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Consumer Durables Industry -- An Overview

Before the liberalization of the Indian economy, only a few companies like

Kelvinator, Godrej, Alwyn, and Voltas were the major players in the consumerdurables market, accounting for no less than 90% of the market. Then, after the

liberalization, foreign players like LG, Sony, Samsung, Whirlpool, Daewoo, and

Aiwa came into the picture. Today, these players control the major share of the

consumer durables market.

The market share of MNCs in consumer durables sector is 65 per cent. MNC's major

target is the growing middle class of India. MNCs offer superior technology to the

consumers whereas the Indian companies compete on the basis of firm grasp of the

local market, their well acknowledged brands, and hold over wide distribution

network.

The Indian Consumer Durables segment can be segmented into three groups:

White goods Brown goods Consumer electronics

Air conditioners

Refrigerators

Washing Machines

Sewing Machines

Watches and clocks

Cleaning equipment

Other domestic appliances

Microwave Ovens

Cooking Range

Chimneys

Mixers

Grinders

Electronic fans

Irons

TVs

Audio and video

systems

Electronic

accessories

PCs

Mobile phones

Digital cameras

DVDs

Camcoders

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Key Industry Dynamics

Industry Size: Rs. 350bn

Key Categories: White Goods, Brown goods and Consumer electronics.

Competitive landscape: Dominated by Korean majors like LG and Samsung in most

of the segments

Margin Profile: Low margin, dependant on volumes

Growth opportunities: Lower penetration coupled with increasing disposable

income

Market Size

Consumer

Durables

Market Size (2010) Mn units (2011) Growth (%)

Refrigerator 9.0 12.0 33

Washing Machines 5.0 6.0 20

Air Conditioners 3.4 4.4 29

Source: CEAMA, MOSPI, GEPL Capital Research

Indias consumer electronics devices market, defined as the addressable market for

computing devices, mobile handsets and AV products in 200910 is estimated to be

US$ 6.28 billion, indicating a growth of 18 per cent over the previous year. It is

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projected at about US$29.4bn in 2011. This is expected to increase to US$52.6bn by

2015, driven by rising incomes and growing affordability.

Spending on consumer electronics devices is projected to grow at an overall CAGR of

12 per cent through 2015, with the key segments including low-cost mobile handsets,

colour TVs, set-top boxes and notebook computers. Only nine out of 1,000 people in

India own a computer, one-fifth of the level in China, while Indian handset population

penetration is about 57 per cent.

Among consumer electronics, 21-inch colour TV continues to dominate the market

with a 65 per cent share. Computers accounted for about 32 per cent of Indian

consumer electronics spending in 2010. BMI forecasts Indian domestic market

computer hardware sales (including notebooks and accessories) of US$9.5bn in 2011,

up from US$8.4bn in 2010. Sales were up by as much as one-third in 2010 compared

with the previous year. With PC penetration of around 2 per cent, the computer

hardware compound annual growth rate (CAGR) for the 2011-2015 will be about 15

per cent.

Indias domestic video, audio and gaming device market is expected to grow to a

value of US$21.7bn in 2015. TV will remain the core product in this category, with

sports events such as the 2011 ICC Cricket World Cup driving demand for TV set

upgrades. LCD TV set sales are projected to pass 3.7mn in 2011, while vendors also

report strong growth in the LED TV set segment.

Market Analysis

The market for consumer durables has expanded over the years. The household

income of Indian houses has experienced significant improvement in the past decades

and as a result the demand for durables has also risen. The current projection shows

that household income of the population in top 20 cities of India is expected to grow

by 10 per cent in the coming years. This is likely to increase the demand for consumer

products as well.

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The middle income group section (household with disposable income between 200,

000 to 1, 000,000) which currently constitutes 5 per cent of the population is expected

to become 41 per cent by 2025. Rural poverty is expected to decline to 26 per cent by

2025. All these factors are expected to contribute towards improving the market

scenario for consumer durables.

The market has recently experienced around 30 per cent growth rate in demand for

electronics and home appliances. Categories like Flat panel TVs, Microwave ovens,

Air Conditioners and Refrigerators are likely to post strong growth. Urban growth is

likely to be driven by new technology/innovative products, lifestyle products and

replacement demand such as LED TVs, Laptops, Split ACs, etc. Rural markets are

likely to outpace growth in the urban markets led by increasing penetration across

categories such as Refrigerators and Washing machines.

Some of the factors that have promoted the growth of the industry are:

Changed lifestyle Higher disposable income Changed taste Affordable prices Boom in housing and real estate industry Widened market- expansion of rural market Increased scope for advertising Easy financing- zero interest EMI

Easy loans and credit card purchases Festival deals and discounts

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4. Growth drivers

Key growth drivers include:

Continued economic growth demonstrated through 8.4% CAGR growth inGDP over last 5 years

Favourable demographics; 64% of the population in working age category Increasing Urbanization, nuclear families Increase in disposable incomes; which drives consumption Increasing affordability coupled with declining prices of products Lower consumer product penetration Availability of new products and technologies, Easy financing schemes and Increase in organized retail

CHALLENGES AND OPPORTUNITIES

Key Challenges

Intense competition among players - leading to higher ad spends and lesserpricing power, thereby lowering margins

Increase in raw material prices major raw materials (metals) are exhibitingincreasing trend posing margin pressures; however, shift in product mix to partially

offset increase in input costs over the medium term

Changes in technology - making product lifecycles short Rural distribution - availability of products to masses is difficult as 68 per centof Indias population still lives in rural areas.

Entry of cheap products - as private labels in organized retail

Challenges

Heavy taxation in the country is one of the challenges for the players. At its present

structure the total tax incidence in India even now stands at around 25-30 per cent,

whereas the corresponding tariffs in other Asian countries are between 7 and 17 per

cent.

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About 65 per cent of Indian population that lives in its villages still remains relevant

for some consumer durables companies. This India, at least a large proportion of its

constituents, still buys black and white TVs and doesn't know what flat screens are.

Also, foraying into these rural markets has a considerable cost component attached to

it.

Companies not only have to set up the basic infrastructure in terms of office space,

manpower, but also spend on transportation for moving inventory. Even LG and

Samsung, which are touted as having the largest distribution network in the country,

have a direct presence only in 15,000 to 18,000 of the around 40,000 retail outlets (for

consumer durables) in the country.

Poor infrastructure is another reason that seems to have held back the industry.

Regular power supply is imperative for any consumer electronics product. But that

remains a major hiccup in India.

Opportunities

The rising rate of growth of GDP, rising purchasing power of people with higher

propensity to consume with preference for sophisticated brands would provide

constant impetus to growth of white goods industry segment.

Penetration of consumer durables would be deeper in rural India if banks and

financial institutions come out with liberal incentive schemes for the white goods

industry segment, growth in disposable income, improving lifestyles, power

availability, low running cost, and rise in temperatures.

While the consumer durables market is facing a slowdown due to saturation in the

urban market, rural consumers should be provided with easily payable consumer

finance schemes and basic services, after sales services to suit the infrastructure and

the existing amenities like electricity, voltage etc.

Currently, rural consumers purchase their durables from the nearest towns, leading toincreased expenses due to transportation. Purchase necessarily done only during the

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harvest, festive and wedding seasons April to June and October to November in

North India and October to February in the South, believed to be months `good for

buying, should be converted to routine regular feature from the seasonal character.

