CONSUMER BEHAVIOUR

Meaning and Definition:

Consumer behaviour is the study of how individual customers, groups or organizations
select, buy, use, and dispose ideas, goods, and services to satisfy their needs and wants. It refers
to the actions of the consumers in the marketplace and the underlying motives for those actions.

Definitions:
“Consumer behaviour can be defined as the activities and the actions of people and organisation
that purchase and use economic goods and services, including the influence on these activities
and actions.” JF Engel

“Consumer buying behaviour refers to the buying behaviour of final consumers – individuals and
households who buy goods and services for personal consumption.” Kotler and Armstrong

“Consumer behaviour consists of the acts of individuals in obtaining, using and disposing of
economic goods and services, including the decision processes that precede and determine these
acts.” Kurtz

“Consumer behaviour may be defined as the behaviour that consumers display in searching for,
purchasing, suing, evaluating and disposing of produces, services and ideas which they expect
will satisfy their needs.” Schiffman and Kanuk

Importance of Studying Consumer Behaviour:

‘The field of consumer behaviour studies deal with how individuals, groups and
organisations select, buy, use and dispose off products and services to satisfy their needs and
desires. Thus, according to Webster, “Buyer behaviour is all psychological, social and physical
behaviour of potential customers as they become aware of, evaluate, purchase, consume and tell
other people about products and services.”
The economists call the ‘customer’ a “king”. He is just like a voter in democracy. His
selection of goods or services determines the fate of products/services. Therefore, in order to
attract him more and more, the marketers should know their customers well so that they could
treat them in the way they like to be treated, present the goods in the way; they will appreciate
and close a sale in such a way that consumer satisfaction is created.
The study of consumer behaviour is very useful in determining the form, style,
packaging, brand, trademark etc., of the product. The whole aspect of buying behaviour
determines the durability, price policy and utility aspect in goods. The consumer or buyer
behaviour is extremely important for an effective marketing planning.
The success or failure of marketing depends largely on target consumer’s individual and
group reaction that manifest in the buying patterns. The buyer behaviour is concerned with the
study of factors that influence a person to buy or not to buy. Its concept lies in understanding the
consumer and his motives and therefore, involves seeking answers to pertinent questions like:
Why a buyer buys or does not buy a particular brand or product?
Does a buyer devote much time and study to comprehend the benefits of a product and its
services? Does a buyer buy due emotion or impulse? Does a buyer imitate others? What factors
does a buyer take into consideration in the buying decision?
Some selected definitions of consumer behaviour are as follows:
1. According to Engel, Blackwell, and Mansard, ‘consumer behaviour is the actions and decision
processes of people who purchase goods and services for personal consumption’.

2. According to Louden and Bitta, ‘consumer behaviour is the decision process and physical
activity, which individuals engage in when evaluating, acquiring, using or disposing of goods
and services’.

Nature of Consumer Behaviour:

1. Influenced by various factors:
The various factors that influence the consumer behaviour are as follows:
a. Marketing factors such as product design, price, promotion, packaging, positioning and dis-
tribution.

b. Personal factors such as age, gender, education and income level.

c. Psychological factors such as buying motives, perception of the product and attitudes towards
the product.

d. Situational factors such as physical surroundings at the time of purchase, social surroundings
and time factor.

e. Social factors such as social status, reference groups and family.

f. Cultural factors, such as religion, social class—caste and sub-castes.

2. Undergoes a constant change:

Consumer behaviour is not static. It undergoes a change over a period of time depending on the
nature of products. For example, kids prefer colourful and fancy footwear, but as they grow up as
teenagers and young adults, they prefer trendy footwear, and as middle-aged and senior citizens
they prefer more sober footwear. The change in buying behaviour may take place due to several
other factors such as increase in income level, education level and marketing factors.

3. Varies from consumer to consumer:

All consumers do not behave in the same manner. Different consumers behave differently. The
differences in consumer behaviour are due to individual factors such as the nature of the
consumers, lifestyle and culture. For example, some consumers are technoholics. They go on a
shopping and spend beyond their means.

