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Dr. Pretty Bhalla, Lovely Professional University Unit 04: Marketing Environment

Unit 04: Marketing Environment

CONTENTS
Objective
Introduction
4.1 Types of Marketing Environment
4.2 Actors of Marketing Environment
4.3 Need for Analyzing the Marketing Environment
Summary
Key Words
Self Assessment
Answers for Self Assessment
Review Questions
Further Readings

Objective
Significance of Scanning Marketing Environment

Introduction
The marketing environment refers to all internal and external factors, which directly or indirectly

control of an organization; whereas, external factors do not fall within its control. The external
factors include government, technological, economic, social, and competitive forces; whereas,
keters
try to predict the changes, which might take place in future, by monitoring the marketing
environment. These changes may create threats and opportunities for the business. With these
changes, marketers continue to modify their strategies and plans. Definition of Marketing
Environment:
The marketing firm operates within a complex and dynamic external environment. It is the task of
the marketing-oriented organisation to link the resources of the organisation to the requirements of
customers. This is done within the framework of opportunities and threats in the external
environment.
According to Philip Kotler:
transactions &

Features of Marketing Environment

follows:
1. Specific and General Forces: It refers to different forces that affect the marketing
environment. Specific forces include those forces, which directly affect the activities of the
organization. Examples of specific forces are customers and investors. General forces are those
forces, which indirectly affect the organization. Examples of general forces are social, political,
legal, and technological factors.
2. Complexity: It implies that a marketing environment include number of factors, conditions,
and influences. The interaction among all these elements makes the marketing environment
complex in nature.

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3. Vibrancy: Vibrancy implies the dynamic nature of the marketing environment. A large number
of forces outline the marketing environment, which does not remain stable and changes over time.
Marketers may have the ability to control some of the forces; however, they fail to control all the
forces. However, understanding the vibrant nature of marketing environment may give an
opportunity to marketers to gain edge over competitors.
4. Uncertainty: It implies that market forces are unpredictable in nature. Every marketer tries to
predict market forces to make strategies and update their plans. It may be difficult to predict some
of the changes, which occurs frequently. For example, customer tastes for clothes change
frequently. Thus, fashion industry suffers a great uncertainty. The fashion may live for few days or
may be years.
5. Relativity: It explains the reasons for differences in demand in different countries. The product
demand of any particular industry, organization, or product may vary depending upon the
country, region, or culture.

4.1 Types of Marketing Environment

The sale of an organization depends on its marketing activities, which in turn depends on the
marketing environment. The marketing environment consists of forces that are beyond the control
of an organization but influences its marketing activities. The marketing environment is dynamic in
nature. Therefore, an organization needs to keep itself updated to modify its marketing activities as
per the requirement of the marketing environment. Any change in marketing environment brings
threats and opportunities for the organization. An analysis of these changes is essential for the
survival of the organization in the long run.
A marketing environment mostly comprises of the following types of environment:
1. Micro Environment
2. Macro Environment
The discussions of these environments are given below:

1. Micro Environment: Microenvironment consists of the actors close to the company that
affect its ability to serve the company, suppliers, marketing intermediaries, customer
markets, competitors, and publics and its customers,.
These actors are shown in diagram below:
Company
Suppliers
Intermediaries
Competition
Publics
Customers

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4.2 Actors of Marketing Environment

divisions into account. (R&D, Purchasing, operations, finance, production etc.). All of these
interrelated groups form the internal environment. All groups should work in harmony to provide
superior customer value and relationships.
Suppliers: Suppliers are other business organisations and individuals who provide the
organisation with raw materials, parts, components, supplies or services required to produce and
supply products to customers. Suppliers form an important link in the organisations overall
customer value delivery system. Supplier problems can seriously affect marketing. Marketing
managers must watch supply availability supply shortages or delays, labor strikes, and other
events can cost sales in the short run and damage customer satisfaction in the long run.
Intermediaries: Many organizations rely on marketing intermediaries to ensure that their
products reach the final consumer. Marketing intermediaries help the company to promote, sell,
and distribute its products to final buyers. Some organizations supply directly to the retailer whilst

Marketers recognize the importance of working with their intermediaries as partners rather than
simply as channels through which they sell their products. It must partner effectively with
marketing intermediaries to optimize the performance of the total system. Like suppliers,
marketing intermediaries form an important component of the organization overall value delivery
system
Competition: The marketing concept states that to be successful, an organization must provide
greater customer value and satisfaction than its competitors. Marketers must gain strategic

consumers.
Publics: The micro environment also includes various publics. A public is any
group that has an actual or potential impact on an ability to achieve its objectives.
The range of public is as follows:
Financial publics - Media publics - carry news,
features, and editorial opinion.
Government publics - Management must take government developments into account
. Citizen-action publics - sions may be questioned by consumer
organizations, environmental groups, etc.
Local publics - include neighborhood residents and community organizations.
General public -
Internal publics - include workers, managers, volunteers, and the board of directors.

Customers As discussed previously, Customers are crucial and most important actors in the

An organisation should be concerned about the constantly changing requirements of its customers
and should keep in touch with these changing needs by designing and implementing an

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appropriate information gathering system. The organisation can only influence their decisions by
offering products and services that would delight them. Thus, identifying, anticipating and
satisfying/delighting their requirements are a crucial issue for marketers

2. Macro Environment: The macro environment includes the major societal forces that affect
not only the organisation, but also on its competitors and on elements in the micro-
environment. The macro environment tends to be harder to influence than the micro
environment, but this does not mean that organisations must simply remain passive; the
inability to control does not imply the inability to influence. Figure below shows the main
forces in the organisations macro-environment.
It is commonly denoted by the mnemonic PESTEEL forces.
Political Environment
Economic Environment
Social and Cultural Environment
Technological Environment
Ecological Environment
Ethical Environment
Legal Environment

Political Environment The political environment can be one of the less predictable elements in
an marketing environment. Marketers need to monitor the changing political
l
environment consists of laws, government agencies, and pressure groups that influence and limit
various organizations and individuals in a given society.
Economic Environment The economic environment consists of factors that affect consumer
purchasing power and spending patterns and is basically about the level of demand in the economy
and is the most visible aspect in the macro environment. Economic factors are of concern to
marketers because they are likely to influence, among other things, demand, costs, prices and
profits. Some of the key aspects of the economic environment are as Income distribution, Inflation
level, Economic Boom and Recession, Investment Policy, Interest Rates, saving habits etc.
a. Inflation different products. For example, higher petrol
prices lead to a fall in demand for cars.
b. Interest Rates: It determines the borrowing activities of the organization. For example, increase
in interest rates for loan may lead organizations to cut their important activities.

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c. Unemployment: It leads to a no income state, which affects the purchasing power of an
individual. d. Customer Income: It regulates the buying behavior of a customer. The change in the
erns for the products, such as food and clothing.
e. Monetary and Fiscal Policy: It affects all the organizations. The monetary policy stabilizes the
economy by controlling the interest rates and money supply in an economy; whereas, fiscal policy
regulates the government spending in various areas by collecting the revenue from the citizens by
taxing their income

Social and Cultural Environment Of all the elements making up the macro environment,
perhaps socio-cultural factors are the most difficult to evaluate, and hence pose the greatest
challenge to the marketing organisation. Social and cultural change manifests itself in changing
tastes, purchasing behaviour and priorities of consumers and marketers need to understand and
identify these changing trends. Some of the socio-cultural forces are as follows:
Demographic forces: This refers to the structure of population in term of factors such as age,
family size, ethnicity, income distribution and wealth concentration. These variables will determine
the marketing mix strategies.
Socio Cultural factors: are those areas that involve the shared beliefs, attitudes and behaviour
prevalent within the society in which the organisation operates. Changes in taste and fashion are
also components of the social-cultural environment.
Social Responsibility and Ethics: Derived in part from culture, ethical, beliefs about how
marketers should operate affect the ways in which people respond to marketing initiatives.
Changes in attitude towards health: Today, people are more concerned of health than they were a
few decades ago. An individual interest in health and physical fitness in recent years seems to have
cut across most segments of our society. Participation in fitness activities from aerobics to yoga is
on the increase and thus marketers have responded with a wide range of products and services for
the health conscious population.

Technological Environment The technological environment is perhaps the most dramatic forces
that create new technologies, creating new product and market opportunities. The pace of
technological change is becoming increasingly rapid and marketers need to understand how
technological development might affect them. Aspects to be considered:
a. Pace of Technological Change: It leads to product obsolescence at a rapid pace. If the pace of
technological change is very rapid then organizations need to modify their products as and when
required. On the other hand, if the technology is not changing at a rapid pace then there is no need
for the organization to bring constant changes in the product.
b. Research and Development: It helps in increasing growth opportunities for an organization.
Many organizations have developed a separate team for R&D to bring innovation in its products.
Pharmaceutical organizations, such as Ranbaxy and Cipla, have started putting greater force in
R&D and these efforts have led to great opportunities in global market.
c. Increased Regulation: It refers to government guidelines to ban unsafe products. Marketers
should be aware of these regulations to prevent their violation. Every pharmaceutical organization
takes the approval of the Drugs Controller of India, which lays down the standards for drugs
manufacturing.

Ecological Environment Ecological Environment is concerned of issues as to how the

organisation interacts with and affects the natural environment or the ecology.
Ecological Environment issues relevant to marketing as follows:
Resources Depletion: the impact of the use of certain materials to develop products which would
lead to the depletion of natural resources.
Pollution Concerns o Noise Pollution o Environmental Pollution o Eye pollution

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Ethical Environment Marketing Ethics are moral philosophies/principles that define right or
wrong behaviour in marketing. The most basic ethical issues have been formalized through laws
and regulations to conform to the standards of society. At the very least, marketers are expected to
obey these laws and regulations. However, it is important to realise that marketing ethics go
beyond legal issues; ethical marketing decisions foster mutual trust among individuals and in
marketing relationships. Ethical decisions related to marketing would be on the Product, price,
promotion and distribution issues.

Legal Environment Changes in the political environment often lead to changes in legal
environment and in the existing laws enforced. The legal environment sets the basic rules for how a
business should operate in society.
Some of the laws an organisation should be aware of are as follows:
Protection of intellectual rights
Consumer Protection act
Companies Act
Regulatory commission
Environmental protection laws
Code of takeovers and mergers.
Laws with regard to media freedom and advertising
Exchange control

4.3 Need for Analyzing the Marketing Environment

The business environment is not static. It is continuously changing with fast speed. The marketing
environmental analysis will help the marketer to:

i. Become well acquainted with the changes in the environment.

ii. Gain qualitative information about the business environment; which will help him to
develop strategies in order to cope with ever changing environment.
iii. iii. Conduct marketing analysis in order to understand the markets needs and wants
so as to modify its products to satisfy these market requirements
iv. Decide on matters related to Government-legal-regulatory policies in a particular
country so as to formulate its strategies successfully amidst these policies
v. Allocate its resources effectively and diversify either into a new market segment or
totally into a new business which is outside the scope of its existing business.
vi. Identify the threats from the environment in terms of new competitors, price wars,
prepare its strategies on the basis of
that.
vii. Identify the opportunities in the environment and exploit these opportunities to

mergers, joint ventures, or alliances; market vacuum occurred due to exit of a

competitor, etc.
viii. Identify its weaknesses such as lower quality of goods or services; lack of marketing
expertise; or lack of unique products and services; and prepare strategies to convert
its weaknesses into strengths
ix. Ide
be in terms of marketing expertise, superior product quality or services, or giving
unique innovative products or services.

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Summary
A number of forces over which it has li
Taken together, they make up its external marketing environment, which includes regulatory and
political activity, economic conditions, competitive forces, changes in technology, and social and
cultural influences.
Successful marketing often hinges on understanding consumer behavior the decision process that
individuals go through when purchasing or using products. Several psychological and social

buy a product: need recognition, information search, evaluation, purchase, and post purchase
evaluation.

Key Words
Environment
Macro Environment
Micro Environment
Technological
Socio -Cultural
Technological
Political.

Self Assessment

1. Which of the following is part of an organisation's marketing environment?

A. The organisation's micro-environment

B. The organisation's macro-environment
C. Any internal or external force that affects the organisation's ability to create, communicate,
deliver and exchange offerings of value
D. All of the options listed are part of an organisation's marketing environment

2. The process of breaking the marketing environment into smaller parts in order to gain a better
understanding of it is known as
a) The internal environment
b) Environmental analysis
c) The micro-environment
d) The macro-environment

3. When using the PESTL framework, marketers are investigating

a) Internal forces
b) Macro-environmental forces
c) Micro-environmental forces
d) Competitive force

4. Which of the following statements is correct?

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A. The internal environment includes those factors that are not controllable by the organisation

B. Weaknesses are internal factors that marketers seek to minimise

C. The internal environment includes factors that are controllable by the organisation

D. Both b and c

5. Choose the best answer from the options below to complete the following sentence. An

organisation chart can be a useful tool to help analyse an organisation's

a. Market perception
b. Marketing mix
c. External environment
d. Internal environment

6. An organisation that cuts its marketing budget during an economic downturn could be

more likely to view marketing as

a. Cost
b. An investment
c. Essential
d. Both b and c

7. Which of the following is not a part of an organisation's external environment?

a. Customer
b. Competitors
c. The Micro Environment
d. All of the options are apart of organizations external environment

8. Primary produces such as wheat farmers, construct dams in an attempt to influence their

businesses:

a. Internal Environment
b. External environment
c. Micro Environment
d. Macro Environment

9. Which of the following would not be part of an organisations micro environment?

a. Competitors
b. Customers
c. The economy
d. Partners such as suppliers and retailers

10. Working for the Aldi supermarket chain, you are very aware of the activities of your

company's competitors; Coles and Woolworths, and find that you frequently make changes

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to your businesses in response to actions they have taken. You also notice that they react

when you make changes to your business offering. This competition is occurring within the:

a. Internal environment
b. Micro environment
c. Macro environment
d. The competitive environment

11. In an attempt to overcome legal regulations, an industry body may attempt to influence

which aspect of its marketing environment?

a. Sociocultural
b. Political
c. Competitive
d. Economic

12. The influences in a society and/or its culture/s that affect people's attitudes, beliefs,

behaviours, preferences, customers and lifestyles are known as

a. Sociocultural
b. Political
c. Competitive
d. Economic

13. The global financial crisis was an example of what type of macro-environmental force?

a. Political
b. Sociocultural
c. Competitive
d. Economic

14. A devaluation of the Australian dollar makes exports cheaper and imports more expensive.

Within the macro-environment, this is known as a(n):

a. Political Forces
b. Economic Force
c. Sociocultural Forces
d. Technological Forces

15. A new housing estate with landscaping convenants opens in the vicinity of a garden nursery

business. In term of a SWOT analysis, this would represent

a. A Strength
b. An Opportunity
c. A threat
d. A weakness

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Answers for Self Assessment

1. D 2. B 3. D 4. A 5. D

6. A 7. D 8. B 9. C 10. B

11. B 12. A 13. D 14. B 15. B

Review Questions

1. What is the role of information in marketing and marketing planning?

2. How do changes in marketing practice change the relative importance of different types of
information to the marketing manager?
3. How can efficient management of information and knowledge lead to enhanced
performance and competitive advantage?
4. How can models be used to describe and measure the information environment?
5. What is the relationship between the Information Environment Model and the Integrated
Model of Marketing Planning?

