Theories of Consumer Decision Making

Theories of Consumer Decision Making The concept of consumer buying behaviour is not new, it has been discovered ages ago .The current marketing strategies focuses on consumers buying behaviour. The marketing aim is to grow and make best use of their market share. Consumers decision making process is highly sensitive and is based on their learning and experience. The paper explains about the consumers psychological factor particularly learning and its effect on buying pattern. Learning has been explained with the help of theories, using black box and stimuli response theory. The black box explains the consumers decision making process and factors that affect buying decision. In addition this model also highlights the market stimuli, market environment, buyers stimuli and the buyers response. These internal and external factors aim to influence the purchasing pattern of every single consumer. Buyers are highly sensitive while making decisions and marketing stimuli provide necessary information and knowledge about the product or service. Consumers are also influenced by social and psychological elements like society, family, personal, motivation and learning. In practical consumer use personal thinking or experience to response repetitive buying. The self learning helps to reduce the buying options and narrow down the substitutes available in the market. Today modern companies have adopted the customized marketing techniques to understand the thinking and decision making standards. The cognitive learning helps the buyer to remember the previous purchase each time when similar arise buyer will use own experience to make decision. Satisfied consumer will not go for information search which comes after problem recognition and others steps in decision making. Marketers can influence post purchase decision by positive learning. Provided examples indicate the importance of buying behaviour and fortune 500 companies have used these elements to increase their retention rate. E.g; Dettol marketing explains the buyers response and trust which they have developed by using psychological marketing and positive cognitive learning. To enhance the learning process Marketer used education and awareness program to develop the learning of every single consumer. E.g. Toyota Lexus on other hand also focus experience as their marketing strategy. By understanding the need and market trust they introduced Lexus (Premium product) which leads the market from decades. Marketing techniques plus additional value added service enable them to enhance the customer experience. Toyota consumers were happy and satisfied with original band. By constructive experience Toyota succeeded to develop new market for luxury automobiles. While exploring consumer learning it was observed that customer retention has a direct relation with positive learning. It is also suggested that marketers must use buyer behaviour and need as the primary research of market study. Financial products and services require more understanding of consumers. It also needs to develop conceptual framework together with service marketing to deal with individual consumer. As explained its become more challenging for the marketers to understand, satisfy and influence the consumer to use financial services. By focusing customer experience, strong perception, service quality and trust marketers can influence the decision making and supplier choice. Parasuramans, A., Zeithaml, V.A. and Berry, L.L. (1985) says that its very difficult for a consumer to choose financial products and supplier because of the intangibility of product, and supplier reputation. Together with Ansoffs model and focus existing product and existing market marketers can increase buyer behaviour through target marketing. Outcome suggests that companies must emphasize on the elements that impinge on the buyers behaviour together with decision making. Learning can be deployed to evaluate individual response which has been proved by examples in the literature. Significantly, the end result suggests that learning can be use as communication and interaction tactic to view individual response especially financial products. Table of contents 1.0 Introduction Business success can be obtained through the appropriate study of consumer behavior. Consumer buying behavior is a multi step process, which involves buying, paying, using and reconsidering the same product over again. To understand the buying pattern or actions is very imperative as it directly influence the business success. As mentioned by Caslione, John A, (2009) the marketing strategies must meet consumer preferences in recession time in order to gain competitive edge. Most commonly buying activities reflects the strategy use by the companies for marketing and fulfilling the market needs. So consumers are considers to be the entry and exit to a successful business. To understand the consumers decision making it is important to understand the cognitive factors affecting their needs, choice, preference and final and post purchase experience or learning (5 Ws of marketing). Research done on buyer behavior helps to understand the deciding process in two ways i.e. collectively and individually. Both individual and collective buying process is affected by other factors like demographics, environment and perception. (Foxall, Gordon R, 