occupation may lead
quite different lifestyles. A lifestyle is the person’s pattern of living in the world as
expressed in activities, interests, and opinions. Lifestyle portrays the “whole person”
interacting with his or her environment. Marketers search for relatioonships between
their products and lifestyle groups.

3.8.4 Personality: Each person has a distinct personality that influences buying behaviour.
By personality, we mean distinguishing psycholigical characters that lead to relatively
consistent and enduring responses to environemnt. Personality can be a useful variable
in anlyzing consumer behaviour, provided that personality types can be classified
accurately and that strong correlations exist between certain personality tyes and
product or brand choices.

3.9 DIFFUSION OF INNOVATION

The accepatnce of new products and services, ideas, new practices is known as
diffusion of innovations.

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Diffusion: It is a macro process that is concerned with the spread of a new product (an
innovation) from its source to the consuming public.

Perhaps the best marketing-oriented definition of the diffusion process is “the adoption of
new products and services over time. The diffusion process is the manner in which innovation
spread throughout a market. The term spread refers to purchase behaviour in which the product
is puchased with some degree of regularity. The market can range from virtually the entire
society to the students at a particular campus.

Products tend to go through a life cycle. Initially, a product is introduced. Since the
product is not well known and is usually expensive (e.g., as microwave ovens were in the late
1970s), sales are usually limited. Eventually, however, many products reach a growth phase—
sales increase dramatically. More firms enter with their models of the product. Frequently,
unfortunately, the product will reach a maturity stage where little growth will be seen.

For example, in India, almost every household has at least one color TV set. Some
products may also reach a decline stage, usually because the product category is being
replaced by something better. For example, typewriters experienced declining sales as more
consumers switched to computers or other word processing equipment.

The product life cycle is tied to the phenomenon of diffusion of innovation. When a
new product comes out, it is likely to first be adopted by consumers who are more innovative
than others—they are willing to pay a premium price for the new product and take a risk on
unproven technology. It is important to be on the good side of innovators since many other
later adopters will tend to rely for advice on the innovators who are thought to be more
knowledgeable about new products for advice.

FIG 3.1 PRODUCT LIFE CYCLE

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At later phases of the PLC, the firm may need to modify its market strategy.

Many firms today rely increasingly on new products for a large part of their sales.
New products can be new in several ways. They can be new to the market—no one else
ever made a product like this before. For example, Chrysler invented the minivan.

Products can also be new to the firm—another firm invented the product, but the firm
is now making its own version. For example, IBM did not invent the personal computer, but
entered after other firms showed the market to have a high potential.

Products can be new to the segment—e.g., cellular phones and pagers were first
aimed at physicians and other price-insensitive segments. Later, firms decided to target the
more price-sensitive mass market.

A product can be new for legal purposes. Because consumers tend to be attracted to
“new and improved” product.

The diffusion of innovation refers to the tendency of new products, practices, or ideas
to spread among people. Usually, when new products or ideas come about, they are only
adopted by a small group of people initially; later, many innovations spread to other people.

FIG 3.2 Addoption of Innovation Over Time

The bell shaped curve frequently illustrates the rate of adoption of a new product. Cumulative
adoptions are reflected by the S-shaped curve. The saturation point is the maximum
proportion of consumers likely to adopt a product.

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 FIG 3.3 Cummulative Adoption of Innovation Over Time

Several specific product categories have case histories that illustrate important issues
in adoption. Until some time in the 1800s, few physicians bothered to scrub prior to surgery,
even though new scientific theories predicted that small microbes not visible to the naked eye
could cause infection. Younger and more progressive physicians began scrubbing early on,
but they lacked the stature to make their older colleagues follow.

ATM cards spread relatively quickly. Since the cards were used in public, others who
did not yet hold the cards could see how convenient they were. Although some people were
concerned about security, the convenience factors seemed to be a decisive factor in the “tug-
of-war” for and against adoption.

The case of credit cards was a bit more complicated and involved a “chicken-and-
egg” paradox. Accepting credit cards was not a particularly attractive option for retailers
until they were carried by a large enough number of consumers. Consumers, in contrast,
were not particularly interested in cards that were not accepted by a large number of retailers.
Thus, it was necessary to “jump start” the process, signing up large corporate accounts,
under favorable terms, early in the cycle, after which the cards became worthwhile for retailers
to accept.

Some cultures tend to adopt new products more quickly than others, based on several factors:
· Modernity: The extent to which the culture is receptive to new things. In some
countries, such as Britain and Saudi Arabia, tradition is greatly valued—thus, new
products often don’t fare too well. The United States, in contrast, tends to value
progress.

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 · Homophile: The more similar to each other that members of a culture are, the more
likely an innovation is to spread—people are more likely to imitate similar than different
models. The two most rapidly adopting countries in the World are the U.S. and Japan.
While the U.S. interestingly scores very low, Japan scores high.

· Physical distance: The greater the distance between people, the less likely innovation
is to spread.

· Opinion leadership: The more opinion leaders are valued and respected, the more
likely an innovation is to spread. The style of opinion leaders moderates this influence,
however. In less innovative countries, opinion leaders tend to be more conservative,
i.e., to reflect the local norms of resistance.

It should be noted that innovation is not always a good thing. Some innovations, such as
infant formula adopted in developing countries, may do more harm than good. Individuals
may also become dependent on the innovations. For example, travel agents who get used to
booking online may be unable to process manual reservations.

Sometimes innovations are disadopted. For example, many individuals disadopt cellular
phones if they find out that they don’t end up using them much.

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3.11 SUMMARY

Everybody in this world is a consumer. Every day of our life we are buying and consuming an
incredible variety of goods and services. However, we all have different tastes, likes and
dislikes and adopt different behaviour patterns while making purchase decisions. Many factors
affect how we, as individuals and as societies, live, buy, and consume. External influences
such as culture, ethnicity, and social class influence how individual consumers buy and use
products. The study of culture encompasses all aspects of a society such as its religion,
knowledge, language, laws, customs, traditions, music, art, technology, work patterns, products
etc. Culture is an extremely critical and all pervasive influence in our life.

3.12 KEY WORDS

Culture subculture social class

Social status group primary group

Secondary group reference group associative group

Dissociative group family roles family lifecycle

3.13 SELF ASSESSMENT QUESTIONS

1) Define Culture.

2) What is sub-culture?

3) Explain the changes in Indian culture in last decade.

4) How social class is determined? Write brief note.

5) Define Group.

6) Differentiate between primary and secondary group.

7) What do you understand by reference group?

8) What is family?

9) Explain the family lifecycle.

10) Explain in brief the diffusion of innovation.

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3.14 REFERENCES

1. Assael, H. Consumer Behaviour and marketing Action, USA: Ohio- South Western
College pub., 1995
2. Engle, J F. Consumer behaviour, Chicago: Dryden Press, 1993
3. Howard, John.A. Consumer behaviour in Marketing, New Delhi: Prentice Hall.
1989
4. Mowen, John C. Consumer Behaviour, New York: Mach Millan, 1993.
5. Schiffman, L G and Kanuk, L L. Consumer behaviour, New Delhi: PHI, 1994.
6. Consumer Behaviour, Raju&Xardel, New Delhi: Vikas Publications 2004
7. Kazmi&Batra , Consumer Behaviour, New Delhi: Excel Books, 2009

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UNIT-4 :CONSUMER DECISION MAKING PROCESS

Structure

4.0 Objectives

4.1 Introduction

4.2 Factors influencing consumer decision

4.3 Post Purchase Behaviour

4.4 Case Study

4.5 Notes

4.6 Summary

4.7 Key Words

4.8 Self Assessment Questions

4.9 References

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4.0 OBJECTIVES
After studying this unit, you should be able
· To explain the consumer decision making process
· To identify the different stages of decision making
· To examine the types of Consumer Buying Decisions
· To assess the factors influencing the consumer decision
· To discuss the post purchase behaviour
· To describe the post purchase action

4.1 INTRODUCTION

Decision-making is a process of selecting an appropriate option from two or more

alternatives. A customer enjoys the freedom of choosing a particular brand or product when
there is more than one brand or product to choose from. The purchaser or consumer takes
his buying decisions, for some commodities immediately without much consideration such as
items of daily use while for some other commodities mainly luxury or durable items, he thinks
much before taking a decision to purchase it. Sometimes, he consults with others. Generally,
the purchaser passes through five distinct stages in taking a decision for purchasing a particular
commodity. Consumer buying behaviour is the study of an individual or a household that
purchases products for personal consumption. The process of buying behaviour is shown in
the following figure “

FIG 4.1 Process of Buying Behaviour

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4.1.1 Stages of Purchasing Process

Broadly, in making a purchase decision the consumer goes through the following stages:

1. Need or Problem recognition

It is the first stage of the buying process where the consumer recognizes a problem or a
requirement that needs to be fulfilled. The requirements can be generated either by internal
stimuli or external stimuli. In this stage, the marketer should study and understand the consumers
to find out what kinds of needs arise, what brought them about, and how they led the consumer
towards a particular product.
The buying process starts when the buyer recognizes a problem or need. The need
can be triggered by internal stimuli. In the former case one of the person’s normal needs are
hunger, thirst, sex etc rises to a threshold level and become a drive. In the later case, need is
aroused by an external stimulus. Marketers need to understand the circumstances that trigger
a particular need by gathering information from a number of consumers. They can then develop
marketing strategies that trigger consumer interest.
2. Information Search
In this stage, the consumer seeks more information. The consumer may have keen attention
or may go into active information search. The consumer can obtain information from any of
the several sources. This include
• personal sources (family, friends, neighbors, and acquaintances),
• industrial sources (advertising, sales people, dealers, packaging),
• public sources (mass media, consumer-rating and organization), and
• experiential sources (handling, examining, using the product).
The relative influence of these information sources varies with the product and the buyer.
An aroused consumer will be inclined to search for more information. One can
distinguish between two levels of arousal. The milder search state is called heightened attention.
At this level a person simply becomes more receptive to information about a product.
At the next level the person may enter active information search; looking for reading material,
phoning friends, visiting websites and visiting stores, to learn about the product of key interest
to the marketers. These are the major information sources to which the consumer will turn
have the relative influence will ahve on the subsequent purchase decision.

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 3. Evaluation of Alternatives

In this stage, the consumer uses information to evaluate alternative brands from different
alternatives. How consumers go about evaluating purchase alternatives depends on the
individual consumer and the specific buying situation. In some cases, consumers use logical
thinking, whereas in other cases, consumers do little or no evaluating; instead they buy on
aspiration and rely on intuition. Sometimes consumers make buying decisions on their own;
sometimes they depend on friends, relatives, consumer guides, or sales persons. There are
websites which helps in doing comparasion between brands.
There is no single evaluation process used by all consumers or by one consumer in all
buying situations. There are sevral decision evaluation processes the most current models of,
which see the process as cognitively oriented. That is, they see the consumer as framing
judgement largely on a conscious and rational basis.
4. Purchase Decision
In this stage, the consumer actually buys the product. Generally, a consumer will buy the most
favorite brand, but there can be two factors, i.e., purchase intentions and purchase decision.
The first factor is the attitude of others and the second is unforeseen situational factors. The
consumer may form a purchase intention based on factors such as usual income, usual price,
and usual product benefits.
In the evaluation stage the consumer forms preference among the brands in the choice.
The consumer may also form an intention to buy the most preferred brand. A consumer’s
decision to modify, postpone, or avoid a purchase decision is heavily influenced by perceived
risk. The amount of perceived risk varies with the amount of money at stake the amount of
attribute of uncertainty and the amount of consumer is self-confidence.
5. Post-Purchase Behaviour
In this stage, the consumers take further steps after purchase based on their satisfaction and
dissatisfaction. The satisfaction and dissatisfaction depend on the relationship between
consumer’s expectations and the product’s performance. If a product is short of expectations,
the consumer is disappointed. On the other hand, if it meets their expectations, the consumer
is satisfied. And if it exceeds their expectations, the consumer is delighted.
The larger the gap between the consumers’ expectations and the product’s performance,
the greater will be the consumer’s dissatisfaction. This suggests that the seller should make

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product claims that faithfully represent the product’s performance so that the buyers are
satisfied.

Consumer satisfaction is important because the company’s sales come from two basic groups,
i.e., new customers and retained customers. It usually costs more to attract new customers
than to retain existing customers and the best way to retain them is to get them satisfied with
the product.

4.1.2 Types of Consumer Buying Decisions

· Complex buying behaviour/Extensive problem solving

This situation occurs when a consumer makes full use of the decision process. Considerable
time is spent in gathering information and evaluating alternatives – both what to buy and where
to buy it – before a purchase is made. The potential for cognitive dissoannce is great. In this
category there are expensive, complex items with which the person has had little or no
experience. Perceived risk of all kinds is high. For example, a house, a first car and a life
insurance policy.

· Dissonance reeducing buying behaviour/Limited problem solving

This situation occurs when a consumer uses each step in the purchase process but does not
spend a great deal of time on each of them. It requires less time than extended decision
making since the person typically has some expereince with both ‘what’ and the ‘where’ of
the purchase. Items in this category are thsoe that have been purchased before, but not
regularly. Risk is moderate and the consumer will spend some time shopping. For example, a
second car, clothing, a vacation and gifts.

At this level, consumers already have extablished the basic criteria for evaluating the
product category and the various brands in the category.

· Habitual buying behaviour/Routinized response behaviour

This situation takes place when the consumer buys out of habit and skips steps in the purchase
process. Customer wants to spend little or no time on shopping and the same brands are
usually re-purchased often from the same reatilers. This category items are bought regularly.
They have little risk because of consumer expereince. The key step for this type of decision
making is problem awareness. For example, groceries, newspapers and haircuts.

65
 At this level, consumers have some ecpereince wiht the product category and a well-
established set of criteria with which to evaluate the brands they are considering.

· Variety-seeking buying behaviour/Brand switching

Some buying situations are characterised by low involvement but significant brand differences,
here consumers often do a lot of brand switching.

The market leader and others in this product category have different marketing
strategies. The market leader will try to encourage habitual buying behaviour by dominating
the shelf space, avoiding out-of-stock conditions and sponsoring frequent reminder advertising.
Challenger firms will encourage variety seeking by offering lower prices, deals, coupons, free
samples and advertising that presents reasons for trying something new.

4.2 FACTORS INFLUENCING CONSUMER DECISION

The buying behaviour of consumer is affected by a number of factors which are generally
uncontrollable. These factors are also known as determinants of consumer buying behaviour.
All these factors affect the buying behaviour of consumer differently.

4.2.1 Cultural factors affecting consumer buying decision

1) Culture: Culture is the most fundamental determinant of a person’s wants and behaviour.
It consists of the learned values, norms, rituals and symbols of society, which are transmitted
through both the language and symbolic features of the society. Culture affects consumer
behaviour a lot. It is the family values, beliefs, perceptions and preferences affect the consumer
buying behaviour.

2) Subculture: Each culture consists of smaller subcultures that provide more specific
identification and socialization for their members. Subculture includes nationality, religious
group, and communities etc. which affect the consumer behaviour. Many subcultures make up
important market segments and marketers often design products and marketing programs
tailored to their needs.

3) Social class: Virtually all human societies exhibit social stratification. Stratification
sometimes takes the form of a caste system where the members of different castes are reared
for certain roles and cannot change their caste membership. More frequently, stratification
takes the form of social classes. Social classes are relatively homogenous and enduring division

66
in a society, which is hierarchically ordered and whose members share similar values, interests
and behaviour. Social class means to divide the society in different social classes, the members
of different social class has different likings.

4.2.2 Social factor affecting consumer decision

1) Family: the members of family also affect the buying behaviour of consumer. Family includes:

Influencer- the person who senses the need to buy a product

Decider - the person who takes final decision to buy the product.

User - the person who finally uses the product.

2) Reference group: Family alone does not affect the consumer buying behaviour but also
the group outside the family also affects the consumer behaviour. It includes the persons with
whom we interact like friends, neighbours, co- workers etc. Generally speaking a reference
group can designate to any person or group that serves as a point of comparison or reference
for an individual informing either general or specific values, attitude or behaviour.

3) Role and status: A person participates in many groups – family, clubs and organizations.
The person’s position in each group can be defined in terms of role and status. A role played
by the person in the society are many - Like a person plays the role of son, husband, brother,
father, businessman etc. in his life. So the consumer buying behaviour depends upon the role
played by him.

4.2.3 Personal factors affecting consumer decision:-

1) Age and life style: As a person passes through different stages of his life he needs different
set of products. The consumer buying behaviour changes with the change in the age. Like
very small child need toys to play with them and when they grow they need games, computer
etc. thus, liking of consumer changes with the age. Further the tastes, habits of persons change
with age.

2) Occupation: Occupation also affects the consumer behaviour to buy the goods. Like a
worker needs simple clothes while his boss needs expensive designer suits to wear. Marketers
try to identify the occupational groups that have above-average interest in their products and
services. Product choice is greatly affected by economic circumstances.

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3) Income: The income also affects the consumer buying behaviour because if the person is
rich he can buy anything which he wants to buy but for a poor person it is not be easy to buy
the things which are beyond his pocket.

4) Life style: People from the same subculture, social class and occupation may lead quite
different lifestyles. Lifestyle is the way of living of the person. Like some people like luxury
livings while some in simple living. A lifestyle is the person’s pattern of living in the world as
expressed in activities, interests, and opinions. The life style of Narayana Murthy and Azim
Premji is completely different form that Vijay Mallya.

5) Personality: Each person has a distinct personality that influences buying behaviour. By
personality, we mean distinguishing psychological characters that lead to relatively consistent
and enduring responses to environment. Personality includes extrovert or introvert which also
affects the consumer buying behaviour.

4.2.4 Psychological factors affecting consumer decision:-

1) Motivation: A person has many needs at any given time. Some needs are biogenic; they
arise from physiological states of tension such as hunger, thirst, discomfort etc. Other needs
are psychogenic; they arise from psychological states of tension such as the need for
recognition, esteem or belonging. When the buyer’s need is raised to a particular level they
become the motives which mean “I want to achieve this” which ultimately affect the consumer
buying behaviour.

2) Perception: A motivated person is ready to act. How the motivated person actually acts is
influenced by his or her perception of the situation. Perception is the process by which an
individual selects, organizes and interprets information inputs to create a meaningful picture
of the world. This is how the consumer receives, selects and organizes the information which
helps him in buying the goods.

3) Learning: When people act, they learn. Learning involves changes in an individual’s
behaviour arising from experience. Most human behaviour is learned. A drive is a strong
internal stimulus impelling action. Cues are minor stimuli that determine when, where and how
a person responds. Learning experience is helpful in affecting consumer buying behaviour.

4) Beliefs and attitude: Through doing and learning, people acquire beliefs and attitudes.
These in turn influence buying behaviour. A belief is a descriptive thought that a person holds
about something. Belief means the opinion or mind set relating to a particular object; attitude

68
means the feeling of buyer towards the object. So the marketer should keep in mind the
beliefs and attitude of the consumer.

Thus, all these buying characteristics influence consumer buying behaviour.

4.3 POST PURCHASE BEHAVIOUR

4.3.1 Definition

Simply defined, Post-Purchase Behaviour is the stage of the Buyer Decision Process when
a consumer will take additional action, based purely on their satisfaction or dissatisfaction.
The consumer’s level of satisfaction or dissatisfaction is directly related to the varying
relationship between their initial expectations of the product (pre-purchase), and their
perception of the actual performance of the product (post-purchase) in their hands.

If after the purchase the consumer perceives the product’s performance as matching
their expectations, or even exceeding them, they will be “satisfied”. If their perception of the
product’s performance is less than their expectations, then the consumer will feel “dissatisfied”.
The larger the gap between their expectations and the product’s performance, the more is the
dissatisfaction. This dissatisfaction leads to Cognitive Dissonance.

4.3.2 Cognitive Dissonance is buyer discomfort caused by post-purchase conflict resulting

from dissatisfaction. The reality is that all purchases, big and small, will result in some degree
of Cognitive Dissonance. This is always the case, because every purchase a consumer makes
involves some sort of compromise, however small or minute. Since consumers form beliefs
and attitudes early in the Buyer Decision Process, at some point they will be concerned about
having a negative experience with the product they may chose, or potentially missing the
perceived benefits of other competing brands.

The issue of Cognitive Dissonance raises an important question: Why is it so important

to satisfy the consumer? It all comes back to our basic definition of marketing: Managing
profitable customer relationships. The goal is to attract new customers through superior value,
and to keep growing customers by delivering customer satisfaction. If we are doing these
things, then we will be able to capture value from customers to create profits and build customer
equity. So, if our customers are satisfied they will begin to develop brand loyalty. This brand
loyalty will help us develop profitable relationships. Our satisfied customers will buy from us

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again. They will become influencers in their cultural and social groups. They will pay less
attention to competitors, and buy more of our products.

Dissatisfaction breeds the opposite. Consumers that perceive poor product

performance will not create profits and will erode customer equity. They will not be loyal,
and they will become negative influencers in their cultural and social groups, leading others
away from our brands. What should we do with dissatisfied customers? We should pursue
them. Even if they do not want to buy our products, we can still target them with dedicated
messaging. We can directly reach out to them, and we can figure out ways to repair the
relationship. These consumers can provide us with a wealth of primary data that can be used
to improve our offerings and create focused marketing campaigns. Dissatisfied consumers
are just as valuable as satisfied ones.

The conclusion is clear: Our job is not done once the consumer buys our product.
Once a consumer buys a product they will enter some degree of post-purchase behaviour.
These behaviours, based on their satisfaction or dissatisfaction, will either build customer
equity and brand loyalty, or lead to eroding sales and brand image issues. This all is related
to their relationship between their expectations and the perceived performance of the products
in their hands. As marketers, we must have messaging ready for this specific part of the
Buyer Decision Process. It is our job to encourage happy consumers to share their experiences
and dive deeper into brand offerings. It is also our job to be brand advocates by reaching
out to dissatisfied consumers and transforming their experience into one that leads to a profitable
relationship.

4.3.3 Post-purchase satisfaction

What determines whether the buyer will be satisfied, somewhat satisfied or dissatisfied
with a purchase? The buyer’s satisfaction is a function of the closeness between the buyer’s
expectations and the product’s perceived performance. If performance falls short of
expectations, the customer is disappointed; if it meets expectations the customer is satisfied;
if it is beyond expectations the customer is delighted. These feelings signify a difference in
whether the customer buys the product again and talks favourably or unfavourably about the
product to others.

4.3.4 Post-purchase actions

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 The consumer’s satisfaction or dissatisfaction with the product will influence subsequent
behaviour. If the consumer is satisfied he or she will exhibit a higher probability of purchasing
the product again. Dissatisfied consumer may abandon or return the product. They may seek
information that confirms its high value. They may take public action by complaining to the
company, going to a lawyer, or complaining to other groups like business, private or government
agencies.

4.3.5 Post-purchase use and disposal

Marketers should also monitor how buyers use and dispose of the product. If consumers
store the product in a closet, the product is probably not very satisfying and word-of-mouth
will not be strong. If they sell or trade the product, sales of new product will be depressed.
Consumer may also find new uses of the product.

4.4 CASE STUDY

Dynamics of the Indian Consumer

Fast-changing consumerism in India over less than two decades has made life more
than a little difficult for marketers and analysts who have been trying to understand the changing
dynamics of the Indian marketplace.

Gone are the days when consumers could be neatly slotted into a definite category
based on a single indicator since consumers and consumerism have turned into more complex
proposition, looking for more value and satisfaction for their money.

For instance, two decades ago, ownership of consumer durables by the SEC-A profile
consumers and the SEC-C consumer would have been distinctly different. Not anymore. Today,
you can expect both groups of consumers to have access to mobile phones, television sets
and computers and other gizmos.

Similarly, absolute income data no longer provides validity over a long period of time.
To illustrate, going by the income data of 1985-86 those that were classified as the ‘low
income group’ has almost ceased to exist as of 2007-08.

As a result, the conceptual framework and approach of consumer research, resulting

in meaningful insights have come into play. Psychographics today play a significant role in
determining spending patterns of consumers. As linkages between rural and urban India have

71
grown, the rural-urban divide in consumer behaviour too has begun to be less stark than it
used to be.

Increasingly, the challenge for analysis is to come up with an integrated model those
factors in income data, product ownership data, and demographics related information and
expenditure and savings data to create holistic, reliable and a multi-dimensional profile of
today’s Indian consumer.

Let’s take income data, for instance. Typically, income refers to new earnings of
individuals and households during a year. It is an indicator of the earning capability of the
household and in combination with consumption data should be able to provide useful
information for marketers who are seeking to understand key consumer segments, their
purchasing power consumption behaviour.

However, the problem with income data is that there is rampant understatement of
income which often raises doubts about the interpretation of this data. It also raises concerns
about the validity of the data.

However, where income data does come in handy is when it is analyzed in terms of
income distribution by “quintiles”. That is, to measure income distribution, the households are
first ranked from highest to lowest income and then the households are divided into five groups
or quintiles to determine the share of total income of each quintile, ranging from the Bottom
(or first quintile) up to the Top (or fifth quintile). It provides a clear picture about the different
consumer segments and how they compare with each other. In a diverse country such as India
where there is significant diversity in socio-economic conditions and the gap between the
top-earning households and the lowest-income earning families is huge, it becomes necessary
to look at the data through the filter of quintiles and deciles.

Questions

1. Explain the complexities of the problems faced by Indian consumers because of fast
changing consumerism.

2. What kind of role psychographics plays in determining spending pattern of Indian

consumers?

3. Is there any difference between Urban and Rural consumer behaviour today?

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4.6 SUMMARY

When the buyer takes buying decisions, no rigid rule binds him. In some cases he takes
the decision on the spot. In some others, he decides after a long search, after evaluating the
various alternatives available, and after reassuring himself with the opinion of those who have
already purchased product. Interestingly, an on the spot decision does not necessarily mean
an irrational decision, nor does a carefully arrived at decision necessarily mean a perfectly
rational decision. For example, in the latter case, it is quite possible that subsequently he
comes to feel his purchase was impulsive or even foolish! Sometimes, the buyer goes to a
shop after having taken the decision to buy a product; but does not buy it. For no apparent
reason, he postpones the purchase or even drops the very idea of purchasing the product!
Moreover in many cases, the buyer’s decision does not wait for the evaluation of all the
alternatives available to him.

4.7 KEY WORDS

Consumer decision making need recognition information search

Evaluation of alternatives purchase behaviour post purchase behaviour

Extensive problem solving limited problem solving culture

Subculture motivation beliefs and attitudes

Cognitive dissonance

4.8 SELF ASSESSMENT QUESTIONS

1) What do you mean by consumer decision making?

2) Explain the consumer decision making process with a neat diagram.

3) Describe the types of consumer buying decisions.

4) Explain the factors influencing the consumer decision making.

5) Define Post purchase behaviour.

6) What is cognitive dissonance?

7) What do you mean by post purchase satisfaction?

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4.9 REFERENCES

1. Assael, H. Consumer Behaviour and marketing Action, USA: Ohio- South Western
College pub., 1995
2. Engle, J F. Consumer behaviour, Chicago: Dryden Press, 1993
3. Howard, John.A. Consumer behaviour in Marketing, New Delhi: Prentice Hall.
1989
4. Mowen, John C. Consumer Behaviour, New York: Mach Millan, 1993.
5. Schiffman, L G and Kanuk, L L. Consumer behaviour, New Delhi: PHI, 1994.
6. Consumer Behaviour, Raju&Xardel, New Delhi: Vikas Publications 2004
7. Kazmi&Batra , Consumer Behaviour, New Delhi: Excel Books, 2009

76
 KARNATAKA STATE OPEN UNIVERSITY
Mukthagangothri, Mysore-570006

DEPARTMENT OF STUDIES AND RESEARCH IN MANAGEMENT

M.B.A III SEMESTER

ELECTIVE : MARKETING

COURSE - 18B

CONSUMER BEHAVIOUR AND MARKETING RESEARCH

BLOCK

2
THEORIES OF CONSUMER BEHAVIOR

Unit -5

Approaches to Consumer Behaviour 01-16

Unit -6

Models of Consumer Behaviour - 1 17-33

Unit -7

Models of Consumer Behaviour - 2 34-47

Unit -8
Analyzing Consumer Cehaviour 48-67

1
Course Design and Editorial Committee

Prof. D. Shivalingaiah Prof. T.D.Devegowda

Vice-Chancellor & Chairperson Dean (Academic)(I/C)& Convenor
Karanataka State Open University Karnataka State Open University
Muktagangotri, Mysore – 570 006 Muktagangotri, Mysore – 570 006

Editor and Course Co-Ordinator

Dr. C. Mahadevamurthy Dr. H. Rajeshwari

Associate Professor and Chairman Assistant Professor
DOS in Management
Dos & Research in Management,
KSOU, Mysuru
Karnataka State Open University,
Mukthagangothri, Mysore – 570 006

Course Writers

Dr H. Rajeshwari
Assistant professor Module 2 Units 5-8
Department of Management
KSOU, Mysore

Publisher

Registrar

Karnataka State Open University, Mukthagangothri, Mysore - 6

Developed by Academic Section, KSOU, Mysore- 6, 2016

All rights reserved. No part of this work may be reproduced in any form, by mimeograph or any
other means, without permission in writing from the Karnataka State Open University.
Further information may obtained from the University’s office at Muktagangotri, Mysore - 6
Printed and Published on behalf of Karnataka State Open University, Muktagangotri, Mysore -
6

2
BLOCK-2 : THEORIES OF CONSUMER BEHAVIOUR

In the previous model you have gained an insight of fundamentals of consumer behaviour.
Now you know why you have to study the consumer behaviour and what are the implications of
consumer behaviour for a marketer. You have also understood the impact of social, economical and
such several other factors on consumer behaviour. Now let us turn our attention towards the various
approaches to consumer behaviour and the models related to it.

This models will help you to understand why a consumer behaves as the way he behave.
This module will explain the various models proposed by the experts in the field of consumer
behaviour. This module will also explain the different dimensions of consumer behaviour such as
rural customers behaviour, urban customers behaviour. Special attention is given to bottom of the
pyramid consumer behaviour.

India being an developing and an emerging economy with 70 per cent of the people below
poverty line, the knowledge about the behaviour of bottom of the pyramid class is highly essential.

This module is classified into 4 units and they are

UNIT 5- Approaches to consumer behaviour

UNIT 6 – Models of consumer behaviour I

UNIT 7 - Models of consumer behaviour II

UNIT 8 – Analyzing consumer behaviour

3
4
UNIT 5 – APPROACHES TO CONSUMER BEHAVIOR

Structure

5.0 Objectives

5.1 Introduction

5.2 Gestalt Approach

5.3 Cognitive Learning Theory

5.4 Involvement Theory

5.5 Route to persuasion theory

5.6 Elaboration Likelihood Model

5.7 Social Judgment theory

5.8 Notes

5.9 Summary

5.10 Key Words

5.11 Self Assessment Questions

5.12 References

5
5.0 OBJECTIVES

After studying this unit you should be able to:

Ø Analyze the gestalt approach to consumer behaviour;

Ø Appreciate the application of cognitive theory to CB;

Ø Explain route to persuasion theory and

Ø Examine social judgment theory.

5.1 INTRODUCTION

Dear Student, you have already understood various factors which have influence on consumer
behaviour. You have also identified how consumer behaviour decides what to buy and what not
buy. Hence from the view point of marketer, it is highly important to know why a consumer behave
as the way he behaves. There are several approaches and models proposed by various behavioral
scientists who have thrown light upon the consumer behaviour. In this unit let us try to understand
the various approaches to consumer behaviour.

5.2 GESTALT APPROACH

Dear lernar, you must have read about gestalt approach in organization behaviour.While
exposed to the various stimuli ( influencing or attractive factors), human beings do not select them
as separate and unrelated identities, but they group them and perceive them as “a unified whole.”
For example when you see a cricket player of your liking drinking Pepsi, you will like Pepsi also.
The various stimuli are put together as a unified integrated structure. This organization of the stimuli
is based on certain principles, which were first proposed by the Gestalt school of psychology, and
hence the name “Gestalt principles”.

The term “Gestalt”, is a German word meaning “pattern” or “configuration” or a “unified

whole”. As the various stimuli are patterned together and configured as a single whole, it is given the
term Gestalt principles. It speaks about the manner in which these stimuli are unified, and the basis
of the configuration/pattern of relationships amongst the stimuli, influences an individual’s overall
perception of each stimulus in the configuration. The marketer should aim at making the principles
of the Gestalt philosophy work in the product’s favor

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 There are certain factors that affect the Gestalt perception or the manner in which the
configuration of the stimuli takes place. These factors are stimulus factors and individual factors.

a) Stimulus factors: These refer to the external and observable characteristics of the stimulus, i.e.
of the person, object, thing or situation; in marketing terms it refers to the characteristics of the
product, brand, packaging, advertisement, size, intensity, motion, repetition, familiarity and novelty,
color and contrast, position, and isolation that attracts attention . Few are explained here.

- Colour and contrast: Colour always catches greater attention than black and white. But it has
been observed, that it can lose impact when put with other coloured advertisements. Herein the
contrast effect assumes importance. A coloured advertisement in a full context black and white or
vice versa is a perfect example of contrast effect.

- Position: Research has indicated that position also has a role to play in sensory perception. For
a language like English, which runs left to right on a page, the upper half of a page gets more
attention than the lower half, and the left-hand side more than the right. This would vary across
languages like for Urdu, Persian etc. This accounts for price differences in newspapers and magazines,
where the price of an advertisement differs according to the position where it is placed.

- Isolation: Instead of being closer, when a stimulus stands apart from the other stimuli, the chances
of it getting perceived a greater than when it clustered together with other stimuli.

- Unity: Unity as a principle has an important role to play while organizing the various stimuli into a
unified group. Unity can be achieved by applying the Gestalt principles of proximity, similarity, and
density.

- Proximity: Those stimuli that are placed close to others form groups.

- Similarity: Those stimuli which are similar to each other form groups.

- Density: Those stimuli that have common density units form groups.

b) Individual factors: These refer to factors internal to and related to the perceiver; in marketing
terms it refers to the characteristics of the consumer for example, motivation, learning, personality
and self-image etc. Such characteristics are unique to the individual and play an important role in
selection, organization and interpretation. They differ from person to person and as such, they are
less measurable and quantifiable than stimulus factors.

7
 - Interest: The interest level varies from person to person. Some generalizations with respect
to interest may be made on the basis of age, gender, social class and lifestyle etc. People
would differ across gender, age etc with the level of interest.

- Involvement: this refers to the degree with which a person approaches a person, object,
thing, or stimuli. It is indicative of how important and relevant something is to a person.
When the level of involvement for a product/service category is high, the consumer would
be more attentive to any kind of information that is provided; in such a case information
gathering, retention and recall would be high. The consumer would perceive the offering
differently as compared to one who is not that involved.

5.3 COGNITIVE LEARNING THEORY

Cognitive theorists believe that a person’s learning is a complex mental process. It takes
place as a result of a conscious and deliberate information processing and storage activity that
takes place within living beings. Living beings make active use of creativity, insight, and information
processing to solve issues and problems. The focus of cognitive theorist is on the “thinking” rather
than the “doing” of the behavioral scientists.

One of the main proponents of this theory is Edward Tolman, who conducted a series of
experiments on rats, and finally came up with his findings. In terms of consumer learning, any kind
of extensive problem solving, on the part of the consumer, is cognitive and would be included under
this approach. This would include gathering, processing and interpreting information; storing it in
memory; and final retrieval when required.

According to the cognitive theorists, response towards stimuli are not always reflexive and
automatic, or out of pure conditioning; there is much beyond pure reflex or conditioning. A living
being, animal/human being perceives a stimulus (object/situation/person./event) in a particular manner;
on the basis of his perception, he assigns meanings and corresponding responses to the stimulus; a
set of expectations about the outcome are also generated. The living entity begins to associate a cue
with an expectation and memorizes this relationship; this leads to learning. A cognitive structure of
this relationship is formed in the memory and is preserved it until it needs to be retrieved in future;
learning based on this mental activity is called cognitive learning.

Tolman established this relationship between environmental cues and expectations, based
on the experiments that he conducted on white rats. A special T-maze was designed, and the white
rats were taught to obtain food in the maze. To start with, Tolman kept food in the right corner of
the T maze; a white rat was put in the maze, and was trained to turn right to obtain the food. A

8
relationship between the cue (food: smell of food) and the expectation (appropriate movement
would lead to the food) was established. Thereafter, Tolman changed the position of the art and
started him from the opposite part of the maze.

According to the past conditioning (instrumental conditioning, R’!S), the rat should have
turned right, but instead it moved in the direction where the food was kept. The rat has learnt to
move through the maze with a motive and direction, towards the food (goal), and a connection was
built between the stimulus and the stimulus (S’!S). The rat had not only learnt to form an association
between the cue and the expectation, (i.e., the smell of the food acted as the cue; and the right
movement across the maze to obtain it, was the response), but he had also memorized this association.
As the association between the cue and the expectancy was strengthened, learning occurred. So
Tolman’s approach to learning could be explained as stimulus leads to another stimulus (or S-S) the
association between the cue and the expectancy leads to learning; behavior is goal directed.

As and when required to solve problems, he retrieves this information from his memory.
The process is continuous; on a regular basis, the person is confronted with new inputs that he
integrates with the existing knowledge that he already has in his memory; this may require addition/
deletion/modification of existing information.
In terms of consumer behavior,consumers are exposed to information about new product/
services or changes in existing products/services on a day to day basis; marketers also constantly
update them about their brands like the attributes, features, price, and comparison with other
brands etc. In fact, consumers are informed about any change that is bought about in any of the
4Ps; viz., product attributes, benefits, features, price, discounts, availability etc.
The consumer also forms mental images about the various brands through imagery, which
leads to easy recall later on. Once the consumer receives this information, he integrates this
information with the existing knowledge that he has stored in his memory, and would retrieve this
information as and when he wants to solve a problem or satisfy a need through purchase and usage
of a product/service.
In terms of consumer behavior: - A person watches an advertisement for a brand (sensory
memory). When he pays attention to the advertisement, it moves to his short-term memory. The
inputs are processed here in the short-term memory, and if it is found to be of relevance and
interest, it moves to the long-term memory. The inputs could relate to the brand name, sign or logo,
symbol, features, attributes, price, celebrity endorsing it, the message content, the jingle and the
music etc. On the other hand, if the consumer lacks relevance and interest for the product, the
information input would be scrapped off and forgotten.

9
 Many a times, a consumer also faces a clutter, in terms of being exposed to too many
stimuli at the same time. This amounts to an information overload, and here, a person uses his
discretion as to whether to retain it or let it go. Once the person decides to retain it, he rehearses
it within himself mentally, by forming images and associating the cues related to it (rehearsal); it is
then that the information moves into long term memory. He may also evaluate the information for
better comprehension (elaborative rehearsal). The total set of associations that a consumer forms
within himself is known as the schema.

The consumer retains the information in his long-term memory. The ability to retain depends
much on the cognitive ability. Apart from this, retention is also affected by other factors. The more
an information input relates to a person’s need, interest, relevance, familiarity, experience,
demographic and psychographic background etc., the more likely it is to be remembered. Also the
persons’ ability to rehearse and repeat information is an aid to retention. So are factors like time,
i.e., time lapsed time since exposure to information.

The consumer would retrieve the information when a need arises and he wants to it buy a
product to satisfy the need and solve a problem. As explained in consumer decision making, a lot
of information search (while problem solving/decision making) is internal, when the consumer retrieves
a lot of information from his memory. He also searches a lot of information externally, that add up
to his associative network where one node would tend to activate other nodes and help retrieval.
Retrieval of information is assisted by cues, which may be self generated or external, and may take
forms of images, sounds, shapes, colors, smells, etc. Marketing strategies can be used to create a
feeling of nostalgia and affect instant recall.

5.4 INVOLVEMENT THEORY

Based on the cognitive theory, the involvement theory stems out from the body of research
referred to as the split-brain theory or hemispherical lateralization. According to the split-brain
theory, the human brain can be divided into the right and left hemispheres, each of which “specializes”
with different kinds of information.

The right side is emotional, intuitive, metaphoric and impulsive; it concerns itself more with
non-cognitive, non-verbal, pictorial (images, colors) and audio-visual information; it deals more
with situations of low-involvement and passive learning, where lesser information evaluation is
required. The right brain processing falls in line with classical conditioning, and the person learns
via repetition, eg. an advertisement being repeated on TV.

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 The left side of the brain is rational, logical and realistic; it concerns itself with cognitive
information in form of alphabets, letters and words in print; it deals with cognitive activities like
reading, speaking and writing; it concerns itself more with situations of high-involvement and active
learning, where more of cognition is required. The left brain processing is very cognitive, and learning
is via the print media.

The involvement theory has implications for selection of a media strategy:

- Non-verbal and pictorial cues trigger right brain processing, and impact recall and familiarity.
With involvement being low; people passively process and store nonverbal, pictorial information.
TV being an audio-visual medium, TV watching is regarded as a right-brain activity, and a low-
involvement medium.

- Verbal or cognitive cues trigger left brain processing and impact evaluation, recall and familiarity.
With involvement being high; people passively process and store verbal and written information.
Print media (i.e. newspapers, magazines, journals, brochures etc) is regarded as a high-involvement
media, and reading and comprehending is regarded as a left-brain activity.

In terms of consumer behavior it implies that:

If a person resorts to information processing for purchasing a product then he is considered to be

high on involvement; If not, he is said to be low on involvement.

- For low-involvement purchases, marketing communication through TV is the right media; consumers
learn via repetition, i.e. exposure to the same message over TV again and again. On the other hand,
in cases of high-involvement purchases, the print media acts as right choice while selection of media.
The consumer has access to information in print form, where he can go through the information
again and again and process it better for product/brand evaluation and choice.

Assessment of the theory: The involvement theory, in particular the split-brain theory has been
critically assessed by researchers. Critics argue that the processing of information takes place together
and the two sides of the brain do not act independently. In fact, some people have the ability to use
both the right and left hemispheres together, and they are integrated processors.

It is also been argued that despite hemispherical specialization, both the right and the left
sides of the brain are capable of both kinds of involvement, high and low; the left side of the brain
specializes in high and low cognition, the right side in high and low affect. Nevertheless, three
theories emerge from within the cognitive theories, especially with reference to high and low

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involvement purchase situations, viz., central and peripheral routes to persuasion theory, elaboration
likelihood model and the social judgment theory. These have been discussed in the next section.

The theory has practical implications for the content/context and presentation of both print
and television advertisements. Non-verbal and pictorial cues trigger right brain processing, and
impact recall and familiarity. With involvement being low; people passively process and store
nonverbal, pictorial information. TV being an audio-visual medium, TV watching is regarded as a
right-brain activity, and a low-involvement medium.

Verbal or cognitive cues trigger left brain processing and impact evaluation, recall and familiarity.
With involvement being high; people passively process and store verbal and written information.
Print media (i.e. newspapers, magazines, journals, brochures etc) is regarded as a high-involvement
media, and reading and comprehending is regarded as a left-brain activity.

5.5 ROUTE TO PERSUASION THEORY

The theory holds that consumers attach a degree of relevance to a purchase situation, which
could take the form of a high involvement purchase or a low involvement purchase; consumers put
in a lot of effort in information gathering, processing and storage when the situation is one of high
involvement; the amount of cognitive effort that is put is much more when a purchase is of relevance
to them and the involvement is high.

This is in contrast to situations of low involvement, where the purchase is of low relevance,
and therefore, information processing and evaluation is much low. Thus, the central route to
persuasion, works in case of high involvement purchase situations, and the peripheral route to
persuasion, works in case of low involvement purchases. Drawing a parallel from the right split-
brain theory and from high and low involvement media strategy, the central route basis itself on
cognition, rationality and logic, verbal cues and print media. The peripheral route, on the other
hand, basis itself on affect, emotions and intuition, non-verbal cues and the audio-visual media.

Implications for a marketer:

The central route to persuasion operates in cases of high involvement purchases; High involvement
purchases require cognitive processing, thus the marketer needs to design his message based on
logic and rationality. The product attributes, features and benefits as well as the USPs need to be
focused upon; the marketer could also address comparative analysis with other brands in terms of
value (comparative advertisements). The media to choose from is the print.

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 On the other hand, the peripheral route to persuasion operates in cases of low involvement
purchases, which do not require cognitive processing, as consumers are less motivated to think.
The marketer could get away with advertisements based on emotional appeals, social appeals, fun,
fantasy and humor. The media to choose from is the audio visual, TV with colours, jingles and
celebrities.

5.6 ELABORATION LIKELIHOOD MODEL:

The Elaboration Likelihood Model bases itself in line with what has been said about high
and low involvement as well as the route to persuasion theory. According to the theory, the degree
of relevance that a person attaches or the level of involvement that a person holds, determines
which route to persuasion would be more effective; in cases of high-involvement, where a consumer
would put in more cognitive effort, he would follow the central route to persuasion and focus on the
message content; on the other hand, in cases of low involvement, he would follow the peripheral
route to persuasion and focus on the message context, background, scenery and music.

In terms of relevance for a marketer, for high involvement, where the central route to
persuasion works, the focus should on the message content, logic and arguments; the arguments
should suggest product attributes and be highly cognitive; For low involvement, where the peripheral
route to persuasion works, the focus should be on the celebrity spokesperson, message context,
and highly visual and symbolic advertisements: background, scenery and music. Also comparative
advertisements (where product attributes and features are compared with other brands) are
processed centrally.

5.7 SOCIAL JUDGMENT THEORY:

Here again, the belief is that it is the degree of involvement that determines how an individual
would process information; when faced with alternatives, people who are highly involved with an
issue/object/person/situation/product, will accept very few alternative opinions. Such people are
said to possess narrow latitude of acceptance and wide latitude of rejection.Because of this, highly
involved individuals will be assimilating in nature, i.e., they would readily interpret and accept a
message that is in line with and congruent with what they believe in and what they support (assimilating
effect). They would also negate opinions that are not congruent (contrasting effect). On the other
hand, persons who are low on involvement, will accept opinions and arguments both for and against,
and would possess wide latitude of acceptance, and also wide latitude of non-commitment.
Implications for a marketer:

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 Consumers, who are highly involved with a product category, are narrow categorizers; they
find very few brands as acceptable. They are likely to be brand loyal and would tend to patronize
select brands, based on their past experiences and resultant attitudes, and would like to interpret
any information about them in a manner that assimilates with previous opinions about the brand. On
the contrary, uninvolved consumers are broad categorizers, and would find many brands as acceptable.
They are essentially brand switchers.

5.8 NOTES

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5.9 SUMMARY

The Cognitive theory, contributes to the understanding of consumer behavior. Cognitive

learning focuses on the gathering and processing of information, storage in memory and final retrieval
of knowledge from a person’s memory. Consumers store information and retrieve it later on.
Consumers tend to remember product/service category’s which they find to be of relevance and
familiarity. Retrieval of information is also assisted by cues, which may be self generated or external,
and may take forms of images, sounds, shapes, colors, smells, etc.

The involvement theory and the related contributions viz., route to persuasion, elaboration
likelihood model, and the social judgment theory, provide insights into high and low involvement
purchases and the selection of media. If a person resorts to information processing for purchasing
a product then he is considered to be high on involvement; If not, he is said to be low on involvement.
For low-involvement purchases, marketing communication through TV is the right media; consumers
learn via repetition, i.e. exposure to the same message over TV again and again. On the other hand,
in cases of high-involvement purchases, the print media acts as right choice while selection of media
go against their values.

5.10 KEY WORDS

Consumer behaviour, cognitive theory, social judgment theory, Involvement theory,

Elaboration likelihood model
5.11 SELF ASSESSMENT QUESTIONS

1. Define consumer behaviour

2. Outline the cognitive theory

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3. Explain the social judgment theory

4. Write a note on involvement theory

5.12 REFERENCES

1. Assael, H. Consumer Behaviour and marketing Action, USA: Ohio- South Western
College pub., 1995
2. Engle, J F. Consumer behaviour, Chicago: Dryden Press, 1993
3. Howard, John.A. Consumer behaviour in Marketing, New Delhi: Prentice Hall.
1989
4. Mowen, John C. Consumer Behaviour, New York: Mach Millan, 1993.
5. Schiffman, L G and Kanuk, L L. Consumer behaviour, New Delhi: PHI, 1994.
6. Consumer Behaviour, Raju&Xardel, New Delhi: Vikas Publications 2004
7. Kazmi&Batra , Consumer Behaviour, New Delhi: Excel Books, 2009

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UNIT 6 – MODELS OF CONSUMER BEHAVIOUR - I

Structure :

6.0 Objectives

6.1 Introduction

6.2 Consumer Behaviour Analysis

6.3 Models of Consumer Behavior

6.4 Black Box Model

6.5 Howard Sheth Model

6.6 Nicosia Model

6.7 EKB Model

6.8 Case Study

6.9 Notes

6.10 Summary

6.11 Key Words

6.12 Self Assessment Questions

6.13 References

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6.0 OBJECTIVES

After studying this unit, you should be able to:

Ø Explain basics of models of consumer behaviour;

Ø Appreciate the black box model of consumer behaviour;

Ø Identify parameters of Howard and Sheth Model and

Ø Examine Nicossia Model

6.1 INTRODUCTION

Understanding the consumer behaviour and knowing consumers are often a great challenge
to the marketer. Customers may say one thing but do another. They may not be in touch with their
deeper motivations. They may respond to the influences that change their mind at the last minute.
The field of consumer behaviour studies how individuals, groups, and organizations select, buy, use
and dispose goods, services and ideas or experiences to satisfy their needs and desires.

6.2 CONSUMER BEHAVIOUR ANALYSIS

The analysis of consumer behaviour is done through models. A model is a replica of the
phenomenon it is intended to designate that it specifies the elements and represents the nature of the
relationships among these elements. As such it provides a testable map of reality and its utility lies in
the extent to which the models make possible a successful prediction of resulting behaviour or
outcomes.

6.3 MODELS OF CONSUMER BEHAVIOUR

The models discussed are relatively unsophisticated, in that they are merely elaborate flow
charts of the behavioral process. The model has three major components: Input, Process and output.
Here we discuss a sample model of consumer decision making that reflects the notions of the
cognitive or problem solving consumers.

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 FIGURE 6.1: MODEL OF CONSUMER BEHAVIOR
Input: The input of the models draws upon external influence that service as sources to inform
about a particular product and influence a consumer related values, attitudes and behaviour. Chief
among these inputs are the marketing –mix activities of organizations that are trying to communicate
the benefits of their products to potential consumers, and non marketing socio cultural influences
which , when internalized affect the consumer’s purchase decisions.

Marketing inputs: The firm’s marketing activities constitute a direct attempt to

reach, inform, and persuade consumers to buy and use its products. These inputs to the
consumers decision process take the form of specific marketing –mix strategies which consist
of the products itself, mass, media advertising, personal selling and other promotional efforts
, pricing policy and the selection of distribution channels to move the products from the
manufacture to the consumer.

Socio cultural Inputs : Also exerts a major influence on the consumer .It consist
of a wide range of noncommercial influences. The influences of social class, culture and
subculture, though less tangible and affect how consumers evaluate and ultimately adopt(or

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 reject)products .Socio cultural products do not support the purchase of a specific product,
but may influence consumers to avoid the product.

Process : The process component consist of three stages

Ø need recognition

Ø pre purchase search and

Ø evaluation of alternatives .

The recognition of a need is likely to occur when a consumer is faced with a problem
.The pre purchase search state begins when a consumer perceives a need that might be
satisfied by the purchase and consumption of a product. Evaluation of alternatives includes
making a selection from a sample of all possible brands, that simplify the decision –
making process.

Output : of the model is associated with purchase behaviour and post purchase evaluation. The
objective of both activities is to increase the consumer’s satisfaction with his or her purchase.

Consumer makes two types of purchases: trail purchase and repeat purchase .If a consumer
purchases product for the first time and buys a smaller quantity than usual , such a purchase would
be considered a trial. Repeat purchase behaviour is closely related to the concept of brand loyalty,
which most firms try to encourage because it ensures them of stability in the marketplace.

As consumers use a product , particularly during a trial purchase, they evaluate its performance
in light of their own expectations. Postpurchase evaluation reduces the uncertainty or doubts that
the consumer might have about the selection.

These three models focus on consumer decision making, especially, on how individual consumers
arrive a brand choices.

6.4 BLACK BOX MODEL

According to Kotler and Armstrong, the basic model of consumer decision making process
comprises three major components, viz., marketing and other stimuli (these act as influences),
the buyer’s black box (these are related to the consumer) and the buyer responses (this is the
response part). The components/processes as well as the working dynamics are explained as follows:

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 FIGURE 6.2: STIMULUS-RESPONSE MODEL OF BUYER BEHAVIOUR

1. Marketing and other stimuli: A consumer is confronted with a stimulus in the environment.
This stimulus could be of two kinds;

-> One that is presented by the marketer through the marketing mix or the 4Ps, product,
price, place and promotion;

-> Product: attributes, features, appearance, packaging etc.

