Table of Contents
- What is Consumer Behavior
- The nature of consumer behavior
- The theory of consumer behavior (consumer theory)
- Types of consumer behavior
- The concept of utility
- Factors that influence consumer behavior (decisions)
- Economic Factors (situational factors)
- Personal factors
- Psychological factors
- Cultural factors
- Social factors
- The importance of consumer behavior
- Consumer psychology
What is Consumer Behavior
Consumer behavior (also known as buying behavior or consumer decision) in marketing is the study of how customers choose, buy and use goods and services. The aim is to satisfy their needs and wants. These customers can be individuals, groups, or organizations. It is the actions of consumers in the marketplace and their fundamental motives for those actions.
Marketers expect that by understanding the reasons why consumers buy certain goods and services, they will be able to know the needed products in the marketplace. They determine absolute products and how best to present them to the consumers.
The study of consumer behavior assumes that consumers are the major participants in the marketplace. The view of the role theory assumes that the marketplace beginning from the information provider, from the user to the player, and the disposer. Consumers play these roles in the processes of decision-making. The role also differs in different consumption situations. For example, a mother plays a role of influence in a child’s purchase process. She also plays the role of a disposer of the products that the family will consume.
The nature of consumer behavior
Consumer behavior is an orderly process that relates to the buying decisions of a consumer. It is a step-by-step process that involves identifying the need to buy the product. After identifying the needs, the consumer searches for information that relates to the product. The next thing the consumer does is to look out for alternative brands. The consumer then evaluates the alternative and makes purchase decisions. Finally, the marketer makes a post-purchase evaluation.
Different factors influence it
Different factors influence consumer behavior, they are as follows;
- Marketing factors such as price, product design, sales promotion, packaging, positioning, and distribution.
- Personal factors like age, gender, education, and level of income.
- Psychological factors such as motives for buying, perception about the product, and attitudes towards situational factors. These situational factors include physical surroundings and time factors.
- Cultural factors such as religion and social class.
Consumer behavior is not stable, it undergoes constant change over a period of time. This change depends on the nature of the products. For example, kids prefer colorful and fancy wears.
Consumer behavior varies from customer to customer. That is customers do not behave the same way. Differences in consumer behavior are a result of individual factors such as the nature of consumers, lifestyle, and culture. For example, Some consumers love luxury so extremely that they go on shopping and spend beyond their means.
Religious and national differences
Consumer behavior varies from religion to religion and country to country. In other words, it varies across states, religions, and countries. For example, the behaviors of rural consumers are different from that of urban consumers. Rural consumers are usually traditional in their buying behaviors.
Information on behavior to the marketers
Information on behavior is very important to marketers. Marketers need to have adequate knowledge as to touching the behaviors of consumers. They need to study the different factors that influence the consumer behavior of their target customers.
Knowing the behavior of their target customers gives them the ability to take suitable decisions concerning the following factors;
- Product design/model
- Pricing of the product
- Promotion of the product
- Place of distribution
Leads to purchase decision
A positive consumer behavior leads to a purchase decision. Consumers may take decisions for buying products based on different buying motives. This purchase decision can lead to higher demand and an increase in sales of marketers. Therefore, marketers need to influence consumer behaviors to increase their purchases.
The theory of consumer behavior (consumer theory)
The theory of consumer behavior assumes that a consumer is rational. Given a consumer’s income and the price of the various commodities, he plans to spend his income to attain the highest possible satisfaction (utility) (utility maximization).
Consumer behavior has to do with demands for goods and services for final consumption. It describes how a consumer allocates his income among different goods and services to maximize utility or satisfaction. The theory also assumes that the consumer has complete knowledge of all the information which are relevant to his decisions. That is he knows all the available commodities, their prices, and his income.
To accomplish this goal, the consumer should be able to compare the utility of various “baskets of goods” that he can buy with his income. It has to do with a consumer’s behavior when deciding the number of goods to buy and the amount he has prepared to pay for them. A consumer only buys goods he knows will satisfy him when he consumes them.
Points to note under the theory of consumer behavior
- The demand for goods and services is for final consumption and not for further production.
- Consumer behavior is useful for the demand side of the market.
- The concept of consumer decision-making is the process by which consumers identify their needs, get information, evaluate alternatives and make a purchase decision. These processes comprise action.
- Two factors do not take place in isolation, it involves psychological and economic factors. Culture, environmental factors (such as culture group), and social value.