1987) mentioned through the behavioral research companies can forecast the buying frequency and product preferences. Theory of Consumer behaviour and decision making The decision making theory was examined and modified by Nicholas Bernoulli and Oskar Morgenstern but it originate about 300 years ago. The theory was based on the expectation of decision outcomes which was a cognitive process. Later the theory was modified with the addition of value and satisfaction. In addition Allen Shocker explains the complexity and steps which involve in decision making. (Michael Richarme, 2005) Degree of involvement is another important factor while looking and making decision. Researchers also proved that the marketing activities have huge impact on consumers psychology which helps to take decision. Consumer behaviour is a psychological function which involves the customer to undergo the identification of their needs, searching methods to fulfill the needs and make purchase decisions accordingly. The process can also be described as collecting, interpreting, making plans and executing it for successfully buying the desired product (Lars Perner, 2008). The behavioral approach of the consumer is highly dominated by their psychology. The first model of consumer decision of making process was developed in 1963 by Howard and later edited in 1969 which has become the current theory of consumer behavior. The updated model provides an integration among the several psychological, social, and market pressure on the buyers choice and information (Howard and Sheth, 1969). Source: http://eprints.bournemouth.ac.uk/10107/1/Consumer_Behaviour_Theory_ _Approaches_%26_Models.pdf) 1.2 Consumer Decision Making Process Consumers cannot make their decision alone, rather they need to interact and look up for the information from various sources like their own concept, reference groups, environment, other buyers and sellers etc. (Source: http://eprints.bournemouth.ac.uk/10107/1/Consumer_Behaviour_Theory_ _Approaches_%26_Models.pdf) The consumer decision making process is interaction between the stimulus for the purchase, the characteristics or need of the consumer and their corresponding response. The stimuli can either be intra or inter personal from the consumer. This can further be explained by the BLACK BOX MODEL which emphasizes on the connection between the response and the stimulus of the buyer. (Cindy Dietrich, 2010) The companies plan and process their marketing stimuli, whereas on the other hand social factors like political, economic and cultural, impact the environmental stimuli. Fig# 5 the Black Box Model (Source:http://marketing5.net/Buying-behaviour-and-decision-making-criteria-of-Base-of-the download-w11405.pdf) The box encloses the characteristics of buyer and their decision making process which helps the buyer to decide and response. Internal and external factors have been represented in the model as buyer characteristics and environmental stimuli respectively. These factors together influence the decision process and buyer response as described in the figure above. From the identification of problem till the post evaluation of the decision each step is very critical for the buyer which directly affects the marketing strategies. Positive learning reduce the steps in decision making where consumer narrow down the choice, information search, alternative, here consumer behaviour to buy the specific product. All these process relate to buyer psychological factors, motivation, learning, personality etc. on the basis of information gathered the buyer tries to select the best available option while making the purchase. (A) How the selected factor affects the behaviour theoretically? Origination and influence of learning on buyers behaviour The cognitive method is the greater part of mental psychology which founded by early Marketers back (360 B.C). The memory or learning theory was developed by Aristotle who linked learning and knowledge as a mental process. In 1950 Hubb developed a model called Stimlus- organism- response which was dominated by behaviorism approach. (Hope J. Hartman,2001) Consumer decisions are influenced by individual uniqueness like age, life style, self concept, personality, occupation and economic condition. The purchase decision also influenced by individual learning and past experience. (Kotler, 2006) Learning refers to actions performed or information received. It arises from experience and interplay of wants, stimuli, response and reinforcement. Once the consumer has learned from their experience they try to discriminate and recognize the difference between similar buying stimuli and adjust their response to it consequently. Learning theories are also important to marketers in order to create the demand for a product using the buyers knowledge, motivating reasons for purchase and also backing them up with positive reinforcement (Frans Giele, 2009). Learning evolves over a period of time and helps the consumer to improve their knowledge. There is a continuous impact on the behavior of the consumer and their purchasing activities in future. The information gathered using different learning processes help the consumers to create a guide and mental framework for their purchasing pattern, behavior and decision. Learning is also closely to perception as it serves to be the raw input for the consumer knowledge which they have