-> Price: cost, value, esteem (prestige)

-> Place: location and convenience, accessibility

-promotion: advertising, sales promotion, personal selling, publicity, direct marketing.

- The other that is presented by the environment, and could be economic, technological, political
and cultural.

Buyer’s black box: The stimuli that is presented to the consumer by the marketer and the
environment is then dealt with by the buyer’s black box. The buyer’s black box, comprises two sub
components, viz., the buyer’s characteristics and the buyer decision process.

The buyer’s characteristics could be personal, psychological, cultural and social. But how these
characteristics would influence the buyer behaviour and how the buyer decision process would

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actually takes place is highly difficult predict. No body can say what exactly goes inside the minds
of the consumers. Hence this part is called black box.

For ex. You and your friend may visit a automobile exhibition. Both of you have intention of
purchasing two wheeler. You would receive the same information but may land up in buying different
vehicles.

3. Buyer responses: While in the black box, the buyer also takes a decision with respect to the
product, brand, dealer, timing and amount. Sometimes customer may decide not buy any thing also.

However after this model is proposed many behavioral scientists have thrown light upon this black
box and have come out with their own findings about what process takes place inside the black
box. Thereafter various other models were evolved.

An attempt through light upon this was also done by Phillps Kotler as described below

FIGURE 6.3: KOTLERS MODEL OF BUYER BEHAVIOUR

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a) Personal:
Age & life-cycle stage (family life cycle: single, newly married couples, full nest I, full nest
II, full nest III, empty nest I, empty nest II, solitary survivor
-occupation (occupation affects consumption patterns) -
economic situation

-lifestyle (pattern of living as Activities, Interest, Opinions, AIOs)

-personality (personality is defined in terms of traits; these are psychological characteristics

which lead to relatively consistent patterns of behavior towards the environment) & self-concept
(self-concept is reflective of identity; how a person perceives himself including attitudes, perceptions,
beliefs etc). Products and brands also have a personality; consumers are likely to choose such
brands whose personalities match their own self.

b) Psychological:
-motivation (motives; urge to act to fulfil a goal or satisfy a need/want) -perception (ability
to sense the environment and give meaning to it through the
mechanisms of selection, organization and interpretation).

-learning (a relatively permanent change in behavior as a result of ones’ experience; relates

to memory; learning could be experiential based on direct experience or conceptual based on
indirect experience; consumer learning could be based on marketing communication/seller provided
information, personal word of mouth and/or experiential).

-beliefs (thoughts that a person holds about something; these are subjective perceptions
about how a person feels towards an object/person/situation) and attitudes (a favorable or
unfavorable disposition/feeling towards an object, person or a situation).

c) Cultural:
-culture (a sum total of values, knowledge, beliefs, myths, language, customs, rituals and
traditions that govern a society). Culture exerts the broadest and the deepest influence; eg. Influences
on our eating patterns, clothing, day to day living etc. Cultural influences are handed down from one
generation to the next and are learned and acquired).
-sub-culture (subset of culture: smaller groups of people within culture with shared value
systems within the group but different from other groups; identifiable through demographics).

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 -social class: ordered and relatively permanent divisions/startifications in the society into
upper, middle lower classes; members in a class share similar values, interests, lifestyles and behaviors;
the division is based on combination of occupation, income, education, wealth, and other variables.

Social:
-family: most important influence; (there occurs in a family what is referred to as socialization;
family of orientation: parents and siblings; family of procreation: spouse and children; further some
decisions are husband dominated, some are wife dominated and some are joint; roles played by
family members), family life cycle (stages through which a family evolves; People’s consumption
priorities change and they buy different goods and services over a lifetime).
-friends and peers, colleagues.

-groups: reference groups {these are people to whom an individual looks as a basis for
personal standards; they are formal and informal groups that influence buying behavior; reference
groups could be direct (membership groups) or indirect (aspirational groups); reference groups
serve as information sources, influence perceptions, affect an individual’s aspiration levels; they
could stimulate or constrain a person’s behavior}.

- opinion leaders (they influence the opinion of others based on skills, expertise, status or
personality).

-roles & status: the role refers to the expected activities and status is the esteem given to
role by society.

Research and studies into these factors can provide a marketer with knowledge that can
help him serve the consumers more effectively. These characteristics affect the buying decision
process, which comprises five steps:

6.5 HOWARD –SHETH MODEL

Howard –Sheth Model :This model explicitly distinguishes among three levels of learning.

1) No or little Knowledge Customers: The consumer’s knowledge and benefits about brands
are very limited or nonexistent. At this initial point , the buyer has no brand preference, and
therefore actively seeks information about a number of alternative brands.

2) Limited knowledge customers : knowledge and beliefs about the brands are only partially
established , which means that the consumer is not fully able to assess brand difference in

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 order to arrive at a preference. Some comparative brand information is sought, although the
choice criteria are likely to be fairly well defined.

3) Well aware customers : The consumer’s knowledge and beliefs about brands are well
established , and there is enough experience and information to avoid confusion about the
various brands. The consumer is predisposed to the purchase of one particular brand.

Howard –Sheth model is as shown below . The model consists of four major sets of variables.

Ø 1)Inputs

Ø 2) Perceptual and learning constructs

Ø Output

Ø Exogenous variables (not depicted in Fig)

Inputs : The input variables consist of three distinct types of stimuli (information sources) in the
consumer’s environment .Physical brand characteristics (significative stimuli) and verbal or visual
product characteristics (symbolic stimuli ) are furnished by the market in the form of product brand
information. The third type of stimuli is provided by the consumer‘s social environment .All three
stimuli provide inputs concerning the product class or specific brands to the prospective consumer.

Perceptual and learning constructs: Some of the constructs are perceptual in nature, which
are the central component of Howard-Sheth model .These perceptual constructs are concerned
with the function of information processing. Stimulus ambiguity occurs if a consumer is unclear
about the information received from the environment .Perceptual bias occurs if the consumer distorts
the information received so that it his or her established needs or experiences.

Learning constructs serve the function of concept formation. Included in this category are
the consumer’s goals, information about brands in the evoked set, criteria for evaluating alternatives,
preferences and buying intentions. The proposed interaction between the various perceptual and
learning variables and the variables in other segments of the model give the Howard-Sheth model
its distinctive character.

Output : The model indicates a series of output that correspond in name to some of the perceptual
and learning construct variables in addition to the actual purchase.

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 FIGURE 6.4: HOWARD SHETL MODEL

Exogenous Variables: are not shown in the model and are not directly part of the decision –making
process.

However, because external variables influence the consumer, they should affect the marketers
segmentation efforts. Relevant exogenous variables include the importance of the purchase, consumer
personality trends, time pressure and financial status.

Howard and Sheth have promoted testing of the model with actual data on consumer decision
making. The first test focused on the instant breakfast market. It found that consumers are quite
systematic in their use of information and in their establishment of attitudes about brands.

Another test of the model examined consumer’s decision to purchase an automobile .From
the analysis of data , the researchers concluded that informal influence was more critical than
information supplied by advertisements. Although advertising was found to be a relatively ineffective
information source, exposure to advertising did have limited impact on comprehension of the car’s
features and on the intention to purchase.

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6.6 NICOSIA MODEL
Nicosia Model : The Nicosia model focuses on the relationship between the firm and its potential
consumers. Broadly, the firm communicates with the consumer through its marketing messages
(advertising) and consumers communicate with the firm by their purchase responses. Thus the Nicosia
model is interactive in design. The firm tries to influence consumers, and the consumers-by their
actions influence the firm.

Nicosia model depicted in Fig. is divided into four major fields:

1) The span between the source of message and the consumer’s attitude

2) search and evaluation

3) the act of purchase and

4) feedback.

Field 1 The consumers attitude based on the firm’s messages : First field is divided into two
subfields .

Subfield one includes aspects of the firm’s marketing environment and communication efforts
that affect consumer attitudes, such as product attributes , the competitive environment characteristics
of relevant mass media , the choice of a copy appeal, and characteristics of the target market.
Subfield two specifies various consumer characteristics that media reception of the firm’s
promotional messages. The output of

Field 1 is an attitude toward the product based on the consumer ‘s interpretation of message.

Field 2 : Search and evaluation : The second field deals with the search for relevant
information and evaluation of the firms brand in comparison with alternatives brands. The output of
this stage is motivation to purchase the firms brand.

Field 3 : the act of purchase: In the third field , the consumers motivation toward the firms
brand results in actual purchase of the brand from a specific retailer.

Field 4 : Feedback, The final field consists of two important types of feedback from the
purchase experience : one of the firm in the form of sales data, an other to the consumer in the form

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of experience. The consumers experience with the product affects the individual’s attitudes and
predispositions concerning future messages from the firm.

FIGURE 6.5: NICOSIA MODEL

6.7 EKB MODEL

Engel –Kollat-Blackwell (EKB)Model : The EKB model of consumer behaviour was

originally designed to serve as a framework for organizing the fast-growing body of knowledge
concerning consumer behaviour. Fig presents the comprehensive model , which consists of four
sections

Ø variables influencing the decision process

Ø information input

Ø information processing and

Ø decision process stages.

Decision process stages : The central focus of the model is on five basic decision process stages
:problem recognition, search, alternative evaluation , purchase and outcomes. How many of these
stages actually figure in a specific purchase decision , and the relative amount of attention given to
each stage, is a function of how extensive the problem –solving task is felt to be .

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Information Input : Feeding into the information –processing section of the model is information
from marketing and nonmarketing sources .After passing through the consumer’s memory, which
serves as a filter , the information is depicted as having its influence at the problem recognition stage
of the decision –making process.

Search for external information is activated if additional information is required in order to arrive at
a choice or if the consumer experiences dissonance because the chosen alternative is assessed to
be less satisfactory than was originally expected.

Information Processing: This section of the model consists of the consumer’s exposure , attention ,
comprehension/perception, yielding /acceptance, and retention of incoming market- dominated and
nonmarketing information. Before a message is utilized, the consumer must

Ø be exposed to it

Ø allocate information processing capacity to the incoming message

Ø interpret the stimuli

Ø be persuaded by it and

Ø retain the message by transferring the input to log term memory.

In order to be retained in long-term memory as information and experience, a stimulus must

first pass through sensory memory, which analyze the input in terms of its physical properties and
short-term memory , where the message is analyzed for meaning.

Variables Influencing the decision process : This section consists of individual and
environmental influences that affect all five stages of the decision process.

Individual characteristics include motives , value, lifestyle and personality: the social influence
are culture, reference groups and family .Situational influences , such as a consumer’s financial
condition , also influence the decision process.

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 FIGURE 6.6:EKB MODEL

6.8 CASE STUDY

A case of consumer decision making

Mrs.Sharma has just returned from her weekly shopping trip to her neighborhood supermarket.
Among her purchase are some cans of “Coorg’s” frozen orange juice .This brand costs Rs.4 more
per can that most other brands.

The orange juice was not on her shopping list, but like most women’s shopping lists.
Mrs.Sharma covered only about half the items that she eventually purchased .The family drinks so
much orange juice that its purchase has become a habit, and taking the “coorgs” cans from the
cabinets has become almost automatic.

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 No one else has participated in the decision to buy either the juice or the particular brand
.Mrs.Sharma. however , is not on a budget and she thinks that generally people get better quality
when they pay more , she had heard about the healthful qualities of orange juice, and tries to serve
it at least once a day .The frozen kind is easier to prepare .The cans are easier to carry than a bag
of fresh oranges .Thus , the frozen orange juice is also a convenience.

Mrs.Sharma is willing to pay a bit more for her frozen orange juice because she wants the
quality to please her family.The market carries several other brands of frozen orange juice .At the
time of her first purchase , certain condition existed. There was a product demonstrator in the store
, and although Mrs.Sharma generally finds demonstrators rather “pushy” , this particular brand was
pleasant .Mrs Sharma tried a glass and took home a can.

That was several years ago however. These days the “coorg’s” company does some
advertising .If Mrs.Sharma were asked today a about her reasons for purchasing the brand ,she
would certainly not remember all these things. She might say only that she and her family “like it “
and that it s worth the extra few rupees that she pays for it .Millions of customers like Mrs.Sharma
go through generally similar kinds of processes everyday,even though their specific thought and
action processes may be different .The motivations, both conscious and unconscious , that are
involved in these decision processes are interrelated , and an understanding of them is an important
part of the marketing manager ‘s job.

Questions

1. What made Mrs.Sharma decide to purchase the Coorg’s brand ?

2. Which model explains this behavior better ?

6.9 NOTES

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6.10 SUMMARY
The various models of buyers behaviour that are presented here gives you an idea of how
a buyer behaves as the way he behave. There are various stimuli which are broadly classified as
internal and external. The internal stimuli depend upon the personal factors of the consumers such
their personality, cultural and social background, economic background so on so forth. The external
stimuli comes from the market which includes various marketing strategies formulated by the marketer.
It also comes from various people who play different roles such influencers, initiators, deciders
users and so on. All these factors are discussed in this unit.

6.11 KEY WORDS

Consumer behaviour, cognitive theory, social judgment theory, Involvement theory,

Elaboration likelihood model,Nicosia Model
6.12 SELF ASSESSMENT QUESTIONS

1. Explain the concept of black box model

2. Outline the features of Howard Sheth Model

3. Explain the model of Nicosia

4. Describe EKB Model

6.13 REFERENCES

1. Assael, H. Consumer Behaviour and marketing Action, USA: Ohio- South Western
College pub., 1995
2. Engle, J F. Consumer behaviour, Chicago: Dryden Press, 1993
3. Howard, John.A. Consumer behaviour in Marketing, New Delhi: Prentice Hall.
1989
4. Mowen, John C. Consumer Behaviour, New York: Mach Millan, 1993.
5. Schiffman, L G and Kanuk, L L. Consumer behaviour, New Delhi: PHI, 1994.
6. Consumer Behaviour, Raju&Xardel, New Delhi: Vikas Publications 2004
7. Kazmi&Batra , Consumer Behaviour, New Delhi: Excel Books, 2009

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UNIT 7– MODELS OF CONSUMER BEHAVIOUR- II

Structure

7.0 Objectives

7.1 Introduction

7.2 Bettman’s IPM of Consumer Choice

7.3 EBM Model

7.4 A Study on Indian Consumers

7.7 Notes

7.8 Summary

7.9 Key Words

7.10 Self Assessment Questions

7.11 References

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7.0 OBJECTIVES

After studying this unit, you should be able to:

Ø Analyze the parameters of Bettsman’s Model;

Ø Describe EBM Model and

Ø Identify the behaviour of Indian Consumers.

7.1 INTRODUCTION

Under economics it is assumed that man is a rational human being, who will evaluate all
alternatives in terms of cost and value received. And select the product or services which gives him
or her maximum satisfaction (utility). Consumers are assumed to follow the principle of maximum
utility based on the law of diminishing marginal utility. However if this alone holds good, then there
is no need to study various consumer behavior models. In the previous unit you have already studied
few consumer behaviour models. In this unit let us study two more models.

Let us also study a recent report on changing dimensions of buyer behaviour in India. As
you know, India is considered as a biggest market place owing to the population. If 5% of Indians
are well to do and buy new things then any market would easily get 6 crore or 60 million people as
an easy target. This is more than the population of many advanced countries. Hence instead of
selling their products in those countries against stiff competitions, they would prefer to do business
in India. For this understanding the Indian consumer behaviour is the primary key.

As already suggested only economics cannot determine the consumer behaviour. A study of
consumer behaviour requires a multi disciplinary approach. For example the learning model of
buyer behaviour suggests that the consumer behaviour depend on their previous leanings.

7.2 BETTMAN’S INFORMATION PROCESSING MODEL OF CONSUMER

CHOICE

Bettman’s Information Processing Model of Consumer Choice (1979):

Bettman, in the 1970s introduced a consumer behaviour model that bases itself on the
information processing that takes place within a consumer. According to him, the consumer is central
to a host of information processing activities. He receives a large amount of information externally
from the marketer, competitors and the environment. He also has a large store of information within
him as a database that he builds over time from his learning, experiences, social influences etc.

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 With a huge amount of information that he is exposed to, the processing becomes difficult
and unmanageable. According to him, consumers’ possess a limited capacity for processing
information. Thus Bettman concluded that consumers use certain simplifying strategies to process
information. Within such decision strategies (heuristics), the consumer does not necessarily process
all the information together; he could use simple decision rules for specific situations.

The consumer information process is depicted through several flowcharts, which depict the
various components of the model and the interrelationships between them. The main components of
the model are processing capacity, motivation, attention, information acquisition and evaluation,
decision process, consumption and learning processes.

1. Processing capacity: Bettman assumes that while the information processing capacity varies
across people, it is limited for each one of us. Every person has a limited capacity to process
information; thus, consumers are not interested in extensive information processing, and select
strategies that make product selection an easy process. They try to bypass their limits by being
selective towards information receptivity, ignoring certain information that they consider irrelevant
or in comprehendible, prioritizing information that is required and is in use etc. The marketer needs
to understand the information processing capacities of individual consumers while delivering marketing
information; this would provide invaluable insights to marketers for design of their marketing
communication strategies.

2. Motivation: The decision making choice process within a consumer is provided strength, intensity
and direction through motivation. There exists a hierarchy of goals’ mechanism that provides different
sub-goals to simplify the choice selection. Depending upon the goal hierarchy (priority of goals),
this component acts as the powerful and imposing component that controls directly not only the
subsequent processes of attention, information acquisition and evaluation, decision processes and
the consumption and learning processes, but also controls indirectly the various sub-processes in
the model via the main process components.

The continuation and suspension of various sub-processes and their interrelationship with
the main processes are all impacted by motivation. This component also converts the non-action or
passive inputs in the consumers into action outputs or active behavior.

3. Attention and Perceptual Encoding: According to Bettman, attention could be voluntary as

well as involuntary in nature. When a consumer actively consciously seeks attention to achieve his
goals, it is referred to as a voluntary attention. It is the conscious allocation of processing capacity

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to current goals. Non-voluntary or involuntary attention is the short term attention that he provides
before deciding whether he should process the information that he has been exposed to and as to
whether he should provide a voluntary attention. It is an automatic response to disruptive events.
Non-voluntary attention could also occur when the consumer is exposed to conflicting information
about the product and needs to resolve between this conflicting information.

Perceptual encoding occurs when the person integrates the information that he had
processesd into his already existing perceptual network or database. Based on perceptual encoding
and the database, the consumer decides on the need and the quantum of marketing information that
he needs to process.

FIGURE 7.1:BETTMAN’S INFORMATION PROCESSING MODEL

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 Figure: The Bettman Information-Processing Model of Consumer Choice Source: Bettman,
J.R., An Information Processing Theory of Consumer Choice, Redaing, Mass: Addison-Wesley,
1979, 17. In Schifman, L.G. and Kanuk, L.L., Consumer Behavior, 3rd Edition, Prentice Hall

This leads to the scanner and interrupt mechanisms and the resultant responses. The scanner
and interrupt mechanisms act like on and off switches for a consumer. When the consumer realizes
that he does not have adequate and appropriate information in his database (memory), he searches
for information; he gives attention to and becomes receptive to information. On the other hand, if he
feels that he has sufficient information, the information search process gets interrupted.

4. Information acquisition and evaluation: The consumer decides on the kind of information as
well as the quantum of information required for the choice decision. Based on heuristics, he assesses
the importance and availability of information. If he has the necessary information in a sufficient
quantum in his memory, he goes ahead with the next stage. Memory is the source for the internal
search for information. If he feels that the information that he has in his memory is insufficient, when
it is found to be insufficient, he acquires more information through external search.

At this stage too the consumer again experiences the switch on and off modes through
scanner and interrupt mechanisms. When the consumer realizes that he has adequate and appropriate
information in his database (memory), he does not search for more information and the information
search process gets interrupted; else he does search for more information. After acquiring information,
the consumer evaluates the information for utility and sufficiency, and then moves on to make decision
choices.

5.Decision Process: After information search and evaluation, the consumer takes a decision; the
final decision of the brand is based not only on the acquired and evaluated information, but also his
personal characteristics, demographics, psychographics (motivation, learning and experiences,
attitude, personality, perception, etc), social influences and situational factors. This stage is also
affected by the scanner and interrupt mechanisms. If the purchase is a routine purchase, the decision
making is faster and often repeat; in other cases, it may take time.

6. Consumption and learning processes: After the consumer buys decides on a choice, he
purchases the brand. The experience that he gains through the decision making and the consumption
of the product in terms of satisfaction/dissatisfaction gets stored in his memory. This learning affects
subsequent decision making for similar product categories, and affects the future heuristics for
consumer decision making. It provides the consumer with information to be applied to similar choice
situation in future. This stage is also affected by the scanner and interrupt mechanisms.

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 Processing capacity in an individual affects the motivation, attention, information acquisition
and evaluation, decision process, consumption and learning processes. These processes impact
and are impacted by their respective sub-processes. Thus, all the sub-processes, impact the
processes, directly and/or indirectly, and are also impacted by them. And information processing
capacity impacts and is also impacted by the various processes directly and sub-processes indirectly.

Bettman’s model is model that focuses only on information processing. It starts with the
motivation to search for information; be attentive to information; acquire and evaluate information;
take a decision; and finally adds up the information (based on good/bad experiences) into the
memory for further use. However, critics argue that while the model provides insights into consumers’,
it is difficult to implement practically.

7.3 EBM MODEL

Engel, Blackwell and Kollat’s Model or Engel-Blackwell-Miniard Model of Consumer

Behavior:

The Engel, Kollat and Blackwell Model, also referred to as the EKB model was proposed
to organize and describe the growing body of knowledge/research concerning consumer behavior.
As a comprehensive model, it shows the various components of consumer decision making and the
relationships/interactions among them. The model went through many revisions and modifications,
with attempts to elaborate upon the interrelationship between the various components and sub-
components; and, finally another model was proposed in the 1990s which came to be known as the
Engel, Blackwell and Miniard Model (EBM).

The model consists of five parts, viz. information input, information processing, decision
process stage, decision process variables, and external influences.

1. Information input: The information input includes all kinds of stimuli that a consumer is exposed
to and triggers a kind of behavior. The consumer is exposed to a large number of stimuli both
marketing (advertising, publicity, personal selling, demonstrations, store display, point of purchase
stimuli) as well as non-marketing sources (family, friends, peers); thus the various stimuli compete
for consumer’s attention. These stimuli provide information to the consumer and trigger off the
decision making process.

2. Information processing: Stimuli received in the first stage provide information; the information
is processed into meaningful information. The stage comprises consumer’s exposure, attention,
perception/comprehension, acceptance, and retention of information. The consumer is exposed to

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stimuli (and the accompanying information); attention determines which of the stimuli he will focus
upon; thereafter he would interpret and comprehend it, accepts it in his short term memory and
retains it by transferring the input to long-term memory.

3. Decision-process stage: At any time during the information processing, the consumer could
enter into this stage. The model focuses on the five basic decision-process stages, viz., problem
recognition, search, alternative evaluation, choice, and outcomes (post-purchase evaluation and
behavior).

There is problem recognition; this is followed by a search for information, which may be
internal based on memory. The search of information is also impacted by environmental influences.
Thereafter, the consumer evaluates the various alternatives; while evaluation, belief lead to the
formation of attitudes, which in turn affect the purchase intention. The next stage is the choice and
purchase, which gets impacted by individual differences.

Finally there is an outcome, in the form of satisfaction and dissatisfaction. This outcome acts
as a feedback on the input and impacts the cycle again. Environmental influences, individual differences
and social influences, directly and indirectly influence each of the stages of the decision process.

However, EKB proposed that it is not necessary for every consumer to go through all the
five stages; it would depend on whether the problem is an extensive or a routine problem-solving
behavior.

4. Decision process variables: The model proposes individual influences that affect the various
stages of the decision making process. Individual characteristics include constructs like demographics,
motives, beliefs, attitude, personality, values, lifestyle, normative compliance, etc.

5. Exnternal Influnces : The model also proposes certain environmental and situational
influences that affect the decision making process. The environmental influences include “Circles of
Social Influence,” like culture, sub-culture, social class, reference groups, family and other normative
influences; situational influences include consumer’s financial condition.

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FIGURE 7.2 : Engel- Kollat-Blackwell (Engel-Blackwell- Miniard) Model of consumer
Behavior Source:

The decision process comprises five stages from need recognition to outcome. The outcome
in the form of satisfaction/dissatisfaction acts as the input in then next cycle of a similar purchase.
Each of the components is directly or indirectly impacted by environmental influences, individual
differences and social influences.

The model incorporates many constructs that impact consumer decision making. It tries to
explain clearly the interrelationships between stages in the decision process and the various variables.
They attempted to relate belief-attitude-intention. An attempt was made to define the variables and
specify functional relationships between the various constructs. However, the model fails to
adequately explain as to how each of these influences consumer decision making. Critics argue that
there are too many variables; these have not been defined; the model is vague and complex; and the
validity of the model has been questionable. The model was revised in the 1990s and proposed
again as the Engel, Blackwell and Miniard (EBM) model.

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 The EBM model consists of four sections viz., information input; information processing;
decision process and variables influencing the decision process. The variables and the working
relationship is similar to the EKB but has been slightly modified.
Information received from marketing and non-marketing stimuli feeds into the information-
processing section of the model. The information section of the model comprises various stages like
exposure, attention, comprehension, acceptance and retention. After passing through these stages,
it goes into the memory. Then this information that is stored in the memory acts as an initial influence
on the need recognition stage. If internal information is inadequate there is a search for external
information. The model focuses on the decision process stages: need recognition, search, pre-
purchase alternative evaluation, purchase, consumption, post-purchase alternative evaluation and
divestment. “Divestment” as a construct was additionally added as a modification over the EKB
model. Divestment relates to options of disposal, recycling or remarketing. The entire process is
influenced by environmental influences and individual differences.

7.4 A STUDY ON INDIAN CONSUMERS

To do business in India, one has to understand the Indian consumer behaviour. An American
marketer cannot easily equate American consumer behaviour with Indian consumer behaviour to
sell his products in India. This is the point where most of the MNC companies fail. Hence it is highly
relevant to study Indian consumer behaviour. Here I am giving an article that was published in
Haward Business Review the most sought after journal on management written by Rajesh Srivastva.

When India opened its economy to the global marketplace in the early 1990s, many
multinational corporations rushed in to pursue its middle-class consumers—an estimated 200 million
people—only to confront low incomes, social and political conservatism, and resistance to change.
It turned out that the Indian consumer was a tough one to figure out and win over.

Things are changing. Although attitudes remain complex, they have shifted substantially toward
consumerism, particularly over the past decade. The country’s recent economic performance is a
factor, of course. For three years, GDP growth has been strong and sustained, at an average annual
rate of around 8%. The population’s demographic profile also plays a role: Indians constitute a fifth
of the world’s citizens below age 20. So a youthful, exuberant generation, weaned on success, is
joining the ranks of Indian consumers.

To examine the changes in attitude, the Gallup Organization conducted two surveys of more
than 2,000 respondents gauging the habits, hopes, plans, and evolution of the Indian consumer in
the decade from 1996 to 2006.

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Indians are getting more materialistic.

Indians are often stereotyped as deeply spiritual people who reject materialistic values. The
research suggests that this stereotype no longer reflects reality. For instance, almost half of India’s
urban population had adopted a “work hard and get rich” ethos by 1996; another 9% had done so
by 2006.

Earlier more people were inclined towards to saving habits. Less percentage of salary was
converted in to disposable income.

Indians are more motivated than ever by personal ambition and a desire for material success,
and they put in the hours it takes to achieve those goals. A recent Gallup poll of more than 30
countries showed that, with an average workweek of 50 hours, India ranks among the hardest
working nations globally. The average in the United States is 42 hours; major European nations
such as Germany, France, and the UK have workweeks of fewer than 40 hours.
Consumerism is becoming a way of life in India.
An analysis of Indians’ savings goals underscores the increase in materialism. Although
long-term plans remain a high priority, life’s pleasures in the here and now have gained importance
over the past decade. Indians’ desire to set money aside for electronics and durables has grown so
dramatically that it has nearly caught up with their desire to save for their children’s education.
Travel and entertainment have also gained ground.
FIGURE 7.3 CONSUMER BEHAVIOR

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Change in Consumer Behavior

Interestingly, this trend does not apply only to the young—it holds true for people aged 15
to 55. And it is not merely a large-city phenomenon; people in smaller towns espouse these values
as well.

Among durable goods, high-tech luxury items are increasingly in demand. The number of
Indians who own or use mobile phones, for example, has grown 1,600%—not surprising in a
country that is adding more than 3 million subscribers a month. The number of people who own or
use computers or laptops is up 100%, albeit from a very small base. Ownership of music systems
and televisions is also on the rise.

Across products, a majority of the potential customers are entering the market for the first
time. This is great news for marketers, since it signifies an expanding market, which will get even
bigger as current owners replace or upgrade what they have.

A word of caution: Although incomes have risen over the past ten years, middle- and lower-
income groups are increasingly dissatisfied with their earnings. It is essential to remember that 30%
of Indians still live on less than one U.S. dollar a day. The highest-income groups are delighted with
what their income can do for them; the middle and lower groups are much less satisfied. In the short
term, income constraints and rising costs could slow India’s transformation from a needs-based to
a wants-based market. However, a heightened desire to lead the good life might well intensify the
middle- and lower-income groups’ efforts to make more money, thus fueling consumerism in the
long run.

Foreign is passé; Indian is paramount.

While Indians’ confidence in foreign companies has remained essentially static, their faith in
domestic companies has grown. In 1996, only 34% of those surveyed expressed confidence in
Indian companies; in 2006, 56% did. Indians realize that not all foreign goods are perfectly suited
to their tastes and needs. They have become discerning consumers who want products that are
made in India and for Indians.

A look at the most respected brands in India is telling. Of the top 20 named in a survey,
eight are Indian, including names like Tata, Godrej, and Bajaj. Only five of the top 20 are new
foreign brands. These have succeeded because they have customized technology to meet Indian
needs. Hutch, Nokia, and Samsung have done this particularly well. Nokia modified one of its
mobile phones by adding a built-in flashlight that truck drivers, for instance, find useful on poorly lit

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highways. “Indianizing” also has to do with keeping prices at levels that are manageable for the
average Indian consumer.

Seven of the top brands come from well-established MNCs that are either thoroughly
indigenized or involved in a joint venture that gives them the advantages of both worlds—customization
of products for India with levels of quality and technology associated with international companies.
Names such as Philips and Hero Honda fall into this group.

Trying to connect with consumers at an “Indian” level is a mammoth task. For one thing,
India is a diverse country, with 23 official languages and more than 1,000 dialects. It’s also one of
the world’s oldest civilizations, and rather than dispense with traditional values, it has wrapped
modernity around its traditional core. For instance, 83% of Indians approve of women’s working
outside the home, and 74% approve of women’s delaying marriage to further their education or
careers (both percentages are up substantially from ten years ago); yet only 25% approve of marriage
to someone who is not an Indian, and only 5% approve of couples’ living together without getting
married.

To the outside world, the harmonious coexistence of seeming contradictions is one of the
most confusing aspects of the Indian psyche—but it also signifies the country’s openness to change
and its ability to add new dimensions without losing old ones. The companies, domestic or foreign,
that understand this complexity will be the most successful at working with and selling to Indians
and stand to reap enormous benefits of scale.

7.5 NOTES

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7.6 SUMMARY

In this unit effort has been made to examine Bettman Model and EBM model of consumer
behaviour. The primary concern is to use the models to understand consumer behaviour. Consumer
behaviourists as well as marketers are interested in understanding how and why certain decisions
are made. The discussion was about some of behaviour models apart from those that are discussed
in the previous unit. I have made an attempt to give a comprehensive view of all those aspects of
buying situations which are deemed to be significant by their creators. Further discussion is also
made about the behaviour of Indian consumers in particular. India being one of the large markets,
second highest populated country, is attracting a huge numbers of marketers. Hence one has to
specifically study the attitude and perception of Indian consumers which influence their decisions.

7.7 KEY WORDS

EBM Model, Bettsman Model, Indian consumers

7.8 SELF ASSESSMENT QUESTIONS

1. Explain the EBM Model with diagram

2. Discuss the factors considered in Bettman Model
3. Give an overview of Indian Consumers

7.9 REFERENCES
1. Assael, H. Consumer Behaviour and marketing Action, USA: Ohio- South Western
College pub., 1995
2. Engle, J F. Consumer behaviour, Chicago: Dryden Press, 1993
3. Howard, John.A. Consumer behaviour in Marketing, New Delhi: Prentice Hall.
1989
4. Mowen, John C. Consumer Behaviour, New York: Mach Millan, 1993.
5. Schiffman, L G and Kanuk, L L. Consumer behaviour, New Delhi: PHI, 1994.
6. Consumer Behaviour, Raju&Xardel, New Delhi: Vikas Publications 2004
7. Kazmi&Batra , Consumer Behaviour, New Delhi: Excel Books, 2009

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UNIT 8 – ANALYZING CONSUMER BEHAVIOUR

Structure:

8.0 Objectives

8.1 Introduction

8.2 Rural Customer behaviour

8.3 Differences between rural and Urban Consumers

8.4 Living Standards

8.5 BOP Customers

8.6 Nature and characteristics of BOP market

8.7 Notes

8.8 Summary

8.9 Key Words

8.10 Self Assessment Questions

8.11 References

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8. 0 OBJECTIVES

After studying this unit you should be able to

Ø Analyze rural consumer behaviour

Ø Explain urban customer behaviour

Ø Describe Living standards

Ø Measure the characteristics of BOP consumers

Ø Assess the role of technology on Indian Consumers

8.1 INTRODUCTION

As the twentieth century has come to a close and we have moved into the third millennium,
we can see many developments and changes taking place all around us with all the industries and
firms within each industry trying to keep pace with the changes and diverse need of people.

Today all the firms are engaged in a process of creating a life time value and relationship with the
customers. To be successful in this, a study of diversed consumer behaviour becomes highly essential.
In India the behaviour of people who reside at urban places strongly differs from that of people in
rural places. The marketing mix has to be completely different from rural market and urban market.

Consumer behavior in the rural market is even more perplexing because of lack of consistency
in groups which are homogeneous in parameters of demographics age, occupation, education and
income. Most marketers realize that India is on the cusp of momentous change. The economy is
vibrant, incomes are rising & the habits, preferences & attitude are changing rapidly. There is, thus
an emerging need to build expertise in rural marketing.

8.2 RURAL CONSUMER BEHAVIOUR

There are three challenges that rural marketers must overcome.

1. The first of this is the challenges of reach-markets in the rural India that are small &
scattered making them inaccessible & unreliable or both. But this problem is not new and many
companies let it hamper them unduly even as others overcome it with innovation.

2. The next challenge is to ensure that the consumers are aware of your brand and want it.

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 3. The third challenge in rural marketing is influence. It is an old saying that customer is the
king because he is the person whose decision have affect on the demand of any product or service.
The attitude of consumer or buyer decides how demand will emerge for a new product & service &
how existing goods and services would survive in future and in which manner. The study of consumer
behavior implies how & why a particular consumer reacts to the decisions of producers. The study
of consumer behavior is the study of how individual make decision to spend their available resources
(time, money, effort) on consumption related items. It includes the study of why they buy it, when
they buy it, where they buy it, how often they buy it & how often they use it.

The census of India defines rural place as any habitation with a population density of less
than 400 per square kilometers where at least 75% of male working population is engaged in
agriculture and where there exists no municipality or board leaning aside. Hindustan Uniliver Limited
& ITC, most companies in the FMCG sector would define rural as any place with the population up
to 20,000. Rural consumers are fundamentally different from their urban counterparts and different
rural geographies display considerable heterogeneity calling for rural specific and region specific
strategies e.g. a farmer in rural Punjab is much more progressive than his counterpart in Bihar. A
farmer in Karnataka is far more educated than one in Rajasthan and so on.

An urban individual is free to take independent purchase decision. In a village, because of

strong social structure, including caste consideration and low literacy level, community decision
making is quite common. Companies face many challenges in tackling the rural markets. Marketing
is all about “Getting to know your customer”. But having largely ignored this cardinal principle,
most corporate in rural markets find that success has eluded them.

The rural market account for market worth of 27$ billion. About 285 millions live in urban
India whereas 792 million resides in rural areas. 72% of India’s population resides in its 600000
villages. Many companies like Colgate-Palmolive, HCL & Godrej etc. have already furrows into
rural households but still capturing the market is a different dream.

The markets for different products vary largely in size in rural areas. The sizes of the markets
for the different sectors in rural markets are shown below:

· FMCG – Rs. 50,000 Crore.

· Durables – Rs. 5,000 Crore.
· Agricultural Inputs – Rs. 45,000 Crore.
· Automobiles – Rs. 8,000 Crore.

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The automobile sector is growing at a rate of 25 – 30 %.

The following table shows the extent of rural sales by select companies.

HLL 50 %

COLGATE 50 %

GODREJ 30 %

M ARICO 25 %

CADBURY 25 %

GSK 25 %

HEINZ 20 %

CIPLA 18 %

HERO HONDA 40 %

KINETIC 30 %

TABLE 8.1 Extent of Rural Sales

For quite sometimes now, the life of the rural India has been the subject of animated
discussions in the corporate suites, with the urban markets getting saturated for several categories
of consumer goods and with rising rural income.

For example, Tata chemicals ran a chain called Tata Kisan Kendra which offered services
ranging from agriculture input to financing to advisory services. Hindustan Levers is offering deals
to farmers to cover operation from the pre harvest to post harvest stage. Mahindra & Mahindra
limited, India’s largest farm equipment company & its subsidiary Mahindra Shubhlabh services has
operated in eleven states with 7 lacs strong Mahindra tractor customer base& 400+ dealers provide
a complete range of products and services to improve farm productivity and establish market linkages
to the commodity market chain.

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 As already said the rural consumer behaviour differs from urban consumer behaviour. The
below diagram shows the parameters of how rural consumer behaviour differs from the previously
discussed models of consumer behaviour
ACCESS Consumer Buyer Behaviour Disposal
Characteristics
Physical & Economic

FIGURE 8.1 Parameters of Rural Consumer Behaviour

ACCESS- the first step is to provide access to the product/services for consumer within rural
areas. Access can be divided into 2 types namely
o Economic access

o Physical access

Economic access relates to the issue of affordability of the product/ service for the rural
population. According to NCAER the low penetration rates can be attributed to 3 major factors
namely: low income level, inadequate infrastructure facility and different lifestyle.

Normally, the rural consumer spend the majority of their income on basic necessities which
makes them price sensitive.

The first factor influencing physical access is the country infrastructure which is comprised
of essential service such as transportation system, communication system, utilities and banking system.
Infrastructure not only has a tremendous impact on the nature of conducting business in the country
but is also vitally important for the future economic growth of India.

The second factor influencing physical access is a distribution strategy. The company can
use delivery van which can serve two purposes:

a) It can take the product to the customers in every nook n corner to the market.It enables
firm to establish direct contact and facilitates sales promotion, annual “melas” organized are
quiet popular and provide a very good platform for distribution because people visit them
to make several purchases. For easy access of once own fund, ICICI bank has developed
low cost automated teller machine (ATM) designed for rural areas and is aimed at increasing
micro finance in rural India.

52
 b) Poor-Quality Retail Outlets Retail outlets in rural area are often characterized as
insufficient, time consuming and frustrating. Companies therefore, have to be creative and
learn to work around these constraints. The retail establishment where most rural consumers
purchase their day-to-day goods is at a Kirana or street shop. Consumers purchase
everything from Banana to razors at a kirana with over 2.5 millions kiranas Indian rural
town and village. In order to reach these local shop and establish a brand presence in them
companies need substantial amount of working capital and large committed sales force.

CONSUMER CHARACTERISTICS- The specific products/services that are purchased and

consumed may be different in each area. The cultural orientation and serial class distribution will
determine consumption pattern within a culture.

India per capita income measured in terms of purchasing power parity estimated at US $
2,230 against US $ 440 calculated by conventional method by translating rupees into Dollar at the
prevailing exchange rate. Purchasing power parity has been used for comparison to capture available
data through certain studies conducted by National council of applied Economic Research .

These studies have attempted to classify the consumer goods market according to the
consumption behavior of its constituents. Cultural pattern in rural areas determine whether a culture
is traditional or modern in its outlook and that is a factor that can have a major impact on consumption
pattern.

BUYING BEHAVIOR- This stage encompasses all factors impacting decision making and choice
within a rural area.

To understand the buying behavior of rural consumers, we must go to the factors that influence
their buying behavior. The factors include:

1. Socio-economic environment of the consumer

2. Cultural environment

3. Geographic location

4. Education/literacy level

5. Occupation

53
 6. Exposure to urban lifestyles

7. Exposure to media and enlarged media reach.

8. The points of purchase of products.

9. The way the consumer uses the products

10. Involvement of others in the purchase.

11. Marketers effort to reach out the rural markets

Some of these points are discussed in some detail below:

INFLUENCE OF CULTURE: Culture and tradition influence perception and buying behavior.
For example, the preference in respect of color, size and shape is often the result of cultural factors.
Rural consumers’ perception of products is strongly influenced by cultural factors

GEOGRAPHIC LOCATIONS: Rural consumer behavior is also influenced by the geographic

location of the consumers. For example, nearness to feeder towns and industrial projects influence
the buying behavior of consumers in the respective clusters of villages. To cite one more example of
how geographic location affects buying behavior, we can point out the fact that the lack of electricity
in many rural households acts as a barrier to the purchase of certain consumer durables.

EXPOSURE TO URBAN LIFESTYLES: Extent of exposure of rural consumers to urban

lifestyles also influences their buying behavior. An increased exposure and interaction with urban
communities has been the trend in recent years.

THE WAY THE CONSUMER USES THE PRODUCTS: The situation in which the consumers
utilize the product also influences their buying. The example of lack of electricity affecting buying
behavior illustrates this point as well. Lack of electricity automatically increases the purchase of
batteries by rural consumers. Similarly, since rural consumers cannot use washing powders/detergent
powders that much, as they wash their clothes in streams or ponds, they go in more for washing
bars and detergent cakes.

PLACES OF PURCHASE: Buying behavior of rural consumer also varies depending on the
place of purchase. Different segments of rural buyers buy their requirements from different places/
outlets. Some buy from the village shopkeepers; some from village markets/fairs; others buy from
the town that serves as the feeder to the rural area. It is also seen that the same buyer buys different

54
requirements from different places. For understanding the buying behavior of the rural consumer
correctly, the marketer must ask the question: Where from do they buy the products and why?

INVOLVEMENT OF OTHERS IN THE PURCHASE: Involvement of others in the purchase

in the purchase decision is yet another relevant factor in this regard. There has been a change here
in recent years. In the past, the head of the family used to make the purchase decision all by himself.
In contrast, the involvement of the other members of the family in the purchase decision has been
growing in recent years. An increase in literacy coupled with greater access to information has
resulted in this development. The marketer has to reckon the role of the influencers while sizing up
the buying behavior of rural consumers.

MARKETERS EFFORTS TO REACH OUT THE RURAL MARKET: In recent years, many
corporate companies have been trying hard to develop a market for their products in the rural
areas, investing substantially in these areas. This has brought about some change in the way buyers
purchase different products. Developmental marketing has created discriminating buyers and hitherto
unknown demand in the rural market. All the above factors influence the buying behavior of rural
consumer and hence their responses to the marketing mix variables, and the reference points they
use for purchase decisions.

BRAND EQUITY: Brand equity is another aspect of perception. Some of the brands like Colgate,
Marlboro are popular brands in rural areas. It might therefore be advantageous to retain these
brand names and packaging in rural areas, although companies might want to use the local language
on the package itself.

PRICE-QUALITY RELATIONSHIP: The next aspect of perception is price quality relationship.

Mostly rural area consumers rely on word of mouth communication more than price as a means to
judge quality.

DISPOSAL-

Many rural areas are becoming more environmentally conscious and are moving away from
throw away products. Hence marketers need to design systems to facilitate the safe disposal,
recycling, resale of products. They also meet their social responsibilities especially in relation to
public safety and environmental pollution. Extended channels of distribution provide numerous options
for consumers who wish to move still useful but unwanted products to other consumers.

55
RURAL PENETRATION
The below table shows how rural market is growing and could never be neglected by the
marketers.
Table 8.2 Increasing penetration of non essential items (per thousand)

FM CG 199 8-99 200 4-05 2 014-1 5

Body te lc om 452 624 6 30
powe r
Fa c e C rea m 80 285 4 50
Pa c kage d b isc uit 185 415 6 80

DURABLES 1998-99 2004-05 2014-15

Motorcycle 16 50 139
Refrigerator 14 60 95
TV(color) 18 80 318

8.3 DIFFERENCES BETWEEN RURAL AND URBAN CONSUMERS

The difference between rural and urban consumer behaviour is highlighted in the below
points

1. Although there are more literate people in rural India (49.3 crore) than in urban India (28.54
crore), the rural literacy level is only 68.9% compared to 85% in urban area.Arural customer
may not be very educated but has lot of common sense. He is as intelligent if not more
sharper in many ways than his urban counterpart. This is bought out by an incident where in
an aggressive farmer held out a cut section of a tyre in his hand and complained to the tyre
company executive that though the tyre companies claimed that the tyres had ’8 plys’ and
he could see only 4 plys in the tyre. The executive had to explain in detail about the process
of tyre making to convince the farmer that not all the 8 layers used in making the 8 ply can
be seen

2. A rural customer is very conscious of “value for money”, and may not always go for cheap
products or premium or image products. As he may not afford high price, he does not
buy products with features that do not enhance the basic functions of the product.

56
3. Rural customers do not trust the outsiders easily. It is not very easy to convenience a rural
customer. It is a challenge to introduce anything new to rural customers.

4. Rural customers are more brand loyal than urban customers. However, as the literacy level
is low they recognize the brand more through colour, symbol and logo.

5. The rural customer’s involvement in purchase of any product is high. In some cases such as
buying TV, he consults a number of people. Both rural and urban consumers experience
significant influence of their families for buying the select products . However the rural
consumers experience greater influence of their families as compared to their urban
counterparts.

6. Another important difference is that the rural customer’ s life is highly routinised and laid
back. Sunday is not a holiday in the village and the he cannot be made to hurry through.

7. The rural income mostly depends on the agriculture and hence income and purchase reaches
greater heights after harvest time. Hence, the disposable income varies across the nation
depending on the area , crop, weather etc. Consequently, the buying patterns vary with
urban buying patterns.

8. Traditional values, customs and perceptions have a stronger hold on the rural customers
than urban customers. This impacts developing common communication programme
for entire country.

8.4 LIVING STANDARDS

With one of the fastest growing economies in the world, clocked at a growth rate of 7.3%
in 2015, India is fast on its way to becoming a large and globally important consumer economy. The
Indian middle class was estimated to be 50 million persons (reckoning vehicle owners only) in 2007,
by McKinsey & Company. According to Deutsche Research the estimates are nearly 300 million
people for all Middle Class. If current trends continue, Indian per capita purchasing power parity is
$1631 and ranked 147 in PPP terms.

According to NCAER, India’s middle class population would be 267 million in 2016. Further
ahead, by 2025-26 the number of middle class households in India is likely to more than double
from the 2015-16 levels to 113.8 million households or 547 million individuals. Another estimate
put the Indian middle class as numbering 475 million people by 2030.

57
 The standard of living in India shows large disparity. For example, there is widespread
poverty in rural areas of India, where medical care tends to be very basic or unavailable, while
cities boast of world class medical establishments. Similarly, the very latest machinery may be used
in some construction projects, but many construction workers work without mechanization in most
projects. However, a rural middle class is now emerging in rural India, with some areas seeing increasing
prosperity.

A 24.3% of the population earned less than US$1 (PPP, around US$0.25 in nominal terms)
a day in 2005, down from 42.1% in 1981. 41.6% of its population is living below the new international
poverty line of $1.25 (PPP) per day, down from 59.8% in 1981. The World Bank further estimates
that a third of the global poor now reside in India.

On the other hand, the Planning Commission of India uses its own criteria and has estimated
that 27.5% of the population was living below the poverty line in 2004–2005, down from 51.3% in
1977–1978, and 36% in 1993-1994. The source for this was the 61st round of the National Sample
Survey (NSS) and the criterion used was monthly per capita consumption expenditure below
356.35 for rural areas and 538.60 for urban areas. 75% of the poor are in rural areas, most of
them are daily wagers, self-employed householders and landless labourers.

Although Indian economy has grown steadily over the last two decades, its growth has been uneven
when comparing different social groups, economic groups, geographic regions, and rural and urban
areas. Between 1999 and 2008, the annualised growth rates for Gujarat (8.8%), Haryana (8.7%),
or Delhi (7.4%) were much higher than for Bihar(5.1%), Uttar Pradesh (4.4%), or Madhya
Pradesh (3.5%). Poverty rates in rural Odisha (43%) and rural Bihar (41%) are higher than in the
world’s poorest countries such as Malawi.

Since the early 1950s, successive governments have implemented various schemes,
under planning, to alleviate poverty, that have met with partial success. Programmes like Food for
work and National Rural Employment Programme have attempted to use the unemployed to
generate productive assets and build rural infrastructure. In August 2005, the Indian parliament passed
the Rural Employment Guarantee Bill, the largest programme of this type, in terms of cost and
coverage, which promises 100 days of minimum wage employment to every rural household in 200
of India’s 600 districts. The Indian government is planning to bring in more economic reforms which
can help farmers and unskilled labourers transition into industrialized sectors.

The below graphs gives you a comparasion between India and the world

58
FIGURE 8.1 Global income

59
8.5 BOP CUSTOMERS

The global financial crisis which originated in the US and evolved into the European debt
crisis continues with no end in sight. As a result, global companies have changed track and are now
more interested in emerging and developing countries than developed countries such as Japan, the
US, and Europe, which have small prospects of economic growth. Japanese companies are rushing
to develop new markets; rather than the middle class, they are showing great interest in business
targeting the Base of the Economic Pyramid (BOP), i.e. the economic stratum composed of low-
income earners (less than $3000 in purchasing power parity (PPP) per person per year), in particular.

Why Global Companies have Turned their Attention to BOP Business

The BOP has a population of 4 billion people and is expected to become a market worth
more than $5 trillion. In the past, companies around the world were uninterested in developing the
BOP market due to its weak purchasing power and lack of market infrastructure. However, some
innovative companies (mainly local companies and European and American corporations) were
able to analyze income in the BOP in greater depth and create innovative business models, thereby
succeeding in practically increasing business profitability and proving that purchasing power can be
cultivated within the BOP as well.

Meanwhile, BOP market infrastructure is gradually being built. First, due to developing
urbanization.

Most Japanese company executives also tend to notice more business targeted at the middle
class concentrated in urban areas, because its purchasing power is more obvious and existing market

infrastructure can be put to good use. Consequently, they are very conscious of problems such as
whether or not the BOP is really marketable and what kind of business strategy is necessary for
entering the market. However, there are now many companies among leading western companies
as well as local companies, of course, which have placed BOP business as their core business. A
new mindset is needed to help the advancement of BOP business in Japan.

Determining BOP Marketability Using Discretionary Income

In fact, when determining the marketability and purchasing power of the BOP, one should look at
things from a dynamic market structure perspective. That is to say, there is great potential for the
low-income level of today to become the middle income level of tomorrow in emerging and developing
countries with rapid economic growth. According to a survey by the Euromonitor International, it is

60
estimated that the population of low-income strata in developing Asian countries will decrease by
half, from 2.5 billion in 2000 to 1.15 billion in 2020, while the middle class will increase from 220
million to 2 billion in the same time frame.

However, in the highly competitive global market, if a company waits until a consumer
enters the middle class before trying to gain their business, it is often already too late. In other
words, global competition has already entered a stage where companies need strategies for cultivating
their own customers. It is necessary for companies to make their products and services—their
brand—familiar to the BOP. It is important to increase demand stickiness and lock in customers for
one’s own company.

Next, companies must also consider the perspective of discretionary income necessary for
“creating markets.” If we categorize low-income levels by greater and lesser discretionary income,
we see that the low-income stratum has “purchasing power”, too. In other words, it is necessary to
have a different strategy for each income level. According to a survey by the World Economic
Forum (WEF), discretionary income of the top level of the global BOP (PPP of $2-8 per person
per day; 1.1 billion people) is approximately 32% of income, which is more than sufficient “purchasing
power” to allow for product selection.

Figure 8.2: Low-income levels have purchasing power too

61
 Harvard Business School’s Professor V.K. Rangan and Professor Michael Chu divide the
BOP into the same 3 sub-levels but propose two different BOP strategies. Their criteria for
categorizing income levels are different, but their ideas on strategy are the same.

1. Low income ($3-5/PPP)

2. Subsistence ($1-3/PPP)

3. Extreme poverty (<$1/PPP)

Revolutionizing Business Models by Cultivating and Using “Purchasing Power”

However, the expenditures of individuals in the BOP are small: consumers are all micro-
consumers, and they are scattered from the outskirts of cities to farming areas. Therefore, the
issues to be considered are how to deal with micro-consumers and how to concentrate a scattered
market or lower the cost of accessing the market.

