MARKETING MANAGEMENT –

BBA2005
MODULE V
 Unit 5 : CONSUMER BEHAVIOR AND CRM ( 10 Sessions )
( Comprehension)
Understanding Consumer Behavior in Indian and Global
context:
Factors influencing buyer behavior – Cultural, Social,
Individual and Psychological Influences.–
Understand the concept of customer loyalty and lifetime
value.
Relationship Marketing and CRM- Role of CRM, Pareto
Principle

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 Consumer Behavior
• The most important thing is to forecast where customers
are moving, and be in front of them.
• Philip kotler

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 Concept of consumer behaviour
• In the words of Prof.C.G.Walter & G.W.Paul , “It is the process
where by individual decide whether, what, when, where, how and
from whom to purchase goods and services.”
In the light of above definition it can be analysed in such ways:-
Consumer behaviour is a decision process of consumer.
What type of products & services are to be bought.
When the products & services are to be obtained.
And From whom the products & services are to be obtained.
According to Webster, “ Buyer Behaviour is all psychological, Social
and physical behaviour of potential customer as they become aware to
evaluate, purchase, consume and tell other about the product and
services.”

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 INDIAN CONSUMERS
• Young demographics
• Aspiration consumer
• Value consciousness
• Networked consumer
• Brand switchers
• Thinking beyond categories
• Religious diversity
• Working women
• Rising purchasing power

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CHRACTERISTICS OF MODERN CONSUMER

• Around-the-clock-shopping
• Consumers are in control
• Omni channel shopping
• Content consumers
• Global experience
• Collaborators
• Social sharers

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Influence of Social science on buyer behaviour studies

• Economics: Human is a rational buyer who wants to take

maximum utility out of fixed/minimum price.
• Psychology: Acc. To psychology any human activity is
directed towards meeting certain needs. ( maslow`s Need
Hierarchy)
• Sociology & anthropology: Effect of reference group,
society, role in society, etc.

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FACTORS INFLUENCING BUYER BEHAVIOUR

• Economic Determinants
1.Personal income
2.Family income
3.Consumer income expectations
4.Consumer liquid assets
5.Consumer credit
6.Standard of living

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Psychological determinants
• Psychological  Perception and
Determinants communication
1.Motivation  Product and brand
2.Perception perception
 Price perception
3. Learning
 Store perception
4. Attitude
 Perceived risk
5. Personality

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Sociological Determinants

1. Family
2. Reference groups
3. Opinion leaders
4. Social class
5. Caste and culture

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 The Howard-Sheth Model
• The Howard Sheth Model is an approach for analyzing the combined
impact of the social, psychological and marketing factors on the
buying behavior or preference of the consumers and the industrial
buyers into a logical order of information processing.
• John Howard and Jagadish Sheth introduced the Howard Sheth Model
in the year 1969. The concept was published in their book ‘The
Theory of Buyer Behavior’.
• Inputs in the form of stimuli
• Output beginning with the attention given to stimulus & ending with
purchase
• https://www.youtube.com/watch?v=IJ9X27fpMjk

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Three significant stages of the buyer’s decision-
making

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 Extensive Problem
Solving
 Initial stage of decision-making, where the buyer is new to
the market. He/she has no or little information about the
brands and has no preference for a particular product or
service.
Thus, a consumer is an information seeker at this level, who
check out different brands available in the market, before
making a buying decision.

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 Limited Problem Solving

At this level, the buyer has inadequate or incomplete

information about the product, market or the brands
operating in it. Sometimes the buyer is confused among the
various alternatives.
Therefore, to make a buying decision, he/she look for a
comparative study of the different brands and the products
available in the market.

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 Routinized Response Behaviour
The habitual response behavior stage is where the buyer is
entirely aware of the products offered by different brands
and the features, pros and cons of each product.
He/she is capable of evaluating and comparing the multiple
options available in the market.
Here, the buyer decides in advance, which product is to be
purchased.

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 Variables of Howard Sheth Model
• This whole process of buyer’s decision-making functions on four
pillars of this model or the four essential elements of this model.
I. Input Variables
1.Significant Stimuli: The significant stimuli are the physical traits of
the product and the brand. It includes the product’s price, quality,
availability, distinctive characteristics and service.
2.Symbolic Stimuli: The marketing strategies like advertisement and
publicity creates a psychological impact on the buyer’s perception of a
product’s rhetorical and visible features.
3.Social Stimuli: The social stimuli comprises of the various
environmental factors which are considered as a source of information
for the buyers. It includes family, social class and reference groups.

