Chapter Three
Types of Market
3.1 Consumer Markets
consumer markets,are including those individuals and house holds who buy and consume goods and services for their own personal use.They are not interested in reselling the product or setting themselves up as a manufacturer.
Marketers need to understand who their customers.Once they know who their customers are, they also need to know as much as possible about how those customers behave.
We seek to answer the following questions:
1.How do consumers go about making a buying decision?
2.What influences their decision to buy one product infavor of another?
3.What difference sex is t between consumers as individuals and consumers as groups?
Consumer Buying Behaviour
- Consumer buying behavior refers to the buying behavior of final consumers
- Consumers make many buying decisions every day. Marketer research consumer buying decisions in great detail to answer questions about what consumers buy, where they buy, how and how much they buy, when they buy, and why they buy.
- But learning about the whys of consumer buying behavior is not so easy—the answers are often locked deep within the consumer's head.
3.1.1 Model of Cosumer Behaviour
- The company that really understands how consumers will respond to different product features, prices, and advertising appeals has a great advantage over its competitors.
- The starting point is the stimulus-response model of buyer behavior shows that marketing and other stimuli enter the consumer's "black box" and produce certain responses. Marketers must figure out what is in the buyer's black box.
- An invisible processor in which the influences on the decision
3.1.2 Factors Affecting Consumer Behaviour
- Consumer behavior is influenced by the buyer's characteristics and by the buyer's decision process.
- Consumer purchases are influenced strongly by four major factors, factors can influence the Buying decision of the buyer:
A. Cultural
B. Social
C. Personal
D. Psychological
A. Cultural Factors
These factors exert the broadest and deepest influence on consumer behavior which further includes culture, sub-culture and social classes.
Culture: it is the most basic cause of the person’s wants and behavior.
The society in which we grew up and the accepted believes, values, habits and attitudes are time honored. Failure to adjust to these differences can result in ineffective marketing or embarrassing mistake.
Sub-culture: sub-cultures are groups that exhibit behavior patterns sufficient to distinguish them from other groups within the same culture. These patterns are based on factors such as race, religion, and urban-rural identification.
Social classes: these are society’s relatively permanent and ordered divisions whose members share similar values, interests, income, wealth, education level and behavior.
B. Social Factors
A consumer’s behavior also is influenced by social factors, such as group, family, and social roles and status.
Groups:-Two or more people who interact to accomplish individual or mutual goals.
a person’s behavior is influenced by many smaller groups. Group that have a direct influence and to which a person belongs are called membership groups.
People often are influenced by reference groups to which they do not belong. A reference group is made up of people who influence one’s attitudes, and behaviors.
Reference groups are important to marketing because they influence our buying habits in a number of ways including:
- the desire to confirm to the groups’ norms and fit in fully.
- The transfer of new ideas and habits.
Thus, marketers should figure out how to reach the opinion leaders in the relevant reference groups.
Opinion leaders are people within the reference group because of their special skills, knowledge, personality or other characteristics exert much influence on other members.
Many marketers try to identify opinion leaders for their products and direct marketing efforts toward them.
Family: it is a group of two or more people related by blood, marriage or adoption living together.
Family is the most important consumer buying organization in society and it has been researched extensively.
Marketers are interested in the roles and influences of the husband, wife, and children on the purchase of different products. It is important to establish exactly who is making the final decision of what to buy.
Role and status: The person’s position in each group can be defined in terms of both role and status.
A role consists of the activities people are expected to perform according to the persons around them. Each role carries a status- the general esteem given to it by the society.
People often buy products that show their status in society.
C. Personal Factors
A buyers decision also are influenced by personal characteristics such as the buyers age and life-cycle stage, occupation, economic situation, life style, and personality and self concept.
Age and life cycle stage: people change the goods and services they buy over their life time.
Buying is also shaped by family life cycle- the stages through which families might pass as they mature over time.
Occupation: a person’s occupation affects his/her buying decision. Blue collar workers tend to buy more rugged work clothes whereas executives buy more business suits.
Economic situation: marketers of income sensitive goods watch trends in personal income.
Lifestyle: it is a summary of how we live. It embraces our activities, interests, opinions, and aspirations.
(work, hobbies, shopping, sports, social events), interests (food, fashion, family, recreation), and opinions (about themselves, social issues, business, products).
Personality and self-concept:
Personality combines a set of physical and mental characteristics that reflect how a person looks, thinks, acts, and feels.
Personality is usually described in terms of general traits such as self-confidence, dominance, sociability, agreeableness etc.
Self-concept refers to the way you see yourself. Also it is the picture you think others have of you.
Self-esteem and self-efficacy
Self-esteem is a belief about one’s own worth based on an overall self-evaluation.
