CHAPTER THREE

UNDERSTANDING THE MARKET

3.1 WHAT IS MARKET?
Originally the term market consisted of a place where buyers and sellers meet to exchange
goods and services. To a marketer, a market is a group of people (actual and potential
buyers of a product) with needs or wants to satisfy, money to spend and willingness to
spend it. Thus the marketer sees the sellers as constituting the industry or competition and the
buyers as constituting the market.

The size of the market is determined by the size of buyers which is highly influenced by
consumer beliefs, prices, etc. The sellers or industry sells goods and services and communicates
to the buyers or market; in return they receive money and information. The relationship between
the industry and the market is shown in the following figure.

Communication

Industry goods and services Market

(Collection of sellers) Money (Collection of buyers)

Information
Adapted from P. Kotler, Marketing Management
3.2. Consumer market and buying behavior

Consumer buying behavior means the behavior consumers exhibit when searching for
information about product to buy, evaluate one brand against another, and when they are
using and exposing the product after using it.

In addition to a company’s marketing mix and factors present in the external environment, a
buyer is also influenced by personal characteristics and the process by which he/she makes
decisions. A buyer’s cultural characteristics, including values, perceptions, preferences, and

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behavior learned through family or other key institutions, is the most fundamental
determinant of a person’s wants and behavior. Consumer markets and consumer buying
behavior have to be understood before sound marketing plans can be developed.

Before planning its marketing, a company needs to identify its target consumers and their
decision processes. Although many buying decisions involve only one decision maker, some
decisions may involve several participants, who play such roles as initiator, influencer,
decider, buyer, and user. The marketer’s job is to identify the other buying participants, their
buying criteria, and their influence on the buyer. The marketing program should be designed to
appeal to and reach the other key participants as well as the buyer.

Based on the degree of buyer involvement and the degree of differences among brands, we
can distinguish four types of consumer buying behavior. They are:

1.Complex buying behavior: Consumers engage in complex buying behavior when they purchase
complex and expensive products in order to learn significant differences among brands.
This is the case when the product is expensive, bought infrequently, risky, and highly self-
expressive. The marketer of a high involvement product must understand high-involvement
consumers’ information gathering and evaluation behavior. Then the marketer needs to develop
strategies that assist the buyer about the product’s attributes and the relative importance of the
company’s brands. The marketer needs to differentiate the brand’s features, use print media to
describe the brand’s benefits, and motivate store sales personnel and the buyer’s acquaintances
to influence the final brand choice.
2. Dissonance-reducing buyer behavior: Sometimes the consumer is highly involved in a
purchase but sees little difference in the brands. The high involvement is based on the fact that the
purchase is expensive, infrequent, and risky. In this case, the buyer will shop around to learn that
what is available but will buy fairly quickly, perhaps responding primarily to a good price or purchase
convenience. After purchase, the consumer might experience post-purchase dissonance that stems
from noticing certain disquieting features of the product, hearing favorable things about other
product of same category. Here the marketer should furnish sufficient information to consumers
before they made purchase decision and be involved in purchase of certain product in order to eliminate
or minimize post-purchase dissonance/dissatisfaction in the purchased product.

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 3. Habitual Buying Behavior: When the product is of low cost, frequently purchased, and less
risky and when there is no significant brand differences, the involvement of consumers will be
low. They will go to the store and reach for the brand without making hard effort. If they keep
reaching for the same brand, there will not be a strong brand loyalty. In this case, consumers do not
search extensively for information about brands, evaluate their characteristics, and make a weighty
decision on which brand to buy. Instead, they are passive recipients of information as they watch TV
or see print ads. Ad repetition creates brand familiarity rather than brand conviction. Consumers do not
form a strong attitude toward a brand; rather, they select it because it is familiar. After purchase, they
may not even evaluate the choice because they are not highly involved with the product.

Marketers of low-involvement products with few brand differences find it effective to use price and
sales promotion to stimulate product trial, since buyers are not committed to any brand.

