Consumer Decision Making External Factors - Coursework Example

Consumer decision making – External Factors Name: Institution: Course: Date: Decision making is a daily activity that consumers have to engage in in respect to purchase of products and services they need. Based on the nature of the product or service, consumers experience varying levels of difficult in making a purchase decision, which depends on prior knowledge and customer experience on the item of interest (Darley, 2010). Consumer decision making process is influenced by factors which are both internal and external to the customer. The external and internal factors are interconnected hence work together to enable the consumer make better buying decisions considering that customers are faced with a wide range of products to select from with a fierce competition of companies. The external factors are outside the customers control but they affect the buyer’s decision making both directly and indirectly (Thomas, 2011). This study focuses on the external factors which influence consumer decision on products and services. It is important to note that consumers buy products and services due to their subjectively perceived value but not the roles the products and services play. The external factors which influence consumer decision making on various products and services include: social status, family, marketing campaigns, culture and sub-cultures, social class, demographics, opinion leaders and reference groups (Darley, 2010). The internal factors which influence customer decision making include: attitudes, personality, perception, emotions, learning, learning and memory. Customer’s decision making process requires a good recognition of the existing problem, search for information concerning the product or service, evaluation of alternative products or services, and the selection of the suitable outlet for purchase of the product or service (Pamela, 2012). The entire process helps the customer acquire adequate experience hence future decisions can be made with ease. However, the impact of these factors to influence consumer’s decision making varies from one customer to another. This study explores how external factors influence consumer decision making process for beverages and other drinks as well as food products. Cultural and subcultural factors fall under both external and internal factors which influence consumer decision making. Culture forms the widest environmental factor that determines a customer’s decision on purchase of a product or service (Simcock, Sudbury, & Wright, 2006). Culture helps customers satisfy their needs as it gives order, direction and offers guidance to the society in all stages of life by offering trusted and certified ways of helping them meet their personal needs. Different people have varying ideas, beliefs, customs, values and attitudes depending on the culture they have inherited from previous generations. These varying values and attitudes influence customers’ choice of products and services. Frank (2010) argues culture progressively changes and as it does so, new values may be associated with a product brand or it may necessitate the change of the product if it does not satisfy the society anymore. Example of this is the shift from analogue TV transmission to digital transmission (Sumeet, 2010). The culture people inherit also influences the acceptable advertisements which can be made on a product. What people eat, where they reside, what they wear and travel patterns varies depending on culture. Different cultures can have different values, for instance the US puts more value on education, freedom, good health and individualism unlike other cultures which promote communal way of life (Darley, 2010). The US values creates an environment of time scarcity and which has influence on how customers purchase food products as most of them prefer packed food to save time. The sale of certain drinks and foods may not work well in some cultures and religions as some do not promote consumption of alcoholic drinks or certain foods. For instance in the Muslim society, pork products and alcoholic drinks may not sale much as customers can prefer alternative products due to their cultural background. Similarly, in the Hindu society, beef and onions are not an acceptable food. For the Coca cola Company, the coke brand does not sell well among certain cultures as they believe the ingredients of the product are harmful (Sumeet, 2010). Social class of customers comprises of an open groups of people who share a common social rank. Social class is a very important factor to customers when deciding which product to buy. The social class of a group is determined by the occupation of the individuals, their educational qualifications, their income levels, wealth and possessions, their ethnicity and race. Although income is the primary indicator of social class, other factors like the place of residence, how the individuals view the world and their cultural interests helps establish a perfect relationship (Simcock, Sudbury, & Wright, 2006). Social class divides society members to a hierarchy of status such that members of a given social class enjoy relatively same status while those of other classes have either a higher or lesser status. The indicators of a social class include the relative wealth the individual own, the power of the members and prestige. Members of a given social class tend to buy products in of certain types, quality and quantity (Comegys, 2009). For example upper class individuals buy expensive brands of alcoholic beverages e.g. Champaign and expensive dishes so as to identify themselves with the upper social class. Members of