Consumer Markets and Business Markets

LESSON 03 CONSUMER MARKETS AND BUSINESS MARKETS S. Maneesha Aishcharya CONSUMER MARKETS Marketers must have a thorough understanding of how consumers think, feel, and act and offer clear value to each and every target consumer.  Consumer Marke...

LESSON 03 CONSUMER MARKETS AND BUSINESS MARKETS S. Maneesha Aishcharya CONSUMER MARKETS Marketers must have a thorough understanding of how consumers think, feel, and act and offer clear value to each and every target consumer.  Consumer Market The consumer market comprises of those people who are the end-users and they don’t resell the product or service any further. Whenever a person buys a product, then he becomes a part of the consumer market. Marketers divide the consumer market into different segments depending upon the characteristics, demographics, and behavior and psychographic of the consumer. After dividing the market into different segments, they target the interest, likes, and dislikes opinion and values of the consumers.  Consumer Behaviour Consumer Behaviour is the study of how individuals, groups, and organizations select, buy, use, and dispose of goods, services, ideas, or experiences to satisfy their needs and wants. Adopting a holistic marketing orientation requires fully understanding customers, by gaining a 360-degree view of both their daily lives and the changes that occur during their lifetimes so the right products are always marketed to the right customers in the right way.  Characteristics Affecting Consumer Behaviour Factors that influence the buying decision of the consumer. A consumer’s buying behavior is influenced by: 1) Cultural Factors 1.1) Culture Culture is the set of basic values, perceptions, wants and behaviours learned by a member of society from family and other important institutions. Cultural factors exert the broadest and deepest influence on consumer behavior. A person learns or is exposed to values such as achievement, involvement, efficiency, practicality, individualism, freedom, humanitarianism, youthfulness, fitness and health. Marketers must closely attend to cultural values in every country to understand how to best market their existing products and find opportunities for new product [Ex: Avurudu Celebrations in Sri Lanka].  1.2) Sub- Culture Each culture contains smaller subcultures or groups of people with shared value systems based on common life experiences and situations. Subcultures include Nationalities Religions Racial groups Geographic regions When subcultures grow large and affluent enough, companies often design specialized marketing programs to serve them [Ex: Ramadan Deals, Avurudu Deals, Christmas seasonal gifts]. 1.3) Social Class Social Classes are society’s relatively permanent and ordered divisions whose members share similar values, interests, and behaviors. Social class is not determined by a single factor, such as income, but is measured as a combination of occupation, income, education, wealth, and other variables. Marketers are interested in social class because people within a given social class tend to exhibit similar buying behavior. Social classes show distinct product and brand preferences in areas such as clothing, home furnishings, leisure activity, and automobiles Ex: Lower Class, Working class, Middle class, Upper middles 2) Social Factors 2.1) Family The family is the most important consumer buying organization in society, and family members constitute the most influential primary reference group. Marketers are interested in the roles and influence of the husband, wife, and children on the purchase of different products and services. Buying roles change with evolving consumer lifestyles. 2.2) Groups and Social Networks Many small groups influence a person’s behavior. Reference groups serve as direct (face to- face) or indirect points of comparison or reference in forming a person’s attitudes or behavior. Primary groups with whom the person interacts fairly continuously and informally, such as family, friends, neighbors, and coworkers. People also belong to secondary groups, such as religious, professional, and trade- union groups, which tend to be more formal and require less continuous interaction. 2.3) Roles and Status A person belongs to many groups- family, clubs, organizations. The person’s position in each group can be defined in terms of both role and status. A role consists of the activities people are expected to perform according to the persons around them. People choose products that reflect and communicate their role and their actual or desired status in society. Marketers must be aware of the status-symbol potential of products and brands. 3) Personal Factors 3.1) Age and Life-Cycle Stage People change the goods and services they buy over their lifetimes. Tastes in food, clothes, furniture, and recreation are often age related. Buying is also shaped by the stage of the family life cycle- the stages through which families might pass as they mature over time. Marketers often define their target markets in terms of life-cycle stage and develop appropriate products and marketing plans for each stage. Traditional family life-cycle stages include young singles and married couples with children. 3.2) Occupation A person’s occupation affects the goods and services bought. Blue-collar workers tend to buy more rugged work clothes, whereas white-collar workers buy more business suits. Marketers try to identify the occupational groups that have an above-average interest in their products and services. A company can even specialize in making products needed by a given occupational group. Ex: computer software companies will design different products for brand managers, accountants, engineers, lawyers, and doctors. 3.3) Economic Situation A person’s economic situation will affect product choice. Marketers of income-sensitive goods watch trends in personal income, savings, and interest rates. If economic indicators point to a recession, marketers can take steps to redesign, reposition, and reprice their products closely. 