UNIT 2: UNDERSTANDING CONSUMER BEHAVIOR AND

MARKET SELECTION
CONSUMER BEHAVIOR:

Consumer behavior refers to the study of the processes and activities that individuals,
groups, or organizations engage in when searching for, selecting, purchasing, using, and
disposing of products, services, ideas, or experiences to satisfy their needs and desires.
Understanding consumer behavior is crucial for marketers as it provides insights into the
factors influencing purchasing decisions.

Key Aspects of Consumer Behavior:

1. Needs and Wants:

• Consumers are motivated by their needs and desires. Needs are basic
requirements for survival, while wants are shaped by culture, social influences,
and personal preferences.
2. Information Search:
• Before making a purchase decision, consumers often engage in information
search to gather data about products or services. This can involve internal
sources (memory, past experiences) and external sources (friends, family, online
reviews).
3. Evaluation of Alternatives:
• Consumers evaluate different options based on various criteria, such as price,
quality, brand reputation, and personal preferences. This stage is crucial in the
decision-making process.
4. Purchase Decision:
• The consumer makes the final decision to purchase the chosen product or
service. Factors influencing the decision include product availability, promotional
offers, and the overall value proposition.
5. Purchase:
• The consumer acquires the chosen product or service. The buying process can
involve different channels, such as online or in-store purchases.
6. Post-Purchase Evaluation:
• After the purchase, consumers assess their satisfaction with the product or
service. Positive experiences lead to brand loyalty, while negative experiences
may result in dissatisfaction and the potential for product returns or negative
word-of-mouth.
 Factors Influencing Consumer Behavior:

1. Personal Factors:
• Individual characteristics such as age, gender, income, education, occupation,
lifestyle, and personality influence consumer choices.
2. Psychological Factors:
• Mental and emotional factors, including perception, motivation, learning,
attitudes, and beliefs, play a role in shaping consumer behavior.
3. Social Factors:
• Social influences from family, friends, reference groups, culture, and social class
impact consumer decisions. Social norms, values, and cultural trends shape
preferences and behaviors.
4. Situational Factors:
• Immediate circumstances, such as the time of day, location, and the purpose of
the purchase, can influence consumer choices.
5. Marketing Mix (4Ps):
• Product, price, place (distribution), and promotion are marketing elements that
significantly influence consumer behavior. Effective marketing strategies align
with consumer needs and preferences.
6. Perception and Learning:
• How consumers perceive and interpret information about products and brands,
as well as their learning processes, affect their decision-making.
7. Online and Digital Influences:
• The rise of digital platforms and e-commerce has transformed how consumers
discover, research, and purchase products. Online reviews, social media, and
digital advertising play crucial roles.
8. Cognitive Dissonance:
• Consumers may experience discomfort or cognitive dissonance after making a
purchase. Marketers can address this by providing post-purchase support,
warranties, or additional information to reinforce the positive aspects of the
decision.

Consumer Decision-Making Models:

1. The Consumer Decision-Making Process:

• This model typically includes stages such as problem recognition, information
search, evaluation of alternatives, purchase decision, and post-purchase
evaluation.
2. Howard-Sheth Model:
 • This model considers multiple factors influencing consumer behavior, including
input from marketing stimuli, socio-cultural influences, and psychological
processes.
3. Engel-Blackwell-Miniard Model:
• Known as the EKB Model, it emphasizes the decision-making processes of
problem recognition, information search, evaluation of alternatives, and decision
implementation.

CONSUMER BUYING INFLUENCING FACTORS:

Consumer buying decisions are influenced by a multitude of factors, which can vary
based on the individual, the product or service, and the overall context. These factors
can be categorized into internal and external factors. Here are some key factors that
affect consumer buying decisions:

Internal Factors:

1. Perception:
• How consumers interpret and make sense of information about a product or
service. This includes their perceptions of quality, value, and brand image.
2. Motivation:
• The internal drive that prompts consumers to take action. Motivations can be
functional (meeting a basic need), psychological (emotional satisfaction), or social
(approval from others).
3. Attitude:
• Consumer attitudes, which are a combination of beliefs and evaluations, influence
their preferences and choices. Positive attitudes toward a product or brand are
more likely to result in a purchase.
4. Learning and Experience:
• Past experiences and the learning process influence consumer behavior. Positive
experiences with a product or brand can lead to brand loyalty, while negative
experiences may deter future purchases.
5. Personality and Lifestyle:
• Individual characteristics, such as personality traits and lifestyle choices, play a
role in shaping consumer preferences. Marketers often segment markets based
on psychographic factors.
6. Age and Life Stage:
 • Different age groups have distinct preferences and needs. Life stage events, such
as marriage, having children, or retirement, can significantly impact buying
decisions.
7. Knowledge and Education:
• The level of consumer knowledge and education affects the extent to which they
research products, understand technical details, and make informed purchasing
decisions.