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 Contd..
II. Hypothetical Constructs :- The hypothetical constructs depict the
central part of the model. It includes all those psychological variables
which play a vital role in the buyer’s decision-making process.
• A. Perceptual Constructs :- Define the consumer’s procurement and
perception of the information provided at the input stage. Ex-
Sensitivity to Information, Perceptual Bias, Search for
Information
• B. Learning Constructs :- learning constructs define the buyer’s
knowledge, opinion, attitude and end decision on product or brand
selection. Ex:- Motive, Choice Criteria, Brand Comprehension,
Attitude:, Confidence, Intention, Satisfaction

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 Contd..
III. Output Variables :- The result of the buyer’s decision-making
can be seen in the form of his/her response towards the input variables.
It consists of five major components which are arranged
systematically.
1. Attention: 2. Brand Comprehension:. 3. Attitude:
Intention: 4. Purchase Behavior:
Exogenous Variable :- Certain other external factors which
influence the buying behavior of an individual or a firm by hampering
the product purchase of a preferred brand. The exogenous variables
are the environmental forces or components of this model
1.Importance of Purchase 2. Personality Variables:
Social Class: 3. Culture: 4. Organization: 5. 5. Time
Pressure: 6. Financial Status:

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 Conclusion
The Howard Sheth Model majorly emphasizes repetitive buying
behavior of the consumers or industrial buyers.

This is an empirical approach towards understanding the buyer’s

mindset while purchasing a product or service. It has been intensively
applied and tested to check its viability.

Still, the model lacks reliability due to its dependency on the

hypothetical constructs, which are challenging to be pragmatically
examined.

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Model of consumer behaviour

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Buyer’s black box

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Five stages of consumer Decision Making Process

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Buyer Decision Process
Step 1. Need Recognition

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The Buyer Decision Process
Step 2. Information Search

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The Buyer Decision Process
Step 3. Evaluation of Alternatives

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The Buyer Decision Process
Step 4. Purchase Decision

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The Buyer Decision Process
Step 5. Post purchase Behaviour

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 Cognitive dissonance
• In marketing, cognitive dissonance relates to consumers'
expectations, feelings about brands and internal logic when
deciding to buy something. Marketers try to be aware of
potential conflicts or expectations that might affect buying
decisions.
• For a marketer, if cognitive dissonance involves purchasing
their product, they typically want to resolve the conflict in
favor of what they're trying to sell.

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 Example-
• For instance- Suppose you are a frugal person but you wish to
purchase an expensive car. In this example the desire to save money
will conflicts with desire to buy a new car. Similarly a person might be
sporter of a sports team, but also likes one player of the rival team.

• For ex- You want to be healthy but you don’t want to do exercise.
• A person is said be in cognitive dissonance when two ideas are in
conflict with each other.

• Cognitive dissonance, for instance, might occur when someone

purchases a thing thinking it would make them happy but it doesn't.

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Factors influencing consumer behaviour
•Culture
•Social
•Personal
•Psychological

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Contd..

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Contd..
Most basic cause of a person's wants and behaviour:- Values
• Perceptions
• Subculture
• Groups of people with shared value systems based on common life
experiences:- North Indian Consumers
• African American Consumers
• Asian American Consumers
• Mature Consumers
• Social Class
People within a social class tend to exhibit similar buying behaviour:- •
Occupation , Income , Education , Wealth

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Factors Affecting Consumer Behaviour: Social

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Factors Affecting Consumer Behaviour: Social
• Relatively homogenous, enduring divisions in a society,
hierarchically ordered with members sharing similar values,
interests, and behaviours.
• Situational Influences
• Factors that can influence a buyer’s purchase decision and may
cause the buyer to shorten, lengthen, or terminate the process.
• Situational Factors
• Physical surroundings
• Social surroundings
• Time perspective
• Reason for purchase
• Buyer’s momentary mood
and condition

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Factors Affecting Consumer Behaviour:
Personal
• Age
• Life-Cycle Stage
• Stages in Family Life-Cycle
• Occupation
• Economic Circumstances
• Life Style

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Factors Affecting Consumer Behaviour :
Psychological

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Motivation
Motivation
Freud
ID, Ego, Super Ego

Maslow:
Hierarchy of Needs

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 Perception
• The process by which an individual selects, organizes, and
interprets inputs to create a meaningful picture of the world.

