1. How would you differentiate between organizational buying and individual buying? Taking the example of purchase of a computer for your personal use and for organizational purposes, explain the differences. Answer : Definition of organizational buying: Webster and wind define organizational buying as follows: ‘Organizational buying is a complex process of decision making and communication, which takes place over time, involving several organization members and relationship with other firms and institutions. ( Ignou Text book). Organizational buying is the decision making process by which formal organizations establish the need for purchased products and services and identify, evaluate and choose among the alternative brands and suppliers’ ( Webster and Wind- Philip Kotler 12E , Page 196) Definition of individual Buying or Consumer buying: Individual buying is defined as follows “The decision process and physical activity engaged in when evaluating, acquiring, using or disposing of goods and services”( Ignou Text Book) Some features of organizational buying are as follows: 1. Multi person buying activity
In most of the situations in many organizations buying will be a multi person activity. Though every organization will have ‘material management’ and ‘procurement’ departments which will conduct ‘buying activity’ its decisions are based on feedback from concerned persons from different departments. Persons involved in such decision process may also be from different hierarchy and background such as managers, technicians, marketing personnel, finance controllers and users of the product. Moreover each persons involved in buying process may play different roles.
For example in EQUATE Petrochemical Company purchase of computers for Marketing department involve following roles: • Users- Marketing Department Staff • Influencers: Business Director, Regional Sales Manager, IT quality controllers etc. • Deciders: Committee appointed by the Marketing Department • Buyers: Persons appointed by the ‘material management department to make IT related purchases. • Coordinators: Administrative persons who are following up activities from placing the order through Internal SAP system to the delivery of goods. 2. Formal activity where organizational procedures are followed.
Buying in an organization is a formal activities in which regular set of procedures are followed. Sometimes there are contracts between organization and suppliers to comply with certain conditions during all kinds of purchasing activities. For examples while buying a computer for the organization following procedures are followed in EQUATE Petrochemical Company. • Office Administrator will raise ITSR ( IT Service Request) requesting computer for himself through the system. • Manager will give former approval the request through the system. IT manager will receive the approval through the system and request the office administrator to raise PO (Purchase Order ) through SAP system mentioning the Cost Center ( in order to charge it against the concerned department’s budget). • Office administrator will raise PO ( Purchase Order) through SAP system mentioning specifications and budget, unloading point and other particulars. • Buyer from Material Management will receive the request and will make purchase of the material with the regular vendor with whom company has contract. • Product will be delivered to the department . Longer time lag between efforts and results Due to work processes and procedures organizational buying will take long time. In EQUATE any purchase of Computers may require 15 days time from the date of ITSR ( IT Service Request) to the formal delivery of goods. Meanwhile if the organizational is of complex nature and if hierarchy to approve the procedure are many, then it will take further long time. Normally in ministries and government organizations, due to bureaucratic set up , any purchase activity will take very long time. 4. Rational cum emotional activity
Though buying is mainly a formal and procedural activity it will include some sort of emotional aspect as human beings are involved in this activity. For example in purchase of computers in EQUATE Petrochemicals following emotional activities are involved. • Employee will identify the need to change his computer. • He will informally convince the manager to approve it based on personal relationship with him. • Personal relationship and appreciation towards the employee will also play a role for the manager to approve the request and allocate budget for the activity. Selecting one vendor out of many wonders also based on customer service, personal relationship, and buyers perception about the vendor and so on. 5. Each organization will have its own organizational buying behavior. Apart from above aspects each organization will show its own buying behavior due to various factors such as style of management, efficiency of the employees, employee motivation situation, quality concern of the organization , organizational structure , bureaucratic set up of the organization and so on. For example while buying computers following procedures are adopted in EQUATE etrochemical company. • IT quality team will assess and identify the need for replacing the computers. • VP Commercial will approve the budget for replacement of computers. • Material Management will invite quotations from different vendors and sign a contract with suitable vendors. • Specifications and quality of the computers are rechecked by the IT quality team. • Computers delivered to the office. • After sales service of the computers are monitored by department office administrators and department IT help desk coordinators. Individual buying generally includes following 6 stages : Example given in each six stages are related to the purchase of personal computer) 1. Problem Recognition(awareness of need) When an individual recognizes the problem or need he intends buy a product. For example, a MBA student who is pursing online education through university of Wales must have his own personal lap top. It’s a course requirement for him to purchase a laptop. Hence as soon as he joins MBA through online education system of university of Wales, he recognizes the need/problem of purchasing a Lap Top. 2. Information search
As soon as the need for a ‘ personal laptop’ is recognized, he will go for finding out information as which laptop may be suitable . First an individual will start information search through his own knowledge. There are so many options in front of him to buy either Dell computer, Acer, HP, Sony or so on. Secondly he will also ask his colleagues, friends, relatives. He will also browse through several websites to find all related information regarding laptop. Ultimately he finds himself loaded with enough knowledge to make comparison between available alternatives. 3. Evaluation of Alternatives
After collecting enough information he find 3 brands of laptop suitable for his personal use Dell, HP and Sony. He will also conducts a study regarding after sales service of these products buy the local authorized dealers. After thorough deliberation and thinking about all aspects of a lap top he comes to conclusion that ‘HP Laptop ’ would be the best alternative for him. 4. Purchase decision Finally he make a buying decision of purchasing HP laptop of particular size from a particular shop through easy installment scheme. All previous steps in purchasing process will help him to make a final decision.
Because he is equipped with information to make intelligent decision. 5. Purchase After buying decision next action he takes is of purchasing a computer. There will very little time lapse between a ‘ purchase decision’ and ‘actual purchase’. Purchase is an action of converting the mental decision into physical action. 6. Post-Purchase Evaluation After purchase he will continue his evaluation about his purchase decision. He will compare the performance of his office laptop and personal laptop. Either he will end up in a ‘satisfaction’ or dissatisfaction.
If satisfied he will recommend the laptop brand to others whenever he gets the chance. The above stages are applicable to organizational buying as well, however there is difference in its application which can be described with the following table. Stages in buying Decision ProcessIndividual Buying (With reference to purchase of personal computer)Organizational Buying (With reference to purchase of office computer) Problem RecognitionPersons personal PC is out of the order and he intends to buy new one. Organization understands that competitors are providing new PCs to the employees with additional features.
