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SMU

ASSIGNMENT

SEMESTER – 3

MK0002

CONSUMER BEHAVIOURSet-1

SUBMITTED BY:GYANENDRA KUMARMBAROLL NO:-520941253

ASSIGNMENT SET – 1

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Q1 What are the characteristics of consumer behavior? Why is a study of consumer behavior important from the marketer’s viewpoint?

Ans.: Characteristics of consumer behavior:

Consumer behavior can be studied from two different perspectives. The most popular, traditionalway is to focus on this subject as a pure science, wherein the research findings from behavioralsciences like psychology and also from social sciences like sociology, anthropology andeconomics, are drawn to explain the various facets of consumer behavior. The other perspectiveis to analyze this subject as an applied science, with emphasis on its application in business

organizations.

a) Consumer Perspective In this approach, the focus of consumer behavior study is onenquiring into how people buy, what they buy, when they buy and why they buy, more as a purescience, rather than for application to marketing decision-making. It blends elements frompsychology, sociology, socio-psychology, anthropology and economics. It attempts to understandthe buyer consumption process, both individually and in groups. It studies characteristics of individual consumers such as demographics, psychographics, and behavioral variables, in anattempt to understand people's wants. It also tries to assess influences on the consumer fromgroups such as family, friends, reference groups, and society in general. This approach focusesmore on the nature of the consumption experience, rather than the purchase process. Thisapproach may throw many insights that may or may not be actionable from a marketer’sperspective. There is no sufficient emphasis on the consumer purchase decision process. Hencethis approach may have limited use for marketers, since they must understand how consumerstake purchase decisions if they have to influence the consumers.

0 b) Managerial Perspective In this approach, consumer behavior is studied as an applied

social science and the main objective of such an approach is to find a basis for marketingstrategies in business organizations. From a managerial perspective, the stress is on predictingthe action sequence of a consumer decision process, in order to help a marketer in deciding onsuitable marketing strategies. As an improvement of this, a new approach was enunciated bySheth & Mittal, who expanded the study of consumer behaviors to include several facets, whichwould be more practical while applying this knowledge to practical situations in businessorganizations. There are two variations in this approach, which are more meaningful from themanagerial perspective: a) All the different aspects of consumer behavior study have beenapplied in this new approach to “business organizations” as consumers. Normally, most textbookslimit such analysis to individual consumers and some of them extend it to households. However,in the new approach, the behavioral aspects are looked at from the angle of business-to-businesstransactions, which are very relevant and useful in such situations.

1 b) The second approach is in extending the study of consumer behavior to includedifferent roles of a customer in understanding the decision making process. Traditionally, theconsumer is the “user” of the product or service and most of the studies limit the application of this knowledge to understand the behavior of customers as users/consumers. The new approachconsiders three roles of the customer viz. User, Payer and Buyer as important, to apply thisknowledge in real life situations in business organizations. In fact the title of the study is called“Customer Behavior” instead of “ Consumer Behavior”, to make it amply clear that all three roles

of the customer have to be looked at in order to analyze and apply the various research findingsmore effectively.

In the traditional methods of study of consumer behavior, the applications get limited to mostlyfast moving consumer goods (FMCGs) and also to individual/ household users/ consumers. Thesecond approach expands the applications of these studies to encompass practically all marketsand products, in all types of marketing situations that would make more sense from a managerialperspective.

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Why study consumer behavior?VignetteProctor and Gamble (P&G) is an American Global Corporation established in 1837 with severalsuccessful current brands like Tide and Ariel detergent powders, Duracell batteries, Gillette safetyrazors, Max Factor cosmetics, Pantene hair care products, Pampers brand diapers, etc. Whenthey entered the Japanese market for Pampers in 1977, they used the American product range,American advertising and American sales and promotional strategies. The product was quite thickand designed for American mothers who would leave the diapers on their babies for long periods.The Japanese mothers were however; highly cleanliness minded and would change the diaperson their babies at least twice as often as the American mothers do. Seeing this opportunity, manyJapanese companies introduced thinner leak proof diapers that were better suited to Japanesemothers. This resulted in Pampers’ market share crashing to 7% in 1985, from a high of 90% in1977. The company realized their mistakes after a market study and an improved product withone third of the original thickness was introduced. This resulted in their improving their share toabout 35% in 1990 and the same product was introduced in the American market with a newbrand name- “Ultra Pampers”.The above example is a classic case of how a study of consumer behavior is most important tothe success of products. For any marketing oriented company, such a study should be the basicstarting point for all marketing strategy decisions.

a) Consumer Behavior and Marketing Strategy: All marketing decisions and strategies arebased on assumptions about consumer behavior. It is impossible to think of any aspect or decision in marketing, which can be independent of some analysis of consumer behavior. Beforedeciding on any marketing strategy, the marketers have to first base their judgments on explicitassumptions resulting from sound theory and research, rather than implicit intuition. Knowledge of consumer behavior can give an important competitive advantage and greatly reduce the odds of bad decisions. The first step in developing a marketing strategy is to analyze the market in whichthe firm is operating. This requires a detailed analysis of the organization’s capabilities, strengthsand weaknesses of competitors, the economic and technological factors affecting the market andfinally, the current and future potential customers in the market. On the basis of the analysis of consumers at this stage, the company identifies the groups of individuals, households or firmswith similar needs. These are known as market segments, which can be described in terms of demographics, geographic locations, lifestyles, etc. The firm can then select one or more of these

segments as target markets, based on their capabilities in comparison with the competition, in thegiven current and forecasted economic and technological environment. The next step is toformulate the marketing strategy. The objective of the marketing strategy is to provide thecustomer with more value than the competitor’s brands while maximizing the profits for the firm.Marketing strategy is then formulated in terms of the marketing mix. This involves thedetermination of the four „P s of marketing viz. product features, pricing, promotional mix and ‟ distribution policies, which would offer superior value to the customer. It is most important to notethat an analysis of the consumer is the key to formulating a sound marketing strategy and thereaction of the consumer to the marketing mix determines ultimately the success or failure of thestrategy.

b) Study of Consumer Behavior and Marketing Careers: Most students of consumer behavior aspire for careers in Marketing Management, Sales or Advertising. Many students expect that the

skills acquired by them in these courses will be like accounting or science subjects, wherein a setof rules can be applied across a wide variety of situations to arrive at the correct solution.Unfortunately the consumer is a living, breathing, changing and many times stubborn individualand dealing with such an uncertain element can be very frustrating to such students. However, anunderstanding of consumer behavior in its proper perspective can bring out many understandablesituations, which can be applied in developing suitable marketing strategies. This can thenbecome a very exciting field. This is not to suggest that scientific principles and procedures arenot applicable in such situations. In fact, many scientific theories and models of psychology,psychoanalysis, sociology, etc. have been successfully utilized in the study of consumer behavior. Successful utilization of these principles in practical situations have to be done with

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proper human judgments, which in itself can be a very challenging task leading to excitement and job satisfaction.

1Q2. Define market segmentation and explain the different bases for market segmentation,with an example of each.

Ans.: Market Segmentation: Market segmentation is the process in marketing, “of dividing a market into distinct subsets(segments) that behave in the same way or have similar needs” . Because each segment is fairlyhomogeneous in its needs and attitudes, it is likely to respond similarly to a given marketingstrategy. It is also likely to have similar feelings and ideas about a marketing mix, comprised of agiven product or service, sold at a given price, distributed in a certain way and promoted in acertain way. Before marketers started using the concept of market segmentation, the way thebusiness was done was through mass marketing, i.e. offering the same product and samemarketing mix to all consumers. The classic case of such a practice was that of Henry Ford’sphilosophy of offering Ford Model T car, with the choice to the consumers of selecting any co lour

they wanted as long as it was black. If all consumers were alike, i.e. if all of them had the sameneeds, desires, personalities, backgrounds, attitudes, etc., mass marketing would have beenrelevant and highly successful. Then, only one standardized product, one advertising campaignand one marketing mix are needed for all consumers. The main advantage in this strategy is that,it costs substantially less. However, as we have seen in the vignette of HLL vs. Nirma, theconsumers are indeed diverse and such a strategy of mass marketing would be highly risky intoday’s market environment.

Bases for Market Segmentation

The first step in developing a segmentation strategy is, to select the most appropriate basis onwhich the market can be segmented. There are many ways in which this can be done and somemost popular variables used for market segmentation are discussed in the following paragraphs:

Geographic Segmentation:In this method, the market is divided on the basis of location. There can be different categories insuch segmentation also. Some of these are:

1a) Region of the world or country: East, West, South, North, Central, coastal, hilly, etc.

2b) City Size: Metropolitan cities, small cities, and towns.

3c) Density of population: Urban, semi-urban, and rural.

4d) Climate: Hot, cold, humid, rainy

Demographic variablesThis is the second most popular variable used by marketers. Factors like age, education, income,etc. individually or in combination, are commonly used to segment the market. Some of thesevariables are discussed here:a) Age: The assumption here is that people in the same age group will behave in the samemanner. Based on this we can have different subgroups like infants (new born to 1 year), children(1 to 12 years), teenagers (13 to 19 years), adolescents (16-19 years), youth (20-35 years),middle aged (36-50 years), elders or seniors (50 years and above).

1b) Gender: Male preferences are different from the female preferences. While some products

like garments and cosmetics are produced exclusively for each segment, there are someproducts, which are meant for both segments and these are called unisex products.

2c) Education – School, College and University: The level of a consumer’s education will also

affect the preferences and also the level of awareness. The higher the level of education, the

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higher is the awareness about the market environment and about different products. Their awareness about their rights as consumers will also be better.

3d) Marital status: Family has been the focus of most marketing efforts and household

continues to be the target for many products and services. Marketers are interested indetermining the profiles of decision makers in households, to develop appropriate marketingstrategies. Many marketers have found it useful to target specific marital status groupings, like

singles, divorced individuals, single parents, dual income married couples, etc.4e) Income: It is believed that, as the consumers’ income increases, their consumption behavior

also changes. Research findings have proved that, the expenditure on food and basic necessitiesas a percentage of total expenditure declines as consumer income increases. The consumer thenstarts buying costlier branded products, and also so called luxuries like automobiles, washingmachines, microwave ovens, holiday packages, air travel, etc. On the basis of income, thesegmentation can be – low income, lower middle income, middle income, higher middle income,high income, etc.

5f) Occupation: Occupation is an important variable and different categories under this can be –

self employed, part time employee, full time employee, etc. or professionals (doctors, charteredaccountants, management consultants, etc.), traders and shopkeepers, businessmen andindustrialists, sales personnel, teachers and professors, housewives, etc.

