Consumer Behaviour Analysis Essay

In this competitive market, high quality of products may not be sufficient for companies to gain competitive edges in market (Palmer, 2004). In addition, according to Moutinho et al (1996), it seems that the nature of marketing is to satisfy the needs and requirements of consumers rather than product oriented. Thus, consumers play a prominent role in market as contemporary marketing is customer-oriented. However, it should be noticed that consumer behaviour is unstable because psychological factors have impacts on consumer behaviour. Moreover, Evans et al (2006) indicate that social factors also affect consumer behaviour. Although many companies have drawn attention to the status of consumers in market, they lack of the knowledge of consumer behaviour and guidelines to analysis their consumers. Therefore, the study of consumer behavior is necessary for helping companies clearly understand consumer behaviour. The purpose of this paper is to observe the effects of consumer behavior on established and new companies. Factors affecting consumer behavior will first be presented. The discussion of consumer behaviour’s effect on two types of companies will then be displayed, with a focus on brand loyalty, dynamic demands, and online shopping channels. Furthermore, for future development, effective approaches will be given to reduce the negative effects of customer behavior. Indeed, this paper briefly discusses some main effects of consumer behaviour on established and new companies, and it aims to help companies clearly understand consumer behaviour and further development. 1. Consumer Behaviour 1.1 Psychological influences A company has spent amounts of time developing a new product; however, after the company launches the product to markets, it could realize its efforts is wasted because customers reject its product in a few minutes. The reason is the company fails or neglects to analyze the psychological factors of consumers. Understanding psychological factors is essential for designing and publicizing a product, as these factors tend to influence consumer behaviour. According to Hollensen (2003:122), psychological factors include: â€Å"needs, perception, memory, and attitude†. With regards to the needs of consumers, marketers often distinguish the needs by using Maslow’s famous classification (1970). The classification divides the needs of people into five grades based on hierarchy. The higher level needs cannot be realized unless lower level needs are satisfied. For example, most African countries suffer from starvation. If a marketer sells luxury goods to African consumers, the marketer tends to fail because the marketer cannot understand what African people urgently need. Baker (2006:204) says â€Å"Sensation occurs when a sense organ receives a stimulus, while perception is the interpretation of that stimulus†. From the marketer’s viewpoint, it is essential to attract attention of consumers, and consumers can respond the way marketers intend to. For example, if a marketer chooses red colour to package products, the consumer likes all commodities with red packaging by chance; then, perception arises as this packaging draws the consumer attention. In terms of memory, when consumers make decision among kinds of brands, they prefer to select the brand that they remember. Hollensen (2003) observes consumers store information that is frequently seen or heard. Therefore, marketers try their best to publicize their brand name as much as possible with a view to making consumers remember their brand name when consumers select a product. Attitude can be described as consumers have positive and negative feelings when they see a object that can be a brand, an action, or a person. For this reason, marketers formulate marketing strategy based on using the knowledge of consume attitude in order to associate with consumer’s tastes and preferences. This subsection focuses on psychological factors that influence consumer behavior. In the latter subsection, it concerns social factors that would influence consumer behaviour. 1.2 Social influences Baker (2006) points out that social influences can be divided into three categories including culture, social class, and life-style. In terms of culture, Bennett and Kassarjian (1972) define culture as a consecutive form that can be passed on from one generation to another mainly including habits, beliefs, values, and attitudes. However, culture tends to be relatively unstable, and it is in the process of changing and inducing new ideas because of environmental change and technological change. In addition, Evans et al (2006) note that marketing is a contributory factor in changing of culture. For example, in China, before fast food restaurants of McDonald opened, Chinese people prefer to eat their own food such as porridge, rice, and noodles; nevertheless, after the US lifestyle has transmitted to China through McDonald, the eating habits of Chinese has changed as most of them, especially the young people, would choose hamburgers or chips instead of rice and noodles. With regard to social classes, this classes are groups who have similar characteristics usually including education, income, occupation, and