4. Variety-seeking Buying Behavior: Some buying situations are characterized by low-consumer

involvement but significant brand differences. In this case, consumers often do a lot of brand
switching. Here consumers have some beliefs about the product. Chooses a product without
much evaluation, and evaluate the product during consumption. But next time, the consumer
may reach for another brand out of boredom or a wish for a different taste. Brand switching
occurs for the sake of variety rather than dissatisfaction.
3.2.1. The buyers decision process

1. Need recognition: normally any purchase decision begins with the recognition of needs. The
need may be triggered by internal stimuli such as hunger, thirst or sex. For e.g. before
thinking about purchasing something to eat a person first should be hungered. It may also be
triggered by external stimuli for e.g. a person passes a restaurant and smell nice food that
stimulates his hunger. In this case, the stimuli are external. At this stage, the marketer should
research consumers to find out what kinds of needs or problems are associated with the
product, what factors brought them about, and how they led the consumer to this particular
product. Then they can develop marketing strategies that that trigger consumers’ interest.
2. Information Search: Information search involves listing alternatives that will solve the
problem at hand and a determination of the characteristics of each. Search can be internal
and/or external. As risk increases; the amount of information sought also increases. Once
the information search is completed, it must be determined whether the shortage or
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 unfulfilled desire can be satisfied by any alternative. The internet has become a major source
for consumer shopping information.
3. Evaluation of Alternatives: The alternatives are evaluated on the basis of the consumer’s criteria
and the relative importance of these criteria. They are then ranked and a choice made. Generally,
marketers should study buyers to find out how they actually evaluate brand alternatives. If they
know what evaluative process go on, marketers can take steps to influence the buyer’s decision.
4. Purchase Decision: The purchase act involves the exchange of money or a promise to pay
for a product, or support in return of ownership of a specific goods, the performance of a
specific and so on.
5. Post-purchase Behavior: Frequently, the consumer engages in post-purchase behavior.
Buying one item may lead to the purchase of another. Re-evaluation of the purchase occurs
when the consumer rates the alternative selected against performances standards. Cognitive
dissonance, doubt that a correct purchase decision has been made, can be reduced by follow-
up calls, extended warranties, and post-purchase advertisement.
3.2.2. Major factors influencing buying behavior
- Demographic, social, and psychological factors affect consumer decision-making
- By understanding how these factors affect decision making, a firm can fine-tune its
strategies to cater to the target market.

1. Social Factors:
A customer’s buying behavior is also influenced by social factors, such as the groups to which
the customer belongs and social status. In a group, several individuals may interact to
influence the purchase decision. The typical roles in such a group decision can be summarized as
follows:

Many small groups influence a person’s behavior. Groups that have a direct influence and to
which a person belongs are called membership groups. In contrast, reference groups serve as
direct (face-to-face) or indirect points of comparison or reference in forming a person’s
attitudes or behavior. People often are influenced by reference groups to which they do not
belong.

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Marketers try to identify the reference groups of their target markets. Reference groups expose
a person to new behaviors and lifestyles, influence the person’s attitudes and self-concept,
and create pressures to conform that may affect the person’s product and brand choices. The
importance of group influence varies across products and brands. It tends to be strongest when
the product is visible to others whom the buyer respects.

Word of Mouth Influence and Buzz Marketing. Word-of-mouth influence can have a
powerful impact on consumer buying behavior. The personal words and recommendations of
trusted friends, associates, and other consumers tend to be more credible than those coming from
commercial sources, such as advertisements or salespeople.

Buzz marketing involves enlisting or even creating opinion leaders to serve as “brand
ambassadors” who spread the word about a company’s products. Many companies now
create brand ambassador programs in an attempt to turn influential but everyday customers into
brand evangelists. A recent study found that such programs can increase the effectiveness of
word of mouth marketing efforts by as much as 50 percent.

Family: The family is an important consumer for many products which are purchased for
consumption by all family members. It is a source of major influence on the individual members’
buying behavior.

Roles: An individual may participate in many groups. His position within each group can be
defined in terms of the activities he is expected to perform. You are probably a manager, and
when in your work situation you play that role. However, at home you play the role of spouse
and parent. Thus in different social positions you play different roles. Each of these roles
influences your purchase decisions.

