Consumer Behavior & Marketing Strategy
Consumer Behavior & Marketing Strategy
Consumer Behavior & Marketing Strategy
secure, use and dispose of products, services, experiences, or ideas to satisfy needs and the impacts that these processes have on the consumer and society. This view of consumer behaviour is the broader view and leads us to examine indirect influences on consumption decisions as well as consequences that involve more than the purchaser and seller. Proper understanding of consumer behaviour is of utmost importance in order to develop an effective marketing strategy. Hence, successful marketing decisions by commercial firms, nonprofit organizations, and regulatory agencies require extensive information on consumer behaviour, which they apply on a regular basis. At the current state of development, consumer behaviour theory provides the manager with the proper questions to ask, however it often becomes necessary to conduct research to answer these questions, which means the consumer behaviour has become a complex and multidimensional process.
Marketing practice designed to influence consumer behavior influences the firm, the individual, and society. Ex:- Pampers, while providing substantial benefits to individual consumers and profits for P&G, raises resource use and disposition issues that affect all of society. Similarly, obvious concerns arise around products such as cigarettes and alcohol. Likewise, specific marketing practices such as targeting children on the Web have implications for the family and society. It should be noted, that all marketing decisions and regulations are based on assumptions about consumer behaviour. Ex:Regulations designed to protect children from various marketing practices on the Web must be based on assumptions about childrens ability to process information and make decisions in this environment. Similarly, a decision to match a competitors price reduction must be based on some assumption about how consumers evaluate prices and how they would respond to a price differential between the two brands.
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Applications of Consumer Behaviour:Marketing Strategy:- All marketing strategies and tactics are based on explicit or implicit beliefs about consumer behaviour. Decisions based on explicit assumptions and sound theory and research are more likely to be successful than are decisions based solely on implicit intuition. The knowledge of consumer behaviour is an important competitive advantage, as it can greatly reduce the odds of bad decisions. Ex:- BIC Corp. introduced a small $ 5 bottle of perfume to be sold in supermarkets and drugstore chains where it had tremendous distribution strength. The perfume was to be easy and convenient to buy and use. However, the project ran into $ 11 million loss. Researches concludes that Fragrance is an emotional sell, not convenience or utility. The BIC package wasnt feminine. It looked like a cigarette lighter.
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Regulatory Policy:- Effective regulation of many marketing practices requires an extensive knowledge of consumer behaviour. Ex:- FDA ordered three manufacturers of vegetable oil to remove claims on their labels that state that the products contain no cholesterol. The FDA believes that the claims of no cholesterol are misleading even though they are true. The FDA staff that issued these regulations did so based on their beliefs and knowledge about how consumers process information. However, if they are incorrect, both consumers and firms delivering a superior product are harmed. Similarly, a ban on advertising cigarettes and alcoholic beverages exists in India under the belief that this does influence higher consumption block. This has been extended to a ban on sales of cigarettes within 100 meters of schools, or to consumers below 18 years of age, is based on assumptions related to age effects on trial and habit forming behaviour.
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Social Marketing:- Social marketing is the application of marketing strategies and tactics to alter or create behaviours that have a positive effect on the targeted individuals or society as a whole. Ex:Attempts to reduce smoking, to increase the percentage of children receiving their vaccinations in a timely manner, anti AIDS campaigns etc. Just as for commercial marketing strategy, successful social marketing strategy requires a sound understanding of consumer behaviour. Informed Individuals:- Most economically developed societies are legitimately referred to as consumption societies. Most individuals in these societies spend more time engaged in consumption than in any other activity, including work or sleep (both of which also involve consumption). Thus, knowledge of consumer behaviour can enhance the understanding of the environment and people, which is essential for sound citizenship, effective purchasing behaviour, and reasoned business ethics.