External Factors:

1. Culture and Subculture:

• Cultural values, beliefs, and customs shape consumer behavior. Subcultures, such
as ethnic or religious groups, also influence preferences.
2. Social Influences:
• The impact of family, friends, peers, and reference groups on consumer decisions.
Word-of-mouth, social media, and social norms can significantly sway choices.
3. Reference Groups:
• Groups with whom individuals identify and whose opinions influence their
behavior. Reference groups can be direct (family, friends) or indirect (celebrities,
influencers).
4. Social Class:
• A person's social class, determined by factors like income, occupation, and
education, can influence their preferences and buying patterns.
5. Economic Factors:
• The economic environment, including factors like income levels, employment
rates, inflation, and economic stability, affects consumer purchasing power.
6. Marketing and Advertising:
• The messages and promotional efforts of marketers impact consumer
perceptions and preferences. Advertising, branding, and other marketing
communications play a vital role.
7. Technological Advances:
• The availability of new technologies can influence consumer preferences.
Products with the latest features or technological advancements may attract
certain consumer segments.
8. Political and Legal Factors:
• Regulations, government policies, and legal considerations can impact consumer
choices, particularly in industries with strict standards or requirements.
9. Environmental Concerns:
 • Growing environmental awareness influences consumer preferences for
sustainable and eco-friendly products.
10. Psychological Influences:
• Psychological principles, such as pricing strategies, promotional tactics, and the
use of scarcity or urgency, can impact consumer decision-making.

STP (SEGEMANTAION, TARGETING AND POSTIONING:

STP stands for Segmentation, Targeting, and Positioning, and it is a strategic approach
used in marketing to identify and pursue opportunities for creating and implementing
effective marketing strategies. The STP process helps businesses understand and
connect with specific customer segments in the market. Here's a brief overview of each
component:

1. Segmentation:
• Definition: Segmentation involves dividing the overall market into distinct
groups of consumers who share similar characteristics, needs, and behaviors.
• Purpose: The goal is to identify and understand the diversity within the market
and group consumers based on commonalities.
• Methods: Segmentation can be based on various factors, including
demographics, psychographics, behavior, and geographic location.
• Example: A company in the fitness industry might segment its market based on
age groups, targeting different products or messages to teens, adults, and
seniors.
2. Targeting:
• Definition: Targeting involves selecting one or more of the identified market
segments as the focus of the marketing strategy.
• Purpose: By targeting specific segments, a company can allocate resources more
effectively and tailor its offerings to better meet the needs of the chosen
audience.
• Methods: Targeting decisions may be based on the attractiveness of a segment,
the company's capabilities, and the potential for profitable growth.
• Example: Using the fitness industry example, a company might choose to target
the "young professionals" segment with high-intensity workout programs and
convenient class schedules.
3. Positioning:
• Definition: Positioning is the process of creating a distinct and desirable image
for a product or brand in the minds of the target audience within the selected
market segment.
 • Purpose: It aims to differentiate the product or brand from competitors and
establish a unique value proposition.
• Methods: Positioning involves creating a compelling message and using
marketing mix elements (product features, pricing, promotion, distribution) to
convey that message.
• Example: Continuing with the fitness industry example, a company might
position itself as the provider of innovative and personalized fitness solutions,
emphasizing cutting-edge equipment and expert trainers.

Importance of STP:

1. Resource Optimization:
• STP helps companies allocate resources efficiently by focusing on specific
segments rather than trying to appeal to the entire market.
2. Customer Understanding:
• Segmentation provides insights into the diverse needs and preferences of
different customer groups, allowing businesses to tailor their offerings
accordingly.
3. Competitive Advantage:
• Effective positioning helps create a unique and favorable perception in the minds
of consumers, setting the brand apart from competitors.
4. Effective Communication:
• Knowing the target audience enables companies to communicate with them
more effectively through tailored messages and channels.
5. Improved Decision-Making:
• STP guides strategic decision-making by providing a structured approach to
market analysis and identification of growth opportunities.
6. Customer Satisfaction:
• Addressing the specific needs of the target segment enhances the likelihood of
customer satisfaction and loyalty.

