How many times throughout the day do you make decisions? What should I wear today, what perfume should I put on? What am I going to have for lunch?
If you think about it, we make many buying decisions every day without giving them much thought.
These decisions, however insignificant they may seem, keep marketers up at night. Because decoding the processes behind them means that we can use that info to boost revenue.
What is the meaning of consumer behavior
Consumer behavior is the study of consumers and the processes they use to choose, use (consume), and dispose of products and services, including consumers’ emotional, mental, and behavioral responses.
Consumer behavior incorporates ideas from several sciences including psychology, biology, chemistry, and economics.
In this guide we’ll take a look at the different aspects and facets of consumer behavior, and we’ll discuss the most effective types of customer segmentation.
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Why is consumer behavior important
Studying consumer behavior is important because this way marketers can understand what influences consumers’ buying decisions.
By understanding how consumers decide on a product they can fill in the gap in the market and identify the products that are needed and the products that are obsolete.
Studying consumer behaviour also helps marketers decide how to present their products in a way that generates maximum impact on consumers. Understanding consumer buying behaviour is the key secret to reaching and engaging your clients, and convert them to purchase from you.
A consumer behavior analysis should reveal:
- What consumers think and how they feel about various alternatives (brands, products, etc.);
- What influences consumers to choose between various options;
- Consumers’ behavior while researching and shopping;
- How consumers’ environment (friends, family, media, etc.) influences their behavior.
Consumer behavior is often influenced by different factors. Marketers should study consumer purchase patterns and figure out buyer trends.
In most cases, brands influence consumer behavior only with the things they can control; like how IKEA seems to compel you to spend more than what you intended to every time you walk into the store.
So what are the factors that influence consumers to say yes? There are three categories of factors that influence consumer behavior:
1. Personal factors: an individual’s interests and opinions that can be influenced by demographics (age, gender, culture, etc.).
2. Psychological factors: an individual’s response to a marketing message will depend on their perceptions and attitudes.
3. Social factors: family, friends, education level, social media, income, they all influence consumers’ behavior.
Types of consumer behavior
There are four main types of consumer behavior:
1. Complex buying behavior
This type of behavior is encountered when consumers are buying an expensive, infrequently bought product. They are highly involved in the purchase process and consumers’ research before committing to invest. Imagine buying a house or a car; these are an example of a complex buying behavior.
2. Dissonance-reducing buying behavior
The consumer is highly involved in the purchase process but has difficulties determining the differences between brands. ‘Dissonance’ can occur when the consumer worries that they will regret their choice.
Imagine you are buying a lawnmower. You will choose one based on price and convenience, but after the purchase you will seek confirmation that you’ve made the right choice.
3. Habitual buying behavior
Habitual purchases are characterized by the fact that the consumer has very little involvement in the product or brand category. Imagine grocery shopping: you go to the store and buy your preferred type of bread. You are exhibiting a habitual pattern, not strong brand loyalty.
4. Variety seeking behavior
In this situation, a consumer purchases a different product not because they weren’t satisfied with the previous one, but because they seek variety. Like when you are trying out new shower gel scents.
What affects consumer behavior?
Many things can affect consumer behavior, but the most frequent factors influencing consumer behavior are:
1. Marketing campaigns
Marketing campaigns influence purchasing decisions a lot. If done right and regularly, with the right marketing message, they can even persuade consumers to change brands or opt for more expensive alternatives.
Marketing campaigns can even be used as reminders for products/services that need to be bought regularly but are not necessarily on customers’ top of mind (like insurance for example). A good marketing message can influence impulse purchases.
2. Economic conditions
For expensive products especially (like houses or cars) economic conditions play a big part. A positive economic environment is known to make consumers more confident and willing to indulge in purchases irrespective of their personal financial liabilities.
Consumers make decisions in a longer time period for expensive purchases and the buying process can be influenced by more personal factors at the same time.
3. Personal preferences
Consumer behavior can also be influenced by personal factors, likes, dislikes, priorities, morals, and values. In industries like fashion or food personal opinions are especially powerful.
Advertisements can, of course, help but at the end of the day consumers’ choices are greatly influenced by their preferences. If you’re vegan, it doesn’t matter how many burger joint ads you see, you’re probably not gonna start eating meat because of that.
4. Group influence
Peer pressure also influences consumer behavior. What our family members, classmates, immediate relatives, neighbors, and acquaintances think or do can play a significant role in our decisions.
Social psychology impacts consumer behaviour. Choosing fast food over home-cooked meals, for example, is just one of such situations. Education levels and social factors can have an impact.
5. Purchasing power
Last but not least, our purchasing power plays a significant role in influencing our behavior. Unless you are a billionaire, you will take your budget into consideration before making a purchase decision.
The product may be excellent, the marketing could be on point, but if you don’t have the money for it, you won’t buy it.
Segmenting consumers based on their buying capacity will help marketers determine eligible consumers and achieve better results.