They proposed as the following business model innovation:

1. Devise a way to micronize normal goods and services (e.g. smaller packaging, installment payment
plans), or a way to normalize mirco-consumers (e.g. group purchasing).

2. Train buyers to become sellers and/or systematize (formalize).

3. Use ICT to connect the scattered BOP market, realize merit of scale.

An oft-heard example of the micronization of normal goods and services is Unilever’s move
to smaller packaging of consumer products and microfinancing, but there are good examples in
other fields as well. For example, Bhati Airtel, the largest mobile communication services company
in India, reduced their call-time billing units from minutes to seconds, thus increasing demand from
the BOP. Further, an example of normalizing the unstable, micro-purchasing power of BOP consumers
can be seen in the BOP-targeted loan business of India’s ICIC Bank. Their business model is to
lend money to a Self Help Group composed of 10-20 people and have them all take collective
responsibility for repaying the loan, rather than providing microfinancing to each individual consumer.

62
Figure 8.3: Individual consumption per capita in Asian countries

Creating Value Together with the BOP

As seen above in the subcategorization of BOP levels, the lower the level of income, the
less discretionary expenditure is available and the greater the risk for a company trying to turn a
profit. In order to hedge this risk, companies must form close ties with NGOs, NPOs, and government
bodies which are involved in regional development. The reason for this is that non-profit groups
such as the World Bank, government departments, and NGOs refrain from publicly intervening in
levels with a lot of discretionary income in order to avoid market distortion, but using the power of
private companies they have taken an active policy approach to combat poverty in the extreme
poverty level (<$1/PPP), of course, and also the subsistence level, which had not been a concern in
the past.
Furthermore, when businesses target lower income levels for business and make a profit
doing so, the backlash from society is strong. For example, when SKS, a micro-financing company

63
in India, first went public, it was criticized by politicians and society alike as a “business which
wrings money from poor people.” Therefore, it would be prudent to refrain from “selling” too much
to the extreme poverty level. In fact, non-profit groups, NGOs, and public institutions should prioritize
helping citizens in the BOP to escape from poverty. As a result, B2G business such as public
procurement may be created. For example, the oft-cited case study of Sumitomo Chemical’s Olyset
Net mosquito netting is a BOP business that succeeded in large part due to the procurements by
public institutions such as UNDP; one could say it is a BOP-targeted B2G business.

As we have seen above, Japanese companies should carefully examine the income structure
of and changes in the BOP and put their strategies into action. Through such practice, they will
accumulate market development know-how, BOP business will become more attractive, and a
great contribution will have been made to the growth strategy of Japanese companies.
8.6 NATURE AND CHARACTERISTICS OF THE BOP MARKET
The characteristics of the BOP market are diverse and must be integrated into the approach
towards serving it. The spending pattern of the poor is dissimilar as compared to the other segments
of the market. The high end and medium range consumers generally buy big packs of consumables
so that they need not shop frequently. However the BOP consumers do not have such disposable
income and that’s why they are unable to buy large volumes and store it for future consumption.

However the degree of impact that culture will have on behavior depends on the narrowness
of a culture or its merger with other cultures. The BOP culture is quite different from other segments.
Rituals, festivals, harvesting seasons and inhibition to buy new things are some of the key features
of BOP consumers.

Low brand awareness

Awareness refers to the strength of a brand’s presence in the consumer’s mind. Awareness
is measured in different ways in which consumers remember a brand ranging from recognition.
(Have you been exposed to this brand before?) to recall (what brands of this product class can you
recall?) to “top of the mind” (the first brand recalled) to dominant (the only brand recalled). Contrasting
the more affluent segments the BOP consumers are not very much aware about the brand. The
most essential concern for the marketers is to understand and perceive them as value conscious
customers.

Different buying behavior

Consumer behavior is defined as the “decision process” and “physical activity” engaged in

64
 by individuals. The physical activity which we focus upon in the course of consumer behavior is
that of making the purchase. But there are a number of influences affecting the purchase and a
number of individuals may be involved in exerting these influences. So the purchase action that is
visible to us is the result of interplay of a number of complex and hidden variables which may have
influenced the ultimate purchase activity. The BOP customers will not opt for buying items in a bulk
but will rather buy items for their immediate use, i.e these items will be in small packs.
Extreme Market Conditions
Many factors make it unrealistic for the private sector to participate in economic development
in the BOP market due to tough market condition and environmental factors. Among them are
inefficient regulation, widespread corruption, lack of basic infrastructure, extreme poverty, and the
underdeveloped financial and banking structure.BOP segments are largely untapped by the corporate
because it is hard to access these markets. But companies are trying to explore these vast markets
on a profitable basis. The companies have understood that around 60% of developing countries
GDP is generated in BOP areas. They have realized that the major barrier to serve BOP markets is
access but not their purchasing power. Companies like Cavin Care, ICT, HUL, Dabur, Tata, Godrez,
Nirma etc are looking to overcome these barriers and explore the fortune underlying these markets.

8.7 NOTES

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8.8 SUMMARY
Understanding the consumer behaviour and formulating strategies according is always a
challenging task. The size of market being large, there is always possibility that that we assume the
market to be homogenous and plan our marketing mix accordingly. However to be successful in the
market one has to give importance to market segmentation there by making each sub market
homogenous and formulate strategies accordingly. Rural customers have to be treated differently
from urban customers. BOP customers have to be treated in a special way than middle class and
rich class customers. In this unit we have tried to focus these different segment of the market and
made an attempt to analyze their behaviour.

8.9 KEY WORDS

Consumer behaviour, rural, urban, BOP market
8.10 SELF ASSESSMENT QUESTIONS
1. Write a note on rural buying behaviour

2. Differentiate between rural and urban buying behaviour

3. Explain the characteristics of BOP market

4. Write a note on living standards

8.11 REFERENCE
1. Assael, H. Consumer Behaviour and marketing Action, USA: Ohio- South Western
College pub., 1995
2. Engle, J F. Consumer behaviour, Chicago: Dryden Press, 1993
3. Howard, John.A. Consumer behaviour in Marketing, New Delhi: Prentice Hall.
1989
4. Mowen, John C. Consumer Behaviour, New York: Mach Millan, 1993.
5. Schiffman, L G and Kanuk, L L. Consumer behaviour, New Delhi: PHI, 1994.
6. Consumer Behaviour, Raju&Xardel, New Delhi: Vikas Publications 2004
7. Kazmi&Batra , Consumer Behaviour, New Delhi: Excel Books, 2009

67
 KARNATAKA STATE OPEN UNIVERSITY
Mukthagangothri, Mysore-570006

DEPARTMENT OF STUDIES AND RESEARCH IN MANAGEMENT

M.B.A III SEMESTER

ELECTIVE : MARKETING

COURSE - 18B

CONSUMER BEHAVIOUR AND MARKETING RESEARCH

BLOCK

3
MARKETING RESEARCH

Unit 9
Marketing Research - an Introduction 01-22
Unit 10
Marketing Information System 23-43
Unit 11
Types of Marketing Research 44-69
Unit 12
Applications of Marketing Sesearch in Business 70-80

1
Course Design and Editorial Committee

Prof. D. Shivalingaiah Prof. T.D.Devegowda

Vice-Chancellor & Chairperson Dean (Academic)(I/C)& Convenor
Karanataka State Open University Karnataka State Open University
Muktagangotri, Mysore – 570 006 Muktagangotri, Mysore – 570 006

Editor and Course Co-Ordinator

Dr. C. Mahadevamurthy
Dr. H. Rajeshwari
Associate Professor and Chairman Assistant Professor
Dos & Research in Management, DOS in Management
Karnataka State Open University, KSOU, Mysuru

Mukthagangothri, Mysore – 570 006

Course Writers

Dr Shivaramana Gowda Block - 3 Units 9-12

Associate Professor, Department of Management
VTU PG Centre
Gulbarga

Publisher
Registrar
Karnataka State Open University, Mukthagangothri, Mysore - 6

Developed by Academic Section, KSOU, Mysore- 6, 2016

All rights reserved. No part of this work may be reproduced in any form, by mimeograph or any
other means, without permission in writing from the Karnataka State Open University.
Further information may obtained from the University’s office at Muktagangotri, Mysore - 6
Printed and Published on behalf of Karnataka State Open University, Muktagangotri, Mysore - 6

2
BLOCK-3 : MARKETING RESEARCH

This module is concerned with providing an introduction to marketing research.

This means that all the basic elements of method, techniques, and analysis are covered,
including those at a more sophisticated level. The methodological scope regarding
research design, data collection techniques, and measurement is broad. This module
presents its material from primarily a pragmatic and user-oriented rather than theoretical
research technician perspective. User-orientation is based on the premise that users
need to know method in order to evaluate research presented to them.

This Block : Marketing Research, is divided into Four Units

Unit 9: Marketing Research- an Introduction
Unit 10: Marketing Information System
Unit 11: Types of Marketing Research
Unit 12 : Applications of Marketing Research in Business

3
4
UNIT-9: MARKETING RESEARCH- AN
INTRODUCTION

Structure:
9.1 Objectives
9.2 Introduction
9.3 Meaning of Marketing Research
9.4 Definition of Marketing Research
9.5 Objectives of Marketing Research
9.6 Applications of Marketing Research
9.7 Limitations of Marketing Research
9.8 Processes of Marketing Research
9.9 Qualitative and Quantitative Research Concepts
9.10 Notes
9.11 Summary
9.12 Key words
9.13 Self Assessment Questions
9.14 References

5
9.1 OBJECTIVES
After studying this unit, you should be able to:
 Explain the meaning and definition of Marketing Research;
 Identify objectives of Marketing Research;
 Evaluate applications of Marketing Research;
 Assess the Limitations of Marketing Research;
 Describe Process of Marketing Research and
 Identify the differences between Qualitative and quantitative Research.
9.2 INTRODUCTION
Marketing is a restless, changing, and dynamic business activity. The role of marketing itself
has changed dramatically due to various crises such as material and energy shortages, inflation,
economic recessions, high unemployment, dying industries, dying companies, terrorism and war,
and effects due to rapid technological changes in certain industries. Such changes, including the
internet, have forced today’s marketing executive to becoming more market driven in their strategic
decision-making, requiring a formalized means of acquiring accurate and timely information about
customers, products and the marketplace and the overall environment. The means to help them do
this is marketing research.
WHAT IS RESEARCH?
Research is a systematic and objective investigation of a subject or problem in order to
discover relevant information or principles. It can be considered to be either primarily fundamental
or applied in nature. Fundamental research, frequently called basic or pure research, seeks to
extend the boundaries of knowledge in a given area with no necessary immediate application to
existing problems, for example, the development of a research method that would be able to predict
what people will like in the future. In contrast, applied research, also known as decisional research,
attempts to use existing knowledge to aid in the solution of some given problem or set of problems.
Marketing research assists in the overall management of the marketing function. A marketing
manager must prioritize the more important and pressing problems selected for solution, reach the
best possible solution based on the information available, implement the solution, modify the solution
when additional information so dictates, and establish policy to act as a ready-made solution for
any recurrence of the problem.
Marketing research often focuses on understanding the “Customer” (purchasers, consumers,
influencers), the “Company” (product design, promotion, pricing, placement, service, sales), and
can also be expanded toward the environment to include “Competitors” (and how their market
offerings interact in the market environment).

6
9.3 MEANING OF MARKETING RESEARCH

Through introduction we could be able to understand the meaning of research, let us make
an attempt to understand meaning of marketing research,
Marketing Research has two words, viz., marketing and research.
 Marketing means buying and selling activities.
 Research means a systematic and complete study of a problem. It is done by experts. It
uses scientific methods.
Thus, we can say, “Marketing Research is a systematic method of collecting, recording and
analyzing of data, which is used to solve marketing problems.”
Let us consider a situations; a company faces many marketing problems. It faces problems about
consumers, product, market competition, sales promotion, etc. Marketing research helps to solve
these problems.
Marketing research is a systematic process. It first collects data (information) about the
marketing problem. Secondly, it records this data. Then it analyze (studies) this data and draws
conclusions about it. After that, it gives suggestions (advice) for solving the marketing-problem.
So, marketing research helps to solve the marketing problems quickly, correctly and
systematically.
Marketing research collects full information about consumers. It finds out the needs and
expectations of the consumers. So the company produces the goods according to the needs and
expectations of the consumers.
Marketing research helps the company to make its production and marketing policies. It
helps the company to introduce new products in the market. It helps to identify new-markets.
Marketing research also collects full information about the competitors. The company uses
this information to fight competition. It also helps the marketing manager to take decisions.
Marketing research is a special branch and soul of ‘Marketing Management’. It is of recent
origin and widely used by manufacturers, exporters, distributors and service organisations.
Marketing research is very systematic, scientific, objective and organized. It has a wide
scope. It includes product research, consumer research, packaging research, pricing research, etc.
Marketing research is a continuous process. It has a few limitations. However, a company
cannot survive and succeed without it.

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9.4 DEFINITION OF MARKETING RESEARCH

According to American Marketing Association, “Marketing Research is the function that

links the consumer, customer and public to the marketer through information-information used to
identify and define marketing opportunities and problems, generate, refine and evaluate marketing
actions; monitor marketing performance; and improve understanding of marketing as a process.”

Marketing Research is systematic problem analysis, model building and fact finding for the
purpose of important decision making and control in the marketing of goods and services.

Marketing Research is a well-planned, systematic process which implies that it needs planning at all
the stages. It uses scientific method. It is an objective process as it attempts to provide accurate
authentic information. Marketing Research is sometimes defined as the application of scientific
method in the solution of marketing problems.

Marketing Research plays a very significant role in identifying the needs of customers and meeting
them in best possible way. The main task of Marketing Research is systematic gathering and analysis
of information.

9.5 OBJECTIVES OF MARKETING RESEARCH

The main objective of marketing research (MR) is to provide information to the marketing manager.
The marketing manager uses this information to make marketing decision and to solve marketing
problems. In addition to this other objectives of marketing research are listed below.
 Identify the consumer response to the company’s product.
 Know the consumers’ needs and expectations.
 Seek maximum information about the consumer, i.e. the know consumers’ income range,
their location, buying behavior, etc.

 Know the nature and extent of competition and also the strength and weaknesses of the
competitors.

 Check the reaction of the dealers to the company policies.

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  Evaluate the reputation of the company in the market.

 Identify and solve the marketing problems of the company.

 Search for new marketing opportunities.

 Find out alternative uses of the existing products.

 Estimate the cost of marketing of goods and service.

 Help company to introduce new products in the market and improve its existing products.

 Assist a company to select a suitable channel of distribution and test the effectiveness of this
distribution channel.

 Facilitate company to select suitable sales promotion measures and test the effectiveness of
the sales promotion techniques.

 Aids the company to select a suitable media for advertising and find out the overall impact
of advertising.

 Help the marketing manager to decide about the quality of the product, product modification,
packaging, pricing, branding, etc.

 Provide information to top level of management for making objective, policies, plans and
strategies.

 Provide prerequisite information to forecast the marketing budget.

 Supply up-to-date information about market trends, demand and supply position, etc.

 Forecast the future sales and business conditions.

 Marketing research is very useful to government, manufacturers, wholesalers, retailers,

consumers and to entire society.

9.6 APPLICATIONS OF MARKETING RESEARCH

Marketing research applications include: Advertising testing research, branding

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research, customer satisfaction research, pricing research, product positioning research, new product
assessments, marketing due diligence, and segmentation research.
Applications of marketing research can be divided into two broad areas:

1. Strategic
2. Tactical

Among the strategic areas, marketing research applications would be demand forecasting,
sales forecasting, segmentation studies, identification of target markets for a given product, and
positioning strategies identification.

In the second area of tactical applications, we would have applications such as product
testing, pricing research, advertising research, promotional research, distribution and logistics related
research. In other words, it would include research related to all the ‘P’s of marketing: how much to
price the product, how to distribute it, whether to package it in one way or another, what time to
offer a service, consumer satisfaction with respect to the different elements of the marketing mix
(product, price, promotion, distribution), and so on. In general, we would find more tactical
applications than strategic applications because these areas can be fine-tuned more easily, based
on the marketing research findings. Obviously, strategic changes are likely to be fewer than tactical
changes. Therefore, the need for information would be in proportion to the frequency of changes.

The following list is a snapshot of the kind of studies that have actually been done in India.

1. A study of consumer buying habits for detergents—frequency, packs size, effect of promotions,
brand loyalty and so forth.
2. To find out the potential demand for ready-to-eat chapattis in Mumbai city.
3. To determine which of the three proposed ingredients—tulsi, coconut oil or neem, the
consumer would like to have in toilet soap
4. To find out what factors would affect the sales of Flue Gas Desulphurization equipment (industrial
pollution control equipment)
5. To find out the effectiveness of the advertising campaign for a car brand

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9.7 LIMITATIONS OF MARKETING RESEARCH

Following are the main limitations of Marketing Research:

 Marketing Research (MR) is not an exact science though it uses the techniques of science.
Thus, the results and conclusions drawn upon by using MR are not very accurate.
 The results of MR are very vague as MR is carried out on consumers, suppliers,
intermediaries, etc. who are humans. Humans have a tendency to behave artificially when
they know that they are being observed. Thus, the consumers and respondents upon whom
the research is carried behave artificially when they are aware that their attitudes, beliefs,
views, etc are being observed.
 MR is not a complete solution to any marketing issue as there are many dominant variables
between research conclusions and market response.
 MR is not free from bias. The research conclusions cannot be verified. The reproduction of
the same project on the same class of respondents give different research results.
 Inappropriate training to researchers can lead to misapprehension of questions to be asked
for data collection.
 Many business executives and researchers have ambiguity about the research problem and
its objectives. They have limited experience of the notion of the decision-making process.
This leads to carelessness in research and researchers are not able to do anything real.
 There is less interaction between the MR department and the main research executives. The
research department is in segregation. This all makes research ineffective.
 MR faces time constraint. The firms are required to maintain a balance between the
requirement for having a broader perspective of customer needs and the need for quick
decision making so as to have competitive advantage.
 Huge cost is involved in MR as collection and processing of data can be costly. Many firms
do not have the proficiency to carry wide surveys for collecting primary data, and might not
also able to hire specialized market experts and research agencies to collect primary data.
Thus, in that case, they go for obtaining secondary data that is cheaper to obtain.
 MR is conducted in open marketplace where numerous variables act on research settings.

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9.8 PROCESS OF MATKETING RESEARCH

The market research process is a systematic methodology for informing business decisions. The
figure below breaks the process down into six steps:

Figure 9.1 :Marketing Research Process

Step1. Define the Objective & Your “Problem”

Perhaps the most important step in the market research process is defining the goals of the
project. At the core of this understand the root question that needs to be informed by

market research. There is typically a key business problem (or opportunity) that needs to
be acted upon, but there is a lack of information to make that decision comfortably; the job of a
market researcher is to inform that decision with solid data. Examples of ”business problems”
might be “How should we price this new widget?” or “Which features should we prioritize?”

By understanding the business problem clearly, you’ll be able to keep your research focused
and effective. At this point in the process, well before any research has been conducted, I like to
imagine what a “perfect” final research report would look like to help answer the business
question(s). You might even go as far as to mock up a fake report, with hypothetical data, and ask
your audience: “If I produce a report that looks something like this, will you have the information
you need to make an informed choice?” If the answer is yes, now you just need to get the real
data. If the answer is no, keep working with your client/audience until the objective is clear, and be
happy about the disappointment you’ve prevented and the time you’ve saved.

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Step2. Determine Your “Research Design”

Now that you know your research objects, it is time to plan out the type of research that
will best obtain the necessary data. Think of the “research design” as your detailed plan of attack.
In this step you will first determine your market research method (will it be a survey, focus group,
etc.?). You will also think through specifics about how you will identify and choose your sample
(who are we going after? Where will we find them? How will we incentivize them? , etc.). This is
also the time to plan where you will conduct your research (telephone, in-person, mail, internet,
etc.). Once again, remember to keep the end goal in mind–what will your final report look like?
Based on that, you’ll be able to identify the types of data analysis you’ll be conducting (simple
summaries, advanced regression analysis, etc.), which dictates the structure of questions you’ll be
asking. Your choice of research instrument will be based on the nature of the data you are trying to
collect. There are three classifications to consider:
Exploratory Research – This form of research is used when the topic is not well defined or
understood, your hypothesis is not well defined, and your knowledge of a topic is vague. Exploratory
research will help you gain broad insights, narrow your focus, and learn the basics necessary to go
deeper. Common exploratory market research techniques include secondary research, focus groups
and interviews. Exploratory research is a qualitative form of research.
Descriptive Research – If your research objective calls for more detailed data on a specific topic,
you’ll be conducting quantitative descriptive research. The goal of this form of market research is
to measure specific topics of interest, usually in a quantitative way. Surveys are the most common
research instrument for descriptive research.
Causal Research – The most specific type of research is causal research, which usually comes in
the form of a field test or experiment. In this case, you are trying to determine a causal relationship
between variables. For example, does the music I play in my restaurant increase dessert sales (i.e.
is there a causal relationship between music and sales?).
Step3. Design & Prepare Your “Research Instrument”
In this step of the market research process, it’s time to design your research tool. If a
survey is the most appropriate tool (as determined in step 2), you’ll begin by writing your questions
and designing your questionnaire. If a focus group is your instrument of choice, you’ll start preparing
questions and materials for the moderator. You get the idea. This is the part of the process where
you start executing your plan.

By the way, step 3 should be to test your survey instrument with a small group prior to
broad deployment. Take your sample data and get it into a spreadsheet; are there any issues with

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the data structure? This will allow you to catch potential problems early, and there are always
problems.

Step 4. Collect Your Data

This is the meat and potatoes of your project; the time when you are administering your
survey, running your focus groups, conducting your interviews, implementing your field test, etc.
The answers, choices, and observations are all being collected and recorded, usually in spreadsheet
form. Each nugget of information is precious and will be part of the masterful conclusions you will
soon draw. Brief about the process is as follows.

Data Collection in Marketing Research is a detailed process in which a planned search for
all relevant data is made by researcher.

Types of Data

1. Primary Data- Primary data is the data which is collected first hand specially for the purpose
of study. It is collected for addressing the problem at hand. Thus, primary data is original
data collected by researcher first hand.

2. Secondary data- Secondary data is the data that have been already collected by and readily
available from other sources. Such data are cheaper and more quickly obtainable than the
primary data and also may be available when primary data cannot be obtained at all.

Data Collection Methods

1. Qualitative Research- Qualitative Research is generally undertaken to develop an initial
understanding of the problem. It is non statistical in nature. It uses an inductive method, that is, data
relevant to some topics are collected and grouped into appropriate meaningful categories. The
explanations are emerged from the data itself. It is used in exploratory research design and descriptive
research also. Qualitative data comes into a variety of forms like interview transcripts; documents,
diaries and notes made while observing. There are two main methods for collecting Qualitative
data.
a. Direct Collection Method-When the data is collected directly, it makes use of disguised
method. Purpose of data collection is not known. This method makes use of-
i. Focus Groups
ii. Depth Interview

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iii. Case Study
b. Indirect Collection-Method
i. Projective Techniques
2. Quantitative Research- Quantitative Research quantifies the data and generalizes the
results from the sample to the population. In Quantitative Research, data can be collected by two
methods
 Survey Method
 Observation Method

Step5. Analyze Your Data

Step 4 (data collection) has drawn to a close and you have heaps of raw data sitting in your lap. If
it’s on scraps of paper, you’ll probably need to get it in spreadsheet form for further analysis. If it’s
already in spreadsheet form, it’s time to make sure you’ve got it structured properly. Once that’s
all done, the fun begins. Run summaries with the tools provided in your software package
(typically Excel, SPSS, Minitab, etc.), build tables and graphs, segment your results by groups that
make sense (i.e. age, gender, etc.), and look for the major trends in your data. Start to formulate
the story you will tell.

Step6. Visualize Your Data and Communicate Results

You’ve spent hours poring through your raw data, building useful summary tables, charts
and graphs. Now is the time to compile the most meaningful take-away into a digestible report or
presentation. A great way to present the data is to start with the research objectives and business
problem that were identified in step 1. Restate those business questions, and then present your
recommendations based on the data, to address those issues. When it comes time to presenting
your results, remember to present insights, answers and recommendations, not just charts and
tables. If you put a chart in the report, ask yourself “what does this mean and what are the
implications?” Adding this additional critical thinking to your final report will make your research
more actionable and meaningful and will set you apart from other researchers.

While it is important to “answer the original question,” remember that market research is
one input to a business decision (usually a strong input), but not the only factor.

Following example gives us little more detail about the process of Marketing Research
process in action, starting with a business problem of “how should we price this new widget?”

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 Fig:9.2. Marketing Research Procedure

9.9 QUALITATIVE AND QUANTITATIVE RESEARCH CONCEPT

As the names suggest quantitative research produces numerical data whereas qualitative
research generates non numerical data. However, this is only a superficial understanding of the
terms. Let us explore little more to understand these concepts.

Qualitative Research

In a nutshell, qualitative research gives us vital insights in comprehending why do consumers

feel or behave in a manner they do. It helps in identifying and perceiving the underlying opinions,

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behaviour patterns and motivations. Qualitative research aids the formulation of hypothesis to be
used for deeper exploration or quantification. In a way, it adds richness to the information gathered
by quantitative research by understanding instead of measuring. To sum up, the qualitative approach
helps decipher the less rational and more emotional perspective of the consumer’s decision making
nature, i.e. how would I feel if I were in the consumers’ shoes?

Usage
Qualitative studies assist in the following business situations:
 Market Study: Analyzing consumer interest in the company’s new idea in a particular
demographic.
 New Product Development: Understanding the actual need of the end user.
 Creative Development Research: Pertaining to branding; what should be said and how should
it be said.
 Diagnostic Studies: Understanding how is the company’s category or brand doing as
compared to the competitor’s offerings and image respectively.

Techniques

Qualitative research can be carried out by:

1. Focus Group Discussions: This is the most effective and preferred technique for
qualitative studies. Respondents, in a group of 5-8 people, are made comfortable a n d
asked general questions first. Gradually, the conversation is shifted to the topic o f
research. It helps obtain initial reactions to marketing programs or understand t h e
consumers’ impressions about a new product concept.

2. In Depth Interviews: Personal interviews are conducted instead of focus groups in

the following cases:

 Discussing sensitive, confidential or embarrassing topics (Example: Women’s

hygiene issues)

 Requirement of detailed probing (Example: Purchase psychology for an automobile

is best done with the respondent one on one)

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  Situations where the respondent may get influenced by the group response (Example:
Opinion on TV censorship where social norms prevail)

 Interviews with highly professional people with busy schedules (Example:

Understanding required from doctors on a new medical topic )

Another term associated with qualitative research and worth mentioning here are projective
techniques. These are ways of extracting information from respondents that capture the emotions in
consumer behaviour. Often direct questions do not bring out the hidden motivations as consumers
are themselves not fully aware of their reasons and naturally are not able to express themselves
fully. Direct questions may give sensible answers, but they may not necessarily be ‘real’ answers.
For this reason, projective techniques such as the below ones are used:

 Brand Personalities: The strength of advertising can be tested by imagining brands as persons
or objects. For example, asking that if Sunsilk was a person, what would he be like?
 Collages: Asking respondents to draw collages of a brand to help understand what consumers
think about symbols used for advertising the brand.

 Word Association: First word that comes to mind upon mentioning a particular word. For
example if the word Coke brings out the first mentioned word as happiness, Coke is
maintaining its strong brand image.

Quantitative Research

The aim of this method is to consume numerical data and present facts or uncover patterns
in the study. The aftermath of quantitative research is results that are projectable because they are
drawn statistically. Basically, while qualitative research is subjective, the quantitative method is
more objective. Another characteristic of quantitative research is that it is drawn from a reasonably
sized and carefully selected sample which is representative of the target population. The methods of
choosing a proper sample are discussed in the previous chapter. Typically, a terminology of 95%
confidence interval is considered good while deciding the sample sizes. This actually means that if
the survey is reoccurred 100 times, 95 times the same response would be obtained.

Usage

Quantitative research is most widely used for determining cause effect relations. For example,
if the marketing budget is increased by 15%, how much is the revenue expected to increase. If the

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strength between the dependent (revenue) and independent (marketing budget) variable is strong,
the test hypothesis holds true and the company should invest more in its marketing. Thus a decisive
stance can be taken from the facts presented in this research.

Techniques

Data collection for quantitative studies is done by various kinds of surveys using
questionnaires. The survey can be done through various mediums such as face-to-face, email,
telephonic, online, etc. Designing questionnaires for a survey is a detailed topic which will be covered
in the next chapter. For now, we will explore the methods for conducting a survey.

 Mail survey: Mail surveys are convenient and maintain anonymity of the respondent. They
are also relatively inexpensive. However the major drawback is that feedback cannot be
obtained from the respondent.
 Telephonic & Face-to-face survey: There is little scope of error in these types of survey
as the interviewer is available for assistance. However, while guiding, the interviewer may
sometimes influence the respondent leading to biased answers.
 Online: Surveys carried out over the internet are gaining popularity these days as they can
reach a wide audience. The downside is that without incentive, the respondent at the end
may not be interested in taking up the survey or answering all questions seriously.
 Hybrid: A fusion of techniques can be used to record better responses. A commonly used
hybrid method is Telephone-Mail-Telephone (TMT) wherein respondents are instructed
over the phone and then sent the survey over mail to be filled at their convenience.

The choice of the above mediums depends on the budget, time and complexity. If budget is
a constraint, mail surveys can be used. Online surveys are instant and hence should be deployed
when there is a time crunch. When interaction is required, personal or telephonic surveys must be
utilized.

Concluding Remarks

We have seen in the sections above that in which situations the usage of quantitative research
is preferable over qualitative research and vice versa. Ideally, if there are less budget constraints,
we can use both types as they give variant perspectives and complement one another. Sometimes
both have to be used in tandem as in case of Usage and Attitude Studies that we will see in the later
chapters. Finally, a qualitative research will generate a more narrative report with a contingent

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account and direct quotations from the respondents. On the contrary, a quantitative research will
produce a statistical report with correlations, significance, means, etc and hard facts.

9.10 NOTES

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9.11. SUMMARY

Marketing research is the set of activities central to all marketing-related decisions regardless
of the complexity or focus of the decision. Marketing research is responsible for providing managers
with accurate, relevant, and timely information so that they can make marketing decisions with a
high degree of confidence. Within the context of strategic planning, marketing research is responsible
for the tasks, methods, and procedures a firm will use to implements and direct its strategic plan.

9.12 KEY WORDS

Marketing Research, Advertising testing research, Branding research, Customer satisfaction

research, Strategic research, Tactical Research, Research Design

9.13 SELF ASSESSMENT QUESTIONS

1. What is research?
2. What do you mean by marketing research?
3, Discuss the objectives of marketing research.
4. Narrate the applications of marketing research.
5. What are the limitations of marketing research?
6. Discuss the various steps involved in marketing research process with suitable examples.
7. Identify the differences between qualitative and quantitative research approaches.

9.14 REFERENCES

1. Assael, H. Consumer Behaviour and marketing Action, USA: Ohio- South Western
College pub., 1995
2. Engle, J F. Consumer behaviour, Chicago: Dryden Press, 1993
3. Howard, John.A. Consumer behaviour in Marketing, New Delhi: Prentice Hall.
1989
4. Mowen, John C. Consumer Behaviour, New York: Mach Millan, 1993.
5. Schiffman, L G and Kanuk, L L. Consumer behaviour, New Delhi: PHI, 1994.
6. Consumer Behaviour, Raju&Xardel, New Delhi: Vikas Publications 2004
7. Kazmi&Batra , Consumer Behaviour, New Delhi: Excel Books, 2009

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UNIT 10: MARKETING INFORMATION SYSTEM

Structure:
10.1 Objectives
10.2 Introduction to information system
10.3 Marketing Information System-an Introduction
10.4 Definition of Marketing Information System
10.5 Difference between Marketing Research and MkIS
10.6 Importance of Marketing Information System
10.7 Components of Marketing Information System
10.8 Creating a comprehensive MkIS in a “perfect” world
10.9 Risks of Marketing Information System
10.10 Notes
10.11 Summary
10.12 Key words
10.13 Self Assessment Questions
10.14 References

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10.1 OBJECTIVES
After studying this unit, you should be able to:
 Explain the concept of Information system;
 Describe Marketing information system;
 Evaluate definitions of marketing information system;
 Differentiate between marketing research and Marketing information system;
 Estimate the importance’s of marketing information system ;
 Identify components of marketing information system and
 Create model of marketing information system in the present competitive world of marketing.

10.2 INTRODUCTION TO INFORMATION SYSTEM

In today’s information and communication age, there is a constant reference to information systems
and management of information systems. In the digital age data, storage and retrieval are done
through various systems and interfaces.
An information system, therefore, can be defined as set of coordinated network of components
which act together towards producing, distributing and or processing information. An important
factor of computer based information system is precision, which may not apply to other types of
systems.
In a system, network of components work towards a single objective, if there is lack of co-
ordination among components, it leads to counterproductive results. A system may have following
features:
 Adaptability: some systems are adaptive to the exterior environment, while some systems
are non-adaptive to the external environment. For example, anti-lock braking system in car
reacts depending on the road conditions, where as the music system in the car is independent
of other happening with the car.
 Limitation: every system has pre-defined limits or boundaries within which it operates.
This limits or boundaries can be defined by law or current state of technology.
Common definition of information is data. However, data is no true information. Data gets its
meaning and significance if only it is information. Information is represented with data, symbols and
letters.
Information has following properties:
 Objective: One of the key properties of information is its objectiveness. Objective
information is a key component of any modern scientific research.

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  Subjective: Set of information which is useful to science may be abstract or irrelevant for
others. Therefore, information is subjective also.
 Temporary: Information is temporary with every update in the database.
Information is represented with help of data, numbers, letters or symbols. Information is perceived
in a way it gets represented. Decimal system and binary system are two ways of representing
information. The binary circuits of computers are designed to operate under two states.

Organization of Information

The way in which information is organized directly affect the way the information is managed
and retrieved.

The simplest way of organizing information is through linear model. In this form, data is
structured one after another, for example, in magnetic tapes, music tapes, etc.

In a binary tree model, data is arranged in an inverted tree format where it assumes two
values.

The hierarchy model is derived from a binary tree model. In this model, branch can assume
multi-value data, for example in the UNIX operating system this model is used for its file system.

The hypertext model is another way of organizing information; World Wide Web is an
example of this model.

Random access model is another way of organizing information. This model is used for

optimum utilization of available computer storage space. Here data is stored in specified location
under direction of the operating system.

Networking Information

Information is networked through network topology. The layout of all the connected devices,
and it provides virtual shape or structure to the network is known as network topology. The physical
structure may not be representative of network topology. The basic types of topology are bus, ring,
star, tree and mesh.

The above topologies are constructed and managed with help of Hubs, Switches, Bridges,
Routers, Brouters and Gateways. you have already gained knowledge of this in your second semester.

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Securing Information

Security of information as well as an information system is critical. Data back-up is on the

way through which Information can be made secured. Security management for network and
information system is distinct for different setup like home, small business, medium business, large
business, school and government.

10.3 MARKETING INFORMATION SYSTEM-AN INTRODUCTION

An information system which captures, stores, analyzes and distributes marketing information
to facilitate the decision-making process is called marketing information system.

The source of marketing information comes through internal records and external records.
The internal record includes day to day production data as well as product sales data. Internal data
helps manager track marketing impact on the different product mix.

External data is market performance of a competitor also plays important in the decision-
making process. Company’s sales force is a huge data source. Therefore, it is essential for system
to capture their market intelligence input.

The data collected through external or internal market research agencies plays an important
to provide a holistic market view to the managers.

An information system captures information from all the different sources. The information
is analyzed and then distributed to managers for decision-making process.

Marketing information systems helps managers in following ways:

 It helps organizing data from different sources at one location.

 It helps in development and tracking of marketing plans.

 It helps in manipulation data as per management requirement.

 It facilitates historical analysis of marketing data.

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10.4 DEFINITION OF MARKETING INFORMATION SYSTEM

A marketing information system (MkIS) is a management information system (MIS)

designed to support marketing decision making.
Jobber (2007) defines it as a “system in which marketing data is formally gathered, stored,
analyzed and distributed to managers in accordance with their informational needs on a regular
basis.”
A marketing information system (MkIS) is a software program that provides information about
marketing research. It allows users to compile and analyze data in a very easy, organized fashion.
MkIS systems are also effective tools that help users make decisions about consumer behavior and
the marketing mix, including products and how they are placed, priced, and promoted. The more
sophisticated the management information system, the more information it can provide.
Philip Kotler has defined it more broadly as “people, equipment, and procedures to gather,
sort, analyze, evaluate, and distribute needed, timely, and accurate information to marketing decision
makers.”

10.5 DIFFERENCE BETWEEN MARKETING RESEARCH AND MARKETING

INFORMATION SYSTEM

By now we could able to understand the basic aspects of marketing research and marketing
information system, let us compare the roles played by both the concepts in marketing to take the
decisions by marketing managers.

M arketing R esearch M arketing Inform ation System

1. E m phasis is on handling external 1. It handles both internal and external

inform ation data.

2. It is concerned w ith preventing as

2. It is concerned w ith solving problem s.
w ell as solving problem s.

3. It operates in a fragm ented fashion – on 3. It operates continuously as a

a project-to-project basis. system .

4. It tends to focus on past inform ation. 4. It tends to be future oriented.

5. It is a source of input for m arketing 5. It includes other subsystem s besides

inform ation system . m arketing research.

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10.6 IMPORTANCE OF MARKETING INFORMATION SYSTEM

Marketing information includes all the data, in terms of facts, opinions, views guidelines and
policies, which are necessary to make vital marketing decisions. The data is collected from customers,
competitors, company sales force and other staff, government sources, specialized agencies and
sources.

MIS provides relevant, reliable and required information in respect of business environment-
both internal and external environments. Such information is vital for successful decision making.

The following are the Importance/benefits or advantages of MIS;

1. Helps to recognize trends: - MIS helps managers to recognize marketing trends. The

changing trends may be in respect of prices, product design, packaging, promotion schemes, etc.
managers can take effective decisions in respect of prices, product designs, etc., in response to
changing trends in the environment.

2. Facilitates Marketing Planning and Control: -Effective market planning is required in terms
of product planning, pricing, promotion and distribution. Such planning will be possible only if the
company is possessing adequate and relevant information.

3. Quick supply of information: -A firm has to take quick decision for this purpose; it requires
fast flow of information which is facilitated by a properly designed MIS. Due to timely supply of
marketing information, the marketing managers can make quick and effective decisions.
4. Quality of decision Making: -in every aspect of marketing, there is need to make constant
and correct decisions. A properly designed marketing information system promptly supplies reliable
and relevant information. With the help of computers and other data processing equipments, the
marketing managers can make the right decisions at the right time.
5. Tapping of business Opportunities: -There are number of business opportunities which have
remained untapped for various reasons are due to unavailability of sufficient information. MIS makes
it possible to tap business opportunities as it can supply required and reliable data.
6. Provides Marketing Intelligence: -Marketing intelligence refers to information of the events
that are happening in the external environment, i.e., changes in customer tastes, expectations,

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competitors’ strategies, government policies, international environment, etc. with the help of MIS
specialists, it is possible to collect marketing intelligence which is vital to make effective marketing
decisions.

7. Help managers to Recognize Change: -a business firm may be handling or marketing a wrong
line of products. As such the company will not be able to make profits. And if it is does, profits may
not be adequate. A firm which is well equipped with MIS will be able to realize the need to change
the line of business.

8. Integration of Information: -firms, which are largely decentralized can gather information
which is scattered at many centers or departments and integrate it for effective decision making.
Such integration is possible if there is a centralized MIS.

10.7 COMPONENTS OF MARKETING INFORMATION SYSTEM

A marketing information system (MkIS) is intended to bring together disparate items of

data into a coherent body of information. An MkIS is, as will shortly be seen, more than raw data
or information suitable for the purposes of decision making. An MkIS also provides methods for
interpreting the information the MkIS provides. Moreover, as Kotler’s definition says, an MkIS is
more than a system of data collection or a set of information technologies:

“A marketing information system is a continuing and interacting structure of people, equipment and
procedures to gather, sort, analyze, evaluate, and distribute pertinent, timely and accurate information
for use by marketing decision makers to improve their marketing planning, implementation, and
control”.

Figure 10.1 illustrates the major components of an MkIS, the environmental factors monitored by
the system and the types of marketing decision which the MkIS seeks to underpin.

The explanation of this model of an MkIS begins with a description of each of its four main
constituent parts:
 The internal reporting systems,
 Marketing research system,
 Marketing intelligence system and
 Marketing models.

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 Figure 10.1 The marketing information systems and its subsystems

It is suggested that whilst the MkIS varies in its degree of sophistication - with many in the
industrialized countries being computerized and few in the developing countries being so - a fully
fledged MkIS should have these components, the methods (and technologies) of collection, storing,
retrieving and processing data notwithstanding.

Internal reporting systems: All enterprises which have been in operation for any period

of time nave a wealth of information. However, this information often remains under-utilized because
it is compartmentalized, either in the form of an individual entrepreneur or in the functional departments
of larger businesses. That is, information is usually categorized according to its nature so that there
are, for example, financial, production, manpower, marketing, stockholding and logistical data.
Often the entrepreneur or various personnel working in the functional departments holding these
pieces of data do not see how it could help decision makers in other functional areas. Similarly,
decision makers can fail to appreciate how information from other functional areas might help them
and therefore do not request it.
The internal records that are of immediate value to marketing decisions are: orders received,
stockholdings and sales invoices. These are but a few of the internal records that can be used by
marketing managers, but even this small set of records is capable of generating a great deal of
information. Below, is a list of some of the information that can be derived from sales invoices?

 Product type, size and pack type by territory

 Product type, size and pack type by type of account

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  Product type, size and pack type by industry
 Product type, size and pack type by customer
 Average value and/or volume of sale by territory
 Average value and/or volume of sale by type of account
 Average value and/or volume of sale by industry
 Average value and/or volume of sale by sales person
By comparing orders received with invoices an enterprise can establish the extent to which
it is providing an acceptable level of customer service. In the same way, comparing stockholding
records with orders received helps an enterprise ascertain whether its stocks are in line with current
demand patterns.
Marketing research systems: The general topic of marketing research has been the prime subject
of the textbook and only a little more needs to be added here. Marketing research is a proactive
search for information. That is, the enterprise which commissions these studies does so to solve a
perceived marketing problem. In many cases, data is collected in a purposeful way to address a
well-defined problem (or a problem which can be defined and solved within the course of the
study). The other form of marketing research centres not on a specific marketing problem but is an
attempt to continuously monitor the marketing environment. These monitoring or tracking exercises
are continuous marketing research studies, often involving panels of farmers, consumers or distributors
from which the same data is collected at regular intervals. Whilst the ad hoc study and continuous
marketing research differs in the orientation, yet they are both proactive.
Marketing intelligence systems: Whereas marketing research is focused, market intelligence is
not. A marketing intelligence system is a set of procedures and data sources used by marketing
managers to lift information from the environment that they can use in their decision making. This
scanning of the economic and business environment can be undertaken in a variety of ways, including
Unfocused scanning
The manager, by virtue of what he/she reads, hears and watches exposes him/herself to
information that may prove useful. Whilst the behaviour is unfocused and the manager has no specific
purpose in mind, it is not unintentional

Semi-focused scanning

` Again, the manager is not in search of particular pieces of information that he/she is actively
searching but does narrow the range of media that is scanned. For instance, the manager may focus

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more on economic and business publications, broadcasts etc. and pay less attention to political,
scientific or technological media.

Informal search

This describes the situation where a fairly limited and unstructured attempt is made to obtain
information for a specific purpose. For example, the marketing manager of a firm considering entering
the business of importing frozen fish from a neighboring country may make informal inquiries as to
prices and demand levels of frozen and fresh fish. There would be little structure to this search with
the manager making inquiries with traders he/she happens to encounter as well as with other ad
hoc contacts in ministries, international aid agencies, with trade associations, importers/exporters
etc.

Formal search

This is a purposeful search after information in some systematic way. The information will
be required to address a specific issue. Whilst this sort of activity may seem to share the
characteristics of marketing research it is carried out by the manager him/herself rather than a
professional researcher. Moreover, the scope of the search is likely to be narrow in scope and far
less intensive than marketing research

Marketing intelligence is the province of entrepreneurs and senior managers within an

agribusiness. It involves them in scanning newspaper trade magazines, business journals and reports,
economic forecasts and other media. In addition it involves management in talking to producers,
suppliers and customers, as well as to competitors. Nonetheless, it is a largely informal process of
observing and conversing.

Some enterprises will approach marketing intelligence gathering in a more deliberate fashion
and will train its sales force, after-sales personnel and district/area managers to take cognizance of
competitors’ actions, customer complaints and requests and distributor problems. Enterprises with
vision will also encourage intermediaries, such as collectors, retailers, traders and other middlemen
to be proactive in conveying market intelligence back to them.

Marketing models: Within the MkIS there has to be the means of interpreting information

in order to give direction to decision. These models may be computerized or may not. Typical tools
are:

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  Time series sales modes
 Brand switching models
 Linear programming
 Elasticity models (price, incomes, demand, supply, etc.)
 Regression and correlation models
 Analysis of Variance (ANOVA) models
 Sensitivity analysis
 Discounted cash flow
 Spreadsheet ‘what if models

These and similar mathematical, statistical, econometric and financial models are the analytical
subsystem of the MkIS. A relatively modest investment in a desktop computer is enough to allow
an enterprise to automate the analysis of its data. Some of the models used are stochastic, i.e. those
containing a probabilistic element whereas others are deterministic models where chance plays no
part. Brand switching models are stochastic since these express brand choices in probabilities
whereas linear programming is deterministic in that the relationships between variables are expressed
in exact mathematical terms.

10.8 CREATING A COMPREHENSIVE MKIS IN A “PERFECT” WORLD

In a perfect world, an MkIS system would be created from the ground up and integrated with all of
a business’s systems and processes. In such a world, every sale and lead could be traced back to
the marketing effort that produced it. Also, every complaint or compliment would be tracked to the
source. Skilled customer service personnel would quickly turn all negatives into positives, and
skilled marketing communicators would create content that incorporated the testimonials. That’s
the dream. The reality falls far short. What is a marketer to do?
Creating a ”real world” MkIS for those that cannot afford to wait
Rather than wait for the dream to materialize, marketers need to improvise. They need a system
that enables them to (1) make better decisions and (2) support those decisions with verifiable data.
The initial steps of this approach typically involve the following:
1. Look at what systems the company already has in place,
2. Determine what useful marketing information can be gleaned from those systems,

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3. Identify the information marketers need that they are not getting from existing
systems,
4. Create, or find, additional systems to provide the needed marketing information,
5. Integrate these systems with companywide enterprise systems (if possible and not
too costly).
Following are the steps to create effective Marketing Information System

Step1. Start with the accounting system

A good place to start is the business system that every business has – the Accounting system.
What information do businesses get from their accounting system that is useful to marketers?
1. Sales
2. Costs/Expenses
3. Profits
If the accounting software is well designed and flexible, this information can be sorted in a
variety of ways including by

(1) Sales person,

(2) Product,

(3) SKU (stock-keeping-unit),

(4) Division or Region,

(5) Distribution channel,

(6) Reseller, and

(7) Season.

The information obtained from the accounting system is typically enterprise-wide and at a
macro level. It usually does not give marketers, or their bosses, the information necessary to

(1) determine the effectiveness of the organization’s marketing efforts;

(2) enable it to react quickly to real-time crises and opportunities; or

(3) respond rapidly to competitive threats. Some of the information that marketers need
from an effective marketing information system includes the following:

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 1. Marketing strategy feedback (or how well marketing strategies are working)
2. Complaints
3. Compliments (testimonials)
4. New Product ideas
5. Competition information
6. Marketplace changes
To capture and properly respond to this information, most marketers need to create a
Marketing Information System that augments the macro information provided by their accounting
systems.

Step 2: Market Information Form

To minimize paperwork, marketers can collect a lot of the information from the above list
on a Market Information Form (or its electronic equivalent). The information collected and how this
information is used is summarized below.
1. Complaints. Once collected, complaints are distributed to those that can solve the problem
quickly. The objective is to turn the negative into a positive and build a stronger relationship with
the offended party. The way companies handle complaints can mean the difference between
success and failure in an increasingly competitive marketplace.
2. Compliments. After obtaining permission, marketers use compliments in their marketing
communications. Nothing is more effective than bona fide testimonials from customers.
Copies are also given to sales people so they can put them in their sales notebooks and use
them to impress prospects and close business.
3. New Product ideas. These are fed into the company’s new product development
system.
4. Competition Information. This is given to sales people to put in their sales notebooks so they
can use the data to answer objections and close business (with the caveat of not disparaging
competitors) and is fed into the company’s new product development system so that new products
can be designed to beat competitors.
5. Strategy feedback. This information is organized by the marketing building blocks
(1) corporate image,
(2) positioning,
(3) product,
(4) pricing,
(5) distribution,

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 (6) promotion, and
(7) marketing information system
(yes we need to collect information as to how well our MIS strategies are working). Based on
feedback, strategies are adjusted as necessary.
A pad of these forms (or an electronic version) is provided to all the contact points including

(1) Receptionists and secretaries that answer the phone,

(2) Sales people,

(3) Customer service people,

(4) Repair people,

(5) Personnel that respond to inquiries and complaints online and on social media,
and

(6) accounts receivable (since they often hear about complaints when they try to collect
on late invoices).

Step3. Lead Card

Leads are captured on a lead card or its electronic equivalent. Sales people use the
lead card to follow up on a prospect’s interest with the objective of closing the sale.
In addition to notes of all contacts, there are four main pieces of information that
should be captured on the lead card.
1. Identification of the prospect. If you are selling to a business, most of the
information you need is on your contact’s business card. For additional
information you need, your lead card should be designed so you can add it
with minimal effort.
2. Product interest. The products you typically sell should be pre-listed on
the lead card so sales people can quickly check them off.
3. Degree of interest. This is your sales person’s estimate of how likely the
prospect is to buy your product in the current period, which is usually this
month. Because the degree of interest is also called “buying temperature” the metaphor
for degree of interest that is often is used is Hot for the most interested leads, Warm
for the next most interested leads, and Cool for the least interested. The “Hot” leads
should automatically update another MIS report called the Hot List.

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 4. Lead source. All promotion that you do should have a unique code so that when
the lead is captured, you know what marketing activity generated the lead. This lead
source should automatically update another MkIS report called the Promotion
Effectiveness report.
In addition to helping sales people follow up on leads and close business, smart marketers
use lead card information for other Marketing Information System purposes, such as the Hot List
and Promotion Effectiveness Report described below.

Step4. Hot List

An MIS report called the Hot List contains the following information on “Hot” leads:
1. Prospect name. This could be a business or individual.
2. Decision makers. This is so the sales person does not waste time talking with the
wrong person.
3. Product or project proposed. This is what the prospect wants.
4. Proposal date. This is the date the product proposal and estimate of the cost is
given to the prospect.
5. Amount proposed. This is the price of the product proposed.
6. Percent chance of closing in the current period. To qualify for the Hot List, a hot
lead should have at least a 25% chance of closing in the current period (each company
should decide their own minimum threshold for Hot).
7. Expected Value (5 multiplied by 6). If the amount proposed is 10,000 and the %
chance of closing is “estimated” to be 50%, the expected value would be 5,000.
8. Objections. This lists the objections that are keeping the prospect from buying.
Sales managers use the Hot List in two ways.
1. Help close sales. The sales manager helps sales people to close hot leads by coaching
them on how best to answer the Objections in column 8 of the Hot List.
2. Dynamic sales forecast. The sales manager helps to insure that the sum of Expected
Values equals, or exceeds, each sales person’s quota for the month. If the expected
values are lower than a sales person’s quota, the sales manager can encourage the
sales person do whatever is necessary to get more hot leads on the Hot List so that the
sum of Expected Values equals or exceeds the quota. The sales quotas of all the sales
people should sum to the “measurable goal” of the Marketing Plan.
Step 5: Promotion Effectiveness Report

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 As each sales person captures the promotion source for each lead on the Lead Card, the
information automatically flows onto his or her Promotion Effectiveness Report. Every time a sales
person gives a presentation or makes a sale from a lead, that information is recorded on the Promotion
Effectiveness Report. The MIS system automatically adds up the total number of the leads,
presentations, and sales company-wide for each promotion source.

When compared to the costs of that promotion source, the marketing department can
calculate the promotion effectiveness, or ROI, of each promotion. Since totals for leads, presentations,
and sales are available in the MIS by sales person, the sales manager can automatically compute
the batting average of each sales person and determine the number of leads and presentations each
one needs to make his or her sales quota. In this way, the sales manager and the company marketers
systematically work together to insure that

(1) plan goals are met and

(2) the money invested in promotion is not wasted (the ads and promotions that are effective will be
repeated and the ones that don’t will be discontinued).