Psycho graphic Variables1Marketers have been utilizing psycho graphic research, especially personality and attitude

measurements. This type of consumer research has proven very valuable in identifying promisingconsumer segments, which are likely to be responsive to specific marketing messages. Thepsycho graphic profile of a consumer segment can be thought of as a composite of consumers’activities, interests and opinions (AIO’s). As an approach to measuring this, the consumers’responses are analyzed for a large number of statements:2– activities (how the consumer or family spends time – golf, gardening, volunteering in charitableactivities, etc.),3– interests (what are the preferences and priorities like home, fashion, food, etc.)4– opinions (what are the feelings about a variety of political issues, social issues, economy,ecology, etc.)

Socio-cultural segmentationSociological (group) and cultural variables provide further bases for market segmentation.Consumer markets have been successfully segmented based on family life cycle, social class,cultural values, etc. Some of these are discussed in the following paragraphs:

1a) Family Life Cycle: This is based on the fact that many families pass through similar phases

during a lifetime. At each stage the family needs different products and services. These segmentscan be like – young single people, newly weds, parents with infants, parents with teenagechildren, etc.

2b) Social Class: Social class, i.e. the relative status in the community can be the basis for

segmentation. It has been found by research that, the consumers in different social classes varyin terms of values, product preferences and buying habits. Social class is measured by aweighted index of several demographic variables such as education, occupation and income.

3c) Culture and subculture: Members of the same culture tend to share the same values,

beliefs and customs. This type of segmentation is particularly successful in internationalmarketing and it is important for the marketers to understand the target country’s beliefs, valuesand customs.

Within the larger culture, distinct subgroups called subcultures are united by certain values andbeliefs, which make effective market segments. Consumers are found to be more responsive topromotional messages, which they perceive as related to their own sub culture. Culturally distinctsegments can be prospects for the same product, but they can be targeted more efficiently withdifferent promotional appeals. For example, a bicycle can be promoted as a means of

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transportation in Asia, whereas in western countries it can be promoted as a health and fitnessproduct.Behavioral Variables Depending on the consumer behavior towards consumption parametersand situations related to such consumption, there can a different type of market segmentation.Some of these examples are discussed in the following paragraphs:

a) Benefit sought: There can be multiple benefits of the same product from the point of

view of different consumers. For example, some consumers purely for the purpose of telephonic conversations may use the cell phone. Some others may be using itpredominantly for messaging. Some consumers may look for this as a means of takingphotographs whenever they need to. Depending on the different benefits sought, thesegmentation can be made.

b) Occasion: For the same product, different occasions on which they can be consumed,

for example, regular occasions vs. special occasions such as birthdays, weddings,Valentine’s day, Friendship day, etc. can be another option for segmentation.

c) Product usage rate: Some consumers are heavy users, some moderate and some light

users of the same product. Based on the rate of consumption, target consumers may besegmented.

d) Brand loyalty: Many consumers may be hard core loyal (i.e., loyal to one brand), some

may have split loyalty (loyal to more than one brand), some may have shifting loyalty

(shift from favoring one brand to another) and some may be habitual switchers (zerobrand loyalty). Based on this criterion, the marketers may segment their brand markets.

e) Product end use: Some products may have multiple end uses. This happens quite

frequently in industrial markets, wherein the same raw material or packing material maybe used by widely different industries. This then becomes a useful method of segmentation.

f) User status: The status of the consumer in many situations such as non-user of a

product, potential user, first time user, regular user, etc. also offers another method of effective segmentations for devising the entire marketing mix for such segments.

g) Readiness-to-buy stage: This is the stage of preparedness to actually purchase the

product or brand. The consumer may be in different stages of such preparedness, suchas unaware, aware, informed, interested, desiring, or intending to purchase. Differentpromotional strategies can be devised depending on each of these stages, making thisas the basis for segmentation.

h) Attitude towards product: There could be differing attitudes of different consumers

towards the same brand or service, based on their perceptions and past experiences.Some marketers use this as the basis for segmentation, in order to suitably devise their promotional mix for better effectiveness. Some of these attitudes can be described asenthusiastic, positive, indifferent, negative or hostile.

Multiple Variables No marketer can afford to use only a single basis of market segmentation inthe highly complex market environment. Most marketers normally use multiple bases. Manygeographic, psycho graphic, socio-cultural variables along with some of the behavioral variablesare used as a combination to segment the markets and design a suitable marketing mix. Whennumerous variables are combined to give an in-depth understanding of a segment, this is referredto as depth segmentation. When enough information is combined to create a clear picture of a

typical member of a segment, this is referred to as a buyer profile. When the profile is limited todemographic variables, it is called a demographic profile (typically shortened to "demography"). Astatistical technique commonly used in determining a profile is cluster analysis.

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Q3. How does personality influence consumer behavior? What are its implications for marketing strategy?

Ans.: Influence of Personality on Consumer Behavior:Personality can be defined as a dynamic and organized set of characteristics possessed by a

person that uniquely influences his or her cognitions, motivations, and behaviors in varioussituations. Every person has a consistent way of responding to his or her environment and this isbased on the person’s inner psychological characteristics, which determine the kind of suchresponse. Personality is thought to be determined largely by either genetics and heredity, or environment and experiences. There is evidence for both possibilities. Some even believe it is acombination of both. We keep describing people in terms of their personality in everyday life andmany such descriptions are – dominant, outgoing, assertive, aggressive, lively, warm, aloof,sentimental, thick skinned, etc. These are all references to a person’s personality.There are many theories to explain how a personality develops. One of them which is quitesimplistic is that a person finds it cumbersome to develop a new response every time a situationarises and it is more efficient for the individual to develop a standard response every time asimilar situation arises. The personality traits can have a strong influence on the way consumersrespond to marketer’s promotional efforts and also as to when, where and how they consumeparticular products and services. Hence an understanding of various personality characteristics

will be very useful to plan and finalize various marketing mix strategies.

Personality is individualisticThese are due to inherited characteristics as well as those imbibed from the environment. Thiscombination results in unique personality traits, which are never duplicated. Hence no twoindividuals can be exactly alike. Two persons may however resemble in one or more of somepersonality characteristics; but never in all the characteristics. Hence personality becomes auseful tool, which enables a marketer to segment customers into different categories, dependingon one or more of the common traits. If there are no commonalities at all of at least some of thepersonality traits among all the consumers, then it would be impossible to do any marketsegmentation and it would be futile to develop products and promotions targeted at particular segments.Personality is enduring and consistent

Each individual has a distinct set of psychological traits, which lead to consistent and alsoenduring responses to cues and stimuli from the external environment. These features of apersonality help marketers to explain and predict consumer behavior on the basis of thepersonality characteristics. It is however not possible to change the personality of a consumer.The objective of a marketer is to find out which consumer responses are influenced favorably towhich particular personality traits, so that they can try to influence relevant traits in their targetgroup of customers. Personality is only one of the factors, which influence consumer behavior although it is one of the most important factors.Personality can also changeAs the individual grows he cultivates a lot of traits, which lead to consistent behavior. However there are several circumstances, which lead to gradual changes in the personality of theindividual. For example the birth of a child may lead an aggressive person to become softer andmore affectionate. Similarly, major events in life like marriage, death of a loved person,

estrangement from a lover, a big change in career, etc. can lead to noticeable changes in anindividual’s personality. Aging also contributes to such changes, resulting in an older personbehaving in a more mature and calm way to adverse situations. The social changes like women’sempowerment also has brought in many changes in the general personalities in women in the lastfew decades and it has been found that women are showing many of the personality attributestraditionally exhibited by men.Psychogenic TraitsPersonality of an individual starts from the effect of hereditary factors. These are calledPsychogenic traits. Genetics have effects on an individual in four ways:

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1. Physiological differences, 2. Hereditary diseases, 3. Biological clock and 4. Psychologicaleffects.Physiological differencesThis is the most obvious effect of genetics. A person’s physical features like height, weight, facialfeatures, colour of skin, colour and texture of hair, etc. are all caused by heredity.Hereditary diseasesMany diseases like hemophilia; Alzheimer’s disease, Schizophrenia, diabetes, etc. have beenproven to be caused by genetic factors.Biological clockAll living beings are governed by what is called a Biological Clock, which decides the rhythms of sleep wake cycles in our daily cycle of activity. This is also known as “Circadian Rhythm.”Psychological effectsSuch effects of genetics constitute the personality of the individual at birth. There is however anongoing debate as to whether the behavior of an individual gets predominantly influenced by thegenetic factors or by the environmental factors while growing up. The first argument i.e. geneticsbeing the major contributor credits the behavioral tendencies like our emotions, love of status,sexual preferences, notions of beauty, sociability, creativity, morality, etc. to our hereditaryfactors. The second argument insists that the personality gets predominantly influenced by thefamily and social environment like a person’s upbringing, family life, parental values, peer groupinfluences, school/college, any religious groups, etc.

The researchers trying to prove this point have studied the birth order of children. Birth order isthe sequence in which the children are born to the same mother. Such researchers have provenafter extensive studies that the birth order does matter. The older children are proven to beaspiring and ambitious. Having no younger children in the family during the initial period of their upbringing, they get influenced by the adult behavior and learn to act responsibly, and alsomaintain and enforce law and order in the family. The younger children by contrast have beenfound to take themselves less seriously, are more sociable, less judgmental, more risk taking,And more open to new things and change.Group TraitsThese are again due to several hereditary factors like race, gender and age. These areconsidered as group traits. An individual is born with these traits and these traits cannot bealtered. Researches have analyzed these traits to examine whether significant differences existbetween groups of customers with these common traits.

Race:This is a person’s genetic heritage. This is the concept of dividing people into populations or groups on the basis of various sets of characteristics and beliefs about common ancestry. Themost widely used human racial categories are based on visible traits (especially skin color, facialfeatures and hair texture), and self-identification. One of the researches which wasconceptualized by using a genetic distance map is given on the next page:

The personality traits of different races have been generally found to have many commonpersonality traits. For example – the core values of the Japanese are found to be hard work,

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loyalty to the group, obligation to return favours, respect for age and tradition, etc. Indians arefound to be deeply religious, hard working, and ambitious, maintain tradition and customs,humility, self-denial for the sake of group, etc. Chinese are found to value hard work, long termreciprocal relationships, respect for authority, harmony in all things, discipline in delayinggratification, etc.Gender This is a group trait and is divided into two groups – male and female. These groups havecommon traits, which influence consumer values and preferences. Male female differences arefound to be influenced by the life cycle. Sex differences between male and female pre-pubertychildren are found to be very minimal. However, as they move into teenage years, the differencesbegin to show up and as they grow into adulthood and parenthood these differences are found tobe more significant. As a person moves into old age, the differences are found to become lessacute.AgeIn this context we are referring to chronological age, which is different from psychological age(how young a person feels). This has a significant influence on the personality and also theconsumer behaviour. Marketers have successfully segmented the markets based on age criteria.Environment There are separate theories and research streams, which consider theenvironment as the major determinant of personality. In these studies it has been proved that apersonality can be developed and molded by a society by means of environmental shaping. The

American psychologist B.F.Skinner is the leading proponent of such a theory known asBehaviorism Theory. As per this theory, a person develops a pattern of behavioural responsesbecause of the rewards and punishments offered by the environment of the person. Skinner believed that children do bad things because the behavior obtains attention that serves as areinforcer. For example: a child cries because the child's crying in the past has led to attention.These are the responses and consequences. The response is the child crying, and the attention

that child gets is the reinforcing consequence.

