CHAPTER 3

Analyzing Consumer Markets

Flipkart’s ‘human approach to technology’ revolves around customer satisfaction and loyalty. The
company’s research focuses on understanding factors that affect consumers decision and pain points.
Source: Pawan Kumar / Alamy Stock Photo

Learning Objectives After studying this chapter you should be able to:
 3.1 Identify the key factors that influence consumer behavior.
3.2 Explain the role cultural, social, and personal factors play in
consumer behavior.
3.3 Explain how consumers’ needs, emotions, and memory influence
their behavior.
3.4 Illustrate the key stages of the buying decision process.

Flipkart, founded by the IIT Delhi alumni duo—Binny Bansal and Sachin
Bansal, started as an online bookstore in 2007.1 Its technology driven
customer-centric approach soon gained popularity, and the company
moved into new categories including music, movies, games, electronics
and mobiles. The company introduced the ‘cash-on-delivery’ (COD)
option2 to gain customers’ confidence. COD attracted buyers who were
reluctant to use credit cards for prepaid transactions because of widespread
online financial frauds. No-questions-asked returns policy, no-cost
instalment schemes, easy product exchange and 24×7 contact centres for
round the clock service were some of the other customer-friendly
initiatives introduced by the company. In 2018, Flipkart reached the
milestone of being the first Indian e-commerce company with 100 million
registered users and 50 million mobile app users.3 Flipkart’s ‘human
approach to technology’ revolves around customer satisfaction and loyalty.
All key decisions related to research & development, innovation and
technology are driven by a keen desire to understand the changing needs of
customers. Its Flipkart Lite, a progressive web app, is primarily designed
to support the app browsing for low-speed Internet users. Exclusive online-
only product launches and easy product exchange for the value seeking
customers exemplify its commitment to meet the evolving customer
needs.4 In 2018, Walmart acquired a majority stake for $16 billion in
Flipkart, and the latter’s growth accelerated by investing in logistics,
distribution and fulfilment centres to help sellers on its marketplace.5 It
launched Brand Pulse, an insights tool to make the online shopping
experience more seamless for consumers and valuable for brands on
Flipkart’s platform.6 The sellers on Flipkart can use insights, gleaned from
 millions of consumers’ digital journey including search, response to
banners, page views and purchase, to develop timely and focused
marketing plans. Going forward as competition rises from the likes of
Amazon and JioMart, Flipkart needs to have even greater focus on
customer needs and choices.

M arketers must have a thorough understanding of how consumers think,

feel, and act and must offer clear value to each and every target
consumer. Understanding consumer needs is the key to designing a value
proposition that creates value for each and every customer. One of India’s
fastest growing brands, Flipkart, has achieved phenomenal market success by
developing offerings tailored to the needs of its customers. This chapter
explores the buying dynamics of individual consumers. Adopting a holistic
marketing orientation requires fully understanding customers and gaining a
360-degree view of both their daily lives and the changes that occur during
their lifetimes to ensure that the right products are marketed to the right
customers in the right way at the right time.

THE MODEL OF CONSUMER BEHAVIOR

Research on consumer behavior explores how individuals, groups, and
organizations select, buy, use, and dispose of goods, services, ideas, or
experiences to satisfy their needs and wants.7 To create customer value,
marketers must fully understand both the theory and the reality of consumer
behavior.
The starting point for understanding consumer behavior is the model shown
in Figure 3.1. The tactics shaping the offering and the context of the market in
which the offering will be sold are filtered through the cultural, social, and
personal lenses of target customers, as well as being influenced by consumer
motivation, perception, emotions, and memory. This, in turn, influences the
consumer buying process—a journey that entails recognition of a need, a
search for the best means to fulfill that need, and evaluation of the available
options to finally arrive at the ultimate decision of what, when, where, and
how much to buy, and how to pay for these purchases.8
 We discuss the key consumer characteristics and the psychological
processes underlying consumer behavior in the following sections.

CONSUMER CHARACTERISTICS
A consumer’s buying behavior is influenced by cultural, social, and personal
factors. Of these, cultural factors exert the broadest and deepest influence on
people’s perceptions and desires and on how they go about fulfilling their
needs and wants.

