Consumer Decision-Making - Term Paper Example

Name Unit Class Executive summary This report looks at the influence of external factors on consumer decision making in the purchase of iPhone 4s. The phone was introduced in 2011 and gained fast market response from the consumers. The external factors that were related to the product purchase decision have been identified as: culture and subculture, reference groups, opinion leaders, age, gender, family, social class, public policy, diffusion of innovation and consumer protection. The report has analyzed each factor appropriately giving its link to the consumer final decisions. Family and culture have been rated to have the highest influence of the consumer decision making process. Diffusion of innovation has been described as a process in which an innovation is adopted by a community. The four major theories in the process have been described as: innovation decision; individual innovativeness; rate of adoption and perceived attributes theories. From the rate of adoption theory, it leads to a bell shape curve. This was the case of adoption of iPhone as it had first adopters (2.5%), early adopters (13.5%), majority early adopters (34%), majority late adopters (34%) and the laggards who take up 16%. The analysis given by the report has clearly explained the role of external factors that have an influence on decision making. Table of Contents Executive summary 2 Table of Contents 3 Introduction 3 Iphone 4s overview 4 External factors 5 Reference group 5 Family 6 Levels of culture 8 Core values in Australia 8 Social class 10 Cross-cultural consumer behavior 11 Diffusion of innovations 12 Ethics 13 Public policy and consumer protection 14 Government intervention 14 Advertising 15 Packaging and pricing issues 15 Conclusion 16 References 17 Introduction Consumer decision making looks at the process which the consumers undergo when making a purchase decision. In order to make the decision, the consumers pass through several steps which are referred as consumer behavior. The steps are problem identification, searching for information, evaluating the alternatives and making the purchase decision. Decision making is affected by cultural and psychological factors. These can be further categorized as internal and external factors. Consumer decisions are mostly based on the anticipated outcomes. The external factor plays an important part in decision making. They have the capability to affect how, when and where the consumers make their purchases. External factors includes, culture and subculture, reference groups, opinion leaders, age, gender, family, social class, public policy, diffusion of innovation and consumer protection (Peter & Olson, 2005). This report will look at the effects of the external factors on consumer decision making regarding iPhone 4s. Iphone 4s overview IPhone 4s was introduced on October 4 2011 by Apple.Inc as an upgrade to the iPhone 4. The Smartphone which is fully touch screen was categorized as the fifth generation of the iPhone and was closely followed by the launch of the iPhone5. The phone gained a large market demand after the launch with more than 200,000 preorders being placed in a record time of 12 hours. The Smartphone was a major breakthrough due to a wide consumer acceptance and overwhelming sales (Joshua, 2011). The phone was among the first duo core processors. The processor was an upgrade from the single core in the iPhone 4. This was combined with high quality display with imagination technologies graphics processor. For the consumers, apple had been able to offer efficient hardware and software integration (Joshua, 2011). External factors The process of making the consumer decisions does not occur without influences from the external environment. These are the physical surroundings and the social factors that surround the consumer. When making a purchase for a Smartphone, the consumers have several external factors that will influence the final decisions. These factors are reference group, family, social class, culture, sub-culture, public policy, legislation, advertising, pricing and the consumer ethics. Iphone 4s launch created a decision making process in the consumers (Hawkins, Best & Coney, 2001). The consumers’ decision of placing order for the iPhone 4s can be explained by the external factors. Reference group Reference groups are the groups which have the capability to affect the behavior of the individual who want to identify with them. These groups have the capability to influence the consumers in three main ways. The influence can occur when searching for the information, change of attitude toward the product and the manner in which the individual uses or buys the product. The reference group can be subdivided into 4 types. The types are primary group, secondary group, aspiration group and dissociative group. The primary group consists of the people who interact with the consumers regularly. These may be friends, neighbors, family or fellow workers. Reference’s group perception for a product or the type of usage has an influence on consumer. For the iPhone 4s, the primary group played a role in making the consumers react fast. The reaction to the launch experienced was propagated through the social media among other media channels. The rise of social media has enabled people to socialize with their friends easily and share the opinions. This enabled the consumers to get the insight about what the reference group was saying about the product. Most of the reviews especially by the young people were positive. For an individual to feel a sense of belonging with those they closely interact with, they