CONSUMER BUYING BEHAVIOUR & ORGANISATIONAL MARKETS AND BUYING BEHAVIOUR

1 CONSUMER BUYING BEHAVIOUR 3

1.1 Introduction 3

1.2 Types of Consumer Buying Behaviour 3

1.3 The Consumer Buying Decision Process 4

1.4 Personal factors influencing the buying decision process 5

1.5 Psychological factors influencing the buying decision process 6

1.6 Social factors influencing the buying decision process 7

1.7 Understanding consumer behaviour 8

2 ORGANISATIONAL MARKETS AND BUYING BEHAVIOUR 8

2.1 Introduction 8

2.2 Types of organisational markets 8

2.3 Dimensions of organisational buying 10

2.4 Organisational buying decision 13

2.5 Concluding remark 14

1 CONSUMER BUYING BEHAVIOUR

1.1 Introduction

What do we mean if we are talking about consumer buying behaviour?

There are several decision processes and acts of people (consumers) buying and using products for themselves or their household. These processes might be very interesting for companies and their marketing managers.

But what are the reasons why marketers should know about consumer buying behaviour?

-Well, there are several reasons:

At first it is important to know about the reaction of the buyer to the firm´s marketing strategy because this has a great influence on the firm´s success.

Another thing is that the firm can create an almost perfect marketing mix to satisfy the customer.

The third reason is that it´s much easier for the marketers, if they know about the buying behaviours, to predict the reaction of consumers on marketing strategies.

On the following pages I want to give a short overview about "Consumer Buying Behaviour" and "Organisational Markets and Buying Behaviour".

1.2 Types of Consumer Buying Behaviour

Consumers always want to create an assortment of products which satisfies their needs and wants in the present and also in the future. To realise this aim, the consumer has to make a lot of decisions. These purchasing decisions can be classified into three main categories of decisions:

Routine Response Behaviour

This behaviour happens when the consumer regularly buys cheap products that need very little search and also very little decision effort. In this case the consumer prefers a special brand but he also knows other brands of the same product class to have an alternative to buy if there is something wrong with his favourite brand.

Limited Decision Making

This is the case if the consumer buys a product occasionally or if there is a new brand, he doesn´t know about, in a familiar product category.

For this type of decision-making, the consumer needs a moderate amount of time for gathering information and deliberation.

Extensive Decision-Making

This is the most complex decision-making behaviour. It happens when a purchase includes unfamiliar, expensive or infrequently bought products; for example cars, houses etc.

The buyer uses a lot of time for evaluating alternative brands or choices and also for seeking information.

A big contrast to the extensive decision-making processes that were mentioned earlier is the behaviour of the impulse buyers. These people do not plan conscious to buy, they have a persistant urge to buy something immediately if they like it. But often these people get in emotional conflicts, they often feel guilty because of their limited finances or something else.

1.3 The Consumer Buying Decision Process

As I mentioned earlier, the decision process is a major part of buying behaviour. This decision process can be divided into five stages:

Problem Recognition

This occurs when the buyer notices that there is a difference between the desired state and the actual conditions. The consumer gets aware that he has to change something to get satisfied.

For example, if somebody needs a car to get to work and one day the car stops working. In this situation the person recognises that there is a difference between the desired state (a working car) and the actual condition (a broken car).

Information Search

After recognising the problem, the buyer searches for information about a new product which can solve his problem and also is able to satisfy his need (this is only the case if the decision process continues). For example, the above-mentioned car owner, after recognising the need for a new car, he may search for information about different brands and types of cars.

Here we distinguish two aspects to an information search:

In the internal search, buyers check first if they have any information about the

needed product in their memory.

If they cannot get enough information from their memory for a decision, they are looking for more information in an external search. In the external search the buyer may focus on communication with friends or relatives, to hear about their experiences with special brands. He also can obtain information from public sources like manufacturers, salespersons or product-test organisations.

Evaluation of Alternatives

To evaluate the products of which the buyer got information he is looking for criteria to compare the products. These criteria are for example characteristics or features that the buyer wants (or does not want). In the example of our car buyer these features could be if the car has an airbag, electrical window control or air-conditioning system.