3.4) Lifestyle People coming from the same subculture, social class, and occupation may have quite different lifestyles. Life style is a person’s whole pattern of acting and interacting in the world. It involves measuring consumers’ major dimensions  Activities (work, hobbies, shopping, sports, social events)  Interests (food, fashion, family, recreation)  Opinions (themselves, social issues, business, products) 3.5) Personality and Self-Concept Each person’s distinct personality influences his or her buying behavior. Personality refers to the unique psychological characteristics that lead to relatively consistent and lasting responses to one’s own environment. Personality is usually described in terms of traits such as self-confidence, dominance, sociability, autonomy, defensiveness, adaptability, and aggressiveness. Example: Coffee marketers have discovered that heavy coffee drinkers tend to be high on sociability. Thus, to attract customers, Starbucks and other coffeehouses create environments in which people can relax and socialize over a cup of steaming coffee. 4) Psychological Factors 4.1) Motivation A person has many needs at any given time. A need becomes a motive when it is aroused to a sufficient level of intensity. A motive/ drive is a need that is sufficiently pressing to direct the person to seek satisfaction. 4.2) Perception A motivated person is ready to act. How the person acts is influenced by his or her own perception of the situation. All of us learn by the flow of information through our five senses: sight, hearing, smell, touch, and taste. However, each of us receives, organizes, and interprets this sensory information in an individual way. Perception is the process by which people select, organize, and interpret information to form a meaningful picture of the world. 4.3) Learning Learning describes changes in an individual’s behavior arising from experience. Learning theorists say that most human behavior is learned. Learning occurs through the interplay of drives, stimuli (a thing that trigger an activity), cues, responses, and reinforcement. 4.4) Beliefs and Attitudes Through doing and learning, people acquire beliefs and attitudes. These, in turn, influence their buying behavior. A belief is a descriptive thought that a person has about something. Buying behavior differs greatly for a tube of toothpaste, a tennis racket, an expensive camera, and a new car.  The Buying Decision Process: The Five-Stage Model Marketers need to focus on the entire buying rather than on the purchase decision only. The consumer typically passes through five stages: 1) Need Recognition The first stage in the consumer decision-making process is identifying the need. The need is the most important element which leads towards the actual buying of the product or service (the trigger point of all the buying decisions). Finding out what the customer needs is the first milestone towards evaluating the Consumer Decision Making Process. Determining the needs and wants of the target market provide support to many marketing decisions.  2) Information Search The potential consumer after identifying his needs moves on to searching and gathering information. In this stage, the consumer evaluates the entire positive and negatives aspects of the purchase in choosing between alternatives, therefore they need all the information before spending their money. Information can be collected from many different sources. Personal Contacts: Friends, family, colleagues and acquaintances Commercial: Advertising, web sites, e-mails, salespersons, dealers, packaging, display Public: Mass media, social media, consumer-rating organizations Experiential. Handling, examining, using the product 3) Evaluating the Alternatives Consumer uses the information to evaluate alternative brands in the choice set to choose the best product available in the market. The Consumer at this stage evaluates different options based upon  Product price  Product quality  Product quantity  Value-added features The attributes of interest to buyers vary by product. For Example: Hotels- Location, cleanliness, atmosphere, price Mouthwash- Color, effectiveness, germ-killing capacity, taste/flavor, price 4) Actual Purchase of the Product or the Service After proper assessment of all the facts, the consumer makes a logical decision to buy a product based upon his needs and wants which are often triggered by the advertising and marketing campaigns, recommendations from personal connections, or maybe from both. In executing a purchase intention, the consumer may make as many as five sub decisions:  Brand  Dealer  Quantity (ex: one computer)  Timing (ex: weekend)  Payment method (ex: credit card) 5) Post Purchase Evaluation In the final stage of the consumer decision making process, the consumer evaluates or analysis:  The purchased product  Usefulness of the product  Satisfaction delivered from the product,  Value of the product with respect to the need fulfillment of the consumer. If the consumer feels that the product bought delivered the value and has met the expectation they will become the loyal customers of the product. The Model of Consumer Behaviour  Consumer’s Buying Roles Initiator: The person who first suggests or thinks of the idea of buying a particular product or service. Influencer : A person whose view or advice influences buying decisions. Decider : The person who ultimately makes a buying decision or any part of it whether to buy, what to buy, how to buy, or where to buy. Buyer : The person who makes an actual purchase. User : The person who consumes or uses a product or service.  