may make choices based on what others have made (Solomon, 2002). The secondary group consists of those people who consumer interacts with less frequently. This involves the professional groups and the unions. If members in a group start using the iPhone 4s, there is a high likelihood that those who want to be associated with it will buy the product to fit in (Peter & Olson, 2005). The review from the secondary reference group may lead to positive or negative reception of a product. Iphone 4s gained positive reviews from many groups making it possible for individual decision to be influenced. The aspiration groups play a major part in decision making. If someone aspires to be a musician, they start emulating them. This involves copying their way of dressing and other lifestyle aspects (Solomon, 2002). Family The members of the family may play different parts during the decision making process. The roles played by the family members include; gathering information, influencing others, decision making and purchasing. Someone may have the influence on where the information is gathered, how to evaluate the brands and where to buy the product. For the buyers, there are two types of families. There is the family of orientation and procreation. The family of orientation is made up of parents and children and includes the single and childless families. The family has a direct influence on individual such as culture, ambition and economics. The family does not have to be in contact with the individual for the influence to take place during the decision making (Solomon, 2002). The procreation family refers to the spouses and their children. The purchasing behavior that is practiced depends on the type of product that is being purchased. In most families, purchases are made by the wife. The changes in traditional roles have made the marketers to look at both men and women as targets (Chen, 2007). For Iphone 4s, the consumer behavior could easily be influenced by the family. The type of products that the family prefers may lead to their children becoming influenced into buying them. Apple has been able to gain brand awareness in many countries. This makes it easy for a family to prefer Apple products to the competitors. The decisions that are made by the family will affect all the members. This is due to the importance that is attached to the family unit. The roles that are played by the different members in the family will affect the way they arrive at the decisions on whether to buy an iPhone or not (Chen, 2007). Family and households can influence the decisions in the following manner Family life cycle- the life cycle of the family influences the purchase behavior in decision making. The changes in family life cycle occur when a new generation becomes adult. Different roles played by the family members such as influencer, decider, buyer and user. A teenager may influence the parents into buying them an iPhone 4s, the mother may decide to place an order while the father will play role of buying. The end user will be the teenager (Chen, 2007). Culture Culture has the highest influence on the consumer decision making procedure. These are collection of values, attitudes and beliefs that are common to a group and are passed through generations (Ackerman & Tellis, 2001). The ethnic and religious aspects of culture have a great impact on the final decision reached. Culture determines the person needs and the way they behave. Levels of culture Culture can be divided into three levels. These levels are; artifacts and behavior, norms and values and underlying assumptions. Artifacts and behaviors consist of what is visible to a visitor. Norms and values refers to the way things are done assumptions refers to what is taken for granted such as beliefs about people. For apple, they had to encounter all these levels of culture as they launched iPhone in Australia. The consumers’ decision making was being affected by the three levels of culture. For example, the indigenous Australia tends to be conservative due to their norms and values. This has a great impact on their decision making (Solomon, 2002). Core values in Australia For the Australians, they have several core values. Two of the core values in Australian culture are quality consciousness and brand loyalty. These values have great impact in purchases of Smartphone. This is due to fact that smart phones have acted as a symbol of status and brands are associated with quality. Apple has been able to have a quality brand which has captured large market. The Australian population being quality conscious have a brand loyalty for Apple and other companies whose brand name is well known. IPhone 4s purchase decisions were mostly due to Apple brand name and the company reputation for high quality products. The loyal Australian consumers were able to identify with the product from Apple leading to high sales. Australians buy expensive products that are reputable. This is the case of iPhone whose prices are high and the products quality is also high (Chen, 2007). Subcultures This is a group of people who have their own type of unique lifestyle within a given culture. This is influenced by the fact that not all people who are in the same culture share the same customs. A single consumer culture is composed of several subcultures. The subcultures within a culture can be classified into religion, race, gender and age. For the iPhone4s, gender and age applies (Schiffman & Kanuk, 2004). Gender Gender makes up a very vital cultural subgroup which has defined behaviors and acts. The masculinity and feminine of the population gives them different traits. Some of the