4. Distinguish between the different types of selective perception and their implications for marketing strategy.

Ans.: PerceptionPerception is the process of acquiring, interpreting, selecting, and organizing sensory information.This has been defined as the process by which an individual selects, organizes and interpretsstimuli received from the environment into a meaningful and coherent picture. This process is ahighly individual process and two persons who are exposed to identical stimuli, can perceivethem totally differently based on each person’s needs, values and expectations. 0Selection in the Perceptual Process

Each individual in today’s world gets a huge amount of information every day and it is essentialfor being selective at each step of the perception process. They ignore some stimuli and some

interpretation of stimuli. There are four processes by which the individual manages this selection-selective exposure, selective attention, selective interpretation and selective blocking.

Selective ExposureA customer is exposed to a large number of marketing communications every day and only a fewof these communications achieve actual exposure, depending on the needs and interests of theconsumer at that point of time. Consumers look out for some selected advertisements, someselected shelf displays in a store, listen to some sales people, depending on what they areplanning to purchase. Consumers not interested in a product will totally skip the advertisements

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of such products. This selective exposure is also known as gate keeping. Consumers arebecoming more and more selective as the advertising clutter increases. The usage of internet,wherein the consumer is able to selectively collect the data pertinent to his need and requirementin a more efficient manner, is becoming more popular in this regard.

Selective Attention

Even when the consumer is forced to look at an advertisement about a product, which is of nointerest to him/her, the consumer may still ignore it. A person’s interest may be initially attractedby the stimulus characteristics; but beyond initial attention the consumer’s further processing of this information from the stimulus depends on the personal interest in the featured product or service. There are three things, which make a person more likely to pay extra attention to astimulus such as an advertisement –1. Something that relates to a current need – for example, if you are planning to buy a stereosystem, you are more likely to notice ads for stereo systems or displays of stereo systems in anelectronic shop.2. Something that we expect to see – People are more likely to notice something that they expectto see. If you enter a bookshop, which also stocks music CDs, chances are that you may notnotice the music, since you will be expecting to see only books.3. Something that is unusual – People are more likely to notice something, which differs from the

ordinary. For example, an ad, which is in bold print or a TV commercial that is louder than normal,is bound to attract more attention.Making use of this principle, some advertisers choose media, which are of specialized nature,where the product being advertised will fit in. For example, the computer laptops are advertised incomputer related sections of the newspaper or magazine. Even on the Internet, customer specificbanner ads are placed in related web sites. Such selective placements of ads benefit both themarketers and consumers, since the marketers get better attention and consumers are savedfrom all the clutter.

Perceptual Process and Marketing Strategy Practically all the elements of marketingcommunications get affected by the perceptual process of the consumer, most important of whichare - product design, brand names, packaging design, in store displays, print ads and also TVcommercials. There are some special areas of marketing strategy wherein the consumer

perceptual process has significant effect. These are as under:Price Perception The price/quality relationship refers to the perception by most consumers that arelatively high price is a sign of good quality. The belief in this relationship is most important withcomplex products that are hard to test, and experiential products that cannot be tested until used(such as most services). The greater the uncertainty surrounding a product, the more consumersdepends on the price/quality hypothesis and the more of a premium they are prepared to pay.There are many cases wherein some products were perceived as low quality when the price waslowered. However excessive reliance on the price/quantity relationship by consumers may lead tothe raising of prices on all products and services, even those of low quality, which in turn causes

the price/quality relationship to no longer apply. Premium pricing (also called prestige pricing) isthe strategy of pricing at, or near, the high end of the possible price range. People will buy apremium priced product because:1. They believe the high price is an indication of good quality;

2. They believe it to be a sign of self worth – "They are worth it" - It authenticates their successand status - It is a signal to others that they are a member of an exclusive group; and3. They require flawless performance in this application - The cost of product malfunction is toohigh to buy anything but the best - example: heart pacemaker The term Goldilocks pricing is commonly used to describe the practice of providing a "gold-plated" version of a product, at a premium price, in order to make the next-lower priced optionlook more reasonably priced; for example, encouraging customers to see business-class airlineseats as good value for money by offering an even higher priced first-class option. Similarly, third-class railway carriages in Victorian England are said to have been built without windows, not somuch to punish third-class customers (for which there was no economic incentive), as to motivate

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those who could afford second-class seats to pay for them, instead of taking the cheaper option.This is also known as a potential result of price discrimination.The name derives from the Goldilocks story, in which Goldilocks chose neither the hottest nor thecoldest porridge, but instead the one that was "just right". More technically, this form of pricingexploits the general cognitive bias of aversion to extremes.Consumers will always have a „reference price in their mind about each product, at the time of ‟ purchase. If the actual price is lower than the reference price, the product is perceived as goodvalue for money. Another important aspect of consumer psychology is that there is a „band or ‟ „latitude of price, i.e. the maximum and minimum levels of price in the consumer’s mind about‟ the product, which he/she wishes to purchase. If the actual price is within this band, the consumer will purchase the product. If it is more than the maximum level, the consumer may perceive it tobe too high and reject the product purchase. If the actual price is below the minimum level, theconsumer may perceive it as a substandard product and again reject. Another way this principleworks is that, consumers have certain cut off levels for accepting a price and prices below thislevel will be acceptable. Many marketers like Bata shoe company use this psychology and adoptthe „odd pricing method like Rs. 99.00, 199.00, etc. Consumers perceive Rs. 99 as below‟ Rs.100 and hence acceptable.

Country of OriginCountry of origin is the country of manufacture, production, or growth where an article or product

comes from. There are differing rules of origin under various national laws and internationaltreaties. With the globalization and consequent availability of many products from different partsof the world in each country, most consumers have fixed perceptions about the quality fromdifferent countries. For example the products from Germany are perceived to be of high qualitystandards and those from China are perceived to be of very low quality. Such negative andpositive perceptions may change with time. For example, Japanese products were having a verypoor quality image in early 1960 s and today they are perceived to be top quality producers.‟

Corporate ImageA corporate image refers to how a corporation is perceived. It is a generally accepted image of what a company "stands for". The creation of a corporate image is an exercise in perceptionmanagement. Primarily marketing experts who use public relations and other forms of promotionto suggest a mental picture to the public create it. Typically, a corporate image is designed to be

appealing to the public, so that the company can spark an interest among consumers, createshare of mind, generate brand equity, and thus facilitate product sales.The company does not solely create a corporation’s image. Other contributors to a company'simage could include news media, journalists, labour unions, environmental organizations, andother NGOs. Corporations are not the only form of organizations that create these types of images. Governments, charitable organizations, criminal organizations, religious organizations,political organizations, and educational organizations all tend to have a unique image, an imagethat is partially deliberate and partially accidental, partially self-created and partially exogenous.

Q5. Select and briefly describe two advertisements that you have seen – one that tries tochange attitudes towards a low involvement product and one that tries to change attitudetowards a high involvement product. Which one is likely to be more successful and why?

Ans.: AttitudesAttitude is a hypothetical construct that represents an individual's like or dislike for an item.Attitudes are positive, negative or neutral views of an "attitude object": i.e. a person, behaviour or event. People can also be "ambivalent" towards a target, meaning that they simultaneouslypossess a positive and a negative bias towards the attitude in question.

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Attitudes are defined as learned predispositions to respond to an object or class of objects in aconsistently favourable or unfavourable way.Attitudes are learnt and they are formed on the basis of some experience or information about theobject. The object in this context refers to many market related concepts like a product, brand,product category, service, product use, people, advertisement, price, retail outlet, etc.Attitudes remain in the mind. This is what is known as predisposition and this will propel theconsumer towards behaving in a certain way or prevent the consumer from behaving in another way.Attitudes result in consistent response- favourable or unfavourable. However despite their consistency attitudes are not necessarily permanent and they do change. Attitudes come from

judgments. Attitudes develop on the basis of three factors – affect, behavioral change or conation and cognition. The affective response is a physiological response that expresses anindividual's preference for an entity. The behavioral intention is a verbal indication of the intentionof an individual. The cognitive response is a cognitive evaluation of the entity to form an attitude.Most attitudes in individuals are a result of observational learning from their environment. The linkbetween attitude and behavior exists but depends on human behavior, some of which is irrational.For example, a person who is in favor of blood transfusion may not donate blood. This makessense if the person does not like the sight of blood, which explains this irrationality.The above three factors are discussed in more detail in the following paragraphs:Cognitions are also called beliefs. Beliefs are expectations of what something is or is not; or what

something will do or will not do. There are three types of beliefs- descriptive, evaluative andnormative.Descriptive beliefs are about the quality or attributes of the object or person. The examples are

– „this computer has a large memory or , „this airline is always late”, etc.‟

Evaluative beliefs are about personal likes and dislikes, preferences, etc.Normative beliefs are moral and ethical in nature and mostly they relate to the way someoneacts.

Hierarchies in AttitudesThe three components of attitude are related and the sequence in which these components occur for a person is known as „hierarchy of attitudes There are three types of attitude hierarchy which‟ are discussed in the following paragraphs:1

2a) Learning Hierarchy: This is the most commonly occurring hierarchy. In this, cognition or thoughts come first, affect or feelings come next and co native or action comes last. In this casethe consumer thinks first, feels next and acts last. The learning hierarchy assumes brand beliefslead to brand feelings and finally to brand purchase. An example is that of choosing a place for aholiday. In this case the consumer collects all the information about several alternatives, andbased on the judgment of suitable alternatives, evaluates the personal feelings generated byeach of the alternatives and then finally decides on which place to go.3

4b) Emotional Hierarchy: Here the consumer feels first and then acts and thinks last. Based on

the feelings towards a brand, the consumer buys or avoids a brand. The thinking and learningtakes place through product usage. In this case, considering the example of holiday planning, theconsumer may have some positive feelings about some beach resort, which the consumer hasseen on TV and decides on this without going into any other information. The cognition or

learning process takes place last when the consumer is staying in the resort.5

6c) Low Involvement Hierarchy: This is the case wherein the consumer is not very much

involved, since not much is at stake unlike in the case of the earlier hierarchies of learning andemotional hierarchies where the consumer is highly involved. Take the example of a consumer who sees a new type of brown bread, which seems to be good, while shopping for other productsin a store. The consumer may not think much about this and simply buy it and take it home. Thusthe action of purchase (Conation) comes first in such a case, then the feelings (affect) and thenthoughts (cognitive).