Rural India that accounts for nearly 70% of the total number of households, has a 2%

penetration in case of refrigerators and 0.5% for washing machines, offers plenty of

scope and opportunities for the white goods industry. The urban consumer durable

market for products including TV is growing annually by 7 to 10 % whereas the rural

market is zooming ahead at around 25 % annually.

According to survey made by industry, the rural market is growing faster than the

urban India now. The urban marketis a replacement and up gradation market now.

The increasing popularity of easily available consumer loans and the expansion of

hire purchase schemes will give a moral boost to the price-sensitive consumers. The

attractive schemes of financial institutions and commercial banks are increasingly

becoming suitable for the consumer. Consumer goods companies are themselves

coming out with attractive financing schemes to consumers through their extensive

dealer network. This has a direct bearing on future demand.

The other factor for surging demand for consumer goods is the phenomenal growth of

media in India. The flurry of television channels and the rising penetration of cinemas

will continue to spread awareness of products in the remotest of markets.

The vigorous marketing efforts being made by the domestic majors will help the

industry. The Internet now used by the market functionaries that will lead to

intelligence sales of the products. It will help to sustain the demand boom witnessed

recently in this sector. The ability of imports to compete is set to rise. However, the

effective duty protection is still quite high at about 35-40 per cent. So, a flood of

imports is unlikely and would be rather need based.

Reduction in import duties may significantly lower prices of products such as

microwave ovens, whose market size is quite small in India. Otherwise, local

manufacturing will continue to stay competitive. At the same time, there will be some

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positive benefits in the form of reduction in input costs. Washing machines and

refrigerators will also benefit from lower input costs.

Rural Markets offer a big opportunity

Rural Consumer durables markets is growing by 30 per cent currently,expected to grow by 45 per cent in FY12

Approximately 69 per cent population resides in rural India yet only 35 percent sales is contributed by rural markets. However, this sales contribution is

expected to increase to ~45 per cent in near future.

Rural markets are expected to post much faster growth than urban markets inmedium term led by

o Increasing rural Income with higher contribution from non farmincome.

o Miniscule penetration (5-7 per cent) in many product categoriesgenerating demand from first time buyers

o Increased distribution reach of consumer durable companieso Customized products for rural consumerso Product awareness through advertisingo Growth is mainly contributed by first time buyers of products unlike

replacement demand in urban markets

Improved rural infrastructure, agricultural reforms, power availability willboost growth going forward.

Entry of private labels in rural market may fuel competition.

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Company Profiles

LG India

LG Electronics was established on October 1, 1958 (As a private Company) and in

1959, LGE started manufacturing radios, operating 77 subsidiaries around the world

with over 72,000 employees worldwide it is one of the major giants in the consumer

durable domain worldwide. The company has as many as 27 R & D centers and 5

design centers. Its global leading products include residential air conditioners, DVD

players, CDMA handsets, home theatre systems and optical storage systems.

Samsung India

Samsung India commenced its operations in India in December 1995, today enjoys a

sales turnover of over US$ 1 billion in just a decade of operations in the country.

Samsung design centres are located in London, Los Angeles, San Francisco, Tokyo,

Shanghai and Romen. Samsung India has its headquartered in New Delhi and has a

network of 19 Branch Offices located all over the country. The Samsung

manufacturing complex housing manufacturing facilities for Colour Televisions,

Colour Monitors, Refrigerators and Washing Machines is located at Noida, near

Delhi. Samsung Made in India products like Colour Televisions, Colour Monitors

and Refrigerators are being exported to Middle East, CIS and SAARC countries from

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its Noida manufacturing complex. Samsung India currently employs over 1600

employees, with around 18% of its employees working in Research & Development.

Whirlpool India

Whirlpool was established in 1911 as first commercial manufacturer of motorized

washers to the current market position of being world's number one manufacturer and

marketer of major home appliances. The parent company is headquartered at Benton

Harbor, Michigan, USA with a global presence in over 170 countries and

manufacturing operation in 13 countries with 11 major brand names such as

Whirlpool, KitchenAid, Roper, Estate, Bauknecht, Laden and Ignis. Today, Whirlpool

is the most recognized brand in home appliances in India and holds a market share of

over 25 per cent. The company owns three state-of-the-art manufacturing facilities at

Faridabad, Pondicherry and Pune.

Godrej India

Godrej India was established in 1897, the Company was incorporated with limited

liability on March 3, 1932, under the Indian Companies Act, 1913. The Company is

one of the largest privately-held diversified industrial corporations in India. The

Company has a network of 38 Company-owned Retail Stores, more than 2,200

Wholesale Dealers, and more than 18,000 Retail Outlets. The Company has

Representative Offices in Sharjah (UAE), Nairobi (Kenya), Colombo (Sri Lanka),

Riyadh (Saudi Arabia) and Guangzhou (China-PRC).

Sony India

Sony Corporation, Japan, established its India operations in November 1994. In India,

Sony has its distribution network comprising of over 7000 channel partners, 215 Sony

World and Sony Exclusive outlets and 21 direct branch locations. The company also

has presence across the country with 21 company owned and 172 authorized service

centres.

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Hitachi India

Hitachi India Ltd (HIL) was established in June 1998 and engaged in marketing and

sells a wide range of products ranging from Power and Industrial Systems, Industrial

Components & Equipment, Air Conditioning & Refrigeration Equipment to

International Procurement of software, materials and components. Some of HILs

product range includes Semiconductors and Display Components. It also supports the

sale of Plasma TVs, LCD TVs, LCD Projectors, Smart Boards and DVD Camcorders.

POLICY AND INITIATIVES

Foreign investment up to 100 per cent is possible in the Indian consumer electronics

industry to set up units exclusively for exports. It is now possible to import duty-free

all components and raw materials, manufacture products and export it.

EHTP (Electronic Hardware Technology Park) is an initiative to provide benefits to

companies that are replacing certain imports with local manufacturing. EHTP benefits

include export credits, no duties on imported components or capital equipment,

business tax incentives, and an expedited import-export process.

The government, in an attempt to encourage manufacture of electronics in India has

changed the tariff structure significantly.

Customs duty on Information Technology Agreement (ITA-1) items (217 items) has

been abolished from March 2005. All goods required in the manufacture of ITA-1

items are exempt from customs duty. Customs duty on specified raw materials / inputs

used for manufacture of electronic components or optical fibres / cables has been

removed. Customs duty on specified capital goods used for manufacture of electronic

goods has been abolished. Excise duty on computers has been removed.

Microprocessors, hard disc drives, floppy disc drives and CD ROM drives continue to

be exempt from excise duty.

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Intellectual Property Rights

Protection of Intellectual property rights (IPR) is a prime requisite for development of

R&D and innovation in the consumer electronics sector. The Government of India has

developed a robust IP act to facilitate innovation, growth and development. Several

amendments to the Copyright Act, creation of a new Trademark Act, a new Designs

Act and amendments to the Patents Act show Indias continued effort to protect IPR.

The country has already made several changes in its IP acts over the years.. Several

amendments to the Copyright Act, creation of a new Trademark Act, a new Designs

Act and amendments to the Patents Act show Indias desire to change and adapt. New

acts have also been enacted to cover semiconductors and layout designs which will be

of considerable importance to the electronic industry.

