UNIT-2 PRINCIPLES OF MARKETING

MODULE 2: CONSUMER BEHAVIOUR AND MARKET SEGMENTATION

Consumer behavior

Meaning : Consumer behavior refers to the study of how individuals, groups, or organizations make
decisions to select, purchase, use, or dispose of goods, services, ideas, or experiences to satisfy their
needs and wants. It encompasses various factors that influence these decisions, including psychological,
social, cultural, and economic aspects.
It's about understanding why consumers choose one product or service over another, how they
make those choices, and what factors influence their decision-making process. This knowledge helps
businesses and marketers better understand their customers and design products, services, and marketing
campaigns that cater to their preferences and needs.

Definition :
According to Walter “Consumer behaviour is the process whereby individual decide what, when, where,
how and from whom to purchase goods and services.”

According to Webster “Buying behaviour is all psychological, social and physical behaviour of potential
consumers as they become aware of evaluate, purchase, consume and tell other people product and
services”

Features of Consumer behaviour

1. Mental & Physical Activity: Consumer behavior involves both mental and physical processes.
Mentally, individuals engage in activities like thinking, evaluating options, and making decisions.
Physically, they take actions such as purchasing a product, using a service, or providing feedback.
2. Visible and Invisible Items: Consumers make decisions about both tangible and intangible items.
Tangible items are physical products like smartphones, cars, or clothing. Intangible items include
services (like banking or healthcare) and experiences (like vacations or events).
3. Complex Processes: Consumer behavior is a complex process that includes several stages. These
stages often include recognizing a need or want, searching for information, evaluating options,
making a purchase decision, and reflecting on the post-purchase experience.
4. Dynamic in Nature: Consumer behavior is not static; it evolves over time. People's preferences,
attitudes, and behaviors can change due to personal experiences, changing circumstances, and
evolving trends.
5. Influenced by Internal and External Factors : Consumer decisions are influenced by both internal
factors (such as personal beliefs, attitudes, and values) and external factors (including advertising,
cultural norms, societal influences, and economic conditions).
6. Integral Part of Human Behavior: Consumer behavior is an integral part of human existence.
People engage in consumption activities daily, from choosing what to eat for breakfast to making
significant financial decisions.
7. Behavior of a Number of Persons: Consumer behavior is not limited to individuals. It can involve
the choices and actions of groups of people. For example, a family deciding on a vacation
destination or a group of friends choosing a restaurant.
8. Influenced by Market Stimuli: Marketers use various stimuli like advertisements, branding, pricing
strategies, and promotions to influence consumer decisions. Effective marketing can shape consumer
preferences and perceptions.
9. Individual and Group Process: While individuals make many consumption decisions
independently, group dynamics can also play a role. Family, friends, or colleagues may influence
choices, especially for significant purchases or activities.

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10. Social in Nature: Consumer behavior is often deeply embedded in social contexts. Cultural values,
societal norms, and peer influences play significant roles in shaping what individuals choose to buy
or use. For example, fashion trends are often influenced by societal norms and peer groups

Importance of Consumer behaviour

1. Production Policy:
Understanding consumer behavior helps in shaping a company's production policy. By analyzing
what products or features consumers prefer, a company can focus its resources on producing items
that have a higher demand, reducing waste and optimizing production efficiency. For Example: In
India, the shift towards electric vehicles (EVs) is driven by consumer demand for eco-friendly
transportation. Companies like Tata Motors and Mahindra have adjusted their production policies to
invest more in electric vehicle models to meet this demand.
2. Pricing Policy:
Consumer behavior analysis informs pricing strategies. Companies can set prices based on what
consumers are willing to pay, taking into account factors like perceived value, income levels, and
price sensitivity.
Example: In India, smartphone manufacturers often offer various pricing tiers to cater to different
consumer segments. Xiaomi's success in the Indian market is partially attributed to its competitive
pricing strategy, aligning with price-conscious Indian consumers.
3. Distribution Policy:
Consumer behavior guides distribution decisions, helping companies choose the right channels
and locations to reach their target audience effectively.
Example: E-commerce has gained prominence in India due to changing consumer behavior.
Companies like Amazon and Flipkart have expanded their distribution networks to reach consumers
in remote areas, capitalizing on the growing trend of online shopping.
4. Sales Promotion Policy:
By understanding consumer preferences and behaviors, companies can tailor their sales
promotions to resonate with their audience, leading to higher engagement and conversion rates.
Example: During festive seasons in India, companies often run sales promotions and discounts on
products. This aligns with the consumer behavior of increased shopping during these periods,
boosting sales for companies like Amazon's Great Indian Festival or Flipkart's Big Billion Days.
5. Explaining Marketing Opportunity:
Consumer behavior analysis helps identify new market opportunities and niches. Recognizing
emerging trends or unmet consumer needs can drive innovative marketing strategies.
Example: The rise in health-consciousness among Indian consumers has led to opportunities in the
organic food market. Brands like Organic India and Patanjali have tapped into this consumer
behavior shift with organic and natural product lines.

