Buying Behaviour

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Buying Behaviour

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MBA PROJECTS

Riaz Ahemad

INDEX
SR NO
PARTICULARS

PAGE

1 2 3 4 5 6 7

Buying Decision, why to buy consumer Buying Behavior, general model Consumer Buying Process Segmentation Buying situation Swot analysis Conclusion

3 6 11 12 15 17 20

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Buying Decision Process Why People Buy
Marketers spend millions of dollars trying to understand why people buy products and services. Sometimes it seems that there is no reason for a purchase, but in reality there is always a reason. Many factors are involved in a customers' buying decision, any one of which can become the deciding factor, such as: Conspicuous consumption: Lavish spending for the purpose of displaying wealth or social status; preference for buying increases with price. Snob effect: Desire to buy something nobody else has; preference for buying increases with rarity or scarcity. Bandwagon effect: Desire to buy something everybody else is buying; preference for buying increases with perceived popularity. Economic-To enhance their lifestyle or to fulfill two of Maslow's needs: physiological (food, shelter) and Safety and Security. Psychological-This is the study of how people interact with the environment, products are consumed to enhance their well being, for example air fresheners, furniture and convection ovens. Sociological-The study of the thoughts, feelings, and behaviors of group interaction, especially in a social setting. People want to feel accepted and loved by their peers and they need to consume products that will appeal to their chosen groups. For example a consumer wants to join a kayaking team would have to purchase the proper gear, clothing and maybe even music genre in order to fit in with the group. Practical-Consumers purchase products because they need them to survive, such as shoes and medicine. Impractical-is the opposite of practical, purchasing products that are not necessary. Rational-Purchases are made with logical, thought out reasoning. Irrational-products are purchased for foolish or absurd reasons.
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Factual-Purchasing products based on researched reports. Emotional-purchasing products based on feelings Buy to satisfy a need (for a reason). Buy to satisfy a want (desire).

If a marketer can identify consumer buyer behaviour, he or she will be in a better position to target products and services at them. Buyer behaviour is focused upon the needs of individuals, groups and organisations. It is important to understand the relevance of human needs to buyer behaviour (remember, marketing is about satisfying needs).

Let's look at human motivations as introduced by Abraham Maslow by his hierarchy of needs: The hierarchy is triangular. This is because as you move up it, fewer and fewer people satisfy higher level needs. We begin at the bottom level. Physiological needs such as food, air, water, heat, and the basic necessities of survival need to be satisfied. At the level of safety, man has a place to live that protects him from the elements and
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predators. At the third level we meet our social and belongingness needs i.e. we marry, or join groups of friends, etc. The final two levels are esteem and self-actualisation. Fewer people satisfy the higher level needs. Esteem means that you achieve something that makes you recognised and gives personal satisfaction, for example writing a book. Self-actualisation is achieved by few. Here a person is

One of a small number to actually do something. For example, Neil Armstrong self-actualised as the first person to reach the Moon. The model is a little simplistic but introduces the concept a differing consumer needs quite well.

To understand consumer buyer behaviour is to understand how the person interacts with the marketing mix. As described by Cohen (1991), the marketing mix inputs (or the four P's of price, place, promotion, and product) are adapted and focused upon the consumer. The psychology of each individual considers the product or service on offer in relation to their own culture, attitude, previous learning, and personal perception. The consumer then decides whether or not to purchase, where to purchase, the brand that he or she prefers, and other choices.
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The Buyer Decision Process.
Buyer decision processes are the decision making processes undertaken by consumers in regard to a potential market transaction before, during, and after the purchase of a product or service. More generally, decision making is the cognitive process of selecting a course of action from among multiple alternatives. Common examples include shopping and deciding what to eat. Decision making is said to be a psychological construct. This means that although we can never "see" a decision, we can infer from observable behavior that a decision has been made. Therefore we conclude that a psychological event that we call "decision making" has occurred. It is a construction that imputes commitment to action. That is, based on observable actions, we assume that people have made a commitment to effect the action. In general there are three ways of analyzing consumer buying decisions. They are: Economic models - These models are largely quantitative and are based on the assumptions of rationality and near perfect knowledge. The consumer is seen to maximize their utility. See consumer theory. Game theory can also be used in some circumstances. Psychological models - These models concentrate on psychological and cognitive processes such as motivation and need recognition. They are qualitative rather than quantitative and build on sociological factors like cultural influences and family influences. Consumer behavior models - These are practical models used by marketers. They typically blend both economic and psychological models.

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General model
A general model of the buyer decision process consists of the following steps: 1. Problem recognition; 2. Information Search 3. Evaluation of Alternative 4. Purchase decision 5. Purchase 6. Post-purchase behavior/buyer's remorse (cognitive dissonance)

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Problem Recognition:The buying process starts when the buyer recognizes a problem or need triggered by Internal or external stimuli. Marketer need to identify the circumstances that trigger a particular need by gathering information from a number of consumers. Particularly for discretionary purchases such as luxury goods, vacation packages and entertainment options.

