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Dhruv Grewal Michael Levy

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1 Dhruv Grewal Michael Levy
Marketing Chapter 5 Consumer Behavior Dhruv Grewal Michael Levy

2 © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Netflix 1.5 million subscriber households 18,000 titles 25 strategically located distribution centers Changing “in store” to “in home” selection Key partnership promotions Ask Students: Do you subscribe to Netflix? Try to get them to discuss why they use or don’t use Netflix. Ask them how much time they spend getting movies with Netflix versus other options such as Blockbuster. This could lead to a discussion of parts of the consumer decision making process, such how they search for information, how they choose among alternatives, what do they do if they are satisfied/dissatisfied, etc. © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

3 Consumer Behavior Use principles and theories from sociology and psychology Understand consumer actions Develop basic strategies to deal with those actions Understand why people buy products or services © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

4 © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Meet Eva Problem: Getting access to the latest video releases and movies. Alternative Solutions: Join local movie rental (i.e. Blockbuster store) Subscribe to premium cable Subscribe to online movie rental (i.e. Netflix) This slide and the next set up the discussion for the consumer decision process. Eva illustrates how consumers make decisions because she faces the initial problem of deciding how to obtain access to the latest video releases. © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

5 Eva’s Questions Which alternative gives me the best overall value?
Which alternative is more likely to attract friends over to watch movies? Eva must ask these two key questions to make her decision. Ask students: How many of you ask yourselves similar questions when choosing a product or service? © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

6 The Consumer Decision Process
This slide introduces the entire consumer decision process. In the following slides we will cover each of the steps in the process.

7 Types of Buying Decisions
Ask students: What was the last thing you purchased? Based on their answers, get them to determine whether they used limited problem solving, extensive problem solving, or whether it was a habitual purchase or impulse purchase. © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

8 Types of Buying Decisions
Limited Problem Solving Habitual Decision Making Extended Problem Solving Impulse Buying © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

9 Test Your Knowledge What type of buying decision requires the least amount of time and effort? A) limited problem solving B) habitual decision making C) extended problem solving D) impulse buying Answer: B

10 © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Need Recognition Functional needs Psychological needs Ask students: Think about the difference between functional and psychological needs. Consider an example similar to the shoe example in the text. Many basic products (e.g., bleach) represent commodities, but many consumers go beyond their functional needs and purchase Clorox bleach specifically. Another example might address the functional need for water versus the psychological need for Evian or Perrier. © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

11 Search for Information
Internal Search for Information External Search for Information Ask students: As consumers, how have you gathered information related to the following purchases? A restaurant for a first date. Whether to take a class from a particular instructor. A diamond engagement ring. A new computer. A washing machine. A security system for your home. © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

12 Factors Affecting Consumers’ Search Process
Perceived Benefits versus Perceived Costs Ask students: Which purchase situations merit the expenditure of extra search costs? Personal preferences often play crucial roles in how much time and effort consumers are willing to incur. Discussion question What is the difference in search time between the following: A wedding gift for a) coworker, b) your brother, c) your best friend? © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

13 © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
The Locus of Control Internal Locus of Control Control = more search activities External Locus of Control Fate, external factors = why bother Locus of control actually indicates how much control people think they have over the outcomes of various activities, such as purchasing a product or service. Some people sense their own extensive control, whereas other feel virtually powerless. The former engage in more search activities. © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

14 Actual or Perceived Risk
Financial risk Performance risk Psychological risk Risk and risk perceptions play crucial roles in determining the extent of consumer search. Ask students to compare the risk levels associated with the following purchase situations: A gift for the grab bag for the office holiday party. A gift for your mother’s birthday. A gift for your future mother-in-law’s birthday. Ask students: What type of risk is associated with each decision? All involve increasing degrees of psychological risk.

15 Type of Product or Service
Specialty goods/services Shopping goods/services Convenience goods/services The same product can represent different goods categories for different consumers. For example, some consumers consider jewelry a shopping good and therefore visit their local department store or warehouse store (i.e., Costco or BJ’s) to find products, whereas others view it as a specialty good that should be purchased from a jewelry store or even a specific jewelry store. © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

16 Test Your Knowledge Consumers can spend considerable time searching for both specialty and shopping goods or services; the difference lies in _______________. A) the amount of time they have B) the amount of money they have budgeted C) the psychological risk D) the kind of search Answer: D

17 Evaluation of Alternatives: Attribute Sets
Universal Set Retrieval Set Evoked Set Group activity: Walk students through the example of planning a vacation. Have students list all possible choices, and then organize them into categories (e.g., beach versus mountain, domestic versus international, inexpensive versus luxury). Choice

18 Evaluation of Alternatives: Evaluate Criteria
Evaluative Criteria Determinant Attributes Continuing the group activity, ask students to indicate their favorite destinations. Ask: What evaluative criteria and determinant attributes did you use to determine the list of options? If you have a student who recently went on a vacation, you may focus on his or her specific purchase experience. Discussion question What are some of the features of a vacation that would be in your evaluative criteria? © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