gained from previous buying occasions. (Mario Glowik, Slawomir Smyczek, 2011). Perception can better be explained as a process which the consumer uses to select, organize, receive and interpret their buying need and enrich their learning for a better purchase decision. (William j. Mcguire, 1976) said that perception is more important and has high influence than other stimulus. In this way the consumer evaluates the various brands and products which come to their mind. Often the compared aspect of the product relates largely to the psychological and functional benefits offered by the products or brands. (Thomas M. Aslin, Michael L. Rothschild, 1987) Marketers must understand the importance of learning/ experience as first impression is the last impression and it is important for the company to retain the existing customer as it is always cheaper and consecutively make new loyal customers. Other market factor like service quality and sellers eminence are also a part of human cognitive process which directly affects the buying pattern. (Kau, Daleen and Serene, 1995) New marketing strategies should focus to enrich customers experience by enhancing their learning/ experience and benchmarking those processes to increase market segment and share. Mental learning determines that for how long does particular information retains in human mind. This process involves different activities that a consumer relates while buying the particular product or service and then this information becomes the knowledge for future reference. Consumer retrieves the information from the memory if the same or similar product or service is observed. Effective marketing strategies and tools help to create a lasting impact on the cognitive learning of the consumers. (Mark D. Uncles, Grahame R. Dowling, Kathy Hammond and Angelo Manaresi, 1998) Marketers can use behavioral learning to enhance the consumers experience associated to their products as a large market segment loves to follow the current market trend and feel satisfied with their decision. Example 1: Dettol antiseptic has excellent advertisement which has made a lasting impact on consumers mind by using their marketing slogan of Be 100% sure. This advertisement has created a long and positive image on consumers mind since ages. Even after the launch of other brands of antiseptic liquids like Savlon by JJ, consumers still look for Dettol as their first choice while making a purchase decision as Dettol has made a strong brand image. Example 2: Allen bought Mercedes Benz S-class and told his boss and the boss admired the comfort, safety and power while driving, he will be happy to hear positive response and feel satisfied with the buying decision and feel proud to associate with the brand. Service products require more concentrated and customized service and experience. As they affect each customer in different manner and individually. Consumers level of involvement influences their buying behavior decisions which can be classified into three categories: Repetitive/routine buying, limited and extensive decision. Level of satisfactions/learning is also important to decide the nature of buying behaviour in future. Consumers keep their learning experiences as a catalogue and categories them as positive or negative which they use for future reference. Example 3: A Toyota customer will remain loyal to the brand if he has a good experience with his previous purchase of its models and associated services. So when the company introduces new car segment like Lexus which belongs to niche market, the customer will not hesitate to buy the product since his experience is affirmative. 2.0 B: Why is customer experience important to marketers in explaining buyer behaviour? Consumer behaviour and decision making process has been one of the favorite research topic for marketers since ages. Authors like Sheth (1974) recommended that consumer decision making is largely influenced by their family, awareness, knowledge and power of their attitude for the brands available in the market. Consumers use detailed information and their past experience to minimize brand ambiguity. Therefore managers must ensure that each purchase experience leads them to higher satisfaction and positive learning about their product and brand. Allen m. Weiss, Nicholas h. Lurie, and Deborah j. Macinnis, (2008) mentioned in their paper that Marketers can play with the psychology of the consumer as consumers compare each product in their mind. Companies need to identify about the consumers, what they want and which products make them happy. Fortune 500 companies have chosen marketing activities like advertisement, pricing, packaging and labeling to attract their customers. Modern marketing practices have moved on to CRM, service quality which leads to strong brand image and name. Service quality has emerged as an influencing characteristic in consumers learning, as a goods service quality leads to positive learning and rewarding experience for the consumer. Example 4: Dell is famous for their products and after sales services. In case of any technical assistance needed, the company sends their team to solve the problem at the customers residence. So the customer is highly motivated to trust and buy their product. Dell used customer experience and feedback to improve their product and service quality. 