MARKETING MANAGEMENT

CHAPTER V

Consumer Behavior

Learning Objectives
Factors that influence buyer behavior
Consumer decision making process
Industrial buyer behavior Vs consumer buyer behavior

Structure
5.1 The Stimulus-Response Model
5.2 Factors Influencing Buyer Behavior
5.3 Buying Decision Process
5.4 Consumer Psychology
5.5 Figure
5.6 Organizational Buying
st
5.7 Consumer Behavior driving the boom of 21 century
5.8 Business Marketing In India
5.9 Summary

Introduction

Marketers must study consumer markets and consumer behavior before developing marketing plans. They
must identify the market (players), determine what the market buys (objects), ascertain why the market
buys certain products (objectives), and identify the individuals who are responsible for making the purchase
decisions, determine who participates in it (firms), the buying procedures and buying occasions and outlets.
Factors like culture, society, and personal characteristics influence consumer behavior. An individual's
buying behavior is greatly influenced by his culture. Culture is the most fundamental determinant of a
person's wants and behavior. A growing child assimilates a set of values through his or her exposure to the
family and friends. A consumer's buying behavior is very much affected by his social status. The personal
factors that affect the buying decision process are age and stage in the lifestyle and personality. The
psychological factors that influence consumer-buying behaviors are motivation, perception, learning,
beliefs and attitudes.
It has been observed that there is a direct influence of buying decision on consumer decisions-making. On
the basis of the degree of buyer involvement and the degree of differences among brands, four types of
consumer buying behavior can be identified. They are complex, dissonance reducing, habitual and variety
seeking.

5.1 The Stimulus-Response Model

Marketing and environmental stimuli pervade a buyer's consciousness. The buyer's characteristics and his
decision process create certain purchase decisions. The task of the marketing manager is to understand what
goes into the buyer's mind from the point of stimuli to the point of a purchase decision. The stimulus-
response model is a decent indicator of customer buyingbehavior.
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Figure 5.1 the Stimulus Response Model

Marketing Other Stimuli Buyers Buyer’s decisions Buyer Decision

Stimuli
Character process
Product Economic Prod Choice
Price Technological Brand Choice
Place Political Cultural Problem Dealer Choice
Promotion Cultural Social recognition Purchase Timing
Purchase
Personal Information Search
Amount
Psychological Evaluation
Purchase decision
Pot Purchase
behavior

Source: Philip Kotler, “Marketing Management” Millennium Edition, PHI

Publication.

5.2 Factors Influencing Buyer Behavior

Factors that influence buyer behavior can be broadly categorized into cultural, social and psychological
factors.

5.21 Cultural Factors

A growing child assimilates a set of values, preferences, perceptions and resultant behavior through his or
her exposure to the family and friends.
Such culture permeates our daily lives; it influences our buying behavior as well. Cultural changes affect
product development, promotion, distribution andpricing of product and services.

5.211 Subculture
Every culture consists of smaller subcultures that allow identifying and socializing among its members.
Subcultures could be nationalities, religious, racial groups, and geographic regions. Often subcultures act as
very importantmarket segments for certain products or services.

5.212 Social Class

Almost all societies in the world are socially stratified in some way. An example is the caste system in India.
However, social classes are far more widespread than castes. They are more or less homogeneous and
sustained divisions in a society that are hierarchically ordered and whose members have common values,
interests and behavior.
Social classes not only reflect income levels but they also reflect on occupation, education and place of stay.
They are generally distinguished from one another by clothing pattern, speech, etc. Social classes have very
distinct product and brand preferences in areas like clothing, décor, recreation, food, etc. This has led
marketers to tailor their product offerings to the different social classes. Social classes also differ in their
media preferences with upper class customers preferring news magazines and books as against the lower
class customers who prefer television. Marketers also have to keep in mind the differences in languages
defined, colloquial, etc.) while making advertisements and promotions.

5.22 Social Factors

A consumer's buying behavior is very much affected by his family, reference groups, and his social role and his social
status.
Family – In India, the influence of parents on the purchase of clothing, food, or consumer goods is very high and only after
marriage does an ordinary Indian gets to make major buying decisions. Women influence purchases like cosmetics,
clothes, and food items more than their male counterparts. The marketer needs to find which member in the family
wields the greatest influence the choosing a product.
Women are also emerging as major buyers, with a general increase in consumer purchasing power. In
India too, there has been a marked shift in social values and the concept of division of labor.
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5.221 Reference Groups
Reference groups are those that have a direct or indirect influence on the individual's attitudes or behavior.
Groups that have a direct influence on a person are called membership groups. Some membership groups
like family, friends, neighbors and colleagues are called primary membership groups as the individual
interacts closely and continuously with them. The secondary membership groups include those groups
where an individual interacts on a formal basis like religious and professional institutions, trade union
groups, etc. such reference groups expose an individual to new behavior and lifestyles. They also influence
attitudes and self-concept and create the need to conformto specific products and brands.

In India, we often see that fashion models and pageant queens promote beauty related products and
clothing. Since they are perceived to be more fashion conscious and knowledgeable about fashion trends,
people would beinclined to purchase products and brands promoted by them.

5.222 Roles and Social Status

An individual is a member of different groups-family, clubs, organizations where his position is defined in
terms of his role and status. A role is a set of activities that an individual is supposed to perform and each
role is associated with a certain status. A managing director of a multinational enjoys more status than a junior
manger that in turn enjoys better social status than a postal clerk. The important aspect here from the
marketing angle is that people go for products that reflect their role and status in society.

5.23 Personal Factors

The personal factors that affect the buying decision process are age and stage in the lifecycle, occupation,
economic conditions, lifestyle and personality.

5.231 Age and Stage in the Life-Cycle

Time and age of the buyer also influence buying decisions. As an example, toys are most likely to be
purchased during childhood, foods supplements oldage, Consumption, as we see, is influenced be the family
life-cycle. Marketersoften select life-cycle groups as target markets. But target households are notonly of the
family type. Here are single and joint households that require to be catered to. Lately marketers have also
started to focus on psychological life stages like divorces, remarriages, etc.