Further Readings
Johnson, G. and K. Scholes. 1999. Exploring Corporate Strategy. Prentice Hall Europe.
London. 560 pp.
Kotler, P. 2000. Marketing Management, The Millennium Edition. Prentice-Hall
International, Inc. London.
Porter, M.E. 1980. Competitive Strategy, Techniques for Analyzing Industries and
Competitors. The Free Press. New York, New York.
Webster, F. E. Jr. 1991 Industrial Marketing Strategy. Third Edition. John Wiley & Sons, Inc.
New York, New York.
Zack, M.H. 1999. Developing a Knowledge Strategy. California Management Review.
41(3):125-145.
Bassie, L.J. 1997. Harnessing the Power of Intellectual Capital. Training and Development.
51(12):25-30.

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References

Kotler, Philip and Gray, Armstrong, and Y, Agnihotri, Prafulla and ul Haque, Eshan (2013)

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Dr. Pretty Bhalla, Lovely Professional University Unit 05: Consumer Behavior

Unit 05: Consumer Behavior

CONTENTS
Objective
Introduction
5.1 Buying Role
5.2 Need to understand Consumer Behavior
5.3 Buying Motives
5.4 Consumer Decision making Process:
5.5 Organizational Buyer Behavior
5.6 Stages in Organizational Buying
Summary
Keywords
Self Assessment
Answers for Self Assessment
Review Questions
Further Readings

Objective
1. Understand the complex nature of consumer decision making
2. understand need to study consumer behavior
3. analyze consumer roles
4. elaboratively discuss buying motives.
5. understand consumer buying decision process and buying influencers
6. understand business buying behavior,
7. steps involved in the process,
8. analyze how it is different from consumer behavior.

Introduction
Consumer behavior is the actions and the decision processes of people who purchase goods and
according to Engel, Blackwell, and Mansard,
Consumer buying behavior refers to the study of customers and how they behave while deciding to
buy a product that satisfies their needs. It is a study of the actions of the consumers that drive them
to buy and use certain products.
Study of consumer buying behavior is most important for marketers as they can understand the
expectation of the consumers. It helps to understand what makes a consumer to buy a product. It is
important to assess the kind of products liked by consumers so that they can release it to the
market. Marketers can understand the likes and dislikes of consumers and design base their
marketing efforts based on the findings.
Consumer buying behavior studies about the various situations such as what do consumers buy,
why do they buy, when do they buy, how often do consumers buy, for what reason do they buy,
and much more.

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For example, consumer buying behavior is studied by consumer researchers and their aim is
to know why women buy moisturizers (to reduce skin problems), the most preferred brand (Olay,

it (supermarkets, online) and how many times do they buy it (weekly, monthly).

Importance of Consumer Behavior

Understanding consumer behavior is essential for a company to find success for its current
products as well as new product launches. Every consumer has a different thought process and
attitude towards buying a particular product. If a company fails to understand the reaction of a
consumer towards a product, there are high chances of product failure.
Due to the changing fashion, technology, trends, living style, disposable income, and similar other
factors, consumer behavior also changes. A marketer has to understand the factors that are
changing so that the marketing efforts can be aligned accordingly. Consumer behavior is
considered the most indispensable part of organizations because of following reasons:

1. Consumer Differentiation:
In marketing, consumer differentiation is a way to distinguish a consumer from several other
consumers. This helps to make a target group of consumers with the same or similar behavior. Each
group of consumers are different and their needs and wants differ from other groups. When a
marketer is knowledgeable about differentiation of each group of consumers, he can
design separate marketing programes.
Consumer differentiation will help to tailor your strategies to the needs of varying customer
groups. When consumer differentiation is done, you can expand the width and breadth of your
services. You will be able to effectively serve a wider group of people.

2. Retention of Consumers:
behavior is of most importance to marketers in business studies as the main aim is to
create and retain says Professor Theodore Levitt (Kumar, 2004).
Consumer behavior is not just important to attract new customers, but it is very important to retain
existing customers as well. When a customer is happy about a particular product, he/she will
repeat the purchase. Therefore, marketing the product should be done in such a way that it will
convince customers to buy the product again and again.
Thus, it is very evident that creating customer and retaining them is very important. This can be

3. Design Relevant Marketing Program:

Understanding consumer behavior allows you to create effective marketing campaigns. Each
campaign can speak specifically to the separate group of consumers based on their behavior.
For example, while targeting kids market, you may have to look out for venues such as TV ads,
school programes and blogs targeting young mothers. You will need to take different messaging
approaches for different consumer groups.
A study of consumer behavior enables the marketers to understand what motives consumers to
make purchases. Furthermore, the same motive can be utilized in advertising media to stir the
desire to make a purchase. Moreover, marketers should take decisions regarding the brand logo,
coupons, packing and gifts on the basis of consumer behavior.

4. Predicting Market Trend:

Consumer behavior analysis will be the first to indicate a shift in market trend. For example, the
recent trend of consumers is towards environment friendliness and healthy food. This changing
market trend was observed by many brands including McDonalds. Based on the consumer
behavior, brought healthy food options.
By conducting consumer behavior study, a company saves a lot of resources that might otherwise be
allocated to produce a product that will not be sold in the market. For example, in summer a brand will
not waste its resources for producing a product that will not sell in summer. Based on consumer

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behavior the company decides on production strategy which will save on warehouse costs and
marketing costs.
5. Competition:
One of the most important reasons to study consumer behavior is to find out answers to some of
the questions:
Is the customer buying from your competitor?
Why is a consumer buying from your competitor?
What features attracts a consumer to your competitor products?
What gaps are your consumers identifying in your products when compared to your competitors?
Studying consumer behavior facilitates in understanding and facing competition. Based on
expectations, your brand can offer competitive advantages.

6. Innovate New Products:

We all know some of the big names such as New Coke, Crystal Pepsi, Colgate Kitchen Entrées,
Earring Magic Ken Doll, and Wheaties Dunk-a-Balls Cereal. Can you see the similarities in these
products? Yes, they all failed!!
The sad truth is that most new products and new ideas end up in failure. There is an estimate of
new product failures they range from 33% to 90% based on the kind of industry.
Companies consistently strive hard to improve the success rate of their new products or new ideas.
One of the most important ways is to conduct sound and thoughtful consumer behavior study.
With the help of consumer behavior analysis, Nike realized that most of its target audience is not
professional athletes, but many of them were striving to be more like them. So at the 2012 Olympics
in London, Nike introduced a campaign to encourage athletics called . It
aimed to promote the aspirations of being an athlete, not just with high-performing athletes, but
wanted to include all people regardless of their physical capability. The campaign was well
planned and was data-driven, of course, carefully analyzed before taking any action. This message
inspired many consumers and had enormous appeal for target consumers.

7. Stay Relevant in the Market

When the world is changing as rapidly as it is happening today, the biggest challenge we all face is
staying relevant to our target market. And do you know what is the main reason behind the rapid
changes? It is the ever-changing behavior of our customers.
consumers have greater choices and opportunities, which means they can easily switch to a
company that offers better products and services.
Losing relevance will only cost the company its market share. we seen Sony
Walkman failing to stay relevant in the digital music era, and the taxi industry doom with no
preparedness to battle the UBER uprise!!

8. Improve Customer Service

Consumers require different levels of customer service, and understanding the differences within
your customer base will help you provide the most appropriate service for individual needs.

For example, if you own an electronics store, high school or college students who buy a new
laptop are more likely to understand the features looking for than a person buying his first
computer. With the first demographic, your service goal will be to provide information about the
latest trends in technology, while with the second demographic, need to spend more time
educating the customer, finding out what his specific needs are, and even teaching him how to use
the features of his new electronic device.

5.1 Buying Role

Buying roles refer to the activities that one or more person(s) might perform in a buying decision.
Initiator: the person who first suggests or thinks of the idea of buying the particular product or

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service. Influencer: a person whose views influence other members of the buying center in making
the final decision.
The six main roles in a buying centre are the users, influencers, buyers, deciders, and gatekeepers.
In a generic situation, one could also consider the roles of the initiator of the buying process (who
is not always the user) and the end users of the item being purchased.
Furthermore, what are the different roles that a customer can play in service purchases? Any
marketplace transaction requires at least three customer roles :
(1) buying, that is selecting a product or service ;
(2) paying for it, and
(3) using or consuming it. Thus, a customer can be a buyer, a payer, or a user/consumer.

1. Initiator
First identifies the need to buy a particular product or service to solve an organisational problem.

2. Influencer
This can be discussed through an

Example like parents decide where small children should go and have fun .

3. Decider
Ultimately approves all or any part of the entire buying decision, whether to buy, what to buy, how
to buy and where to buy. For example, in some cases, the parents
pressure.

4. Buyer
Holds the formal authority to select the supplier and to arrange terms of condition. The parent that
pays for the meal.

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5. User
Consumes or uses the product or service. Example, Pulses bought at the store the whole family
becomes the user.

6. Gatekeeper
Controls information or access (or both) to decision-makers and influencers.

5.2 Need to understand Consumer Behavior

The modern marketing management tries to solve the basic problems of consumers in the area of
consumption. To survive in the market, a firm has to be constantly innovating and understand the
latest consumer needs and tastes. It will be extremely useful in exploiting marketing opportunities
and in meeting the challenges that the market offers.

Need To Study Consumer Behavior

1. The study of consumer behavior for any product is of vital importance to marketers in
shaping the fortunes of their organizations.
2. It is significant for regulating consumption of goods and thereby maintaining economic
stability.
3. It is useful in developing ways for the more efficient utilisation of resources of marketing.
It also helps in solving marketing management problems in more effective manner.
4. Today consumers give more importance on environment friendly products. They are
concerned about health, hygiene and fitness. They prefer natural products. Hence detailed
study on upcoming groups of consumers is essential for any firm.
5.
information regarding colour, design, size etc. which consumers want. In short, consumer
behaviour helps in formulating of production policy.
6. For effective market segmentation and target marketing, it is essential to have an
understanding of consumers and their behaviour.

5.3 Buying Motives

It is the buying motives which induce a consumer to buy a particular product.
A lady may buy a sari for physical protection or for wearing something to look beautiful or as a
status symbol.
This buying motive is a strong feeling, desire or emotion that makes the buyer to buy a
product. Buying motives are those influencers or considerations which provide the impulse to buy ,
induce action or determine choice in the purchase of goods and services.

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In short , a buying motive is the reason why buyers buy.

Types of Buying Motives:

1. Emotional and Rational Motives: When a consumer decides to buy without

much logical thinking , his decision is said to be emotional. Emotional Buying motives
are the motives which are affected by the feelings of the heart. Types of Emotional
and Rational Motives are:
A. Sex and Romance motives
B. Love of others (Affection Motive)
C. Social acceptance motive
D. Recreational or relaxation motive
E. Vanity Motive

2. Rational Motives: When a buyer decides to buy after careful consideration or

logical thinking, his decision is said to be rational. Buying with head and mind. In
making rational purchases, the consumer considers prices, durability, dependability,
efficiency, conveniences etc.
A. Monetary Motives
B. Efficiency in Operational and Use
C. Dependability Motive

3. Product and Patronage Motives: It refers to those influencers and reasons which
make the consumer buy a certain product in preference to another.
a. Primary Product Motives: Basic need like hunger, thirst, sleeps etc.
b. Selective Product Motives: determine particular brand or item

4. Patronage motives: Patronage Motives are the reasons or considerations which makes
a buyer to prefer one particular retailer, outlet or service provider over others.
Example:
iPhone. Behind every buying decision made by the customer there is a motive. This

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Emotional Patronage buying motives

When a consumer patronages a particular retailer or outlet without any reasoning then he is said to
be influenced by emotional patronage buying motives. Those motives are include

Rational Patronage buying motives

When a consumer patronages a particular retailer by considering the possible benefits through
logical reasoning then he is said to be influenced by rational buying motives. Those motives include

erson efficiency

5.4 Consumer Decision making Process:

Many people think that the most important stage in a sale is when a customer hands over the
money. But actually, when it comes to how to influence consumer behavior, every single step in the
consumer decision-
imperative that they pay attention to every stage in the buying process.

factors. And too many businesses focus on optimizing certain steps improving checkout,
acquiring customers through SEO etc. without looking at the big picture.
The consumer decision making process is the process by which consumers become aware of and
identify their needs; collect information on how to best solve these needs; evaluate alternative
available options; make a purchasing decision; and evaluate their purchase.
Understanding the consumer decision making process is important to any business, but
ecommerce businesses have a unique opportunity to optimize it. Because online shoppers
generate so much more data than those in brick-and-mortar stores, online retailers can use that data
to implement conversion strategies for every stage of the process.

The 5 Stages of the Consumer Decision Making Process And How to Optimize
different names,
including but not limited to the buyer journey, buying cycle, buyer funnel, and consumer purchase
decision process. But all the names essentially refer to the same thing: The journey a customer goes
through when making a purchase.
So, her
Need recognition (awareness): The first and most important stage of the buying process, because
every sale begins when a customer becomes aware that they have a need for a product or service.

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Search for information (research): During this stage, customers want to find out their options.
Evaluation of alternatives (consideration): This is the stage when a customer is comparing options
to make the best choice.
Purchasing decision (conversion): During this stage, buying behavior turns into action
for the consumer to buy!
Post-purchase evaluation (re-purchase): After making a purchase, consumers consider whether it
was worth it, whether they will recommend the product/service/brand to others, whether they
would buy again, and what feedback they would give.
Now, to show you how these stages of the buying decision process play out in real life, here are
consumer buying process examples that outline each of the steps and ways for your eCommerce
brand to maximize results during each stage.
1. Need recognition (awareness)
The need recognition stage of the consumer decision making process starts when a consumer
realizes a need. Needs come about because of two reasons:
Internal stimuli, normally physiological or emotional needs, such as hunger, thirst, sickness,
sleepiness, sadness, jealousy, etc.
External stimuli, like an advertisement, the smell of yummy food, etc.
Even if the core cause is vanity or convenience, at the most basic level, almost all purchases are
driven by real or perceived physiological or emotional needs. The causes for these stimuli can be
social (wanting to look cool and well dressed) or functional (needing a better computer to do work
more effectively), but they speak to the same basic drivers.

to be left out.

