External Factors Influencing Customer Decision Making - Term Paper Example

Running Header: Analysis of external factors influencing customer decision making Your name: Course name: Professors’ name: Date Executive summary This analysis examines several external factors that affect customer decision making process. These external variables includes the relevance of the reference groups: social class; family; culture and subculture; effect of cross culture consumer behavior; the significance of opinion leaders and innovations as well as the role of the public policy and consumer protection in relation to Kopi luwak as the selected product for analysis. Kopi luwak is selected because of its uniqueness and its close relation to the identified external factors. Kopi luwak undergoes unique processing which involves being ingested and excreted by Palm Civet, an Asian wild animal. Kopi luwak is perceived to be a high quality coffee product and it is highly priced in the market. This is the reason why it is selected for analysis in this case. Table of Contents Executive summary 3 Introduction 5 Relevance of reference groups and their impact on customer decision making process 6 Relevance of the family life cycle and the dynamics of husband-wife decision-making 7 Relation to affluent consumers, the relevance of social class and segmentation strategies 8 Relevance of culture and core values 9 The relevance of subculture aspects of consumer behavior 11 Economic/Passive/Cognitive/Emotional Models 12 Relevance of gifting behaviour and the importance of relationship marketing 13 The relevance of opinion leaders and the importance of innovativeness 14 The relevance of the public policy, legislation, advertising, pricing and consumer ethics 15 Conclusion 17 References 19 Introduction Organizations are increasingly becoming aware of important variables that affect customer decision making process; there are both internal and external factors that influence customer decision making process. These factors may vary depending on the customer and product in the market. It is important to study these factors in order to properly align the product with the market. This analysis focuses on external factors that influence customer decision making process. These factors include reference groups, family life cycle, cultures, values, customer behavior, image, leaders opinions, and public polices among others. These factors are analyzed in-depth in this analysis with the aim of elaborating important theories and concepts involved. Kopi luwak, a specialty coffee product that is known for its unique story is selected for analysis in this case. Background information Kopi luwak is a specialty coffee product that is uniquely processed. This coffee product is undergoes animal assistance in refining it to a special product. Palm Civet (a wild animal) ingests the seed and defecate the undigested coffee seed which is taken for further processing and making of coffee. Luwak is the Indonesian name for palm civet and its scientific name is Paradoxurus hermaphroditus (Miller, Vandome, & John, 2010). This coffee specialty product has gained popularity across the globe because of its unique processing and its perceived quality. Kopi luwak costs as much as $USD100 to $USD600 per pound. This product is selected because of its uniqueness and its impact on external factors of customer decision making process. External factors of customer decision making process are discussed in reference to this product (Miller, Vandome, & John, 2010). Relevance of reference groups and their impact on customer decision making process A reference group in sociology means a group of people that we associate with them as a benchmark for decision making process. These people are used as standard for comparison to ourselves. As such, reference groups affect out decision making, desirability, thoughts, behavior and feelings. According to Bygrave & Zacharakis (2004, p.80) a reference group is an important external factor that has a direct impact on our daily decision making process. Almost every person has a reference group that influences several aspects of our lives. As an example, a reference group in football for soccer fans can be the current stars like Messi, Ronaldo and Bale. In politics and world leadership, influential people like President Obama and The Rockefeller are reference groups for people with political ambitions. As such, whatever these people do influence other people’s decision making process including the products that they buy. As an example, Nike brand is normally bought by many sports people because of the perceived image. Nike normally focuses its products on famous sports personnel and hence creating a reference group for other people to base their decision making. In this case, the decision to consume Kopi luwak is heavily influenced by reference groups. As an example, after its discovery in Asia by coffee farmers, Kopi luwak consumption rate escalated to within Asian and beyond. Most farmers opted to use this unique wild animal to produce large scale Kopi luwak for international markets. More so, because of its price and its perceived quality, Kopi luwak is consumed by the wealthy. This consumption rate escalated because of the reference groups played a significant role in aiding customer decision making process. Most people take this coffee because of other peers that they look up to for standards. A