Chapter Three

3. Analyzing Consumer and Business Markets

3.1. Consumer Behavior

A consumer is a person who purchases goods and services for his own personal needs. Consumer
buying behavior refers to the buying behavior of final consumer, individuals and households who
buy goods and services for personal consumption.
Consumer Behavior can also be defined as those acts of 'individuals' which are directly involved
in making decisions to spend their available resources (time, money, energy) in obtaining and
using goods and services. It refers the behaviors that consumer’s exhibit when searching for
information about product to buy, evaluate one brand against another, and when they are using
and exposing the product after using it.
The consumer market buys goods and services for personal consumption. It is the ultimate
market in the organization of economic activities. The consumer market is defined as end user
markets. Also called Business to Consumer markets, or B2C markets, the product and service
offering is bought by the consumer for his personal use. The decision making process in
consumer markets is different from the one that takes place in business or industrial markets.
Why Study Consumer behavior?
 It will help to segment the market usefully
 It will aid in development of an effective marketing mix
 It will help to assess new market opportunities concept is unlikely to get discarded for a
very long time to come, because there would always be products and populations of such
a nature that some companies would feel.
3.2. Major Factors Affecting Consumer Behavior
There are various factors affecting consumers buying behavior. Some of the main factors are
listed below:
1. Cultural Factors
Cultural factors have significant impact on customer behavior. Culture is the most basic cause
of a person’s wants and behavior. Growing up, children learn basic values, perception and wants
from the family and other important groups. Marketers are always trying to spot “cultural shifts”
which might point to new products that might be wanted by customers or to increased demand.

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Each culture contains “subcultures” – groups of people with share values. Sub-cultures can
include nationalities, religions, racial groups, or groups of people sharing the same geographical
location.
2. Social Factors
A customer’s buying behavior is also influenced by social factors, such as the groups to which
the customer belongs and social status. In a group, several individuals may interact to influence
the purchase decision. The typical roles in such a group decision can be summarized as follows:
i. Reference Groups- As a consumer, your decision to purchase and use certain products and
services, in influenced not only by psychological factors, your personality and life-style, but also
by the people around you with whom you interact and the various social groups to which you
belong. The groups with whom you interact directly or indirectly influence your purchase
decisions and thus their study is of great importance to marketer to understand are:
a. Primary and secondary groups: a primary group is one with which an individual interacts
on a regular basis and whose opinion are of importance to him, family, neighbors, close friends,
colleagues and coworkers are examples of primary groups. Secondary groups are those with
which an individual interacts only occasionally and does not consider their opinion very
important.
b. Formal and informal groups: Labor unions, social clubs and societies are formal groups
to which individuals may belong. A formal group has a highly defined structure, specific role
sand authority positions and specific goals.
In contrast, an informal group is loosely defined and may have no specified roles and goals.
Meeting your neighbors over lunch once a month for friendly exchange of news are at instance
of an informal group.
c. Membership and symbolic groups: A membership group is one to which a person belongs
or qualifies for membership. All workers in a factory qualify for membership to the labor union.
A symbolic group is one, which an individual aspires to belong to, but is not likely to be received
as a member. A head clerk in an office may act as if he belongs to the top membership and
symbolic groups influence consumer behaviors but membership groups have a more direct
influence.

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Primary, informal and small groups exert the maximum influence on consumers and are of great
interest for marketers. Any of these groups can serve as a reference group for a consumer if it
serves as a point of reference or comparison the formation of the values, attitudes and behavior.
ii. Family: The family, as a unit, is an important of all these groups and we shall discuss it in
detail. The family is an important consumer for many products which are purchased for
consumption by all family members. It is a source of major influence on the individual members’
buying behavior.
iii. Roles: An individual may participate in many groups. His position within each group can be
defined in terms of the activities he is expected to perform. You are probably a manager, and
when in your work situation you play that role. However, at home you play the role of spouse
and parent. Thus in different social positions you play different roles. Each of these roles
influences your purchase decisions.
iv. Status: Status is often measured by the degree of influence an individual exerts in the
behavior and attitude of others. People buy and use products that reflect their status. The
managing director of a company may drive a Mercedes to communicate his status in society.
3. Personal Factors
i. Age and life cycle stage: Like the social class the human life cycle can have a significant
impact on consumer behavior. The life cycle is an orderly series of stages in which consumer
attitude and behavioral tendencies evolve and occur because of developing maturity,
experiences, income, and status. Marketers often define their target market in terms of the
consumers’ present lifecycle stage. The concept of lifecycle as applied to marketing will be
discussed in more details.
ii. Occupation and Income: Today people are very concerned about their image and the
status in the society, which is a direct outcome of their material prosperity. The profession or the
occupation a person is in again has an impact on the products they consume. The status of a
person is projected through various symbols like the dress, accessories and possessions.
iii. Life Style: Our life styles are reflected in our personalities and self-concepts, same is the
case with any consumer. We need to know what a life-style is made of. It is a person’s mode of
living as identified by his or her activities, interest and opinions. There is a method of measuring
a consumer’s lifestyle.

