UNDERSTANDING CONSUMER BEHAVIOR BASICS IS AN ESSENTIAL ELEMENT IN THE DEVELOPMENT OF CUSTOMER RELATIONS MANAGEMENT

Text and pictures: Dr Jouko Huju DBA, GMBA Finland and Dr Thomas Dammrich DBA, GMBA USA

Proper customer relations management is not just a list of names, e-mails, phone numbers or Christmas cards. Understanding the behavioral thinking process is of paramount importance in refining the personal approach to your customers. In this paper we will look into the basic theories of consumer behavior and also make an attempt to discuss the findings in practical surroundings. And all this from the sales and marketing point of view only.

We fully understand that some may consider the contents of this paper to be very theoretical and perhaps not an easy read. We will do our best to also make it practical and close with examples in simple imaginary cases. Bear with us as we work to get your thinking process going. The pandemic, caused by the Covid-19 virus, resulted in a surprising change in how the boat buyers or the customers for any recreational activity behave. This is an exceptional phase that will only last for a year or two. The basic behavioral rules, developed over several decades, however, still apply. 

Picture: Jouko Huju

It is worthwhile noting some of the key words: motivation, perception, learning, memory, commitment, attitude, values, personality, group influence, opinion leadership and culture.

Let’s get started.

The Theory

For decades, how consumers make decisions has been a central question of marketing and consumer behavior research.

The consumer decision process is a journey, also referred to as the purchase journey. It is a sequence of events that customers go through to learn about purchase and interact with products. The consumer decision process, or purchase journey, has been conceptualized as a purchase funnel. Consumers move in a linear manner through the stages of the purchase funnel. Until recently, these purchase funnel concepts concluded with the purchase of the product, but more contemporary conceptualizations view the purchase journey not as linear at all, and include post-purchase evaluation, product advocacy and continuous evaluation due to the rise of social media and customer reviews. All of the actions taken during the purchase journey are consumer behaviors. 

Consumer behavior research has been given a significant attention in the past years. In the ever-intensifying global competition for the consumers’ attention, the knowledge of how consumers reach the final purchase decision is of vital importance. The changes brought by globalization and rapidly changing markets makes consumer behavior studies challenging and difficult. Although the world is shrinking in terms of marketing and the already existing global buying habits, a vast variety of local and regional trends remain.

 

The original idea: How the world is  influenced by the action of marketers?

The original idea behind consumer behavior research is to find out “how the world is  influenced by the action of marketers”. The original assumption is that marketers need to understand consumer behavior in order to be successful in their actions. 

One has to remember though, that consumer behavior has implications other than marketing:

–       public policy formation

–       social marketing

–       turning people into better consumers

It is generally understood and recognized that consumer behavior research has evolved from the discipline of marketing. The new schools in marketing started shifting their thinking from the process of marketing itself to better understanding the needs and behavior of those who finally purchase the products, meaning the end users, the customers. The differences between classical and adaptive marketing and their relation to customer behavior have been widely discussed. Consumer behavior studies used both social science and general behavioral sciences in the new approach. Brand loyalty, opinion leadership and the importance of demographics from the social sciences and attitude research, motivation and organisational behavior from the behavioral sciences have combined in theory and practice.

In this paper, it is our aim to address the problem of understanding consumer behavior on a macro-level and its impacts on marketing through an overview of the content of the discipline.

This paper will explore consumer behavior on a general level attempting to establish an understanding of the overall content of the study field. It does not try to establish regional differences. It concentrates on the marketing and sales implication of consumer behavior. Using Occam’s Razor, i.e. cutting all but the essential is our aim.

General Definitions

There are numerous ways of defining what the words consumer behavior actually stand for. One of the shortest and to-the-point definitions is: “consumer behavior is the study of when, why, how, where and what people do or do not buy products. It is a process of activities people engage in when searching for, selecting, purchasing, using, evaluating and disposing of products and services so as to satisfy their needs and desires”.  

In all definitions the message is the same; how does a consumer make up his/her mind in favor of one product or service. 

International Context

Modern consumer behavior research is based on global marketing but with a great number of local spices that need to be taken into account. The rapid growth of the globalization process has been going on since the 1980’s but the real acceleration happened with the introduction of the Internet. This started in the latter part of the 1990’s. The basics discussed in this paper can, to a great extent be adapted in many parts of the world. The issues are the same, the study methods are same. The real challenge is to draw local conclusions and implement correct measures.

The Study Field of Consumer Behavior

The study field analyses the process happening before and during the final decision and also afterwards. We must note that in addition to individuals (Business to Consumer or B2C) the notion of “consumer” can also mean organisations and groups (Business to Business or B2B). Consumers are segmented according to a large number of dimensions and marketing activities are designed to affect the consumer’s choices. 