This motivates organization to plan new PCs for its employees. Information searchPerson uses his past experience, ask friends and browse through consumer’s blogs and collect information regarding desired PCIT department enlists specification needed. Material management department collect information through the buyer for IT materials. Alternative EvaluationPersons compare computers of Acer, Toshiba, IBM, HP and Dell. IT personnel and buyer jointly visits various vendors and discuss with them various customer service issues . Identifies suitable vendors.
Purchase decisionPerson decides to buy HP computer. Pays money and carries it with himBuyer of the company signs contract with the vendor to purchase computers with price, quality, after service details Post Purchase Behavior Person reevaluates the purchase decision and finds out the HP PC is one of the best one to puchase. Evaluates the vendor of computers using vendor rating format. Based on evaluation company decides on keeping the vendor or dropping for future computer requirements of the company. Some salient differences between organizational buying and personal buying: 1.
Organizational buying are most of the time large in terms of dollar value and number of units compared to personal buying. 2. The business marketer normally deals with far fewer, much larger buyers than the consumer marketer does. ( Philip Kotler) 3. Business goods are normally purchased by trained purchasing professionals by following organizational buying procedures and policies. Hence buying process involves soliciting proforma invoices, quotations, purchase contracts etc, which is not found in personal buying. 4. Demand is inelastic in organizational for many goods where as demand is elastic in personal buying.
For example shoe manufacturer will not buy more leather if the price is less or will not purchase less if the price is more. ( Philip Kotler) 5. The demand for business goods and services tend to be more volatile than the demand for consumer goods and services. Economists call this as ‘ acceleration effect. Sometimes raise of 10 percent in consumer demand can cause as much as 200 percent raise in business demand for the products. A ten percent fall in consumer demand may cause a complete collapse in business demand. (Philip Kotler) 6. Organizational consumers purchase with the intention of : • further production, usage in operating the organization, and/or • resale to other consumers Where as individual buyers or consumers purchase for: • personal use • to satisfy family needs • to attend household needs etc. (SyKronix marketing portal) Conclusion: Understanding the differences between organizational buying and individual buying is very important to adopt suitable marketing strategy. Moreover business firms must analyze who are their target most potential customers. If most potential customer are business firms then based on organizational buying behavior one must adopt suitable marketing strategy.
If the potential customers are individual buyers then, based on individual buying behavior different marketing strategy must be adopted. 2. What do you understand by absolute threshold and differential threshold? How do marketers apply the concept of differential threshold or ‘just noticeable difference’ in their marketing strategy? Explain giving suitable examples. Definition of Absolute threshold: The lowest level at which an individual can experience a sensation is called ‘absolute threshold’. In that point an individual can differentiate between ‘something and ‘nothing’. This particular point is an ‘absolute threshold’ or that individual. ( Consumer Behavior- Schiffman and Kanuk) ‘ The absolute threshold refers to the minimum amount of stimulation that can be detected on a sensory channel. The sound emitted by a dog whistle is too high to be detected by human ears. Hence this stimulus is beyond our auditory absolute threshold’ ( Ignou Text book MS 61 Block 2) ‘A term absolute threshold often used in neuroscience and experimental research. An absolute threshold is the smallest detectable level of a stimulus. For example, in an experiment on sound detention, researchers may present a sound with varying levels of volume.
The smallest level that a participant is able to hear is the absolute threshold’ ( Kendra Van Wnager- A famous Psychologist. Psycology. about. com) Example for absolute threshold: If two persons are riding motor bikes in a highway and they pass by a sing board from long distance. If the pillion rider sees the billboard first, it is considered as his absolute threshold. Imagine a girl wearing nail polish. She can wear a dark red or dark blue nail polish which is matching to her dress of similar color. She also can wear a pale colored nail polish by which no one can make out that she is wearing a nail polish.
Its just looks like natural color of nail polish. Here’s where the term absolute threshold comes in. The pale color nail polish which one can make out is the absolute threshold. Definition of Differential Threshold The minimal difference that can be detected between two similar stimuli is called the differential threshold. , which is also known as the just noticeable difference (the j. n. d). German Scientist Ernt Weber ( Weber’s law) says that stronger the initial stimulus, the greater the individual intensity needed for second stimulus to be perceived as different. ( Consumer Behavior- Schiffman and Kanuk)
The differential threshold refer to the ability of a sensory system to detect changes or difference between two stimuli. the level at which an increase in a detected stimulus can be perceived. ( Ignou Text Book MS 61) just noticeable difference, customarily abbreviated with lowercase letters as j. n. d, is the smallest difference in a specified modality of sensory input that is detectable by a human being. It is also known as the difference limen or the differential threshold. Example for j. n. d: Suppose that you presented two spots of light each with an intensity of 100 units to an observer.
Then you asked the observer to increase the intensity of one of the spots until it was just noticeably brighter than the other. This particular point where he can differentiate between the brightness of spot light is just noticeable difference. Consideration of Sensory Thresholds Absolute Threshold and Differential Threshold ( j. n. d. ) by marketers: While marketing a product concept of j. n. d. is always taken into consideration. Some of the considerations can be listed as follows: • Considering the absolute threshold and differential threshold (j. n. ) of the drivers, billboards in highways are always big enough to catch the message at the first sight. Those who do not consider this factor will make bill boards and banners so small that , ultimately purpose of the billboards/banners will not be served. Following are some of the examples of billboards which is erected taking into consideration the concept of absolute threshold as well as differential threshold. (j. n. d) . In the billboards it is easy to read 7up, Coca Cola and IKEA from long distance at first site. • As per weber’s law of j. n. d if the price of a juice or any other similar roduct is 0. 500fils , most consumers will not notice the difference if the same juice or similar product is sold for 550fils. Simple reason is increase in the price is below j. n. d (just noticeable difference) of customer. Similarly customer will not notice if the weight of ‘shampoo’ is reduced from 750 ml from 700 ml, with new packaging while the price remains the same. • Sensation is provoked, not by some unit of sensation, but by changes in sensory input. It’s these differences in input that we perceive. Several differences in input, or sensory thresholds, are important in marketing.