the lower class have a reputation of purchasing their products in outlets that are close to where they live and in most cases they don’t gather much information on the product before purchase (Darley, 2010). Marketing campaigns play a crucial role in influencing consumer’s decision. A good marketing campaign ensures that good ideas are communicated to the customer to influence his/her decisions. A marketing strategy must in cooperate both internal and external factors of customer’s decision making e.g. ensuring that existing governmental regulations are upheld by ensuring that the truth in advertising is adhered to (Thomas, 2011). It is important for marketing firms to study the customers who buy their products or services and the ones they hope to influence and design custom made adverts which increase the target market’s confidence of the product or service. The rise of the internet and the digital world at large has increased customers range of choices since they are exposed to a lot of information to enable them purchase products and services they require (Barber, 2009). With online marketing campaigns, customers have a choice to buy their products and services from many outlets all over the world through the internet hence producers have to ensure their products and services meet the needs of their customers (Sumeet, 2010). Buying products from online stores is mostly done for non-consumable products due to their limited life span. Products like cars, electronics, furniture, home appliances and stationery can be easily purchased from online stores like Amazon and e-bay at the comfort of the customer’s home (Comegys, 2009). The rise of many market campaigns and improvement of access to information has also increased user’s knowledge on how to make home-made healthy beverages and food products with readily available ingredients and which has made producers lose potential customers (Sumeet, 2010). However, many marketing campaigns have misled customers into buying products which do not meet the advertised standards. Online marketing has as well seen the rise of cybercrime where customers have been lured to making payments to fraudsters and the products are not delivered at the end (Thomas, 2011). Family has influence on consumer’s decision of buying a product or a service since the group sets expectations on an individual depending on his/her position. A customer’s immediate family plays a role in determining the individuals buying decisions. What children observe from their parents tends to become their habit and culture hence forming their lifestyle (Simcock, Sudbury, & Wright, 2006). The family is the most crucial reference group and forms the primary consumption unit for consumable products as well as services. The family heads have a role of ensuring that the other family members are provided for and have to make many choices on what products and services to buy depending on their urgency and where to buy them depending on money available. Some decisions in the family are made by the family as a unit and which ensures that the decisions are well thought at hence the products and services marketers have a task of ensuring that their products meet the needs of the family as a unit (Georgeta-Madalina, 2008). The preferences of the family influence the children’s future family preferences hence customers may find themselves buying products and services due to the fact that they are used to that product from their childhood (Chen, 2011). This is evident in cases where an individual has been brought up in a family which uses alcoholic drinks. The individual is likely to be purchasing alcoholic products for his/her family too as compared to an individual who has never consumed alcoholic drinks. Family decisions on purchase of products also portray the cultural and social values of the individuals. As a family goes through the life cycle, each stage brings with it different needs for the consumers. In the bachelor stage, the customer demands are mostly personal effects and their food consumption is mostly characterized of ready foods although this depends on individual preferences (Georgeta-Madalina, 2008). At the early marriage stage, with a young child, the consumer demands change to include the child’s needs like diapers, and soft drinks like milk and yogurt. An older married couple with big children has demands such as stationery, food, and clothing. For old married couple with no children depended on them have their consumption priorities in energy foods and drinks. Since two income marriages are the order of the day, the task of decision making in the family is changing as the family has less time for their children who in most case cases determine buying decisions so as to avoid the guilt of doing so by the parents. In the family setting, children also have money to buy commodities they need (Simcock, Sudbury, & Wright, 2006). According to Leon (2011), Consumers are social beings who like being in groups which include two or more people with common beliefs, norms and values with an aim or achieving a common or individual goal. The norms of a reference group are an important part of the behavioral aspect and harmonious existence of the group and bending the rule can cause penalization (Darley, 2010). Reference groups which individuals identify with impact on the individuals attitudes, behavior and values and which in turn determine his/her purchase decisions of goods and services. Reference groups include peer groups e.g. students, formal unions and committees, professional organizations, family, civic groups and friends and they either have a positive or negative impact on the behavior and attitudes of a customer (Georgeta-Madalina, 2008). A referential group’s influence on customers buying decisions is dependent on: 1. The nature of the reference group in terms of the frequency of interaction, cohesiveness and the manner of membership. 