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Marketing Strategy & Consumer Behaviour:- To survive in a competitive environment, an organization must provide target customers more value than is provided by its competitors. Customer value is the difference between all the benefits derived from a total product and all the costs and risks of acquiring those benefits. Ex:- Owing a car can provide a number of benefits, depending on the person and the type of car, including flexible transportation, image, status, pleasure, comfort and even companionship. However, securing these benefits requires paying for the car, fuel, insurance, maintenance, parking fees, as well as risking injury from an accident, adding to environmental pollution , and dealing with traffic jams and other frustrations. It is the difference between the total benefits and the total costs that constitutes customer value. Ex:- La Choy management decided to launch a line of large, meaty, frozen egg rolls to be used as a main course rather than as appetizers, as the smaller egg rolls, seeing the rapidly growing market of frozen foods. The logic seemed sound. Unfortunately, the large egg rolls could not be microwaved (the shells became soggy) and they took 30 minutes to heat in a regular oven. Consumers considered value in frozen foods of this type to include quick preparation. The egg rolls were a market failure and had to be withdrawn from the market.
Providing superior customer value requires the organization to do a better job of anticipating and reacting to customer need than the competition does.
Fig:- Marketing Strategy and Consumer Behavior Outcomes
Individual, Firm, Society
Market Strategy
Product, Price, Distribution, Promotion, Service
Market Segmentation
Identify product-related need sets Group customers with similar need sets Describe each group Select attractive segment(s) to target
Market Analysis
Company, Competitors, Conditions, consumers
The above figure indicates, an understanding of consumer behavior is the basis for marketing strategy formulation. Consumers reactions to this marketing strategy determine the organizations success or failure. However, these reactions also determine the success of the consumers in meeting their needs, and they have significant impacts on the larger society in which they occur.
thorough understanding of the organizations own capabilities, the capabilities of current and future competitors, the consumption process of potential customers, and the economic, physical, and technological environment in which these elements will interact.
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The Consumer:- It is not possible to anticipate and react to customers needs and desires without a complete understanding of consumer behaviour. Discovering customers current needs is a complex process, but it can often be accomplished by marketing research.
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The Company:- A firm must fully understand its own ability to meet customer needs. This involves evaluating all aspects of the firm, including its financial condition, general managerial skills, production capabilities, research and development capabilities, technological sophistication, reputation and marketing skills. Marketing skills would include new-product development capabilities, channel strength, advertising abilities, service capabilities, marketing research abilities, market and consumer knowledge. Failure to adequately understand ones own strengths can cause serious problems. Ex:- IBMs first attempt to enter the home computer market with the PC Jr. was a failure in part for this reason. Although IBM had an excellent reputation with large business customers and a very strong direct sales force for serving them, these strengths were not relevant to the household consumer market.
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The competitors:- It is not possible to consistently do a better job of meeting customer needs than the competition without a through understanding of the competitions capabilities and strategies. This requires the same level of knowledge of a firms key competitors that is of ones own firm. In addition, for any significant marketing action, the following questions must be answered:-
If we are successful, which firms will be hurt (loose sales or sales opportunities)? ii. Of those firms that are injured, which have the capability (financial resources, marketing strengths) to respond? iii. How are they likely to respond (reduce prices, increase advertising, introduce a new product)? iv. Is our strategy (planned action) robust enough to withstand the likely actions of our competitors, or do we need additional contingency plans?
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The Conditions:- The state of the economy, the physical environment, government regulations and technological developments affect consumer needs and expectations as well as company and competitor capabilities. The deterioration of the physical environment has produced not only consumer demand for environmentally sound products buy also government regulations affecting product design and manufacturing. In India, each region, each state, provides a different environment. Tastes and combinations of products would change significantly across states. Logistics and infrastructure across the interiors of the states would require radically different strategies. Clearly, a firm cannot develop a sound marketing strategy without anticipating the conditions under which that strategy will be implemented.
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Market Segmentation:- The most important marketing decision a firm makes is the selection of one or more market segments on which to focus. A Market Segment is a portion of a larger market whose needs differ somewhat from the larger market. Since a market segment has unique needs, a firm that develops a total product focused solely on the needs of that segment will be able to meet the segments desires better than a firm whose product or service attempts to meet the needs of multiple segments. To be viable, a segment must be large enough to be served profitable. To some extent, each individual or household has unique needs for most products (For Ex:- Say a preferred colour combination). The smaller the segment, the closer the total product can be to that segments desires. But at the same time, the smaller the segment, the more it costs to serve the segment. Thus, a tailormade suit costs more than a mass-produced suit. However, flexible manufacturing and customized media are making it increasingly cost effective to develop products and communications for small segments or even individual consumers.