- Key steps involved in understanding the theory are;
- Consumer preferences
- Budget constraints
- Consumer choice
Types of consumer behavior
There are different types of consumer behaviors which are as follows;
- Extended decision-making
- Limited decision-making
- Habitual buying (consumer) behavior
- Variety-seeking consumer behavior
Extended decision-making or consumer behavior
This occurs when consumers prefer to buy expensive products rather than cheaper ones. For example, what an individual thinks about purchasing a designer handbag. The individual will take time in carrying out research about the handbag before arriving at a final purchase decision. Because it is an expensive handbag, the economic risk will be higher than buying an average bag.
To simply put it, the individual will not necessarily purchase a designer handbag on a daily basis. Because of that, he/she takes time to evaluate its looks and its uses, and also evaluate how he/she will feel after purchasing it. This consumer may go to the length of asking family and friends for advice, or read about the product online before purchasing it.
This implies that there is a limited variety or availability of this product in the market. When there are limited options and the consumer is desperate to own that commodity, he goes for the one available.
Habitual buying behavior
This type of consumer behavior plays a significant role in our daily lives. We put less thought and research into buying products that are very cheap and available in a large proportion.
Habitual Buying Behavior plays a big role in our daily routine. We do not put a lot of thought or research into buying a product that is incredibly cheap and available in masses, at the same time.
For example, you buy new earrings frequently because you always misplace them. In this case, you always buy a pair of earrings that cost the least amount of money since you always misplace them. This has literally become your habit.
Variety-seeking consumer behavior
This type of consumer behavior comes about when there are product differences. These product differences exist within existing brands. As a consumer, you may want to try out similar products of different brands out of curiosity.
For example, you may feel like buying blue jeans trousers with slightly different patterns. This is because you may not like to wear the same type of jeans every day. You will want to switch them up at different times.
The concept of utility
Utility in Economics is the pleasure/satisfaction a consumer derives from consuming a commodity or service. It is a vital concept of consumer behavior, so we cannot separate the concept of utility from the theory of consumer behavior. It is a very important concept in studying consumer behavior.
Utility refers to the amount of satisfaction a consumer derives from consuming a commodity at a particular time. For instance, the utility of a tin of milk is the amount of satisfaction derived from consuming it. Any commodity that has the ability to satisfy human wants possesses utility. Every consumer wants to use his limited income to purchase commodities that will give him maximum satisfaction (utility maximization). In this case, the consumer makes a careful selection of goods and purchase them in the right quantities in order to derive maximum satisfaction from using them.
The utility is not the same as usefulness in the sense that may be useful but may not possess utility at a particular time for a consumer. With this understanding, it has a close relationship with time. That is, the amount of utility you derive from a product at a particular time will not be the same at different times.
Factors that influence consumer behavior (decisions)
Different factors influence consumer behavior, and it is important for marketers to understand these factors. The process of consumer decision helps to understand the steps people go through when deciding what to buy, whether to buy it or not. Some of these factors are peculiar to the buying situation. That is what exactly the consumer is buying and for what occasion. There are other factors that are specific to the person. These factors include the person’s background, preferences, personality, motivations, and financial status. Because no two individuals are alike, it is difficult to predict how these factors shape the final purchase decision.
To marketers, understanding these factors give a clearer picture of the mind of the consumer. Understanding these factors is usually to the advantage of marketers. This is because marketers are in a competitive environment. Marketers should study these factors to improve their product quality, brand, packaging, and price. The marketer’s manner of approach to customers matters a lot. How you treat your customers affects the perceptions they have about you. When a marketer understands these factors, he will be able to adopt strategies to effectively win the minds of his target customers.
We shall look at these factors which are as follows;
- Economic factors
- Personal Factors
- Psychological factors
- Cultural Factors
- Social factors
Economic Factors (situational factors)
The decisions and the buying habits of the consumer basically depend on the situation of an economy. When a nation’s economy is flourishing with progressive growth, the money supply increases in the market. An increase in money supply definitely leads to a higher purchasing power for consumers. In a positive economic environment, consumers are more confident to spend on buying more products. A weak and struggling economy amounts to a declined purchasing power and unemployment. Economic factors have to do with a consumer’s in the market such as buying tasks and available market offerings.
Economic factors, therefore, have a significant influence on consumer behavior (or decisions). Some relevant economic factors include;
A consumer’s disposable income increases simultaneously with his purchasing power. Disposable income is the money left after spending on basic needs and removing tax charges. An increase in disposable income leads to higher purchasing power and expenditure on different commodities. Spending on multiple items reduces when disposable income reduces.