5.232 Occupation and Economic Conditions

An individual's occupation also has a role to play in his or her buying pattern. A factory worker would buy
work clothes shoes and lunch boxes more than anyone else. A chief executive officer is likely to buy
business suits for boardmeetings and accessories like ties, air tickets, and club memberships commensurate
with his occupational requirements and influence. Marketersstrive to identify those occupational groups that
how above average interest intheir products.
Buying choice is greatly influenced by the economic condition of an individual. Parameters like disposable
income level, income stability, savings, assets, debts, spending to saving ratio are very important. Marketers
therefore need to keep a watch on trends of personal-income, savings and interest rates of income-sensitive
goods and services like automobiles, housing, and holiday tours. During recession, marketers take steps to
redesign, reposition and reprice their offerings and continue to offer value to their customers. Economic
changes can affect buyer behavior. After the Sep 11 attach most airline travelers have cut flight travel and
airlines have had to reprice their offerings.

5.233 Lifestyle
Lifestyle is an individual's pattern of living as reflected by his activities, interests and opinions. It depicts
the individual as an entity interacting with his or her environment. Marketers today are on the constant
lookout for such relationships between their products and lifestyle groups.

5.234 Personality and Self-Concept

Personality is the combination of distinguishing psychological characteristics that lead to relatively

consistent responses to the environment. It is generally described in terms of psychological traits like self-
confidence, dominance, autonomy, sociability, etc. it can act as a useful parameter in analyzing consumer
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Behavior, given that the traits can be classified accurately and there is a strong and positive correlation
between personality types and product/brand or service choices.

5.241 Motivation
Individual have multiple needs at any point in time. Some needs arise from physiological states of hunger,
thirst or discomfort while others arise from psychological states such as the need for recognition,
belonging or pride. A need becomes a motive when that need is raised to a sufficient level of intensity.
People always try to prioritize and satisfy their most important needs first. When an individual succeeds in
satisfying a current need, that need ceases to be a motivator. The individual then tries to satisfy the next
most important need. This theory helps marketers gauge how various products fit into the customer's plans
and requirements.

5.242 Perception
The awareness of a need motivates a person to act. But how the motivated individual actually acts depends
on his or her perception of the situation. Perception is the process by which an individual selects,
organizes and interprets inputs to understand a situation.

Selective Attention – People are exposed to countless stimuli every day and itis impossible to respond to all of
them. As a result people notice and respond toonly some stimuli. Marketers have to identify those stimuli that
people tend tonotice. Three types of such stimuli are:

Stimuli that relate to a current need – A person who is motivated to buy a car will notice more
advertisements for a car than for a two-wheeler.

Stimuli that people anticipate – The person described above is more likely to notice cars than two wheelers
in an automobile showroom because he or shedoes not expect the showroom to display two-wheelers.
Stimuli whose deviations are large in respect to the normal size of the stimuli –The person mentioned above is
more likely to notice an advertisement offeringRs. 20,000 discount on a car than an advertisement offering Rs.
5,000 off

Selecting Distortion – This refers to the tendency to interpret information in a way that matches our
preconceived notions. Marketers do not have anycontrol over this subjective interpretation of information.

Selective Retention – Although most people may notice stimuli that satisfy their needs and expectations,
only a few are committed to memory. Those that are remembered are stimuli that support their attitudes and
beliefs. People are more likely to remember the good points mentioned about a product them like in an
advertisement and ignore the good points of a rival product.

5.243 Learning
Experience often causes a change in human behavior. Behavioral change based on experience is called
'learning'. Human learning occurs due to a mix of drivers, stimuli, cues, responses and reinforcement. For
example if a person buys an Electrolux would be positively reinforced. Later on, when he wants to buy a
microwave. Marketers can thus create demand for products by associating them with strong drivers, using
motivation cues and giving positivereinforcement.

5.244 Beliefs and Attitudes

A belief is a descriptive image or thought that an individual holds about something. Through doing as well
as learning people acquire beliefs and attitudes, which in turn influence their behavior. Beliefs may be
based on knowledge, opinion or faith, Manufacturers and marketers always try to figure out people's beliefs
about their products, brands and services. Such beliefs create products and brands images on which behavior
is based. Knowledge of people's attitudes towards products is especially important from the perspective of
global marketing because buyers generally hold distinct beliefs about products and brands based on their
country of origin. Studies about people's attitudes have revealed many important insights like the following:
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The impact of the originating country varies with the type of product. For example consumers would want
to know where a car was manufactured, but not where the engine oil came from.
Different countries enjoy reputations for different goods: Japan for electronics Germany for engineering
and France for wine, perfume and fashion goods.

A buyer's perception of a country affects his perception of products originating in that country. Chinese
gods re perceived as cheap. American ones as prestigious and Japanese one innovative.

Attitudes towards products and services can change over time. Prior to World War II, Japanese products
were perceived to be of low quality.

Attitudes are also as important as beliefs are. 'An attitude is a person's evaluations, emotions and action
tendencies toward some idea or object.' Marketers should therefore fit their product and service offerings
into existing attitudes rather than creating or changing attitudes. However, if a firm is in a position to
profitably change consumer attitudes, it should do so.

5.3 Buying Decision Process

In today's market places marketing decision makers need to think and act beyond the various influences on buyers. They
should develop an understanding of how consumers actually make their buying decisions. Theymust also identify who
makes the buying decision, the different types of buyingdecisions, and the various steps in the buying process.

5.31 Buying Roles

There are five distinguishable roles people might play in a buying decision.

Initiator – the person suggesting the purchase of a product or service. Influencer – the person whose views or advice
influences the buying decision.
Influencer – the person whose views or advice influences the buying decision.
Decider – the person who decides on any aspect of a buying decision –when, where, why or how to buy.
Buyer – the person making the actual purchase.
User – the person who actually uses the product or service.
Maintainer – A person who repairs or services the product. Disposer – A person who disposes the product.

5.4 Consumer Psychology

It has been observed that there is a direct influence of buying decision on consumer decision-making. The
decisions to buy vegetable oil, a cricket bat, a PC or a new flat are all very different. Consumers take longer
time arriving at decision when expensive and complex purchases have to be made because such decisions
require careful deliberation and the involvement of several participants. On the basis of the degree of buyer
involvement and the degree of differences among brands, four types of consumer buying behavior can be
identified.