Considering this factor sometimes blank advertisement only with some color and design will appear in news papers with a message watch this column tomorrow. Next day real advertisement will appear. This technique is adopted just to catch the attention of the readers with different way of advertisement. • Producers and marketers always consider j. n. d when comes to ‘product improvements’. Improvements are done in such a way that they will exceed customer differential threshold, so that customers may feel the difference. If the improvements are less then j. n. d it will end up as a futile effort, as consumers will not feel the difference.
Automobile companies when they introduce new models of cars make sure that due emphasis is given to the change and improvement in outward look. It is more apparent and lot of j. n. d factor is applicable to outward looks. Many average buyers will not care for small technological improvements adopted in a new model. Below example shows three different models of Pajero. Difference in outward look is very evident in these different Models. This strategy is adopted by almost all automobiles. Even if they have no other features to be changed, they will give more emphasis to change in outward look.
Pajero 1997 Model Pajero 2000 Model Pajero 2008 Model • While fixing a price marketers always try to fix the price below the j. n. d level of the customers. Meanwhile while making product improvements or adding specification marketers always make sure that its is above j. n. d level of the customers. Maintaining this contrast in ratio is very important in success marketing of a product. • In many products when profit margins are declining producers go for new packaging style, with decrease quantity and keep the same price as before.
Hence consumers are motivated to buy the same product due to price factors and the difference in quantity is normally not noticed as it is below j. n. d. For example: 1. Following this marketing technique Huggies reduced the diapers in a package from 240 to 228. 2. Pepsi reduced the weight of one snack food bad from 14. 5 ounces to 13. 5 ounces and maintained the similar price. 3. Kuwait flour Mills and bakeries Company is discussing reducing the size of white and brown bread ( popularly known as kubus) and white and brown toasts to manage the continuing inflation rate in Kuwait and other GCC countries due to various reasons.
Meanwhile they are planning to keep the weight change less than jnd level so that consumers will not notice it while buying. • Bata shoe company of India for its foot wears prices always ending with Rs 0. 95 such Rs. 695. 95 This is based on research that shows that customers see a big difference between two prices, even when in reality there is only a penny difference. This kind of pricing system considers j. n. d factor. Following brands of Bata Show and its prices shows how j. n. d factor is used in its pricing system. Style no. : 801-1223 KEMP Action Price:INR 1299. 00 Size:6-10 Style no. : 801-2070
KACEY Action Price:INR 1399. 00 Size:6-10 Style no. : 801-3702 HAGEN Action Price:INR 599. 00 Size:6-10 ( Source: www. bata. com) • Value reengineering methods are used in improvement of many products making the product equally efficient, however its more cost effective. Value engineering also considers j. n. d factors so that customer will not loose any attraction towards the products. • While changing the packaging design of any product marketers again consider j. n. d factors. Design are changed in such a way that customers will not loose their cumulative advertisement impact in their mind.
In such case they make number of small changes carefully crafted taking into consideration all j. n. d factors. For example National Bank of Kuwait (NBK) , while changing its logo to a new design maintained old design and added just a red line to it. Following are the two logos New Logo Old Logo • Bringing change and modification is part of marketing strategy of any product or services. However while developing a new product or revamping old one marketers take into consideration following three j. n. d factors 1.
If the targeted customers don’t notice your improvements, then your improvements aren’t big or obvious enough. This change may look big to you and your colleagues. However this may not be a distinct change for the customers. Hence studying the j. n. d. level of potential customers becomes important before adopting a change or modification. 2. Make sure that your product/service may look distinctive than your competitors. Make your marketing accentuate those better features. Like Toyota cars differentiate from its customer with the emphasis on ‘value for money for years’.
Competitors may see all other feature same in other brands like Mitsubishi and Mazda. However people go for Toyota due to its resale value and durability. 3. Also marketers must look for ways that you can save by cutting back on expenses that buyers don’t notice or care about. Like most of the Toyota spare parts and components assembled in car are made in Korea. However consumers will not have time to read the ‘made in Korea. ’ label in its spare parts and components. Because this below the jnd of consumers . They still consider that their prestigious Camry or Corolla is fully ‘Japan’ made car.
Conclusion: Consideration of sensory thresholds particularly j. n. d factors is very important in marketing. Any product design, value engineering or packaging technique may end up as a non profitable exercise and may turn detrimental if j. n. d factors of consumers are not taken into consideration. Hence we can see that customer perception survey is given due importance in marketing. Much emphasis is given to this kind of research, in order to have a successful marketing. 3. Explain the concept of learning and discuss its marketing applications. Definition of learning:
Learning refers to a relatively permanent change in behavior that is caused by experience. It is also explained as follows; “ A process in which behavioral capabilities are changed as a result of experience provided the changed cannot be accounted for by native response techniques, maturation or any temporary states of the organism due to fatigue drug or any other temporary factors. ” ( MS 61 text books) “Consumer learning is a process by which individuals acquire the purchase and consumption knowledge and experience that they apply to future related behavior. ( Schiffman and Kanuk) How people learn: Learning is a regular, wide ranging and multidimensional phenomena in our life. Learning is an acquisition of knowledge through various means such as reading of books, discussion with friends, observation of event, watching a media, past experiences and so many other kinds of motivations. Human beings are not born with the knowledge or skills that could be used as guidelines of how to behave for their daily life. Knowledge or skills are obtained from learning. Learning is an unconscious activity that occurs frequently.
Most of us learn something everyday. However there is no particular theory how people learn. Human being are subject to learn through various processes and exposure. Meanwhile there are two major schools of thought regarding learning process. One is behavior theory and another one is cognitive theory. • Cognitive theory says that learning is a mental process • Behavioral theory says that learning is due to exposure to various stimuli Based on these two theories of learning marketing people shape and design their message to bring about desired purchase behavior. ( Schiffman and Kanuk)
Example for consumer learning and its application by marketers: 1. ‘ Priya’ a well know brand for pickles, which is very popular in GCC countries as well, initially started their market presence with pickles. Today by enchasing the brand name of ‘priya’ which has become highly popular among people they have started various kinds of ‘priya masala powder, priya papads and various ready to cook mixes such as vada, kheer, gulab jamun ect . Extension of product range from pickle to masala powder using the goodwill of high successful brand name ‘priya’ follow the principle of consumer learning.