This has to do with the total income from all family members. When more family members generate more income, there is equally more purchasing power for basic needs and luxuries. In other words, higher family income causes members of the family to spend on buying more commodities. When surplus income is available, the family tends to buy more luxurious items that they would not have been able to buy.
The amount of a consumer’s savings highly influences his purchase decisions. If a consumer decides to save more, then his spending on commodities reduces. When a consumer’s interest is in saving more, then most of his income will go towards buying products.
When a higher credit is available for consumers, purchases on luxury items increase. That is, offering credit to consumers promotes higher spending. Sellers make it easy for consumers to access credit through installments, bank loans, hire purchases, etc. This is a certain mechanism to increase expenditure on buying products. Bank loans increase spending mostly in form of interest rate charges. The same applies to other credit facilities especially in the cases of installments.
Liquid assets are those assets that are easily convertible to cash. These include cash in hand, cash at the bank, and securities. A consumer with higher liquid assets has more confidence to spend on more luxurious goods.
Human psychology is a major determinant of consumer behavior. These factors are difficult to measure but are powerful enough to influence a buying decision.
Personal factors vary from person to person, which gives different perceptions of different commodities and consumer behavior. They are individual characteristics that shape purchasing decisions and behaviors.
Some personal factors include;
Elderly people have different buying behaviors from that of the younger ones. For example, children are more interested in buying toys while the older ones focus on meeting the needs of the family.
This has to do with the way an individual lives in a society. This greatly influences a consumer’s buying behavior. For example, when a consumer is living a healthy lifestyle, he will buy goods that relate to healthy alternatives.
Income has a strong influence on a consumer’s behavior. A consumer with a higher disposable income has more opportunities to spend on luxurious products. Low-income earners and middle-class consumers focus on spending on basic needs.
A consumer’s occupation influences his buying behavior. A person tends to buy things that are related to his occupation. For example, the clothes a doctor would buy for his occupation are different from the clothes a mechanical engineer would buy. Occupations influence buying patterns.
The circumstances a consumer is facing at a given moment influence his behavior. These circumstances include marriage, going to school, building, sickness, etc. A sick person will focus on medical bills. All these influence consumer decisions.
Psychological factors refer to the workings of the mind. It includes motivation, socialization, learning, attitudes, and beliefs.
Motivation is a key psychological factor that influences consumer behavior. Basic needs have the power to motivate a consumer to buy commodities and services. Packaging and pricing are key motivators.
This has to do with the information a consumer collects about a commodity. He interprets the information to get a meaningful picture of that product. Advertisements, promotions, feedback, etc., relating to a product give an impression about a product. Consumer perception of a particular product can be either positive or negative. It influences consumer behavior in either way.
Attitudes and beliefs
Consumers have different attitudes and beliefs that affect buying decisions. Looking at this, a consumer has a particular attitude towards a product. These attitudes play a vital role in determining the brand and image of a product. Because of this, marketers try to study these attitudes to design their products and marketing campaigns.
A consumer gets to learn something more about a product after purchasing it. The learning depends on skills and knowledge. Consumers gain skills through practice and acquire knowledge through experience. Sometimes they use these skills and knowledge to find satisfaction from the product they buy.
A group of people has certain values and ideologies in common with them. That is, certain norms belong to a particular community. When an individual comes from a particular community, it highly influences his behavior. Cultural factors include;
Customers learn cultural values, perceptions, preferences, needs, wants, and behaviors from family members and other significant people around them.
There are many subcultures that exist within a cultural group. Subcultures consist of different religions, social classes, and nationalities. They share the same beliefs and values. A subcultural group itself is a customer segment.
Every society in the world has a form of social class. Not just income determines social class but also factors like occupation, residence, family background, and education. Social class is useful in predicting consumer behavior.
Humans are social beings who live around people who tend to influence their consumer behavior. Mostly, humans try to emulate others and wish to be socially acceptable in society. Therefore, other people around them influence their consumer decisions. We consider these as social factors and they include;
Family background plays a sensitive role in influencing a person’s consumer behavior. A person usually develops preferences from childhood by watching family buying products continually. When a person sees this till he grows up, it will influence his own decisions and preferences.