There are two distinctive paradigms often connected to consumer behavior research; positivism and interpretivism. Positivism is connected to being structured and functional. It further enhances the technological aspects and rationality. It is also Western and male culture oriented. Interpretivism emphasizes the complexity of the consumer’s environment, takes an opposite view on technology, is more subjective and believes that consumers are unique in their decisions. There seems to be change going on from the prevailing positivistic paradigm to interpretivism. Consumer behavioral science has to be considered as very multidisciplinary spanning various fields of psychology, sociology, anthropology and also touching history and economics.

Psychological Processes in Consumer Behavior

Behavior consists of four major psychological processes that have an impact on how the consumers actually behave.

These processes are;

–       Motivation

–       Perception

–       Learning

–       Memory

Motivation  

Motivation is described as; “a process that causes people to behave as they do”. It is a driver to satisfy a certain need. Needs can be based on functionality, experiences or emotions. Reaching a certain goal by buying a certain product or service is a motivation. There are 3 major theories on motivation in this context; Freud, Maslow and Herzberg. In the Freudian way of thinking a consumer cannot totally comprehend his/her motivations. Thus, the motivation driver is unconscious. In Maslow’s theory the needs are conceptualized in a hierarchy starting from the most basic and pressing ones and ending with those that are more self-fulfilling. Frederick Herzberg talks about things that are dissatisfying and things that are satisfying. In his view a purchase cannot happen unless the satisfying elements overcome the dissatisfying ones.

Perception

Perception is an approximation of realityIt is the process during which the consumers make their final decision based on a number of sensations. The sensations include physical things like sights, sounds, smells and tastes. Companies often use perceptual maps in order to discover the individual customer’s perception. Another good example of a stimulus is touching. Touching increases a purchase intention. The perception process is not necessarily only created by physical sensations.  The consumer’s relation to the surrounding world or his/her mental state (=feelings) also play a vital role.

The perceptual process starts from a number of stimuli. It could be described as a filter which takes the consumer through an information process that then leads to perception. The sensory tools (receptors, attention, interpretation and response) then finally turn sensation into meaning and perception.

Learning

Experiences cause permanent changes in behavior. Learning is an ever-on-going process that can be either deliberately or incidentally caused by a multitude of stimuli. What then causes behavioral learning? Some theories suggest that external events are the main cause for this. The two main approaches are called Classical Conditioning and Operant Conditioning. The concept of cognitive learning is also used. In this concept, people themselves solve problems using existing information. In Classical Conditioning two different stimuli finally produce the same response. In Operant Conditioning the consumer learns to behave in a way that produces positive outcomes and avoid the negative ones. Human behavior is believed to be a learning process through experiences.

In the purchase journey, search for information is a primary way that consumers learn about the product. 

Memory

Whatever a person experiences during his/her lifetime will be stored in either the long-term memory or the short-term memory.  The long-term memory can be described as the place where thoughts and experiences will be stored for a longer or even permanent time. Then again with the short-term memory it is the other way around. Memory encoding is the process by which various things get stored din these memories. Finally, the process of releasing the memories is called retrieval. The important issues from the marketer’s point of view are the quality of information stored, the way it is processed and if the presence of other information interferes with their information during the activation process. There is a third memory class called sensory memory. The messages that we receive from our senses normally only last for a few seconds. Some memories are harder to retrieve than others. This may be caused by e.g. lower priority.

Other Factors

In addition to the four psychological processes there is quite a number of other issues that can found in the studied literature. These issues are of major importance when the final buying process is being formed within an individual.

Values

Values are usually quite general in their nature and they apply to many situations. Consumer behavior is often value guided because the consumer believes that a particular purchase will add certain values in his/her life. As a matter of fact, many studies today support the major importance of a value-based label. 

Commitment 

Consumers react to marketing messages in different ways. A consumer’s relation (=commitment) to a product reflects their values and needs. It also reflects needs and wishes. A deeper commitment leads to involvement.

What do we mean by involvement? Very often involvement refers to the amount money, time, thought, energy and other resources consumers use before purchasing a product. It is one of the fundamental concepts used to clarify the consumers’ buying process. Low cost, low involvement products are likely to be familiar to the purchaser, involve a single use and involve little risk. High cost, high involvement products, on the other hand, tend to be durable products involving significant perceived risk and price plays an important role in determining deal valuation, continued search and purchase intent.

Some consumer information search frameworks model pre-purchase search and ongoing search, the latter being the primary subject of their study. Involvement in the purchase was a primary determinant of pre-purchase search. Learning about a product to make a better purchase decision is considered the consumer’s primary motive for search. The outcomes of pre-purchase search were increased product and market knowledge, better purchase decisions and increased satisfaction with the purchase outcome. Encouraging search to the point of preparedness to purchase is desirable if the goal is to sell more product. 