While buying every extended product rage of ‘priya’ brand people perceive the same quality and taste due their experience and learning. Based on their ‘learning’ they attribute all good qualities of ‘priya’ pickles to extended product range as well. Developing such brand loyalty is part of consumer learning. Following picture shows extended product range of priya brand;. 2. Learning through media exposure for the purpose of marketing : People not only learn from advertisements. Apart from advertisements people believe more in comments , articles and views published about a product.
Ratan TATA while launching a cheapest car also generated a lot of discussion in the media in the form of articles, opinions, reviews and so on. This kind of wide ranging publicity and extensive discussion in media is not entirely a spontaneous reaction of media for a new product like Tata’s New Car Nano. Tata’s Corporate Public Relations Department play a major role in creating this kind wide ranging discussion in the media through various approaches. Because this will generate a learning process in a society and create a demand for the product. 3. Learning through classical conditioning and Marketing application:
Classical conditioning refer to programming human behavior in such a way that he will show knee-jerk (automatic) reaction to the situation built up through continuous exposure. Ivan Povlov a Russian pathologist was first to describe conditioning. According to his theory when a stimulus is paired with another stimulus that elicits a known response serves to produce same response when used alone. He tested it with dog by giving food and ringing a bell at the same time. After conditioning its mind through continued repetition for these two stimulus, he found at that when just bell is rung , dog started salivating.
Recently, marketing has increasingly recognized the potential application of classical conditioning principles. For example Johnson & Johnson is well know particular for infant care products like baby soap, baby lotion and baby wipes etc. Based on this brand name any new baby care or any other product introduced by Johnson & Johnson will be immediately accepted the market and becomes popular. Here brand name Johnson and Johnson will act like unconditioned stimulus ( like bell of Povlov’s theory) and new product of well know brand will act like conditioned stimuls ( Like food of Povlo’s theory).
Moreover there are three concepts in classical conditioning theory which is widely utilized in understanding and molding the customer behavior in marketing. Three things are as follows: • Repetition • Stimulus generation & • Stimulus discrimination. Repetition and marketing applications: Based on the consumer response to repetition , most of the advertisements are repeated. In any society most of the advertisements are continuously repeated so as to achieve retention in consumer’s minds. Pepsi and CoCa Cola advertisements are repeated in such a way that everyone knows some or the other thing about these soft drinks.
Meanwhile every care is taken that due to ‘advertisement wear out’ effect , the influence of advertisement is not declined. Hence every time some novelty is brought to the advertisement. Following are some examples of Pepsi advertisements showing innovation and repetition in advertisements. Stimulus Generation and marketing applications: Stimulus generation is another important concept adopted by the marketers. Through false stimulus generation , Povlos was successful to make dog to salivate, while ringing the bell, as it salivates to food.
Based on this false stimulation principle we will find many duplicate products in the markets. Through packaging style, color combination, designing etc marketers will imitate the major brands , just to get their own market share through artificial and false stimulus generation. There are many duplicate products for Brook Red Label Tea in the market, which successfully snatches away percentage of market share of original product. Moreover most of the duplicate tea powder packets are either in red color to match with Brook Bond Red Label or in Yellow color to match with Lipton Yellow Label.
This happens due to kind of stimulus generation by the duplicators by imitating styles of original product. Some other forms of marketing applications of stimulus generation are as follows • Product line, form and category extension: Based on this principle marketers add related products to established brands due the already prevailing acceptance to the brand. Like Himalaya brand has extended from pharmaceutical to sanitary products and beauty products. • Family branding: Base on this principle marketers brand whole line their products under one name.
Formerly mentioned example may also be applicable to this. • Licensing: Based on this principle license is given to affix well know brand name to the product of another manufacturer. There are many successful products which has adopted this principle and well positioned it in market. To name some Nike Shoe, Calvin Klein, Christian Dior, Tommy Hilfiger, Gucci, Channel 5 perfume and so on. Stimulus Discrimination and marketing applications: Stimulus discrimination is the process of learning to respond to certain stimuli and not to respond to others.
Stimulus discrimination is opposite of stimulus generation. Due to this sort of consumer behavior he will always discriminate between a original product and duplicate product. To create a stimulus discrimination marketers need to establish a strong positioning for the product. Some time we can see advertisements by the marketers to see a particular mark to distinguish between original and the duplicate. Nokia mobile battery and other accessories has mark originality. Nokia emphasizes on looking on the mark and its features to ensure that it is original.
Features are popularized among the customer through various means of advertisement . Following picture shows originality mark of Nokia 4. Instrumental ( Operant ) Conditioning and its application by marketers: Instrumental conditioning is the learning process through experience and trial and error process. For example if a person has used ‘Toyota’ car for long time and if he finds it very satisfactory fulfilling his desires then he is conditioned to believe that ‘Toyota’ is the best car. Given an option, he will buy only ‘Toyota’ as a new car or he will recommend only ‘Toyota’ as best car to buy. For example in Kuwait people are conditioned to buy in different super markets of their own tastes. Some are regular buyers of Sultan Center, Other prefer Lu Lu Center come what may. Some other people find ‘ City Center’ as the best place to buy. Where as, for many others there is no other substitute for ‘ cooperative societies. ’ In order to create instrumental conditioning ( loyalty) among customer marketers create their own methodologies. For example Lu Lu Center in Kuwait has variety of fresh vegetables in reasonable rate. Sultan Center always cares of quality .
Al Meera Center cares more for cheaper products. Hence depending upon their personal preferences and satisfaction, people develop an instrumental conditioning and loyalty towards particular supermarkets. Conclusion: Consumer are exposed to learning intentionally and unintentionally through various means. Consumer’s learning will have major impact on their buying behavior. Hence marketers try to mold consumer learning to their benefit and to encash it by marketing their products. We can see that consumer learning theory is widely applied in marketing techniques and advertisements.
