CURSTOMER SEGMENTATION AND TARGET MARKETING

Buyer Behavior in Consumer Markets

Goal of Marketing Strategy: to identify specific customer needs, then design a marketing program that can satisfy those needs.  The behavior of consumers is often irrational and unpredictable.  Ethnography-developing information about families to develop products/services that better fit family lifestyles.  Successful marketing strategy depends on a clear understanding of customers who they are, what they need, what they prefer, and why they buy.

The Consumer Buying Process

  1. Need Recognition
  • Consumer needs and wants are not the same
  • An understanding of consumer wants is essential for market segmentation and the development of the marketing program
  • Marketers must create the appropriate stimuli to foster need recognition
  1. Information Search
  • Consumers trust internal/personal sources of information more than external sources.
  • The amount of time, effort, and expense dedicated to the search for information depends on (1) the degree of risk involved in the purchase, (2) the amount of the experience the consumer has with the product category, and (3) the actual cost of the search in terms of time and money
  • Consumers narrow their potential choices to an evoked set of suitable alternatives that may meet their needs
  1. Evaluation of Alternatives
  • Consumers translate their needs in to wants for specific products or brands
  • Consumers evaluate products as bundles of attributes that have varying abilities to satisfy their needs
  • Marketers must ensure that their product is in the evoked set of potential alternatives
  • Marketers must take steps to understand consumers’ choice criteria and the importance they place on specific product attributes
  1. Purchase Decisions
  • A consumer’s purchase intention and the actual act of buying are distinct concepts.  Several factors may prevent the actual purchase from taking place.
  • Marketers must ensure that their product is available and offer solutions that increase possession utility=
  1. Postpurchase evaluation
  • Postpurchase evaluation is the connection between the buying process and the development of long-term customer relationships
  • Marketers must closely follow consumers’ responses (delight, satisfaction, dissatisfaction, cognitive dissonance) to monitor the product’s performance and its ability to meet customers’ expectations

Other stages may include actual consumption behaviors, product uses, and product disposal after consumption.  The buying process depicts the possible range of activities that may occur in making purchase decision.  Buying process involves a parallel sequence of activities associated with finding the most suitable merchant of the product in question.  The choice of a suitable merchant may actually take precedence over the choice of a specific product.  Some merchants become so well-know for certain products that customers just naturally execute for certain products that customers just naturally execute their buying process with that merchant

Need Recognition

the buying process begins when consumers recognize that they have an unmet need.  Occurs when consumers realize that there is a discrepancy between their existing situation and their desired situation (satisfaction of fulfillment).  A need occurs when an individuals current level of satisfaction does not equal their desired level of satisfaction.  A want is a consumer’s desire for a specific products that will satisfy the need.  The firm must always understand the basic needs fulfilled by its products.  This idea is to build on the basic need and conceive potential consumers to want your product because it will fulfill their needs better than any competing product.  Demand occurs only when the consumer’s ability and willingness to purchase a specific product backs up their want for the product.  The marketer must first educate consumers on the need for the product, and then convince consumers to want his products over competing products.

Information Search

Marketing stimuli can prompt consumers to become interested in a product leading to a desire to seek out additional information.  Can be passive or active.  Passive information search-consumer becomes more attentive and receptive to information, such as noticing and paying attention to automobile advertisements if the customer has a want for a specific car brand.  Active information search-purposely seeks additional information, such as by surfing the Internet, asking friends, or visiting dealer showrooms.  Time effort, and expense dedicated to the for information depends on a number of issues:
1. The degree of risk involved in the purchase: Financial risk, social risk, emotional risk, and personal risk
2. Amount of expertise or experience has with the product category.
3. The actual cost of the search in terms of time and money will limit the degree to which
consumers search for information.
Throughout the information search, consumers learn about different products or brands and begin to remove some from further consideration  This list of suitable alternatives is called the evoked set, and it represents the outcome of the information search and the beginning of the next stage of the buying process.

Evaluation of Alternatives
The consumers essentially translates their need into a want for a specific product or brand.  The evaluation of alternatives is the hardest for marketers to understand, measure, or influence.
Consumers evaluate products as bundles of attributes that have varying abilities to satisfy their needs.  Brand Attributes-image, reputation, reliability, product features, esthetics’s attributes(styling, sportiness, roominess, color, and price)
Considerations:

  1. The marketer’s products must be in the evoked set of potential alternatives.
  2. Vital that marketers take steps to understand consumers’ choice criteria and the importance they place on specific product attributes.

