Consumers Decision-Making Process - Case Study Example

External Factors Influencing Consumer Decision Making Process Student’s Name, Student’s Number Unit Name Name of Unit Coordinator Word Count. Date of Submission Table of Contents 1. Executive Summary…………………………………………………………………4 2. Introduction……………………………………………………………………........5 3. Views about Consumer Decision Making…………………………………………..6 4. Reference Groups…………………………………………………………………...8 5. Consumer decision making process in relation to reference groups………………..15 6. Conclusion…………………………………………………………………………..17 7. References…………………………………………………………………………..18 Executive Summary Consumer behavior is one of the major issues that give marketers sleepless nights. Several scholars from varied academic and research institutions have done their best in trying to analyze consumer behavior, but a definite answer has never been found. It is just tricky to understand how one factor can influence one consumer and yet have no effect on another consumer. Consumers are always making decisions about different products and services. Some decisions are easy to make depending on the prevailing circumstances, while others require a lot of thinking and scrutiny. Whatever the case, consumers will never stop making decisions. This is solely because they are always faced with more than one buying option. For example, if you have fifty dollars, you have to decide whether to buy clothes, a pair of shoes, or your favorite food. While consumers struggle to make a consumption decision, marketers are always faced with the challenge of establishing the major forces behind different consumer decisions. This paper will focus on external forces that influence the consumer in making buying decisions. It will consider the case of IKEA products. Several reference groups, especially the family unit, social class and social groups, and cultural aspects will be discussed. A deep and critical analysis will be conducted to establish how varied factors interact as the consumer tries to make a decision to buy a product. A deep discussion and technical application of consumer theories and models will also be useful. By the end of this essay, one should be able to get a clear picture of the consumer decision making process, and how it is affected by the external factors covered. Introduction In this era that has high competition in the market place, it is important to understand your consumers. The needs and preferences of consumers are perpetually changing day by day, depending on several factors around their environments. Marketers who do not take a step to understand the external factors that influence their consumers may be on the losing end [Del09]. These factors can result into great business opportunities for marketers who are attentive to details. Consumers acquire, use, and dispose products. They go through a process before they get to the point of acquiring a particular product. Understanding what consumers go through is also important for making key decisions to develop, produce, price and market different consumer goods. According to Burrow, decision making is an integral part of the life of a consumer (2008). IKEA is not an exception, before consumers buy their products, they must go through the same process that they go through every other time they want to purchase a product. IKEA was founded in the year 1943. It is Swedish company that has managed to spread its 349 branches to more than 43 nations around the globe. Ingvar Kamprad began running the company when he was only 17 years old. It is registered in the Netherlands as a company that focuses on designing furniture than can be readily assembled, and selling in the best possible prices. It is known for high end furniture and appliances that are always spiced with a touch of modern architecture. The firm makes a sales turn-over of more than US$ 20 billion per year, and receives more than 400 million visitors on their website per year. Views of Consumer Decision Making Scholars argue that while marketers may spend a lot of resources trying to create awareness of their products and convince consumers into buying their products, the following four forces are in play [Jam08]. Economic Model- Supporters of this model argue that consumers always look at the economic side before engaging into a purchase. This means that they always look at different products in the market, and compare them in terms of the prices, quality, quantity, nature and uniqueness. This may not apply to all consumers since it requires some analytical skills of economics; not all consumers have these skills. Cognitive Model- This model tries to explain the behavior of rational consumers. These are customers who are viewed as problem solvers. They spend a lot of time trying to get products that fulfill their needs in the bets way possible. Such customers will not just loo at pricing, but will go further to analyze the brand type. Passive Model-This represents the group of consumers that does not put so much effort in trying to make decisions about what to buy. They are easily swayed by good advertisements, and make purchases based on the marketing done. Emotional Model- This model considers the fact that consumers also make decisions based on their moods, and state of mind. Consumers can have more than one characteristic of the above models. IKEA serves a very specific, yet dynamic group of customers. This means that most of their customers do not make their consumption decisions based on only one of the above four models discussed above. Unlike fast moving consumer goods, people do not purchase home appliances and furniture everyday. The cost of acquiring these goods is also reasonably high. Such products are hence expected to last because of the cost involved in acquiring them. The passive model may not have its place in these products. Although there are some consumers who will purchase IKEA products because of their good campaigns, most people will look at the economic and cognitive parts. They will ensure they get products that will match the cost, and serve them as expected. If IKEA sells a chair at $1500, and a consumer discovers that there is another furniture shop that offers the same product at a lower price, he may chose to go for the alternative. However, due to emotional attachments, one may still opt to buy it. The way these models interact in IKEA products leads to the derivation of the following reference groups: Reference Groups Family Social Class Cross Culture Innovation Reference groups are simply groups which influence people’s decisions [Wal11]. In this case, they are groups that influence the decisions of customers. In most cases, these are closely related people who influence each other. Family A family can be defined as a group of people, two or more, who live in the same household and are related by blood, marriage, or even adoption [Chr11]. This is a social unit and a very important reference group [Erd14]. While making consumption decisions, customers sometimes discuss with their reference groups. Although some may not discuss with their reference groups, they will try to make a decision that would be appreciated by that reference group. Credibility