CONSUMER BEHAVIOUR

UNIT-1

Definition of Consumer Behaviour

Consumer behavior is the study of how individuals, groups, or organizations select, buy, use,
and dispose of goods, services, experiences, or ideas to satisfy their needs and desires. It
examines the psychological, social, cultural, and economic factors that influence purchasing
decisions.

Key Definitions by Experts:

1. Schiffman & Kanuk (2007):

"Consumer behavior is the study of how individuals make decisions to spend their
available resources (time, money, effort) on consumption-related items."
2. Philip Kotler (2008):
"Consumer behavior is the study of how people buy, what they buy, when they buy,
and why they buy."
3. Engel, Blackwell, & Miniard (1995):
"Consumer behavior refers to the actions and decision processes of people who
purchase goods and services for personal consumption."

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Meaning of Consumer Behavior

Consumer behavior refers to the study of how individuals, groups, or organizations select,
buy, use, and dispose of goods and services to satisfy their needs and wants. It involves
analyzing:

• What consumers buy (products, brands, and services)

• Why they buy (needs, motivations, and emotions)
• How they buy (decision-making process)
• When and where they buy (timing and purchase location)

Scope of Consumer Behavior

Consumer behavior covers multiple fields, including:

• Psychology: Understanding emotions, motivations, and perceptions.

• Economics: Studying how income, price, and supply affect choices.
• Marketing: Creating strategies to influence consumer decisions.
• Sociology & Anthropology: Examining cultural and social influences on buying
behavior.
Importance of Studying Consumer Behavior (Simple Explanation)

Studying consumer behavior helps businesses understand what people buy, why they buy,
and how they make decisions. This knowledge is important because:

1. Better Products & Services – Companies can create products that people actually
need and want.
2. Effective Marketing – Helps businesses advertise in the right way to attract
customers.
3. Customer Satisfaction – Understanding customers leads to better service and happy
buyers.
4. Smart Pricing – Companies can set the right price that customers are willing to pay.
5. Predicting Trends – Helps businesses stay ahead by knowing what’s popular.
6. Stronger Brand Loyalty – Happy customers return and recommend the brand to
others.
7. Better Advertising – Businesses can choose the best way to promote products (TV,
social media, etc.).
8. Competitive Advantage – Companies that understand their customers do better than
competitors.
9. Government Policies – Helps create fair rules to protect consumers from fraud.

Conclusion

Studying consumer behavior helps businesses grow, improve customer satisfaction, and make
better decisions. It also benefits consumers by ensuring they get better products and services.

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Applications of Consumer Behavior

Consumer behavior is applied in various areas such as:

• Product Development: Designing products based on consumer preferences.

• Pricing Strategies: Setting prices based on demand and perceived value.
• Advertising & Promotion: Choosing the right message, medium, and timing.
• Retailing & Distribution: Deciding where and how products should be sold.

Consumer Research and Its Role

What is Consumer Research?

Consumer research is the process of gathering and analyzing information about customers'
preferences, buying habits, and decision-making processes. It helps businesses understand
what consumers want and how they behave.
Role of Consumer Research

1. Understanding Consumer Needs

• Helps businesses identify what customers like and dislike.

• Ensures products and services meet consumer expectations.
• Example: A food company surveys people to find out which flavors they prefer.

2. Improving Marketing Strategies

• Helps create better advertisements and promotional campaigns.

• Identifies the best ways to reach target customers.
• Example: A fashion brand uses Instagram ads to target young shoppers.

3. Enhancing Customer Satisfaction

• Helps companies improve their products and services.

• Leads to better customer experiences and brand loyalty.
• Example: Online reviews help businesses fix product issues based on feedback.

4. Predicting Market Trends

• Helps businesses stay ahead by understanding future demands.

• Example: The rise in demand for electric cars led car companies to invest in EVs.

5. Assisting in Product Development

• Research helps in designing new and improved products.

• Example: Mobile companies study user feedback before launching new phone
models.

6. Making Pricing Decisions

• Helps companies set the right price for their products.

• Example: Luxury brands charge higher prices because research shows customers
associate high cost with quality.