Purchase Decision
Marketers can often reduce or eliminate these problems by reducing the risk of purchase through warranties or guarantees, making the purchase stage as easy as possible, or by finding creative solutions to unexpected problems.  The key issues for marketers during the purchase stage are product availability and possession utility.  The key to availability is convenience.  To increase possession utility the marketer may have to offer financing or layaway for large dollar purchases, delivery and installation of products like appliances or furniture, home delivery of convenience items like pizza or newspapers, or the proper packaging and prompt shipment of items through the mail.

Postpurchase Evaluation

  • Delight- the product’s performance greatly exceeds the buyer’s expectations
  • Satisfaction- the product’s performance matches the buyer’s expectations
  • Dissatisfaction-The product’s performance falls short of the buyer’s expectations.
  • Cognitive dissonance-(Postpurchase Doubt) The buyer is unsure of the product’s performance relative to his or her expectations

Consumers are more likely to experience dissatisfaction or cognitive dissonance when the dollar value of the purchase increases, the opportunity costs of rejected alternatives are high, or the purchase decision is emotionally involving.  Firms manage these responses by offering liberal return policies, providing extensive sales support, or reinforcing the wisdom of the consumers purchase decision.  Major influence on the word-of-mouth information.

Factors that Affect the Consumer Buying Process
Variation in the buying process occurs because consumers are different, the products that they buy are different, and the situations in which consumers make purchase decisions are different.  Complexity of the purchase and decision, individual influences, social influences, and situational influences.

Decision-Making Complexity
The complexity of the purchase and decision-making process is the primary reason why the buying process will vary across consumers and with the same consumer in different situations.  Purchase characterized by high personal, social, financial risk, strong emotional involvement, and the lack of experience with the product or purchase situation.  Marketers of highly complex products must recognize that consumers are quite risk averse and need a great deal of information.  Firms that sell less complex products face the challenges of creating a brand image and ensuring that their pare products are easily recognizable.  Marketers issue branding, packaging, advertising, and point-of-purchase displays to solve these problems.

Individual Influences
Age, life cycle, occupation, and socioeconomic status, are fairly easy to understand and incorporate in the marketing strategy.  The individual factors are quite useful for marketers in target market selection, product development, and promotional strategy.  Individual factors such as perceptions, motives, interests, attitudes, opinions, or lifestyles, are much harder to understand because they do not clearly coincide with demographic characteristics like age, gender, or income levels.  These individual factors are also very difficult to change.  Many marketers adapt their products and promotional messages to fit existing attitudes, interest, or lifestyles.

Social Influences
Culture, subculture, social class, reference groups, and family have a profound impact on what, why, and how consumers buy.  Reference groups and opinion leaders also have an important impact on consumers’ buying process.  Reference groups act as a point of comparison and source of product information.  When consumers feel like they lack personal expertise, they seek the advice of of opinion leaders, who they view as being well informed in a particular field of knowledge.  Software manufacturers, release beta (test) versions of their products to opinion leaders before a full-scale launch.  Starts a word-of mouth.

Situational Influences
Hungry consumers who are in a hurry often grab the quickest lunch they can find.  Consumers facing emergency situations have little time to reflect on their product choices and whether they will make the right decision.  Consumers may also devote less time and effort the the buying process if they are uncomfortable Ex: Sit down restaurants

Physical and spacial influences
Ex: Retail atmospherics, retail crowding, store layout and design
Potential influences on buying behavior:  A comfortable atmosphere or ambiance promotes lingering, browsing, and buying.  Crowded stores may cause customers to leave or by less than planned.
Social and Interpersonal Influence
Ex: Shopping in groups, Salespeople, Other customers
Potential Influences on Buying Behavior:  Consumers are more susceptible to the influences of other consumers when shopping in groups.  When rude salespeople can end the buying process.  Obnoxious “other” customers may cause the consumer to leave or be dissatisfied.
Temporal Influence
Ex: Lack of time, emergencies, convenience
Potential Influences on Buying Behavior: Consumers will pay more for products when they are in a hurry or face an emergency.  Lack of time greatly reduces the search for information and the evaluation of alternatives.  Consumers with ample time can seek information and the evaluation of alternatives.  Consumers with ample time can seek information on many different product alternatives.
Purchase task or product usage Influences
Ex: Special occasions, buying for others, buying a gift
Potential Influences on Buying Behavior:  Consumers may buy higher quality products for gifts or special occasions.  The evoked set will differ when consumers are buying for others as opposed to themselves.
Consumer Dispositional Influences
Ex: Stress, Anxiety, Fear, Fatigue, Emotional Involvement, Good/Bad Mood
Potential Influences on Buying behavior:  Consumers suffering from stress or fatigue may not buy at all or they may indulge in certain products to make themselves feel better.  Consumers who are in a bad mood are exceptionally difficult to please.  An increase in fear or anxiety over a purchase may cause consumers to seek additional information and take great pains to make the right decision.