Example: Looking for a New Camera

working well anymore, or they simply want a nicer camera. Maybe they have a vacation coming
up. Or maybe they want to give the camera as a present to their sister, who just had her first child.

able to document special moments; therefore, they have an emotional desire to save these moments
so that they are happy and not sad.

keeping them from surviving, but it does solve a core emotional need.
What happens after someone identifies a need? They begin looking for a solution! Which brings us
to the next step in the customer journey: searching for information.

2. Search for information (research)

As soon as a consumer recognizes a need and begins to search for an answer, you must be there to
help! And where do consumers generally go to look for answers today? Google!

Here are some things a consumer may be searching for:

Best cameras 2020
What is the best affordable camera?
Which cameras are top-rated?
The amount of information a customer needs to search for depends on how much he already knows
about the solutions available,
someone looking for a camera as a gift, and he has no idea which type of camera he wants, or what
features he needs.

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He will need more information than someone who already knows exactly the type of camera he
wants to buy, but just needs to find the right product and the right way to purchase it.
The amount of searching necessary is entirely dependent on the situation, and it can vary widely.
So how do customers search for information? By using internal information (their previous
knowledge of a product or brand) as well as external information (information about a product or
brand from friends or family, reviews, endorsements, press reviews, etc.).
The biggest way you can optimize your online business during the need recognition and awareness
stage is by making sure you show up in search results and that what the consumer sees makes
an impression.

Strategies to optimize during the research stage

ecommerce storefront to rank for the keywords that matter
to your brand. For a complete guide on ecommerce SEO, check out our guide.

Once you know how

optimized to convert. User-generated reviews can help you to build brand awareness during the

3. Evaluation of alternatives (consideration)

promising alternatives. During this phase, shoppers are aware of your brand and have been
brought to your site to consider whether to purchase from you or a competitor.
Consumers make purchase decisions based on which available options best match their needs, and
to minimize the risk of investing poorly, they will make sure there are no better options for them.
Their evaluation is influenced by two major characteristics:
Objective: Features, functionality, price, ease of use
Subjective: Feelings about a brand (based on previous experience or input from past customers)

Example: Comparison shopping for a camera

eller or brand, your goal in the consideration stage is to convince customers
your camera is the best choice. And the most effective way to do that is to keep them on your site
longer and find ways to earn their trust.
Consumers will first weigh the objective characteristics of your camera. Does it have all the features
I want? Is it easy to use? Is it in my budget? Then, the subjective consideration will kick in: Do other
people think it has all the features it should? Has anyone else who bought it expressed any difficulty
with learning how to use it? Is it generally considered a good value for the money?
You only have one shot
is informative, your prices are competitive,
competitor in every single way, the word of previous customers is what will set you apart.

4. Purchasing decision (conversion)

o buy, have decided
where and what they want to buy, and are ready to pull out their credit cards.
But wait! Not so fast. You can still lose a customer at this stage. This is the stage when the
purchasing experience is key easy as possible.

Example: Abandoning checkout for a camera

thoughts: What if the recipient wants a different camera? What if this camera is missing a key
feature that the recipient would want? How difficult will it be for the recipient to return the camera

back on your site, but may

purchase now

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5. Post-purchase evaluation (re-purchase)

In this stage of the consumer purchase decision process, consumers reflect on their recent purchase.
They think about how they feel about it, if it was a good investment, and most importantly, if they
will return to the brand for future purchases and recommends the brand to friends and family.
In this stage, you need to have a post-purchase strategy to increase the likelihood that customers
will engage with your brand again in the future.

Example: Getting feedback and encouraging repeat purchases

their purchase. This is usually when they will leave a review about their experience. This is also
when they are at their most engaged with your brand, and they can be susceptible to strategies that
encourage long term engagement.
At this stage, you want to ensure that customers buy again, and you want to encourage them to
leave UGC that helps other buyers in the future.

5.5 Organizational Buyer Behavior

Those who supply goods and services to consumer markets are themselves in need of goods and
services to lUn their business. These organizations-producers, resellers, and government-make up
vast marketing organizations that buy a large variety of products, including equipment, raw
material, and labor and other services. Some organizations sell exclusively to other organizations
and never come into contact with consumer buyers. Despite the importance of organizational
markets, far less research has been conducted on factors that influence their behavior than on
factors that influence consumers. However, we can identify characteristics that distinguish
organizational buying from consumer buying and typical steps in the organizational buying
process.

Five characteristics mark the organizational buying process:

1. In organizations, many individuals are involved in making buying decisions,
2. The organizational buyer is motivated by both rajonal and quantitative criteria dominant in
organizational decisions; the decision makers are people, subject to many of the same emotional
criteria used in personal purchases.
3. Organizational buying decisions frequently involve a range of complex technical dimensions. A
purchasing agent for Volvo Automobiles, for example, must consider a number of technical factors
before ordering a radio to go into the new model. The electronic system, the acoustics of the
interior, and the shape of the dashboard are a few of these considerations.
4. The organizational decision process frequently spans a considerable time, creating a significant
lag between the marketer's inItial contact with the customer and the purchasing decision. Since
many new factors can enter the picture during this lag time, the marketer's ability to monitor and
adjust to these changes is critical.
5. Organizations cannot be grouped into precise categories. Each organization has a characteristic
way of functioning and a personality
The first item in this list of characteristics has important implications. Unlike the consumer buying
process, organizational buying involves decision making by groups and enforces rules for making
decisions.
These two characteristics greatly complicate the task of understanding the buying process. For
example, to predict the buying behavior of an organization with certainty, it is important to know
who will take part in the buying process, what criteria each member uses in evaluating prospective
suppliers, and what influence each member has. It is also necessary to understand something not
only about the psychology of the individuals involved but also how they work as a group. Who
makes the decision to buy depends in part on the situation. Three types of buying situations have
been distinguished: the straight rebuy, the modified rebuy, and the new task. The straight rebuy is
the simplest situation: The company reorders a good or service without any modifications. The
transaction tends to be routine and may be handled totally by the purchasing department. With the
modified rebuy, the buyer is seeking to modify product specifications, prices, and so on. The

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purchaser is interested in negotiation, and several participants may take part in the buying
decision. A company faces a new task when it considers buying a product for the first time. The
number of participants and the amount of information sought tend to increase with the cost and
risks associated with the transaction. This situation represents the best opportunity for the
marketer.

The Types of product are :

1. Raw material
2. Fabrication parts &material
3. Installation of machinery

5. Operating Suppliers

Three important buying decision :

1. Authority to purchase.
2. Determine the product specification.
3. Choice of supplier.

Three types of industrial buying situations:

Straight Rebuy: buying in routine e.g. : stationery, wood , energy.
Modified Rebuy: modify parts specification or price change e.g.: Spare parts, technology
New Task: Buying for the first time for a new task, highest level of uncertainty e.g.: Plant, building

5.6 Stages in Organizational Buying

The organizational buying process contains eight stages, or key phrases. Although these stages
parallel those of the consumer buying process, there are important differences that have a direct
bearing on the marketing strategy. The complete process occurs likely in the case of a new task.
Even in this situation, however, the process is far more formal for the industrial buying process
than for the consumer buying process. Most of the information an industrial buyer receives is
delivered through direct contacts such as sales representatives or information packets.
It is unlikely that an industrial buyer would use information provided through a trade ad as the
sole basis for making a decision.
1. Problem recognition. The process begins when someone in the organization recognizes a problem
or need that can be met by acquiring a good or service. Problem recognition can occur as a result of
internal or external stimuli. External stimuli can be a presentation by a salesperson, an ad, or
information picked up at a trade show.
2. General need description. Having recognized that a need exists, the buyers must add further
refinement to its description . Working with engineers, users, purchasing agents, and others, the
buyer identifies and prioritizes important product characteristics. Armed with extensive product
knowledge, this individual is capable of addressing virtually all the product-related concerns of a
typical customer. To a lesser extent, trade advertising provides valuable information to smaller or
isolated customers.
Noteworthy is the extensive use of direct marketing techniques (for example, toll-free numbers and
information cards) in co. Junction with many trade ads. Finally, public relations play a significant
role through led placement of stories in various trade journals.
3. Product specification. Technical specifications come next. '!'his is usually the responsibility of the
engineering department. Engineers design several alternatives, depending on the priority list
established earner.
4. Supplier search. The buyer now tries [0 identify the most appropriate vendor. The buyer can
examine trade directories, perform a computer search, or phone other companies for
recommendations. Marketers can participate in this stage by contacting possible opinion leaders

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and soliciting support or by contacting the buyer directly. Personal selling plays a major role at this
stage
5. Proposal solicitation. Qualified suppliers are next invited to submit proposals. Some suppliers
send only a catalog or a sales representative. Proposal development is a complex task that requires
extensive research and skilled writing and presentation. In extreme cases, such proposals are
comparable to complete marketing strategies found in the consumer sector.
6. Supplier selection. At this stage, the various proposals are screened and a choice is made. A
significant part of this selection is evaluating the vendor. One study indicated that purchasing
managers felt that the vendor was often more important than the proposal. Purchasing managers
listed the three most important characteristics of the vendor as delivery capability, consistent
quality, and fair price. Another study found that the relative importance of different attributes
varies with the type of buying situations. For example, for routine-order products, delivery,
reliability, price, and supplier reputation are highly important. These factors can serve as appeals in
sales presentations and in trade ads.
7. Order-routine specification. The buyer now writes the final order with the chosen supplier,
listing the technical specifications, the quantity needed, the warranty, and so on.
8. Performance review. In this final stage, the buyer reviews the supplier's performance. This may
be a very simple or a very complex process.

Summary
Leading companies such as The Coca-Cola Company and Barclays, have constantly improved its
existing products and focused on developing new products. The Coca-Cola Company aligns its
corporate strategy of everyone who is touched by our by conducting market
research to identify consumer behavior. Similarly, Barclays conducted consumer behavior study to
better understand the needs of this target market.
Consumer behavior analysis has emerged as an important tool to understand your customers. By
looking into consumer psychology and the forces behind customer buying behavior, companies can
craft new products, marketing campaigns and increase profitability.
Companies should talk to consumers, watch out for frustrations, and most importantly, identify
their needs and expectations!

Keywords
Consumer, Customer, Behavior, Stages, Awareness, Potential Customers, Marketing, Value,
Research

Self Assessment

1. All those factors particular to a time and place that do not follow from knowledge of the

stable attributes of the consumer and the stimulus and that have an effect on current

behavior are known as _____.

A) situational influence
B) motivators
C) consumption triggers
D) consumption influencers

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2. Which of the following also includes a situation-specific component?

A) personality
B) self-concept
C) involvement
D) demographics

3. At the top of Maslow's hierarchy of needs are ________ needs.

A) esteem
B) self-actualization
C) social
D) safety

4. ________ refers to a set of distinguishing human psychological traits that lead to

relatively consistent and enduring responses to environmental stimuli.

A) Image
B) Personality
C) Psychological transformation
D) Lifestyle

5. The relatively homogeneous and enduring divisions in a society, which are hierarchically

ordered and whose members share similar values, interests, and behavior constitute

________.

A) a culture
B) a subculture
C) a social class
D) a family

6. A person's ________ consist(s) of all the groups that have a direct (face-to-face) or indirect

influence on his/her attitudes or behavior.

A) subculture
B) family
C) social class
D) reference groups

7. greatest that ever

picture of Muhammad Ali, world famous boxer. In terms of Maslow's hierarchy, this ad

was designed to appeal to the consumer's _______________.

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A) Psychological needs
B) Need for esteem
C) Safety needs
D) Self-actualization need

8. Which of the following is NOT a situation in which consumer behavior occurs?

A) communications situation
B) purchase situation
C) usage situation
D) all of the above are situations in which consumer behavior occurs

9. In terms of consumer behavior; culture, social class, and reference group influences have

been related to purchase and _______________.

A) Economic situations
B) Situational influences
C) Consumption decisions
D) Physiological influence

10. Which of the following is an example of a social influence on consumer behavior?

A) The fashion editor of Seventeen magazines writes that any teen who wants to be well-
dressed for the first day of school must wear a shirt that shows her bellybutton
B) The manufacturer of a line of aromatherapy candles markets them at very exclusive stores
C) When Arne went to the store to buy a new dress for Easter, she decided not to buy anything
because of the crowded conditions of the store
D) Billie purchased a pair of Honey brand clogs instead of the Birkenstocks she wanted because
the Birkenstocks were too expensive.

11. When preparing Thanksgiving dinner last year, Marissa worried that her parents would

hate the fact that she served bought pumpkin pies rather than making her own. In terms of

social influences on her behavior, Marissa was most concerned with_________________.

A) A primary reference group

B) A subculture influence
C) A secondary reference group
D) Cultural values

12. As the mother of the groom, Ann was willing to wear the subdued-colored, tailored suit

that the bride had selected for the wedding until the sales clerk showed Ann a red offthe-

shoulder cocktail dress. Because the sales clerk kept telling Ann how great the dress

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looked and because the price of the dress was substantially lower than the suit Ann

bought the dress to wear to the wedding. Assuming Ann really likes her son's fiancée and

does not want to do anything to damage her relationship with him or his bride, Ann's

decision to buy the red dress was a result of ________________ influences.

A) Economic
B) Marketing
C) Reference group
D) Cultural

13. As the mother of the groom, Ann was willing to wear the subdued-colored, tailored suit

that the bride had selected for the wedding until the sales clerk showed Ann a red offthe-

shoulder cocktail dress. Because the sales clerk kept telling Ann how great the dress

looked and because the price of the dress was substantially lower than the suit Ann

bought the dress to wear to the wedding. Assuming Ann really likes her son's fiancée and

does not want to do anything to damage her relationship with him or his bride, Ann's

decision to buy the red dress was a result of ________________ influences.

A) Economic
B) Marketing
C) Reference group
D) Cultural

14. Marketing strategies are often designed to influence _______________ and lead to

profitable exchanges.

A) Consumer decision making

B) Sales strategies
C) Advertising strategies
D) Export strategies

15. One of the key tasks of marketers is ____________ and to create consumer perceptions that

the product is worth purchasing.

A) To make products easily visible and available

B) To promote sales of products
C) To differentiate their products from those of competitors
D) To do marketing surveys

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16. One of the key tasks of marketers is ____________ and to create consumer perceptions that

the product is worth purchasing.

A) To make products easily visible and available

B) To promote sales of products
C) To differentiate their products from those of competitors
D) To do marketing surveys

Answers for Self Assessment

1. A 2. C 3. B 4. B 5. A

6. D 7. C 8. D 9. C 10. A

11. A 12. B 13. B 14. A 15. C

16. C

Review Questions
1. Discuss why an understanding of consumer needs is important for marketing strategy.
Explain specific ways in which an understanding of needs can be used to influence
consumers. Provide an example to illustrate your answers.
2. How does the family influence the consumer socialization of children? What role does
television play in consumer socialization?
3. Explain the scope of Consumer Behaviour.
4. What are the different applications of Consumer Behaviour in different areas?
5. Explain the basic components of consumer behaviour.