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Learning
• Changes in an individual’s behaviour arising form experience
• Learning:- a relatively permanent in behaviour caused by experience.
• Incidental learning:- casual, unintentional acquisition of knowledge.
• Learning is an on going process:- Constantly being revised.
Can be either simple association.

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Attitudes & Beliefs
• Attitudes
• An individual’s enduring evaluation of, feelings about, and
behavioral tendencies toward an object or idea
• Attitudinal Components
• Cognitive:- Knowledge and information about the object or idea
• Affective:- Feelings and emotions toward the object or idea
• Behavioral:- Individual’s action regarding the object or idea

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Attitudes
• Attitude Scale
• A means of measuring consumer attitudes by gauging
the intensity of individuals’ reactions to adjectives,
phrases, or sentences about an object

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Beliefs

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 Customer lifetime value
• Customer life time value is crucial to a business’ marketing success.
The CLV defines the present value of a brand’s or organization’s
customer based on past or predicted purchases. Once the CLV is
calculated, businesses can see a defined metric prediction of the value
that a customer’s association will have on their future relationship.
• It can also help businesses determine their high-value customers and
aid in guiding their marketing spend.

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Why is customer lifetime value important?

• Customer value is at the heart of any stable business. The customer

lifetime value formula is essential if you’re looking to achieve
substantial growth patterns.
• It’s a long-term calculation that measures how sustainable your
business model is. If you have a low lifetime value, your business may
be failing to deliver on customer expectations.
• It could also mean you’re spending much more than you need to
maintain your margins.

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 Why is lifetime value so significant?
• 1. It impacts your bottom line:- Knowing what your customer
lifetime value is versus your customer acquisition cost can shine a light
on how you need to adjust your strategy to bolster margins: optimize
your lead generation program, focus on delivering more value for your
customers, or both.
• 2. It steadies your cash flow:- It’s no secret that cash flow is a
company’s biggest challenge. (The Bureau of Labor Statistics also
tracked business survival across industries and concluded that these
statistics are pretty consistent regardless of industry.) According to one
U.S. bank, 82% of failed business ,cited cash flow as a factor in their
collapse.
• SBA.gov. “Small Business Facts“

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 Contd..
• 3. You’ll practice more intelligent acquisition:- Companies whose
customers spend an average of $10,000 can afford to allot much more
to their allocation budgets than businesses with customer values of just
$200.
• 4. You can achieve more growth:- Companies with bigger margins
can react by reinvesting that money and adding a touch of rocket fuel
to their growth.
• 5. You’ll find out what your customers think:- If you’ve got a high
figure, it tells you that your customers love to shop with you. It
demonstrates that they’re satisfied with the service you offer. Most
importantly, a high lifetime value shows a degree of brand loyalty. It’s
important to note that customer lifetime value is different from loyalty
and satisfaction metrics. because customer lifetime is based on revenue
specifically, whereas other customer satisfaction metrics are based on
sentiment and promise..

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 Calculating CLV Formula
• Customer lifetime value = (customer value x average customer
lifespan).
• The simplest way to find the right numbers to plug into this formula is
to calculate the average purchase value of your customers and multiply
that number by the average number of purchases.
• For the second part of the formula, you need to dive into your figures
and calculate how long the average customer has a relationship with
your brand.
• Once you have these two figures, multiply them together to get the
lifetime value of your customers.

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Contd.

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CUSTOMER LIFETIME VALUE
FORMULA
• CLV = customer value X average customer lifespan
• Average purchase value — the value of all customer purchases over a
particular timeframe (a year is usually easiest), divided by the number
of purchases in that period
• Average purchase frequency — divide the number of purchases in
that same time period by the number of individual customers who
made a transaction over the same period
• Customer value — the average purchase frequency multiplied by the
average purchase value
• Average customer lifespan — the average length of time a customer
continues buying from you

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 Numerical Example
• The average sales in a clothing store are $80 and, on average, a
customer shops four times every two years. The lifetime value is
calculated as LTV = $80 x 4 x 2 = $640.

• Furthermore, the profit margin in the clothing store is 20%, hence the
CLV is as follows: CLV = $80 x 4 x 2 x 20% = $128.