The buyer also thinks about how important each criterion is; because some features may carry more weight than others.

This evaluation of the consumer can be influenced by the marketer by framing the alternatives - that means the manner how the marketer describes the product and its features.

Purchase

In this stage the consumer chooses the product or brand which he wants to buy. This selection is based on the result of the previous evaluation stage. There is also a set of criterions which must be taken into account:

One of the most important criterions is the product availability which may influence which brand is purchased. If the favourite brand is not available at the moment the consumer may choose the brand that is ranked second.

Other criterions that also could be important for the consumer are for example the price, delivery, guarantees, maintenance agreements, installation and credit arrangements.

Post purchase evaluation

After the purchase the buyer begins to check the product if the actual performance meets the expected level. In this stage many of the criteria used in the evaluating alternatives stage are used again. The result is either satisfaction or dissatisfaction.

1.4 Personal factors influencing the buying decision process

The purchasing decision can be influenced by a lot of personal factors, which means factors that are unique to only one person. There are three categories of personal factors:

Demographic factors

Situational factors

Level of involvement

Demographic factors

These factors are individual characteristics such as age, sex, race, ethnic origin, income, family life-cycle, and occupation.

Demographic factors influence in which extent a person buys or uses products in a specific product category. For example consumers between 15 and 24 years often prefer to buy household basics because they have to establish their own household. Whereas people aged between 45 and 54 years often spend more money on luxury and leisure products; the reason for this is that these people have more money, because their children have left home.

Situational factors

Situational factors are the external conditions that exist when a consumer is making a purchase decision. Sometimes a consumer decides to buy something as a result of an unexpected situation. For example, a person may buy hurriedly buy a plane ticket to spend the last days with a dangerously ill relative. But it is also possible that a person terminates the buying decision process because of situational factors. For example, when the consumer decided to buy something and because of external circumstances he does not need it anymore.

Level of involvement

The level of involvement means the importance and intensity of interest in a product in a particular situation. The buyer´s level of involvement determines if he or she is interested in seeking information about certain products or brands. Consumers seem to be more involved in the purchase of high-priced goods and of products that are visible to others, such as clothing, furniture, or cars. So the consumers are more interested to gain more information in this product categories.

1.5 Psychological factors influencing the buying decision process

In addition to the personal factors there are also psychological factors that can influence the buying decisions. The five psychological influences on consumer behaviour are:

Perception

Perception is the process of selecting, organising and interpreting information inputs to produce meaning. These information inputs are received through sight, taste, hearing, smell and touch; that means with all of our five senses.

Motives

A motive is an internal feeling that forces a person to satisfy a need or to achieve a goal.

If a person buys something this activity is affected by a set of motives; at this moment some of the motives in the set have priority, but the priority of the motives also can vary from one time to another.

It is very important for the marketers to know about the motives of their customers; there is only the problem that most people do not know why they buy a particular product.

The solution for this are special kinds of interviews in which the interviewer wants to gain, in an informal atmosphere, information about the consumer´s motives. But this topic is very complicated, so I would not like to go into this more nearly

Ability and knowledge

Every person has got different abilities; one ability that is very important for marketers is the individual´s capacity to learn. Because learning may change a person´s buying behaviour by gaining new information and experience. For example; when a consumer buys a particular product and he likes it, he is more likely to buy the same product the next time. But if the consumer is not satisfied by the product he will switch to a different brand.

Another aspect of an individual´s ability is knowledge. Knowledge can be divided into two components: familiarity with the product and expertise; together this means the individual´s ability to use the product. For example; if a consumer does not know about a special kind of product he will not buy it and if he knows about the product but does not know how to use it he also will not buy it.

Attitude

Attitude refers to knowledge and positive or negative feelings about an object or activity. These objects or acts may be touchable or untouchable, living or non-living. For example people have attitudes towards sex, religion, politics, and music (all untouchable); but also towards cars, football, or pizza. People learn these attitudes through experience and also through relations to other people. Likewise people have attitudes towards companies and their products, so the aim for the companies marketing-strategy should be to give the customer a good feeling about the company an her products. In other words, the company should try to influence the customer´s attitude.