This has to do with a group with which a person associates himself. Virtually everyone belongs to different types of groups, therefore, groups influence consumer behavior. The influence of reference groups on consumer behavior is highly persuasive. Researchers have tried to evaluate when and how these influences work. Mostly, consumer behaviors take place in a group setting. A group factor is an agent of consumer socialization. In essence, reference groups have huge effects on consumers’ lives and choices. From childhood down to death, we can identify most of our behaviors with various groups. For example, one may choose a certain dress style because he wants to be among a certain professional group. Through the development and enforcement of norms, groups basically affect consumer behavior.
Marketers place their interests in groups because they help to understand how consumer behavior develops. Managers will be able to take appropriate marketing actions.
Roles and status
The role a person holds in society has a great influence on him. For example, a person holding a high position, his status will influence his buying behavior. Different individuals with different roles and statuses will definitely have different buying patterns. These influential roles and statuses can be either in the same firm or different firms and also in the hierarchy of an organization.
The importance of consumer behavior
The role of consumer behavior in marketing is vital for the improvement of their products and services. Studying and understanding consumer behavior is for firms because it opens them up to ways to prevent failure. It helps companies to find success for their products and also launch new products. If companies fail to understand a consumer’s reactions towards a product, then there will be a high tendency of product failure. This is because different consumers have different perceptions and attitudes towards buying a particular commodity.
Consumer behavior changes over time alongside changes in fashion, trends, technology, lifestyle, disposable income, and other factors as explained above. A marketer should be able to understand the factors that are changing in order to put their marketing efforts in alignment. That is, marketers should respond accordingly to the changes in these factors that influence consumer behavior.
The following are the importance of consumer behavior;
- Innovation of new products
- Consumer differentiation
- Designing of relevant marketing programs
- Retention of customers
- Predicting market trends
- Improve customer service
- Staying relevant in the market
Innovation of new products
Understanding consumer behavior helps companies to consistently work hard towards improving their products. Companies are able to improve the success rate of their products and bring in new ideas.
It is possible for a firm to improve on its existing products and develop new ideas but still fail in the market. This is because the innovations were not in alignment with the changes in consumer behavior. Studying consumer behavior is important because it gives marketers and firms insight into their product development to fit into the demands of their target customers. It helps businesses and firms to understand the negative reactions of consumers towards a particular production. Understanding these reactions helps them to see where it is necessary to address those issues and meet the needs in those areas.
Consumer differentiation in marketing is a way of distinguishing a consumer from other consumers. In this case, marketers study the way different consumers behave towards a particular product or set of products. It helps to make a target group of customers with similar behaviors.
Though marketers have target customers in their business, they can still sort out differences between individual customers. There are different groups of consumers with different needs and wants. A marketer can design separate marketing programs when he has knowledge about the differentiation of each group of consumers.
Consumer differentiation helps companies adapt their strategies to the needs of different groups of customers. With the help of consumer differentiation, you can expand the size and length of your services. It becomes more possible to serve a wider group of people.
Designing of relevant marketing programs
Studying and understanding consumer behavior helps to create effective marketing programs/campaigns. Each campaign speaks specifically to separate groups of consumers based on their behaviors.
For example, when you are targeting the kids market, you will need to look out for schools and televisions. While targeting youths, you will use blogs or social media. One needs to understand that there are different messaging approaches for different groups of consumers.
Through the study of consumer behavior, marketers will be able to understand the motives behind which consumers make purchases. They can utilize these motives in advertising to stir up the desire to make purchases. In this case, it is important for marketers to take decisions in relation to packaging, brand logo, coupons, and gifts based on consumer behavior. That is to study consumer behavior to adopt different sales promotion mechanisms accordingly.
Retention of customers
According to Prof. Theodore Levitt (2004), “consumer behavior is of most importance to marketers in Business Studies as the main aim to create and retain customers”.
Understanding consumer behavior is not only important in terms of attracting new customers. It is very important in terms of retaining existing customers also. When a customer is impressed with a particular product, he will want to go back to buy that product repeatedly. In essence, companies should be able to market their products in such a way that customers will see reasons to buy the products continuously.
It is, therefore, Important to create customers as well as retaining them. Doing this is possible through understanding and paying close attention to consumer behavior.
Predicting market trend
Consumer behavior helps to indicate a shift in market trends. An example is, the most recent trend of consumers goes towards a friendly environment and healthy food. A consumer behavior study helps a company to save a lot of resources. They may allocate these resources towards producing non-marketed products. For example, during winter, a firm will avoid wasting its resources on producing products that will not sell in winter. On the basis of consumer behavior, a company can decide on strategies that will save them lots of warehouse and marketing costs.