19 Evaluative Criteria How do consumers begin to evaluate different alternatives, and what important attributes and criteria do they use? This slide introduces the Case in Point that follows

20 Case in Point: Carnival Connections
To encourage small groups to travel together and understand the preferences of these groups. Challenge Answer Results Establish a social networking site that allows small groups to plan and coordinate a cruise vacation as well as invite others to participate in the cruise. Carnival Cruises uses its new Web site to allow consumers to plan trips together. By planning with a group, the consumers help build value for their trip. The online connection also enables the group members to construct the exact experience they desire. A “soft launch” in Jan, 2006 to better understand consumers use and needs from the site. © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

21 Evaluation of Alternatives: Consumer Decision Rules
Entertainment Number of Days Meals Price Importance Weights 0.4 0.1 0.3 0.2 Carnival 10 8 6 8.2 Holland America 9 3 7.1 Celebrity 5 7.2 Ask students: Did you use a decision rule similar to the ones in this chart? How did you weigh your vacation alternative choices? Go to the Toolkits on the OLC. Click on consumer decision rules. Work through one of the three problems provided. The other two could be assigned to students to do. © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

22 Evaluation of Alternatives: Decision Heuristics
Price ? Product Presentation Ask students: Do you use a particular heuristic when purchasing certain merchandise? What heuristics do you use, and when do you use them? For example, some students will always buy the same brand of personal care products (e.g., deodorant, soap, shampoo) Ask students: What benefits do you gain from using this heuristic? Brand © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

23 Test Your Knowledge Decision heuristics are ________ that help a consumer narrow down his or her choices. A) mental shortcuts B) breathing exercises C) logical steps D) compensatory decision rules Answer: A

24 Purchase and Consumption
Ritual consumption Consumption experiences vary greatly. A haircut requires consuming the service, whereas eating a candy bar involves consumption of a tangible product. Other consumption experiences, such as eating in a restaurant, mix tangible products (e.g., food) and intangible aspects (e.g., service, décor, other patrons). All these factors contribute to the consumption experience. © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

25 Understanding Rituals
How does someone plan a ritual event that they have never planned before? This slide introduces the Case-in-Point series

26 Case in Point: Grooms Guide to Weddings
To involve the future groom in the wedding planning. Challenge Answer Results The Knot is a one stop shop for the 2.4 million couples preparing for a wedding in the U.S. The site includes information about customs, traditions and products for any wedding. The median cost for a wedding has risen to more than of $30,000, making it a very significant purchase. Brides and grooms face seemingly endless choices. In response, The Knot organizes these choices into checklists and categories to assist brides and grooms 3.2 million unique visitors each a month, 3,000 new members per day and growing. © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

27 Postpurchase: Customer Satisfaction
Customer contact Encourage feedback Provide money back guarantee Build realistic expectations Demonstrate correct product use Remind students that postpurchase satisfaction is particularly important to marketers because it involves actual rather than potential customers. Discuss how firms set customer expectations. Ask students: What are the dangers of setting expectations too high or too low? Southwest Airlines offers a good example because it keeps its promises simple: low cost, on-time arrivals, and friendly service. Ask students: What other firms do a good job of managing customer expectations? © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

28 Postpurchase: Dissonance
Firm’s attempt to reduce dissonance by reinforcing the decision Thank you letters, congratulations letters, quality ratings Virtually everyone has experienced postpurchase dissonance. Ask students: Recall a purchase that resulted in a dissonant experience for you. Did the retailer or manufacturer help resolve your dissonant state? Think about ways dissatisfied customers threaten businesses. Which is higher, the number of acquaintances people tell about a positive experience or those they tell about a negative experience? By far, dissatisfied customers tell more people about their negative experience than about any positive experiences. Why is managing this consumer-to-consumer communication so important? Discussion question What other ways do firms reinforce purchase decisions? © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

29 Ethical Dilemma 5.1: Dissatisfied Customers Use
Customer complaint system Customer service failure leads to consumers seeking other means Effective means of raising complaints The Complaint Station - Ask students: How many have posted messages on these sites? How many have read postings. How have the postings affected their behavior? These sites pose enormous problems for firms, as well as an interesting ethical dilemma. As the integrated marketing communication (IMC) chapter notes, marketers spend considerable effort to manage information about their firms in the marketplace, but they cannot control these sites. Anyone can say anything about them, the truest expression of free speech. © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

30 Factors Influencing the Consumer Decision Process
After examining the five steps in the consumer decision process, students should begin to focus on the aspects that influence that process. Remind students that every unique person views a purchase situation differently.