Identifying product-related need sets. Grouping customers with similar need sets. Describing each group. Selecting an attractive segment(s) to serve. Product-Related Need Sets:- Organizations approach market segmentation with a set of current and potential capabilities. These capabilities may be reputation, an existing product, a technology, or some other skill set. The first task of the firm is to identify need sets that the organization is capable, or could become capable, of meeting. The term need set is used to reflect the fact that most products in developed economies satisfy more than one need. Ex:An automobile can meet more needs than just basic transportation. Some customers purchase cars to meet transportation and status needs. Others purchase them to meet transportation & fun needs. Still others purchase to meet status, fun and transportation needs.
Accordingly the automobile companies use to target their products. Ex:- Scorpio, Volvo, Safari etc. Similarly, the market for detergent powders has always been competitive, but it has been dominated by large multinational players with major national presence, strong brands and large sales, and small local players with limited presence and low brand strength. Nirma started a major national brand awareness and image building campaign (Catch-line Sabki pasand Nirma), and sold its product at a much lower price than the major brands. This understanding of the market need allowed Nirma to bring out a brand which fulfilled a specific need to a large market segment which no other player had earlier attempted to target. Identifying the various need sets that the firms current or potential product might satisfy typically involves consumer research, particularly focus groups and depth interviews, as well as logic and intuition. These need sets are often associated with other variables such as age, stage in the household life cycle, gender, social class, ethnic group, or lifestyle, and many firms start the segmentation process focusing first on one or more of the groups defined by one of these variables.
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Customers with Similar Need Sets:- The next step is to group consumers with similar need sets. Ex:- The need for moderately priced, fun, sporty automobiles appears to exist in many young single individuals, young couples with no children, and middle-aged couples whose children have left home. These consumers can be grouped into one segment as far as product features and perhaps even product image are concerned despite sharply different demographics. This step generally involves consumer research, including focus group interviews, surveys, product concept tests and an analysis of current consumption pattern. Description of Each Group:- In order to design an effective marketing program, it is necessary to have a complete understanding of the potential customers, which can be only possible after identifying correctly the need sets. Thus, while many young single individuals, young couples with no children, and middle aged couples whose children have left home may want the same features in an automobile, the media required to reach each group and the appropriate language and themes to use with each group would likely differ.
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Attractive Segment(s) to Serve:- Once we are sure we have a thorough understanding of each segment, the target market must be selected i.e. that segment(s) of the larger market on which we will focus our marketing effort. This decision is based on the ability to provide the selected segment(s) with superior customer value at a profit. One should always remember that each market segment requires its own marketing strategy. Each element of the marketing mix should be examined to determine if changes are required from one segment to another. Sometimes each segment requires a completely different marketing mix, including the product. At other times, only the advertising message or retail outlets may need to differ. Ex:- The current value proposition an MNC offering cereals, involves the smartness of the child due to essential ingredients, rather than their earlier thrust on taste through chocolate covered offerings. Thus even the common and total product focus may change over time, for the same segment.
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Distribution Available
Investment Required Stability / Predictability Cost to Serve
Marketing Strategy:- A decisive criterion in selecting target markets is the ability to provide superior value to those market segments. Since customer value is delivered by the marketing strategy, the firm must develop its general marketing strategy as it evaluates potential target markets. Marketing Strategy is basically the answer to the question: How will we provide superior customer value to our target market? And the answer requires formulation of a consistent marketing mix. The Marketing mix is the product, price, communications, distribution, and services provided to the target market. It is the combination of these elements that meets customer needs and provides customer value. Ex:- Britannia Tiger Biscuits promised superior value through better taste and a lower price than its competitors.
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The Product:- A Product is anything a consumer acquires or might acquire to meet a perceived need. Customers are generally buying need satisfaction and not physical product attributes. Ex:- As per the former head of Revlon, In factory we make cosmetics, in the store we sell hope. Similarly, Consumers dont purchase quarter inch drill bits but the ability to create quarter inch holes. Again, Most of the courier companies lost much of their overnight letter delivery business to fax machines and the internet as they could meet the same consumer needs faster, cheaper, or more conveniently. To be successful, products must meet the needs of the target market better than the competition does. Price:- Price is the amount of money one must pay to obtain the right to use the product. One can buy ownership of a product or, for many products, or limited usage rights. Economists often assume that lower prices for the same product will result in more sales than higher prices. But this is not always correct, as price sometimes serves as a signal of quality. Hence, setting a price requires a thorough understanding of the symbolic role that price plays for the product and target market in question.