Step 6: Market Research

The systems above (Market Information Form, Lead Card, Hot List and Promotion
Effectiveness Report) typically capture information in real time and provide a lot of great information
that help the marketing functions do a more effective job and prove it to the CEO. Even so, this is
not enough. There are still lapses in the information marketers need. In an effort to plug these holes,
there is one big missing piece, Market Research. There are two big categories of Market Research,
Secondary and Primary.

Step 7: Secondary Research

Secondary research is simply research done by others. Perhaps the greatest invention for
secondary research is the search engine. Marketers can simply type in search terms in a search
window and browse the Internet for any data related to those search terms. Furthermore, marketers
can set up “alerts.” That is, search terms can be entered into a search engine so that the search
engine’s crawlers will continually search for anything that contains those search terms and send you
an email when it finds them. There are so many other sites, which marketers frequently visit that

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provide a wealth of information. Just a few examples include: Media Post, Marketing Sherpa, Brand
Channel, Hoovers, the CIA World Factbook, and ClickZ.

Step 8: Primary Research

When some big holes remain that still need to be plugged, marketers will often do primary
research, which is their own research. Common forms of primary research include surveys, focus
groups, experiments, and various forms of crowd sourcing.

When have you done enough research?

Since you can always do more research, when have you done enough? Some

academics believe you never do enough. Smart marketers and business people that understand
cost/benefit analysis know you have done enough research when your answers converge (often
called “converging data”). If they diverge, you typically need to do more.

You will never plug all the holes

Smart marketers also know that you will never plug all the holes in the information you
would like to have. Why? The marketplace is constantly changing. Moreover, you do not need
perfect information. If you are collecting the information discussed in this post,

you will have the information you need to make better marketing decisions. The great thing
about business is you do not have to be perfect. You just need to get sufficient information to stay
ahead of your competitors and keep updated on your ever-changing marketplace. If you do that,
you are likely to win more often than not.

10.9 RISKS OF MARKETING INFORMATION SYSTEM

The collection of information is a continuous process that gathers data from a variety of
sources synthesizes it and sends it to those responsible for meeting the market places needs. The
effectiveness of marketing decision is proved if it has a strong information system offering the firm
a Competitive advantage. Marketing Information should not be approached in an infrequent manner.
If research is done this way, a firm could face these risks:

1. Opportunities may be missed.

2. There may be a lack of awareness of environmental changes and competitors’ actions.
3. Data collection may be difficult to analyze over several time periods.
4. Marketing plans and decisions may not be properly reviewed.

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 5. Data collection may be disjointed.
6. Previous studies may not be stored in an easy to use format.
7. Time lags may result if a new study is required.
8. Actions may be reactionary rather than anticipatory.

10.10 NOTES

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10.11 SUMMARY

Marketing information systems are intended to support management decision making.

Management has five distinct functions and each requires support from an MIS. These are: planning,
organizing, coordinating, decisions and controlling.

Information systems have to be designed to meet the way in which managers tend to work. Research
suggests that a manager continually addresses a large variety of tasks and is able to spend relatively
brief periods on each of these. Given the nature of the work, managers tend to rely upon information
that is timely and verbal (because this can be assimilated quickly), even if this is likely to be less
accurate then more formal and complex information systems.

Managers play at least three separate roles: interpersonal, informational and decisional.
MkIS, in electronic form or otherwise, can support these roles in varying degrees. MkIS has less to
contribute in the case of a manager’s informational role than for the other two.

Three levels of decision making can be distinguished from one another: strategic, control (or
tactical) and operational. Again, MkIS has to support each level. Strategic decisions are
characteristically one-off situations. Strategic decisions have implications for changing the structure
of an organisation and therefore the MkIS must provide information which is precise and accurate.
Control decisions deal with broad policy issues and operational decisions concern the management
of the organization’s marketing mix.

A marketing information system has four components: the internal reporting system, the
marketing research systems, the marketing intelligence system and marketing models. Internal reports
include orders received, inventory records and sales invoices. Marketing research takes the form
of purposeful studies either ad hoc or continuous. By contrast, marketing intelligence is less specific
in its purposes, is chiefly carried out in an informal

manner and by managers themselves rather than by professional marketing researchers.

10.12 KEY WORDS

Information System, Binary tree Model, Hierarchy model, Hypertext model, Random
access model, Marketing information form, Lead card

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10.13 SELF ASSESSMENT QUESTIONS

1. Discuss the concept of Information system

2. What do you mean by marketing information system?
3. Give the differences between marketing research and Marketing information system
4. Explain the importance of marketing information system.
5. Discuss the components of marketing information system
6. Explain the steps involved in developing marketing information system in the present competitive
world of marketing

10.14 REFERENCES

1. Assael, H. Consumer Behaviour and marketing Action, USA: Ohio- South Western
College pub., 1995
2. Engle, J F. Consumer behaviour, Chicago: Dryden Press, 1993
3. Howard, John.A. Consumer behaviour in Marketing, New Delhi: Prentice Hall.
1989
4. Mowen, John C. Consumer Behaviour, New York: Mach Millan, 1993.
5. Schiffman, L G and Kanuk, L L. Consumer behaviour, New Delhi: PHI, 1994.
6. Consumer Behaviour, Raju&Xardel, New Delhi: Vikas Publications 2004
7. Kazmi&Batra , Consumer Behaviour, New Delhi: Excel Books, 2009

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UNIT 11: TYPES OF MARKETING RESEARCH

Structure:
11.1 Objectives
11.2 Introduction
11.3 Types of Markting Researches
11.4 Exploratory research
11.5 Descriptive Research
11.6 Causal Research
11.7 Case Study
11.8 Notes
11.9 Summary
11.10 Key words
11.11 Self Assesment Questions
11.12 References

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11.1 OBJECTIVES
After studying this unit, you should be able to:
 Explain the meaning of Research design;
 Identify types of Marketing Research and their applications;
 Evaluate Exploratory type of research and its process;
 Discuss Descriptive type of research and its methods and
 Describe the Process of causal research and its methods.
11.2 INTRODUCTION

Marketers use marketing research to find answers to various questions related to market
dynamics, business environment and consumer behaviour. For this a formal research design plan is
created by marketers. But some marketers conduct research without formal plan as well. For
example, a hotel owner who asks returning customers what was their experience during their stay at
his hotel, is conducting a research without a formal research design.

The major component of research design is to decide which type of marketing research will
be best suited for desired objective. Marketing Research can be classified into three categories
depending upon the objectives of the research. Brief discussion about each type of marketing research
is as follows.

11.3 TYPES OF MARKETING RESEARCHES

Research can be categorized either on the basis of technique (surveys, experiments,

observation studies, etc) or on the basis of purpose. Now let us focus on the 3 methods of doing
Marketing Research based on purpose:
1. Exploratory
As the name implies, exploratory research is the initial exploration done to get an idea and
insights into the problem. Research is a relatively expensive process; exploratory research ensures
that this process is not initiated without a thorough understanding of the problem. This study is
qualitative (understanding the concept) rather than quantitative (providing precise measurement).
Also, this type of research does not give conclusive evidence and subsequent research needs to be
done.

Further, the following purposes justify the use of exploratory research:

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  Diagnosing a Situation: Sometimes, companies have a situation at hand, but do not know
how to define it clearly. This prohibits action to be taken. One reason for using it is to
identify the exact nature of the business problem, but exploratory research is limited only to
this. Successive descriptive or experimental research needs to be carried out to craft the
action plan.
 Screening Alternatives: Consider a situation where there are several options, but budget
restrictions do not allow implementation of all of them. Exploratory research helps choose
the best alternatives in this case.
 Uncovering New Ideas: Many a times, consumers do not know what they need which is
especially true in case of technology. Prior to the invention of the first smart phone in the
early nineties, an average person did not feel the need for it or understand how pervasive
the device would become. Exploratory research is used in cases like this to induce new
ideas.
A widely used method for executing exploratory research for this purpose is Concept Testing.
Here, target consumers are introduced to an idea and asked how they feel about it, whether they
are likely to use it, etc. It tests the likeability or acceptability of the new product before investing in
its research and development.

2. Descriptive
This type of research is used when there is some comprehension of the problem, objectives
are defined and the research questions are clearly formulated. Contrary to exploratory research,
the proof descriptive research provides is used for formulating action plans. It helps answer the
questions ‘when’, ‘who’, ‘what’, ‘how’ and ‘where’, but not ‘why’.

Descriptive research typically gives a detailed account of the characteristics or behaviour of

a population. Hence the research work usually involves some element of consumer profiling and
market segmentation.

3. Experimental
Experimental studies demonstrate cause and effect relationships. They try to decipher the
outcome marketing actions might have. For example, it is used when the purpose is to determine
the impact of increase in price on usage.

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 This research is used in succession to exploratory and descriptive research and hence sufficient
knowledge is gained on the topic by then. Experimental research is also popularly known as causal
research.

The extent of uncertainty also affects what type of method should be chosen. The more well
defined the situation is, the more the research agency will move from exploratory to descriptive to
experimental research.

11.4 EXPLORATORY RESEARCH

Exploratory research is most commonly unstructured, informal research that is undertaken

to gain background information about the general nature of the research problem. By unstructured,
we mean that exploratory research does not have a formalized set of objectives, sample plan, or
questionnaire. It is usually conducted when the researcher does not know much about the problem
and needs additional information or desires new or more recent information. Often exploratory
research is conducted at the outset of research projects. Because exploratory research is aimed at
gaining additional information about a topic and generating possible hypotheses to test, it is described
as informal. Such research may consist of going to the library and reading published secondary
data; of asking customers, salespersons, and acquaintances for their opinions about a company, its
products, services, and prices; or of simply observing everyday company practices.

Exploratory research is systematic, but it is very flexible in that it allows the researcher to investigate
whatever sources he or she desires and to the extent he or she feels is necessary in order to gain a
good feel for the problem at hand. In the following sections, we discuss the specific uses of exploratory
research as well as the different methods of conducting exploratory research.

11.4.1. Uses of Exploratory Research

Exploratory research is used in a number of situations: to gain background information, to

define terms, to clarify problems and hypotheses, and to establish research priorities.

Gain Background Information

When very little is known about the problem or when the problem has not been clearly
formulated, exploratory research may be used to gain much-needed background information. This
is easily accomplished in firms having a marketing information system in which a review of internal
information tracked over time can provide useful insights into the background of the firm, brand,

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sales territories, and so on. Even for very experienced researchers it is rare that some exploratory
research is not undertaken to gain current, relevant background information. There is far too much
to be gained to ignore exploratory information.

Define Terms

Exploratory research helps to define terms and concepts. By conducting exploratory research
to define a question such as, “What is bank image?” the researcher quickly learns

that “image” is composed of several components—perceived convenience of location,

loan availability, friendliness of employees, and so on. Not only would exploratory research identify
the components of bank image but it could also demonstrate how these components may be measured.

Clarify Problems and Hypotheses

Exploratory research allows the researcher to define the problem more precisely and to
generate hypotheses for the upcoming study. For example, exploratory research on measuring bank
image reveals the issue of different groups of bank customers. Banks have three types of customers:
retail customers, commercial customers, and other banks for which services are performed for
fees. This information is useful in clarifying the problem of the measurement of bank image because
it raises the issue of which customer group bank image should be measured.

Exploratory research can also be beneficial in the formulation of hypotheses, which are
statements describing the speculated relationships among two or more variables. Formally stating
hypotheses prior to conducting a research study is very important to ensure that the proper variables
are measured. Once a study has been completed, it may be too late to state which hypotheses are
desirable to test.

Establish Research Priorities

Exploratory research can help a firm prioritize research topics in order of importance,
especially when it is faced with conducting several research studies. A quick review of a spreadsheet
that calculates sales gains and losses by product, for example, may dictate research priorities. A
summary account of complaint letters by retail store may tell management where to devote their
attention. One furniture store chain owner decided to conduct research on the feasibility of carrying
office furniture after some exploratory interviews with salespeople revealed that their customers
often asked for directions to stores carrying office furniture.

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11.4.2. Methods of Conducting Exploratory Research
A variety of methods are available to conduct exploratory research. These include
 Secondary data analysis,
 Experience surveys,
 Case analysis,
 Focus groups, and
 Projective techniques.
Secondary Data Analysis
By secondary data analysis, we refer to the process of searching for and interpreting
existing information relevant to the research objectives. Secondary data are data that have been
collected for some other purpose. Your library and the Internet are full of secondary data, which
include information found in books, journals, magazines, special reports, bulletins, newsletters, and
so on. An analysis of secondary data is often the “core” of exploratory research. This is because
there are many benefits to examining secondary data and the costs are typically minimal. Furthermore,
the costs for search time of such data are being reduced every day as more and more computerized
databases become available. Knowledge of and ability to use these databases are already mandatory
for marketing researchers.
Secondary data is the data that have been already collected by and readily available from
other sources. Such data are cheaper and more quickly obtainable than the primary data and also
may be available when primary data cannot be obtained at all.
Advantages of Secondary data
1. It is economical. It saves efforts and expenses.
2. It is time saving.
3. It helps to make primary data collection more specific since with the help of secondary
data, we are able to make out what are the gaps and deficiencies and what additional
information needs to be collected.
4. It helps to improve the understanding of the problem.
5. It provides a basis for comparison for the data that is collected by the researcher.

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Disadvantages of Secondary Data
1. Secondary data is something that seldom fits in the framework of the marketing research
factors. Reasons for its non-fitting are:-
a. Unit of secondary data collection-Suppose you want information on disposable
income, but the data is available on gross income. The information may not be same
as we require.
b. Class Boundaries may be different when units are same.
Before 5 Years After 5 Years
2500-5000 5000-6000
5001-7500 6001-7000
7500-10000 7001-10000
c. Thus the data collected earlier is of no use to you.
2. Accuracy of secondary data is not known.
3. Data may be outdated.
Evaluation of Secondary Data
Because of the above mentioned disadvantages of secondary data, we will lead to evaluation
of secondary data. Evaluation means the following four requirements must be satisfied:-
1. Availability- It has to be seen that the kind of data you want is available or not. If it is not
available then you have to go for primary data.
2. Relevance- It should be meeting the requirements of the problem. For this we have two
criterion:-
a. Units of measurement should be the same.
b. Concepts used must be same and currency of data should not be outdated.
3. Accuracy- In order to find how accurate the data is, the following points must be considered:
-
a. Specification and methodology used;
b. Margin of error should be examined;
c. The dependability of the source must be seen.

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 4. Sufficiency- Adequate data should be available.
Robert W Joselyn has classified the above discussion into eight steps. These eight steps are
sub classified into three categories. He has given a detailed procedure for evaluating secondary
data.
1. Applicability of research objective.
2. Cost of acquisition.
3. Accuracy of data.
Experience Surveys
Experience surveys refer to gathering information from those thought to be knowledgeable
on the issues relevant to the research problem. If the research problem deals with difficulties
encountered when buying infant clothing, then surveys of mothers or fathers with infants may be in
order. If the research problem deals with forecasting the demand for sulphuric acid over the next
two years, researchers may begin by making a few calls to some experts on this issue. Experience
surveys differ from surveys conducted as part of descriptive research in that there is usually no
formal attempt to ensure that the survey results are representative of any defined group of subjects.
Nevertheless, useful information can be gathered by this method of exploratory research.
The Survey method is the technique of gathering data by asking questions to people who
are thought to have desired information. A formal list of questionnaire is prepared. Generally a non
disguised approach is used. The respondents are asked questions on their
demographic interest opinion.
Advantages of Survey Method
1. As compared to other methods (direct observation, experimentation) survey yield a broader
range of information. Surveys are effective to produce information on socio-economic
characteristics, attitudes, opinions, motives etc and to gather information for planning product
features, advertising media, sales promotion, channels of distribution and other marketing
variables.
2. Questioning is usually faster and cheaper that Observation.
3. Questions are simple to administer.
4. Data is reliable
5. The variability of results is reduced.

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 6. It is relatively simple to analyze, quote and interrelate the data obtained by survey method

Disadvantages of Survey Method

1. Unwillingness of respondents to provide information- This requires salesmanship on the
part of the interviewer. The interviewer may assure that the information will be kept secret
or apply the technique of offering some presents.
2. Inability of the respondents to provide information- This may be due to
a. Lack of knowledge
b. Lapse of memory
c. Inability to identify their motives and provide “reasons why?” for their actions
3. Human Biases of the respondents are there, for eg: “Ego”
4. Symantec difficulties are there - it is difficult, if not impossible, to state a given question in
such a way that it will mean exactly same thing to each respondent. Similarly two different
wordings of the same question will frequently produce quite different results.

How to overcome the limitations of Survey Method

1. Careful framing and phrasing of questions.
2. Careful control of data gathering by employing specially trained investigators who will observe
carefully report on subtle reactions of persons interviewed
3. Cautious interpretations by a clear recognition of the limitations of the data and understating
of what exactly the data represents. This is especially true of responses to questions like -
“What price would you be willing to pay for this product?”
4. Looking at facts in relative rather than absolute terms. For eg - A survey by a dentist team
showed that the number of families in the middle income group used toothpaste taken by
itself in the absolute sense, the results of the survey are in some doubt. Even though the
individual groups readings shall differ say for eg: for upper income group families it could be
90 %. Hence we should look at the facts in relative rather than in absolute terms.
Case Analysis

By case analysis, we refer to a review of available information about a former situation(s)

that has some similarities to the present research problem. Usually, there are few research problems
that do not have some similarities to some situation in the past. Even when the research problem

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deals with a radically new product, there are often some similar past experiences that may be
observed. For example, when cellular telephones were invented but not yet on the market, many
companies attempted to forecast how many cellular telephones would be sold. Part of the forecasting
process was to determine the rate of adoption. These companies looked at adoption rates of
consumer electronic products such as televisions and VCRs. A wireless communications company,
21st Century Telesis, used data from a low-power, neighborhood phone system that was very
successful in Japan to help it market cellular phones to young people in Japan.

Is this valid? Yes, but researchers must be aware of the caveats in using former case examples

for current problems. They should ask themselves questions to determine the relevancy of prior
cases. How similar is the phenomenon in the past to the phenomenon in the present? (For example,
would adoption rates of Japanese have any relationship with adoption rates of Americans?) What
situational factors have changed that may invalidate using the case to predict a future outcome? To
the extent that the researcher can adequately answer these questions, the greater should be his or
her confidence in using a case analysis as part of exploratory research.

Advantages of Case Study

1. Accurate data is provided
2. There is detailed analysis

Disadvantages of Case Study

1. It is difficult to generalize.
2. It consumes lot of time.
3. Confidential and sensitive information may not be given.
4. Interviewer bias is there.

Focus Groups

An increasingly popular method of conducting exploratory research is through focus groups,

which are small groups of people brought together and guided by a moderator through an
unstructured, spontaneous discussion for the purpose of gaining information relevant to the research
problem. Although focus groups should encourage openness on the part of the participants, the
moderator’s task is to ensure the discussion is “focused” on some general area of interest.

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 For example, the Piccadilly Cafeteria chain periodically conducts focus groups all around
the country. The conversation may seem “freewheeling,” but the purpose of the

focus group may be to learn what people think about some specific aspect of the cafeteria business,
such as the perceived quality of cafeteria versus traditional restaurant food. This is a useful technique
for gathering some information from a limited sample of respondents. The information can be used
to generate ideas, to learn the respondents’ “vocabulary” when relating to a certain type of product,
or to gain some insights into basic needs and attitudes. Focus groups are discussed extensively in
Chapter 8 and now several companies are offering online focus group services.

Focus groups are also known as group interviews or group discussions. They are used to
understand the attitude or behaviour of the audience. Six to twelve individuals are selected and
either one or two moderators (those who lead the discussions) are selected. If there are two
moderators, they will adopt opposite positions. It is the moderator who introduces the topic.
Discussion is controlled through these moderators. The group is watched from adjacent rooms.
There are various devices which are used to record these discussions.

Objectives of Focus Group

1. To gather primary information for research project;
2. To help developing questionnaires in terms of survey research;
3. To understand reason behind a particular phenomenon:
4. To see how people interpret certain phenomenon;
5. To test primarily ideas or plan

Steps involved in conducting Focus group

1. Define the problem
2. Select a sample
3. Determine the number of groups necessary(minimum number should be two)
4. Prepare the study mechanics. Arrange the respondents place where the focus group is to be
assembled.
5. Select moderators and brief them.
6. Prepare the focus group material.
7. Conduct the session.

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 8. Analyze the data and prepare summary report.

Advantages of Focus Group

. It is used to collect primary information and therefore it can conduct a pilot study also.

2. Relative cost is not much.

3. It can be conducted quickly.
4. It has flexibility.
5. Moderator can detect the opinion and certificates of those who cannot speak well by facial
expression and other non verbal behaviour.
6. We can get the questionnaire filled up either before or after the discussion.

Disadvantages of Focus Group

1. It is inappropriate for gathering quantitative data.

2. Self appointed group leader may impose his /her opinion on other members. Moderators
can restrict people.
3. t depends heavily on skills of moderator.
4. Respondents in the focus group may or may not represent the population from which they
are drawn.
5. Recording equipments are likely to restrict respondents. Location of recording equipment
is very important.

Projective Techniques

Projective techniques, borrowed from the field of clinical psychology, seek to explore hidden
consumer motives for buying goods and services by asking participants to project themselves into
a situation and then to respond to specific questions regarding the situation. One example of such a
technique is the sentence completion test. A respondent is given an incomplete sentence such as,
“Andrea Livingston never buys frozen dinners for her family because. . . .” By completing the
sentence, ostensibly to represent the feelings of the fictitious Ms. Livingston, the respondent projects
himself or herself into the situation.

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Projective Techniques are indirect and unstructured methods of investigation which have been
developed by the psychologists and use projection of respondents for inferring about underline
motives, urges or intentions which cannot be secure through direct questioning as the respondent
either resists to reveal them or is unable to figure out himself. These techniques are useful in giving
respondents opportunities to express their attitudes without personal embarrassment. These
techniques help the respondents to project his/her own attitude and feelings unconsciously on the
subject under study. Thus Projective Techniques play an important role in motivational researches
or in attitude surveys.

Important Projective Techniques

1. Word Association Test.
2. Completion Test.
3. Construction Techniques
4. Expression Techniques

1. Word Association Test: An individual is given a clue or hint and asked to respond to the
first thing that comes to mind. The association can take the shape of a picture or a word.
There can be many interpretations of the same thing. A list of words is given and you don’t
know in which word they are most interested. The interviewer records the responses which
reveal the inner feeling of the respondents. The frequency with which any word is given a
response and the amount of time that elapses before the response is given are important for
the researcher. For eg: Out of 50 respondents 20 people associate the word “ Fair” with
“Complexion”.

2. Completion Test: In this the respondents are asked to complete an incomplete sentence
or story. The completion will reflect their attitude and state of mind.

3. Construction Test: This is more or less like completion test. They can give you a picture
and you are asked to write a story about it. The initial structure is limited and not detailed
like the completion test. For eg: 2 cartoons are given and a dialogue is to written.
4. Expression Techniques: In this the people are asked to express the feeling or attitude of
other people.
Disadvantages of Projective Techniques
1. Highly trained interviewers and skilled interpreters are needed.

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 2. Interpreters’ bias
3. It is a costly method.
4. The respondent selected may not be representative of the entire population.

11.5 DESCRIPTIVE RESEARCH

Descriptive research is undertaken to describe answers to questions of who, what, where, when,
and how. When we wish to know who our customers are, what brands they buy and in what
quantities, where they buy the brands, when they shop, and how they found out about our products,
we turn to descriptive research. Typically, answers to these questions are found in secondary data
or by conducting surveys.

Marketing decision makers often need answers to these basic questions before they can
formulate effective marketing strategies. Consider the following examples. Who may be defined as
the firm’s (competitor’s) customers? What may be defined as the products, brands, sizes, and so
on that are being purchased. Where may be defined as the places the customers are buying these
products. When refers to the time or the frequency with which purchases are made. How may mean
the ways in which customers are using the products. Note that we cannot conclusively answer the
question of why using descriptive research. Conclusive answers to questions such as why sales
increase or decrease if we increase or decrease advertising or why one ad garners greater attention
than another are questions that must be answered through causal research designs.

11.5.1. Classification of Descriptive Research Studies

There are two basic descriptive research studies available to the marketing researcher:

 Cross-sectional and
 Longitudinal designs.

Cross-sectional studies measure units from a sample of the population at only one point in time.
A study measuring your attitude toward adding a required internship course in your degree program,
for example, would be a cross-sectional study. Your attitude toward the topic is measured at one
point in time. Cross-sectional studies are very prevalent in marketing research, outnumbering
longitudinal studies and causal studies. Because cross sectional studies are one-time measurements,

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they are often described as “snapshots” of the population. As an example, many magazines survey
a sample of their subscribers and ask them questions such as their age, occupation, income,
educational level, and so on. These sample data, taken at one point in time, are used to describe the
readership of the magazine in terms of demographics. Cross-sectional studies normally employ
fairly large sample sizes, so many cross-sectional studies are referred to as sample surveys.

Longitudinal studies repeatedly measure the same sample units of a population over a period of
time. Because longitudinal studies involve multiple measurements, they are often described as “movies”
of the population. Longitudinal studies are employed by almost 50 percent of businesses using
marketing research. To ensure the success of the longitudinal study, researchers must have access
to the same members of the sample, called a panel, so as to take repeated measurements. Panels
represent sample units who have agreed to answer questions at periodic intervals. Maintaining a
representative panel of respondents is a major undertaking.

11.6 CAUSAL RESEARCH

Causality may be thought of as understanding a phenomenon in terms of conditional statements of

the form “If x, then y.” These “if–then” statements become our way of manipulating variables of
interest. For example, if the thermostat is lowered, then the air will get cooler. If I drive my automobile
at lower speeds, then my gasoline mileage will increase. If I spend more on advertising, then sales
will rise. As humans, we are constantly trying to understand the world in which we live. Fortunately
for humankind, there is an inborn tendency to determine causal relationships.

This tendency is ever present in our thinking and our actions. Likewise, marketing managers
are always trying to determine what will cause a change in consumer satisfaction, a gain in market
share, or an increase in sales. In one recent experiment, marketing researchers investigated how
color versus non color and different quality levels of graphics in Yellow Page ads caused changes in
consumers’ attitudes toward the ad itself, the company doing the advertising, and perceptions of
quality. The results showed that color and high-photographic graphics cause more favorable attitudes.
But the findings differ depending on the class of product being advertised. This illustrates how
complex cause-and-effect relationships are in the real world. Consumers are bombarded on a daily
and sometimes even hourly basis by a vast multitude of factors, all of which could cause them to act
in one way or another. Thus, understanding what causes consumers to behave as they do is extremely
difficult. Nevertheless, there is a high “reward” in the marketplace for even partially understanding
causal relationships. Causal relationships are determined by the use of experiments, which are

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special types of studies. Many companies are now taking advantage of conducting experiments
online.

EXPERIMENTS

An experiment is defined as manipulating an independent variable to see how it affects a dependent

variable, while also controlling the effects of additional extraneous variables.

Independent variables are those variables over which the researcher has control and wishes to
manipulate. Some independent variables include level of advertising expenditure, type of advertising
appeal (humor, prestige), and display location, method of compensating salespersons, price, and
type of product.

Dependent variables, on the other hand, are those variables that we have little or no direct control
over, yet we have a strong interest in. We cannot change these variables in the same way that we
can change independent variables.

A marketing manager, for example, can easily change the level of advertising expenditure or
the location of the display of a product in a supermarket, but he or she cannot easily change sales,
market share, or level of customer satisfaction. These variables are typically dependent variables.
Certainly, marketers are interested in changing these variables. But because they cannot change
them directly, they attempt to change them through the manipulation of independent variables. To
the extent that marketers can establish causal relationships between independent and dependent
variables, they enjoy some success in influencing the dependent variables.

Extraneous variables are those that may have some effect on a dependent variable but yet are
not independent variables.

To illustrate, let’s say you and your friend wanted to know if brand of gasoline (independent
variable) affected gas mileage in automobiles (dependent variable). Your “experiment” consists of
each of you filling up your two cars, one with Brand A, the other with Brand B. At the end of the
week, you learn that Brand A achieved 18.6 miles per gallon and Brand B achieved 26.8 miles per
gallon. Do you have a causal relationship: Brand B gets better gas mileage than Brand A? Or could
the difference in the dependent variable (gas mileage) be due to factors other than gasoline brand
(independent variable)? Let’s take a look at what these other extraneous variables may be: (1) One

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car is an SUV and the other is a small compact! (2) One car was driven mainly on the highway and
the other was driven in the city in heavy traffic. (3) One car has never had a tune-up and the other
was just tuned up. We think you get the picture.

Let’s look at another example. Imagine that a supermarket chain conducts an experiment to
determine the effect of type of display (independent variable) on sales of apples (dependent variable).
Management records sales of the apples in its regular produce bin’s position and then changes
(manipulates the independent variable) the position of the apples to end-aisle displays and measures
sales once again. Assume sales increased. Does this mean that if we change display position of
apples from the produce bins to end-aisle displays, then sales will increase? Could there be other
extraneous variables that could

have affected the sales of the apples? What would happen to apple sales if the weather
changed from rainy to fair? If the apple industry began running ads on TV? If the season changed
from summer vacation to fall? Yes, weather, industry advertising, and apples packed in school lunch
boxes are viewed in this example as extraneous variables, having an effect on the dependent variable,
yet themselves not defined as independent variables. As this example illustrates, it would be difficult
to isolate the effects of independent variables on dependent variables without controlling for the
effects of the extraneous variables. Unfortunately, it is not easy to establish causal relationships but
it can be done. In the following section we will see how different experimental designs allow us to
conduct experiments.

Experimental Design

An experimental design is a procedure for devising an experimental setting such that a

change in a dependent variable may be attributed solely to the change in an independent variable. In
other words, experimental designs are procedures that allow experimenters to control for the effects
on a dependent variable by an extraneous variable. In this way, the experimenter is assured that any
change in the dependent variable was due only to the change in the independent variable.

When a measurement of the dependent variable is taken prior to changing the independent
variable, the measurement is sometimes called a pretest. When a measurement of the dependent
variable is taken after changing the independent variable, the measurement is sometimes called a
posttest.

There are many research designs available to experimenters. In fact, entire college courses
are devoted to this one topic. But our purpose here is to illustrate the logic of experimental design

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and we can do this by reviewing three designs of which only the last is a true experimental design.
A “true” experimental design is one that truly isolates the effects of the independent variable on
the dependent variable while controlling for effects of any extraneous variables. However, the first
two designs we introduce you to are not true experimental designs. We introduce you to the first
two designs to help you understand the real benefits of using a true experimental design.

The three designs we discuss are after-only; one-group, before–after; and before–after with control
group.

Types of Experiments

We can classify experiments into two broad classes:

 Laboratory Experiments and
 Field Experiments

Laboratory experiments are those in which the independent variable is manipulated and measures
of the dependent variable are taken in a contrived, artificial setting for the purpose of controlling the
many possible extraneous variables that may affect the dependent variable.

To illustrate, let us consider the study we previously mentioned whereby subjects were
invited to a theater and shown test ads, copy A or B, spliced into a TV “pilot” program. Why would
a marketer want to use such an artificial, laboratory setting? Such a setting is used to control for
variables that could affect the purchase of products other than those in the test ads. By bringing
consumers into a contrived laboratory setting, the experimenter is able to control many extraneous
variables.

For example, you have learned why it is important to have equivalent groups (the same kind
of people watching copy A as those watching copy B commercials) in an experiment. By inviting
preselected consumers to the TV “pilot” showing in a theater, the experimenter can match (on
selected demographics) the consumers who view copy A with those who view copy B, thus ensuring
that the two groups are equal. By having the consumers walk into an adjoining “store,” the
experimenter easily controls other factors such as the time between exposure to the ad copy and
shopping and the consumers’ being exposed to other advertising by competitive brands. As you
have already learned, any one of these factors, left uncontrolled, could have an impact on the
dependent variable. By controlling for these and other variables, the experimenter can be assured
that any changes in the dependent variable were due solely to differences in the independent variable;
ad copy A and B. Laboratory experiments, then, are desirable when the intent of the experiment is
to achieve high levels of internal validity.

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Advantages to laboratory experiments

First, they allow the researcher to control for the effects of extraneous variables. Second,
compared to field experiments, lab experiments may be conducted quickly and with less expense.
Obviously, the disadvantage is the lack of a natural setting and, therefore, there is concern for the
generalizability of the findings to the real world. For instance, blind taste tests of beer have found
that a majority of beer drinkers favor the older beers such as Pabst; Michelob, or Coors, yet new
beer brands are introduced regularly and become quite popular, so the generalizability of blind taste
tests is questionable.
Field experiments
Are those in which the independent variables are manipulated and the measurements of the
dependent variable are made on test units in their natural setting. Many marketing experiments are
conducted in natural settings, such as in supermarkets, malls, retail stores, and consumers’ homes.
Let us assume that a marketing manager conducts a laboratory experiment to test the differences
between ad copies A, the company exists ad copy, and a new ad copy, copy B. The results of the
laboratory experiment indicate that copy B is far superior to the company’s present ad copy A. But,
before spending the money to use the new copy, the manager wants to know if ad copy B will really
create increased sales in the real world. She elects to actually run the new ad copy in Erie,
Pennsylvania, a city noted as being representative of the average characteristics of the U.S. population.
By conducting this study in the field, the marketing manager will have greater confidence that the
results of the study will actually hold up in other real-world settings. Note, however, that even if an
experiment is conducted in a naturalistic field setting in order to enhance external validity, the
experiment is invalid if it does not also have internal validity.
The primary advantage of the field experiment is that of conducting the study in a naturalistic
setting, thus increasing the likelihood that the study’s findings will also hold true in the real world.
Field experiments, however, are expensive and time consuming. Also, the experimenter must always
be alert to the impact of extraneous variables, which are very difficult to control in the natural
settings of field experimentation.
The example we just cited of using Erie, Pennsylvania, for a field experiment would be called a “test
market.” Much of the experimentation in marketing, conducted as field experiments, is known as
test marketing.
Test Marketing

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 Test marketing is the phrase commonly used to indicate an experiment, study, or test that is
conducted in a field setting. Companies may use one or several test market cities, which are
geographical areas selected in which to conduct the test. There are two broad classes of uses of
test markets:
(1) To test the sales potential for a new product or service and
(2) To test variations in the marketing mix for a product or service.

Although test markets are very expensive and time consuming, the costs of introducing a
new product on a national or regional basis routinely amount to millions of dollars. The costs of the
test market are then justified if the results of the test market can improve a product’s chances of
success. Sometimes the test market results will be sufficient to warrant further market introductions.
Sometimes the test market identifies a failure early on and saves the company huge losses. The
GlobalPC, a scaled-down computer targeted for novices, was tried in test markets. The parent
company, MyTurn, concluded that the test market sales results would not lead to a profit and the
product was dropped before the company experienced further losses. Test markets are not only
conducted to measure sales potential for a new product but also to measure consumer and dealer
reactions to other marketing mix variables as well. A firm may use only department stores to distribute
the product in one test market and only specialty stores in another test market city to gain some
information on the best way to distribute the product. Companies can also test media usage, pricing,
sales promotions, and so on through test markets.

11.7 CASE STUDY

Case 1 : Swing Jacket
Swing Jacket is a strap-on training device for golfers. The product’s main feature is its
patented swing rails that guide a golfer’s arms and help produce a better swing. By using the jacket,
the golfer’s muscles “learn” the correct path to take to ensure a proper swing. Swing Jacket, Inc.
faced difficulties with its initial plan to sell the apparatus through golf stores. The product was hard
to sell due to its relative technical complexities. Swing Jacket, Inc. decided that the expense was
too great to train specialty golf store salespeople across the nation on the proper use of the device.
So the company decided to focus its resources on direct sales and hired legendary Script-to-
Screen to produce an infomercial.
Within the first two quarters after the infomercial aired, Swing Jacket, Inc. knew it had a
problem. Return rates for the product soared at 23 percent. Swing Jacket, Inc. wasn’t sure why
people were returning the device. The infomercial starred popular PGA tournament player Peter
Jacobson and tracked the improvement of three amateur players with varying handicaps. The Rs.

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150 product was advertised to “significantly lower your score” or consumers could return the
product within 90 days. Trials during product development did not show a problem. Golfers who
had tried the product before its debut didn’t suggest that they were embarrassed to wear the device
nor did they find it uncomfortable. Players who had tried the product reported that it helped their
golf swing. But yet, the return rate of the Swing Jacket still hovered at nearly 25 percent.

1. Should Swing Jacket, Inc. conduct research? Why or why not?

2. Assuming you believe Swing Jacket, Inc. should conduct research, what type of research design
would you recommend?
3. Would you recommend more than one research design?

Case 2: Meridian Research Associates (MRA)

Laura Holladay is a project manager for Meridian Research Associates (MRA). During the
week she oversaw a project for General Mills that involved setting up taste tests in locations around
the country to compare regional taste differences for three new products. She also made calls on
three prospective clients. On Friday afternoon she sat down to review her notes of the three client
visits.

Tuesday/A.M. Met with Susan Greer—assumed position as vice president of the Colony
Bank last May. Bank only six years in this market. Board meeting suggestion for her to conduct a
bank image analysis. Neither Greer nor other officers have any experience with bank image analysis
studies. How should they conduct the study? What is bank image analysis? Should they include
their competitors in the study? Greer wants MRA to give them guidance; they feel they should do
the study. Want to hire us for advice. Next appointment set for 5:30 on 14th.

Wednesday/P.M. Judd Tucker, brand manager for Pooch Plus dog treats. Pooch Plus division
of Petco Products, Inc. Dog treats business very competitive; constant sales promotions conducted
to sway market share from competitors. Tucker very aggressive and wants us to conduct research
examining dog treat brand swings in market shares over last five years. What types of promotions
lead to greatest share swings? What are the best methods to counter effective promotions of
competitors? We will need to track market share and promotion history of dog treats category.
(Call Gayla VanZyverden at Information Resources Thursday A.M.) Appointment set up for 8:30
on 19th.

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 Thursday/P.M. Melissa Duggan of General Mills. Reviewed progress on upcoming
taste tests but Duggan interested in a new project. General Mills considering a new hot breakfast
cereal. Brand’s attributes built around health and nutrition. Concept tests are favorable and now
company interested in determining best package design. Which size, color, logo type size combinations
will get highest level of customer awareness? Cereal will compete with many brands. Duggan believes
new brands “get lost” on store shelves with dozens of other brands competing for customer attention.
Wants to make sure GM has the most effective package design so new brand will be seen by
customers. Appointment on 22nd at 10:30.

Laura Holladay spent Friday finalizing her taste test project for General Mills. By late
afternoon she reviewed the notes of her meetings with the three prospective client/projects. She
packed her briefcase and headed for her home in the suburbs. On the way she thought about the
three upcoming projects. Within a short period of time she had decided on the research design
needed for all three. Finally, she sat back, relaxed, and listened to her favorite radio station, KLAY.
When she arrived in her driveway, Holladay called her office message center and recorded notes
on the three proposed research designs.
1. What research design do you think Laura Holladay has selected for each of the three situations?
2. For each research design you specify in question 1, describe the reason(s) you selected it.
3. Briefly describe the appropriate research process for each of the three situations. In other words,
describe what you think MRA should do for each client.
11.8 NOTES

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11.9 SUMMARY
Research design refers to a set of advance decisions made to develop the master plan to be
used in the conduct of the research project. There are three general research designs: exploratory,
descriptive, and causal. Each one of these designs has its own inherent approaches. The significance
of studying research design is that, by matching the research objective with the appropriate research
design, a host of research decisions may be predetermined. Therefore, a research design serves as
a “blueprint” for researchers. Selecting the appropriate research design depends, to a large extent,
on the research objectives and how much information is already known about the problem. If very
little is known, exploratory research is appropriate.
Exploratory research is unstructured and informal research that is undertaken to gain
background information; it is helpful for more clearly defining the research problem. Exploratory
research is used in a number of situations: to gain background information, to define terms, to
clarify problems and hypotheses, and to establish research priorities. Reviewing existing literature,
surveying individuals knowledgeable in the area to be investigated, and relying on former similar
case situations are methods of conducting exploratory research. Exploratory research should almost
always be used because it is fast, inexpensive, and sometimes resolves the research objective or is
helpful in carrying out descriptive or causal research.
If concepts, terms, and so on are already known and the research objective is to describe
and measure phenomena, then descriptive research is appropriate. Descriptive research measures
marketing phenomena and answers the questions of who, what, where, when, and how. Descriptive
studies may be conducted at one point in time (cross-sectional) or several measurements may be
made on the same sample at different points in time (longitudinal). Longitudinal studies are often
conducted using panels.
Panels represent sample units who have agreed to answer questions at periodic intervals.
Continuous panels are longitudinal studies in which sample units are asked the same questions
repeatedly. Brand-switching tables may be prepared based on data from continuous panels. Market
tracking studies may be conducted using data from continuous panels.
The second type of panel used in longitudinal research is the discontinuous panel.
Discontinuous, sometimes called omnibus panels are those in which the sample units are asked
different questions. The main advantage of the discontinuous panel is that research firms have a
large sample of persons who are willing to answer whatever questions they are asked. The
demographics of panel members are often balanced to the demographics of larger geographical
areas they are to represent, such as a region or the entire United States. Marketing research firms

67
such as NFO Worldwide and ACNielsen have maintained panels for many years. More recently,
online survey research firms use panels to gain access to respondents.
Sometimes the research objective requires the researcher to determine causal relationships
between two or more variables. Causal relationships provide relationships such as “If x, then y.”
Causal relationships may only be discovered through special studies called experiments. Experiments
allow us to determine the effects of a variable, known as an independent variable, on another
variable, known as a dependent variable.
Experimental designs are necessary to ensure that the effect we observe in our dependent
variable is due, in fact, to our independent variable and not to other variables known as extraneous
variables. The validity of experiments may be assessed by internal validity and external validity.
Laboratory experiments are particularly useful for achieving internal validity whereas field
experiments are better suited for achieving external validity. Test marketing is a form of field
experimentation. Test market cities are selected on the basis of their representativeness, isolation,
and the degree to which market variables such as distribution and promotion may be controlled.
Various types of test markets exist (standard, controlled, electronic, simulated, consumer, industrial,
and lead country) and, although test markets garner much useful information, they are expensive
and not infallible.
11.10 KEY WORDS
Hypothesis, Secondary data analysis, Experience surveys, Case analysis, Focus Group
Projective Techniques, Cross sectional studies, Longitudinal designs, Experiments
11.11 SELF ASSESSEMENT QUESTIONS
1. How would you match research designs with various research objectives?
2. Give some examples illustrating the uses of exploratory research.
3. What type of research design answers the questions of who, what, where, when,
and how?
4. What are the differences between longitudinal studies and cross-sectional studies?
5. Explain why studies of the “if–then” variety are considered to be causal studies.
6. What is the objective of good experimental design? Explain why certain designs
are called quasi-experimental designs.
7. What do you mean by test marketing?

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8. Think of a past job that you have held. List three areas in which you, or some other
person in the organization, could have benefited from having information generated b y
research. What would be the most appropriate research design for each of the three
areas of research you have listed?
9. Design an experiment. Select an independent variable and a dependent variable.
What are some possible extraneous variables that may cause problems? Explain how
you would control for the effects these variables may have on your dependent
variable. Is your experiment a valid experiment?
10. The Maximum Company has invented an extra-strength, instant coffee brand to be
called “Max-Caff” and positioned to be stronger tasting than any competing brands.
Design a taste test experiment that compares Max-Caff to the two leading instant
coffee brands to determine which brand consumers consider to taste the strongest.
Identify and diagram your experiment. Indicate how the experiment is to be
conducted, and assess the internal and external validity of your experiment.
11. Coca-Cola markets PowerAde as a sports drink that competes with Gatorade.
Competition for sports drinks is fierce where they are sold in the coolers of
convenience stores. Coca-Cola is thinking about using a special holder that fits in a
standard cooler but moves PowerAde to eye level and makes it more conspicuous than
Gatorade. Design an experiment that determines whether the special holder increases the
sales of PowerAde in convenience stores. Identify and diagram your experiment. Indicate
how the experiment is to be conducted and assess the internal and external validity
of your experiment.
11.12 REFERENCES
1. Assael, H. Consumer Behaviour and marketing Action, USA: Ohio- South Western
College pub., 1995
2. Engle, J F. Consumer behaviour, Chicago: Dryden Press, 1993
3. Howard, John.A. Consumer behaviour in Marketing, New Delhi: Prentice Hall.
1989
4. Mowen, John C. Consumer Behaviour, New York: Mach Millan, 1993.
5. Schiffman, L G and Kanuk, L L. Consumer behaviour, New Delhi: PHI, 1994.
6. Consumer Behaviour, Raju&Xardel, New Delhi: Vikas Publications 2004
7. Kazmi&Batra , Consumer Behaviour, New Delhi: Excel Books, 2009

69
UNIT 12: APPLICATIONS OF MARKETING RESEARCH
IN BUSINESS

Structure:

12.0 Objectives

12.1 Introduction

12.2 Need for Marketing Research

12.3 Applications of Marketing Research in various areas of Business

12. 4 Notes

12.5 Summary

12.6 Key words

12.7 Self Assessment Questions

12.8 Reference

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12.0 OBJECTIVES
After studying this unit, you should be able to:
 Explain the Application of marketing research in various areas of business;
 Identify importance of marketing research and
 Select a particular research based on your need.

12.1 INTRODUCTION
Marketing Research serve as a basic input for any business, it helps organisations to take
decisions in various areas. Application of marketing research in business includes:
Advertising testing research, Branding research, Customer satisfaction research, Pricing research,
Product positioning research, New product assessments, Marketing due diligence, and Segmentation
research.
Thus every business must conduct these marketing research studies for firms of most sizes,
from venture funded start ups to middle-market and large enterprises.
Business market research is the process of collecting data to determine whether a particular
product/service will satisfy the needs of your customers. With effective market research, your
company can gain invaluable information about your competitors, economic shifts, demographics,
the current market trends and the spending traits of your customers.
12.2 NEED FOR MARKETING RESEARCH

Marketing research is needed on a continual basis, if you want to keep up with the latest market
trends and gain a competitive edge in the business market. Understanding market research and
using it to your advantage is vital in reaching out to your target audience and increasing your sales.
Here is why your company should conduct business market research:
 Identify the problem areas in your business
 Understand the needs of existing customers and why they chose your service/product over
competitors
 Identify new business opportunities and changing market trends
 Recognize new areas for expansion, and increase your customer base
 Discover potential customers and their needs, which can be incorporated into your products/
services
 Set achievable targets for business growth, sales, and latest product developments
 Make well-informed market decisions about your services and develop effective strategies
In the following section let us try to understand more about each application in detail

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12.3 APPLICATIONS OF MARKETING RESEARCH IN VARIOUS AREAS OF
BUSINESS
12.3.1. Advertising Testing Research
Advertising research design is determined by specific advertising goals and the stage of ad
development, or campaign. A broad range of advertising research techniques including ad recall
surveys, message and theme salience and impact measures, buying motivation and association with
the ad message or positioning theme. We can employ both qualitative and quantitative research
tools.
Advertising research covers a big spectrum of applications...
 Positioning & messaging opportunities
 Ad development ... comparing appeal levels of varing copy strategies
 Tracking advertisement effectiveness over time periods.
 Understanding base buyer motivations, beliefs and needs.
 Pinpointing arousal points in broadcast, print, video and online media
 Competitive positioning analysis to identify content targets.
A broad range of advertising research techniques including ad recall surveys, message and
theme salience and impact measures, buying motivation and association with the ad message or
positioning theme.
12.3.2. Branding Research
Branding decisions drive branding marketing research strategy. Corporate, product and
advertising brand development is a mix of creativity and marketing information to uncover brand
positioning opportunities in cluttered market spaces.
Branding research has one goal: deliver branding research information that helps you better understand
your brand position, and then, to enhance that brand position in the marketplace.
In a word, to uncover brand positioning opportunities in market spaces often cluttered with brand
noise. Here’s the flow for a brand development engagement showing the integration of creative and
branding research.
Branding research studies often begin with Brand Base research followed by Brand Qualitative
research and targeted quantitative Brand Screening Survey studies.
 Brand Base Research
This helps the organisations to gauge the landscape evaluating existing available branding
research, client and competitive advertising, and brand name architecture. It seeks to uncover
existing comparative brand equity marketing information and knowledge. A part of this
brand equity discovery process, includes conducting far reaching interviews with client

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 management, field sales, product development and customer service staff. Talking to sales
people in the channel about their own brand preferences and their perception of customers.
Brand Base Research involves an initial round of qualitative depth interview, focus groups,
or qualitative online forums. This qualitative research has a branding and brand name equity
focus. It typically includes a small sample of client product customers and those loyal to
competitor brands.
 Brand Qualitative Research
Business employs unique qualitative methods. The typical starting point is a small sample
round of depth interviews. In the beginning stages of brand development, this method can
be far more useful than focus groups which may come later. Here, a non-directive design
and style, combined with projective interviewing techniques to

uncover buyer motivations and brand perceptions is used. It continues the qualitative
exploration with a larger sample using an online qualitative time-extended method which
combines both qualitative and quantitative assessments. If certain conditions exist, it may
add focus group discussions to the qualitative market research work.
 Brand Screening Survey
Brand screning survey involves
 Testing hypotheses developed from the Branding Qualitative Research. These pertain
to segmentation, strength of brand and category perceptions, buyer attitudes and
beliefs, and product behavior patterns.
 Screen positioning concepts using concept statements and appeal ratings
 Screen brand name and communications themes
 Evaluate linguistic considerations
12.3.3. Customer Satisfaction Research
Customer satisfaction research measurement studies with two core components that are
focused on building customer loyalty.
Customer Satisfaction Decision Drivers
Qualitative research uncovers the broad picture of how customers make purchase and repeat
purchase decisions. It explores the product and company attributes, and understand purchase and
brand loyalty factors beyond attributes which affect customer satisfaction and customer loyalty.
These may be the brand-product use application, emotional drivers, or external forces.

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Attribute Definition
Before proceeding to quantitative customer satisfaction research, core attribute factors
which, based on preliminary findings, are identified and created which a account for most of the
differences in customer satisfaction levels.
Opportunity Scanning
Opportunity scanning asks the question, “What else?” “What are your core needs and what
would be the ideal solution to those needs?” Here qualitative research exploration uncovers possible
emerging needs, and changing competitive factors.
Customer Satisfaction Measurement — Static Measures
Static customer satisfaction measurements are standard core quantitative survey
measurements. They are termed “static” because they are used as constant comparative measures
and are of our standard CSM research measurements.
Brand-Company Attribute Ratings
Specific product, brand or company attributes.
Attribute Importance
Reported or stated importance levels.
Brand-Company Overall Ratings
These are the global or “dependent” measures which are later correlated to attribute ratings
and importance ratings.
Brand-Company Loyalty
Here the stability of repeat purchase of the client product brand or company brand.is
measured.
Global Shift Expectations
Over time, customer expectations change as competitors and technology enhance customer
service and product quality. Performance which once would “exceed expectations” is today the
norm. Here evolving of expectation is assessed.
Customer Satisfaction Measurement — Dynamic Measures
The dynamic measures focus on competitive positioning and the pathway for making specific
changes to product or customer service to improve customer satisfaction.
Competitive Advantage
Emerging Needs
Here, today’s and tomorrow’s customer needs are identifiear forecasting where possible
how needs will evolve over time.Where appropriate, concept testing is employed

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to posit future ways the Company, products, or brands may respond to these changing customer
need environments. A customer satisfaction measurement study that accounts for market dynamics
by anticipating emerging customer needs becomes actionable so that clients “see the future” a bit
more clearly from the customers’ perspective.
12.3.4. Pricing research
Involves first a pricing strategy assessment supported by strong pricing research
capabilities. Sound pricing market research requires a broad strategic perspective together with a
focus on pricing decision options. Focus finds optimum price-product-feature configurations in the
context of market positioning opportunities. For pricing studies, both qualitative research and
quantitative research tools are empolyed
Pricing research usually concentrates on customers’ sensitivity to pricing. This price sensitivity is
driven by the nature of the market, the target within that market, the differentiation level of product
or service, and the value of brand.
In the quantitative phases of pricing research, market segmentation research, and positioning research
is conducted which involves concept testing and price sensitivity conjoint analysis.
12.3.5. Product development marketing research
Serves several goals such as new product design and market validation research or assessing
existing products. The goal and overall positioning and market strategy drive product research
design.
These steps show when product research may be needed to increase the probability of
optimum decisions and successful market impact:
Effective product market research for new products and existing products is well integrated
with R&D and technical product design functions. For consumer or business B2B product market
research, a global approach,can be taken incorporating appropriate market research at each design
stage: The goal is to align astute technical product R&D, product innovation and design with market
demand.
12.3.6 New Product Assessement
For new product development market research, the question becomes one of matching the
stage of new product development with the right creative or product market research method.
The Marketing Intelligence Platform is used to guide the use of the three forms of Intelligence —
Ideas, Data, & Drivers — to the product development process.
Product development market research methods and tools used may vary according to the
product type, the extent of incremental change from other products, the investment and risk factors,
and the costs of seeding the new product in the marketplace.