social status (Baker, 2006). Consumers’ behaviour tends to be influenced by the values of social classes, when consumers are divided into one of social classes (Palmer, 2004). In general, social classes consist of three groups including upper class, middle class, and lower class. For example, if individuals identify with the â€Å"upper class†, they prefer to purchase products that differ from universal goods such as luxury necklaces, and advanced cars. Another aspect of social influences is lifestyle that is a way of living of people or families. For example, how people plan leisure time, which interesting products people prefer to purchase. In consumption activities, through analyzing people’s lifestyles, marketers probably know which groups of people tend to be their targets, hence they can design a suitable marketing mix for their targets. 1.3 The buying decision process The above paragraphs introduce influential factors that affect consumers’ decision making. For better understanding consumer behaviour, the process of buying decision is divided into five steps (Hollensen, 2003). The first step tends to be problem identification. According to Hollensen (2003), the differences between current situation and desired situation motivate consumers to seek and purchase products that probably bring satisfaction in order to balance the current condition with the desire. The second step is information search. Consumers gain information from past experiences and long memories stored in mind. In addition, Hollensen (2003) states that memory seeks information from three sources including personal sources, commercial sources, and public sources. The commercial sources are information disseminated by marketers and dealers. Thus, marketers tend to take use of this source in order to make consumer remember and store their brand name in long memory. The third step is evaluation of alternative. In this step, Hollensen (2003) points out that consumers tend to evaluate products from four attributes including cost attributes, performance attributes, social attributes, and availability attributes. Fourthly, Palmer (2004) points out that the purchase decision is made by DMU (Decision Making Unit). This DMU consists of influencers, gatekeepers, buyers, users, and decision makers. Finally, the post-purchase evaluation stage tends to result in satisfaction and dissatisfaction. Also, in this stage, Palmer (2004) states that consumers tend to develop brand loyalty if they obtain satisfaction about their decision-making. Thus, marketers play an active role in developing customer’s brand loyalty. For example, marketers can provide all-weather after-sales services for customers with a view to assure later usage with satisfaction. 2. The Effects of Three Forms of Consumer Behaviour on Established and New Companies 2.1 Brand loyalty It seems that attitudes of consumers tend to build customer loyalty on the certain brand. Evans et al (2006) seem to support this view and point out that consumers’ attitude of one product is significantly different from their attitude of another product, and this attitude can contribute towards loyalty. Indeed, brand loyalty is a competitive marketing strategy for companies especially for established companies. According to Evans et al (2006), loyalty can result in a great number of advantages such as reduction in marketing budgets, expanding market share, and extension of existing brands. For example, in the UK, Tesco is an outstanding retailer. Relying on the success in the UK, Tesco not only extents its career from the retailer to the food manufacture and the clothing manufacture, but also expands its market to China, Korea, and also Thailand. Reichheld (1996) also reports that the longer time a customer is loyal to a company, the much more benefits the company obtains as consumers tend to purchase more products in that company. Furthermore, customers tend to neglect prices of the product in certain industries, so companies can double their profits. For example, the advent of Apple products has attracted many customers to purchase, and many customers has built their brand loyalty to Apple products no matter how high prices Apple products set. However, the brand loyalty of consumers tends not to be advantageous for new companies. Firstly, the new company should pay a considerable fund of marketing costs to publicize its product and brand name. Secondly, established companies already occupy large amounts of market share. Boush and Jones (2006) note that there are few appropriate positions for later entrants. Thus, it tends to be difficult to attract customers that have brand loyalty to a certain brand from competitors. For example, In spite of the fact that Carrefour is famous for its low price and high quality products, it exited from the South Korea eventually because it is a new company for Korea, failed to seize consumers from competitors. 