The Analysis of How External Variables Are Used by Marketers to Influence Consumer Decision Making - Term Paper Example

Report on the analysis of how external variables are used by marketers to influence Consumer decision making at the various stages of the consumer decision making model. Introduction External variables are factors that affect the successful operations of a business. On many occasions as will be shown in this study, these external behaviors are used by marketers to respond to changes in customers buying decisions, to revert the impact of the economic crisis to consumers; to expand business through the use of internet technology and globalization; and to act in response to government regulations. Discussions about external variables pointed to Wyld’s (2010) assertions that these are the general economic climate, technology, government and competition as factors affecting customers’ decision at the various stages. Scheiltz (2010) suggested other external factors such as the cultural, group and social values that sway the decision process of consumers. Decision process is defined as identification of needs, collecting of information, evaluation of alternatives, then finally going into a purchasing decision. (Chapter 6 Class Notes, n.d.) I. How do marketers persuade consumers using external variables? a. Economy The economy is the first factor considered as an external variable affecting consumers. The recent economic crisis is an external variable that affected consumers’ behavior in many states of US and in Europe, and many others. On the other hand, economy has been favorable to the emerging countries in Asia. The shrinking economy encourages shifts in buyer demographics and the way products are used such that consumers may alter their purchasing decisions, how they perceive value and where they purchase the product. Market report of Bharatbook.com (2010) said that in Netherlands, consumers’ decisions are today influenced by the price sensitivity, value consciousness and attitudes towards private labels as about three quarters of its consumers suffered the recession in 2009. In the said market report, Dutch consumers reconsider their spending including decisions on where and when to shop; and that changes shown is that now, Dutch consumers are buying labeled products because they think they save more money in the long run. This is also true in the car landscape wherein the economic crisis has changed car-buying process of consumers. To help dealers determine changes of consumer buying process, Dealer Communications reported on a conducted a research to know the present motivations of car buyers; to know if there are opportunities still open for car dealers and manufacturers, and if so, how will they adjust. In issues how the products are challenged showed the way Apple has transformed how music is bought and played thru the introduction of iPod. (Wyld, 2010) Marketers also use the power of globalization to reach more and more country markets. Recent developments of off-shore business, in particular, the emerging economies of Brazil, Russia, India, Indonesia and China have encouraged multi-national companies to spread their business in these countries. Because of the improved purchasing power of consumers in these emerging countries, marketers find globalization as a driver of change in industries as motor vehicles, cell phones and credit cards (Wyld, 2010). b. Technology. One of the driving forces that encourage consumers’ buying decisions is the use of technology. It is observed that there is a growing acceptance of internet shopping, SNS websites and the constant growing series of internet applications. It is now easy for the company to sell products to customers using online technology, to work with suppliers and supply chain. However, because becoming an on-line seller is an easy process in the internet, this variable increases rivalry and competition among seller. An example of a successful on-line ordering system is being done by Wal-Mart stores that make shopping easy for busy people (Wal-Mart, n.d.) c. Competition An attractive market encourages competition to enter the industry. Most often intensity of competition is measured according to Porters’ model of competitive analysis, i.e., rivalry among competitive firms, potential entry of new competitors, and potential development of substitute products, bargaining power of suppliers and bargaining power of consumers (Adam, 2009). Any changes in the competition are analyzed and should not be a reason for leaving the industry if profitability is low, the Porters model suggest. What should be done here, as proposed in this model is to apply the company’s core competencies to gain competitive edge over their rivals and increase their profits. Product innovation is a strategy often times used by marketers to alter the pattern of competition and to strengthen the market positions of the company. The driving force of Air Asia in being top budget airlines in Asia is its core competency of maintaining low budget fare, dependability and being innovative in the quality of service (rediff.com, n.d.) Product innovation has been a key driving force in such industries as cell phones, big-screen televisions and prescription drugs (Wyld, 2010) d. Government regulations In many instances, government policies and rules play in being an external force affecting business and consumers as well. Bilateral agreements of governments drive competitive changes by opening their domestic markets to foreign participation or protecting domestic companies by blocking their