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Product development is a sequential decision process. It’s a series of decisions, not one. It is key,
therefore, to concentrate attention on the precise new product decision at hand, and think through
the market research and creative tools needed for that stage.
12.3.7. Marketing due Diligence Research
In technology and innovative early stage companies marketing, the value proposition can be
a moving target, both for companies, component suppliers, and their new products. Market
segmentation tools can meaningfully identify the need structure of differing market sectors. Technology
market research often requires the researcher to be both knowledgeable in the language and concepts
of technical issues, while bring a fresh approach to technology marketing issues. Depending on the
marketing decisions and issues, technology market research studies are designed using hybrid
designs, incorporating market survey method of both qualitative and quantitative genres. When
assessing new products opportunities, primary and secondary research can be driven by what we
call ‘next bench’ innovation — the concepts and market knowledge of technology workers on the
firing line. Competitive intelligence techniques may also be required.
12.3.8. Market segmentation
Research maintains focus and delivers needed marketing insight.
Comprehensive market segmentation research examines a broad range of demographic
and psychographic determinants. Implied in the notion of segmentation research is identifying the
‘ideal brand’ for each identified segment.
Methods we used include in portfolio of market segmentation research methods:
Qualitative Market Research...
Here a priori judgement is used regarding segment configuration and product brand
positioning. Preliminary focus groups or other qualitative methods such as depth interviews are
conducted among market segments for which hypotheses are framed as to their importance. In
focus groups, probe how they talk about the product or service category. Using projective techniques,
uncover insight as to how various consumer and business audiences see and feel about the product
category and competitive brands.
Qualitative market segmentation research effort centers around refining hypotheses,
discovery and refining learning about customers whether consumers or business audiences. The
goal is to develop preliminary segmentation dimensions not draw conclusions about either their
importance or size. That is done in quantitative segmentation research effort.
Quantitative Market Segmentation Research
Market Segmentation Goals
 Estimate the market segment dimension salience or impact.
Market segmentation dimensions may be demographic, behavioral, attitudinal, or a combination of
these which may form psychographic segments.

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  Estimate the market segment dimension salience or impact.
Factors here may include buying frequency, strength of product category importance, perceived
value of product use system, and consumer or business customer attitudes.
 Measure product appeal and purchase intent.
Purchase appeal and intent of brands and products, each with a unique brand image and
positioning, further attunes our quest for market segment definition. The response patterns together
with segment dimension data are assessed using advanced analytics. This aids as you uncover high
potential segments, their differentiated customer appeal, and further refines our brand segmentation
approach and conclusions.
Quantitative Market Segmentation Methods:
 Stage 1: Developmental Market Segmentation Research Survey
A developmental survey typically phone, or online survey that takes hypotheses from
qualitative market segmentation exploration, constructing the survey questionnaire to back the
initial dimensions, measure their importance, and the position of competitive brands and cross-
category brands along the dimensions. Product and brand concepts are used to refine the power of
each market segmentation dimension to discriminate. Basic statistical analysis may be employed in
this developmental stage.
 Stage 2: Statistical Quantitative Market Segmentation Study
Based on Stage 1 results dimensions are further refined and pared to a small relevant set. A
larger sample survey is implemented to allow performance of statistical measurement tools. These
may include Latent Class Analysis ( LCA ), conjoint analysis, multiple regression, perceptual mapping,
correspondence analysis and other multivariate techniques.
The results of this multi-stage approach yields data for specific market segmentation
recommendations, and preliminary branding positioning recommendations.
12.4 NOTES

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12.5 SUMMARY
With the economy becoming more and more competitive with each passing day, having apt
knowledge about the concerns and preferences of your customers has become integral for any
business. Marketing research is the best way to increase customer satisfaction, understand the
factors that affect your business, and to elevate your performance.
Market research can guarantees the success of your marketing campaigns, and in-turn
sales Market research not only helps in identifying new business opportunities, but also helps in
designing marketing campaigns that will directly target the interest of your potential consumers and
help in increasing sales. Marketing research provides valuable information about the potential of a
particular market segment, during a specific time, and within a particular age group.
Market research can help you keep a tab on your competitors Marketing research is a good
evaluation tool that can be of great use in comparative studies. You can track your company’s
progress as well as the growth of your competitors, by keeping an eye on your competitors. You
can devise business strategies that would keep you ahead of your business rivals.
Market research can help you minimize loss in your business with marketing research; you
can reduce the chances of loss to a large extent. Before launching a product, you can identify
potential problems and even determine the solutions. The research carried out after the launch of a
new product can help you find loopholes and devise plans to counter that loss and increase the
profits.

12.6 KEY WORDS

Advertising testing research, Branding research, Customer satisfaction research,
Pricing research, Product positioning research,

12.7 SELF ASSESSMENT QUESTIONS

1. Name the application of the marketing research in business.
2. “Business requires marketing research for the successes and survival in the present
competitive environment” Elucidate this statement with suitable examples.
3. Explain the applications of marketing research in various areas of Business.

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12.8 REFERENCES
1. Assael, H. Consumer Behaviour and marketing Action, USA: Ohio- South Western
College pub., 1995
2. Engle, J F. Consumer behaviour, Chicago: Dryden Press, 1993
3. Howard, John.A. Consumer behaviour in Marketing, New Delhi: Prentice Hall.
1989
4. Mowen, John C. Consumer Behaviour, New York: Mach Millan, 1993.
5. Schiffman, L G and Kanuk, L L. Consumer behaviour, New Delhi: PHI, 1994.
6. Consumer Behaviour, Raju&Xardel, New Delhi: Vikas Publications 2004
7. Kazmi&Batra , Consumer Behaviour, New Delhi: Excel Books, 2009

80
 KARNATAKA STATE OPEN UNIVERSITY
Mukthagangothri, Mysore-570006

DEPARTMENT OF STUDIES AND RESEARCH IN MANAGEMENT

M.B.A III SEMESTER

ELECTIVE : MARKETING

COURSE - 18B

CONSUMER BEHAVIOUR AND MARKETING RESEARCH

BLOCK

4
DYNAMICS OF CONSUMER BEHAVIOUR

Unit-13
Online Buying Behaviour 01-15
Unit-14
Groupdynamics and Opinion Leadership 16-36
Unit -15
Cultural and Cross Culture Influence on Consumer Behaviour 37-59
Unit-16
Marketing Implications of Buyer Behaviour 60-73

1
 Course Design and Editorial Committee

Prof. D. Shivalingaiah Prof. T.D.Devegowda

Vice-Chancellor & Chairperson Dean (Academic)(I/C)& Convenor
Karanataka State Open University Karnataka State Open University
Muktagangotri, Mysore – 570 006 Muktagangotri, Mysore – 570 006

Editor and Course Co-Ordinator

Dr. C. Mahadevamurthy
Dr. H. Rajeshwari
Associate Professor and Chairman Assistant Professor
Dos & Research in Management, DOS in Management
Karnataka State Open University, KSOU, Mysuru

Mukthagangothri, Mysore – 570 006

Course Writers

Dr H.N. Ramesh Block- 4 Units 13-16

Professor, Department of Management
Kuvempu Univeristy
Shankaragatta, Shimoga

Publisher
Registrar
Karnataka State Open University, Mukthagangothri, Mysore - 6

Developed by Academic Section, KSOU, Mysore- 6, 2016

All rights reserved. No part of this work may be reproduced in any form, by mimeograph or any
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2
BLOCK – 4:DYNAMICS OF CONSUMER BEHAVIOR

Dear Learner. In this module let us study about the recent trends in consumer
behaviour. In the previous modules, you have already studied about the various dimensions
and models of consumer behaviour. Owing to the ease of technology today many people
are orienting themselves towards on line buying. Many large retailers online sellers
have established their own footprints in e-commerce. Since e-business has become order
of the day, it has become highly significant for the marketer to study the online buying
behaviour.

Further there are few other factors which influence the buyer behaviour. These
factors include group dynamics, opinion leadership, cultural and cross cultural influences.
Let us study all these factors and their influences on the buying behaviour. One can
simply ask why to study the consumer behaviour. Let us also concentrate on how this
study of buyer behaviour helps the marketer to formulate his strategies.

This fourth module is classified into 4 units as given below

Unit 13 Online Buying Behaviour

Unit 14 Group Dynamics and Opinion Leadership

Unit 15 Cultural and Cross Culture Influence on consumer behaviour

Unit 16 Marketing Implications of Buyer Behaviour

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4
UNIT – 13: ONLINE BUYING BEHAVIOUR

Structure
13.0 Objectives

13.1 Introduction

13.2 Online Buying Behaviour

13.3 Categories of E-commerce

13.4 History of Online Buying Behaviour

13.5 Factors Affecting Online Buying Behaviour

13.6 Consumer mind set model in online shopping

13.7 Factors That Boost Online Shopping in India

13.8 . Few Facts about Online Shopping

13.9 Changing Attitude towards Online Shopping Malls

13.10 Notes

13.11 Summary

13.12 Key Words

13.13 Self Assessment Questions

13.14 References

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13.0 OBJECTIVES

After studying this unit you will be able to :

 Explain Dynamics in buyer behavior;

 Analyze Opinion leader influence on consumer buying behavior;

 Interpret Global consumer buying behavior and

 Describe Dimensions of buyer behaviour.

13.1 INTRODUCTION

Consumer behavior implies that study of behavior of purchaser of all goods and services
whether purely consumer goods, intermediate goods or capital goods. In other words, it implies
study of attitude of all consumers in disposing of their resources. There are several units in
the marketing that can be analyzed by consumer behavioral studies. Consumer behaviour
information coupled with firm’s strengths and weaknesses and those of competing firms helps
marketers to evolve effective marketing strategies. Suppose, for example, a product aimed at
older consumers, a growing segment. A competing firm that targets babies, a shrinking market,
is likely to consider repositioning toward older market. To assess a competing firm’s potential
threat, it is necessary to examine its assets (e.g., technology, patents, market knowledge,
awareness of its brands) against pressures it faces from the market. Finally, to assess conditions
(the marketing environment). For example, although firm developed a product that offers
great appeal for consumers, a recession may cut demand dramatically.

Serving existing consumers costs less than acquiring new consumers, firms’ marketing
strategies evolve around retaining consumers and building long-term consumer relationships.
In the pursuit of acquiring consumer loyalty, enhancing consumer value has been the focus of
many firms’ relationship building efforts.

13.2. ONLINE BUYING BEHAVIOUR

Electronic commerce has become one of the essential characteristics in the Internet era.
According to UCLA Center for Communication Policy (2001), online shopping has become the
third most popular Internet activity, immediately following e-mail using/instant messaging and web

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browsing. It is even more popular than seeking out entertainment information and news, two commonly
thought of activities when considering what Internet users do when online. Of Internet users, 48.9
percent made online purchases in 2001, with three-quarters of purchasers indicating that they make
1-10 purchases per year. When segmented into very versus less experienced Internet users, the
very experienced users average 20 online purchases per year, as compared to four annual purchases
for new users.

Electronic commerce, also referred as e-commerce is defined by Oxford Dictionary (2012)

as ‘commercial transactions conducted electronically on the Internet’. Another definition made by
Financial Times (2012) as a buying and selling activity over the Internet. To sum up e-commerce
can be defined as the buying, selling and exchanging of goods and services through an electronic
medium (the Internet) by businesses, consumers and other parties without any physical contact and
exchange.

Online shopping behavior (also called online buying behavior and Internet shopping/buying
behavior) refers to the process of purchasing products or services via the Internet. The process
consists of five steps similar to those associated with traditional shopping behavior. In the typical
online shopping process, when potential consumers recognize a need for some merchandise or
service, they go to the Internet and search for need-related information. However, rather than
searching actively, at times potential consumers are attracted by information about products or
services associated with the felt need. They then evaluate alternatives and choose the one that best
fits their criteria for meeting the felt need. Finally, a transaction is conducted and post-sales services
provided. Online shopping attitude refers to consumers psychological state in terms of making
purchases on the Internet. There have been intensive studies of online shopping attitudes and
behavior in recent years. Most of them have attempted to identify factors influencing or contributing
to online shopping attitudes and behavior. For example, Case, Burns, and Dick suggest that internet
knowledge, income, and education level are especially powerful predictors of Internet purchases
among university students .According to an online survey of 425 U.S. undergraduate and MBA
students, There are positive relationships between online shopping behavior and five categories of
factors, which include e-stores, logistical support, product characteristics, websites technological
characteristics, information characteristics, and homepage presentation. However, there is a lack
of coherent understanding of the impact of relevant factors on online attitudes and behavior and an
inconsistent identification of relevant independent and dependent variables.

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 Since the recent economic reforms, Indian consumers have just begun to understand benefits
of using Internet for shopping. However, the growing number of Internet users has not been reflected
to the online sales. Thus, it is important to identify factors affecting Indian consumers’ online buying
behavior in order to find the way to stimulate their online shopping behavior. The internet technology,
appearing during the last quarter of the 20th century and having been used frequently for few years
in daily lives, has influenced all parts of our lives in a short time. The hangings in technological area
all over the world have changed the concept of information and communication. The use of internet
for commercial purposes gave rise to the existence of the electronic commerce (e-commerce)
phenomenon. With the implementation of these information and communication technologies by
commercial institutions in order to support business activities, electronic business concept was
developed.

‘The rise of these new information and communication technologies and of Internet users,
has introduced a new marketing reality’. This new presence change the relations between the players.
Furthermore businesses have realized and seen the importance of the Internet and it has become
that e-commerce in the business context, for most companies, can be seen as a complement .The
importance of the competitive power and superiority has come to foreground and organisations’
understanding of competition has changed dramatically. In today’s world businesses use electronic
commerce channels to communicate with customers and to increase competitive advantage

In spite of a number of evidence showing the growth of Internet usage by Indian consumers,
Internet sales show less than 1 percent of the total retail sales in India. This may represent a great
potential to grow yet some obstacles to overcome for online retailers. Many Indian consumers have
low self efficacy in using Internet and feel shopping online to be unconventional. It seems that even
for those, who use Internet on regular bases, Internet is mainly for searching product information,
comparing prices, and/or checking consumer reviews rather than making a purchase. Would the
reasons for Indian shoppers not shopping online be the same as the ones identified in other countries
online shopping environments? Would there be specific concerns Over the past few decades, the
Internet has developed into a vast global market place for the exchange of goods and services in
the world. In many countries, the Internet has been adopted as an important medium, offering a
wide assortment of products with 24 hour availability and wide area coverage. Indians use the
Internet for e-mail and IM (98%); job search (51%); banking (32%); bill payment (18%); stock
trading (15%); and matrimonial search (15%) etc. (Feb,2006 data)

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13.3 CATEGORIES OF E-COMMERCE

So many company now operate on the Internet. Some of companies only have a web
presence, called as click-only dot-coms, such as Amazon.com and Expedia.com. These companies
sell products and services directly to consumers via the Internet. On the other hand traditional
companies also enhance their marketing strategies to adopt today’s requirements and create their
own online sales channels and become click-and-mortar companies. Nowadays it is hard to find an
organisation that doesn’t have a web presence.

E-commerce has been divided into four categories considering the characteristics of the buying and
selling parties. These categories are: business to business (B2B), business to consumer (B2C) or
consumer to consumer (C2C) or consumer to business (C2B).

Cisco Systems, Inc and Office Depot, Inc are examples of the business to business e-
commerce companies. B2B e-commerce is the electronic support of business transactions
between companies and covers a broad spectrum of applications that enable an enterprise or
business to form electronic relationships with their distributors, resellers, suppliers, and other
partners. E-commerce help businesses to enhance their organisational coordination and
decrease transaction costs for the buyer teams . Furthermore, Wise and Morrison state that e-
commerce helps organisations to access too many buyers and sellers. According to Gummesson
and Polese’s argument it is not noticeable that which B represent the supplier or the customer.
Initiatives could come from both sides. Buyers can demand and/or sellers can provide buyers’
desires.

Another type of transaction, business to consumer e-commerce activities also known

as e-retailing, take place between organisations and the customers. E-commerce is just another
tool for retail companies selling products by using web-based technologies. www.gap.com is
an example for this kind of companies which use a web site to reach their customers and also
providing shipping services. The success of this area mainly based on trust issue . Situations
such as; products can not be seen or touched by consumers or if customers do not have a
previous experience, to reassure customers for companies have carried a critical importance.
Yet, trust is an important element for commercial activities . it becomes more crucial for e-
businesses. Moreover, organisations should be customer-centric . It is because the success of
e- business mostly depend on loyal customers. Individuals could find another provider anytime,
anywhere on the Internet . Therefore, managing customer relations are important and especially
in the e-business there is no face-to-face contact, e-services are important to satisfy customers.

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The third type is consumer to consumer e-commerce action which provides to consumers to put
their goods on the market for other consumers ‘in auction format’ . eBay is the first and most
popular C2C type of e-commerce company. If an individual wishes to sell its product, can simply
register to a web-site and put the product on the market. After that a buyer can browse and search
the product they interested in. Later, if the buyer is willing to buy the product they can buy it directly
from the seller. In this way, the organisation (eBay) acts as an interface between two players and
generate revenue from this action. Organisations usually charge fees from seller side, not from the
buyer part in these kind of activities because of fees could discourage buyers from the purchasing
activity .

The final online marketing domain is consumer to business online marketing. With today’s
Internet environment consumers can reach companies easily. Using the web, consumers can drive
transactions with businesses, rather than the other way around. In this transaction, dominating factor
is seen as price . For instance, Priceline.com provides to companies to buy airline tickets, hotel
rooms etc which are put by consumers on the web site. Consumers can also send requests and
complaints via complaint web sites .

13.4 HISTORY OF ONLINE BUYING BEHAVIOUR

The emergence of e-commerce has begun with two organisations. Amazon.com, Inc and
eBay Inc. have been the early leaders of the e-commerce industry . Both of them are now offering
many different types of products to many parts of the world. Since then, Amazon and Ebay have
become the icons of the new economy. Paying visits to their Web sites has become part of our
regular life .

Amazon is founded by Jeff Bazos in 1994 in Washington and the website has launched in 1995.
They started with an online book store. Amazon also provided to consumers to order hard-to-find
books as easily as best sellers . Amazon also developed systems; such as ‘Search Inside the Book’
and ‘1-click® Shopping’ whick make the company the pioneer of innovations. Being first in the
market provided to Amazon.com a trusted brand name .

eBay is founded by Pierre Omidyar in 1995 and first product had been sold at the same
year by him as well. He says that ‘it was a broken laser pointer, I was about to throw away’ . A
collector bought it and this leads to a new way of the commerce. In 1996, the company already
reached 41,000 users. ‘Since then eBay have a presence in 39 markets with more than 90 million
eBay.com users worldwide’ .

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13.5 FACTORS AFFECTING ONLINE BUYING BEHAVIOUR

Consumer behaviour can be explained in four dimensions which are personal characteristics,
psychological characteristics, social characteristics and cultural characteristics . Identifying these
characteristics are crucial to decide marketing strategies and to target correct consumer groups.

a Personal Characteristics

Characteristics of a person, is an important factor affecting the purchase decision process.

Personal factors include age, gender, occupation, income status, education, life style. In online
shopping researchers, most of the studies are conducted on young adults because of their familiarity
with ICT traditional shopping mostly have been chosen by older individuals (40 years old and
above).

13.6 CONSUMER MIND SET MODEL IN ONLINE SHOPPING

The concept of consumer mind set is introduced by Wurtzberg motivational psychologist. A

mind set refers to a “specific cognitive orientation”. According to this theory, every consumer mind
set is composed of different thought, modes of emotions and different information processing
Propensity to shopping is affected by consumer mind set. Online consumers are goal oriented
rather than experimental if they chose online shopping. Consumer mind set has two types of
determinants one is goal oriented and second one is experimental According to Association of
motivations with shopping outlet, Toy retailer found that experimental mind set consumer buy toys
more as compare to goal oriented mind set consumer as they prefer to buy through online channels.
Dholakia and Bagozzi also contributed their efforts in mind set formation and influence (MSFI)
model. They introduce most relevant factors contributing mind set on consumer. According to this
MSFI model, consumer search behavior depends on website selection, length of website visit and
information obtained has influence on one’s minds. Mind set has a string influence on key cognitive,
effective and behavioral aspects of consumer’s activities in online shopping. Mind set gives concepts
to reach cognitive orientation through experimental and goal oriented. Mindset has ability to overcome
external environment. This is the strong point of mind set to help managerial point of view since it
provides actionable insight. Through mind set research in the consumer behaviors helps to increase
more opportunity in market. Below are discussed about mind set categories such as goal oriented
mind set and experimental mind set.

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13.7 FACTORS THAT BOOST ONLINE SHOPPING IN INDIA

The following factors are attributed to the growth of online shopping in India

 Rapid growth of cyber cafés across India

 Access to Information

 The increase in number of computer users

 Reach to net services through broadband Middle-class population with spending power is
growing. There are about 200 million of middleclass population good spending powers.
These people have very little time to spend for shopping. Many of them have started to
depend on internet to satisfy their shopping desires.

13.8 . FEW FACTS ABOUT ONLINE SHOPPING

The figures from IAMAI show that the internet users in India will grow to 200 million by
2016. Around 25% of regular shoppers in India are in the 18-25 age groups, and 46% are in the
26-35year range. Indian online matrimonial sector is worth around $230 million. Online shopping
has hit a tipping point and will see exponential growth in 2015-2020, a new study by search firm
Google India. According to a study, compiled by Google India along with TNS, highlights exponential
growth in interest in online shopping by Indians as per data recorded on Google Trends. The study
says that online shopping in India saw 128% growth in the period between 2011-12, compared to
only 40% growth the previous year. Apparels and accessories (30%) emerged as the second biggest
product category after consumer electronics (34%) and is expected to become bigger than consumer
electronics this year. Other popular searched categories include books (15%), beauty & personal
care (10%), home & furnishings (6%), baby products (2%) and healthcare (3%).

13.9 CHANGING ATTITUDE TOWARDS ONLINE SHOPPING MALLS

Malls springing up everywhere and yet people are e shopping! In addition, not in small
numbers either. E-commerce figures are going through the roof, according to Assocham (Associated
Chambers of Commerce & Industry of India). Today ( the figures are touching Rs. 5500 crore, but
are expected to increase by 150 percent to Rs 7,000 crores. And two metros - Delhi and Mumbai
are driving the growth: It was never thought that Indians would go in for e-shopping in such a big
way. Ticketing, travel bookings and even books and movies seem fine to buy online. Knowing that

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in India sizes vary from brand to brand and quality is inconsistent, even of some electronic items,
how is it that there are people buying these items online? Well, Assocham says that books are the
hottest selling item on the internet. In fact most products bought and sold off online are: books,
electronic gadgets and railway tickets. However, people are also buying clothes, gifts, computer
and peripherals, and a few are buying home tools and products, home appliances, toys, jewelry,
beauty products and health and fitness products.

13.10 NOTES

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13.11 SUMMARY

Online shopping behavior (also called online buying behavior and Internet
shopping/buying behavior) refers to the process of purchasing products or services via
the Internet. The process consists of five steps similar to those associated with traditional
shopping behavior In the typical online shopping process, when potential consumers
recognize a need for some merchandise or service, they go to the Internet and search for
need-related information. However, rather than searching actively, at times potential
consumers are attracted by information about products or services associated with the
felt need. They then evaluate alternatives and choose the one that best fits their criteria
for meeting the felt need. Finally, a transaction is conducted and post-sales services
provided. Online shopping attitude refers to consumer’s psychological state in terms of
making purchases on the Internet.

In this unit efforts have been made to explain the online buying behaviour, Light
is thrown upon the history of online buying behaviour. Factors about online buying and
factors that boost online buying behaviour are also discussed here. This unit also explains
the categories of e-commerce.

13.12 KEY WORDS

E-Commerce, Online buying, online buying behaviour , consumer mind set model

13.13 ASSESSMENT QUESTIONS

1. Define E-commerce

2. Explain the categories of e-commerce

3. Explain the factors influencing online buying behaviour.

4. Differentiate between goods and services

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13.14 REFERENCES

1. Assael, H. Consumer Behaviour and marketing Action, USA: Ohio- South Western
College pub., 1995
2. Engle, J F. Consumer behaviour, Chicago: Dryden Press, 1993
3. Howard, John.A. Consumer behaviour in Marketing, New Delhi: Prentice Hall.
1989
4. Mowen, John C. Consumer Behaviour, New York: Mach Millan, 1993.
5. Schiffman, L G and Kanuk, L L. Consumer behaviour, New Delhi: PHI, 1994.
6. Consumer Behaviour, Raju&Xardel, New Delhi: Vikas Publications 2004
7. Kazmi&Batra , Consumer Behaviour, New Delhi: Excel Books, 2009

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UNIT-14 : GROUP DYNAMICS AND OPINION
LEADERSHIP

Structure

14.0 Objectives

14.1 Introduction

14.2 Meaning of group and Reference Group

14.3 Types of Groups

14.4 Consumer relevant reference groups

14.5 Reference Group and Consumer

14.6 Factors Affecting Reference Group Influence

14.7 Reference Group Impact on Product and Brand Choice

14.8 Benefits of the Reference Group Appeal

14.9 Opinion Leader and interpersonal flow of communication

14.10 Opinion Leadership and the Firm’s Marketing Strategy

14.11 Notes

14.12 Summary

14.13 Key Words

14.14 Self Assessment Questions

14.15 Reference

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14.0 OBJECTIVES

After studying this unit you will be able to:

 Define Group as a factor for influencing consumer behavior;

 Explain Types of groups and their influence;

 Analyze Reference group influence on consumer buying behavior and

 Examine the role of Opinion leader in consumer buying decision.

14.1 INTRODUCTION

Individual identifies with the group to the extent that he takes on many of the values, attitudes
or behaviors of the group members. such as families, friends, civic and professional organizations.
Any group has a positive or negative influence on a person’s attitude and behavior. Affinity marketing
is focused on the desires of consumers that belong to reference groups. Marketers get the groups
to approve the product and communicate that approval to its members. Eg.Credit Cards. The
degree to which a Reference Group affect a purchase decision depends on an individual’s
susceptibility to reference group influence and the strength of his/her involvement with the group.
With the exception of those very few people who can be classified as hermits, people tend to be
involved with others on a rather constant basis. Like almost all behavior, an individual’s social
relationships is often motivated by the expectation that they will help in the satisfaction of specific
needs. For example, a person might become a volunteer ambulance driver to satisfy a need for
community recognition. Another person might join a computer club in an effort to find compatible
friends to satisfy social needs. A third person might join a health food cooperative to obtain the
benefits of group buying power. These are just a few of the almost infinite number of reasons why
people involve themselves with others.

14.2 MEANING OF GROUP AND REFERENCE GROUP

A group may be defined as two or more people who interact to accomplish some goals.
Within the broad scope of this definition are both an intimate “group” of two neighbors who informally
attend a fashion show together and a larger, more formal group, such as a neighbourhood, club
members etc and act as a point of reference for a consumer.

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 Reference groups are groups that serve as a frame of reference for individuals in their
purchase decisions. This basic concept provides a valuable perspective for understanding the impact
of other people on an individual’s consumption beliefs, attitudes, and behavior. It also provides
some insight into methods that Groups can be used to effect desired changes in consumer behavior.

A reference group is any person or group that serves as a point of companion (or reference)
for an individual in the formation of either general or specific values, attitudes, or behavior. The
usefulness of this concept is enhanced by the fact that it places no restrictions on group size or
membership, nor does it require that consumers identify with a tangible group (i.e., the group can
be symbolic: prosperous business people, rock stars, and sports heroes).

14.3 TYPES OF GROUPS

For simplification purpose, we can consider four different types of group classification:
primary versus secondary groups, formal versus informal groups, large versus small groups, and
membership versus symbolic groups.

Primary versus Secondary Groups

If a person interacts on a regular basis with other individuals (with members of his or her
family, with neighbors, or with co-workers whose opinions are valued), then these individuals can
be considered as a primary group for that person. On the other hand, if a person interacts only
occasionally with such others, or does not consider their opinions to be important, then these others
constitute a secondary group for that person. From this definition, it can be seen that the critical
distinctions between primary and secondary groups are the frequency with which the individual
interacts with them and the importance of the groups to the individual.

Formal versus Informal Groups

Another useful way to classify groups is by the extent of their formality; that is, the extent to
which the group structure, the members’ roles, and the group’s purpose are clearly defined. If a
group has a highly defined structure (e.g., a formal membership list), specific roles and authority
levels (a president, treasurer, and secretary), and specific goals (to support a political candidate,
improve their children’s education, increase the knowledge or skills of members), then it would be
classified as a formal group. The local chapter of the Red Cross, with elected officers and members
who meet regularly to discuss topics of civic interest, would be classified as a formal group. On the
other hand, if a group is more loosely defined, if it consists, say, of four women who were in the

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same college sorority and who meet for dinner once a month, or three co-workers who, with their
spouses, see each other frequently then it is considered an informal group.

Large versus Small Groups

It is often desirable to distinguish between groups in terms of their size or complexity. A

large group might be thought of as one in which a single member is not likely to know more than a
few of the group’s members personally, or be fully aware of the specific roles or activities of more
than a limited number of other group members. Examples of large groups include such complex
organizations as General Motors, with its numerous subordinate divisions, and the American Bar
Association, with its many state, county, and city chapters. In contrast, members of a small group
are likely to know every member personally and to be aware of every member’s specific role or
activities in the group. For example, each staff member of a college newspaper is likely to know all
the other members and be aware of their duties and interests within the group. In the realm of
consumer behavior, we are principally concerned with the study of small groups, since such groups
are more likely to influence the consumption behavior of group members.

Membership versus Symbolic Groups

Another useful way to classify groups is by membership versus symbolic groups. A

membership group is a group to which a person either belongs or would qualify for membership.
For example, the group of women with whom a young homemaker plays golf weekly or with whom
she hopes to play golf when an opening occurs would be considered, for her, a membership group.
In contrast, a group in which an individual is not likely to receive membership, despite acting like a
member by adopting the group’s values, attitudes, and behavior, is considered a symbolic group.
Clearly, actual membership groups offer a more direct, and thus a more compelling, influence on
consumer behavior. In summary, we can say that small, informal, primary membership groups are of
the great interest to marketers because they exert the greatest potential influence on consumer
purchase decisions.

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14.4 CONSUMER RELEVANT REFERENCE GROUPS

To more fully comprehend the kind of impact that specific groups have on individuals, there
are six basic consumer-relevant groups: the Family, Friendship groups, Formal social groups,
Shopping groups, Consumer action groups and Work groups.

a. The Family

An individual’s family is the most important group to influence his or her consumer decisions.
The family’s importance in this regard is due to the frequency of contact that the individual has with
other family members and that the family has a greater extent of influence on the establishment of a
wide range of values, attitudes, and behavior.

b. Friendship Groups

Friendship groups are informal groups because they are, usually unstructured and lack specific
authority levels. In terms of relative influence, after an individual’s family, it is friends who are most
likely to influence the individual’s purchase decisions. Seeking and maintaining friendships is a basic
drive of most people. Friends fulfill a wide range of needs, they provide companionship, security,
and opportunities to discuss problems that an individual may be reluctant to discuss with members
of his or her own family. Friendships are also a sign of maturity and independence, for they represent
a breaking away from the family and the forming of social ties with the outside world. Consumers
are more likely to seek information from those friends they feel have values or outlooks similar to
their own.

c. Formal Social Groups

In contrast to the relative intimacy of friendship groups, formal social groups are more
remote and serve a different function for the individual. A person joins a formal social group to fulfill
such specific goals as making new friends, meeting “important” people (e.g., for career advancement),
or promoting a specific cause. Because members of a formal social group often consume certain
products together, such groups are of interest to marketers. For example, the membership list of a
men’s club would be of interest to local men, Insurance agents, automobile agents, tax accountants.
Membership in a formal social group may influence a consumer’s behavior in several ways. For
example, members of such groups have frequent opportunity to informally discuss products, services,
or stores. Some members may copy the consumption behavior of other members whom they admire.

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 d. Shopping Groups

Two or more people who shop together whether for food, for clothing, or simply to pass the
time, can be called a shopping group. Such groups are often offshoots of family or friendship groups.
People like to shop with others who they feel have more experience with or knowledge about a
desired product or service. Shopping with others also provides an element of social fun to an often
boring but necessary task. In addition, it reduces the risk that a purchase decision will be socially
unacceptable.
Relatively few marketing or consumer behavior studies have examined the nature of shopping
groups. However, one study of the in-store behavior of shoppers revealed some differences between
group and individual shopping. The research found that shopping parties of at least three persons
deviated more from their original purchase plans (they bought either more or less than originally
planned) than did either single shoppers or two-party groups. The study also found that shopping
groups tended to cover more territory in the store than individuals shopping alone, and thus had
more opportunity to see and examine merchandise and to make unplanned purchases.
A special type of shopping group is the in-home shopping group, which typically consists of
a group of women who gather together in the home of a friend, to attend a “party” devoted to the
marketing of a specific line of products. The in-home party approach provides marketers with an
opportunity to demonstrate the features of their products simultaneously to a group of potential
customers. The undecided guests often overcome a reluctance to buy when they see their friends
make positive purchase decisions. Furthermore, some of the guests may feel obliged to buy because
they are guests in the home of the sponsoring hostess.
e. Consumer Action Groups
A particular kind of consumer group or consumer action group has emerged in response to
the consumerist movement. This type of consumer group has become increasingly visible since the
1960s and has been able to influence product design and marketing practices of both manufacturers
and retailers. Consumer action groups can be divided into two broad categories: those that organize
to correct a specific consumer abuse and then disband, and those that organize to address broader,
more pervasive, problem areas and operate over an extended or indefinite period of time. A group
of tenants who band together to dramatize their dissatisfaction with the quality of service provided
by their landlord, or a group of irate community members who unite to block the entrance of a fast-
food outlet into their middle-class neighborhood, are examples of temporary, cause-specific consumer
action groups.

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 f. Work Groups

The sheer amount of time that people spend at their jobs, frequently more than thirty-five
hours per week, provides ample opportunity for work groups to serve as a major influence on the
consumption behavior of members. Both the formal work group and the informal friendship/work
group have the potential for influencing consumer behavior. The formal work group consists of
those individuals who work together as a team. Their direct and sustained work relationship offers
substantial opportunity for one or more members to influence the consumer-related attitudes and
activities of other team members. Members of informal work groups may influence the consumption
behavior of other members during coffee or lunch breaks or after hours meetings.
Reference groups can be classified in terms of a person’s membership or degree of
involvement with the group and in terms of the positive or negative influences they have on his or her
values, attitudes, and behavior. Four types of reference groups that emerge from a cross-classification
of these factors: contractual groups, aspirational groups, disclaimant groups, and avoidance
groups.
A contractual group
A contractual group is a group in which a person holds membership or has regular face-to-
face contact and of whose values, attitudes, and standards he or she approves. Thus a contractual
group has a positive influence on an individual’s attitudes or behaviour.
Aspiration group
An aspirational group is a group in which a person does not hold membership and does not
have face-to-face contact, but wants to be a member. Thus it serves as a positive influence on that
person’s attitudes or behavior.
Disclaimant group
A disclaimant group is a group in which a person holds membership or has face-to-face
contact but disapproves of the group’s values, attitudes, and behavior. Thus the person tends to
adopt attitudes and behavior that are in opposition to the norms of the group.
Avoidance group
An avoidance group is a group in which a person does not hold membership and does not
have face-to-face contact and disapproves of the group’s values, attitudes, and behavior. Thus ‘the
person tends to adopt attitudes and behavior that are in opposition to those of the group.
Assume that, Ram, a senior majoring in advertising at the state university. The school’s Advertising

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Club, of which he is vice president, serves as one of Ram’s contractual groups. Ram believes that
continuing his education to obtain an MBA will enhance his career opportunities. It is clear that
individuals who hold the MBA degree serve as an aspirational group for him. Still further, although
he enjoys his position as a reporter on the university’s newspaper, the recent editorials (endorsed
by most of the staff) urging students to adopt a more conservative political philosophy run counter
to his own views. Thus the newspaper staff is currently a disclaimant group. Finally, Ram personally
knows a number of students who have quit college during their final year; these former students
serve as an avoidance group.

14.5 REFERENCE GROUP AND CONSUMER

Reference groups that influence general values or behavior are called normative reference
groups. An example of a child’s normative reference group is the immediate family, which is likely to
play an important role in molding the child’s general consumer values and behavior (e.g., which
foods to select for good nutrition, appropriate ways to dress for specific occasions, how and where
to shop, what constitutes “good” value etc).

Reference groups that serve as benchmarks for specific or narrowly defined attitudes or
behavior are called comparative reference groups. A comparative reference group might be a
neighboring family whose lifestyle appears to be admirable and worthy of imitation (the way they
maintain their home, their choice of home furnishings and cars, the number and types of vacations
they take). Both normative and comparative reference groups are important. Normative reference
groups influence the development of a basic code of behavior; comparative reference groups influence
the expression of specific consumer attitudes and behavior. It is likely that the specific influences of
comparative reference groups are to some measure dependent upon the basic values and behavior
patterns established early in a person’s development by normative reference groups.

Like many other concepts borrowed from the behavioral sciences, the meaning of reference
group has changed over the years. As originally employed, reference groups were narrowly defined
to include only those groups with which a person interacted on a direct basis (e.g., family and close
friends). However, the concept has gradually broadened to include both direct and indirect individual
and group influences. Indirect reference groups consist of those individuals or groups with whom a
person does not have direct face-to-face contact, such as movie stars, sports heroes, political
leaders, or TV personalities. Referents that a person might use in evaluating his or her own general
or specific attitudes or behavior vary from an individual to several family members to a broader

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kinship, from a voluntary association to a social class, a profession, an ethnic group, a community,
or even a nation.

14.6 FACTORS AFFECTING REFERENCE GROUP INFLUENCE

The degree of influence that a reference group exerts on an individual’s behavior usually
depends on the nature of the individual and the product and on specific social factors. This section
discusses how and why some of these factors operate to influence consumer behaviour.

Information and Experience

An individual who has firsthand experience with a product or service, or can easily obtain
full information about it, is less likely to be influenced by the advice or example of others. On the
other hand, a person who has little or no firsthand experience with a product or service, and does
not expect to have access to objective information about it (e.g., a person who believes that relevant,
advertising may be misleading or deceptive), is more likely to seek out the advice or example of
others. Research on imitative behavior provides some interesting insights on how insufficient
experience or information concerning a product makes consumers more susceptible to the influence
either positive or negative, of others. For example, if a medical student wants to impress his new
girlfriend, he may take her to a restaurant that he knows from experience to be good or to one that
has been highly recommended by the local newspaper’s Dining-Out Guide. If he has neither personal
experience nor information he regards as valid, he may seek the advice of friends or imitate the
behavior of others by taking her to a restaurant he knows is frequented by physicians whom he
admires.

Credibility, Attractiveness and Power of the Reference Group

A reference group that is perceived as credible, attractive, or powerful can induce consumer
attitude and behavior change. For example, when consumers are concerned with obtaining accurate
information about the performance or quality of a product or service, they are likely to be persuaded
by those they consider to be trustworthy and knowledgeable. That is, they are more likely to be
persuaded by sources with high credibility. When consumers are primarily concerned with the
acceptance or approval of others they like, with whom they identify, or who offer them status or
other benefits, they are likely to adopt their product, brand, or other behavioral characteristics.
When consumers are primarily concerned with the power that a person or group can exert over
them, they might choose products or services that conform to the norms of that person or group in
order to avoid ridicule or punishment. However, unlike other reference groups that consumers

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follow either because they are credible or because they are attractive, power groups are not likely
to cause attitude change. Individuals may conform to the behavior of a powerful person or group
but are not likely to experience a change in their own attitudes. Different reference groups may
influence the beliefs, attitudes, and behavior of an individual at different points in time or under
different circumstances. For example, the dress habits of a young female attorney may vary,
depending on her place and role. She may conform to the dress code of her office by wearing
conservative business suits by day and drastically alter her mode of dress after work by wearing
more conspicuous, flamboyant styles.

Conspicuousness of the Product

The potential influence of a reference group varies according to how visually or verbally
conspicuous a product is to others. A visually conspicuous product is one that can be seen and
identified by others, and that will stand out and be noticed (e.g., a luxury item or novelty product).
Even if a product is not visually conspicuous, it may be verbally conspicuous it may be highly
interesting or it may be easily described to others. Products that are especially conspicuous and
status-revealing (a new automobile, fashion clothing, home furniture) are most likely to be purchased
with an eye to the reactions of relevant others. Products that are less conspicuous (canned fruits,
laundry soaps) are less likely to be purchased with a reference group in mind. The success of a
brand of status running shoes like Reebok is aided by the fact that it is relatively easy to spot a
person wearing them-given the distinctive flag symbol on the side of each shoe.

14.7 REFERENCE GROUP IMPACT ON PRODUCT AND BRAND CHOICE

In some cases, and for some products, reference groups may influence both a person’s
product category and brand (or type) choices. Such products are called product-plus, brand-
plus items. In other cases, reference groups influence only the product category decision.
Such products are called product-plus, brand minus items. In still other cases, reference groups
influence the brand (or type) decision. These products are called product-minus, brand-Plus items.
Finally, in some cases, reference groups influence neither the product category nor the brand decision;
these products are called product-minus, brand-minus items. The idea of classifying products and
brands into four groups in terms of the suitability of a reference group appeal was first suggested in
the mid-1950s, along with an initial classification of a small number of product categories.

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 Marketers are particularly interested in the ability of reference groups to change consumer
attitudes and behavior (i.e., to encourage conformity). To be capable of such influence, a reference
group must

1. Inform or make the individual aware of a specific product or brand;

2. Provide the individual with the opportunity to compare his or her own
thinking with the attitudes and behavior of the group;
3. Influence the individual to adopt attitudes and behavior that are consistent
with the norms of the group;
4. Legitimize an individual’s decision to use the same products as the group.

The ability of reference groups to influence consumer conformity is demonstrated by the

results of a classic experiment designed to compare the effects.

14.8 BENEFITS OF THE REFERENCE GROUP APPEAL

Reference group appeals have two principal benefits for the advertiser: they increase brand
awareness and they serve to reduce perceived risk.

Increased Brand Awareness

Reference group appeals provide the advertiser with the opportunity to gain and retain the
attention of prospective consumers with greater ease and effectiveness than is possible with many
other types of promotional campaigns. This is particularly true of the celebrity form of reference
group appeal, where the personality employed is generally well known to the relevant target segment.
Celebrities tend to draw attention to the product through their own popularity. This gives the advertiser
a competitive advantage in gaining audience attention, particularly on television where there are so
many brief and similar commercial announcements.

Reduced Perceived Risk

The use of one or more reference group appeals may also serve to lower the consumer’s
perceived risk in purchasing a specific product. The example set by the endorser or testimonial
giver may demonstrate to the consumer that uncertainty about the product purchase is unwarranted.
Following are examples of how reference group appeals serve to lower the consumer’s perceived
risk.

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Celebrity.
Consumers who admire a particular celebrity often have the following reactions to the
celebrity’s endorsement or testimonial. For eg. “She wouldn’t do a commercial for that product if
she didn’t believe it is really good.”
Expert.
When consumers are concerned about the technical aspects of a product, they welcome
the comments of an acknowledged or apparent expert. For eg. “If he says it works, then it
really must work.”
Common Man.
When consumers are worried about how a product will affect them personally, they are
likely to be influenced by a common man endorsement or testimonial. For eg. “People just like me
are using that product,”
We live our lives in groups and an understanding of the interaction between individuals and
the groups they belong to is crucial to an understanding of consumer behaviour. This is particularly
true of small, primary groups where the psychological dynamics involved have been intensively
studied for many years. But larger, secondary groups are also important, as are an individual’s
membership and reference groups. Patterns of interaction between people are a key feature of
group life. Word-of-mouth contact has a very potent effect on many buying decisions, especially
when opinion leaders are involved.

Perhaps the single most important aspect of any group’s life is the pressure on individuals to
conform to the group’s expectations. The effects of it on many forms of purchase decisions are
immediately evident in our lives. This is perhaps most apparent when consumers aspire, by their
buying behaviour, to be seen as members of a particularly valued reference group

14.9 OPINION LEADER AND INTERPERSONAL FLOW OF COMMUNICATION

Individuals sharing information with other individuals are a critical influence on consumer
decisions and business success. An issue of considerable importance to consumers and marketers
alike- the informal influence that others have on consumers’ behaviour and the dynamic processes
that impact consumers’ behaviour is the nature and dynamics of the influence that friends, neighbors,
and the acquaintances have on our consumer related decisions. This influence is often called word-
of-mouth communications or the opinion leadership process. It also considers the personality and

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motivations of those who influence, i.e., opinion leaders and those who are influenced, i.e. opinion
receivers.

Opinion leader is the person who influences the opinion of others in their purchase decisions.
Opinion leaders have opinion followers. Marketers try to attract opinion leaders they actually use
(pay) spokespeople to market their products. Michael Jordon (Nike, McDonalds, Gatorade etc.).

Opinion Leadership

Opinion Leadership is the process by which one person (opinion leader) informally influences
the actions or attitudes of others, who may be opinion seekers or merely opinion recipients. The
definition of opinion leadership emphasizes on informal influence. This informal flow of opinion
related influence between two or more people is referred to as word-of-mouth communication.
The person is the opinion leader and may become an opinion receiver. Individuals who actively
seek information and advice about products are often called opinion seekers.

These opinion leaders are very often a part of the social groups and also have social
communication network. The biggest advantage of the informal word-of-mouth communication is
that it is informal and interpersonal in nature and this takes place between people who are not
directly associated with the commercial selling source or the firm. Very often, we can see that the
formal word-of-mouth communication is more influential than mass advertising in determining which
product or brand is bought.

Characteristics of Opinion Leaders

Let us now take a look at the main characteristics of opinion leaders. Some of the main
features that all opinion leaders have are:

 Opinion leaders are more knowledgeable, and have a keen level of interest.

 More involved in the product category

 Have local friendship and social interaction

 Can disseminate information

 Have high credibility

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Opinion Leader and Opinion Receiver

Opinion seekers or receivers are at times relay on the formal information flow in the form of
opinion or advice. The following are the ways in which opinion leader and opinion follower interact
impersonally or personally in the purchase decision making.

Self-Improvement Motivations

 Reduce post purchase uncertainty or dissonance

 Gain attention or status

 Assert superiority and expertise

 Feel like an adventurer

 Experience the power of “Converting” others

 Reduce the risk of making a purchase commitment

 Reduce research time

Product-Involvement Motivations

 Express satisfaction or dissatisfaction with a product or service

 Learn how to use or consume a product

 Learn what products are new in the marketplace

Social Involvement Motivations

• Express neighborliness and friendship by discussing products or services that may be useful
to others

• Buy products that have the approval of others, thereby ensuring acceptance

Message Involvement Motivations

• Express one’s reaction to a stimulating advertisement by telling others about it

• Have more self-confidence, are more sociable and cosmopolitan, can take risks.
Opinion leaders are activated greatly to reduce distance process for the products they have
bought; may want to influence neighbours and friends. They involve themselves, to confirm their own

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judgments. They are younger, have more education, have a higher income, and higher occupational
status. They are exposed to media. See more movies and television. Also read information magazines
and technical publication devoted to the product category. Having greater knowledge about the
product, they can disseminate more and true information about the products and their usage. Opinion
leaders are therefore a case of study to marketers and their strategies are evaluated and formed,
keeping the opinion leaders and their roles in mind. The following are the benefits of an opinion
leader for an opinion seeker.
1. Opinion leaders are perceived to be highly credible sources of product related information.
Opinion leaders are persons who are considered to be knowledgeable. They often voice
their opinion based on first hand information.
2. Opinion leaders are gregarious people and also have a lot of experience: Their experience
as a shopper and user sets them apart from other people. Since most of their advice is
based on firsthand experience, opinion receivers have a lot of confidence in their advice.
Besides, because of their gregarious nature, people enjoy interacting with them.
3. Opinion leaders usually provide unbiased information, i.e., they provide both favorable and
unfavorable information to the opinion seekers: This adds credibility to them and opinion
seekers have faith that they are receiving correct information.
4. Opinion leaders are both sources of information and advice.
5. Opinion leaders have got greater exposure to the media, especially in their area of
leadership.
6. Opinion leaders tend to be consumer innovators.
7. Opinion leaders have got some personal product specific characteristics like personality
traits, social status and demographic characteristics.
Profile of Opinion Leaders
Now we need to study a profile of opinion leader so that we can identify them. It would be
a very difficult job to exactly identify the profile of opinion leader, but we have a generalized profile
. Often we can see that more than half of the people studied in any consumer research project are
classified as opinion leaders with respect to some self selected product category. The frequency of
consumer opinion leadership suggests that people are sufficiently interested in at least one product
or product category to talk about it and give advice concerning it to others. Market research suggests
the existence of a special category of opinion leaders, the market maven. These are the consumers

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who possess a wide range of information about many different types of products, retail outlets, and
other dimensions of markets. Some important characteristics associated with market maven are:

 They both initiate discussions with other consumers and respond to requests for market
information.

 Although they appear to fit the profile of opinion leaders in that they have high levels of
brand awareness and tend to try more brands, unlike opinion leaders their influence extends
beyond the realm of high involvement products.

 Market mavens are also distinguishable from other opinion leaders because their influence
stems not so much from product experience but from a more general knowledge or market
expertise that leads them to an early awareness of a wide array of new products and services.

Opinion leaders seek relevant information from the mass media and other sources, and
transmit the same to members of the group. You might have observed that ideas often flow from
radio and print media to opinion leaders and from them to the general public. This is the concept
behind the two-step flow of communication This so-called two-step flow of communication theory
portrays opinion leaders as direct receivers of information from impersonal mass-media sources,
which in turn transmit (and interpret) this information to the masses. This theory views opinion
leader as a middleman between the impersonal mass media and the majority of society. A more
comprehensive model of the interpersonal flow of communication depicts the transmission of
information from the media as a Multistep flow.

14.10 OPINION LEADERSHIP AND THE FIRM’S MARKETING STRATEGY

Marketers have long been aware of the power that opinion leadership exerts on consumers’
preferences and actual purchase behavior. Many marketers look for an opportunity to encourage
word-of-mouth communications and other favorable informal conversations. New product designers
take advantage of the effectiveness of word-of-mouth communication by deliberately designing
products to have word-of-mouth potential. A new product should give customers something to talk
about.

Proof of the power of word-of-mouth is the cases in which critics hate a movie and the
viewing public like it and tell their friends. In instances where informal word of mouth does not
spontaneously emerge from the uniqueness of the product or its marketing strategy, some marketers
have deliberately attempted to stimulate or to simulate opinion leadership.

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 There are different opinion leaders for different products. The marketer must determine
through research, experience or logic, the role an opinion leader plays in the existing situation
for a product or service. Consumers talk to each other about their experiences and performance
of the product. If their experiences do not meet expectations then there is cause for concern,
and the marketer must take relevant steps to redress their complaints.

This can be reduced by utilizing the knowledge of opinion leaders, which are rather difficult
to identify. Opinion leaders are gregarious and tend to belong to clubs and associations. Some
product categories have professional opinion leaders who are also very influential. Hairstylists serve
as, opinion leaders for hair-care products. For healthcare products-pharmacists are important opinion
leaders. Computer professionals can give an opinion about the purchase of personal computers.
The idea is to identify the opinion leaders, and then undertake a marketing research on them and
formulate a marketing strategy. The marketing research conducted on opinion leaders gives ideas
of the likes and dislikes of the product users and their categories. Various tests should include the
product use test, the pre-testing of the advertising copy, the media preferred for customers to
respond favorably to the firm’s marketing mix. The sampling should be done from amongst the
opinion leaders. In retailing and personnel selling various techniques can be adopted to attract
customers like, one meal extra for every three meals or, pay for two and take three or, a “fashion
advisory board” can be constituted in clothing stores. In advertising, people of prominence and,
owners can be used and their experiences and satisfaction received can be projected through
conversation and by giving their impression to the general public and non-owners of the product.
Opinion leaders can be used effectively in commercials to promote the product to the masses.

The influence of opinion leader is a social influence and also one of the powerful influences
on consumer buying decision. The multiple flow of communication involves opinion leaders for a
particular product area who actively seek information from the mass media and other sources. The
most important characteristics of a opinion leader is long-term involvement with the product category
than the non-opinion leaders in the group. This is referred to as enduring involvement, and it leads
to enhanced knowledge about and experience with the product category or activity. Opinion leaders
get involved in social activities and always enjoy being in the limelight. New product designers take
advantage of the effectiveness of word-of-mouth communication by deliberately designing products
to have word-of-mouth potential through opinion leaders.

