Marketing Dynamics Chapter 10 Presentation

Understanding
the Customer

Chapter 10

Section 10.1

B2C Customers

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Learning Objectives

• 10.1-1 Explain how a hierarchy of needs

impacts consumer buying behavior.

• 10.1-2 Describe common factors that influence

consumer buying.

• 10.1-3 Define categories of consumer buying

motives.

• 10.1-4 Summarize steps in the consumer

decision-making process.

• 10.1-5 Describe each level of consumer buying

decisions.

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Key Terms
• consumer behavior
• hierarchy of needs
• self-actualization
• social environment
• reference group
• situational influence
• psychological

influence

• motive
• buying motive

• consumer

decision-making
process

• value
• impulse buying

decision

• routine buying

decision

• limited buying

decision

• extensive buying

decision

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Essential Question

What motivates consumers to buy a
product?

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Consumer Buying Behavior

• Businesses that sell to consumers as their primary

market are called business-to-consumer (B2C)
companies

• Consumer behavior is the behavior and actions

taken by people to satisfy their needs and wants,
including what they buy

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Consumer Buying Behavior
(Continued)

• Maslow’s Hierarchy of Needs is a theory developed by

psychologist Abraham Maslow

• A hierarchy of needs is an order in which certain

needs are satisfied before others

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Consumer Buying Behavior
(Continued)

• According to Maslow

– Physical needs must be met in order to survive
– Security includes physical safety and financial

security

– Social needs are the needs for love and acceptance
– Esteem includes self-confidence and respect of

others

– Self-actualization is the expression of a person’s

true self, through reaching personal goals and helping
others

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Consumer Buying Influences

• Companies can learn what influences consumers in

their target markets
– Social environment
– Situational influences
– Personal factors
– Psychological influences

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Consumer Buying Influences
(Continued)

• Social environment is the aggregate of the groups

that make up the surroundings in which people live
and interact

• A reference group is a specific group of people that

influences our attitudes, beliefs, and behavior
– A normative reference group is one that directly

influences an individual, such as family or peers

– A comparative reference group is one to which a

person compares himself or herself, such as
celebrities or political leaders

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Consumer Buying Influences
(Continued)

• Situational influences come from the environment

– The weather
– Store location
– Time of day
– Current sales promotions
– A buyer’s mood
– A buyer’s physical health
– A buyer’s available finances

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Consumer Buying Influences
(Continued)

• Personal factors are the qualities that make each

person unique
– Age
– Gender
– Ethnicity
– Personality is reflected in a variety of emotional and

behavioral characteristics, such as being energetic,
shy, competitive, cheerful, ambitious, or stubborn

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Consumer Buying Influences
(Continued)

• Psychological influences come from within a person

and explain why a person has certain needs and
wants
– A person’s image of himself or herself
– The desire to be accepted by peers
– The need to manage stress

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Consumer Buying Motives

• A motive is an internal push that causes a person to

act
– Strongest motives based on most pressing needs or

wants

– To motivate is to provide the internal push that results

in action

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Consumer Buying Motives
(Continued)

• A buying motive is the reason a consumer seeks and

buys a good or service
– Emotional buying motives are based on emotions,

feelings, and social needs

– Rational buying motives follow logical reasoning
– Patronage buying motives are based on features of a

specific store or product

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Consumer Buying Motives
(Continued)

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Consumer Decision-Making Process

• The consumer decision-making process is a series

of steps people take when making buying decisions

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Consumer Decision-Making Process
(Continued)

• Awareness of need or problem

– Define the need to be fulfilled or problem to be

addressed

– Happens when there is a need or want to be satisfied

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Consumer Decision-Making Process
(Continued)

• Information search

– Draw on past experiences
– Ask for recommendations from those within reference

groups

– Conduct product research on the Internet
– Research store advertisements
– Read product reviews

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Consumer Decision-Making Process
(Continued)

• Review options

– Consider price, value, brand, features, and benefits

•Value is the relative worth of something
•Value might be tied to price and brand