2.1 Explanatory examples (Marketing and Managerial Implications) 2.1.1 Dettol (Reckitt Benckiser) Strong marketing and brand image is behind the success of Dettol. Marketers have carried extensive research, advertisement and learning campaigns. The company has focused to educate and make every single consumer aware about personal hygiene and germ free environment. The marketing slogan of Be 100% sure has created a positive image and brand in consumers mind. The cognitive learning has helped the company to influence the buying behaviour and decision making of the consumers. Dettol has used several marketing strategies which were designed to influence the learning of consumers to ensure that whenever they think of antiseptic liquid they must think of the only brand i.e. Dettol. Through the use of learning and awareness programs, the company has successfully expanded their business and product categories from personal care to total care. E.g.: They first launched their antiseptic liquid followed by toilet soap, hand wash, shower gels and bars, shaving creams etc. Dettol has used mar keting knowledge and communication to develop the need of the product which was supported by various marketing and advertisement programs. Sayantani Kar, (2009) mentioned that Consumers are highly influenced with learning approach adopted by Reckitt Benckiser hence they are loyal to the brand. Dettol marketers have chosen psychographic and behavioral segment to target the selected consumer and then penetrate by the use of marketing channels. Competitive marketing and advertisement is the powerful USP (unique selling proposition) which helped them to grow and develop strong image which directly influenced the buyer behaviour. By using cognitive and behavioral learning factor company is rapidly engaged in research and development to extend its product line. (Prerna Raturi, 2006) Several business rivals like PG, Unilever have tried to focus on consumer learning and succeeded to break the market to some extent but being a pioneer and strong brand, Dettol remains as their first preference. 2.1.2 Lexus (Toyota Motor Corporation) Being an automobile market leader the company has transformed itself into quality conscious company. Toyota is well known for its durability, performance, luxury and features. Consumers have learned the superior quality and performance by experiencing Toyota cars. Company has a wide segment market which starts from middle income to high income groups. Toyota has transformed high end market with clever marketing and using consumer experience. (Bill Vlasic, 2012) Through encouraging experience they have entered in to niche market where traditional rivals like, BMW, Benz and Volvo dominate the market. By understanding the need of their existing customers they took innovative steps and broke the market share and successfully launched LEXUS. Lexus is a premium car and also one of the largest selling brands in the world. Carl Howe (2007) mentioned that Lexus used direct and target marketing by which they targeted loyal customers who were happy with Toyota models, while they carried massive marketing plans to focus and educate the consumers that Lexus belongs to Toyota but it is a more value added product. They used words like same family but different child concept to introduce Lexus. The new concept was high value leading to high price which influenced buyers to experience the new product. Consumers have responded greatly to the new model which resulted in greater sale for the company, since the cognitive learning was affirmative which insisted them to try the new model Lexus hence upgraded their behavioral learning. Alan Ohnsman and Makiko Kitamura (2011) stated that the after sales service was one of the key marketing features together with the product that enabled the marketers to develop lasting impact on consumer psychology and they succeeded to influence buyers behaviour. (C) Best product category and its implications. 3.0 Financial Services (Banks) Financial services are the most discussed topic in todays economy. By narrowing to financial products like, Personal banking and Investment banking particularly, service marketing has introduced many models to understand and deal with the problems. Consumer behaviour is one of the biggest issues which differentiate these two markets (product, service). Services are different from goods because of their heterogeneity, inseparability, intangibility, perishability and customization which make it difficult for marketers to identify and practice the service standards. Major Banks and financial institutions have realized the importance of consumer psychology toward financial products which influence the final decision. (McKechnie, Sally, 1992) To make a purchase decision for a financial product the consumers are not completely aware of the utility and consequences, the learning is developed simultaneously with the product use and Therefore its highly critical for the marketers to acquaint with personality, consumer thinking, relationship, service quality etc. which directly affect the buyer preference. The financial services are not a one- time purchase but there are several two- way transactions for long time. These services need the trust, confidence and mutual rapport of the consumer in the financial institutions. Lunt, Peter, (2005) explains that Marketers invests plenty of time to facilitates and establish a mutual relationship to print positive image in the consumers cognitive learning which they consider to assess the creditability of the institution repeatedly. It also benefits the institution in long term business with individual consumer. Trials are not available for these products and services, most of consumers use their experience to make decision every time. So customer experience, trust and brand image are the main wisdom drivers which influences the buyer to select from available financial facilitators. 