MARKET SEGMENTAION LEVEL AND ALL:

Market segmentation is the process of dividing a broad target market into smaller, more
homogeneous groups of consumers based on certain characteristics or criteria. Each
segment represents a distinct subset of the overall market, and companies can tailor
their marketing strategies to better meet the needs and preferences of each segment.
There are different levels and bases of segmentation used in consumer marketing:
 1. Levels of Market Segmentation:

1. Mass Marketing (Undifferentiated Marketing):

• Description: Treating the entire market as one homogeneous group and
designing a single marketing mix that will appeal to the largest number of
customers.
• Example: Basic commodities like salt or sugar may be marketed without
differentiation.
2. Segment Marketing:
• Description: Dividing the market into segments and designing products and
marketing programs tailored to the needs and wants of particular segments.
• Example: A shoe company offering different lines for athletes, casual wear, and
formal occasions.
3. Niche Marketing:
• Description: Focusing on a small, specific segment with unique needs and
characteristics. This involves understanding the specialized needs of the target
audience.
• Example: A company that produces gluten-free snacks targeting individuals with
gluten intolerance.
4. Micro Marketing (Individual Marketing):
• Description: Tailoring products and marketing programs to the preferences of
individual customers. This is often enabled by advanced data analytics and
personalized marketing efforts.
• Example: Online retailers providing personalized recommendations based on a
customer's browsing and purchase history.

2. Bases of Consumer Market Segmentation:

1. Demographic Segmentation:
• Characteristics: Age, gender, income, education, marital status, family size,
occupation, and other demographic factors.
• Use: Commonly used as a starting point for segmentation due to its easy
availability and measurable nature.
2. Psychographic Segmentation:
• Characteristics: Values, lifestyle, personality, interests, and attitudes of
consumers.
• Use: Provides insights into the psychological aspects that influence consumer
behavior and preferences.
3. Behavioral Segmentation:
 • Characteristics: Consumer behavior, usage patterns, brand loyalty, benefits
sought, and decision-making processes.
• Use: Helps understand how consumers interact with products and make
purchasing decisions.
4. Geographic Segmentation:
• Characteristics: Geographic location, including factors like region, country, city
size, climate, and population density.
• Use: Useful for businesses with location-specific offerings or those targeting
regional preferences.
5. Benefit Segmentation:
• Characteristics: Based on the specific benefits or solutions that consumers seek
from a product or service.
• Use: Focuses on fulfilling the needs and desires of consumers by addressing
specific benefits important to them.
6. Usage Rate Segmentation:
• Characteristics: Frequency of product usage, loyalty, and volume of purchases.
• Use: Identifies heavy users, moderate users, and light users to tailor marketing
strategies accordingly.
7. Occasion Segmentation:
• Characteristics: The specific occasions or situations in which consumers use or
purchase a product.
• Use: Helps in designing marketing campaigns that align with particular occasions
or events.
8. Cultural and Social Segmentation:
• Characteristics: Cultural background, social class, reference groups, and
subcultures.
• Use: Recognizes the influence of cultural and social factors on consumer
behavior and preferences.
9. Technographic Segmentation:
• Characteristics: Technology usage, preferences, and attitudes towards
technology.
• Use: Relevant for businesses offering technology-related products or services.
10. Generational Segmentation:
• Characteristics: Dividing consumers based on their generation, such as Baby
Boomers, Generation X, Millennials, and Generation Z.
• Use: Recognizes the unique characteristics and behaviors associated with
different generations.
 MARKET TARGETING:

Market targeting is a crucial step in the marketing strategy development process. It

involves selecting specific segments from the overall market to serve with tailored
products, services, and marketing efforts. The goal is to allocate resources effectively
and meet the unique needs of the chosen target audience. The process of market
targeting considers various criteria to identify the most attractive segments for a
business. Here are the key concepts and criteria for market targeting:

Market Targeting Concepts:

1. Undifferentiated Marketing (Mass Marketing):

• Description: Treating the entire market as one and offering a single product or
service to the entire audience.
• Advantages: Economies of scale, simplified marketing strategies.
• Disadvantages: Ignores diversity within the market, potential for inefficiency.
2. Differentiated Marketing:
• Description: Targeting multiple segments with different products or marketing
mixes.
• Advantages: Tailored offerings for diverse segments, potential for higher market
share.
• Disadvantages: Increased complexity, higher costs compared to undifferentiated
marketing.
3. Concentrated Marketing (Niche Marketing):
• Description: Focusing on a single, specific market segment.
• Advantages: Efficient use of resources, deep understanding of the target
audience.
• Disadvantages: Limited growth potential, vulnerability to changes in the niche.
4. Micromarketing (Individual Marketing):
• Description: Tailoring products and marketing to individual customers or very
small segments.
• Advantages: Highly personalized, potential for strong customer loyalty.
• Disadvantages: Resource-intensive, may not be scalable for larger markets.

Market Targeting Criteria:

1. Market Size:
• Criterion: The size of the target market segment.
 • Consideration: Larger segments may offer greater revenue potential, but smaller
segments may be easier to penetrate.
2. Market Growth:
• Criterion: The growth rate of the target market.
• Consideration: Fast-growing markets may offer more opportunities for
expansion and increased market share.
3. Competitive Intensity:
• Criterion: The level of competition within the target segment.
• Consideration: Less competitive segments may be more attractive, but
competition should be assessed based on the company's strengths.
4. Segment Accessibility:
• Criterion: The ease with which the company can reach and serve the target
segment.
• Consideration: Accessibility involves distribution channels, communication
channels, and the feasibility of reaching the target customers.
5. Resource Requirements:
• Criterion: The resources (financial, human, technological) required to effectively
target and serve the segment.
• Consideration: Evaluate whether the company has the resources to meet the
needs of the chosen segment.
6. Compatibility with Organizational Objectives:
• Criterion: The alignment of the target segment with the company's overall goals
and objectives.
• Consideration: Ensure that targeting a particular segment supports the broader
mission and strategic direction of the organization.
7. Distinctiveness of Needs:
• Criterion: The degree to which the needs and preferences of the target segment
are distinct from other segments.
• Consideration: A segment with unique needs may present opportunities for
customization and differentiation.
8. Feasibility and Risk:
• Criterion: The practicality of entering and serving the target segment, along with
associated risks.
• Consideration: Assess the feasibility of targeting the segment in terms of market
entry barriers, regulatory considerations, and potential risks.
9. Alignment with Brand Image:
• Criterion: The compatibility of the target segment with the brand image and
positioning.
 • Consideration: Ensure that the chosen target segment aligns with the brand
identity to maintain consistency and authenticity.
10. Potential for Profitability:
• Criterion: The potential for the target segment to generate profitable returns.
• Consideration: Assess factors such as pricing sensitivity, purchasing power, and
the overall profitability of serving the segment.

Product positioning is a marketing strategy that involves creating a distinct and

favorable place for a product in the minds of the target customers relative to competing
products. It's about shaping how customers perceive a product and differentiating it
from others in the market. Effective product positioning helps establish a unique value
proposition and influences customers' purchasing decisions. Here are key concepts and
bases related to product positioning:

Concepts of Product Positioning:

1. Perception:
• Description: How customers perceive a product relative to competing products.
• Importance: Perception influences customer preferences and choices.
2. Differentiation:
• Description: Highlighting unique features or benefits that set the product apart
from competitors.
• Importance: Differentiation creates a competitive advantage and attracts target
customers.
3. Value Proposition:
• Description: Communicating the value that the product offers to customers,
both functionally and emotionally.
• Importance: A strong value proposition resonates with customers and drives
purchase decisions.
4. Competitive Advantage:
• Description: The unique qualities or attributes that give a product an edge over
competitors.
• Importance: A sustainable competitive advantage contributes to long-term
success.
5. Target Audience:
• Description: The specific group of customers the product is designed for.
• Importance: Understanding the target audience is crucial for tailoring the
positioning strategy.
 Bases for Product Positioning:

1. Price:
• Description: Positioning the product based on its pricing relative to competitors.
• Example: Premium pricing for high-end products or value pricing for budget-
friendly products.
2. Quality:
• Description: Emphasizing the quality of the product compared to others in the
market.
• Example: "Premium quality" or "industry-leading quality" positioning.
3. Features and Innovation:
• Description: Highlighting unique features, technological innovation, or product
advancements.
• Example: "Cutting-edge technology" or "innovative design" positioning.
4. Performance:
• Description: Positioning the product based on superior performance or
functionality.
• Example: "Best-in-class performance" or "outperforms the competition."
5. Convenience:
• Description: Emphasizing ease of use, accessibility, or convenience.
• Example: "User-friendly" or "convenient and hassle-free" positioning.
6. Lifestyle:
• Description: Associating the product with a particular lifestyle or set of values.
• Example: "Lifestyle brand" or "products for the modern, active lifestyle."
7. User Experience:
• Description: Focusing on the overall experience customers have with the
product.
• Example: "Exceptional user experience" or "delightful customer experience."
8. Environmental and Social Responsibility:
• Description: Positioning the product based on environmentally friendly practices
or social responsibility.
• Example: "Sustainable and eco-friendly" or "ethically sourced" positioning.
9. Market Leadership:
• Description: Emphasizing the product's position as a market leader or industry
authority.
• Example: "Industry leader" or "trusted by millions" positioning.
10. Heritage and Tradition:
• Description: Leveraging the product's history, heritage, or tradition.
 • Example: "Established since..." or "time-tested tradition" positioning.
11. Problem-solving:
• Description: Positioning the product as a solution to a specific problem or need.
• Example: "Solves your XYZ problem" or "addresses common challenges"
positioning.

Product differentiation is a marketing strategy that involves creating a unique and

distinctive product offering that stands out from competitors in the marketplace. The
goal is to give customers a compelling reason to choose a particular product over
others by offering unique features, benefits, or attributes. Product differentiation is a key
element of competitive advantage, helping companies build brand loyalty and
command premium pricing. Here are key concepts and bases related to product
differentiation:

Concepts of Product Differentiation:

1. Uniqueness:
• Description: Offering something unique or different from competitors in terms
of features, performance, design, or other attributes.
• Importance: Uniqueness creates a competitive advantage and attracts customer
attention.
2. Value Proposition:
• Description: Communicating the value that a differentiated product provides to
customers, whether it's superior quality, innovation, convenience, or other
benefits.
• Importance: A strong value proposition helps in conveying the advantages of
choosing the product.
3. Competitive Advantage:
• Description: The distinct qualities or attributes that set a product apart and give
it an edge in the market.
• Importance: A sustainable competitive advantage contributes to long-term
success.
4. Brand Image:
• Description: The overall perception and reputation of the brand, influenced by
the unique attributes and positioning of the product.
• Importance: Brand image affects customer trust, loyalty, and preference.
5. Customer Loyalty:
 • Description: Building a base of loyal customers who choose the differentiated
product repeatedly over time.
• Importance: Customer loyalty contributes to repeat business and positive word-
of-mouth.

Bases for Product Differentiation:

1. Quality:
• Description: Offering superior quality compared to competitors.
• Example: Premium materials, craftsmanship, durability, etc.
2. Features:
• Description: Providing unique or additional features that meet customer needs.
• Example: Advanced technology, innovative design, exclusive functions.
3. Innovation:
• Description: Introducing new and innovative features or technology.
• Example: Cutting-edge technology, pioneering design.
4. Design:
• Description: Creating a distinctive and aesthetically pleasing design.
• Example: Sleek, modern, or iconic design elements.
5. Performance:
• Description: Delivering superior performance compared to competitors.
• Example: Faster speed, higher efficiency, better functionality.
6. Brand Image and Reputation:
• Description: Leveraging a positive brand image and reputation.
• Example: Brands known for reliability, trustworthiness, or eco-friendliness.
7. Customer Service:
• Description: Providing exceptional customer service and support.
• Example: 24/7 customer support, hassle-free returns.
8. Customization:
• Description: Allowing customers to customize or personalize the product.
• Example: Custom colors, sizes, configurations.
9. Convenience:
• Description: Offering convenience features that make the product easier to use.
• Example: Quick setup, user-friendly interfaces.
10. Price:
• Description: Differentiating based on pricing strategy, either as a premium or
value product.
 • Example: Premium pricing for luxury products, competitive pricing for value
products.
11. Environmental Sustainability:
• Description: Differentiating based on eco-friendly practices and sustainability.
• Example: Products made from recycled materials, energy-efficient features.
12. Exclusivity:
• Description: Positioning the product as exclusive or limited edition.
• Example: Limited production runs, exclusive partnerships.