4. Varies from region to region and country to county:

The consumer behaviour varies across states, regions and countries. For example, the behaviour
of the urban consumers is different from that of the rural consumers. A good number of rural
consumers are conservative in their buying behaviours.
The rich rural consumers may think twice to spend on luxuries despite having sufficient funds,
whereas the urban consumers may even take bank loans to buy luxury items such as cars and
household appliances. The consumer behaviour may also varies across the states, regions and
countries. It may differ depending on the upbringing, lifestyles and level of development.

5. Information on consumer behaviour is important to the marketers:

Marketers need to have a good knowledge of the consumer behaviour. They need to study the
various factors that influence the consumer behaviour of their target customers.

The knowledge of consumer behaviour enables them to take appropriate marketing

decisions in respect of the following factors:
a. Product design/model

b. Pricing of the product

c. Promotion of the product

d. Packaging

e. Positioning

f. Place of distribution

6. Leads to purchase decision:

A positive consumer behaviour leads to a purchase decision. A consumer may take the decision
of buying a product on the basis of different buying motives. The purchase decision leads to
higher demand, and the sales of the marketers increase. Therefore, marketers need to influence
consumer behaviour to increase their purchases.

7. Varies from product to product:

Consumer behaviour is different for different products. There are some consumers who may buy
more quantity of certain items and very low or no quantity of other items. For example, teenagers
may spend heavily on products such as cell phones and branded wears for snob appeal, but may
not spend on general and academic reading. A middle- aged person may spend less on clothing,
but may invest money in savings, insurance schemes, pension schemes, and so on.

8. Improves standard of living:

The buying behaviour of the consumers may lead to higher standard of living. The more a person
buys the goods and services, the higher is the standard of living. But if a person spends less on
goods and services, despite having a good income, they deprives themselves of higher standard
of living.

9. Reflects status:
The consumer behaviour is not only influenced by the status of a consumer, but it also reflects it.
The consumers who own luxury cars, watches and other items are considered belonging to a
higher status. The luxury items also give a sense of pride to the owners.
Consumer Buying Decision:
A very important area for marketing firms is to determine the decision maker or the real
customer in the purchase decision of products and services. For purchasing a car, scooter etc.,
man take the decisions whereas for buying baby products, kitchen-wares, house-furnishing, etc.,
purchasing decisions are taken by women For buying a house or going for vacations, decisions
are taken by majority members in the family. The firm must find out the characteristics of such
persons who play significant role in influencing the decision to make a purchase.

The following are the different participants in any consumer buying decision:
1. Initiator:
Initiator is the person who first suggests the needs of the idea or the need for a particular product
which should be bought for satisfying certain requirements.

2. Influencer:
After the initiator has suggested the idea for a particular product, the influencer is the person who
gives more information or gathers more information which will influence the decision of the
purchase.

3. Decider:
A decider is the person who ultimately decides to buy a particular product depending upon the
situation. He is generally the dominating member of the family or head of the family who carries
out the role.

4. Buyer:
The decision has been made for certain goods, the buyer goes to purchase from the shop. The
actual purchase made by the buyer will depend on the convenience of the family members or of
the group and it may depend on the earning members or head of the family.

5. User:
The user is generally one who actually consumes or uses the product or service and he may or
may not be the initiator, decider or buyer for instance, parents purchase toys but the actual users
are children. It must be borne in mind that the consumers buy a product or services so that it is
required to satisfy a variety of needs-social, psychological etc. Any product or service offered by
the sellers should give maximum utility value to the consumers for which they have paid.

Characteristics of Buyer Behaviour:

1. Buyer behaviour is very complex.

2. Buyer behaviour is the process by which individuals decide whether, what, when, from whom,
where and how much to buy.

3. Buyer behaviour is very dynamic.

4. Consumer behaviour comprises both mental and physical activities of a consumer.

5. It is an integral part of human behaviour.

6. In many cases, it is the sum total of the behaviour of a number of persons.

7. It is influenced by a number of marketing stimuli offered by the marketer.

8. Consumer behaviour is basically social in nature.

9. Consumers act differently at different times.

10. They learn and thereby change their attitudes and behaviour..

PRICING
Definition:
Price goes by various names-freight, fare, license fee, tuition fee, professional charge, rent,
interest, etc. But price in an enterprise/business system is seldom so simple. By definition, price
is the money that customers must pay for a product or service. In other words, price is an offer to
sell for a certain amount of currency.