Further Readings
Cokley, K., Caldwell, L., Miller, K., & Muhammad, G. (2001). Content analysis of the
Journal of Black Psychology (1985- 1999). Journal of Black Psychology, 27, 424-438.
Furrer, O., Thomas, H., &Goussevskaia, A. (2008). The structure and evolution of the
strategic management field: A content analysis of 26 years of strategic management
research. International Journal of Management Reviews, 10, 1-23.
Hameed, M. A., Waqas, A., Aslam, M. N., Bilal, M., & Umair, M. (2014). Impact of TV
advertisement on children buying behavior. International Journal of Humanities and Social
Science, 4, 246-261.
Hawkins, D., &Mothersbaugh, D. (2009). Consumer behavior: Building marketing strategy.
New York, NY: McGraw-Hill. Helgeson, J. G., Kluge,
E. A., Mager, J., & Taylor, C. (1984). Trends in consumer behavior literature: A content
analysis. Journal of Consumer Research, 10, 449-454.
Howard, J., &Sheth, J. N. (1968). The theory of buyer behavior. New York, NY: John Wiley.
Journal Citation Reports. (2014).
Social sciences edition. New York, NY: Thomson Reuters. Kassarjian, H. H. (1977). Content
analysis in consumer research. Journal of Consumer Research, 4, 8-18

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Dr. Pretty Bhalla, Lovely Professional University Unit 06: Segmentation Decisions

Unit 06: Segmentation Decisions

CONTENTS
Objective
Introduction
6.1 Evolving Marketing Strategies
6.2 Advantages of Segmentation
6.3 Market Segmentation
6.4 Basis of Market Segmentation
6.5 Types of Market Segmentation
6.6 Segmenting Industrial Markets
6.7 Levels of Marketing Segmentation
Summary
Keywords
Self Assessment
Answers for Self Assessment
Review Questions
Further Readings

Objective
Understand characteristics, types and benefits of market Segmentation.

Introduction
The segmentation concept was first developed by Smith in 1957, and is concerned with grouping
consumers in terms of their needs. The aim of segmentation is to identify a group of people who
have a need or needs that can be met by a single product, in order to concentrate the marketing

standardised product by a mass-production method, the firm would need to be sure that there are
sufficient people with a need for the product to make the exercise worthwhile.
The assumptions underlying segmentation are:

-groups of people with similar behaviour, backgrounds, values and needs can be identified.
-groups will be smaller and more homogeneous than the market as a whole.
satisfy large groups of
dissimilar customers.

Reasons for Segmenting Markers

In general, customers are willing to pay a premium for a that meets their needs more specifically
than does a competing product. Thus marketers who successfully carry out market
segmentation and adapt their products to the needs of one or more smaller segments stand to gain
in terms of increased profit margins and reduced competitive pressures. There are several
important reasons why market segmentation needs to be done carefully. Some of the reasons are
outlined below.

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Better matching of customer needs Customer needs differ. Creating separate offers for each
segment makes sense and provides customers with a better solution.

Enhanced profits for business Customers have different disposable income. They are,
therefore, different in how sensitive they are to price. By segmenting markets, businesses can raise
average prices and subsequently enhance profits.

Better opportunities for growth Market segmentation can build sales. For example,
-
introductory, lower-priced product

Retain more customers Customer circumstances change, for example they grow older, form
families, change jobs or get promoted, change their buying patterns. By marketing products that
-
who might otherwise switch to competing products and brands

Target marketing communications Businesses need to deliver their marketing message to a

relevant customer audience. If the target market is too broad, there is a strong risk that
(1) the key customers are missed and
(2) the cost of communicating to customers becomes too high / unprofitable. By segmenting
markets, the target customer can be reached more often and at lower cost

Gain share of the market segment Unless a business has a strong or leading share of a
market, it is unlikely to be maximizing its profitability. Minor brands suffer from lack of scale
economies in production and marketing, pressures from distributors and limited space on the
shelves.

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Each consumer is an individual with individual needs and wants. On the face of it, this creates a
major problem for the marketer, since it would clearly be impossible to tailor-make or customize
each product to the exact requirements of each individual. Before the Industrial Revolution most
products were individually made. This proved to be expensive, and essentially inefficient once
mass-production techniques had come into being.
Unfortunately, mass-production (taken to the extreme) means a reduction in the available choice of
product, since the best way to keep production costs low is to have long production runs, which
means standardizing the product. Every adaptation costs money in terms of re-tooling and re-
packaging the product. In some economies, particularly those in parts of Eastern Europe and in the
Third World, there is not sufficient wealth or investment in industry to allow for the production of
many different types of product. These economies still rely heavily on mass production, and mass
marketing. Mass marketing (or undifferentiated marketing) in which a standard product is
produced for all consumers will only be effective if the consumers concerned have little choice and
do not already own a product that meets the main needs.
For example, in 1930s Germany few families owned cars. Hitler promised the German people that
every family would own a car, so Porsche was commissioned to develop the Volkswagen (literally

approach is less effective in economies where most consumers already own the core benefits of the
product. Once car ownership was widespread and the core benefit of personal transportation was
owned by most families, consumers demanded choices in features and design of their vehicles.
Segmentation deals with finding out how many people are likely to want each benefit, roughly how
much they will be willing to pay for it, and where they would like to buy it from

6.1 Evolving Marketing Strategies

Mass marketing: an attempt to appeal to an entire market with one basic marketing strategy
utilizing mass distribution and mass media. Also known as undifferentiated marketing.
Product variety: an attempt to appeal the entire market with a huge variety of products
produced in mass is made.
Target Marketing: is a market segmentation and market coverage strategy whereby a product is
developed and marketed for a very well defined, specific segment of the consumer population

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6.2 Advantages of Segmentation

6.3 Market Segmentation

Market segmentation is sub dividing of customers into homogenous sub set of customers where
any sub set may conceivably selected as market target to be reached with distinct marketing mix
Segmentation refers to a process of bifurcating or dividing a large unit into various small units
which have more or less similar or related characteristics.

Features of Market Segmentation

1. Market segmentation is a marketing concept which divides the complete market set up
into smaller subsets comprising of consumers with a similar taste, demand and preference.
2. A market segment is a small unit within a large market comprising of like minded
individuals.
3. One market segment is totally distinct from the other segment.
4. A market segment comprises of individuals who think on the same lines and have similar
interests.
5. The individuals from the same segment respond in a similar way to the fluctuations in the
market.

6.4 Basis of Market Segmentation

Gender
The marketers divide the market into smaller segments based on gender. Both men and women
have different interests and preferences, and thus the need for segmentation.
Organizations need to have different marketing strategies for men which would obviously not
work in case of females.
A woman would not purchase a product meant for males and vice a versa.
The segmentation of the market as per the gender is important in many industries like cosmetics,
footwear, jewellery and apparel industries.

Age Group
Division on the basis of age group of the target audience is also one of the ways of market
segmentation.
The products and marketing strategies for teenagers would obviously be different than kids.

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Age group (0 - 10 years) - Toys, Nappies, Baby Food, Prams

Age Group (10 - 20 years) - Toys, Apparels, Books, School Bags
Age group (20 years and above) - Cosmetics, Anti-Ageing Products, Magazines, apparels and so on

Income
Marketers divide the consumers into small segments as per their income. Individuals are classified
into segments according to their monthly earnings.
The three categories are:

High income Group

Mid Income Group
Low Income Group
Stores catering to the higher income group would have different range of products and strategies as
compared to stores which target the lower income group.
il,
Reliance Retail or Big bazaar who cater to the individuals belonging to the lower income segment.
Marital Status
Market segmentation can also be as per the marital status of the individuals. Travel agencies would
not have similar holiday packages for bachelors and married couples.

Occupation
Office goers would have different needs as compared to school / college students.
A beach house shirt or a funky T Shirt would have no takers in a Zodiac Store as it caters
specifically to the professionals.

6.5 Types of Market Segmentation

Psychographic segmentation

value help the marketers to classify them into small groups. Psychographic segmentation classifies
consumers according to their personalities.

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As the reliability of measures has improved, more evidence has come to light of links between
personality and consumer behaviour,5 but psychographic segmentation remains problematical

of segmentation therefore often fails on the grounds of accessibility. For example, researchers might
find out that there is a group of people who relate the brand of coffee that they buy to their self-
esteem. The problem then is that there is no obvious medium in which to advertise this feature of
the coffee: if there were a magazine called Coffee Makes Me Feel Good Monthly there would be no
problem. The advertisers are therefore left with the mass media, such as TV advertising, which may
be far too expensive for the purpose. Some of the most creative ideas in marketing have revolved
around ways of gaining access to such segments.

Geographic Segmentation

Geographic segmentation refers to the classification of market into various geographical areas. A

Nestle promotes Nescafe all through the year in cold states of the country as compared to places
which have well defined summer and winter season.

Geographic segmentation may be carried out for a number of reasons.

or type of area. Clothing manufacturers know that they will sell more heavy-weather clothing in
cold coastal areas than in warm inland areas.

product nationally.

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and most personal services such as hairdressing. Markets may be segmented geographically
according to the type of housing in the area. Firms that supply products specifically aimed at
elderly people in retirement areas. Products aimed at young people might be heavily marketed in
university towns, and so forth.
Segmentation of consumer based on factors like climate zone, continents/country, region , state ,
district and urban/rural area.

Demographic Segmentation
Demographic segmentation is the most commonly used method of segmenting markets, probably
because it is easy to pick up the relevant information from Segmentation variables 79 government
statistics. Demographics is the study of how people differ in terms of factors such as age,
occupation, salary and lifestyle stage.

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Typically, demographic segmentation revolves around age. While this is relevant in many cases, it
is often difficult to see the difference between, say, a 20-year- -year-
lity that all 10-year-olds share the
same tastes. There are undoubtedly 10-year-olds who would not want to visit Disneyland or Luna
Park, and 10-year-olds who would prefer simple burger to a hamburger. Age is, of course, relevant
but it should be included as part of a range of measures, not relied upon on its own.
Demographic variables are shifting over time, as the birth rate falls and the average age of the
population rises. In addition, the number of single-person households is rising as people marry
later and divorce rates increase: in 2001, single-person households represented 30% of UK
households.

The implications of this one change for marketers are far-reaching; here are some of the
food.

-game items.
-sized cars, packs of breakfast cereal, cleaning products, etc.
In Australia, immigration from South-East Asia is causing major changes in eating habits, religious
observances and the linguistic structure of the country. In some cases, marketing activities have
themselves contributed to a cross-fertilization of cultural behavior, so that individuals from one
ethnic group behave in ways more usually associated with another group.
This culture swapping means that ethnic and racial segmentation is no longer possible in most
cases. Overall, demographic change means that new segments are emerging, some of which offer
greater opportunities to marketers than do the segments they replace. Marketers need to monitor
these changes in the demography if they are to remain able to segment the market effectively. Not
all segmentation variables will be appropriate to all markets. A pizza company might segment a
market geographically (locating in a town centre) but would not segment by religion; the situation
would be reversed for a wholesale kosher butcher. This is despite the fact that both firms are in the
food business. Single-variable segmentation is based on only one variable, for example size of firm.
This is the simplest way to segment, but is also the most inaccurate. To achieve multivariable
segmentation, several characteristics are taken into account. The more characteristics are used, the
greater the accuracy and effectiveness, but the smaller the resulting markets.

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Behavioristic Segmentation

The loyalties of the customers towards a particular brand help the marketers to classify them into
smaller groups, each group comprising of individuals loyal towards a particular brand.Behavioural
segmentation can be a useful and reliable way of segmenting. At its most obvious, if the firm is
marketing to anglers they are not interested in how old the anglers are, what their views are on
strong drink, or where they live. All the firm cares about is that they go fishing, and might therefore
be customers for a new type of rod. Accessing the segment would be easily undertaken by
advertising in the angling magazines.
At a deeper level the firm might be interested in such issues as where they buy their fishing tackle,
how much they usually spend on a rod, what kind of fish they are after, and so forth, but this
information is easily obtained through questionnaire-type surveys. Lifestyle analysis has been
widely used for the past 30 years or so, and seeks to segment markets according to how consumers
spend their time, what their beliefs are about themselves and about specific issues, and the relative
importance of their various possessions (e.g. cars, clothes, homes). The attraction of this approach is
that it takes account of a wide range of characteristics of the segment,6 encompassing some
psychographic features and some behavioural features. The customers can be divided into certain
segments on the basis of their knowledge, use or response to a product. Such behavioural variables
are:

1. Occasion :

2. Benefit Sought:

3. User Status :

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Overall Bases of Segmentation:

6.6 Segmenting Industrial Markets

Industrial or organisational markets can be, and are, segmented by marketers according to the
following criteria:

serviced by salespeople, and geographical segmentation enables the salesperson to make best use of
drive time. Often firms in the same industry will locate near each other, perhaps because of
availability of raw materials, or for traditional reasons to do with availability of local skilled
workers.

means that some IBM salespeople specialise in banking, others in insurance, others perhaps in local
government applications of the equipment.

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marketing household central-heating oil, for the plastics industry, for petrochemicals and for
automotive sales.

treatment from customers who buy only in small quantities. This is partly because their needs are
different, and partly because the supplier will tend to value the large buyer over the small buyer.
For example, a glass manufacturer might begin by segmenting according to type of industry
(window glass for construction, toughened glass for cars, bottles and jars for food packaging).
Within the food packaging market the industry might break down further to pickles and sauces,
wines and beers, and soft drinks. The wine and beer bottle market may further break down into
major brewers and bottlers who buy in large quantities, and small privately owned vineyards who
buy on a once-a-year basis. Some of the brewers may buy by tender, some may prefer to use a
regular supplier, and some may have special requirements in terms of bottle shape or design.
As in consumer markets, it is not necessarily the case that buyers act from wholly rational motives

characteristics in the segmentation plan somewhere. This is likely to be the province of the
salesforce since they are dealing with the buyers on a day-to-day basis

6.7 Levels of Marketing Segmentation

Levels of market segmentation are;

1. Mass Marketing or Undifferentiated Marketing.

2. Product-Variety Marketing or Differentiated Marketing.
3. Concentrated Marketing or Niche Marketing.
4. Micro Marketing.
To understand market segmentation levels, we need to see what a market looks like with no, partial
and full segmentation. Let see a hypothetical six buyers the market and how they are segmented;

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1. Mass Marketing or Undifferentiated Marketing Target the entire market with just
one marketing campaign.
Mass marketing is the process of communicating a product to the entire market with one marketing
strategy, using the power of mass distribution and mass media.
Also, know as undifferentiated marketing because this strategy does not target individual market
segments. Different market segments are marketed with the same blanket approach, usually to
maximize sales volume.
Most businesses try combining mass and niche marketing strategies.
Advantages of Mass Marketing

Economies of scale can be obtained in mass markets because of enormous size. Thus, the
average cost of bringing the product to the market will be lower, and hence, profit margins
higher.
Only one marketing plan is required, and no specific market segment is targeted. One
marketing campaign targets the whole market, facilitating marketing economies of scale.
Providing products for a mass market enables establishing a more extensive base of
customers. This will generally increase profitability.