31 Psychological Factors
Remind students of the discussion in Chapter One related to needs and wants. Ask students: How many times have you experienced a need or want but, for whatever reason, lacked the motivation to act on it. © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

32 Psychological Factors: Motives
For example, the need for a drink of water at 3:00 am often is not sufficient motivation for people to get out of a warm bed to meet their physiological need. Ask students: What other types of needs psychological needs have they experienced, how they might fill them, and when they are motivated to do so. © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

33 Test Your Knowledge What psychological factor is a need or want that is strong enough to cause the person to seek satisfaction? A) learning B) perception C) motive D) attitude Answer: C

34 Psychological Factors: Attitude
Behavioral Cognitive Affective Ask students: Imagine your car breaks down on the way to a date. You are panicked but luckily see a garage right on the same street. The mechanic assists you immediately, and you leave after paying only a $50 charge. The next day, you complete a survey about auto mechanics in the area. How do you rate mechanic? Ask students: Have you had experiences similar to this scenario? Did it result in a perceptual change about the retailer or service provider? How did that change affect your subsequent purchase decisions? © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

35 Psychological Factors: Perception
Discussion question How has society’s perception of people with tattoos changed in recent years? Just as your perception of the mechanic changed, societies perceptions can change. For example tattoos used to be only considered acceptable for unsavory individuals. There were clearly NOT mainstream, yet today people from a variety of demographic backgrounds get tattooed. Many celebrities have tattoos, even some parents and children have matching tattoos. © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

36 Psychological Factors: Learning
Affects both attitudes and perceptions Affected by social experiences Just as your perception of the mechanic changed, societies perceptions can change. For example tattoos used to be only considered acceptable for unsavory individuals. There were clearly NOT mainstream, yet today people from a variety of demographic backgrounds get tattooed. Even some parents and children with matching tattoos.

37 Social Factors: Family
Decision makers Influencers Group activity: Ask the students to think about and list the factors that went into their decision about where to go to college. Have one volunteer read his or her list, which likely will include factors such as price, distance, ratings, friends, family recommendations, or suggestions from guidance counselors. Ask students: How many of these factors are social? © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

38 Social Factors: Reference Groups
Offer information Provide rewards for specific purchasing behaviors Enhance consumer’s self-image Family Friends Coworkers Famous people Ask students: How was your choice of college influenced by your reference groups? © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

39 Test Your Knowledge Which of the following is a way in which reference groups might provide information to consumers? A) Leading by example B) Indirectly, through observation C) Contacting the seller D) Web research Answer: B

40 Social Factors: Culture
Example: Weddings Gathering Ritual Vows Celebration Most weddings have four elements: gathering, ritual, vows, and celebration. The expression of these elements, however, varies dramatically. In parts of India, for example, weddings are extremely elaborate and span several days. Even within the United States, different religions and regions embrace unique ceremonial traditions. Group activity: Ask students to consider how these differences affect the way the bride and groom make decisions. Discuss differences they may have observed in various wedding ceremonies they have attended. What effect did these differences have on their behavior. © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

41 © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Situational Factors Ask students: How many of you have walked into a store and immediately felt uncomfortable? What made you uncomfortable? For some, the store may have seemed too expensive, whereas others may have perceived themselves as too masculine or feminine, too young or old. Ask students: Now recall a positive experience you have had when you first walked into a store and felt immediately comfortable. What factors made you feel comfortable? Ask students: How many of you have had retail sales or waitstaff positions? What training did you receive? How did you contribute to the purchase decisions of the customers? Were you taught ways to influence customers? Many training programs feature “up-selling,” such as offering dessert or suggesting the special entree. In retail settings, many salespeople are trained to suggest accessories or additional pieces that go with a particular outfit or item. Infomercials offer a good example of product demonstrations that attempt to motivate purchase. Ask students: Why do infomercials influence consumers? How? © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

42 Entrepreneurial Marketing 5.1: Zipcar – The Urban Rent-a-car
Discussion question What situational factors led to the creation of Zipcar? Zipcar saw and filled a need in the marketplace. Ask students: What factors made Zipcar so successful? If Zipcar were available in your area, would it succeed? Would you use it? Why or why not? © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

43 Chapter 5 Glossary Extended problem solving: Occurs when a buyer devotes considerable time and effort to analyzing alternatives; common when the customer perceives that the purchase decision entails a lot of risk. External search for information: The buyer seeks information outside his or her personal knowledge base to help make the buying decision. Functional needs: Needs that pertain to the performance of a product or service. Habitual decision making: A purchase decision process in which consumers engage with little conscious effort. Impulse buying: A buying decision made by customers on the spot when they see the merchandise. Internal search for information: The buyer examines his or her own memory and knowledge about the product or service, gathered through past experiences. Limited problem solving: Occurs during a purchase decision that calls for, at most, a moderate amount of effort and time. Psychological needs: Needs that pertain to the personal gratification consumers associate with a product and/or service. Ritual consumption: Refers to a pattern of behaviors tied to life events that affect what and how we consume.

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