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Factors affecting Attitude Change:Attitudes can be changed through persuasion. The celebrated work of Carl Hovland, at YaleUniversity in the 1950s and 1960s, helped to advance knowledge of persuasion. In Hovland'sview, we should understand attitude change as a response to communication. He and hiscolleagues did experimental research into the factors that can affect the persuasiveness of amessage:1. Target Characteristics: These are characteristics that refer to the person who receives andprocesses a message. One such is intelligence trait intelligence – it seems that more intelligentpeople are less easily persuaded by one-sided messages. Another variable that has been studiedin this category is self-esteem. Although it is sometimes thought that those higher in self-esteemare less easily persuaded, there is some evidence that the relationship between self-esteem andpersuasibility is actually curvilinear, with people of moderate self-esteem being more easilypersuaded than both those of high and low self- esteem levels. The mind frame and mood of thetarget also plays a role in this process.2. Source Characteristics: The major source characteristics are expertise, Trust trustworthinessand Interpersonal attraction / attractiveness. The credibility of a perceived message has beenfound to be a key variable here. If one reads a report on health and believes it comes from a

professional medical journal, one may be more easily persuaded than if one believes it is from apopular newspaper. Some psychologists have debated whether this is a long-lasting effect andHovland and Weiss (1951) found the effect of telling people that a message came from a crediblesource disappeared after several weeks (the so-called "sleeper effect"). Whether there is asleeper effect is controversial. Received wisdom is that if people are informed of the source of amessage before hearing it, there is less likelihood of a sleeper effect than if they are told amessage and then told its source.3. Message Characteristics: The nature of the message plays a role in persuasion. Sometimespresenting both sides of a story is useful to help change attitudes.4. Cognitive Routes: A message can appeal to an individual's cognitive evaluation to helpchange an attitude. This is studied in more detail in the coming paragraphs.Routes for Changing of AttitudeThere are many questions faced by marketers, like why do some attitudes persist indefinitely

while some others change quite often? To understand such issues and also to influence changesin consumer attitudes, one has to understand how attitudes can be formed where none existedbefore and how the already existing attitudes can be changed. There are three routes for attitudeformation and change: Cognitive, affective and co native.

1a) Cognitive Route: This is the most common and effective approach. In this case, the

cognitive component of the consumer’s attitude is focused upon. There are four marketingstrategies to achieve changes in attitude through this route:

1i) Change beliefs: In this strategy, the marketer tries to shift the beliefs of the consumer about

the performance of the brand in one or more attributes. Providing facts and statements about theperformance of the particular attribute does this. When Coca-Cola faced the accusation thatpesticide residues were found in many Coke bottles, they advertised giving the lab reports of reputed testing laboratories to prove that the pesticide residue was within tolerable limits.

2ii) Shift importance: Most consumers organize the various attributes of a brand in their mind in

the order of their importance. Marketers try this method of convincing the consumer that thestrong attributes of their brand are most important to the consumer. For example, Saffola brand-cooking oil advertises that controlling cholesterol is important to the consumer and by inference,since Saffola is known for this attribute, the consumer is persuaded to change to this brand.

3iii) Add beliefs: This is another approach in which the marketer tries to add new beliefs to the

already existing set of beliefs, pertaining to the brand attributes. One beer brand startedadvertising that date of packing of beer is important, since freshness is an important attribute.This was relatively unknown to the consumer earlier and the consumer never bothered to look at

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the packing date. After this campaign the consumer started considering the age of beer as arelevant attribute.

4iv) Change ideal: In this strategy, the marketer tries to change the perceptions of the ideal

brand. There are many five star hotels that have come up recently with proper certification on ecofriendly concept being followed in their hotel. They try to change the attitude of the hotel guests toconsider an eco friendly hotel as an ideal attribute for an ideal brand.

1b) Affective Route: Many companies try to influence consumers liking of their brand without‟

trying to change the beliefs. If the liking for the product increases in the mind of the consumer, itwill lead to positive beliefs, which in turn will lead to purchase of the brand. There are three basicapproaches to achieve this:

1i) Classical Conditioning: In this approach, a stimulus the consumer likes, such as music is

consistently paired with the brand name. Over a period, some of the positive feelings associatedwith the music will get transferred to the brand. Other such stimuli used are pictures, whichcreate, warm, loving feelings, etc. ii) Affect towards ad: Positive feelings towards the ad mayincrease the liking for the brand. Using humour, celebrities, or emotional stories in the adsincrease the affect towards the ad. Ads, which arouse negative feelings or emotions, like fear,guilt, sorrow, etc. can also bring in attitude change. For example CRY (Child Relief & You) acharity organisation shows pictures of destitute children to generate sympathy and thuscontributes to the cause.

2iii) Mere Exposure: Just by increased exposure, brand preference can be improved. Presentingthe brand to the consumer on a large number of occasions does this. Repetitive advertisementsof low involvement products have been proven to increase the liking of the consumer andsubsequent purchase.

Thus, in this route, which utilizes the concept of classical conditioning, the followingpoints will have to be noted:

– Advertisements with this concept need not contain cognitive (Factual or attribute) information. – Liking of the consumer for the ad itself will be critical for this type of campaign – Repetition of the ads is most important. – Traditional types of measuring effectiveness of advertising focusing on cognitive component willnot be appropriate for these types of campaigns.

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6. Caselet

Rahul’s dream – A store of home accessoriesAfter his father’s death, Rahul returned to India and inherited a small (Rs. 10 lakhs annualsales) furniture manufacturing company, “Home Products Pvt. Ltd.” in Bangalore. Thecompany was manufacturing and selling at lower price, home furniture to retailers. Thesepeople earned higher profit margins as compared to bigger competitors, who had to spendheavily on advertising and sales promotion.However, Rahul was more interested in opening a store to market home accessories. Hewanted the store to be highly visible and known for its product range consisting of glasstop tables with intricately carved teakwood base, well designed compact sofas and bedsets, designer candle stands, curio shelves, clothes hangers, etc. Rahul was willing toplough back his export earnings into this venture to make it a reality. He planned to startwith a single store and then build a chain of such stores by the end of five years.. The target market aimed for is the upper middle and upper class consumer. The location

of the store is planned keeping in mind the preferences of the consumer, who prefersquiet locations to noisy shopping places. The prices range between Rs. 3000 for a table toRs. 55,000 for a leather-upholstered sofa. Rahul is of the opinion that although customersare price conscious, being more aware of interior décor, would be willing to spend onhome accessories just to “keep up with the Joneses”.A survey also indicated that word of mouth communication, more than advertisements inthe mass media or direct mailers to prospective customers plays a key role in influencingconsumers’ purchase decisions, especially in the case of home accessories.Questions1.Do you think reference group influence is relevant in this case?

Ans.: Influence of Group on Consumer Behaviour Social group

A Social group is usually defined as a collection of persons, who share certain characteristics,interact with one another, accept expectations and obligations as members of the group, and share a common identity . Using this definition, society can appear as a large group. While anaggregate comprises merely a number of individuals, a group in sociology exhibits cohesivenessto a larger degree. Characteristics that members in the group may share include interests, values,ethnic/linguistic background, and kinship ties. Social groups also include institutions, which aremore permanent groups with pervasive and universal presence in society, such as schools,religions and the family.Institutions are structures and mechanisms of social order and cooperation governing thebehavior of two or more individuals. Institutions are identified with a social purpose andpermanence, transcending individual human lives and intentions, and with the making andenforcing of rules governing cooperative human behavior. The term, institution, is commonly

applied to customs and behavior patterns important to a society, as well as to particular formalorganizations of government and public service.A Reference Group is a group whose presumed perspectives or values are being used by anindividual as the basis for his or her current behaviour. In other words, a reference group is simplya group that an individual uses as a guide for behaviour in a specific situation.All individuals belong to a number of different groups and also aspire to belong to some other groups. When a person is actively involved in a particular group, it generally functions as areference group. As the situation changes, the base of such behaviour may shift to an entirelydifferent group, which then becomes the new reference group. Although an individual may belong

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to a number of groups, he/she normally uses only one group as the primary reference group inany given situation.1Classification of Groups

Groups can be classified according to three classification criteria: a. membership, b. type of contact and c. attraction.

1a. Nature of Membership: This refers to whether the membership is real or symbolic.Membership groups are those wherein the head or leader of the group as also the key membersof the group recognise the membership of the individual who claims membership of this group. Insymbolic groups, there is no provision or procedure for granting membership and the groupleader or the key members may even deny membership for the individual. However, the individualregards himself as a member of this group by unobtrusively adopting the group norms and valuesand identifies himself with the group. Examples of membership groups are – family, YMCA, WorkOrganisations, Rotary Club, Lions Club, etc. Examples of symbolic groups are groups whoemulate their heroes in movies, or celebrities, Fortune 500 Companies, etc.

2b. Frequency of Contact: This refers to how much interpersonal contact the groups have with

each other. As the group size increases, the interpersonal contact frequency tends to decrease.Depending on this characteristic, there are two categories of groups –

31. Primary groups: These are characterized by frequent interpersonal contact. The members

of primary groups consider the opinion or norms of the entire group as important to follow. Theexamples are – family, work Organisations, business associations, etc.

42. Secondary groups: Members in secondary groups have limited interpersonal contact. The

norms of secondary groups are considered as less binding or obligatory. Examples are – distantrelatives, occupational groups like doctors, lawyers, accountants, theatre artists, etc.

53. Degree of Formality: Based on this there are two classifications. In a formal group, conduct

and behaviour are highly codified. Examples are – School/college, workplace, religious groups,prison, etc. In informal groups, there are very few explicit rules about the group behaviour. Theexamples are – friendship groups, volunteer groups, community groups, family, relatives, etc.4. Freedom of Choice: In this also, there are two categories- Choice groups and ascribed or assigned groups. Choice groups are those, where the individuals voluntarily choose to join. Theexamples are – friendship groups, community groups, volunteer groups, etc. The ascribed or assigned groups are those wherein the membership is automatic for someone who has the

characteristic that defines the group. The examples are – family, relatives, religious groups,prison, etc.

2.In your opinion, which reference group(s) can act as a spokesperson for the company?

Ans.: Reference groups and Consumer Behaviour From a marketing perspective, reference groups are groups that serve as frames of reference for individuals in their purchase or consumption decisions. This concept is very useful and relevant,because there is no restriction on group size or membership, nor is there any requirement that

the individuals identify with a tangible group.Reference groups that influence general or broadly defined values or behaviour are calledNormative Reference Groups. A child’s normative reference group is the immediate family,which plays an important role in molding the child’s general consumer values and behaviour. For example, the child will learn which foods to select for good nutrition, which are the appropriatedresses for which occasion, how and where to shop for which product, etc.Reference groups that serve as benchmarks for specific, narrowly defined behaviour are calledComparative Reference Groups. This could be a neighboring family whose lifestyle appears tobe worthy of imitation in certain aspects, like the maintenance of their garden, choice of homefurnishings, types of vacations taken by them, etc.