Limitations of Mass Marketing

In mass marketing, the competition is usually broad and extreme.

There are very high barriers to entry for mass markets. Often incumbent competition has
invested in capital equipment, large-scale factories, offshore centers, efficient supply chain
management processes, etc. Huge competition can make it extremely difficult to compete
in a mass-market as a new firm successfully.
Mass marketing is less focussed, requires more resources.
The company can suffer a high loss if the marketing strategy fails.

2. Product-Variety Marketing or Differentiated Marketing Target the Entire market

with different products and marketing mix
In Product-Variety Marketing or Differentiated Marketing, the marketer divides the market into

power, location, and age level.

In product-variety marketing, the seller produces two or more products that have different
features, styles, quality, and so on. Subsequently, Kohinoor produced several kinds of toothpaste
bearing different brands with other packages. They were designed to offer variety to consumers
rather than creating various appeals to different market segments.
Differentiated marketing helps the marketer to connect to each type of customer in the best possible
way. Most companies use different market segments for marketing its entire list of products which
caters to different market levels.
The promotional and advertising activities for a particular focus only to the target market for that
product.
For example, Unilever sells different brands of soap-like Lux, Lifebuoy, wheel, etc.
In differentiated marketing, firms promote several products with different marketing mixes for
serving smaller market segments.
By providing increased satisfaction for each of many target markets, a company produces more
sales, increases production, inventory, and promotional costs.
A company can remain competitive and profitable despite the higher marketing costs. The
increased marketing cost actually comes back as ROI with a high number of sales and a huge loyal
customer base.

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3. Niche Marketing or Concentrated Marketing Target a few well-defined segments

of the market
Niche marketing targets specific and well-defined market segments and concentrates all marketing
efforts on a small but specific and well-defined segment of the population.

by other firms, and developing and delivering goods or services to satisfy them.
As a strategy, niche marketing aims to be a big fish in a small pond instead of being a small fish in a
big pond.
A niche may be identified by dividing a segment into sub-segments or by defining a group with a
different set of characteristics who may look for a unique combination of benefits of attributes in
the product
The main requirements or characteristics of Niche Marketing are
Customers have a distinct set of needs and want from the service or product.
The seller of the service provider needs more skill or niche skills.
Premium prices for higher quality and specialized niche services.

Advantages of Niche Marketing

focused and likely to have a greater appeal within the targeted segment. Mass marketing is not as
focused
Businesses can become highly specialized in finding out the needs and wants of a niche market
they are targeting. With needs and wants being better met, customer loyalty can ensue.
Competitive rivalry within a niche market is less than that for broader markets. Less competition

lead to increased profitability.

Limitations of Niche Marketing

Niche markets, by their definition, are small. The number of total potential customers in the market
is limited. Niche marketing strategies may miss potential customers and depress sales revenues.
Economies of scale may not be obtained in niche markets due to their limited size. Thus, the
average cost of bringing the product to the market will be higher, leading to higher prices and or
lower profit margins.
Profitable niche markets with low barriers to entry are likely to attract new competitors into the
industry. Niche markets are small and cannot sustain a relatively high number of competitors.
Rather than market its products separately to several segments, a firm opt for a concentrated
marketing approach.
With concentrated marketing or niche marketing, a firm focuses on profitably satisfying only one
market segment. It may be a small segment but a profitable segment.
This approach can appeal to a small firm that lacks the financial resources of its competitors and to
a company that offers highly specialized goods and services. Along with its benefits, concentrated
marketing has its dangers.

or customer buying patterns may result in severe financial problems.

Sales may also drop if new competitors appeal successfully to the same segment. Niche marketing
leaves the fortunes of a firm to depend on one small target segment.

4. Micro Marketing Target at a very basic level of the market segment

Micro-marketing looks at the activities individual in marketers in the entire economic sector. This
approach is still more narrowly focused than concentrated marketing. Micro-marketing involves
targeting potential customers at a very basic level, such as postal code, specific occupation, or
lifestyle.

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Ultimately, micromarketing may even target individuals themselves. It is referred to as marketing

to segments of one. The internet allows marketers to boost the effectiveness of micromarketing.
With the ability to customize (individualization attempts by the firm) and to personalize
(individualization attempts by the customer), the internet offers the benefit of mass customization
by reaching the mass market with individualized offers for the customers.
Several types of micro marketing;

Local Marketing.
Individual Marketing

Local marketing

In Local marketing, the seller or the marketer only concentrates on the local market. The products
also have the local appeal or the local usages, and the promotional activities are planned based o
the location only with local flavor.
Here the cost remains high due to lower production, and competition is also less. Marketers can
concentrate on mom in the local market to reach all the customers in the region. The best example
would be the marketing of regional chain of hotels or restaurants, locally produced food products,
etc.
Local marketing can be studied from both the retailer and manufacturer perspective. For the
retailer, local

level. We focus on the interaction between manufacturers and retailers, how manufacturers and
retailers optimize the marketing mix for a product (category) at the store level.

Individual Marketing

known as one-to-one marketing and customized marketing

seller offers a customized product to the consumer.
In simple words, making and selling product(s) according to the needs and preferences of the
consumer.
For example, a Fabrics company will cut your cloths according to the needs of the individual
customers.

message be automatically triggered by one person.

The more attributes included triggering the message, the more relevant it becomes for the
person.
Customer profile attributes: A simple message commonly used is the birthday month
promotion.
New and renewal: Sending automatic messages triggered to the person based on the new, active,
lapsing, or inactive customers (or members) group. The content will be relevant based on their
activity level.
Buying behavior: The spending history (the type of product, average spend, frequency, changing
spending patterns) is used to trigger a message.
Channel behavior: the channel interactions (web, mobile, e/m-commerce, social media, visits) is
used to trigger a message.
Customer sentiments: may include feedback forms, service cases, likes on social media.

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Location: These are often real-time messages being sent when a person is close to, outside, or
inside a particular location.
However, many triggers may be using multiple attributes across categories to send the message.

Example of individual marketing:

A person has recently bought shirts on your e-commerce site.
Based on his previous spending pattern, he usually also buys ties to go with the shirts. You have
recently launched a new set of ties in one of your stores. Three days later, as he walks down the
street outside your store, your beacon detects that he is very close by.
Based on this information, the following push message with a picture is automatically created and

Summary
Because the market and its buyers are vastly diverse, most companies cannot compete in an entire
market. So a company must identify the parts of the market that it can serve profitably.
Companies, nowadays, are shifting from mass marketing and product-variety marketing and
micro-marketing toward target marketing. Target marketing is more useful to sellers in locating
their marketing opportunities.
Sellers can develop the most appropriate product for each target market and mold their prices,
distribution channels, and advertising to reach the target market efficiently.

product-
greater purchase interest) in target marketing.
With the increasing fragmentation of mass markets into many micro-markets, each with different
needs and preferences, target marketing is increasingly assuming the form of micromarketing.
Adopting micromarketing, companies develop their marketing programs to the needs and wants of
narrowly defined geographic, demographic, psychographic, or behavior segments.
Target marketing finally takes the form of customized marketing. In customized marketing, the
company adapts its product and marketing program to the needs of a specific customer or buying
organization.

Keywords
Segmentation, Mass Marketing , Individual Marketing , Niche Marketing , Geographic
Segmentation, Demographic Segmentation, psychographic Segmentation

Self Assessment

1. ___________marketing is an attempt to appeal to an entire market with one basic marketing

strategy

A. Mass marketing
B. Counterfeit Marketing
C. Direct Marketing
D. Profitable marketing

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2. ___________is sub dividing of customers into homogenous sub set of customers where any

sub set may conceivably selected as market target to be reached with distinct marketing mix

A. Mass Marketing
B. Collective marketing
C. Distributive Segmentation
D. Market Segmentation

3. Segmenting consumer based on factors like climate zone, continents/country, region , state ,

district and urban/rural area.

A. Demographic Segmentation
B. Geographic segmentation
C. Psychographic Segmentation
D. Behavioural Segmentation

4. __________ segmentation Groups customers according to their life-style and buying

psychology.

A. Demographic Segmentation
B. Geographic segmentation
C. Psychographic Segmentation
D. Behavioural Segmentation

5. The customers can be divided into certain segments on the basis of their knowledge, use or

response to a product. This type of segmentation is known as :

A. Demographic Segmentation
B. Geographic segmentation
C. Psychographic Segmentation
D. Behavioural Segmentation

6. Effective Market Segmentation is

A. Measurable and Accessible

B. Sustainable
C. Differentiable and actionable
D. All the above

7. The products are made to cater the needs and wants of all the people. This type of marketing

is known as :

A. Mass marketing
B. Segmentation
C. Niches
D. Individualized Marketing

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8. Porsche concentrates only on the sports car market. This type of marketing is known as :

A. Mass marketing
B. Segmentation
C. Niches
D. Individualized Marketing

9. Plus Size clothing is an example of which type of marketing :

A. Mass marketing
B. Segmentation
C. Niches
D. Individualized Marketing

10. A __________ is a more narrowly defined customer group. It is identified by dividing a

segment into sub segments.

A. Mass marketing
B. Segmentation
C. Niches
D. Individualized Marketing

11. The Ultimate level of segmentation leads to segments of one, also called ______.

A. Mass marketing
B. Segmentation
C. Niches
D. Individualized Marketing

12. Lenskart marketing of AI enabled social media sharing is an example of :

A. Mass marketing
B. Segmentation
C. Niches
D. Individualized Marketing
13. The companies that target market very narrowly is called:
A. mass marketing
B. segment marketing
C. Niche Marketing
D. micro marketing

14. Niche marketing helps more in

A. smaller firms
B. larger firms

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C. business giants
D. retail stores

15. Toyata corporation which produces several several different brands of cars is an example of
A. Mass marketing
B. Segmentation
C. Niches
D. Individualized Marketing

Answers for Self Assessment

1. A 2. D 3. B 4. C 5. D

6. D 7. A 8. B 9. C 10. C

11. D 12. D 13. D 14. A 15. B

Review Questions
1. What are the five key areas of segmentation?
2. What are the 6 requirements for effective segmentation?
3. How many ways of segmenting are there? elaboratively explain all
4. What criteria are used for segmenting a market? Giving examples explain all.
5. What are the benefits of segmentation in marketing?

Further Readings
Lawrence Weinstein, Marketing Management, South Western Publications.
Philip Kotler, Marketing Management, Pearson, 2007.

55
V S Ramaswami, S Namakumari, Marketing Management, Macmillan, 2003.

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Dr. Pretty Bhalla, Lovely Professional University Unit 07: Targeting and Positioning

Unit 07: Targeting and Positioning

CONTENTS
Objective
Introduction
7.1 Identify Target Market
7.2 Selecting Target Markets
7.3 Target-Market Strategies
7.4 Targeting Global Markets
7.5 Positioning
Summary
Self Assessment
Answers for Self Assessment
Review Questions
Further Readings

Objective
Understand importance and need of targeting
Analyze factors considered important for choice of target market.

Introduction
It is not possible for a marketer to have similar strategies for product promotion amongst all
individuals. Kids do not get attracted towards products meant for adults and vice a versa. Every
segment has a different need, interest and perception. No two segments can have the same
ideologies or require a similar product.
Target Marketing refers to a concept in marketing which helps the marketers to divide the
market into small units comprising of likeminded people. Such segmentation helps the marketers
to design specific strategies and techniques to promote a product amongst its target market. A
target market refers to a group of individuals who are inclined towards similar products and
respond to similar marketing techniques and promotional schemes.

target market in such a case would be individuals who are obese. The strategies designed to
promote K Special would not be the same in case of any other brand say Complan or Boost which
majorly cater to teenagers and kids to help them in their overall development. The target market for
Kellogg
Jordan, a college student went to a nearby retail store to purchase a shirt for himself. The retailer
tried hard to sell a nice formal shirt to him, but somehow could not convince Jordan. Jordan left the
store sad and empty handed.
Where do you think is the problem?
The problem is neither with Jordon nor the shirt. The retailer in this case failed to understand that
Jordan, being a college student, was not the target audience for the formal shirt. No amount of
convincing helped as the retailer was targeting the wrong audience. The target market for a formal
shirt would be office goers or professionals. Funky T shirts, casual shirts would have worked better
for Jordon.
The target market for Zodiac Clothing Company Limited or Louis Philippe would be the office

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The target market for Cat moss or Giny and Jony would be kids.
In simpler words, target market consists of like-minded individuals for whom an organization can
afford to have similar strategies, promotional schemes and advertisements to entice them and
prompt them to purchase the product. Once a company decides on its target audience, it
implements various promotional strategies to make a brand popular amongst them.

7.1 Identify Target Market

Basis of Target Marketing

Age
Gender
Interests
Geographic location
Need
Occupation

ACTIVITY: Discuss the bases of Segmentation for the following Products:

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Why target marketing? (Need of Target Marketing)

Organizations can use similar kind of strategies to promote their products within a target
market.
They can adopt a more focused approach in case of target marketing. They know their
customers well and thus can reach out to their target audience in the most effective way.

How to create Target Market

The organization must first decide who all individuals would fit into a particular segment.
step is
to decide on the target market.

out what the target market expects from the product.

Once the target market is decided, organizations can decide on the various strategies
helpful to promote their product.

7.2 Selecting Target Markets

After you segment buyers and develop a measure of consumer insight about them, you can begin
to see those that have more potential. Now you are hunting with a rifle instead of a shotgun. The
question is, do you want to spend all day hunting squirrels or ten-point bucks? An attractive
market has the following characteristics:

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. Only a tiny fraction of the

so large (nearly 1.5 billion people), more cars are sold in China than in Europe (and in the
United States, depending on the month). Three billion people in the world own cell

For example, the middle class of India is growing rapidly, making it a very
attractive market for consumer products companies. People under thirty make up the
-made)
films.
ors, or you have found a way to stand out in a
crowd. IBM used to make PCs. However, after the marketplace became crowded with
competitors, IBM sold the product line to a Chinese company called Lenovo.
o reach it. Accessibility, or the lack of
it, could include geographic accessibility, political and legal barriers, technological
barriers, or social barriers. For example, to overcome geographic barriers, the consumer
products company Unilever hires women in third-world countries to distribute the

You have the resources to compete in it. You might have a great idea to compete in the
wind-power market. However, it is a business that is capital intensive. What this means is
that you will either need a lot of money or must be able to raise it.
Consider Terra Cycle, which has
made its mark by selling organic products in recycled packages. Fertilizer made from
worm excrement and sold in discarded plastic beverage bottles is just one of its products.
Cycle to open up a polluting, coal-fired power plant,
no matter how profitable the market for the service might be.