2.2 Dynamic demands In terms of the dynamic demands of consumers, companies need update their products or services constantly because of the change of consumer demands, although Boush and Jones (2006) indicate that established companies already occupy large amounts of market share. Palmer (2004) proposes that established companies should reposition or extension their brand based on their growing strengths in order to meet the changeable needs of targets. From established companies aspects, Murphy (1998) argues that the extension of brand will has risks on diluting the existing brand. Then, Murphy (1998) provides a related example of Cadbury, a chocolate manufacture in Britain. The managers of Cadbury extended the Cadbury name to embrace non-chocolate products to attract new consumers with a view to reducing investments on developing a new brand such as mashed potatoes, dried milk, and beverages. Over the years, the managers of Cadbury realized this action not only diluted Cadbury’s reputation but also weakened its power in the chocolate area (ibid). Moreover, Andrew (1998) also observes that chances are limited to extent brands if the brand maintains its current product attributes. However, from new companies aspects, dynamic demands of consumers create opportunities for them. Joel and Michael (2010) cite a supporting example that Apple’s success due to the change in the mobile phone industry. Moreover, Hartman and Beck-Dudley (1999) provide empirical evidence to support that dynamic demands create opportunities for new companies. With the improvement of environmental awareness, current customers tend to purchase ecofriendly goods that have no detrimental effects on environment. The CEO of the body shop, Anita Roddick, realized this demand of consumers; therefore, in 1976, the first body shop opened and launched its brand with minimal package, natural products that have not been tested on animals. Based on these initiatives, the body shop became most successful company and remained one of the global brands till today in cosmetic industry (ibid). 2.3 New shopping channel: online With the rise of online shopping, internet has become a popular shopping platform. Today, shopping online tend to be a major shopping channel, compared with traditional shopping channel such as stores or shopping Hall. From established and new companies aspects, this condition has positive effects on them. Palmer (2004) gives supporting ideas that online marketing is not only less expensive to use, but also less time to communicate with consumersï ¼Å'compared with traditional marketing such as face-to-face marketing, and personal selling. The Oxford Associations astutely observes, that most companies receive over 50% reduction in transaction costs through the internet (ibid). Furthermore, internet help marketers improve conservation rate, and update rapidly after reviewing consumers’ feedback such as respond to demand change (ibid). Moreover, Baker (2006) seems to support this view and points out that online marketing can collect different requirements about products, and marketers can use these data to make customization for consumers. However, not only established companies, but also new companies should notice that the internet is not as a perfect platform for marketing. Palmer (2004) argues that challenges for companies are how to attract consumers when they face information overload because Millen (1994:303) reports that â€Å"individuals can process about seven chunks of information† at most. Chang and Wildt (1996) also indicate that price is becoming an important factor to choose products when consumer face large amounts of information. Thus, companies tend to use low-price strategy with a view to attracting consumers’ attention. The results of using this strategy lead to slight profit and enter in a vicious competition. Palmer (2004) also provides a related argument that the security of financial transaction and private information of consumers should be taken into consideration. Many consumers resist shopping online because they tend to have concerns over the safety of their transaction and private information. Thus, companies will probably lose these potential consumers. Additionally, Palmer (2004) also argues that consumers tend to lose confident to shopping online because they are unable to fell goods physically before purchase. For example, when shopping onlineï ¼Å'one consumer is attracted by a product with light red packaging; nevertheless, after receiving the product, the consumer is frustrating about the product because the colour is not same as showing online. After this shopping experience, this consumer tends not to purchase products in that brand. Thus, it seems that the company tend to lose this potential consumer because of the terrible experience by chance. This subsection discusses the effect of three forms of consumer behaviour on established and new companies. In the following subsection, the paper will focus on the future development of both types of companies. 3. Future Development Consumer behavior has become an essential factor to influence marketing strategies. To a certain extent, companies can derive benefits from consumer behaviour; however, it should be noticed that consumer behavior also tend to threaten companies. Thus, companies should adopt effective measures to avoid negative effects of consumer behavior with a view to future development. 