FIGURE 3.1
Model of Consumer Behavior

CULTURAL FACTORS
A culture is a way of life among a group of people—the behaviors, beliefs,
values, and symbols that they accept, generally without thinking about them,
and that are passed along by communication and imitation from one
generation to the next.9
 Culture, subculture, and social class are particularly important influences on
consumer buying behavior. Culture is a fundamental determinant of a person’s
wants and behavior. Through family and other key institutions, a child
growing up in the United States is exposed to values such as achievement and
success, activity, efficiency and practicality, progress, material comfort,
individualism, freedom, humanitarianism, and youthfulness.10 A child
growing up in another country might have a different view of self, relationship
to others, and rituals.
Cultures can differ on a variety of dimensions, such as the extent to which
people prioritize close (vs. distant) others and whether they behave as if they
are part of a collective (i.e., collectivistic cultures) or see themselves as
independent agents who value their autonomy (i.e., individualistic cultures).
Marketers must closely attend to cultural values in every country to understand
how best to market their existing products and find opportunities to develop
new products. Each culture also consists of subcultures that provide members
with more specific identification and socialization. Subcultures include
nationalities, religions, racial groups, and geographic regions. When
subcultures grow sufficiently large and affluent, companies often design
specialized marketing programs to serve them.
To determine the effect of culture on purchases, a recent longitudinal study
examined data from 30,000 customers of a global fashion retailer in 30
countries. The study analyzed demographic background, shopping behavior,
participation in loyalty programs, types of products bought, product returns,
and advertising costs—including e-mail and catalogs—using a framework that
enabled national culture to be examined according to the importance of
individualism and collectivism, level of indulgence or restraint, type of
offerings bought, loyalty to companies/brands, tendency to embrace new
technologies, and use of media. Among the findings: Consumers in
individualistic societies like Australia and the United States are more likely to
buy for themselves, follow trends, use multiple purchase channels (including
online and catalog) to find the best deal, and return items that fall below
expectations, whereas consumers in collectivist countries (e.g., Portugal,
Mexico, and Turkey) tend to follow the crowd, value long-term reputation,
shop for their families, buy from trusted retailers, and prefer traditional brick-
and mortar stores.11
Virtually all human societies exhibit social stratification, most often in the
form of social classes—relatively homogeneous, enduring, and hierarchically
ordered divisions in a society whose members share similar values, interests,
and behavior. For example, the United States has lower, middle, and upper
classes. Social class members show distinct product and brand preferences in
many areas. They may at times want to communicate that they belong to a
specific social class by purchasing products that can be viewed as status
symbols.12 The rigidity of social hierarchies and how difficult it is to move up
the social ladder also differ across cultures. For example, places like India and
Brazil have relatively rigid social hierarchies, with people’s positions on the
various rungs being determined at birth.
Pervasive inequality still exists among the upper, middle, and lower classes
in Brazil, which are often divided into A-B-C-D-E socioeconomic segments
by statisticians and marketers. Although it is relaxing slightly, this strict social
stratification still divides wealthier and better-educated property owners, and
those with special technical skills and expertise (A and B classes), from the
large and disproportionately poor E-class segment of the population that has
limited access to employment, education, and even basic government services
like health and sanitation. C-class individuals typically have at least a high
school degree and provide services to those in the A & B classes as teachers,
managers, nurses, and the like. Individuals in the D class serve the C class as
maids, drivers, bartenders, mechanics, etc. Those in the lowest economic
stratum typically have not completed elementary school, are often illiterate,
and, when employed, are usually found in jobs such as cleaner and street
sweeper that pay meager wages.13

SOCIAL FACTORS
In addition to cultural factors, social factors such as reference groups,
including family, affect our buying behavior. We address these factors in more
detail next.
Reference Groups. Reference groups include all the groups that have a
direct or indirect effect on a person’s beliefs, decisions, and behavior. Family
members typically constitute the most influential primary reference group.
Parents and siblings have a major influence in forming an individual’s beliefs,
value system, and behavior. An individual’s spouse and children, on the other
hand, have a more direct impact on everyday buying decisions, especially in
the case of high-ticket items and items that are used by different members of
the household.
Reference groups include not only those that individuals belong to, such as
friends, neighbors, coworkers, and religious and interest-based groups.
Individuals may also be influenced by groups to which they do not belong,
such as aspirational groups that they hope to join and dissociative groups
whose values or behavior they reject.
Where reference group influence is strong, marketers must determine how
to reach and influence the group’s opinion leaders. An opinion leader, or an
influencer, is a person who offers informal advice or information about a
specific product or product category, such as which of several brands is best or
how a particular product may be used.14 Opinion leaders are often highly
confident, socially active, and frequent users of the product category.
Marketers try to reach these leaders by identifying their demographic and
psychographic characteristics and the media they read, as well as by directing
messages to them.15
All of us participate in many groups—family, clubs, organizations—that
often influence our norms of behavior. We can define a person’s position in
each group in terms of role and status. A role consists of the activities a person
is expected to perform. Each role in turn connotes a status. A senior vice
president of marketing may have more status than a sales manager, and a sales
manager may have more status than an office clerk. People choose products
that reflect and communicate their role and their actual or desired status in
society. Thus, marketers must be aware of the status-symbol and self-defining
potential of products and brands.