In the current WTO regime, India is a party to the Trade Related Aspects of the

Intellectual Properties (TRIPs) Agreement and has accordingly, amended most of its

IPR Acts and Rules to conform to the said Agreement. The Indian Copyright Act

1957 was amended in 1999; the patent Act 1970 was amended in 1999 & 2003 and

Trademarks and Merchandise Marks Act 1959 was overtaken by a new Trademark

Act 1999. The Industrial Design Act 1911 was effectively replaced by The Design

Act 2000, and the Layout Design of Semiconductor integrated Circuit Act 2000 was

enacted.

The agreement on TRIPs takes care of the intellectual property rights by enforcing the

patent rights, copy rights and related rights, and the protection of industrial designs,

trademarks, geographical indications, layout designs of integrated circuits and

undisclosed information. Accordingly, the member nations are asked to modify their

existing laws. Once these laws come into force, unauthorized use of the patented

innovations, trademarks, etc. becomes difficult. Enforcement of the TRIPs agreement

makes the production of any product possible either through internal innovation or

through formal transfer of technologies.

The consumer electronics and durables sector is expected to continue to benefit from

supportive policies and become globally competitive.

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Regulations

Free Trade Agreement

WTO regime which came in force in 2005, results in zero customs duty on imports of

all telecom equipment. 217 IT/electronic items were covered under the Information

Technology Agreement (ITA) of the WTO for complete customs tariff elimination by

2005.

Out of these 217 items, several items were already at NIL customs duty. In fact,

IT/electronics was the first sector in India to face complete customs tariff elimination.

The ITA-1 would result in intensifying competition as more imported products will be

easily available at lower prices.

Foreign Investment Policy: FDI

Foreign investment up to 100 per cent is allowed in Indian electronics industry set up

exclusively for exports. The units set up under these programmes are bonded factories

eligible to import, free of duty, their entire requirements of capital goods, raw

materials and components, spares and consumables, office equipment etc. Deemed

export benefits are available to suppliers of these goods from the Domestic Tariff

Area (DTA).

A part of the production from such units is permitted to be sold in the DTA depending

upon the level

of the value addition achieved. The FDI approval for electrical equipment (including

computer software and electronics) from April 2000 to January 2010 was US$ 21.24

billion, which was 2.01 per cent of the total Foreign Direct Investment (FDI)

approved. During the same period the FDI inflow for electrical equipment (including

computer software and electronics) was US$ 96.30 billion.

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Procedure for approval

Once the investment in equity has been approved, the import of capital goods,

components and raw materials or the engagement of foreign technicians for short

duration does not require any additional approvals. Approval of Ministry of Home

Affairs is not needed for hiring foreign nationals holding valid employment visa.

Approval for setting up units in Export Processing Zones (EPZs) is given by the

Board of Approvals in the Ministry of Commerce. Approval for setting up export-

oriented units (EOUs) outside the zones is given by the Ministry of Industry.

Approvals for setting up Electronic Hardware Technology Park (EHTP) and Software

Technology Park (STP) units are cleared by the Inter Ministerial Standing Committee

(IMSC) set-up under the Chairmanship of the Secretary, Department of Information

Technology.

Proposals involving foreign direct investment not covered under the automatic route

are considered by the Foreign Investment Promotion Board (FIPB).

FDI/ Foreign Technology Collaboration Agreement

The government facilitates FDI and investment from Non- Resident Indians (NRIs)

including Overseas Corporate Bodies (OCBs), predominantly owned by them, to

complement and supplement domestic investment. Foreign technology induction is

encouraged through FDI and foreign technology collaboration agreements. FDI and

foreign technology collaborations are approved through automatic route by the

Reserve Bank of India.

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White Goods

Heavy consumer durables such as air conditioners, refrigerators, stoves, etc., which

used to be painted only in white enamel finish. Despite their availability in varied

colors now, they are still called white goods.

White Goods Industry

The white goods segment covers goods like refrigerators, washing machines and air

conditioners. Leading players LG, Samsung, Whirlpool have concerned nearly 70 per

cent of the market now. This is a sea change from 5-6 years ago when BPL and

Videocon had a fair share of the cake.

Refrigerators:

In India refrigerator production commenced in early 60s, mostly the conventional

single door. (Direct cool) models with glass, wood insulation and external condenser

coils at the back. The frost free models came into existence in 1994-95. Videocon was

the first company to introduce frost free models in India. The competition rose from

then onwards. Right now, the consumers have over 15 brands with more than 100

models to choose from. The direct cool segment accounts fro 85 per cent of themarketer while the FF models cover the rest. The price difference between the two

varies between Rs 6000 to 9000. The 165 Liter model has traditionally been a hit with

Indian consumers (nearly 70% market share). Now customers are slowly shifting to

185-225 Liter category. However, it continues to dominate the FF segment with over

50 per cent share. Region wise the North contributes the maximum followed by

South, West and East respectively.

According to the latest ORG data in both the DC segment and the FF segment,Whirlpool is the market leader with 28 per cent market share followed by Godrej,

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Electrolux, Kelvinator (EKL), LG, Samsung Videocon and Others. Godrej has

increased its market share by over 5 per cent after it got the International Design

Center to design its products and launched by film actress Preity Zinta (ad for its

penta cool range with five side cooling features). Due to intense competition, margins

have come under pressure in the refrigerator segment in recent times. Korean giants,

LG and Samsung have increased their ad spend substantially coming out with new

models frequently and even claiming superiority over their rivals in terms of excellent

quality and service. The worlds largest producer of white goods Eectrolux meanwhile

is trying to find its feet in the market place after joining hands with the infamous

Maharaja international. Its five brand portfolio has been pruned to only two:

Electrolux Kelvinator (for the premium segment) and Allwyn (for the low end

marketer) in an attempt to focus its limited resources on brands with high visibility.

EKL is now trying to look into the frost free segment more closely (its entire

refrigerator business till 2002 was built around DC segment only) after conducting a

series of customers surveys. The refrigerator market is likely to witness intense

competition in the days ahead. India, as most players realize has great potential to

increase the cash flows of almost all the players with only 30 per cent penetration at

the urban and 5 percent at the rural level (compared to Chinas 35% overall

penetration level as against Indias overall penetration level of 11 percent). The

refrigerators are going to be an essential home appliance with rising urban as well as

rural incomes.

Washing machines:

Videocon was the first player to enter the washing machine industry followed by

BPL. Initially, a large number of local manufacturers introduced washers which did

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not do well because of poor quality finish. Videocon introduced the twin tub washing

machine in the 3 Kg category. The twin tub category fared well and later on the share

of washers became insignificant. Now the consumer has a choice of more than 10

brands with over 80 models to choose from. The product range, too improved after the

entry of MNCs like LG, Samsung, Whirlpool, Electrolux etc.

The washing machine segment is basically divided into two categories: Semi

Automatic (SA) and Fully Automatic (FA). The SA was the first one to be introduced

in India and comprises 80 percent of the market with FA occupying the rest. Fully

automatic ones cost more than Rs 10,000 over the SA ones and they require

continuous supply of water which of course is a scarce commodity in many Indian

cities. The twin tub machines therefore are more popular and purchased by first time

users. Of late the single tub semi automatic ones have also come into the market

(thanks to Samsung). The market can also be segmented into top load (TL) with TL

comprising 95 per cent of the industry while FL constituting just five per cent. On the

basis of capacities the market can be put into three segments less than 4 Kg category

(5 percent of market); 4-5 Kg (50 per cent) above 5kg (15 per cent). In the SA

segment consumers preference is shifting from the smaller size segments (3.5 5kg)

to the larger size segments (6kg) Region wise, West and South is a major market for

FA while north is for SA. About 40-50 per cent of the sales are from the top 10

metros.

