External Factors of Consumer Behavior - Coursework Example

External Factors of Consumer Behavior Name Institution Daily, people do search, purchase, evaluate, as well as dispose of products and services for one reason or another. Services like insurance services are normally subjected to benefits derived from them subject to the premiums paid for them. One of the human behaviors is that of evaluation and analysis traits of the surrounding. Before an individual decides on using, consuming, or exploring the functions of a product or service for instance, aspects of analysis and judgment of the same must take place. However, before any of these takes place, an individual must involve some aspects of decision making process which happens internally and is influenced by certain external factors (Lamb, & McDaniel, 2010). The aim of every consumer is to derive the maximum satisfaction and/or utility from the goods or service and therefore is very keen when making purchases on such products. It is important to note that in every market, the societal beliefs and practices are very important in shaping up the quality, marketability and other characteristics of a product in the market. Through the analysis of insurance policies as the services, this paper aims at extracting relevant information that best help in intertwining the relevant consumer theories with the external factors that affect consumer behavior. In purpose to determine the external factors that influence the consumer when making purchase decisions in the market, the main scope of the paper is to come up with reliable information based on the available consumer theories to analyze the circumstances that makes one consumer to decide on buying a product or not. More importantly, consumer theories and facts that explain some of the reasons why consumers tend to behave in specific ways especially when making decisions on spending on goods and services are also discussed in this paper. In addition, the optimal focus of the study is based on linking the factors that affects the consumer spending decisions and habits with the relevant consumer theories so as to make informed economic decisions. Consumer Theory According to Robertson (2000) and Hoyer & McInnis (2001), a consumer is a person, a group of people or an organization that become the final user of a good or a service produced in system, particularly a social one. Basically, every consumer aims at deriving the maximum satisfaction and/or utility from the goods or service and therefore is very keen when making purchases on such products. It is important to note that in every market, the societal beliefs and practices are very important in shaping up the quality, marketability and other characteristics of a product in the market. Therefore, every product in the market is produced by the producers who are well aware of the consumer tastes and preferences in the product market. The insurance companies are normally very well aware of the risks that begot people in their well being. Not only people does the insurance companies focus upon, but also on properties, health, education, businesses, among others. At the heart of every human needs and wants, that which need to be protected for future benefits is what the insurance policies focuses on. Customers to these policies rationally ways the risks involved, the insurer’s credibility, the value of what’s to be insured, as well as the premium, and finally a need is created based on these external factors. Consumer theory therefore tries to intertwine the rationality of the consumer in making the rational consumption decisions with the preferences, satisfactions, and the constraints that may determine the consumer’s spending pattern. In the process of discussing the factors that influence the decision making process of the consumer in the market, it is important to analyze the consumer theory in order to exclusively address the consumer problem in the market. According to the utility theory, the amount of satisfaction the consumer gets from consuming a product is a subject to the some constraints and indifference. Assuming there are two insurance firms with policies covering the same risk, the customer will be in a rational dilemma in choosing which is which. Making some assumptions of in the market such as the presence of perfect information in the market, consumer takes the premiums as they are, the prices (premiums) are linear but service indivisible, the customer (who in this case becomes the insured) undergoes through some cognitive antagonism that is influenced by external factors to be discussed here, and also based on the budget constraints. The following graph is a representation of the budget of the consumer in this case. Assume also that the consumer is involved in a situation of choosing between two insurance products, X1 and X2. The two products are of different prices (premiums), i.e. P1 and P2. X1 k (P1, y) K(p2,Y) X2 Based on the income of the consumer, the consumer will choose a premium and policy bundle of X1 and X2 that will best maximize his or her utility subject to the income constraints Y. The consumer will actually be in a situation to make a choice out of the two insurance policies X1 and X2 according to his or her preference to consume, based on the income (Robertson, 2000). There is an optimal choice that the consumer will make finally. This optimal choice of consumption takes place at the point of tangency between the budget line and the preference curve, also kwon as the indifference curve. The marketers of these insurance services, therefore, must be very vigilant in terms of how the avail the insurance information to the intended customers. One of the basic understandings about the insurance policies is that they are determined by their covers, premiums and other relevant principles of insurance. In marketing these services, insurance company marketers must actuate the following external factors that make an individual to take these covers or not. Human being is a social animal and will normally tend to consider the opinions of others, especially when making binding decisions with another party. Therefore, the following factors best explain the external issues that a consumer considers making purchase decisions, and in this case study, when deciding to purchase an insurance cover. External Factors That Influence the Consumer’s Decision Making Family The family is most considered as the best reference group for any person. In this case, it becomes the ultimate consumption unit in terms of consumer goods and services. An immediate family that is considered as a group of two or more people living under one roof and are related through birth, adoption or marriage, have a strong influence on how a consumer makes the decision when making some purchases. The buying behavior roots from what the parent’s behavior and transferred to the consumer during growth and when it comes buying as well. What an individual observes from the parent’s characteristic or style behavior become more of a culture to that individual, especially from his or her childhood thereby becoming a habit. The major economic characteristic of a family is that it dictates the economic interpersonal well being of an individual skills and behavior in terms of spending. Insurance services roots the possible family ties who may become the beneficiaries of these benefits in case something