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14.12. SUMMARY

A group in its broadest sense includes two or more individuals who share a set of norms
values or beliefs and have certain implicit or explicit relationships such that their behaviors are
interdependent. Some groups require membership; other do not. Groups that have frequent personal
contact are called primary groups; those with limited interpersonal contact are called secondary
groups. Group influence varies across situations. Informational influence occurs when individuals
simply acquire information shared by group members. Normative influence happens when an individual
conforms to group expectations to gain approval or avoid disapproval. Identification influence exists
when an individual identifies with the group norms as a part of his or her self-concept and identity.
A reference group is any person or group that serves as a point of companion (or reference) for an
individual in the formation of either general or specific values, attitudes, or behavior. The usefulness
of this concept is enhanced by the fact that it places no restrictions on group size or membership,
nor does it require that consumers identify with a tangible group (i.e., the group can be symbolic:
prosperous business people, rock stars, and sports heroes).

The influence of opinion leader is a social influence and also one of the powerful influences
on consumer buying decision. The multiple flow of communication involves opinion leaders for a
particular product area who actively seek information from the mass media and other sources. The
most important characteristics of a opinion leader is long-term involvement with the product category
than the non-opinion leaders in the group. This is referred to as enduring involvement, and it leads to
enhanced knowledge about and experience with the product category or activity. Opinion leaders
get involved in social activities and always enjoy being in the limelight. New product designers take
advantage of the effectiveness of word-of-mouth communication by deliberately designing products
to have word-of-mouth potential through opinion leaders.

14.13. KEY WORDS

Opinion leader, Opinion leadership, culture, cross culture, Marketing strategy, reference group.

14.14 SELF ASSESSMENT QUESTIONS

1. What is group influence on consumer behaviour? Explain its implications in marketing

management.

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 2. Explain the types of reference groups and their influence on consumer behaviour.

3. Explain the characteristics of Opinion leaders.

4. Explain the role of opinion leader on companies marketing strategy.

14.15 REFERENCES

1. Assael, H. Consumer Behaviour and marketing Action, USA: Ohio- South Western
College pub., 1995
2. Engle, J F. Consumer behaviour, Chicago: Dryden Press, 1993
3. Howard, John.A. Consumer behaviour in Marketing, New Delhi: Prentice Hall.
1989
4. Mowen, John C. Consumer Behaviour, New York: Mach Millan, 1993.
5. Schiffman, L G and Kanuk, L L. Consumer behaviour, New Delhi: PHI, 1994.
6. Consumer Behaviour, Raju&Xardel, New Delhi: Vikas Publications 2004
7. Kazmi&Batra , Consumer Behaviour, New Delhi: Excel Books, 2009

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UNIT –15 : CULTURAL AND CROSS CULTURE
INFLUENCE ON CONSUMER BEHAVIOUR

Structure

15.0 Objectives

15.1 Introduction

15.2. Meaning

15.3 Characteristics of Culture

15.4 Types of Culture

15.5 Cultural Influences

15.6 Sub Cultures and Consumer Behaviour

15.7 Cross Cultural Consumer Behaviour

15.8 Strategic Implications

15.9 Notes

15.10 Summary

15.11 Key Words

15.13 Self Assesment Questions

15.14 References

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15.0 OBJECTIVES

After studying this unit, you should be able to:

 Define culture;

 Identify the various influences on culture ;

 Describe sub-cultures and its influences ;

 Analyze the Environmental variations and cultural values and

 Explain the cross-cultural influences on consumer behaviour.

15.1 INTRODUCTION

Everybody in this world is a consumer. Every day of our life we are buying and consuming
an incredible variety of goods and services. However, we all have different tastes, likes and dislikes
and adopt different behaviour patterns while making purchase decisions. Many factors affect how
we, as individuals and as societies, live, buy, and consume. External influences such as culture,
ethnicity, and social class influence how individual consumers buy and use products, and help explain
how groups of consumers behave. The study of culture encompasses all aspects of a society such
as its religion, knowledge, language, laws, customs, traditions, music, art, technology, work patterns,
products, etc. Culture is an extremely critical and all pervasive influence in our life.

15.2. MEANING

For the purpose of studying consumer behaviour, culture can be defined as the sum total of
learned beliefs, values and customs that serve to guide and direct the consumer behaviour of all
members of that society. Howard and Sheth have defined culture as ―A selective, manmade way
of responding to experience, a set of behavioral pattern . Thus, culture consists of traditional ideas
and in particular the values, which are attached to these ideas. It includes knowledge, belief, art,
morale, law, customs and all other habits acquired by man as a member of society. An accepted
concept about culture is that includes a set of learned beliefs, values, attitudes, habits and forms of
behaviour that are shared by a society and are transmitted from generation to generation within that
society.

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Culture is learned through the following three ways:

1. Formal learning: parents and elders teach children the proper way to behave. For instance,
you have been taught that you need to study to be successful and happy in life. This learning
may influence your response both as a student and individual towards education.

2. Informal learning: we learn by imitating the behaviour of our parents, friends, or by watching
TV and film actors in action

3. Technical learning: instructions are given about the specific method by which certain things
to done such as painting, dancing, singing etc.

15.3 CHARACTERISTICS OF CULTURE

Following are the characteristics of culture,

* Culture is learned.
* Culture regulates society –Norms, standards of behaviour, rewards and
punishments.
* Culture makes life more efficient
* All members follow same norms.
* Culture is adaptive.
* Culture is environmental.
* Multiple cultures are nested hierarchically.

Culture also determines what is acceptable with product advertising. Culture determines
what people wear, eat, reside and travel. Cultural values in India are good health, education,
respect for age and seniority. But in our culture today, time scarcity is a growing problem,
which implies a change in meals. Some changes in our culture:

1. Convenience: As more and more women are joining the work force there is an increasing
demand for products that help lighten and relieve the daily household chores, and make life more
convenient. This is reflected in the soaring sale of Washing machines, microwaves, Pressure cookers,
Mixer-grinders, food processors, frozen food etc.

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2. Education: People in our society today wish to acquire relevant education and skills that would
help improve their career prospects. This is evident from the fact that so many professional, career
oriented educational centers are coming up, and still they cannot seem to meet the demand. As a
specific instance count the number of institutions offering courses and training in computers that has
opened in your city.

3. Physical appearance: Today, physical fitness, good health and smart appearance are on premium
today. Slimming centers and beauty parlours are mushrooming in all major cities of the country.
Cosmetics for both women and men are being sold in increasing numbers. Even exclusive shops are
retailing designer clothes.

4. Materialism: There is a very definite shift in the people‘s cultural value from spiritualism towards
materialism. We are spending more money than ever before on acquiring products such as air-
conditioners, cars CD players etc, which adds to our physical comfort as well as status.

15.4 TYPES OF CULTURE

Based on the context and nature, culture may be of following types

* National culture

* The culture prevalent in a nation, common to everyone

* Popular culture
* The culture of the masses with norms of mass appeal
* Subculture
* The culture of a group within the larger society
* Group identification based on nationality of origin, race, region, age, religion,
gender, etc.
* Corporate culture
* The company‘s values, rituals, customs, myths and heroes

15.4.1 Hofstede’s Five Dimensions of Culture

Culture has a profound impact on the way consumers perceive themselves, products they
buy and use, purchasing processes, and the organisations from which they purchase. Marketers,
however, are giving more attention, to understanding macro cultures and how they affect consumer

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behaviour. Hofstede found five dimensions of culture that are common among 66 countries. These
dimensions serve as a foundation for characterizing, comparing and contrasting specific national
cultures, and they are helpful in identifying environmentally sensitive segments of the market.

1. Individualism versus collectivism ( Pursuit of self- or group interest )

Individualism describes the relationship between an individual and fellow individuals, or the
collectivity that prevails in society. Table 1.1 below depicts the attitudinal and behavioural differences
associated with individualism and collectivism.

2. Power distance ( Social inequality and submission to authority)

Power distance reflects the degree to which a society accepts inequality in power at different
levels in organizations and institutions. It can affect preferences for centralization of authority,
acceptance of differential rewards, and the ways people of unequal status work together.

3. Uncertainty avoidance ( Tolerance/avoidance of ambiguity )

Uncertainty avoidance concerns the different ways in which societies react to the uncertainties
and ambiguities inherent in life. Some societies need well-defined rules or rituals to guide behaviour,
whereas others are tolerant of deviant ideas and behaviour.

4. Masculinity/femininity (Segregation of male and female roles in society )

This factor determines the extent to which societies hold values traditionally regarded as
predominantly masculine or feminine. For instance, assertiveness, respect for achievement, and the
acquisition of money and material possessions are identified with masculinity; and nurturing, concern
for the environment and championing the underdog are associated with a culture‘s feminity.

5. Abstract versus associative thinking

Creation of value in products based on cause/effect logic or association among events without
a logical link.

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15.5 CULTURAL INFLUENCES

Culture is that complex whole which includes knowledge, belief, art, law, morals, customs
and any other capabilities and habits acquired by humans as members of society. Culture influences
the pattern of living, of consumption, of decision-making by individuals. Culture is acquired. It can
be acquired from the family, from the region or from all that has been around us while we were
growing up and learning the ways of the world. Culture forms a boundary within which an individual
thinks and acts. When one thinks and acts beyond these boundaries, he is adopting a cross-cultural
behaviour and there are cross-cultural influences as well. The nature of cultural influences is such
that we are seldom aware of them. One feels, behaves, and thinks like the other members of the
same culture. It is all pervasive and is present everywhere. Material culture influences technology
and how it brings cultural changes like use of telephones, mobile phones, clothing styles and fashions,
gives the marketers a chance to improve the product, packing, etc. to meet the needs of the customers.

Norms are the boundaries that culture sets on the behaviour. Norms are derived from cultural
values, which are widely told beliefs that specify what is desirable and what is not. Most individuals
obey norms because it is natural to obey them. Culture outlines many business norms, family norms,
behaviour norms, etc. How we greet people, how close one should stand to others while conducting
business, the dress we wear and any other patterns of behaviour. Culture keeps changing slowly
over time; and is not static. Changes take place due to rapid technologies. In case of emergency,
war, or natural calamities, marketers and managers must understand the existing culture as well as
the changing culture and culture of the country where the goods are to be marketed. Major companies
have adapted themselves to international culture and are accepted globally. Coca Cola is sold
allover the world. Procter & Gamble and other companies give cross-cultural training to their
employees. By making cross-cultural mistakes, many companies have difficulty in pushing their
products for example, (i) Coca Cola had to withdraw its 2 litres bottle from Spain, because it did
not fit in the local refrigerator; (ii) Many countries are very traditional and do not like women
displayed on the products. This acts as a detriment to business in those countries.

Variation in Cultural Values

There are three broad forms of cultural values as shown in the following figure.

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 Fig 15.1 Variation in Cultural Values

This shows the relationship between individuals and the society. The relationship influences
marketing practices. If the society values collective activity, decisions will be taken in a group. It
gives rise to following questions which affect consumer behaviour.

Individual/ collective: Whether individual initiation has more value than collective activity?

Romantic orientation: This depicts whether the communication is more effective which emphasises
courtship or otherwise. In many countries a romantic theme is more successful.

Adult/ child theme: Is family life concentrated round children or adults? What role do children
play in decision-making?

Masculine/ Feminine: Whether the society is male dominant or women dominant or balanced.

Competitive/ Cooperation: Whether competition leads to success. This is achieved by forming

alliances with others.

Youth/ age: Are prestige roles assigned to younger or older members of the society. American
society is youth oriented and Korean is age oriented. Decisions are taken by mature people in
Korea.

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Environment Oriented Values

Cleanliness: If a culture lays too much stress on cleanliness. There is scope for the sale of beauty
creams, soaps, deodorants, insecticides, washing powder, vacuum cleaner, etc. In western countries,
a lot of emphasis is placed on this aspect and perfumes and deodorants are widely used.

Performance/ status: A status oriented society cares for higher standards of living, and chooses
quality goods and established brand names and high prices items. This is true for the United
States, Japan, Singapore, Malaysia, Indonesia, Thailand and most Arabic countries.

In performance oriented societies, where rewards and prestige is based on an individual’s

performance, less importance is given to brand names. Products which function equally well and
may not be big brand names are used. Germans do not give the same amount of emphasis to brand
names. The marketers adopt strategies accordingly.

Tradition/ change: Traditional oriented societies stick to the old product and resist innovation or
new techniques. In traditional societies, there is less scope for new products, and old traditional
products are in greater demand. In some societies which are upwardly mobile, consumers are
looking for modern methods, new products, new models and new techniques.

Risk taking/ security: An individual who is in a secure position and takes a risk can be either
considered venturesome or foolhardy. This depends on the culture of the society. For
developing new entrepreneurs risk taking is a must. It leads to new product development,
new advertising themes and new channels of distribution. Security oriented societies have
little chances of development and innovation.

Problem solving/fatalist: A society can be optimistic and have a problem solving attitude or,
be inactive and depend on fate. This has marketing implications on the registering of
complaints when consumers are dissatisfied with the purchase of the products. Advertising
plays an important part and gives guidance to the consumer, and removes these doubts to a
great extent.

Nature: There are differences in attitude over nature and its preservation. Consumers stress on
packing materials that are recyclable and environment friendly. Some countries give great importance
to stop environmental pollution and to recycling of products.

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Companies like P&G, Colgate-Palmolive captured a great extent of the market by offering products
which are less harmful to the environment. They also use ingredients in the products which are not
harmful in any way.

Self-Oriented Values

Active/passive: Whether a physically active approach to life is valued more highly than a less
active orientation. An active approach leads to taking action all the time and not doing anything.
In many countries, women are also taking an active part in all activities. This makes the
society a highly active one, where everybody is involved in work.

Material/ non-material: In many societies money is given more importance, and a lot of emphasis
is on being material minded. While in many societies things like comfort, leisure and relationships
get precedence over being materialistic. Materialism can be of two types.

* Instrumental materialism, which is the acquisition of things to enable one to do

something or achieve something. Cars are used for transportation.

People like to possess things of material value which would help them to bring efficiency.

* Terminal materialism is the requisition of materialism for the sake of owing it rather
than for use-Art is acquired for owing it. Cultural differences play art important role
in this type of materialism. Instrumental materialism is common in the United States of
America, where as Japanese advertisements are mostly dominating terminal materialism.

Hard work/leisure: This has marketing implications on labour saving products and instant foods.
Some societies value hard work and consider it as a fuller life. Others adopt labour saving devices
and instant foods to have more leisure time at their disposal.

Postponed gratification/ immediate gratification: Should one save for the rainy day or live for
the day? Sacrifice the present for the future, or live only for the day? Some countries like The
Netherlands and Germany consider buying against credit cards as living beyond one’s means, whereas
credit cards are very popular in America and other countries having a different cultural orientation,
some prefer cash to debt. Some societies save for tomorrow; others enjoy the present and spend
lavishly.

Sexual gratification/Abstinence: Some traditional societies curb their desires, food, drinks or
sex, beyond a certain requirement. Muslim cultures are very conservative, and do not want their

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women to be seen in public or be exposed, so the Polaroid camera which gives instant photographs
can be purchased and pictures can be taken by the family members without their women being
exposed to the developers in a photo lab.

Humour/ serious: Should we take life lightly and laugh it off on certain issues or, take everything
seriously? This is an- other aspect of culture. Advertising

personnel selling techniques and promotion may revolve around these themes and the way the
appeal for a product is to be made in various cultures.

15.6 SUB CULTURES AND CONSUMER BEHAVIOUR

Culture can be divided into subcultures. A subculture is an identifiable distinct, cultural group, which,
while following the dominant cultural values of the overall society also has its own belief, values and
customs that set them apart from other members of the same society.

There are various sub-culture categories such as

(i) Nationality: Indian, Srilanka, Pakistan ,

(ii) Religion: Hinduism, Islam

(iii) Race: Asian, black, white (iv) Age: young, middle aged, elderly

(v) Sex: Male, Female

(vi) Occupation: Farmer, teacher, business

(vii) Social class: upper, middle, lower

(viii) Geographic regions: South India, North-eastern India

15.6.1 Regional, Ethnic, and Religious Influences on Consumer Behavior

The three major aspects of culture that have important effects on consumer behavior are regional,
ethnic, and religious differences. Firstly, consumption patterns may differ in various regions of India
and the world, and marketing strategy can sometimes be tailored specifically to these regions.

Secondly, our country has a number of different ethnic groups, and population trends will dramatically
alter the demographic profile of the country in the next 50 years. The very diverse Asian American
subculture is described as young and having higher socioeconomic status, placing strong value on

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the family and the group, and being strongly brand loyal. In spite of its diversity, marketing strategies
can be developed for this group.

Finally, religious beliefs and values can influence consumer. Many marketers are now becoming
multicultural in their marketing activities by trying to appeal to a variety of cultures at the same time.
Although the diversity of the Indian melting pot may be unique, there are many important ethnic
groups in other areas of the world.

15.6.2 Age, Gender, and Household Influences on Consumer Behavior

Among the four major age groups, Teens, who need to establish an identity, are the consumers
of tomorrow and have an increasing influence on family decisions. The somewhat disillusioned
Generation X consists of smart and cynical consumers who can easily see through obvious marketing
attempts. Baby boomers grew up in a very dynamic and fast-changing world, and this has affected
their values for individualism and freedom. The 50 and older segment can be divided into two
groups-the young again and the gray market. Neither group likes to be thought of as old. The affect
of gender differences on consumer behavior is examined next. Sex roles are changing. Women are
becoming more professional and independent, and men are becoming more sensitive and caring.
Also, men and women can differ in terms of traits, information processing, decision styles, and
consumption patterns.

Gender is consistent throughout lifetime, influencing customer values and preferences. Gender
shows different consumption patterns and perceptions of consumption situations –E.g. the wedding
ceremony.

Households play a key role in consumer behavior. The proportion of nontraditional households
has increased due to factors such as

(1) later marriages, (2) Cohabitation, (3) Dual-career families, (4)Increased divorce, and
(5) Fewer children

Households also exert an important influence on acquisition and consumption patterns. First,
household members can play different roles in the decision process (gatekeeper, influencer, decider,
buyer, and user). Second, husbands and wives vary in their influence in the decision process,
depending on the situation-husband-dominant, wife-dominant, autonomic, or syncratic.

15.6.3. Psychographics: Values, Personality, and Lifestyles

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The roles of psychographics in affecting consumer behaviour are detailed below.

Values are enduring beliefs about things that are important. They are learned through the
processes of socialization and acculturation. Our values exist in an organized value system, with
some values being viewed as more important than others. Some are regarded as terminal values
and reflect desired end states that guide behavior across many different situations. Instrumental
values are those needed to achieve these desired end states. Domain-specific values are those that
are relevant within a given sphere of activity. Western cultures tend to place a relatively high value
on material goods, youth, the home, family and children, work and play, health, hedonism, and
technology. Marketers use tools like value segmentation to identify consumer groups with common
values.

Personality consists of the distinctive patterns of behaviors, tendencies, qualities, and personal
dispositions that make people different from one another. Approaches to the study of personality
include

1. The psychoanalytic approach, which sees personality arising from unconscious

internal struggles within the mind at key stages of development;
2. Trait theories, which attempt to identify a set of personality characteristics that
describe and differentiate individuals, such as introversion, extroversion, and
stability;
3. Phenomenological approaches, which propose that personality is shaped by an
individual‘s interpretation of life events
4. Social-psychological theories, which focus on how individuals act in social situations
(e.g., compliant, detached, or aggressive); and
5. Behavioral approaches, which view an individual‘s personality in terms of past
rewards and punishments.

Marketers also measure lifestyles, which are patterns of behavior (or activities, interests,
and opinions). These lifestyles can provide some additional insight into consumers‘ consumption
patterns. Finally, some marketing researchers use Psychographic techniques that involve all of these
factors to predict consumer behavior. One of the most well known Psychographic tools is the
Values and Lifestyle Survey (VALS). The newer VALS2 identifies eight segments of consumers
who are similar in their resources and self-orientations.

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15.7 CROSS CULTURAL CONSUMER BEHAVIOUR

Cross-cultural marketing is defined as ―the effort to determine to what extent the consumers
of two or more nations are similar or different. This will facilitate marketers to understand the
psychological, social and cultural aspects of foreign consumers they wish to target, so as to design
effective marketing strategies for each of the specific national markets involved.
A company can enter a foreign market as a
* Domestic exporter
* Foreign importer
* Foreign government-solicit the firm to sell abroad
The firm‘s objectives could be:
* To determine how consumers in two or more societies are similar/different and
devise suitable, appropriate strategies
* Devise individualized marketing strategy if cultural beliefs, values and customs of
a specific country are different
Characteristic features of a firm going global:
1. High market share in the domestic market
2. Advantageous economies of scale
3. Access to marketing/manufacturing bases across global borders
4. Availability of resources and capability to absorb huge losses
5. Product/technology clout
6. Cost and differentiation advantages

Problems in Cross Cultural marketing

1. Problems related to product selection: The marketer going for cross cultural
marketing has to select the customers/ market not on the basis of the superficial
similarities of age or income, but by using the real motivating factors that prompt
them to accept or reject products.
2. Problems related to promotion/marketing communication: e.g. Ariel in the middle
east and also Pepsi
3. Problems related to pricing: the marketer has to adjust his pricing policies according
to the local economic conditions and customs.

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4. Problems related to selection of distribution channels: in Japan, P & G used this to
sell soap

Cross-Cultural Consumer Analysis

To determine whether and how to enter a foreign market, we need to conduct some form of
cross-cultural consumer analysis.

Cross-cultural consumer analysis can be defined as the effort to determine to what extent the
consumers of two or more nations are similar or different. Such analysis can provide marketers
with an understanding of the psychological, social, and cultural characteristics of the foreign
consumers they wish to target, so that they can design effective marketing strategies for the specific
national markets involved.

Similarities and differences among people

A major objective of cross-cultural consumer analysis is to determine how consumers in

two or more societies are similar and how they are different.

American cultural traits Japanese cultural traits

Diverse Homogenous
· Fight for one’s beliefs/positions · Harmony to be valid and preserved
· Individualistic · Group, not individual, important
· Clear-cut · Ambiguous
· Specific · General
· Display emotions in public · Hold back emotions in public
· Result oriented · Process-oriented
· Make a short story long · Make a long story short
· Verbal communication important · Nonverbal communication important
Some of us may argue as markets are becoming more and more similar, standardized
· Interested in what is spoken · Interested in who is speaking
marketing strategies are becoming more and more feasible. But, some more would argue
back that differences between consumers of various nations are far too great to permit a standardized
marketing strategy. Whether to use shared needs and values as a segmentation strategy or to use

51
national borders as a segmentation strategy? Shared needs and values would mean to appeal to
consumers in different countries in terms of their common needs, values, and goals. Using national
borders as a segmentation strategy would mean to use relatively different local or specific marketing
strategies for members of distinctive cultures or countries.

Table 15.1 Product-Communication Grid

Alternative Global Marketing Strategies

1. Favoring a World Brand: A lot of companies have created world brand products that are
manufactured, packaged, and positioned in exactly the same way regardless of the country
in which they are sold. For instance, Sony sells its Walkman in this fashion.

2. Adaptive Global Marketing: In contrast to the above, some other organizations imbibe a
strategy that adapts their advertising messages to the specific values of particular cultures.
A very good example here would be that of McDonald’s, which tries to localize its advertising
to consumers in each of the cross-cultural markets in which it operates.

Tangible Benefits of Global Brand Building

Global brand building drastically reduces marketing investments. A strong brand needs lower
and lower levels of incremental investment to sustain itself over time. A new and unknown player
will have to spend two to four times more than the market leader to achieve the same share of mind.
Given the huge difference in business volumes, the pressure of the bottom-line is much higher for an
un established player. Strong global brands always account for more stable businesses. Global
brand building commands a premium. As long as there is a distinct value attached to your offering,
the consumer will always be willing to pay more for it. That is the only reason why an unknown

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brand called Titan could command a substantial premium over HMT. That is the same reason why
a brand such as BPL at a higher cost beat the stuffing out of companies such as Akai, Sony and
Philips in the CTV wars. Global brand building builds entry barriers. Human beings as a species
love status quo. Therefore, a brand which is entrenched in the consumer’s mind is very difficult to
dislodge. Global brand building increases cash flow efficiency: Global brand building also increases
value of the business due to the international presence. Phillip Morris bought Kraft from General
Foods in 1991 for $13 billion, more than three times its book value. Coca-Cola paid $60 million to
acquire Thumbs-Up from Parle. Neither buyer had any lacunae in manufacturing, finance or human
resources. They merely bought business with very powerful brand equities and therefore paid more
than the net worth of the businesses.

15.8 STRATEGIC IMPLICATIONS

There is an assumption that the world is becoming homogenised; yet national and sub-
regional cultures do exist. This makes global branding a tough challenge and one that is handled
differently from organisation to organisation. Some companies pursue strategies based upon the
identification of common elements among countries, whilst others find it more profitable to adapt
and adjust according to specific conditions in various markets. There are five basic propositions
that a global brand manager has to take note of while developing strategy at the global level. Many
marketers operate in global markets with a strategy still rooted in the domestic market. The strategy
needs to embrace the opportunities and the costs of working in multiple countries. The marketer
has to look for his competitive advantage outside the country of origin. What will allow one to
compete and win in a strange country? Are the product and the brand in particular needed in
another culture? Only careful consideration of these questions will create the right platform for a
global branding strategy.

Cultural Variations & Non Verbal Communication.

In a culture we have many variations in non-verbal communications. Each culture

assigns a meaning to non-verbal signs utilised by it. There are some variables in non-verbal

communication. These are:

a) Use of time

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 b) Use of space
c) Friendship
d) Agreements
e) Things
f) Symbols
g) Etiquette

Time

Time is a resource which is distributed equally amongst everybody. Every person has the
same amount of time at his disposal. What view individuals and societies take of time makes them
different. Some can be classified under monochromic culture and others in polychromic culture.
Some of the important differences between monochromic a polychromic culture are give in the
table below.

Table 15.2 Differences between Monochronic and Polychronic Culture

The meaning of time may be different in different cultures. Some people take time in making
decisions according to the importance of decisions. Some insist on coming to the point directly in
business transactions and are well prepared. Some keep appointments by the minute, others make
people wait for a long time

Space

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 Space may be related to prestige rather than the need. The higher the office, the bigger the
office space and so on. Americans have the offices of executives on the top floor and tend to
separate the office of subordinates. Japanese have their discount stores on the upper floor. Some
cultures and individuals maintain a fair distance while transacting, others co-mingle easily. Americans
maintain a fair distance while interacting with associates. Arabs stand very close to each other.

Friendship

Friendship plays an important role in business transactions. Good personal relationship and
feelings matter most in a long term agreement. Social contacts developed by parties gain priority
over technical specifications. Americans make friends easily, and drop them easily as well, because
of both social and geographical mobility. Some cultures like Indian or Latin Americans have lasting
relationships that endure for a long time and so does the business. Personal ties, personal trust
leads to cooperation and a lot of transaction can take place between parties. Some want to transact
business only with those whom they get along and, making money is secondary.

Agreements

All business when transacted is done under some agreements. These agreements may be written or
just on an understanding between the two parties. Most people enter into an agreement, but friendship
and kinship are also given a lot of importance. Verbal commitments are also binding in some cultures,
where signing a contract is just a mere formality.

Things

Different cultures attach different meaning to things. Things include products as well as gifts
given in certain business and social situations. An appropriate product in the form of a gift is to be
carefully chosen. The gifts can be big or small. They can be given openly or presented privately.
This depends on the practices followed in that particular country. Some want to make a show of the
gift, by giving it in front of others. Others are secretive about it.

Symbols and Colors

Different countries attach different meanings to symbols, numbers and colors. Symbols can
be flowers, triangles, pictures and animals, etc. Some numbers are considered lucky, and others not
so lucky, or even unlucky, like 13, 4, etc. Colors have different interpretations.Pink is associated
with a female, and blue with the male in the US, whereas it is just the opposite in Holland.

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 A list of colors and their interpretations is given below:

White: Symbol of mourning or death in the Far East, happiness, purity and peace
in the United States.
Purple: Associated with death in many Latin American countries.
Blue: Symbolises feminity in Holland and masculinity in the United States, Sweden,
India, etc.
Red: Color for brides and children in India. Sign of masculinity in the UK and
France, negative in Nigeria, Germany and positive in Denmark, Rumania and
Argentina.
Yellow: Sign of death in Mexico, infidelity in France, celebrations in many countries
including India.
White lilies: Suggestion of death in England.
Symbol of Numbers
7: Lucky in India, USA, Morocco, Nicaragua and Czechoslovakia.
13: Unlucky in many countries including India.
4: Symbol of death in Japan. Packing in 4s is avoided.
Triangle: Negative in Hong Kong and Taiwan, positive in Columbia.
Owl: Wisdom in the United States, bad luck in India.
Deer: Speed, grace in the United States; Homosexuality in Brazil.
Etiquette

These are accepted norms of behavior. Some behavior may be rude or abusive in one
culture and quite acceptable in other cultures, e.g. sitting with legs crossed or sitting in a
manner that shows the sole of a shoe. In Japan it is considered impolite to say no directly to
a business offer. They put it differently, by saying it is very difficult, which means no. The
exchange of business cards in Japan is essential, and indicates the level of your status in your
business. Similarly, there are many different habits and ways of doing things socially that
affect the making of advertisement. Eating with the fork in the right hand and the left hand kept
under the table is quite common in America, whereas, in European culture, the fork should be in the
left hand and the right hand holding the knife or spoon.

These non-verbal communications in different countries or different languages have a direct

bearing on the marketing activity and must be taken care of. As people recognize verbal languages,
they act accordingly. In a similar manner, non-verbal communication must also be recognized and

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understood so that there is less misinterpretation. The advertisement of the communication we want
to give should be appropriate and match with the culture of the country.

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15.10 SUMMARY

Culture, in the social scientific sense of the term, is important to an understanding of consumer
behaviour. This is true of the assumptions about the world that people never talk about, as well as
the more obvious beliefs and attitudes of a society. Similarities between different cultures are often
difficult to see, but they cover the whole range of human behaviour. Moreover, it has been argued
that, with the development of global systems of communication and the marketing and advertising
which accompanies them, there is a trend towards convergence between cultures in their patterns
of consumption.

Differences between cultures are still more apparent, however, than similarities. This is true
of both verbal and non-verbal forms of communication. These can present marketers and advertisers
with many potential pitfalls and lead to the failure of an otherwise successful product. But these are
the means of communication between cultures; cultural values themselves have still to be understood
and these may be very complex and exhibit apparent contradictions. The issues of influential
subcultures within a parent culture must also be dealt with. Finally, all these factors must be considered
against a background of ongoing cultural change throughout the world.

Due to the existence of diversity among individual consumers marketer needs to study the
various factors influencing the consumer behavior to make this diversity. The variety of factors may
be consumer himself, marketers strategies, cultural and social environment, personal factors, and
behaviouraral and psychological and also economic factors shape the individuals purchase and
consumption behavior.

15.11 KEY WORDS

Culture, Sub Culture, Global Culture, etiquette, Strategic implication of culture

15.12. SELF ASSESSMENT QUESTIONS

1. Explain the influence of cultural factors on consumer behavior

2. What are cross cultural variable? Explain the impact of global culture on a consumer.

3. Explain the socio-cultural factors influence on consumer behavior.

4. With example, explain the cultural variations in marketing strategy formulations.

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15.13. REFERENCES

1. Assael, H. Consumer Behaviour and marketing Action, USA: Ohio- South Western
College pub., 1995
2. Engle, J F. Consumer behaviour, Chicago: Dryden Press, 1993
3. Howard, John.A. Consumer behaviour in Marketing, New Delhi: Prentice Hall.
1989
4. Mowen, John C. Consumer Behaviour, New York: Mach Millan, 1993.
5. Schiffman, L G and Kanuk, L L. Consumer behaviour, New Delhi: PHI, 1994.
6. Consumer Behaviour, Raju&Xardel, New Delhi: Vikas Publications 2004
7. Kazmi&Batra , Consumer Behaviour, New Delhi: Excel Books, 2009

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UNIT – 16 MARKETING IMPLICATIONS OF BUYER
BEHAVIOR

Structure
16.0 Objectives

16.1 Introduction

16.2 Consumer behavior and Marketing Strategies

16.3 Importance of Consumer Behavior Studies in Marketing

16.4 Customer Satisfaction and Retention

16.5 Case Study

16.6 Notes

16.7. Summary

16.8 Self Assessment Questions

16.9 References

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16.0 OBJECTIVES

After studying this unit you should be able to

 Assess Importance of consumer behaviour in marketing strategy formulation;

 Identify Important areas in marketing which requires consumer input and

 Measure Customer satisfaction and retention based on understanding consumer behaviour.

16.1 INTRODUCTION

Consumer behavior is comparatively a new field of study which evolved just after the Second
World War. The sellers market has disappeared and buyers market has come up. This led to paradigm
shift of the manufacturer’s attention from product to consumer and specially focused on the consumer
behavior. The evaluation of marketing concept from mere selling concept to consumer oriented
marketing has resulted in buyer behavior becoming an independent discipline. The growth of
consumerism and consumer legislation emphasizes the importance that is given to the consumer.
Since, consumer behavior is a study of how individuals make decision to spend their available
resources (time, money and effort) or consumption related aspects, it is an important base for a
marketing strategy formulation.

The heterogeneity among people makes understanding consumer behaviour a challenging

task to marketers. Hence marketers felt the need to obtain an in-depth knowledge of consumers
buying behavior. Finally this knowledge acts as an imperative tool in the hands of marketers to
forecast the future buying behavior of customers and devise marketing strategies in order to create
long term customer relationship.

16.2 CONSUMER BEHAVIOR AND MARKETING STRATEGIES

The firms that choose not to understand their customers purchase behavior often
loses out. An excellently engineered product may fail just because the customer doesn’t identify
himself or herself with it. It is therefore, imperative that the firm understand the structural
changes taking place in its market and also the long-term

According to customer oriented marketing concept, an organization must provide target

customers more value than its competitors. The customer value is the difference between all the
benefits derived from a total product and all the cost of acquiring those values. Providing superior

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customer value requires the organization to do a better job of anticipating and reacting to customer
needs than the competitors does. In the ever changing marketing environment, there is a growing
concern or awareness among marketers to go for a careful study of the buying behavior which will
provide the basis for all marketing activities.

Marketers are trying to determine the underplaying needs and motives of consumers as
well as the various factors which influence the formation of needs and their satisfaction. The
marketers are also trying to understand the learning process adopted by consumers and buyers.
Understanding consumers’ behavior and resulting marketing strategy is the rule of modern marketer.

The basic belief of marketing-oriented company is that the customer is the hub around
which the business revolves. Therefore, understanding what makes people to buy in general
and firms customer in particular is a vital part of business success. Market itself means –
customer, around whom all marketing strategies are formulated and implemented. In order to
meet competition at the market place, the marketing managers are using various methods to
add value to the final product which will reach the hands of the consumers. It means in ever
changing marketing environment, there is a growing concern or awareness among marketers
to go for a careful study of the consumer behaviour around which all marketing activities are made.
Following are the key marketing implications of consumer behaviour.

Understanding the consumer behaviour is the basic for marketing strategy formulation.
Consumers’ reaction to the strategy determines the organization success or failure. In the
competitive environment, organizations can survive only by offering more customer value -
difference between all the benefits derived from a total product and all the costs of acquiring
those benefits than competitors. Providing superior customer value requires the organization
to do a better job of anticipating and reacting to the customer needs than the competitor.
Marketing strategy is basically the answer to the question: How will company provide superior
customer value to its target market? The answer to this question requires formulation of
marketing - mix – product, price, place and promotion strategies. The right combination of
these elements meets customer expectation and provides customer value. For example,
marketer of a bike must know the customers performance expectations, desired service, Price
willing to pay, information he seeks and after-sales service to provide superior customer value.

The answer to the above questions require the formulation of a consistent marketing mix.
The marketing mix is the set of decision about product, price, communications, distributions and

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services provided to the target market. Two important marketing decisions based on the consumer
behaviousr are

1. Market segmentation

2. Marketing Mix strategies

A good marketing strategy involves identify the market segments and develop marketing
mix for the chosen segments. Segmentation, targeting, and positioning together comprise a three
stage process. We first (1) determine which kinds of customers exist, then (2) select which ones
we are best off trying to serve and, finally, (3) implement our segmentation by optimizing our products/
services for that segment and communicating that we have made the choice to distinguish ourselves
that way.

Fig: 16. 1 Target marketing Strategies.

Segmentation involves finding out what kinds of consumers with different needs exist. In
the auto market, for example, some consumers demand speed and performance, while others are
much more concerned about roominess and safety. In general, it holds true that “You can’t be all
things to all people,” and experience has demonstrated that firms that specialize in meeting the
needs of one group of consumers over another tend to be more profitable.

Market segmentation is the most important decision of a firm. Selection of one or more market
segments on which to focus marketing effort is a crucial marketing decision. A market segmentation
is a process of dividing the heterogeneous customers in to homogeneous groups of customers who
respond uniformly to a marketing stimuli. Since, market segment has unique needs, a firm that

64
develops total product focused solely on the needs of that segment will be able to meets the segment’s
desires better than a firm whose products or services attempts to meet the needs of multiple segments.
Market segmentation involves four steps:

1. Identifying product- related need sets.

2. Grouping customers with similar need sets.

3. Describing each group.

4. Selecting an alternative segment(s) to serve

The term need set is used to reflect the fact that most products in developed economies
satisfy more than one need. The customers needs are not just restricted to the products features.
They also include types and source of information about the product, outlet where the product is
available, the price of the product, service associated with the product, the image of the product or
firm etc. Identifying the various needs set that the firm’s current or potential product might satisfy
typically involves consumer research. These needs sets are often associated with demographic and
psychographic variables of a consumer.

The next step is to group the consumers with similar need sets bearing some common
characteristics. This step also generally involves consumer research, including focus group interview,
survey and product concept tests.

Once the consumers with similar need sets are identified, they should be described in terms of
their demographics, life style and media usage. In order to design an effective marketing mix program,
it is necessary to have a complete understanding that consumers needs are correctly identified.

The next step is selecting the target market which is basically a larger market on which
marketing effort is focused. This decision is based on ability of a marketer to provide the selected
segment with superior customer value at a profit. The size and growth of the segment, the intensity
of the current anticipated competition and the cost of providing superior value are some of the
important consideration.

Fig: 16.2 Creating Satisfied Customer.

Firm product
Consumer Perceived Customer
Superior Sales
decision value satisfaction
value
process delivered
Competitors total expected
product

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 From the above figure, it is clear that offering superior value is necessary for a firm to make
the initial sales. Therefore, it is obvious that, one must have a thorough understanding of the potential
consumers needs and their information acquisition process to succeed at this task.

16.3 IMPORTANCE OF CONSUMER BEHAVIOR STUDIES IN MARKETING

Many factors come into play with consumer behavior, but the power is in knowing how to
understand and influence that behavior. The knowledge of consumer behavior actually allows
marketers to improve the marketing strategy. It helps in understanding the way the consumer thinks,
feel, reason, and selects between alternatives. Consumer behavior knowledge gained from studying
consumer behavior creates effective marketing campaigns that speak directly to specific consumers.
In the following section, the major steps involved in creating a marketing strategy through
understanding consumer behavior are given.

a. Researching the market to find commonalities

Market research is the key to understand consumers and their behavior. It’s the systematic
collection, recording, analyzing, and distributing of marketing data. It ensures that firms produce
what the consumers really want and need — not just what firms think they need. Market research
is the function that links the consumer and the public to the marketer. Marketers use the information
that they gather in research to identify marketing opportunities as well as problems. Marketing
research helps in-depth look at new trends in the market, develop long-running marketing strategies,
identify external threats and opportunities, evaluate the potential of diverse markets, select a target
market, establish realistic goals, and formulate a strategic plan.

b. Breaking the overall market into the segments and targets

Segments are market groups within the total market that are made up of people who have
similar needs. When marketers can recognize a segmented group, their marketing opportunities
increase and they gain the highest return on their marketing. That’s because segmenting enables
them to focus on the customers that are most likely to purchase the products or services — those
individuals that are most interested in what the firms offer.

Segmenting makes marketing cost-effective and easier it also allows delving into the behavior
of consumers. It also assists in identifying their needs. In turn, firms can position their products in a
way that shows them how consumer fulfill an unmet need that they have.

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 c. Uncovering the untapped markets
Determining new marketing opportunities and identifying untapped markets can help
marketers to grow their business. Untapped markets represent markets that firms haven’t yet entered
and that the competitors may not be aware of. When companies get into untapped markets, they
identify new ways to grow their business by opening up doors for consumers who may not be
familiar with them yet. Firms can identify untapped markets by taking the time to examine their
consumer base and understand the market.

d. Creating a Consumer-Driven Marketing Plan

Marketing isn’t just about flashy advertisements and fancy commercials. And it isn’t just
about creating awareness; it’s about gaining new customers. The only way that marketers gain new
customers is by creating a marketing plan that’s intentionally consumer driven. A consumer-driven
marketing plan is developed and created and then practiced with integrity in mind. With a consumer-
driven marketing plan, firms do all the following:

1. Listen and speak directly to consumers and tell them that their needs are understood.

2. Position products in a way that shows them that you fulfill their unmet needs.

3. Gain their attention by providing them with the education they need to make good purchasing
decisions.

4. Share with them the reasons they should adopt new products and accept the changes that
you make to existing products.

5. Gain their committed loyalty and make them want to be a customer for life.

All of these tasks help marketers to create a marketing plan that not only benefits business but
benefits the consumer by creating an awareness that causes them to want to purchase firms product.
Marketer knowledge on consumer behavior in a way that they understand and are attracted to the
following.

e. Practicing Integrity
Marketing ethics impact both the consumer and the business. When it comes to marketing,
companies must build trust with their consumers. It’s the responsibility to embrace, communicate,
and practice ethical values that improve the confidence of the consumers. Marketers need to
understand the importance of marketing ethics, because deceptive marketing practices can affect

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consumer behavior. Unethical marketing behavior affects the emotions, attitudes, and perceptions
of consumers — whether it happens to them directly or they just hear about it.

f. Inducing Need Awareness through Positioning

Positioning is the marketers act of creating a unique identity for whatever it is that the firm is
selling and then targeting a segment of the broader market by fitting the product or service to that
segment’s wants and needs. In order to get consumers to recognize that the product fits their needs,
firms must figure out what the consumers in the target market need and want, what to offer them,
what are firm benefits, and who are competitors. Firms use this information to create a positioning
strategy and statement. Positioning a product or service, is made through two separate steps. First,
it involves differentiating the product or service from its competitor, and then addressing the
consumer’s need or desire. These steps form the basis for the articulation of positioning statement.
Within each of the two steps the firms can use strategies to reach out to the target market.

g. Engaging consumers’ attention and leading them to purchase

At this point in the process, firms really begin working with the influence of perception in
order to engage the consumers’ five senses and draw their attention to the product or service. In
order to do so, marketers must create value for their consumers to shape and cultivate their
perceptions. Value is created by focusing on what the consumers believe is essential. It isn’t enough
to get consumers to notice whatever the firm selling; it must educate them about the value and
benefits of offering in order to overcome any objections regarding the purchase.

Successful marketing counters any objections to the prospective purchase. The key is to
present the benefits of the product in a way that consumers understand. Marketers also need to
develop a unique selling proposition (or USP). A USP, is a statement that sets company apart from
the competition. It paves the way for positioning strategy and statement. When marketers identify
his USP, he finds something meaningful and unique to say about product that competitors either
can’t or won’t say.

h. Convincing customers to adopt new products

You may wonder to know that so many new products fail in the introductory stage. The
truth is that it’s often because business owners don’t understand the adoption process. They don’t
know what it takes for a consumer to adopt a new product. Consumers go through a series of
evaluation steps when adopting new products. This process often involves the give and take. In
other words, they determine what they have to give up in order to take in the benefits of a new

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product. Consumers are inundated with new products every day. So when trying to get consumers
to adopt a new product, it helps to understand the product life cycle and to identify what phase the
products are in. Marketers also need to be able to identify characteristics of the different adopter
categories.

This way firms can speak directly to any apprehensions they may have and gain a better
understanding of their readiness to purchase. Just remember that marketers can influence new product
adoption by simply understanding the adoption process that consumers go through. Consumers
also face a great deal of challenge when it comes to accepting changes in the terms of existing
product. Term changes can be any change that made to the current products. Examples include a
change in benefits, a change in price, or a change in distribution. Help consumers in the transition of
change by taking into account how consumers will view the change and whether they will see it as
a “gain” or a “loss.” Then develop a marketing strategy that speaks directly to the challenges the
consumer may be feeling. This strategy helps to increase the rate of adoption to the change and
save the loss of customers who otherwise may stop buying the product.

i. Encouraging customer loyalty

Success is about getting consumers to continually buy from the company products, because
it’s easier to gain loyalty from a current customer than it is to gain a new customer. Marketers can
gain consumer loyalty by understanding how consumers learn and by using techniques that help
them remember the company. Consumer loyalty really comes from meeting the emotional needs of
consumers. Those needs include the need to be understood, feel important, feel welcomed, and
feel comfortable. Marketers can meet these needs and encourage consumer loyalty by providing
consumers with expertise, attention, friendliness, flexibility, patience, and superiority in the products
and services. This is done by communicating and creating relationships with consumers. Customers
carry a great deal of value when they’re loyal to the company and its brands. So it’s important to be
able to gauge and nurture the relationship that marketers have with their consumers and to be able
to turn satisfied customers into loyal customers.

16.4 CUSTOMER SATISFACTION AND RETENTION

The marketing gurus have been preaching the importance of the ‘satisfied customer’.
Customer satisfaction with a company’s products or services is often seen as the key to a
company’s success and long-term competitiveness. In the context of relationship marketing,
customer satisfaction is often viewed as a central determinant of customer retention. However,

69
the few empirical investigations in this area indicate that a direct relationship between these constructs
is weak or even nonexistent.

In recent times, customer satisfaction has gained new attention within the context of the
paradigm shift from transactional marketing to relationship marketing which refers “to all marketing
activities directed toward establishing, developing, and maintaining successful relational exchanges”.
In numerous publications, satisfaction has been treated as the necessary premise for the retention of
customers, and therefore has moved to the forefront of relational marketing approaches

Kotler, sums this up when he states: “The key to customer retention is customer satisfaction”.
Consequently, customer satisfaction has developed extensively as a basic construct for monitoring
and controlling activities in the relationship marketing concept. This is exemplified through the
development and publication of a large number of company, industry-wide, and even national
satisfaction indices

The link between satisfaction and the long-term retention of customers is typically formulated by
marketing practitioners and scholars in a rather categorical way, and is therefore treated as the
starting point, rather than the core question of the analysis

The assumption that satisfaction/dissatisfaction meaningfully influences repurchase behavior

underlies most of the research in this area of inquiry. Building customer loyalty is not a choice any
longer with businesses: it’s the only way of building sustainable competitive advantage. Building
loyalty with key customers has become a core marketing objective shared by key players in all
industries catering to business customers. The strategic imperatives for building a loyal customer
base are as:

 Focus on key customers

 Proactively generate high level of customer satisfaction with every interaction
 Anticipate customer needs and respond to them before the competitor does
 Build closer ties with customers
 Create a value perception.

Satisfaction also influences the likelihood of recommending a departmental store as

well as repurchase but has no direct impact on loyalty. Thus satisfaction in itself will not translate
into loyalty. However, satisfaction will foster loyalty to the extent that it is a prerequisite for maintaining
a favorable relative attitude and for recommending and repurchasing from the store. Once customers

70
recommend a department store it fosters both repatronage and loyalty towards that store. Thus the
key to generating loyalty is to get customers to recommend a store to others. Also, customers are
likely to recommend a department store when they are satisfied with that store and when they have
a favorable relative attitude towards that store.

Two mechanisms drive the financial correlation. Retention of old customers costs much
less than acquisition of new ones. The profit generated from the retained customer must therefore
handsomely exceed the harvest reaped from the new clientele. The retained customer base is thus
a huge intangible asset. If you want to make it look tangible, use averages like the cost per transaction
and the profit margin to work out the net present value of the retained customer base.

Customer satisfaction with a company’s products or services is often seen as the key to
a company’s success and long-term competitiveness. In the context of relationship marketing,
customer satisfaction is often viewed as a central determinant of customer retention. However, the
few empirical investigations in this area indicate that a direct relationship between these constructs
is weak or even nonexistent. In recent times, customer satisfaction has gained new attention within
the context of the paradigm shift from transactional marketing to relationship marketing which refers
“to all marketing activities directed toward establishing, developing, and maintaining successful
relational exchanges.

Consumer behavior is often is based on how much learning has taken place, by which
individuals acquire, purchase, and consumption knowledge and experience, which is applied to
future behavior. Several individuals are interest in studying consumer behavior viz, researchers,
students, and consumers by himself. Consumer need is the pivotal importance in developing effective
marketing strategies. Two important marketing strategies very much relay upon the customer inputs
are segmentation and marketing mix strategies. Understanding the consumer behavior is pivotal
importance in satisfying and retaining the customer.

Consumer behaviour is an integral part of our daily lives. The psychological and social
processes involved in buying and consuming goods and services form the subject matter of
this text. The objective positivist approach to studying cause and effect in consumer behaviour
(as in any other kind of behaviour), will be combined with the interpretivist emphasis on trying to
understand the emotional, non-rational aspects of the process.

The environment which the consumer operates in, including the nature of the market place
for goods and services, also needs to be considered. Finally, the change from a production orientation

71
to a marketing concept has been instrumental in fostering the study of consumer behaviour over
recent decades.

16.5 CASE STUDY

Over the last couple of years, a substantial growth in the online shopping industry has been
noticed, especially in India. The reason? People are always looking for newer and better modes of
service, and the online shopping industry is catering it to them. The industry is continuously designing
and executing newer trends that allow them to attract the masses.

Trends help businesses to stay ahead of their competition. It is generally the business that
invents a trend that gets the most benefit out of it. Hence the trends are mainly an equipment to help
the businesses make more profits. With the online shopping industry in its boom period at the
moment, the online shopping companies and portals are coming up with newer and better trends
that will make them the first choice for their consumers.

Question:

1. Identify the factors that attracts consumers to online marketing

2. How Cultural factors influence online buying behvaiour ?

16.6 NOTES

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16.7 SUMMARY

Consumer behavior is often is based on how much learning has taken place, by which
individuals acquire, purchase, and consumption knowledge and experience, which is applied
to future behavior. Several individuals are interest in studying consumer behavior viz,
researchers, students, and consumers by him self. Consumer need is the pivotal importance
in developing effective marketing strategies. Two important marketing strategies very much
relay upon the customer inputs are segmentation and marketing mix strategies. Understanding the
consumer behavior is pivotal importance in satisfying and retaining the customer.