Here, the word, offer indicates that price is subject to change if there are found insufficient
number of customers at the original price of the product. That is why prices are always on trial. If
they are found to be wrong, either they must be immediately changed or the product itself must
be withdrawn from the market.

Pricing of the product is something different from its price. In simple words, pricing is the art of
translating into quantitative terms the value of a product to customers at a point of time.
Someone has opined that, “The key to pricing is to build value into the product and price it
accordingly.”

Pricing is one of the key elements of marketing mix.

The salient ingredients of pricing are:

(i) Pricing covers all marketing aspects like the item-goods or services-mode of payment,
methods of distribution, currency used, etc.

(ii) Pricing may carry with it certain benefits to the customers like guarantee, free delivery,
installation, free after-sale servicing and so on.

(iii) Pricing refers to different prices of a product for different customers and different prices for
the same customer at different times.

Factors Affecting Prices:

The prices that a firm can charge for its products are subject to many influences. The various
factors -economic and non economic – impinge upon the prices of the products.

Following are the important factors that may apply to all type of products:
(i) Product characteristics
(ii) Product cost

(iii) Objectives of the firm

(iv) Competitive situations

(v) Demand for the product

(vi) Customer’ behaviour

(vii) Government regulations

One can classify the above factors into internal and external or controllable and uncontrollable
factors. In our above factors, the first three factors can be classified as internal or controllable
factors and the remaining four as external or uncontrollable factors. A word about each of these
factors will introduce you to the role of factors affecting prices.

Product Characteristics:
By product characteristics, we mean numerous factors, i-e, the product life cycle, the product
Perishability, the product substitution and demand postponability or the magnitude of the
resistance.

Product Cost:
The second factor, the most important in determining price, is the cost of the product itself.
While making marketing strategy, the decision makers should attempt to optimise the cost. The
cost optimisation helps in determining reasonable price which provide equitable return on the
cost employed vis-a-vis suits the customers’ buying power. In order to optimise the cost of the
product, the decision makers should study different types of cost, viz., fixed cost, variable cost,
and incremental cost.

Objectives of the Firm:

The objectives set by the firm also influence the prices of its products. For example, if the firm
adopts skimming objectives, then the price would generally be high. On the contrary, if the firm
adopts the market penetration as its objective, the price would normally be low.

Competitive Situation:
The magnitude of competition existent in the market also affects prices. If the marketing
manager finds that the magnitude of competition is high, prices tend to be normally high. On the
contrary, in the situation of low competition, the prices would be higher due to favourable
market environment.

If competition exists between the products of the same line with similar quality, the marketer
should also watch the prices of alternative/ substitute products also while determining the prices
of the competitive product.
Demand for the Product:
The fact remains that among the various factors, the demand for the product concern is found
exceptionally instrumental in guiding the pricing decisions. As per the law of demand, if there is
more demand for the product, prices will be high and if there is low demand for the product,
prices will be low. However, essential goods like salt are exception to this law of demand in
affecting the price of the product.

Besides, seasonal nature of demand can also affect pricing policy by making it possible to alter
prices with the high and low seasons of demand for the product. For example, with high demand
for flowers, fruits, and sweets during Deepawali prices increase and decrease during post-
Deepawali period.

Customers’ Behaviour:
In making pricing decisions, the study of customers’ behaviour bears significant relevance. Of
late, the behavioural scientists have gravitated increasing attention on the behavioural science.
They feel that an in- depth study of the customers’ behaviour would help diagnose the reactions
of the customers regarding a product. While studying consumers, they should be traced out into
specific groups in line with market segmentation, For example, if the marketing manager has to
deal with the industrial consumer, the pricing decisions would be different. On the other hand, if
he has to deal with the general consumers, the pricing decisions would be somewhat distinct.