Companies study consumer behavior to find answers to certain questions. They find answers to whether the consumer is buying from their competitors and reasons for buying from their competitors. They try to answer questions that relate to the features that attract consumers to their competitors’ products. Also, companies seek to know the gaps their consumers are identifying in their products compared to their competitors.
The study of consumer behavior makes it easier for companies to understand their competitive environment and face the competition. You can improve your brand to offer a competitive advantage based on the expectations of the consumers.
Improve customer service
Consumers mostly require different levels of customer services. When a company understands the differences within the customer base, it will be able to provide the most appropriate customer service for individual needs. For example, someone who buys a new phone is more likely to understand the features he is looking for than someone who is just buying his first phone. With the first criterion, the company’s goal will be towards providing information about the latest trends in technology. The second criterion is spending more time on educating the customer and finding out his specific needs. After finding out his specific needs, the next thing is to teach him how to use the new features that exist in his new device.
In a nutshell, the significance of consumer behavior in business is vast and relevant for the growth and development of a business. It helps managers make decisions on how they should brand their products. Marketers gain more information about the things that compel buyers to make purchases aside from just generating an interest. In other words, knowing the various factors that influence consumer behavior gives business managers the insight to adopting appropriate sales techniques.
Consumerism is a theory which states that individuals who consume goods and services in large proportion will be better off. Some economists believe that higher consumer spending encourages more production and triggers economic growth.
Consumerism is the notion that an increase in the consumption of goods and services purchased is always a desirable goal. It also believes that an individual’s wellbeing and happiness depend largely on obtaining consumer goods and services, and also material possessions. In Economics, it relates to the Keynesian Idea that consumer spending is the key factor that drives economic growth, that encouraging consumer spending is a major goal.
Commonly, consumerism refers to the likelihood of people living under the capitalist economy engaging in a lifestyle of excess materialism. This materialism amounts to a waste of resources and overconsumption. Looking at this, consumerism tends to contribute to the destruction of traditional values. Consumer exploitation, environmental degradation, and negative psychological effects are as well inevitable.
Consumerism and consumer behavior
Economists assume that consumers derive utility from the commodities (consumer goods) they purchase. On the other hand, businesses benefit from an increase in sales, revenue, and profits. For example, if the sales of motor vehicles increase, the manufacturers will experience an increase in profits. Also, companies that manufacture steels, tires, etc., also experience an increase in sales. In essence, consumer spending benefits the business sector and the economy at large.
Though consumerism is important in shaping business practices, it has great disadvantages that relate to the destruction of cultural values, environmental problems (degradation), and psychological problems.
After looking at the fact that companies study consumer behavior to improve their customer services, consumerism also helps companies/organizations to improve their customer services. This is why understanding consumerism is also key alongside consumer behavior. It is an important element that shapes consumer behavior. Since it is an organized way to protect consumers from policies that violate consumer rights, it triggers a positive shift in consumer decisions/behavior towards a product and service.
We have looked at how consumer behavior influences product design, development, and addressing consumer needs. This is because marketers and economists regard consumers as the kings in the modern market. The market gives consumers the highest priority just to encourage consumer satisfaction. The consumer movement is also consumerism. This is where consumers come together to protect their interests against exploitation.
Consumer psychology (or consumer research) studies how consumers think, feel, reason, and make decisions. In other words, it is the study of consumer behavior. It is the study of human behavior with relation to their buying patterns, choices, tastes, and preferences. These behaviors relate to the products, advertising, and marketing of the products. Marketers set their goals towards convincing customers and retaining them. It is the act of studying and understanding the psychological factors that influence consumer behavior.
Irrespective of the products a firm produces or sells, there is a tendency that the marketplace is overcrowded. The aim of consumer psychology is to gain a competitive edge over competitors. It is important to remain conscious that you are dealing with people and people are emotional. It is important for firms to study how their customers (target customers) behave and build a good relationship with them. By doing this, they will be able to know areas in which they need to improve on their products and services.
Marketers can easily find marketing opportunities by studying consumer behavior and setting organizational goals. Consumer psychology tries to evaluate and understand the decision-making process of consumers. Psychological factors that influence consumer decisions as we mentioned above are relevant studies in market research.
Chyou is a published author who focuses on the field of international business. After an established career facilitating mergers and acquisitions for medium to large corporations, Chyou turned to writing to help students better understand international business concepts.