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It is important to note that the price of a product is not the same as the cost of the product to the customer. Consumer cost is everything the consumer must surrender in order to receive the benefits of owning / using the product. Ex:- Cost of owning / using an automobile includes insurance, gasoline, maintenance, finance charges, license fees, parking fees, time & discomfort while shopping for the car, and perhaps even discomfort about increasing pollution, in addition to the purchase price.
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Communications:- Marketing communications include advertising, the sales force, public relations, packaging, and any other signal that the firm provides about itself and its products. An effective communications strategy requires answers to the following questions:i. With whom, exactly, do we want to communicate?:- While most messages are aimed at the target market members, others are focused on channel members or those who influence the target market members. Ex:- Pediatric nurses are often asked for advice concerning diapers and other nonmedical infant care items. A firm marketing such items would be wise to communicate directly with these individuals. Similarly, for a childrens breakfast cereal, should the communication be aimed at the children or the parents or both? The answer depends on the target market and varies by country.
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What effect do we want our communications to have on the target audience?:- While the ultimate objective of an advertising and other marketing communications is to increase sales, the behavioral objective for most marketing communications is often much more immediate. i.e. it may seek to have the audience learn something about the product, seek more information about the product, like the product, recommend the product to others, feel good about having bought the product, or a host of other communications effects. What message will achieve the desired effect on our audience?:- What words, pictures, and symbols should we use to capture attention and produce the desired effect? Marketing messages can range form purely factual statements to pure symbolism. The best approach depends on the situation at hand. Developing an effective message requires a thorough understanding of the meanings, the target audience attaches to words, and symbols, as well as knowledge of the perception process. What means and media should we use to reach the target audience?:Should we use personal sales to provide information? Can we rely on the package to provide needed information? Should we advertise in mass media, use direct mail, or rely on consumers to find us on the Internet? If we advertise in mass media, which media and which specific vehicles should we use? Answering these questions requires an understanding both of the media that the target audiences use and of the effect that advertising in those media would have on the products image.
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When should we communicate with the target audience?:- Should we concentrate our communications near the time that purchases tend to be made or evenly throughout the week, month, or year? Do consumers seek information shortly before purchasing our product? If so, where? Answering these questions requires knowledge of the decision process used by the target market for this product.
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Distribution:- Distribution, having the product available where target customers can buy it, is essential to success. Only in rare cases will customers go to much trouble to secure a particular brand. Obviously, good channel decisions require a sound knowledge of where target customers shop for the product in question or not? Service:- Earlier, we defined product to include primary or core services such as haircuts, car repairs, and medical treatment. Here service refers to auxiliary or peripheral activities that are performed to enhance the primary product or service. Thus car repair is actually a product and free pickup and delivery of the car would be an auxiliary service. A firm that does not explicitly manage its auxiliary services is at a competitive disadvantage. Auxiliary services cost money to provide. Hence, it is essential that the firm furnish only those services that provide value to the target customers. Providing services that customers do not value can result in high costs and high prices without a corresponding increase in customer value.
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Consumer Decisions:- As depicted in the below figure, the consumer decision process intervenes between the marketing strategy and the outcomes.
Fig:- Marketing Strategy and Consumer Behavior Outcomes
Individual, Firm, Society
Market Strategy
Product, Price, Distribution, Promotion, Service
Market Segmentation
Identify product-related need sets Group customers with similar need sets Describe each group Select attractive segment(s) to target
Market Analysis
Company, Competitors, Conditions, consumers
The outcomes of the firms marketing strategy are determined by its interaction with the consumer decision process. The firm can succeed only if consumers see a need that its product can solve, become aware of the product and its capabilities, decide that it is the best available solution, proceed to buy it, and become satisfied with the results of the purchase.