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Both normative and comparative reference groups have significant influence on every individual.Normative groups influence the basic code of conduct, whereas the comparative groups influencethe specific consumer attitudes and behaviour. It is likely that these specific attitudes aredependant on the basic values and behaviour patterns established in the person’s earlydevelopment by the normative reference groups.We can also add a third group of reference groups here – Indirect Reference groups, whichconsist of those individuals or groups with whom a person does not have a direct face to facecontact, such as movie stars, sports heroes, political leaders, TV personalities, etc.

• Factors that affect Reference Group Influence

The amounts of influence the reference groups have on an individual depend on the nature of theindividual and the product and also certain social factors. Some of these factors are discussedhere:a. Information and Experience: A consumer with first hand experience with a product or service, or the one who is capable of getting the information easily about the product or service, isless likely to be influenced by any advice or example of others. On the other hand, the consumer who has little or no experience, or the one who has no access to reliable and objectiveinformation on the product or service, is more likely to seek out the advice or example of others.b. Credibility, Attractiveness and Power of the Reference Group: When a consumer isconcerned with obtaining the accurate information about the product quality or performance, he islikely to get influenced by someone whom he/she considers as trustworthy and knowledgeable.Thus, high credibility in the reference group is likely to influence the consumer more effectively.When a consumer is primarily concerned with the acceptance or approval of the person or groupthey like, or with whom they identify, or those who offer them some status or benefits, they arelikely to adopt their product due to the attraction. When a consumer is primarily concerned withthe power that a person or group can exert over him/her, the choice of product may be the onewhich conforms to the norms of the person or the group, in order to avoid ridicule or punishment.However, unlike the groups, which affect the consumer due to their credibility or attractiveness,the power groups are unlikely to change the attitude of the consumer. Different reference groupsmay affect a consumer’s beliefs, attitudes and behaviour at different points of time, or under different circumstances. For example, the dress habit of a male may vary depending on the placeand role. He may wear conservative business suits in his work place, while he may wear trendyand fashionable dresses in a party with friends.c. Conspicuousness of the Product: The influence of the reference group on a purchase

decision of a consumer varies, according to how visually or verbally conspicuous the product is toothers. A visually conspicuous product is the one, which stands out and is noticed (such as acar or a fashionable dress or jewelry); a verbally conspicuous product is the one, which maybe highly interesting, or it may be easily described to others (like a vacation in an expensivelocation). Products, which are consumed conspicuously and status revealing are likely to bepurchased with an eye to the reactions of the reference group. Privately consumed products likedetergents, shampoos, etc., which are less conspicuous, are unlikely to be purchased with thereference group in mind.d. Reference Groups and Consumer Conformity: There are different objectives of differentmarketers in utilizing the influence of the reference groups. The market leaders are normallyinterested in the ability of the reference groups to change consumer attitudes and behaviour, byencouraging consumer conformity. In contrast, marketers who are responsible for a new brandor a brand, which is not the market leader, may wish to devise a strategy, which persuades

consumers to be different and not just follow the crowd when making purchase decisions. This iscalled non- conformity appeal. In reality, this non-conformity appeal can be thought of as anattempt to shift the consumer’s reference from one group (Brand A users) to another (non brandA users or Brand B users).

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SMUASSIGNMENT

SEMESTER – 3

MK0002

CONSUMER BEHAVIOURSet-2

SUBMITTED BY:GYANENDRA KUMARMBAROLL NO:-520941253

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ASSIGNMENT SET – 2

1. Briefly explain what is meant by diffusion of an innovation. What are the different stagesin the process of adoption of a new product?

Ans.: Diffusion of an Innovation:Diffusion is the movement of particles of a substance from an area of high concentration to anarea of low concentration, resulting in the uniform distribution of the substance. In the marketingcontext, this refers to the process by which innovations spread i.e. how the market assimilatesthem.The definition of diffusion includes four basic elements of the diffusion process:1. The innovation 2. The channels of communication, 3. The social system and 4. Time.The Innovation: When studying the diffusion of innovations it is important to understand that youare not just looking at the spread of an innovation through a society, but rather the spread of different kinds of innovations through a society. An innovation is an item, thought, or process thatis new to a certain area but not necessarily to the world.The term innovation may refer to both radical and incremental changes to products, processes or

services. The often unspoken goal of innovation is to solve a problem. Innovation is an importanttopic in the study of economics, business, technology, sociology, and engineering. Sinceinnovation is also considered a major driver of the economy, the factors that lead to innovationare also considered to be critical to policy makers. In the organisational context, innovation maybe linked to performance and growth through improvements in efficiency, productivity, quality,competitive positioning, market share, etc. All Organisations can innovate, including for examplehospitals, universities, and local governments.While innovation typically adds value, innovation may also have a negative or destructive effect,as new developments clear away or change old organisational forms and practices.Organisations that do not innovate effectively may be destroyed by those that do. Henceinnovation typically involves risk. A key challenge in innovation is maintaining a balance betweenprocess and product innovations. Process innovations tend to involve a business model, whichmay develop shareholder satisfaction through improved efficiencies. Product innovations developcustomer support, however at the risk of costly R&D that can erode shareholder returns.Innovations can be classified in four ways depending on the orientation.

1a. Company Oriented: This approach treats the newness from the perspective of the

manufacturer. When the product is “new” to the company, it is considered new although it maynot be new in the marketplace. This approach is not useful when we want to understand theconsumer acceptance of a new product.

2b. Product Oriented: This approach focuses on the features inherent in the product and on the

effect these features have on consumers established consumption patterns. Depending on the‟ extent to which a new product is likely to disrupt the established consumption patterns, this isfurther classified into three categories:

3i. Continuous Innovation: This type of innovation is a simple change or improvement of analready existing product where the adopter still uses the product in the same manner as before.An example of a continuous innovation is now seen in the automobile industry as it continues to

change and develop. This involves modifications in the existing product rather than a totally newproduct. This has the least disruptive influence on established practices of the consumer. Other examples are those of “Improved Surf Excel”, “New Taste maker in Maggie Noodles” etc.

4ii. Dynamically Continuous Innovation: Here the innovation cans either be a creation of a

new product or a radical change to an existing one. Here the consumption patterns of people aresomewhat altered. An example of this type of innovation would be compact discs. This mayinvolve the creation of a new product or a modification of the existing product, which does notalter the established consumption patterns. This is somewhat more disruptive than a continuous

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innovation. Some examples are that of “Maruti 800 with MPFI engine”, Camcorders with DVDrecording”, etc.

5iii. Discontinuous Innovation: This is a totally new product in the market. This is the big idea

innovation. In this situation, because the product has never been seen before, there are totalchanges to consumers buying and usage patterns. This requires consumers to adapt to totally‟ new consumption patterns. Examples are solar energy or electric cars.

c. Market Oriented: In this approach, the newness of the product is judged in terms of how muchexposure the consumers have to the new product. There are two definitions of a new product inthis approach: 1. If the product has been purchased by a relatively small percentage of thepotential target consumers, it is considered as a new product. 2. A product is considered new if ithas been in the market for a relatively short period of time. Both these definitions are quitesubjective, since the researcher has to establish the degree of sales penetration, or how long isconsidered as short time for the purpose of considering the product as new.d. Consumer Oriented: Some researchers favour this approach wherein any product, which is

judged by the consumer as new, is considered “new”. In other words, the newness of the productis based on the consumer’s perception of the product, rather than the physical features or themarket penetration.

Process of AdoptionThe second major process in the diffusion of innovation is adoption. The stages through which aconsumer passes while arriving at a decision – to try or not to try, or to continue using or discontinue using a new product – is called “adoption process”.There are five stages in arriving at a decision to purchase or reject a new product.1. Awareness, 2. Interest, 3. Evaluation, 4. Trial and 5. Adoption (or Rejection)

11. Awareness: The consumer is first exposed to the new product. At this stage the innovation isintroduced to the person, but there is no true knowledge of the product. Because of this lack of information, the person does not feel the need to run out and find out more information, muchless consider consuming it. The awareness stage merely sets the groundwork for the followingstages. It is argued that since a person often stumbles upon the innovation by accident during theawareness stage, it will provide little incentive to get more information. Others feel that for aperson to become aware, the innovation must fill a particular need in their life for them to notice.

22. Interest: The consumer is interested in the product and starts searching for additionalinformation. At this stage, the person decides to invest time and energy into finding out moreabout the innovation. At this point the person feels good about the innovation, but does not reallyknow how or if it can be useful in his/her own life. The interest stage is purely to gather knowledge, not to decide whether to adopt.

33. Evaluation: Consumer decides whether or not to believe that this product or service will

satisfy his/her need. At this stage, the person firsts begins to make a decision about theinnovation. How could I use it? Do I really need it? Would it be to my advantage if I had it? Theseare all questions the consumers ask themselves during the evaluation stage. Then if theinnovation appears to be positive for their life, they will try it out. If the innovation has a negativeconnotation, they may seek the advice and knowledge of their peers.

14. Trial: The consumer uses the product on a limited basis. This is the next stage called the trial

stage. Here the individual physically gives the innovation a chance by trying it out for a limitedperiod. What they are looking to find out during this trial stage is how the innovation can fit into

their needs and desires. Research proves that most people will not adopt an innovation withoutpersonally testing it first to see if it really “works”.

25. Adoption/Rejection: If trial is favourable, the consumer decides to use the product on a full-scale basis; if unfavourable, the consumer decides to reject it. This final stage is the adoptionstage. Here the individual uses information that they have gathered in the interest and evaluationstages and with the outcome of the trial stage, decides to adopt the innovation. At this point in theadoption process, the individual not only adopts the innovation but embraces it for the future.There is, however, another possible stage to the adoption process. After the individual adopts theinnovation they may decide to reject it for whatever reason. This decision to reject the innovationafter agreeing to adopt it is called discontinuance.

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This is a very simplistic model, as there could be several other steps involved in this process. Inmany cases, the post adoption or post purchase evaluation can lead to a strengthenedcommitment, or to a decision to discontinue use.The adoption of some products may have very little effect on the behavioural and lifestylechanges of consumers. Some innovations may lead to major changes in these spheres.Examples of innovations, which had a major impact on society, include the automobile,locomotive, telephone, refrigerator, television, airplane, personal computer, etc.