cup of coffee costs between $6 and $10 (Miller, Vandome, & John, 2010). Despite being criticized for its exaggerated quality, Kopi luwak is still widely consumed by prominent people. Jay Leno, a famous presenter once consumed Kopi luwak is his show, a factor that led to promotion of its image as a unique coffee product. In the Oprah Winfrey show, the impact of reference group was evident, Oprah drunk and recommended Kopi luwak because of the test and the aroma of this specialty coffee. According to Chater (2010, p.10) consumers of different coffee products such as cappuccino make their decision to consume the product because of the reference group that they look up to. As such, a reference group influences decision making process of these people. People often choose reference groups based on their likes and preferences. A reference group helps in establishing self image, perception, experiences and even cognition. This makes it an important external factor that has a great influence in decision making process. Relevance of the family life cycle and the dynamics of husband-wife decision-making Family cycle greatly influence decision making process, the family cycle determines the trends and unique behaviors that are adapted within the community. In closely knit families, their purchase behavior is similar, their preference goes copies the preferences of their forefathers. In other instances, a more dynamic family will vary in decision making process and also more experimental. Kopi luwak consumption is therefore highly related to the family in question because their decision making process is an important influencing factor. Marketers should always consider the family cycle for the past generation when designing marketing strategies to be employed. A good understanding of the family history makes it easy to manage the marketing process (Proctor, 2014, p.200). The chances in the trends within the family cycle due to new interactions or movements to other environment should also be considered. This is because their decision making process are also influenced. The dynamics of husband-wife decision making can be described as the fundamental difference which contribute towards decision making process, a husband has his own decision making process probably borrowed from his family. Likewise, the wife will have a different decision making process as a result of her family background. With this is mind, the decision making process in a husband-wife varies from case to case. Some couple is more dynamic than others. The more dynamic couple will also tend to experiment on new experiences and consequently spend more to get what they need in their lives. Kopi luwak will be ideal for couples who are more dynamic because of the uniqueness of this coffee product. This will however vary from case to case (Miller, Vandome, & John, 2010). Marketers need to understand this aspect that contribute to decision making process in order to effectively formulate a strategic marketing technique based on different scenarios and dynamism. More so, a holistic approach should be taken in order to appreciate the fundamental difference that makes up a family unit and how decisions are made on a daily basis. Relation to affluent consumers, the relevance of social class and segmentation strategies Kopi luwak strongly relates to affluent consumers because of a number of reasons. Kopi luwak is an expensive product which demands consumers who are financially well-off. Such consumers must be able to strategically position themselves in the society and relate with other affluent people. Kopi luwak image is appealing, its cost is also an indicator of the prestige it goes with drinking Kopi luwak coffee. Kopi luwak coffee can cost as much as $600 per pound; this is a significant amount of money which cannot be afforded by most non-affluent consumers. Non-affluent consumers will go for other ordinary coffee specialty because of the price tag of Kopi luwak (Miller, Vandome, & John, 2010). The social class is also another influencing factor, affluent people generally tend to segregate together, do the same things, visit the same places and even consume the same products. Most affluent people perceive themselves as high class individuals who can consume expensive products. A good example of this case is the case of Ferrari, Ferraris is only marketed to rich people. These people are selected by the company and brochures taken to them. Similarly, some member clubs only allow certain individuals because of the social class involved. The social class is thus an important and influencing external factor that directly affects the marketing of many products including Kopi luwak (Fallon & Rutherford, 2011, p.326). Consumers of Kopi luwak perceive themselves to be of higher social class, this is deeply rooted on the image of Kopi luwak and its perceived market value. To effectively market Kopi luwak, customer segmentation is necessary specifically for the affluent consumers. In order to achieve this, expensive restaurants should be used as an outlet of the product, expensive sports such as golf should also be the place to sell the product because most affluent consumers are present (Miller, Vandome, & John, 2010). In summary, the segmentation process should focus on places with many affluent consumers or where affluent people often visit. This will be a strategic approach to marketing Kopi luwak as a coffee