Understanding Consumer Behavior is Rocket Science

Gary C. Bizzo  |

Click to enlarge

Consumer behavior is often referred to as the psychology of marketing. It is an integral part of all marketing decisions. Marketing is completely customer oriented, so it makes sense to understand the motivations and behaviors of customers while designing a marketing strategy. It’s the process of understanding what factors affect an individual’s purchase decision. All managers must become astute analysts of consumer motivation and behavior.

Understanding why people purchase a particular item over another is critical in deciding pricing, promotional channels, distribution models and actual product development. Through most of the 20th century, "marketers" used models and theories that explained the process of consumer buying in terms of voodoo mastery or some hit and miss tactic. It was only recently, since the 1990s, that the study of consumer behavior became a science encompassing psychology, sociology, anthropology and economics. It became the study of peer pressure, cultural differences, expectations, rituals and customs.

The genesis of marketing as a science came as a result of the 1980-90s introduction of point-of-purchase analytics and barcoding. Suddenly products and therefore purchasing habits were being tracked. Progressive marketers are turning to big data analysis methods as well as systematic observation, testing and measurement to study broad behavioral patterns, drilling down from the aggregate to the individual and producing new insights that improve business outcomes (Wikipedia).

When I shop at my favourite food store I give them my shopper card to get discounts on inflated prices. It’s a feel good exercise and, of course, a money saver, but its basis is for marketers to analyze our buying habits, thereby enabling them to place certain products on the preferred "end of aisle" promotional spots, delete products not selling and elevate those that are selling well to a better position on shelves. It’s science!

It’s been long understood why people tend not to conduct a lot of meetings and work in a McDonald's versus the ubiquitous Starbucks. McDonalds understood the psychology of color and how to make a place unwelcome for long stays. They wanted you to purchase their meals, but they also wanted customer volume to turnover quickly. Their vibrant (some consider obnoxious) colors made you want to eat and leave. Starbucks on the other hand probably wish they hadn’t made their stores so comfortable to work in. Starbucks has turned into the entrepreneur's stand-by office.

Of course, there are factors influencing our consumer behavior:

  • Cultural
  • Social
  • Personal
  • Psychological

By combining the studies of psychology, sociology, anthropology, neuroscience and engineering to explain behaviors, we can predict how consumers will react to certain marketing stimuli. Why are the best selling products in the supermarket placed at a certain height? For ease of reach for a 5’ 5” woman, the main shopper in a family. Why are police typically dressed in blue? Blue is seen as a color connoting trust! Why do you wear that red "power" tie? It’s self-explanatory.

Using data driven analytics to support marketing campaigns, we can determine that a Millennial demographic in a certain part of the city will be more susceptible to a campaign geared to them for our product launch.

Observing patterns in consumer behavior through studies, focus groups, interviews and primary research (not secondary using Google) enables marketers to analyze the data in predictive models and focus campaigns in that direction.

And lastly, by using testing, e.g., A/B testing, we can determine to a virtual certainty what ads will outperform others in environments like Facebook, Google and LinkedIn. I’ve used this technique to determine the correct ad to gain a response from investors willing to invest in a corporate client of mine. We created four ads: one with aggressive language and passive call to action and the other three variations on the theme that included passive and aggressive calls to action. We also used two ads on two different age demographics. The clear winner with ten times the results on a one-week ad test was the passive language and an aggressive call to action to an older age demographic. The ad was selected on that basis and made a lot of money for the business.

If you look at it simplistically, culture influences how and what we eat. You would be hard pressed to introduce a beef product like a burger to India where beef is a forbidden food. So-called ethnic foods define where, when and how we eat.

Our culture, especially our family group, helps shape an individual's attitudes and behaviors, develop political and religious beliefs, lifestyle choices and consumer preferences.

Our social mores, interactions and close relationships define what we buy. Your best friend buys a new pair of running shoes from Nike. Peer pressure may instill the urge for you to buy a pair as well so you "fit in." I’d love to meet the guy who introduced that style where young men wear their jeans near to their knees in an effort to be non-conforming and cool. Yuck.

Leon G. Schiffman (2008) defined personality as the unique dynamic organization of characteristics of a particular person, physical and psychological, which influence behaviour and responses to the social and physical environment and are related to the heredity and the experience of early childhood. How you were brought up influences your consumer behavior.

Everything I have been taught in terms of marketing has exhibited a strong scientific basis. The psychological effects of pricing products at $3.99 versus $4.00 are legendary. If you think it doesn’t work, I did my own empirical study when I was a commercial photographer. I changed all my pricing to be rounded off to the larger number and suffered a revenue decrease of 25% over three months. Our brain is tricked into believing that the price is closer to $9 than $10 on a price point of $9.99.

Since I have changed my marketing business from a brand awareness model to an analytical model, I have noticed a big difference in business. People understand and want to know the analytics of consumer management.

For the startup founder who does his own packaging and decides his own market demographics based on gut felling, I say good luck! Marketing is rocket science and not for the faint of heart to enter into lightly.

The next time you see a product on your grocery shelf or look at the branding of an Apple product consider that thousands of hours at considerable expense has gone in to understanding consumer behaviour for that product and that they know and understand the person that buys their product.

Gary is a Startup Specialist, CEO of Bizzo Management Group Inc. and Bizzo Integrated Marketing Corp. in Vancouver. London-based Richtopia placed Bizzo on the Top 100 Global Influencers in the World for 2018. He is an Adjunct Professor of Integrated Marketing & Consumer Behavior at the New York Institute of Technology, MBA School of Management (Vancouver Campus).

___

Equities Contributor: Gary Bizzo

Source: Equities News

DISCLOSURE: none


The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.

Comments

Watchlist

Symbol Last Price Change % Change
AAPL

     
AMZN

     
HD

     
JPM

     
IBM

     

What Is Petrolithium?

MGX Minerals explains the advantages of petrolithium and how they are helping to solve future problems today.