International Consumer Behavior Course Book PDF

INTERNATIONAL CONSUMER BEHAVIOR DLMBCBR01 INTERNATIONAL CONSUMER BEHAVIOR MASTHEAD Publisher: IU Internationale Hochschule GmbH IU International University of Applied Sciences Juri-Gagarin-Ring 152 D-99084 Erfurt Mailing address: Albert-Proeller-Straße 15-19 D-86675 Buchdorf [email protected] www.iu.de DLMBCBR01 Version No.: 001-2024-0123 N. N. © 2024 IU Internationale Hochschule GmbH This course book is protected by copyright. All rights reserved. This course book may not be reproduced and/or electronically edited, duplicated, or dis- tributed in any kind of form without written permission by the IU Internationale Hoch- schule GmbH hereinafter referred to as IU. The authors/publishers have identified the authors and sources of all graphics to the best of their abilities. However, if any erroneous information has been provided, please notify us accordingly. 2 TABLE OF CONTENTS INTERNATIONAL CONSUMER BEHAVIOR Introduction Signposts Throughout the Course Book............................................. 6 Basic Reading.................................................................... 7 Required Reading................................................................. 8 Further Reading................................................................. 10 Learning Objectives.............................................................. 11 Unit 1 Consumer Behavior 13 1.1 Consumer Behavior and International Marketing................................ 15 1.2 Consumer Decision-Making in the Marketplace................................. 20 Unit 2 The Consumer Decision-Making Process 29 2.1 The Pre-Purchase Stage...................................................... 31 2.2 The Purchase Stage.......................................................... 39 2.3 The Post-Purchase Stage..................................................... 41 Unit 3 Internal Inﬂuences on Consumer Behavior 45 3.1 Motives and Motivation....................................................... 48 3.2 Perception.................................................................. 55 3.3 Attitude..................................................................... 63 Unit 4 External Inﬂuences on Consumer Behavior 71 4.1 Culture..................................................................... 72 4.2 Subculture.................................................................. 78 4.3 Groups and Families......................................................... 79 Unit 5 International Consumer Behavior 87 5.1 Cultural Dimensions......................................................... 89 5.2 The Inﬂuence of Social Media on Consumer Decision-Making.................... 96 3 Unit 6 International Marketing Strategy and Consumer Behavior 101 6.1 International Market Segmentation and Product Positioning.................... 103 6.2 Consumer Behavior and Product Strategy..................................... 108 6.3 Consumer Behavior and Communication Strategy............................. 111 6.4 Consumer Behavior and Pricing Strategy...................................... 115 6.5 Consumer Behavior and Distribution Strategy................................. 116 Appendix List of References............................................................... 120 List of Tables and Figures........................................................ 128 4 INTRODUCTION WELCOME SIGNPOSTS THROUGHOUT THE COURSE BOOK This course book contains the core content for this course. Additional learning materials can be found on the learning platform, but this course book should form the basis for your learning. The content of this course book is divided into units, which are divided further into sec- tions. Each section contains only one new key concept to allow you to quickly and effi- ciently add new learning material to your existing knowledge. At the end of each section of the digital course book, you will find self-check questions. These questions are designed to help you check whether you have understood the con- cepts in each section. For all modules with a final exam, you must complete the knowledge tests on the learning platform. You will pass the knowledge test for each unit when you answer at least 80% of the questions correctly. When you have passed the knowledge tests for all the units, the course is considered fin- ished and you will be able to register for the final assessment. Please ensure that you com- plete the evaluation prior to registering for the assessment. Good luck! 6 BASIC READING Schiffman, L. G., & Kanuk, L. L. (2014). Consumer Behavior. Pearson Education. Solomon, M. (2016). Consumer Behavior: Buying, Having, and Being (12th ed.). Pearson. 7 REQUIRED READING UNIT 1 Aaker, D. (2016). 6 reasons why Uniqlo is winning. Prophet. Available online The Economist. (2017). The Big Mac index. Available online UNIT 2 Kidwell, B., Hardesty, D. M., & Childers, T. L. (2008). Consumer emotional intelligence: Con- ceptualization, measurement and the prediction of consumer decision making. Jour- nal of Consumer Research, 35(1), 154–166. UNIT 3 Macguire, L. (2014). Capturing consumption emotions in service encounters. International Journal of Market Research, 58(2), 227–252. Wagner, J. (2011). Anytime/anywhere – Playing catch up with the mind of the smartphone consumer. International Journal of Mobile Marketing, 6(1), 28–53. UNIT 4 Nejad, M. G., Sherrell, D. L., & Babakus, E. (2014). Influentials and influence mechanisms in new product diffusion: An integrative review. Journal of Marketing Theory & Practice, 22(2), 185–208. UNIT 5 Bearden, W. O., Money, R. B., & Nevins, J. L. (2006). A measure of long-term orientation: Development and validation. Journal of the Academy of Marketing Science, 34(3), 456– 467. de Mooji, M., & Hofstede, G. (2011). Cross-cultural consumer behavior: A review of research findings. Journal of International Consumer Marketing, 23(3/4), 181–192. UNIT 6 Ackennan, D., & Tellis, G. (2001). Can culture affect prices? A cross-cultural study of shop- ping and retail prices. Journal of Retailing, 77(1), 57–82. 8 Alden, D. L., Steenkamp, J-B. E. M., & Batra, R. (1999). Brand positioning through advertis- ing in Asia, North America, and Europe: The role of global consumer culture. Journal of Marketing, 63(1), 75–87. 9 FURTHER READING UNIT 1 Douglas, S. P., & Wind, Y. (1987). The myth of globalization. Columbia Journal of World Busi- ness, 22(4), 19–29. Merz, M. A., He, Y., & Alden, D. L. (2008). A categorization approach to analyzing the global consumer culture debate. International Marketing Review, 25(2), 166–182. UNIT 2 Zhu, M., & Ratner, R. K. (2014). Why having so little means so much: Scarity shapes con- sumer decision making. Advances in Consumer Research, 42, 230–234. UNIT 3 Poppick, S. (2016, June 8). How retailers use emotion to make you spend more. CNBC. Available online UNIT 4 Peñaloza, P. (2009). Acculturation and consumer behavior: Building cultural bridges through consumption. Advances in Consumer Research, 36, 16–19. UNIT 5 An, D. (2007). Advertising visuals in global brands’ local websites: A six-country compari- son. International Journal of Advertising, 26(3), 303–332. UNIT 6 Jo, M-S., & Sarigollu, E. (2007). Cross-cultural differences of price-perceived quality rela- tionships. Journal of International Consumer Marketing, 19(4), 59–74. PwC. (2015). The retail and consumer industry in Brazil – Navigating the downturn. Availa- ble online 10 LEARNING OBJECTIVES In a global economy characterized by increasingly greater competition, internationally operating companies need to develop comprehensive market-driven strategies to survive. To design such strategies, companies need to ﬁrst understand their markets and custom- ers. Understanding the customers and their purchasing behavior is essential to developing an effective marketing strategy. International Consumer Behavior will explore how the study of consumers assists organizations in communicating with and targeting their cus- tomers effectively. Throughout this course, you will learn about the purchasing process of consumers and the factors inﬂuencing their behavior. You will develop a deeper understanding of the psycho- logical aspects impacting consumer decision-making. You will explore the decision-mak- ing processes occurring throughout the pre-purchase, purchase, and post-purchase stages. The course will explore internal inﬂuences on consumer behavior and the role of motivation, perception, and attitude as well as external inﬂuences such as culture, subcul- ture, families, and groups. Examples regarding differences in cultural dimensions across various consumer groups will be provided and the role of social media on consumer behavior will be discussed in detail. The course will use various case studies to demonstrate how consumer behavior should be considered in the development of the marketing mix and actively inform product, com- munication, pricing, and distribution strategies. 11 UNIT 1 CONSUMER BEHAVIOR STUDY GOALS On completion of this unit, you will have learned... – what is consumer behavior and what are the components of consumer behavior. – what is involved in consumer decision-making. – the relationship between consumer behavior and international marketing strategies. 