entries. Marketers are attracted by government incentives to locate plants in their communities and can impact competitive conditions and consumers choices. In many countries, government has an open skies policies that allows operations of foreign airlines in the country. For instance, the Philippines has allowed full liberalization of air travel in international travel in its effort to increase tourist arrivals (Bordadero & Montecillo, 2010) e. Change of lifestyles and attitudes and emerging social issues are also some external issues that change consumer decisions and preferences. The growing attention to change of lifestyles to healthy eating habits led to product innovation in many food products. A recent example is the case of Nestle that has developed strategies focused on its dedication to nutrition, health and wellness. As part of its marketing program, Nestle has recognized the importance of providing information and products that contribute to healthy living. (Nestle USA, n.d.) Going to social issues, O’Brien (2011) said that a unique approach of promotion is used by Kraft when it applied social corporate responsibility to launch anti-hunger campaign using its brand name in the promotion. In another instant, the widening difference in costs of products among key competitors leads to changes and altering the company product and position. In another issue, the sharp increase of prices of crude oil in 2007-2008 caused big increase in gasoline prices so that car makers had to find ways to boost fuel efficiency of their cars or truck (Wyld, 2010). .             In many cases, purchasing decisions are influenced by social factors such as opinion leaders, person’s family, reference groups, social class and culture; for instance, marketers use or pay known personality to endorse their product. Classic examples of product endorsements are Michael Jordan and Nike and Tiger Woods and Gatorade. Athlete Promotions argues that the words of celebrity endorsers carry weight on endorsing products. Sports celebrity endorsements are said to appeal to all advertising demographics, especially to the key younger demographics. In many instances, decisions are influenced by the family, and marketers must understand the roles played by each member that has relative effect on buying decisions. In this case, marketers should understand that family decisions are made by the family, and that purchasing decisions go through many stages in life. It is common to see two family incomes and a family lifestyle that is becoming too busy, even for their children. As told in Chapter 6 Notes, parents try to lessen their guilt for absences by giving money to children to make their own purchasing To this effect, Chapter 6 notes refers to children’s spending that amounts to about $130 billion of goods a year. With a lot of money on children’s hand, advertising has influenced their behavioral spending. The New American Dream (n.d.), said that an amount of $15 billion is spent for advertising directed to children annually, which is 2.5 times more than what it was in 1992. The reports points to the number of commercials an average American child is exposed to which is about 40,000 commercials a year, or 100 commercials a day. f. With the presence of advanced technology, a wide variety of electronic media daily such as iPod, instant messaging in cell phones and websites are used by marketers to attract children. The New American Dream revealed findings of study that children are packed with 6.5 hours of media exposures that is much longer than time consumed in classrooms. The report pointed to the importance of these new medium in promoting products as it has accounted for 80 percent of marketing dollars by mid 199os.      II. Case Study. Select a company and evaluate how a specific consumer behavioral theory can aid in understanding consumers’ action. Demonstrate how this then guides the practical implementation of marketing strategy in your chosen organization. The company chosen for this study is Air Asia Airlines as this is a close representation of the theory of consumer behavior. The theory of consumer behavior is explained as “a consumer attempt to allocate his/her limited money income among available goods and services so as to maximize his/her utility –satisfaction” (Philipps & Duncan, 1968, p. 61). This theory can be explained in the following problem-solving approach. Supposing a customer goes inside a supermarket, and with limited funds and unlimited wants, what should she buy from the vast array of goods available to maximize her satisfaction. The problem of the customer will be further complicated by further decisions she has to make such as the many choices of products open to her, the variety of goods she must buy considering her standard of living, and the risk as to exactly which products will give the greatest amount of satisfaction to her or for whom she purchases. This analysis tells us that the consumer is doing a decision following a rational and logical behavior approach, and suggests that she is not an impulse buyer. How then is the theory of consumer behavior applied to Air Asia Airlines? There are about 10 air line companies in Asia offering the low cost strategy to attract travelers, and Air Asia Airlines is listed as the top air line companies (rediff.com). Air Asia’s operation is illustrated below: Air Asia is a low-cost airline based in Kuala Lumpur, Malaysia. It operates scheduled domestic and international flights and is Asias leading low fare, no frills airline. It is also the first airline in the region to implement fully ticketless travel and unassigned seats. Air Asia has been expanding rapidly and is very popular among the traveling public thanks to its frequent low fare deals. Its main base is the Low Cost Carrier Terminal (LCCT) at Kuala Lumpur International Airport. Air Asia operates 656 flights daily, 102 routes to 57 destinations in 12 countries. In Bangkok Air Asia operates all domestic and international flights from the Suvarnabhumi International Airport (Budget Airline Guide) Since all of the ten budget airlines are almost identical in their approach, the traveler then has to face a decision on which airline to use for travel. Ordinarily, travelers’ decisions will have to depend on different factors such as budget, lifestyle and time. Air Asia uses the following marketing strategies to establish its core competencies and competitive advantage. 