Its very important for a marketing manager to know about various aspects of consumer learning about a particular product and how to utilize for marketing strategy. 4. What do you understand by social class and social stratification? How would you as a marketer of motorcycles use your knowledge of social class influence to market your products? Definition and illustration of Social Class: Social Class is defined as the division of members of a society into a hierarchy of distinct status classes, so that members of each class have relatively the same status and members of other classes have either more or less status. Schiffman and Kanuk) Social class refers to the social position individual occupies in a society. Social class is evolved due to the characteristics such as • Education • Occupation • Ownership of property and • Source of income This leads to the division of society into hierarchy of social classes ranging from high status to low status. ( Ignou text book) Social class also refers to the hierarchical distinctions (or stratification) between individuals or groups in societies or cultures. Social Classes are found in a every society.
Social classes are also formed due to various factors in different societies such as • Racism in many country including America. • Clans and tribes in many countries including GCC Countries. • Cast System in many countries including India • Class based on Education, Employment , Income etc • Acquired social status due to acquired position, acquired education and acquired wealth etc • Inherited social status due to birth, family status , authority etc. • Powerful and powerless people in every society. • Age, gender and physical health will also form a social class. Social Stratification:
Social Stratification refer to group or strata of people. Division of human society into different strata such as upper class and lower class is known as social stratification. This kind of social stratification is found in every society. Research about social class is also known as social stratification ( Ignou Text Book) Social stratification is the hierarchical arrangement of social classes, castes and strata within a society. Though this kind of social stratification is not universal , it is very common in most of the societies. Consideration of social stratification is very important in marketing .
Social stratification is the division or stratification of social groups ranked one above the other, in terms of power, prestige, education and wealth etc. ( Various Sources) Different factors are used to measure social status . Following are three common social factors which is used as a criterion to estimate social class • Wealth ( Amount of assets owned) • Power ( The degree of personal choice and influence over others) • Prestige( The degree of recognition received from others) Social Stratification is very significant to any society and its understanding is very important for marketing personnel.
Understanding of social stratification is important for a marketing person, as values and attitudes differ from each other. These differences are reflected in their lifestyles and their purchasing patterns. This differences will help the marketer to make proper segmentation. Social Class in Developed Countries Like UK According to studies conducted in UK , differences in social class can create customer groups. In fact, the official six social classes in the UK are widely used to profile and predict different customer behavior.
In the UK’s socioeconomic classification scheme, social class is not just determined by income. It is measured as a combination of occupation, income, education, wealth and other variables. Following social classes are found in UK Society. In bracket are given approximate percentage of social class found in UK society. 1. Upper middle Higher managerial, administrative or professional ( 3 %) 2. Middle Intermediate managerial, administrative or professional ( 14 %) 3. Lower middle Superiors or clerical, junior managerial, administrative or professionals (27 %) 4. Skilled working Skilled manual workers ( 25 %) . Working Semi-skilled and un-skilled manual workers (19 %) 6. Those at lowest level of subsistence State pensioners or widows, casual or lower-grade workers ( 12%) Social Class and its importance for Marketing Strategy. Marketers believe that a consumers “perceived” social class influences their preferences for cars, clothes, home furnishings, leisure activities and other products & services Hence It is very important in marketing to understand the prevailing social class and their consumer behavior in order to market their product and to develop proper positioning for a product.
Based on their social class people purchase certain goods of their preference which is accepted in their society. For example in automobile preferences in Kuwait, most of the Kuwaiti nationals in general prefer American Cars such as Chevrolet brands , Grand Mercuris of Ford or GMC Motors etc. Youngsters with high income will prefer SUVs such a Prado or Pagero etc. Where as Indian expatriates in Kuwait normally prefer Toyota or Mitsubishi Cars . Meanwhile generally Egyptian expatriates prefer old models of Mercedes or Fiat Cars. This changes in preference is due to social class and its impact on their consumer behavior.
Customer behavior and customer tendencies based on social class , seen in this kind of buying behavior can also be extended to Motor Cycles. Social Class will have an impact of consumer behavior. Following table will give us illustration how social class will influence consumer behavior. Social Economic FactorsSocial Standing (Social Class)Behavioral Impact Occupation Education Ownership IncomeUpper Class Middle Class Working Class Lower ClassPreferences Purchases Consumption Communication How to use knowledge of social class influence as a marketer of motorcycles
The Percentage wise classification of social class, as the example of UK mentioned previously, will help the marketer to position their products. In India for example with growing population of upper middle class and high class society demand for products like ‘ Motor Cycles’ are highly increased. Till approximately 1980 in India only Yezdi and Rajdoot motor cycle were popular. With the advent of many 100+ cc motor bikes having better look, light weight and great fuel efficiency demand for motor bike increased drastically. Today Yezdi and Rajdoot bikes are disappeared from Indian market.
In its place large number of motor bikes from popular brands such are Yamaha, Hero Honda, Bajaj, Suzuki and TVS are popular all over India. The motor cycle producing companies have better understood social class segmentation in India. Accordingly its easy to find different variety of motor cycles in the market, which suits consumer behavior of each class. Following statistics 2006, of motor cycle markets tell us the story of growth of motor cycle market in India. This is useful even today to understand the motor cycle sales scenario of 2008. The overall motorcycle market in India has been growing rapidly, reaching pproximately 7,300,000 units in 2005, a 15% increase from 2004. The market is expected to grow further in 2006, ( this is a old survey, can be applied proportionately to 2008) up to approximately 8,500,000 units, a 17% increase from 2005. Total sales of Hero Honda and Honda’s sole subsidiary, Honda Motorcycle and Scooter India (Private) Ltd. established in 1999, reached approximately 3,371,000 units in 2005, an 18% increase from 2004. ( www. motosindia. com) For example following facts about Hero Honda Motor Cycles explains the growth of Motor Cycle Market in India.
Hero Honda began production of motorcycles in 1985. Its current annual production capacity is 3,450,000 units combined at its two plants in Dalhera and Gurgaon. This September, the annual production capacity at Dalhera will be expanded to 1,950,000 units from 1,500,000 units by adding a new line. Moreover, its annual capacity will increase to 4,400,000 units in 2007/2008 when a third plant with 500,000 units of annual production capacity will be constructed. ( www. motosindia . com) Following are some category of motor cycles popular among different social class.