1. CONSUMER BEHAVIOR Case Study In 2016, Google released its contributions to the $400 billion smartphone hardware mar- ket: the Pixel smartphone and its larger sibling, the Pixel XL (Gurman, 2016). In a market dominated by Apple iPhones and numerous Android players such as Samsung, Google’s Pixel is potentially the ﬁrst real threat to the dominance of Apple’s iPhone. Google had previously ventured into the smartphone market with its co-branded Nexus devices; how- ever, the Pixel represents a different approach for the company, which conceptualized, designed, engineered, and tested the products completely in-house. It is launched in Sep- tember 2016 by Google along with a suite of compatible consumer devices including a home speaker system, a virtual reality headset, a Wi-Fi router system, and a video stream- ing stick under the slogan “#MadebyGoogle.” Google Pixel was attempting to outpace competitors with distinct features such as Google Assistant (its “intelligent” personal assistant), advanced camera technology, and Android’s newest operating system “Nou- gat.” Maria is a recent MBA graduate looking to secure a graduate position with Google, specifi- cally in the team responsible for overseeing the marketing strategy for the Pixel smart- phone. She is preparing for her upcoming interview and decides that her best approach for standing out as a job applicant is to fully understand the market that Google is entering with the Pixel and how a potential consumer might react to this product. She creates a list of questions to answer in her research about consumer behavior: How is consumer behavior relevant for Google and Pixel? What exactly is consumer behavior as it relates to purchasing and using a smartphone? How can the marketing management of the Pixel products be optimized by understand- ing consumer behavior? How does the behavior of potential consumers of the Pixel products vary across differ- ent markets and how does this affect both the product and its marketing? Similar questions were no doubt considered by Google long before the conception of the Pixel. Understanding consumer behavior is vital to the development and marketing of any product in today’s global market as consumer behavior and marketing management are inextricably linked. In this unit, we will provide answers to some of Maria’s questions by deﬁning consumer behavior and its components, exploring its relationship with interna- tional marketing, and looking at the complex processes involved in consumer decision- making. 14 1.1 Consumer Behavior and International Marketing We are all consumers. From what we eat for breakfast to where we sleep at night, we con- stantly make choices about our consumption of products and services. Consumer behav- ior is “the study of the processes involved when individuals or groups select, purchase, Consumer behavior use, or dispose of products, services, ideas, or experiences to satisfy needs and desires” This is the study of the processes involved when (Solomon, 2014, p. 6). Why consumers make the decisions they do, what internal and individuals or groups external factors inﬂuence these decisions, and how marketers utilize this information to select, purchase, use, or sell products and services are all within the realm of research into consumer behavior. dispose of products, serv- ices, ideas, or experiences to satisfy needs and Consider the following questions: desire Do consumers prefer to purchase a well-known brand of medication or a generic brand recommended by the pharmacist? Does this vary for different types of medicines? Does the price affect this type of consumer decision? Does this vary across different markets? What would make a consumer with a particular preference change their mind? Which consumers prefer to add items to their Amazon shopping basket, and which would prefer to drive to their local shopping mall or walk to their local corner store? What circumstances would lead a consumer to change their preference? Are consumers more likely to buy a book from the New York Times Best Seller List or a book recommended by a loved one? Which consumers will buy the Kindle version ver- sus the print copy? Which consumers prefer to eat a familiar Big Mac when traveling versus trying the local cuisine? Does it make a difference if the consumer has tried a similar type of cuisine before or read about it in their online travel guide? What about if the consumer is joined by a group of friends? What are the most critical features consumers consider when purchasing a new mobile phone? The service coverage? The accessories? The battery life? The durability? How does the importance placed on such features vary across different markets? When purchasing a new car, which of the following has the greatest inﬂuence on a con- sumer’s decision: the type of vehicle their neighbor/boss/father drives or a recent arti- cle in Forbes magazine about the most energy efﬁcient vehicle models? The study of consumer behavior is multifaceted, exploring components of consumer deci- sion-making; internal inﬂuences on consumer behavior such as emotions, attitudes, and perceptions; external inﬂuences on behavior such as culture, society, and groups; eco- nomics; and legal and regulatory frameworks as well as multiple processes involved in purchasing behavior. Understanding consumer behavior is ultimately about knowing why consumers make the decisions they do, how these decisions vary from one consumer to the next, and what inﬂuence marketing has on consumptive choices. Consumer behavior inﬂuences the marketing activities of companies and vice versa. Understanding consumer behavior is critical for any company seeking to offer products or services in single or multiple markets. Companies need to understand how consumers behave, what motivates their purchases, what their expectations are, what factors 15 inﬂuence their decision-making, how they use speciﬁc products and services, and what speciﬁc meaning they attach to their purchases. Knowledge about such aspects of con- sumer behavior is the basis for planning and implementing any marketing activities. Let’s look at consumer behavior in practice. From the streets of Abu Dhabi to Zagreb, locals wear Levi’s jeans, eat at McDonald’s, talk on their iPhones, and drive Toyotas. These locals are often grouped into a single segment of global consumers, participants in a “global consumer culture.” Global consumer culture transcends both country and culture of origin. Much of the consumer behavior exhibited within this global culture is shaped by multinational corporations (MNCs) and their marketing activities. Yet it would be errone- ous to assume that consumers and the products and services available to them did not differ across the globe. Local brands like Fulla, Mecca Cola, Jolibee, and Xiaomi are being developed everywhere in attempts to address the needs of speciﬁc sectors of consumers. MNCs often vary their product offerings to ﬁt the local culture. McDonald’s products pro- vide a good example of diversifying products to suit the preferences of consumers in dif- ferent markets: “McChocolate potatoes” in Japan, “McHotDog Classic” in the Philippines, “McSpaghetti” in Singapore, “McRice Burger” in Malaysia, “Bubur Ayam” (chicken rice por- ridge) in Israel, “McFalafel” in the Middle East, “Pizza McPuff” in India, and “Laksi (salmon) wrap” in Finland. The differences between McDonald’s restaurants are certainly not limi- ted to food products: in Sweden, you can ﬁnd a ski-through restaurant called “McSki” where skiers can pick up their meal as though moving through a regular drive-through; in Hong Kong, “McWeddingland” allows people to get married while enjoying a Happy Meal. McDonald’s is not the only MNC calibrating their products for locals: Starbucks offers a “red bean cream frappuccino” in South Korea, a “red bean green tea frappuccino” and “coffee jelly frappuccino” in Japan, while the “standard frappuccino” and “expresso” are popular in the US. MNCs also adjust product size to match the market demand: the food portions served in Asia are generally smaller than those in the US, e.g., a serving of coffee in McDonald’s in Japan is approximately half the serving typically found in the US, while most countries outside of the US do not offer the standard free reﬁll on soft drinks or hot beverages. What do these differences in products tell us about individual consumers? Do the individ- ual needs of consumers dictate the offers from marketers? Does individual consumer behavior exist within a given group or society? We can start to answer this question by looking at the different macro-level factors that affect consumer behavior and, in turn, affect international marketing strategies. Consumers vary across countries in terms of their consumptive choices and decision-making processes largely due to differences in economic resources, institutional factors such as legal and regulatory frameworks at the country level, and the unique history and geography of a country or region. This is repre- sented in the following ﬁgure. 16 Figure 1: Macro-Level Factors Impacting on Consumer Behavior and International Marketing Strategies Source: Created on behalf of IU (2017). International marketing efforts can directly respond to some of the factors in the preced- ing ﬁgure to attempt to inﬂuence international consumer behavior. However, many aspects of these factors extend beyond the direct control of individual marketers. Let’s explore some of the factors in more detail. Economic factors Economic differences around the world can be quantified by comparing the economic productivity of each nation as measured by gross domestic product adjusted for purchas- ing power parity (PPP). An excellent example of differences in purchasing power is Purchasing power parity reﬂected in the relative cost of a Big Mac around the world. The Economist’s Big Mac Index This is a measure of the relative value of a “basket was developed in 1986 as an informal measure of what consumers in that country are will- of goods”; it can be used ing to pay or able to afford for this universal burger and thus provides a price index of pur- to estimate the value of a chasing power parity or, simply, a measure of the standard of living in these countries (The currency relative to its purchasing power. Economist, 2017). 17 Figure 2: The Big Mac Index Source: The Economist, 2016. 