Factors influencing consumer behaviour or Buying behavior

The consumer Behaviour is influenced by the following factors :
1. Internal Or Psychological Factor
2. Socio Cultural Factor
3. Economical Factor
4. Personal Factor
5. Other Factor

1) Internal Or Psychological Factor

The buying behaviour of consumer is influenced by the following internal factors:
a) Motivation: Motivation is the inner drive that prompts individuals to take action. Motivation acts
as driving force that ultimately leads to the satisfaction of wants of the consumer. It can be

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categorized into different types, including physiological, safety, social, esteem, and self-
actualization needs, as per Maslow's Hierarchy of Needs.
Example: In India, the motivation to buy health insurance can be linked to the safety and security
needs. Individuals are motivated to purchase health insurance policies to ensure financial
protection in case of medical emergencies, providing peace of mind.

b) Perception: Perception involves how individuals interpret and make sense of information from
their surroundings. It includes how they perceive the attributes, quality, and value of products or
services. People learn through 5 senses namely sight, hearing, smell, touch and taste and each
differs from person to person.
Example: When consumers in India perceive a brand as being associated with high-quality they
may be willing to pay a more for products from that brand, such as handcrafted textiles or jewelry.

c) Learning: Learning refers to the process by which individuals acquire knowledge and experience,
which can shape their preferences and behavior. It can occur through personal experience,
exposure to information, or social influences.
Example: Consumers in India have learned about the benefits of digital payment methods, such as
UPI (Unified Payments Interface). As a result, many have adopted these methods, especially after
government initiatives like demonetization encouraged digital payments.

d) Belief and Attitude: Beliefs are though about something, while attitudes are state of mind and it’s
a evaluations or feelings toward that thing. People have attitudes towards religion , attitudes
cannot be changed easily. Both belief and attitude strongly influence consumer behavior.
Example: In India, cultural beliefs surrounding herbal remedies and Ayurveda have led to positive
attitudes toward products based on traditional medicinal practices. Consumers may choose
Ayurvedic skincare products due to a belief in their natural and holistic properties.

2. Socio-cultural factor
Following are socio-cultural factors influencing consumer behavior,
a) Culture: Culture encompasses the shared values, beliefs, customs, and norms of a particular
society. It has a profound impact on consumer preferences and choices.
Example: In India, cultural factors heavily influence food choices. Vegetarianism is widespread
due to cultural and religious beliefs, with many Hindus and Jains avoiding meat. This cultural
preference affects the demand for vegetarian food products and restaurants.

b) Social Class: Social class refers to the hierarchical divisions within a society based on factors like
income, education, and occupation. It can influence the types of products individuals buy and the
brands they prefer. Various social class may be
i) Upper class
ii) Middle class
iii) Lower class
Example: In India, social class can significantly impact purchasing decisions. Higher-income
groups may opt for luxury cars or designer fashion brands, while lower-income groups may
choose budget-friendly options. Social class also affects decisions like education, housing, and
leisure activities.

c) Family: Family is a crucial social factor that greatly influences consumer behavior.Family
structures can vary, with nuclear and joint families being common in India.
i) Nuclear family: consists of parents and their dependent children, typically living together in a
single household. Example: A nuclear family may consist of a husband, wife, and their
children. In this scenario, buying decisions, such as purchasing a family car or choosing a