Self-efficacy : An individual's beliefs and expectancies about his or her ability to accomplish a specific task effectively.
Studies of purchases show that people generally prefer products and brands that are compatible with their self-concept and personality.
D. Psychological Factors
A person's buying choices are further influenced by four major psychological factors: motivation, perception, learning, and beliefs and attitudes.
I. Motivation
A person has many needs at any given time.
A need becomes a motive when it is aroused to a sufficient level of intensity. A motive (or drive) is a need that is sufficiently pressing to direct the person to seek satisfaction.
II. Perception: a motivated person is ready to act. How the person acts is influenced by his/her perception of the situation.
People can form different perceptions of the same stimulus because of three perceptual processes
- selective attention is the tendency of people to screen out most of the information to which they are exposed.
In selective attention marketers have to work especially hard to attract the consumers’ attention - selective distortion is the tendency of people to interpret information in a way that will support what they already believe marketers must try to understand the mind sets of consumers and how they will affect interpretations.
- selective retention. is the tendency of people to retain information that supports their attitudes. Consumers are likely to remember good points made about a brand they favor and to forget good points made about competing brands.
III. Learning: a relatively permanent change in an individual’s behavior arising from experience.
IV. A belief is a descriptive thought that a person has about something.
V. Attitude: attitude describes a person’s relatively consistent evaluations, feelings, and tendencies toward an object or idea. It put people into a frame of mind of liking or disliking things or moving toward or away from them.
3.1.3 Types Buying Decision Behaviour
Buying behavior differs greatly for different products. More complex decisions usually involve more buying participants and more buyer deliberation.
Complex Buying Behavior
consumers go through complex buying behavior when they perceive significant brand differences and if products are expensive, highly self-expressive, risky and purchased infrequently.
Because of these factors, there is high involvement of consumers in the decision process.
Marketers need to help buyers learn about product class attributes and their relative importance.
Dissonance Reducing Buying Behavior
The situations observed in the complex buying behavior also appear in this type of buying behavior with the exception of insignificant difference among different brands. Hence, buyers may shop around to learn what is available but buy relatively quickly.
They may respond primarily to a good price or convenience.
After purchase, buyers might experience dissonance/discomfort when they notice certain disadvantages of the purchased product or hear favorable things about brands not purchased.
To relieve consumers from this dissonance, marketers’ after sales communication should provide evidence and support to help consumers feel about the purchased brand.
Habitual Buying Behavior- low involvement of consumers
In habitual buying behavior, consumes’ low involvement and little brand differences exist. Consumers simply go to the store and reach for a brand especially for low cost and frequently purchased products.
Consumers passively read magazines and watch TV to receive information. buyers are not highly committed to any brand. In advertisement marketers need to use imagery advertisements and visual symbols because they can be remembered easily and associated with the brand. TV is more effective than print media.
Variety Seeking Buying Behavior- low involvement of consumers
Consumers choose the brand without much evaluation, or the evaluation of the product is during consumption. The next time buyers seek another brand not because of dissatisfaction but simply to try something different.
3.1.4. The Buying Decision Process
The buying process starts long before actual purchase and continues long after purchase. Marketers need to focus on the entire buying process. For most purchases buyers pass through five stages. But in some routine purchases consumers often skip or reverse some of these stages.
1. Need Recognition/Problem Identification
It is the first stage in which the buyer recognizes a problem. The need can be triggered or activated by internal stimuli (hungry and thirsty) or external stimuli (advertising).
2. Information Search
This is a stage in which the consumer is triggered to search for information. If the buyer’s need is strong they undertake an information search. The information may be obtained from:
Personal sources e.g. family, friends, acquaintances
Commercial sources e.g. advertising, sales people, dealers, packages
Public sources e.g. mass media, consumer rating organization
Experimental sources e.g. handling, examining or using the product
3.Evaluation of Alternatives
Buyers use the information they fetched from various sources to evaluate alternative brands in the choice set and they rank brands according to some specifications. For example, may consider attributes like warranty, operating cost, style and price.
4.Purchase Decision
It is actually buying the product. Generally the consumers’ purchase decision will be to buy the most preferred brand.
5. Post Purchase Decision
Buyers take further actions after purchase based on previous satisfaction level. The marketers’ job does not end when the product is bought. Buyers base their expectation on the information they receive. To this end, sellers should promise what their brands can meet.
3.1.5. The Adoption Process for New Products
Adoption process is defined as the mental process which buyers go through from the first learning about an innovation to final adoption.
Stages in the adoption process
New products move through a process before they are adopted by the market.
Consumers pass five stages to adopt a new product.
Awareness → Interest → Evaluation
Trial → Adoption
Awareness: consumers become aware of the new product but lacks information about it.
Interest: consumers seek information to know about the new product.
Evaluation: consumers consider whether trying the new product makes sense.