5.41 Complex
Such consumer behavior involves a three-stage process. In the first stage the buyer develops a belief about
the product. Hen attitudes are shaped around those beliefs and finally he or she makes a carefully thought out
decision. Such behavior is exhibited when buyers are very highly involved in a purchase and are aware of
differences among brands. Such behavior is usually exhibited among products that are expensive, purchased
rarely, and risky.
5.42 Dissonance Reducing
This type of behavior is exhibited when a buyer is highly involved in a purchase but feels there is little
difference among brands. The buyer may shop around to get to know what is available but will buy quickly
respond mainly to generally understandable criteria like price and convenience of purchasing overlooking
my technicalities.
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After the purchases, the buyer may be dissatisfied on some aspect of the product, having overlooked
technical details or hearing favorable reports on other brands. The consumer would then be alerted of such
information that supports his or her decision. In this case the consumer first acted, acquired new beliefs,
and finally ended up with a set of attitudes. In such cases the marketing function should strive to
communicate a message that makes theconsumer feel good about his or her brand choice.

5.43 Habitual
There are several products that people buy without much involvement and brand consciousness. For
example when buying an essential item like sugar or salt, consumers simply purchase the required
quantity. They hardly care which brand they are buying. If they are opting for a particular brand, they do soout
of habit and not out of strong brand loyalty. Consumers also generally show less involvement in the purchase
of low-cost, regularly purchased items. When purchasing such products, consumer behavior does not follow
the usual sequence of belief, attitudes and behavior. They do not search for information or evaluate
characteristics, very much. With such products, advertising is effective to the extent of only making
consumers know about the product rather than go crazy over. Advertisements of such products, in print and
electronic media therefore, create brand familiarity and not brand conviction. Buyers may not evaluate their
choices after purchase since they are not highly involved with that product.

In such cases, marketers find price and sales promotions as effective product trial opportunities. They
generally use focus techniques to create a sense of high involvement around products for which buyer's
exhibit very low involvement. Some of the techniques could be:

Linking the product to an involving issue – Colgate Gel toothpaste with sparkling teeth and fresh breath.
Linking the product to some involving personal situation - advertising a tea brand in early evening when
executives return home from work.
Designing advertisement to trigger strong emotions. Addition of a new feature to the existing product.

5.44 Variety Seeking

In many buying situations there is low buyer involvement but there is a great amount of brand
differentiation. For example, in the purchase of toilet soap, a consumer has some beliefs about toilet soaps;
he selects a particular brand without much evaluation and evaluates it only when he uses the soap. Next
time he needs soap; he may select an entirely different brand. Such brand switching.

Fig 5.5 – Five Stages of the Consumer Buying Process

Post
Problem Information Alternative Purchase
Purchase
recognition Search evaluation decision behavior

Source: Philip Kotler, “Marketing Management”, Millennium Edition. PHI Publication

5.5 Figure – below shows five different stages involved in the buying process of a typical consumer. It
consists of five stages namely: problem recognition, information search, evaluation of alternatives,
purchase decision and post purchase behavior. As is evident, the buying process commences long beforethe
actual purchase and has repercussions even beyond that. Consumers need not always follow the five steps
shown in the figure. Depending on the kind of purchase being made, consumers may skip any of the steps
or even reverse them. However the model does provide insights about the issues that a consumer might
consider before making a new purchase.

5.51 Problem Recognition

This is the stage when the consumer recognizes that he has a need or a problem. This need could be
triggered by internal or external stimuli. Marketers need to recognize the different circumstances that trigger
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Needs. By gathering information through surveys, marketers can identify the stimuli that most frequently
sparks interest in a product category.

5.52 Information Search

When a consumer feels he needs something, he is likely to look for information that will help him decide how he can satisfy
the need. Essentially he looks for information that helps him know all that he wishes to know about a prospective purchase.
Information is required at this stage for one or more of the followingreasons:

To know about the product category.

To gather information about different products in the same product category.
To compare the various product attributes of different brands.
An individual compares product features, among several brands, cannot gather information about
the product attributes of all brands available. The set of brand that the starts with is called the
awareness set. After further evaluation from a buying perspective, he or she arrives at a set of
brands for further consideration known as aconsideration set.

As the person gathers more and more information, he or she finally narrows his choice to a few brands, which
are strong contenders for a purchase (choice set). All the choices may be acceptable, but the individual
makes a single choice from the set.

5.53 Evaluation of Alternatives

There is no single evaluation process or set of criteria, for all buying situations. There are many decision
evaluation processes, in which the most recent models see the consumer as making judgments on a
conscious and rationalbasis.

In a buying process, the consumer first tries to satisfy a need. He then looks for certain benefits from the
product. Next the consumer seeks a set of attributes that can maximize his benefits. These attributes may be
different for differentproducts, also different consumers look for different attributes. Consumers also differ
in the relative importance they attach to each attribute. Generally consumers are attracted to those brands
that have most of the attributes they are looking for. Every consumer develops a set of brand beliefs about a
brand.These brand beliefs constitute the brand image.

5.54 Purchase Decisions

When a consumer is evaluating a purchase from the choice set, he rates thebrands according to the order of
preference and generally decides to buy the most preferred brand. Two factors set significantly influence the
transition froma purchase intention to a purchase decision.

The first among them is the attitude of others. The degree to which an individual's attitude is weakened
towards a preferred alternative depends ontwo aspects.

Intensity of the other person's negative attitude towards the consumer's preferred alternative.
The consumer's motivation to listen to other's wishes.

The other factors are unanticipated situational factors that can arise to change the intention to purchase. Such
situations can be a job loss, fall or rise in prices,etc.

A consumer's decision to defeat, modify or avoid a purchase is greatly influenced by the amount of risk perceived. The
amount of this risk varies with the amount of money involved, uncertainly about truthfulness of attributes and the level of
consumer confidence. In order to reduce such risks consumers adopt measures like avoiding making a decision,
gathering information fromfriends and preferring national or highly reputed brands with warranties.

What marketers should try and do is understand the factors that provoke a feeling of risk in consumer and
in a solution provide information and support toreduce the perceived risk.
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Prior to making a purchase intention a consumer may make up to five sub decisions on the following
factors:

Brand decision – brand A or brand B

Vendor decision – dealer or wholesaler
Quantity – one or more than one
Timing –now or next month or later
Payment method – cash or credit card, installment or lump sum payment

Post Purchase Behavior

Even if a consumer makes a very informed and careful decision, in accordance with his needs and
wishes, he may feel dissatisfied even afterthe purchase. Marketers should not assume that their job is
over after the consumer makes a purchase. They should closely monitor post-purchase elements like
satisfaction, actions and product uses.

