EFOP-3.4.

3-16-2016-00014

INTRODUCTION TO CONSUMER BEHAVIOR

INTRODUCTION TO CONSUMER
BEHAVIOR
Textbook

by

Szabolcs Prónay PhD

University of Szeged

2021

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INTRODUCTION TO CONSUMER BEHAVIOR

General introduction

This material is dedicated to help the students to prepare and learn for the course Introduction
to consumer behavior. The material in itself does not supposed to be able cover the whole
course, therefore it is by no means a substitute for attending the lectures.

The aim of this material is to give an overview of the topics that are covered during the
semester and compile sources that have relevance on the topic of consumer behavior.

Source of the content

This document is a reviewed collection of different sources of knowledge about consumer
behavior. It is an original document only in the form of structural compilation however the
content itself is mostly taken from different sources and compiled without significant
modification. All the sources are cited and recommended for the reader to visit the original
materials for getting an even more insightful knowledge.

After carefully interpreting the elements of the textbook, the students…

…will possess knowledge about

• the decision-making process of customers and the factors affecting it;

• value creation in the market;
• the supply- and value chain that connects the buyers and sellers;
• the concepts and methods of controlling, organising and performing economic
processes along with the methodology of analysing said processes, preparing and
supporting decisions;
…will obtain the competences

• of completing basic leadership and organisation related tasks and of preparing,

launching and leading small to medium sized projects and enterprises;
• of calculating the complex consequences of economic processes and organisational
events;
…will also have the attitude of

• being open towards digital and other office appliances designed to aid economic
processes and the effective operation of economic organisations
…and will have the autonomy and responsibility of

• making informed decisions in connection with routine and partially unfamiliar issues
with creativity

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Table of contets
General introduction .................................................................................................................. 2
1. Consumer’s choice and buying behavior ............................................................................... 4
1.1. The effect of culture on consumer’s choice .................................................................... 6
1.2 The effect of country of origin on consumer’s choice ......................................................... 8
1.3. The effect of social class on consumer’s choice ................................................................ 11
1.4. The effect of personality on consumer’s choice ............................................................... 13
1.5. The effect of perception on consumer’s choice................................................................ 17
2. Emotions and attitudes ........................................................................................................ 19
2.1. Consumer’s attitude towards innovation ......................................................................... 22
2.2. Consumers attitude towards price .................................................................................... 26
3. Groups and its effect on consumer’s choice ........................................................................ 30
3.1. Consumer tribes as special form of groups ....................................................................... 32
3.2. Brand communities as special forms of groups ............................................................... 34

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1. Consumer’s choice and buying behavior

The consumer is in the center of the marketing thinking. In order to make sufficient marketing
decisions, first we have to understand the consumers and the way they buy. In this chapter
we will go through the stages of the buying process, by doing so we will define the steps that
lead to the buying decision. A consumer undergoes the following stages before making a
purchase decision:

Stage 1: Needs / Requirements

It is the first stage of the buying process where the consumer recognizes a problem or a
requirement that needs to be fulfilled. The requirements can be generated either by internal
stimuli or external stimuli. In this stage, the marketer should study and understand the
consumers to find out what kinds of needs arise, what brought them about, and how they led
the consumer towards a particular product.

Stage 2: Information Search

In this stage, the consumer seeks more information. The consumer may have keen attention
or may go into active information search. The consumer can obtain information from any of
the several sources. This include personal sources (family, friends, neighbors, and
acquaintances), industrial sources (advertising, sales people, dealers, packaging), public
sources (mass media, consumer-rating and organization), and experiential sources (handling,
examining, using the product). The relative influence of these information sources varies with
the product and the buyer.

Stage 3: Evaluation of Alternatives

In this stage, the consumer uses information to evaluate alternative brands from different
alternatives. How consumers go about evaluating purchase alternatives depends on the
individual consumer and the specific buying situation. In some cases, consumers use logical
thinking, whereas in other cases, consumers do little or no evaluating; instead they buy on
aspiration and rely on intuition. Sometimes consumers make buying decisions on their own;
sometimes they depend on friends, relatives, consumer guides, or sales persons.

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Stage 4: Purchase Decision
In this stage, the consumer actually buys the product. Generally, a consumer will buy the most
favorite brand, but there can be two factors, i.e., purchase intentions and purchase decision.
The first factor is the attitude of others and the second is unforeseen situational factors. The
consumer may form a purchase intention based on factors such as usual income, usual price,
and usual product benefits.

Stage 5: Post-Purchase Behavior

In this stage, the consumers take further steps after purchase based on their satisfaction and
dissatisfaction. The satisfaction and dissatisfaction depend on the relationship between
consumer’s expectations and the product’s performance. If a product is short of expectations,
the consumer is disappointed. On the other hand, if it meets their expectations, the consumer
is satisfied. And if it exceeds their expectations, the consumer is delighted. The larger the gap
between the consumers’ expectations and the product’s performance, the greater will be the
consumer’s dissatisfaction. This suggests that the seller should make product claims that
faithfully represent the product’s performance so that the buyers are satisfied. Consumer
satisfaction is important because the company’s sales come from two basic groups, i.e., new
customers and retained customers. It usually costs more to attract new customers than to
retain existing customers and the best way to retain them is to get them satisfied with the
product.

