Consumer Buying Behavior
Organizational Buying Behavior
|Purpose of Buying|
The individual consumers buy goods and services for ultimate use or satisfy their needs. The buying purpose of such consumers is not to earn profit by reselling the goods and services.
The organizations buy goods and services for their business needs. The buying purpose of them is to earn profit by using and reselling the goods and services.
Although consumers buy various kinds of goods, the quantity of goods remains small. They buy only the necessary quantity of goods, which they need for regular use.
Organizational buying is done in large quantities. There are several reasons why organizations must buy the goods they need in bulk. In the first place, they use large quantities of each item and must maintain inventories at a level high enough that they will not run out of stock. Secondly, it is cheaper and more efficient to make large-volume purchases.
Consumer buying takes decision by consumers themselves. Sometimes they can consult with family members and friends. They need not fulfill any formality like organizational buying.
Organizational purchasing is a rational process because the purchasing behavior of organizations is guided by objective factors having to do with production and distribution. It takes long time than consumer buying.
Most of the consumers may not have adequate knowledge and information about market situation, available goods and services, etc. The educated customers may be aware and have knowledge about market and goods.
Organizational purchase criteria are specifically defined. Organizational buyers usually have fewer brands to choose from than do individuals, and their purchases must be evaluated on the basis of criteria that are specific to the overall needs of the organization. The organizational buyers have full knowledge of market and suppliers.
|Types of Goods|
Consumers buy many goods to use to satisfy personal or family needs.
Organizational buyers buy limited goods to use to conduct business.
Consumer buying behavior is effected by age, occupation, income level, education, gender etc. of consumers.
Many individuals are involved in the buying process. Within large organizations, rarely is one individual solely responsible for the purchase of products for the purchase of products or services. Instead, many individuals and departments may be involved and departments may be involved in the buying process.
The consumer buying process is very simple. No need to fulfill any formality. There is also no need to maintain extensive contact with sellers.
Buyers and sellers in the organizational market must maintain extensive contact.
The differences between consumer buying behavior and organizational buying behavior can be listed as follows:
1. Identification of market opportunities
Without segmentation organization cannot find the needs of customer easily. Organization can identify the market opportunities like most profitable sectors, through well segmentation.
2. Understanding of the customer
A segmentation perspective leads to more precise definition of the market in terms of consumer needs. Segmentation thus improves management’s understanding of the customer and more importantly, why he/she buys.
3. To direct marketing programs
Management, once it understands consumer needs, is in a much better position to direct marketing programs that will satisfy these needs and hence parallel the demands of the market.
4. Strengthen management capabilities
A continuous program of market segmentation strengthens management capabilities in meeting changing market demands.
5. To assess competitive strengths and weakness
Management is better able to assess competitive strengths and weakness of greatest importance; it can identify those segments where competition is thoroughly entered. This will save company resources by forgoing a pitched battle of locked-in competition, where there is little real hope of market gain.
6. Systematic planning
It is possible to assess a firm’s strengths and weakness through identifying market segments. Systematic planning for future markets is thus encourages.
7. Efficient allocation of marketing resources
Segmentation leads to a more efficient allocation of marketing resources. For example, product and advertising appeals can be more easily coordinated. Media plans can be developed to minimize waste through excess exposure. This can result in a sharper brand image, and target consumers will recognize and distinguish products and promotional appeals directed at them.
8. Market objectives
Segmentation leads to a more precise setting of market objectives. Targets are defined operationally, and performance can later be evaluated against these standards.
A trend is a collection or sequence of events that has some momentum and durability. Generally, a trend is last for two to five years. Marketers can find many opportunities by identifying trends. The trend of smoking habits in teenager helps the growth of the tobacco industry. The trend of buying mobile phones is helping Nepal Telecom to expand its transactions. Generally, the trends can be seen mainly in fashionable items like in dress, electronics, beauty products, etc. It helps manufacturers and marketers to design the products and services according to the emerging trends.
According to Faith Popcorn –“A trend has longevity, is observable across several market areas and consumer activities, and is consistent with other significant indicators occurring or emerging at the same time.”
Trend reveals the shape of the future. It is direction of events in the changing environment. A trend is usually active for a period of two to five years.