Family. The family, as the most influential primary reference group,16 is the
most important consumer buying organization in society. There are two
families in the buyer’s life. The family of orientation consists of parents and
siblings. From parents a person acquires an orientation toward religion,
politics, and economics, along with a sense of personal ambition, self-worth,
and love.17 Even if the buyer no longer interacts very much with his or her
parents, parental influence on behavior can be a significant determinant of
purchases.
A more direct influence on everyday buying behavior is the family of
procreation—namely, the person’s spouse and children. In the United States,
purchases have in the past varied widely by product category, with the wife
usually acting as the family’s main purchasing agent, especially for food,
sundries, and clothing items. Traditional purchasing roles are now changing,
and marketers now see both men and women as viable targets.
For expensive products and services such as cars, vacations, or housing, the
vast majority of spouses engage in joint decision making.18 Men and women
may respond differently to marketing messages, however. Research has shown
that women tend to place greater value connections and relationships with
family and friends and place a higher priority on people than on companies.19
Accordingly, marketers have customized the positioning of many products
such as Quaker’s Nutrition for Women cereals and Crest rejuvenating and
whitening toothpaste.
Another shift in buying patterns is an increase in the amount of dollars spent
by children and teens and the direct and indirect purchasing influence they
wield. Direct influence takes the form of children’s hints, requests, and
demands: “I want to go to McDonald’s.” Indirect influence means that parents
know the brands, product choices, and preferences of their children without
hints or outright requests: “I think Jake and Emma would prefer to go to
Panera.”
A recent survey of the social media habits of 13- to 33-year-olds reveals that
only 2 percent say they do not use any social platform, and Millennials report
that they use their smartphones more than 11 hours each day, mostly for
messaging and social networking. The majority of participants say they have
friended or followed a brand on social media; 38 percent have posted about a
brand, with 54 percent of these posts being positive and only 22 percent
negative.20
PERSONAL FACTORS
Personal characteristics that influence buyers’ decisions include their age and
stage in the life cycle, occupation and economic circumstances, personality
and self-concept, and lifestyle and values. Because many of these factors have
a direct impact on consumer behavior, it is important for marketers to follow
them closely.
Our taste in food, clothes, furniture, and recreation is often related to our
age. Consumption is also shaped by the family life cycle and the number, age,
and gender of people in the household at any given time. U.S. households are
evolving: The traditional family of four with a husband, wife, and two kids
makes up a much smaller percentage of total households than it once did.
In addition, psychological life-cycle stages may matter. Adults experience
certain passages, or transformations, as they go through life,21 causing their
behavior during these intervals to adapt to changing circumstances. Marketers
should consider critical life events or transitions—marriage, childbirth, illness,
relocation, divorce, first job, career change, retirement, death of a spouse—as
giving rise to new needs. Companies should be alert to these needs and
provide products and services that can best meet them.
It’s not surprising that the baby industry attracts many marketers, given the
enormous amount parents spend and the life-changing nature of parenthood.

The Baby Market Although they may not yet have reached their full
earning potential, expectant and new parents seldom hold back when
spending on their loved ones, making the baby industry more recession-
proof than most. Spending tends to peak between the second trimester of
pregnancy and the twelfth week after birth. First-time mothers-to-be are
especially attractive target customers since they will be unable to use many
hand-me-downs and will need to acquire a full range of new furniture,
strollers, toys, and baby supplies. Recognizing the importance of reaching
expectant parents early to win their trust—industry pundits call it a “first in,
first win” opportunity—marketers use a variety of media, including direct
mail, inserts, space ads, e-mail marketing, and websites. Product samples
are especially popular, and kits are often distributed at childbirth education
classes and other places. Many hospitals have banned the traditional bedside
 gift bag, however, because of concerns with privacy and potentially adverse
effects on a vulnerable audience (e.g., distributing baby formula may
discourage new mothers from breastfeeding). Other avenues of access exist:
For example, Disney Baby partners with a company that sells baby bedside
photos, hands out playful Disney Cuddly Bodysuits, and solicits sign-ups
for e-mail alerts from DisneyBaby.com. Not all expenditures go directly to
baby-related purchases. Such a fundamental life change gives expectant or
new parents a whole new set of needs that has them thinking differently
about life insurance, financial services, real estate, home improvement, and
automobiles.22

