💰Psychology of Economic Decision-Making Unit 10 – Consumer Behavior in Marketing

Key Concepts and Theories

• Consumer behavior focuses on the study of individuals, groups, or organizations and the processes they use to select, secure, use, and dispose of products, services, experiences, or ideas to satisfy needs and the impacts these processes have on the consumer and society
• Theories of consumer behavior draw from psychology, sociology, social psychology, anthropology and economics to understand the decision-making processes of buyers, both individually and in groups
• The Engel-Kollat-Blackwell (EKB) model is a comprehensive model that shows how different internal and external factors interact to influence consumer decisions and behaviors
• Maslow's hierarchy of needs is a motivational theory that suggests people are motivated to fulfill basic needs before moving on to more advanced needs (physiological, safety, love and belonging, esteem, self-actualization)
  • Marketers can use this theory to understand how products or services fit into the different levels of needs and craft messaging that resonates with consumers
• Psychoanalytic theory, based on the work of Sigmund Freud, emphasizes the influence of unconscious psychological processes on consumer behavior, including the id, ego, and superego
• Behavioral learning theories, such as classical conditioning and operant conditioning, explain how consumers learn and respond to marketing stimuli through associations and reinforcement
• Cognitive theories focus on the mental processes involved in consumer decision-making, including perception, attention, memory, and problem-solving

Consumer Decision-Making Process

• The consumer decision-making process is a model that describes the stages a consumer goes through when making a purchase decision
  • Stages include problem recognition, information search, evaluation of alternatives, purchase decision, and post-purchase behavior
• Problem recognition occurs when a consumer identifies a need or want that is not currently being met, often triggered by internal stimuli (hunger, thirst) or external stimuli (advertisements, social influence)
• Information search involves the consumer actively seeking out information about potential solutions to their problem, using sources such as personal experiences, friends and family, online reviews, and marketing communications
• Evaluation of alternatives is the stage where the consumer compares the various options available to them based on criteria such as price, features, brand reputation, and personal preferences
  • Heuristics, or mental shortcuts, are often used to simplify the decision-making process (brand loyalty, price-quality relationship)
• The purchase decision is made when the consumer selects the product or service that best meets their needs and makes the actual purchase
• Post-purchase behavior includes the consumer's evaluation of their purchase, which can lead to satisfaction, dissatisfaction, or cognitive dissonance (psychological discomfort caused by conflicting beliefs or behaviors)
  • This stage is crucial for marketers as it influences the likelihood of repeat purchases, brand loyalty, and word-of-mouth recommendations

Psychological Factors Influencing Purchases

• Motivation refers to the internal drives that compel consumers to take action and satisfy their needs, which can be influenced by both rational and emotional factors
• Perception is the process by which consumers select, organize, and interpret information from the environment, which can be influenced by factors such as selective attention, selective distortion, and selective retention
• Learning describes the changes in a consumer's behavior that result from experience and can be influenced by factors such as repetition, reinforcement, and generalization
• Attitudes are learned predispositions to respond consistently to a given object or situation, which can be influenced by factors such as direct experience, family and friends, and media exposure
  • The ABC model of attitudes suggests that attitudes are composed of affective (emotional), behavioral (actions), and cognitive (beliefs) components
• Personality refers to the unique psychological characteristics that influence an individual's behavior across situations, which can be used by marketers to position products or services that align with specific personality traits
• Emotions play a significant role in consumer decision-making, as they can influence how information is processed, how alternatives are evaluated, and how satisfied consumers feel with their purchases
• Self-concept, or the way individuals perceive themselves, can influence consumer behavior as people often seek out products or services that align with their ideal or actual self-image

Social and Cultural Influences

• Reference groups are social groups that serve as a point of comparison or reference for an individual in forming their attitudes, beliefs, and behaviors
  • Types of reference groups include membership groups (family, friends, coworkers), aspirational groups (groups an individual wishes to belong to), and dissociative groups (groups an individual wishes to avoid association with)
• Opinion leaders are influential individuals within a reference group who have the ability to influence the attitudes and behaviors of others due to their expertise, credibility, or social status
• Family influences play a significant role in shaping consumer behavior, as family members often share similar values, beliefs, and consumption patterns
  • Family decision-making processes can vary depending on the type of product, the stage of the family life cycle, and the roles and relative influence of each family member
• Social class refers to the hierarchical division of society based on factors such as income, education, and occupation, which can influence consumer behavior through shared values, lifestyles, and consumption patterns
• Culture is the set of shared values, beliefs, customs, and behaviors that characterize a society or group, which can have a profound impact on consumer behavior
  • Cultural factors influence what products are considered acceptable, how they are used, and how they are marketed
• Subcultures are distinct groups within a larger culture that share common characteristics, such as ethnicity, religion, or geographic region, which can have unique consumption patterns and preferences
• Cross-cultural differences in consumer behavior can pose challenges for marketers seeking to expand into new markets, as they must adapt their strategies to account for variations in values, communication styles, and decision-making processes

