External Factors of Consumer Decision-Making - Coursework Example

Consumer decision making-External factors Name Institution Course Lecturer Date Executive summary In the current market situation, most organizations are experiencing great competition and challenges as they respond to the changes in the functions of the society and the modes of working. The survival of organizations, their effectiveness and competitive advantage depend on the market focus, research and responsive activities of those organizations. Many organizations are changing the technologies they apply. In regard to this change, there are factors to consider which plays an important role in the different market segments. According to Han, Nunes & Drèze (2010), external factors that influence consumers’ behavior are very essential for the organizations to manage the risks in the market and make innovations and change their marketing approaches. When any product development takes into account external factors that influence the consumer’s decision making, it efficiently promotes the achievement of the objectives of the business. Many luxury products are being developed and entering the market to improve the other available luxury goods. To market the luxury goods, communication channels are greatly involved to ensure that the existing and new consumers are reached on time and make the right decision to purchase them. Introduction Consumers always apply their decision making skills before, during and after buying products. This is the same case with the consumers of luxury goods. They have to make choices due to many choices available in the market. External factors plays an important role during this decision making process and also the consumer’s final decision (Vickers & Renand, 2003). After the consumers have identified their needs, they go on to search for information that ultimately helps them to evaluate the alternatives in the market and then finally they make the decision to purchase. The consumer’s decision to purchase is affected by factors which they don’t have control over. This essay combines various theories and concepts and external factors to decision making. This essay will look at how external factors play part in the consumer’s decision to purchase. This essay will also focus on public policies and consumer protection. It will be focused particularly on luxury products. Theory and Concepts Marketers continue to manipulate the principles of marketing. Due to this, consumers have to choose on which product to buy and which not to buy, which brand to use and which not to use. There are theories that explain the decision making processes used by consumers. One of the theories is the utility theory. It was extended by Von Neumann and Morgenstern from Bernoulli’s idea. This theory made a proposal that consumers make decisions on the basis of the expected results of their decisions. The consumers were viewed as rational actors who can be able to estimate the probabilities of the outcomes of their uncertain decisions and be able to select the outcomes that made the most of their well being. However, consumers are neither consistent, nor rational completely, nor aware of the elements that enter their decision making. This theory provides a model to explain a customers buying behavior based on the customers belief that the utility of the money they pay is equal to the utility of the goods they get. Many researchers try to bring out how price correlates with the quality.However,there are other factors apart from quality that influence how customers perceive price and their buying behavior. In the case of luxury goods, they deviate the normal price-quality perception. It is difficult to explain the reason why customers choose luxury goods even if the prices are high. Some researchers argue that customers buy luxury goods regardless of their high prices because luxury goods bring them social status and to maintain this status they buy them. Exclusivity is a key characteristic of luxury goods. Their rarity and limited accessibility are cornerstones of the luxury products and this also give justification on their prices (Eng & Bogaert, 2010). Sense of exclusivity should be kept at all contact points of the consumers. This entails specific locations, sales personnel who are skilled and excellent presentation of the product. A question arises on how the brands of the luxury goods can combine exclusivity and the potential of internet which is established on the values of accessibility and democracy. The communications of the brands of the luxury goods is between exclusivity and accessibility (Catry, 2003). The internet provides a perfect environment for these brands to create sense of being desirable to the potential and existing consumers and remain exclusive. Due to this, the internet is important to spread the dream of the luxury brands and attract new consumers and still maintain the sense of exclusivity to the traditional brand customers. This is by offering online services and content that is selective. Consumers of luxury goods also need unique products. When it comes to luxury goods, uniqueness is what counts. They are perceived to have unique, social, hedonic and conspicuous value (Eng & Bogaert, 2010)e. Different consumers perceive luxury goods differently because of their different experiences. The theory of reasoned action shows that attitude of the consumer impact directly on the behavior of the consumer. According to researchers, the need for uniqueness is an individual characteristic which is antecedent to the attitude of the consumers self expression towards the brands of luxuries and expression of self impact intention of purchasing luxury brands either directly or indirectly. Consumer’s uniqueness has its grounds in the uniqueness theory. This theory was formulated by Snyder and Fromkin’s and it manifests itself in the pursuit material goods by consumers in order to differentiate themselves from the other consumers. The consumer’s need for uniqueness is the trait of pursuing to be different compared to others. This is through utilization, disposition and acquisition of consumer goods to develop and enhance one’s self and social image (Catry, 2003). External factors Consumer’s decision making when purchasing luxury products is influenced by external factors. These factors are reference groups, family, social class, cultural and sub-cultural aspects, opinion leadership, cross-cultural consumer behavior and