After defining the buying process we can conclude that this is a general way of making a
purchase decision, however we know that several factors affect this decision making process.
In the next subchapters we will analyze the main factors that affect the buying decision:

• Culture
• Country of origine
• Social status
• Personality
• Perception

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1.1. The effect of culture on consumer’s

choice
Culture is a meaning system, that defines our point of view, therefore can be abstracted as a
lens. Culture has cognitive elements and beliefs, and also values, norms and symbols

• A more recent view is that culture is the ‘meaning system’ that members of any
specific group use to inform their lives.

• This meaning system provides consumers with a sense of identity (who they are) and
rationale for their actions (how they should behave and what they should be doing in
different contexts).

• It also helps consumers to make sense of what other people and even objects stand
for and how and in what sense they should deal with them.

• Products and brands are a part of this system of meaning, which is often culturally
specific and shared, learned and transmitted through generations.1

• Culture is learned through socialization (from parents, peers, friends, role models).

Culture is a very important aspect to understand the behavior of a consumer. It signifies the
set of values of a particular community. An individual decides to behave in a certain manner
because of his culture. He gets all these values from his parents and family. Every individual
has different sets of values as compared to others, what they see from their childhood when
they start practicing those habits, they become their culture. Culture does vary from individual
to individual, region to region, and country to country, so the marketer needs to pay a lot of
attention in analyzing the culture of various regions and groups. Throughout the process, the
consumer is under influence of his culture as his friends, family, society, and his prestige
influence him. For a marketer, it is very crucial to take all these things into consideration while
analyzing or observing a consumer’s behavior as they play a vital role in his behavior,

1
Evans, Jamal, Foxall, Consumer Behaviour 2006 John Wiley & Sons, Ltd

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perception and expectations. For example, if we observe the taste and preferences, people in
southern India prefers rice to roti whereas north Indian people prefer roti than rice.2

Components of the culture:

◼ Norms: rules that designate forms of acceptable and unacceptable behavior. E.g.: You
should not sleep during this course. ☺

◼ Conventions : practices tied to the conduct of everyday life in various settings (foods,
clothing, home furnishings, entertaining practices, respect within family/business)

E.g.: You try to sleep with open eyes during courses.

◼ Customs/rituals: behaviors that last over time and are passed down in the family
setting (gender roles, holidays, ceremonies at birth, death)

E.g.:My father slept through the entire university, so I try to do the same.

◼ Values: enduring beliefs that specific modes of conduct or behaviors are preferred and
others are not.

E.g.: Sleeping during a course would be nice, but good students don’t do it.

Subculture:
A group within a society, which possess distinctive characteristics. It is a distinctive subgroup
of society that self selects on the basis of a shared commitment to a particular product class,
brand, or consumption activity. Think of teenage subcultures (punks, emos, goths, hipsters),
ethnic subcultures (Spanish subculture in the U.S.), religious subcultures, etc.

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1.2 The effect of country of origin on

consumer’s choice

All country has a country image. Country image is what the people (inside and outside of the
country) think about this country. It is similar to the brand image but in case of a country.

The country image influences the decision making of:

• investors.
• buyers of the product that comes from the country (Country of origin effect, or “Made
in” effect)
• tourists.

The countries are trying to influence and generate positive attitude towards their country
image. We call this formed, strategically defined position of the country: Country brand.
Country branding means defining and maintaining the country image.

To understand country branding, first we have to start from the idea of stereotypes.

Stereotype
Stereotype is a commonly held public belief about specific social groups, or types of
individuals. Like we think that the French are good lovers, the Italians are loud and family
centric, the Germans are punctual and strict, etc.

Nation-Brand Hexagon
Simon Anholt3 introduces a new method, called Nation-Brand Hexagon defining 6 elements
that are important in forming and shaping the country image. Or in other words the country
branding should concentrate on these 6 topics when defining the country brand. For this 6
elements see the figure below:

3
Anholt, Simon (2010).Places: Identity, Image and Reputation. Palgrave Macmillan. ISBN 978-0-230-23977-7.
Anholt, Simon (2007). Competitive Identity: the new brand management for nations, cities and regions. Palgrave
Macmillan. ISBN 978-0-230-50028-0.

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Figure 1 : Simon Anholts’ Nation Brand Hexagon

Source: https://nation-brands.gfk.com/

This 6 elements are measured in surveys among people inside and outside of the country.
These are the questions that are meant to define this 6 elements:

Exports:
• If notice a product is made in following countries, would you feel less good/better about
buying products;
• This country makes major contribution to innovation in science and technology;
• This is a creative place with cutting-edge ideas and new ways of thinking;

Governance:
• The country is competently and honestly governed;
• There are respects rights of its citizens and treats them with fairness;
• The government behaves responsibly in international peace and security;

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behaves responsibly to protect the environment;
• The government of this country behaves responsibly to help reduce world poverty;

Culture:
• This country excels at sports;
• This country has rich cultural heritage;
• This is an interesting/exciting place for contemporary culture such as music, films, art
and literature;

People:
• Would like a person from country as close friend;
• The people of this country would make me feel very welcome;
• The willingness to hire well-qualified people from country;

Tourism:
• Strongly like/not like to visit if money is no object;
• This country is rich in natural beauty;
• This country is rich in historic buildings and monuments;
• This country has a vibrant city life and urban attractions

Immigration and Investments:

• The willingness to live and work for substantial period;
• This is a place with a high quality of life;
• This is a good place to study for educational qualifications;
• This country has businesses I'd like to invest in;
• This country cares about equality in society;

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1.3. The effect of social class on consumer’s

choice

The social groups or membership groups to which an individual belongs are the social classes
that influence him. In the social classes, we usually find people with similar values, lifestyle
and behavior. Now a marketer or a researcher needs to pay attention here because generally
the buying behavior of people in a particular social class to some extent is similar, though the
level of influence may be low or high, he can tailor his marketing activities according to
different social classes. Social perception is a very important attribute that influences the
buying behavior of an individual. Example: A person from a low-income group may focus on
price while making the purchase while a person from a higher income group may consider the
quality and uniqueness of the product. Sometimes an individual also is influenced by a social
group to which he does not belong, but wishes to get connected with others. For example, in
a college a student is in no need to buy a smart phone but purchases it to be part of that group
and be accepted by them.

Social status
A social status of an individual usually comprises of an individual’s attitude, class and prestige.
It depends on the way he carries himself socially or the position at which he is in his work or
family or even in his group of friends. The social status of an individual influences his
consumption pattern. Example: A CEO may want to have a celebration and give a party to his
colleagues, friends and family, so for his social status he may want to book a five star hotel,
something like Taj or Oberoi instead of any other normal hotel. A purchase decision takes
place because of the above-mentioned factors. A consumer is influenced by his culture,
environment, family, social status and groups. Companies need to understand these factors
and develop strategies and market themselves accordingly to meet the needs of the
consumers and increase sales.4

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https://www.tutorialspoint.com/consumer_behavior/consumer_behavior_tutorial.pdf

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1.4. The effect of personality on consumer’s

choice

We usually refer to the customers as a general entity, however we should be aware that each
and every customer is a separate individual with special characteristics that adds up to their
personality. To understand a buyer needs and convert them into customers is the main
purpose of the consumer behavior study. To understand the buyer habits and his priorities, it
is required to understand and know the personality of the buyer.

Personality: Personality signifies the inner psychological characteristics that reflect how a
person reacts to his environment. Personality shows the individual choices for various
products and brands. It helps the marketers in deciding when and how to promote the
product. Personality can be categorized on the basis of individual traits, likes, dislikes etc.
Though personality is static, it can change due to major events such as death, birth or marriage
and can also change gradually with time. By connecting with the personality characteristics of
an individual, a marketer can conveniently formulate marketing strategies. We will discuss in
this chapter the various theories of personality.

Traits: Traits are the features of an individual or tendency of an individual in a particular

manner. Traits help in defining the behavior of consumers. According to the Trait theorists, an
individual’s personality make-up stems out of the traits that he possesses, and the
identification of traits is important. Following are the few of the most common traits:

• Outgoing
• Sad
• Stable
• Serious
• Happy go lucky
• Relaxed
• Self assured
• Practical
• Imaginative

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Trait theory is representative of multi-personality theories. Trait theory is based on certain
assumptions, such as traits which are certainly stable in nature and a limited number of traits
are common to most of the people. According to the Trait theorists, an individual’s personality
make-up stems out of the traits that he possesses, and the identification of traits is important.
The trait theories can be of two broad categories, viz., Simple trait theories and general trait
theories.

The Psychoanalytic Theory of Freud:

Sigmund Freud, the father of psychology, became famous with his psychoanalytic theory of
personality. In fact, the theory is regarded as the cornerstone of modern psychology. Sigmund
based his theory on certain assumptions which is as follows: Unconscious needs or drives lie
at the heart of human motivation and personality. The socialization process that takes place
within people in a social set up has a huge impact on individual behavior. Freud explained
much of how the psyche or the mind operates, and proposed that, human psyche is composed
of parts within our awareness and beyond our awareness. He said that all behavior within an
individual cannot be explained, much lies in the subconscious.

• Id: According to Freud’s psychoanalytic theory of personality, the id operates based on the
pleasure principle, which stresses on immediate fulfillment of needs. The id is the personality
component made up of unconscious psychic energy which satisfies basic urges, needs, and
desires.

• Ego: Ego is that state of awareness which thinks of you as separate from the other. It always
thinks of the glories of the past and hopes of the future and focuses on guiltiness. It always
thinks of what was and what could be.

• Super Ego: The superego provides guidelines for making judgments. It is the aspect of
personality that holds all our moral standards and ideals that we acquire from both parents
and society.

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Self concept:

Self concept is defined as the way, in which we think, our preferences, our beliefs, our
attitudes, our opinions arranged in a systematic manner and also how we should behave and
react in various roles of life. Self concept is a complex subject as we know the understanding
of someone’s psychology, traits, abilities sometimes are really difficult. Consumers buy and
use products and services and patronize retailers whose personalities or images relate in some
way or other to their own self-images Traditionally, individuals are considered to be having a
single self-image which they normally exhibit. Such type of consumers are interested in those
products and services which match or satisfy these single selves. However, as the world
became more and more complex, it has become more appropriate to think of consumers as
having multiple selves.

We all have various views about ourselves. We all may think we are kind, calm, patient, selfish,
rude and what not. It doesn’t matter what perception you have about yourself, but the one
perception that facilitates all these insights is organized self concept. When a person believes
in something that matches his self concept he sticks to his view and does not agree to change
the same and even if does, it takes a lot of time.