specialty product. Relevance of culture and core values According to Havaldar (2005, p.92) culture entails values, attitudes, norms among other symbols that shape human behavior, products and artifacts of that behavior. A culture is normally transmitted from one generation to the other. The key components of culture include language, myths, customers, values, rituals, laws, and other material artifacts. Culture is functional, pervasive, learned and dynamic. Culture is influential in terms of decision making process. A culture plays a significant role in decision making process; it dictates what to do and what not to do. Once a culture is engrained in a person, changing it is almost impossible. On the other hand a value is an enduring belief that a specific mode of conduct is personally or socially preferred to others. As an example, in the US, core values include success, freedom, progress, materialism and capitalism. As such, these critical values shape decision making greatly. As elaborated, culture and core values are influential external factors. This implies that customer’s decision will always be influenced by their cultures and core values (Miller, Vandome, & John, 2010). The decision to take Kopi luwak is too influenced by culture and core values. In Asia, consumption of Kopi luwak is favored by the existing culture, in other places such as Arabia where religion shapes the culture; such a product will not be consumed. The Dutch on the other hand were quick to adapt the practice because their culture favors such unique products. An example, in Amsterdam marijuana is consumed legally, the Dutch do not have reservation in relation to products that they consume, and they freely adapt different products because of the prevailing culture and values (Miller, Vandome, & John, 2010). On the other hand, the U.S. too consumes such unique products because their culture and core values favor its consumption. The image about Kopi luwak makes it a favorable product in the United States. Many celebrities and influential people take this coffee specialty because of the conducive culture. The market price of Kopi luwak also helps in creating value, a factor that promotes its increased consumption as compared to other specialty coffee products such as cappuccino. The American culture is in line with Kopi luwak marketing strategies and the image that has been created about the product. The wealthy will prefer this expensive product for image purposes (Kurtz, 2012, p.274). Conversely, a culture that is heavily influenced by religious beliefs tends to be more conservative in their approach to products. Kopi luwak will not do well in these cultures because most of their decision making process will be influenced by their religious beliefs. The relevance of subculture aspects of consumer behavior Within a culture, there are subcultures that also play an important role in influencing customer decision making process. A subculture is a unique homogeneous group of people who share elements of the overall culture which is mixed with the unique element if they own group. As an example, the sporting group who likes certain unique brands such as Ferrari, Buggati veron, and Mazerati tend to have similar purchasing behavior. They visit certain restaurants, drink unique blends of coffee such as Kopi luwak. Subcultures are normally created by age, social status, and material things. Age is an important influencing factor, a younger age tends to have their own culture, generation X and Y tend to have a bolstered approach to doing things, this generation has its own subculture that a times deviates from the mainstream culture (Fallon & Rutherford, 2011, p.326). They are more experimental and will tend to take less time in their decision making process. A product such as Kopi luwak coffee specialty has a higher likelihood of consumption among these group of people. On the other hand the elderly or the baby boomers will tend to be more conservative but will try a quality product such as Kopi luwak (Miller, Vandome, & John, 2010). As evident, the subculture is as powerful tool and plays an important role in shaping customer decision making process. According to Lamb, Hair & McDaniel (2012, p.20) subculture can be based on a number of variables such as nationality, gender, social class, race, religion, and geographic location. Marketers normally study an existing subculture in order to create relevant marketing and penetration strategies, demographics aforementioned are used as a basis for decision making process. After specifying relevant demographics that specify the existing subculture, the market size, composition, location and trends are analyzed before launching the strategy. Customer profiling is another concept employed by marketers. Customer profiling is normally based on the prevailing culture and subculture. Kopi luwak will thus be marketed to a selected customer profile based on their social status, wealth and age. Most people within a subculture normally influence each other’s decision making. This group of people will tend to consume the same product because of the group perception about the product. Marketers need to be fully aware of this influencing variable in order to align their strategies with the preferences of the subculture in question. Advertising media is also influenced by the target demographics. For generation X and Y, using social media will be highly