18 Cultural factors Another important factor is culture. Although a huge number of deﬁnitions for culture Culture exist, for our purposes, we will deﬁne culture as “the complex whole that includes knowl- This is the complex whole that includes knowledge, edge, beliefs, art, laws, morals, customs, and any other capabilities acquired by humans beliefs, art, laws, morals, as members of society” (Mothersbaugh & Hawkins, 2016, p. 40). Consider Starbuck’s “red customs, and any other bean green tea frappuccino” offered in Japan. For a German consumer, this might taste capabilities acquired by humans as members of peculiar and have an unfamiliar texture, but for many Japanese consumers, this type of society. drink could be considered delicious. In reverse, a German beer hall with its many local beers and spirits might be completely foreign to a Japanese consumer who may be more familiar with the consumption of rice wine. This is the nature of culture: one person’s pref- erence is the result of their cultural inﬂuences. Legal, regulatory, and institutional factors Besides calibrating product features to adjust to consumers’ tastes, MNCs often adjust the price of the same product offered in different markets because of differences in tax struc- tures and distribution costs. For example, the price of an imported US vehicle in Singapore is twice that paid in the US because of heavy import taxes. Regulations play an important role in impacting how people consume products in various parts of the world. For exam- ple, varying regulations make Uber and Airbnb available in some countries but not in oth- ers. Telecommunication-related consumption provides another good example of differen- ces in consumer behavior arising from variations in regulations. Many countries such as Japan, Thailand, the UK, Russia, and South Korea allow consumers to purchase local SIM cards for their mobile phones at a local convenience store such as 7-Eleven. However, some countries such as Morocco require a person to go to a telecom company and register for a SIM card by supplying personal identiﬁcation. Another often neglected but equally important factor impacting global consumer behavior is the role of institutions. Institutions include established laws, practices, or customs, and can also refer to legal and regulatory issues. They can have a signiﬁcant impact on interna- tional marketing strategies and global consumer behavior. In the case of mobile phone SIM cards, purchasing requirements differ around the world: some countries require identiﬁcation and registration as part of the purchasing process while others do not. In the case of motor vehicles, a 2014 Toyota Corolla will cost approximately twice as much in Sin- gapore than in the US because of an institutional difference: Singapore imposes a hefty tax on imported cars which is passed on to consumers in the purchase price. Geographic and historical factors The geography and history of a country or area can have a large impact on consumer behavior that neither international marketers nor consumers can directly control. Con- sumer culinary taste, for instance, is often a result of a country’s history. For example, Peruvian culinary tastes reﬂect the historical inﬂuence of Chinese immigration on their cooking style and choice of ingredients. 19 1.2 Consumer Decision-Making in the Marketplace The study of consumer behavior is an applied discipline. It involves the development of knowledge about the behavioral patterns of consumers that can be directly utilized for practical purposes. Three main applications for information regarding consumer behav- iors are as follows (Mothersbaugh & Hawkins, 2016, p. 8): 1. Marketers can utilize knowledge of consumer behavior to develop marketing strat- egies. 2. Policymakers can use information about consumer behavior to regulate markets with the intent to protect and aid consumers. Social marketing 3. Researchers or practitioners in social marketing can utilize knowledge about con- This is the application of sumer behavior to alter or create behaviors that have a positive effect on targeted marketing strategies and tactics to alter or create individuals or society as a whole. behaviors that have a positive effect on targeted Knowledge about consumer behavior can be drawn from a wide range of disciplines. We individuals or society as a whole. can categorize such disciplines according to the focus of their inquiry, i.e., toward the indi- vidual (the micro perspective of consumer behavior) or toward society (the macro per- spective of consumer behavior). 20 Figure 3: The Micro and Macro Perspective of Consumer Behavior Source: Solomon, 2014, p. 32. The micro perspective seeks to understand consumer behavior to solve the problems faced by an individual ﬁrm or organization and help the ﬁrm or organization accomplish its objectives. Advertising managers, product designers, sales coordinators, and others working in proﬁt-oriented businesses are interested in understanding consumers so that they can be more effective in their roles. Those working in various nonproﬁt organizations are no less interested in the behavior of consumers and beneﬁt greatly from such knowl- edge. United Way and American Red Cross are two examples of not-for-proﬁt companies that have been effective in applying knowledge of consumer behavior to enhance their charitable business activities. The macro perspective entails applying knowledge of consumer behavior to problems faced by larger groups or by that of an entire society. It is an approach adopted by policy- makers and social marketers. On the macro level, economic and social conditions shape consumer preferences and habits and at the same time, consumers shape a society’s cul- ture. In a free market-based system where individual choices are emphasized, consumers 21 strongly inﬂuence production. As a result, under such a system, consumers impact and shape the quality and standard of living of a society. Thus, understanding consumer behavior from a macro perspective can provide insight into the economic and social com- position of a society. Components of Consumer Behavior Consumer behavior is a complex phenomenon that results from an interaction between consumer decision-making, various internal and external inﬂuences on consumer behav- ior, and the context in which consumer behavior occurs. We can thus divide consumer behavior into multiple components represented in the following ﬁgure. Figure 4: The Components of Consumer Behavior Source: Created on behalf of IU (2017). Let’s look at each of these six components in more detail. Consumer choice: This component refers to the choices made by consumers regarding which products are purchased, from which brands, via which vendors, and when these purchases are made. Decision-making is quite straightforward in one sense as consum- ers essentially have three options: buy, don’t buy, or buy later. The time that it takes to make decisions related to purchases can take seconds, days, or weeks depending on the product. Purchase process: This process can be divided into three phases: pre-purchase, pur- chase, and post-purchase, which can involve a small number of simple decisions versus multiple complex and interconnected decisions. Internal influences: This component considers consumers as individuals and includes factors such as individual learning, values, self-concept, memory, emotions, perception, personality, attitudes, motivation, and other factors typically associated with personal psychology. 22 External inﬂuences: This component looks at inﬂuences from social groups, media, and marketers, and draws from the ﬁelds of sociology, social psychology, and demography. External inﬂuences include demographics, reference groups and families, social status, culture and subculture, and marketing activities. International consumers: This component encompasses cross-cultural differences, macroeconomics, history, global consumer culture, and nationalism. International marketing strategy: This component looks at whether a company is seek- ing to standardize, localize, or “glocalize” products and services. Glocalize To glocalize (globalize + localize) is to adapt inter- Consumer Behavior and Marketing Management national products to a speciﬁc local culture. A sound understanding of consumer behavior is the cornerstone of all marketing manage- ment activities. Marketing management is deﬁned as the process of setting marketing Marketing management goals for an organization, considering internal resources and market opportunities, plan- This is the process of set- ting marketing goals for ning and executing activities to meet these goals, and then measuring progress toward an organization, consider- their achievement. The process of marketing management should be “ongoing and repeti- ing internal resources and tive (as within a planning cycle) so that the organization can continuously respond to market opportunities, planning and executing internal and external changes that create new problems and opportunities” (Marketing activities to meet these Dictionary, 2017a). goals, and then measur- ing progress toward their achievement. One of the major goals of marketing management is to continuously satisfy consumers’ wants and needs. Identifying the desires and requirements of customers and then ensur- ing that the products and services provided address these desires and requirements is a primary task of marketing. As consumers’ wants and needs can be extensive, ﬁrms need to concentrate on satisfying a small proportion of consumer desires by effectively utilizing resources (i.e., time, budget, and capabilities). Without a thorough understanding of con- sumer behavior, firms can’t anticipate and react to customers’ needs, wants, and desires. At the core of customer satisfaction is value. To be successful, a company must ask: “Does the product or service that we offer provide more value than the same product or service offered by competitors?” Importantly, ﬁrms must evaluate “value” from the customers’ perspective. Customer value propositions are “the total sum of beneﬁts that a customer Customer value proposi- is promised to receive in return for his or her patronage and the associated payment or tions These are the total sum of other value transfer” (Marketing Dictionary, 2017b). In other words, customers view value beneﬁts that a customer according to what is promised by a product or service offered by a company and evaluate is promised to receive in whether such a promise is fulﬁlled by the delivery of the product or service. return for his or her patronage and the associ- ated payment. Example Let’s look at the components of consumer behavior and the corresponding response by marketing management. Anaya is a twenty-three-year-old female from London purchas- ing a pair of Ray-Ban sunglasses. We will look brieﬂy at four components of consumer behavior: 1) consumer choice, 2) the consumer purchasing process, 3) internal inﬂuences on the consumer, and 4) external inﬂuences on the consumer. For each of these compo- nents, we will look at the corresponding response of Ray-Ban regarding its