Pricing And The Psychology Of Consumption Hbr Pdf

pricing and the psychology of consumption hbr pdf

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Consumer behaviour is the study of individuals, groups, or organizations and all the activities associated with the purchase , use and disposal of goods and services , and how the consumer 's emotions, attitudes and preferences affect buying behaviour.

Consumers undertake many journeys in pursuit of large and small life goals and in response to various opportunities, obstacles, and challenges.

Alford Professor of Law. Stanford's James March has become a leading business thinker of our time while arguing that the elegance of an idea may be more important than its relevance. Age and life cycle has a great impact on buying behaviour. But for measuring national success, it has long been pretty much the only thing other than, of course, sports.

Harvard Business Review Behavioural Economics

Consumer behaviour is the study of individuals, groups, or organizations and all the activities associated with the purchase , use and disposal of goods and services , and how the consumer 's emotions, attitudes and preferences affect buying behaviour.

Consumer behaviour emerged in the s and 50s as a distinct sub-discipline of marketing , but has become an inter-disciplinary social science that blends elements from psychology , sociology , social anthropology , anthropology , ethnography , marketing and economics especially behavioural economics. The study of consumer behaviour formally investigates individual qualities such as demographics , personality lifestyles, and behavioural variables such as usage rates, usage occasion, loyalty , brand advocacy , and willingness to provide referrals , in an attempt to understand people's wants and consumption.

Also investigated are the influences on the consumer, from groups such as family, friends, sports, and reference groups, to society in general, including brand-influencers and opinion leaders. Research has shown that consumer behaviour is difficult to predict, even for experts in the field; however, new research methods, such as ethnography , consumer neuroscience , and machine learning [1] are shedding new light on how consumers make decisions.

In addition, customer relationship management CRM databases have become an asset for the analysis of customer behaviour. The voluminous data produced by these databases enables detailed examination of behavioural factors that contribute to customer re-purchase intentions, consumer retention , loyalty and other behavioural intentions such as the willingness to provide positive referrals, become brand advocates or engage in customer citizenship activities.

Databases also assist in market segmentation , especially behavioural segmentation such as developing loyalty segments, which can be used to develop tightly targeted, customized marketing strategies on a one-to-one basis. Also see relationship marketing.

See: History of marketing thought. In the s and 50's, marketing was dominated by the so-called classical schools of thought which were highly descriptive and relied heavily on case study approaches with only occasional use of interview methods.

At the end of the s, two important reports criticised marketing for its lack of methodological rigor, especially the failure to adopt mathematically-oriented behavioural science research methods.

From the s, marketing began to shift its reliance away from economics and towards other disciplines, notably the behavioural sciences, including sociology , anthropology and clinical psychology. This resulted in a new emphasis on the customer as a unit of analysis. As a result, new substantive knowledge was added to the marketing discipline — including such ideas as opinion leadership , reference groups and brand loyalty.

Market segmentation , especially demographic segmentation based on socioeconomic status SES index and household life-cycle, also became fashionable. With the addition of consumer behaviour, the marketing discipline exhibited increasing scientific sophistication with respect to theory development and testing procedures. In its early years, consumer behaviour was heavily influenced by motivation research, which had increased the understanding of customers, and had been used extensively by consultants in the advertising industry and also within the discipline of psychology in the s, '30s and '40s.

By the s, marketing began to adopt techniques used by motivation researchers including depth interviews, projective techniques, thematic apperception tests and a range of qualitative and quantitative research methods.

Consumer behaviour entails "all activities associated with the purchase, use and disposal of goods and services, including the consumer's emotional, mental and behavioural responses that precede or follow these activities.

Consumer responses may be: [9]. Definition of Consumer Behaviour According to American Marketing Association , consumer behaviour can be defined as "the dynamic interaction of affect and cognition, behaviour, and environmental events by which human beings conduct the exchange aspects of their lives. As a field of study, consumer behaviour is an applied social science. Consumer behaviour analysis is the "use of behaviour principles, usually gained experimentally, to interpret human economic consumption.

Understanding purchasing and consumption behaviour is a key challenge for marketers. Consumer behaviour, in its broadest sense, is concerned with understanding both how purchase decisions are made and how products or services are consumed or experienced.