7. Reducing Business Risks

• Research helps companies avoid launching products that may fail.

• Example: A toy company tests new toys with children before mass production.

8. Understanding Buying Behavior

• Studies how people make purchasing decisions.

• Example: Research shows many people read online reviews before buying, so
businesses focus on good ratings.
Types of Consumer Research

1. Primary Research – Direct data collection (e.g., surveys, interviews, focus groups).
2. Secondary Research – Using existing data (e.g., reports, studies, online sources).
3. Qualitative Research – Understanding emotions and opinions (e.g., focus groups,
observations).
4. Quantitative Research – Using numbers and statistics (e.g., online surveys, sales
data).

Conclusion

Consumer research helps businesses understand their customers, improve products, market
effectively, and make smart business decisions. It plays a crucial role in business success.

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The Consumer Decision-Making Process

The Consumer Decision-Making Process refers to the steps a customer goes through
before, during, and after purchasing a product or service. It helps businesses understand how
consumers make buying choices.

Steps in the Consumer Decision-Making Process

1. Problem Recognition (Need or Want Awareness)

• The consumer realizes they need or want something.

• This can be triggered by internal (hunger, thirst) or external factors (advertisements,
peer influence).
• Example: A person feels hungry and realizes they need food.

2. Information Search

• The consumer looks for information about possible solutions.

• Sources include personal experiences, online reviews, advertisements, and
recommendations from family or friends.
• Example: The person searches online for nearby restaurants or asks friends for
suggestions.
3. Evaluation of Alternatives

• The consumer compares different products or brands based on factors like price,
quality, reviews, and personal preferences.
• Example: The person compares different restaurants based on price, menu, and
customer ratings.

4. Purchase Decision

• The consumer makes the final decision on what to buy.

• External factors like discounts, peer influence, or stock availability may affect the
choice.
• Example: The person chooses a restaurant and orders their favorite dish.

5. Post-Purchase Behavior

• The consumer evaluates their experience and satisfaction with the purchase.
• A good experience leads to repeat purchases and brand loyalty. A bad experience may
result in complaints or negative reviews.
• Example: If the food was tasty and service was good, the person might return or
recommend the restaurant. If not, they may leave a negative review.

Importance of the Consumer Decision-Making Process

• Helps businesses understand customer needs and improve products.

• Assists in developing better marketing strategies to attract buyers.
• Encourages businesses to provide good service to gain customer loyalty.

Conclusion

Every purchase follows a decision-making process. Understanding this process helps

businesses create better products, improve marketing, and ensure customer satisfaction.

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 UNIT-2

Four Views of Consumer Decision Making

Consumers make purchasing decisions based on different approaches, influenced by
rationality, external influences, emotions, or cognitive processing. These perspectives
help marketers understand consumer behavior and tailor their strategies accordingly.

1. Economic Man

The Economic Man Model assumes that consumers are rational decision-makers who aim
to maximize their benefits while minimizing costs.

Characteristics:

• Rational Decision Making – Consumers analyze all available information before

making a purchase.
• Maximizing Utility – They seek the best possible value for their money.
• Optimizing Decisions – Every decision is calculated, with no emotional influence.

Example:

A consumer compares multiple smartphones based on price and features and chooses the one
that offers the best value, ignoring brand loyalty or emotional appeal.

Limitations:

• Assumes consumers always have complete information, which is unrealistic.

• Does not account for impulse purchases or emotional influences.

2. Passive Man

The Passive Man Model suggests that consumers are easily influenced by external factors
such as advertising, social norms, and peer pressure. Unlike Economic Man, they do not
make fully rational decisions but react to marketing stimuli.

Characteristics:

• Influenced by External Stimuli – Advertisements, promotions, and peer pressure

drive their choices.
• Lack of Active Engagement – They do not thoroughly research alternatives.
• Impulsive Decisions – They may purchase based on emotions rather than logical
evaluation.

Example:
A consumer buys a soda brand simply because a celebrity endorses it, without considering
other options.

Limitations:

• Ignores situations where consumers actively seek information before buying.

• Overemphasizes external factors while neglecting personal preferences.