Type of Motor Cycle Respective Class Consumer Behavior Bajaj ( Pulsar)Upper Middle ClassPrestige Symbol Bajaj DiscoverMiddle Class ( Youngsters)Prestige Symbol Hero Honda Splendor Middle ClassNecessity and Class Symbol Hero Honda CBZ extremeUpper Middle ClassPrestige Symbol Hero Honda DawnLower Middle ClassNecessity and Class symbol China is worlds biggest market for motor cycles. With the economic boom, like Indian in china as well, motor cycle market is growing with greater speed. This growth of motor cycle market represent growth in ‘social class’ that buy motor cycles.
This knowledge of social class influence is utilized by the Japanese and American motor cycle manufacturing companies to promote their goods in India and China. As a result America’s big motorcycle makers went into the Chinese market and is seeking a relationship with the PRC’s leading motorcycle maker, the Zongshen Motorcycle Group. Meanwhile most of the new 100+ cc motor cycles in India are result of utilization of Japanese technology like Bajaj of India utilizing Japanese Kawasaki technology and so forth. Young generation of upper class and upper middle class are very much fond of cozy and modern motor cycles.
Indian Cricketer ‘Mahendra Singh Dhoni is famous for his love of motor cycles. TVS Motor Company is one of the motor cycle manufacturing companies which as recorded high growth in motor cycle sales in India. While launching its new brand TVS StaR City and Victor GLX , the company launched a new advertising campaign for the StaR City brand featuring its latest brand ambassador Mahindra Singh Dhoni. Making Dhoni a brand ambassador of motor cycle is nothing but generating the demand for the product in a particular targeted social class of elite youngsters of upper class and upper middle class.
In order enhance interest of motor cycle in this class, marketers adopt many different strategies. Conducting motor cycles rallies is one such ‘motor cycle craze’ generation event among elite young generation. Conclusion: Social class is considered one of the strong basis for marketers to segment the market for their product and services. Social Class is more comprehensive and specific indicator consumer behavior than a particular feature of a consumer like income and social status etc.
Social Class also indicates consumer behavior such as which restaurants he frequents, which entertainment center he prefers, which vehicle he drives, which brands he buys etc. For marketing of product like ‘motor cycle’ which is generally product of middle class and above, proper understanding of social class in a society is very much essential. 5. You are a marketing manager of a company that has started manufacturing LCD TVs. How will you anticipate, analyze and respond to the post-purchase feelings of your customers? Definition of Post Purchase behavior:
Post purchase behavior of a customer is a self evaluation of his purchase decision after purchasing a product or service. It is common for every customer to think about his purchase decision and to evaluate if he has made right decision or anything went wrong with his decision. This post purchase concern and evaluation by a customer is due to the concept which is known as ‘ Cognitive Dissonance’. According to this concept a customer after purchasing a product may feel that an alternative product may be better than the product which he has purchased.
This feeling of a consumer may not lead him to immediate repurchase. But it may lead him to switch brand during his next purchase. Hence understanding and managing the post purchase behavior of a consumer and retaining his loyalty becomes an important concern in marketing ( Ignou Text books, Schiffman and Kolter) Post purchase behavior scenario and marketing concerns: After buying a product customer normally finds himself satisfied or dissatisfied. If satisfied he will develop following consumer behavior • He develops a loyalty towards the product and brand. He goes for repurchase of the same brand. • He prefers the same brand other products as well. • He will communicate and recommend the product to others. • He becomes a promoter of that particular product or service. If dissatisfied he will develop certain consumer behavior as follows. • He hates the product and its brand. • He will never go for repurchase of same product • He will collect more information about the other products/substitutes and other brands and purchase the product. • He will communicate against the product / brand among people. He will not purchase any product of this particular brand from which he is dissatisfied. Due to the above post purchase scenario , its becomes very important for marketers to understand post purchase behavior/scenario and try for the retention of customers. Marketers address these concerns related to post purchase behavior following ways. • Improve the post purchase service to the customer. • Keep continuous relationship with the customers. • Any customer grievances are attended quickly and solution is reached to the satisfaction level of the customers. Many firms work to produce positive post purchase communications among consumers and contribute to relationship building between sellers and buyers. • Firms often use ads or follow-up calls from salespeople in this post purchase stage to try to convince buyers that they made the right decision. • To manage the post-purchase behavior, it is the responsibility of the marketing team to persuade the potential customer that the product will satisfy his or her need. Anticipate, analyze and responding to the post-purchase feelings of customers as a marketing manager of a company that has started manufacturing LCD TVs.
As a manager of LCD TV manufacturing unit one has to address various issues which may come up as a result of post- purchase behavior by the customers. Some of the things which manager must address are as follows. Actions for anticipating post purchase feelings: 1. Generate a feeling that customer decision to buy LCD TV was a right decision. LCD ( Liquid Crystal Displays) technology is becoming highly popular in various fields including TVs. However most of the customer buy it just because it’s a new model and it has become a fashion. An average customer is not aware of the additional features and advantages of LDC TVs.
However as a manager of the company for LCD TVs, one has to convince the customer that his decision is right and intelligent due to following features. He must convince that consumer go for LCD TVs due to various advantages such as • It has grand Look • It is different than usual ones . • It is slim and consumes less space. • It has wall mounting facility • It is significantly brighter and feature higher contrasts • It will not flicker like old TV screens and hence will not cause any strain to eyes. • It has 160 degree viewing angle. • It has built in tuners and speakers. 2.
Adopting various tactics to reduce post purchase dissonance: As a Marketing manager of LCD TV manufacturing company one has to adopt various tactics to reduce post purchase dissonance. For example promoting suitable advertisements which helps to reduce the post purchase dissonance is one such step. An advisement of LCD TV may read, “Invest part of your monthly salary on a life long saving”. This small phrase gives many messages to the customers and helps a lot to reduce his lingering post purchase dissonance. He will satisfied that the money invested by him is really worth as it is equivalent to permanent saving.