Customer behavior patterns
Buying behavior patterns are not synonymous with buying habits. Habits are developed as tendencies towards an action and they become spontaneous over time, while patterns show a predictable mental design.
Each customer has his unique buying habits, while buying behavior patterns are collective and offer marketers a unique characterization. Customer behavior patterns can be grouped into:
1. Place of purchase
Most of the time customers will divide their purchases in several stores even if all items are available in the same store. Think of your favorite hypermarket: although you can find clothes and shoes there as well, you’re probably buying those from actual clothing brands.
When a customer has the capability and the access to purchase the same products in different stores, they are not permanently loyal to any store, unless that’s the only store they have access to. Studying customer behavior in terms of choice of place will help marketers identify key store locations.
2. Items purchased
Things to consider: the items that were purchased and how much of each item was purchased. Necessity items can be bought in bulk while luxury items are more likely to be purchased less frequently and in small quantities.
The amount of each item purchased is influenced by the perishability of the item, the purchasing power of the buyer, unit of sale, price, number of consumers for whom the item is intended, etc.
Analyzing a shopping cart can give marketers lots of consumer insights.
3. Time and frequency of purchase
Customers will go shopping according to their feasibility and will expect service even during the oddest hours; especially now in the era of e-commerce where everything is only a few clicks away.
It’s the shop’s responsibility to meet these demands by identifying a purchase pattern and match its service according to the time and frequency of purchases.
One thing to keep in mind: seasonal variations and regional differences must also be accounted for.
4. Method of purchase
A customer can either walk into a store and buy an item right then and there, or order online and pay online via credit card or on delivery.
The method of purchase can also induce more spending from the customer (for online shopping, you might also be charged a shipping fee for example).
The way a customer chooses to purchase an item also says a lot about the type of customer he is.
Customer behavior segmentation
Customer segmentation, types of buyers, has always been important, but now that personalization and customer experience are factors that determine a business’ success, effective segmentation is even more important.
Traditionally, most marketers use six primary types of behavioral segmentation.
1. Benefits sought
A customer who buys toothpaste can look for four different reasons: whitening, sensitive teeth, flavor, or price.
When customers research a product or service, their behavior can reveal valuable insights into which benefits, features, values, use cases, or problems are the most important motivating factors influencing their purchase decision.
When a customer places a much higher value on one or more benefits over the others, these primary benefits sought are the defining motivating factors driving the purchase decision for that customer.
2. Occasion or timing-based
Occasion and timing-based behavioral segments refer to both universal and personal occasions.
- Universal occasions apply to the majority of customers or target audience. For example holidays and seasonal events when consumers are more likely to make certain purchases.
- Recurring-personal occasions are purchasing patterns for an individual customer that consistently repeat over a period of time. For example birthdays, anniversaries or vacations, monthly purchases, or even daily rituals such as stopping for a cup of coffee on the way to work every morning.
- Rare-personal occasions are also related to individual customers, but are more irregular and spontaneous, and thus more difficult to predict. For example attending a friend’s wedding.
3. Usage rate
Product or service usage is another common way to segment customers by behavior, based on the frequency at which a customer purchases from or interacts with a product or service. Usage behavior can be a strong predictive indicator of loyalty or churn and, therefore, lifetime value.
4. Brand loyalty status
Loyal customers are a business’ most valuable assets. They are cheaper to retain, usually have the highest lifetime value, and can become brand advocates.
By analyzing behavioral data, customers can be segmented by their level of loyalty so marketers can understand their needs and make sure they are satisfying them.
Loyal customers are the ones who should receive special treatment and privileges such as exclusive rewards programs to nurture and strengthen the customer relationship and incentivize continued future business.
5. User status
There are many different possible user statuses you might have depending on your business. A few examples are:
- First-time buyers
- Regular users
- Defectors (ex-customers who have switched to a competitor).
6. Customer journey stage
Segmenting the audience base on buyer readiness allows marketers to align communications and personalize experiences to increase conversion at every stage.
Moreover, it helps them discover stages where customers are not progressing so they can identify the biggest obstacles and opportunities for improvement, even on postpurchase behaviours.
Besides these traditional ways, another type of segmentation is the RFM model.
RFM comes from Recency, Frequency and Monetary Value.
- Recency = how recent a customer placed the last order on your website
- Frequency = how many times a customer purchased something from your website in the analyzed period of time
- Monetary Value = how much each customer spent on your website since the first order
The RFM model analysis can be executed in 2 ways:
- Manually – exporting your database in a spreadsheet and analyse your customers following the rules for RFM analysis
- Automatically – through certain tools that are creating RFM dashboards
From the RFM segmentation and analysis you can not only reveal what are your most loyal and profitable customers or less profitable customers but also:
- Reveal what brands and products are dragging your business down
- Build custom recommendations for your customers
- Solve certain Customer Experience problems
Before making decisions based on gut feeling regarding your customers and your audience, observe their behavior, listen to them and build a relationship before your competitors do.