Government Regulations:
While deciding pricing policy, the decision maker does not need to underestimate the
Government regulations imposed from time to time to control the business activity in the
country. Therefore, due weight-age should be assigned to such regulations like Essential
Commodities Act, Industries Development and Regulations Act (IDRA), and the Defence of
India Rules (DIR).

The basic purpose of these regulations is to optimize and regulate the distribution of consumer
goods. For instance, creating artificial scarcity to raise prices of the products in the case of
Government regulation would be a futile exercise.

Pricing Considerations:
Unquestionably, the major objectives of pricing are the earning of maximum profits. This may be
done by a pricing policy that will attempt to achieve a high return.

Whatever pricing policy is to be decided on, for maximum effectiveness certain

considerations must be taken into account before prices can be set. C.L. Bansal has listed
the following important considerations generally weighed in the pricing of the product:
(i) Impact of price and output respectively on revenue and cost.

(ii) The level of output that can yield the maximum consideration towards overheads and profits.

(iii) Scope for price adjustment in accordance with changes in cost and demand conditions of the
product.
(iv) Investigating into future implications, if any, of price change.

(v) Recognitions of rivals’ pricing strategies as well as quick reactions.

(vi) Element of elasticity of demand and revenue.

(vii) Effects of changes in prices of the product on the entry of the new enterprises.

Pricing Policies/Methods:
The common pricing methods and strategies are discussed below:
Cost-plus Method:
The cost involved in the production of any product becomes the prime basis for determining its
price. This cost-plus method is the commonest method used for pricing by the small-scale
enterprises. According to this method, firstly, the total costs, i.e., fixed and variables costs are
worked out. Then, a certain margin for profit is added to total costs because the basic objective
of running an enterprise is to earn profits. Now, what sum comes after is the selling price of the
product.

To put it in simple equation:

Total Cost (Fixed + Variable) + Profit = Selling Price

Skimming Pricing:
Under skimming pricing strategy, a Very high price is charged in the beginning with a view to
recover the cost involved within a shorter period of time. This policy is feasible when the
product introduced is innovative and is used mainly by sophisticated group of customers.
However, the high price is usually supported by heavy promotion.

This policy cannot continue for a long period of time because high price of the product attracts
other manufactures/entrepreneurs also to plunge into manufacturing. As a result, the competition
sets in and the prices tend to fall.

Penetration Pricing:
This is, in a way, contrary to the skimming pricing policy. Under this policy, the price of the
product is set at a lower level to penetrate into the market. The underlying idea is to attract as
many customers as possible at the very outset. This policy can be adopted when the customers
are very particular for price and when the product is an item of mass consumption. Once the
product is accepted in the market, the price of the product is gradually increased.

Market Rate Policy:

This policy adopts the prevailing market rates for determining the price of the product, this
method is used when the product is indistinguishable from those of the competitors. This method
is also used in case of unbranded products like oils, courier, tailoring and repairing/servicing.
Variable Price Policy:
Under this policy, the price of the same product varies from customers to customers depending
upon the situations prevailing in the market. This method is adopted with an objective to
maximize the profits.

The following are some market situations when the entrepreneurs adopt the variable price
policy:
(i) There is difference in the size of customers (e.g. a lower price may be offered to bulk
customers).

(ii) There is a difference in the demand and supply powers between the locations.

(iii) There is a difference in the bargaining powers of various customers.

(iv) There is a difference in the customers’ ability to pay for the same product.

(v) There is a difference in the knowledge of customers’ about the market price of the product.

Resale Price Maintenance (RPM):

Under this policy, the manufacturers of the product fix prices for the wholesalers and retailers.
The retail prices of the product like drugs and detergents are printed on the packages. However,
the retail price is fixed somewhat higher to meet the cost of inefficient retailers not selling the
goods timely. Its disadvantage is that it deprives of the customers from the advantage which may
accrue to them through competition.