marketing management. Consumer Choice 23 Consumer Behavior ◦ Anaya can choose from a multitude of sunglasses brands available from different retailers. ◦ The import duties and sales taxes will affect the price of Ray-Bans in different coun- tries. ◦ Anaya is intending to attend several music festivals over the summer and considers new prescription sunglasses both a necessity and a fashion accessory. Marketing Management ◦ Marketers need to offer products or services that are competitive in multiple markets. Customers must ﬁnd value in their products and the product must meet a need or a desire. ◦ Ray-Ban sells a large range of sunglasses and is constantly changing the catalog of products they offer. ◦ Ray-Ban has entered the prescription sunglasses market, which in 2015, accounted for 30 % of their revenue (Wahba, 2016). ◦ Ray-Ban has promoted the brand as a contemporary fashion accessory, and it is a well-recognized brand name worldwide. Purchasing Process Consumer Behavior ◦ Pre-purchase: Anaya seeks information such as warranty, the polarization of the len- ses, and frame durability directly from the retailer, Ray-Ban website, and from various fashion blogs that she regularly reads. ◦ Purchase: Anaya can choose to purchase sunglasses from a Ray-Ban ﬂagship store, a sunglasses retailer, or online via the Ray-Ban website. ◦ Post-purchase: Anaya is unsure about her purchase and is not satisﬁed with the look of the sunglasses and investigates the free returns via the online shop. Marketing Management ◦ Marketers need to present information to potential consumers and provide sup- port throughout the purchase process to customers. ◦ Ray-Bans are sold via multiple different channels, across many countries worldwide. ◦ Ray-Ban has a website that offers consumers online purchasing, personalization of sunglasses, a “virtual mirror” where consumers can “try on” sunglasses using their camera, information about the product components, and information about delivery and their returns policy. Internal Inﬂuences Consumer Behavior ◦ Anaya considers Ray-Bans to be a stylish brand that produces good-quality eyewear. ◦ Anaya considers the purchase of Ray-Ban prescription sunglasses to be a luxury pur- chase and is therefore less concerned with the monetary value of the purchase and more interested in the aesthetic value of the product. Marketing Management ◦ The marketer can appeal to consumers’ emotions by linking their product with a cer- tain lifestyle and promoting the brand according to consumer needs, i.e., being fash- ionable. 24 ◦ Ray-Ban has produced advertising campaigns that feature young, vibrant people enjoying various leisure activities. ◦ -Ban offers personalized products, allowing consumers to customize their frames, materials, and styles in a tool known as “Re-Mix.” External Inﬂuences Consumer Behavior ◦ Anaya follows several fashion bloggers on Instagram who post pictures of themselves with different Ray-Bans. ◦ Anaya´s parents do not place a high value on fashion and do not spend over 20 GBP on their sunglasses, but they do recommend that Anaya gets prescription sunglasses. ◦ Anaya´s best friend is traveling to visit family in India and offers to purchase a cheap, non-genuine version of Anaya’s preferred Ray-Ban sunglasses. Marketing Management ◦ Marketers need to identify the groups that inﬂuence consumers (i.e., cultural, fami- lial, and friendship) and craft messages that indirectly inﬂuence consumers. ◦ Ray-Ban sponsors posts by popular Instagrammers. ◦ Ray-Ban has cultivated an image of luxury by being sold in high-end stores. ◦ Ray-Ban parent company Luxottica has launched GLOW (a tracing system that uses RFID technology) and allows customers to report fakes online. As you can see from this example, consumer behavior directly inﬂuences marketing man- agement and vice versa. It is easy to see here why the two are considered inextricable. Case Study: Uniqlo In a blog post in 2014, branding expert David Aakar attributed the widespread success of the global clothing brand Uniqlo to its strategy of providing “made-for-all”, innovative, high-quality, and performance-enhanced products at the lowest prices. The Japanese clothing designer, manufacturer, and retailer has made some critical decisions that have facilitated its rapid international growth and retail success; at the time of writing, Uniqlo has 1,400 stores in 16 countries (Uniqlo, 2023). Let’s look at the components of consumer behavior and marketing management as they relate to Uniqlo. At this point, if you are not already familiar with the Uniqlo concept, it would be useful to visit a Uniqlo store in person or visit one of their online stores to answer some of the following questions: How was the in-store layout relative to your product search? If you visited the online store, how easy or difﬁcult was it to search for a product? If you visited the store and purchased something, what was your experience of the pur- chase process? Were the store employees helpful? What was your experience of the online purchase process? Did any features of the website aid your decision- making? What is your impression of the brand? Do you have any emotional attachment to the brand? Do you have friends or family members who wear Uniqlo clothes? 25 What is your perception of the value that Uniqlo products represent? Are you/would you be comfortable wearing their brand? Why or why not? How do/would others perceive you when wearing the Uniqlo brand? The aim of this exercise is for you to have experience in connecting consumer behavior to marketing management. It is important to realize that our experience as a consumer in the marketplace is shaped by both our own unique experiences and influences on our pur- chasing patterns and by marketing efforts that seek to shape our experience and create favorable internal and external inﬂuences on us as consumers. We will now attempt to explore some of the factors impacting your experience and decision-making at Uniqlo using some hypothetical examples. Experience of decision-making as a consumer Let’s consider your experience as a consumer. Imagine you are at a Uniqlo store in Manhat- tan, New York. You see the latest seasonal offering: a lightweight down vest. You already own a heavier down vest that you bought last year from Gap. Should you buy a new one this year? If so, what color? You try on a navy one which ﬁts nicely. The price is half of the Muji brand which you just tried on half an hour ago. However, H&M has a similar one that is 25% cheaper but is of a lower quality. You pick up the vest and move toward the cash register. The queue has ten customers waiting to be served and only one service assistant. It is Sunday afternoon. You do not feel like queuing for an unknown length of time. Do you proceed with the purchase? Internal and external inﬂuences on consumer experience Imagine that before ever visiting a Uniqlo store or shopping online, you discussed the clothing range with one of your closest friends who a) loves the brand and wears a lot of their products, or b) dislikes the brand and scoffs at others wearing it. Does your friend’s attitude toward the brand inﬂuence your decision to buy Uniqlo products? If your father already wears a Uniqlo down jacket and has worn it for several seasons without it looking worn or being damaged, will this impact your decision to buy a Uniqlo item? What value does the brand represent to you? What about the group of friends you hang out with who mostly wear H&M? Will their preferences impact yours? What if they see you shopping at Uniqlo? Impact of Uniqlo’s marketing on consumer decision-making Uniqlo aims to create products that can be differentiated from its competitors. The owner of Uniqlo, Tadashi Yanai, wants to surpass Zara as the top private-label clothing retailer in the world (Aakar, 2014). In line with this vision, Uniqlo has developed its unique HeatTech, Lifewear, and AIRism products and created products that are fashion- able but not neces- sarily trendy. The brand’s down jackets have become symbolic of the brand. Uniqlo prod- ucts are priced very competitively, higher than H&M but lower than Muji and comparable to Zara. You will ﬁnd Uniqlo stores strategically positioned near these competitors. Uniqlo management trains its staff members to provide outstanding in-store customer service, aiming to reﬂect “kaizen”: the Japanese concept of perfection, using speciﬁcally designed phrases and speciﬁc policies regarding customer interaction (Davis, 2014). 26 Impact of Uniqlo’s marketing on internal and external inﬂuences on consumer experi- ence Uniqlo has a ﬁrmly established reputation in Asia, evidenced by the huge number of stores in Japan and nearby countries. It has employed celebrities and social media inﬂuencers such as musician Pharrell Williams, fashion editor Carine Roitfeld, and Irish designer Orla Kiely to create limited edition collections to create a contemporary image (Sarma, 2015). The company has focused on “fabric over fashion,” developing a reputation for high-qual- ity garments that are wearable beyond fashion trends. Uniqlo has built a social media presence using Facebook, Twitter, and Instagram in the US and UK but largely engaged with Chinese consumers using Renren, a social networking platform popular with Chinese students. It has a large online as well as a retail presence. SUMMARY Consumer behavior is the processes involved when individuals or groups select, purchase, use, or dispose of products, services, ideas, or experiences to satisfy needs and desires. Studying consumer behavior requires that marketers explore components of consumer decision-mak- ing; internal inﬂuences on consumer behavior such as emotions, atti- tudes, and perceptions; external inﬂuences on behavior such as culture, society, and groups; economics; and legal and regulatory frameworks as well as the multiple processes involved in purchasing behavior. Compa- nies need to understand how consumers behave, what motivates their purchases, what their expectations are, what factors inﬂuence their decision-making, how they use specific products and services, and what speciﬁc meaning they attach to their purchases. Knowledge about such aspects of consumer behavior is the basis for planning and implement- ing any marketing activities. Consumers vary across countries in terms of their consumptive choices and decision-making processes largely due to differences in economic resources and institutional factors such as legal and regulatory frame- works at the country level as well as the unique history and geography of a country and region. It is important to realize that our experience as a consumer in the marketplace is shaped by both our own unique expe- riences and inﬂuences on our purchasing patterns, and by marketing efforts that seek to shape our experience and create favorable internal and external inﬂuences on us as consumers. 