diffusion of innovations. Reference groups A reference group is a person or a group of people who influences an individual’s behavior. Business people and marketers are becoming aware of the external factors that influence the market segment of luxury products. Most consumers today encounter many products from which they are supposed to select. This is because of the competition that exists between the companies that deal in luxury products due to the different marketing strategies. Consumers desire to make informed choices. Due to this, consumers seek information and they accept the information they think is credible. This leads to the consumers being influence on the basis of information. There are different types of influences. The type of influence that is applicable to luxury products is the value expressive where individuals accept what is expressed by others. This can be due to liking for the group or attempt to be like the reference group. In the case of luxury products, consumers may be compelled to make decisions on the product to buy due to liking the reference group or wanting to be like the reference group. The influence of reference groups in luxury products depends on two conditions.First; the product must be exclusive in some way. Luxuries have different degree of exclusivity. This influences the consumer’s decision making. The second condition is that the item must be identified by others. Brand decisions which involve products that can be identified are more prone to the influence of the reference groups (Vickers & Renand, 2003). Messages play a crucial role in influencing ideas. Persuasive messages develop through different channels such as mass media. Consumers use comparative and reflective appraisal when making decisions on the products that they are going to purchase. Consumers engage themselves in direct interactions to help determine the evaluation of reference groups and observe the behavior of the reference group members. This is with regards to the decision being considered. Reference groups are used by advertisers to persuade consumers to purchase luxury products. The reference groups used by advertisers in the case of luxury products are; portraying the luxury products in situations that are socially pleasant, use of attractive and prominent people to endorse the luxury products and use of group members in advertisements, for example, spokespersons (Atwal & Williams, 2009). These reference groups not only market the luxury products but they also expose people to lifestyles, contribute to values and attitude formation, influence development of one’s concept and create pressure to conform to group norms. Social class A social class is a group of people in the society who have the same economic, social and educational status. Social class involves the divisions in the society in a hierarchical pattern forming distinct social status. The status of certain members influences their social class. The social class influences greatly the purchase of luxury products. Consumers who are in the same social class show similar purchasing behaviors. For example, wealthy people use specific brands of watches and cars to signal social class. Consumers with similar wealth and income will influence each other to purchase more costly luxury products so that they do not lag behind with luxury products that are used by those having lesser income and wealth. An example of luxury product in this case is cars. Many people own purses and shoes but specific brands of purses and shoes are the distinguishing features for the different classes of consumers. Consumers can be classified into four groups on the basis of wealth and need for status. The higher the income of the consumer, the higher the probability of them purchases luxury goods. The manufacturers of luxury goods will be concerned with how favorites vary amongst who have more in terms of wealth. On need for status, consumers of luxury goods are divided on the basis of the extent to which they want to gain prestige through consumption of luxury goods (Han, Nunes & Drèze, 2010). In general, consumers of luxury goods are subdivided into four groups based on their wealth and the extent to which consuming status is a motivator of their behavior. The first group is the patricians. They possess significant wealth and pay premiums for products which are branded. They avoid being taken as people who use luxuries to differentiate them from the others. They keep low in their need to use money for prestige and they associate with the other patricians. The second category is the parvenus. They possess significant wealth. They are affluent and crave for status. They dissociate themselves from the have-nots and associate with those who have, that is, the patricians and other parvenus. The third category of consumers is the poseurs who have high motivation to consume for the sake of status. However, they do not have the finance to enable them buy authentic luxuries. Due to this, they tend to buy luxury goods which are counterfeit. Poseurs want to be associated with those who have the financial means, that is, the parvenus and separate themselves from those consumers who are less affluent (Okonkwo, 2009). The fourth category of consumers is the proletarians. This term is used to refer to the consumers who are from lower economic and social class. The proletarians are not conscious on consuming luxury goods for the sake of status. They also do not concern themselves with signaling using goods that signal status. They seek to neither associate themselves with the consumers from the upper classes nor dissociate themselves from the other consumers of the same humble means. Culture Culture refers to shared beliefs, customs, attitudes and behaviors that are characteristics of the society. People with different cultures have different norms and values which influence their decisions. Your culture dictates the way that you should live. Culture has an effect on the things one should purchase. For example, some cultures allow women to wear miniskirts while others do not allow women to wear miniskirts. In Saudi Arabia, women wear clothes that completely cover them from head to toe. Due to this, their decisions on what to purchase is affected because they have to comply with their cultures (Han, Nunes & Drèze, 2010). There are networked groups that utilize online and social networking in their day to day activities. In consideration to luxury products, companies that