It is believed that self concept is learned and no person is born with a self concept. It develops
as and when we grow old. Our self concept is built when we meet people socially and interact
with them. We are the ones who shape or alter our self concept and its quite natural that we
may have a self concept different for ourselves as compared to what people think about us.
For example: If an individual thinks, he is very generous and helpful, it may not necessarily be
the case with others. Others may see him as a selfish person.

Our self concept in life is not constant and it may change with instances that take place in our
lives. When we face different situations and new challenges in life, our insight towards things
may change. We see and behave according to the things and situations. Thus, it is observed
that self concept is a continuous development where we let go things that don’t match our

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self concept and hold on those things that we think are helpful in building our favorable
perception. Self concept is the composite of ideas, feelings, emotions and attitudes that a
person has about their identity and capabilities.5

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1.5. The effect of perception on consumer’s

choice

Our human brain attempts to make sense out of the stimuli to which we are exposed and our
perception is an approximation of reality. It has been observed that we have quite limited
capacity to process information that is available in the outside world. It means, we can process
one task at a time. The task that requires multi-tasking cannot be carried out simultaneously
because we have limited capacity to process the information. For example, it is difficult to
study or learn something from your book while you are listening to music. It is difficult as the
task requires a lot of attention, so it is difficult to perform both simultaneously

Weber’s law:
Weber’s law gives a theory concerning the perceived differences between similar stimuli of
varying intensities. The stronger is the initial stimulus, the greater is the additional intensity
needed for the second stimulus to be perceived as different. For example, If there is a one and
half inch reduction in the size of a five inch candy bar, it won’t get noticed a bit but if the two
inch long chewing gum gets reduced, then it would be noticed.

Sensation:
Sensation is the immediate and direct response of the sensory organs to stimuli. A stimulus
may be any unit of input to any of these senses. Examples of stimuli include products,
packages, brand names, advertisements and commercials. Sensory receptors are the human
organs that receive sensory inputs. Their sensory functions are to see, hear, smell, taste and
feel. All of these functions are called into play, either singly or in combinations, in the
evaluation and use of most consumer products.

The Absolute Threshold:

The lowest level at which an individual can experience a sensation is called the absolute
threshold. The point at which a person can detect a difference between “something” and
“nothing” is that person’s absolute threshold for that stimulus.

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The Differential Threshold:
The minimal difference that can be detected between two similar stimuli is called the
differential threshold or the just noticeable difference.

Subliminal perception:
Subliminal Stimuli represent the words or pictures so as to be unidentifiable to the viewer's
conscious perception. Images may be flashed before the eye too quickly for the conscious
mind to apprehend. For example, in 1957 in a drive-in theater in New Jersey, messages such
as "Drink Coke" and "Eat Popcorn" were flashed on the screen and sales of these refreshments
increased considerably as a result. People are motivated below their level of conscious
awareness. People are also stimulated below their level of conscious awareness; that is, they
can perceive stimuli without being consciously aware that they are doing so. Stimuli that are
too weak or too brief to be consciously seen or heard may nevertheless be strong enough to
be perceived by one or more receptor cells. This process is called subliminal perception
because the stimulus is beneath the threshold, or “limen” of conscious awareness, though
obviously not beneath the absolute threshold of the receptors involved.6

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2. Emotions and attitudes

Emotions influence our decisions, purchase intention, brand choice. Emotions may be
positive or negative. Not only human but also animal emotions (hunger, pain, anger). However
there are typical only-human emotions (like feeling sorrow, feeling intellectually content). We
can differentiate 3 types of emotions:

1. Mood: Not too intense but really long-term emotion

2. Temper: Stormy, quick handling, intense emotion

3. Passion: Strong, long-term emotion

Attitudes
The companies are eager to generate positive emotions towards their brands as these
emotions can generate (re)purchasing. We measure the feeling and associations towards the
brand with attitudes.

Consumer attitude may be defined as a feeling or opinion about something or someone. The
attitude has 3 basic elements:
• Object: The attitude is always refers to an object (eg. attitude towards a brand/ a
company/ a group / a country etc.). So there is no such a thing as a generally negative
attitude of someone. This can be a generally negative mood, but an attitude is always
refers to an object: Susan has negative attitude towards beer but positive attitude
towards flowers.
• Direction: The attitude has a direction, that can be positive (favorable) or negative
(unfavorable).
• Degree: The attitude has a degree (very high, high, low, very low) that shows the
significance of the feeling towards the object: Susan has a very negative attitude
towards beer but a slightly positive attitude towards vine.

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As we, all know that an individual with a positive attitude is more likely to buy a product and
this results in the possibility of liking or disliking a product. Consumer attitude basically
comprises of beliefs towards, feelings towards and behavioral intentions towards some
objects.

Lovemarks
Those brands that generate intensive positive emotions from the customers are considered
as lovemarks (or lovebrands). The notion of lovemarks is constructed by Kevin Roberts, who
defines lovemarks as follows:

Take a brand away and people will find a replacement. Take a Lovemark away and people will
protest its absence. Lovemarks are a relationship, not a mere transaction. You don’t just buy
Lovemarks, you embrace them passionately. That’s why you never want to let go.