Personality

Every person is unique, because of internal traits and behaviours. Marketing managers suspect that there are communities between people´s traits, and so they are searching for them to find relationships among these similar characteristics and the buying behaviour. The aim is to find out which kind of consumer prefers which types of brands and products. With this knowledge marketers can try to aim advertising campaigns at general types of personalities.

1.6 Social factors influencing the buying decision process

The last kind of factors that can influence the buying decision process are the social factors.

The consumer can be influenced by a various number of social factors.

The family plays a big role for buying decisions, because there are a lot of different interests.

The male head of the household is likely involved in the purchase of products such as alcohol or tobacco. Although female roles have changed, also a lot of women are involved in taking buying decisions related to many household items.

Another group that can influence the consumer are reference groups. A group becomes a reference group when a person identifies with it so much that he or she puts very great value on the opinions, habits, and behaviours of the group members. But this could be a very negative reference for an individual, because the values of the group do not have absolutely to be right.

Another important factor is the social class in which the individual lives. In every society there are people who belong to higher or lower positions of respect. The different social classes are described as open, because it is possible for everyone can move into and out of them very easily. For grouping people into classes many factors need to be taken into account, such as occupation, education, income, wealth, race, ethnic group, and possessions. Though the number of factors chosen for the ranking can be very various; it depends on the person who is doing the ranking.

Social class also determines to some extent the type, quality and quantity of products that a person buys or uses. For example people living in the upper-class prefer luxury automobiles such as BMW or Audi while people ranked in a lower class cannot afford such cars.

The last one of the social factors that I want to mention is culture. Culture means everything in our surroundings that is made by human beings. It consists of tangible items, such as food, furniture, buildings, clothing etc, and intangible concepts, such as education, welfare, and laws. But culture also includes the values and different kinds of behaviours of a specific society. Culture influences buying behaviour because everything in our daily life is permeated by it. Culture determines our lifestyle, how we dress, what we eat, or where we travel.

So it is another important factor for marketers to know.

1.7 Understanding consumer behaviour

It is very important for marketers to understand consumer buying behaviour because that is the only possibility to offer greater satisfaction for the consumer. Although there remains a certain amount of consumer dissatisfaction. The reason for this is that some marketers still are not consumer oriented and do not regard customer satisfaction as a primary objective.

Another problem is that the tools for analysing consumer behaviour are not very precise, so it is impossible for marketers to determine what is highly satisfying to buyers.

Understanding consumer behaviour is a very important task for marketers. Even though the marketers were not able to gain al the knowledge they need, progress has been made during the last twenty years and is likely to continue in the next twenty. There will not only be refinements in research methods to gain more information, there will also be more pressure for the companies because of an increasingly competitive business environment, and this will make such information essential for companies.

2 ORGANISATIONAL MARKETS AND BUYING BEHAVIOUR

2.1 Introduction

In this chapter I would like to give a short overview about organisational markets and organisational buying decision processes. I want to explain the various kinds of organisational markets, the types of buyers that make up these markets, and much more.

Look forward to a new, interesting topic.

2.2 Types of organisational markets

The following section describes the four kinds of organisational markets, and the characteristics of the customers that make up these markets.

Producer markets

Persons and business organisations that buy products with the aim of making profit by using them to produce other products or by using them in their factories are classified as producer markets. These markets include buyers of raw-materials, as well as purchasers of semi-finished and finished items. Though the prerequisite for this is that the consumer uses these materials or items to create new products.

A good example for this is a car manufacturer which buys steel and component parts to use directly in the production of cars.