7.3 Target-Market Strategies

Choosing the Number of Markets to Target
Henry Ford proved that mass marketing can work at least for a while. Mass marketing is also
groups of consumers,
which is more work and costs more money. The problem is that buyers are not all alike. If a
competitor comes along and offers these groups a product (or products) that better meet their
needs, you will lose business.

Multi segment Marketing

Most firms tailor their offerings in one way or another to meet the needs of different segments of

vulnerable to competition. Marriott International is an example of a company that operates in a

multi segment market. The company has fifteen different types of facilities designed to meet the
needs of different types of market segments, including the following:
Marriott Courtyard. Targeted at over-the-road travelers.
Ritz-Carlton Hotels. Targeted at luxury travelers.
Marriott Conference Centers. Targeted at businesses hosting small- and midsized meetings.
Marriott Execute Stay. Targeted at executives needing month-long accommodations.
Marriott Vacation Clubs. Targeted at travelers seeking to buy timeshares.
A multi segment marketing strategy can allow you to respond to demographic and other changes
in markets. For example, the growing number of people too old to travel have the option of moving
into o
types of care. A multi segment strategy can also help you weather an economic downturn by
allowing customers to trade up or down among your brands and products. Suppose you take a pay
-Carlton hotels anymore. A room at a JW Marriott the
most luxurious of the Marriott-brand hotels but cheaper than the Ritz is available to you.

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Concentrated Marketing
Some firms especially smaller ones with limited resources engage in concentrated
marketing. Concentrated marketing involves targeting a very select group of customers.
Concentrated marketing can be a risky strategy because you really do have all of your eggs in one
basket. The auto parts industry is an example. Traditionally, many North American auto parts
makers have supplied parts exclusively to auto manufacturers. But when General Motors, Ford,
Chrysler, and other auto companies experienced a slump in sales following the recession that began
in 2008, the auto parts makers found themselves in trouble. Many of them began trying to make
and sell parts for wind turbines, aerospace tools, solar panels, and construction equipment. Bernad

Niche marketing
engaging in niche marketing, your goal is to be a big fish in a small pond instead of a small fish in a
big pond.
Micro targeting, or narrowcasting, is a new effort to isolate markets and target them. It was
originally used to segment voters during elections, including the 2004 U.S. presidential election.
Micro targeting involves gathering all kinds of data available on people everything from their tax
and phone records to the catalogs they receive. Clearly, micro targeting has ethical implications.

7.4 Targeting Global Markets

Firms that compete in the global marketplace can use any combination of the segmenting strategies
we discussed or none at
product across the entire world via a metals broker. The broker would worry about communicating
with customers around the world and devising different marketing campaigns for each of them.

Targeting Strategies Used in Global Markets:

Most companies, however, tailor their offerings to some extent to meet the needs of different buyers
around the world. For example, Mattel sells Barbie dolls all around the world but not the same
Barbie. Mattel has created thousands of different Barbie offerings designed to appeal to all kinds of
people in different countries.

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Pizza Hut has franchises around the world, but its products, packaging, and advertising are
tailored to different markets. Squid is a popular topping in Asia, for instance. Companies tailor
products not only for different countries but also for different customers in different countries.

ocal
market segments in that country. P&G has an advanced formulation of laundry detergent for the
premium segment, a modified product for the second (economy) segment, and a very basic,
inexpensive product created for the third (rural) segment. Dan Sewell

Sellers are increasingly targeting consumers in China, Russia, India, and Brazil because of their fast-

United States. It is Brazil. Brazilians are extremely looks-conscious and increasingly able to afford
cosmetic products as well as plastic surgery.

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Other strategies for targeting markets abroad include acquiring (buying) foreign companies or
companies with large market shares there. To tap the Indian market, Kraft made a bid to buy the
candy maker Cadbury, which controls about one-
compete against Corona beer, the Dutch brewer Heineken recently purchased Mexico
which makes the beer brands Dos Equis, Tecate, and Sol. Michael
allow foreign firms to buy domestic firms. They can only form partnerships with them. Other
regulatory and cultural barriers sometimes prevent foreign f
the Swedish home-furnishings maker, eventually left Russia because it found it too hard to do

Having saturated other markets, the hamburger chain is hoping to continue to grow by opening
hundreds of new stores in the country.

7.5 Positioning
Why should buyers purchase your offering versus another? If your product faces competition, you

consumers. Positioning involves tailoring your product so that it stands out from the competition
and people want to buy it.
One way to position your product is to plot customer survey data on a perceptual map.
A perceptual map is a two-dimensional graph that visually shows where your product stands, or
should stand, relative to your competitors, based on criteria important to buyers. The criteria can
involve any number of characteristics price, quality, level of customer service associated with the
product, and so on. An example of a perceptual map is shown in "An Example of a Perceptual
Map". To avoid head-to-head competition with your competitors, you want to position your
product somewhere on the map where

An Example of a Perceptual Map

Many companies use taglines in their advertising to try to position their products in the minds of
the buyer where they want them, of course. A tagline is a catchphrase designed to sum up the

tagline is designed to set Wen to

fast food gets these days.

Sometimes firms find it advantageous to reposition their products especially if they want the
product to begin appealing to different market segments. Repositioning
product to a different place in the minds of consumers. The i-house, a prefab house built by Clayton
Homes, a mobile home manufacturer, is an example. According to the magazine Popular
Mechanics, the i-
designed by Apple, and consists of amenities solar panels, tankless water heaters and rainwater
collectors that one would expect to come from an offbeat green company out of California selling
to a high-end market

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Notes
Marketing Management

Summary
A market worth targeting has the following characteristics:
s;

(5) you have the resources to compete in it; and

Most firms tailor their offerings in one way or another to meet the needs of different segments of
customers. A multi segment marketing strategy can allow a company to respond to demographic
and other changes in markets, including economic downturns. Concentrated marketing involves
targeting a very select group of customers. Niche marketing involves targeting an even more select
group of consumers. Micro targeting, or narrowcasting,
by gathering all kinds of data available on people everything from their tax and phone records to
the catalogs they receive. Firms that compete in the global marketplace can use any combination of
these segmenting strategies or none at all. Sellers are increasingly targeting consumers in China,
Russia, India, and Brazil because of their fast-growing middle classes. Firms are creating low-cost
products to capture large markets in developing countries such as these and then selling the
products in developed countries. Other strategies for targeting markets abroad include acquiring
foreign companies or forming partnerships with them.

marketplace relative to competing products. Positioning involves tailoring a product or its

marketing so that it stands out from the competition and people want to buy it. A perceptual map
is a two-dimensional graph that visually shows where a product stands, or should stand, relative to
its competitors, based on criteria important to buyers. Sometimes firms find it advantageous to

minds of consumers.

Self Assessment

1. __________ Consists of a set of buyers who share common needs or characteristics that the

company decides to serve.

A. Target market
B. Positioning
C. Consumer
D. Customer

2.

A. Who buys our product?

B. Who does not buy it?
C. What need or function does it serve?
D. When is your birthday?

3. What are the factors considered important in the selection of Target Market Strategy:

A. Company Resources
B. Product Homogeneity

108 LOVELY PROFESSIONAL UNIVERSITY

 Notes

Unit 07: Targeting and Positioning

C. PLC
D. All the above

4. Factors that govern the attractiveness of a segment

A. Segment Size and Segment Growth

B. Profitability of the Segment
C. Current and potential Competition
D. All the above

5. ___________is the act of designing the company offering and image to occupy a distinctive

place in the target customers mind.

A. Targeting
B. Marketing
C. Advertising
D. Positioning

6. Fevi Kwick positions itself based on :

A. Features
B. Benefits
C. Usage
D. Manufacturing Process

7. __________ is what the customer believes based on his/her experiences and evidence, rather

than just the awareness created by advertising or promotion.

A. Pricing
B. Promotion
C. Product Positioning
D. Place

8. Positioning should be:

A. Simple
B. Creative
C. Unique
D. All the above

9. Self image enhancement positioning concepts are:

A. Ego identification
B. Belongingness and social meaningfulness
C. Affective fulfillment
D. All the above

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Notes
Marketing Management

10. Setting the competitive positioning for the product and creating a detailed marketing mix is

called:

A. mass marketing.
B. target marketing.
C. market segmentation.
D. marketing positioning.

11. When companies divide large, heterogeneous markets into smaller segments that can be

reached more efficiently with products and services that match their unique needs, they are

conducting a ___________________ process.

A. marketing aggregation
B. marketing positioning
C. marketing target
D. marketing segmentation

12. Which of the following marketers epitomized the mass marketing strategy?

A. Henry Ford
B. Bill Gates
C. F.W. Woolworth
D. Thomas A. Edison

13. Individual marketing is known by a variety of names. All of the following would

appropriately be called individual marketing EXCEPT:

A. mono-marketing.
B. one-to-one marketing.
C. customized marketing.
D. markets-of-one marketing.

14. ______________ is the process through which firms interact one-to-one with

masses of customers to create customer-unique value by designing products and services

tailor-made to individual needs.

A. Mass marketing
B. Detail marketing
C. Mass globalization
D. Mass customization

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 Notes

Unit 07: Targeting and Positioning

15. ______________ involves tailoring brands and promotions to the needs and wants of specific

small groups such as cities, neighborhoods, and even specific stores.

A. Niche marketing
B. Local marketing
C. Detail marketing
D. Individual marketing

Answers for Self Assessment

1. A 2. D 3. D 4. D 5. D

6. B 7. C 8. D 9. D 10. D

11. D 12. A 13. B 14. D 15. B

Review Questions
1. Why do companies position products?
2. Explain what a tagline is designed to do.
3. Why might an organization reposition a product?
4. What factors does a firm need to examine before deciding to target a market?
5. Which of the segmenting strategies discussed in this section is the broadest? Which is
the narrowest?
6. Why might it be advantageous to create low-cost products for developing countries
and then sell them in nations such as the United States? Do you see any disadvantages
of doing so?

Further Readings

Customers (St Paul, MN, West, 1995), p. 232

3. Kotler, P.: Marketing Management, 7th edn (Englewood Cliffs, NJ, Prentice Hall, 1991).
References 97 REFERENCES
4. Engel, J.F., Blackwell, R.D. and Miniard, P.W.: Consumer Behaviour, 8th edn (Fort
Worth, Dryden Press, 1995).
5. Lastov

1988), pp. 583 7.

Marketing (January 1974), pp. 33 7.

LOVELY PROFESSIONAL UNIVERSITY 111

Consumer Behaviour-Issues
and Concepts
UNIT 3 ORGANISATIONAL BUYING
BEHAVIOUR
Objectives
After reading this unit you should be able to:
• define organisational buying and differentiate it from individual buying
• identify organisational customers
• explain the process of organisation buying
• describe different buying situations
• analyse the influences on organisational buying behaviour
• discuss the administrative arrangements in relation to organisational buying
• describe the models of organisational buying.
Structure
3.1 Introduction
3.2 What is Organisational Buying Behaviour?
3.3 Organisational Buying Behaviour : Some Typical Characteristics
3.4 Who are the Organisational Customers?
3.5 What Influences Organisational 'Buying?
3.6 The Organisational Buying Situations
3.7 Organisational Buying Behaviour : Some Models
3.8 The Selection of a Supplier
3.9 Summary
3.10 Key Words
3.11 Self-assessment Questions
3.12 Further Readings
3.1 INTRODUCTION
Mr. Sheth is materials manager of `Pragati Enterprises' : a medium size firm with an
annual sales turnover of Rs. 20 crores and located in Ahmedabad. Beginning mid-
April, the company's managing director asked Mr. Sheth to come up with alternatives
to provide a cool and comfortable office climate to its executives during the summer
months. The two alternatives identified by Mr. Sheth were :
a) window airconditioners with each unit costing Rs. 25,000/- or
b) large size desert coolers with each unit costing Rs. 5,000/-
In order to decide between the two alternatives, he sought the managing director's
permission to formulate a team comprising the General Manager, the Administrative
Manager, the Managing Director and himself.
Based on pure economical considerations, the committee decided to opt for 10 large
size desert air coolers. Having decided to buy the coolers, the purchase manager was
asked to execute the decision. Issue of an inquiry brought in quotations from 15
manufacturers. The screening and evaluation of quotations took one week. The final
short list included two manufacturers. The criteria to short list were
i) Past reputation of the manufacturer
ii) The efficiency of the coolers in terms of noise level, electricity consumption and
design of fanblades for optimum air intake
iii) Delivery period
iv) Performance guarantee
v) Rates for annual maintenance contract
34 vi) Price
Brand A (Ice Cool) was Rs. 300 less per unit as compared to Brand B (Silver Snows). Ice Organisational Buying Behaviour
Cool was the oldest brand and had approximately 30% market share in Gujarat. Its
manufacturing facilities were located in a nearby industrial area; some 30 km away. The
Silver Snows, a late entrant, was being manufactured in a nearby area only 2 km away.
The promoter of Silver Snows was an ex-employee of `Ice Cool'. He had offered two
year guarantee against one year of `Ice Cool'.
Mr. Sheth discussed the purchase manager's recommendation with the managing director.
The outcome was the decision to place order on the Ice Cool. This news, somehow,
leaked. The managing director of `Silver Snows' was, however, successful in meeting the
managing director of Pragati Enterprises. This led to the reversal of the decision in favour
of Silver Snows. Later on it was learnt that a common friend between the two managing
directors was instrumental in the final negotiations and in the change of the decision.
The entire exercise of placing a formal order took 21 days and the coolers were installed
by mid-May. While this was happening in the office, Mr. Sheth's wife and children’ were
insisting upon him to buy a desert cooler for his home. Conceding to their request, he
visited three dealers and bought a lowest price unknown brand with the longest guarantee
period. Interactions with the dealers convinced him that the performances for all brands
were alike and there was virtually no risk in selecting any brand. The entire exercise of
installing a cooler took two days in his house.
What you have read just now is not fiction but a reality. You must be wondering as to
why the same person, buying the same product had different buying behaviour. Well, if
you think a little; you would recognise that in the earlier situation (Pragati Enterprises),
the `buying was on behalf. Whereas in the latter, it was `buying for self for Mr. Sheth.
This `buying on behalf' is the domain of Industrial or Organisational Marketing. Similarly
the `buying for self is the domain of household or what is popularly known as consumer
marketing. You must have also recognised that `buying on behalf changes the entire
complexion of the buying exercise. And this is precisely the reason of studying
organisational buying behaviour (OBB) separately than the consumer buying behaviour
(CBB). The example of buying the desert cooler by Pragati, though comparatively a
simpler example amongst the vast multitude of highly complex,buying situations, has
many messages, and we will keep on coming back to it. Let us now begin our learning of
some important issues and concepts in the area of organisational buying behaviour.
3.2 WHAT IS ORGANISATIONAL BUYING
BEHAVIOUR?
Webster and Wind, who have done some pioneering work in this area, define
organisational buying as a complex process of decision making and communication,
which takes place over time, involving several organisational members and relationship
with other firms and institutions. According to them, it is much more than a simple act of
placing an order with the suppliers. In this sense, they define organisational buying
behaviour as the decision making process by which formal organisations establish the
need for purchased products and services and identify, evaluate and choose among
alternative brands and suppliers.
It is important here to recognise the emphasis on the decision process rather than on a
single act of placing an order. The case of the desert cooler clearly brings out the process
which began with identification of the need to finally placing of an order. Based on
several observations of buying situation, Robinson, Faris and Wind have identified this
process as comprising eight steps of this decision process are shown in Figure 1.