5.551 Post-purchase Satisfaction

Purchase satisfaction is a function of the relation between the buyer's expectations and the perceived
performance of the product. If performance falls short of expectations, the customer is disappointed and if
it meets expectations, he is satisfied and if it exceeds expectations, he is delighted. These responses have a
direct impact on whether the customer makes a repurchase and whether he talks in favor or against the
product to others.

5.552 Post-purchase Actions

Post-purchase action is based on the level of post purchase satisfaction or dissatisfaction. A satisfied
consumer is more likely to buy the product again than a dissatisfied consume. Dissatisfied customers may
throw the product away or return the product and ask for a refund of their money. They may also file
complaints with consumer courts or government agencies to seek redresses of their problems. Privately, a
dissatisfied customer can decide to stop buying the product (exit option) or advise others against buying
the product (voice option). In all such cases the seller has not satisfied the customer.

5.553 Post Purchase Use and Disposal

Marketers must find out how consumers use and dispose of their products. A consumer storing the product
for long is an indication of the product not beingvery satisfying to him. If consumers sell what they bought
or trade them then new-product sales for the firm will be low. Consumers may also find newer uses for
products than originally meant. An example is the single tub washingmachine being used to mix ingredients
for preparing the popular summer drink 'lassi' in Punjab. This is done primarily due to the inability of a
conventional mixer-grinder to mix large quantities of ingredients at one time. Marketers should also find
out how consumers dispose of products after using them, especially if the products could be hazardous, if
not properly disposed of. Organizational markets involve more money and deliverable i.e., products and
services as compared to the consumer markets. For example, the process of producing and selling a simple
pair of jeans involves the cloth manufacturers (Arvind Mills for instance) to sell the denim to the jeans
manufacturers. The jeans manufacturer in turn sells the jeans to the wholesalers, who sell them to retailers,
who finally sell them to customers. Every entity in this supply chain has to buy 'other' goods and services.

5.6 Organizational Buying

Organizational buying is defined as a 'decision making process by which formal organizations establish
the need for purchased products and services and identify, evaluate, and choose among alternative brands and
suppliers.'
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5.61 Industrial buyer behavior Vs Individual customer behavior

Fewer buyers: Organizational markets have fewer buyers as compared to theconsumer markets. Also,
a. They have very specific target customers as compared to the consumer markets. For example,
Hindustan Aeronautics Limited (HAL) caters to the Indian Air Force (IAF) and airplane
manufacturers.
b. Volume buyers: Although the number of buyers is less, the volume of transaction is very high in
the case of organizational markets. For example, the Ordinance factory only caters to the defense
bodies, butthe volume of each transaction (sale of ammunition f or example) runsto crores of rupees.
c. Close` supplier – customer` relationship: Since Organizational markets cater to a select group of
customers, the level of service andinteraction expected is very high, so much so that, many a time
it is expected that the suppliers need to customize their offering (productsand services) according to
the individual buyer's need.
d. Geographically concentrated buyers: Typically, the organizational suppliers are concentrated in
particular vicinity. This makes it easier for the buyers to communicate with them in turn the selling
costs also arereduced.
e. Derived Demand: There is a direct relationship between the demand for consumer goods and the
demand for organizational products. For example, if the demand for shoes surges, automatically
the demand for the shoe manufacturing machines also increases. Hence, the organizational
markets must closely study the buying patterns of the general consumers as well.
f. Inelastic Demand: Generally, price changes do not affect the total demand for most other
organizational goods and services. In other words, the demand it is inelastic. For example, car
manufacturers will not manufacture more cars if the price of steel crashes. Nor will they buy less
steel if the price of steel increases. Hence, in the short run, the demand is inelastic in case of
organizational buyers, because it is verydifficult for the manufacturers to change their production set up.
g. Fluctuating Demand: The demand for business goods and services ismore volatile than the demand
for more consumer goods. A given percentage increase in consumer demand for a particular good,
can tremendously increase the demand for the infrastructure necessary to produce an additional
output. Economists also call this the 'acceleration effect'.
h. Professional Purchasing: Organizational purchasing is very different from the normal consumer
purchasing. Organizational purchasing involves trained agents negotiating as per the policies,
constraints andrequirements of the organization. For example, buying energy equipment involves
the preparation of RFQ (Request for Quotes), proposals and contracts. Such activities do not
prevail in general consumer buying. Institutes such as National Association of Purchasing
Managers (NAPM) in the US, train personnel from organizations to be effective buyers.
I. Several buying influences: Organizational buying decisions are influenced by many people and
factors. Organizations have buying committees consisting of technical experts and senior
management, which specifically deal with organizational purchases.
j. Multiple sale calls: More number of people is involved in the selling process rather than the
buying process. Thus, it takes multiple salescalls to grab more business orders.
k. Direct purchasing: A majority of organizational buying entails buying directly from the
manufacturer. Especially, in the case of technically complex and expensive products. There are
few or no intermediariesinvolved in the process.
l. Reciprocity: Generally, there is a kind of a mutual arrangement through which the organizational
buyers often select, suppliers who also buy from them.
m. Leasing: Leasing is another option apart from buying. It is common for most buyers to lease
infrastructure equipment like heavy machinery and trucks. This is a positive proposition even to the
lessee because he can save capital and get the latest products, better services and also enjoy tax
advantages.
5.62 Organizational Market Vs Consumer Market
Organizations procure goods and services, which in turn are used in the production of other goods and
services. The production of other goods and services, which are sold, rented, or supplied to others,
comprise the organizational markets. Some examples of industries which come under this category are:
agriculture, forestry, and fisheries; construction, transportation, mining, communication, financial services,
distribution and services.
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Organizational markets involve more money and deliverable i.e., products and services as compared to the
consumer markets. For example, the process of producing and selling a simple pair of jeans involves the
cloth manufacturers (Arvind Mills for instance) to sell the denim to the jeans manufacturers. The jeans
manufacturer in turn sells the jeans to the wholesalers, who sell them to retailers, who finally sell them to
customers. Every entity in this supply chainhas to buy 'other' goods and services.