The washing machine had a dream run till 1998 growing at a CAGR of over 20

percent between 19931998. The sales growth has not been impressive thereafter.

Prices too have remained stagnant, a number of factors especially the scarcity of

water, availability of cheap labor buyers preference for other essential household

items etc., have contributed to this negative trend. The competition rose, meanwhile

with the entry of MNCs. Existing players lie Videocon expanded their capacity levels.

The resultant pricing pressures had a telling effect on the bottom line of most players.

In the SA segment, Videocon, LG, and Whirlpool are fighting for the top honor

followed by BPL, Samsung, National, IFB, Godrej etc. In the FA category Whirlpool,

Videocon, BPL, LG and Samsung are fighting it out for a respectable share of the

market. In the front loading category IFB is the market leader with 70 per cent market

share followed by LG. With low penetration levels (just 13 percent in urban areas, 0.7

percent in rural areas as against 48 per cent penetration level in China) the matchingmachine segment should see lot of action in the years ahead. New models new

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technologies innovative campaigns talking about fuzzy logic, washy talky etc. this

segment should generate lot of interest also in the majority for urban households in

future.

Air conditioners:

Air conditioning products can be segmented into non-ducted and ducted. The non

ducted products are further divided into two parts: Windows ACs (WAC) and the

mini spilt ACs (SAG). The demand for non-ducted AC comes from households and

corporates. The ducted system is divided into central plants packaged ACs (PAC) and

ducted splits. The demand for ducted systems is from industrial houses. WAC

accounts for 80 percent of the room air conditioning (RAC) market while SAC

accounts for about 20 percent.

On the basis of capacity the market can be divided into 0.75 tonne, 1 tonne, 1.5 tonne

and 2 tonne and above. Of these 1.5 tonne capacity accounts for more than 70 percent

of that WAC market. With rising demand from the household segment the ratio of 1.0

tonne and lower capacity air conditioners is increasing and is currently estimated to be

at 25 per cent.The air conditioning market is witnessing a healthy growth of over 20 per cent during

the last couple of years. The total air conditioning industry is estimated to be around

Rs 3,000 of this non ducted products size would be Rs 1800 crore and the ducted

products share would be Rs 1200 crore.

Prior to 1997 the institutional demand for ACs was the major growth driver in the air

conditioning industry (corporation institutes government together accounting for over

90 percent of the buying). During the last 7-8 years the demand from the home

segment has picked up quite significantly (30-35 percent). AC is no longer treated as

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a luxury in urban areas where the household incomes, too have risen, better

distribution network, large scale advertising attractive financing schemes have all

helped the WAC segment to grow at a respectable pace.

Consumer behaviour

Consumer behaviour is the study of when, why, how, and where people do or do not

buy a product. It blends elements from psychology, sociology, social anthropology

and economics. It attempts to understand the buyer decision making process, both

individually and in groups. It studies characteristics of individual consumers such

as demographics and behavioural variables in an attempt to understand people's

wants. It also tries to assess influences on the consumer from groups such as family,

friends, reference groups, and society in general.

Customer behaviour study is based on consumer buying behaviour, with the customer

playing the three distinct roles of user, payer and buyer. Relationship marketing is an

influential asset for customer behaviour analysis as it has a keen interest in the re-

discovery of the true meaning of marketing through the re-affirmation of the

importance of the customer or buyer. A greater importance is also placed on consumer

retention, customer relationship management, personalisation, customisation and one-

to-one marketing. Social functions can be categorized into social choice and welfare

functions.

Each method for vote counting is assumed as social function but ifArrows

possibility theorem is used for a social function, social welfare function is achieved.

Some specifications of the social functions are decisiveness, neutrality, anonymity,

monotonicity, unanimity, homogeneity and weak and strong Pareto optimality. No

social choice function meets these requirements in an ordinal scale simultaneously.

The most important characteristic of a social function is identification of the

interactive effect of alternatives and creating a logical relation with the ranks.

Marketing provides services in order to satisfy customers. With that in mind, the

productive system is considered from its beginning at the production level, to the end

of the cycle, the consumer.

http://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Psychologyhttp://en.wikipedia.org/wiki/Sociologyhttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Demographichttp://en.wikipedia.org/wiki/Consumerhttp://en.wikipedia.org/wiki/Relationship_marketinghttp://en.wikipedia.org/wiki/Arrow%27s_impossibility_theoremhttp://en.wikipedia.org/wiki/Arrow%27s_impossibility_theoremhttp://en.wikipedia.org/wiki/Arrow%27s_impossibility_theoremhttp://en.wikipedia.org/wiki/Neutralityhttp://en.wikipedia.org/wiki/Anonymityhttp://en.wikipedia.org/wiki/Monotonicityhttp://en.wikipedia.org/wiki/Unanimityhttp://en.wikipedia.org/wiki/Homogeneityhttp://en.wikipedia.org/wiki/Pareto_optimalityhttp://en.wikipedia.org/wiki/Pareto_optimalityhttp://en.wikipedia.org/wiki/Homogeneityhttp://en.wikipedia.org/wiki/Unanimityhttp://en.wikipedia.org/wiki/Monotonicityhttp://en.wikipedia.org/wiki/Anonymityhttp://en.wikipedia.org/wiki/Neutralityhttp://en.wikipedia.org/wiki/Arrow%27s_impossibility_theoremhttp://en.wikipedia.org/wiki/Arrow%27s_impossibility_theoremhttp://en.wikipedia.org/wiki/Relationship_marketinghttp://en.wikipedia.org/wiki/Consumerhttp://en.wikipedia.org/wiki/Demographichttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Sociologyhttp://en.wikipedia.org/wiki/Psychologyhttp://en.wikipedia.org/wiki/Product_(business)

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Models of consumer behavior

Black box model

ENVIRONMENTAL

FACTORS

BUYER'S BLACK BOX

BUYER'S

RESPONSEMarketing

Stimuli

Environmental

Stimuli

Buyer

Characteristics

Decision

Process

Product

Price

Place

Promotion

Economic

Technological

Political

Cultural

Demographic

Natural

Attitudes

Motivation

Perceptions

Personality

Lifestyle

Knowledge

Problem

recognition

Information

search

Alternative

evaluation

Purchase

decision

Post-purchase

behaviour

Product choice

Brand choice

Dealer choice

Purchase timing

Purchase

amount

The black box model shows the interaction of stimuli, consumer characteristics,

decision process and consumer responses. It can be distinguished between

interpersonal stimuli (between people) or intrapersonal stimuli (within people). The

black box model is related to the black box theory of behaviourism, where the focus is

not set on the processes inside a consumer, but the relation between the stimuli and

the response of the consumer. The marketing stimuli are planned and processed by the

companies, whereas the environmental stimulus are given by social factors, based on

the economical, political and cultural circumstances of a society. The buyers blackbox contains the buyer characteristics and the decision process, which determines the

buyers response.

The black box model considers the buyers response as a result of a conscious, rational

decision process, in which it is assumed that the buyer has recognized the problem.

However, in reality many decisions are not made in awareness of a determined

problem by the consumer.

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Factor influencing consumer behavior

Consumer Buying Behavior is the behavior that a consumer display while buying the

product or a service. Each and every consumer has his/her own buying behavior that

he displays it during purchase of different products.