1. The no frills strategy of Air Asia offers the low fares to customers in exchange for flight comforts such as food and snacks during flights, airport lounges and frequent flyer miles. However they are given the choices of buying snacks, drinks and prepared meals from the in-flight services at reasonable prices. This strategy corresponds to the rational behavior theory of consumer behavior that requires a decision among different choices according to her standard of living and satisfaction. Megawatti (2010) considers Air Asia’s strategy as a response to the shrinking economy that gives travelers a choice between regular travel (often costlier) and budget fare travels and corresponds to the budget limit of traveler. She thinks Air-Asia had seen global economic crisis as a big chance to gain a market share in airlines market and to consolidate their position against premium airlines thru the low cost airline strategy. As cited in her report, the low cost carriers have captured 15.7% of the Asian Aviation market in 2009, comparably higher than the 14% in 2008. The report cited arguments of analysts saying that the gains of Air Asia came from the loss of premium airlines. Air Asia has responded more quickly to the changing consumer preferences and trends. This is so because when the global economic crisis started in 2008, Asian travelers limited their travel budget and sought out the lowest fares. 2. Air Asia uses technology and has come up with a marketing program to make booking easier for its customers using a wider distribution channel. Through the Information technology and internet system, Air Asia offers mobile phone booking and on-line system of booking of passengers. This lessens the time consumed by customers in going to airline booking offices to book for flights. Furthermore, the ticketless booking eliminates commissions of travel agents, wages of customer relations staff and cost of printed tickets. This marketing plan has saved operational costs of Air Asia and has generated 76% sales for year 2009. (Air Asia Annual Report 2009) 3. Air Asia has used the globalization strategy to serve more number of travelers. It has increased the number of airports being served and has opened new areas for international travel and has transported more than 35million passengers in over 60 destinations. (redif.com) In 2010, Air Asia announced the launching of flights to five Indian cities as part of its regional expansion, notwithstanding the status of world crisis. Target of Air Asia is to be able to carry two million passengers a year to New Delhi, Mumbai, Bangalore, Hyderabad, and Channai (World of Airline News, 2010). 4. In considering lifestyles of travelers, Air Asia came up with a marketing program that is in line with its ancillary services policies. Arulampalam (2010) viewed these strategies as income generating strategies for the airline and at the same time attracting travelers to spend while on board the plane. These strategies are set as follows: Reduction of its supersize baggage charges if it is bought on line resorting to customers’ savings. The Air Asia study on consumer expenditures on board averages to RM40 per passenger and that RM20 is allotted for food and drinks and RM20 to buy merchandise. Air Asia therefore offered choices of merchandise affordable at this price range. Their best sellers are cap worth RM15 and pencils at RM5. To address spending constraints of travelers, Air Asia introduced cashless payments to deal with merchandising and duty free retail items sold by the airlines. Air Asia introduced third party retail outlets such as Marks & Spencer, Parkson or Sogo and other retailers as part of ancillary services of the airlines. Conclusion Findings from the above studies show that customers’ decisions are affected by external factors, aside from internal ones. In today’s environment, decisions are influenced by the economic crisis such that consumers find ways to limit spending on goods and services, and consider ways to maximize its value. Other factors such as government policies and social and cultural factors play important roles in consumers’ decisions. These issues are factors that have to be considered by marketers in preparing a marketing plan and a strategy. References Adam (2009), Porters Five Model (Competitive Analysis). MBA tutorials. Viewed 21 Feb. 2011 Air Asia Annual Report 2009. Retrieved 22 January 2010 from www.airasia.com/my/en/corporate/irannualreport.html Asia’s budget carriers flying high, etn, Global Travel Industry News, viewed 21 Feb. 2011 Arulampalam, Jeeva, 2010,Air Asia ancillary income to grow, New Strait Times, viewed 21 Feb. 2011 Athlete Promotions, 2011, Booking athletes for endorsements. Athlete Promotions.com. viewed 21 Feb. 2011 Read More