Understanding Consumer Decision Making in Marketing

Posted on Aug 25, 2024 in Economy

Marketing

The most important thing is to understand consumer decision making.

I. Consumer Decision-Making Process

  1. Identify the need or problem.
  2. After a gamma of options, select one or more options.

II. Factors Influencing Decision-Making

  • Emotions: Soft data, as they can influence the certainty of information.
  • Personal Factors: Individual characteristics of potential customers.
  • Demographics: Age, gender, location, etc.
  • Lifestyles: Habits, interests, and values.
  • Situational Factors: Specific circumstances influencing decisions.
  • Ethnicity: Race, nationality, and religion.

III. Stages of the Consumer Buying Decision Process

1. Problem Recognition

2. Information Search

3. Alternative Assessment

Evoked Set: The brands that come to mind when a consumer thinks about a product category.

  • The evoked set is dynamic and can change based on the situation (e.g., earthquakes may trigger the need for batteries and flashlights).
  • Constantly evoked sets consist of brands that remain top-of-mind for consumers (e.g., Coca-Cola, Microsoft).

4. Evaluation of Alternatives

  • Consumers establish criteria, which are the desired features of a product.
  • Buyers evaluate and rank brands in their evoked set. A lack of information may lead to indecision.

5. Purchase

  • Consumers choose the product or brand based on the evaluation stage and other factors.
  • Vendor selection also occurs at this stage.

6. Post-Purchase Evaluation

  • Buyers assess product performance against expectations.
  • Possible outcomes:
    • Cognitive Dissonance: Negative response due to unmet expectations.
    • Post-Purchase Satisfaction: Positive feedback and satisfaction.

Core Principles of Marketing

  • Focus on consumer needs and benefits rather than the product itself.
  • Technological advancements continuously improve product functionality and can fulfill various needs (e.g., electricity powers microphones, fax machines, and the internet).
  • Different products or technologies can satisfy the same basic need.
  • Products offer a set of attributes that provide complementary functions in addition to the core function (e.g., toothpaste cleans teeth, freshens breath, and prevents cavities).

Market Segmentation

Market segmentation is the process of dividing a market into distinct groups of buyers with similar needs, characteristics, or behaviors.

Macro Segmentation

  • Lacks a rigid methodology and requires creativity.
  • Identifying relevant segmentation criteria is crucial and demands a deep understanding of the market and consumer behavior.

Market Segmentation Levels

Segmentation bridges the gap between mass marketing and individual marketing.

  1. Market Segments (Segment Marketing): Large, identifiable groups with shared needs, purchasing power, and similar characteristics (e.g., dentists, customers in a specific location).
  2. Niche (Niche Marketing): Smaller groups with specific, unmet needs. Niches are sub-segments within larger segments (e.g., pediatric dentists, Italian chefs). Microniches represent even more specialized groups (e.g., pediatric dentists specializing in toddlers).
  3. Local Marketing: Tailored programs for specific geographic locations.
  4. Individual Marketing: Personalized marketing efforts for individual customers.

Types of Market Preferences

  • Homogeneous Preferences: Consumers have similar preferences with minor variations.
  • Fuzzy Preferences: Consumer preferences are widely dispersed.
  • Grouped Preferences: Well-defined preference clusters represent natural market segments.

Identifying Relevant Segmentation Criteria

  • Features: Specific product attributes.
  • Technology: Technological capabilities and advancements.
  • User Groups: Characteristics and needs of target customers.

Conceptualizing the Relevant Market

Defining the needs, functions, and target audience for a product or service.

  • What: Needs and functions to be fulfilled.
  • Who: Target customer segments.
  • How: Technological solutions and approaches.

Dimension: Function

Defining the functions and needs a product or service should address.

Dimension: Technology

Understanding how technology enables companies to satisfy customer needs and exploring various technological solutions.

Dimension: Buyers

Identifying and analyzing the characteristics of potential customers, including geographic location, distribution channels, financial capacity, technological sophistication, purchase behavior, and socio-demographic and socio-cultural profiles.

Micro Segmentation

Analyzing specific market needs within macro segments. For example, while both businesses and individuals use computers, their expectations and required services may differ.

Micro Segmentation Process

  1. Segmentation Analysis: Dividing the market into segments with similar needs and distinct characteristics.
  2. Target Segment Selection: Choosing segments that align with business objectives and differentiation strategies.
  3. Positioning: Establishing a unique position for the product or brand within the target segment, considering consumer expectations and competitive landscape.
  4. Marketing Program Development: Creating a tailored marketing mix for each target segment.

Consumer Market Segmentation Methods

  1. Socio-Demographic or Descriptive Segmentation: Based on characteristics like location, gender, age, income, and education.
  2. Benefit Segmentation: Grouping consumers based on the benefits they seek from a product.
  3. Sociocultural Segmentation: Considering lifestyles, activities, and interests.
  4. Behavioral Segmentation: Analyzing purchasing behavior, including usage rate, loyalty, and purchase occasion.

Positioning

“Designing a product and its image to occupy a distinct and valued place in the consumer’s mind, relative to competitors.” – Ries & Trout, 1981

Positioning defines how a company or brand wants to be perceived by its target audience. It involves:

  • Identifying differentiating product or brand characteristics that resonate with consumers.
  • Understanding consumer perceptions of different brands.
  • Determining the optimal position within the market, considering consumer expectations and competitive landscape.
  • Developing marketing strategies to achieve the desired positioning.

Marketing Mix (4 Ps)

  • Product: Variety, quality, design, features, brand name, packaging, sizes, services, warranties, returns.
  • Price: Pricing strategy, discounts, allowances, payment terms, credit options.
  • Promotion: Sales promotions, advertising, public relations, direct marketing.
  • Place: Distribution channels, coverage, location, inventory, transportation.

Some experts propose a fifth P: Personalization, emphasizing the importance of tailored customer experiences.

SWOT Analysis

A SWOT analysis identifies a company’s:

  • Strengths: Internal, positive attributes.
  • Weaknesses: Internal, negative aspects.
  • Opportunities: External, positive factors.
  • Threats: External, negative elements.