This behavior displayed by the consumer is the result of a number of influences which

he/she receives from the environment.

Internal influences

Consumer behaviour is influenced by: demographics, psychographics (lifestyle),

personality, motivation, knowledge, attitudes, beliefs and feelings.

External influences

Consumer behavior is influenced by: culture, sub-culture, locality, royalty, ethnicity,

family, social class, past experience reference groups, lifestyle, market mix factors.

Psychological factors include an individuals motivation, perception, attitude and

belief, while personal factors include income level, personality, age, occupation and

lifestyle.

These influences can be categorized into four factors viz.

Cultural factors,

Social factors,

Personal factors and

Psychological factors.

Cultural Factors: - culture, subculture and social classes are particularly important in

buying behavior. Culture is the fundamental determinant of a persons wants and

behavior. Each culture consists of smaller subcultures that provide more specific

identification and socialization of its members. Subculture includes nationalities,

religions, racial groups and geographic regions.

1. Culture: Culture is the set of basic values, perceptions, wants, and behaviors

learned by a member of society from family and other important institutions. A child

in the United States normally learns or is exposed to the following values:

achievement and success, activity and involvement, efficiency and practicality,

progress, material comfort, individualism, freedom, humanitarianism, youthfulnessand fitness and health.

http://en.wikipedia.org/wiki/Culturehttp://en.wikipedia.org/wiki/Sub-culturehttp://en.wikipedia.org/wiki/Localityhttp://en.wikipedia.org/wiki/Ethnicityhttp://en.wikipedia.org/wiki/Social_classhttp://en.wikipedia.org/wiki/Social_classhttp://en.wikipedia.org/wiki/Ethnicityhttp://en.wikipedia.org/wiki/Localityhttp://en.wikipedia.org/wiki/Sub-culturehttp://en.wikipedia.org/wiki/Culture

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Marketers continuously monitor cultural change in order to discover new products

that might be demanded by the consumers. For example, the cultural shift toward

greater concern about health and fitness has created a huge industry for exercise

equipment and clothing, lower-fat and more natural foods, and health and fitness

services. The shift toward informality has resulted in more demand for casual clothing

and simpler home furnishings. And the increased desire for leisure time has resulted

in more demand for convenience products and services, such as microwave ovens and

fast fool.

2. Subculture: Each culture is composed of smaller subculture. Subculture refers to a

group of people with shared value systems based on common life experiences and

situations. Subcultures consist of nationalities, religions, racial groups, and

geographic regions. Subcultures have important marketing implications. They

constitute important market segments and marketers often design products and

marketing programs to fit their needs. A consumers buying behavior will be

influenced by the subculture to which he belongs. Subculture will affect his food

preferences, clothing choices, recreation activities, and career goals.

3. Social Class: Every society has a social class structure. Social classes are societys

relatively permanent and ordered divisions whose members share similar values,

interests, and behaviors. We can identify three social classes in Bangladesh-upper,

middle, and lower.

Social class is not identified by a single factor such as income. It is determined by a

combination of occupation, income, education, wealth, and other variables. In a

society, however, the lines between social classes are not fixed and rigid. People can

move to a higher social class or drop into a lower one. Marketers are interested in

social class because people within a particular social class tend to demonstrate similar

buying behavior. Social class exhibit distinct product and brand preferences in areas

such as clothing, home furnishing, leisure activity, and automobiles.

Social Factors: - In addition to cultural factors a consumers behavior is influencedby such social factors as reference groups, family and social roles and statuses. A

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persons reference group consists of all the groups that have adirect (face to face) or

indirect influence on the persons attitudes or behavior.

Groups that have direct influence on a person is called as membership groups. Some

membership groups are also called as primary groups, such as family, friends,

neighbors and coworkers with whom the person interacts fairly continuously and

informally. People also belong to secondary groups such as religious, professional and

trade union groups which tend to be more formal and require less continuous

interaction.

Aspirational groups are those a person hopes to join; dissociative groups are those

whose values and behavior an individual rejects. The family is the most important

consumer buying organization in society, and family members constitute the most

influential primary reference group. A person participates in many groups-families,

clubs, organizations. The persons position in each group can be defined in terms of

role and status. A role consists of the activities a person is expected to perform. Each

role carries a status.

1. Reference GroupsEvery individual has some people around who influence him/her in any way.

Reference groups comprise of people that individuals compare themselves with.

Every individual knows some people in the society who become their idols in due

course of time.

Co workers, family members, relatives, neighbours, friends, seniors at workplace

often form reference groups.

Reference groups are generally of two types:

a. Primary Group - consists of individuals one interacts with on aregular basis.

Primary groups include:

Friends Family Members Relatives Co WorkersAll the above influence the buying decisions of consumers due to following reasons:

They have used the product or brand earlier.

They know what the product is all about. They have complete knowledge about thefeatures and specifications of the product.

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Tim wanted to purchase a laptop for himself. He went to the nearby store and

purchased a Dell Laptop. The reason why he purchased a Dell Laptop was because all

his friends were using the same model and were quite satisfied with the product. We

tend to pick up products our friends recommend.

A married individual would show strong inclination towards buying products which

would benefit not only him but also his family members as compared to a

bachelor. Family plays an important role in influencing the buying decisions of

individuals.

A consumer who has a wife and child at home would buy for them rather than

spending on himself. An individual entering into marriage would be more interested

in buying a house, car, household items, furniture and so on. When an individual gets

married and starts a family, most of his buying decisions are taken by the entire

family.

b. Secondary Groups - Secondary groups share indirect relationshipwith the consumer. These groups are more formal and individuals do not interact with

them on a regular basis, Example - Religious Associations, Political Parties, Clubs

etc.

2. Role in the SocietyEach individual plays a dual role in the society depending on the group he

belongs to. An individual working as Chief Executive Officer with a reputed firm is

also someones husband and father at home. The buying tendency of individuals

depends on the role he plays in the society.

3. Social StatusAn individual from an upper middle class would spend on luxurious items whereas an

individual from middle to lower income group would buy items required for his/her

survival.

Personal Factors: - A buyers decisions are also influenced by personal

characteristics. These include the buyers age in the life cycle, occupation, economic

circumstances, lifestyle and personality and self concept. People buy different goods

and services over a lifetime. They eat baby food in the early years, most foods in thegrowing matured years and special diet in the later years. Occupation also influences

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consumption patterns. A blue collar worker may buy work clothes, work shoes and

lunch boxes. A company president may buy expensive suits, air travel and country

club membership. People from same subculture, social classes and occupation may

lead quite different lifestyles. A lifestyle is a persons pattern of living in the world

expressed in activities, interest and opinions.

Age and Life cycle Stage: Like the social class the human life cycle can have a

significant impact on consumer behaviour. The life cycle is an orderly series of stages

in which consumer attitude and behavioural tendencies evolve and occur because of

developing maturity, experience, income, and status. Marketers often define their

target market in terms of the consumers present lifecycle stage. The concept of

lifecycle as applied to marketing will be discussed in more details.

Occupation And Income: Today people are very concerned about their image and

the status in the society which is a direct outcome of their material prosperity. The

profession or the occupation a person is in again has an impact on the products they

consume. The status of a person is projected through various symbols like the dress,

accessories and possessions.