Following are some of the glaring examples of marketing trends in Nepal:
- Women’s participation in different NGO’s for raising against social injustice and crime.
- The demand for self-service
- The use of miniskirt
- Digital watches
- Getting admission in MBBS classes by donating a huge amount of money
- Sending children for education to foreign countries etc.
Mega trends are direction or sequence of events in the environmental forces that are of longer duration and they are shown because of political, economic, social, and technological changes. In other words, mega trends are large social, economic, political and technological changes that are slow to form once in place, they influence us for some time-between seven and ten year, or longer.
Some example of mega trends are:
- The booming global economy
- A renaissance in the arts
- The emergence of free-market socialism
- Global lifestyles and cultural nationalism
- The privatization of the welfare state
- The rise of the Pacific Rim
- The decade of women in leadership
- The age of biology
- The religious revival of the new millennium
- The triumph of the individual
There are some differences between a trend and mega trends. Mega trends are larger than trends. Trend is stable for two to five years whereas mega trends are relatively stable for almost a decade. Mega trend throws a greater influence on marketing than a trend.
The examples of mega trends visible in Nepal are as follow:
- Cultural invasion from the western countries
- Privatization of state owned enterprises
- Liberalization and globalization
- Increasing use of information technology
- Westernization of life styles
- Open university system, etc.
These trends and mega trends create marketing opportunities for the concerned marketing firms. But the firm should develop new products or marketing programs in line with strong trends and mega trends rather than opposing them.
|Scanning is generally defined as acquiring information. In the context of marketing programs and plan environmental scanning involves monitoring changes and developments in the marketing environment that have potential impact on the marketing activities. It is essential for formulating plans.|
According to Richard Steers –“Environmental scanning involves monitoring changes and developments in the environment that have potential impact on the organization.”
In conclusion, environmental scanning is the process by which marketing management monitor its relevant environment to identify opportunities and threats affecting the business. Environmental scanning should be done to bring controllable environment in favor of the organization and plans should
Methods of Environmental Scanning
Environmental scanning is absolutely necessary for strategy formulation. As the environment is complex environmental scanning should be cautiously dealt. For the environmental scanning, some of following methods can be used.
- Extrapolation method: These methods require information from the past to explore the future. The future is assumed to be some function of the past. There are a variety of extrapolation methods, including trend analysis, forecasting and regression analysis.
- Historical analogy: When past data cannot be effectively used to analyze an environmental trend, the trend is studied by establishing historical parallels with other trends. This method assumes that sufficient information is available from the other trend. Turing points in the progression become guideposts for predicting the behaviors of the trend being studied.
- Intuitive reasoning: This method calls for a rational intuition by the scanner. Intuitive thinking requires free thinking unconstrained by past experience and personal biases.
- Scenario building: This procedure involves constructing a time-ordered sequence of events that have a logical cause-and-effect relationship to one another. The resulting forecast is based on interrelationships among the events.
- Cross-impact matrix: When two different trends in the environment point to two conflicting futures, the trends are studied to see their potential impact on each other.
- Morphological analysis: This method is used to identify all possible ways to achieve an objective. It can be used to anticipate and to develop ideal patterns for achieving desired objectives.
- Network methods: Two types of network methods are popular: Contingency Trees and Relevance Trees.
- Contingency Tree: A contingency tree is a graphic display of logical relationships among environmental trends that focuses on branch points, at which several alternate outcomes are possible.
- Relevance tree: A relevance tree is a logical network similar to a contingency tree, but assigning degrees of importance to various environmental trends with reference an outcome.
- Missing line approach: This approach combines morphological analysis and the network method. Many developments and innovations that appear promising may be hindered because something is missing. Under such circumstances this unique may be used to study new trends to see if they reveal the missing links.
- Model building: This method is similar to network methods but relies more on developing mathematical representations of the environmental phenomena in question. Simulations are good examples of model building techniques.
- Delphi technique: The Delphi technique is the systematic solicitation of experts opinion in varying stages, using feedback to develop new forecasts.
Related keywords Environmental Scanning
1. Develop marketing strategies and plans
The first and foremost tasks of marketing are to develop marketing strategies and plans. They consist of following tasks:
- Determining the strategies consist of identifying the marketing objectives or goals of the organization, their determination, and modification as well as determination of specific resources to achieve objectives or goals set. They are concerned with product, price, channel, promotion, competitors, etc.