Product choices also change when consumers make the purchase for someone else, such as buying little or children. 812-322-8955

Buyer Behavior in Business Markets
Business markets and consumer markets:
Both contain buyers and sellers who seek to make good purchases and satisfy their personal or organizational objectives.  Include stages associated with need identification, information search, and product evaluation.  Consumers buy products for their personal use or consumption.  Organizational buyers purchase products for use in their operations.

  • Commercial Markets-buy raw materials for use in producing finished goods, and they buy facilitating goods and services used in the production of finished goods.
  • Reseller Markets-channel intermediaries such as wholesalers, retailers, or brokers that buy finished goods from the producer market and resell them at a profit, channel intermediaries have the responsibility for creating the variety and assortment of products offered to consumers.
  • Government markets-include federal, state, county, city, and local governments.  Governments buy a wide range of finished goods.  Most government purchases are for the services provided to citizens.
  • Institutional markets-consist of a diverse group of noncommercial organizations such as churches, charities, schools, hospitals, or professional organizations.  These organizations primarily buy finished goods that facilitate their ongoing operations.

Unique Characteristics of Business Markets
Hard and soft costs.  Many business transactions are based on long-term relationships, so trust, reliability, and overall goal attainment are often much more important than the price of the product.

The Buying Center
The group of people responsible for making purchase decisions.  In an organization, the buying center tends to be much more complex and difficult to identify.  3 groups: economic buyers, technical buyers, and users-each of which may have its own agenda and unique needs that affect the buying decision.
Economic buyers- those senior managers with the overall responsibility of achieving the buying firms objectives.  This made economic buyers a greater target for promotional activities.  Technical buyers-employees with the responsibility of buying products to meet needs on an ongoing basis-include purchasing agents and materials.
Users-managers and employees who have the responsibility of using a product purchased by  the firm-comprise the last group of people in the buying center.

Hard and Soft Costs
Hard Costs-include monetary price and associate purchase costs such as shipping and installation.
Soft costs-such as downtime, opportunity costs, and human resource costs associated with the compatibility of systems, in the buying decision.

Reciprocity
Such arrangements can be upfront condition of purchase in purely transaction-based marketing.  Reciprocal buying is less likely to occurs within long-term relationships unless it helps both parties achieve their respective goals.

Mutual Dependence
Consumer-marketer relationships, this level of dependence tends to be low.  Not case in business markets where sole-source or limited-source buying may leave an organization’s operations severely distress then a supplier shuts down or cannot deliver.  Rubbermaid was able to recover somewhat by lavishing its buying partners with exceptional service.

The Business Buying Process

  1. Problem Recognition-the recognition of needs can stem form a variety of internal and external sources
  2. Develop Product Specifications-define business purchases. Typically done by buying center.
  3. Vendor Identification and Qualification-Business buyers must ensure that potential vendors can deliver on needed product specifications within a specified time frame and in the needed quantities.
  4. Solicitation of Proposals or Bids-buying firm may request that qualified vendors submit proposals or bids
  5. Vendor Selection-best vendor not necessarily the one offering the lowest price.  Issues such as reputation, timeliness of delivery, guarantees, or personal relationships with the members of the buying center are often more important
  6. Order processing-processing the order, negotiating credit terms, setting firm delivery dates, and any final technical assistance need to complete the purchase.
  7. Vendor Performance Review-Product may successfully fulfill the needed specifications, but the vendor’s performance is poor.  The result of these evaluations will affect future purchase decisions.

Environmental conditions can have a major influence on buyer behavior by increasing the uncertainty, complexity, and risk associated with a purchase.  In situations of rapid environmental change, business buyers may alter their buying plans, postpone purchases, or even cancel purchases until things settle down.  Also effect decisions regarding the recruitment and hiring of employees.  Organizational factors can also influence business buying decisions.  These factors include conditions with the firm internal environment (resources, strategies, policies, objectives), as well of the condition of relationships with business or supply chain partners.  A shift in the firms resources can change buying decisions.  internal changes in information technology.  Interpersonal relationships and individual factors.  Power struggles are not uncommon in business, or Individual factors-certain managerial personal preferences or prejudices.