– Weigh options against each other

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Consumer Decision-Making Process
(Continued)

• Make the purchase decision

– Decide where and when to buy the product
– External factors might impact this decision

•Time of year
•Availability of item
•Sales

• Evaluate the purchase

– Compare with earlier purchases
– Determine if it matches, beats, or falls below

expectations

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Consumer Buying Decisions

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Consumer Buying Decisions
(Continued)

• A purchase made without any planning or research is

called an impulse buying decision
– Does not use the steps in the decision-making

process

– Marketers encourage these purchases by placing

product displays near checkout counters

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Consumer Buying Decisions
(Continued)

• A routine buying decision is a purchase made

quickly and with little thought
– Made when the consumer has experience with a

product or prefers a certain brand

– Often made for groceries, cosmetics, and cleaning

products

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Consumer Buying Decisions
(Continued)

• A limited buying decision requires some amount of

research and planning
– Made when buying unfamiliar products or those

bought only occasionally

– Involves listing the product options with their features

and prices and choosing the best product for the
price

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Consumer Buying Decisions
(Continued)

• An extensive buying decision involves a great deal of

research and planning
– Usually made when buying higher-priced items
– Involves analyzing your budget and saving for a down

payment

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1.
How can Maslow’s Hierarchy of Needs
be applied to buying behavior?
People will buy products to meet needs
at the bottom of the pyramid before
buying products to meet higher needs.

Section 10.1 Review

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2.
What groups make up a person’s social
environment?
Family, friends, classmates, and other
groups to which an individual belongs
make up his or her social environment.
Culture is a strong influence that affects
many aspects of life and often shapes an
individual’s social environment. The ethnic
group, geographic location, and social
class in which people grow up also
contribute to their cultural influences.

Section 10.1 Review (Continued)

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3.
What does motivate mean?
To motivate is to provide the internal push
that results in action.

Section 10.1 Review (Continued)

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4.
How do consumers search for
information when making a buying
decision?
Consumers draw on past experiences
and might ask for recommendations from
those within their reference groups. Many
consumers conduct product research on
the Internet, through store
advertisements, and by reading product
reviews.

Section 10.1 Review (Continued)

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5.
Explain why the level of a buying decision
varies with both the individual consumer
and what he or she seeks to purchase.
Large, expensive products tend to require
quite a bit of research and planning. Smaller,
less expensive products usually require little
research and planning before the purchase.
Some consumers have a more difficult time
making decisions than others. Often, these
consumers take much longer researching
their first purchase of a product.

Section 10.1 Review (Continued)

Section 10.2

B2B Customers

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Learning Objectives

• 10.2-1 Identify common variables used to

segment businesses in the B2B market.

• 10.2-2 Describe common factors that influence

business-customer buying.

• 10.2-3 Describe levels of buying decisions

made by business customers.

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Key Terms

• producer
• reseller
• service business
• government market
• institution
• North American Industry Classification System

(NAICS)

• internal influence
• external influence

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Essential Question

What factors motivate business
customers to make purchases?

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Segmenting the B2B Market

• Businesses that sell primarily to other businesses are

called business-to-business (B2B) companies
– Producers - creates goods and services, all called

manufacturers

– Resellers - buys finished products to resell to

consumers

– Service businesses - provides services
– Governments - includes national, state, and local

governmental offices and agencies

– Institutions - an established public or private

organization

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Segmenting the B2B Market
(Continued)

• The North American Industry Classification System

(NAICS) is a numerical system used to classify
businesses and collect economic statistics
– Developed by the United States, Canada, and Mexico

for trade purposes

– More information is available through the US Census

Bureau

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Segmenting the B2B Market
(Continued)

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Segmenting the B2B Market
(Continued)

• Business customers can be segmented by business

size
– Can be determined by the business’s annual revenue,

number of employees, or number of locations

– Impacts the methods used for promotion and making

contact

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Segmenting the B2B Market
(Continued)