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school for the children, are typically made by the parents, considering the immediate family's
needs and preferences.
ii) Joint Family: A joint family includes not only parents and children but also extended family
members like grandparents, uncles, aunts, and cousins, all living together in the same
household. In a joint family, buying decisions can involve a broader range of perspectives.
When choosing a new home, the opinions of not only the parents but also grandparents and
other family members may be considered.

d) Reference Groups: Reference groups are social groups that individuals use as a point of reference
when forming their attitudes and making purchasing decisions. These groups can be categorized as
follows:
i) Primary group : consists of individuals with whom a person has regular, close, and personal
interactions. These groups strongly influence an individual's behavior and attitudes
ii) Secondary Group: A secondary group consists of individuals with whom a person has less
frequent or formal interactions, such as colleagues or acquaintances.
iii) Aspiration Group: An aspiration group is one that an individual like to join or emulate.
People may adopt the behaviors and preferences of these groups to gain acceptance or
membership.
iv) Disassociate Group: A disassociate group is one that an individual wishes to avoid or
disassociate from. Negative attitudes toward such groups can influence purchasing decisions.

3. Economical Factor
Following are economical factors influencing consumer behavior,
a. Personal Income: Personal income is the money an individual earns from various sources like
their job, investments, or other forms of income. If someone has a higher income, they may be
more likely to make larger purchases and buy more expensive products or services.
b. Family Income: Family income refers to the total income of a household, which includes the
earnings of all family members. A higher family income can lead to more significant
purchasing power, allowing for more substantial or frequent purchases.
c. Income Expectation: Income expectation refers to a person's anticipation of their future
income. If someone expects their income to increase in the future, they might be more willing
to make larger purchases now, anticipating they can afford them later.
d. Savings: Savings represent the money that individuals set aside for future needs or
emergencies. People with higher savings may feel more financially secure and be more
willing to spend on non-essential items.
e. Liquid Assets: Liquid assets are assets that can be quickly converted into cash without
significant loss of value. People with more liquid assets may feel financially comfortable and
may be more inclined to make discretionary purchases. (Eg : Gold, Bank deposits)
f. Consumer Credit: Consumer credit includes credit cards, loans, and other forms of
borrowing money. Access to consumer credit can impact buying behavior because it allows
consumers to make purchases even when they don't have the cash on hand. However, it also
involves the responsibility of repaying the borrowed money with interest.
g. Other Economic Factors: Various other economic factors can influence consumer buying
behavior, such as inflation rates, employment levels, and economic stability. For example, in
times of economic uncertainty or high inflation, consumers may become more cautious with
their spending.

4) Personal Factor
Following are personal factors influencing consumer behavior,
a) Age: Age plays a significant role in how people make buying decisions. Different age groups
have varying preferences and needs. For example, young adults might be interested in the latest

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technology, while older individuals might prioritize products related to health or retirement
planning.
b) Occupation: A person's job or occupation can impact their purchasing choices. For instance, a
doctor might invest in high-end medical equipment, while a teacher may prioritize educational
materials for their students. Occupations can influence both the types of products people buy
and their budget for purchases.
c) Income: Income refers to how much money a person earns. It directly affects what they can
afford. Those with higher incomes may be more inclined to buy luxury items, while those with
lower incomes may focus on essential goods and budget-friendly options.
d) Lifestyle: Lifestyle encompasses a person's habits, interests, and values. It affects what products
and services they find appealing. For instance, someone with an active, health-conscious
lifestyle may buy fitness equipment or organic foods, while a person who values convenience
might opt for fast food and time-saving gadgets.
e) Personality: Personality traits, such as introversion or extroversion, can influence consumer
choices. Introverts may prefer solitary activities and products, while extroverts may seek social
experiences and items that facilitate interaction.

5) Other Factor
a) Political Factors: Political factors refer to the impact of government policies, regulations, and
stability on consumer choices. For example, changes in taxation, trade agreements, or
government incentives can affect the affordability and availability of certain products or services,
influencing consumer decisions.
b) Legal Factors: Legal factors involve the laws and regulations that govern businesses and
consumer interactions. Consumer protection laws, product labeling requirements, and safety
standards can influence consumer trust and confidence in products, affecting their purchasing
decisions.
c) Technology: Rapid technological advancements can significantly influence consumer buying
behavior. Innovations in products, online shopping platforms, and digital marketing techniques
can change how consumers shop and make purchase decisions, often leading to shifts in
preferences and behavior.
d) Ethical Considerations: Ethical considerations are becoming increasingly important to
consumers. They involve factors such as environmental sustainability, fair labor practices, and
corporate social responsibility. Consumers are more likely to support businesses that align with
their ethical values, affecting their choices of brands and products.