desirable and effective because most of these people like the social media (Proctor, 2014, p.200). On the other hand reaching the elderly of the baby-boomers requires traditional media such as the TV, radio and newspapers. This decision making process is heavily influenced by the prevailing subculture. Economic/Passive/Cognitive/Emotional Models Economic, Passive, Cognitive and Emotional Models are important external factors that influence decision making process. Economic decision making process factors in the cost/budget and maximizing the value of the product purchased. Every person at some level participates in economic decision making value because everyone wants value for the money that they spend. Passive decision making process is often described as a decision making that involves options that are easy to choose, that is following the path of less resistance or involvement. Cognitive decision making process is a higher level decision making process that is complex and involving. Emotional decision making process on the other hand is primarily based on the perception, emotional attractiveness of the product rather that the value (Lamb, Hair, & McDaniel, 2011). As evident all these aspect closely related to Kopi luwak decision making process. An economic minded individual will focus on its expensive price, a passive affluent individual will purchase the product without giving it much thought, and a cognitive individual will be less reluctant because he will search for more information relating to the produce before purchasing it. Lastly, an emotional decision maker will purchase the product because of its image and perceived quality (Fallon & Rutherford, 2011, p.326). All these aspects contribute differently to the decision making process and will affect the consumption of the product. Relevance of gifting behaviour and the importance of relationship marketing Gifting behavior is also relevant in this scenario. The reason for this is because individuals will buy Kopi luwak to their friends, family and other valued people as a sign of appreciation or attached value to them. As such, gifting behavior is an important customer decision making process which directly relates to this particular product (Proctor, 2014, p.200). A relationship marketing strategy is a strategy that focuses on customer satisfaction and retention. This marketing strategy goes beyond the normal marketing strategy which is sales focus. It focuses efforts in customer satisfaction and appreciates the long term impact of customer satisfaction. This strategy works effectively because customers become loyal as a result of the value attached to them. Kopi luwak specialty coffee will benefit from such strategy because with its image, customer relationship will be enhanced and sustained. The relevance of opinion leaders and the importance of innovativeness Opinion leaders are individuals who are actively participate in the media debates regarding social issues in one discipline or the other. Opinion leaders greatly influence decision making process to those that value their opinion. As an example, an expert computer security officer can speak in the media regarding better ways of safeguarding networks against potential cyber crimes. Most low-media end users will take their advice. There are two forms of opinion leadership, polymorphic and monomorphic (Proctor, 2014, p.200). A polymorphic leadership is a leadership that is influential in more than one domain or a wide range of disciplines. On the other hand, a monomorphic leader is a leader who domain specific, such a leader will be influential in one discipline but a follower in the other. As such, opinion leaders vary in influence, their influence is however subject the acceptance of their followers. Opinion leaders have vast influence on their followers, as an example, famous broadcaster’s maybe influence in certain fields. This is evidenced by Jay Leno, who once tested Kopi luwak and disposed it claiming that it lacked the test that is advertised. Such a decision can greatly influence customer decision making process. In some instances, these opinion leaders discuss food products and other related stuff, since their discussions are normally evidence based, their influence is great on the subject matter (Proctor, 2014, p.200). Kopi luwak image as a specialty coffee has been promoted by opinion leaders and other influential people in the society. These people mostly focused on the animal contribution to the processing of the coffee that makes it unique and quality. As a result the consumption of Kopi luwak has increased globally. The rationale for this is because of its uniqueness in terms of processing. On the other hand, innovativeness is a critical decision making tool, innovativeness determines the rate of product consumption. Innovation starts from the product manufacturing, processing, packaging and marketing strategies. The marketing of Kopi luwak as a coffee specialty has mainly focused on the innovativeness that contributes to its processing. The use of the animal (Palm civet) has been a critical image booster and innovative. The Asian farmers took full advantage of the creativity involved to market the product and sell it to both local and international consumers. The innovative aspect of the Kopi luwak made it famous and highly priced people perceived it as quality because of the processing done by the Asian Civet (Raju, 2004, p.30). As