is one of the factors that affect reference groups [Nat11]. A person is more likely to listen to family than anyone else. IKEA products are not designed for personal use. House appliances and furniture are used by everyone in the house. The family will definitely have an interest in the type of furniture bought. This means that consumers will either consult with the family members, or just buy products that they are likely to appreciate [Kar05]. In this case, a marketer should seek to understand the type of products that most families would go for. Family values are acquired from childhood [Nat11]. As children grow, they pick up some values and consumption preferences from their family members. This means they will make almost the same consumption decisions as the ones that are made by their parents and siblings. This can be understood clearly by studying a single community. You will notice that members of a particular clan or family will have the same taste of cars, and even dressing codes. A child who grew up in a family that used IKEA products is likely to continue using them even in hi adult life. IKEA can take charge of such consumers by employing retention strategies. Family can be divided into couple only family, two parents’ family, or a single parent family [Nig11]. The more the number of people that make up the family, the harder it may be to make a decision. This is especially true if these members are actively involved in decision making processes. In a tactical family, one would discuss openly with family before making a purchase of such goods as households and furniture. If one of the family members has had a bad experience with IKEA, he is likely to exert a negative influence on the potential customer. If the three members out of five are using products from IKEA’s competitor and like them, they are also likely to influence this potential customer away from IKEA products. On the contrary, IKEA has managed to create a good image. Over the years, it has focused on building its brand for the family. This means that most families already think about it positively. It is hence difficult for their competitors to outdo them with a family targeted marketing strategy. The family is hence an essential unit to the marketer because it is the first source of information for consumers. A consumer will first get the opinion of family. Family controls the consumer’s perspective of the product. It is in charge of the budget, where to shop, what to buy, and why it should be bought. Social Class and Status Social class is hierarchical division of members of the society [Erd14]. People are ranked from low to high social class. Although members of all classes share some common characteristic and status, they are not the same. Members of a common class will have the same status, which is different from that of another class. For example, the affluent class of the society will have some expected quality of life. The society expects these members to meet some standards in life. Because of these standards, they earn their status, which is different from that of another social class. Social classes can be created based on work, people’s opinion, role played in the society, spirituality living standards, and material wealth [Chr11]. Traditional Australia did not have class. This is a new thing that has been brought about by the new age. In most cases, wealth is used to measure class. The Maslow’s hierarchy of needs can hence be adopted This pyramid can be used to group people into classes too. People who fall in the highest category are the highest class of the society. They have achieved good life, safety, psychological needs, luxury, and are trying to do activities that will give them self-fulfillment. The society requires that such people should have a good house, nice car, stable family, and enough sources of income. Members of other classes strive to get to the top most pyramids. This means that people of different classes are not the same. Status is created in this manner. IKEA is a middle class, and upper class brand. It designs top notch products and sells them at reasonable prices. The fact that is sells high quality and luxurious goods would make it upper class. However, it has won over the middle class market by reducing prices to suit them. The lowest class in the society only buys utility products [Nat11]. These people cannot afford plentiful. They are not interested so much in the quality, but in price and quantity [Kar05]. The middle class strives to look like the top cream of the society, but funds are always a limitation. They focus on quality products that have a reasonable price. They also look at the longevity of products. The upper class has no problem with money; these are the consumers who mostly buy based on emotions. A consumer in the highest class of the society will purchase IKEA because he wants to match with his class; purchasing any other products may belittle him. A low class consumer may purchase products from any store as long as it is affordable. The ages of 18-65 years provide most of IKEA’s consumers. These are people whose jobs can help them afford these high quality products. Some of them are newly employed professionals who want long lasting, yet high end home appliances. Frequent consumers of IKEA products are lovers of high quality and taste. The firm has a long list of products that have been differentiated to meet varied consumer needs. The functionality and longevity of their products give them a plus. During holidays, the firm can reduce its products by as much as 50%. Most sales are made during this time because everyone wants to have products that will distinguish them from the rest. Competition is getting stiff each day, but this strategy has been of great help to IKEA. Other companies like B&Q, Seamens and John Lewis have brought affordable products in the market but IKEA still makes the most sales. Since many people want to be associated with the brand, they would rather save money and buy IKEA products during discount periods instead of buying from other companies. To explain this better, take the example of a Ferrari. If it was to be discounted by 50%, many people would by it so that they could be associated with the class that drives them. That is the same case with IKEA. Class is hence important in influencing the purchasing decision of consumers. The affluent cannot buy products that do not match them [Joh05]. The middle class try to look like the affluent, so they will also try to acquire some affluent goods. The lower class will not have a problem purchasing because they mainly consider prices. Any marketer should note that class is essential in Australia. Australians love to feel a sense of accomplishment, and pleasure [Geo10]. They love comfort and youthfulness. They give quality a priority, if your products do not meet their expectations, they cannot be your customers. The Innovation Innovation is a key aspect of every successful business. Companies that keep redesigning and redeveloping their products tend to be loved by the market for the longest time. As much as consumers will spend too much time trying to understand the functionally and quality of a