A Lovemark’s high Love is infused with these three intangible, yet very real, ingredients:
Mystery, Sensuality and Intimacy.

Mystery draws together stories, metaphors, dreams and symbols. It is where past, present
and future become one.

Mystery adds to the complexity of relationships and experiences because people are drawn
to what they don’t know. After all, if we knew everything, there would be nothing left to learn
or to wonder at.

Sensuality keeps the five senses on constant alert for new textures, intriguing scents and
tastes, wonderful music. Sight, hearing, smell, touch, taste.

Our senses work together to alert us, lift us, transport us. When they are stimulated at the
same time, the results are unforgettable. It is through the five senses we experience the world
and create our memories.

Intimacy means empathy, commitment and passion. The close connections that win intense
loyalty as well as the small perfect gesture. These are often remembered long after functions
and benefits have faded away.

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Without Intimacy people cannot feel they own a brand, and without that conviction a brand
can never become a Lovemark.7

Figure 2 : Lovemarks position compared to other brands

Source: http://www.lovemarks.com/learn/about/

7
http://www.lovemarks.com

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2.1. Consumer’s attitude towards innovation8

Innovation means coming up with something new, to introduce a new product/service or

launch a new method. In today’s hypercompetitive marketplace, companies that successfully
introduce new products are more likely to flourish than those that don’t. Businesses spend
billions of dollars making better “mousetraps” only to find consumers roundly rejecting them.
Studies show that new products fail at the stunning rate of between 40% and 90%, depending
on the category, and the odds haven’t changed much in the past 25 years.

New product and change of behavior

New products often require consumers to change their behavior.As companies know, those
behavior changes entail costs. Consumers incur transaction costs, such as the activation fees
they have to pay when they switch from one cellular service provider to another. They also
bear learning costs, such as when they shift from manual to automatic automobile
transmissions. People sustain obsolescence costs, too. For example, when they switch from
VCRs to DVD players, their videotape collections become useless. All of these are economic
switching costs that most companies routinely anticipate.

What businesses don’t take into account, however, are the psychological costs associated with
behavior change. Many products fail because of a universal, but largely ignored, psychological
bias: People irrationally overvalue benefits they currently possess relative to those they don’t.
The bias leads consumers to value the advantages of products they own more than the
benefits of new ones.

8
JOHN T. GOURVILLE (2006) Eager seller, stony buyer, Harvard Business Review, 2006, june, 99-108

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It also leads executives to value the benefits of innovations they’ve developed over the
advantages of incumbent products.That leads to a clash in perspectives: Executives, who
irrationallyovervalue their innovations, must predict thebuying behavior of consumers, who
irrationally overvalueexisting alternatives. The results are often disastrous: Consumersreject
new products that would make them betteroff, while executives are at a loss to anticipate
failure. Thisdouble-edged bias is the curse of innovation.

Companies have long assumed that people will adopt new products that deliver more value
or utility than existing ones. Thus, businesses need only to develop innovations that are
objectively superior to incumbent products, and consumers will have sufficient incentive to
purchase them. In the 1960s, communications scholar Everett Rogers called the concept
“relative advantage”an identified it as the most critical driver of new-product adoption. This
argument assumes that companies make unbiased assessments of innovations and of
consumers’ likelihood of adopting them.

Figure 3 : What do consumers gain and what do they loss with using innovations

Source: John T. Gourville (2006) Eager seller, stony buyer, Harvard Business Review

First, people evaluate the attractiveness of an alternative based not on its objective, or actual,
value but on its subjective, or perceived, value. Second, consumers evaluate ew products or
investments relative to a reference point, usually the products they already own or consume.
Third, people view any improvements relative to this reference point as gains and treat all
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shortcomings as losses. Fourth, and most important, losses have a far greater impact on
people than similarly sized gains.

The 9x Effect
Several problems arise when executives’ reference points shift, and they adopt the
innovation-as-status-quo perspective. They fall victim to the endowment effect just as
consumers do. They overvalue the benefits of their innovations by a factor of three. Like
consumers, executives are also unaware of their bias. Studies show that when anticipating
others’ judgments or choices, people find it impossible to ignore what they themselves already
know or believe to be true. Therefore, we overestimate the probability that others will solve
a puzzle if we know the answer, we overestimate the likelihood that others will find a hidden
item if we know its location, and we expect others to be better at predicting a company’s
earnings if we know that number. Due to the “curse of knowledge,” as behavioral scientists
call it, developers expect consumers to see the same value in their innovations that they see.

Figure 4: The 9X effect theory

Source: John T. Gourville (2006) Eager seller, stony buyer, Harvard Business Review

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As a result, instead of anticipating difficult sells, managers are shocked when sales don’t
materialize. To sum up, consumers overvalue the existing benefits of an entrenched product
by a factor of three, while developers vervalue the new benefits of their innovation by a factor
of three. The result is a mismatch of nine to one, or 9×, between what innovators think
consumers desire and what consumers really want. (See the exhibit “The 9× Effect.”) Left
unchecked, this mismatch is a recipe for disaster.

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2.2. Consumers attitude towards price9

At a consumer products company we’re familiar with, no one on the senior team would ever
refer to the company’s products as “commodities.” Managers there know what the
competition has to offer, and they know their goods are different. They can name the
distinctive features and explain their value—and they can tell you how much they’ve spent on
innovation to keep that edge. The problem is, their customers don’t seem to have gotten the
memo. Faced with the many options available to them on store shelves, they behave as
though only one factor matters in the buying decision: price.

