Understanding Consumer Behaviour

Consumer behaviour is the study of how individuals and organisations buy, use and discard products and services to satisfy their needs, wants and desires, and how their emotional, psychological and behavioural responses influence their buying decisions.

Understanding how and why customers make their decisions to buy a product, how loyal they are to a brand, how they feel about a brand, what their needs are, whether they are likely to recommend a product to a friend, as well as long it takes them to make a decision to buy - all help a company ensure that their products and services are needed or wanted by consumers, as well as ensuring that marketing messages are being received positively by the company’s target audience.

Before we talk too much about consumer behaviour, let’s first discuss what a consumer is.

To put it simply, a consumer is the end user of a product or service, or the target group of a product or service. A consumer may be an individual or an organisation.

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Watch the following video, The importance of studying consumer behaviour by the Frankfurt School of Finance and Management.

When studying consumer behaviour, you are looking to ask as many questions as you can to understand your customers to find out their needs and desires so you can make sure your company’s products, services and marketing stay relevant.

Organisations are behind the times if they haven’t invested at least some time into personalised marketing campaigns. Personalised marketing can help improve the customer experience and increase brand loyalty, while also ensuring that leads stay warm and actively interested in a product or service that a company provides.

Personalised marketing is not just about adding a name to the top of an email anymore, it's about making sure that the content your audience receives is relevant to them. Many companies use software to create highly customised email automations or ‘drip campaigns’ that will take customers on a personalised journey to ensure that customers receive only content that is relevant to them. These software programs, called email marketing automation tools, can have a whole range of rules set up to drive things like:

• When a customer receives an email
• Which email a customer receives
• When a customer should receive a call from a salesperson
• When a customer should receive a special discount offer
• When a customer should stop receiving emails and much more

Email automation systems allow quite an advanced level of rules and customisation to ensure that different customer groups or even individual customers receive a highly personalised journey.

This level of personalisation is one of the many benefits of analysing consumer behaviour.

Watch

Next, watch a TedTalk by Nicole Martin explaining the concept of personalised marketing.

There are many factors that affect consumer behaviour and purchase decisions. This includes a range of internal and external influences.

Getting to know the various drivers of consumer behaviour can help marketers and business managers understand the motivations of their consumers to aid them in their business decisions.

Internal Factors

Personal

• Age and life cycle stage
• Occupation
• Economic circumstances
• Lifestyle
• Personality
• Seld concept

Psychological

• Motivation
• Perception
• Learning
• Beliefs and attitudes

External Factors

Cultural

• Culture
• Subculture
• Social class

Psychological

• Groups
• Family
• Roles and statuses

Cultural factors

Cultural factors include culture, subculture and social class.

Culture

The cultural background of a consumer will affect their values, behaviours and preferences that are ingrained and inherent to the individual as they have been acquired over a long period of time from family members, their upbringing and/or religion. This includes customs and traditions.

Subculture

Subculture is a group of people who share the same values, norms and traditions that are distinct from those in the wider society. There are many subcultures in Australia (for example, fans of hip hop, church youth groups, hippies, bikers, skaters and so on).

Social class

Social classes are where people who are similar in social status are grouped together and are ranked in a form of social hierarchy. Often, people in the same social classes find that they have similar values, lifestyles, interests and behaviours as others in the same social class.

Social factors

Considerations of social factors include groups, family and roles and statuses.

Groups

When we talk about groups, this refers to the membership of any reference groups that an individual is a part of that may influence them and their decisions. This may relate to where the person socialises, where they work, hobbies and leisure activities. Any group that the person is a part of has the potential to influence a person’s behaviour, lifestyle and attitudes.

Family

A person’s family is perhaps one of the most influencing factors of their social environment. A person’s family will be with them for most of their life and in most circumstances will shape their personality and will help the person acquire their values. Buyer behaviour is often influenced by family.

Social role and status

The social role and status is the position of the person within their community, their family, their group of friends and so on. A social role and status is a set of expectations or attitudes a person has based on their profession, position at work and in the community, gender and so on.

Consider - an individual may choose to buy a Porsche because it represents success to those around them. Similarly, a mortgage broker driving an outdated Holden Commodore might be taken less seriously when they were out visiting clients than if they were driving a luxury European car.

Personal factors

Personal factors include aspects like age, occupation, economic status, activities and interests and personality.

Psychological factors

When we look at the individual’s psychological factors we look at their motivations and emotions, their beliefs and their attitudes and prior experiences.