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iv. Personality: Personality is the sum total of an individual’s enduring internal psychological
traits that make him or her unique. Self-confidence, dominance, autonomy, sociability,
defensiveness, adaptability, and emotional stability are selected personality traits. People who
have self-confidence have different purchasing behavior than people who have no self-
confidence.
4. Psychological Factors
A person’s buying choices are further influenced by four major psychological factors:
motivation, perception, learning, and beliefs and attitudes.
3.3. The Buying Decision Process of Consumers
The buying decision process is a problem solving approach consisting of five stages. But
consumers do not always pass through all five stages.
Stage 1: Recognition of Unsatisfied Need
The buying process stars when the buyers recognize a problem or need. The need can be aroused
internally (hunger, thirst) or externally (TV advertisement or sight of the product). Marketers
need to identify the circumstances that trigger a particular need.
Stage 2: Identification of Alternatives
Once a need has been recognized, both product and brand alternatives must be identified.
Different products amount satisfy a certain need. For example, a person may choose between red
wine, Beer, Whiskey, draft or Champagne to have a drink. If he/she chose a beer, he/she still has
to choose among several brands such as [Link], Bati, Dashen or Meta.
Preconditions to the search for alternative:
a. Resource, time, priority, approval by family and reference group
b. The information the customer has acquired
Major information sources:
 Personal :- (family, friends, neighbours, acquaintances) they perform a legitimizing
or evaluation function.
 Commercial :- (advertising, web-sites, Salesperson, dealers, packaging displays)
normally perform an information function. The consumer receives the most
information about the product from commercial sources.
 Public: - (mass media, consumer-rating organization) they are independent
authorities.

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  Experiential: - handling, examining, using the product.
The most effective information often comes from personal sources or public sources each source
performs a different function in influencing the buying decision.
c. The amount of the perceived risk
A consumer’s purchase decision is heavily influenced by perceived risks. Some risks include:
 Functional risk: the product does not perform up to expectations
 Physical risk: the product threats the physical well- being of the consumer.
 Financial risk: the products are not worth the price paid.
 Social risk: the product embarrasses the consumer.
 Psychological risk: the product affects the mental well- being of the consumer.
 Time risk: a failed product alternative results in an opportunity cost of finding another
alternative
Stage 3: Evaluation of Alternatives
After reasonable alternatives have been identified, the consumer has to evaluate each alternative
with respect to certain attributes such as shape, color, effectiveness, comfort, cost, size, operation
system, etc. Consumers vary in the importance they attach to each product attributes.
Stage 4: Purchase Decision
Once the alternatives are evaluated, the consumer form preferences among the alternatives and
an intention to buy the most preferred brand alternative. In making a purchase decision, the
consumer decides about; brand (what), dealer (from whom), quantity (how much), timing (when)
and payment method (how).
Stage 5: Post-Purchase Behaviour
After purchasing the product, the consumer will experience some level of satisfaction or
dissatisfaction. If the consumer is satisfied, he will show a higher probability of purchasing the
product again. And he will also tend to say good things about the brand to others. Dissatisfied
customers may abandon or return the product, may complain to the company, a lawyer or other
group, and warn others not to buy the product. The marketer’s job therefore does not end with
the purchase. Marketers must monitor post-purchase behaviour of consumers.