Figure 1: The Phases of the Buying Decision Process

If you recall the exercise of Pragati Enterprises, it would be easy for you to comprehend
the various' phases of the process. You would also begin to appreciate as to why Mr.
Sheth took more than 21 days when he bought the same cooler within 2 days for his
home. 35
Consumer Behaviour-Issues
and Concepts 3.3 ORGANISATIONAL BUYING BEHAVIOUR: SOME
TYPICAL CHARACTERISTICS
With the help of earlier discussions, we are now ready to identify some typical
characteristics of organisational buying behaviour. To begin with, we will use the
case of `Pragati' to identify and finally conceptualise some of these typical
characteristics.
1 Organisational buying is a multiperson buying activity: A large number of
buying situations in organisations (manufacturing, government, hospitals, educational
institutions) would involve many persons. These persons may be from different
functions (production, purchase, design, maintenance), may have different
backgrounds (engineers, MBA, graduates etc.) may have different hierarchical levels
within the organisation (Managing Director, General Manager, Material Manager).
Further, persons in a buying situation, may appear to play different roles over the
entire buying decision exercise. A grand conceptualisation of various roles of the
different members is the concept of the Buying Centre.The various members of the
buying centre may appear to play any of the following roles:
• Users like production department person
• Influencers like Managing Director, Design Engineers or Consultants
• Deciders like the committee appointed by Pragati Enterprises
• Buyers like the people from the purchase or materials department
• Gatekeepers like those who can control the flow of information within an
organisation
• Specifiers like consultants or design or production people who may develop the
specifications of the product or services needed.
The concept of Buying Centre is a very useful conceptualisation and it can help
immensely in developing effective marketing strategies.
2 It is a formal activity which follows the procedures laid down in an
organisation : Irrespective of the rupee value of technical complexities of products
and services, buying activities have to conform to the formal process and procedures
of an organisation. Even for emergencies, a typical organisation would have a set of
policies, and it is imperative for the suppliers to be aware of these. Further, all buying
decisions are finally converted into formal contracts between buyers and suppliers.
3 Longer time lag between efforts and results: Due to multiperson and a formal
activity, the organisation buying decisions take typically longer time. This leads to
greater time lags between the application of the market effort and obtaining of the
buying response. A marketer may develop unrealistic plans if he is unaware of the
response time of his customer for various buying situations,
4 Rational but also emotional activity: In spite of a formal activity following a
rational criteria of evaluation, organisational buying cannot be devoid of the
emotional (or irrational) aspects. This is because it involves human beings in the
buying decisions, The case of Pragati Enterprises, has hints in it (common friend)
where after following a very rational and formal process, the decision appears to have
been influenced by some human or emotional considerations, These human
considerations are likely to play vital role in situations of almost similar alternatives
or similar ehoicaslike buying of commodities, raw materials, standard products and
components,
5 The uniqueness of organisations: In spite of the above common characteristics,
no two organisations would be similar in their buying behaviour and decisions, These
differences would be due to the nature of buying problems, objectives, resources,
capabilities and so on, It is therefore important to consider each organisation as a
separate segment at the selling level.
Above characteristics are indicative enough to claim that organisational buying
behaviour is more complex than consumer buying behaviour. It is not only more
complex than consumer buying behaviour, but also more complex than any other
types of decisions within the organisation. The added complexity, as claimed by
Webster and Wind, is primarily due to four factors:
1) Purchasing work flow is almost entirely crosswise in the organizations.
2) Formal authority over buyers (purchase department executives) can be in the hands
36 of either a purchase manager or any functional manager like production manager.
3) A major work of the `purchase function' is with people outside the organisation. Organisational Buying Behaviour

4) Purchasing is a service function and this may have the perception of a lower
status within the buying organisation.

The idea of sharing some generalisable characteristics of organisational behaviour

was not only to highlight the complexities and differences; but it was also to
encourage a thinking process in your mind to relate some of your own experiences
with these characteristics. With the help of some known experiences, you may either
like to corroborate with the generalisations or maylike to disapprove of some of the
generalisations. You may consider this as your first exercise for this lesson.

Activity 1

Visit an organisation that you are familiar with, or study your own organisation and
try to analyse any two of its organisational purchases. With respect to the
characteristics studied just now, list out the factors which characterise these buying
situations.
Purchase I
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
......................................................................................................................
Purchase II
……………………………………………………………………………
……………………………………………………………………………
……………………………………………………………………………
……………………………………………………………………………
……………………………………………………………………………

3.4 WHO ARE THE ORGANISATIONAL CUSTOMERS?

By now, you must be wondering about this `ghost' : organisational customer. Perhaps
we need to become more clear about the constituents of the 'organisational' markets.
Conceptually, anyone besides the `household' customer, i.e., those customers who are
buying for self, can be valid cases of organisational customers. However, a useful
and comprehensive way to identify the organisational customers is to visualise the
entire chain of the participants who may be involved in the production and marketing
of goods and services. Thus for a desert cooler, the manufacturer may need
galvanised` iron sheets for body, angle iron for frames, wood shavings for water
pads, exhaust fan for air and so on. Similarly, each supplier of the needed items
would also need the down stream products in form of raw material, components and
parts. Thus, an exhaust fan manufacturer would need cold rolled strips for fan blades,
silicon iron laminations for rotor of the motor, wires for coils, and so on. The chain,
as you would begin to see, is long. Similarly, in order to market, there would be a
need of distributors and retailers. Figure 2 is a graphical representation of this chain.

Figure 2: The Chain Indicative of the Zone of the Organisational Customer

37
Consumer Behaviour-Issues With the help of Figure 2, it will be easy for you to appreciate that this `ghost
and Concepts organisational customer' can have several types and forms. These could be:
Mining and Extractive Industries: Coal India Limited, ONGC, Hindustan Copper
Limited are some examples.
Material Processing Industries: Tata Steel, Steel Authority of India Limited
(SAIL), Bharat Aluminium Corporation (BALCO) are some examples.
Manufacturing of Parts and Assembly: Bharat Forge, MICO, Sundaram Clayton,
Semiconductors of India Limited, GEC, Larsen & Toubro are some amongst a very
large number of part and assembly manufacturers catering to a variety of needs.
Final Assembly: Desert Cooler Manufacturer (there are several local brands), T.V.
manufacturers (Onida, Weston, Nelco), Truck manufacturers (TELCO, Ashok
Leyland) and the like are some examples. Like components and parts manufacturers,
there could be many assembly units for numerous end products.
Distributors: These could be several for each product like bearings, tubes, steel,
electrical appliances and so on.
Perhaps, it is now easy for you to recognise that the area of operation of what we call
as "organisational marketing" is very vast and heterogenous. In such a scenario, a
legitimate question would be the validity of generalisations in form of `typical
characteristics'. Thus, from the viewpoint of practice, it is imperative to study the
organisational buying behaviour for the specific product-market situation.
A second way to identify the organisational customers is to classify them into three
categories. Industrial (all manufacturing organisations), Institutional (service
organisations like universities, hospitals, hotels, distribution firms) and government
(CPWD, DGS&D, Defence and so on). Besides the ownership pattern (public,
private, government) and type of business (manufacturing, service) it is important to
remember that it is neither the size (big, medium or small) nor the products, which
separates organisational customers from household customers.
Activity 2
With respect to the purchases that you studied for Activity 1, analyse how these
organisational purchases are different from individual purchases.
Purchase I
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
Purchase II
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................

3.5 WHAT INFLUENCES ORGANISATIONAL BUYING?

So far we have discussed the meaning, characteristics of the organisational buying
behaviour and the constituents of the organisational markets. We will now discuss the
factors which may directly or indirectly influence the organisational buying
behaviour. A segment of economists. and marketers believe that the dominant
influences are essentially economic. Lowest price or lowest cost are thus considered
as the only criteria to select suppliers. On the other hand. a few take another extreme
view of declaring all organisational buying as an emotional or non-rational act as it
involves human beings making it difficult to maintain rationality or objectivity.
Accordingly, some suppliers feel that with strong personal relationships or with the
38 ability to win over the purchases through lures and. personal attractions, they may get
preference over
others. Both the viewpoints are the two extremes and reflect only a limited view of Organisational Buying Behaviour
the reality. What perhaps is needed is a balanced viewpoint recognising that
organisational customers respond to both economic and personal factors. Where there
is a close similarity in supplier offers; organisational customers have little basis for
only economic criterion. Remember our Pragati case, since any brand of coolers
could meet the organisational objective, personal factors played an important role. On
the other hand, where competing products/brands differ substantially, organisational
customers may pay more attention to the economic considerations.
A comprehensive view of influences has been provided be Webster and Wind. They
have grouped the various influences into four areas: environmental, organisational,
interpersonal and individual. These groups are shown in Figure 3.

Figure 3: Major Influences on Organizational

Buying Behaviour
Environmental Factors: These factors include economical, political, technical, legal
or regulatory, technological, infrastructural and cultural factors. Environmental
factors interact with each other to produce information, values, norms and general
business conditions. The influence of environmental factors can be pervasive. A
handy Indian example is that of credit squeeze announced by the commercial banks
around 1975 against inventory holdings. This was based on Tandon Committee
Report on the management of working capital by the firms. This single change in the
environment, i.e., credit squeeze on inventories had a salutory affect on
organisational buying behaviour and led to major structural and procedural changes
in the buying behaviour of industrial customers.
Similarly the persistent power shortages in some States in India have prevented the
use of 'sophisticated automatic elevators in the office and residential buildings and in.
spite of the availability, the preference is still for manually operated elevators with
shutter type of doors.
An industrial marketer should be aware of the environmental factors which may
affect the buyer behaviour and correspondingly fine tune its marketing strategy.
Failure to recognise the influences may lead to wasteful efforts
Organisational Factors: While discussing the characteristics of organisational
buying behaviour, it was mentioned that organisations may differ from each other
due to objectives, procedures, organisational structure, systems and technology : It is
important to recognise the influence of such organisational factors 'on the buying
behaviour. A study by Sarin on four very large industrial organisations in India
revealed major changes in the buying structures and systems of the Indian firms.
Some of these were:
i) Innovativeness in Organisational Buying
ii) Emergence of "Buyer" as an Important Member of the Buying Centre
iii) Decentralization and Centralization of materials
iv) Computerization of Organizational Buying
v) Separate Buying for Specialized Jobs
vi) Concern to Prevent Unhealthy Transactions between buyers and marketers
vii) Recognition at the top level.
39
Consumer Behaviour-Issues The Interpersonal Factors: Organisational buying is a multi-person activity. The
and Concepts concept of buying centre highlights the roles which different members of the buying
organisation may play in the entire buying decision making exercise. The situation
becomes more complex due to different statuses, authority, empathy and
persuasiveness of the members of the buying centre. These may lead to conflicts.
Though difficult, but an organisational marketer may make, attempts to become
familiar with the internal dynamics of the buying process within a customer
organisation. Sheth has identified four ways which organisations use for conflict
resolutions:
i) Problem Solving Approach: It involves information acquisition and
deliberation for more time.
ii) Persuasion: Attempt is made to influence the opinions of dissenting members by
asking them to reduce the importance of the criteria they are using in favour of
better overall achievements of organisational objectives.
iii) Bargaining: A more typical situation in which a conflict arises is due to
fundamental differences in buying goals and objectives. This is usually true for
new buying situations. In such a situation, conflict is resolved not by changing
the differences in relative importance of the buying goals or objectives of the
individuals involved, but by the process of bargaining. In this a single party is
allowed to decide autonomously in the spec situation in return for some favour or
promise of reciprocity in future decisions.
iv) Politicking: When the earlier three fail, the parties may resort to tactics which
may be unhealthy and lead to casting of aspersions on the dissenting members.
According to Sheth, both `problem solving' and `persuasion' are rational methods.
Politicking and bargaining are considered as non-rational methods.
The Individual Factors: In spite of the environmental, organisational and interpersonal
factors, it must be recognised that ultimately individuals, and not organisations, take
buying decisions. Each member of the buying centre has a unique personality, a
particular set of learned experience, a specified organisational function to perform, and
perceptions of how best to achieve both personal and organisational goals. An industrial
marketer should be aware of the differing buying perceptions and their influences on the
ultimate buying decision. Perhaps, an understanding of the `perceived risk and its
management' at the individual level holds the key to identifying the individual influences
on organisational buying behaviour in specific, situations.
The Perceived Risk: Newall defines decision making as a risk taking activity and in
this sense organisational buyer behaviour is seen as a risk handling behaviour.
According to Newall, the factors, which affect the risk behaviour are
a) Characteristics of the Purchase Problem : Some factors related to purchase
problems are
• size (rupee value) of the expenditure
• degree of novelty contained in the type of buying task
• degree of product essentiality
• factors provoking purchase.
b) Characteristics of the Buyers : This includes
• Buyer's level of general self-confidence
• Buyer's level of specific self-confidence.
• Buyer's experience in playing the purchase role
• Buyer's purchase history i.e., of buying within a particular product area
• Buyer's degree of technical and professional affiliations.
c) Organisational Environment : Some factors affecting the risks at the level of
the company are :
• The size and financial standing. of the organisational customer
• The degree of decision centralisation
• The degree of decision routinisation.
d) The Management of Perceived Risk : Basically, an individual visualises two
types of risk .
• Performance risk -product may fail to come up to the performance standards
• Psychological risk-fear of being held responsible or accountable for the
40 decision by other members.
Both performance and psychological risk can be associated with the uncertainty Organisational Buying Behaviour
concerning the outcome and the magnitude of the consequences associated with the
wrong choice. Individual decision makers are motivated by a strong desire to reduce
the level of risk in purchase decision. Research suggests the following categories of
action to minimise the risk :
1. external uncertainty reduction
(e.g. visit supplier's plant)
2. internal uncertainty reduction
(e.g. consult with other buyers)
3. external consequence reduction
(e.g. multiple sourcing)
4. internal consequences reduction
(e.g. consult with company's top management)
Organisational buyers can also reduce the level of risk in purchasing situation by
relying on familiar suppliers. This source loyalty provides a convenient method of
risk minimisation. Similar to this, is a situation of placing orders on.`high' credibility
image suppliers in new buying situation.
An industrial marketer must make an attempt to understand and anticipate the areas
of perceived risk and its minimisation by different members of the buying centre in
specific buying situations. The knowledge may help them in developing effective
selling strategies.
Activity 3
a) Talk to a supplier who supplies material/equipment/machinery etc. to
organisational buyers: With reference to his last major order, try to find out what
in his view, influenced the purchase decision in his favour.
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
.................................................................................................................................
b) Discuss a major organisational purchase within your own organisation or any
organisation/institution that you are familiar with. Try to analyse the main
influences-environmental, organisational, interpersonal or personal which
influenced this purchase.
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
.................................................................................................................................
c) Do you find any difference in this viewpoint of the supplier and the
organisational buyer? Comment on it.
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................