Consumer buying decision Process

Consumer buying decision process is the decision making process on the part of a buyer that
ultimately leads to buying. It is the process of deciding by a buyer whether to buy a product or not to buy a
product. It is a problem solving approach on the part of buyer.

Persons involved in buying decision

A. Initiator: The initiator is the person who first comes up with the idea or need to make a purchase.
They recognize a problem or desire that can be satisfied by a product or service, sparking the
buying process.
B. Influencer: Influencers are individuals who provide advice, opinions, or recommendations about
the purchase. They may not make the final decision, but their input can strongly impact what the
buyer ultimately chooses.

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C. Decider: The decider is the person who has the authority to make the final decision on the
purchase. They weigh various options and choose the product or service that best meets the needs
and preferences of the buyer and other involved parties.
D. Buyer: The buyer is the person responsible for actually making the transaction and paying for the
product or service. They may or may not be the same as the decider, depending on the situation.
E. User: The user is the individual who will ultimately use the purchased product or service. Their
needs, preferences, and satisfaction with the product are crucial, as they will directly interact with
and benefit from it

Important stages of Buying decision process

1. Recognition of unsatisfied want
2. Information search
3. Evaluation of alternatives.
4. Purchase decision.
5. Post purchase reaction

1. Recognition of Unsatisfied Want:

This stage starts when a consumer identifies a need or desire that is not currently fulfilled.
It could be a problem they need to solve or a desire for something new. The recognition of this
want can be triggered by internal factors (personal needs or desires) or external factors
(advertising, recommendations, or societal influences)

2. Information Search:
Once a need or desire is recognized, the consumer begins to seek information to address it.
Information can be gathered from various sources, including online research, asking friends or
family for recommendations, reading reviews, visiting stores, or consulting experts.

3. Evaluation of Alternatives:
In this stage, the consumer evaluates different options based on the information gathered
during the search. Factors such as product features, quality, price, brand reputation, and personal
preferences are considered. The consumer may create a list of pros and cons for each option to
help with the decision-making process.

4. Purchase Decision:
After evaluating the alternatives, the consumer makes a decision to buy a specific product
or service. This decision can be influenced by factors such as product availability, pricing,
promotional offers, and personal priorities. At this point, the consumer is ready to complete the
transaction and acquire the chosen item.

5. Post-Purchase Reaction:
After making the purchase, the consumer evaluates their overall satisfaction with the
product or service. Positive experiences lead to satisfaction, while negative experiences can result
in disappointment or regret.
Market Segmentation

Meaning : Market segmentation is a marketing strategy that involves dividing a broad and diverse
market into smaller, more manageable groups or segments. These segments are created based on shared
characteristics, needs, preferences, or behaviors among potential customers.
In general its like sorting people into different groups based on things they have in common, like
their age, where they live, or what they like to buy. It helps businesses understand their customers better
so they can sell products or services that those customers are more likely to want

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Definition:
According to R.S Davar, “ Growing of buyers or segmentation the market is described as market
segmentation.”
According to William J Stanton, “ Market segmentation consist of taking the total heterogeneous market
for a product and dividing in to several sub markets or segments each of which tends to be homogeneous
in all significant aspects.”