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3.4. Business (Organizational) Buying Behavior
Business/industrial market is the collection of buyers who are buying products and services for
resale purpose, or for using it in day to day operation or to use it to make another product.
The business market consists of all the organizations, that buy goods and services for further use
in the production and supply of other goods and services that are sold to others. Also called
Business to Business markets, or B2B markets, the product and service offering is bought by one
business organization and further processed/transformed/assembled for further sale either to
another business consumer or a personal consumer.
3.5. Factors influencing organizational buying Decision
A. Environmental Factors
Business buyers are influenced heavily by factors in the current and expected economic
environment, such as the level of primary demand, the economic outlook, and the cost of money.
As economic uncertainty rises, business buyers cut back on new investments and attempt to
reduce their inventories.
An increasingly important environmental factor is shortages in key materials. Many companies
now are more willing to buy and hold larger inventories of scarce materials to ensure adequate
supply. Business buyers also are affected by technological, political, and competitive
developments in the environment. Culture and customs can strongly influence business buyer
reactions to the marketer’s behavior and strategies, especially in the international marketing
environment. The business marketer must watch these factors, determine how they will affect the
buyer, and try to turn these challenges into opportunities.
B. Organizational Factors
Each buying organization has its own objectives, policies, procedures, structure, and systems,
and the business marketer must understand these factors well. Questions such as these arise:
How many people are involved in the buying decision? Who are they? What are their evaluative
criteria? What are the company’s policies and limits on its buyers?
C. Interpersonal Factors
The buying center usually includes many participants who influence each other, so interpersonal
factors also influence the business buying process. However, it is often difficult to assess such
interpersonal factors and group dynamics.

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Managers do not wear labels that identify them as important or unimportant buying center
participants, and powerful influencers are often buried behind the scenes. Nor does the highest-
ranking buying center participant always have the most influence. Participants may influence the
buying decision because they control rewards and punishments, are well liked, have special
expertise, or have a special relationship with other important participants. Interpersonal factors
are often very subtle. Whenever possible, business marketers must try to understand these factors
and design strategies that take them into account.
D. Individual Factors
Each participant in the business buying-decision process brings in personal motives, perceptions,
and preferences. These individual factors are affected by personal characteristics such as age,
income, education, professional identification, personality, and attitudes toward risk. Also,
buyers have different buying styles. Some may be technical types who make in-depth analyses of
competitive proposals before choosing a supplier. Other buyers may be intuitive negotiators who
are adept at pitting the sellers against one another for the best deal.

3.6. Decision Making Process in Organizational Buying

The following figure lists eight stages of the business buying process. Buyers who face a new-
task buying situation usually go through all stages of the buying process. Buyers making
modified or straight re-buys may skip some of the stages. We will examine these steps for the
typical new-task buying situation.

Problem General need Product Supplier

recognition description Specification search

Supplier Order-routine Performance

Proposal review
solicitation selection specification

1st. Problems Recognition: The buying process beings when someone in the company
recognizes a problem or need that can be met by acquiring a specific product or service.
Problem recognition can result from internal or external stimuli. Internally, the company may
decide to launch a new product that requires new production equipment and materials. Or a
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machine may break down and need new parts. Perhaps a purchasing manager is unhappy with a
current supplier’s product quality, service, or prices. Externally, the buyer may get some new
ideas at a trade show, see an ad, or receive a call from a salesperson who offers a better product
or a lower price. In fact, in their advertising, business marketers often alert customers to potential
problems and then show how their products provide solutions.
2nd. General Need Description: Having recognized a need, the buyer next prepares a general
need description that describes the characteristics and quantity of the needed item. For standard
items, this process presents few problems. For complex items, however, the buyer may have to
work with others – engineers, users, consultants – to define the item. The team may want to rank
the importance of reliability, durability, price, and other attributes desired in the item. In this
phase, the alert business marketer can help the buyers define their needs and provide information
about the value of different product characteristics.
3rd. Product Specification: The buying organization next develops the item’s technical product
specifications, often with the help of a value analysis engineering team. Value analysis is an
approach to cost reduction in which components are studied carefully to determine if they can be
redesigned, standardized, or made by less costly methods of production. The team decides on the
best product characteristics and specifies them accordingly. Sellers, too, can use value analysis as
a tool to help secure a new account. By showing buyers a better way to make an object, outside
sellers can turn straight re-buy situations into new-task situations that give them a chance to
obtain new business.
4th. Supplier Search: The buyer now conducts a supplier search to find the best vendors. The
buyers can compile a small list of qualified suppliers by reviewing trade directories, doing a
computer search, or phoning other companies for recommendations. Today, more and more
companies are turning to the internet to find suppliers. For marketers, this has leveled the playing
field – the Internet gives smaller suppliers many of the same advantages as larger competitors.
The newer the buying task, and the more complex and costly the item, the greater the amount of
time the buyer will spend searching for suppliers. The supplier’s task is to get listed in major
directories and build a good reputation in the marketplace. Salespeople should watch for
companies in the process of searching for suppliers and make certain that their firm is
considered.