Consumers are active decision-makers. They decide what to purchase, often based on their disposable income or budget. They may change their preferences related to their budget and a range of other factors. Some purchase decisions involve long, detailed processes that include extensive information search to select between competing alternatives.

Some purchase decisions are made by groups such as families, households or businesses while others are made by individuals. When a purchase decision is made by a small group, such as a household, different members of the group may become involved at different stages of the decision process and may perform different roles. For example, one person may suggest the purchase category, another may search for product-related information while yet another may physically go to the store, buy the product and transport it home.

It is customary to think about the types of decision roles; such as:. For most purchase decisions, each of the decision roles must be performed, but not always by the same individual. The importance of children as influencers in a wide range of purchase contexts should never be underestimated and the phenomenon is known as pester power.

To approach the mental processes used in purchasing decisions, some authors employ the concept of the black box , which represents the cognitive and affective processes used by a consumer during a purchase decision. The decision model situates the black box in a broader environment which shows the interaction of external and internal stimuli e. The decision model assumes that purchase decisions do not occur in a vacuum.

Rather, they occur in real time and are affected by other stimuli, including external environmental stimuli and the consumer's momentary situation. The elements of the model include: interpersonal stimuli between people or intrapersonal stimuli within people , environmental stimuli and marketing stimuli. In addition, the buyer's black box includes buyer characteristics and the decision process, which influence the buyer's responses.

The black box model considers the buyer's response as a result of a conscious, rational decision process, in which it is assumed that the buyer has recognized a problem, and seeks to solve it through a commercial purchase. In practice some purchase decisions, such as those made routinely or habitually, are not driven by a strong sense of problem-solving. Such decisions are termed low-involvement and are characterized by relatively low levels of information search and evaluation activities.

In contrast, high involvement decisions require a serious investment of time and effort in the search and evaluation process. High involvement products are those that carry higher levels of risk and are often expensive, infrequent purchases. The consumer buying process is usually depicted as consisting of 5 distinct stages: [21]. The purchase decision begins with the problem recognition stage, which occurs when the consumer identifies a need, typically defined as the difference between the consumer's current state and their desired state.

The strength of the need drives the entire decision process. Information search is the phase where consumers scan both their internal memory and external sources for information about products or brands that will potentially satisfy their need. The aim of the information search is to identify a list of options that represent realistic purchase options. Throughout the entire process, the consumer engages in a series of mental evaluations of alternatives, searching for the best value.

Towards the end of the evaluation stage, consumers form a purchase intention, which may or may not translate into an actual product purchase. The stages of the decision process normally occur in a fixed sequence.

The first stage of the purchase decision process begins with problem recognition also known as category need or need arousal. This is when the consumer identifies a need, typically defined as the difference between the consumer's current state and their desired or ideal state.

A simpler way of thinking about problem recognition is that it is where the consumer decides that he or she is 'in the market' for a product or service to satisfy some need or want. The strength of the underlying need drives the entire decision process. Theorists identify three broad classes of problem-solving situation relevant for the purchase decision: [24]. Consumers become aware of a problem in a variety of ways including: [25].

During the information search and evaluation stages, the consumer works through processes designed to arrive at a number of brands or products that represent viable purchase alternatives. Typically consumers first carry out an internal search that is, a scan of memory for suitable brands. The evoked set is the set of brands that a consumer can elicit from memory and is typically a very small set of some 3- 5 alternatives. The readiness of information availability has raised the informedness of the consumers; the degree to which they know what is available in the marketplace, with precisely which attributes and at precisely what price.

The fact that a consumer is aware of a brand does not necessarily mean that it is being considered as a potential purchase. For instance, the consumer may be aware of certain brands, but not favourably disposed towards them known as the inept set.

Such brands will typically be excluded from further evaluation as purchase options. For other brands, the consumer may have indifferent feelings the inert set. Traditionally, one of the main roles of advertising and promotion was to increase the likelihood that a brand name was included in the consumer's evoked set. In practice, the consideration set has assumed greater importance in the purchase decision process because consumers are no longer totally reliant on memory.

This means that a need is built for a consumer, with the product presented or advertised to them through an analytical study of the user's patterns of consumption, and their behaviors and habits. The implication for marketers is that relevant brand information should be disseminated as widely as possible and included on any forum where consumers are likely to search for product or brand information, whether traditional media or digital media channels.