Reseller markets

Reseller markets consist of intermediaries which means people that buy finished products to resell them with the aim of making profit; examples for this are wholesalers and retailers. One thing that is important to know is that resellers do not change anything at the physical characteristics of the products they sell. There is only one exception, producers that sell their products directly to the consumer. This is the case when the company produces, for example, high-tech products, which need a lot of explanation and service for the customer. But in all other cases all the products sold to a consumer market are first sold to a reseller. In the normal case it is like this; the wholesaler who carries an immense number of products buys the products from the producer and sells them to the retailer. The retailer carries less products in stock than the wholesaler and sells these products to the final consumer. And the best thing is that every party makes profit (mostly).

Government markets

Government markets consist of national and local governments. Every year they spend a lot of money for many various products and services to support their internal operations and to provide the public with everything it needs, things like education, water, energy, infrastructure, national defence, etc. It is a little bit difficult for governments to spend the money in the right way because they are accountable for the public money they spend.

This is also a problem for the companies which want to sell their products to the state because there is a relatively complex set of buying procedures which are linked with the accountability for the public money and it is understandable that most companies do not want to deal with so much red tape. However there are also marketers that have learned to deal with the complex buying procedures and do not find them to be a stumbling block. And they have good reasons for this because deals with governments can be very lucrative.

Institutional markets

Institutional markets do not seek to achieve business goals they try to achieve charitable, educational, community or other non-business goals. Members of institutional markets can be organisations, such as churches, some hospitals, libraries, museums, universities, and charitable organisations. These institutions spend millions of dollars every year to provide goods, services, and ideas to their members. It is very difficult for marketers to sell their goods to the various kinds of institutions because of their different aims; so some marketers use special marketing activities to serve these markets.

2.3 Dimensions of organisational buying

After we have looked at the different types of organisational markets I think we should also take a look on the dimensions of organisational buying.

Characteristics of organisational transactions

In comparison to consumer sales organisational transactions are different in several ways:

Organisational buyers order much bigger quantities than individual consumers. That is one consequence linked to the behaviour of suppliers which prefer to sell their products in large quantities. This is the only way for them to make any profit.

Another point is that organisational purchases are not negotiated as frequently as consumer sales. Some products that are purchased by organisations might be very expensive, such as machines, or office equipment, and they are used for a number of years.

There are also products that are purchased frequently, such as raw materials, or component items, which are used continuously in production. But how I mentioned before the purchased quantities for these goods are much bigger.

Also the purchase decisions are not as quick as they are for normal consumers. Because of the expensive products the purchasing decisions are often made by a committee which takes more time than only one individual needs to take a decision.

One thing that is unique to organisational sales is reciprocity. That is an arrangement between to organisations in which they agree to buy from each other. That seems to be very good for those both companies, but most reciprocal agreements threaten competition and that is why most of them are illegal. But nevertheless there are still some cases where such agreements take place.

Attributes of organisational buyers

If we think about organisational buyers we guess that their purchasing behaviour is different to the behaviour from consumer buyers because they are better informed about the products they want to purchase. However that is not quite right. Organisational buyers also have personal that can be influenced by some of the factors I mentioned earlier, such as psychological, or social factors. Employees are also only people.

Primary concerns of organisational buyers

Organisational customers are always concerned about buying the right stuff. So they take various factors into account before they make a purchasing decision:

Most organisational customers want to offer to their target markets products of good quality. To achieve this aim companies often create a set of expressed characteristics, commonly called specifications. So the organisational buyer can determine if the quality of the different products corresponds to the necessary specifications.

Another thing that is very important to organisational customers is service. The services that are provided by suppliers influence directly and indirectly the costs, sales, and profits of the organisational customer. If a marketer wants to have an advantage against his competitors which sell products that are similar to his products, he has to think about the perfect mix of services that he can provide. I would just like to mention some services that may influence buying decisions: market information, inventory maintenance, on-time delivery, repair services, and credit.

The most essential thing for the organisational customer is still the price. If the price is too high the operating costs will also be too high and at long last the product will be too expensive for the final consumer. But when purchasing for example a machine the buyer does not only look at the price, he compares the price with the profit he can gain with this machine, and also compares factors like product quality, and supplier services.

Methods of organisational buying

No organisational buyer will do his job in the same way like another but most of them use one or more of the following purchase methods:

Description: Products are commonly standardised according to certain characteristics, such as shape, weight, size, and colour. With this standards an organisational buyer is able to purchase a product simply by describing quantity, shape etc. This purchase method is common for agricultural products.