It is still possible, however, to jolt customers into considering the value of your offering in
terms of quality and personal relevance. To persuade them that they have a meaningful
decision to make, you can—paradoxically—use the last thing you want to be decisive: the
price.

STRATEGY 1: Use Price Structure to Clarify Your Advantage

The first way to use pricing to diminish price sensitivity is to make it call attention to the value
your product or service delivers, and ideally to the one dimension that most meaningfully diff
erentiates it from those of competitors. To achieve this you must revise your pricing structure
(the basis on which you price your various off erings). Goodyear’s problem for a long time was
that customers were unwilling to pay a premium for the innovations the company introduced
to extend tread life. Without a clear reference price for tires, buyers experienced sticker shock
and gravitated to the lowest price. Goodyear solved that problem by pricing its various models
on the basis of how many miles they could be expected to last rather than their engineering
complexity; this highlighted the advantage of those innovations for customers and taught
them a new way to compare offerings that was perfectly aligned with the company’s value
proposition. A pricing change compelled customers to pay attention to a certain form of value.
The key to succeeding with this strategy is to vary price according to what’s most distinctive

9
Marco Bertini&Luc Wathieu: How to stop consumers fixating on price, Harvard Business Review, 2010 May, 84-
91

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about your offering rather than the makeup of the product or service itself. This will take your
offering out of head-to-head price competition and allow it to compete on the personal
relevance to customers of the value it provides.

STRATEGY 2 Willfully Overprice to Stimulate Curiosity

Ever wonder why Apple computers are always priced at a premium and, more important, how
the company can sustain both this premium and strong customer goodwill in the face of
increased competition and tough economic times? Or perhaps you’re familiar with SKF, the
leading global supplier of bearings, which continues to command a 30% to 40% premium
despite stagnant industry growth and the entry of several low-cost alternatives from emerging
market competitors. Both cases demonstrate the thought-provoking effect of moderate
overpricing— that is, setting prices higher than what customers normally intend to pay. The
logic behind willful overpricing is at once intuitive and counterintuitive. Imagine that you are
in the market for a GPS device, and that many models are available from various
manufacturers, all priced at about $200. Thanks to that clustering of options, you are mentally
prepared to part with an approximate amount of cash: $200. Now suppose you come across
a model at your local electronic goods store that costs $300. How do you react?

If you think like the customers in recent studies we conducted, you don’t automatically dismiss
the higher-priced model. Rather, you’re motivated to take a closer look: Perhaps added
features justify that price—features you haven’t considered but might in fact care about. Thus
the manufacturer has produced exactly the response it needs to compete in an intensely price-
conscious market.

STRATEGY 3 Partition Prices to Highlight Overlooked Benefits

A third thought-provoking strategy—known as price partitioning—is to break a price into its
component charges. This highlights dimensions of differentiation that might otherwise go
unnoticed. For example, cable television customers generally buy a bundle of services from
their providers: access to a package of channels, the use of a set-top box and remote control,
and, often, movie channels, broadband internet connections, and other offerings. Providers
have two pricing options: They can charge one all-inclusive price or they can itemize the bill.
The amount payable is the same—so does it matter which approach they use?

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People are unlikely to factor a benefit into their choice unless an explicit charge is made for it.
Though easily applied, this finding is often resisted—sometimes for good reason. Customers
may be annoyed by price partitioning, especially when they sense that sellers aren’t being
straightforward about the total cost. This is a common reaction to so-called low-cost airlines
that partition fees for mandatory services such as check-in and luggage handling. Worst of all,
sometimes these fees are revealed only as the customer advances through the purchase
process, making the price less transparent for comparison. This type of partitioning produces
resentful customers, buyers who simply lacked the energy to repeat the whole process with a
competing seller. It also backfires because it highlights standard features (checking in is
unavoidable) rather than competitive advantages. Partitioning succeeds only when it primes
customers to see a real benefit they would otherwise have overlooked.

STRATEGY 4 Equalize Price Points to Crystallize Personal Relevance

A final strategy for turning price sensitivity to your advantage applies when customers are
asked to choose among several options designed to appeal to different tastes. Our research
suggests that in such cases all the variants should be priced the same, because customers will
then be compelled to discover which option best suits their needs. They will work to fully
appreciate the range of options a seller is offering, not to find ways to shed features for a
lower purchase price.

This is an atypical approach to pricing customizable offerings. Usually, different prices are set
for the different options on offer. A beverage company, for example, would price fruit
smoothies higher if they were made from exotic fruits such as mango and papaya rather than
from apples and pears. The same principle applies to milk, whose price typically varies
depending on the fat content. This makes sense to companies that believe in cost-plus pricing,
because different product options often involve different production costs: If the goal is to
maintain a constant profit margin on items sold, the company must charge different prices.
The problem is that in most mature markets, customers are unresponsive to marginal changes
in value. They have lost interest in understanding how each product option might serve them,
and they default to price minimization. In fact, a list of options at different prices doesn’t make
them examine the relative merits of those options; it activates their predisposition to pare the
price.
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Consider an online music store deciding whether to sell songs at a single price or to vary the
price according to popularity or genre. There was an experiment in which half the participants
were told that the store would charge $1.29 for current hits, $1.19 for soundtracks, $1.09 for
classical music, 99 cents for country, Latin, and jazz, and 89 cents for everything else. The other
half were told that every download would cost $1.29. (Note that the single-price option
matched the highest price in the varied set.) In the experiment there was a seemingly
irrational choice at Apple to charge 99 cents for any track available on iTunes. Many media
analysts, along with major record companies such as Universal, Sony, and EMI, had criticized
Steve Jobs for passing up an opportunity to skim the market and capture more surplus through
price discrimination. They believed he was missing the basic point that high-demand
products—or those demanded by less price-sensitive consumers—can carry a higher price,
while lower-demand products must be priced lower.

