PRINCIPLES OF MARKETING Dr. Mahani BMA Shakur Faculty of Economics & Business Universiti Malaysia Sarawak

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LU 5: Consumer and Business Decision Making

Objectives • At the end of this learning units, you should be able to: – Explain why marketers should understand consumer behaviour – Analyse the components of the end user consumer decision making process – Identify and understand the factors that affect end user consumer buying decision – Explaining the major differences between end user consumer market and business market – Analyse the components of the business consumer decision making process – Identify and understand the factors that affect business consumer buying decision

The Importance of Understanding Consumer Behaviour • Consumer’s product and service preferences are constantly changing due to various reasons, e.g. – Change of age, education, economic condition, technology etc.,

• Consumer Behaviour – Processes a consumer use o make purchase decisions, as well as to use and dispose of purchased goods and services; also includes factors that influence purchase decisions and the use of products (Lamb et al., 2013)

Factors Affecting Consumer Decision Making process 3. Individual Factors

1. Cultural Factors • Culture and Values • Subculture • Social Class

2. Social Factors • Reference Group • Opinion Leaders • Family

• Gender • Age & Family life-cycle stage • Lifestyle • Personality & self concept etc.

Consumer Decision-Making Process 4. Psychological Factors • Perception • Motivation • Learning • Beliefs and attitudes

Buy / don’t Buy

1. Cultural Factors Culture is the most basic cause of a person's wants and behavior. •

Set of values, perceptions, wants & behavior learned by a member of society from family Subculture

• Group of people with shared value systems based on common life experiences • e.g. Malay, Chinese, Indian and other Bumiputra’s (i.e. Iban, Kadazan, Melanau etc.) or mature consumers

Social Class • Society’s relatively permanent & ordered divisions whose members share similar values, interests, and behaviors. • Measured by: Occupation, Income, Education, Wealth and Other Variables. 6

2.Social Factors Reference Groups •Membership •Reference

Social Factors

Family (most important) •Husband, wife, kids •Influencer, buyer, user

Opinion Leader

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3. Individual Factors Personal Influences

Gender

Occupation

Age and Life Cycle Stage

Lifestyle

Attitude towards Risks

Personality & Self-Concept

Economic Situation

Lifestyle Identification

Activities

Interests

Opinions 8

4. Psychological Factors 1. Motivation

Belief – a descriptive thought that a person has a bout something Attitude – a person’s relatively consistent evaluations, feelings, and tendencies toward an object or idea 4. Beliefs and Attitude

Psychological Factors

A need that is sufficiently pressing to direct a person to seek satisfaction of the need.

2. Perception

The process by which people select, organise and interpret information to form a meaningful picture of the world. Changes in an individual’s behaviour arising from experience

3. Learning

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The End User Consumer Decision Making Process 1. Need recognition

• Involve five stages which represent a general process

2. Information search

3. Evaluation of alternatives

4. Purchase Decision

5.Post-Purchase Behaviour

The End User Consumer Decision Process 1. Need recognition

Consumer recognise a problem or need

2. Information search

3. Evaluation of alternatives

Consumer is aroused to search for more information; the consumer may simply have heightened attention or may go into active information search

Consumer uses information to evaluate alternative brands in the choice set.

4. Purchase Decision

Actual decision to buy the most preferred brand

5.PostPurchase Behaviour

The satisfaction or dissatisfaction that the consumer feels about the purchase

Importance of Customer Satisfaction

Consumer Expectation

Exceed Exoectation

Perceived Product Performance

Satisfied Customer

• Repeat Purchase • Spread Favorable Word of Mouth • Pays less attention to competitors • Purchase Other Products from company

Increase Customer Lifetime Value

Types of Buying Decision Behaviour High Involvement Significant Complex Buying Different Between Behaviour Brands Few Differences DissonanceBetween Brands reducing buying Behaviour

Low Involvement Variety-seeking buying Behaviour Habitual buying Behaviour

Self Reflection • Categories the following pictures and match with the types of buying decision behaviour from the previous slide:

Picture source: http://kitkat.tumblr.com/post/95814768742/thats -quite-a-kitkat-stash-dont-forget-to

Picture source: http://www.ibtimes.com/samsung-flexible-displayphone-coming-2015-manufacturer-secretly-showcases-foldableamoled-display

The Buyer Decision Process for New Products • Five (5) stages of new product adoption stage

1. Awareness The consumer becomes aware of the new product, but lacks of information about it.

2.

3.

4.

5.

Interest

Evaluation

Trial

Adoption

The consumer tries the new product on small scale to improve him or her estimate of its value.

The consumer decides to make full and regular use of the new product.

The consumer seeks information about the new product.

The consumer considers whether trying the new product makes sense.

Influence of Product Characteristics on Rate of Adoption i. ii. iii. iv.

v.