Information Search:Consumers search for a limited amount of information for a product before buying. Sources of information include:
1. 2.

Personal sources Commercial sources

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MBA PROJECTS
3. 4.

Public sources Personal experience

The relevant internal psychological process that is associated with information search is perception. Perception is defined as 'the process by which an individual receives, selects, organizes, and interprets information to create a meaningful picture of the world'

Evaluation of Alternatives
The third step of the "Buyer Decision Process" is the "Evaluation of Alternatives."During this stage of the process, a consumer arrives at a final set of brand choices and then must evaluates them based on their own individual needs, and on the specific buying situation. Companies respond to this buy researching how various consumers evaluate brand alternatives, and adjust their marketing accordingly. Verizon has made a big attempt to change how customers evaluate them when choosing between cell phone providers. Verizon has been at a big disadvantage in the smart phone market because of AT&T exclusive right to distribute the iphone. They have responded with a marketing campaign that focuses on how much larger their 3g coverage is then AT&T's. This is because smart phones require a fast internet connection to be of much use. So while AT&T may have the hottest phone, it may run extremely slow in many places where a consumer would want to use it. What’s the point of having a cool phone if you can only use it in a few places? That is the question Verizon wants consumers to ask themselves when they are evaluating brand alternatives.

Purchase decision
Once the alternatives have been evaluated, the consumer is ready to make a purchase decision. Sometimes purchase intention does not result in an actual purchase. The marketing organization must facilitate the consumer to act on their purchase intention. The organization can use variety of techniques to achieve this. The provision of credit or payment terms may encourage purchase, or a sales promotion such as the opportunity to receive a premium or enter a competition may
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provide an incentive to buy now. The relevant internal psychological process that is associated with purchase decision is integration. Once the integration is achieved, the organization can influence the purchase decisions much more easily.

Post purchase evaluation
It is common for customers to experience concerns after making a purchase decision. This arises from a concept that is known as “cognitive dissonance”. The customer, having bought a product, may feel that an alternative would have been preferable. In these circumstances that customer will not repurchase immediately, but is likely to switch brands next time. To manage the post-purchase stage, it is the job of the marketing team to persuade the potential customer that the product will satisfy his or her needs. Then after having made a purchase, the customer should be encouraged that he or she has made the right decision. It is not affected by advertisement.

Internal influences
Consumer behavior is influenced by: demographics, psychographics (lifestyle), personality, motivation, knowledge, attitudes, beliefs, and feelings. Consumer behavior concern with consumer need consumer actions in the direction of satisfying needs leads to his behavior of every individual depend on thinking

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External influences
Consumer behavior is influenced by: culture, sub-culture, locality, royalty, ethnicity, family, social class, reference groups, lifestyle, sex and all. The black box model shows the interaction of stimuli, consumer characteristics, and decision process and consumer responses. It can be distinguished between interpersonal stimuli (between people) or intrapersonal stimuli (within people). The black box model is related to the black box theory of behaviorism, where the focus is not set on the processes inside a consumer, but the relation between the stimuli and the response of the consumer. The marketing stimuli are planned and processed by the companies, whereas the environmental stimulus is given by social factors, based on the economical, political and cultural circumstances of a society. The buyers’ black box contains the buyer characteristics and the decision process, which determines the buyer’s response. The black box model considers the buyers response as a result of a conscious, rational decision process, in which it is assumed that the buyer has recognized the problem. However, in reality many decisions are not made in awareness of a determined problem by the consumer.

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Consumer Buying Behavior
Consumer behavior is the study of when, why, how, and where people do or do not buy product. It blends elements from psychology, sociology, social anthropology and economics. It attempts to understand the buyer decision making process, both individually and in groups. It studies characteristics of individual consumers such as demographics and behavioral variables in an attempt to understand people's wants. It also tries to assess influences on the consumer from groups such as family, friends, reference groups, and society in general. Customer behavior study is based on consumer buying behavior, with the customer playing the three distinct roles of user, payer and buyer. Relationship marketing is an influential asset for

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customer behavior analysis as it has a keen interest in the re-discovery of the true meaning of marketing through the re-affirmation of the importance of the customer or buyer. A greater importance is also placed on consumer retention, customer relationship management, personalization, customization and one-to-one marketing. Social functions can be categorized into social choice and welfare functions.

Segmentation, Demographics and Behavior
Segmentation is the process of breaking down the intended product market into manageable groups; it can be broken down by:
1. 2. 3. 4. 5. 6. 7. 8. 9.

