Professor Vipin 2014
Unit 2
Consumer Behavior in Retail Business
Consumer Buying Decision Process
These stages were first introduced by John Dewey (1910).The stages are:
1.
2.
3.
4.
5.
Problem/Need recognition
Information search
Evaluation of alternatives
Purchase decision
Post-purchase behavior
These five stages are a good framework to evaluate customers' buying decision process. However, it is
not necessary that customers get through every stage, nor is it necessary that they proceed in any
particular order. For example, if a customer feels the urge to buy chocolate, he or she might go straight
to the purchase decision stage, skipping information search and evaluation.
1. Problem/need-recognition: Problem/Need-recognition is the first and most important step in
the buying decision. Without the recognition of the need, a purchase cannot take place. The
need can be triggered by internal stimuli (e.g. hunger, thirst) or external stimuli (e.g.
advertising). Maslow held that needs are arranged in a hierarchy. According to Maslow's
hierarchy, only when a person has fulfilled the needs at a certain stage, can he or she move to
the next stage. The problem must be addressed through the products or services available. It's
how the problem must be recognized.
2. Information search: The information search stage is the next step that the customers may take
after they have recognized the problem or need in order to find out what they feel is the best
solution. This is the buyers' effort at searching the internal and external business environments
to identify and observe sources of information related to the focal buying decision. Consumers
can rely on print, visual, and/or voice media for getting information.
3. Evaluation of alternatives: At this stage, consumers evaluate different products/brands on the
basis of varying product attributes, and whether these can deliver the benefits that the
customers are seeking. This stage is heavily influenced by one's attitude, as "attitude puts one in
a frame of mind: liking or disliking an object, moving towards or away from it". Another factor
that influences the evaluation process is the degree of involvement. For example, if the
customer involvement is high, then he/she will evaluate a number of brands; whereas if it is low,
only one brand will be evaluated.
4. Purchase decision: This is the fourth stage, where the purchase takes place. According to Kotler,
Keller, Koshy and Jha (2009), the final purchase decision can be disrupted by two factors:
negative feedback from other customers and the level of motivation to comply or accept the
feedback. For example, after going through the above three stages, a customer chooses to buy a
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Nikon D80 DSLR camera. However, because his good friend, who is also a photographer, gives
him negative feedback, he will then be bound to change his preference. Secondly, the decision
may be disrupted due to unanticipated situations such as a sudden job loss or the closing of a
retail store.
5. Post-purchase behavior: These stages are critical to retain customers. In short, customers
compare products with their expectations and are either satisfied or dissatisfied. This can then
greatly affect the decision process for a similar purchase from the same company in the
future,[6] mainly at the information search stage and evaluation of alternatives stage. If
customers are satisfied, this results in brand loyalty, and the information search and evaluation
of alternative stages are often fast-tracked or skipped completely. As a result, brand loyalty is
the ultimate aim of many companies.
On the basis of either being satisfied or dissatisfied, a customer will spread either positive or negative
feedback about the product. At this stage, companies should carefully create positive post-purchase
communication to engage the customers.
Also, cognitive dissonance (consumer confusion in marketing terms) is common at this stage; customers
often go through the feelings of post-purchase psychological tension or anxiety. Questions include:
"Have I made the right decision?", "Is it a good choice?", etc.
Factors Influencing Consumer Behavior
In general, the factors that affect consumer behaviour are discussed in the following sections:
Marketing Mix Factors
1. Product: The special characteristics of the product, the physical appearance and the packaging
can influence the buying decision of a consumer.
2. Pricing: The price charged on the product or services consumed by the consumer affect the
buying behaviour of the consumers. Marketers must consider the price sensitivity of the target
customers while fixing prices.
3. Promotion: The variables of promotion mix such as advertising, publicity, public relations,
per-sonal selling and sales promotion affect the buying behaviour of the consumers. Marketers
select the promotion mix after considering the nature of the target audience.
4. Place: The channels of distribution and the place of distribution affect the buying behaviour of
the consumers. The marketers makes an attempt to select the right channel and distribute the
products at the right place.
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Personal Factors
1. Age factor: The age factor greatly influences the buying behaviour. For example, teenagers
prefer trendy clothes, whereas office executives prefer sober and formal clothing.
2. Gender: The consumer behaviour varies across gender. For example, girls prefer certain
feminine colours such as pink, purple and peach, whereas boys go for blue, black and brown.
3. Education: Highly educated persons may spend on books, personal care products, and so on. But
a person with low or no education may spend less on books and more on personal grooming
products.
4. Income level: Normally, the higher the income level, the higher is the level of spending and vice
versa. But this may not be the case in developing countries, especially in the rural areas.
5. Status in the society: Persons enjoying higher status in the society spend a good amount of
money on luxury items such as luxury cars, luxury watches, premium brands of clothing, jewelry
and perfumes.
Psychological Factors
1. Learning: It refers to changes in individual behaviour that are caused by information and
experi-ence. For example, when a customer buys a new brand of apparels, and is satisfied by its
use, then they are more likely to buy the same brand the next time. Through learning, people
acquire beliefs and attitudes, which in turn influence the buying behaviour.
2. Attitude: It is human tendency to respond in a given manner to a particular situation or object or
idea. Consumers may develop a positive, or a negative, or a neutral attitude towards certain
products or brands, which in turn affects their buying behaviour.
3. Motives: A motive is the inner drive that motivates a person to act or behave in a certain
manner. A marketer must identify the buying motives of the target customers and influence
them to act posi-tively towards the marketed products.