5.63 Buying Situations

I. Straight rebuy: the situation, in which the purchasing department reorders regularly, is termed as
a 'straight rebuy'. In such case, the buyer maintains an “approved list” of suppliers and chooses one from
them. The suppliers in turn work towards providing high quality deliverable. Since the buying is repetitive
and on a regular basis, the suppliers often propose automatic reordering systems so that there is no time lost
reordering.

ii. Modified rebuy: In this kind of a purchase, the buyers would want to modify the product
specifications, prices, delivery requirements, etc. This calls for more participants in the decision making
process on both sides. The in- suppliers have to maintain the standards while the out-suppliers get an
opportunity to deliver a better proposition.

iii. New Task: A buying situation where the buyer purchases a product or service for the first time is
called new task. Examples of such products could be office buildings, fire prevention system, etc. Greater the
cost or risk, the more the number of decision participants. Consequently, greater the information gathering,
longer it take for decision-making.

5.64 Participants in the Organizational Buying Process

Initiators: They request for the purchase of a deliverable. They can eitherbe the users of the deliverable or
others in the organization.
Users: They are the people who will finally use the product or service.
Influencers: Influencers specify the product/service requirements andprovide information for evaluating
alternatives. They directly affect thebuying decision. Generally, the technical people are the essential
influencers.
Deciders: They are people who decide upon the product specifications ofsuppliers.
Approvers: They are people involved with the authorization of theproposed actions of the buyers.
Buyers: They are personnel who have the formal authority to choose the supplier and arrange the purchase
items. The major role of buyers is to select vendors and negotiate with them. In case of complex purchases,
thetop managers participate in negotiations.
Gatekeepers: Purchasing agents, receptionists and telephone operators are examples of gatekeepers. They
have the power to prevent sellers fromreaching the participants of the buying center.
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5.65 Procurement Process

i. Problem Recognition: This is the very first step in the buying process.The recognition of a problem
or need can be consequence of events in either the internal or external environment of a firm. Some of
the events inthe internal environment leading to problem recognition are:

The development of a new product, requiring additional infrastructureand new services.

Damage to machinery may require replacement or new parts. Dissatisfaction with the deliverables
of a particular supplier wouldencourage the company to seek another supplier.

A supplier who offers attractive products and services at low prices could instigate the purchasing
manager to seek his services. Whereas, among the external influences are: the supplier coming across
a new product in a trade fair, in an advertisement or at a very low price. The process of problem
recognition can be stimulated by direct mails,telemarketing or calling on prospects.

ii. General need Description: In this stage, the buyer identifies the other personnel who would be involved
with the product or service. Only then can the characteristics be determined. The specifications would be price,
durability, reliability and service.

iii. Product Specification: Next, the organization prepares the technical specifications of the product.
The product-value-analysis (PVA) team examines the high cost components in a given product.
Product value analysis can be defined as an approach to cost reduction and components are
carefully studied to determine if they can be redesigned or standardized or made through cheaper
methods of production.
Rigid specifications result in the buyer refusing the components which are either too
expensive or fail to meet the expectations. PVA can help supplier's position themselves or win a
buyer. An early entryinto the market increases the supplier's chances of winning a buyer.
iv. Supplier Search: At this stage the buyer attempts to identify the most suitable suppliers. He does
so by going through trade directories, performing a computer search, calling other companiesfor
recommendations, going through the ads and attending trade shows. The internet is the most
popular search tool these days. IT offers a level playing field for suppliers by giving both small
and large supplier equal opportunities to list them in the same online catalog for a very nominal
fee.
v. Proposal Solicitation: At this stage the buyer invites qualified suppliers to submit proposals
especially, in cases where the deliverables are complex or expensive. Each qualified supplier is
expected to submit detailed written proposals to the buyers. The buyers then invite a few
suppliers to make formal presentations. Marketers are thus required to be highly skilled in
researching, writing, and presenting proposals. The written proposals should not merely be
technical documents. They should be marketing documents. Through the oral presentation,
marketers should inspireconfidence in the company and clearly position their company's
deliverables and resources.

vi. Supplier Selection Characteristics: A buying vi. Center clearly specifies its desired supplier
characteristics and indicates their relevance. The suppliers are then rated on the basis of these
characteristics and most attractive suppliers are identified.

The type of buying situation determines the choice and importance of different attributes. In the
case of routine – order products, attributes such as delivery reliability, price and supplier
reputation are highly important. Technical service, supplier flexibility and product reliability are
essential attributes for procedural products. Price, supplier reputation, product and service
reliability, supplier flexibility, etc. are the most important attributes of procedural products.
Center clearly specifies its desired supplier characteristics and indicates their relevance. The
suppliers are then rated on the basis of these characteristics and most attractive suppliers are
identified.
The type of buying situation determines the choice and importance of different attributes. In the
case of routine – order products, attributessuch as delivery reliability, price and supplier
 MARKETING MANAGEMENT

Reputation is highly important. Technical service, supplier flexibility and product reliability are
essential attributes for procedural products. Price, supplier reputation, product and service
reliability, supplier flexibility, etc. are the most important attributes of procedural products.
Before selecting a supplier, the buying center usually negotiates withits suppliers for better prices
and terms.

Vii. Order Routine Specification: In this stage, the buyer negotiates the final order, lists the
technical specification, quantity required, delivery time, policies and warranties. Buyers are
moving towardsblanket contracts instead of periodic purchase orders.

A long-term relationship in which a supplier promises to resupply the buyer at an agreed price
over a period of time is termed a blanket contract. Using Electronic Data Interchange (EDI),
buyers can automatically send their orders to the supplier whenever the stock isnecessary.

Viii. Performance Review: The chosen supplier's performance is regularly reviewed by the buyer.
The buyer does so through three basic methods:
The end users may be contacted for feedback.
The buyer may use the weight score method to grade the supplier.
The buyer might aggregate the cost of poor supplier performance to arrive at adjusted costs of
purchase, including pricing

Case Study

Mr. Anil Mahadevan (AM) is working in a medium scale company as marketing executive. Mr. AM stays in
Chembur and works at Andheri MIDC, thus he hasto travel 25km to work. Near his factory there is no local
train station. Mr. Anil has to either travel through Company's Bus or through Best bus while going to the
office; Mr. Anil has no problem since he can take company's bus. He faces the real problem while returning.
He does not have fixed time. He has to go frequently out of office for work. Mobility for him therefore is
important.