Importance of marketing segmentation

1. Understanding the needs of the consumer : By segmenting the market, businesses can gain
insights into the specific needs and preferences of different customer groups. For example, a
smartphone manufacturer might discover that one segment values camera quality the most, while
another prioritizes battery life. This knowledge allows them to design and market products
accordingly.
2. Better position to spot market opportunities: Segmentation helps businesses identify
underserved or emerging market segments. For instance, a food delivery service might notice a
growing demand for healthy, organic options and create a specialized menu to target this
opportunity.
3. Budget allocation: Segmentation allows for more efficient allocation of marketing budgets. A
company selling luxury watches can allocate a larger portion of its budget to high-net-worth
individuals while focusing on cost-effective strategies for other segments.
4. Meeting competition effectively: By understanding their target segments, companies can tailor
their competitive strategies. For instance, an established airline may offer premium services to
compete with other carriers, while a budget airline might focus on affordability to attract a
different segment.
5. Choosing advertisement media: Different segments may be more receptive to specific
advertising channels. For example, a video game company might find that social media ads are
more effective in reaching younger gamers, while traditional TV advertising works better for an
older demographic.
6. Better utilization of resources: Segmentation helps prevent wasting resources on irrelevant
marketing efforts. A cosmetics company might realize that it's not cost-effective to advertise anti-
aging products to a teenage segment.
7. Discovering opportunities: By closely examining segments, companies can discover unmet
needs or trends. A tech company might identify a segment interested in eco-friendly gadgets and
develop products accordingly.
8. Provision of information: Segmentation allows companies to provide relevant information to
customers. An educational institution can offer tailored brochures to different segments,
highlighting programs that align with their interests and career goals.
9. Increasing sales: Targeted marketing through segmentation can lead to increased sales. A
beverage company might promote energy drinks to active sports enthusiasts and fruit juices to
health-conscious consumers, resulting in higher sales for both products.

10. Marketing efficiency: Overall, marketing segmentation enhances the efficiency of marketing
efforts. It ensures that messages and products are well-suited to the intended audience, leading to
higher conversion rates and a better return on investment.
11. Customer benefits: Segmentation allows companies to tailor their products and services to better
meet the specific needs of each segment, enhancing the overall customer experience. For
example, a hotel chain might offer business travelers amenities like a well-equipped workspace,
while providing family travelers with kid-friendly activities
12. Evaluation of marketing activities: By tracking the performance of marketing campaigns within
each segment, companies can evaluate the effectiveness of their marketing activities and make
data-driven decisions for future strategies.

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Bases for Marketing segmentation

Market segmentation is based on the consumer characteristics. Therefore the basis of market
segmentation is different from product to product and firm to firm.

Important basis of market segmentation can be studied under two different heads,
I. On the basis of Consumer product
II. On the basis of Industrial Product

I. Basis of Consumer Product : Consumer products are things that people buy for their personal use or
enjoyment. They are intended for individual consumers and households. These products are usually
sold in retail stores

Important bases for market segmentation of consumer products can be subdivided in to following
a) Socio economical factor
b) Geographical factor
c) Personality factor
d) Consumer behavior factor

a) Socio economical factor :

Socio-economic factors are indeed an important basis for market segmentation of consumer
products. These factors take into account the social and economic characteristics of consumers,
helping businesses understand their target market better
1. Gender: Gender refers to whether a person is male or female. It's an important factor because
men and women often have different preferences when it comes to products and services. For
example, clothing companies may create different styles for men and women based on their
gender-specific preferences.
2. Age: Age is the number of years a person has lived. Different age groups tend to have
different interests and needs. For instance, toys and games are typically designed with specific
age groups in mind. Young children may prefer toys with bright colors and simple shapes,
while teenagers may want more sophisticated gadgets.
3. Income: Income is the amount of money a person or a family earns. It affects what people can
afford to buy. For example, luxury car companies target consumers with higher incomes,
while budget-friendly brands focus on those with lower incomes.
4. Education Standards: Education standards refer to a person's level of education and
knowledge. People with different education levels may have varying preferences depends on
a)educated, b)semi educated and c)uneducated.
5. Size of the Family: The size of a family can influence their buying decisions. Larger families
may buy more groceries and household items, while smaller families or singles might have
different consumption patterns.
6. Caste and Religion: In some regions and for certain products, people's caste or religion can
impact their preferences. For example, food companies may offer specific products to cater to
the dietary requirements of different religious or cultural groups.
7. Business or Profession: The type of job or profession someone has can affect their
purchasing choices. Professionals might invest in high-end office equipment like laptops ,
smart phones, while those in agriculture workers jobs may prioritize durable work wear,
agriculture equipments etc.