3.6 THE ORGANISATIONAL BUYING SITUATIONS

An organisation needs to buy a variety of products and services to achieve its
objectives. The `buying basket' for a typical industrial customer may include products
from any of the followink categories:
1. Raw material - Steel, aluminium, iron ore
2. Major capital items - Blast Furnace, CNC machine tools 41
Consumer Behaviour-Issues 3. Minor Capital items -Industrial motors, pumps, valves
and Concepts
4. Fabricated components and -Castings, sheet metal components, forgings
parts and sub-assemblies
5. Processed chemicals -Foundry chemicals, basic pharmaceutical
formulations
6. Consumables -Lubricating oil, welding electrodes
7. Office equipment -Plain paper copiers, electronic typewriter
8. Services -Ttravel arrangement, transporters, housing etc.
It should be easy for you to recognise that some products may be just one time
purchases (major capital equipment), and others may be purchased frequently. The
buying effort, in this sense, would be a function of the experience which the
organisation may have for the different buying situations. Robinson, Faris and Wind
have classified the various buying situations into three categories:
1 Straight-Re-buy Situations: This situation is similar to repeat buying situations
of consumer/household buying. In this the buyer keeps on placing the order on
routine basis without changing any product specifications (stationery items,
chemicals, lubricants, abbrasives, paints are some examples). Some typical
characteristics of the routine buying situations are:
a) Routine purchasing procedures exist,
b) The buying alternatives are known, but a formal or informal list of `approved'
suppliers is available.
c) A supplier, not on list, is not considered.
d) Decision on each separate transaction is made by the purchasing department.
e) Buyers have relevant buying experience and require little new information.
2 Modified Re-buy: In a modified re-buy situation, a buyer may change the
product specifications or may even change to a substitute product for economic and
performance considerations. Thus using aluminium instead of copper wires, nylon
bushes instead of brass and using hydraulic excavators instead of mechanical are
some examples. In this situation, some familiarity with either product or its
performance expectations does exist. Some characteristics of the modified re-buy
situations are:
a) A regular requirement for the type of product exists.
b) The buying alternatives are known, but sufficient change has occurred to require
some alteration to the normal supply procedure.
c) Change may be stimulated by external events, e.g. inputs from supplying
companies.
d) Change may be stimulated by internal events, e.g., new buying influences, value
analysis, reorganisation.
3 New Task : New Task' is a situation where the organisational customer buys the
product for the first time without having any previous experiences (personal
computers, plain paper copiers, fax machines, CNC machine tools are some products
for which little experience exist amongst a large number of the Indian organisation).
Some of the characteristics, for `new task' situations are:
a) Need for the product has not arisen previously.
b) Little or no past buying experience is available to assist in the purchasing
decision.
c) Members of the buying unit require a great deal of information.
d) Alternative ways of meeting the need are likely to be under review.
e) The situation occurs infrequently, but the decisions taken may set a pattern for
more routine purchases subsequently.
f) Opportunities exist at an early stage in the decision process for external
42 (marketing) inputs to have an influence on the final decision made.
Activity 4 Organisational Buying Behaviour

a) Study the purchases made by your organisation/institution in the last 3 months.

How would you classify them in terms of buying situations.
……………………………………………………………………………………
……………………………………………………………………………………
……………………………………………………………………………………
……………………………………………………………………………………
……………………………………………………………………………………
……………………………………………………………………………………

b) What were the characteristic features of

i) Straight Re-buy situations

ii) New Task situation

in your organisation /institution.

i) Straight Re-buy
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
ii) New Task
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................

3.7 ORGANISATIONAL BUYING BEHAVIOUR: SOME

MODELS
The central thesis of knowing and understanding the buyer behaviour is to anticipate
the response of a buyer for different marketing stimuli surrounded by various
environmental factors. Figure 4 is a simplified conceptual model highlighting this
relationship.

Figure 4: A Simple Model of Organisational Behaviour

The conceptual model is indicative of the relationships and possible outcomes.

However, a marketer's desire is to have a functional model with high degree of
predictive reliability. In simple terms, he wants to have an answer as to "how" and
"when" will he get the results. Desire to answer this question with high degree of
consistency on predictive reliability has led to the development of a large number of
models on organisational buying behaviour. It will be impossible to include each and
every model.
43
Consumer Behaviour-Issues The Buy Grid Model : Robinson, Faris and Wind, developed a matrix with rows for
and Concepts various buying decision steps (called as Buy Phases) and the columns as the type of
the buying situation (called as Buy Classes). This model is shown in Figure 5.

Figure 5: The Buy Grid Model of Organisational Buying Behaviour

The interaction of 8 rows with 3 columns has resulted into 24 cells. This model, as
you would observe, provides a very comprehensive view of the buying exercise. It
would be easy for you to recognise that the buying exercise may be a very complex
and time consuming for the `new task'. This is because a buyer in this situation will
have a large buying centre, and will require sufficient amount of effort and time for
each phase before moving to the second phase. On the other hand, the task would be
simple and routinised for straight re-buy situations. A marketer, depending upon the
`buy class' for his product can formulate the marketing strategies. The payoffs of the
`buy grid' models are:
• its ability to convey the degree of complexity or simplicity for an organisational
customer for a given product or service.
• its ability to help the marketers to anticipate the marketing effort needed for the
different buying stages in the decision making.
• a framework to identify the composition of the buying centres and the dominant
influences for each stage.
In spite of payoffs, the buy grid model is completely devoid of any predictive ability.
It addresses itself only to the `non-human' factors and thus fails to bring out the
dynamics and the influences of human related or emotional factors. But in .spite of
the limitations, the Buy Grid Model is a very useful conceptual framework to
comprehend the complexities of organisational buying behaviour.
Activity 5
With the help of the `Buy Grid Model' framework, study the buying decision
exercises in a company for the three types of buying situations. Try to identify the
composition of buying' centres for different buy phases and try to map the total
buying centre for each buying situation.
The Fisher's Model: Figure 6 illustrates this model. This has been named after its
author.

44
 Organisational Buying Behaviour

Figure 6: Fisher's Organisational Buying Behaviour Model

As you would observe, the model attempts to identify the dominant influences along
two main dimensions of any buying decision. These are product complexity and
commercial uncertainty. Consider the case of Pragati Enterprises buying the desert
cooler. For this, the product ' complexity as well as the commercial uncertainties
were low, .the purchase department (Buyer Emphasis Cell 1) played the dominant
role in the buying decision. It was only after the short listing of the two, that the top
management was involved. Fisher's conceptualisation is an outstanding example of a
simple representation of a very complex situation. In fact, it is a true representation of
administrative arrangements and provisions which a large number of organisations
have made to buy a vast heterogenous array of products and services. The limitation,
however, is absence of predictive ability.' It also fails to highlight the time dimension
and the various steps in the buying decision exercise. Similar to the buy grid model, it
facilitates in providing good insights of buying situations.
3.8 THE SELECTION OF A SUPPLIER
Uptill this point of time we have been discussing the ireas, issues and concepts
related to organisational buying behaviour. Through these, we have covered the
buying decision process,. buying situations, buying influences, typical organisational
buying characteristics and finally two models of the organisational buying behaviour.
Pragati Enterprises case, also gave us the idea of'the total buying task. In this section,
we will concentrate on the evaluation and selection criteria which organisations may
adopt while selecting suppliers for the specific products or services. For instance, the
purchase manager of Pragati Enterprises had received 15 quotations from different
manufacturers of the desert coolers. He had then, based on a check list of attributes,
short listed the two brands. Generally, these attributes cover product quality,
reliability of the supplier, price and delivery. However, the attributes and their
relative importance may vary for different product categories. Thus, in case of
forgings, the importance ranking of vendor evaluation attributes by the automobile
manufacturers was:
Ranking Order Attribute
1. Reliability of delivery dates promised
2. Price
3. Supplier's flexibility
4. Consistency in dealings of the supplier
45
Consumer Behaviour-Issues 5. Rejection rates
and Concepts
6. Kind of manufacturing facilities
7. Efficient follow-up of the order
8. Persistent efforts to improve the quality of services
9. Prompt attention to enquiries
10. Suppliers overall reputation
Using the important attributes, members of the buying centre may then rate the
suppliers against these attributes to identify the most attractive suppliers for forgings.
After the ratings of the suppliers on these attributes, the members of the buying
centre may like to negotiate with the preferred suppliers for better terms of prices and
delivery schedules before making the final• selection. Depending upon the situation,
it may select one or many suppliers. Telco's price panels, to finalise the annual
contracts for a large number of `boughtouts', is a classic example of selecting
vendors. Before inviting the suppliers for meeting with the 'price panel', Telco
evaluates the suppliers on relevant attributes. After ensuring quality and reliability, it
begins its negotiations on the commercial aspects covering price, delivery schedules
and payment terms to arrive at mutually beneficial agreements for both the suppliers
and Telco.

3.9 SUMMARY
Organisational buying behaviour is a complex process in decision making. A variety
of influences and factors add to this complexity. The buying behaviour of a firm
would vary for `new buy' situations to `repeat buy' situations. In order to comprehend
various dimensions it may help to seek answers to some basic questions like :
• How does an organisation buy?
• Who takes the buying decisions in an organisation?
• What factors influence the buying behaviour of an organisation?
• Who constitutes the organisational markets?
• What evaluation criteria is used to select the vendors?
The area is vast as it encompasses thousands and thousands of product market
situations, which in some sense may appear as unique and distinct from each other. It
is therefore suggested to relate some specific situations with the general views
discussed in this chapter. This will facilitate in your comprehension of this complex
diversity.

3.10 KEY WORDS

Buying Centre: It comprises of members, who are directly or indirectly connected
with the organizational buying decisions. The different roles are :
i) Influencers. These are individual who can influence the buying decision at any
stage. Top management, external experts, consultants, financial institutions and
government policy makers are usually grouped into this category.
ii) Users. Individuals who actually use the product-service package. They are
sometimes also defined as `indentors' or 'specifiers'.
iii) Deciders. Individuals who are entrusted with the responsibility of making the
buying decision. This category can include ad hoc purchase committees.
iv) Specifiers. Those individuals who develop and finalise the product's technical
specifications.
v) Buyers. Individuals who are entrusted with the. act of formalising the final order
and the commercial terms and conditions. They are normally executives of the
purchase department.
vi) Gatekeepers. Individuals who control the flow of information within a buying
organisation. These can be top management personnel, information analysis such
46 as computer personnel and at times even mail receiving and sorting personnel.
Buy Phases: The different stages of the buying decision process like problem Organisational Buying Behaviour
recognisation, evaluation (refer to the rows of the Buy Grid Model).
Buy Classes: The three types of the buying situations like straight re-buy, modified
re-buy and `new task'.
Evaluation Criteria: The criteria like price, delivery, quality used by the customers
to evaluate the suppliers.
Organisational Customer: The term includes industrial customers, institutional
customers and the government customers.
Buying Influences: These include infrastructural, political, organisational, economic,
social and individual factors.

3.11 SELF-ASSESSMENT QUESTIONS

1. How would you differentiate between organisational buying and individual
buying. Taking the example of purchase of stationery of your personal we and for
organisational purposes, explain the differences.
2. Disc-ass the major influences on organisational buying.
3. Explain the Fischer model of organisational buying behaviour.
4. Discuss the criteria affecting the selection of suppliers by an organisation. Try to
find out the process and factors influencing the supplier selection for your
organisation and compare it with what you have studied.
5. Try to identify three or four purchase situations which enable you to use the
issues and concepts discussed in the section of buying influences and perceived
risk in these, situations.

3.12 FURTHER READINGS

Aggarwal, ManqJ K.; Burger, Philip C.; and Reid, David A. "Readings in Industrial
Marketing,"' Prentice-Hall, Inc., Englewood Cliffs, New Jersey, 1986.
Alex4nder, Ralph., Cross, James, and Hill, Richard M. "Industrial Marketing," 3rd
ed. (Illinois: Homewood Irwin, 1963).
Ames, Charles B., and Hlavaack, James D. "Managerial Marketing for Industrial
Firms" (New York. Random House Business Division, 1984), pp. 247-265.
Choffray, Jean-Maris; and Lilien, Gary- L. "Market Planning for New Industrial
Products", John Wiley & Sons, New York, 1980.
Corey, Raymond E. "Industrial Marketing, Cases and Concepts", 3rd ed.
(Englewood Cliffs, New Jersey : Prentice Hall, Inc.).
Dodge, Robert H. "Industrial Marketing" (New York: McGraw Hill, 1970).
Hutt and Speh,"Indust6al Marketing Management" (Chicago: Dryden Press, 1981).
Kotler, Philip. "Marketing Management - Analysis, Planning and Control! Prentice-
Hall, Inc., Englewood Cliffs, New Jersey, 1984. (5th Ed.)
Webster, Frederick E. "Industrial Management", 2nd Ed. (New York: Wiley, 1984).

47
 Basis Consumer Buying Industrial Buying
Behaviour Behaviour
Meaning It defines the buying It defines the buying
behaviour of the behaviour of the
consumers. industry.

Decision making Here the buyer have to Here the organization

make few simple taking decision as per
decisions as per their the top management.
convenience.

Influenced by Influenced by family Influenced by some

members ,friends, external parties like
colleagues etc. suppliers, dealer,
competitors etc.

Products used for Purchased products for Purchased products or

consumption of services for the entire
personal use. production house or
the organization.

Main motive To satisfy personal To produce the

need and want. products as per the
organizations need at
maximum level.

Nature of product Products are used by Industrial products are

the consumers are on not consumed on daily
daily basis. basis.

Example Usable products like Raw materials and

milk, bread etc. supporting materials
for producing products.