27 UNIT 2 THE CONSUMER DECISION-MAKING PROCESS STUDY GOALS On completion of this unit, you will have learned... – what inﬂuences pre-purchase decision-making. – what is omnichannel purchase behavior. – what affects post-purchase satisfaction and why. – why consumer decision-making is not always rational. 2. THE CONSUMER DECISION-MAKING PROCESS Case Study Maria, an MBA graduate, is preparing for her interview with the marketing team responsi- ble for marketing the Pixel, Google’s new smartphone. She knows that it is essential to understand the consumer decision-making process to understand and explain why a con- sumer would select the Google Pixel over an Apple iPhone or a Samsung Galaxy. She breaks the consumer decision-making process into three steps: the pre-purchase, pur- chase, and post-purchase stages. She tries to develop a picture of what different potential consumers might experience in each of these stages. She develops a list of questions for each stage. The Pre-Purchase Stage: How do consumers know about the Pixel? Where do they get their information from? What features of Pixel would they ﬁnd most attractive? How would they evaluate the features of Pixel compared to other phones? How easy is it to use the Pixel compared to other phones? What is the reaction of consumers to the price of the Pixel compared to other phones? The Purchase Stage: Where can consumers purchase the Pixel? Can the Pixel be purchased online or from a retail location? Is the Pixel immediately available or is it ordered into stores following each purchase? Is there ﬁnancing available for the phone? Are there associated data plans and preferred service carriers? The Post-Purchase Stage: Does the performance of Pixel meet customers’ expectations? How satisﬁed are customers with the speciﬁc features of the Pixel? Do the expectations created by mass media and promotional materials match the expe- rience of consumers? How satisﬁed are the customers with Pixel compared to their previous phones? If customers are not satisﬁed, do retailers or online stores offer return policies? Are there avenues available for consumers to provide feedback to Google? Are there after-sales support mechanisms for the Pixel? Are there online communities to support users of the Pixel? 30 Maria’s questions are the types of questions that a company would typically ask when try- ing to understand the purchasing behavior of its potential consumers. Ultimately compa- nies want to optimize as many factors as possible in the pre-purchase, purchase, and post- purchase stages to increase sales and build customer loyalty. The following ﬁgure illustrates these stages and some of the subprocesses involved in each. We will explore each of these stages throughout this unit. Figure 5: Consumer Decision-Making Process Source: Created on behalf of IU (2017). 2.1 The Pre-Purchase Stage Decision-making often implies a complex and detailed process of deliberation: research- ing, scrutinizing, and evaluating all available options, mentally negotiating between choices, and then justifying the ﬁnal decision. Some forms of decision-making do indeed follow such a structure – consider the process of buying your last vehicle and the multi- tude of factors that you took into consideration when making this purchase. However, many decisions follow an opposite structure. Some forms of consumer decision-making are, in fact, so routine that they occur almost automatically and require very little atten- Automatically tion, effort, or conscious processing. The process of making decisions and acting without This is the process of making decisions without conscious thought is referred to as automaticity. conscious thought, result- ing from learning, repeti- The concept of automaticity was ﬁrst proposed by American social psychologist John tion, and practice. Bargh following his research on automatic, non-conscious processing of information and related behavior. A classic example of automatic decision-making for most people is the decision to purchase fuel for their vehicle. While some consumers will conduct regular research to locate the cheapest available fuel, for most consumers, this process involves 31 going to the same fuel station on their regular route, swiping their credit card, and ﬁlling their car with fuel with very little contemplation of the consumer process. This simple decision-making results in what is known as a low-involvement purchase. Contrast this type of decision-making with the process of buying an apartment. When con- templating such a purchase, most consumers would spend much more time and effort considering prices, location, convenience, proximity to workplaces and schools, neighbor- hood, investment potential, distance to relatives, etc. before reaching a decision. This is an Purchase involvement example of a high-involvement purchase. Purchase involvement is the level of concern This is the level of con- for or interest in the purchase process, triggered by the need to consider a purchase. Pur- cern for or interest in the purchase process trig- chase involvement, of course, varies with everyone but is generally correlated with the gered by the need to con- perceived cost of the decision and the frequency with which a consumer makes this type sider a particular pur- of purchasing decision. The following ﬁgure illustrates the relationship between cost and chase. frequency and purchase involvement. Figure 6: Purchase Invovement Source: Bilbrough, 2013. Low-cost, high-frequency purchases such as buying lunch involve a low level of purchase involvement whereas purchases that are infrequent such as buying a car involve a high level of purchase involvement. Purchase involvement is fundamental in the pre-purchase stage of a consumer purchase as it affects each of the three steps involved in this stage: a) problem recognition, b) information search, and c) evaluation of alternatives. 32 Problem Recognition The ﬁrst step in the consumer decision-making process is problem recognition. Problem Problem recognition recognition results from a discrepancy between an actual state and a desired state that is This results from a dis- crepancy between an sufﬁcient to arouse and activate the decision-making process. An actual state is what an actual state and a desired individual perceives his or her feelings and situation to currently be whereas a desired state that is sufﬁcient to state is what an individual wants to currently feel or be. arouse and activate the decision-making process. Let’s look at the example of Lee. Lee realizes that the following Friday will be a public holi- day and that he doesn’t want to be alone or unoccupied for the entire long weekend. He treats this as a problem because his anticipated actual state (being bored and alone) is Actual state different from his desired state (being pleasantly occupied with company). He then con- An actual state is what an individual perceives his or templates whether to go on a short camping trip with his work colleagues, visit family in her feelings and situation another state, or ask a friend to help him repaint his apartment. However, if Lee had been to be at the present time. extremely stressed at work and was busy attending multiple functions with potential busi- ness clients, his desired state for the upcoming long weekend could be to remain unoccu- pied and free of social engagements. In this alternate set of circumstances, there would be no discrepancy between his anticipated actual state and his desired state; with no differ- ence between his actual and desired states, Lee does not have to make a decision regard- ing his long weekend. In summary, if a consumer does not recognize that there is a prob- lem, there is no need for them to make a decision. It is important to note that there is no objective actual or desired state that drives prob- Desired state lem recognition; Lee’s actual and desired states in both scenarios are entirely subjective. A desired state is what an individual wants to feel or How one perceives their actual state or identiﬁes their desired state is dependent on the be at the present time. internal workings of that individual’s perception of reality, self-concept, and lifestyle. Problem recognition is the ﬁrst and most important step in the buying process; it precedes the subsequent consumer-initiated transactional activities of information searching and evaluating alternatives. Simply put, if there is no problem, there is no need, and thus no purchase. Problem recognition is usually preceded by an event or series of events that initiate thoughts about the purchase of a product or service. In the example of Lee, the preceding event was a long weekend, leading him to contemplate the purchase of camping equip- ment (for a camping trip with his colleagues), a plane ticket (for an interstate family visit), or painting equipment (to repaint his apartment). In general, three types of events lead to problem recognition (Mittal, 2008): 33 1. Stock depletion: When required or desired goods or services are reduced or exhaus- ted, we encounter a problem. Identifying that your car is low in fuel, discovering that your insurance policy is about to expire, and realizing that you don’t have any Christ- mas presents for your family members are examples of stock depletion leading to problem recognition. 2. Changes in life stage: New problems arise with new life conditions. A newly single divorcee may suddenly be in the market for a new apartment. An adolescent reaching the legal drinking age can purchase alcohol and develop drinking preferences. A new job may warrant the purchase of a new uniform. 