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2: Markets and Buyer Behavior

What is a Market?

In an economic sense, a "market" consists of the parties that participate in trade for a given product - but from a marketing perspective, the "market" are parties who have a common need or a similar problem that drives them to seek a product or service (not a particular product, but any of an array of possible "solutions" to their problem).

Three factors are considered in identifying members of a market: the ability, authority, and willingness to buy. The point being that mere interest in a product does not constitute involvement in the market (though such individuals may be part of the market in future, or have some ability to influence those who participate in the present).

The total market can be segmented by categorizing consumers into separate groups with similar characteristics. A common method of doing so is by role, resulting in four "markets" for any solution:

1. Consumers - Who will purchase the product for their personal use
2. Organizations - In which an authorized individual purchases products for use by others in an organization (business, nonprofit, etc.)
3. Trade - In which a "customer" is an intermediary that purchases a product with the intention of reselling it, without modification, to others
4. Government - In which material is purchased for use by governments or agencies

(EN: I don't think this is very well explained at all. How is "government" different than "organizations"? Does a parent buying food for consumption by their family qualify as a "consumer" or an "organizational" buyer? This is probably not the best example of behavioral segmentation.)

The Buying Process

The author describes a five-step model of the buying process:

1. Need recognition - An individual becomes aware of a problem that needs to be solved or a desire that needs to be filled
2. Research - The individual considers the options available to fill the need
3. Evaluation - The individual compares the alternatives to determine which to pursue
4. Decision - The individual arrives at a decision as to which alternative to obtain
5. Reflection - After the purchase, the individual considers whether the purchase filled the need to their satisfaction, and reconsiders whether other alternatives might have been better.

(EN: The enumeration of steps would seem to indicate that it is a conscious and deliberate process, but this is not always so. Especially with low-involvement purchases, buyers will often skip or shortcut certain steps)

(EN: It's also curious that the purchase, itself, is not included as a step in the process, especially when it is one of the most controllable and critical to success. I would expect that many purchases are derailed between the time the customer makes their decision and the time they actually obtain the good, and sometimes they are derailed by clumsy marketing who take this step for granted.)

Determinants of Buyer Behavior

(EN: There is some wavering here, in that the term "determinants" imply causal connectivity, whereas the language the author uses pertains to the way they "affect" or "influence" buyer behavior, and the latter is probably more accurate.)

One of the primary influences on buyer behavior is needs (which may also be referred to as a motive, as "need" implies satisfying a deficiency rather than achieving a goal). The author turns to Maslow's hierarchy (EN: Skipping the additional detail on this concept), then notes that people are motivated by multiple needs rather than one at a time. As an example, a person purchasing a jacket may be conflicted between choosing one that is warm (physical need) or fashionable (status need). In some instances, it is an emotional rather than rational decision, and the author notes a tendency for there to be an expressed need that differs from the actual one (a person claims to have made a purchase for one reason when, in reality, it is another).

The author identifies four additional "individual" factors:

• Perception - Perception deals with both the ability of a person to receive a stimulus through their sense perception (which can be affected by environmental factors or physical conditions) as well as the way in which a stimulus is interpreted (often shaped by past experience)
• Personality - A broad term that reflects behavioral traits (impulsive, hedonistic, amiable, etc.), particularly when they impact behavior related to choosing a product and vendor.
• Attitudes - Deals with an individual's existing sentiments toward something, which may be positive or negative, weakly or firmly held, may be based on prejudice or misinformation, and may be indirectly associated.
• Experience - An individual's experience, particularly their purchasing experience, may influence future decisions: if a person had a satisfactory experience with a product or vendor, they are likely to repurchase without much consideration, or if the experience was negative, they may be reluctant or resistant.

Since buyers are social beings, there are also a handful of "group influences" to consider:

• Culture - pertains to the values, attitudes, ideas, and behavioral patterns of a group of people which an individual may inherit (the culture in which they were born and raised) or adopt (a culture that they are seeking to identify with). In some instances, the desire to conform to cultural norms outweighs individual proclivities to the contrary.
• Class - Many sociologists stratify society in terms of power, influence, or wealth. (EN: this seems essentially the same as culture to me, and the author does not draw a clear distinction.)
• Groups - Individuals of various class/culture may associate in various kinds of groups that have similar influence. The individuals retain their cultural distinctiveness, but are motivated to modify their behavior in certain contexts to preserve group cohesion.
• Leaders - In any community or group, certain individuals have the status of being a leader or trendsetter among their colleagues, and a savvy marketer will target these individuals for the power they have to affect other members of the group, whether by intentional advocacy or unintentional influence.
• Family - Family can be considered a type of group (and patriarchs a type of leader), but it has such as strong influence that it merits separate consideration. It's within the family unit that individuals develop their personality, and it's noted that while children often rebel against their parent's ways, they frequently assume similar behavior patterns in later life. It's also noted that, unlike other groups, the family is a "consumer unit," in that the majority of major purchases are made for the entire family, or at least considering the needs and tastes of multiple family members.

Organizational Markets

The author returns to the concept of an organizational market, which purchases goods and service to support the organization's operations. There are a handful of significant differences between an organizational buyer and a consumer buyer.

Organization buyers are more rational and deliberate than consumers. Given their fiduciary responsibility to their employer, they are unlikely to be impulsive and will practice careful consideration, often through a formalized purchasing process, and will expect scrutiny of their decisions. Impulsive behavior is virtually nonexistent.

There are often multiple individuals involved in a buying decision: the individual who needs an item, the individual that handles the acquisition, and the individual who approves the disbursal of funds. An in each instance, the "individual" may be a department. Depending on the cost of the item purchased, there may be a formal bidding process, several levels of approval, and review by top management and legal counsel.

Organizations, particularly businesses, have derived demand: an automobile manufacturer's demand for steel depends on the demand for their cars. (EN: while there is a direct relationship between product sales and demand for components, a company's performance has an impact on its demand for all goods. The manufacturer who is selling fewer cars is likely to decrease its consumption of office supplies, even though there is no direct correlation.) Demand also fluctuates according to seasonality (candy manufacturers ramp up production for certain holidays) as well as the general health of the economy.

Organizational markets tend to be more geographically concentrated, especially when one considers industrial markets. The author notes that certain states and countries have a high concentration of certain industries (oil in Texas, tobacco in southern Virginia, costume jewelry in Rhode Island, textiles in Mexico, electronics in the Pacific Rim).

Government Buyers

Government buyers are similar to other organizational buyers, but given that there is concern over the scrutiny given to the disposition of taxpayer monies, the formality of process and level of scrutiny is often much higher. For this reason, service of government contracts is often a special function within marketing.

Market Segmentation

Market segmentation is the process of dividing a market into smaller groups of customers with similar characteristics, in order to better focuses marketing efforts on their specific needs and interests.

There is no standard method for segregating customers, as the criteria that are most influential in determining buying behavior vary by product and industry, so research develop statistical models that consider multiple factors (demographic, psychographic, behavioral) to arrive at a segmentation schema that fits their market.

Once markets are segmented, marketing efforts are geared to target the needs of a specific group, such that the same product may be targeted to different groups using different tactics. The author provides a sampling of market segments and marketing tactics used to target them.

Another approach is for a company to modify its product attributes to suit the needs of multiple markets or to develop separate "brands" for what is essentially the same product to market differently to various segments.

While market segmentation is highly variable in consumer markets, segmentation of organizational markets is more standardized due to the US government's Standard Industrial Classification (SIC) system. Hence, marketers segment and specialize according to the business activities of their target industries (telecommunications, transportation, financial services, etc.), though they may consider other factors as well (such as purchase frequency and volume).