Thus, marketers require a rich understanding of the typical consumer's touchpoints. Consumer evaluation can be viewed as a distinct stage. Alternatively, evaluation may occur continuously throughout the entire decision process. Consumers evaluate alternatives in terms of the functional also called utilitarian and psycho-social also called the value-expressive or the symbolic benefits offered. Brand image or brand personality is an important psycho-social attribute. Consumers can have both positive and negative beliefs about a given brand.

Social media, on the other hand, is a two-way street that gives you the ability to communicate too. Consumers who are less knowledgeble about a category tend to evaluate a brand based on its functional characteristics. However, when consumers become more knowledgeable, functional attributes diminish and consumers process more abstract information about the brand, notably the self-related aspects.

Marketing Consumer Behavior As a sales marketer, vital that you understand and control your consumer behavior so that you make and formulate the right strategies at the right time. According to HubSpot. In the article, economist shares their theories on how to control and study how people spend their money. The psychological state of ones' mind contributes heavily to what they buy White. Studying consumer behavior as a marketing method started in early , shifting the market's focus from economic oriented to other areas like psychology and sociology.

The article also discusses the various school of thought on how to control customers spending. Later in that article, White also outlines some consumer behavior strategies from various expert economists around the world.

The marketing organization needs a deep understanding of the benefits most valued by consumers and therefore which attributes are most important in terms of the consumer's purchase decision. It also needs to monitor other brands in the customer's consideration set to optimise planning for its own brand.

During the evaluation of alternatives, the consumer ranks or assesses the relative merits of different options available. No universal evaluation process is used by consumers across all-buying situations. Social media further enables consumers to share views with their peers about the product they are looking to purchase.

Thus the relevant evaluation attributes vary according to across different types of consumers and purchase contexts. For example, attributes important for evaluating a restaurant would include food quality, price, location, atmosphere, quality of service and menu selection.

Consumers, depending on their geographic, demographic, psychographic and behavioural characteristics, will decide which attributes are important to them. Potential patrons seeking a hedonic dining experience may be willing to travel further distances to patronise a fine-dining venue compared to those wanting a quick meal at a more utilitarian eatery.

After evaluating the different product attributes, the consumer ranks each attribute or benefit from highly important to least important.

Consumer behaviour

Most executives know how pricing influences the demand for a product, but few of them realize how it affects the consumption of a product. In this article, the authors argue that the relationship between pricing and consumption lies at the core of customer strategy. The extent to which a customer uses a product during a certain time period often determines whether he or she will buy the product again. So pricing tactics that encourage people to use the products they've paid for help companies build long-term relationships with customers. The link between pricing and consumption is clear: People are more likely to consume a product when they are aware of its cost. But for many executives, the idea that they should draw consumers' attention to the price that was paid for a product or service is counterintuitive.

This summary was proudly brought to you by Maria…. Pricing affects consumption: People are more likely to consume a product when they are aware of its cost. Common pricing practices such as advance sales, season tickets, price bundling all serve to mask how much a buyer has spent on a given product — decreasing the likelihood that the buyer will use it. People are more likely to consume a product if they are aware of its cost. Consumption is driven not so much by the actual cost of a paid-for product as by its perceived cost. Some pricing policies highlight the perceived cost of paid-for product while other pricing policies mask the cost.

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Pricing and the Psychology of Consumption

Below are the available bulk discount rates for each individual item when you purchase a certain amount. Publication Date: September 01, Most executives know how pricing influences the demand for a product, but few of them realize how it affects the consumption of a product.

Below are the available bulk discount rates for each individual item when you purchase a certain amount. Publication Date: September 01, Most executives know how pricing influences the demand for a product, but few of them realize how it affects the consumption of a product. In this article, the authors argue that the relationship between pricing and consumption lies at the core of customer strategy. The extent to which a customer uses a product during a certain time period often determines whether he or she will buy the product again.

Consumer behaviour

It also guides the way buyers use your product or service—and that can have a lasting impact on customer relationships. Why should you care if your customers actually use your products?

Focus on journeys

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Pricing drives perceptions of cost. Our research also suggests that consumption is driven not so much by the actual cost of a paid-for product as by its perceived.

Frontino D. L. V.

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