Finally, the link between the needs/values and the marketing message then determine a consumer’s attention (=commitment). Relationship marketing (RM) can be used to create or increase commitment. The discussion of commitment and loyalty of consumers added new words in the marketing vocabulary like partnerships, alliances and key accounts. Joining various loyalty programs offered by sellers (airline miles for example), consumers volunteer in the transaction of their personal behavior data and remaining loyal is strongly dependent on continued satisfaction.

Attitudes

Attitude is a lasting, general evaluation of people, objects, advertisements or issuesThis means a basic need to evaluate things either positively or negatively. Attitudes consist of elements like beliefs, intentions or affects. An important element in the creation process of an attitude is the consistency between these elements. Changing attitudes can be challenging especially if the marketer does not understand how attitudes are formed and changed.

Personality

There is a clear difference in the Western and Eastern ways of how the consumers feel about themselves. The Eastern “me” stresses the importance of the social group behind the individual identity whereas in the Western culture it is more a “just me” concept; individuality is stressed. The “self” is a concept which reflects a consumer’s attitude towards him/herself. Each consumer’s personality has several selves and each of these selves use different approaches in their behaviour as consumers. The sex identity is one of the strongest. This is followed by the conception of body. The personality variables play a crucial part when consumer analysis is carried out and the marketing conclusions drawn from them.

Group Influence and Opinion Leadership

Most humans belong (or want to belong) to one or several social groups. In these groups they wish to be accepted by others and this has an impact on their purchase behavior. People within these groups have an influence on the other members depending on their social power. These powers may include powers like information, expert, legitimate or coercive powers. The opinions of the individuals with special powers will influence others. There is a danger that when being a member of a group one starts to lose their own identity. Word-of -mouth communication about products plays an important role within the groups. Social media can be a powerful influence on individuals and it is important that sellers understand the use of social media and influencers to shape consumer behavior.

One non-stop customer experience model was developed to recognize the impacts of the internet and social media on the purchase journey and compare it to a traditional conceptualization of the purchase funnel. The Accenture model suggests that evaluation continues after purchase and during use as consumers are on a continuous, non-stop decision journey, which is shown below.

Comparison of Traditional and Contemporary Purchase Journey

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One’s family is the strongest of the reference groups but all groups have a certain influence on an individual’s consuming behaviour. Within the groups there are always opinion leaders to whom the message must be tailored and aimed at. In the family context there seems to be a unified view that women, in many cases, have become the main decision maker and that marketers are now creating specified campaigns targeted to women only. In the recent years, teenagers are seen to have a growing impact on the purchase decisions of the of the family.

Culture

Culture may well be the most important single factor in understanding consumer behavior. Culture is the combined memory of any society. Culture is a combination of lots of commonly shared factors like traditions and norms. The members of a culture usually share the values and exercise the same practices. Cultures usually also share the same values of life. The importance of understanding cultures in terms of consumer behavior has created a new notion of consumer society. Cultures are divided into subcultures like nations, religions, races or geographical areas and when these subcultures grow large enough, they have an impact on marketing planning and initiatives. In this context it is important to discuss social classes as well. Again here, classes seem to share similar values, beliefs and more importantly, behavior. Social classes tend to share preferences in many areas like clothes or TV-programs. Actually, the preferential behavior can be noted in most areas of human life. Even within a culture, differences can be substantial and that one should not overstate the similarities of a culture. 

The Buying Process

It is important to note that the decision-making process is complicated and it is influenced by many factors that can be either internal or external. The process starts from the identification of a problem. This is followed by the information search and evaluation of alternatives. This is followed by the final choice and the assessment of the purchase.

A modern consumer searches information about products before the final decision.  Mood, time pressure and the actual situation at hand are decisive factors. The whole experience of shopping plays a vital part in this play. Elements of entertainment and expertise are communication tools used by retailers in the process. Consumer satisfaction is afterwards measured by factors like warranty and how the purchased product actually met with the original expectations. A clearly identified disposal plan or re-cycling plan also has an impact on the modern consumer. The process can be quite complex. A consumer may already be evaluating choices while the actual search is still going on. Without knowing how this process works it is very hard for marketers to target or create their message. There are some alternative views too. Buying is a choice between mental accounts where the time of earned income is the decisive factor. Spending the present income is most likely.

Economics of Information theory suggests that expected benefit is a strong determinant of the amount of search undertaken by the consumer. Reducing the cost of search reduces the cost of the product in the mental accounts referred to above.