Relationship Customer Type Product Use Buying Situation Purchasing Method Behavior Geographic Location Demographics Psychographics

Segmentation:-

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Behavior
1. 2. 3. 4. 5. 6. 7.

Needs—economic, functional, psychological, social. Benefits--quality, service, economy, convenience, speed. Attitude toward product--Enthusiastic, positive, indifferent, negative, hostile. User status--Nonuser, ex user, potential user, first time user, regular user. Loyalty status--None, medium, strong, absolute. Brand Familiarity-Unaware, aware, informed, interested, desirous, intending to buy. Occasion--Regular occasion; special occasion, convenience, comparison shopping, unsought product. Type of problem solving needed-routine, limited, extensive. Information required-low, medium, high.

8. 9.

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Geographic Location
1. 2.

Region of world, country— North America, South America, Africa, Asia, Europe. Regions within that country— (For Example USA) Pacific Northwest, South, Midwest, New England. Size of city— population under 5,000 people to 4 million or more. Urban vs. rural— country, city, large city = more resources, more independence; country=more dependence on neighbors and pooling resources. Climate— cold, hot, rainy, desert, beaches, mountains.

3. 4.

5.

Demographics
1. 2. 3.

Income— under $5,000 to $250,000+ a year. Gender— male, female, neither, both. Age— Infant, toddler, preschool, between (age 8 to 12), teen, college age, 20, 30, 40, 50, 60, 70-90. Family size— 1 person, 2, 3, 4, 5 or more. Family life cycle— young, single, engaged, DINKS (double income no kids), SINKS (single income no kids), married with kids (babies, toddler, elementary school age, teen, older), recently divorced, empty nester (children have moved out), same-sex couples, single parents, extended parents (grandparents raising their grandchildren), retired (either wealthy or Medicare dependent/poor). There are also Boomerang Kids (adult children have moved back home), Cougar/Silver Fox (Cougar is a 40-60 year old wealthy, single, career driven woman seeking a younger man; Silver Fox is a 40-60 year old wealthy, single, career driven man seeking a younger woman).

4. 5.

6.

Job— unemployed, housewife, part-time, full-time, student, professional, craftsperson, farmer, retired.

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7.

Education— grade school or less, some high school, high school graduate, some college, college graduate, graduate degrees. Religion— Christian, Jewish, agnostic, atheist, Muslim, Islam etc. Race— White, Black, Asian, Hispanic, Native American, mixed race, etc. Culture/nationality—American, French, English, African, Russian, Indian etc. Generation— (For Example USA) GI Generation, Silent, Matures, Baby Boomer, Gen X, Gen Y, Boomlets.

8. 9. 10. 11.

Psychographics
1.

Lifestyle— interests, hobbies, activities, interests, opinions, values, media preferences. Everyone has two lifestyles, the one they are in now, and the one they desire to be in, which is usually better than the current one. Almost all decisions are influenced by the buyer’s current and desired lifestyle.

2.

Personality traits
o o o o o

Sincerity. Excitement. Competence. Sophistication. Ruggedness.

Social class— lower, middle-low, middle, middle-upper, upper, upper-upper, working class, blue collar.

Buying Situation
1.

Buying situation— Rebuy, modified Rebuy, new purchase

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BUYING SITUATIONS It is not only products differ. Even the buying situation differs. Each time the buyer is to take a purchase decision ,it may or may not be the same as the previous one. The differentiation between the two buying situations may be caused by the absence of any or all of the following factors.
2. 3.

Awareness about competing brands in a product group. Customer has a decision criterion and Customer is able to evaluate and decide on his choice. Viewed against these parameters ,one may observe that it is not the product that differentiates one buying situation from another; rather it is the time that the buyer spends in learning and evaluating the alternatives or finally selecting one of them .Howard and Sheth have described these buying situations as being:

4.

5. 6.

Routines response behavior Limited problem solving and extensive problem solving.

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Routines Response Behavior or Straight Rebuy This is a buying situation characterized by the presence of all the above three criteria for differentiation .In other words, here the customers is aware of his or her choices, knows what he is looking for, as his or her decision is based on personal experience of either self or others. Generally, the customer spends little or no time choosing an alternative .Brand loyalty is relatively higher here. Moreover, this is a buying situation where a customer perceives a low risk in buying the product and/or the brand. Consider the typical shopping behavior of a housewife .She goes to the grocer or a supermarket and spends much less time in selecting her toiletries, beverages like tea or coffee and other food products. For each time she goes to buy her family requirements, she generally ends up buying the same brand. Limited Problem Solving or Modified Rebuy This is a buying situation with a difference .This could be for example, introduction of a new brand or product often requiring a change in the customer decision criteria. Continuing the example of the housewife ,assume that in her next shopping cycle ,she sees a new liquid toilet soap which promises to keep her skin soft and moisturized .the brand also promises to give vitamin E, which the manufacturer claims is required in temperate conditions. The liquid toilet soap brand is available in four fragrances .The pack can be refilled every time the soap gets fully consumed .Now this introduction is likely to change her decision and may be the choice criteria. If she spends some time in evaluating the liquid toilet soap against the normal bar soap and then decides to try it, we conclude that for her it was a limited problem solving situation. As can be seen, this buying situation will often lead to a trial purchase. The customer
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may even decide to continue with her current product selection. Generally it has been observed that brand extension strategy helps the customer to reduce the element of newness in the purchase decision. Like, for example Unilever deciding to introduce liquid toilet soap under its most popular brand name lux. It may be remembered that customer perceives moderate risk in this situation.