Given how things went for Apple, the results of the experiment isn’t surprising—but the size
of the effect did. Participants who were offered music at a uniform price of $1.29 were 31%
more likely to buy and anticipated buying 1.08 more songs, on average, per month. That would
amount to spending $49.10 a year on music rather than $25.95—an increase in revenue of
about 89%. We believe that the uniform price provoked respondents to think about their
desire to consume music in general, instead of reinforcing their fixation on saving as much as
possible. As Steve Jobs explained, to charge a uniform price not only was fair but also got
customers to think about the benefit of iTunes’ huge selection.

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3. Groups and its effect on consumer’s choice

In the previous chapters we analyzed the consumer decision making as an individual

phenomenon. However in everyday life consumers are part of several groups that shape their
decisions and therefore affect their choices. In this chapter we analyze the effect of groups,
communities, tribes and the way they shape the consumer decision making process.

In our daily lives, we all get influenced by a variety of people while making our purchase
decisions. We, as humans do a lot to try to impress others. We make purchase to get
compliments and try that others should not think less of us. A reference group is the group
whose perspective we consider. Now our reference could be very large or very small including
few of our family members or few close friends. Reference groups influence people a lot in
their buying decisions. They set the levels of lifestyle, purchasing patterns, etc. Reference has
several types:

Primary groups:
Primary reference groups are basically the set of people whom you meet every day. They can
be from your family, your close friends, your roommates, etc. These people from primary
groups may have a direct and strong impact in your lives and your buying decisions since they
are very significant to you. Primary groups make you comfortable and give you a feeling that
they are with you when you are confused about a purchase. These people give you very honest
and clear advices as they are so close to you, due to which you could be more confident about
the purchase. Research shows that the bond between people leads people to be effectively
social and as satisfied consumers.

Secondary groups:
Secondary reference groups are usually formal and they speak less frequently. They might be
professionals, your collogues, your seniors at work or your acquaintance at club, etc. In
secondary reference groups the power to influence people is quite less as compared to
primary reference groups as people in these groups are not that comfortable in sharing their
thoughts or views on the purchase. Let’s have a look at few more reference groups.

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Aspirational groups:
Aspirational group is the one to which a person may want to become part of. They currently
are not part of that group but wish to become and get with that group. For doing the same,
they try to dress, talk, act and even think the way the members of that group do. For example,
people who like Madhuri Dixit wish to become like her and meet her and so start purchasing
and using all those products that she endorses.

Dissociative groups:
The people in these groups are totally opposite to the people in the aspirational group. Here
people deny of becoming or getting connected to a particular group. They just hate being
related to that group. For example, if people don’t like a particular community, they would
never like being connected to them. So they would try all the possible ways to avoid the way
in which they dress, think or act. Thus marketers need to understand the likes and dislikes of
the consumers and also the groups to which they belong. Marketers should recognize the
extent to which a reference group influences the consumer and he should also understand
out of all the groups which group influences him the most. 10

In the following subchapters we identify special forms of consumer groups and analyze their
effect on the customers choice.

10
https://www.tutorialspoint.com/consumer_behavior/consumer_behavior_tutorial.pdf

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3.1. Consumer tribes as special form of groups

Tribes are a group with deep interpersonal connections built through shared experiences,
rituals and traditions. Consumer tribes are a special form of tribes: Groups of people
emotionally connected by similar consumption values and usage, who use the social „linking
value” of a products (brands) to create community and express identity. Involvment with a
tribe is an expression of self-identity.

Nowadays consumer communities and tribes plays important role in the society and also in
the economy. The so called „sharing economy” give even more power to the consumer
communities therefore the companies have to adapt to it. Sharing economy means that
instead of owning consumers only rent products or services and in most cases directly from
another consumer. For example: AirBnB, Couchsurfing (flat sharing); Uber (Car sharing);
TaskRabbit (offering services); etc.

There are several new ways where the community and the neo-tribes flourish:

Crowdfunding:
This is a new way of generating funds for your own innovative idea from unknown individuals
who believe in your idea and willing to invest (or in some cases donate) money for it. Eg:
indiegogo.com; kickstarter.com

Crowdsourcing:
This is a form of generating knowledge together, with the help of the community. In some
cases it means a platform or a knowledgebase compiled by consumers (eg. Wikipedia) in other
cases it can be a problem or a request that is defined by the company and solved/answered
by the consumers.

Crowd voting:
Change.org is the leading platform in a new ways of voting, where people from all around the
world can start petitions and vote on existing ones. These petitions can have real impact on
companies decisions.