2. Explain the different types of consumer buying decisions, with suitable examples.

Ans.: Different Types of Consumer Buying Decisions:The process of consumer decision-making consists of various steps as follows:First Step: Problem RecognitionThe decision process begins with this step. The consumer first notices and recognizes the needto be satisfied or problem to be solved for fulfilling some need. A consumer feels the thirst and

looks for water or a beverage. Another consumer finds that the ink in his pen is over and hencelooks out for a refill. Problem recognition is the state in which the consumer feels the need to buysomething to help him/her get back to the original state of physical or psychological comfort.There are two types of stimuli, which result in problem recognition:11. Internal Stimulus: This is internal state of physical or psychological discomfort felt by theconsumer, for example – hunger, thirst, boredom, etc.22. External Stimulus: This is the outside influence like an advertisement of a product, or thefresh bread smell near a bakery, which would stimulate the need in the mind of the consumer.

The external stimuli can influence a consumer in three different states of mind.1i. When the consumer has already recognized the problem and is looking for a solution. This iswhen the consumer may even actively pursue the external stimuli like advertisements or thesalesmen to look at various alternatives.

ii. When the consumer had recognized the problem in the past but was not able to find a solutionfor various reasons like not having the time, not a priority, etc. For example a consumer wanted tobuy a microwave oven, which was getting postponed, and when a neighbor bought a microwaveoven, the need surfaced strongly to push the consumer to look at alternatives.iii. When a problem, which was dormant, was not recognized in the past. This happens with mostof the technological advances and innovations. The consumer who would have been happy withan old product may feel that the old product is not satisfying his/her need when the new product isadvertised. For example, before the e-mail, the consumer never recognized the normal snail mail,which took so much effort, cost and delays as a problem.

Based on these facts there are two types of demand for a product or a service:

11. Primary Demand: This is the demand for the category of the product or service itself, whichseeks to convert a non-buyer of it into a buyer. All the marketing efforts for promoting a new

product or service are to generate the primary demand. This is done normally by educating theconsumer about the benefits of the new product/service and also as to how this can solve aproblem, which has not been noticed or recognized till now.

22. Secondary or selective demand: This is the conversion of the demand from one brand to

another. In mature markets of any product, the marketers concentrate on the secondary demandcreation.There has been a controversy in the basic function of marketing- whether it is to create a need, or whether it is satisfy an already existing need. Many people argue that, no one needed many of the products like a video camera, a mobile phone etc. and that high profile marketing efforts

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created such demand. However, when one defines the needs in proper perspective, incorporatingthe principles of Marketing Myopia, it is easy to figure out how these new concepts and productsare catching up and why these are just satisfying the dormant needs of a consumer.

Second Step: Prepurchase Search:This is the second step in the consumer decision process. Once the consumer has recognizedthe problem, the next step is to search for relevant information to solve the problem. This searchis confined to a set of brands, which can be classified as follows:1. Awareness Set: This is the set of brands, which the consumer is aware of.2. Recalled Set: This is the set of brands, which the consumer can remember when deciding.3. Considered Set: This is the set of brands, which the consumer considers for the final selectionafter discarding the other brands.The pre-purchase information may be obtained from various sources, like advertisements,brochures, salesmen, shop displays, company website, etc. which is basically given by themarketer. The consumer may also get the information from friends and acquaintances, or fromhis/her own past experience.Nowadays there are many other sources, most important of which is the Internet, which canproduce a huge number of alternatives to the consumer, whether he/she intends to buy theproduct/service online or offline. In fact, some researchers have listed the following benefits of an

Internet search, which are responsible for the phenomenal popularity of this medium:

• 1. Cost: the Internet offers the lowest cost for information search, which is the most attractivefeature of this source.

• 2. Selection: The consumers are able to get a fairly large number of alternatives bysearching the Internet very quickly.

• 3. Reliability: The consumers find the Internet sources more reliable than the store salesmenor advertisements. In fact many websites, blogs, etc. that encourage actual consumer reviews have increased the credibility of this information.

• 4. Quick product comparison: There are many sites which give product comparisons andthis has again helped the consumers in taking more informed quick decisions, which wouldhave been either too laborious or time consuming before the advent of this feature in theinternet.

The extent of search effort by a consumer depends on many factors. These are as under:Perceived Risk: This is the extent of loss incurred by the consumer if he takes a wrong decision,in the buying process. There can be many risks involved in making a purchase decision by aconsumer like:0 a. The product may not perform as well as the expectation.1 b. Your immediate social circle may disapprove.0 c. The consumer may not be feeling comfortable psychologically with the product,although it may not have any product-related problems.1 d. There may be another equivalent brand, which is lower in price, or the same brandmay be available at a cheaper rate at some other outlet.2 e. This product may become obsolete in the near future and the new products may havemuch better features.

When the perceived risk of the buyer is high, he/she is likely to go for extensive search. Theconsumer may not find much risk in routine purchases and hence may not seek a lot of information before the purchase decision.

• Involvement: This is the perceived importance of the product for the consumer. Thereare some products, which a consumer buys routinely without much thought and there aresome products, which will involve a great deal of involvement and care of the consumer in decision making. This depends on how the consumer considers the importance of theproduct either financially or psychologically. Sometimes the emotional involvement of the

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consumer in a buying decision may be high, although the cost of the product/service maynot be high. Such high purchase decision involvement results in extensive search of Prepurchase information.

• Experience: The consumer may have the previous experience with the product or thebrand, which will lead to less extensive search for Prepurchase information. In suchsituations the purchase decisions will be routinely made. This may get disturbed only in

certain situations like:0 f. When the experience is not satisfactory after the previous purchase.1 g. When there are some new innovations and products introduced in the market after theprevious purchase.2 h. When the consumer is interested in an assortment of different brands of the sameproduct.3 i. If the previous experience is quite old and there is an urge to reconsider.4 j. When the perceived risk of wrong decision is high even with the previous experience.0 k. When the consumer is highly involved with the product and hence enjoys the entireexperience of evaluating various alternatives.

• Urgency: When there is urgency for taking the decision quickly the extent of search getsrestricted. Many marketers have taken advantage of this aspect and have devisedmarketing strategies aimed at consumers who value time, by offering products and

services, which would save time for them.• Brand Parity: When the competing brands are not very distinguishable from each other,

the consumer has to resort to more search efforts in terms of getting more reviews bypast consumers, or by comparing their features more extensively.

Sometimes, too much information results in the consumer getting confused, as to how to sort outthis excessive information. Many products are advertised with so many features, that theconsumer finds it very difficult to understand the relative importance of these features, whichcould result in a decision, which may not be favourable to the marketer. Hence it is important for the marketers to consider carefully what information is important from the consumer’s perspectiveand avoid excessive information, which is termed as ‘information overload’.Third Step: Evaluation of AlternativesAfter completing the search for relevant information, the consumer has to evaluate the variousalternatives. For this purpose we have to first understand how consumers make choices. Thereare different methods by which a consumer makes a choice, some of which are discussed below.i) Affective Choice: This is based on the feelings of the consumer rather than the actual benefitsof the product or service. Buying of a dress, having a holiday, etc. will normally involve theanticipated feelings of the consumer while using the product or service. The decision will bebased mostly on such anticipated feelings rather than the attributes of the product or service. Insuch situations, marketers have to design products and services, which will provide appropriateemotional response in the consumers. The advertising strategy also has to take care of helpingthe consumers visualize how they will feel while consuming the product or service. Theadvertising campaign – “God’s own Country” for Kerala Tourism was very effective in followingthis strategy, to evince the right emotions and feelings for the travelers looking for suchexperience of nature.1ii. Cognitive Choice: This is based on the rational comparison of various attributes of the productor service. This requires the knowledge of all the relevant attributes at the time the choice ismade and also it involves the comparison of each attribute of various brands. This requires a lot

of time and effort and generally results in an optimal decision. Such choice is more relevant in thecase of more complex decision-making, when the cost of purchase is high and the perceived riskof wrong decision is also high. This approach is also resorted to when the relevant brand wiseinformation on various attributes is readily available. Many marketers use this strategy tointroduce brands, which are lacking in strong brand image or reputation in a competitive market.2iii. Attitudinal Choice: This involves the general attitudes, impressions and intuitions of theconsumer, rather than an informed choice. A variety of situations force a consumer to go for thistype of choice in preference to other types. Time pressure, lack of relevant information, etc. wouldresult in a consumer deciding on this method. Many marketers follow a dual strategy for important

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and expensive products and services by targeting both types of consumers viz. those going for cognitive choice, as well as those going for attitudinal choice.

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3. What is meant by “post-purchase dissonance”? Suggest five different ways in whichmarketers can reduce post purchase dissonance.

Ans.: Post purchase Dissonance:Post purchase dissonance is basically an after purchase cognitive behavior. While evaluatingthe benefits after a purchase it is common for customers to be concerned about their purchasedecision. It is caused by cognitive dissonance. Here the customer thinks that if he had purchasedsome other item it would have been better than the one he bought. Simply he is not completelysatisfied with the purchase and is most likely to switch brands.As the consumers use the product, they evaluate the performance critically in the initial stages bycomparing it with their expectations. Such an evaluation may lead to following three outcomes:a. Performance matches expectations: This leads to a neutral feeling and satisfaction. There isa likelihood of this consumer buying this brand again in future from the same store.b. Performance exceeds expectations: This could lead to a strong brand and store loyalty infuture purchases.

1c. Performance is below expectations: In this case, especially if the involvement is intensive,

the consumer may respond in different ways as explained below.i. Cognitive Dissonance: This may result in doubting the wisdom of the choice, which createswhat is called “Cognitive Dissonance” which is a disturbance in the mind. The consumer maythen try to reduce such disturbance by trying to justify the soundness of the decision by seekingfurther positive information about their choice and avoid any negative inputs they may get at thisstage. Thus they will re-read the product brochures, giving positive features and avoidcompetitors advertisements, or any negative inputs by friends or acquaintances. Marketers can‟ make use of this psychology, by asking their sales people to get a feedback from the consumers,which may reveal some of the positive features neglected by them previously.

Marketers should try to reduce cognitive dissonance to the extent possible, through the followingstrategies –

• Avoid making over-promises, either in their advertisements or through their sales people.

• Train their dealers and salespeople to examine the needs of consumers and recommendproducts that would best fit their needs.

• Develop comparative advertising campaigns targeted to new buyers, highlighting the

superiority of their brand over the competitors brands.‟

• Develop “post-buy” services at the dealer level, to build confidence in the brand amongconsumers.

• Enclose an easy to understand instruction booklet along with the product.

• Send the customer a letter congratulating them on the new purchase and emphasize the highquality of the product.

• Ask for customers’ feedback on the product.1

2ii. Exit: This is the extreme reaction when the consumer is totally convinced that the choice wasindeed bad. He/she may then decide not to buy this brand again. They may go through the entireprocess of the purchase process from the very beginning when they need to buy the productagain.

iii. Complain: Dissatisfied customers may either complain or just keep quiet. The likelihood of theconsumer voicing a complaint depends on three factors-

a) Extent of dissatisfaction (whether the dissatisfaction is serious or not),b) Attribution to marketer (whether the consumer feels that this complaint can definitely beattributed to the marketer) or c) Consumer’s personality (degree of aggressiveness/ submissiveness, self-confidence,assertiveness etc.)

