Buying Habits of Consumers - Essay Example

1. Buying habits Buying habits of consumers are influenced by various factors which include situational, psychological or social influences. The psychological influences include the motives, perception, attitudes and the personality and lifestyle of the buyer while the situational influences include the time, mood and the physical surroundings. An individual’s behavioral traits, perception of the self, and her pattern of living expressed through activities, interests and opinions influence the buying decisions (HMC, n.d.). Style influences buying habits to a large extent. Marketers are offering opportunities to customize the products. People have a desire to be unique. They pursue self-uniqueness in characteristic ways. The variables associated with compulsive buying tend to be restricted to marketing variables related to mass media like advertising contents and television viewing, socio-environmental variables like family and peer influences, and personal characteristics related to personality traits and demographics (Park & Burns, 2005). Today consumer buying is more fashion-related. Compulsive buyers are very likely to be conscious of how they look and appear to others. Credit card usage has been found to be an influential factor in compulsive buying. High level of impulsive buying is also a form of compulsive buying. Shoham and Brencic (2003) contend that the higher the unplanned purchases, the higher the compulsive purchase tendency. The higher the tendency to buy items off their product list, the higher is the compulsive purchase tendency. Compulsive buying is influenced by demographic and behavioral elements. This helps to understand the dynamics of consumer behavior. Shopping for some is a relief from stress and pressures of everyday life. Getting involved in the entire process of buying helps to alleviate the consumer from the gloom and humdrum of life. Kwak, Zinkhan and Roushanzamir (2004) contend that compulsive buying must include two criteria – behavior must be repetitive and behavior must be problematic for the individual. Thus compulsive buying is a chronic repetitive purchasing that becomes a primary response to negative feelings. Initially people feel happy but eventually realize the harmful consequences when they are unable to stop. This is line with Gutman and Mills 1982 fashion oriented dimensions which suggests that ‘fashion leaders’ and ‘fashion independents’ describe themselves as different and standing out (Lynn & Harris, 1997). Such compulsive buyers will shop at departmental and specialty stores more often than at mass merchandisers. This serves the purpose as long as the individual consumer does not feel the burden of debt or physical tension and stress. Today segmented and target marketing, and the way products are promoted and sold, helps to encourage compulsive shopping behavior. The in-store displays, bonuses and presentations contribute towards unplanned compulsive buying habits. It satisfies the need for recognition, to be different and look different. With easier access to malls and wide variety of products available consumers give in to temptations easily. A powerful urge creates tensions that can be alleviated only through buying. Over time this behavior leads to other negative consequences. Obsessive thoughts develop compulsive buying behavior. Family structure is also largely responsible for such compulsive behavior. Compulsive buying scores increase when family members exhibit some form of dysfunction like alcoholism or depression (Roberts, 1998). Families of addictive buyers use rewards or gifts to reward behavior. Some families substitute credit cards and money for emotional support. The compulsive buyer learns that this type of rewards replaces other signs of caring. Low self-esteem also contributes to compulsive buying. The inability to control compulsive buying leads to fear and guilt and to temporarily block these feelings they indulge in compulsive buying. Some others associate compulsive buying with social status. They are very conscious of their appearance. Television viewing increases the compulsion to buy; therefore mass media plays an important role in consumer socialization. Peer pressure is another significant influence as compulsive buyers are guided by responses of others. Frequency of shopping positively affects compulsive buying. As people spend more time at the malls, they feel the goal of life is to spend money on shopping. The teenagers which are a part of Generation Y are more affluent and more ethnically diverse (Parker, Hermans & Schaefer, 2004). They have more access to credit cards and technology. For them shopping is a social activity and they prefer brands that represent the American way of life. In clothing they give preference to comfort and trendiness while they gave no importance to having same clothing as friends or celebrities. They give lot of importance to fashion specially the female sex. Style influences buying habits and this style extends even to the preference for outlets, brand, advertisements, and attitudes towards product attributes. Consumers with a favorable attitude towards a store will patronize and buy its products but if they have a negative perception of that store they will not even step into it (Moye & Kincade, 2003). This attitude is associated with past buying experiences. A person’s reputation is affected not just by how she looks and what she wears but also by where she has been shopping. They do not opt for discount apparel but designer labels. The department store environment should whet their appetite for style too along with the products on offer. 