Some of the buying motives include the following factors:
a. Pride and possession
b. Love and affection
c. Comfort and convenience
d. Sex and romance
4. Beliefs: A belief is a descriptive thought that a person holds about certain things. It may be
based on knowledge, opinion, faith, trust and confidence. People may hold certain beliefs of
certain brands/products. Beliefs develop brand images, which in turn can affect the buying
behavior.
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Social Factors
1. Reference groups: A reference group is a small group of people such as colleagues at workplace,
club members, friends circle, neighbours, family members, and so on.
2. Family: The family is the main reference group that may influence the consumer behaviour.
Nowadays, children are well informed about goods and services through media or friends circle,
and other sources. Therefore, they influence considerably in the decisions of buying both fast
moving consumer goods and durable items.
3. Roles and status: A person performs certain roles in a particular group such as family, club,
organization, and so on. For example, a person may perform the role of a vice president in a firm
and another person may perform the role of a marketing manager.
Cultural Factors
1. Culture: It influences consumer behaviour to a great extent. Cultural values and elements are
passed from one generation to another through family, educational institutions, religious bodies
and social environment. The cultural diversity influences food habits, clothing, customs and
traditions. For example, consuming alcohol and meat in certain religious communities is not
restricted, but in certain communities, consumption of alcohol and meat is prohibited.
2. Subculture: Each culture consists of smaller subcultures that provide specific identity to its
mem-bers. Subcultures include sub-castes, religious sects (Roman Catholics, Syrian Catholics,
Protestant Christians, etc.), geographic regions (South Indians, North Indians) and language
(Marathi, Malayali, Gujarati). The behavior of people belonging to various subcultures is
different. Therefore, marketers may adopt multicultural marketing approaches, that is,
designing and marketing goods and services that cater to the tastes and preferences of the
consumers belonging to different subcultures.
Customer Service and Customer Satisfaction
Customer Service
Customer service is the provision of service to customers before, during and after a purchase. According
to Turban et al. (2002), "Customer service is a series of activities designed to enhance the level of
customer satisfaction – that is, the feeling that a product or service has met the customer expectation."
The importance of customer service may vary by product or service, industry and customer. The
perception of success of such interactions will be dependent on employees "who can adjust themselves
to the personality of the guest," according to Micah Solomon. Customer service can also refer to the
culture of the organization - the priority the organization assigns to customer service relative to other
components, such as product innovation or low price. In this sense, an organization that values good
customer service may spend more money in training employees than average organization, or
proactively interview customers for feedback.
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Customer Satisfaction
Customer satisfaction is a term frequently used in marketing. It is a measure of how products and
services supplied by a company meet or surpass customer expectation. Customer satisfaction is defined
as "the number of customers, or percentage of total customers, whose reported experience with a firm,
its products, or its services (ratings) exceeds specified satisfaction goals." In a survey of nearly 200 senior
marketing managers, 71 percent responded that they found a customer satisfaction metric very useful
in managing and monitoring their businesses.
It is seen as a key performance indicator within business and is often part of a Balanced Scorecard. In a
competitive marketplace where businesses compete for customers, customer satisfaction is seen as a
key differentiator and increasingly has become a key element of business strategy.
"Within organizations, customer satisfaction ratings can have powerful effects. They focus employees on
the importance of fulfilling customers' expectations. Furthermore, when these ratings dip, they warn of
problems that can affect sales and profitability.... These metrics quantify an important dynamic. When a
brand has loyal customers, it gains positive word-of-mouth marketing, which is both free and highly
effective."
Therefore, it is essential for businesses to effectively manage customer satisfaction. To be able do this,
firms need reliable and representative measures of satisfaction.
Planning Process of Retail
Strategic Planning Process of Retail
1. Mission and Objectives: The mission statement describes the company's business vision,
including the unchanging values and purpose of the firm and forward-looking visionary goals
that guide the pursuit of future opportunities. Guided by the business vision, the firm's leaders
can define measurable financial and strategic objectives. Financial objectives involve measures
such as sales targets and earnings growth. Strategic objectives are related to the firm's business
position, and may include measures such as market share and reputation.
2. Environmental Scan The environmental scan includes the following components:
a. Internal analysis of the firm: The internal analysis can identify the firm's strengths and
weaknesses and the external analysis reveals opportunities and threats. A profile of the
strengths, weaknesses, opportunities, and threats is generated by means of a SWOT
analysis
b. Analysis of the firm's industry (task environment): An industry analysis can be
performed using a framework developed by Michael Porter known as Porter's five
forces. This framework evaluates entry barriers, suppliers, customers, substitute
products, and industry rivalry.
c. External macro environment (PEST analysis)
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3. Strategy Formulation Given the information from the environmental scan, the firm should
match its strengths to the opportunities that it has identified, while addressing its weaknesses
and external threats. To attain superior profitability, the firm seeks to develop a competitive
advantage over its rivals. A competitive advantage can be based on cost or differentiation.
Michael Porter identified three industry-independent generic strategies from which the firm can
choose.
4. Strategy Implementation: The selected strategy is implemented by means of programs, budgets,
and procedures. Implementation involves organization of the firm's resources and motivation of
the staff to achieve objectives. The way in which the strategy is implemented can have a
significant impact on whether it will be successful. In a large company, those who implement the
strategy likely will be different people from those who formulated it. For this reason, care must
be taken to communicate the strategy and the reasoning behind it. Otherwise, the
implementation might not succeed if the strategy is misunderstood or if lower-level managers
resist its implementation because they do not understand why the particular strategy was
selected.
5. Evaluation & Control: The implementation of the strategy must be monitored and adjustments
made as needed. Evaluation and control consists of the following steps:
i.
Define parameters to be measured
ii.
Define target values for those parameters
iii.
Perform measurements
iv.
Compare measured results to the pre-defined standard
v.
Make necessary changes
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