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If this results in a complaint and if the marketer successfully redresses the complaint, theconsumer may perceive that justice has been done. Such a result is possible when the consumer feels that he/she was treated with respect during the process of conflict resolution, the policy andprocedure followed was fair and the final decision was justified. If the consumer is satisfied that

justice has been done, he is likely to continue with the same brand and store. If the consumer isdissatisfied with this the hostility increases. There could be adverse word of mouth publicity. Ithas been found by research that consumer complaints are good for the marketers. A relativelylow percentage of consumers actually complain and if the complaint is redressed, they are likelyto become loyal customers. A majority of dissatisfied consumers may not complain; but simplyturn to competitors brands. It has also been found by research that the negative publicity of ‟ dissatisfied customers is much more widely done than the positive publicity of satisfiedcustomers. The satisfied customers are less likely to spread the word across about the goodfeatures of the product. However the dissatisfied customer is more likely to take the initiative tospread the word around about the negative aspects of his/her experience, which could be moredamaging. Hence a complaint redressal system is a very important part of a successful marketingstrategy.

4. What are some of the differences between consumer buying behavior and businessbuying behavior? Briefly explain the factors influencing business-buying behavior.

Ans.: Consumer Buying Behaviour: As mentioned in the introduction, “Consumer Behaviour isthe study of individuals or Organisations and the activities undertaken by them to select, procureand use products or services to satisfy their needs and wants.” The activities undertaken by the consumer can be either of the following:

11. Psychological activities, involving thinking processes like considering the need for theproduct or service, whether to purchase, what to purchase, when to purchase, how topurchase, comparing the various features and prices, reading customer reviews, etc.

22. Physical activities, like going to a shop, looking for and enquiring about alternatives,visiting an e-commerce site, transacting on the e-commerce site, etc.

Clearly, consumer behavior is a process, rather than a singular act of buying. The process maybe longer for some products than for others. It generally involves a number of activities prior topurchase. It is also an orderly process, since these activities take place in a particular sequence –e.g., search for information, evaluation of information, seeking opinions of others, trial of theproduct, etc.Sheth & Mittal have further expanded the above definition by including the study of various rolesplayed by a customer such as -11. The user (who uses or consumes the product or service)22. The payer (who pays for such a product or service)33. The buyer (who physically acts to procure the product or service).

In fact, consumer behaviour could involve as many as five different roles – the initiator of the

decision, the person who influences the decision, the decision maker, the buyer and the user.Consumer behaviour is complex, since the same person may play all the roles, or there may bemore than one person playing different roles. Depending on the roles being played, the behaviour and decision making process may change.In addition, consumer behaviour is a complex interplay of several factors. According to PhilipKotler, consumer behaviour is influenced by both internal and external factors. His model of consumer behaviour is illustrated by the diagram given on the next page –Business buying behaviour:

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Business-to-business or “B2B” is a term commonly used to describe the transaction of goodsor services between businesses, as opposed to that between businesses and other groups, suchas transactions between business and individual consumers (B2C) or business to governmentOrganisations (B2G) transactions. B2B is typically performed in much higher volumes than (B2C)applications. B2B can also encompass marketing activities between businesses, and not just thefinal transactions that result from marketing, though B2B can be used to identify salestransactions between businesses (also sometimes referred to as 'Institutional Sales'). For example, a company selling photocopiers would likely be a B2B sales organization, as opposedto a B2C sales organization. The term 'Business to Business' can also mean all transactionsmade in an industry value chain 'before' the finished product is sold to the end-consumer for finalconsumption.Purchasing refers to a business or organization attempting to acquire goods or services toaccomplish the goals of the enterprise. Though there are several organizations that attempt to setstandards in the purchasing process, processes can vary greatly between organizations.Typically the word “purchasing” is not used interchangeably with the word “procurement”, sinceprocurement typically includes Expediting, Supplier Quality, and Traffic and Logistics in additionto Purchasing.Purchasing managers/directors and procurement managers/directors guide the organization’sacquisition procedures and standards. Most organizations use a three-way check as thefoundation of their purchasing programs. This involves three departments in the organization

completing separate parts of the acquisition process. The three departments do not all report tothe same senior manager to prevent unethical practices and lend credibility to the process. Thesedepartments can be purchasing, receiving; and accounts payable or engineering, purchasing andaccounts payable; or a plant manager, purchasing and accounts payable. Combinations can varysignificantly, but a purchasing department and accounts payable are usually two of the threedepartments involved.Historically, the purchasing department issued Purchase Orders for supplies, services,equipment, and raw materials. Then, in an effort to decrease the administrative costs associatedwith the repetitive ordering of basic consumable items, "Blanket" or "Master" Agreements wereput into place. These types of agreements typically have a longer duration and increased scopeto maximize the Quantities of Scale concept. When additional supplies are required, a simplerelease would be issued to the supplier to provide the goods or services.Purchasing managers realized once contracts for the low rupee value consumables are in place,

procurement can take a smaller role in the operation and use of the contracts. There is stilloversight in the forms of audits and monthly statement reviews, but most of their time is nowavailable to negotiate major purchases and setting up of other long-term contracts. Thesecontracts are typically renewable annually.

Factors Influencing Business Buying Behaviour There are many factors, which affect the business buying behaviour, which can be classified intotwo categories – situation specific and organisation specific.I. Situation Specific FactorsThere are three factors under this category:1a. Buy class

There are three buy classes: new task purchase, modified rebuy, and straight rebuy. A new task

purchase is a problem or requirement that has not arisen before, such that the buying center does not have any relevant experience with the product or service. A modified rebuy is asituation such that the buying center has some relevant experience to draw upon. Thealternatives considered, however, are different, or changed from the ones considered the lasttime a similar problem arose. A straight rebuy is the purchase of standard parts; maintenance,repair, and operating items and supplies; or any recurring need that is handled on a routine basis.The concept of buy class is important because the purchase process is different among thesethree classes.1b. Perceived Risk, Importance and Complexity:

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Perceived Risk refers to the expected probability that the purchase may not produce asatisfactory outcome. This is due to two factors: 1. The degree of uncertainty that the choice maybe wrong. 2. The amount at stake in case the choice happens to be wrong. The new tasks havethe highest uncertainty and the straight rebuy the lowest. The amount at stake can be thefinancial loss or the performance loss in case of wrong decision.Financial loss depends on the purchase price and performance loss pertains to the product notperforming to standards.The importance of purchase is a combination of the amount at stake and the extent to whichthe product plays a strategic role in the organisation. Higher the amount at stake and morestrategic the product’s role- the more important is the purchase.Complexity refers to the extensiveness of the effort required to understand and manage theproduct during its acquisition. This has two dimensions:1. The number of performance specifications and2. The technical and the specialist knowledge required understanding these specifications.The above three factors, viz. perceived risk, importance and complexity influence how extensiveand involved the purchase decision process will be.1c. Time PressureCustomers behave differently when they are under time pressure. This refers to how urgently theitem is needed. When the item is needed urgently, the purchase decision will tend to short circuitthe usual process, make the process less deliberative and give more direct role to the user.

1II. Organisation Specific FactorsThere are four organisational factors, which affect buying behaviour: 1. Size, 2. Structure,3. Purchase resources and 4. Purchase orientation.

1a. Size: The size of the organisation not only determines the customer’s potential purchase

volume, but also the sophistication of the buying process. Small business Organisations andentrepreneurial firms behave more like a family, usually consisting of one person and largeOrganisations have larger buying groups or buying centers and more formalized procedures.

2b. Structure: This refers to the number of departmental units and geographical locations over which the units are spread out and also its degree of centralization. If the organisation has morenumber of departments it will have larger buying group/center, and the buying process is likely tobe prolonged.c. Purchase Resources: This refers to the availability of professional buyers and the extent towhich the purchase office is staffed with the required type and number of experts as well asequipment. Generally, large and professionally managed firms will have better resourcedpurchase departments leading to well evaluated decisions and also formal and rigorous vendor evaluation.d. Purchase Orientation: This refers to the philosophy of purchase, i.e. which can vary from„purchasing simply as an administrative function for organising materials needed at mosteconomical rates , to „viewing it as a strategic managerial function whose goal is to add value to‟ the organisation’s ability, to offer better value to its customers.3

5. Explain the theory of Classical Conditioning and its implications for marketers.

Ans.: Classical Conditioning:Classical Conditioning (also known as Pavlovian or Respondent Conditioning) is a form of associative learning that was first demonstrated by Ivan Pavlov. The typical procedure for inducing classical conditioning involves paired presentations of a neutral stimulus along with astimulus of some significance. The neutral stimulus could be any event that does not result in anovert behavioral response from the organism under investigation. Pavlov referred to this as aConditioned Stimulus (CS). Conversely, presentation of the significant stimulus necessarilyevokes an innate, often reflexive, response. Pavlov called these the Unconditioned Stimulus (US)

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and Unconditioned Response (UR), respectively. If the CS and the US are repeatedly paired,eventually the two stimuli become associated and the organism begins to produce a behavioralresponse to the CS. Pavlov called this the Conditioned Response (CR).The original and most famous example of classical conditioning involved the salivary conditioningof Pavlov's dogs. During his research on the physiology of digestion in dogs, Pavlov noticed that,rather than simply salivating in the presence of meat powder (an innate response to food that hecalled the unconditioned response), the dogs began to salivate in the presence of the labtechnician who normally fed them. Pavlov called these “psychic secretions”. From thisobservation he predicted that, if a particular stimulus in the dog’s surroundings was present whenthe dog was presented with meat powder, then this stimulus would become associated with foodand cause salivation on its own. In his initial experiment, Pavlov used bells to call the dogs totheir food and, after a few repetitions, the dogs started to salivate in response to the bell. Thus, aneutral stimulus (bell) became a conditioned stimulus (CS) as a result of consistent pairing withthe unconditioned stimulus (US - meat powder in this example). Pavlov referred to this learnedrelationship as a conditional reflex (now called Conditioned Response).This type of classical conditioning will be occurring in our everyday lives. This has been proved inmany marketing experiments. In an experiment in a supermarket, the music pace was varied ondifferent days from slow to fast. On the days when slow music was played, the shoppers werefound spending more time in the store and also bought more products, when compared to thedays on which fast music was played. Marketers have used this principle when they pair their

brand with a likeable celebrity. The celebrity’s personality by classical conditioning rubs on to theproduct itself. Some business customers boast about their famous clients. Some manufacturersgo out of the way to get associated with prestigious retail outlets.Operant Conditioning:It is also known as Instrumental conditioning and it differs from classical conditioning, primarily inthe role and timing of reinforcement and was developed by B.F. Skinner. Reinforcement andpunishment, the core tools of operant conditioning, are either positive (delivered following aresponse), or negative (withdrawn following a response). This creates a total of four basicconsequences:1. Positive reinforcement occurs when a behavior (response) is followed by a favorable stimulus(commonly seen as pleasant) that increases the frequency of that behavior. In the Skinner boxexperiment, a stimulus such as food or sugar solution can be delivered when the rat engages in atarget behavior, such as pressing a lever.