happens. This is supported through provisions of emotional and religious values, which conversely will determine the moral standard of the same person. These are very important values when it comes to spending because they determine what the customer is likely to buy and not to buy i.e. the consumer preference and choice of the product. Moreover, the family may determine the ethical lifestyle values and certain social relationships which in one way or another may affect the decision on insurance cover to be taken. Reference group behavior People learn from friends, workmates, and models, among others. In the same way, the benefits that accrue through insurance covers with associated terms of references are learnt mostly from the reference group of an individual other than through marketing. Reference group is the group that a consumer wants to be identified with or is already a member. The social status of a person makes him or her to be in a group. This is because man is a social animal like other animals too. The group characterizes what the person wish to accomplish in life, beliefs, values and set of norms which are all for the persons mutual goals. It is important to note that consumer behaviors mostly are controlled by the group setting (Solomon, 2006). A consumer wants to buy what can be approved by the group that she or he is identified with. Reference group can affect the behavior of a consumer through the attitude of the group (maybe towards some insurance firms) that in this case encompasses pride, status, standards among others, which directly affect the psychological behavior of the consumer. The reference group also becomes the basis of comparison of an individual in terms of values, style and preferences. During the processes of deciding what to buy, these attributes become manifested in an individual’s choice of the product, which tend to reflect that of the group. Culture Culture dictates the way people live and by a large extent affect the purchasing patterns of individuals. It represents the shared beliefs, customs, behaviors and attitudes which are more common in a specific society. These attributes stipulate how people live and how they purchase as well. In this case, culture is considered the widest environmental factors that have great effects of an individual’s behavior. Through learning, sharing, satisfactions of needs, similarities and differences, culture offers variety of distinct societal behavior that a consumer cannot avoid but habitually live by. They affect what plans we have, and with which nature of company we enter into contract with, thus affecting demands of insurance policies and services directly. Therefore, decisions made during buying process of a consumer may be largely dependent on the cultural background of the consumer (Taylor and Lee, 2007). Income and Social class Income as well as the social class is the main factor that affects an individual’s decision to buy the insurance services. Just as educational status, economic status in terms of income as well as wealth has big influence on an individual’s behavior, so does the social status determine the individual’s mentality. All these statuses respond to specific social class, which have the same characteristics in terms of education, income and the social standards. It is important to note that a consumer belongs to a specific social class, which in the end will affect the decision that she or he will make in the process of making purchase decision of the product. More importantly, the basic understanding of the consumer behavior starts from comparison of what one’s social class would buy in the same circumstance. Economically, people with high income will tend to associate themselves with high-prized products irrespective of how good the product maybe. They associate quality with price which in most cases is not true. On the other hand, those individuals with middle and low income goes for either quality or compares the price of the product with an alternative, through the processes of decision making. Educational status gives an individual a social class i.e. the individual tends to associated with the members of his or her status. This status may in a large extent determine the outcome of what the individual in this class may purchase. In this case, the decision to purchase the product will be based on whether it would suit that status. Opinion leadership The role models in the society or in an individual’s life may contribute the choices that one makes in life. These choices may become very clear especially when making purchase on a product. In the product market, a consumer may come with a pre-formed opinion of the product based on opinion or reaction of the person or the role model. Opinion leadership is the process whereby one person, also known as the opinion leader, automatically influences the choices, actions or opinions and attitudes of other people, who are in this case known as the opinion seekers. The market situation also provides the buyers who value the opinion of other people especially the opinion leaders in order to make the final decision whether to buy the product or not. Religion Just like culture, religion represent the shared beliefs, customs, behaviors, practices and attitudes which a more common to a specific religious community. Religion is belief that grows within an individual based on the practices and teaching of the religion, and is introduced to by the parents or friends. The religious background of an individual therefore may affect what the consumer purchases and what not to purchase. More importantly, certain products are not consumed by some religious groups thereby affecting the attitude of the consumer towards that product (Hoyer and McInnis, 2001). Marketing activities The aim of every marketing strategy is to capture as much as possible the attention of the customer. Since the drive to buy is motivated from the inner feeling of the consumer through a mental judgment of the product, it is important for producers of a product to have the customer judgment of the product in mind. Marketers of these insurance services, therefore, must be very vigilant in terms of how the avail the insurance information to the intended customers. One of the basic understandings about the insurance policies is that they are determined by their covers, premiums and other relevant principles of insurance. Marketing activities involves creating awareness of the product, increasing the appeal of the product to suit the customer’s expectations, performing research and development on the product and provisions of discounts among other activities aimed at convincing the customer to buy a product. Conclusion A number of models have been designed to determine the ultimate choice of the consumer in the market aspect which involves making decision. Likewise, many reasons and factors have been pointed out to determine what influences the consumer behavior in the same market situation. This has therefore been an area of prompt discussion and research. However, the fundamental understanding of the consumer’s rationality through the ability to make critical decisions gives the consumer the power to come up with his or her optimal choice. References Deaton, A., & Muellbauer, J. (2000). Economics and consumer behavior. Cambridge: Cambridge University Press. Engel, J. F., Kollat, D. 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