Mr Anil's wife is Medical Professional & they have two college going children. Mr AM has often felt a
need for personal vehicles. Mr Anil's colleagues have their own vehicles. Often Anil's neighbor's wife asks
Anil's wife why they don't have a vehicle. During the Rotary Club Meetings, the members keep on asking
Anil why does not go for a vehicle. Anil's children's friends have a vehicle in their family.

So here, peer influence, neighbors & friends pressure make Anil seriously
Think of buying a personal vehicle.

Questions
Which vehicle should Anil buy? A car, motorcycle or a scooter?
Anil & his family feel they should go for a car. Should he buy a second hand or a new car? Which steps Anil
should follow to procure a car?

5.7 Consumer Behavior driving the boom of 21st century

Call it an aberration engendered by three factors: increased purchasing power, greater choice, and the
eagerness of companies to make it easy for the consumer to acquire what he or she wants to. “Today the
consumer has the luxury of choice. She is becoming more discerning because of this.” If choice is the new
axiom driving the boom, its corollary – keeping up with the Joneses – is as old as the hills. 'Consumers are
apt to compare their status with those in the same socio-economic strata. This reference group behavior
helps spread demand.' If consumers weren't exercising their choice last year, or the year before, there
were reasons for it: the recession, the liquidity crunch, and the fact that money was trapped in a stock
market that was moving upward with the frenzy of a freed kite. Why, 1999 even saw consumers lowering
their expectations and 'down trading' (opt for less expensive offerings than they otherwise would have) in
 MARKETING MANAGEMENT

Product categories like soaps and detergents, predict that the boom will be here in six months: “There is a
huge backlog of demand.Many consumers have deferred their purchases because of their bad times.”
If the recession forms the crust of this boom, then satellite television, the availability of easy
financing options, and the gradual spread of organized retail constitute the toppings. “Today, the Indian
consumer is more open to value added products. This can be attributed to rising aspirations. And exposure
to satellite TV is one reason for this.” That's exactly what marketers said during the last boom (1994-1995).
The difference? The first boom came about when people discovered that the number of ways in which one
could blow up money had increased tenfold almost overnight. This boom is riding on the back of savvier
consumers opting for value added products and services.One company launches of flat screen television, and
suddenly, the competitivecenter of gravity of the entire CTV industry moves to flats.

Only, value doesn't automatically translate into a willingness on the part of the consumer to spend more.
Companies still have to hard sell their products and services. Consumer finance, for instance, has a
significant role to play in sustaining the boom. “The extent to which financing has helped the boom can be
gauged from the fact that over 45 per cent of the cars sold in the country, over 30 per cent of the consumer
durables sold, and an increasing number offoreign holidays, are financed.”

Surviving the Boom

Six years back, when the boom of '94 happened, all a company had to do MARKETING to benefit from
MANAGEMENT
it was just to be
there. Today, though, only those prepared for theboom will thrive. Those that aren't ready could well end up
not surviving the boom. In many ways, being caught in a boom is like navigating through an electric storm
– there's no telling where the next high voltage strike will happen. To live through the boom, companies will
have to ensure that their marketingsystem is sensitive enough to capture customer changes in real time. And
that their marketing mix has enough flexibility to deal with any variable the boom may throw their way.
'Normally companies have one business plan, and come rain or shine, there are no changes made in this.
Now, there's a need to keepseveral strategic options open.'

The boom is also expected to impact entire supply chains. Some companiesmay find out that they have to
have a far more active brand communication agenda. Others may discover the need to pamper retailers.
And still others could realize that the key to surviving the boom is the creation of a vendor basethat can cope
with the consumers increasing demand for variety.

Segmentation, many marketers believe, will be the key to leveraging the boom, put simply, a company
that seeks to respond to the boom by segmenting its markets intelligently will create (or position) product
or serviceofferings for each viable segment, thereby tapping into not just one large boom, but many small
ones. 'A segmented approach reflects an evolution inthe marketer understands of the Indian consumer. It
will be at the level of themetros and the non-metros.

Then – within the metros – the rich and the not-so-rich.’ “However much the increase in demand for high-
value products, there willcontinue to be high market for entry-level products.” Some companies, like HLL,
are focusing on both ends of the spectrum: the FMCG monolith is entering the micro-credit business, and
launching a basket of low-end brandsto stoke demand at the rural end without diluting its focus on the high
end, albeit with another basket of brands. Avers Adhikari of HLL: “Some companieslimit their approach to
the premium segment, some of the lower segment; HLLhas the strength, capability, and ambition to operate
across the spectrum.” The cavear (for there surely must be one): it is easy to get carried away by thehype
surrounding the boom and launch high end offerings. Or make over a product and position it at a higher price
point. That may not work. “It is foolish toassume that just because the customer is looking for something
better, youcan charge more.” In the end, those likely to make the most of this value drivenupsurge are those
who realize that just as there is a rule book for managing therecession, there is one to manage the boom.

5.8 Business Marketing In India

Opportunities and Challenges

The business market is defined to include organizations that buy goods and services for use in the
production of other products and services that are sold,rented and supplied to others. The full business to

Business (B2B) market includes government purchases, quasi-government engaged in the purchase of
physical goods and services.

Growing Importance of Business Marketing

The present decade of the 21st Century can be appropriately termed as the decade of business to business
(B2B) marketing. In recently published US government trade data, the value of business to business (B2B)
and business to consumer (B2C) shipments appear nearly at the same level (at around $8.3 tn each), but the
number of items involved in sales to business buyers are much more than to retail consumers, highlighting
the high importance of business marketing.