SWOT Analysis Dell
1. 2.

Strengths.
Dell is the World's largest PC maker. Profits for the 3 months to July 2005 were in excess of $1 billion US, representing a growth of around 28%. For the last couple of years it has held its position as market leader (it took it from rivals Hewlett-Packard). The Dell brand is one of the best known and renowned computer brands in the World.

3.

Dell cuts out the retailer and supplies directly to the customers. It uses information technology, and Customer Relationship Management (CRM) approaches to capture data on its loyal consumers. So a customer selects a generic PC model, and then adds items and upgrades until the PC is kitted out to the customer's own specification. Components are made by suppliers, never by Dell. PC's are assembled using relatively cheap labour. You can even keep track of your delivery by contacting customer services, based in India. The finished goods are then dropped off with the customer by courier. Dell has total command of the supply chain.

Weaknesses.
1.

The company has such a huge range of products and components from many suppliers from a plethora of countries, that there is the occasional product recall that can cause Dell some embarrassment. In 2004 Dell had to recall 4.4 million laptop adapters because of a fear that they could overheat, causing electric shocks or fires.

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2.

Dell is a computer maker, not a computer manufacturer. It buys from a group of concentrated hi-tech component manufacturers. Whilst this is a tremendous advantage in terms of business operations, allowing Dell to focus on marketing and logistics, the company is reliant on a few large suppliers, and to an extent is locked in for periods of time (i.e. unable to switch supply dues to the lack of large suppliers in the World).

Opportunities.
1.

Kevin Rollins replaced Michael Dell in 2004 as Dell's Chief Executive Officer. Dell remained the company's Chairman. Despite founder Dell's massive success, new blood and a change in management thinking could lead the company into a new, even more profitable period. Dell was born in 1965, and founded Dell in 1984 with $1000 whilst studying at the University of Texas. He became the youngest Fortune 500 CEO in 1992, and will be a tough act to follow.

2.

Dell is pursuing a diversification strategy by introducing many new products to its range. This initially has meant good such as peripherals including printers and toners, but now also included LCD televisions and other non-computing goods. So Dell competes against iPod and other consumer electronics brands.

3.

Dell is making and selling low-cost, low-price computers to PC retailers in the United States. The PC's are unbranded and should not be recognized as being Dell when the consumer makes a purchase. Rebranding and rebidding for retailers, although a departure for Dell, gives the company new market segments to attack with the associated marketing costs.

Threats.
1.

The single biggest problem for Dell is the competitive rivalry that exists in the PC market globally. As with all profitable brands, retaliation from competitors and new entrants to the market poses potential threats. Dell sources from Far Eastern nations where labour costs remain low, but there is nothing stopping competitors doing the same - even sourcing the same or similar components from the same or similar suppliers. Remember, Dell is a PC maker, not a PC manufacturer.

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2.

Dell, being global in its marketing and operations, is exposed to fluctuations in the World currency markets. Although it is a very lean organization, orders do have to be placed some time ahead due to their size or value. Changes in exchange rates could leave the company exposed to potential losses in parts of its supply chain.

3.

Dell's commitment to customer value, to our team, to being direct, to operating responsibly and, ultimately, to winning continues to differentiate us from other companies. The Background section provides critical information and history.

ENVIRONMENTAL FACTORS MARKETING STIMULI, 4P’S

BUYER’S BLACK

BOX DECISION BUYER'S RESPONSE

ENVIRONMENT BUYER STIMULI

CHARACTERISTIC PROCESS

Product

Economic

Attitudes

Problem recognition

Product choice

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Price Place promotion

Technological Political Cultural Demographic

Motivation Perceptions Personality Lifestyle

Information search Alternative evaluation Purchase decision Postpurchase behavior

Brand choice Dealer choice Purchase timing Purchase amount

natural

Knowledge

CONCLUSION:Buying decision process is a most important step which buyer undergoes it before buying a product. Here we do see that how is strength of Dell computer and its unprecedented services in terms of its long running battery and online internet based sells and distribution channel, Quality and Durability has been affecting the Dell product buying. Buyer buy the product when does he feels Perceived values from it.

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The Buying Decision Process

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