Some manufacturers of LCD TVs claim that their LCDs can last upwards of 80,000 hours when used continuously under controlled conditions (e. g. , in a room with “standard” lighting conditions and 77° temperatures throughout). Just how realistic such claims are is debatable. However this kind of claim and propaganda help greatly in reducing post purchase dissonance. 3. Complaint Management : Manufacturing defect or the defect caused during transportation or storage is something which should be anticipated by all marketers. LCD TVs are also not an exception to this reality.
Complaint could also be of other nature such as over charging by mistake, keeping wrong accessories with the unit or any other error caused by human beings, machines or technology. As a marketing manager of LCD manufacturing unit, one should be concerned about how complaints are managed properly. If complaints are managed by adopting the principle of sympathy and apathy with the customers, there is every chance that that particular customer may become loyal customer to the company and may develop an appreciation towards brand and the company.
Meanwhile if complaints are not managed properly then that customer may become a opponent of the brand and company. A dissatisfied customer may communicate to many people why one should not purchase ‘ LCD TV’ and particularly why one should distance himself from ‘XYZ brand of LCD TV’ supplied by ‘XYZ company’. This will definitely create campaign of ‘word of mouth’ against the product. Hence marketing manager should be concerned about managing the complaints in a proper way. 4. Post Purchase Customer Service :
Post purchase customer service plays a big role in retention of customer and in making a him either a loyal customer or permanent dissident of the company or the product. Bad post purchase customer service may end up in tarnishing all the good image created through scores of investments for advertisement and promotional campaign. 5. Attractive advertisements and various means marketing communications. Adopting attractive advertisements and various means of marketing communications to promote the goods will be very much helpful for a customer during his ‘ product alternative search’ and ‘ purchase decision’ stages of buying behavior.
For example Mitsubishi LCD TV gives following feature of LCD TV in their website with a attractive picture of Mitsubishi LCD TV. This is very much helpful in generating a desire, and attraction towards the product. This will instill confidence among buyers that ‘Mitsubishi LCD TV’ will bring enough value for their money. Website illustration of the Mitsubishi LCD TV along with its picture is as follows. Key Features of the NEC-Mitsubishi LCD3000-BK 30″ LCD TV Monitor • High brightness 1280 x 768 LCD TV Display Panel Virtually eliminates the potential for permanent image burn-in, contributing to optimal screen performance and longer monitor life • XtraView technology allows for 170° wide-angle viewing • CableComp automatic long cable compensation prevents image quality degradation caused by long cable lengths • User-friendly, efficient design features the VESA-standard mounting • Automatic black level adjustment regulates grayscale images for optimal picture quality • Reduced reflection and glare in high ambient light environments • Optional detachable speakers deliver an enhanced multimedia experience with amazing sound quality • Low power consumption conserves energy and leads to a lower total cost of ownership • Rapid Response technology delivers virtually uninterrupted, undistorted viewing of full-motion video • Picture-in-picture (PIP) capability displays PC and video input simultaneously • On Screen Manager (OSM®) puts you in complete control of display setting adjustments 1-year limited parts and labor warranty and 24/7 customer service and technical support Actions for analyzing post purchase feelings: There are a couple of theoretical explanations which relates consumers product expectation with performance.. These theories will explain the importance of analyzing post purchase feelings. If the post purchase feeling is negative towards a product, then consumer will make a decision not to repurchase the product.
Moreover he will extend his feeling towards the other products of the manufacturer. Hence analyzing post purchase feeling is very essential for a marketer. Following are four such theories and its marketing implications. TheoriesMajor Assumptions Marketing Implications 1. Assimilation TheoryDisparity minimized by adjusting perceived expectations with performance. Overstate product claims 2. Contrast theoryDisparity MagnifiedReasonably understate product claims 3. Generalized negative theoryA general negative feeling Consistence claims with performance 4. Assimilation contrast theoryMinor disparities are minimized while major disparities are magnified further.
State product claims slightly above the actual performance but within consumers rang of acceptance. Analyzing post purchase behavior will lead to following broader possibility of post purchase behavior. • Customer Satisfied ( Performance matches with expectation) • Customer Dissatisfied ( Performance not matches with expectation) • Customer somewhat satisfied ( Performance to some extent meets expectation) • Customer satisfied to the large extent. ( Performance is large extent as per expectation) ( Ignou Text books) As a marketing manager of LCD TV, it is necessary to evolve different tools and strategies to analyze post purchase feeling so that proper strategy could be adopted to address the related issues.
Actions for responding to post purchase feelings: Enchasing positive post purchase feeling and eradicating negative post purchase feeling is very much essential in marketing. Hence it is also applicable to marketing of LCD TVs. Some of the actions in this regard could be as follows • Regularly follow up reactions of LCD TV consumers. • Conduct Customer Survey • Maintain proper quality of post purchase customer service. • Note down the customer grievances and try to achieve continued improvement in product and service of LCD TV. • Give due priority to customer complaints and care for quick resolution of every complaints. • Update customers on proper usage of the product. Conclusion:
Addressing the post purchase feeling of a customer and reducing post purchase dissonance is very important in marketing. It adds great dollar value to the company. Companies motto should be to make every customer a permanent customer of the product and other product range of the same brand. If this is materialized company will continuously achieve profits and saves much of its promotional cost. This cannot be achieved without addressing post purchase feelings of a customer. 6. How does the micro-economic model explain the decision process of a consumer? What are the shortcomings of the model? Definition of Micro Economics ( in consumer behavior perspective):
Microeconomics refer to the study of individual economic units unlike macroeconomics which is study of economy as a whole. Microeconomics is the study of economics actions of individual and small groups of individuals. This includes ‘ the study of particular firms, particular households, individual prices, wages, incomes, individual industries, particular commodities etc’ . ( M. L Jhingan, Advanced Economic Theory) Microeconomics is day to day economics of individuals, house and firms. It a kind of market mechanism which triggers economic activities in a society to fulfill human needs by available scarce resources. Basic theory behind microeconomics is the fact that humans needs are unlimited where as resources available are unlimited.
Hence while allocating limited resources selectively to fulfill unlimited wants , one has to go through a decision process . This explains micro economics. Hence microeconomics, which is also know as price theory is a branch of economics that studies how individuals, households, and firms make decisions to allocate limited resources, to fulfill their unlimited needs, in a market where various kinds of goods and services are being sold. ( Ignou Text book, and other sources) Micro economic model and decision process of consumer: Consumer is the focal point of microeconomics. According to micro economic theory, other things being equal, it is the allocation of resources which determines what to produce, how to produce and how much to produce.