Marketing Strategies and Consumer Behavior

• Market segmentation is the process of dividing a market into distinct groups of consumers with similar needs, characteristics, or behaviors, which allows marketers to develop targeted strategies for each segment
  • Segmentation can be based on factors such as demographics (age, gender, income), psychographics (personality, values, lifestyle), behavior (usage rate, brand loyalty), and geography
• Positioning refers to the way a product or service is perceived by consumers in relation to competing offerings, which can be influenced by factors such as price, quality, features, and brand image
  • Effective positioning strategies aim to create a unique and favorable image in the minds of consumers that differentiates the product from competitors
• The marketing mix, also known as the 4 Ps (product, price, place, promotion), is a framework used by marketers to develop strategies that influence consumer behavior
  • Product strategies involve decisions about product design, features, packaging, and branding that meet the needs and preferences of target consumers
  • Pricing strategies consider factors such as cost, competition, and perceived value to set prices that attract consumers and maximize profitability
  • Place strategies focus on making products available to consumers through appropriate distribution channels and retail outlets
  • Promotion strategies use various communication tools (advertising, public relations, sales promotions, personal selling) to inform, persuade, and remind consumers about the product or service
• Relationship marketing emphasizes building long-term, mutually beneficial relationships with customers through personalized interactions, loyalty programs, and customer service
• Experiential marketing focuses on creating memorable, engaging experiences for consumers that evoke positive emotions and associations with the brand
• Neuromarketing applies neuroscience techniques to study consumer responses to marketing stimuli, providing insights into unconscious decision-making processes and emotional reactions

Ethical Considerations in Consumer Psychology

• Deceptive advertising involves making false, misleading, or exaggerated claims about a product or service, which can manipulate consumer behavior and erode trust in the brand
• Subliminal advertising refers to the use of messages or stimuli below the threshold of conscious awareness to influence consumer behavior, which is considered unethical and is banned in many countries
• Targeting vulnerable populations, such as children or the elderly, with marketing strategies that exploit their cognitive or emotional vulnerabilities is considered unethical
• Privacy concerns arise when marketers collect, use, or share consumer data without proper consent or transparency, which can lead to a breach of trust and potential misuse of personal information
• Stereotyping in advertising, such as perpetuating gender roles or racial biases, can reinforce negative social attitudes and influence consumer perceptions of certain groups
• Green marketing, or the practice of promoting products as environmentally friendly, can be subject to greenwashing if the claims are misleading or unsubstantiated
• Social responsibility in marketing involves considering the broader impact of marketing strategies on society, including issues such as sustainability, public health, and social justice
  • Socially responsible marketing strategies aim to balance the needs of consumers, the company, and society as a whole

Real-World Applications and Case Studies

• Coca-Cola's "Share a Coke" campaign used personalization to create an emotional connection with consumers, leading to increased sales and brand engagement
  • The campaign featured popular names and phrases printed on Coca-Cola bottles and cans, encouraging consumers to share the product with friends and family
• Apple's brand positioning strategy focuses on innovation, design, and user experience, creating a loyal customer base willing to pay a premium for their products
  • Apple's marketing communications emphasize the emotional benefits of their products, such as creativity, self-expression, and status
• Patagonia's commitment to environmental sustainability is reflected in their marketing strategies, which prioritize transparency, durability, and responsible consumption
  • Patagonia's "Don't Buy This Jacket" campaign encouraged consumers to consider the environmental impact of their purchases and to only buy what they need
• Nivea's "White is Purity" campaign was criticized for its racial insensitivity and perpetuating stereotypes, leading to a public backlash and the removal of the advertisement
  • The incident highlights the importance of cultural awareness and diversity in marketing teams to avoid offensive or inappropriate messaging
• Pepsi's 2017 ad featuring Kendall Jenner was accused of trivializing social justice movements and exploiting political themes for commercial gain, resulting in widespread criticism and the withdrawal of the ad
  • The case demonstrates the risks of aligning a brand with sensitive social issues without a genuine understanding or commitment to the cause
• The rise of influencer marketing on social media platforms has led to increased scrutiny of disclosure practices and the authenticity of endorsements
  • Regulatory bodies, such as the Federal Trade Commission (FTC), have issued guidelines requiring influencers to clearly disclose sponsored content and any material connections with brands

Future Trends in Consumer Behavior

• The growing importance of digital channels and e-commerce in the consumer decision-making process, driven by the increasing use of mobile devices and the convenience of online shopping
  • Marketers will need to adapt their strategies to provide seamless, personalized experiences across multiple touchpoints and devices
• The rise of artificial intelligence (AI) and machine learning in marketing, enabling more precise targeting, personalized recommendations, and predictive analytics
  • AI-powered chatbots and virtual assistants will become more sophisticated in handling customer inquiries and providing support
• The increasing influence of social media and user-generated content on consumer behavior, as consumers rely more on peer recommendations and reviews than traditional advertising
  • Marketers will need to focus on building authentic relationships with customers and encouraging brand advocacy through social media platforms
• The growing demand for sustainable and socially responsible products and practices, as consumers become more aware of the environmental and social impact of their consumption choices
  • Companies will need to prioritize transparency, ethical sourcing, and sustainable production methods to meet the expectations of conscious consumers
• The impact of the sharing economy and access-based consumption on traditional ownership models, as consumers prioritize experiences and flexibility over material possessions
  • Marketers will need to explore new business models and partnerships to provide value to consumers through shared resources and services
• The increasing importance of data privacy and security in consumer trust and loyalty, as high-profile data breaches and misuse of personal information erode confidence in brands
  • Companies will need to prioritize data protection, transparency, and ethical data practices to build and maintain consumer trust
• The potential for virtual and augmented reality to transform the consumer experience, providing immersive and interactive ways to engage with products and services
  • Marketers will need to experiment with new technologies to create compelling and differentiated experiences that drive consumer engagement and loyalty