Some General Notes

Today’s consumer behaviour research recognises that without thorough knowledge about the consumers’ behaviour, marketing cannot be successful. From a producer’s point of view, marketing can be deemed successful if it results in a positive decision of the consumer. In a company’s marketing plan, consumers have to be segmented according to the demographic and psychographic aspects. The marketer needs to define consumer segmentation according to various variables. The variables contain e.g. similar product needs, the size of the segment and accessibility to the segment. The demographic segments would contain age, gender, family structure, income, ethnicity and geography. The psychographic aspects consist of things like personality and taste.

The rapid globalization has brought big changes especially in the behaviour of the urban middle class. In general terms, the number of internationally operating marketers has grown exponentially. Their challenge is to apply their international marketing into local circumstances. In many cases this has proven to be challenging. Environmental issues such as re-cycling and sustainability have become a major topic. By purchasing environmentally friendly products a consumer wants to make a statement. Some companies or products are boycotted because of varying values. There are critics who divide the postmodern consumer in those being critical and creative and those who are passive and entertainment-seeking.

Key findings

Individual purchase can add value to a consumer’s life and value-based thinking is important. Consumers can get committed to products or brands through their own values or needs and also through effective loyalty programs. Beliefs and intentions form a consumer’s attitude and the consistency between the elements is important. The role of personality cannot be underestimated. In drafting the marketing plans the issues of personality variables are crucial. There is ample evidence that groups have an influence on an individual’s buying behaviour. Cultures and sub-cultures are considered to be the most important single factor in understanding consumer behaviour. One has to note though that having certain cultural background does not necessarily mean unified behavioural patterns.

The buying process is affected by a multitude of stimuli. Mood, time, senses, available information and whole process, which can be rather complex play an important role. The provided information (=communication) plays a vital role in the attempt of affecting the consumer.

The rapid globalization has brought many new challenges to marketers. Consumer segmentation needs to take local circumstances into account. Additionally, new consumer segments with individual needs and habits keep popping up. To follow up this rapid development marketers need to engage highly developed and large databases and knowledge of the methods to effectively use them.

  1. The Real Life

A boat dealer in a coastal city in western Finland has just sold a new aluminium boat to a new customer. A very typical boat in this country. 5,1 m in length, center console and with a 50 hp outboard engine. With some goodies, like a plotter and a trailer the package price totalled 25.300 €.

This customer has a summer house, one of some 30.000 summer houses in the archipelago of the area. He needs 45 minutes to get to the summer house from the boat club in the city where he has a berth. He works in an IT company, has a wife and a 13-yearold son. The recently bought boat is his second boat. When the boat leaves the dealer’s premises, the dealer would typically know the customer’s name and address (and that for warranty purposes) and maybe has an idea where the boat will be used.

Now this dealership has a clever owner who knows marketing. He wants to turn his two sales guys into sherlockholmes-types with some basic instincts for knowledge gathering. He does not equip the sales guys with a magnifying glass, pipe and macintosh but simply with a laptop and a smartphone. In the winter months in this country the traffic in the boat showrooms is really not all that high so there is ample time for research.

So, the guys get to work. They search the Internet, Facebook, Instagram, LinkedIn, TikTok and all other available social media. They also look into Google Search and other search engines. Within a couple of hours, the guys know where the customer works, that he plays golf, is member of a Rotary Club and also know the island where he has his summer house.

This information is publicly available but because of the EU General Data Protection Regulation they have be careful how this information is stored and used.

So, come early spring the guys set up a half-a-day presentation in the boat club. They bring 3 boats of various types. The boat club gets a small compensation. A few people show up but the seed is already planted because the “jetty parliament” as we call it, has already discussed this new boat. This is one of the social groups the original customer belongs to. The boat owner in this case will also be an opinion leader.  As a result, the dealer gets a few good leads.

The same is repeated at his golf club. This time just when the season starts, the three boats are trailered to the club for an afternoon. The club again gets a small compensation, maybe the dealer sponsors coffee and advertises the event so the club gets more traffic in their restaurant. Golfers are often boaters in this country too so they can get motivated when seeing the boats in their other social group. Also, the learning process of this product has started.

This all leads to, that the dealer is invited one Tuesday evening to talk about boating in the original customer’s Rotary Club. The Rotary Clubs always have someone to talk about various themes. He may again sponsor a few drinks but the club members are being subjected to attitudes through the marketing messages and the commitment process can also slowly start.

For Christmas the original boat buyer, his wife and his son will get floating key rings. Not a big thing but this is carefully stored in their memories. 

These are just a couple of everyday life examples on how the psychological processes work and how we need to be able to penetrate into the surroundings of the potential customers. The extra work for any boat dealer may feel like too much in the beginning. At the end of the day this can turn into routine and through that increase the input-output result by order of magnitude,

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