• Business customers vary in the way they use

products
– To make new products
– To resell to customers
– To operate the business

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Segmenting the B2B Market
(Continued)

• Many businesses buy products to make new products

– Producers, or manufacturers
– Buy raw materials and other goods from suppliers
– Form materials into goods for the consumer market

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Segmenting the B2B Market
(Continued)

• Retail businesses buy finished goods to sell to their

consumers
– Vendors are businesses from which most retailers buy

goods

– The inventory of a retail store is the goods that are

resold to make a profit

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Segmenting the B2B Market
(Continued)

• Every business needs goods and services to run the

business
– Equipment
– Office supplies

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Business-Customer Buying
Influences

• The needs of an organization are the primary

influencer of B2B buying decisions

• There might be additional influences on product

purchases
– Internal
– External
– Situational

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Business-Customer Buying
Influences (Continued)

• Internal influences are motivators or change factors

that come from within the business itself
– Structure
– Goals
– Management team

• External influences are motivators or change factors

from outside the business
– Business competition
– New technology
– Product trends

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Business-Customer Buying
Influences (Continued)

• Situational influences come from the environment in

which the business exists
– These include the following:

•the economy
•the political environment
•regulations or laws

– Analyzing these is the same as conducting a PEST

analysis

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Business-Customer Buying
Decisions

• Relationship selling focuses on building long-term

relationships with customers

• Levels of B2B buying decisions

– New purchases
– Repeat purchases
– Modified purchases

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Business-Customer Buying
Decisions (Continued)

• A new purchase is a decision to buy a new product

that requires a great deal of research and thought
– Challenging
– Similar to an extensive buying decision of a consumer

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Business-Customer Buying
Decisions (Continued)

• A repeat purchase is a buying decision that requires

little research and thought
– Occurs when the buyer is satisfied with the product,

vendor, and terms of sale

– Similar to a routine buying decision of a consumer

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Business-Customer Buying
Decisions (Continued)

• A modified purchase is a decision to buy a familiar

product that needs some changes or modifications
– The current vendor, as well as other vendors, might

be given an opportunity to supply the modified
product

– Similar to a limited buying decision of a consumer

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1.
The B2B market can be split into five
categories. What are they?
The business-to-business market can be
split into five categories: producers,
resellers, service businesses,
governments, and institutions.

Section 10.2 Review

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2.
Identify common variables used to
segment businesses in the B2B market.
Common variables used to segment
business customers are industry,
business size, and business needs.

3.
How do business customers use the
products they buy?
Business customers use the products
they buy to make new products, to resell
to customers, or to operate the business.

Section 10.2 Review (Continued)

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4.
What is relationship selling?
Relationship selling focuses on building
long-term relationships with customers.

Section 10.2 Review (Continued)

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5.
Why might a business make a modified
purchase?
Often, something occurs to make a buyer
less satisfied with a product or vendor he
or she has been using. A modified
purchase is a decision to buy a familiar
product that needs some changes or
modifications.

Section 10.2 Review (Continued)

Section 10.3

Credit Basics

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Learning Objectives

• 10.3-1 Explain the role of credit.
• 10.3-2 Identify the rewards and risks of

extending credit.

• 10.3-3 Describe ways to reduce credit risk.

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Key Terms
• credit
• debtor
• creditor
• consumer credit
• installment loan
• trade credit
• customer loyalty

• credit risk
• collection agency
• credit report
• credit bureau
• accounts receivable
• accounts receivable

aging report

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Essential Question

Why do businesses extend credit to
customers?