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Social media:
It is the way of communication and information sharing where consumers can view, produce,
and share content. The largest social media platforms: Facebook, Twitter, WeChat, Snapchat,
Instagram

Influencers and celebrities:

These people are opinion leaders who are followed by a large audience in social media. They
can be well-known famous persons (Eminem, JayZ, Cristiano Ronaldo, Beyoncé), or common
people with opinions and advices on several topics (Zach King, Cameron Dallas)

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3.2. Brand communities as special forms of

groups 11

Brand communities are group of consumers that are loyal to the brand and also feel some kind
of connectedness towards each other. Brand communities are usually formed around well-
known brands (eg. Apple, Harley Davidson, VW, Starbucks, etc.). Many companies that try to
turn their customers into a cohesive “brand community” falter because of serious
misconceptions. For instance, they relegate community building to the marketing department
instead of treating it as a high-level strategy, or they assume that an interactive website will
do the trick.

To build and maintain strong brand communities, companies must understand the individual
and social needs of members and do everything possible to support and engage them on their
own terms. Rather than attempting to control the community, the company should be guided
by it; indeed, the brand community experience should be central to the fi rm’s business model.

By managing their communities with a light, open touch – and sustaining them with corporate-
level commitment – firms can build fierce customer loyalty, increase marketing effi ciency,
and enhance their brand.

Hereby we collected 7 myths that describes the most common misconceptions about brand
communities (myth is a commonly held belief that is thought to be true, however it is not
true):

MYTH #1: A brand community is a marketing strategy.

THE REALITY: A brand community is a business strategy

Too often, companies isolate their community-building eff orts within the marketing function.
That is a mistake. For a brand community to yield maximum benefi t, it must be framed as a
high-level strategy supporting businesswide goals.

11
Fournier, S. & Lee, L. (2009): Getting brand communities right, Harvard Business Review, 2009 April, 105-112

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MYTH #2: A brand community exists to serve the business.

THE REALITY: A brand community exists to serve the people in it.

Managers oft en forget that consumers are actually people, with many diff erent needs,
interests, and responsibilities. A community-based brand builds loyalty not by driving sales
transactions but by helping people meet their needs. Contrary to marketers’ assumptions,
however, the needs that brand communities can satisfy are not just about gaining status or
trying on a new identity through brand affi liation. People participate in communities for a
wide variety of reasons – to fi nd emotional support and encouragement, to explore ways to
contribute to the greater good, and to cultivate interests and skills, to name a few. For
members, brand communities are a means to an end, not an end in themselves.

MYTH #3: Build the brand, and the community will follow.

THE REALITY: Engineer the community, and the brand will be strong.
Most companies think that the triggering factor in forming a brand community is the brand
itself. Therefore they do not pay attention to the community forming and instead they only
concentrate on the brand itself. However people are more interested in the social links that
come from brand affiliations than in the brands themselves. So if the company turns its
attention – and also part of it resources – towards the brand community and help the
members to collaborate, offers platform for discussions, events for meeting, that will serve
directly the brand community and will strengthen the brand indirectly.

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MYTH #4: Brand communities should be lovefests for faithful brand advocates.

THE REALITY: Smart companies embrace the conflicts that make communities
thrive.
Most companies prefer to avoid conflict. But communities are inherently political, and conflict
is the norm. “In” groups need “out” groups against which to define themselves. Think for
example the role of Windows (and the negative attitude towards it) in shaping the Apple
community. Even more so the conflicts can emerge inside the community also, so the
company should not neglect it. Conflicts can be managed and are essential parts of every
community.

MYTH #5: Opinion leaders build strong communities.

THE REALITY: Communities are strongest when everyone plays a role

Opinion leaders and evangelists play important and well-documented roles in social networks.
They spread information, infl uence decisions, and help new ideas gain traction. But whereas
focusing on opinion leaders may be sage advice for buzz campaigns, it is a misguided approach
to community building. Robust communities establish cultural bedrock by enabling everyone
to play a valuable role.

MYTH #6: Online social networks are the key to a community strategy.

THE REALITY: Online networks are just one tool, not a community strategy.
Forming an online community is often a knee-jerk reaction to the CEO’s demand for a Web
2.0 strategy. Online social networks get lots of buzz, and given today’s enabling technologies
it seems silly to pass up opportunities in the virtual world. Unfortunately, most company-
sponsored online “communities” are nothing more than far-flung focus groups established in
the hope that consumers will bond around the virtual suggestion box. There’s nothing wrong
with listening to customers, but this isn’t a community strategy. Online social networks can
serve valuable community functions. They help people find rich solutions to ambiguous
problems and serendipitous connections to people and ideas. Yet even a well-craft ed

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networking site has limitations. The anonymity of web encounters often emboldens antisocial
behavior, and the shallow, transient nature of many online interactions results in weak social
bonds. And, lest we forget, a huge chunk of life still takes place off -line. Physical spaces play
important roles in fostering community connections.

MYTH #7: Successful brand communities are tightly managed and controlled.

THE REALITY: Of and by the people, communities defy managerial control.

Companies build effective communities through a design philosophy that replaces control
with a balance of structure and flexibility. The members of the community are loyal towards
the brand but at the same time they expect the company to be open and trustful towards the
community itself. If the members of the community feel that they are only “used” by the
company and their independence as a group is not supported than their attitude towards the
company can turn to negative.

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