In India, with the onset of economic reforms and thrust of globalization in different sectors of Indian
economy, there have been tremendous changes, both in value and content of marketing of industrial
products and services. Thefactors like-advances in technology, newer product and service offerings, higher
levels of customer orientation and increased customer expectation, growth in investments, including FDI
leading to international expansion of products and services-have caused in the past. Still, most companies
in business markets tend to apply consumer marketing solutions to industrial markets, willy-nilly, with
poor results. The Key reason for such dichotomy is that the business as a distinct area of marketing
practice and knowledge having its own unique dimensions.
 MARKETING MANAGEMENT
Business Marketing vis-a-vis Consumer Marketing
In order to appreciate the specific nuances of business marketing, it will be appropriate to capture the key
differences between business and consumer markets. While on the surface the basics of marketing are the
same for attracting the consumers, businesses, governments and institutions, there are a number of crucial
differences which make the marketing of products and services in the B2B market quite different from
marketing to consumers. These differences can be better understood under three main categories as spelled
out below.

Internal Factors

Interdepartmental and Cross- functional Coordination

Most of the products and services in business markets are made to order with appropriate emphasis
technology, innovation, design and high level of customization. The marketing, selling and operation
functions, including engineering, manufacturing, technical and information resources must have close
integration.

Wider Management Responsibilities

In a business market situation, the marketing product manager has to function as a mini genie manager. The
need for marketing and operations integration means business marketers have to make participation in
decisions that go beyond strict functional boundaries. Product development / improvement, application
engineering, capacity planning, quality assurance, product costingare only a few among many non-marketing
activities that a business marketingmanager has to undertake regularly.

Closer Link between Marketing Strategy and Corporate Strategy

In business marketing, the marketing strategy often acquires the dimensions of the overall corpora
strategy. For reasons stated above, particularly when pursuing significant marketing opportunities
involving large government and key customer contracts, the entire business has to change its strategy
from purely commercial to strategic and involve many ofthe firm's functional areas and its resource
strategy formulation.

External Factors

More Rational Decision-making

Business goods and services are purchased by highly trained professionals who strive hard to achieve
corporate targets like lowering cost, improving quality, etc., as laid down, within the framework c

Organization’s purchasing policies, constraints and requirements. While emotions do play some role from
time to time, buying decisions in business markets tend to be more rational andbased on specific performance
characteristics or benefits sought by the customer, as compared to consumer marketing.

Concentrated Customer Base

Business marketers generally have a much smaller base of potential customer and in many cases a small
number of key customer firms represent a large percentage of the industry's buying potential. This narrow
base means that in many markets, the buyers have more power than the sellers. Small numbers of customers,
many of them large enough to demand personalized marketing, often require customized products and
prices.

Several Buying Influences and Locations

In business markets, the decision-making groups or buying committees consisting of technical and
commercial experts and often senior management personnel in case of critical and high value purchase are
common. These individuals who are involved in procurement decision-making take on specific roles and
make or influence decisions based on these roles. Furthermore, several locations or factory / business units
may be involved in decision- making.

Communication of Benefits
 MARKETING
Business marketers, in order to succeed, should track the needs and concerns MANAGEMENT
of each key member of the
buying team and then communicate the benefits of their offering appropriately to each member. They must
also make each manager aware of all these benefits that are offered to others, as purchase decisions are
often arrived after joint consultation among members of the decision-making group.

Direct Purchasing
Business buyers often buy directly, more particularly for technically complex and expensive items, though smaller and
dispersed customers may be serviced through many different channels. Each effort, either through direct sales force or
through different distributionchannels reaching different customers requires a different marketingstrategy.

Close Supplier-Customer Relationship

In business markets, suppliers are frequently required to customize their offerings to individual customer
needs. Managing individual customers has become imperative for those who want to succeed in business
markets today. As competition has intensified in business markets, customers are demanding increasingly
more services and support. Suppliers can deliver those services only if they understandwhat each customer
wants. Thus, an extremely vital element in business marketing today is the development and maintenance
of close customer relationships.

Environmental Factors

Technology
Technology and performance superiority can give the industrial products or services competitive edge in
marketplace. Continuous product improvements in successive generations of industrial products can lead to
market leadership position. With business customers, the application of proper technology in input items
often has significant effects on the success of their outputs and financial results. Furthermore, an industrial
product sales engineer needs to be intimately familiar with the technology used by its customers in order
to serve these firms effectively and gain customer confidence.

Demand Issues
The demand for business goods is derived demand, ultimately derived from demand from consumer
goods. The demand is inelastic-usually not much affected by price changes and tends to be volatile, as
given increase in consumer demand can lead to a much greater percentage increase in the demand of
equipment necessary for the increased output. Thus, business marketing involves building profitable,
value-oriented relationships between the supplier and the customer organizations and many individuals
within them.Business marketers focus on a few customers, with usually much larger, morecomplex and more
technical sales processes. However, the emphasis on customer understanding can only succeed when based
on intimate knowledgeof customer operations, economics and business priorities.

Value Propositions
Clearly, companies aiming for sustainable and profitable growth should make customer value propositions
fundamental to their business strategy and eachvalue proposition must be:
Distinctive: It must be clearly of higher order to those claimed by the competitors.
Measurable: All value propositions should be based on tangible points of difference that are quantifiable
in monetary terms and can be brought to thetable.
Sustainable: The firm must be able to execute such value proposition over aconsiderable period of time.
Paradoxically, most business marketers are concerned over deciding how their friends can create value that
they rarely pay attention to communicating the benefits to the executives in the client firms who desire
them and are involved in purchasing decision-making. To acquire customers, firms must tryto be at least at
par with rivals on tangible benefits (points of parity) and use non-tangible benefits to differentiate their
offerings (points of difference) fromtheir competitors. To retain and build customer relationship, the efforts
will be to shift the customer's focus from tangible benefits to non-financial, non- tangible benefits like the
services they consistently deliver over and above their contractual obligations.

Customer Relationship
In mature industrial markets, companies engaged in basic industrial products like metal, chemicals, wood,
paper etc. are faced with flattening cost curves and virtually undifferentiated product quality and leading
 companies have taken a fresh look at how best to compete. These companies MARKETING MANAGEMENT
have turned their attention to
their customers-and beyond, to their Customers' customers. Traditionally, manufacturers of basic materials
used to see themselves as selling commodities, but now, they are beginning to discard the notion of hardand
fast boundaries between them and their key customers. Instead, they are focusing on customer integration:
Viewing supplier and customer as a single entity and working closely together in order to minimize
transaction costs and maximize value to the next customer in the chain. Research shows that close
collaboration with customers not only improves profits, but also drives innovation. Customer integration
is, by nature, a game of give-and-take with advantages to both parties. Once the seeds of a fruitful
partnership have been planted, strong roots emerge and intertwine, making it rather impossible to break
supplier and customer apart and move in. There are several examples of such a successful partnership in auto
components, software, solutions and other areas in recent times.