b. Geographical Factors:
Businesses often segment markets based on geographic regions. For instance, a winter clothing
retailer may offer different products in regions with cold winters compared to regions with milder
climates. It may be Urban and rural areas may have distinct consumer needs. Companies like

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McDonald's adapt their menu offerings in different areas to suit urban and rural customer
preferences.

c. Personality Factors:
Personality-based segmentation considers characteristics such as introversion or extroversion. A
company marketing adventure travel experiences might target adventurous and outgoing
individuals who enjoy thrill-seeking activities. Personality factors may such as Lifestyle
segmentation takes into account consumers' interests and hobbies. Companies selling fitness
equipment might cater to consumers with an active lifestyle, emphasizing the benefits of their
products for maintaining a healthy life.

d. Consumer Behavior Factors:

1. Usage Rate: Market segmentation based on usage rate categorizes consumers as heavy,
moderate, or light users of a product. For example, a coffee company may offer loyalty
rewards and special promotions to heavy coffee drinkers.
2. Brand Loyalty: Consumers may be loyal to specific brands. Smartphone companies often
target brand loyalists with exclusive features or promotions to retain their customer base

II. Basis of Industrial Product : Industrial products, on the other hand, are items or equipment that
businesses and industries buy to use in their operations, rather than for personal consumption. These
products are often not meant for sale to the general public. For example Row materials, Heavy
machinery used in manufacturing.
Important bases for market segmentation of consumer products can be subdivided in to following
a) Kinds of Business
b) Size of Buyer
c) Geographical Location
d) Purchase Procedure of Buyer

a. Kind of Business:
Segmenting by the type of business refers to categorizing customers based on the industry or
sector they operate in. Different industries may have distinct needs and requirements. Example: A
company that manufactures industrial machinery may segment its market into industries like
agriculture, construction, or manufacturing. Each industry has unique demands for machinery
tailored to their specific operations.
b. Size of Buyer:
Segmentation by the size of the buyer involves classifying customers based on the scale of their
operations, such as their revenue, workforce, or production capacity. Example: A supplier of raw
materials might segment its market into small, medium-sized, and large companies. Each size
category may have different purchasing power and volume requirements.
c. Geographical Location:
Geographical segmentation divides the market based on where customers are located. The
location can influence product distribution and delivery logistics. Example: An industrial
equipment manufacturer may target different regions or countries based on factors like climate,
regulatory standards, or local demand.
d. Procedure of Buyer:
Segmenting by the purchase procedure involves understanding how buyers make procurement
decisions and their specific procurement processes. Example: A supplier of office supplies may
segment its market based on the procurement process, distinguishing between customers who
purchase through formal bidding processes (e.g., government agencies) and those who buy
directly from suppliers through regular channels (e.g., small businesses).

Marketing Mix

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According to Philip Kotler, “Marketing mix is the mixture of controllable marketing variable that
the firm uses to pursue the sought level of sales in the target market”
In general marketing mix involves decisions regarding products to the made available, the price to
be charged for the same, and the incentive to be provided to the consumers in the markets where products
would be made available for sale. These decisions are taken keeping in view the influence of marketing
forces outside the organization (e.g., consumer behaviour, competitors’ strategy and government policy).
The elements of marketing mix have been classified under four heads—product, price, place and
promotion. That is why marketing mix is said to be a combination of four P’s.

1. Product: This is the tangible or intangible offering that a company provides to meet the needs and
wants of its target customers. When considering the product component of the marketing mix,
businesses focus on product design, quality, branding, packaging, and variations to cater to diverse
customer preferences.

2. Price: Price refers to the amount of money that customers must pay to purchase the product or service.
Pricing decisions are critical, as they directly impact sales and profitability. Key considerations for
pricing include pricing strategy, discounts and incentives, pricing models, and price positioning.

3. Place (Distribution): This element focuses on making the product or service available to customers in
the right place and at the right time. Distribution decisions involve choosing distribution channels,
forming partnerships, managing logistics and supply chain, and determining the physical locations
where the product will be sold.

4. Promotion: Promotion encompasses all the activities and efforts a business undertakes to create
awareness, generate interest, and persuade customers to buy the product or service. Key aspects of
promotion include advertising, public relations, sales promotion, social media and digital marketing,
and content marketing.

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