Perception

Part of the marketing strategy process is to ascertain how consumers gain knowledge and use information from external sources. The perception process is where individuals receive, organise and interpret information in order to attribute some meaning. Perception involves three distinct processes: sensing information, selecting information and interpreting information.

Prior experience

The consumer’s prior experience with the category, product or brand can have a major bearing on purchase decision-making. Experienced consumers, or experts, are more sophisticated consumers; they tend to be more skilful information searchers, look for a broader range of information sources and use complex heuristics to evaluate purchase options. However, novice consumers are less efficient information searchers and tend to perceive higher levels of purchase risk on account of their unfamiliarity with the brand or category. When consumers have prior experience, they have less motivation to search for information, spend less effort on the information search, but can process new information more efficiently.

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The consumer decision process is the set of steps that a consumer goes through from when they first start thinking they need or want to a product or service, right through to after they have made the purchase. Knowing this step-by-step process intimately as a marketing professional helps you set a marketing and sales plan that will help you fulfill the buyer’s needs.

The following flow chart shows the steps a consumer goes through when deciding to buy goods and services.

It’s important to note that culture, social class, personal factors and psychological core as discussed earlier will all influence the consumer in their decision-making process.

Step 1. Need/Problem Recognition

This is the first stage of the process. The process is initiated because the consumer has recognised they have a want or need for a product or service - they have recognised that there is a difference between their current state and their desired or needed state. The driver may be internal or external.

Needs arise because there is a problem that needs to be solved. For example, a business is employing a new staff member and they need new computer equipment for the staff member. Due to this, they need to buy a new laptop and monitor.

More simply, the need may have arisen because the person is hungry and needs food.

Wants usually arise due to external factors. The consumer may have seen an ad for a new product they want to try, or they may have heard from their friends that they should get an air-fryer to try.

When approaching this stage, consider the following questions:

• What kinds of needs or problems arise for the consumer?
• What is the root of these needs or problems?
• How do the needs or problems lead consumers to products?

The unmet need or want creates tension for the consumer which drives them to look for a product or service. The degree to which a person is ready to buy depends on the discrepancy between the person’s desired state and their current state.

Step 2. Information Search

The second stage in the buying process is searching for information and occurs when the person’s interest is peaked enough to find out more to fulfil their unmet needs. The level to which the person searches for information will depend on their desire to make the change.

They want to know more about the options available to them. They may gather information from a variety of sources including:

• Personal sources – including friends and family
• Commercial sources – including advertising, online, marketing, salespeople, packaging and displays
• Public sources – including reviews and social media

Step 3. Evaluate Alternatives

By the time the buyer gets to this stage, they have done enough research about the kind of product that can meet their needs. Now they will be looking to see if there are any alternatives to the product they have found.

Consumers consider alternatives in relation to the functional and also the psychosocial benefits offered:

• Functional benefits – the tangible benefits such as taste, look and feel
• Psychosocial benefits – the abstract benefits such as what others might think of them for buying a certain brand and how the person might feel about a brand

Step 4. Purchase Decision

At this stage, the consumer is deciding whether or not to make the purchase. They have all of the information required to make their decision, and are weighing up their options. There are two major factors that may interfere with a final purchase decision. They are:

• Negative feedback from family and friends or other customers – for example, the consumer may hear from others that they had a negative experience with a shortlisted product
• Decision to purchase may change – for example, a business’s plans to buy equipment may change at this stage.

Step 5. Post-purchase Evaluation

This is the last stage and is often overlooked. After buying a product or service, most consumers are still considering their purchase. They are comparing what they received with their expectations and deciding whether they are satisfied or not. A consumer can be lost even at this stage if the product or service was not as it was promised.

A dissatisfied customer may leave poor reviews, make a complaint, or may give poor feedback to friends and family.

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Some theorists have argued that a number of underlying decision-making styles can be identified among consumers. Sproles and Kendall (1986) developed a Consumer Style Inventory that consists of eight styles that people can be classified into based on their buying decision styles.

The Consumer Style Inventory is a popular tool for consumer behaviour analysts and marketers to this day.

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Buying (or buyer) behaviour can be grouped into the four categories below based on the type of purchase the buyer is making.

Types of buying behaviour

• Habitual buying behaviour
• Variety-seeking buying behaviour
• Dissonance-reducing buying behaviour
• Complex buying behaviour

Habitual buying behaviour

This type of buying behaviour is where a consumer buys a product out of habit because they have bought the same product over a long period of time and may not even consider competitor brands. They may see no difference between competitors or may see no value in comparing. An example of habitual buying behaviour is when you go to the supermarket and buy your favourite everyday grocery store items.