3. Emotional Man

The Emotional Man Model highlights how emotions play a key role in consumer decision-
making. Instead of logic or external influence, consumers make emotion-driven choices
based on feelings, desires, and past experiences.

Characteristics:

• Emotion-Driven Decisions – Consumers buy products that make them feel good.
• Impulse Buying – Excitement, nostalgia, or personal attachment can trigger
purchases.
• Brand Attachment – Strong emotional connections influence long-term loyalty.

Example:

A consumer buys a luxury handbag because it makes them feel confident and stylish, despite
cheaper alternatives being available.

Limitations:

• Emotions can lead to irrational decisions, such as overspending.

• Consumers may prioritize emotional satisfaction over practicality.

4. Cognitive Man

The Cognitive Man Model emphasizes logical and analytical decision-making. Consumers
follow a structured approach, actively searching for information and carefully evaluating
alternatives before making a purchase.

Characteristics:

• Information Search & Evaluation – Consumers conduct thorough research.

• Rational Decision Making – Choices are based on facts, reviews, and logical
comparisons.
• Memory & Learning Influence – Past experiences shape future purchases.

Example:
A consumer researches different refrigerator models based on energy efficiency, brand
reputation, and customer reviews before making a purchase.

Limitations:

• Time-Consuming – Consumers may not always have time to analyze every purchase.
• Overlooks Emotional Factors – Buying decisions often involve emotions, not just
logic.

Decision Rules in Consumer Decision Making

Consumers apply different decision-making rules when selecting products:

1. Compensatory Decision Rules

• Consumers weigh the pros and cons of each product.

• A product’s weakness (e.g., high price) can be compensated by a strength (e.g.,
superior features).
• Example: A buyer chooses an expensive smartphone because it has a great camera
and battery life.

2. Non-Compensatory Decision Rules

• Consumers set strict criteria, and if a product fails one requirement, it is rejected,
even if it excels in other areas.
• No trade-offs are considered.
• Example: A consumer refuses to buy a phone without a specific camera feature, even
if it has other good qualities.

Conclusion
These four views of consumer decision-making—Economic, Passive, Emotional, and
Cognitive—help explain why people buy what they do. Real-world consumer behavior often
combines elements from multiple models, depending on the product and buying situation.

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 UNIT-3

1. Consumer Motivation

Motivation is the internal drive that pushes consumers to take action to satisfy their needs or
goals.

• Definition: It’s the desire to fulfill unsatisfied needs, whether physical (like hunger)
or psychological (like self-esteem).
• Key Theories:
o Maslow’s Hierarchy of Needs:
1. Physiological (food, water, shelter)
2. Safety (security, stability)
3. Social (love, belonging)
4. Esteem (recognition, respect)
5. Self-Actualization (personal growth, creativity)
o Herzberg’s Two-Factor Theory:
▪ Hygiene Factors: Prevent dissatisfaction (e.g., price, availability).
▪ Motivators: Lead to satisfaction (e.g., product quality, features).

2. Needs and Goals

• Needs: The driving force behind purchases.

o Biogenic Needs: Basic survival (food, water).
o Psychogenic Needs: Psychological desires (status, love).
o Utilitarian Needs: Practical needs (reliable car).
o Hedonic Needs: Pleasure-based (luxury items).
• Goals: The desired outcome of fulfilling a need.
o Example: A person needs food but chooses fine dining for a premium
experience.

3. Positive & Negative Motivation

• Positive Motivation: Driven by rewards or benefits (e.g., buying a fitness tracker for
health).
• Negative Motivation: Driven by avoiding risks or loss (e.g., buying insurance to
prevent financial trouble).

4. Dynamic Nature of Motivation

Motivation changes over time due to:

• Life Stages: Teenagers prioritize fashion, while adults focus on family needs.
• Social Trends: Eco-conscious consumers prefer sustainable brands.
• Emotions: Stress may drive comfort food purchases.
• Seasons: Summer increases outdoor product demand.
5. Consumer Perception

Perception is how consumers interpret information and make purchasing decisions.