Market Segmentation
Market Segmentation as the process of dividing the total market for a particular product or product category into relatively homogeneous segments or groups.  To be effective, segmentation should create groups where the members within the group have similar likes, tastes, needs, wants, or preferences, but where groups themselves are dissimilar from each other.  Many firms today take segmentation to the extreme by targeting small niches of a market, or even the smallest of market segments: individuals

Traditional Market Segmentation Approaches
Some organizations actually use more than one type of segmentation, depending on the brand, product, or market in question.

Mass Marketing
Companies aim mass marketing campaigns at the total (whole) market for a particular product.  Undifferentiated approach that assumes that all customers in the market have similar needs an wants that can be reasonably satisfied with a single marketing program.  Marketing Program consists of single product or brand, one price, one promotional program, and one distribution system.  Works best when the needs of an entire market are relatively homogeneous.  Good examples include commodities like oil and agricultural product.  Although mass marketing is advantageous in terms of production efficiency and lower marketing costs, it is inherently risky.  When barriers of trade are low, mass marketing runs the risk of being seen as too generic.  Mass marketing is very risky in global markets.

Differentiated Marketing
1) dividing the total market into groups of customers having relatively common or homogeneous needs
2) attempting to develop a marketing program that appeals to one or more of these groups.  This approach may be necessary when customer needs are similar within a single group, but their needs differ across groups.  Multisegment approach-seek to attract buyers in more than one market segment by offering a variety of products that appeal to different needs.  Multisegment approach is the most widely used segmentation strategy in medium-to large-sized firms.  It is extremely common in packaged goods and grocery products.  One third of the U.S. population is a minority.  Minority populations have a large middle class with strong buying power.  Core values such as family, faith, nationalism, respect for the elderly, and community leaders, and cultural institutions are the dominant features that define minority populations.  Groups work hard to preserve their ethnic values and customs.  Emotional connections to their own ethnic traditions.  Digital communication-affinity for gadgets and respond well/  Or try to promote ethnic individuality.  Market Concentration approach-focus on a single market segment. Main advantage is specialization. also major disadvantage of this.

Niche Marketing
Some companies narrow the market concentration approach even more and focus their marketing efforts on one small, well-defined market segment or niche that has a unique, specific set of needs.  Will typically pay higher prices for products that match their specialized needs.  The key to successful niche marketing is to understand and meet the needs of target customers so completely that the firms substantial share makes the segment highly profitable.

Individualized Segmentation Approaches
By combining demographic data with past and current purchasing behavior, organizations can tweak their marketing programs in ways that allow them to precisely match customers’ needs, wants, and preferences.  Three types of individualized segmentation are one-to-one marketing, mass customization, and permission marketing.

One-to-One marketing
When it creates an entirely unique product or marketing program for each customer in the target segment.  The key to one-to-one marketing is personalization, where every element of the marketing program is customized to meet the specifics of a particular client’s situation.  The key to one-to-one marketing is personalization.  One-to-one marketing has been used less often in consumer markets.  Ex: Amazon profiles assist with the customization of web pages in real time, product suggestions, and reminder e-mails sent to customers.

Mass Customization
Providing unique products and solutions to individual customers on a mass scale.  Along with the Internet, advances in supply chain management-including real time inventory control-have allowed companies to customize products in ways that are both cost-effective and practical.  Occurs in business markets.  System allows employees to requisition goods and services via a customized catalog-unique to the firm-where the buying firm has negotiated the products and prices.  E-procurement systems have allowed firms to save a great deal of money-not only on prices, but also on the costs of placing orders.

Permission Marketing
Customers choose to become part of a firms market segment.  Opt-in email list-permit a firm to send periodic e-mail about goods and services that they have interest in purchasing.  Customers who opt in have already shown interest in the goods and services offered by the firm.  Allows firm to precisely target only those individuals with an interest in their products, thereby eliminating wasted marketing effort and expense.  One-to-one marketing, mass customization, and permission marketing will become even more important in the future because their focus on individual customers makes them critical to the development and maintenance of long-term relationships.  The simple truth is that customers will maintain relationships with firms that best fulfill their needs or solve their problems.  The delivery of the marketing program must be automated to a degree that misses it cost-efficient.  The marketing program must not become so automated that the offerings lacks personalization.  Changing customers choices-not only in terms of product configuration, but also int terms of the entire marketing program.  Customers can choose payment terms, shipping terms, delivery locations, gift wrapping, and whether to opt in e-commerce firms can offer product suggestions on the fly.  Customized point-of-scale information not only increases sales, it also better fulfills customer’s needs and increases the likelihood of establishing long-term customer relationships.

 

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