noted, opinion leaders and innovativeness contribute massively to consumer decision making process; the more positive the product is perceived due to the influence of the opinion leaders, the more the consumption of the product. The relevance of the public policy, legislation, advertising, pricing and consumer ethics According to Panda (2008, p.5) the public policy, legislation, advertising, pricing and consumer ethics are external variables that also contribute immensely to customer decision making process. Public policy entails the laws, regulatory mandates, course of action, funding priorities given by the government. Legislations entails the laws enacted in order to provide Public policy thus influence customer decision making process. This is evidenced when the existing public policy does not favor or favor a certain product through taxes and value added services (VAT). Kopi luwak is thus influenced by public policies and the legislation of different countries. The public policies and legislations have a direct impact of the pricing of the product and hence their marketability. If the legislations are restrictive or less favorable to certain products, the customer decision making behavior is also influenced (Fallon & Rutherford, 2011, p.326). As an example, coffee shops in Amsterdam sell marijuana and other related products; the same case is applicable in California and Oregon, the legislation of these states favor marketing and sale of these products. In other states, the same case is not applicable because of existing stringent rules and regulations that are not favorable. Advertising is the art of promoting a product through the public domain channels such as the internet, the TV, radio and newspapers. Advertising is an important marketing concept because it makes the consumer aware of the product in the market. If the consumer is not made aware of the product, the chances of market failure are increased despite the quality and the usability of the product. In summary, the success of the product in the market hinges on effective marketing and advertisement strategies. In Kopi luwak case, the marketing strategies that have been employed so far have worked efficiently. This is the reason why a cup of Kopi luwak coffee cost about $10 and a pound of this specialty coffee can cost as much s $600. Advertising is therefore a strong and influential external factor. It has a direct impact on customer decision making process; most products are purchased because of the marketing and advertising strategies employed. A repeated advert imprints mental image and hence making it hard for customers to forget the product (Proctor, 2014, p.200). Pricing of a product is another important external factor that influences decision making process. As an example, a product that is sold expensively is less likely to be purchased as compared to the same product which is priced fairly. The reason for this is because consumers attach value of the product with its price. If the price is too high, consumers tend to feel that the product does not give the value that is evidenced by the pricing. Conversely, not all cheap products are bought. This is because cheap products create a negative image of poor quality. It is therefore important for marketers to ensure that the product is neither lowly priced nor highly priced. In some cases, psychological prices are used. As an example, a new design cloth that costs $99 is more likely to be bought as compared with the same product going for $100. The $1 difference can make sales to go up or down respectively. In social and image aspects, new designs or coffee specialty are consumed based on their price tag. An expensive cup of coffee is likely to attract a subculture of wealthy individuals as compared to a cheap cup of coffee. Kopi luwak has a tendency to attract such individuals who perceive high price as an indication of high quality (Fallon & Rutherford, 2011, p.326). Consumer ethics is another important external variable that influences decision making process. As an example, the perception that a certain product is made out of immoral acts such as child labor or mistreatment of animals can impact on the customer decision to purchase the product. Kopi luwak has experienced criticism of animal mistreatment in Asia (Raju, 2004). The Civets are forced to ingest coffee seeds in order to refine the final product for further processing. These animals are caged and hence denied their natural life style; this raises both moral and ethical concern from consumers and hence affecting the consumption rate of the product. Conclusion This analysis has focused on the external factors and concepts that influence customer decision making process. Kopi luwak, a specialty coffee that undergoes unique processing has been selected as the product for analysis. Kopi luwak is partly refined by Palm Civet, an Asian wild animal which ingest and eliminate processed coffee seeds as feces which are then refined for consumption. Kopi luwak is an expensive product which goes for up to $600 per pound. A number of external factors have been selected for analysis. Some of these factors include: reference groups, family cycle/husband-wife decision making, affluent consumers, social class, and segmentation strategies. Other variables include culture, values, subculture, economic models, and opinion leaders. 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