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Credit

• Credit is an agreement or a contract to receive goods

or services before actually paying for them

• The debtor is the individual or business who owes

money for goods or services received

• The creditor is the individual or business to whom

money is owed for goods or services provided

• The debtor-creditor relationship is a legal relationship

existing between the two parties

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Credit (Continued)

• A number of laws protect US consumers who use or

want to use credit

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Credit (Continued)

• Consumer credit is granted to an individual

consumer by a retail business

• An installment loan is for a specific amount of money

and is repaid in regular payments with interest until
the loan is paid in full
– Also called a secured loan
– An installment is a regular payment
– Collateral is an asset pledged to guarantee a loan will

be repaid

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Credit (Continued)

• A proprietary credit card can be used only in the store

that offers the card

• Some businesses prefer to accept bank cards
• The bank provides a financial service by collecting the

money owed for the sale directly from the customer
and then paying the business

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Credit (Continued)

• Trade credit is granting a line of credit to a business

for a short period of time to purchase its goods and
services
– Often used by established businesses
– Due dates for repayment must be carefully monitored

to maintain adequate cash flow and avoid interest
charges

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Rewards and Risks of Extending
Credit

• Rewards

– Generation of sales
– Building customer loyalty: the continued and regular

patronage of a business, even when there are other
places to purchase the same or similar products

– Customers appreciate the convenience of using

credit cards

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• Risks

– Credit risk is the potential for financial loss, due to

credit not being repaid

•Possible cash-flow problems
•Potential for financial loss

– A collection agency is a company that collects

past-due bills for a fee

Rewards and Risks of Extending
Credit (Continued)

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Reducing Credit Risk

• Each business must decide if extending credit to

customers is a wise business decision

• It is important to establish a credit process that

reduces risk
– Create a credit policy
– Require a credit application
– Obtain a credit report
– Evaluate the information
– Manage accounts receivable

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Reducing Credit Risk (Continued)

• Create a credit policy

– Amount of credit that can be extended
– Specific terms of repayment
– Interest rates
– Late fees
– Penalties
– Actions for nonpayment
– Request for customer identification

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Reducing Credit Risk (Continued)

• Require a credit application

– Credit history
– Work history
– Other information necessary to qualify for credit

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Reducing Credit Risk (Continued)

• Obtain a credit report

– A credit report is a record of a business’s or person’s

credit history and financial behavior

– A credit bureau is a private firm that maintains

consumer-credit data and provides credit information
to businesses for a fee

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Reducing Credit Risk (Continued)

• Information provided in a credit report

– The number and types of credit accounts and

whether or not any are past due

– How promptly credit card statements and loans were

paid off in full

– On-time payment of other bills, such as rent, taxes, or

utilities

– Current total outstanding debts
– Amount of available credit on credit cards and home

equity loans

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Reducing Credit Risk (Continued)

• Evaluate the information

– Based on the three Cs of credit

•Character
•Capacity
•Capital

– The Truth in Lending Act requires that businesses

convey all information on the credit terms and costs
to customers before the first transaction

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Reducing Credit Risk (Continued)

• Manage accounts receivable

– The accounts receivable are the amounts owed to a

company by its customers

– An accounts receivable aging report shows when

accounts receivables are due, as well as the length of
time accounts have been outstanding

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1.
What is credit?
Credit is an agreement or a contract to
receive goods or services before actually
paying for them.

Section 10.3 Review

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2.
Why is collateral required for secured
loans?
Secured loans require collateral, which is
an asset pledged to guarantee the loan
will be repaid. If the loan is not repaid, the
asset can be taken by the creditor and
sold to recover the cost of the loan.

Section 10.3 Review (Continued)

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3.
What is an example of a risk involved
with extending credit?
One example of a risk involved with
extending credit is that, if customers fail
to pay a bill on time, it might cause a
cash-flow problem for the business.

Section 10.3 Review (Continued)

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4.
List the information that is provided on a
credit report.
A credit report provides the following
information about a credit applicant: number
and types of credit accounts and whether or
not any are past due; how promptly credit
card statements and loans were paid off in
full; on-time payment of other bills, such as
rent, taxes, or utilities; current total
outstanding debts; and amount of available
credit on credit cards and home equity
loans.

Section 10.3 Review (Continued)

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5.
What are the three Cs of credit?
The three Cs of credit are character,
capacity, and capital.

Section 10.3 Review (Continued)