Trial: the consumers try the new product in a small scale to improve their estimate of its value.
Adoption: consumers decide to make a full and regular use of the product.
Individual differences in innovativeness
Not all people are ready to try new products. People can be classified into the adopter categories as innovators, early adopters, early majority, late majority and laggards.
- Innovators: are venturesome-are the first to buy a new product, they are willing to take risks. they are relatively younger, better educated, high income earners, more receptive to unfamiliar things, more rely on own judgment, less brand loyal, more likely to take advantage of special offers like discounts, coupons, and samples.
- Early adopters: are the next to buy. Early adopters are guided by respect—they are opinion leaders in their communities and adopt new ideas early but carefully.
- Early majority : even if these members are hardly leaders, they adopt new ideas before the average society. They are influenced by advertising and sales people, as well as Early Adopters.
- Late majority they are skeptical/disbelieving in that they adopt an innovation only after the majority of people have tried it. They are more resistant to change and risk taking than previous groups. They tend to be middle aged or older
- Laggards are tradition bound and highly suspicious for changes. They adopt an innovation only when it has become some thing of a tradition itself. They are the last to buy. They tend to be price conscious, low-income consumers.
Influence of product characteristics on rate of adoption
Some products are adopted overnight whereas others take longer time to gain acceptance depending on their characteristics.
Some characteristics of a product which influence the rate of adoption include:
- Relative advantage: the degree to which the innovation appears superior.
- Compatibility: the degree to which the innovation fits the lifestyles of potential customers.
- Complexity: the degree to which the innovation is difficult to use and understand.
- Divisibility: the degree to which the innovation may be tried on a limited basis.
- Communicability: the degree to which the results of using the innovation can be observed and described to others.
3.2 Business Markets and Busines Buying Behaviours
The business market includes firms that buy goods and services in order to produce products and services to sell to others. It also includes retailing and wholesaling firms that buy goods in order to resell them at a profit. Because aspects of business-to-business marketing apply to institutional markets and government markets, we group these together.
3.2.1. Characteristics of (business) markets
Business markets differ in many ways from consumer markets. The main differences, are in the market structure and demand, the nature of the buying unit, and the types of decisions and the decision process involved.
1. Market structure and demand.
Business markets typically deal with fewer but larger buyers.
They are more geographically concentrated.
Business markets have derived demand.
Many business markets have inelastic demand
Finally, business markets have more fluctuating demand.
The demand for many business goods and services tends to change more and more quickly—than the demand for consumer goods and services does.
2. Nature of the Buying Unit:
Compared with consumer purchases, a business purchase usually involves more decision participants and a more professional purchasing effort.
Often, business buying is done by trained purchasing agents who spend their working lives learning how to make better buying decisions.
Buying committees made up of technical experts and top management are common in the buying of major goods.
3. Types of Decisions and the Decision Process
Business buyers usually face more complex buying decisions than do consumer buyers. Purchases often involve large sums of money, complex technical and economic considerations, and interactions among many people at many levels of the buyer's organization.
The business buying process tends to be more formalized than the consumer buying process. Large business purchases usually call for detailed product specifications, written purchase orders, careful supplier searches, and formal approval.
Finally, in the business buying process, buyer and seller are often much more dependent on each other. Consumer marketers are often at a distance from their customers.
Business Buyer Behavior
Marketer try to answer four questions about business buyer behavior:
What buying decisions do business buyers make?
Who participates in the buying process?
What are the major influences on buyers? How do business buyers make their buying decisions?
A Model of Business Buyer Behavior
In this model, marketing and other stimuli affect the buying organization and produce certain buyer responses. As with consumer buying, the marketing stimuli for business buying consist of the four Ps: product, price, place, and promotion. Other stimuli include major forces in the environment: economic, technological, political, cultural, and competitive.
These stimuli enter the organization and are turned into buyer responses: product or service choice; supplier choice; order quantities; and delivery, service, and payment terms.
Within the organization, buying activity consists of two major parts:
a) The buying center, made up of all the people involved in the buying decision, and
b)The buying decision process.
The model shows that the buying center and the buying decision process are influenced by
- internal organization
- interpersonal
- individual and
- external environmental factors.
3.2.3. Types of Buying Situations
There are three major types of buying situations
- Straight re-buy
- New task
- Modified re-buy
Straight Re-buy
The Straight t re- buy process is used to purchase in expensive, low risk products..
In this buying situation, the buyer reorders something without any modifications; it is usually handled on a routine basis by the purchasing firm based on past buying satisfaction.
Previous purchases are simply reordered to replace depleted inventory. Alternative products or suppliers are not typically considered or evaluated
Modified Re-buy
Modified Re buy processes are used when the purchase situation is less complex than new-task buying and more involved than a straight re buy.