3. Development of new preferences: Consumers have values and tastes that inﬂuence their purchasing patterns. But these are by no means static and unchanging. Preferen- ces change over time in response to speciﬁc antecedents but also in response tovari- Variety-seeking ety-seeking behavior. Research has found that consumers can become bored with behavior certain foods such as cereal or pretzels, not necessarily because of any issues with the This occurs when a con- sumer switches products brands, but simply because they wish to have a different sensory experience (Hebb, out of boredom or curios- 1955; Leuba, 1955). This can even occur when a consumer is very satisﬁed with a ity rather than dissatisfac- product. tion with a product or service. Information Search Information search Information search is the process by which we survey the environment for appropriate This is the process by data to make a reasonable decision (Solomon, 2014). Once a problem or need has been which we survey the envi- ronment for appropriate identiﬁed, the consumer must then seek information about possible solutions that will data to make a reasona- solve that problem or satisfy that need. Typically, the consumer will search for more or ble decision. less information depending upon the complexity of the choices that have to be made to make the purchase. For instance, selecting a meal from a restaurant menu is far less com- plex and requires considerably less information than choosing a new car or a house. We Internal search will discuss three main search strategies here: a) internal search, b) external search, and This takes place as we c) ongoing search. scan our memory banks to assemble information about different product Internal search alternatives. An information search usually begins with an internal search of one’s long-term memory to assemble information already known about different product alternatives. An internal search seeks to answer questions such as: 1. Do I already know of a satisfactory solution to this problem? 2. What are the characteristics of any potential solutions? 3. What methods can I use to compare potential solutions? Information that is internal to the consumer generally provides the starting point to search for answers to solve the problem. For example, when seeking information to inform the purchase of a new laptop, you might ﬁrst scan your memory about previous experiences with speciﬁc brands. Internal information is often sufﬁcient for simple, every- day purchase decisions but major decisions, because of the inherent uncertainty regard- ing their outcome, require considerably more information and necessitate more extensive consideration of external sources of information. 34 Regarding our case study with Maria, a potential consumer might consider the following in their internal search for information about the Pixel: previous experiences with different mobile phones and plans advertising from various media sources past conversations with family and friends regarding mobile phones and Google. External search An external search is comprised of seeking information from multiple sources including External search independent sources, personal sources, and/or marketing-based information. A popular This refers to sourcing external information that source of external information is word-of-mouth (WOM), which is information about a is relevant to the prob- product or brand provided by acquaintances or strangers either face-to-face or online lem. (eWOM). The relationship that a consumer has with the provider of WOM information can mediate its inﬂuence on consumers: typically, WOM information from close acquaintances is assigned greater value than WOM from strangers. However, consumers are increasingly gleaning information from other consumers via online reviews and recommendations, which can have a powerful inﬂuence on consumption patterns. For example, inclusion on the New York Times bestseller list or Oprah’s Book Club (leading to what is known as the “Oprah effect”) can dramatically increase the sale of books (Krakovsky, 2004). External information can come from a variety of sources including content from media, e.g., advertising, reviews, and product/brand websites. It should come as no surprise that non-marketer sources of product information are viewed more credibly than marketer sources. The apparent popularity of a product, i.e., how many other consumers have pur- chased a product, can be an important source of external information. An interesting study in Finland reported that when one of a person’s ten nearest neighbors bought a car, that person’s odds of buying a car of the same make during the next week and a half jum- ped by 86% (Grinblatt et al., 2004). This means that some of our external information may come simply from being surrounded by other people. In the ﬁeld of marketing, this is known as the bandwagon effect or social contagion effect. Bandwagon effect The bandwagon effect or social contagion effect Of course, online searching is one of the major sources where consumers can ﬁnd product occurs when beliefs, information from multiple vendors. Search engines and shopbots have made external ideas, fads, and trends, searches for information much faster and easier for consumers. are adopted by others at a rate that is proportional to their uptake by others. Regarding our case study with Maria, a potential consumer might consider the following in Shopbots their external search for information about the Pixel: They search the Internet for pricing information on products and services product website for the Pixel and then present it via a recommendations or reviews from family and friends comparison shopping website for consumers. WOM from others review websites or comparison-shopping tools observations about which phones are used by different individuals online technology reviews such as techradar.com. 35 Ongoing search Another search behavior is an ongoing search where someone acquires information for possible later use and/or because the process itself is inherently pleasurable. For example, some individuals involved in playing golf continue to acquire information about golf-rela- ted products without having a recognized problem with their existing golf equipment. Regarding our case study with Maria, a potential consumer might consider the following in Ongoing search their ongoing search for information about the Pixel: This is where someone acquires information for possible later use and/or reading news articles about the Pixel launch or reviews in technology-related maga- because the process itself zines is intrinsically pleasura- watching YouTube videos comparing different phones or completing speciﬁc tests, e.g., ble. scratch test, water test, or speed test visiting a Google pop-up store to look at the Pixel phone Evaluation of Alternatives Continuing the example of a mobile phone, once a consumer has recognized a problem and has conducted a search for information about different types of mobile phones (i.e., via an internal and external information search), they need to do something with all the information they have gathered. How do they categorize their options? What information is most important? Should they select a familiar brand such as an iPhone or select the newer Pixel? Is it OK for a consumer to choose a handset based simply on its aesthetics and slim-line design? Or is price, warranty, weight, and additional features more suitable criteria for deciding on a phone? As evidenced here, the process of arriving at a consumer choice can be quite complex. There are three types of consumer choice processes: affective, attitude-based, and attrib- ute-based (Mothersbaugh & Hawkins, 2016, p. 555). Affective choice is primarily or exclusively driven by a consumer’s immediate emotional response to the product without evaluating the attributes of the product. This is some- times called an emotional choice. This type of choice is usually holistic and cannot always be rationally articulated (Mittal, 2008). The product is not analyzed according to its constituent components, rather a consumer chooses the product largely based on how they feel when they are using it. Attitude-based choice involves the use of general attitudes, summary impressions, intu- itions, or heuristics. Brand recognition and perception play an important role in atti- tude-based choices. Attribute-based choice involves attribute-by-attribute comparisons across brands and requires detailed knowledge about speciﬁc product features. Decisions based on a com- parison of attributes can be based on the number, types, or importance of speciﬁc fea- tures, or a combination of all three. The attribute-based choice model is a little more complex and warrants some additional explanation. Since this model relies on a comparison between different products, there are many dimensions, features, or beneﬁts that a consumer can look for when making a 36 comparison. In an attribute-based choice model, to arrive at a ﬁnal choice, consumers use evaluation criteria and judgment models. Evaluation criteria are standards against which Evaluation criteria consumers evaluate a product. Judgment models are procedures and rules for consider- These are standards against which consumers ing the various qualities of an alternative; they are the decision models or “choice rules” evaluate a product. that a consumer uses to make their decision (Mittal, 2008). Judgment models can be either compensatory or non-compensatory. Judgment models These are procedures and rules for considering the A compensatory decision rule is when a consumer evaluates a product according to all various qualities of an the attributes they have identiﬁed prior to and throughout their information search. For alternative. example, when choosing a smartphone, a potential consumer could evaluate battery Compensatory decision rule life, sound, screen quality, memory, camera quality, compatible apps, operating system, A compensatory decision and the weight of the phone. If our consumer was comparing Samsung, LG, iPhone, rule is when a consumer Huawei, HTC, Sony, and Google models, they would compare the attributes of all these evaluates a product according to all the attrib- products. utes they have