products are exclusively used by one gender like the shavers. Due to generational changes, some of the gender roles have become blurred. Some of the roles that are played by the female and male were specifically gender oriented in the past. The household incomes have become dual with each of the spouses contributing. This has made the role of making decision have been taken by both men and women. The decision to purchase an iPhone was taken by both male and female without gender bias. This can be proved by the preorders that were made to the Apple which were not biased (Chen, 2007). For a family decision, to purchase the iPhone can be taken by any of the spouses with each of the family members playing a different role. Age This subculture involves dividing the population into from kids to the aged. This is due to the fact that each of the classification has different needs and tastes. These subgroups have different priorities in respect to fashion, interest, accessories and beliefs. This is well illustrated by the type of lifestyles where the elderly are likely to look for healthy food while the young prioritize fast food (Loudon & Bitta, 2002). Generation x and y IPhone can be categorized as a generation X and Y product. These groups consist of the youth, young adults and young families. Generation y is also described as sophisticated in their decision making and makes their shopping more extensively. This makes the group to have choosy characteristics while making their purchases. Generation x has been claimed to be technologically aware and highly educated. The products being of high technology and classy had the effect of attracting the two generations more than the rest. Both generations are able to cope fast with the changing technology. At the moment, it’s estimated that 94 % of the generation y owns a mobile phone while 97 % owned a computer. The stylish iPhone 4s was able to influence the members of these two generations in their decision making (Peter & Olson, 2005). Social class Every social class has their distinct behaviors as compared to others. A social class is defined as a group of people who have similar lifestyles, interests, status behaviors and values. The main determinants of the social class are education, attitudes, income and wealth. The means used to measure a social class includes a combination of factors but not a single factor. Social class can be classified into two broad categories. The categories are affluent and non affluent. For the case of iPhone 4s, the affluent class is the main consumers. The decision on choices of products is mostly directed to show a status to the society (Loudon & Bitta, 2002). The affluent class was able to purchase the product as a status symbol. This is due to the prices that are charged for the Apple products. Apple products are costly as the main target is the affluent and young professionals. For the affluent, they are not price sensitive and their purchase decisions are more directed toward leisure and quality. The non- affluent are price sensitive and makes their decisions more carefully with less expenditure on leisure. Looking at iPhone features, it has more leisure enabling technology. This leads for the high prices which the non affluent afford (Kos & Vida, 2011). Cross-cultural consumer behavior Apple is a global company making it possible to influence the consumers from different nationalities. Cross cultural consumer behavior refers to the way in which consumers in different cultures behave. The consumers are in some cases concerned about the country of origin for a product. This is due to the associated factors in each country. Apple is an American multinational and has managed to gain a good reputation due to quality brand. In Australia, the company does not face opposition as its country of origin is well known in technology and quality products. The Australian population is multicultural which means that the level of ethnocentrism is low. The consumers are able to accept the goods from different countries of origin. The consumers’ decisions are more cornered about the quality but less on the country of origin (Hofstede, 2001). Apple does not use product adaptation. This refers to tailoring the products to suit a specific country’s interests. This is due to fact that their products are meant to have same functionality to all. Adaptation is also difficult to carry out for a multinational due to the activities involved in the global scale. IPhone 4s was standardized across all countries where it was shipped (Kim, Forsythe, Gu & Moon, 2002). Diffusion of innovations Diffusion refers to the process in which a community is able to adopt a given innovation. The process of diffusion is characterized by four major theories. The theories are innovation-decision process theory, individual innovativeness, rate of adoption and perceived attributes (Kotler, 2009). Innovation decision process theory-has the main reference to time and consist of five unique stages. The first stage involves knowledge, persuasion, decision to adopt, implementation after adoption and recognizing adoption as the best decision (Kotler, 2009). Individual innovative theory -looks at the person who adopts the innovation and the reason behind adoption. The percentage of individual who adopts the innovation is explained using a bell shape. Innovators are the first group of adopters and consist of 2.5 percent. These are risk takers and are used in leading the way. Early adopters make up to 13.5 percent. They are important as they offer training to others and spread the word of mouth. The other two groups consist of the early majority adopters and