Take Home Task Draw a Mind Map demonstrating all the factors that influence the buying decision of a consumer (Cultural, Social, Personal and Psychological Factors). BUSINESS MARKETS Business organizations do not only sell; they also buy vast quantities of raw materials, manufactured components, plant and equipment, supplies, and business services.  Business Market The Business Market consists of all the organizations that acquire goods and services used in the production of other products or services that are sold, rented, or supplied to others. Any firm that supplies components for products is in the business-to-business marketplace.  Theory in Practice: Example Consider the process of producing and selling a simple pair of shoes. A broad spectrum of materials and material combinations are used today in shoe manufacturing. Leathers, synthetics, rubber and textile materials are counted among the basic upper materials. Each material has its own specific character and they differ not only in their appearance but also in their physical properties, their service life and treatment needs. The choice of shoe material significantly influences the life of the footwear, and in many cases dictates its use.  Characteristics of Business Markets Serve a smaller consumer market that contains large buyers: Fewer, Larger Buyers. Business market buyers are more influenced by their business objectives rather than personal objectives. Close supplier-customer relationships: Smaller customer base, and the importance and power of the larger customers, suppliers are frequently expected to customize their offerings to individual business customer needs. Present more complex purchasing decisions than consumer markets.  Geographically concentrated buyers: Facilitate business between companies that are far away from each other in terms of location. Derived demand: The demand for business goods is ultimately derived from the demand for consumer goods. Inelastic demand: The total demand for many business goods and services is inelastic-not much affected by price changes. Ex: Shoe manufacturers are not going to buy much more leather if the price of leather falls. Professional Purchasing: Business goods are often purchased by trained purchasing agents, who must follow their organizations’ purchasing policies, constraints, and requirements with quotations, proposals, and purchase contracts. The Business Market versus the Consumer Market  The Business Markets are organizations that acquire goods and services that are, in return, used in the production of other goods that can be sold, supplied, or rented. The Consumer Market involves the selling of goods and services for consumer consumption for a consumer's personal use. Stages in the Business Buying Process  1) Problem Recognition The buying process begins when someone in the company recognizes a problem or need that can be met by acquiring a good or service. The recognition can be triggered by internal or external stimuli. The Internal Stimulus:  A decision to develop a new product that requires new equipment and materials  A machine that breaks down and requires new parts  Purchased material turns out to be unsatisfactory and the company searches for another supplier or lower prices or better quality Externally, the buyer may get new ideas at a trade show, ad, receive an email, read a blog, or receive a call from a sales representative who offers a better product or a lower price. 2) General Need Description and Product Specification Next, the buyer determines the needed item’s general characteristics and required quantity. Business marketers can help by describing how their products meet or even exceed the buyer’s needs. The buying organization now develops the item’s technical specifications. Product value analysis (PVA) is an approach to cost reduction that studies whether components can be redesigned or standardized or made by cheaper methods of production without adversely affecting product performance. 3) Supplier Search The buyer next tries to identify the most appropriate suppliers through trade directories, contacts with other companies, trade advertisements, trade shows, and the Internet. 4) Proposal Solicitation The buyer next invites qualified suppliers to submit written proposals. Business marketers must be skilled in researching, writing, and presenting proposals as marketing documents that describe value and benefits in customer terms. 5) Supplier Selection Before selecting a supplier, the buying center will specify and rank desired supplier attributes/features/qualities using a supplier-evaluation model. The choice of attributes and their relative importance vary with the buying situation. Attributes that consider include price, supplier reputation, technical service, supplier flexibility, delivery reliability, product reliability, and service reliability. 6) Order-Routine Specification After selecting suppliers, the buyer negotiates the final order, listing the technical specifications, the quantity needed, the expected time of delivery, return policies, and warranties. 7) Performance Review The buyer periodically reviews the performance of the chosen supplier(s) using one of three methods.  The buyer may contact end users and ask for their evaluations  Rate the supplier on several criteria using a weighted-score method  Aggregate the cost of poor performance to come up with adjusted costs of purchase, including price. The performance review may lead the buyer to continue, modify, or end a supplier relationship.  Business to Business Marketing Program Business marketers are using every marketing tool to strengthening their brands and using technology and other communication tools to develop effective marketing programs to attract and retain customers. 1) Online and Offline Communication and Branding Activities: The corporate brand is often critical because it is associated with so many of the company’s products. 2) Adding high-quality services to their product offerings allows them to provide greater value and establish closer ties with customers.