Occupation also influences consumption patterns. Marketers try to identify

the occupational groups that have above-average interest in their products and
services, and they even tailor products for certain occupational groups.
Computer software companies, for example, design different products for
brand managers, engineers, lawyers, and physicians. Michigan-based Carhartt
Inc., founded in 1889, has become a global work-clothing dynasty with 800
products, a network of some 100 metro-Detroit retail stores, and corporate
stores in seven states, as well as Carhartt Europe and Australia. Carhartt’s line
of durable industrial, farm, and outdoor clothing is known for quality fabrics
and workmanship and through the years has gained traction as streetwear.23
Both product choice and brand choice are greatly affected by economic
circumstances like the level, stability, and pattern of spendable income;
savings and assets, including the percentage that is liquid; debts and borrowing
power; and attitudes toward spending and saving. If economic indicators point
to a recession, marketers can take steps to redesign, reposition, and reprice
their products or emphasize discount brands so they can continue to offer
value to target customers.
 Brands like Disney Baby know that reaching expectant and new parents early is essential to success in
the baby market.
Source: Carolyn Jenkins/Alamy Stock Photo

Personality and Self-Concept. By personality we mean a set of

distinguishing human psychological traits that lead to relatively consistent and
enduring responses to environmental stimuli, including buying behavior. We
often describe personality in terms of such traits as self-confidence,
dominance, autonomy, deference, sociability, defensiveness, and
adaptability.24
 Consumers typically choose and use brands with a brand personality
consistent with their actual self-concept (how we view ourselves), although
the match may instead be based on the consumer’s ideal self-concept (how we
would like to view ourselves) or even on others’ self-concept of us (how we
think others see us).25 These effects may be more pronounced for publicly
consumed products than for privately consumed goods.26 On the other hand,
consumers who are high “self-monitors”—that is, are sensitive to the way
others see them—are more likely to choose brands whose personalities fit the
consumption situation.27
Finally, multiple aspects of self (serious, professional, caring family
member, active fun-lover) may often be evoked differently in different
situations or around different types of people. Some marketers, like Joie de
Vivre Hotels, carefully orchestrate their brand experiences to appeal to a
variety of different personalities.

Joie de Vivre Named one of best boutique hotel chains by the editors of
Smarter Travel magazine, San Francisco-based Joie de Vivre boasts the
largest collection of lifestyle boutique hotels in California, with additional
locations in Chicago, Baltimore, and New York City. The chain views itself
as “a collection of heartfelt stories brought to life” and aims to inspire “the
spirt of playful travel through neighborhood connections.” Guests at Joie de
Vivre’s sleek and intimate, pet- and family-friendly, community-focused
hotels have the option to donate $1 a night, which goes directly to each
hotel’s philanthropic partners. The chain donates almost $1.5 million each
year to neighborhood organizations in the form of gift certificates, cash and
in-kind donations, and events. All hotels participate in recycling,
composting, and textile and food donation programs, and all work to
conserve water and energy, use environmentally safe products, and purchase
organic, fair trade food.28

Values and Lifestyle. Consumer behavior is guided by a value system—a set

of principles and notions of “right and wrong”—that determines what is
meaningful and important to consumers and how they choose to live and
interact with others. Consumer decisions are also influenced by these core
values, which go much deeper than behavior or attitude and, at a basic level,
guide people’s choices and desires over the long term. Marketers who target
consumers on the basis of their values believe that appealing to people’s inner
selves makes it possible to influence their outer selves—their purchase
behavior.