Variety-seeking behaviour

With this type of buying behaviour, a consumer may switch between brands because they are seeking variety or because they are curious to try something new. They are not necessarily dissatisfied with the previous brands they have purchased, but they are not loyal to a particular brand each time they purchase. For example, when a consumer buys body wash or hand soap, they may wish to try a new scent or try a hand soap that foams.

Complex buying behaviour

Complex buying processes usually involve lots of research, thought and consideration by the consumer. This consumer is highly involved in the decision-making process because they are so invested in the outcome of their decision, unlike habitual and variety-seeking buying behaviours. Consumers would use this type of process when making high-risk purchases like a house, car, university course, boat, etc.

Dissonance-reducing buying behaviour

The consumer is quite involved in this type of buying process as the purchase carries a high price, or it is an item that is not purchased frequently (for example, an engagement ring). Therefore, the consumer considers the purchase but may not conduct significant research about brands as the purchase is usually made because the item is conveniently available. They usually find it difficult to choose between brands and may be worried they may make the wrong decision as brands are similarly priced.

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There are many questions that can be asked and answered through consumer analysis. In general, consumer analysis helps an organisation:

• Develop product-specific marketing plans
• Develop strategies for market segmentation
• Target their marketing
• Understand their position in the marketplace
• Make decisions about the Four P’s – place, price, promotion and product

When you are conducting consumer analysis, you might look to answer the common questions (grouped under different areas of marketing strategy) listed below.

Understanding consumers

• What are our market segments?
  • Are there different needs for consumers based on their geographic location, their interests and their customer lifecycle?
  • How profitable is each segment?
• What are the characteristics of consumers in each segment?
  • What is the age, gender, education and lifestyle of consumers? Are they business or individual customers?
• Are customers satisfied with existing products and services?
  • Many organisations invite feedback and testimonials from current clients. This data can be used by marketers as a valuable source of data

Products and services

• What ideas do consumers have for new offerings?
• Is there a need for new products and services in the market? This might be analysed before a new product launch
• What features are being requested by consumers to be added to current products and services?

Branding and marketing communications

• What should our branding and advertising look like?
• Has our advertising been effective?
• Are our customer service strategies working?

For example, many organisations use A and B testing in their marketing where A is one design and B is another design. Whichever receives the highest response rate from consumers after a certain amount of time will be the one the rest of the campaign will switch to. Alternatively, organisations may use A and B testing for the whole campaign and then use the results to inform future campaigns.

Read more about A and B Split Testing here.

Pricing decisions

• Are we charging the right prices?
• What pricing strategies and tactics work?
  • Does offering discount codes and coupons for abandoned carts work?

Segmentation

Customer segmentation is where a customer base is divided into different groups that are similar in certain ways that are relevant to marketing; such as age, gender, interests or spending habits.

Organisations using customer segmentation are marketing on the basis of personalised marketing and aiming to deliver personalised messages where possible. Although the organisation may have one large email list of 10000 contacts, it is ‘segmented’ in the database according to different segment groups.

Each time a campaign is sent, the organisation chooses which segment to send it to, rather than sending it to the whole list of 10000 people. This ensures that only relevant contacts on the list receive the mail.

There are several approaches to take when segmenting a database.

Demographic Segmentation

One of the most common types of segmentation is to segment customers by demographic data. This may include:

• Age
• Generation (Baby boomers, Gen X, Gen Y, Millennials etc.)
• Gender
• Income
• Occupation
• Marital status
• Ethnicity

This type of information is often the easiest to gather as you can ask your customers to provide this information when they check out on your online store.

Geographic Segmentation

Geographic segmentation may be relevant when you need to tailor your messages based on where your customers are geographically located – for example, due to the local culture, compliance requirements or the weather.

Behavioural Segmentation

Behavioural segmentation means dividing your customers based on the way customers interact with the brand. There are many ways an organisation might segment their customers under this category.

This might include things like:

• Customers who have enquired about a certain product
• Customers who have purchased a certain product
• Customers who have added products to their cart but have not checked out – often called ‘abandoned cart'
• Customers who have flagged particular interests in their account profile
• Segmentation based on frequency of purchases
• Level of engagement with marketing communications

Lifecycle- Or Customer Journey-Based Segmentation

This type of segmentation is based on where a customer is in their buying process or their customer lifecycle.

You may have:

• A list for customers who have made an enquiry but haven’t purchased yet
• A list for VIP customers who spend a certain amount of money each year

These segments allow you to target these customers with relevant marketing that relates to their specific needs and supports them in their buying decision.