identiﬁed A non-compensatory decision rule takes a different approach to comparison. It is best prior to and throughout explained by looking at the three main non-compensatory models or decision rules: their information search. conjunctive, lexicographic, and elimination-by-aspects. ◦ The conjunctive decision rule establishes minimum required performance standards for each evaluative criterion and products are then selected that meet or exceed these minimum standards. If a smartphone fails to reach the minimum standard (e.g., data storage of 64GB or hands-free personal assistant), it will immediately be drop- ped from the list of smartphones being considered. ◦ A lexicographic decision rule is when a consumer rank orders product attributes in terms of importance. A consumer might rank desired product attributes from most important to least important as 1) data storage > 64GB, 2) highest possible camera quality, and 3) extended battery life. ◦ Using an elimination-by-aspects decision rule, the consumer ranks the attributes in the order of their importance and at the same time establishes a minimum require- ment for each attribute. For example, a consumer might consider camera quality to be the most critical feature of a smartphone and establishes that the minimum requirement is 12 megapixels. We have explored various types of processes for making consumer choices. However, all these models of consumer choice assume that consumers are rational. Rational choice theory posits that consumers make choices based on three assumptions: Rational choice theory This theory assumes con- sumers seek one optimal 1. Consumers seek one optimal solution to a problem rather than multiple solutions. solution, have the skills 2. Consumers have the necessary skills and motivation to ﬁnd the optimal solution. and motivation to ﬁnd an 3. The optimal solution does not change as a function of situational factors such as time optimal solution, and that an optimal choice does pressure, task deﬁnition, or competitive context. not change as a function of situational factors. Under the rational choice theory, once a consumer has collected sufﬁcient information about the product or service, they will be better able to evaluate the available alternatives and choose the product or service most suitable for their needs. The question we have to ask at this point is does this happen in reality, or is this just a theory? 37 Let’s look at some examples of how rational consumers actually behave. Which option would you pay more for, a glass of juice that is two-thirds full or a glass of juice that is one- third empty? Consumer research has found that most people prefer the option that is sta- ted in positive terms, despite both options giving people the same amount of juice (Tver- Framing effect sky & Kahneman, 1981). This is a phenomenon known as the framing effect. The framing The framing effect is an effect is an example of cognitive bias in which people react to a particular choice in differ- example of cognitive bias in which people react to a ent ways depending on how the choice is presented to them. Why people prefer informa- particular choice in differ- tion presented as a gain rather than a loss can be explained by prospect theory (Tversky ent ways depending on & Kahneman, 1992). Prospect theory posits that for the same value (e.g., 50 % survival rate how it is presented. versus 50 % mortality rate), people consider the loss (mortality) larger than the gain (sur- Prospect theory This theory posits that for vival). Recent research shows that framing, speciﬁcally related to scarcity and limited the same value, people resources, impacts the value that a consumer ascribes to a product, which ultimately consider a loss to be larger than a gain. impacts their decision-making (Shah et al., 2015). In various experiments related to mone- tary, caloric, and time scarcity, Shah and colleagues found that scarcity frames decisions in such a way that people are more likely to trade-off one choice over another (i.e., where buying one thing means giving up another) in conditions of scarcity than when there is no scarcity. Anchoring effect Another challenge to the assumption that consumers are rational is the anchoring effect. This effect refers to peo- Anchoring occurs when decisions are based on an initial or a speciﬁc piece of information ple making decisions based on their initial that distorts individual judgment. In the case of purchasing a new smartphone, a consum- piece of information. er’s previous phone is an anchor. Of course, an initial anchoring point can be adjusted to a new anchoring point when new information is acquired; when a consumer considers two choices and anchors on the ﬁrst choice, an introduction of a third choice can adjust their original anchor. The framing and anchoring effects are two examples that oppose the assumption that consumers are always rational in their decision-making. Consumers are, in fact, subject to Bounded rationality bounded rationality; when individuals make decisions, their rationality is always limited This proposes that there by the information available, the tractability of the problem, their own cognitive capaci- are limitations to the capacity of an individual ties and limitations, and the time available to make the decision (Simon, 1957). In other to make rational deci- words, people have a limited capacity to make rational decisions and often seek a satisfac- sions. tory solution rather than an optimal one. The reality is that for many products, consumers are often faced with too many choices. How many ﬂavors of yogurt or ice cream can one choose from in a supermarket? A greater number of choices has actually been found to be demotivating (Iyengar & Lep- per, 2000). Researchers have even suggested that the proliferation of potential options in today’s markets inclines consumers to “pick” or “grasp” choices rather than evaluate options and “select” choices (Schwartz, 2004). When tired or pressed for time, we use short-cut or heu- ristics to make decisions rather than undertake the lengthier process of choosing the optimal solution. When we look closely, we ﬁnd that many consumer deci- sions are often circular, emotional, and incomplete, which runs counter to the assump- tions made in rational choice theory. 38 Recently researchers began to expand further into the emotional component of decision- making. Kidwell and his colleagues (2008) developed an 18-item scale known as the Con- sumer Emotional Intelligence Scale (CEIS) based on the original Mayer-Salovey-Caruso Emotional Intelligence Test (MSCEIT). It was designed to measure individual differences speciﬁc to how consumers use emotional information to make decisions. It is a validated and reliable measure of consumer emotional intelligence (Kidwell et al., 2008). The con- cept of consumer emotional intelligence is growing in importance in the ﬁeld of consumer behavior as economists collate more information about the role of perceiving, facilitating, understanding, and managing emotions in inﬂuencing consumption patterns. Traditional models of consumer purchasing patterns are being thrown into question by research ﬁndings such as those from Peter & Krishnakumar (2010) who found a positive correlation between emotional intelligence, impulse buying, and self-esteem. 2.2 The Purchase Stage After evaluating the alternative brands and products, the consumer is ready to make a pur- chase decision. However, deciding to make a purchase does not guarantee that the con- sumer will actually make a purchase. Have you ever abandoned a basket of groceries when the queue was too long for the supermarket check-out? Or have you taken a clothing item to the register and left the store after ﬁnding that the only available payment option was cash? What about the vacation packages that you researched for weeks on Expe- dia.com but abandoned? While you may have had the intent to make a purchase, searched for relevant information, and even made a decision to make a purchase, the actual implementation of your purchase hinges on many situational factors related to the retail environment (both online and ofﬂine) and your actual shopping experience (i.e., the store atmosphere, image, displays, salespersons, service, terms of payment, methods of taking possession of the product, etc.). The purchase stage can lead to various types of deviations from the perspective of the consumer: 1. Many situational factors can lead consumers to deviate from their original product selection. Examples of such factors include: 1) preferred stock is not available, 2) new information re-opens the evaluation process, and 3) ﬁnancing terms are unacceptable to the consumer. 2. Unplanned purchases happen when consumers engage in different types of sponta- neous shopping such as impulse buying, or responding to point-of-purchase stimuli, in-store promotions or sales, or a salesperson’s persuasion. 