2. Consumer Spending According to McCarthy (1997) factors that have influenced the personal consumption expenditure in the US are sharp increase in household indebtedness and the rising share of income going towards payments of credit cards, auto loans, mortgages, and other household loans. Households have willingly assumed greater debts because they expect their incomes to rise. They spend in anticipation of higher earnings and they finance this through debt. Even when incomes continue to fall, they continue with their existing lifestyle and spending habits expecting the downfall to be short-lived. Greater household debt does not lead to reduced consumer spending. High household debt does not reduce consumer spending. However, Murphy (2000) expresses the concern of the policy makers who express that the rising levels of consumer debt may restrain future spending by the consumers. There has been an increase in the delinquency rates on consumer loans, record number of bankruptcy filings, and a larger portion of income is going towards payments of debts. The debt-service ratio is a significant predictor of consumer spending growth. Murphy contends that a higher debt burden would induce the lending institutions to limit the credit to these consumers thereby restricting their ability to finance additional purchases with credit. Thus expenditure would be limited to necessities. Credit card holding has steadily increased in the last twenty years (Bertaut & Haliassos, 2002). More than two-thirds of the US households had a bank-type credit card and survey revealed that majority do not pay off the complete bill each month. As such debt keeps increasing and since payments are relaxed, it has resulted in increased spending. Revolving debt is common and the median interest paid by such households with highest debts was 15 percent. Consumers do not realize the high interest they pay on credit card unpaid balances. Forty percent of the consumers perceive self control problem due to the availability of credit cards and the possibility of overspending is considered high. Credit card provides liquidity which enhances the probability of purchase and the willingness to pay for it. The global expansion of consumer credit has been described as the seeds of disaster. Consumers are least concerned whether they have the ability to pay the debt. Consumers opt for payments against credit card or take auto loan and other non-mortgage personal debt and then file for bankruptcy (Roberts, 2003). Hagenbaugh (2004) too confirms that US consumers have incurred record levels of debt as low interest rates have lured them into buying bigger houses and fancier cars and charge all of it to credit cards. The interest on home equity line of credit is low and people are increasingly using this to pay for expenses also. The increase in consumer spending is borrowed against rising house prices, says Richebacher (2005). Americans borrow beyond limits and there is no liquidity as people do not have savings. People have to rely upon the assets to satisfy the interest payments and debt repayments. Income growth in people is stagnating, in fact it is negative. Savings have been abolished but at the same time more money is going into consumer spending as free debt are available through simple loans and credit card. Americans believe that everything good comes from consumer spending. US spending habits have increased since the mid-eighties, exploded in mid-nineties and the personal savings have trickled to zero (Mudry, 2004). Consumer spending continues to grow despite decreased earnings and high unemployment rates. In 1970, 88% of the total personal disposable income was spent on personal consumption within the same year. By 2000 the spending habits escalated when 96% of the total disposable income was spent on consumer goods. US personal disposable income increased 2.5 times from 1970-2001 which represents a 250% increase in the purchasing power. Consumer spending increased by 2.75 times while the disposable income increased 2.5 times, which implies that debts increased to provide for extra consumer spending. The total personal consumption expenditures in the United States have risen almost 1100% since 1970 up to 2001. In 2001 the situation reversed. There has been a sharp decrease in spending in the last four years as reported by Wal-Mart and other retailers (Isidore, 2006). After increased pay in 2006, spending rose by just 0.1 percent in September 2006. Now once again US consumers are spending more than they are taking in every month. For every $100 in after-tax income, Americans spend $100.20. In the auto industry while most companies reported drop in sales, some did register growth over the past year. Thus it can be concluded that debt has definitely contributed to increased consumer spending and while there was a slowdown in the past after 2001, since 2006 consumer spending has again increased. 3. Culture Hofstede views culture as the mental programming of the society leadint to a definition of “the interactive aggregate of common characteristics that influences a groups response to its environment” (cited by Yeniyurt & Townsend, 2003). Culture distinguishes members of one group from another. Culture and sub-culture are the social influences in the buying decision process. Individuals in the same social class develop common behavioral pattern and have similar attitudes, values, language patterns and possessions. The accumulated values, attitude, beliefs form the culture of a society. This culture influences buying behavior (HMC). Marketers today focus on the segment rather than mass marketing. Hence products are developed according to the target group as cultural changes affect product development, promotion, pricing and distribution. Consumers evaluate products based on the information cues available. The country of origin is one of the cues as consumers are unaware of the foreign goods. Globalization and internationalization have not been able to obliterate the cultural differences and standardize consumer behavior. Every country and community has its own distinct culture and psychology. In Korea, even though globalization has been achieved through government intervention, their cultural mindset is such that consumers are still not receptive to foreign goods (Suh & Kwon, 2002). Even though global brands have emerged but different marketing strategies have to be employed across cultural and geographical boundaries. Yeniyurt and Townsend (2003) state that even after tremendous exposure to globalization consumers from different cultures have different tastes, attitudes, preferences and values and remain