2. The attitude of the customers towards the group in terms of his/her status and pride. 3. The product of interest to the customer in reference to the products uniqueness and its visibility. For instance if an individual belongs to a reference group which takes certain brands of drinks, he/she is most likely to shift his/her preferences to match those of the group. Marketing has recently targeted the desires of the members of these reference groups which are done by getting the approval of the product or service by the group and then informing the group members that their group approves the product or service. This is evident in the shopping sector where companies liaises with banking institutions and incorporate the institutions credit cards into their payment systems and then inform the institution’s members that the cards are accepted as a payment system (Kuvkaite, Dovaliene, & Nivickiene, 2009). However, the level to which a reference group influences consumer’s decision of buying a product is depended on the individual’s susceptibility of the group’s influence as well as the individual’s level of involvement and influence in the group. Standards organizations also have influence on a consumer’s willingness to purchase a product or service as many customers prefer products which meet the acceptable standards for use. Organizations which are ISO certified tend to attract more customers who are cautious in buying products from reputable organizations (Chen, 2011). Opinion leaders are individuals who give a personal experience in a certain situation and who mostly influence customer’s decision making by a word of mouth. Customer’s decision to buy a product seems to be influenced by opinion leaders who include prominent spokespeople of the products or services. These opinion leaders includes celebrities i.e. both corporate and social, dealers, experts i.e. professionals, spokes persons, employees and common men (Bill, 2012). They are seen as a reliable source of objective and credible information as they are expected to maintain neutrality when giving information on a product. Opinion leaders play an important role of giving information on a new product or how it should be used be used (Pamela, 2012). They help customers get information on the product with little hustle hence reducing the time factor and they reduce the risk of customers being misled by opinion seekers who sometimes may provide information about a product or service without enough knowledge. Opinion leaders can alter the decision making of a customer either positively or negatively (Bill, 2012). Marketers tend to pay these opinion leaders to market their products or services although some may be people who have used the product or service. Young customers tend to take the influence of opinion leaders into consideration in making buying decisions. Opinion leaders are product specific as an opinion leader for a certain category of products can seek other leaders’ opinion on another product (Pamela, 2012). Customers tend to involve the opinions of decision makers in making purchase decisions in cases where they have low knowledge on the product or when they have not been involved in the purchase of the product before. Examples of opinion leaders include nutritionists who most consumers consult in an attempt to avoid the effects which may result from using certain brands of food and drinks. Many companies have lately used celebrities as their brand ambassadors so as to communicate the values of the products to the customers by using respectable individuals in the society (Kuvkaite, Dovaliene, & Nivickiene, 2009). Customers place of residence and geographical locations to a large extend determines consumer’s decision to buy products and services. Individuals who stay in locations characterized by abundance of certain foods tend to buy them since they are readily available and cheap (Georgeta-Madalina, 2008). An individual who lives in a area where most people own a car is most likely to buy one. Other important factors affecting consumer decision making process include: Market Research It is important for any business to be familiar with its market environment for it to be successful. This signifies the importance of market research to obtain the necessary information (Bill, 2012). For business organizations to remain relevant, it is important that they pay attention for what is happening in their business world. They need to understand forefront, the trends among the consumers and the most demanded products and services. Consumer demands are easily identified and responded to by business people if they accurately assess the relevant information. It is through market assessment and exploration of the consumer trends and consumer demand that Taiwanese technology producer HTC introduced the Android platform in their mobile devices. Due to the high popularity of the android platform, HTC was able to boost the sales of its products (Bill, 2012). Competition Decision making processes in businesses is also intensely influenced by competition. This to a larger extent is transferred to also affect the customers. Given the current high market competition, organizations have ended up paying more attention to their rivals’ business operations. A good example for such a situation is when Samsung quickly responded by releasing Galaxy Tab to counter the iPad tablet released by Apple company. This clearly shows that it is paramount to consider