Outcomes:A. Firm Outcomes:1. Product Position:- The most basic outcome for a firm of a marketing strategy is its product position An image of the product or brand in the consumers mind relative to competing products and brands. This image consists of a set of beliefs, pictorial representations, and feelings about the product or brand. It is determined by communications about the brand from the firm and other sources, as well as by direct experience with it. Most marketing firms specify the product position they want their brands to have and measure these positions on an ongoing basis, because a brand whose position matches the desired position of a target market is likely to be purchased when a need for that product arises. Ex:- Sauza Commemorative tequila attempts to build a product position as a smooth, lighthearted Tequila by running a series of humorous ads all with the tag line Life is harsh. Your Tequila shouldnt be. This positioning has helped the brands sales grow at more than twice the industry average.
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Sales:- Sales are a critical outcome, as they produce the revenue necessary for the firm to continue in business. Therefore, virtually all firms evaluate the success of their marketing programs in terms of sales, and sales are likely to occur only if the initial consumer analysis was correct and if the marketing mix matches the consumer decision process. Customer Satisfaction:- It has been discovered that it is generally more profitable to maintain existing customers than to replace them with new customers, and this requires, that, they be satisfied with their purchase and use of the product.
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Sales
Fig:- Creating Satisfied customers As the above figure indicates, convincing consumers that your brand offers superior value is necessary in order to make the initial sale. However, creating satisfied customers, and thus future sales, requires that customers continue to believe that your brand meets their needs and offers superior value after they have used it.
The thing is that we must deliver as much or more value than our customers initially expected, and it must be enough to satisfy their needs. This requires and even greater understanding of consumer behavior. Ex:- Honda had the factory workers who actually assemble the cars as well as marketing managers conduct telephone interviews with over 47,000 Accord owners. The interviews sought to determine customer satisfaction levels with all aspects of the Accord as well as ideas for improvements. The interviews were conducted by those who would have to make any necessary changes.
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Individual Outcomes:1.
Need Satisfaction:- The most obvious outcome of the consumption process for an individual, whether or not a purchase is made, is some level of satisfaction of the need that initiated the consumption process. This can range from Zero (or even negative if a purchase increases the need rather than reduces it) to Complete. Two key processes are involved The Actual Need Fulfillment and The Perceived Need Fulfillment. These two processes are closely related and are often identical. However, at times they differ. Ex:- People might take a food supplement because they believe it is enhancing their health while in reality it could have no direct health effects or even negative effects. One objective of government regulation and a frequent goal of consumer groups is to ensure that consumers can adequately judge the extent to which products are meeting their needs.
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Injurious Consumption:- Injurious consumption occurs when individuals or groups make consumption decisions that have negative consequences for their long run well being. Ex:- Cigarette, Liquor, etc. Companies are not the only entities that promote potentially harmful products. Many states of the nations world wide now promote state sponsored gambling, which has caused devastating financial consequences for some.
C. Society Outcomes:1. Economic Outcomes:- The cumulative impact of consumers purchase decisions, including the decision to forgo consumption, is a major determinant of the state of a given countrys economy. Their decisions on whether to buy or save affect economic growth, the availability and cost of capital, employment levels, and so forth. The types of products and brands purchased influence the balance of payments, industry growth rates, and wage levels. Decisions made in one society, particularly large wealthy societies like the United State, Western Europe, and Japan, have a major impact on the economic healthy of many other countries. Ex:- A recession in the United States or a strong shift toward purchasing only American made products would have profound negative consequences on the economies of many other countries, both developed and developing.
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Physical Environment Outcomes:- Consumers make decisions that have a major impact on the physical environments of both their own and other societies. Ex:- The cumulative effect of Developed and Developing countries consumers decisions to increased rely on private vehicles rather than mass transit results in significant air pollution as well as the consumption of nonrenewable resources.
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Social Welfare:- Consumer decisions affect the general social welfare of a society. Decisions concerning how much to spend for private goods (personal purchases) rather than public goods (support for public education, parks, health care, and so forth) are generally made indirectly by consumers elected representatives. These decisions have a major impact on the overall quality of life in a society.
The Nature of Consumer Behavior:- The general structure and process of consumer behavior and the organization is depicted in the model given below, which is a Conceptual Model, which reflect our beliefs about the general nature of consumer behavior. Individuals develop self concepts and subsequent lifestyles based on a variety of internal (mainly psychological and physical) and external (mainly sociological and demographic) influences. These self concepts and lifestyles produce needs and desires, many of which require consumption decisions to satisfy.