- Marketing plans involve mangers by which the marketing goals can be achieved. They involve deciding policy, strategy, tactics, procedures, rules and regulations and marketing programs, budgets and schedules to achieve the long-term as well as short-term goals.
- Marketing strategies and plans allocate economic, physical and managerial resources of the organization for future.
- They assess and analyze strength and weakness, opportunities and threats (SWOT).
2. Creating marketing information system
It is concerned with understanding what is happening inside and outside the company. Simply there are four components of marketing information. They are Internal Record System, Marketing Intelligence System, Marketing Research and Decision Support System.
3. Build customer relationship
Marketing needs to build customer relationship. Building customer relationship is a very effective way to increase satisfaction and sustain in market. The relationships can be built by using the emerging concepts such as relationship marketing and customer relationship management.
4. Build strong brands
Marketing needs to build strong brand. It is also a major task of marketing. Strong brand helps in promotion, value creating, image development, product positioning, brand loyalty and expansion of product lines.
5. Determine marketing mix
Marketing needs to create and determine and effective marketing mix to satisfy needs of target markets. It is the combination of four inputs such as the product, the price, the place and the promotional activities. Different marketing mix is essential for different groups of customers.
6. Deliver value
Marketing needs to deliver value to the target customers. Value is the ratio between what the customers pay and what they receive. Marketing must determine how to properly deliver the value embodied by the products and services to the target market. Customers’ product choice is guided by value. So, marketing should add maximum value to the customers.
7. Communicate value
Marketing needs to communicate value to target markets. It has to develop an integrated marketing communication program that maximizes the individual and collective contribution of all communication activities by which firm attempts to inform, persuade, remain and reassure consumers about the brands. For this, marketing has to set up mass communication programs consisting of advertising, personal selling, sales promotion, public relations and publicity.
8. Create long-term growth
Marketing must take a long-term view of its products and brands and how its profits should be grown. Based on its positioning, it must initiate new-product development, testing and launching.
9. Implementation and control
Marketing must organize its marketing resources and implement and control the marketing plans. It must build a marketing organization that is capable of implementing marketing plans and strategies. Similarly, it must find out any deviations between achieved performances against planned or budgeted performance using predetermined standards. It provides feedback about marketing planning and strategies.
Smart marketers should always seek to establish strong relationship with profitable customers. Marketers have to bear so many costs and efforts for attracting, dealing and retaining customers. All such kinds of costs should be recovered for profitability. They should measure the profitability. They should focus on the lifetime stream of revenue and costs. In this regard, customer profitability is the difference between the revenues earned from and the costs associated with the customer relationship in a specified period.
Customer profitability is the result of applying the business concept of profit to a customer relationship. Measuring the profitability of a firm’s customers or customer groups can deliver useful business insights.
Customer Profitability Analysis
Marketers need to analysis customer profitability for corporate growth. A useful type of profitability analysis can be presented in the following figure:
|Customer-Product Profitability Analysis|
In above figure, columns represent customers and rows represent products. Each cell contains a symbol for the profitability of selling that product to that customer.
- Customer 1: S/he is very profitable customer. S/he buys three profit making products. (P1, P2 and P4)
- Customer 2: S/he yields a picture of mixed profitability. S/he buys one profitable product (P1) and one unprofitable product (P3).
- Customer 3: S/he is losing customer because s/he buys one profitable product (P1) and two unprofitable products (P3 and P4).
Here, customer 2 and customer 3 are unprofitable customers for a company. The company can do the following activities about them.
- It can raise the price of its less profitable products or eliminate them.
- It can try to sell them its profit-making products.
Related keywords customer profitability analysis
Customer relationship management is a combination of policies, processes and strategies implemented by an organization to unify its customer interactions and provide a means to track customer information. It involves the use of technology in attracting new and profitable customers, while forming tighter bonds with existing ones.
Customer relationship management pulls together, analyzes and provides easy access to customer information from all these various touch points. It helps to assess the value of individual customers, identify the best ones to target and customize the company’s products and interactions to each customer.