late majority adopters. The two groups have a percentage of 34 each. The laggards are the final group and consist of 16 percent. This can explain the adoption rate of iPhone 4s since the launch into market (Kotler, 2009). Rate adoption theory- suggests that the rate if the adopting of an innovation can be represented by an s curve. Adoption picks up slowly at the start, then experiences rapid growth and then becomes stable. The final stage involves the decline, making an s curve (Kotler, 2009). Theory of perceived attributes-holds that an innovation will be adopted if the users think it has advantages than the existing one. The innovation must also be compatible with community values and practices, not complex and testable for a certain time (Kotler, 2009). Ethics The ethical practices that are practiced by apple can be categorized as teleological also known as consequentialism. This is a category which judge actions based on their consequences. An action is taken as good if it have the capability to bring the best effect on happiness (Culiberg, 2010). This can be best explained by Apple commitment to innovation which makes their products to be anticipated. The theory supports the greatest happiness for the large group. This influences the consumer decision making as they associate the company with ethics that supports their well being (Culiberg, 2009). Public policy and consumer protection Government intervention Free trade agreement This is aimed at reducing the tariffs and other non tariffs barriers between Australia and trade partners (Australian Government, 2014). Apple launch of Smartphone in Australia benefited from this agreement as there were few barriers to trade. The country also benefits as its industry can export to other countries freely. Anti dumping laws This is a policy that is meant to protect the local industry (Australian Government, 2014). It ensures that the products that are brought into the country are not over subsidized to hurt the local industry. The laws allow application of countervailing and antidumping duties. For apple, there is no any major Australian company that produces similar products. This enables them not to suffer from the anti-dumping laws. Apple products are also costly hence cannot be charged as over subsidized. Advertising Advertising and public endorsement-2004 The Australian government has set laws which prohibit advertising that can lead to reduced competition. The laws also prohibit misleading advertising (Australian Government, 2014). Apple uses launches to advertise and unveils their products. Their adverts are tailored to avoid conflicts in their countries of operation. Exploitive advertising The government of Australia protects the citizens from advertisements that are aimed at exploiting them. This is done to ensure that the advertisements that are aired do not lead to consumers buying substandard and defective products (Australian Government, 2014). Apple has established an ethical culture and their advertisement are not exploitive. Packaging and pricing issues Packaging waste requires appropriate management due to environmental effects (Australian Government, 2014). Each state in Australia has their policies on packaging materials. Recycling This is an initiative that ensures that the packaging materials used is recyclable (Australian Government, 2014). Most of the packaging materials used by Apple are recyclable affecting the decision making off the environmental conscious consumers. Environmental policy The policy has guidelines that prohibit packaging materials that are hazardous to environment (Australian Government, 2014). There are set guidelines in which the products should be packaged. Apple products are packaged in environmental friendly packaging ensuring there is sustainability. The consumers’ decisions to buy can be influenced by apple compliance to sustainability. Conclusion The report has analyzed external consumer decision making process in relation to iPhone 4s launched in 2011. External factors are very vital as they influence the internal factors. These factors affects how, when and where the consumers make their purchases. External factors includes, culture and subculture, reference groups, opinion leaders, family, social class, gender, age, gender, public policy, diffusion of innovations and consumer protection. For the consumer to make theory final decisions in purchasing iPhone 4s, each of the external factors played a part. The world has changed leading to changes in the way decisions are made. For example, empowerment of women has led to them taking part in decision making. There have also been introduction of strict laws governing trade to avoid dumping and protect the consumers. The final decision made concerning the purchase of iPhone 4s have to be affected by each of the external factors discussed. References Ackerman, D. T., & Tellis, G. (2001). Can culture affect prices? A cross-cultural study of shopping and retail prices. Journal of Retailing, 77 (1), 57-82. Australian Government (2014). Australian Packaging Covenant, Viewed 23 May 2014 from, http://www.environment.gov.au/topics/environment-protection/national-waste-policy/packaging-covenant Australian Government (2014). Consumer protection, Viewed 23 May 2014, http://australia.gov.au/topics/economy-money-and-tax/consumer-protection Chen, C.S., (2007). The Study of Consumer Behaviors of Smartphone- Based on Bussiness People. School of Management, Ming Chuan University. Culiberg, B. (2010). Consumer ethical decision making: A conceptual model development. Akademija Mm, 1(10), 37-48. Culiberg, B. 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