External Influences
Culture Subculture Demographics Social Status Reference Groups Family Marketing Activities
Experiences and Acquisitions Decision Process Situations Problem Recognition Self Concept and Lifestyle Needs Desires Information Search Alternative Evaluation And Selection Outlet Selection And Purchase Post Purchase Processes Experiences and Acquisitions Fig:- Overall Model of Consumer Behavior
Internal Influences
Perception Learning Memory Motives Personality Emotions Attitudes
As individuals encounter relevant situations, the consumer decision process is activated. This process and the experiences and acquisitions it produces in turn influence the consumers self concept and lifestyle by affecting their internal and external characteristics. This modes, while simple, is both conceptually sound and intuitively appealing. Each of us has a view of ourselves (self concept), and we try to live in a particular manner given our resources (lifestyle). Our view of ourselves and the way we try to live are determined by internal factors (such as our personality, values, emotions, and memory) and external factors (such as our culture, age, friends, family, and subculture). Our view of ourselves and the way we try to live results in desires and needs that we bring to the multitude of situations we encounter daily. Many of these situations will cause us to consider a purchase. Our decision, and even the process of making it, will cause learning and may affect many other internal and external factors that will change or reinforce our current self concept and lifestyle.
Though from the above model and discussion, consumer behavior seem simple, structured, conscious, mechanical, and linear, it is actually complex, disorganized, non conscious, organic, and circular. This can be easily be felt by a quick analysis of ones own behavior and that of ones close friends.
External Influences:- Dividing the factors that influence consumers into categories is somewhat arbitrary. For Ex:- We treat learning as an internal influence despite the fact that much human learning involves interaction with, or imitation of , other individuals. Thus, learning could also be considered a group process. The two dimensional arrow in the above figure connecting internal and external influences is used to indicate that each set interacts with the other. Culture is perhaps the most pervasive influence on consumer behavior, as it reflect the changes in our society as well as our ethnic diversity.
Internal Influences:- Internal influences begin with perception, the process by which individuals receive and assign meaning to stimuli. This follows by learning changes in the content or structure of long term memory, motivation the reason for a behavior, personality an individuals characteristic response tendencies across similar situations, and emotion strong, relatively uncontrolled feelings that affect our behavior. These are concluded with attitude an enduring organization of motivational, emotional, perceptual, and cognitive processes with respect ot some aspect of our environment. Self Concept and Lifestyle:- As a result of the interaction of all the variables described above, individuals develop a self concept that is reflected in a lifestyle. The Self Concept is the totality of an individuals thoughts and feelings about him or herself. Lifestyle is, quite simply, how one lives. It indicates the products one buys, how one uses them, what one thinks about them, and how one feels about them. It is the manifestation of the individuals self concept the total image the person has of him or herself as a result of the culture he or she lives in and the individual situations and experiences that comprise his or her daily existence. It is the sum or the persons past decisions and future plans.
Both, individuals and families exhibit distinct lifestyles. Ones lifestyle is determined by both conscious and unconscious decisions. Often we make choices with full awareness of their impact on our lifestyle, but generally we are unaware of the extent to which our decisions are influenced by our current or desired lifestyle. As a consumer, we make decisions, consistent with our lifestyles without deliberately considering lifestyle. Most consumer decisions involve very little effort or thought on the part of the consumer. They are called low involvement decisions. Feelings and emotions are as important in many consumer decisions as logical analysis or physical product attributes. Nevertheless, most consumer purchases involve at least a modest amount of decision making, and most are influenced by the purchasers current and desired lifestyle.
Situations and Consumer Decisions:- Consumer decisions result from perceived problems (Im thirsty) and opportunities (That looks like it would be fun to try). The term problem is referred both to problems and to opportunities. Consumer problems arise in specific situations and the nature of the situation influences the resulting consumer behavior. The above figure indicates, a consumers needs / desires may trigger one or more levels of the consumer decision process. It is important to note that for most purchases, consumers devote very little effort to this process, and emotions and feelings often have as much or more influence on the outcome as do facts and product features. Despite the limited effort that consumers often devote to this process, the results have important effects on the individual consumer, the firm, and the larger society.