3.1 Aspects of brand loyalty In terms of brand loyalty, new companies occupy an inferior position, compared with established companies. However, they can take advantage of marketing strategies to reserve this position. Firstly, they can fluctuate brand loyalty of consumers through changing consumers’ attitude because loyalty builds on the basis of attitudes. Evans, et al (2006:76) state, â€Å"Attitudes are essentially stable structures and are not easily modified†. However, Hovland and Weiss (1951) argue that attitude can be changed if consumers believe what experts say, as expert effects or star effects. For example, if Ming Yao, who is a popular basketball player in the world especially in China, endorse a nutrition brand, his opinion tends to be a strongly persuasive force that can change consumer attitude and make consumers establish a trust relationship with the brand. Moreover, if consumers are loyal to a certain brand, it shows that they are satisfied with it, and this brand loyalty is not easy to change. Thus, Murphy (1998) proposes that brand differentiation strategy is significant for new companies in terms of brand loyalty. Finally, low-price strategy plays a significant role in entering market for new companies, because Chang and Wildt (1996) indicate that price is one of important factors for consumers to choose product. After successfully attract consumers through low-price strategy, new companies can use other marketing mix such as promotion, and packaging to cultivate customer loyalty. However, With regard to price, it should be noticed that there should be a correspondence between the prices of a product and positioning. 3.2 Aspects of dynamic demands With regard to dynamic demands of consumers, established companies face a complex and multifaceted problem of reposition or extension with a view to retaining loyal customers and attracting new customers. Firstly, Andrew (1998) states that the core value of a brand is a significant basis for reposition or extension a brand. It seems that the reposition or extension of a brand tends to pose risks on diluting the existing brand if the company ignore the core value of the brand. The company of Cadbury mentioned in the second section is a good example. Furthermore, â€Å"the message/offering should be perceived and understood in the intended way† (Evans et al, 1996:51) by consumers. Thus, it is essential to communicating with current and potential customers when companies need reposition or extension of their brands. Finally, Gerstman (1998) indicates that packaging is an excellent starting point for established companies wishing to reposition or ext ension of their brands. 3.3 Aspects of online shopping channel With regards to disadvantages of shopping online, firstly, not only established companies, but also new companies should strengthen the security of finance transaction and privacy information and use of third-party platform of payment transaction that can improve the safety of online shopping such as paypal, alertpay in order to make consumers believe that their information is security when they shopping online. Secondly, in terms of information overload, Palmer (2004:513) proposes â€Å"Getting a high ranking in search engines has become a critical skill†. Finally, it seems that no practical approach tend to solve the problem that consumers cannot examine goods physically before purchase. However, the company can take pre-action in order to reduce dissatisfaction. For example, free samples can provide for potential customers to attempt. Conclusion Understanding consumer behavior is not only a necessary in the stage of attracting consumers, but also a process of sustainable development for companies. This paper supports consumer behavior having a significant effect on established and new companies, and this paper has presented three forms of consumer behavior. These included brand loyalty, dynamic demands, and online shopping channel. The discussion of consumer behaviour’ effects on two types companies have been highlighted. Moreover, factors affecting consumer behaviour are mentioned, including psychological factors, social factors, and buying process. Similarly, for future development, effective approaches have also been given in terms of aspects of brand loyalty, aspects of dynamic demands, and aspects of online shopping channel. In discussing effects of consumer behavior on companies, it may be concluded that established companies occupy dominant position in terms of brand loyalty, compared with new companies; from dynamic demands perspective, new companies reverse the inferior position, and get opportunities to develop and attract consumers from competitors; with regard to online shopping channel, established and new companies face same opportunities and threats. The future role of consumer behaviour has also been taken into consideration, based on research by Evans, et al (1996), and this suggests that consumer behaviour has become a basis to analysis market issues or future trend in market. It should be noted that this paper briefly discussed some effects of consumer behavior on companies and other effects is beyond of this paper and further work could be done in this area. This paper would be of particular interest to those companies who face a problem about consumer behavior.