Status: Status is often measured by the degree of influence an individual exerts in the behavior
and attitude of others. People buy and use products that reflect their status. The managing
director of a company may drive a Mercedes to communicate his status in society.

2. Personal Factors:

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Age and life cycle stage: Like the social class the human life cycle can have a significant impact
on consumer behavior. The life cycle is an orderly series of stages in which consumer attitude
and behavioral tendencies evolve and occur because of developing maturity, experiences,
income, and status. Marketers often define their target market in terms of the consumers’ present
lifecycle stage.

People change the goods and services they buy over their lifetimes. Tastes in food, clothes,
furniture, and recreation are often age related. Buying is also shaped by the stage of the family
life cycle the stages through which families might pass as they mature over time.
Occupation: A person’s occupation affects the goods and services bought. Blue-collar workers
tend to buy more rugged work clothes, whereas executives buy more business suits. Marketers
try to identify the occupational groups that have an above-average interest in their products and
services. A company can even specialize in making products needed by a given occupational
group.
Economic Situation: A person’s economic situation will affect his or her store and product
choices. Marketers watch trends in personal income, savings, and interest rates. Following the
recent recession, most companies have taken steps to redesign, reposition, and re-price their
products.
Life Style: People coming from the same subculture, social class, and occupation may have quite
different lifestyles. Lifestyle is a person’s pattern of living as expressed in his or her
psychographics. It involves measuring consumers’ major AIO dimensions—activities (work,
hobbies, shopping, sports, social events), interests (food, fashion, family, recreation), and
opinions (about themselves, social issues, business, products). Lifestyle captures something more
than the person’s social class or personality. It profiles a person’s whole pattern of acting and
interacting in the world.

Personality: Personality is the sum total of an individual’s enduring internal psychological traits
that make him or her unique. Self-confidence, dominance, autonomy, sociability, defensiveness,
adaptability, and emotional stability are selected personality traits. People who have self-
confidence have different purchasing behavior than people who have no self-confidence.
3. Psychological Factors:

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Consumer Needs and Motivations: We all have needs we consume different goods and
services with the expectation that they will help fulfill these needs. When a need is sufficiently
pressing, it directs the person to seek its satisfaction. It is known as motive. All our needs can
be classified into two categories – primary and secondary. Primary needs or motives are
the physiological needs, which we are born with, such as the need for air, water, food,
clothing, shelter and sex. The secondary needs are our acquired needs, which we have
developed in response to the individuals’ psychological make-up and his relationship with
other members of the society.

The secondary needs many include the need for power, prestige, esteem, affection, learning,
status etc. clothing is a primary need for all of us.

Perception, Learning, Beliefs and Attitudes

3.3. Organizational market and buying behavior

Business buyer behavior refers to the buying behavior of the organizations that buy goods and
services for use in the production of other products that are sold, rented, or supplied to
others. It also includes the behavior of retailing and wholesaling firms that acquire goods to
resell or rent them to others at a profit.
Nature of the Buying Unit
Compared with consumer purchases, a business purchase usually involves more decision
participants and a more professional purchasing effort. Often, business buying is done by
trained purchasing agents who spend their working lives learning how to buy better. The more
complex the purchase, the more likely it is that several people will participate in the decision-
making process. Buying committees composed of technical experts and top management are
common in the buying of major goods. Beyond this, B-to-B marketers now face a new breed of
higher-level, better-trained supply managers. Therefore, companies must have well-trained
marketers and salespeople to deal with these well-trained buyers.
3.3.1. Characteristics of business market
a. Organizational customers purchase capital equipment, raw materials, semi-finished
goods, and other products for use in further production or operations or for resale to

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 others, whereas final consumers usually acquire the finished items for personal, family,
or household use.
b. Organizational customers are likely to require exact product specifications. Final
consumers more often buy on the basis of description, style, and color.
c. Organizational customers often use multiple-buying responsibility, in which two or
more employees formally participate in complex or expensive purchase decisions.
Final consumers employ it less frequently and less formally.
d. Organizational customers more frequently employ competitive bidding and
negotiation.