product, they are more likely to be attracted to an innovative and creative product. Many companies understand this concept, and that is one of the reasons why there is very stiff competition in the market; all of them keep developing new and innovative products to meet the consumer needs in the best way possible. IKEA is well known for its wide range of creative products. The firm spends so much time developing new ideas so that they can remain on top of the consumer’s list of preference. They have a wide portfolio of new and creative products. This is one of the reasons why people have remained loyal to their brand for many years. Consumers widely know that if you want quality and creative product, you get them at IKEA. Cross Cultural Differences Culture also plays a significant role in the decisions that consumers make. People from different backgrounds will behave in distinct manner. They will have varied expectations, and will not communicate in the same manner [Geo10]. Their norms and values will not be the same too. All these have and strong effect on how people make their judgments, and hence decisions. Judgment is a vital part of decision making. This is because all consumers must judge before they decide to purchase any product [Nat11]. European Americans will not behave in the same manner as Asians. They will have different tastes, and will also have varied expectations of the products they want to purchase. Studies show that while European Americans are direct and straight to the point, Asians may not be comfortable being open and direct. Asians are also keener on the bad side of a product than its positive sides. On the other hand European Americans can ignore the bad side and concentrate on the positive side of that product. Asians are hence more likely to postpone their decisions that European Americans [Chr11]. When people grow up with some beliefs about a given product, it becomes too hard for them to change it. Culture may either be adopted from the family, or either crisscrossed as a result of living with people of a certain culture for long. Family adopted culture and cross-cultural exchange are both vital. Cross-cultural exchange simply tries to explain how people interchange their cultures if they live in the same place for a long time. For example, a person who has lived in another country could easily adopt some Australian cultures. With time, these cultures become strong, and form an integral part of the person. Australians consumers do not put a lot of concern on the brand. However, they tend to be bias to creativity. They focus on the creativity and innovativeness of products more than anything else. Most consumers belong to more than one reference group. This means that decision making process is also tricky for them. The process follows the following five steps a) Problem Recognition- Every purchase decision must be driven by a force. The customer must first of all realize that there is a need that should be satisfied. The need is the problem. In this case, you will realize that you need furniture and other household appliances. b) Information Search- This is where reference groups come in. The first source of information for most people is the family. You will gather information from family members. They will tell you where to get the best product at the best price. They will be more than willing to open up and tell their experiences with different products. Social classes will also help you to get more information. Public policy is also important. In this case, you will get information about IKEA, and compare it with other firms like B&Q. It is possible that among your family members and social class, there are people who have used products from both firms. They will serve as vital sources of information. c) Checking Alternatives- Nobody wants to buy a product, only to realize later that there was a better offer elsewhere. Just before a consumer commits to buying a product, in this case IKEA furniture, he will want to be sure that this is the best decision at that moment. Consumers will hence visit other stores to compare what they have with what they have decided to buy. They will compare pricing against quality of the goods. Other factors like durability will also be checked. If different stores offer the same product at the same price, the consumer will most likely buy from a store that will boost their status. Some people derive their status by simply identifying with certain brands. If IKEA has gained a good reputation, a consumer will purchase their good, just because he wants to gain some social status. d) Purchase product- The customer will then decide which product to purchase, and he will go for it. e) Post-purchase- Remember the customer spent some reasonable time seeking information before making the decision to purchase a product. By the time you go to purchase a specific product, you are usually convinced that it is the best that you can buy. This means that you give some status to a product before you even go to purchase it. You develop a certain perception about the product, and set some expectations for it. After acquiring the product, you want to see if it really is what you needed. At this level, the consumer will start using the product as he watches to see if his expectations will be met. This is a critical stage because it decides whether you will retain or lose that particular customer. If the product does not perform as expected, the customer will feel cheated, and he may never buy the product again. To add on that, he may also influence his friends and social circles never to buy that product. If it is good, you are likely to get a repeat sale and several referrals. IKEA understand all these. One of the things that have made them rise so high is their aftersales services and post-purchase check ups. They have a team that is dedicated to following up on their customers, to collect information about their perceptions about the products they purchased. Such information helps them to improve their products to suit the consumer needs much better. Conclusion Consumer behavior is a dynamic field of marketing. Consumers do not have one thing in particular that influences them to make a decision. Most of them usually look at a set of factors before they can finally decide to take up a product. All marketers who dream of being successful must take enough time to understand these factors. It is also vital for them to understand their consumers. Making personal friends with some consumers is necessary to get their views about your products. The external factors discussed in this paper are key factors that consumers will base decision on. Marketers must master them and advise the company to develop their products to suit most of these consumer influencers. Some units like the family should be re-visited frequently; they change too fast. Bibliography Del09: , (Hawkins & Mothersbaugh, 2009), Jam08: , (Burrow, 2008), Wal11: , (Karwowski, Soares, & Stanton, 2011), Chr11: , (Kakazoukis, 2011), Erd14: , (Kaynak & Hassan, 2014), Nat11: , (Bluschke, 2011), Kar05: , (Web, 2005), Nig11: , (Barker, Valos, & Shimp, 2011), Joh05: , (Strydom, 2005), Geo10: , (Lantos, 2010), Read More