16.8 SELF ASSESSMENT QUESTIONS

1. What is consumer behavior? Explain its characteristics.

2. Explain the importance of consumer behavior studies in marketing decisions.

3. Why it is important for a marketer to retain the customers

16.9 REFERENCES

1. A ssael , H . Consumer Behaviour and marketing Action, USA: Ohio- South Western
College pub., 1995
2. Engle, J F. Consumer behaviour, Chicago: Dryden Press, 1993
3. Howard, John.A. Consumer behaviour in Marketing, New Delhi: Prentice Hall.
1989
4. Mowen, John C. Consumer Behaviour, New York: Mach Millan, 1993.
5. Schiffman, L G and Kanuk, L L. Consumer behaviour, New Delhi: PHI, 1994.
6. Consumer Behaviour, Raju&Xardel, New Delhi: Vikas Publications 2004
7. Kazmi&Batra , Consumer Behaviour, New Delhi: Excel Books, 2009

74
 KARNATAKA STATE OPEN UNIVERSITY
Mukthagangothri, Mysore-570006

DEPARTMENT OF STUDIES AND RESEARCH IN MANAGEMENT

M.B.A III SEMESTER

ELECTIVE : MARKETING

COURSE - 18B

CONSUMER BEHAVIOUR AND MARKETING RESEARCH

BLOCK

5
CUSTOMER RELATIONSHIP MANAGEMENT

Unit -17
Introduction to CRM 01-24
Unit -18
CRM Strategy 25-45
Unit -19
Calculating Customer Life Time Value 46-64
Unit-20
Managing Unprofitable Customers and Using Customer Value in Other Field 65-84

1
Course Design and Editorial Committee

Prof. D. Shivalingaiah Prof. T.D.Devegowda

Vice-Chancellor & Chairperson Dean (Academic)(I/C)& Convenor
Karanataka State Open University Karnataka State Open University
Muktagangotri, Mysore – 570 006 Muktagangotri, Mysore – 570 006

Editor and Course Co-Ordinator

Dr. C. Mahadevamurthy
Dr. H. Rajeshwari
Associate Professor and Chairman
Assistant Professor
Dos & Research in Management, DOS in Management
Karnataka State Open University, KSOU, Mysuru
Mukthagangothri, Mysore – 570 006

Course Writer

Dr S.J. Manjunath Block - 5 Units 17-20

Professor,
B.N. Bahadur Institute of Management Studies
University of Mysore
Mysore

Publisher
Registrar
Karnataka State Open University, Mukthagangothri, Mysore - 6

Developed by Academic Section, KSOU, Mysore- 6, 2016

All rights reserved. No part of this work may be reproduced in any form, by mimeograph or any
other means, without permission in writing from the Karnataka State Open University.
Further information may obtained from the University’s office at Muktagangotri, Mysore - 6
Printed and Published on behalf of Karnataka State Open University, Muktagangotri, Mysore - 6

2
BLOCK - V: CUSTOMER RELATIONSHIP
MANAGEMENT

Dear Student, by now you have understood consumer behaviour and I believe you have
appreciated the immense applications of study of consumer behaviour. By understanding the
consumer behaviour, a marketer can decide the way he should keep the relationship with customers.
Few customers may demand frequent interaction with the service provider/manufacturer where
as few may feel too much interaction is disturbing and hence may decide stay away from such
service providers/ manufactures. Hence understanding their requirement and acting accordingly
is vital for the success.
Customer relation management help the marketer to understand the requirements and
fufil those requirements in a effective. Customer relationship management is not a new term.
You might observed that the shop keeper next you door would speak to you in a cordial way. He
would know all your family members and closely interact. But for a big organization it is difficult
maintain a close relationship with all the customers. However the technology of toady including
big data management has made this process easy. The companies can well understand your needs,
identify your interest, measure you ability to buy product and design he relationship accordingly.
In this unit let us try to focus on the various issues in customer relationship management. You
might have already studied CRM in your second semester Information Technology for Managers.
However there you have studied from technology perspective. Here let us focus from marketing
perspective and more elaborated way.
In this module, we have four units namely,

UNIT 17 – INTRODUCTION TO CRM

UNIT 18 – CRM STRATEGY

UNIT 19 – CALCULATING CUSTOMER LIFE TIME VALUE

UNIT 20 – MANAGING UNPROFITABLE CUSTOMERS AND USING CUSTOMER

VALUE IN OTHER FIELD
3
4
 BLOCK - V

UNIT-17 : INTRODUCTION TO CRM

17.0 Objectives

17.1 Introduction

17.2 Evolution and scope of CRM

17.3 Relationship Marketing

17.4 Difference between marketing and CRM

17.5 Difference between CRM and Relationship marketing

17.6 CRM marketing initiatives

17.7 Types of CRM

17.8 Case Study

17.9 Notes

17.10 Summary

17.11 Key Words

17.12 Self Assessment Questions

17.13 References

5
17.0 OBJECTIVES

After studying of this unit you should be able to:

 Define evolution and scope of CRM;

 Explain Relationship marketing;

 Differentiate between marketing and CRM;

 Difference between CRM and relationship marketing and

 Describe Types of CRM

17.1 INTRODUCTION

Relationship with the customer has existed since the advent of trade and business. So why has
there been a sudden interest and so much of of literature/studies and research on CRM?

To understand this it is important to understand the change in context of buyer/seller relationship over
the ages.

1. Barter Age: Buyer and seller transacted for a mutual exchange of goods/services, fully
understanding and negotiating in a face-off environment. Relationships were on one on one
basis.

2. Customised Product Age: Skilled craftsmen created goods that were customised for buyers in
direct contact with them. Here again the requirements of the buyer were fully understand and
products were crafted and adapted to maximum possible extent.

3. Mass Production Age: Industrial age brought mass production capabilities enabling volumes
helping to bring down costs and servicing of buyers across geographical boundaries. As
markets extended far and wide, end buyers got further separated from the manufacturer.
To service this widespread client base, intermediate wholesalers/retailers came up. This led to
emerging of differentiation between ‘customer’ and ‘consumer’.

a. Customer: purchaser of goods/services and not necessarily the one consuming

them e.g. dealer/stockist/retailer/wholesaler.

6
 b. Consumer: one who utilizes the goods/services to fulfil his need.

Due to desegregation of the producer from the final consumer – the ‘Voice of the Customer’ in a
typical ‘Chinese Whisper’ syndrome started to get distorted. Chinese whispers is a typical chineese
game played around the world, in which on person whispers a message to another,which is passed
through line of people. Since consumers from different market segments were distinctly different
and varied, the success of the corporation now lay in building capabilities/systems and methods
in correctly and systematically picking these ‘voices’ and responding to them as appropriately and
closely as possible to meet the consumers’ felt/expressed needs.

It is this endeavour that has led manufacturing systems to evolve to high levels of sophistication
like – JIT/Kanban that allows consumers to select various components of a car and customise it to
their individualised need (e.g. colour of car, interiors, accessory choice; etc.) or as in Dell computer
by allowing consumers to order a PC with customised configurations.

4. Customisation Age: Similar concepts are evolving in ‘service’ industry where self-service/
consumer defined service specifications on the web are taking the concept of addressing
individualised needs in a mass production environment – closer to building a 1:1 relationship
with consumers.

While organisations are developing methods in the manufacturing domain to cater to

customisation and the internet provides a great media for individual 1:1 relationship building,
there is surprisingly a lack of comprehensive management structure/methodology and system to
guide organisations for carrying forward this 1:1 relationship across the consumer lifecycle.

There are many advantages of 1:1 relationship building across the consumer lifecycle:

 Highest share of ‘lifetime value’ of the consumer for specific product/services can be
captured.

 Shifts in consumer preference in various micro segments can be understood.

 Changes in the competitive landscape.

 Closing of the gap between management perception and customer expectation.

7
  A referral base can be built.

CRM addresses all these issues

17.2 EVOLUTION AND SCOPE OF CRM

CRM has been spoken of and understood in various forms in the last few years. The subject and
practice has meant different things to different people. To a vast majority ,it stands for an IT capability for
facilitating relationship management. To some it is a ‘contact centre’ for managing relationship with
consumers – through telephone/web/mail, etc. as ‘post sales’ management of customers.

CRM is all this and more. CRM aims to look at all aspects that will enable an organisation’s capability
to manage and nurture its 1:1 relationship with its consumers (An organisation is not necessarily a company
– it could also be a government, non-financial entity). Even when applied within a non-commercial
framework, the CRM principles/systems can yield the same level of effectiveness in meeting the desired
output in line with objectives of the constituencies involved.

When people ask what CRM is the literal answer is “Customer Relationship Management” but that
does not really convey much of what all CRM does for a business.

There are now very efficient ways that companies have of understanding and responding to customers’
needs and preferences, allowing them to build more meaningful connections with their consumers than
ever before. These connections promise to benefit the bottom-line by reducing costs and increasing
revenue.

Unfortunately a close look suggests that the relationship between companies and customers are a troubled
one at best. Companies may delight in learning more about their customers and being able to provide
features and services to please different palates but customer’s delight and loyalty is in neither. In fact
customer dissatisfaction is increasing resulting in huge complaints/litigations/churn.

Sooner or later corporate performances will suffer unless systemic corrections are applied to ensure
a continuum in customer orientation/relationship building and experience delivery.

In 1985, psychologists Michael Argyle and Monica Henderson, both professors at Oxford University,
defined several basic universal rules of friendship. Among them are – providing emotional support,

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respecting privacy, preserving confidences and being tolerant of other friendships. Companies have
violated each of these rules. In doing so they have forfeited customers’ trust and with it the chance to
build the intimacy that results in truly rewarding partnerships. How can they regain that trust? They must
behave in ways that will show consumers that companies can be valued partners. They have to prove
through actions that relationships need not be empty, meaningless or stressful at best.

True Customer Intimacy – the backbone of a successful rewarding relationship – requires a deep
understanding of the context in which products and services are used in the course of customers’ day-
to-day lives.

Companies often do not seem to identify the problem they are trying to solve, said Jill Dyche partner
– Baseline consulting group. There is a lack of consensus.

And even those who have clearer picture of their goals, struggle with what it means to be truly
customer facing and end up paying only lip service to it. They want to build long term relationships
with customers – noted Jim Barnes, executive Vice President of the Bristol Group – but put very
little effort into building loyalty, which could eventually be translated into greater profiles or
maybe they confuse loyalty with buying frequency. The customers who buy most frequently are
not necessarily the most loyal – they must be motivated by pricing, product availability and
convenience. Nor are frequent buyers the most valuable among customers.

CRM: Definition

Let us examine some definitions to understand what CRM is;

Definition by Gartner

Gartner has defined CRM as a business strategy designed to optimise profitability, revenue
and customer satisfaction.

Definition by PWC Consulting

CRM is a business strategy that aims to understand/appreciate, manage and personalise the

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needs of an organisation’s current potential customers.

Definition by Parvatiyar and Sheth

CRM is a competitive strategy and process of acquiring, reacting and partnering with selective
customers to create superior value for the company and customer.

Definition by Bob Thompson – CRM Guru.com

CRM is a business strategy that applies to every organisation. It means working with customers such
that they receive great service and are motivated to return again and again to do more business with the
company.

Metagroup Definition

Customer Relationship Management is not simply a technology tool or business process to “delight
the customer” or show how the organisation loves its customers. CRM is ultimately about driving bottom-
line revenue through proactive management of the customer lifecycle. It is about applying the right CRM
treatment to the right customer segment at the right time to produce business results. The difficulty is in
determining what the right CRM treatments are and to what segments they should be applied. Enter
CRM pattern mastering, where to realize returns on CRM investment, organisations must think in terms
of using customers’ information and CRM technology to build exit barriers and switching costs into
reusable CRM treatment. Each treatment is described as a three layered CRM pattern called “Customer
Relationship Anatomy” (CRA). CRA will be differentiated not just on the basis of what the customer
wants (we all want to be platinum flyers on all airlines) but also on what the organisation finds appropriate
based on the customer’s current period and future predicted value. And it must be noted that “Value” is
defined as more than just profitability, as unprofitable current period customers may turn out to be very
profitable in the future.

CRM is a business strategy providing a systemic approach to customer life cycle management
(CLCM). CLCM is a three domain business system, aligning business processes, technology and
the customer life cycle. This business system must integrate sales, service and marketing process
and CRM technology environment with the customer. To fully release the potential of CRM, this
business system must be optimised around the customer life cycle (engage, transact, fulfil and service) –

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where customer (neither technology nor process) is the design point in understanding the concept of
customer relationship management.

Defining CRM by CRM (UK) Ltd.,

Customer Relationship Management is the establishment, development, maintenance and optimization

of a long-term mutually valuable relationship between consumer and organisation. Successful CRM
focuses on understanding the needs and desires of the consumer and is achieved by placing these at the
heart of the business by integrating them with the organisation’s strategy, people, technology and business
processes.

Understanding the various definitions

Examining each of these definitions we can see the common thread running through them.

a) CRM is about ‘strategy’

It is a strategy of not only delivering a singular customer experience and value but also creating of on-
going continuous improvements in customer experience and value enhancement in the relationship.

CRM is about creating a competitive advantage by being the best at understanding, communicating,
delivering and developing existing customer relationships, in addition to creating and keeping new
customers. The concept of life cycle is giving way to the customer life cycle, focusing on developing
products that anticipate the future needs of the customer, existing customers and creating services
that extend existing customer relationships beyond merely transactional. The customer life cycle
focuses on lengthening the life span of an organisation’s relationship with its customers rather than the
endurance of particular product. Customers’ needs change as their lifestyles alter. The development
and provision of the products or services they require and to meet and satisfy those needs is CRM.
Mission statements now focus more on how to deliver customer satisfaction and organization structure
themselves around customer segments not product lines. A good CRM strategy takes the business
vision and applies it to the customer base by asking the questions:

 What products and services are we offering now and in the future?

 In what markets?

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  What customer groups will these products and services appeal to?

 Which of these are of greatest value to the organization? In terms of expenditure?

In terms of reliability? In terms of profitability? In terms of growth potential?

 What additional needs do the most valuable customer groups have? Additional
products? Additional services?

 In what different ways can we do business to deliver to our customers better?

What motivates companies to adopt CRM strategies?

It is generally one or more of these fundamental business reasons:

 Competition: With globalization and e-commerce continuing to spread, corporate offerings are
increasing and becoming commoditised. Differentiating products and services is becoming more
and more difficult. In such a scenario, CRM shows a company the way to increase customer
loyalty, earn higher margins and stronger branding.

 Consumer Expectation: E-commerce has competition just a mouse click away and consumers
have become more demanding when voting with their pocket books. Companies that use CRM
to truly understand their customers and respond to their needs will come out on top. Amazon.com
is a text book example in this context.

 Technology: The cost of CRM Technology has dropped, so it is easier to justify systems that
consolidate your customers ‘touch points’. The separate and isolated systems traditionally used
by Customer Service, Sales and Marketing can now be phased out and the old communication
gaps filled in.

 Diminishing impact of advertising: Whether it is primetime TV, print journalism, direct

mail or email marketing, all forms of advertising are becoming ineffective. With CRM yo u
can target your message more precisely, hold people’s attention better and retain
customers longer and at a lesser cost.

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b) CRM – the ‘customer’ thread

Whether the customers are current/potential/selected CRM is about acquiring, retaining, partnering,
personalising relationships with them.

At its most basic CRM involves customers, organizations and relationships, and the combination
creates the need for management. It is not simply a buzzword, a new software package or a
breakthrough in sociological research methodologies. It is the renaissance of a belief that at the heart of
all transactions should be created mutual value for all parties.

Let us look at an expansive definition of customers.

CRM helps businesses use technology and human resources to gain insight into the behaviour of
customers and the value of these customers.

17.3 RELATIONSHIP MARKETING

Under ‘Selling concept’ a company’s task was to sell and promote products coming out of its
factories in an effort to win as much volume as possible and thus maximise profits. The job was
to hunt down customer prospects wherever they could be found and use the persuasion power of
personalised selling to make a sale. Management gave little thought to segmenting the market
and developing different product and service versions that met varying needs in the marketplace.
Product standardisation was the key coupled with mass production, distribution and marketing.

The central purpose of traditional marketing was to sell products. The aim was to find customers
for company’s products. With increased competition ‘Marketing’ concept shifted attention from
the factory to customers and to their varying needs. Now a company’s aim was to develop
appropriate segment based offerings and marketing mixes. Skills of market segmentation, targeting
and positioning became the key. Delivering loyal customers satisfaction in each chosen segment
to produce loyal customers whose repeat purchase would lead to increased profitability became
the focus.

The job of marketing was therefore to develop contextual offering of products, services and experience
to match individual customer requirements. To continuously explore, create and deliver individual customer
value in a very dynamic and a competitive environment needs investment in ‘relationship’ with various

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stakeholders consumers, collaborators, employees, communities. CRM is in the domain of relationship
management with customers.

Lester Wunderman of direct marketing fame has put it well:

The call of the industrial revolution was “This is what I make, won’t you please buy it?” Which has
now given way to that of the customer revolution which declares, “This is what I need, can’t you please
make it”. From a company being the hunter, consumer has now become the hunter – informing the
company of his specific requirements proposing the price he will pay, establishing how he wants to
receive the company information and advertising.

17.4 DIFFERENCE BETWEEN MARKETING AND CRM

The differences are best explained three cornerstones

-Unlike marketing CRM views products as processes through Customer receives value not only
from purchase but from each exchange between the customer and the provider Thus managing relationship
based processes is core competence

-Second concept in CRM is customer value creation or co creation. According to this approach
competitive advantage is not based exclusively on price but also on the ability of the provider to help
customers create value for themselves. Third relates to provider’s responsibilities. A company can build
stronger relationships with its customers only if it takes the responsibility for developing these relationships
and offers its customers possibilities to create value for themselves.

17.5 DIFFERENCE BETWEEN CRM AND RELATIONSHIP MARKETING

Relationship Marketing is a broader overriding concept. According to Gummesson (2002),

‘Relationship marketing is marketing based on interactions within networks of relationship’.

A network is a set of relationships which can grow into enormously complex patterns. In the
relationship, as the simple dyad grows into a complex networks, the parties enter into active
contact with each other. This is called interaction. The relationship between the one who sells something
and the one who buys something forms the classic dyad of marketing,( a two party relationship.)

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 CRM is the values and strategies of relationship marketing – with particular emphasis on customer
relationship turned into practical application. CRM does not deal with networks but focused on the
customer-supplier interaction.

Gummesson(2002) has converted the philosophy of Relationship Marketing into tangible relationships
that become part of the company’s marketing and business planning. This has been by defining 30
relationships, the 30 R’s.

These 30 R’s are divided into four broad categories:

1. Classic market relationships (Consisting of the relationship between the supplier and the customer,
between the customer-supplier-competitor and the classic network distribution channels).

2. Special market relationships (Relationship via full time marketers and part time marketers,
interaction between customers and service providers, relationship in industrial and business
marketing, e-relationship, green relationship (environment and health based, law based).

3. Mega relationships (Personal and social network, mass media).

4. Nano relationships (Introduction of profit centres in an organization, relationship between internal

customers and internal suppliers, the relationship between operations management and marketing,
relationship with the employee market, etc.).

The first two types are market relationships be it classic market relationships or special market
relationships. The next two types are non-market relationships which directly influence efficiency of
market relationship.

17.6 CRM MARKETING INITIATIVES

A number of changes have occurred in the marketplace over the past year that have put tremendous
strain on an organization’s capital investments. Employee layoffs, mergers and stock market drops all
affect the amount of money consumers have to spend on products and services. Therefore, it is becoming
even more important for organizations to both retain and deepen their relationships with existing customers.

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 Customer relationship management (CRM) is an overall strategy that allows organizations to
more effectively manage and track customer contacts. CRM initiatives start with a vision of how to make
the organization more customer-focused, but often require a substantial investment in software and
infrastructure to execute.

While CRM initiatives in most organizations have been scaled back this year, it is essential, now
more than ever, to gain substantial internal support to ensure the projects continue through completion. A
well-developed and persuasive business case could save your CRM project and your job.

Some of the initiatives in organization are given below.

Barclays Bank PLC has signed an agreement with Microsoft whereby Microsoft will provide
Barclays Bank with Dynamics CRM a fully integrated, adaptable business management solution. Barclays
Bank Pakistan chose Microsoft CRM solution as it is an affordable technology solution that helps automate
and streamline the three basic steps of customer management: Identifying, attracting, and retaining the
customer. It provides a 360 degree view of the customer with access to members across an organization
with up-to-date information of the customer. This commitment, along with inherent business values aim
to provide efficient and innovative banking solutions throughout the Barclays branch and sales centre
network across Pakistan.

Salesforce.com Salesforce.com was the clear champion in 2006, winning both the mid-market
CRM and sales force automation categories, and scoring a position as one of the top five on the small
business CRM list. Kudos went to the company for revolutionizing the on-demand CRM market and
delivering a solution with a simple user interface and easy-to-navigate features. Salesforce.com was also
applauded for its continued commitment to broadening its customization and integration capabilities.

NetSuite NetSuite was one of just a few CRM companies to make an appearance on more
than one list, being named as an industry leader in both small business CRM and mid-market
CRM. The company scored serious points for delivering a fully-integrated front and back office
solution that specifically addresses the needs of smaller businesses. By making CRM, ERP, and
e-commerce available via a single hosted platform, NetSuite has achieved considerable recognition
within the market for its ability to dramatically reduce the complexity of IT infrastructures.

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 RightNow Technologies RightNow Technologies is considered a stand-out among today’s
best CRM companies for its solid customer service and support capabilities. Additionally, its
recent acquisition of Salesnet, a provider of on-demand sales workflow automation solutions, is
expected to close any product functionality gaps and strengthen the company’s sales force
automation offering. The CRM Magazine editors also praised RightNow’s flexible deployment
and payment options.

Maximizer High scores in both customer satisfaction and depth of functionality earned
Maximizer Software the top spot in the small business CRM suite category. In addition to enhancing
its product portfolio with mobile and wireless capabilities, the company has taken a more aggressive
approach to marketing and public relations in the past year, making a big play to steal a larger chunk of
small business market share away from other CRM companies. Panelists also made note of Maximizer’s
ability to combine strong capabilities with an intuitive interface, offering smaller businesses some of the
best CRM features in an easy-to-use environment.

FrontRange Solutions Although FrontRange Solutions, the company that designs and develops
the GoldMine CRM suite, lost its first place spot among small business CRM companies this year, it still
earned a position on the top 5 list – thanks to the continued strength of its contact management/sales
force automation product and its contact center utility. The experts noted that FrontRange has outlined a
solid strategy for the near-term future, and will be watching closely as the company begins to execute on
it.

17.7 TYPES OF CRM

Types of CRM can be broadly understood by looking at two different ways of categorization.
These two types of categorization are as follows:

1. Proactive versus Reactive CRM or

2. Operational, Collaborative and Analytical CRM

Let us understand these in detail. In the first type of categorization, the practice of a company to
anticipate and respond to the customer needs with suitable offerings is contrasted with the practice of
simply responding to the customer stimulus that comes in through suggestions or complaints.

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 In an increasingly dynamic business world, companies with progressive outlook are those who
not only understand and translate their customer value proposition through their entire offering but also
attempt to accommodate the future needs of their customers. Needless to say, companies attempting
Proactive CRM are generally those which are increasing the level of personalization and are practicing
one to one marketing.

Another type of CRM which is often referred to is the second one which attempts to distinguish
and delineate the scope of Operational, Collaborative and Analytical CRM.

Operational CRM

Today, the consumer approaches the business in far too many ways than in the past. Also known
as front office CRM, it involves the areas where direct customer contact occurs . These interactions
are referred to as customer touch points.

The customer touch points are classified into:

 Face to face touch points

Sales/Service/Channel/Events/Stores/Promotions
 Database driven touch points
Telephones/Email/Mail/SMS/Fax/Loyalty Cards/ATMs
 Mass Media
Advertising/PR/Website

At any of these touch points; any number of the following transactions can take place

 Financial transaction
 Sale
 Payment
 Return of sale
 Information transaction
 Request for information
 Complaint
 Suggestion

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 Operational CRM enables and streamlines communication to and from the customer. But this does
not necessarily mean optimizing service. Here ‘Optimization’ means letting marketers plan and prioritize
all inbound and outbound customer communications in order to maximize effectiveness while balancing
the organization’s capacity to deliver and the likelihood that customers will respond.

Collaborative CRM

Jill Dyche defines Collaborative CRM as a specific functionality that enables a two way dialog
between a company and its customers through a variety of channels to facilitate and improve the quality
of customer interactions.

The mandate of Collaborative CRM is to manage various partners of the company be it business
partners, agents, brokers, ORMs, intermediaries like distributors, dealers, resellers and retailers.
By managing all these partners, it tries to in turn facilitate the integration of various activities like
Marketing, Sales, Service/Support and quality.

Analytical CRM

Also known as back-office or strategic CRM, it involves understanding the customer

activities that occurred in the front office . It involves analysing large amounts of cross-functional
data using data mining and other methods and feeding the result (knowledge gained) back to
operational CRM. It also studies consumer behaviour patterns that help to know what products to
position for cross-selling/up-selling and the level and kind of service to deliver to meet customer
demand.

Analytical CRM requires technology to compile and process the mounting of customer data to
facilitate analysis) and new business processes to refine customer facing practices in order to increase
customer loyalty and raise profitability.

In today’s highly competitive business environment companies must learn from interaction with
customers and respond to the knowledge gained from these interactions. Customers are after all a
moving target; the customers you have today may be your competitors tomorrow. Let us look at the
three types of CRM again.

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 Operational CRM: CRM is a process by which a company maximises the process of gathering
and understanding customer information from all touch points i.e. point of sale, call centres, web, etc. in
an effort to increase customers’ loyalty and to retain them over their lifetime. It is not a short term goal
based on isolated transactions resulting in sporadic client service.

Collaborative CRM: However, since the primary goal is to build a long term and ‘profitable’
relationship with the ‘chosen’ customers, it is necessary that all the concerned parts of the organizations
work in collaboration with aligned purpose, objective and strategy to achieve this outcome. A ‘lifetime’
value extraction is possible only through close collaboration of internal stakeholders and customers.

Analytical CRM: To enable all the above, technology is deployed as a facilitator. Technology
involves a progressive approach in gathering customer data via multiple interconnected delivery channels.
This mass of data has to be further transformed into ‘business knowledge’ for it to be effectively utilised
and deployed. Knowledge-like-behaviour patterns, preferences, values, etc. are the various attributes
that are drawn by analysis of data from different sources and touch points drawn in by the operational
CRM.

This knowledge helps the collaborative CRM layer to position right products and services, offer
cross-sell and up-sell options, and tailor-made solutions for the customers.

All this gives you the power to know your customers and use that information to foster consumer
loyalty over their lifetime.

17.8 CASE STUDY

Touch point management at Philips

Dutch consumer electronics MNC Philips, uses a program called touch point tool, which is a six
point plan to create an improvement framework for each business and function. The touch point tool is
basically a methodology that helps to identify a company’s interactions with its customers and other
stakeholders and then prioritise and improve on them. Identifying every touch point is stressed upon
since it influences customer opinion. Each interaction then needs to be managed in a way that it is aligned
with the brand positioning. With the help of “touch point wheel” all touch points are plotted sequentially

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along a customer’s passage, from pre-purchase to post-purchase. For example, a touch point could be
a chat with a Philips account manager, a Philips TV commercial or even a hit on the Philips website – that
is, any place where the customer ‘touches’ Philips.

All customer interfaces are defined and the ones with the greatest impact are prioritized. These
are then tested against the three criteria with which every product, solution, service and process has to
be aligned. The three criteria – “designed around you”, “easy to experience” and “advanced” – were
unearthed after extensive research to measure Philips’ performance and that of its competitors. The
result serves as a framework for the planning process to develop improvement programmes, which are
tested against real customer insights. The process is divided into six steps:

 Identify touch points

 Prioritise touch points

 Assess touch points

 Define touch point improvements

 Define business impact and resources

 Develop key action steps

The touch point tool enables managers to view the business from the perspective of customers.
It takes them through the process of studying customer requirements and ensuring that they constitute the
centre of all marketing activities. For example, the semiconductor division at Philps regularly conducts
customer-specific product seminars – a valuable touch point. The touch point tool helped in making
these seminars more interactive. It was discovered that the customer needed to feel more closely connected
with the products and the tool helped to achieve this. End-to –end demos and taking participants through
the whole product process were some key action steps taken.

The touch points tool helps both during introduction of a new product and re-launching of an old
one. For example, market research showed that Senseo (a new type of electric kettle from Philips) was
often given as a gift. Hence word-of-mouth was one of its vital touch points. A strategy was developed
using this information, which proved to be an effective marketing tool and even saved on an expensive
advertising campaign. All Philips marketing managers are trained on the touch point tool, which helps
them understand the full cycle of interaction points right from point-of-purchase to end application. By

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identifying the touch points they can start to improve the quality of each encounter. This results in an
increase in sales as well as in a more meaningful bond with the customer.

QUESTIONS

1. Discuss the Impact of Touch Point on Buyer behaviour.

2.Do you think manual interaction is better than CRM

17.9 NOTES

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17.10 SUMMARY

Customer relationship management (CRM) is a term that refers to practices, strategies and
technologies that companies use to manage and analyze customer interactions and data throughout the
customer lifecycle, with the goal of improving business relationships with customers, assisting in customer
retention and driving sales growth. CRM systems are designed to compile information on customers
across different channels or points of contact between the customer and the company which could
include the company’s website, telephone, live chat, direct mail, marketing materials and social media.
CRM systems can also give customer-facing staff detailed information on customers’ personal information,
purchase history, buying preferences and concerns.

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17.11 KEY WORDS

CRM, Operational CRM, Analytical CRM, Collaborative CRM, Relationship marketing

17.12 SELF ASSESSMENT QUESTIONS

1. Define CRM

2. Explain the evolution and scope of CRM

3. Explain the types of CRM

4. Differentiate CRM with relationship marketing

5. Differentiate CRM with marketing.

17.13 REFERENCES

1. Raju & Xardel, Consumer Behaviour, , Vikas Publications 2015

2. Bholanath Dutta, Consumer Behaviour,Kalyani Publishers 2016
3. Kazmi & Batra, Consumer Behaviour, , Excel Books, 2012
4. Ramaswamy. V S., Namakumari, Marketing management: 4th Edition, McMillan PIL, 2009.

5. Schiffman, L G and Kanuk, L L Consumer Behaviour New Delhi, PHl of India,1994

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UNIT 18 CRM STRATEGY

18.0 Objectives

18.1 Introduction

18.2 CRM Strategy

18.3 The Balanced Scorecard

18.4 Elements of Strategy

18.5 Strategic Planning from an Industry Leader

18.6 Evaluating Risk

18.7 CRM Implementation Process

18.8 Case Study

18.9 Notes

18.10 Summary

18.11 Key Words

18.12 Self Assessment Questions

18.13 References

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18.0 OBJECTIVES

After studying this unit you should be able to:

 Formulate CRM strategy;

 Analyze Grand strategy;

 Explain Balanced scorecard and

 Identify Elements of strategy.

18.1 INTRODUCTION

CRM Strategy is complex. Not because it involves strategy and not because it involves CRM,
but because it involves both. Why would it be more complex than, say, an ERP strategy or a network
strategy? Because it involves our contemporaneously defined customers. If you were developing an ERP
strategy, while it would be big and it would be complicated, the level of complexity only begins to
approach CRM. With ERP, you’re basically involving the back office folks, the senior management, the
IT department, and a smattering of others because they are the ones, who will be involved in the system,
be it finances, human resources, or manufacturing processes. You can even stretch the definition to
include the supply chain, but that’s it. With network architecture, other than some user surveys, you’re
really only involving the IT department because the user doesn’t know much at all how the guts of an IT
infrastructure work, nor do they care.

Frankly, a strategy for network architecture is pretty narrowband when it comes to ordinary humans.
But CRM begins to reach all those customers, so the elements are much more involved. Of course
senior management and users are involved, but partners, vendors, and clients are also a direct consideration
for involvement in the planning of how your strategy is going to work. If CRM strategic objectives
involve customer satisfaction, it probably pays to find out from the customers what satisfies them, doesn’t
it? Additionally, customer-facing processes dominate most organizations – sales, marketing, customer
service, and even human resources and finances to some extent are among those examples. A technology-
enabled CRM strategy to meet customer-focused objective involves the majority of any organization’s
people and processes.

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 For example, a typical grand objective of a CRM strategy is to create a unified, 360-degree view of
a customer that is cross departmental. That is the Holy Grail for successful CRM. Ideally, if a CRM
strategy succeeds, the system in place will allow any department to see whatever the appropriate view of
the customer is for them in order to tend to the customer’s needs, wants, and desires. However, the Holy
Grail is something that neither KingArthur nor Monty Python ever found or found with enormous heartache
(and heartburn) so be forewarned. There are multiple pitfalls in the path of a successful CRM strategy.
Since the customer has already been tagged with a new definition, it behoves us to move on with a
definition of strategy.

18.2 CRM STRATEGY

The Grand Strategy

First and foremost, remember, as Shakespeare once didn’t say, “know thy customer”.
When you are sure of the range of customers you are going to encompass, be they your paying
clients, your vendors, your employees, or perhaps your partners, you can capture the view from
Everest and look for the paths for the descent. The “grand strategy” is usually the starting point:
what the major objectives and results should be from implementing CRM successfully. In short,
they are:

Value proposition what does the company want to get out of the project?

Business case what are the benchmarks and key performance indicators (KPIs) that will
be used to determine the success of that value proposition? What will be the return on investment
(ROI)?

Value Proposition
The value proposition is the result you want from your CRM implementation.

Do you want to increase the number of customers by x-fold or make sure that your customer
retention rate goes up x percent to x + 1 percent?

Do you want to reduce the time it takes to solve customer problems?

Do you want a reduction in administrative work time so the sales team can go out and sell
more often?

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 Do you want to automate the processes that measure the effect of various marketing campaigns
or be able to change those campaigns actively in real time?

Do you want to establish the capacity to measure the lifetime value of the customer so you can
decide how to spend your carefully managed available funds for sales and marketing?

Do you want to establish a pipeline to your channel partners so their contributions to your
revenue are increased to some determined level?

Do you want to increase customer satisfaction by some number that also makes you happy? Ad
infinitum.

All of the above represents possible objectives that CRM can bring to fruition – hopefully. They will
vary from company to company. But the value proposition must be established concretely before anything
else is done. This provides the ground upon which a foundation can be poured.

Business Case and Metrics

Next comes the creation of the business case that will show how CRM will support the successful
execution of the goals and objectives. It is here that the formal studies for ROI and the establishment of
key performance indicators, those measurements that identify the tangible and intangible goals success
factors, are done.

What makes this difficult is that this is the place where you quantify what can be intangible goals?

How are you going to quantify customer satisfaction?

Are you successful if your customer hugs you when he or she sees you?

If determining how you will spend your dollars more effectively on the more important customers
is your business goal, how are you going to determine the measurements of what “important” is in your
business model ?

If there are employee self-service objectives such as reducing the amount of administrative work
that the sales force does, how are you going to:

Determine the percentage reduction number that is going to make you happy?

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 Determine how that number is to be reached?

Determine how the newly liberated sales guy will be using that extra time?

For example, is a smile on the salesperson’s face an effective measurement of successful liberation?
I don’t think so. But how do you quantify the subjective?

Luckily, it didn’t take a brain surgeon, but it did take a doctor of the Ph.D. kind, to figure out a
method (one of several existing) of doing this.

18.3 THE BALANCED SCORECARD

Back in 1996, Dr. Robert Kaplan and David Norton co-authored what has become a landmark
book called The Balanced Scorecard . This book established a strategic management system that took
not only the tangible objectives (financial goals and internal business processes), but also the intangible
(customer appearance, learning and growth) and developed a method to quantify these into a coherent,
balanced whole.

Each of the segments has a question attached:

Financial: How should we appear to our shareholders to succeed financially?

Of course, this is the historical measurement of performance for business. They can be such
measures as return on capital employed or operating income.

Customers: How should our customers see us to achieve our vision?

This is normally segmented by business unit, Measure include market share, customer retention
numbers, or customer satisfaction. For a more drilled-down example, let’s look at what Robb Eklund,
vice-president of Product Marketing for PeopleSoft’s CRM products, has to say:

Key performance indicators for customer satisfaction might include how quickly the customers
pay their bills or how frequently they buy maintenance renewals. These can be indicators of how happy
the customer really is.

Internal Performance Management: In order to satisfy the above two, what should our business
processes be?

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 What works for the company today and what will work for it tomorrow ?

Which processes have value and which don’t ?

It’s the management of the present and the future and discarding of the past that can provide the
basis for future success. This needs to be a key part of the CRM planning process because major
cultural change is going to happen, like it or not.

To achieve all of the above, how do we sustain our ability to grow and learn?

Since the market has shifted from demand-driven to customer-driven in the last five years or so,
the company needs to shift accordingly, this is why CRM is implemented ordinarily. Indicators of success
in this venue are employee satisfaction through retention measures, information systems performance,
and the organization’s calibration with employee incentives that are aligned with customer satisfaction.

The measurement of KPIs has been widely adopted, with or without the rest of the Balanced
Scorecard, as the framework of measurement for tangible and intangible corporate goals and
objectives.

As you can see, the possibilities that are touched upon in these simple questions are
enormous. The consequences of success are potentially fantastic; the results of failure potentially
devastating. That’s why these questions have become a bonafide development in the last five
years. In response, several CRM vendors have embedded the Balanced Scorecard into their
application functionality and usability cannot be a factor at this stage of strategic planning, whether
they incorporate the Balanced Scorecard or not. The vendors’ importance comes considerably
later.

What gives the Balanced Scorecard credibility, despite its initials, is not so much the
questions that are clearly being asked here but more so the idea that intangibles are not only a
viable “thing” to be measured, but also are mission-critical elements of any strategic planning.
Once the four questions are answered, the idea is to align the enterprise with the answers so that
there is no isolation between mission, vision, strategy, and departmental actions. Continuous feedback is
part of the Balanced Scorecard’s plan so that adjustments can go on in near real time throughout the
planning and execution of the strategy.

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Does Understanding Mean Action?

Despite the penetration of this important tool into the business centre, companies aren’t packing
the stores to buy Balanced Scorecard power drills.

A lot of companies aren’t putting together any formal criteria, and thus, almost guarantee CRM
failure before they even select the package they are going to fail with. These formal criteria are an
essential part of your CRM strategic planning because it is these measurements that will be used to
determine the success or failure of the CRM rollout. A formal business case is critical. A recent study by
AMR Group through the CRM Project found that 58 percent of the companies that were spending
countless U.S. dollars on CRM implementations hadn’t done a formal business case. Another small
study done by IMT strategies of 50 CRM heads at varying companies found that 90 percent were
implementing CRM on faith, with no ROI or metrics planned! This is a deadly game to play when millions
of dollars, countless jobs, and even corporate success or failures are on the line. Educated guesswork is
not sufficient. Keep in mind; the previous statements are coming from a guy who dislikes formality in
almost anything under most circumstances.

In “normal” economic periods, commonplace metrics for customer satisfaction levels and retention
rates and reduced costs of services and/or sales are used. In good economics, customer acquisition and
increased sales and revenue are often measured. In recessionary times, head count reduction becomes a
factor in CRM strategic planning.

That grim statement made, onward to the rocky path of strategic reality.

18.4 ELEMENTS OF STRATEGY

The grandest and highest levels of strategy are the mission/vision statement and writing of the
business case. But the down-and-dirty details are the next step and next place for a misstep. There is so
much detail to be planned and so much to monitor when the plan is being executed that it is actually
necessary to plan how to monitor the plan.

Once the objectives are set and the metrics for identifying the successful execution of those
objectives are completed, the elements of the strategic plan have to be decided, and the successful, real-
time monitoring of those elements and the resultant organizational change has to occur.

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 Because CRM is a technology-enabled strategy that encompasses the breadth and depth of an
enterprise, it involves creating a unified view of the customer that is accessible across multiple departments
of a company through multiple communications media. Business processes may be changed, remain, be
eliminated, or added. Corporate culture may be dramatically altered in unexpected ways. The CRM
technology that is agreed upon has implications far beyond what package or packages or even what
approach to the packages you select. Imagine what happens if you don’t really understand what is going
on as you plan. If you’re in change, it’s not hard to figure out what will happen to you, given contemporary
corporate accountability.

18.5 STRATEGIC PLANNING FROM AN INDUSTRY LEADER

For the last ten years, KPMG Consulting has played a prominent role in strategic planning for
CRM. The market is barely that old and has an acronym younger than even its existence. By that token,
KPMG can be called a pioneer in the planning of CRM planning. In fact, they developed a Connect-to-
Customer Solution that has evolved to a results-driven holistic approach for CRM. It is instructive to
take a brief look at this real-world example so you can get some idea of how CRM strategy has a
genuine practical application.

CRM Strategic Planning and Getting Real

KPMG Consulting looks at how the total enterprise gains value from the application of CRM,
rather than just parochial departmental gain. They investigate and create what they call Relationship
Equity, which converts customer intelligence into highly differentiated, personalized, and explicitly valued
customer experiences that, if successful, will translate into sustainable revenue and direct profitability
because of the improved knowledge of and use of customer behaviour.

For example, let’s look at a health services company. Suppose that this health care provider
receives a request from you for a brand name pharmaceutical product. This will trigger an action
that compares your request against both your purchase history and available generic brand drugs
of the same type as the brand name you requested. An email will be sent to your address with the
suggested alternative generic drugs, their prices, and the savings that purchasing the generic drugs will
provide. In other words, you have gotten a differentiated (your drug request and the generic drug alternates),

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personalized (the check against your purchase history), and valued (savings on the cost of the drugs by
purchase of the generic version) customer experience via one of many possible customer touch points.

Making This into a Strategy

Bruce Culbert, senior vice-president and CRM Global Solutions Leader for KPMG Consulting,
says:

Unfortunately, even after investing heavily in CRM initiatives, too many organizations are still
struggling to define exactly what CRM is and to identify the ROI benefit it can provide. Organizations are
often thrust into action by one or another market or corporate mandate, too many of which consider
CRM as a project or a piece of software, rather than a strategy.

Stake-holding Committee

To make sure that the business processes are re-engineered with the corporate vision,
benchmarks, and KPIs in mind, the formation of a team of stake-holders that will drive the CRM
strategy, planning, and implementation from the point of vision to the final rollout of the applications
is the first essential step. But there is a conundrum. Since CRM is ultimately an enterprise-wide
project, it needs to be driven by senior management. Yet, since the primary reason for the high
rate of CRM failure is that users simply don’t use it, the users have to be as involved from the
beginning of the project through to the end as senior management. “User-as-stakeholer”
involvement might be considered a bit of a controversial position. It is not widely recommended
yet, though it is gaining credence among the integrators, vendors, and analysis. I’ll drive a stake
(holder) in the ground here. It is not only valid, but critical to the success of any CRM project.
Let’s look at it.

Who are the users? They are the employees who are going to access the CRM applications
chosen to effect the changes in the business processes. They are the customers who are paying the
company for products and services. They are the partners who are working in tandem with sales
team of the company. If one of the stated objectives of the CRM strategy is to improve customer
satisfaction, then it makes sense to involve those customers from the beginning in helping you architect
the program for their satisfaction. It becomes almost a self-perpetuating, self-contained CRM strategy

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because the customers are happier when they involved in planning a CRM strategy and business approach
that is aimed at their own satisfaction.

Executive Advisory Board

KPMG Consulting, in addition to the normal stake-holding committees, tries to gain even
more stakeholders commitment by the establishment of an executive advisory board. This is
aimed at getting the continued buy-in and commitment from the executives of both internal and
external stakeholders (the customer, the vendor, and the integrator for example). An executive
oversight committee should be established during the proposal and contracting phase of a large or
important CRM engagement. That way the senior executives who are major stakeholders would
have the opportunity to review and discuss the project’s process. If need be, they could make
timely and strategic decisions to reinforce the vision and direction of the project. This takes the
onus from the project teams, freeing them up to concentrate on delivering the actual goods.

Business Processes
Thorough examination of how the company does business is a prerequisite that needs to occur
long before any vendor selection. There is a very strong tendency in the world of senior management
to let CRM sexiness get in the way of a clear view of corporate business processes and methodology.
CRM “coolness” can be incredibly hot to a senior executive who looks at the politics of success.
CRM vendors’ claims tease and tantalize, but often bear little relationship to what any company
actually needs. All this good stuff is exciting and seems easy. On the other hand, taking a hard
look at the business methods and rules of a company often is agonizing because, to accomplish
the objectives set out in the value proposition, it becomes obvious that the existing system doesn’t
really work and the customers aren’t really happy. That means major overhauls of how the company
does business, time honoured or not, can be necessary. Sometimes this means tweaks and a few
adjustments. But it can also mean eliminating those processes, practices, and rules that don’t
conform to the new mission or changing those that have some merit but aren’t entirely appropriate.

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18.6 EVALUATING RISK

CRM risk evaluation, viewed solely from an enterprise level or as a single factor, is a potentially
disastrous mistake. CRM risk factors need to be segmented individually. When you are dealing with
multiple modules or even a single module, the risks engendered can involve the culture, processes,
technology, goals, and objectives. Some of these elements are immature, some mature. Some play a
small part in the CRM planning, some a large part. Some interact with others. All of this has to be taken
into account when evaluating risk. Some risk factors to consider are:

 Lack of cross-functional planning: compartmentalizing things into individual stovepipes

 No formal CRM business strategy: leading to arbitrary approaches and educated guesswork

 Poor or no senior-level support: leading to lack of corporate vision and poor knowledge of
financial factors

 Poor or no user support: leading to lack of use of the final product

 Blinding light of the vendor: leading to purchasing a vendor solution with no understanding
of corporate objectives, goals, or vision for CRM

This list could go on extensively, but suffice it to say the risks are great and need to be
identified and controlled prior to any implementation or vendor selection.

18.7 CRM IMPLEMENTAION PROCESS

CRM implementation has the following issues

Corporate Culture and Change Management

Implementing a CRM strategy is a high-stress activity. Unfortunately, it places that stress on the
workings of the company, not necessarily on the individuals doing the planning. Going to the gym is not
the way to deal with the impact on your company’s corporate life that CRM will have.

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 Most of the company is going to be impacted not just by the implementation and its execution, but
also by the preparatory work for the strategy. It calls such fundamental questions into play as: How do
we make our customers happy?
How do we change our business model?
With rare exceptions, the changes that are acceptable alter the company landscape vividly.
Acknowledging and planning for this and the organizational effect is the single most complex
part of creating a corporate CRM strategy.
For example, the company has been focused on demand-based, company-based, or product-
based business activity. The entire way the company and its employees think is embedded in its
dusty past. Maybe your idea of customer service had historically been that you will take care of
customer complaints within 72 hours. A change to make it a 24 hour response time will dramatically
affect the corporate culture. More people have to be in for longer hours or you’ll have to hire new
and competent people to handle the more rapid turnaround. If you have a contact centre, how you
determine the numbers of personnel you need to staff that contact centre at varying times of day,
due to volume considerations, will be influenced.
Perhaps Excel has been your application of choice to track your sales pipelines or Outlook has
been your contact manager. Senior management and sales managers realize that the company has
grown sophisticated enough to need better tools for managing that pipeline or for reducing the
sales team’s administrative work. Yet, that doesn’t really mean that much to the user. The user has
been using Outlook and Excel just fine, thank you, and doesn’t see that changing over to CRM is
really going to make it any easier for him to do his work. It probably will make it harder. The idea
that it’s for their own good (and the corporate good) has to be transmitted by the CRM evangelists
in the company. How?
Compensation incentives that show these loyal and productive folks that they can be more
productive and that there is something in it for them sure can help here. To put them in place and
to get the new CRM system up and running will change the odd corporate culture and assign it to
where the Roman Empire sits today – the dustbin of history. These changes, both positive and
negative, have to be planned for. Managing the change as it occurs is of the essence. While the
statements of the importance of change here may seem dramatic, they are actually true.

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Technology
Do you know what technological infrastructure and architecture already exists in the company?
As in many companies, there has probably been a major investment in what are now legacy
systems and, also potentially, third party applications. Who among us wants to spend lots more
money on IT infrastructure? Not so many since the dot-com bomb of 2001. Utilizing what you
have is now very important in the CRM scheme of things. That also means that a technology
survey is necessary to assess what platforms, applications, and hardware exist. Do you already
have an enterprise resource planning (ERP) system in place? How easily can the CRM applications
that you are thinking of implementing integrate with your existing technology infrastructure? For
example, if you have an SAP Financial system in place, it might be easier or more cost effective
to implement an SAP CRM solution simply because of the obvious integration points between
them. There is the added benefit (particularly in SAP’s case) of utilizing common data from the
data store that your system uses. A complete technology survey and plan is paramount for any sort
of CRM strategy. Know thy infrastructure.
Package Selection
Okay, you’re decided on the value proposition, built the business case, assessed the business
processes, identified the technologies, determined the risks, and looked at the cultural change that
is likely to occur. Hopefully, your users were involved from the beginning or much of what I’m
going to say now is moot. It’s vendor time! Time to decide what is going to be implemented with
what you need done, and who is going to do the implementation. Needless to say, if we lived in a
perfect universe, this would be either obvious because of all the other work done so well to date,
or the package picking would be done while you’re completing your plan. But I’m sad to say, it
isn’t a perfect world and this is a particularly political part of the overall strategic planning. The
politics of who likes what for whatever reasons now assets itself. Even though it is only 24% of
the cost of the implementation, it is about 70% of the aggravation and, hopefully not at your
company, 90% of the manoeuvring that will go on. Why? Careers are made and broken on these
things. The wrong pick and despite all your other careful planning, your project is ruined. The
right pick and the vice-presidency is awaiting you.

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 Prior to picking the package, the package strategy that overlaps with the implementation strategy
has to be decided.
Simply put, are you going to implement and enterprise-wide solution or a modular one
with one or a few of the modules at a time?
Are you going to implement a single package or best of breed in the areas that you identify
as mission-critical for CRM?
Are you concerned about the way the package integrates with what IT infrastructure you
already have or can it even integrate with it at all?
All of these questions are vital and are directly affected by all the factors that have already
gone into the strategy.
Don’t leave out the economy here. For example, in a recessionary economy, since the value
proposition tends toward customer retention and cost reduction, the approach that is often taken
is modular. Find out where the bleeding is occurring is your processes and fix that with the
implementation of particular modules of a CRM application. If your obvious weak points are in
the production of your sales team, then sales force automation (SFA) might be the domain you
want to look at. Within that context you can find modules for any facet of sales management you
want. However, if your weakness is elsewhere, such as bad communication with your business
partners, or you are pushing for the channel to sell about 25% more product than they have
historically done because you let go 50% of your sales force, perhaps partner relationship
management (PRM) is the way to go.
Once the strategy for package selection is decided, then a vendor review starts. That is a fairly
obvious thing because by the time you get to the vendor selection, if you’ve correctly developed
your CRM strategy, you will know what you need pretty clearly. There are a few salient points to
be made nonetheless.
 When you buy the application, you buy the vendor: this means the application isn’t the
only thing that must be evaluated. How good is the vendor at customer service? Do the
vendor’s account managers have a good relationship with the point people at the company?
How financially stable is the vendor? How well do they understand the business model

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 that the enterprise works with? What experience do they have in the particular industry? Is the
vendor’s CRM corporate culture customer-friendly, or is CRM just an application to them?
These matter very much in the considerations that you have here. For example, what if the
company CRM-appointed staff doesn’t get along with the vendor’s account managers? What
will happen when you need something from the vendor, which is inevitable?
 Most of the applications have similar functionality: since human beings tend to give similar labels
to similar things or the same labels to the same things, opportunity management features tend to
be pretty standard stuff. The more pertinent question at this stage is how usable is that functionality?
Can the users understand it right away (or with some training) as something important to their
productivity that is not that difficult to grasp? How well the application executes the functionality
is essential.
 How well does the CRM architecture integrate with your existing systems? There is hardly
a company that is implementing CRM that doesn’t have information technology systems
already in place that they’ve invested millions into. One aspect of package selection that
is vital is how well that package fits those systems you are not replacing. If you are a
mainframe-based company, does the architecture of the CRM system allow mainframe
data to pass to the CRM application? Can it handle a very mobile workforce? Most of the
major CRM vendors have either or both Internet architectures, synchronization, integration
“points” such as APIs (SAP calls them Business APIs [BAPs]; PeopleSoft calls them
Enterprise Integration Points [EIPs], and toolkits that allow for customization. There is
also Enterprise Application Integration (EAI) software that operates as “middleware” –
passing data from one place to another in disparate systems. In any case, this is an important
consideration in package selection.
While hardly the only consideration in the package selection stage, these are three critical
considerations that the company stake-holders must be aware of while they are making their
selections. There are many more, but that’s what professionals who do this for a living are for.
Engage them.

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Implementation StratergyNTATIOIIIIN STRATERGY

Once the package selection is complete, the final step for the purposes of this chapter is the
implementation strategy. Keep in mind that implementation services ordinarily cost about three times
what the software licenses cost, so this is a critical phase. The initial questions to be asked (and these
apply to all enterprise-level packages, not just CRM) are who is going to do it and how are they going to
do it?

Some options are:

 Internal: the least viable choice. Very rarely is there an internal group of employees who
have the experience and/or the time to actually implement a very CRM-complex system
by themselves. The internal team should play an integral role in working with the vendor
or consulting services implementation teams.

 Vendor professional services: This can be a good alternative and provides the customer
with an experienced team with access to the latest information from the vendor. This can
be very expensive, but you are pretty well guaranteed the knowledge of the product and
have the resources of the vendor’s entire enterprise as part of the package.

 Integrators: Whether large or boutique, this is often the best option for price and
commitment. Look for a certified partner of the vendor you are using for the software. Be
sure of their experience in implementing the CRM applications and customizing the
applications in the industry that your company represents. This can be a huge plus. If you
choose to go to a less experienced firm (everyone starts from somewhere), get a serious
price break from the firm.
18.8 CASE STUDY
At a press conference in December 2002, the management of Cigna Corporation (Cigna),
one of the largest health insurers in the US, announced that problems in their customer database
systems had resulted in misquoting their number of customers by an extra 900,000. The beginning
of 2002 saw Cigna face problems on many fronts including customer service and profitability.
The company’s membership fell due to poor customer service and by the end of 2002, the
membership was 12.5 million, down from 13.3 million at the end of 2001. For the fiscal year
2002, Cigna reported revenues of US$ 19.34 billion and a net loss of US$ 398 million

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 According to analysts, one of the main reasons for Cigna’s poor customer service and the resultant
reduction in membership was the failure of the restructuring of its information technology (IT) and
CRM3 systems, at its HealthCare division.

This US$ 1 billion project was aimed at moving 3.5 million customers of Cigna from the twenty
year old computer systems to new AS400 systems that supported claims processing platforms -
PowerMHS software and ProClaim software.