your competitors as well as their business development plans when making future development decisions (Georgeta-Madalina, 2008). Economic Environment According to Francis (2005), consumer buying capacity and product affordability are related to the economic environment thus making it important. As such, this underpins the reason as to why business organizations consider when making decisions the regulatory standards that exist and which they must be compliant to. For example, in times of high financial recession, they cannot impose high prices on their products (Kuvkaite, Dovaliene, & Nivickiene, 2009). With this regard, Apple Company has been known to produce high end market products in terms of mobile devices as compared to other similar company products in the market. However, the company had to re-adjust its pricing policy when the major market consumers like the UK faced a financial recession early 2011 announcing that it would develop cheaper versions of the iPhone to cater for the markets hit by the financial recession (Francis, 2005). Social Responsibility Consumer decision making is also affected by the company’s social responsibility status. The concept is that companies must be acting not only for their profitability, but also for the common good of the greater general public (Chen, 2011). For example, in UK the legislation prohibits banks from imposing unreasonable high fees to those consumers who are unable to pay their mortgage in due time. This legislation is compliant to all the banks in the UK including the Lioyds TBS and HSB. Cost and Benefit Cost and benefit analysis is required for an effective consumer decision making process. This approach takes into account the expenses incurred by the customer when making the purchase and the satisfaction derived from the purchased product. In this case, the consumers are able to determine whether the products purchased will be worth the inputs made. For example, before purchasing a car, consumers will not only look at the initial price, but also the maintenance cost in terms of fuel consumption, availability of spare parts, as well as its efficiency in terms of service delivery (Kuvkaite, Dovaliene, & Nivickiene, 2009). Supply and Demand Despite the universal acceptance by most economists that product or service price is a major factor affecting the consumer decision making process, other factors still exist. As such, price is among the many existing factors that influence the consumer decision making process. According to the principle of micro-economics, product demand will decline as the price increases provided other factors remain constant (Ceteris Paribas). Conversely, the demand goes up if the price declines (Diecidue, 2012). Based on the price and the demand and supply principle, it can be economically predicted rather accurately what the consumer will buy, and in what quantities will the products or services be bought. Consumer demand refers to what the consumer wants and the quantities required (Diecidue, 2012). This can be graphically illustrated as the figure below: The demand curve can also be illustrated in a table form as below. The table below using apple pie as an example shows that its demand declines as the price goes up. According to Pamela (2012), cultural, physiological, and social factors also influence consumer decision making process as they influence preference. Also, a major influence to consumer buying behavior is the convenience factor. Some consumers will always patronize some shopping malls given their proximity to their neighborhoods. Other consumers will prefer to shop in retail stores that speak their ethnic language. Also, some consumers will easily shop and maintain loyalty to those shops that offer credits (Georgeta-Madalina, 2008). Occasionally, the above factors may be considered more than price by consumers. Important to consumer preference also is brand loyalty and brand recognition. Consumers will continue purchasing a particular brand if they have had a beneficial experience with it. This is despite the increase in price – up to a given point (Chen, 2011). In conclusion, with the integration of the global market and the development of the international focus by the consumer specialist, development of useful scales to profile the consumer decision making process has become very important. As we have seen, consumers culture, reference groups, social status, family and opinion leaders plays a critical role in purchase decision making in for almost all products and services. Furthermore, many consumers usually initiate the decision making process when they become aware of the imbalance between the actual and the desired state which creates an unsatisfied need. The recognition of this need happens when that consumer is faced with a problem. This leads to the inevitable conclusion that necessity of need is the strongest factor that influences the consumer decision making process. With this regard, it is of importance to the business community to consider consumer decision making study as well as every aspect of the consumer decision making process. This microeconomic research provides data and insights to the marketers and is frequently put into consideration when determining prices, advertising, product research and development, marketing strategies, packaging etc. by business organizations. References Barber, N. T. (2009). The Influence of Purchase Confidence on Information Source Selection: Implications for Hospitality Industry. 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(2011), Understanding consumer decision making: The means end approach to marketing and advertising strategy, London, Prentice hall. Read More