4.0 Conclusion The object to study the consumer behaviour and decision making is to examine the role of determinates that influence the final decision of consumer. The justifications and explanation was based on available consumer decision making theories, buying behaviour model and deep study of selected determinant learning. While exploring the determinants it was observed that marketing stimuli, an external and internal factor plays a critical role in consumer psychology which influence individual response. These elements affect the final purchase of every single product or service. Therefore its highly critical for the marketers to identify and effort to narrow down the difference between consumer and supplier interest. Study also indicates the major difference between product and service and also suggests addressing them with more focused marketing. As a service based product buyers are more conscious about the cost and outcome of the specific product because of intangibility of the product it is difficult to communicate with the consumer. Learning encourages the buyer to understand and provide a clear feedback of any particular product. If the consumer is happy with the product or service the feedback will be highly positive which also influence the buyer to straight rebuy without considering other options. In financial products consumers are always scare with the outcome of the decision and highly depend on their previous learning. Marketers have used this element to understand the needs and want to optimize the satisfaction level, which is actually developing positive attitude to rebuy the same product. Marketers can use modern methods to reduce the level of negative out come by spending more on developing consumer learning and experience. The right use of service quality, customer relation and satisfaction helps to create long term business with every customer which also reduces the brand switching. It is also observed that companies and marketers cannot solely depend on learning determinant. While investigating the determinants it is seen that marketing stimuli also affect the buyer behaviour. The choice of marketing mix product, place, price, promotion) significantly changes the taste and choice of buyer. Marketers must design the strategies to reduce the flaws and ensure that the right message is conveyed to the consumers. The primary aim of marketing is to develop the need, attract, educate and influence consumers to buy the product. Therefore proper market study, product design, segmentation and targeting should be ensured by the marketer. 5.0 Learning from the assignment Consumers involve in buying and decision making process every day. The learning and decision making affects every time one use the product or service. Being continuous process its crucial for the buyer and the marketer to understand the process behind the decision process and what factors affect the buyer on each purchase. Being a marketing student the assignment helps to understand the available theories in details. Exploratory assignment determinants of buying behaviour helps to comprehend the practical implication of each determinant like Marketing stimuli, external and internal factors. By using exploratory research on chosen factor it was observed that it is very critical for the company and the marketer to understand the consumer need, preference, satisfaction and loyalty. Companies cannot rely on each determinant which influences buyer decision because consumer keeps changing their buying decisions. Strong marketing is also one of the key successes for every company which involves more focused, targeted and innovative communicative tools to address the need of the consumer with offered solution. Assignment also facilitates to analyze the practical illustration from the world renowned companies. While exploring their marketing strategies particularly which helps to learn from their practices. Critical analysis help to understand the pros and cons of every option which the marketers use address the problem. The assignment also encourages self learning, theories and their implications. Being a future manager it is quite helpful to discuss and address the problem in details. The positive outcome is to address the problems with solutions which help to groom the thinking and brainstorming process being a decision maker and manager. Strong marketing is the key of todays competitive business, it was an opportunity to learn and evaluate the possible solutions while understanding consumer decision making process which will help to take positive decisions in future time. 6.0 Appendix Fig#1 Theory of customer buying behavior (Source : http://eprints.bournemouth.ac.uk/10107/1/Consumer_Behaviour_Theory_ _Approaches_%26_Models.pdf) Fig #2 Decision making through information search (Source: http://www.consumerpsychologist.com/cb_Decision_Making.html)