The purpose of customer relationship management is to enable a company to better service its customers through the introduction of reliable service, automated processes, personal information gathering and processing and self-services. It attempts to integrate and automate the various customer serving processes within a company. It can be done through the use of multiple communication channels (phone, WAP Wireless Application Potential, Internet etc.)
Customer relationship management involves three general areas of business. They are as follows:
- Marketing information system: It provides information about the business environment, including competitors, industry trends, and macro environmental variables.
- Sales-force management system: It automates some of the company’s sales and sales-force management functions. It keeps track of customer preferences, buying habits, and demographics, and also sales staff performance.
- Customer service system: It automates some service requests, complaints, product returns, and information requests.
Steps for Reducing Customer Defection Rate
In order to reduce or control the defection rate of the existing customer, the marketing companies need to follow the following steps:
- Define measurement basis for retention rate: For reducing customer defection rate, first of all, the measurement basis for retention rate should be defined. For a newspaper, renewal rate is a measure of retention. For college, it is admission in second year after completing first year.
- Analyze causes of defection: For reducing customer defection rate, the reasons for defection should be analyzed. The major reasons for defection can be poor service, poor products, high price, inconvenient distribution etc.
- Calculate loss of profit: Customer defection results in loss of profit. Profit loss from lost customer should be calculated in terms of life time value of lost customers.
- Introduce anti-defection measures: For reducing customer defection rate, the company should introduce anti-defection measures such as extra benefits and services that add value.
- Find out cost of reducing defection rate: The cost of anti-defection measure such as extra benefits or services should be calculated. The cost should be less than benefits of reducing defection rate.
- Listen to customers: Customer feedback is essential for reducing defection rate. Exit interviews of customers can also be useful. Complaints and suggestions should be carefully handled.
Related keywords customer relationship management
Globalization is an emerging trend in marketing. It refers to free flow of ideas, goods and services all over the world. Effect of globalization is increasing in marketing. Increasing globalization is crating both opportunities and challenges for marketers. It is also creating international competition.
2. Changing technology
Changing technology is also an emerging trend in marketing. Development in information and communication technology, electronics, new materials and nano-technology development advances are opening many new opportunities for marketing.
3. Direct marketing
Direct marketing is also increasing. Direct mail, catalogue, telephone, television etc. are used in direct marketing. Now-a-days Internet and websites are also using and e-commerce is getting popular. Business-to-business purchasing is growing fast on the Internet.
4. Service marketing
The role of service products to satisfy needs, wants and demand of customers.
An emerging trend in marketing is outsourcing. It is the process by which marketers purchase inputs such as capital, human resources, technology, machines, raw materials, technical know-how, skills, services from other organizations throughout the world. Outside suppliers are playing greater role in supply of goods and services.
6. Relationship marketing
Relationship marketing is also the emerging trend in marketing. It is concerned with building long-term mutually satisfying relationship with customers. Marketers focus on managing their customers as well as their products and series. They also focus on quality, value, customer satisfaction, customer loyalty and partnership with customers.
7. Quality marketing
Quality marketing is concerned with customer satisfaction. In order to deliver customer satisfaction, marketers have to offer ‘quality’ in their goods and services. Now-a-days total quality management (TQM) is getting popular.
8. Growth of global brands
Global companies, with very large size and scale of activities, have now been growing. These companies are able to establish their brands in global markets. Global brands in electronics, foods, clothing, autos, intellectual property etc. are becoming popular all over the world. Due to the practices of licensing and franchising strategies global brands are increasing.
9. Global life style
Advances in global communication, television networks, transportation, technology, cross cultural exchange, flow of tourists across the globe etc. are promoting global life styles. Global life style is providing added opportunities for marketers.
High-tech industries: Now-a-days high-tech industries also growing. Mechanization, automation, computerization, robotics, information technology, biotechnology, nano-technology, new materials and artificial intelligence are getting popular. Marketers can achieve gain economies of scale by using high-tech.