Relative advantage – the degree to which the innovation appears superior to existing products Compatibility – the degree to which the innovation fits the values and experiences of potential customers Complexity – the degree to which the innovation is difficult to understand or use Divisibility – the degree to which the innovation may be tried on a limited basis Communicability – the degree to which the results of using the innovative can be observed or described to others

Self Reflection • Explain in your own words, the characteristics of the following products in relation to the rate of adoption: 1. Google Glass

2. Smart watch

Picture source: https://www.google.com/glass/start/ Picture source: http://www.cleardroidroms.com/androidwatchcomparison2.php

Consumer vs. Business Let us think for a while End User Consumer • Why consumer buy a tyre or pairs of tire? • What is the purpose? • When do they buy them? • How do they buy them? • How many do they need?

Business Consumer

• Why businesses tyres? • What is the purpose? • When do they buy them? • How do they buy them? • How many do they Picture source: http://www.goodyear.com.my/tyre_details.asp?tyre_code=exec need?

Business Buyer Behaviour • Four (4) questions about buyer bahaviour: i.

What buying decisions do business buyers make? ii. Who participates in the buying process? iii. What are the major influences on buyers? iv. How do business buyers make their buying decisions?

Model of the business buyer behaviour The Environment Marketing Stimuli Product Price Place Promotion

Other Stimuli Economic Technological Political Cultural Competitive

The Buying Organisation

Buyer Response

The buying centre

Product or service choice Supplier Choice Order Quantities Delivery terms and time Service terms Payment

Buying Decision Process (Interpersonal and individual Influences (organisational Influences)

Major Types of Buying Situations Less Involvement

More Involvement

Straight Modified Rebuy Rebuy Buyer routinely reorders something without any modification

Buyer wants to modify product specifications, prices, terms, or suppliers

New Buy Buyer purchases a product or service for the first time

Participants in the Business Buying Process Buying Centre

Gatekeeper

Influencer Participant of Business Buying Process

Decider

Buyer

Participants in the Business Buying Process 1. Buying center - all of the individuals and units that participate in the business decision-making process 2. Users - those that will use the product or service 3. Influencers - help define specifications and provide information for evaluating alternatives 4. Buyers - have formal authority to select the supplier and arrange terms of purchase 5. Deciders - have formal or informal power to select and approve final suppliers 6. Gatekeepers - control the flow of information

Major Influences on Business Buyer Behaviour 1. Environmental Factors

• Age/ Education • Job position • Motives • Personality • Preferences • Buying style

4.

Major Influences

Individual Factors

• • • •

Influence Expertise Authority Dynamics

3. Interpersonal Factors

• • • • • •

The Economy Supply conditions Technology Politics/ regulations Competition Culture & customs

2. Organisational Factors

• • • • •

Objectives Strategies Structure Systems Procedures

Business Buyer Process Problem recognition

General need description

Product specification

Supplier selection

Proposal solicitation

Supplier search

Order routine specification

Performance review

Business Buyer Process Problem recognition Someone in the company recognizes a problem or need that can be met by acquiring a good or service.

Supplier selection Buyer review proposals and selects a supplier or suppliers.

General need description The company describes the general characteristics and quantity of a need item.

Proposal solicitation Buyer invites qualified suppliers to submit proposals.

Order routine specification

Performance review

Buyer writes the final order with the chosen supplier(s), listing the technical specifications, quantity needed, expected time of delivery, return policies and warranties.

Buyer assesses the performance of the supplier and decides to continue, modify, or drop the arrangement.

Product specification Buying organisation decides on and specifies the best technical product characteristics for a needed item.

Supplier search Buyer tries to find the best vendors.

Business vs. Consumer Markets Characteristics

Business Market

Consumer Market

Demand

Organizational

Individual

Volume

Larger

Smaller

Number of Customers

Fewer

Many

Concentrated

Dispersed

Direct

Indirect

Negotiations

More Complex

Simpler

Nature of Buy

More Professional

More Personal

Personal Selling

Advertising

Nature of Buying Influence

Multiple

Single

Use of leasing

Greater

Lesser

Location of buyers Distribution structure

Primary Promotional Method

Review of Concept i.

Define the business market and explain how business markets differ from consumer markets. ii. Identify the major factors that influence business buyer behavior. iii. List and define the steps in the business buying decision process. iv. Compare the institutional and government markets and explain how institutional and government buyers make their buying decisions.

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Review of Concept • What similarities and differences might HP encounter in selling to the business market versus the consumer market for the following products: – Computers – printers

Picture Source: http://www.crest-approved.org/membercompanies/hp-information-security/index.html

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Main Reference • Kotler and Amstrong (2014) Principles of Marketing, 15th ed., Person Education Ltd., Essex • Kotler and Amstrong (2011) Principles of Marketing: An Asian Perspective, Person Education South East Asia Pte Ltd., • Lamb, Hair, McDaniel, Summmers and Gardiner (2013) Marketing2; 2nd Asia-Pacific Edition., Cengage Learning Australia Pty.Ltds.