• Stages:
1. Exposure: Seeing a product or ad.
2. Attention: Focusing on it.
3. Interpretation: Assigning meaning based on past experiences.
• Selective Perception: Consumers notice what aligns with their beliefs.
• Brand Perception: Strong branding influences consumer choices.

6. Consumer Behavior Framework

Consumer decisions are influenced by:

• Internal Factors: Motivation, perception, past experiences, and attitudes.

• External Factors: Culture, social influences (family, friends), and situational factors
(sales, time constraints).
• Behavioral Response: Leads to buying, recommending, or sharing product
experiences.

7. Cultural Influence on Consumer Behavior

Culture shapes consumer preferences and habits.

• Influences Needs & Preferences:

o Example: Some cultures prefer family-focused products, while others
prioritize personal use.
• Subcultures: Smaller cultural groups with distinct behaviors (e.g., youth prefer
trendy tech).
• Cultural Change: Trends evolve over time, like the shift toward eco-friendly
products.

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Here are the detailed notes for UNIT 4 of Working Capital Management (BBA 3rd Year),
based on the document you uploaded:
 UNIT 4 – Inventory Management

1. Meaning and Nature of Inventory

• Inventory refers to the goods and materials that a business holds for the ultimate goal
of resale, production, or utilization.
• It includes:
o Raw materials
o Work-in-progress (WIP)
o Finished goods

Inventory is considered a current asset, essential for continuous production and smooth
sales operations.

2. Purpose and Benefits of Holding Inventory

Holding inventory is beneficial because:

1. Smooth Production Flow: Ensures that production doesn't stop due to lack of
raw materials.
2. Economies of Scale: Bulk purchasing of raw materials may reduce costs.
3. Meet Customer Demand: Availability of finished goods helps fulfill customer
orders on time.
4. Protection Against Delays: Acts as a buffer against supply chain disruptions.
5. Price Fluctuation Advantage: Buying and storing inventory when prices are low
can reduce costs.
6. Support Seasonal Demand: Helps companies prepare for high-demand periods.

3. Risks and Costs of Holding Inventory

While inventory is necessary, holding too much can create problems:

A. Risks:

• Obsolescence (especially in fashion and tech industries)

• Damage or Spoilage
• Theft or Pilferage
• Price decline

B. Costs:
 1. Carrying Cost – Storage, insurance, depreciation.
2. Ordering Cost – Costs involved in placing and receiving orders.
3. Shortage Cost – Lost sales due to stockouts.
4. Capital Cost – Money tied up in inventory that could be used elsewhere.

4. Objectives of Inventory Management

The goal is to maintain optimum inventory—not too much, not too little.

Main objectives include:

• Minimize total inventory cost

• Ensure uninterrupted production and sales
• Improve customer service level
• Avoid stockouts and overstocking
• Improve efficiency in handling, storing, and recording

5. Tools and Techniques of Inventory Management

A. ABC Analysis (Always, Better, Control)

• Items are classified into three categories:

o A items: High value, low quantity
o B items: Moderate value and quantity
o C items: Low value, high quantity
• Helps prioritize monitoring and control efforts.

B. VED Analysis (Vital, Essential, Desirable)

• Based on criticality:
o Vital: Must-have for operations.
o Essential: Important but not critical.
o Desirable: Can be delayed.

C. EOQ – Economic Order Quantity

• Calculates the ideal order quantity to minimize total inventory cost (ordering +
carrying costs).
• Formula:

EOQ=2AOCEOQ = \sqrt{\frac{2AO}{C}}

o A = Annual demand
o O = Ordering cost per order
o C = Carrying cost per unit
D. Reorder Point

• The stock level at which a new order should be placed.

• Formula:

Reorder Point=Lead Time×Average Daily Usage\text{Reorder Point} = \text{Lead

Time} \times \text{Average Daily Usage}

E. Safety Stock

• Extra inventory held to avoid stockouts due to uncertainties in demand or supply.