This 21st Century is the age of globalization. Today’s world has become a ‘small commercial village.’ Due to the development of trade and commerce, science and technology etc., many companies are going global. The need to think and act from global perspective is universal. Globalization increases global competitive. It brings competition everywhere in the world. Thus, this is the age of competition. Today’s company should pay more attention to quality and price to survive in the competitive market. The variety of products and products forms in the market will significantly and substantially increase the customer choice. Besides these, the companies should create value to global target customers, it should gain competitive advantages, it should focus on needs and wants of target markets and it should follow positioning strategy to create strong brand image in global markets. In this regards, we can say that it is a great challenge to do marketing in the era of globalization.
Consideration for Global Market Entry
Going global is very challenging job. So a company should consider many things for global market entry. They are as follows:
- Political risks: A company going global should consider the political risks of global market. The elements of political risks are political instability, terrorism, civil war, etc. These all factors should be uncertainty in global markets.
- Access to market: Many factors may limit companies to access to global market. They are reservation policy for nationals, local content requirements, balance of payment problems, competition with local industry, regional cooperation agreements, etc. These all factors should be taken into consideration before going global.
- Cost structure: Cost structure should be taken into consideration for the companies going global. They should consider costs associated with factors of production such as land, capital, labor etc. Similarly they must consider the wages rate and tax related matters as well.
- Logistics: Logistics which is also known as physical distribution that consists of transportation, inventory management, warehousing, materials handling and order processing. These all are crucial to success in global markets. The cost of making goods and services readily available to global markets are very important for market entry. Similarly, there should be adequate infrastructure facilities, good governance, etc. in host country.
- Foreign exchange rate: The companies going global need to deal different currencies at a time. They need to follow foreign exchange regulations of the concerned countries and need to solve the currencies exchange problem. They should consider the exchange risk resulting from changing rates and control procedures.
- Marketing programs: Different countries have different political system and different government decisions. Different laws, rules and regulations of their own, govern marketing activities in different countries. So, the companies going global should prepare marketing programs as per the law, acts and local environment of host country.
Related keywords global market entry
Holistic marketing concept is an approach to marketing that attempts to recognize and reconcile the scope and complexities of marketing activities. These activities are concerned to the relationship marketing, integrated marketing, internal marketing, social responsibility marketing and performance marketing. Marketers can create, maintain and renew customer value through holistic marketing concept.
The holistic marketing concept is the new and emerging concept which emphasizes the development, design, and implementation of marketing programs, process and activities. This concept recognizes that “everything matters” with marketing. It also recognizes that a broad, integrated perspective is necessary to get success in marketing.
According to Philip Kotler and Kavin Lane Keller –“The holistic marketing concept is based on the development, design and implementation of marketing programs, processes, and activities that recognizes their breadth and interdependencies.”
Components of Holistic Marketing
1. Relationship marketing
It is a key component of holistic marketing. Marketers need to establish long-term relationship with customers. Relationship marketing is an act of building of long term mutually satisfying relationship with the different kinds of customers to earn and retain their long-term loyalty because they are good partners in creating value. Relationship marketing’s focus is not immediate sales; rather it is directed at building a large group of satisfied and loyal customers. Customer retention and winning back lost customer are the key strategy in relationship marketing. This marketing uses sustained long-term efforts in delivering value to the customers and profit to the firm.
2. Integrated marketing
Integrated marketing is coordination of all of a company’s marketing activities in establishing marketing strategies such as packaging, media promotion, point of purchase materials, after sales services etc. It is the process of mixing and matching marketing activities to maximize their individual and collective actions. Marketing organizations must integrate their systems for demand management, resource management and network management.
3. Internal marketing
Internal marketing is the process of bringing out support for a company and its activities among its employees, in order to encourage them to promote its goals. It describes the task of hiring, training and motivating able employees who want to serve customers well. It also refers to investment in human resources to train and motivate employees to better serve the customers.
4. Social responsibility marketing
Social responsibility marketing is a management orientation that holds that the key task of the organization is to determine the needs and wants of target markets and to adopt the organization for delivering the desired satisfactions more effectively and efficiently than its competitors in a way that preserves or enhances the consumers’ and society’s well being. It implies the orientation of the organization’s social responsibility to face the major environmental and demographic challenges.
5. Performance marketing
It focuses on the value of marketing efforts. Performance marketing is practiced to ensure financial accountability in profitability term. Holistic marketing concept uses performance marketing to ensure profitability from marketing efforts and activities.
Related keywords Holistic Marketing Concept