Consumer Behavior Theories

Rajagopal

• Publisher: Business Expert Press
• Year: 2018
• ISBN:
  9781947441156
• Topic: Commerce
• Subtopic: Comportement du consommateur

This book critically examines and analyzes the classical and neoclassical behavioral theories in reference to consumer decision-making across the business cultures. Discussions in the book present new insights on drawing contemporary interpretations to the behavioral theories of consumers, and guide the breakthrough strategies in marketing.

CHAPTER 1

Exploring Consumers Today

Overview

Consumers of the 21st century have overcome the conventional value and turned to accept technology-driven marketing amenities. Digital space has offered higher transparency in business, and better opportunity for consumers to express their emotions across geo-demographic consumer segments. Shifts in wealth and income distributions of consumers, and shifts in corporate hierarchies at international and regional levels, have led to an escalation of consumer aspirations. This chapter discusses globalization effects on consumers, and competitive differentiation to attract consumers, and analyzes consumer culture and markets in the changing global business perspectives. Discussions on current trends in generating consumer lifetime value by the multinational and local companies and several arguments on the effects of consumerism due to the shifting consumer economics and disruptive market tendencies have been presented in the chapter. Discussion in this chapter also present a critical analysis of a wide range of business strategies being used today by the multinational companies to reach low-end markets and inculcate cross-cultural consumer values. The arguments in this chapter are supported by several examples of how new business models work in emerging markets, and describe approaches for creating sustainable consumer lifetime value.

Globalization and Consumerism

Conventional perspectives of globalization embed a mindset of allowing the flow of products and services of a company to the markets across the geo-demographic segments. This can be achieved using cross-border outlets to explore cost-effective opportunities, benefits, and costs in doing business. The core focus of companies today has turned consumer-centric, and the international companies are engaged in developing suitable strategy on how globalization can enhance existing products and profit formulas from international to bottom-of-the-pyramid market segments. However, organizations build their businesses on top of globalization by harnessing the most profitable strategies despite the behavioral differences across the markets and consumers. Such businesses display customer envelopment approaches, cocreate design and communications, harness the resources and competitive ideas, and aspire to achieve a global-local footprint to improve business performance and higher market competitiveness. Globalization has driven consumers toward working with the digital economy and virtual marketplaces. This trend enables most companies to establish real differentiators and best practices that can support managers in globalizing their businesses, ranging from tailoring the businesses for the local environment to leveraging global network effects (Kerr 2016). Various factors including continuous advancements in the information technology, social media communications, corporate initiatives to stay omnipresent in the global markets, and consumers’ enthusiasm for digital commerce have significantly increased consumer openness in the global markets. The consumers are concerned today about the value, about the products that look attractive or stylish but are nonetheless significantly less expensive than traditional offerings. Customer-centric companies like Costco, H&M, IKEA, and Zara have attracted consumers around the world by offering combination of value and exciting shopping experience. Successful consumer companies like Amazon and Apple offer intuitive user experience to acquire and retain them, and turn the consumers brand loyal. Other companies, such as Walmart, use their global footprint and avoid a multilayered distribution system to introduce products at significantly lower prices.

Globalization trends among multinational companies are embedded in multilocation manufacturing, technological alliances, digital planning, and monitoring; evaluation systems in manufacturing and marketing; and focusing on e-commerce. Building a global company with circular manufacturing and marketing attributes needs new and nonconventional ways about managing organization, manufacturing, marketing, and developing a sustainable competitive strategy. The approaches that proved successful in the past include the experimentations of globalization with General Electric Company (the United States), Toyota (Japan), Bosch (Germany), Cisco (the United States), and Haier (China). Most companies operating in the developed and emerging markets adopted best ­practices in the areas of lean manufacturing, operations management, logistics and inventory management, and customer relations management from these companies. However, replicating lean management practices of ­Japanese markets in various international and regional markets have outlived their ­experience. As the public safety concerns have mounted in the 21st ­century, governments of developing countries have become cautious of opening more industries to multinational companies. Besides, the rise of state ­capitalism in some emerging markets has altered the global playing field for companies (Bremmer 2014).

Current trends at the firm level suggest that globally integrated strategies toward manufacturing, operations management including logistics and inventory management, marketing, and innovation are oriented to attain first-mover advantage and stay ahead of competition for many industries. International business models explain industry trends from economic perspectives; and organizational excellence oriented toward attracting potential talents, managing business governance through technology, and developing strategies for setting an organic growth of the company over time and space. However, there is a gap in spatial business models in the area of strategic motivations of multinational firms, as they expand and integrate worldwide. Despite criticisms, companies should develop a capability-driven, as opposed to market-driven, framework to engross multinational strategy that could help companies to explore even the remote markets at the bottom of the pyramid. Such robust framework explains the organizational vigor for international expansion and global integration, depending on the capability types, capability strategies, and multinational strategies of the multinational firm (Tallman and ­Fladmoe-Lindquist 2002).