F. Inventory Turnover Ratio

• Shows how many times inventory is sold and replaced over a period.
• Formula:

Inventory Turnover=Cost of Goods SoldAverage Inventory\text{Inventory Turnover}

= \frac{\text{Cost of Goods Sold}}{\text{Average Inventory}}

Summary Table

Topic Explanation
Inventory Stock of raw materials, WIP, finished goods
Purpose Smooth operations, customer satisfaction, cost savings
Risks Obsolescence, theft, storage cost
Objectives Reduce costs, avoid over/under stocking
Tools ABC, VED, EOQ, Reorder Point, Safety Stock, Turnover Ratio

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Here are the detailed and easy-to-understand notes for UNIT 5: Financing of Working
Capital from your Working Capital Management syllabus (BBA 3rd Year):

UNIT 5 – Financing of Working Capital

1. Meaning of Working Capital Financing

Working capital financing refers to how a company funds its short-term operational
needs—like buying raw materials, paying wages, and covering day-to-day expenses.
Since working capital deals with current assets and liabilities, the financing is mostly
short-term in nature.

2. Determining the Working Capital Financing Mix

There are three main approaches companies use to decide how to finance their working
capital:

A. Hedging / Matching Approach

• Match the life of the asset with the life of the liability.
• Short-term assets (like inventory) are financed by short-term sources (like bank
loans).
• Long-term assets are financed by long-term funds (like equity or term loans).
• Advantage: Lower risk and better alignment.
• Limitation: Sometimes hard to exactly match asset-liability timings.

B. Conservative Approach

• Use long-term funds for both fixed and part of current assets.
• Only a small portion of working capital is financed by short-term funds.
• Advantage: Lower risk of liquidity problems.
• Limitation: Higher cost (long-term funds are costlier).

C. Aggressive Approach

• Use short-term sources to finance a major portion of current assets, and even part of
fixed assets.
• Advantage: Cheaper financing.
• Limitation: High risk—may face cash crunch if short-term funds aren’t available.

3. Sources of Working Capital Financing

A. Short-Term Sources

1. Trade Credit – Credit from suppliers (buy now, pay later)

2. Bank Credit – Cash credit, overdraft, short-term loans
 3. Commercial Paper – Short-term unsecured promissory notes
4. Public Deposits – Money from the public for a short period
5. Inter-corporate Deposits – Loans between companies

B. Long-Term Sources

1. Equity Capital
2. Debentures and Bonds
3. Term Loans from Banks or FIs
4. Retained Earnings

Usually, short-term needs are financed through short-term sources, but a portion may
come from long-term funds for stability.

4. New Trends in Financing of Working Capital by Banks

Due to liberalization and tech advancements, banks have introduced new practices:

1. Online Credit Approvals

2. Working Capital Limits Based on Cash Flow
3. Collateral-Free Loans for MSMEs
4. Use of Credit Rating for Loan Terms
5. Pre-approved Credit Lines
6. Digital Monitoring of Stock Statements and Receivables

5. Latest Committees on Working Capital

A. Tandon Committee (1974)

• Formed by RBI to study bank credit system.

• Suggested norms for inventory and receivables.
• Recommended methods for determining working capital requirements.

Three Methods of Lending:

1. Borrower provides minimum 25% from long-term sources.

2. Bank finances only up to 75% of the working capital gap.
3. Bank finances a fixed percentage of total current assets.

B. Chore Committee

• Reviewed implementation of Tandon norms.

• Recommended regular submission of data to banks.
 • Emphasized better monitoring of working capital loans.

C. Nayak Committee

• Focused on small industries.

• Suggested simplified assessment for units with working capital up to ₹5 crores.
• Recommended 20% of turnover as working capital.

D. Marathe Committee

• Suggested flexibility in assessing credit needs.

• Allowed banks to use their own judgment rather than rigid norms.

Summary Table

Topic Explanation
Working Capital
Funding daily operations of a business
Financing
Hedging Approach Match asset life with loan life
Conservative Approach Use long-term funds for most needs
Aggressive Approach Depend more on short-term funds
Sources Trade credit, bank loans, commercial paper, equity
New Bank Trends Digital credit limits, MSME support, cash flow-based lending
Tandon, Chore, Nayak, Marathe – gave guidelines for credit
Committees
assessment

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