The project was monitored by the Chief Information Officer (CIO), Andrea Anania Despite
Anania’s confidence in it, the changeover did not go smoothly, encountering several glitches.

As a result, customer service went haywire resulting in millions of dissatisfied customers.

The company lost six percent of its healthcare members in 2002 alone.

The management of Cigna, during the shareholders’ meeting in October 2002, accepted
that they had been unsuccessful in executing the project. Cigna’s top management analyzed the
reasons for the debacle.

The reasons cited were: greater than expected cost of implementing the project, and
misconceptions about the timing of the economic benefits from the project.

On March 31, 1982 the Philadelphia-based Insurance Company of North America (INA)
and Hartford-based Connecticut General Corporation (CGC) merged their operations to form
Cigna. Cigna acted as the holding company with INA and CGC as its chief operating companies,
and was headquartered in Philadelphia.

In 1999, Cigna HealthCare was operating with IT systems that were nearly two decades
old and were clearly outdated. It had separate units for membership (enrollment), processing the
medical claims and verifying customer eligibility

Anania felt that the migration process for more than 13 million customers would take too long if
she went by her plan of migrating customers to the new platforms in small groups.

In January 2002, Anania decided that Cigna should start work on a web portal project -
mycigna.com. The web portal project aimed to make it possible for millions of healthcare customers
to make easy and secure online transactions.

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 The migration program was expected to continue throughout 2005. Anania said that she and her
team had learnt a number of lessons from the project (Refer Exhibit IV for Steps for effective migration
to new systems). According to analysts, the company was now processing medical claims quickly and
had, to a certain extent, achieved its goal to reduce human intervention. However, the Cigna management
did admit that the project had exceeded the original budget of US$1 billion and that it had already done
a certain amount of financial damage to the company.

QUESTIONS

1.Identify the reasons for failures in Cigna

2.Explain turn around management in Cigna

18.9 NOTES

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18.10 SUMMARY

For sustained success, Customer Relationship Management strategy must be aligned with
the organization’s mission, purpose and business strategies. CRM strategies are iterative processes;
as the organization advances so to will the CRM strategy. If developing successful CRM strategies
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and objectives were either easy or routine, the implementation failure rate would not be deplorably high
(over 50% according to research firm Gartner) . In this unit we have discussed about various CRM
Strategies

18.11 KEY WORDS

CRM Strategy, Strategic Planning, Risk Evaluation

18.12 SELF ASSESSMENT QUESTIONS

1. Define CRM strategy

2. Explain grand strategy.

3. Discuss strategic planning of an Industry leader.

4. Explain the risks involved in evaluating CRM.

18.13 REFERENCES

1. Raju & Xardel, Consumer Behaviour, , Vikas Publications 2015

2. Bholanath Dutta, Consumer Behaviour,Kalyani Publishers 2016
3. Kazmi & Batra, Consumer Behaviour, , Excel Books, 2012
4. Ramaswamy. V S., Namakumari, Marketing management: 4th Edition, McMillan PIL, 2009.

5. Schiffman, L G and Kanuk, L L Consumer Behaviour New Delhi, PHl of India,1994

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UNIT 19 – CALCULATING CUSTOMER LIFE TIME VALUE

STRUCTURE

19.0 Objectives

19.1 Introduction

19.2 Customer Life time Value (CLV)

19.3 Benefits of CLV in CRM

19.4 Dimensions of CLV

19.5 Calculating value of CLV

19.6 Using CLV to Segment Customers

19.7 Customer Value Management

19.8 Marketing implication of CLV

19.9 Case Study

19.10 Notes

19.11 Summary

19.12 Key Words

19.13 Self Assessment Questions

19.14 References

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19.0 OBJECTIVE

After studying of this unit you should be able to:

 Calculate Customer Life time Value (CLV);

 Explain Benefits of CLV;

 Identify Dimensions of CLV and

 Describe Customer Value management.

19.1 INTRODUCTION

Kotler and Keller (2005) explain the concept of Customer Lifetime Value (CLV) as: “the present
value of the stream of future profits expected over the customer’s lifetime purchases. The company must
subtract from the expected revenues, the expected costs of attracting, selling, and servicing that customer”.
The authors point out that “the aim of CRM is to produce high customer equity. Customer equity is the
total of the discounted lifetime values of all of the firm’s customers”. This marks a shift from the traditional
concept of focusing on brand equity. It also entails a shift from focusing on customers instead of brands
or products since traditionally, companies have been extolling the value of their brands. However, it
should be noted that the emergence of CRM as a concept does not mean the demise of the concept of
branding. Companies will certainly need to have branding strategies that will support their CRM initiatives
and Relationship Branding will be a helpful tool.

19.2 CUSTOMER LIFETIME VALUE (CLV):

Investment in marketing is expected to grow customer equity, and leads to improved customer
perceptions. This, results in increased customer attraction and retention. In this regard, Berger and Nasr
have shown that better attraction and retention lead to increased CLV.

CRM will help realizing the lifetime value of customers. Researchers have suggested CLV as a
metric for selecting customers and designing marketing programmes. The researchers have also provided
empirical evidence to prove that a relationship exists between marketing actions and CLV at the aggregate
level.

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 Companies are taking efforts in minding the CLV at the aggregate while dealing with them. SAS
(a leader in business intelligence software and service) offers the SAS Lifetime Value for Insurance that
enables companies to:

 Calculate the present profitability level of each individual policyholder in life and P&C insurance
companies, combining the key measures of retention, cross-sell/up-sell and claim costs over a
defined time horizon.

 Calculate CLV by integrating data, analytic and business intelligence needs. The end-to-end
solution includes logical and physical data models for data storage, pre-built data management
capabilities and the necessary a alytic modelling and business intelligence tools.

19.3 BENEFITS OF CLV IN CRM

The benifits of CRM are

 By finding out the CLVs of the customers, firms would be able to differentiate among the customers.

 The capability to differentiate among customers would enable companies to segment customers
on the basis of their value to the firm in the long-term.

 Once the firm has been able to find out who are the valuable customers, the firm can focus on
them and ensure that their needs are being met as well as they are being satisfied.

 Ensuring that the valuable customers are satisfied would help in retaining them and realizing the
CLV of the valuable customers.

With the introduction of CRM as a discipline, rather than a technology, there has been a resurgence
of interest in customer profiling and segmentation – the selection of customers/prospects on the basis of
a defining rule or algorithm. That said, segmentation is nothing new, having existed for almost as long as
the concept of direct marketing, but it has been evolving. Its evolution can be understood through the
following phases:

 First phase – manual selection of criteria (e.g. postcode)

 Second phase – inclusion of socio-economic/geo-demographic data.

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  Third phase – data mining/ propensity scoring.

 Fourth phase – LTV based selection.

 Fifth phase (current) – yield – optimized multi-channel / product segmentation.

19.4 DIMENSIONS OF CUSTOMER LIFETIME VALUE

The dimenstions of customer life time value are

 The duration of the ‘customer lifetime’.

 The firm’s share of wallet among its customers, i.e. what portions of the customer’s purchases in
the firm’s offering categories are captured by the firm as opposed to its competitors.

 The firm’s success in terms of frequency of up and cross-selling to its customers so as to increase
the levels and monetary value of their purchase over time.

 The firm’s costs of acquiring, serving and retailing its customers.

What would make a successful CLV Method?

 Connect with overall strategy of the business.

 It should link with the loyalty that the company seeks to bring in.

 Referrals must be part of the component of the CLV (True Loyalty).

 Constant rate of retention and discount not feasible.

 Risk rate should also be associated.

 Dynamics of the different sectors must be incorporated e.g. automobile from Airlines.

 Truly customized CLV for highly volatile sectors such as financial services and online companies.

 It should link with Loyalty program.

19.5 CALCULATING VALUE OF CLV

Simply put, the LTV of any given customer can be expressed as:

LTV = total revenue – (fixed costs + variables costs).

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Revenue is fairly straightforward to measure . One simply adds up the total of all of the orders placed
with the organization. However, recently there have been a growing number of attempts to model the
costs associated with these revenues more accurately through practices such as ‘activity-based costing’
and ‘activity-based accounting’.

 Identify those customers who are most profitable and focus retention efforts on them.

 Find more customers who match the profile of the most profitable customers.

 Calculate which products or product combinations are contributing most to profit.

CLV = Average transaction value * Frequency of purchase * customer life expectancy

Link between the customer retention rate and the average customer lifetime.

 Average customer lifetime (years)= 1

1-retention rate

Example: if the customer retention rate is 90% per annum (meaning that we lose 10% of our
existing customer base each year), then the average customer lifetime will be ten years.

Customer Lifetime Value using referrals

CLV = D [(Rt – Ct) + Rf(Ac – Acr)]/(1 + r) – Ac

Source: Edgar, Dunn & Company

Where:

t = Year

Rf = Number of referrals generated by customer each year

n = Length of customer relationship

Ac = Full acquisition costs (for new customers)

D = Customer retention rate

Acr = Reduced acquisition costs (for existing customers)

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Rt = Revenues earned from customer in year t

Ct = Cost of servicing customer in year t

r = Discount rate

It is important to note that some of these variables such as revenues earned and acquisition costs
are easily calculable and absolute, based on historical data. However, others such as average number of
referrals generated each year are less definite and may need to be estimated.

The other approach which is a further simplification of the LTV formula as developed by Prof.
Sunil Gupta of Columbia Business School is as follows:

CLV = m(r/1+i–r)
Where
m = margin or contribution for each customer in a given time period.
i = discount rate and
r = retention rate
Factor (r/1+i –r) is the ‘margin multiple’. This approach also suffers from a drawback
which is that this approach is not very suitable for developing countries as it is for the developed
countries where the economy has a fixed ground. In a country like India where the market is on
the rise the changes have to be incorporated very frequently. There is also another drawback that
is it does not account for referrals and the contribution made by them. Nevertheless, in the absence
of very organized data management systems, this can be considered as the starting point for
calculating customer lifetime value.
19.6 USING CLV TO SEGMENT CUSTOMERS

The goal of the mass-marketing age is the “segment of one” “perceived intimacy” between
customers and vendor. Customer segmentation groups customers and then personalizes
communications and strategy according to that group’s characteristics. Segmentation mainly enables
prioritization. Companies can budget their marketing expenditure according to a customer’s (current and
future) profitability. JayAbraham, in his seminal work, Getting Everything You Can Out of All You’ve Got
says, “until you identify and understand exactly how much combined profit a client represents to your

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business, for the life of the relationship, you can’t begin to know how much time, effort and…. expense
you can afford to invest to acquire that client in the first place”. This prompts us to move to the next step.

There is a long-standing rule of thumb (The Pareto Principle) that says, 20% of customers
represent 80% of profit. However, some have noticed that this top band of 20% is often already
“maxed-out”, using every service they could ever need, hence giving such a high return but
preventing further sales opportunities. These customers need to be retained, but should not be
targeted for cross- or up selling. Segmentation does not stop here. Of the 80%, the bottom 20%
will be low-profit or unprofitable customers – those with negative CLV (minimum sales or even
“dead” accounts). This 20% represents lots of service calls, wasted marketing and only 1% of
total profitability. It is highly unlikely that these customers’ profitability will improve, so marketing
to them is wasted budget. It is far better to market to the remaining middle 60% and budget
according to potential profitability.

When marketing to this remaining 60%, precision is the key to get return on investment.
By determining customer preferences and his likely behaviour, financial services providers are
better able to segment their audience and market the services that their customers require, when
they require them. By calculating customers’ lifetime value, a company is then able to allocate
funds to marketing more accurately, ensuring that the customers most likely to bring the greatest
returns (to move up to the “GOLD” bracket) receive the greatest attention in terms of a marketing
offensive.

Using CLV to segment customers can also enable organizations to channel lower-profit
customers into low-cost sales routes such as internet banking. It may be worthwhile first of all, to
contact these customers to ascertain whether they are still using these accounts, or if they simply
made a one-off purchase or inquiry. Once those who intend to retain their unprofitable accounts
are identified, providers can deal with them in one of the ways detailed above. In particular,
companies can think of adopting two types of communication channel strategies based on LTV
calculations. These are:

1. Graduated account management strategy

2. Channel migrator strategy

Graduated account management strategy

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 · Is based on the existing and future potential value of customers.

· Many B to B companies have implemented a graduated approach where important commercial

customers are served by key account managers, medium sized businesses through telephone
based account managers and small customers through a call centres.

Channel migrator strategy

· Concerned with customers who migrate from one channel to another.

· This strategy may be driven by a new channel’s potential to serve more lucrative customer segments
or the opportunities to reduce costs or increase customer value. For instance, low cost airline
Easy Jet, sold tickets solely through a call centre but are now encouraging customers to purchase
its tickets through the internet.

19.7 CUSTOMER VALUE MANAGEMENT

Customer value management as defined by Khalid and Scott is a systematic approach to:

1. Understand what causes customer purchase and repurchase behaviour.

2. Predict the future purchase behaviour of customers and potential customers

3. Maximize future purchase behaviour by managing the predictors .

It is a process that enables businesses to determine how well they address the expectations and
needs of prospective and direct customers, distributors and end users, relative to competition.

The overarching strategy of CVM is to deliver a better value proposition than the strongest
competitor in each targeted market segment. The premise is that a value proposition is at work,
and CVM provides a systematic methodology of modelling the value proposition, relative to
competition, by operationalizing the results through process improvements, communicating these
improvements to the employees and customers, and linking them to financial performance.

In a customer value management roadmap, there are following management phases:

 Needs and value based segmentation
 Value proposition development
 Product and service delivery
 Business operations metrics
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  Integrated channel strategy
 Customer service
 Expanding customer relationship and
 Migrating customers to new channels/segments

Importance of CVM: Transformation at Tata Steel

The implementation of a relationship migration strategy for select accounts has resulted
in a win-win situation for Tata Steel as well as for many of CVM companies. Besides increasing
business, it has acted as a unifying force in the organization, cutting across functional and
hierarchical boundaries. A larger number of people are focused on continually adding more value
to the company’s customers, thereby challenging them to innovate and stay energized. Creating a
rational customer portfolio with discerning customers has resulted in focused relationships with
them. It has stopped the precious organizational energies from frittering away.

Changing nature of dialogue with the customer

CVM has resulted in creation of knowledge platforms to relate to the customers across all
organizational levels. Broad basing of relationships has shifted the discussion horizon to long-
term growth and partnership from transactional and adversarial relationships that were common
in the past.

Moving from ‘opinion-based’ to ‘data driven’ decision making

The CVM implementation, along with other improvement initiatives has embarked the company
on a course to change its culture. As against opinion based decision that were common in the past,
CVM has ushered in fact-based, data driven and rigorous analysis.

Bringing in accountability in organizational functions

While the sales manager handling the customer account is the single person responsible
for driving the CVM, the process of rigorous review and ownership of improvement ideas by idea
owners drives accountability for implementation throughout the organization. This process has helped in
transforming ideas into meticulous and time bound implementation. Wherever difficulties are encountered,
top management facilities their debottlenecking. Where required, funds are provided to facilitate
implementation of the ideas. Based on rigorous review of CVM implementation, the whole process
acquires ‘mission-mode’ priority in the company.

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Increased responsiveness to customer needs

In addition to the idea implementation accountability, after the implementation of the CVM initiative at
Tata Steel, there is intense improvement in employees of the company at the bank end. Appreciation of
the customer’s problems and the changing mind set of a large section of the employees in Tata Steel is one
of the key soft benefits of the CVM program.

Customer Valuation

Customer value can be categorized as actual and potential. Understanding both types of value
allows enterprises to grow through established customer relationships. Defining the specifics around the
equation can be a daunting task. It requires a detailed analysis of a company’s customer data. This
presents challenges for many, as data can be decentralized or lacking. In most cases an equation to value
customers can be created.

19.8 MARKETING IMPLICATION OF CLV

Everyone talks about customer lifetime value, but few have actually calculated it. The process is not that
difficult.
In the first place, what is lifetime value? It is the expected profit that you will realize from sales to
a particular customer in the future. Although it builds on past customer history, LTV is all about
the future. It is based, primarily, on the customer’s expected retention and spending rate, plus
some other factors that are easy to determine. To understand LTV, let’s begin with a typical LTV
table.
In this table, 100,000 customers are acquired originally. We are following their purchase history
for the next three years. The first thing you will notice is that 40% of them disappear after the first
year. The retention rate is only 60%. In future years the retention rate grows. The loyalty of retained
customers is higher than that of newly acquired customers. As customers stay with you, their
number of orders per year and their average order size tends to increase.

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 Table 19.1 Customer LTV

Acquisition Second Third

Year Year Year

Customers 100,000 60,000 42,000

Retention Rate 60% 70% 80%

Orders per Year 1.8 2.5 3

Avg Order Size $90 $95 $100

Total Revenue Rs16,200,000 Rs14,250,000 Rs12,600,000

Costs 70% 65% 65%

Cost of Sales Rs11,340,000 Rs9,262,500 Rs8,190,000

Acquisition/Mkt. Cost Rs 55 Rs 20 Rs 20

Marketing Costs Rs 5,500,000 Rs 1,200,000 Rs 840,000

Total Costs Rs 16,840,000 Rs 10,462,500 Rs 9,030,000

Gross Profit (Rs 640,000) Rs 3,787,500 Rs 3,570,000

Discount Rate 1 1.16 1.35

Net Present Value (Rs 640,000) Rs 3,265,086 Rs 2,644,444

Cumulative NPV Profit (Rs 640,000) Rs 2,625,086 $5,269,531

Customer LTV (Rs 6) Rs 26 Rs 53

We are assuming a 70% cost of sales. The cost typically goes down after the first year. The cost of
customer service to existing customers is usually lower than that to new customers. It costs you Rs55 to
acquire a new customer. This is computed by taking all your advertising and sales costs and dividing this
by the 100,000 customers that you acquired. We are assuming that you spend Rs20 per customer per
year on subsequent marketing, including the cost of the database that provides the information needed
for this table, and is used to provide the personal communications needed to improve the retention rate.
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 The Gross Profit is simply the revenue minus costs. We have to divide this by a discount rate to get
the Net Present Value of the expected profits. The discount rate (based on interest rates) is needed
because future profits are not worth as much in today’s money as present profits. The formula for the
discount rate is:

D = (1 + (i x rf))n

Where D = Discount rate, i = interest rate, rf = the risk factor, and n = number of years that you have to
wait. With a risk factor of 2 and an interest rate of 8%, the discount rate in the third year (two years from
now) is D = (1 + (.08 x 2))2 or D = (1.16)2 = 1.35.

The lifetime value is calculated by dividing the cumulative LTV by the originally acquired 100,000
customers. The LTV in the third year is Rs 53. That means that the LTV of the average newly acquired
customer is Rs 53 in the third year. In this one number we have encapsulated the retention rate, the
spending rate, the acquisition, marketing and goods costs, and the discount rate. It is a wonderful number.

From this table, you can learn quite a lot. As you can see, acquiring new customers is not a
profitable activity. Customers, in this case, become profitable only in the second and third years.
This is typical. It is why money spent on increased retention has a higher payoff than money spent
on acquisition.

We have calculated an average LTV for a group of 100,000 customers. We now have to
figure out the LTV of each individual customer. This is done by creating customer segments.
How you develop customer segments is an art. It depends on your customer base and marketing
program. Segments might be by age (Senior Citizens, College Students, etc.) or by spending
habits (Gold, Silver, Bronze) or by product type (Deluxe, Regular, Economy), etc. However you do
this, you can redo your LTV table to create a LTV for each segment.

Jane Adams, one of your customers, may be a Deluxe customer, who spends about Rs300 per
year. The LTV of the Deluxe customers for example, may be Rs100 in the third year. They may spend
an average of Rs200 per year. So Jane Adams third year LTV is Rs150 ((300/200)*100)). You can set

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up a program to compute this number for every customer and put that number into your customer
database.

LTV can thus be a valuable tool in your marketing arsenal. You treat customers with high LTV
(high expected future profits) differently from those with low LTV. You spend more to retain them. Some
customers may even have negative LTV. Why spend a lot of money trying to retain these losers?

The LTV table can be used to evaluate the expected results of new marketing programs before
you have spent millions on them. When you come up with a new initiative, estimate what it will do to the
retention rate and the spending rate (orders and average order size). Some marketing programs will fail
this test. Their benefits will be lower than their costs. They may cause LTV to drop rather than to rise.
Don’t fund them.

The table can also be used to validate your LTV calculations. All of the numbers shown in the
table above are real numbers (not assumed numbers like “awareness”). When the second year arrives,
you can go back and see what was your actual retention rate and spending rate. If you have been too
optimistic or pessimistic, you can learn that and do a better job next year.

LTV is thus a wonderful marketing tool which costs very little to calculate, and can return rich
rewards in terms of improved marketing strategy. You now know how to calculate it. Go forth and make
money.

19.9 CASE STUDY

Royal Bank of Canada: Segmenting and modelling skills

In the area of segmentation and predictive modelling, the Royal Bank of Canada seems to be ahead of
the pack. The bank has 1,300 branches, a large ATM network, point-of-sale capabilities and fast growing
phone and internet banking services. Almost 90% of routine transactions are handled outside the bank.
Products and services run the gamut from trust services and securities trading to personal financial planning
and investing.

Royal also has a large mobile banking capability that originates about 40% of its residential mortgages.
This sales force works on commission but is not allowed to take business away from branches. It is to

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develop its own sources of business that represent new customers to the bank. The push is now on at
Royal to personalize and deliver advice to small micro segments through appropriate channels. James
Rager, vice chairman of personal and commercial banking, believes the internet will eventually dominate
the banking business. So the bank is working hard to learn how to customize offerings via the internet as
well as its other electric channels. At the same time, Royal wants to excel at target marketing.

“We will have strategies for each customer that will allow us to anticipate their needs and personalize
all interactions that they have with us”, says MrRager. “Based on our segmentation knowledge, we will
have pricing strategies and channel offerings for every single customer that are customized to the fullest
possible extent. “For example, an existing customer in good standing, who visits the bank’s website to
investigate mortgages, will be offered a pre-approval for a mortgage almost immediately.

Royal conducts extensive research on customer’s channel preferences, current as well as anticipated.
This allows marketing managers to include channel preferences when devising customized product offerings
to micro segments. The engine of all this activity is database technology that provides four key insights
into a customer:

§ Likelihood of defection

§ Current and expected value

§ Credit-risk scoring at the client level

§ Channel preferences

Segments are defined in terms of broad behavioural and attitudinal attributes that imply future profitability.
In the past, the bank looked only at current profitability and the consequence was that the most profitable
customers were seen as a homogenous group. Today, Royal reports success with target marketing after
studying channel preferences, combining external and internal data and applying modelling techniques to
come up with clearer pictures of micro-segments.

Mr Rager also says that this analysis capability provides a strong sense of where the bank needs to
improve its management of the lower profitability segments that is, the system helps to identify steps the
bank can take to evolve the loss-makers or profit-neutral clients so that they generate value. The action
may be simply directing a low value customer to the direct phone bank. Sales people are trained in how

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to find out what is behind channel preferences and to address those issues in ways that will move a
customer to other channels. If the customer is uncomfortable with voice-response units, for instance, the
salesperson may offer to demonstrate their use. “We migrate customers”, Mr Rager says, “But it’s never
forced”.

The customer management system is currently being enhanced with contact management and campaign
management software. The idea is that if a customer makes a transaction in a branch, the information
about that transaction is immediately available in the call centre or any other channel. Ideally, the information
that is provided to the various channels about customers – and about strategies for managing the relationship
with customers – will be consistent enterprise-wide.

This is the hallmark of a bank that has its evolutionary path clarified. In essence, it is the ability to
leverage relationships with customer and give them the power to control their relationship with the bank.
And that is, perhaps, the most powerful retention tool of all. The bank invested and developed a centralized
customer database that could project.

· Customer’s lifetime values

· Customer’s grow ability to offers

· Customer’s vulnerability in order to take preventive actions

QUESTIONS

1) Analyse CRM as a retention tool

2)What are other basis on which you can segment customers?

19.10 NOTES

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19.11 SUMMARY

In marketing, customer lifetime value (CLV) (or often CLTV), lifetime customer value (LCV),
or life-time value (LTV) is a prediction of the net profit attributed to the entire future relationship
with a customer. The prediction model can have varying levels of sophistication and accuracy,
ranging from a crude heuristic to the use of complex predictive analytics techniques.

Customer lifetime value can also be defined as the rupee value of a customer relationship,
based on the present value of the projected future cash flows from the customer relationship.
customer lifetime value is an important concept in that it encourages firms to shift their focus
from quarterly profits to the long-term health of their customer relationships. Customer lifetime
value is an important number because it represents an upper limit on spending to acquire new
customers. For this reason it is an important element in calculating payback of advertising spent
in marketing mix modeling.

One of the first accounts of the term Customer Lifetime Value is in the 1988 book Database
Marketing, which includes detailed worked examples. Early adopters of Customer Lifetime Value
models in the 1990s include Edge Consulting and BrandScience.

19.12 KEY WORDS

Customer Time Value, Marketing mix modelling, Customer value management

19.13 SELF ASSESSMENT QUESTIONS

1. Define Customer Life Time Value.

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 2. What are the benefits of CLV?

3. How to calculate CLV?

4. Explain Customer Value Management.

19.14 REFERENCES

1. Raju & Xardel, Consumer Behaviour, , Vikas Publications 2015

2. Bholanath Dutta, Consumer Behaviour,Kalyani Publishers 2016
3. Kazmi & Batra, Consumer Behaviour, , Excel Books, 2012
4. Ramaswamy. V S., Namakumari, Marketing management: 4th Edition, McMillan PIL, 2009.

5. Schiffman, L G and Kanuk, L L Consumer Behaviour New Delhi, PHl of India,1994

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 UNIT 20 – MANAGING UNPROFITABLE CUSTOMERS AND USING CUSTOMER
VALUE IN OTHER FIELDS

Structure

20.0 Objectives

20.1 Introduction

20.2 Managing unprofitable customers

20.3 CRM in Manufacturing

20.4 CRM in Insurance

20.5 CRM in Airlines

20.6 CRM in Hotels

20.7 CRM in Telecom

20.8 Notes

20.9 Summary

20.10 Key Words

20.11 Self Assessment Questions

20.12 Referenc es

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20. 0 OBJECTIVES

After Studying of this unit you should be able to:

Ø Manage unprofitable customers;

Ø Explain CRM in manufacturing;

Ø Describe CRM in insurance;

Ø Discuss CRM in airline;

Ø Provide an overview CRM in hotels and

Ø Examine CRM in telecom firms.

20.1 INTRODUCTION

Embattled companies are moving toward the realization that without customers, products don’t
sell and revenue doesn’t materialize. They have been forced to become smarter about selling, and this
means becoming smarter about who’s buying. CRM is also about managing customers and monitoring
their behaviors.

In the business-to-consumer (B2C) space, CRM means keeping pace with a savvy and impatient
consumer base that is closer than ever to finding your main competitor and more willing to share their
bad experience with your prospects.

There is five-part customer divestment framework. First, reassess the context of present customer
relationships, looking beyond simple profitability. You may find that the most productive option is to
educate customers rather than drop them. In some cases, if you renegotiate the value proposition with
them, both of you will win. In other instances, you’ll want to migrate customers to other subsidiaries or
providers, as long as the move is undertaken and perceived to be conducted in good faith. If it becomes
necessary to terminate a customer relationship, use a direct, interpersonal approach. No business can
afford to squander its customer base, so divestment should not be boiled down to determining merely

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who is profitable and who is not the strategic consequences are too weighty. In the end, the decision
about whether to divest might prove to be the toughest customer of all.

20.2 MANAGING UNPROFITABLE CUSTOMERS

Problem customers can cost your business lots of money, but quickly ejecting them may not be
the best way to relieve the burden. Thus deciding to end a relationship with a customer segment or
individual can increase profitability, improve employee morale, address capacity constraints, and a
business strategy. However, divestment also comes with potential downsides for various constituencies,
including employees and remaining customers, both of whom may wonder whether they’re next. In
addition, ethical and legal consequences — and the risk of bad publicity always loom.

So what’s a company to do about unprofitable customers?

1. Do not implement an across-the-board price increase. You could end up having to raise prices so
much to make up for the losses that there’s no way you could really justify the hike. The consequence will
be losing some of your profitable customers.

2. Do not selectively allocate costs. Twenty-five percent of sales does not mean twenty-five percent
of overhead. You’ve got to allocate costs based upon what activities match up with the client. Fo example,
a company had two brands one of which was far more profitable. They decided to allocate 70% of the
cost of servicing their customers of the more profitable brand. The problem was the sales people were
spending 70% of their time on the brand that only generated 30% of the profits. This kind of selective
allocation distorts the true picture of profitability.

3. Do not be emotional. Your decision process needs to be data-driven. For lg,A company may
contemplate to drop a unprofitable customer thinking that he has been a customer for over 10
years which actually meant he is a unprofitable customer for over 10 years.

4. Do not confuse profit and revenue. Just because a customer is filling your top revenue line
doesn’t mean that they’re impacting your bottom line. It’s easy to get enticed by the big revenue
figures and forget to do the analysis. You need to analyze customers in terms of driving both your
top and bottom line (profit driven volume).

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Hence you need to do the following in order to retain the customers who are unprofitable due to
various reasons:

1. Sell the companies additional services or products to attain profitability. Many times
customers are not aware of all the services a provider offers. Some clients can be taken from
unprofitable to profitable just by educating them on the other items or services you can provide.

2. Raise your price levels selectively. There may be some unprofitable customers who can absorb
price increases. You can also raise prices on profitable customers but make sure you are not doing
it to make up for the unprofitable ones.

3. Examine whether you are over-servicing customers. Anytime you’re servicing a customer
there is an associated cost. Do you really need to call on that customer once a month? Maybe
once a quarter, or once every two months would do.

4. Separate unprofitable customers into two categories; high-touch and low-touch. Figure
out who is requiring a lot of your time compared to who is requiring less. You may be over-
servicing unprofitable customers but additionally you need to ask, ‘Are these accounts unprofitable
because of your existing overhead?’ Once you understand what is the cause of their lack of
profitability you can determine the best course of action. You may be able to have your customers
serviced from a part of your company that has a lower overhead.

5. Sell off unprofitable customers, even to a competitor. If you can’t make money off of them,
someone else might be able to. If your company is doing $100,000,000 in sales and you have
competitors doing $15,000,000 in sales with much lower overhead structures, they might love
these $5,000 accounts. The result could be a one-time profit gain for your company plus the
benefit of eliminating your unprofitable customers.

6. Test, test, test. Test all changes on a small sample of customers. Go through the pitch with
thirty accounts and see what their reaction is when you say, “We’re looking at doing XYZ.” If you
get a positive reaction from the majority, then you know it will work.

There are two final things you should bear in mind. The first is that these approaches are
not mutually exclusive. Any and all can be tried simultaneously. The second is that there are times

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it makes sense to keep unprofitable customers, such as influencers or thought leaders who will help you
gain credibility in the marketplace and, hopefully, other customers. If you get a customer that is desirable
to other customers (an influencer), you can leverage this customer to gain an additional four to five
accounts–that has to be taken into consideration. You can’t always assign a rupee figure to the value of
an influencer. There are times you will have to make a judgment call as to whether you think this company/
customer will be or could be an influencer.

Additionally, you have to understand the impact of your decisions. A company decided to drop
certain items from their product line because they were unprofitable. A manager suggested that they
should test their idea on their customers. In doing so, they discovered that there was an inter-relationship
between those products and some very profitable ones. If they had discontinued the unprofitable items,
the result would have been an overall loss of profitability. Therefore, those unprofitable items were
similar to the ‘influencer’ mentioned above where there were other, valid reasons to continue to carry
these items.

So don’t take the easy way out by raising prices across the board. You have to thoroughly
analyze your accounts, take a strategic approach and consider all your options to maximize your
overall profitability.

20.3 CRM IN MANUFACTURING

The Manufacturing Industry accounts for approximately one quarter of world economic activity.
Manufacturing, generally stated, is the use of tools and processing mechanisms that when used together
converts raw materials into manufactured goods for various markets worldwide. Companies engaged in
manufacturing various products can use CRM as a strategy for better results. The aspects where
manufacturing companies can benefit using CRM include:

Using CRM in all stages of the sales cycle

For manufacturers, the sales cycle with the customer value extends from the pre-purchase to the re-
purchase stage. CRM can prove useful at all stages of the cycle.

Ø In the pre-purchase stage, manufacturers can enable customers to gain access to the right
information through multi-channels. For example, manufacturers of TVs , refrigerators,

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 enable the customers to call on the toll free number of the call centre, log on to the website for
information, visit a dealer or a demo centre, organize exhibitions at various locations etc.

Ø To make the purchase stage easy for the customer, manufacturers have tie-ups with banks to
offer loans to customers where the paper work is taken care of by the manufacturer’s
representatives. There is lot of importance given to customers in auto sector, where the automobile
is brought to the door step for test drive.

Ø Post-purchase: In the post-purchase stage, manufacturers enable customers to access after-

sales service through multi-channels and also offer prompt redress to all problems.
Registration of service requests can be done on the website of Onida – a manufacturer of
consumer durables. Spare parts should be made easily available through the channels and
new features that can be added should be offered to customers (for example, conversion
of petrol run cars into gas-converted cars offering cheaper running costs).

Ø Re-purchase: In case regular re-purchases need to be made, the customer should be able to
do so through an easy and quick process. For example, manufacturers of LPG cylinders
should enable customers to get refills easily. Bharat Gas has set up the ebharatgas.com
website to enable customers to requisition refill cylinders and HP Gas also offers helplines
for single access bookings. In other cases, up gradation offers can be sent to old customers
– for example, Maruti offered to buy back old Esteems and offer new Balenos for a bargain.

Dealer Management

Manufacturers selling through a network of dealers need to practice CRM with both sets
of customers, primary and secondary. The dealers are the primary customers and need to be given
adequate attention. LG set up ‘lgdealernet’ to enable propoer Dealer Management. The features
included: order placement and tracking, sales ledger, account statements, sales history, personalised
ticker to push information, online account reconciliation, updated dealer schemes. All these features
enabled LG to get into a relationship mode with the dealers instead of following a transaction
mode. The dealer extranet has been integrated with the MIS part of the ERP system within the
company. The online facility has enabled the sales order processing time to be brought down to
just 50 seconds enabling an annual saving of 2500 man-hours.

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Supplier Management

Thanks to the sharing of data from the online dealer net and the internal ERP system called M
project, the suppliers are fed with updated information with regard to production plans, purchase orders
and shipping details. The supplier is privy to real time information with regard to inventory parts available
with LG and the quality and timing of the deliveries to be made by the supplier in the near future. This
helped to reduce the local parts inventory from 11 days to just 3 days. The total purchasing time has also
been reduced by 15% thanks to the system. Account information is also available to suppliers through the
system. The payment gateway with ICICI Bank has enabled reduction in payment time for the suppliers.

Customer Collaborations

Manufacturers that sell through dealers do not get the benefit of being in direct contact with the
ultimate customers – the consumers of the products. Therefore, the manufacturers should create
opportunities for direct interaction with consumers and practice CRM for better results. Direct interactions
can be used to get valuable feedback for improvement of products. These interactions can be done
through the website, trade fairs, home visits, etc. beta versions of new software products are given by
software manufacturers to customers to get feedback and suggestions for improvement. Also, manufacturing
companies can help customers use their products better through useful interactions. For example, to
promote the concept of cooking with microwaves, LG has organized cookery classes for its customers.

Product Customization

Manufacturers can practice CRM by enabling customers to get customized products that would
be of greater benefit to them. For example, Nike allows customers to decide the position of the logo on
the shoe.

A paint manufacturer in India offered customers the opportunity of bringing a colour shade to the dealer
and buying paint that matched that very shade. By getting the specifications from customers, manufacturers
can custom-create products depending on the exact requirements.

20.4 CRM IN INSURANCE

The insurance industry has been booming in India and companies are going overboard to get and retain
customers. CRM has provided to be an effective tool in the quest for better customer relationships for the
insurance companies. The aspects where insurance companies have been able to apply CRM concepts
include:

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Personalization of Offers

In an underserved market like India, insurance companies have appointed many trained ‘insurance
advisors’ who regularly establish contact with prospective customers and undertake the job of explaining
to them the benefits of the insurance policies. In order to extend the reach of the company, various
insurance companies regularly advertise on mass media as well as popular internet websites to establish
contact with potential customers. For example, an insurance company offer a potential benefit through a
banner on rediff.com website and seeks a few details from the prospects to ensure that they can draw up
a proper profile of the prospect. Thereafter, based on the financial objectives of the prospect and the
demographic profile, a suitable insurance product can be selected and offered to the prospect for
investment.

Regular Communication with Customers

Insurance products are intangible and customers are often left high and dry to understand the
various aspects concerning the policy that they have bought. Therefore, to ensure that customers are
kept in the know, regular communication is required from both the company to the customer and also the
sales agent to the customer. This is because the agent is the person who has won the customer’s confidence
and represents the company. The customer generally imposes tremendous faith in the agent and the
clarifications regarding the customer’s queries in touch with the customer, the insurance company comes
to know of the other unmet insurance needs that the customer may have. This results in cross-selling and
up-selling opportunities.

Agents Adopting a Customer-centric Approach

An insurance company called Travelers conducted research to understand the causes leading to
customer defections and the role that agent could perform to arrest the defection. The study showed that
65% of customers who defected had not spoken to the agent but 80% of customers who had spoken to
the agent during the year had not left. The company developed five annual ‘touches’ based on the
insurance product that the customer had purchased. These were: designing the right message to be sent;
deciding a suitable frequency of the message being sent to the customer; the desired channel of interaction
with the customer; the timing of the message and the likelihood of defection. Using database analysis and
modelling, customers could be segregated into segments based on lifetime value calculations and

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profitability. Agents were kept informed of the desirability of each customer so that they could fine-tune
their efforts while dealing with these customers. In India, ICICI Lombard’s contact centre agents can
resolve customer requests better using response templates, auto correct features and categorize complaints
for easier reporting and tracking, Branches located in remote areas use features like chat or email to
service customers.

Sales force Automation

To ensure higher impetus on CRM initiatives, sales force automation can be of help. This will
offer more customer-facing time for the salespeople. All routine data entry tasks could be automated or
outsourced to data management centres. Online access to all required data information will help salespeople
obtain current information as and when they require. Special access can be given to the agents to ensure
that they are able to process customer requirements quickly and efficiently. This will result in integration
of front end and back end data. Automation will also result in lesser costs and increased profitability for
the company. By getting more customer-facing time, salespeople would be able to focus on the unmet
needs of customers. For example, healthcare insurance is becoming a critical need for many Indians
though traditionally life insurance has been the popular insurance product in India. So, given enough
opportunity, the salespeople can explain the benefits of healthcare insurance to prospective customers
and rope in more customers or undertake cross-selling for the existing customers. When the salespeople
enter the transactions into the system, the company can analyse these to gain insight into the noteworthy
market trends. ICICI Lombard’s agents and intermediaries making use of the Online manager to log the
transactions related to account creation, payments and policy issue. The system handles about 50,000
transactions a week. For the corporate businesses, the company used a system called PREMIA that had
the workflow comprising of quotation, underwriting and policy issue. The system handles around 7,000
transactions per week and has around 250 database users. Agents, full time employees, and customers
use the company’s claims processing system.
Unification of Data – Single Customer View
Insurance companies have been known to operate as silos with hardly any data sharing across
the various divisions and departments. This results in the same customer being targeted by the various
divisions (catering to diverse insurance needs like home, life, automobile, healthcare, etc.) and resulting
in irritation for the customer as well as waste of efforts on the part of the insurance company. However,
Standard Life Group in the UK overcome the hurdles posed by its various divisions to ensure sharing of

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data and created unified customer views of its customer. It had four divisions – life insurance, general
insurance, banking and healthcare. The multiple systems prevalent within the company prevented it from
generating a single view of the customer. The company began by matching of data across its divisions –
taking into account the customer names, contact details, etc. thereafter, it began data extraction after
ensuring that the matching process was properly done. Then a major hurdle was encountered with
regard to the ‘ownership’ of the customer since multiple divisions’ staked claims on the same customer.
The company then created rules for the ‘primary’ ownership of the customer and created ‘engagement
rules’ for the other divisions which allowed them to directly sell the customer belonging to another division.
In India, ICICI Lombard’s customer representatives can access single screen customer data which offer
a 360 degree view of the customer containing the customer contact information, profile, the appointments
with the customer and service requests irrespective of the channel used for communication.
20.5 CRM IN AIRLINES

The airline industry has witnessed tremendous growth in the recent past and continues to grow
at an unprecedented pace. The cut-throat competition among the plethora of airlines has resulted in
them investing in CRM initiatives to gain competitive advantage over rivals. The noteworthy aspects of
the CRM practices undertaken by the airline industry include:

Multi-channel Customer Access

To facilitate customers in gaining easy and convenient access the airline offers customers-websites,
call centres, travel agents, emails, etc. Various airlines have set up strategic partnerships with other
vendors for facilitating customers. For example, Air Deccan has tied up with petrol pumps to enable
customers to book tickets using their access points. Apart from that, traditional travel agents continue to
serve the customers they have nurtured over the years. All airlines enable customers to book tickets
through their websites and also through partner portals like www.indiatimes.com which offers air tickets
through a bidding process. Likewise, call centres have been set up to assist customers for booking of
tickets and other transactions like rescheduling of flights and giving information to customers. In fact, Air
Deccan gives the schedule of flights on a daily basis with regard to delays in departure and expected time
of arrivals on its site www.airdeccan.net.

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Automation and Co-creation of Value

A lot of processes have been automated leading to lesser time taken to service customers. The
initiatives in this regard include: remote check-in through the internet website or through the customer’s
mobile phone; self-check-in at the airport through automated machines. A lot of routine queries are
answered through Interactive Voice Response Systems (IVRS) – these help to cultivate more fruitful
customer relationships owing to enhanced value through co-creation of value through customers. For
round trips, one time check-in also help in better CRM.
Segmentation and Loyalty Schemes
To ensure proper focus on valuable customers with greater lifetime values, airlines resort to
segmentation. Privileges are offered according to the worth of the customer and they ensure better
customer retention. For example, Jet Airways has created 5 different levels of membership for its Jet
Privilege Programme which also enables customers to be upgraded to higher levels on accomplishments
of the required spending levels. In this programme, the customer gets to accumulate JP (Jet Privilege)
miles as and when they undertake the travel. These can later be redeemed for free trips or other benefits
(such as companion travel, etc.). The registered members are offered personalized access to the web
based system and transactions can be undertaken by them as well as giving them all information regarding
to their accounts at one point. These customers can opt for telecheck-in or web check-in facilities. In
case these customers wish to check in through the airport countries, there are special Club Premiere
countries which enable quicker check-in. they are also offered complimentary upgrade vouchers and
lounge access at some airports. They are also assured guaranteed reservation 24 hours before departure.
Apart from the before mentioned privileges, these customers can also carry excess baggage on flights
without any penalties.
Personalization
Airlines are offering personalization to ensure better CRM. Enabling customers to choose their
seats at the time of ticket booking. They also enable customers to make a choice with regard to their
preferred in-flight food. The entertainment system in airlines also offers a wide choice of music and visual
entertainment choices to suit the exact preferences of individual customers. Customers requiring special
care such as challenged customers needing wheelchairs or mothers with infants are offered required
assistance.

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Reduced Hassles
Customers are often hassled owing to the imperfections in the functioning of the airline processes
or goof-ups like baggage being lost. United Airlines has launched RFED tagging for baggage to ensure
that they are tracked easily. United Airlines had created the ‘Make Amends’ programme to ensure that
customers were provided proper service. Delays in flights were quickly communicated to customers to
ensure that they are not hassled or inconvenienced. Air hostesses have been known to provide special
pillows to mothers travelling with infants. Likewise, customers can ask for blankets in case the inside
temperature becomes too chilly. A range of newspapers and magazines are available for customers for
in-flight reading.
Enhanced Value through Strategic Tie-ups
Airlines have also tied-up with various other service providers to offer enhanced value to
customers. For example, Air Sahara tied up with Taj Group to offer the passengers a stay at the Taj
Hotel. The tie-ups can be done with various parties for providing various value enhancements. Jet
Airways has had a strategic tie-up to launch a co-branded credit card. Likewise, British Airways
has tied up with Diners Card for a special credit card that offers more privileges for the customers
when they fly using the airline. Similarly, tie-ups with insurance service providers can be used to
offer insurance to customers as a package offer whenever they book the flight tickets. Sometimes,
the low cost airlines enter into strategic tie-ups to reduce costs by outsourcing various service
functions to outside agencies. In India, Air Deccan has been known to have made good use of this
ploy. On the other hand, competence can be enhanced through tie-ups in areas where the airline
lacks competence. For example, the IT functions in airline can be handled through strategic
partnerships with competent IT firms. All these initiatives result in enhanced customer value and
better CRM.
20.6 CRM IN HOTELS

The hotel and hospitality industry has successfully used CRM to develop more fruitful
customer relationships. CRM initiatives in hotels have been most noteworthy in the following
areas:

Enhanced Customer Service

Customers that really matter to the hotel (which they can find out by computing their life
time values) are pampered every bit to ensure continued loyalty and retention. They are offered
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services like airport pickup and drop services, complimentary use of various hotel amenities, etc. the
services made available to the customers can really prove to be a great help and attraction for the
customers. For example, Oberoi Hotels has tied up with Atlas Luxury Explorer to offer customers to
browse the best-of-the-best destinations around the world using its unique, interactive satellite map.
Also, Oberoi Hotels offers customers an ‘Exclusive Directory’ which offers the customers various privileges
– such as, they can call up the concierge of the hotel which they would be staying in and fix up various
services in advance so that they can use their time fruitfully during their stay at the hotel.

Features that Facilitate Greater Work Fulfilment

Most travelling miss the conveniences that they are used to at the office and at home and therefore
hotels are going overboard to provide services that can enable the travellers to avail the best of the
offerings. For example, the Oberoi Hotels are offering high speed internet connectivity to its customers
and also providing ‘Satellite Conferencing’ for its customers to ensure that they really conduct business
with all the vigour that they are used to doing in their own offices. Likewise, the Taj group offers wi-fi
connectivity and video conferencing facility at its hotels. Also, the Taj offers guests the facility of having all
incoming calls send at SMSs in case the guest is out of the hotel so that do not miss out on any calls.

Access to Consolidated Data

The transactional data arising out of the various transactions taking place across the various
properties of the hotel chain needs to be consolidated and analysed to give indicators regarding
the customers. The data can also help to generate single customer views. The Oberoi Hotels have
the Property Management System which integrates various hotel functions like the guest check-
in, billing, room occupancy and revenue applications at the various individual hotels, the chain
owns around the world. The system is also fed with the data from the stand-alone system like the
touch screen based Point of Sales System that is used for creating the bills at the restaurants, health clubs
and laundry. Likewise, the Taj Group has created the Customer Information System (CIS) which offers
complete customer profiles at the click of the mouse.

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Focus on Loyal Customers

Hotels are giving emphasis to customer retention initiatives rather than only focusing on customer
acquisition. Loyalty schemes are being offered like the ‘OberoiAdvantage’ which enables frequent guests
at Oberoi to accumulate reward points with every visit. These can be redeemed for complimentary stays
at select Oberoi Hotels and Resorts. The Taj Hotels gives special emphasis on the retention of customers
and maintains the special requests made by a customer during his stay so that the next time he comes, the
hotel is prepared in advance to cater to his preferences.

Multi-channels

Hotels have also invested in multiple channels for enabling customers to gain easy access.
Therefore, they have set up websites that can be used for making reservations or other transactions.
Travel agents have been signed up to sell the hotel’s services to their clients. The customers can
also call up the salespeople of the hotel and undertake transactions on the telephone. Both the
Oberoi and the Taj group have set up interactive websites for facilitating customers online.

Investment in CRM software

Telecom companies like Tata Teleservices has invested in a CRM package – oracle CRM to ensure
that they can actually offer the benefits to the customers. Likewise, Bharti Group (the owner of the
Airtel brand) used the SAS software to interpret customer behaviour using the transactional data.
Using the software, they understood that identified dropped calls and wrong tariff plans as some
of the culprits for the churn. By taking necessary action, the company managed to bring down the
churn rate from 3% to 2% when the industry average was 5-6%.

Usage and Unmet Needs

By interpreting the usage made by the customers and also taking into account their demographic
and psychographic profile, the telecom service providers can gauge the unmet needs that the customer
may have and offer the same. For example, Airtel has begun the Airtel Live! Feature which offers young
customers the opportunity to download movie clips, music in digital format and also ringtones. By offering
added value to the customers, Airtel is able to ensure higher customer satisfaction. Also, through value

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Strategic Partnerships for Higher Customer-need Fulfilment

In order to ensure that the customer is offered all the services that they seek thereby providing
a total solution hotels have created strategic partnerships with various service providers. At a very
basic level, they have tie-ups with credit card companies to enable customers to make payments
through the credit cards. On the other hand, they have tie-ups with travel services to enable customers
go for sightseeing tours or business trips in cars or luxury buses. Hotels also have tie-ups with a
wide variety of speciality service providers to ensure that customers who book the hotel for a
wedding reception are provided a one-step shop solution through the hotel.

20.7 CRM IN TELECOM

The mobile telephony business is highly competitive and companies have gone overboard
in trying to woo the customers with attractive rates, value added services, freebies, etc. In India,
the private players launched a number of attractive schemes that grew the customer base and
resulted in tremendous growth for the industry. However, the price wars among the players created
high churn rated and customer defection became a cause for serious concern for the mobile telephony
companies. In order to ensure that customers are retained and their lifetime values realized by the
companies, they have launched a number of noteworthy CRM initiatives that include the following:

Customer Friendly Processes

The users of the state-owned BSNL landline telephones have had to encounter tremendous
hardship for availing the services over the years. But the mobile telephony services took care to
ensure that the processes were all made customer-friendly. This meant that the distribution was
made more intensive (by roping in the grocery stores to sell the prepaid cards); customer care cells
for addressing all issues related to customers; payment of bills could be done through multi-
channels – all processes were designed keeping the customer’s convenience in mind. The bills
were created with all the necessary details to ensure total transparency and remove all doubts in
the customer’s mind with regard to the charges that he was paying.

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added services that the customer really needs, the Average Revenue Per User (ARPU) can be significantly
enhanced.

Personalization

By introducing a variety of tariff plans, the telecom companies are making efforts at personalization.
This means that as per the exact need of the particular customer, a plan can be custom-created for him.
Also, by offering registered access to the website, the company can keep a track of the transactions
undertaken by a customer and develop a profile based on the captured data. These can be used to
create the right offers for the various segments and the campaign management team can then create
better campaign for cross-selling and up-selling.

Rewards for Loyalty

The customers that have been high spenders can be offered special privileges such as additional discounts
or freebies in the form of value added services. For example, the state owned CellOne offers free
national roaming to all customers that opt for the Rs 325/- per month rental scheme which also includes
free calls as well. Also, the customers that show continued patronage can be offered loyalty points which
can be redeemed against various services.

20.8 NOTES

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20.9 SUMMARY

The widespread use of customer relationship management (CRM) applications has provided
companies with increasingly detailed insights into the profitability of their individual-level customer
relationships. Historically, this information has primarily been used to identify the most profitable customers
and to define ways for serving them in an optimal manner. Nowadays, however, companies have become
more aware of unprofitable clients, and the fact that these relationships can account for a substantial
share of their total customer base. Drawn from a series of research projects conducted over the last few
years, A six-step approach for dealing with such unprofitable customers was proposed . The ABCs of
Unprofitable Customer Management:

Avoid their acquisition in the first place,

Bear in mind potential rescue operations,

Catch the possibility of abandonment,

Draw up a cost–benefit analysis,

Ensure familiarity with your environment, and

Facilitate biting the bullet.

We also provide a series of recommendations regarding how best to break up with

customers, in order to ensure that firms can separate themselves from unprofitable accounts in the
least painful way.

20.10 KEY WORDS

CRM in Telecom, CRM in Hotels, CRM in Manufacturing, CRM in insurance

20.11 SELF ASSESSMENT QUESTIONS

1. Explain how to manage unprofitable customers

2. Describe CRM in manufacturing.

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3. What are the benefits of CRM in banking?

4. Explain the value of customers in service industry.

20.12 REFERENCES

1. Assael, H. Consumer Behaviour and marketing Action, USA: Ohio- South Western
College pub., 1995
2. Engle, J F. Consumer behaviour, Chicago: Dryden Press, 1993
3. Howard, John.A. Consumer behaviour in Marketing, New Delhi: Prentice Hall.
1989
4. Mowen, John C. Consumer Behaviour, New York: Mach Millan, 1993.
5. Schiffman, L G and Kanuk, L L. Consumer behaviour, New Delhi: PHI, 1994.
6. Consumer Behaviour, Raju&Xardel, New Delhi: Vikas Publications 2004
7. Kazmi&Batra , Consumer Behaviour, New Delhi: Excel Books, 2009

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