deal in these products utilize online platforms to promote and sell their products. Therefore, consumers who use online tools will be able to get information from those companies’ websites. Information in the websites undergoes through updates which helps to convince the consumers to purchase the products. This information will also influence the consumers purchasing culture. Shopping is a culture because most consumers see it as a way of creating values in life, as a pastime consumption lifestyle. This behavior is common to consumers who like luxurious things and they keep on purchasing new luxuries to comply with the changes in the market. There are also some cultures that go for prices solely. Other cultures respect you and they want you to show them that you respect them before they buy from you. Consumers from other cultures buy from you if they like you as a person. The decision of the consumer to purchase also depends on the seller. This affects the consumers’ decision when buying luxury products. Sub culture A subculture is a group of people who are within a culture and are different from the culture which is dominant but have some things which are common with each other (Belk, 1995). These common things can be ethnicity, interests, jobs or religion. Ethnicity is important in marketing products. Examples of subculture marketing professionals are ethnic, sex, age, religious and racial subcultures.However, these are not the only subcultures that exist, and subcultures can develop based on the interests of the people. Examples of subcultures are who engage themselves in helicopter skiing. These people exhibit certain behaviors and interests which allow professionals in the marketing field to design products specifically for them. Age also affects the luxury products one will purchase. For example, teens influence the purchases in almost all the categories of products including luxury products. This is because they are very thoughtful of their appearances. To make them appear good, they purchase luxury products like watches an purses. Teens select the stores where they spend their money. Companies dealing in luxury products advertise their products via television and internet to focus on teens who are avid viewers of television and internet. This helps to build loyalty at an early age. From this, it is evident that age influences greatly on the consumer’s choice of luxury products. In USA, baby boomers, that is, individuals who were born between 1946 and 1964 have high level of education and they buy more and save less. This group of people spends money purchasing luxury products. Compared to generation X and Y and the senior citizens who may fail to buy the luxury products, it is evident that age influences the consumer’s decision of the luxury products they purchase (Okonkwo, 2009). Another good example of a subculture is of college students. Such subcultures develop due to the interests of the people, behavior and similarities. This allows professionals in the marketing field to design specific luxury products for them. Opinion leadership According to Tynan, McKechnie & Chhuon (2010) opinion leaders are people who are respected very highly and utilized by consumers to help them make decisions in different situations. In the market today, marketers have recognized the importance of interpersonal communication in ensuring that a product is accepted by the consumers. This communication also helps to disseminate information concerning new products. Opinion leaders have different attributes but they have common ways of channeling impersonal content into personal stream of influence. Opinion leaders are the channels of information between the media and the mass audiences. In the case of luxury goods, opinion leaders influence the decision of the consumers greatly. They relay information about new and existing products for example by advertising and since the audiences respect their opinions, consumers end up buying the products the opinion leaders prefer (Wiedmann, Hennigs & Siebels, 2009). Family Researchers consider the family of the consumer to be the most influential people on their buying behavior (Han, Nunes & Drèze, 2010). Children influence the purchase of many households. Many things that consumers buy or don’t buy are as a result of how they were brought up. Family members influence the purchasing of luxuries. For example, children may influence their parents to buy them luxuries like beds with comforters. With regards to family, companies are accused of manipulating children deliberately to nag their parents to buy them certain products. Diffusion of innovations An innovation is a product or an idea which is perceived by the adopter as new. Some innovations are more successful than others. This is the same case with luxury goods. The reasons for some products succeeding more than others are; Some products have a relative advantage compared to others. New products strongly succeed the existing ones. In this case, new luxury goods are viewed by the consumers to have greater benefits than the products they are using currently. For example, new vehicles with new and improved features are made, this influences the consumer’s decision when purchasing (de Mooij, & Hofstede, 2011). The degree to which the new product is consistent with an individual’s existing needs, values and practices influences how successful a new product will be. For luxury goods, the compatibility of a new luxury product influences the decisions of the consumers. If the new product replaces the existing product, consumers will be influenced to purchase the mew product. The degree to which the product is alleged to be difficult to use and understand also influences the success of the product. Consumer’s decision to buy luxury products will depend on their understanding on the usage of the new product. It will be difficult for the consumer to accept a luxury product if it is complex to understand. For a luxury product to be accepted by the consumers, the product should be easy for the consumers to use and take care of the product ((Han, Nunes & Drèze, 2010). The observability of a product influences how successful it will be ((Han, Nunes & Drèze, 2010). This means the degree to which its results are visible to other people. If consumers are able to see that other are benefiting from a product, that product will be more successful and diffuse faster. For luxury products, the observability of a product influences the decisions