LECTURE FOUR: THE IMPORTANCE OF UNDERSTANDING CONSUMER LIFESTYLES AND BUYING EXPERIENCES, THEIR PERCEPTIONS OF VALUE, RISK AND

PRODUCT APPLICABILITY Subject 1. The Customer Buying Process 2. Information And Purchase Decisions 3. Identifying the Risk Barriers 4. Summary 5. Discussion Questions 6. References / Reading List Page 2 2 7 7 7 8

Page 1 of 8

1. The Customer Buying Process Miller and Layton (2000) define a Buying-decision process as the series of logical stages, which differ for consumers and organisations, that a prospective purchaser goes through when faced with a buying problem. The stages of the buying decision process are: Needs recognition: the consumer is moved to action by a need. Identification of alternatives: the consumer identifies alternative products and brands and collects information about them. Product and brand identification may come from a simple memory scan of previous experiences to an extensive external search. Evaluation of alternatives: the consumer weighs the advantage and disadvantage of alternatives identified. The evaluation may involve a single criterion, or several criteria, and then compare each alternative. For example, you might select a frozen dinner on price alone or on price, taste, and ease of preparation. Purchase and related Decision: the consumer decides to buy or not to buy and makes other decision related to the purchase. If the decision is to buy, a series of related decisions will be made, such as where and when to make transaction, how to order or take delivery, the method of payment and other issues. Post-purchase behaviour: the consumer seeks reassurance that the choice make was the correct one. What a consumer learns from going through the buying process has an influence on his next time purchase. After we identify the customer buyingdecision process, we should know there are some important factors that influence it, such as information, social factors, psychological factors, and situational factors. 2. Information And Purchase Decisions Purchase decisions require information. Customers should know what products and brands are available, what features and benefits they offer, who sells the products at what prices and where they can be purchased. Miller et al (2000) argue that there are three sources of buying information personal sources, commercial sources, and public sources. Personal sources: include family members, friends, and members of consumers reference group.

Page 2 of 8

 Commercial sources: refer to the information provided by service providers, marketers, and manufacturers and their dealers. It bears noting that Advertising is the most familiar type of commercial information. Public sources: include non -commercial and professional organisations and individuals that provide advice for consumers, such as doctors, lawyers, government agencies, travel agencies.

Page 3 of 8

The Consumer Buying Decision Process And The Factors That Influence It. It should be mentioned that advanced technology provides the opportunity to reduce the costs of searching for information. This makes it easier for customers to make informed decisions. Social and group forces influence the customer buying decision process The social influences affecting consumers purchase decisions include culture, subculture, social class, reference groups, and family. Culture is the set of beliefs, attitudes, and behaviour patterns shared by members of a society and transmitted from one generation to the next. Cultures do change over time. Marketing managers must be alert this changes so that they can adjust their planning to follow it. For example, in some cases, time has become as valuable as money. Australian consumers increasingly require time - saving services (such as fast food) and labour -saving products (such as frozen dinners). Reference groups: includes a variety of groups that affect consumer behaviours through normative compliance. It should be mentioned that the family is a reference group. Social class: is a ranking within a society determined by the members of the society. Miller et al (2000) argue that peoples buying behaviour is often strongly influenced by the class they belong to. Such as the upper class, they usually like to buy expensive goods and services. Psychological forces impact on the customer buying decision process. Motivation, perception, and attitudes all affect the customer buying decision process. Motivation: Maslows hierarchy of needs is a popular theory on understanding human motivation theory.

Page 4 of 8

With a greater understanding of motives, marketers are better prepared to design attractive value propositions. Perception: is the process by which a person selects, organises, and interprets information. A consumers personality encompassing their particular needs, attitudes, belief, and past influences buying decisions. The features of the message and the way it is communicated also influence consumers perception. Attitude: is a positive and negative feeling about an object. Attitudes are learned. They are formed as a result of direct experiences with a product or an idea, indirect experiences. Attitudes have direction and intensity. Our attitudes are either favourable or unfavourable toward objects. They can not be neutral. For example, you may mildly like something, or like it very much. This factor is important for marketer cause both strongly favourable and strongly unfavourable attitudes are difficult to change. Finally, attitudes tend to be stable and generalisable. When people formed their attitude, it should endure. The longer they are held, the more resistant to change they are. Situational factors. As Miller et al (2000) state that situational influences are a temporary force, associated with the immediate purchase environment, effecting behaviour. Encompasses factors such as when consumers buy, where consumers buy, and how consumers buy. Readers will recall the below diagram illustrating various buying influences. They are also relevant here.

Page 5 of 8

Consumption Chain profile

Significance of Lifestyle characteristics Expenditure Activities Level of use Interests Proportional spend Customer value criteria Opinions (Benefits expected/perceived)

Buying organisation

Customer Purchasing Influences

Value Customer Value Model (value drivers) Proposition

Barriers

Value Use Risk

Strength and influence of Customer suppliers Experience Brand strength Services Loyalty

Customer Acquisition Costs (Lifecycle Costs)

Source: Walters (2002)

Page 6 of 8

3. Identifying the Risk Barriers Walters (2002) shows that: purchasing activities are often required to overcome barriers and these may be practically based or influenced, or be psychological in their nature. For example, a value barrier is a products lack of performance relative to price when compared with substitute products. Assael (1995) suggests manufacturers can overcome that value barrier in two ways. The first uses technology to reduce the price. The second is to communicate value attributes (to potential consumers) that they have not been made aware of or have not identified for themselves. Assael is suggesting the use of process technology to reduce costs and then price but product technology may have the effect of reducing in-use costs. This leads to the notion of usage barriers. Usage barriers occur when a product or service is not compatible with consumers current practices. This may be due to system incompatibility such as computer systems being unable to connect or it may be caused by user doubt concerning the efficacy, quality or security of the innovation. Problems concerning credit and security have inhibited Internet sales in consumer markets. Assael advocates the use of change agents as opinion leaders who use their credibility to convince potential users that their concerns are unnecessary. Risk barriers represent consumers physical, economic performance or social risk of adopting a social innovation. Assael identifies consumer product risk barriers but business-to-business risk barriers can be financially catastrophic. The risk in this context concerns such considerations as capital equipment investment, new product introduction timing and product modification programs. Risk barriers can be financial, the business-to-business consideration, or social/ psychological, typical in fashion apparel markets. Solutions to risk barrier problems are often similar to usage barrier problems, in other words, the use of opinion leadership to introduce the product (or concept) and establish credibility. 4. Summary Purchases in consumer markets are determined by many factors. Situational factors, psychological factors, social factors, the individuals buying process and access to information all play vital roles in the final purchase decision. 5. Discussion Questions 1. Describe six major influences on the consumer buying process. How can an understanding of each of these forces allow companies to design better product offerings?

Page 7 of 8

2. Describe the customer buying process for a product you are familiar with. Contrast and compare the differences between a buying process for a complex product and a simple product. 3. Why is risk such a major factor in consumer purchasing decisions? 6. References/ Reading List Miller and Layton, 2000. Fundamentals of Marketing. Fourth Edition. McGraw-Hill Book Company Australia Pty Limited. Cateora &Graham, 2002,. Marketing Management: A Strategic Decision Making Approach, 4th Ed. McGraw-Hill.Inc. Robbins S. P., Millett B., Cacioppe R., Waters Marsh T., 1998, Organisational Behaviour Leading and Managing in Australia and New Zealand, Prentice Hall http://www.zdnet.com/products/stories/reviews/0,4161,374921,00.html www.cruisecompany.net

Page 8 of 8