3. Customer and consumer behaviour

1. 3. Customer and consumer behaviour • After carefully studying this chapter, you should be able to: • Draw and explain models of channels of distribution; • Describe how decisions are taken; • Show how user benefits differ from product benefits; • Explain how to segment a market; • Describe how to target audience; • Illustrate how to position a product offer.

2. 3.1 Channels of distribution (CoD) • A channel of distribution is: • A route taken by a product offerfrom supplier to consumer. • Products and services • Products are goods that have a physical presence. • Services cannot be touched. • From the customer’s viewpoint, there is no difference. People buy what a product form them, not what it is. They also buy what a service does for them. • So, it is better to talk about a product offer.

3. Channels of distribution Suppliers: manufacturers and traders Agent Wholesaler Wholesaler Retailer Retailer Retailer Customer Customer Customer Customer Consumer Consumer Consumer Consumer

4. Suppliers • Can be either manufacturers, or organisations that have the ability to put a product offer together.

5. Agents • Have special skills and work on behalf of manufacturers or suppliers. • May handle the marketing for a manufacturer which does not want its own marketing department. • Or they may be based in a foreign market that the manufacturer wants to enter.

6. Wholesalers • Take in large deliveries of stock from suppliers. • Then they split each delivery and make up combined loads for delivery to retailers. • They ass value to the channel because they save suppliers having to make a lot of small deliveries.

7. Retailers • Work in the same way as wholesalers. • They take deliveries from several wholesale sources. • Then sell out product offers to individual customers. • They ass value because individual customers can buy manu single items from one source – the retail shop.

8. 3.1.1 Customers • There are two kinds of customers: • Those who buy so that they can resell the product offer. (a wholesaler or retailer) • Those who buy on behalf of somebody else. (a mother buying for her child, or a professional buyer making a purchase form his or her organisation.) • Customers do not have a direct interest in what they buy because they will not be using it.

9. Customers’ interest will be in some form of benefit. (such as profit, or praise for making a good purchase) • They will sell it on at a higher price than they paid. The higher price is justified because they add value. • For example, a retail shop saves customers time and travel costs. • They will gain a social benefit. • For example, the pleasure at giving a present.

10. 3.1.2 Consumers • Consumers are those who use up (consume) the value in a product offering. • E.g. a mother bought nappies for her baby. • Sometimes consumers are called users, but the term consumer is better because it describes every form of using up the value. • E.g. food is consumed, not used.

11. Consumerism movement • Started by Ralph Nader in America in the early 1960s. • At that time buyers were badly protected. • Today there are many protections enforced by law. • Every country has some form of Fair Trading Act. • Consumerism has given consumers 4 rights: • To safety, To choose, To be informed, To be heard.

12. 3.2 Decision-making units • Every purchase or exchange has a decision Making Unit (DMU) underpinning it. • Although the principal is the same, there is a difference between the DMUs in consumer and in industrial marketing.

13. 3.2.1 Consumer DMU • SPADE/F • S – Starter • P – Purchaser • A – Advisor • D – Decider • E – End user • F – Finance

14. Starter • All decisions have a start point. Something must start the decision process. • E.g. • Fuel level warning light comes on…  Must buy some fuel very soon. • Feel really hungry…  Wants to have something to eat.

15. Purchaser • Somebody has to actually buy the product offering. • Purchaser might or might not have the right to decide. • See the case on p.43

16. Advisor • Any form of advice or previous experience. • The amount of advice we need depends on our levels of certainty. • For example, how much advice do we need for: • Re-purchase of routine item – • Routine item out of stock – • Semi-routine replacement – • First purchase

17. Decider • The person(s) who make the decision. • End-user • The end-user is the consumer. • (we use end-user because it fits the acronym.) • Finance • A purchase has to be paid for!

18. 3.2.2 Industrial DMU • BADGIES • B – Buyer • A – Approver(s) • D – Decider • G – Gatekeeper • I – Influencer(s) • E – End-user(s) • S – Starter

19. Buyer • Organisations employ professional buyers to: • Locate sources for the things they need to buy. • Prepare contract documents. • Interview potential suppliers and short-list those most suitable. • Conclude the negotiation and finalise the contract.

20. Approver(s) • Specialists within the organisation will examine the product offers that are on the short list. • They will give their professional opinion about which are satisfactory. • They may say which one is the most suitable.

21. Decider • The manager might not decide on the one that the approver says is most suitable. • Managers take all reports and recommendations into account, but might also have other factors in mind. • E.g. • An approver might recommend a higher-priced product with longer life. The decider may select a lower-priced one even though it will not last as long.

22. Gatekeeper • E.g. the receptionists and secretaries who control their managers’ diaries. • So the first sales objective is to pass one or more of these people to get access to the buyer. • See p.49 for a good example

23. Influencer • End-user • Starter

24. 3.3 Decision-making process (DMP) Feedback Investigate the situation Implement decision Evaluate Develop alternatives Evaluate alternatives Select best alternative See the case on p.49 If we know who is who in the DMU and how the DMP works, we can contact the right people, at the right time, with the right message.

25. 3.4 Behaviour • Behaviour: • What people do? • How people react? • How they conduct themselves?

26. 3.4.1 Motivation • The internal driving force that causes us to act. 1 1Need to realise full potential 2 2Need for self-esteem 3 3Need for love and to belong 4 4Need for safety and security 5 5Need for clothing and shelter Maslow’s hierarchy of motivation

27. Incentive • Marketers use incentives when offering a benefit. • The best incentives are those linked to motivation. • Needs and wants • Needs: those things we believe that we must have. • Wants: things we should like to have. • Marketers can try to turn wants into needs.

28. 3.6 Segmentation, targeting, and positioning • Segmentation • Definition: • Source: Worsam Segmentation is the dividing of a market into groups of consumers that share common needs.

29. Segmentation criteria • A segment must be • Measurable • Substantial • Accessible • Differentiated • Actionable

30. Forms of segmentation • Geographic • Demographic • Age, sex, religion, marital status, job, etc. • Social grade / social classification • Geodemographic • The most powerful form of segmentation.

31. Targeting • Definition: • Source: Worsam Targeting is selecting one or more market segments to enter.

32. Positioning • Definition: Positioning is creating a concept within the minds of members of identified target audiences.