3.3.2. Organizational Buying situations

There are three major types of buying situations. At one extreme is the straight re-buy, which is a
fairly routine decision. At the other extreme is the new task, which may call for thorough
research. In the middle is the modified re-buy, which requires some research.

In a straight re-buy, the buyer reorders something without any modifications. It is usually
handled on a routine basis by the purchasing department. Based past buying satisfaction, the
buyer simply chooses. They often propose automatic reordering systems so that the purchasing
agent will save reordering time.

In a modified re-buy, the buyer wants to modify product specifications, prices, terms, or
suppliers. The modified re-buy usually involves more decision participants than does the
straight re-buy. The suppliers may become nervous and feel pressured to put their best foot
forward to protect an account. Our suppliers may see the modified re-buy situation as an
opportunity to make a better offer and gain new business. A company buying a product or
service for the first time faces a new-task situation. In such cases, the greater the cost or risk,
the larger the number of decision participants and the greater their efforts to collect
information will be. The new -task situation is the marketer’s greatest opportunity and
challenge. The marketer not only tires to reach as many key buying influences as possible but
also provides help and information.

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3.3.3. Decision making process in organizational buying
Figure 3.1 lists the eight stages of the business buying process. Buyers who face a new-task
buying situation usually go through all stages of the buying process. Buyers making modified or
straight re-buys may skip some of the stages. We will examine these steps for the typical new-
task buying situation.

Problem General need Product Supplier

recognition description Specification search

Supplier Order-routine Performance

Proposal
selection specification review
solicitation

Problem Recognition

The buying process beings when someone in the company recognizes a problem or need that can
be met by acquiring a specific product or service. Problem recognition can result from
internal or external stimuli. Internally, the company may decide to launch a new product that
requires new production equipment and materials. Or a machine may break down and need new
parts. Perhaps a purchasing manager is unhappy with a current supplier’s product quality,
service, or prices. Externally, the buyer may get some new ideas at a trade show, see an ad, or
receive a call from a salesperson who offers a better product or a lower price. In fact, in their
advertising, business marketers often alert customers to potential problems and then show how
their products provide solutions.

General Need Description

Having recognized a need, the buyer next prepares a general need description that describes
the characteristics and quantity of the needed item. For standard items, this process presents
few problems. For complex items, however, the buyer may have to work with others –
engineers, users, consultants – to define the item. The team may want to rank the importance
of reliability, durability, price, and other attributes desired in the item. In this phase, the alert

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business marketer can help the buyers define their needs and provide information about the value
of different product characteristics.

Product Specification

The buying organization next develops the item’s technical product specifications, often with
the help of a value analysis engineering team. Value analysis is an approach to cost reduction
in which components are studied carefully to determine if they can be redesigned,
standardized, or made by less costly methods of production. The team decides on the best
product characteristics and specifies them accordingly. Sellers, too, can use value analysis as a
tool to help secure a new account. By showing buyers a better way to make an object, outside
sellers can turn straight re-buy situations into new-task situations that give them a chance to
obtain new business.

Supplier Search

The buyer now conducts a supplier search to find the best vendors. The buyers can compile a
small list of qualified suppliers by reviewing trade directories, doing a computer search, or
phoning other companies for recommendations. Today, more and more companies are turning to
the internet to find suppliers. For marketers, this has leveled the playing field – the Internet gives
smaller suppliers many of the same advantages as larger competitors.

Proposal Solicitation

In the proposal solicitation stages of the business buying process, the buyer invites qualified
suppliers to submit proposals. In response, some suppliers will spend only a catalog or a
salesperson. However, when the item is complex or expensive, the buyer will usually require
detailed written proposals or formal presentations from each potential supplier.

Business marketers must be skilled in researching, writing, and presenting proposals in response
to buyer proposal solicitations. Proposals should be marketing documents, not just technical
documents. Presentations should inspire confidence and should make the marketer’s company
stand out from the competition.