• The lifetime value figure can help a business estimate future cash
flows and the number of customers they need to obtain to achieve
profitability.

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 Summary
• Customer lifetime value represents the total revenue a customer will
generate for a business throughout the relationship.
• To calculate customer lifetime value, multiply the average revenue or
profit per visit by the number of visits per year, then multiply by the
average number of years for the typical customer relationship. The
formula for customer lifetime value is:
• CLV = Average Transaction Size x Number of Transactions x
Retention Period.
• For example, let's say a typical restaurant customer visits once per
month and spends $17 per visit over an average lifetime/life span of 10
years. The customer lifetime value would be calculated as: $17 x 12 x
10 = $2,040.

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IMPROVEMENT OF CUSTOMER LIFETIME
VALUE
• Invest in customer experience
• Ensure your onboarding process is seamless
• Start a loyalty program
• Recognize and reward your best customers
• Provide Omni channel support
• Remember the power of social media
• Close the loop with unhappy customers
• https://www.youtube.com/watch?v=vA1YX8963ts

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 Customer Relationship Marketing
• Customer Relationship Marketing is business process in which client
relationship, customer loyalty, and brand value are build through
marketing strategies and activities.
• CRM allows business to develop long term relationship with
established and new customers while, helping streamlining corporate
performance.
• It is the process of carefully managing detailed information about
individual customer and all customer touch point to maximize loyalty.

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CRM Evolution

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How to do customer relationship
management
Personalizing Marketing:- use of the right technology is the essential
ingredient; Companies using to support continuous contact between
company and customer;
• Emails
• Webmail's
• Call centers
• Database
• Social media a powerful tool for CRM
• Excellent example of personalized marketing and pure CRM Rural
Markets; Companies that have learn and adapt from rural markets

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Transactional vs relationship marketing
• In 1990’s relationship marketing emerged strongly but focus now
has been changed from Transactional Marketing to Relationship
Marketing;

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 Relationship management
• Move from transactional marketing to relationship model

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 CRM Basics
• It requires building long term relationship between buyers and
sellers.
• CRM ranks customer service as high priority.
• It is based on trust and commitment between two parties.
• Emphasis is on retaining the customers over making sales.
• Fostering customer commitment with the company.
• Goals of CRM:- Customer acquisition, Customer satisfaction,
retention of customer, enhancing the customer base.

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TYPES OF RELATIONSHIP
MARKETING
• Customer service
• Email marketing
• Social media
• Word-of-mouth
• Content marketing
• Customer awareness and education

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LEVELS OF RELATIONSHIP MARKETING

• Basic marketing
• Reactive marketing (provide information based on
earlier enquiry)
• Accountable marketing (Result approach)
• Proactive marketing
• Partnership marketing

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Framework of CRM

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 PARETO PRINCIPLE
• The Pareto Principle, named after economist Vilfredo Pareto, specifies
that 80% of consequences come from 20% of the causes, asserting an
unequal relationship between inputs and outputs.
• This principle serves as a general reminder that the relationship
between inputs and outputs is not balanced.
• The Pareto Principle is also known as the Pareto Rule or the 80/20
Rule. Pareto principle means put your efforts where they will make
most difference.

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 PARETO’S PRINCIPLE TO MARKETING
• 80% of profits come from 20% of customers
• 80% of product sales from 20% of products
• 80% of sales from 20% of advertising
• 80% of customer complaints from 20% of customers
• 80% of sales from 20% of the sales team
• 80 % of decisions in a meeting are made in 20 % of the time.
• Fixing the top 20 % of the most reported bugs also eliminates 80 % of
related errors and crashes.
• The Pareto principle in time management states that 80 % of results
will come from 20 % of your effort.

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Contd..
• Inherent disparity between:
• Cause and outcome
• Efforts and result

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Focus on activities that produces the best outcome
for you professionally or personally

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Pareto principle is the corner stone of CRM
or Loyalty Marketing strategy

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 Summary
• Vilfredo de Pareto was an Italian sociologist and economist who,
during his studies, realized that, in general, 80% of a nation’s income
was in the hands of only 20% of the population.
• Extrapolating this concept, Pareto defined a rule that became known as
the Pareto 80 20 rule
• The uneven distribution of task you do every day 20% of your task
contributes to about 80% of your total success in your organization.
• 20% of software development efforts account for 80% of the
program’s functionality
• 80% of the quality failures originate from 20% of the tasks

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