Inspection: This purchase method is common especially for large industrial equipment, used vehicles, and buildings. These goods have unique characteristics but may vary in their conditions. So the organisational buyer has to base his purchase decision on inspection.

Sampling: In this case the buyer takes a sample of the desired product and starts out from the assumption that the sample is presentable for the parent population. Then he checks if the quality of the sample is acceptable. This method only makes sense if the tested product is homogeneous.

Negotiation: The buyer describes exactly what kind of product he needs and asks sellers to submit their offer. The buyer may take the most attractive offers and negotiate with those suppliers to see from who he can get the best conditions. These contracts only make sense for one-time projects.

Types of organisational purchases

The first type of organisational purchases is the new-task purchase, that means that an organisation makes a purchase of a product that is needed in a new job or to solve a new problem. So it is a product that never have been purchased before. A new-task purchase may require the creation of product specifications, vendor specifications etc.

If a new-task purchase is changed the second or third time it is ordered, it turns into a modified re-buy purchase. That means the specifications of the new-task purchase have been changed, or have been modified.

If a buyer purchases the same product regularly under approximately the same terms of sale we are talking about a straight re-buy purchase. Mostly this type is used with routine purchase decisions.

Demand for industrial products

The products sold to organisational customers are also called industrial products, and the demand for those products is called industrial demand. There are four different characteristics for industrial demand:

Derived demand: Because organisational customers often buy products that are used directly or indirectly in production of goods that are sold to consumers to satisfy their needs, we can derive the demand for industrial products from the demand for consumer products. That is why it is called derived demand. For example the demand for computer CPUs derives from the consumer´s demand for personal computers.

Inelastic demand: In industry there are a lot of products for which the demand is inelastic. That means that a price increase or decrease will not alter the demand for this product. The reason for this is that a lot of products produced in industry contain a large number of components and so a price increase or decrease of one of these products will not cause a serious higher or lower per-unit production cost. So the company is not forced to find an alternative product. But if there is a price increase for a component that represents a big part of the product´s costs the demand may become more elastic because the price increase for the component will also cause an increasing price for the final consumer.

Joint demand: Joint demand means when two ore more items are used in combination to produce a product. For example, a company that produces axes needs the same number of axe handles as it does axe blades; these two products are demanded jointly.

Demand fluctuations: The demand for industrial products may fluctuate because it derives from consumer demand. A high consumer demand for a particular product may cause that producers buy large quantities of raw materials and components to ensure that they can produce the product for a longer time without any problems. They also may expand their production capacity which requires new machines, more workers, and also more raw materials and component parts.

The opposite of this case is a decline in the demand for special consumer goods which causes a demand reduction for industrial products used to produce those goods. The consequence is that industrial customers buy less raw materials and components and stop buying new equipment and machines. There can be even a temporary standstill in the production for these goods.

2.4 Organisational buying decision

The buying centre

In industry few organisational purchasing decisions are made only by one person; in most cases they are made trough a buying centre. The buying centre consists of people within an organisation who are involved in making organisational purchasing decisions. The members of the buying centre are responsible for evaluating the product´s performance, selecting suppliers, negotiating the terms of purchase, and also for developing specifications.

Stages of the organisational buying decision process

Like consumers, organisations follow a buying decision process which you can see at the figure below. This process is almost similar to the decision process that was explained in sector 1.3 (The consumer buying decision process).

Influences on organisational buying

There are also some factors that may influence the decision process, they can be divided into four major categories:

Environmental: These are factors like laws, regulations, economic conditions, competitive forces technological changes.

Organisational: Objectives, purchasing policies, resources, buying centre structure

Interpersonal: Cooperation, conflict, power relationships

Individual: Age, education level, job status, personality, income

2.5 Concluding remark

I hope you enjoyed my short overview about the topics "Consumer buying behaviour" and "Organisational markets and buying behaviour"; and I also hope that my explanations were understandable.