reluctant to buy foreign goods. They cite Kotler who affirms that consumer behavior remains diverse, they are not rational and they are not willing to change their consumer habits in favor of cheaper products available in the market. Cultural norms and beliefs are powerful forces that shape people’s perceptions, dispositions and behaviors. Consumer attitudes and significantly influenced by the cultural context of the market. Therefore the national culture has a strong effect in the adoption of new products in the country. Research suggests that coefficient of innovation is lower in countries where people accept that power is distributed unequally. Consumers e less open to new ideas and hence market penetration becomes difficult. In collectivist cultures like Korea identity is based on the social network to which one belongs. Individualistic culture like the United States demonstrate higher coefficient of innovation as individuals make their own choices. Some culture have uncertainty avoidance which makes innovation a failure. Multinational companies are opening branches globally to increase revenues. Western products like McDonalds and Coca-cola have found global markets due to media technology but this has not simultaneously homogenized the western culture. These multinationals can succeed only when they localize and adapt to the local culture. Vodafone of UK tried to sell global model of handsets in Japan but suffered a severe setback and had to introduce sets as per local needs. Hence, economic interdependence and globalization has not altered the local culture. Crossvergence results in convergence of two parent cultures in terms of macro-level variables. The ‘Euro Disney’ theme park development demonstrates how national cultural differences can impact the transferability of a successful service delivery system between situations (Hope & Mühlemann). While it was successful in Japan, the French national culture resisted foreign influence as it was seen as diluting the French way of life despite the organization incorporating some European characteristics and facilities. While the French management and workforce support quality and excellence in services, this was seen as American arrogance. The French applicants also lacked the team spirit to fit into Disney’s team culture. Labor schedules were rigid at the French Park while the same system had not caused any problems in USA. Another reason which affected the success of the Euro Disney in France was that the Mediterranean visitors tend to be impatient and attempted to jump the queues which upset the queuing sensitivities of the British visitors (Trigg & Trigg, 1995 cited by Hope & Mühlemann). This reveals that it is not merely the national culture but the divergence of culture due to diverse nationalities present in a particular situation. It also demonstrates that venturing into strange cultures can be a chastening experience. Marketers monitor social values as this provides an understanding how consumers would behave at the market place (McGregor, 2000). The national character and cultural values influence the consumers. Values define one’s needs and goals, and affects self-perception. It also indicates what one is willing to trade to get something else. Consumer values relate to the individual behavior before, during and after the buying process. Social values on the other hand reflect the core of an entire culture’s mindset shared by the society. The cultural values justify the acquisition of particular goods and services. It also stimulates interest in, desire for, acceptance and patronage of the goods and services. Consumers also are guided in the selection of the store and style of garments. Even in the age of globalization culture remains a significant factor in the acceptance of new products. It is therefore essential to take into consideration the cross-cultural differences between groups when designing marketing plans. This would enable them to make the right projections of demand and forecast sales. References: Bertaut, C. C., & Haliassos, M., (2002), Debt Revolvers for Self Control, Discussion paper, University of Cyprus. Hagenbaugh, B., (2004), Consumer debt loads at record, 18 Feb 2007 Hope, C. A. & Mühlemann, A. O. (2001), The impact of culture on best practice production/operations management, International Journal of management Reviews, Vol. 3 No. 3 pp. 199-217 HMC (n.d.), Consumer Buying Behavior, Pride-Ferrell Marketing, 18 Feb 2007 Isidore, C., (2006), Consumers hold on to their dollars, 18 Feb 2007 Kwak, H., Zinkhan, G. M., & Roushanzamir, E. P. L., (2004), Compulsive comorbidity and its psychological antecedents: a cross-cultural comparison between the US and South Korea, Journal of Consumer Marketing, Volume 21 · Number 6 · 2004 · 418–434 Lynn, M., & Harris, J., (1997), Individual Differences in the Pursuit of Self-uniqueness Through Consumption, Journal of Applied Social Psychology, 1997, 27, 21, pp. 1861-1883 McCarthy, J., (1997), Debt, Delinquencies, and Consumer Spending, Current Issues in Economic and Finance, Vol. 3 No. 3 1997 McGregor, S. L. 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D., (2004), Fashion consciousness of Chinese, Japanese and American teenagers, Journal of Fashion Marketing and Management Vol. 8 No. 2, 2004 pp. 176-186 Richebacher, K., (2005), US Consumer Spending: Consuming America, The Daily Reckoning, 18 Feb 2007 Roberts, A., (2003), Experts say companies ultimately paying for rising consumer debt, 18 Feb 2007 Roberts, J. A., (1998), Compulsive Buying Among College Students: An Investigation of Its Antedecents, Consequences, and Implications for Public Policy, The Journal of Consumer Affairs, Vol. 32, No. 2, 1998 Shoham, A., & Brencic, M. M., (2003), Compulsive Buying Behavior, Journal of Consumer Marketing, Vol. 20 No. 2 pp. 127-138 Suh, T., & Kwon, I. G., (2002), Globalization and reluctant buyers, International Marketing Review, Vol. 19 No. 6 pp. 663-680 Yeniyurt, S., & Townsend, J. D., (2003), Does culture explain acceptance of new products in a country? An empirical investigation, International Marketing Review Volume 20 Number 4 2003 pp. 377-396 Read More