This decision in turn is based on relative price of goods and services. Microeconomics examines how these decisions and behaviors affect the supply and demand for goods and services. Supply-demand situation in a economy will determine the prices . Thus microeconomics is the study of price theory base on various factors such as • how the price of the particular commodity like tea, rice, milk, motor bike, car etc are determined. • How the wages of particular type of labor is determined. • How interest on particular type of capital is determined • How rent on particular type of land is determined • How profits of particular entrepreneur is decided etc. Microeconomics is driven by the customer behavior:
In micro-economics there is no agency or body to plan and drive the economic system. As illustrated previously, many important economic decisions such as how to produce, what to produce, and for whom to produce are taken by the producers and consumers without any external intervention. Microeconomics deals with many aspects of consumer behavior . Consumer is an economic agent who makes choices between available combination of commodities. (Lecture notes in Micro Economic Theory: Ariel Rubinstein) Microeconomics is study of economics driven by consumer behavior Microeconomics has been called “the bottom-up view of the economy”, or “how people deal with money, time, and resources. One of the goals of microeconomics is to analyze market mechanisms that establish relative prices amongst goods and services and allocation of limited resources amongst many alternative uses. Microeconomics also explains the Price and market mechanism. This scenario could be better understood by the recent price hike scenario in Kuwait and rest of the Middle East. In Kuwait daily bread , popularly known as ‘kubz’ is available for just 50 fils so also is another form of bread called ‘Irani Roti’, available for 20 fils / unit. Prices of these breads remain unchanged as it controlled by the government . However you may find hike in prices of all other commodities. Prices of these commodities are regulated by market mechanism and customer behavior. There is also big hike in house rents.
Following news item gives us how consumers behaved for price hike ( which is part of microeconomic phenomena) Union flays govt over price hikes Published Date: February 06, 2008 , Kuwait Times KUWAIT: Several owners of public restaurants in Kuwait have reportedly started coordinating with each other in order to increase the meal prices on their menus in order to rake in reasonable profits following the recent hikes in prices. One of the owners said that he used to buy an Australian sheep for KD 18 while nowadays dealers have hiked the price to KD 27 while the relevant authorities did nothing to prevent them from doing so. He indicated that the prices of other foodstuffs had been increased too, such as dairy products.
He also said that soon after the hikes in prices of foodstuffs, real estate owners too raised the rents of their shops that they hire. Meanwhile, the Kuwait General Laborer’s Union affirmed that the government did not adopt any effective plans and procedures to counter the price hikes, even after employees from several government sectors went on strikes demanding increments. The Head of the union Khalid Metlaq Al-Azmi said that government does not concern itself with dealers who resort to hiking prices before each salary raise. He explained that the dealers get more advantages from the hikes than the employees themselves and the government instead of implementing effective measures against them, prefers to lay the blame on the Union of Co-operative Societies instead.
He added that the union was constantly facing threats of being dissolved by the government thus giving ample opportunities to all those companies and dealers to hike prices of commodities as they deem fit Consumer Choice and Utility Concept of utility is another microeconomic concept which explains consumer behavior. Utility is the capacity of goods are service to satisfy want. Utilitarianism explains ethical value of new classical micro economics. Utility is a subjective concept , it cannot be observed and measured directly. The objective of microeconomics is to maximize the satisfaction of utility of individuals given their preferences, incomes and prices of the goods they buy.
In utility there are two kinds . Total utility and marginal utility. Total utility is defined as the amount of satisfaction or utility that one derives from a given quantity of good. Marginal utility refers to the change in total utility with the change in the quantity consumed. Utility Theory and Consumer Behavior: Utility theory is often used to explain the behavior of individual consumers. In this case the consumer plays the role of the decision maker that must decide how much of each of the many different goods and services to consume so as to secure the highest possible level of total utility subject to his/her available income and the prices of the goods/services.
Utility theory and demand In addition to providing an explanation of consumer disposition of income, utility theory is useful in establishing individual consumer demand curves for goods and services. A consumer’s demand curve for a good or service shows the different quantities that consumers purchase at various alternative prices. Factors that are held constant are consumers’ tastes and preferences, income, and price. Law of diminishing marginal utility and Consumer behavior As per the principle of diminishing marginal utility it is proved that when a person consumes more and more of similar commodity during a given period of time , the marginal utility diminishes.
For example when a person goes to Mcdonald and eats burger, after eating each additional burger he feels less satisfaction. Due to this phenomenon there will be another economic effect. Every additional unit will have less value in the sight of a consumer. Adam smith explains this phenomenon with ‘ diamond –water paradox. Water has more utility than diamonds. However , since water is abundantly available , its price is lower than the price of diamonds. Diamond , though having less utility , remains costlier because diamonds are relatively scarce. Utility theory provides a methodological framework for the evaluation of alternative choices made by individuals, firms and organizations.
Utility refers to the satisfaction that each choice provides to the decision maker. Thus, utility theory assumes that any decision is made on the basis of the utility maximization principle, according to which the best choice is the one that provides the highest utility (satisfaction) to the decision maker. Maslow’s hierarchy of Need’s theory and consumer behavior : Maslow’s hierarchy of need’s theory explains changes in consumer behavior based on his economic condition. Following diagram explains how consumer needs grow from bottom to top. A consumer will change his want based on his economic level. Following table further explains consumer behavior at various level while fulfilling a specific need.
Hierarchy of NeedsList of common Need in particular HierarchySpecific NeedSpecific Consumer Behavior Physical Needs Food, Water, Exercise, rest, free from disease etc. Need to move aroundGo by walk Safety NeedsNeed for Safety, Shelter, StabilityNeed to move aroundBuy a Hero bicycle Social NeedsNeed of being loved, belonging, inclusionNeed to move aroundBuy a Bajaj Motor bike Ego NeedsNeed of Self Esteem, recognition, prestigeNeed to move aroundBuy a Tata Nano Car Self ActualizationThe need for d