Life Style: Our life styles are reflected in our personalities and self-concepts, same is

the case with any consumer. We need to know what a life-style is made of. It is a

persons mode of living as identified by his or her activities, interest and opinions.

There is a method of measuring a consumers lifestyle. This method is called as the

psychographics-which is the analysis technique used to measure consumer lifestyles-

peoples activities, interests and opinions. Then based upon the combinations of these

dimensions, consumers are classified. Unlike personality typologies, which are

difficult to describe measure lifestyle analysis has proven valuable in segmenting and

targeting consumers according to their lifestyle classification.

Personality:Personality is the sum total of an individuals enduring internal

psychological traits that make him or her unique. Self-confidence, dominance,

autonomy, sociability, defensiveness, adaptability, and emotional stability are selected

personality traits.

Psychological Factors: - A persons buying choices are influenced by four major

factors viz. motivation, perception, learning, believes and attitudes. In the light ofgrowing competition in the Indian retail industry each and every company is trying its

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best to attract new customers as well as at the same time retain the existing customers.

Hence this can be done by keeping a track on the buying behavior of the customers.

Therefore my topic on buying behavior of consumer shows the different factors which

influence the consumer buying behavior while shopping.

Motivation

The level of motivation also affects the buying behavior of customers. Every person

has different needs such as physiological needs, biological needs, social needs etc.

The nature of the needs is that, some of them are most pressing while others are least

pressing. Therefore a need becomes a motive when it is more pressing to direct the

person to seek satisfaction.

Perception

Selecting, organizing and interpreting information in a way to produce a meaningful

experience of the world is called perception. There are three different perceptual

processes which are selective attention, selective distortion and selective retention. In

case of selective attention, marketers try to attract the customer attention. Whereas, in

case of selective distortion, customers try to interpret the information in a way that

will support what the customers already believe. Similarly, in case of selective

retention, marketers try to retain information that supports their beliefs.

There are three different processes which lead to difference in perception:

1. Selective Attention - Selective attention refers to the process whereindividuals pay attention to information that is of use to them or their immediate

family members. An individual in a single day is exposed to numerous

advertisements, billboards, hoardings etc but he is interested in only those which

would benefit him in any way. He would not be interested in information which is not

relevant at the moment.

2. Selective Distortion - Consumers tend to perceive information in a way whichwould be in line to their existing thoughts and beliefs.

3. Selective Retention - Consumers remember information which would beuseful to them, rest all they forget in due course of time. Michael wanted to purchase

a watch for his wife and thus he remembered the RADO advertisement which he had

seen several days ago.

Beliefs and Attitudes

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Customer possesses specific belief and attitude towards various products. Since such

beliefs and attitudes make up brand image and affect consumer buying behavior

therefore marketers are interested in them. Marketers can change the beliefs and

attitudes of customers by launching special campaigns in this regard.

Consumer buying decision process:

Consumer passes through five different stages while purchasing the product.

1. Need recognition: customer posses two type of stimuli' at this juncture.

One is driven by the internal stimuli and another is external stimuli. The

examples of internal stimuli are customer's desire, attitude or perception and

external stimuli are advertising etc... From both stimuli customer understand the

need for the product. Here marketer should understand what customers needs

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have that drew customers towards the product and should highlight those in the comm

unication strategy.

2. Information search

Once the consumer has recognized a problem, they search for information on

products and services that can solve that problem. Belch and Belch (2007) explain

that consumers undertake both an internal (memory) and an external search.

Sources of information include:

Personal sources Commercial sources Public sources Personal experienceThe relevant internal psychological process that is associated with information search

is perception. Perception is defined as "the process by which an individual receives,

selects, organises, and interprets information to create a meaningful picture of the

world".

The selective perception process

Stage Description

Selective exposure consumers select which promotional messages they willexpose themselves to.

Selective attention consumers select which promotional messages they willpay attention to.

Selective comprehension consumer interpret messages in line with theirbeliefs, attitudes, motives and experiences.

Selective retention consumers remember messages that are more meaningfulor important to them.

The implications of this process help develop an effective promotional strategy, and

select which sources of information are more effective for the brand.

3. Evaluation of alternative

At this time the consumer compares the brands and products that are in their evokedset. How can the marketing organization increase the likelihood that their brand is part

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of the consumer's evoked (consideration) set? Consumers evaluate alternatives in

terms of the functional and psychological benefits that they offer. The marketing

organization needs to understand what benefits consumers are seeking and therefore

which attributes are most important in terms of making a decision. It also needs to

check other brands of the customers consideration set to prepare the right plan for its

own brand.

4. Purchase decision

Once the alternatives have been evaluated, the consumer is ready to make a purchase

decision. Sometimes purchase intention does not result in an actual purchase. The

marketing organization must facilitate the consumer to act on their purchase intention.

The organization can use a variety of techniques to achieve this. The provision of

credit or payment terms may encourage purchase, or a sales promotion such as the

opportunity to receive a premium or enter a competition may provide an incentive to

buy now. The relevant internal psychological process that is associated with purchase

decision is integration. Once the integration is achieved, the organization can

influence the purchase decisions much more easily.

5. Postpurchase decision/evaluation

The EKB model was further developed by Rice (1993) which suggested there should

be a feedback loop, Foxall (2005) further suggests the importance of the post purchase

evaluation and that the post purchase evaluation is key due to its influences on future

purchase patterns.

Buyer decision process for new products.

The buyer's decision for existing products and new products varies. You already seen

in the existing product buying decision process consumers have the option to

search for the information and evaluate them. In the new product such options

don't exist. Therefore we should understand how consumer comes to know

about the product. Kotler defined this process as adoption process.

According to Philip Kotler Adoption is 'The mental process through which anindividual passes from first hearing about an innovation to final adoption'

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Adoption process

Awareness: The consumer became aware of the product but lacks information about

it.

Interest: As know previous information available consumer shows interest to

get the information about the product.

Evaluation: After receiving the information consumer analyzes the benefits of

new products over any existing products or substitutes and decides whether

to buy or not.

Trial: The consumer tries the new product on a small scale to improve his or

her estimate of its value.

Adoption: In this stage consumer decides to make full and regular use of the product.

Adoption Rate

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Consumer innovators: They are the first to adopt and display behaviour that

demonstrates that they likely to want to be ahead, and to be the first to own new

products, well before the average consumer. These consumers are status conscious

people.

Marketer should highlight how the new product will bring the esteem to

the consumer. They are often not taken seriously by their peers. The often buy

products that do not make it through the early stages of the Product Life Cycle (PLC).

Early adopters: They are also quick to buy new products and services, and so are key

opinion leaders with their neighbours and friends as they tend to be amongst the first

to get hold of items or services.

In this categories customer observed the advantage of the new product and the

moment the price of the product falls into the affordable category they buy the

product.

Early majority: They look to the innovators and early majority to see if a new product

or idea works and begins to stand the test of time. They stand back and watch the

experiences of others. Then there is a surge of mass purchases.

These group customers are attracted towards the benefits of the product. They

make sure that there are no technical or general problems associated

with the product.

Late majority: They tends to purchase the product later than the average person. They

are slower to catch on to the popularity of new products, services, ideas, or solutions.

There is still mass consumption, but it begins to end. The group looks for the quality

product at the affordable prices

Laggards: They tend to very late to take on board new products and include those that

never actually adopt at all. Here there is little to be made from these consumers.

These are traditional and price conscious people. They often take lot of time to

adoption of the product.