of the consumers. The luxury products which are of more benefit to the consumers are chosen over the others. Diffusion of a product is affected by communication, time and the social system. Public policy This is a guide to the action taken by the administrative executive branches of a state with regards to issues constituent with the laws and customs. The state has to enforce the laws to ensure that the consumers are protected. In Australia, counterfeiting is a major problem facing luxury goods. These counterfeit goods are imported into Australia. According to Corrs, counterfeit goods affect the profits of the owners, cause huge risk to the health of the public and safety and also deprive the government tax ((Han, Nunes & Drèze, 2010). Some of Corrs clients deal in luxury goods. Though the clients put respective anti counterfeiting programs in place, counterfeiting is growing at an enormous rate in Australia. On behalf of the clients, Corrs have made use of the Notices of Objection system used by ACS. Private investigators and the ACS have seized many counterfeit luxury products which bear the trademarks of some of Corrs clients. In Australia, when consumers of luxury goods and the owners become aware of infringements, they report to the police who may refer the cases to AFP. Others have put in place self help measures to prevent counterfeiting of their products (Belk, 1988). Others rely on private prosecutions where they undertake private action on counterfeit and public prosecutions. By doing this, the rights of the consumers are protected and the brand is protected too. Consumer protection Consumer protection constitutes of laws and organizations which have been designed to ensure the rights of the consumers and fair competition in trade and flow of truthful information freely in the market. These laws are to prevent businesses that are fraud and those with unfair practices from having unfair advantage over their competitors. These laws provide protection to the weak and those who are not able to take care of themselves. Their aim is to protect the consumer’s rights. Consumers of luxury products need to be protected from being mislead on the luxury goods they buy. The necessary protection for luxury goods is counterfeit protection or grey market protection, unfair trading practices and theft prevention (Husic & Cicic, 2009). Luxury goods are prone to counterfeiting. For example, watches can be counterfeited. Counterfeit products jeopardize the genuine luxury goods brands. This is by ruining the status of the genuine brands of luxuries and contributing them losing their uniqueness and exclusivity (Gentry, Putrevu & Shultz, 2006). These counterfeit products are of low prices and low quality and are offered to broad markets. They are the opposite of the genuine products which are of high quality, high prices and they are offered in selective markets. Consumers find counterfeit luxuries to be cheap and do not understand the effects of buying them.The money obtained from counterfeits are used to fund criminal activities such as laundering money and terrorism. Counterfeits also damage the economy (Nia & Zaichkowsky, 2000). All these affects the consumers and therefore they need to be protected. These counterfeits also impacts on the sales and reputation of the manufacturers. To protect the consumers, the luxury goods industries use warranty cards and package their products with coded teas PrioSpot@. This is suitable for luxuries like watches, writing instruments and handbags. To protect sale of grey market goods, companies dealing in luxury goods have developed internet investigation groups (Belk, 1988). This is to deal with the sales made via internet. These investigation groups use technical tools and human resources to creep the internet searching for grey market goods. Other than pursuing justice in federal courts, using notice and take down procedures, owners of the trademarks can register their marks with Customs. This will help to prevent importation of grey market goods unlawfully. The trademarks owners can also seek an exclusion order to direct the Customs to prevent grey market goods from being imported. Companies dealing in luxury goods can also build coalitions because their struggle in combating grey market goods is common to these companies and also their challenges and interests may be identical. The companies dealing in luxury products can also educate their consumers and infringers about illegal conducts and the enforcement efforts. This publicity will affect the infringers because they will start weighing the risks involved and the benefits of their doings. Consumers of luxury goods also need to be protected from unfair trading practices. This is for example misleading information on products by giving false information to customers or deceiving them, giving insufficient information on about the product and failure to honor commitments made in a code of conduct. Consumers of luxury goods are also prone to their goods being stolen. This is for example in the cases of cars. It is therefore necessary for the manufacturers of the cars to put preventive measures in place. The manufacturers use trackers to ensure that the consumers will be able to get their cars back in case they are stolen. These measures have been of great benefit to the consumers (Belk, 1988). Conclusion As seen in the discussion above consumers face the need to decide on what products to purchase. The process of making the decision comprises of five steps, that is, need or problem recognition, information search, evaluation of alternatives, purchase and post purchase behavior. There are theories and concepts explaining the consumer’s decision making. Luxury goods have the concepts of exclusivity and uniqueness. The utility theory is used to explain how consumers make decisions on what to purchase. There are external factors which influence the decision making process. These factors influence the consumer’s final decision on what to purchase. They are reference groups, social class, culture, subculture, opinion leaders, family and diffusion of innovations. The consumers of luxury goods may be misused and hence they need to be protected. The consumers may be misused in the following ways; counterfeit goods, theft, unfair trading practices and grey market goods. 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Value‐based segmentation of luxury consumption behavior. Psychology & Marketing, 26(7), 625-651. Read More