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5th. Proposal Solicitation: In the proposal solicitation stages of the business buying process,
the buyer invites qualified suppliers to submit proposals. In response, some suppliers will spend
only a catalog or a salesperson. However, when the item is complex or expensive, the buyer will
usually require detailed written proposals or formal presentations from each potential supplier.
Business marketers must be skilled in researching, writing, and presenting proposals in response
to buyer proposal solicitations. Proposals should be marketing documents, not just technical
documents. Presentations should inspire confidence and should make the marketer’s company
stand out from the competition.
6th. Supplier Selection: The members of the buying center now review the proposals and select
a supplier or suppliers. During supplier selection, the buying center often will draw up a list of
the desired supplier attributes and their relative importance. In one survey, purchasing executives
listed the following attributes as most important in influencing the relationship between supplier
and customer; quality products and services, on-time delivery, ethical corporate behavior, honest
communication, and competitive prices. Other important factors include repair and servicing
capabilities, technical aid and advice, geographic location, performance history, and reputation.
The members of the buying center will rate suppliers against these attributes and identify the best
suppliers.
Buyers may attempt to negotiate with preferred suppliers for better prices and terms before
making the final selections. In the end, they may select a single supplier or a few suppliers. Many
buyers prefer multiple sources of supplies to avoid being totally dependent on one supplier and
to allow comparisons of prices and performance of several suppliers over time. Today’s supplier
developments managers want to develop a full network of supplier partners that can help the
company bring more value to its customers
7th. Order-Routine Specification: The buyer now prepares an order-routine specification. It
includes the final order with the chosen supplier or suppliers and lists items such as technical
specifications, quantity needed, expected time of delivery, return policies, and warranties. In the
case of maintenance, repair, and operating items, buyers may use blanket contracts rather than
periodic purchase orders.
8th. Performance Review: In this stage, the buyer reviews supplier performance. The buyer may
contact users and ask them to rate their satisfaction. The performance review may lead the

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buyer to continue, modify, or drop the arrangement. The seller’s job is to monitor the same
factors used by the buyer to make sure that the seller is giving the expected satisfaction.
We have described the stages that typically would occur in a new-task buying situation. The
eight-stage model provides a simple view of the business buying-decision process. The actual
process is usually much more complex. In the modified re-buy or straight re-buy situation, some
of these stages would be compressed or bypassed. Each organization buys in its own way, and
each buying situation has unique requirements.
Different buying center participants may be involved at different stages of the process. Although
certain buying-process steps usually do occur, buyers do not always follow them in the same
order, and they may add other steps. Often, buyers will repeat certain stages of the process.
Finally, a customer relationship might involve many different types of purchases ongoing at a
given time, all in different stages of the buying process. The seller must manage the total
customer relationship, not just individual purchases.
3.8.3 Participants in the business buying process
Many organizations rely on purchasing managers- buying specialists – to ensure that purchases
are handled properly. However, other people can take part in the purchasing process. The buying
center is composed of all individual and groups who participate in the purchasing-decision-
making process. Some of the participants in the purchasing process include the production
manager and staff, new product committee, company laboratory, marketing department and the
department for marketing development.
Members of the buying center may play any of the following roles:
 Initiators :- those who suggest that something be purchased
 Users: - those who will use the product or service.
 Influencers:- especially technical personnel, who provide specifications and information
for evaluating alternatives
 Deciders: - people who decide on product requirements or on supplier.
 Approvers: - authorize the proposed purchase.
 Buyers: - are responsible for selecting vendors and negotiating.
 Gatekeepers: - control the flow of information within the organization.

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