Buying Motives

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'The thoughts, feelings, emotions and instincts that induces customer to buy a product

are called as buying motives'

According to Prof D.J. Duncan 'buying motives are those influences or considerations

which provide the impulse to buy, induce action and determine choice in the purchase

of goods and services'.

Classification of buying motives:

1. Emotional Buying Motives: Buying motives based on feelings or passions are

known as emotional buying motives. These motives are not based on judgement, but

they purchase on the basis of motion. There are some motives/elements which are as

follows.

a. Love and affection: It is an important buying motive which includes the buyers to

purchase the goods. Due to love and affection to the children, we buy toys, dress

biscuits etc. A husband may buy saris and cosmetics for his wife due to the love and

affection.

b. Curiosity: Curiosity is the desire for new experience which motivates the people to

buy the specific goods. Thus, to get the new experience, customers purchase the

goods.

c. Fashion: It is an important motive that can change the mind of the customers.

Generally, customers try to copy particularly the movie stars, sportsmen and athletes

etc. So, all the producers advertise their products with the help of these popular

personalities.

d. Pride and prestige: Due to the pride and prestige in the society, customers purchase

expensive and luxuries goods in- order to maintain their status. They purchase toyota

car, Karizma motorcycle, fifty-nine inch colour television etc. to get the high position

in the society.

e. Fear: People are generally afraid of losing their health, wealth and life. Thus, it

motivates to purchase the goods such as insurance policy, hiring lockers in bank and

membership of health club etc. These goods or services help them to avoid their fear.

2. Rational Buying Motives: Rational buying motives are those which are based on

sound judgement. They purchase the goods through proper testing, comparing and

observing the goods on the basis of price, quality, durability etc. This motive is

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important to the customers because it helps them to save the unnecessary cost. It

includes the following motives.

a. Economy: Under this motives, the customer prefer that products which are more

economy or cheap in price. To get more profit and discount, customers purchase such

goods. This element attract and encourages the customers to buy such goods in large

quantities.

b. Utility: Customers want to purchase that goods which have more or higher utility.

Utility satisfies the wants of the customers.

c. Comfort and convenience: Every people has the desire to live in comfort and

convenient way as a result they get motivated to purchase such goods which provide

comfort and convenience. Customers purchase T.V., DVD, motorcycle, washing

machines, heater, cooler, sofa set etc. for their pleasure and comfort.

d. Durability: It is another element of rational buying motive. Due to the durability of

the products, customers are motivated to purchase the goods for example toyota car,

pulsar motorcycle, sony TV etc are purchased due to their durability to use.

e. Security: It is important to the people. People are not feeling secure from the floods,

earthquakes, theft, docoits etc. in the society. So, the customers purchase the key

lockers, open the bank A/c and keep the watchman etc to be secured.

3. Patronage Buying Motive: When the customers purchase the goods or services on

the basis of particular place, special discount, present price, decoration and other

facilities are known as patronage buying motives. Following points are discussed

under this motive.

a. Service motive: Service is an important motive which inspires the customers to

purchase the goods. Customers purchase the goods to get the services, such as credit

facility, home delivery facility, free installation, free repair and maintenance services.

b. Quality: Due to the quality of the goods, customers are motivated to purchase

certain goods or services. If products assure the quality, the customers are even ready

to pay the higher price of such goods.

c. Location: Location also affects to purchase the goods. Customers prefer to buy

those goods which are easily available near their home or locality.

d. Store loyalty: Store loyalty is another important element which plays significant

role in buying motive. We purchase different goods due to the loyalty of the storesuch as attractive appearances, trust in weight, quality, price etc.

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e. Friendliness behaviour: Friendliness behaviour of salesman also affects the

customers to purchase the goods from the same suppliers which is also discussed

under the patronage buying motives.

Types of Buying Decision Behavior

Buying behavior differs greatly for different types of products. As participants and

deliberation in the buying process increase, buying decisions become more complex.

The following figure illustrates the types of consumer buying behavior on the basis of

the degree of buyer involvement and the degree of differences among brands.

Complex Buying Behavior

Consumers demonstrate complex buying behavior when their involvement in

purchase is high and when they perceive significant differences among brands.

Consumers purchase involvement is high when the product is costly, risky,

purchased infrequently, and highly self-expressive. In such a situation, the consumer

has much to know about the product category. For example, a personal computer

buyer may not know what attributes to consider. Many product features carry no real

meaning: a Pentium chip, Super VGA resolution, or 8 megs of RAM.

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In complex buying situation, the buyer will go through a learning process which

involves developing beliefs about the product, developing attitudes and making a

contemplated purchase choice. Marketers of high-involvement products need to know

the information-gathering and evaluation behavior of high-involvement consumers.

They must assist buyers to learn about product-class attributes and their relative

importance, and about what the companys brand offers on the important attributes. It

is also necessary for the marketers to motivate store salespeople and the buyers

acquaintances for influencing the ultimate brand choice.

Dissonance- Reducing Buying Behavior

Dissonance- reducing buying behavior happens when consumers are highly involved

with an expensive, infrequent, or risky purchase but perceives little difference among

brands. For example, consumers buying split type air conditioner may face a high-

involvement decision because air conditioning is costly and self-expressive. Still,

buyers may consider most air conditioner brands in a given price range to be the

same. In this situation, because perceived brand differences are not wide, buyers may

shop around to learn what is available, but buy relatively quickly. They may respond

primarily to a attractive price or to purchase convenience.

Consumers might experience post purchase dissonance in the form of After-sale

discomfort when they notice certain disadvantages of the purchased air conditioner

brand. This can occur also if the buyer hears favorable things about brands not

purchased. To counter such dissonance, the marketer should undertake proper after-

sale communication and support to help consumers feel happy about their brand

choices.

Habitual Buying Behavior

Habitual buying behavior happens in situations where consumer Involvement

is low and perceived brand difference is low. For example, take flour, consumers have

insignificant involvement in this product category. They just go to a store and ask for

a brand. If they keep on asking for the same brand, it is out of habit rather than strong

brand loyalty. Consumers have low involvement with most low-cost, frequentlypurchased products.

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In cases of habitual buying, consumer behavior does not follow the typical belief-

attitude-behavior pattern. Consumers do not look for extensive information about the

brands. They do not evaluate brand features, and make strong decisions about which

brands to buy. Instead, they passively receive information from the media to which

they are exposed. Repetitive ads builds brand familiarity rather than brand conviction.

As consumers involvement is low, they may not make post purchase evaluation.

Thus, the buying process contains brand beliefs acquired through passive learning.

Habitual buying behavior has important marketing implications. Since buyers are not

highly committed to any specific brand, marketers of low-involvement products with

few brand differences may use price and sales promotions to encourage product trial.

Ads of low involvement products should emphasize only a few key points. Visual

symbols and imagery should be used extensively. Ad campaigns should consist of

high repetition of short-duration messages. Visual media like television should be

preferred to print media because it is a low-involvement medium suitable for passive

learning.

Variety-Seeking Buying Behavior

Consumers undertake variety-seeking buying behavior in situations characterized by

low consumer involvement, but significant perceived brand differences. In such cases,

consumers often do a lot of brand switching. For example, when buying cookies, a

consumer may hold some beliefs, choose a cookie brand without much evaluation,

then evaluate that brand during consumption. But (he next time, the consumer might

pick another brand out of boredom or simply to try something different. Brand

switching occurs for the sake of variety rather than because of dissatisfaction.19

Variety-seeking buying behavior calls fur different marketing strategies for the market

leader and the market challenger. The market leader will try to encourage habitual

buying behavior by carrying large stocks and running frequent reminder advertising.