3. Consumers may end up delaying purchases because of time pressure, the perceived risk of making the wrong choice (also known as “buyer-perceived risk”), an expecta- tion of a future discount of the same product, the need to gain the consent of others, or simply because the shopping experience is unpleasant. In recent years, purchase implementation has become increasingly complex with the emergence of omnichannel or multichannel shoppers who browse and/or make purcha- ses via more than one channel simultaneously. A typical form of omnichannel shopping 39 Omnichannel or multi- behavior involves searching for information and products online but going into a store to channel shoppers make the purchase; many multichannel shoppers utilize this strategy. Additionally, most These are consumers who browse and/or make pur- Internet shoppers utilize two or more channels to browse and buy, e.g., a consumer may chases via more than one read the reviews of a book on Amazon or their preferred online newspaper but purchase channel simultaneously. the book directly from the publisher or another online bookseller such as Book Deposi- tory. Similar patterns of multichannel shopping exist across countries. An obvious challenge for marketers is to adapt product information across multiple chan- nels. This task is made more challenging by the fact that omnichannel consumers often have more information about a product than those marketing the product. This phenom- enon is called the “reversal of information asymmetry”; in the past, sellers had more infor- mation than buyers, but now omnichannel consumers quite often have more information than vendors. For instance, Amazon offers a mobile shopping app that allows consumers to compare prices by scanning the QR code of the product in-store and comparing it with online prices. Omnichannel consumers can realize savings in their purchases as a result of sourcing additional information. Many retail stores offer competitive price matching where if you ﬁnd another retail outlet selling the product for less, the store will offer you the same price. The empowerment of information-rich consumers is so important that it has been suggested that instead of a salesperson approaching a consumer by asking “What can I do for you today?” they should switch their approach to “Tell me what you know (about this product)” (Sussan, as cited by Arora, 2016). For online shoppers, recent research found that 70% of online shopping carts are started but abandoned prior to purchase (Mothersbaugh & Hawkins, 2016). The main reason (44 %) was that the shipping and handling costs were too high. Other reasons for not proceed- ing with the purchase include wanting to compare prices on other websites or saving products in carts for later consideration. As we know, online shopping lacks the in-store atmosphere that consumers often prefer, and that facilitates the purchase process. For fashion shoppers, an in-store sensory experience in stores like Anthropologie is simply not comparable to shopping online from the same store. Industry experts describe the Anthro- pologie store experience as highly effective at a time when many retailers are struggling. Their meticulous hand-made store displays create an atmosphere where “customers will want to take their time, look around at the quirky, and feel comfortable. People will buy into that promise of discovery and purchase a dress, even if it’s on-trend and something everyone else has, because they feel what the brand stands for” (Lieber, 2014). This work Atmospherics is called atmospherics, which is the conscious designing of space and its various dimen- This is the conscious sions such as color, scent, and sound to evoke certain desired effects in buyers (Solomon, designing of space and its various dimensions such 2014, p. 350). as color, scent, and sound to evoke certain desired Online stores sometimes attempt to marry the digital and the physical world by entering effects in buyers. into the brick-and-mortar retail space through pop-up stores. Pop-up stores are tempo- Pop-up stores These stores are tempo- rary installations that do business only for a few days or weeks and then disappear. In rary installations that do 2016, Amazon planned to open 100 pop-up retail stores across the country that would sell business only for a few days or weeks and then Amazon’s hardware including the Echo, Fire Tablets, Kindle, Fire TV, and Dash Button, fol- disappear before they get lowing a model already employed by tech giants Apple and Microsoft (Somaney, 2016). old. Brick-and-mortar brands, new and old, are also using pop-up stores to reach customers they were previously unable to reach from their traditional locations. Examples of pop-up 40 stores using this model in the US include the Swatch Instant stores, Nespresso pop-up boutiques, Victoria’s Secret’s Pink stores, and the pop-up stores from the sustainable clothing brand RVL7. 2.3 The Post-Purchase Stage Post-purchase behavior occurs after the consumer has purchased a good or service. This stage consists of consumers correlating their expectations with the perceived value of their purchase, which in turn inﬂuences their next purchase decision related to that good or service. If the product has led to a high level of consumer satisfaction, the resultant brand loyalty means that the information search and alternative product evaluations con- ducted by that consumer will be minimized for future purchases of this product. On the contrary, should the consumer’s experience with the product be mediocre or below expectations, then the full consumer decision-making process will be repeated during the next purchase cycle, omitting the disappointing brand from any consideration of alterna- tives. Post-purchase consumer evaluations have important consequences for brands. Whereas a satisﬁed customer is likely to become a loyal repeat customer, an unhappy customer can signiﬁcantly damage a brand’s image. Many consumers are increasingly inclined to share their opinion of brands and brand experiences through word-of-mouth, especially through social networks or on product review websites. Interestingly, research has suggested that the degree of customer satisfaction is more important than simply the state of being satisﬁed. For speciﬁc industries with low switching costs, completely satisﬁed customers are much more loyal than customers that express that they are simply satisﬁed with the service; that is, customers that are moderately satisﬁed with a product are more inclined to product switch (Jones & Sasser, 1995). Evaluation of Satisfaction Post-purchase satisfaction is one of the most important metrics for marketers. The Har- vard Business Review article entitled “The One Number You Need to Grow” emphasizes the importance of satisﬁed customers (Reichheld, 2003). This article discussed how to derive a net promotor score that indirectly measures customer satisfaction obtained by Net promotor score asking “How likely is it that you would recommend Company X to a friend or colleague?” This is an indirect meas- urement of satisfaction Since the cost of acquiring a customer is high, ﬁrms that can retain their customers for obtained by asking “How repeat purchases nurture brand loyalty, decrease the “churn rate,” and better still, gener- likely is it that you would ate positive word-of-mouth to bring in new customers, which enhances their capacity to recommend Company x to a friend or colleague?” remain competitive. When is a customer satisﬁed or dissatisﬁed? Based on the theory of the expectancy dis- conﬁrmation model, the difference between the expectation of product performance and the perceived performance will result in a level of satisfaction or dissatisfaction. Simply put, perceived performance minus expectation equals the level of satisfaction. When perceived performance > expectation = customer is satisﬁed. 41 Expectancy When perceived performance = expectation = customer is not satisﬁed. disconﬁrmation model When perceived performance < expectation = customer is dissatisﬁed. This is the difference between the expectation of product performance Most brands aim to deliver a product or service that exceeds a customer’s expectations. and the perceived per- Related to the anchoring effect described earlier, marketers are largely responsible for cre- formance that will result in a level of satisfaction or ating the expectations that consumers develop during the pre-purchase stage. If a brand dissatisfaction. promises more than it can deliver, customers will likely be dissatisfied. To psychologically minimize customers’ concerns about post-purchase dissatisfaction, many marketers use the phrase “satisfaction guaranteed” (e.g., Walmart) and offer product returns known as “money-back guarantees.” There are three typical responses that customers have when they are dissatisﬁed: 1. A voice response is where a consumer appeals directly to a retailer for redress post- purchase. 2. A private response is where a consumer expresses dissatisfaction to friends and/or boycotts the product or store where the product was purchased. 3. A third-party response often occurs through public channels such as an ombuds- man or consumer affairs advocacy body or via an online review (e.g., Twitter hashtag #uni- tedsucks is a feed of tweets from unhappy United Airlines customers). This response can result in WOM that can severely damage brands. Expressions of consumer dissatisfaction will vary depending on several factors. Consumer demographics (e.g., a lack of resources such as income and education), consumer person- ality (e.g., traits of introversion and agreeableness), and company policies and practices (e.g., a difﬁcult and unpleasant complaint process) will all reduce consumer complaints. When customers are dissatisﬁed, they experience what is known as post-purchase disso- nance, which is the reaction one has after making a difﬁcult, relatively permanent deci- sion that results in doubt and anxiety. This is a result of 1) the degree of commitment or irrevocability of the decision, 2) the difﬁculty in choosing one product from among multi- ple alternatives, or 3) the individual’s tendency to experience anxiety. For low involvement and limited decision-making products, post-purchase dissonance tends not to occur. It occurs in high-involvement products that require an extended decision-making process. Consumption guilt A related concept is that of consumption guilt in which a consumer has negative emo- This occurs when a con- tions or feelings of guilt aroused by the use of a product. A common example of consump- sumer has negative emo- tions or feelings of guilt tion guilt is the experience that many people have after eating unhealthy food; you may that are aroused by the feel good while eating it but may become somewhat remorseful afterward when contem- use of a product. plating the implications of such a meal for your health or for prior resolutions that you have now broken. Product Disposal After purchase and consumption, the disposal of products occurs. This is a big area of research within the ﬁeld of consumer behavior. Product disposal doesn’t just refer to throwing a product away; it also refers to behavior such as never using a product and 42 abandoning it, recycling or upcycling it, and reselling or exchanging it with another con- Upcycling sumer. The following list, while not comprehensive, describes some of the contemporary This involves reusing a product to create another practices and issues regarding the disposal of consumer goods.

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