Know Your Customers Well Enough

What does a business marketer need to do to excel in today's highly competitive market scenario?
Managing individual customers is tough, and understanding the needs of their customers is tougher, but these
have become imperative in business markets today. Companies still have a long way to go before they can
say they manage individual customers in business markets. However, all these 90 not require big promotional
expenditures or complex and sophisticated software programs. AU it demands is a return to the basics of
marketing-understanding customer needs and what they really value.

5.91 Consumer Behavior: How Predisposition Determines BrandPreference Predisposition

When a consumer plans to buy a product, to be precise a brand, he normally considers a set of brands that
are known to him. Companies are creating awareness for the brands through advertisements and a series of
communication programs with the objective of selling their brands. But awareness alone cannot be held
responsible for selling the brand. Selling of a brand takes place in different stages. But it is imperative for
any company to create awareness among the buyers to help them familiar with its products or brands. For
example, if a consumer wants to buy a mobile handset, he does not consider all the brands for purchase. He
may be aware of different brands, but, in the end, considers only three or four brands to choose from. We,
call them,"evoked set".
Some of the popular mobile hand-sets are:

1. Nokia 2. Motorola 3. Samsung 4. SonyErricksson

5. Sagem 6. Haier 7. Siemens 8. LG
Figure 1: Predisposition Development
Experimental
Conversion Conversion Consumer
Happiness
satisfaction
Repeat
Awareness Consideration Sale Purchase

Non-Consumer

Consumer

Loyalty

Predisposition

But a buyer may not like to consider all brands for purchase. He may shortlist three or four brands say,
Nokia, Motorola, Samsung or Sony Erricksson. Finally he chooses the one that suits his requirements best
and then a sale takes place. A consumer buys a brand and uses it for some time; if it satisfies him develops
a liking for it and may go for repeat purchase. If he yet again experiences the same happiness in the repeat
 MARKETING
purchase, he develops brand loyalty and that leads to predisposition. A model MANAGEMENT
on Predisposition is given in
Figure 1.

Marketers make sure that there is a match between the Consumer Profile and the Brand Personality. If
there is a mismatch between consumer profileand brand personality, then probably, other elements of
marketing may not set the things right. If there is a match between these two, consumers probably may
like to see the other elements of marketing, i.e. price, brand image, company image, affordability etc. at
the time of exercising their brand preference.

Value Proposition
Very often marketing people get confused about the concept of Value Proposition. They feel value
proposition and value-for-money are synonymous. The value-for-money concept is strongly attached to
products like NIRMA and Maruti-800 and connotes only with low price products. In the case of value
proposition concept, we connote things differently and it is conceptually totally different from value-for-
money concept. The marketing experts explain that the product has to be low priced in the case of value
formoney concept and the consumer should get exactly the money's worth.
A middle class man can find 100% value proposition in Maruti 800 while an upper middle class man
cannot get the same value proposition from the same. Extremely rich consumers can get value proposition
from the expensive range of cars like Mercedes Benz, Rolls Royce, and BMW etc. For every stratum of
the society, value proposition is different and it doesn't necessarily be the price of the product. For Tata,
Ruia, or Ambant the ValueProposition may come from an expensive item (See Figure 2).
 Figure 2: Value Proposition Concept through Segmentation Variables

Does not consider

Rich
Price

Upper Middle May not consider

Price

Middle Class Low Price / Consider

Discount Quality

Lower Middle Also Consider

Low Price Quality
Class
Extra perceived
Value
Lower Low Price

Store Location

It is very important to the consumer that the store is located in the prime locations of the city. Customers
are very particular about the store where they buy an expensive item from. People attach the image of the
store as an important buying element at the time buying an expensive item. Recent global trends have shown
that consumer believes that shopping has to be fun and them trying to buy from the store where their
shopping experience is absolutely funky.

Communication at the Consensus Level

Consumer does not want any confusing message. The communication has to be very straight and strong.
There are so many factors involved in effective communication. If a man is young, handsome and
gregarious, he may like to have the visual of good-looking girls, exotic location, and melodious music
attached to the message communicated. Sometimes the association of smart and good-looking girls, exotic
location, and soft music can do wonders and could be very effective for this type of consumers. Other
forms of communication can include celebrities, fun emotions, etc. (See figure 4).

Figure 4: Positioning through Different Marketing Value Drivers

Image Brand
Value

Brand

Brand
Service pperceptio
nn
How brand preference takes place

It is very difficult to comprehend why a consumer prefers a particular brand. Charles Futrell explains in his
books ABC of Selling, how stimulus after passing through the black box, may sometimes get a positive
response from consumers while occasionally it may not. People's response to a particular stimulus can be
positive or negative. But Black Box approach is true only withthe impulse purchase.
However, in case of High Involvement Purchase, consumers' brand preference behavior is very complex
and they may like to go through a different mode that includes evaluation of all alternatives, before deciding
uponthe best brand that suits them.

5.9 SUMMARY
Marketers need to study the consumer behavior because it helps them position their products better
&develop effective marketing strategies. Consumer buying behavior is influenced by the culture &
subculture. The social class to which the individual belongs tells about the type of productsthe individual
prefers. Other factors that influence the buying behavior are social factors like reference group &family,
personal factors like age, life cycle, occupation, &psychological factors like motivation, perception, and
attitude.
A consumer can adapt various buying roles like initiator, influencer, decider,buyer, preparer, maintainer &
disposer in purchasing & using the products. Customer usually go through five stages in arriving at a
purchase decision, like identification of need, collection of information on available products/services,
evaluation of alternative products, arriving at purchase decision &actual purchase &decide future purchases
based on experience i.esatisfied or dissatisfied.
Industrial buyer behavior is totally different as compared to consumer buyer behavior. Few points of
distinction could be few buyers, geographically concentrated buyers, derived demand etc.

Case Study 5.10: Hyundai Motor Company – Consumer perceptions are

Difficult to change
Indian car market size is Rs40, 000cr (2007- 08).Number of units sold were 11, 00,000 cars. Market is