2. Negative reinforcement occurs when a behavior (response) is followed by the removal of anaversive stimulus (commonly seen as unpleasant), thereby increasing that behavior's frequency.In the Skinner box experiment, negative reinforcement can be a loud noise continuously soundinginside the rat's cage until it engages in the target behavior, such as pressing a lever, upon whichthe loud noise is removed. 3. Positive punishment (also called "Punishment by contingentstimulation") occurs when a behavior (response) is followed by an aversive stimulus, such asintroducing a shock or loud noise, resulting in a decrease in that behavior. 4. Negativepunishment (also called "Punishment by contingent withdrawal") occurs when a behavior (response) is followed by the removal of a favorable stimulus, such as taking away a child's toyfollowing an undesired behavior, resulting in a decrease in that behavior.Marketers make use of this concept by offering extrinsic rewards like coupons, sweepstakes andrebates, when their brand has no intrinsic ally or superior reward compared to competing brands.Many airlines offer frequent flier programmes that accumulate mileage towards future free

redemption.ModelingIn this model the individual learns by observing others. Children learn from their parents, fromtheir teachers, individuals learn from experts, etc. This type of learning is also called imitation or imitative behaviour. There are four classes of people who are likely to be imitated by others:11. Persons superior in age/grade hierarchy22. Persons superior in social status33. Persons superior in intelligence ranking system44. Superior technicians in any field

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The choice of the model varies from culture to culture. The age hierarchy works more in easterncountries like Japan, India, China, etc. where elders are always respected and emulated. Inwestern countries, grade hierarchy is operational. In most societies the more educated areimitated by less educated persons, more skilled technicians are imitated by less skilledtechnicians and those who are in higher social class, are imitated by those in lower class. Themiddle class normally aspires to imitate the rich class.

6. Caselet

M/s. Tufleather Ltd. – “ Tufcom Shoes”For the last fifty years, M/s. Tufleather has been in the business of manufacturing andselling leather to companies, which make leather shoes and other, related products. In thepost liberalization period, i.e., from 1991 onwards, the company was contemplatingentering the shoe manufacturing industry, primarily because the Government was givingsubstantial support to this industry, particularly to firms that were export oriented.With the intention of selling shoes, the company set up its own factory with R & D facilitiesin Hosur, Tamil Nadu. In 1993, the company’s R & D department developed a material

“Tufcom”, which it claimed had properties of shoe material permeability, strength,flexibility and durability. The company also set up a sub unit to produce shoes with thisnew material and conducted test marketing to gauge the initial response. The pilot studyindicated positive consumer response.Based on the test marketing results, the company set up a large plant with a hugeinvestment and entered into tie-ups with reputed shoe manufacturers to buy the newmaterial and make attractive shoe models. They also planned to have an in-house trainedteam of sales people who would visit the shoe retail outlets and train their sales personson how to sell shoes. Tufleather also helped the shoe manufacturing companies byproviding point of purchase and advertising materials for a nationwide advertisingcampaign.The company developed a premium pricing strategy for the Tufcom material, based on theconsumer perceptual process - the belief that high price is an indicator of high quality.

They felt that Tufcom offered quality that was superior to leather in terms of durability andease of care. After adopting a skimming pricing strategy, the company would later consider penetrating the lower priced shoe market segment.While the first year after the launch of Tufcom shoes showed positive results, sales beganto fall drastically after that. Feedback from their sales team indicated that high pricebuyers did not get motivated by the factors emphasized by Tufleather, namely durabilityand ease of care. In addition, some complaints were received from buyers of Tufcomshoes that they found the shoes unusually warm.Questions11. Where do you think the company went wrong in analyzing consumer shoe buyingbehavior?

12. Do you think the company should identify a new buyer market, namely the lower priced

shoe market segment?

Ans.: 1. As the consumers use the product, they evaluate the performance critically in the initialstages by comparing it with their expectations. Such an evaluation may lead to following threeoutcomes:a. Performance matches expectations: This leads to a neutral feeling and satisfaction. There isa likelihood of this consumer buying this brand again in future from the same store.b. Performance exceeds expectations: This could lead to a strong brand and store loyalty infuture purchases.

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c. Performance is below expectations: In this case, especially if the involvement is intensive,the consumer may respond in different ways as explained below.

i. Cognitive Dissonance: This may result in doubting the wisdom of the choice, whichcreates what is called “Cognitive Dissonance” which is a disturbance in the mind. Theconsumer may then try to reduce such disturbance by trying to justify the soundness of thedecision by seeking further positive information about their choice and avoid any negativeinputs they may get at this stage. Thus they will re-read the product brochures, giving positivefeatures and avoid competitors advertisements, or any negative inputs by friends or ‟ acquaintances. Marketers can make use of this psychology, by asking their sales people toget a feedback from the consumers, which may reveal some of the positive featuresneglected by them previously. Marketers should try to reduce cognitive dissonance to theextent possible, through the following strategies – Avoid making over-promises, either in their advertisements or through their sales people. Train their dealers and salespeople to examine the needs of consumers and recommend products that would best fit their needs. Develop comparative advertising campaigns targeted to new buyers, highlighting thesuperiority of their brand over the competitors brands. Develop “post-buy” services at the‟ dealer level, to build confidence in the brand among consumers. Enclose an easy to understand instruction booklet along with the product. Send the customer a letter congratulating them on the new purchase and emphasize the high quality of the product. Ask for customers feedback on the product.‟

ii. Exit: This is the extreme reaction when the consumer is totally convinced that the choicewas indeed bad. He/she may then decide not to buy this brand again. They may go throughthe entire process of the purchase process from the very beginning when they need to buythe product again.

iii. Complain: Dissatisfied customers may either complain or just keep quiet. The likelihood of theconsumer voicing a complaint depends on three factors-

a) Extent of dissatisfaction (whether the dissatisfaction is serious or not),b) Attribution to marketer (whether the consumer feels that this complaint can definitely beattributed to the marketer) or c) Consumer’s personality (degree of aggressiveness/ submissiveness, self-confidence,assertiveness etc.)If this results in a complaint and if the marketer successfully redresses the complaint, the

consumer may perceive that justice has been done. Such a result is possible when the consumer feels that he/she was treated with respect during the process of conflict resolution, the policy andprocedure followed was fair and the final decision was justified. If the consumer is satisfied that

justice has been done, he is likely to continue with the same brand and store. If the consumer isdissatisfied with this the hostility increases. There could be adverse word of mouth publicity. Ithas been found by research that consumer complaints are good for the marketers. A relativelylow percentage of consumers actually complain and if the complaint is redressed, they are likelyto become loyal customers. A majority of dissatisfied consumers may not complain; but simplyturn to competitors brands. It has also been found by research that the negative publicity of ‟ dissatisfied customers is much more widely done than the positive publicity of satisfiedcustomers. The satisfied customers are less likely to spread the word across about the goodfeatures of the product. However the dissatisfied customer is more likely to take the initiative tospread the word around about the negative aspects of his/her experience, which could be more

damaging. Hence a complaint redressal system is a very important part of a successful marketingstrategy.

2. Market Segment: a market segment is a subgroup of people or organizations sharing one or more characteristics that make them have similar product needs.Market Segmentation Market segmentation is the process in marketing, “of dividing a market into distinct subsets (segments) that behave in the same way or have similar needs” . Becauseeach segment is fairly homogeneous in its needs and attitudes, it is likely to respond similarly to a

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given marketing strategy. It is also likely to have similar feelings and ideas about a marketing mix,comprised of a given product or service, sold at a given price, distributed in a certain way andpromoted in a certain way. Before marketers started using the concept of market segmentation,the way the business was done was through mass marketing, i.e. offering the same product andsame marketing mix to all consumers. The classic case of such a practice was that of HenryFord’s philosophy of offering Ford Model T car, with the choice to the consumers of selecting anycolour they wanted as long as it was black.

0 Bases for Market SegmentationThe first step in developing a segmentation strategy is, to select the most appropriate basis onwhich the market can be segmented. There are many ways in which this can be done and somemost popular variables used for market segmentation are discussed in the following paragraphs:Geographic Segmentation:In this method, the market is divided on the basis of location. There can be different categories insuch segmentation also. Some of these are:

1a) Region of the world or country: East, West, South, North, Central, coastal, hilly, etc.

2b) City Size: Metropolitan cities, small cities, and towns.

3c) Density of population: Urban, semi-urban, and rural.

4d) Climate: Hot, cold, humid, rainy

Demographic variablesThis is the second most popular variable used by marketers. Factors like age, education, income,etc. individually or in combination, are commonly used to segment the market. Some of thesevariables are discussed here:

1a) Age: The assumption here is that people in the same age group will behave in the samemanner. Based on this we can have different subgroups like infants (new born to 1 year),children (1 to 12 years), teenagers (13 to 19 years), adolescents (16-19 years), youth(20-35 years), middle aged (36-50 years), elders or seniors (50 years and above).

2b) Gender: Male preferences are different from the female preferences. While someproducts like garments and cosmetics are produced exclusively for each segment, thereare some products, which are meant for both segments and these are called unisexproducts.

1c) Education – School, College and University: The level of a consumer’s education will also

affect the preferences and also the level of awareness. The higher the level of education, thehigher is the awareness about the market environment and about different products. Their awareness about their rights as consumers will also be better.

2d) Marital status: Family has been the focus of most marketing efforts and household

continues to be the target for many products and services. Marketers are interested indetermining the profiles of decision makers in households, to develop appropriate marketingstrategies. Many marketers have found it useful to target specific marital status groupings, likesingles, divorced individuals, single parents, dual income married couples, etc.

3e) Income: It is believed that, as the consumers’ income increases, their consumption behavior

also changes. Research findings have proved that, the expenditure on food and basic necessitiesas a percentage of total expenditure declines as consumer income increases. The consumer thenstarts buying costlier branded products, and also so called luxuries like automobiles, washingmachines, microwave ovens, holiday packages, air travel, etc. On the basis of income, thesegmentation can be – low income, lower middle income, middle income, higher middle income,high income, etc.f) Occupation: Occupation is an important variable and different categories under this can be –self employed, part time employee, full time employee, etc. or professionals (doctors, charteredaccountants, management consultants, etc.), traders and shopkeepers, businessmen andindustrialists, sales personnel, teachers and professors, housewives, etc.

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