International consumer products companies are at edge of cocreating products today by commercialization of local innovations for wider markets. Godrej (India), General Electric (the United States), Nestle (Europe), and Unilever (the United Kingdom) have successfully experimented blending the local-global innovations, which may be identified as reverse innovation, to set their business roots in local markets. The emerging corporate-innovation model today is globally collaborative in reference to new product ideas, customer insights, business resources, and entrepreneurial intelligence coming from all over. For instance, more than 50 ­percent of innovation initiatives of Proctor & Gamble involve ­collaboration with outsiders. Innovations in the global marketplace have evolved from consumer needs to futuristic solutions. The evolution of markets over the centuries has been a perennial phenomenon congruent with the shifts in social, economic, and technological knowledge in the society. The evolution of business and growth has promoted economic behavior to explore the markets. Sociologically the evolution of markets was based on the understanding that individuals are embedded in various cognitive structures involving the business activities. Shifts in the market processes in the society are induced by fundamental beliefs and shared assumptions, and resemble elements of social culture defining norms of markets, expected behavior, and thought. Such business evolution paradigms are resistant to minor discrepancies between their fundamental models and contradicting (potentially empirical) evidence. Thus, discrepancies in market behavior are considered as socioeconomic abnormalities, paradoxes, or puzzles in a given place and time (Hedaa and Ritter 2005; Rajagopal 2012).

In the growing market competition, small firms always face major threat from large firms, as the latter possess more resources (physical, finance, human resources, and technology) than the smaller firms. Hence, most of the smaller firms develop cocooning attitude and confine to a niche, as they could not continue their struggle for existence in the marketplace. It may be observed that often large firms enter into new market niches created by small firms through technological innovation and ingest the market share of small firms. In view of the Darwinian Theory, it may be argued that market conditions and company-specific characteristics explain entry timing and underlying goals of the large firms. Such entry might be a continuous process for large firms in different marketplaces. The dominating behavior of large firms is more likely to be backed by the innovations in response to the competing firms. Small firms are affected by the entry of firms that are similar in size and resources. When a highly similar company enters the new market, it raises the probability that the company enters beyond levels based solely on the attractiveness of the market. Hence, small firms play aggressively and defensively to stay in the marketplace despite the competitive attacks by new entrants. On the contrary, consortium of small firms manufacturing identical products also poses a major threat to large firms in sustaining the competitive marketplace. For example, more than 20 companies have joined the Taiwan ­Blu-ray Disc (BD) Consortium, a special interest group, under the ­Taiwan Information Storage Association, formed by Taiwan-based companies involved in the BD market in 2010. The consortium includes makers of Blu-ray optical disc drives (such as Lite-On IT), optical discs (such as CMC Magnetics and Ritek), and integrated circuit design and components, hoping to join forces to negotiate better licensing terms for producing BD-related products. This consortium may cause a major threat to international BD manufacturers such as Sony to compete in the global marketplace against the consortium firms in reference to price and supply of BD products (Rajagopal 2012).

A good response to globalization was observed between 1980 and 2007. The economic recession in the United States during 2007–11 had raised several questions worldwide on the globalization, business performance, and public interests. The liberal trade routes, political agendas, and public diplomacy were conflicting with the globalization practices in the postrecession period. The myth of a borderless world has come crashing down after the referendum in 2016 about the coexistence of Briton with the European Union, and political ideology of the United States on globalization in 2017 changed with protectionist policies that have seriously affected the global trade. Traditional pillars of open markets such as the United States and the UK turned wobbling with their international business policies while China strengthened its opportunity in positioning itself as globalization’s staunchest defender. In June 2016, the vote on Briton’s exit from the European Union shocked the European Union, and the news coverage about globalization turned increasingly negative in the United States as the presidential election campaign progressed.

The concept of the global customer is gaining importance every day, and so is the global-customer-centric organization. The theory of comparative advantage suggests that firms may choose a destination to expand their marketing operation that offers relative economic advantage on factors of production (land, labor, and capital), technology, and managerial know-how. The comparative advantage in business may be defined as the ability of a firm to produce a specific good or service at a lower marginal and opportunity cost over another. Even if one country is more efficient in the production of all goods (absolute advantage in all goods) than the other, both countries will still gain by trading with each other, as long as they have different relative efficiencies. Going global is an easy process for firms. Firms need to simulate the impact of their business in global market in reference to their resources, target markets, and operational efficiency. Most firms concentrate on product markets considering the customers, who seek the same benefits or to be served with the s...