The buyer wants to modify product specifications, price or supplier. Some information is required to reach decisions and a limited number of alternatives may be evaluated.
In-suppliers may become nervous and feel pressured to put their best to protect an account. Out-suppliers may see this as an opportunity to make a better offer and gain new business.
New Task Buying
A business buying situation in which the buyer purchases a product or service for the first time and most complex .
The task requires greater effort in gathering information and evaluating alternatives. More people are involved in the decision-making process
New-task buying processes are most frequently employed in the purchase of high-cost products that the firm has not had previous experience with.
In the new-task situation, the buyer must decide on product specifications, suppliers, price limits, payment terms, order quantities, delivery times, and service terms. and different decision participants influence each choice.
Participants in the industrial buying process
The decision making unit of the buying organization is called its buying center- all the individuals and groups that participate in the business buying decision making process.
This group includes the actual users of the product or service,
- those who make the buying decision,
- those who influence the buying decision,
- those who do the actual buying, and
- those who control buying information.
The buying center includes all members of the organization who play any of five roles in the Purchase decision process.
Users: members of the organization who will use the product. In many cases users initiate the buying proposal and help define product specifications.
Influencers: often help define specifications and also provide information for evaluating alternatives. Technical personnel are particularly important influencers.
Buyers: have formal authority to select the supplier and arrange terms of purchase.
Deciders: those who have formal or informal power to select or approve the final suppliers. In routine buying, the buyers are often the deciders.
Gate keepers: those who control the flow of information to others possible gatekeepers include purchasing agents, personal secretaries, technical personnel.
3.2.6. Industrial Buying Process
Stage1. Anticipation or recognition of a need/problem
someone in the company recognizes a problem or need that can be met by acquiring a good or a service.
Problem recognition can result from internal or external stimuli. Internally, the company may decide to launch a new product that requires new production equipment and materials. Or a machine may break down and need new parts. Perhaps a purchasing manager is unhappy with a current supplier’s product quality, service, or prices.
Externally, the buyer may get some new ideas at a trade show, see an ad, or receive a call from a salesperson who offers a better product or a lower price.
Stage2. General Need Description
The stage in the business buying process in which the company describes the general characteristics and quantity of a needed item.
For standard items, this process presents few problems. For complex items, however, the buyer may need to work with others—engineers, users, consultants— to define the item.
The team may want to rank the importance of reliability, durability, price, and other attributes desired in the item. In this phase, the alert business marketer can help the buyers define their needs and provide information about the value of different product characteristics.
Stage3. Product specification
The buying organization next develops the item’s technical product specifications, often with the help of a value analysis engineering team. Product value analysis is an approach to cost reduction in which components are studied carefully to determine if they can be redesigned, standardized, or made by less costly methods of production. The team decides on the best product characteristics and specifies them accordingly.
Stage 4.Supplier search
Supplier search is the stage of the business buying process in which the buyer tries to find the best vendors.
The buyer can compile a small list of qualified suppliers by reviewing trade directories, doing computer searches, or phoning other companies for recommendations. Today, more and more companies are turning to the Internet to find suppliers.
Stage 5: Proposal Solicitation
The stage of the business buying process in which the buyer invites qualified suppliers to submit proposals. In response, some suppliers will send only a catalog or a salesperson.
However, when the item is complex or expensive, the buyer will require a detailed written proposal from each qualified supplier.
After evaluating the proposals, the buyer will invite a few suppliers to make formal presentations. Business marketers must thus be skilled in researching, writing, and presenting proposals.
Stage 6. Supplier Selection
Supplier Selection is the stage of the business buying process in which the buyer reviews proposals and selects a supplier or suppliers.
During supplier selection, the buying center often will draw up a list of the desired supplier attributes and their relative importance.
Such attributes include product and service quality, reputation, on-time delivery, ethical corporate behavior, honest communication, and competitive prices.
The members of the buying center will rate suppliers against these attributes and identify the best suppliers.
Stage 7. Order-Routine Specification
The stage of the business buying process in which the buyer writes the final order with the chosen supplier(s), listing the technical specifications, quantity needed, expected time of delivery, return policies, and warranties.
In the case of maintenance, repair, and operating items, buyers may use blanket contracts rather than periodic purchase orders. A blanket contract creates a long-term relationship in which the supplier promises to resupply the buyer as needed at agreed prices for a set time period.
Stage 8. Performance Evaluation and Feedback
In the final stage of the buying process, the buyer periodically reviews the performance of the chosen supplier(s).
The buyer may contact users and ask them to rate their satisfaction.
The performance review may lead the buyer to continue, modify, or drop the arrangement. The seller’s job is to monitor the same factors used by the buyer to make sure that the seller is giving the expected satisfaction