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Supplier Selection

The members of the buying center now review the proposals and select a supplier or
suppliers. During supplier selection, the buying center often will draw up a list of the desired
supplier attributes and their relative importance. Other important factors include repair and
servicing capabilities, technical aid and advice, geographic location, performance history, and
reputation. The members of the buying center will rate suppliers against these attributes and
identify the best suppliers.

Buyers may attempt to negotiate with preferred suppliers for better prices and terms before
making the final selections. In the end, they may select a single supplier or a few suppliers. Many
buyers prefer multiple sources of supplies to avoid being totally dependent on one supplier and
to allow comparisons of prices and performance of several suppliers over time. Today’s supplier
developments managers want to develop a full network of supplier partners that can help the
company bring more value to its customers.

Order-Routine Specification

The buyer now prepares an order-routine specification. It includes the final order with the
chosen supplier or suppliers and lists items such as technical specifications, quantity
needed, expected time of delivery, return policies, and warranties. In the case of
maintenance, repair, and operating items, buyers may use blanket contracts rather than periodic
purchase orders. A blanket contract creates a long-term relationship in which the supplier
promises to resupply the buyer as needed at agreed prices for a set time period. A blanket order
eliminates the expensive process of renegotiating a purchase each time that stock is required. It
also allows buyers to write more, but smaller, purchase orders, resulting in lower inventory
levels and carrying costs.

Performance Review

In this stage, the buyer reviews supplier performance. The buyer may contract users and ask
them to rate their satisfaction. The performance review may lead the buyer to continue,
modify, or drop the arrangement. The seller’s job is to monitor the same factors used by the
buyer to make sure that the seller is giving the expected satisfaction.

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We have described the stages that typically would occur in a new-task buying situation. The
eight-stage model provides a simple view of the business buying-decision process. The actual
process is usually much more complex. In the modified re-buy or straight re-buy situation, some
of these stages would be compressed or bypassed. Each organization buys in its own way, and
each buying situation has unique requirements.

3.3.4. Factors influencing organizational buying Decision

Environmental Factors

Business buyers are influenced heavily by factors in the current and expected economic
environment, such as the level of primary demand, the economic outlook, and the cost of money.
As economic uncertainty rises, business buyers cut back on new investments and attempt to
reduce their inventories.

An increasingly important environmental factor is shortages in key materials. Many companies

now are more willing to buy and hold larger inventories of scarce materials to ensure adequate
supply. Business buyers also are affected by technological, political, and competitive
developments in the environment. Culture and customs can strongly influence business buyer
reactions to the marketer’s behavior and strategies, especially in the international marketing
environment. The business marketer must watch these factors, determine how they will affect the
buyer, and try to turn these challenges into opportunities.

Organizational Factors
Each buying organization has its own objectives, policies, procedures, structure, and systems,
and the business marketer must understand these factors well. Questions such as these arise:
How many people are involved in the buying decision? Who are they? What are their
evaluative criteria? What are the company’s policies and limits on its buyers?

Interpersonal Factors
The buying center usually includes many participants who influence each other, so interpersonal
factors also influence the business buying process. However, it is often difficult to assess such

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interpersonal factors and group dynamics. Managers do not wear labels that identify them as
important or unimportant buying center participants, and powerful influencers are often buried
behind the scenes. Nor does the highest-ranking buying center participant always have the most
influence. Participants may influence the buying decision because they control rewards and
punishments, are well liked, have special expertise, or have a special relationship with other
important participants. Interpersonal factors are often very subtle. Whenever possible, business
marketers must try to understand these factors and design strategies that take them into account.

Individual Factors
Each participant in the business buying-decision process brings in personal motives,
perceptions, and preferences. These individual factors are affected by personal characteristics
such as age, income, education, professional identification, personality, and attitudes toward risk.
Also, buyers have different buying styles. Some may be technical types who make in-depth
analyses of competitive proposals before choosing a supplier. Other buyers may be intuitive
negotiators who are adept at pitting the sellers against one another for the best deal.

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