The market challenger will encourage variety seeking by us in various sales

promotion tools such as cash discounts, special den Is. coupons, free samples that will

induce bikes to try new brands.

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LG

DETERMINANTS

PERCEPTION

Perception is how consumers see the world around them. Different people can view

same phenomenon or situation differently. Perception can be defined as the process

by which individual selects, organize & interprets stimuli into a meaningful &

coherent picture of the world. Both physiological & psychological factors affect

perception.

External factors affecting perception are:

Intensity & size: Brighter colors & larger size attracts more attention than lighter

color & small size.

Therefore white good for are no more in whites and available in more colors.

Position: Product display position also plays a vital role in perception.

Novelty: some new concept or technology will carry more importance in building up

perception.

Repetition: Repetition of a particular advertisement will make make an impact on

perception. LG advertisements are shown on a large scale during cricket matches to

build a positive perception.

Internal factors affecting perception are:

Selective attention: Inner needs of an individual come out in this. He sees only which

importance to it.

Selective exposure: In this individual puts censorship on the things which he dislikes

& disturbs his beliefs.

Expectation: Customer expects something when he purchases something. Marketer

has to see that he is delighted by giving him something extra, which he did, not

anticipated.

Subliminal perception: Stimulation below the conscious level will get unnoticed by

the viewer & should be avoided.

Use of perception:

Quality: LG has acquired the image that it is a quality product. Hence if any new

product comes than even it is perceived as a quality product.

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Sales promotion: Sales promotion schemes were introduced by LG like scratch

coupon, has made the perception in customers mind that they can win extra by

purchasing one product. This has increased the sales.

Risk: LG shows that it is a brand, which focuses on health platform. So if a customer

does not use these products then he is unsafe & is at risk. LG golden eyes save your

eyes from rays coming from television.

ATTITUDE

Marketers need to know what are consumers likes & dislikes. In simple explanation,

those likes & dislike or we can say favourable or unfavourable attitude. Attitude can

also be defined as learned predisposition to responds to an object or class of objects

in a consistently favourable or unfavourable way. This means attitude towards

brands are consumers learned tendencies to evaluate brands in a consistently

favourable or unfavourable way.

Attitude helps us understand why consumer do or do not buy a particular product or

shop from a certain store. Suppose a company wants to know the attitude of its

promotion offer by the dealer. If the dealer is satisfied by the scheme he is likely to

promote it in a better manner.

Tri-component attitude model:

Cognitive component: It deals with persons cognition i.e. knowledge & perception

acquired by a combination of direct experience with object & related information

from varied sources. This knowledge & resulting perception commonly take the form

of beliefs. Consumer beliefs are the knowledge & inference that a consumer has about

objects, their attributes & beliefs provided.

Affective component: Consumer emotion or feelings about a particular product or

brand constituted the affective component of an attitude. These emotion & feelings

are evaluation in nature i.e. an individual rated objects as favourable or unfavourable.

Connative component: It deals with likelihood or tendency that an individual will

specific action or behaves in a particular way with respect to object. Some feel

connative component may include actual behavior itself.

PUT DIAGRAM

PERSONALITY

Marketers have long tired to appeal to consumers in terms of their personalitycharacteristics. They have intuitively felt that what consumers purchases, & when &

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how they consume, are likely to be influenced by personality factors. For this reason,

advertising & marketing people have frequently depicted specific personality traits or

characteristic in their marketing & advertising messages.

Personality can be defined as those inner psychological characteristics that both

determine & reflect how a person responds to his or her environment. Inner

characteristics are those specific qualities, attributes, traits, factors, & mannerism that

distinguish one individual from other individuals. Promotional offers are based on the

study of the personality characteristics of an individual.

Marketers should know that personality reflects individual difference, is consistent &

enduring & it can change if new information about the product is provided to the

customer. Consumers prefer to buy those products which they feel suit their

personality. As now a days there is a craze for health consciousness, LG has decide to

promote its product on the health platform. Because of this the market share of LG

has increased tremendously & it has become market leader in consumer durables in

India.

Brand personality

Consumers not only subscribe to the notion personality, but also to brand personality.

Consumers attribute various descriptive personalities; like traits or characteristics to

different brands in a wide variety of product categories. For instance, Bajaj Pulsar

advertises by saying it is a bike for definitely males. Personality can be imaginary or

even can be a celebrity. There was a advertisements of LG showing all then Indian

cricket teams depict that LG is the captain of Indian consumer durables market &

hence has found success.

SOCIAL CLASS

Consumer behaviour is influenced by the environment in which one live. Social class

is defined as relatively permanent & homogenous divisions in society into which

individuals or families sharing similar values, lifestyles, interests & behavior can be

categorized.

Various variables useful in understanding class of consumers are:

Occupation

People of same profession behave in a similar manner. Work consumers perform

affects lifestyles & form a basis to give his respect, prestige, honour; consumptions

may vary widely between occupations.Personal performance

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Success relative to others in the same occupation is influence by individuals personal

performance. It is related to other than job.

Interaction

Interaction variables of personal prestige association & socialization have great

importance. People have a high prestige when other people have an attitude of respect

towards them.

Possessions

Generally what products a person owns also defines his social class.

Value orientations

Shared beliefs about how people should behave indicate social class to which they

belong. Some may consider values important than money.

Class consciousness

It refers to degree to which people in a social class are aware of themselves as a

distinctive group sharing political & economic interest.

Consumption pattern of members of a social class is expected to be similar. Hence,

marketing manager can predict what they need, & hence make strategies to sell it to

them. It also help marketers in creating perceptions in consumers minds about the

attribute of product.

LG has positioned itself as a health brand. People of the social class who want to

show that they are health conscious persons hence purchase these products. In India

number of consumers who aspire to higher social classes is much higher than those

who are in them. Hence the marketers can easily tape the concept of social class.

FAMILY INFLUENCE

The family plays an important role in purchase decisions because it is a natural buying

unit in the society. Therefore it is necessary to understand what we mean by family,

what role & function family plays in consumer behavoiur & buying decisions for

goods & service. Since the behavior of family depends upon its lifestyle, life cycle of

family & role of various members of the family viz husband, wife, children, grand

parents & other family members, it is necessary to understand all these aspects.

Family is defined as two or more persons related by blood, marriages or adoption that

reside together. The family is the basic shopper & main decision making for purchase

of various products for consumption whether FMCG or consumer durables. However,

in family all members do not have equal role to play in decision- making. Therefore,it is necessary to study the attitude & role of various family members in purchase

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decision so that various members may be approached accordingly. It is necessary to

know the views of both user & purchaser.

Generally husband & wife or both dominant role on purchase decision, further their

role & dominance is not equal for all the items. For consumer durables both may

equal role or their decisions may be influenced by children even. The relative

influence of various family members depends upon what is being purchased, who are

its users & who are financers. Accordingly the influence of various members differs

but is always permutation/combination of the four players.

For refrigerators and washing machine wife will have the dominant role in deciding

which brand to buy whereas for the air conditioners children and husband play an

important role. In case of costly items generally it is a joint decision making process.

The positions of various members of the household in the family especially with

regard to financing of purchasing also have great influence on purchase decision.