Market research and consumer understanding spurred Allen Solly to keep introducing new range and
collections that reflected changing consumer lifestyle and ramped-up sales.
Source: Allen Solly©Aditya Birla Fashion & Retail Limited, used with permission

Allen Solly Allen Solly is a prominent example of a brand that aligns with
the evolving values and lifestyle of its target audience. Established in 1744,
the brand was introduced in India in the early 1990s. Strategically
positioning itself as ‘work casuals’, Allen Solly stood out in the premium,
formal office wear market. The brand attracted the young professionals,
aged between 21 to 30 years, employed in the booming services and
software businesses in India. The brand image reinforced through the
‘Friday Dressing’ concept transformed the office wear range from formal
plain and striped shirts and trousers to relaxed casuals.31 The success of
Allen Solly’s office apparel in colourful shirts and khaki trousers paved way
 for it to become one of India’s leading fashion brand. In response to the
changing lifestyle needs of its target audience—the millennials, Allen Solly
later extended its positioning to ‘casual brand for all occasions’ in 2008.
The brand’s redesigned logo and a new tag line— ‘My World, My Way’—
reflected the young, independent spirited and dynamic millennials.32 In
2018, the brand launched its ‘New Age Work Wear Collection’ to celebrate
the emergence of open work culture in organisations emphasizing work-life
balance and employee friendly policies. Driven by a deep understanding of
the ever-evolving young professionals, Allen Solly continues to lead in
defining fashion at work through its distinct offerings.33

People from the same subculture, social class, and occupation may adopt
quite different lifestyles. A lifestyle is a person’s pattern of living in the world,
as expressed in activities, interests, and opinions. It portrays the “whole
person” interacting with his or her environment.29
Lifestyles are shaped partly by whether consumers are money-constrained
or time-constrained. Companies that aim to serve the money-constrained will
create lower-cost products and services. By appealing to thrifty consumers,
Walmart has become the largest company in the world. Its “everyday low
prices” have wrung tens of billions of dollars out of the retail supply chain,
passing the larger part of savings along to shoppers in the form of rock-bottom
bargain prices.
Consumers are prone to multitasking. Some will also pay others to perform
tasks because time is more important to them than money. Companies aiming
to serve them will create products and services that offer multiple time-saving
benefits. For example, multitasking beauty balm (BB) skin creams offer an all-
in-one approach to skin care, incorporating a moisturizer, anti-aging
ingredients, sunscreen, and sometimes even a whitening agent.30

CONSUMER PSYCHOLOGY
When marketing and environmental stimuli enter the consumer’s
consciousness, a set of psychological processes combine with certain
consumer characteristics to result in decision processes and purchase
decisions. The marketer’s task is to understand what happens in the
consumer’s consciousness between the arrival of the outside marketing stimuli
and the ultimate purchase decisions. Four key psychological processes—
motivation, perception, learning, and memory—fundamentally influence
consumer responses.

CONSUMER MOTIVATION
Understanding consumer motivation begins with understanding the needs
consumers aim to fulfill with their actions. Thus, we first discuss the essence
of consumer needs and then address the way these needs motivate consumer
behavior.

Consumer Needs. Needs are the basic human requirements, such as air, food,
water, clothing, and shelter. Some needs are biological and arise from
physiological states of tension such as hunger, thirst, or discomfort. Other
needs are psychological and arise from psychological states of tension such as
the need for recognition, esteem, or belonging.
One of the best-known theories of human motivation, that of Abraham
Maslow, carries important implications for consumer analysis and marketing
strategy. Maslow sought to explain why people are driven by particular needs
at particular times.34 His answer is that human needs are arranged in a
hierarchy from most to least pressing—from physiological needs to safety
needs, social needs, esteem needs, and self-actualization needs (see Figure
3.2). People try to satisfy their most important needs first and then move to the
next important. For example, a starving man will not take an interest in the
latest happenings in the art world (need 5), or in the way he is viewed by
others (need 3 or 4), or even in whether he is breathing clean air (need 2) until
he has enough food and water (need 1), after which the next most important
needs will become salient.
Needs become wants when directed to specific objects that might satisfy the
need. Our wants are shaped by our society. A U.S. consumer needs food but
may want a Chicago-style “deep-dish” pizza and a craft beer. A consumer in
India needs food but may want chole, tandoori chicken, and naan.
 Demands are wants for specific products backed by an ability to pay. Many
people want a Mercedes but only relatively few can buy one. Companies must
measure not only how many people want their product but also how many are
willing and able to buy it. These distinctions shed light on the criticism that
“marketers get people to buy things they don’t want.” Marketers do not create
needs: Needs pre-exist marketers. Marketers might promote the idea that a
Mercedes satisfies a person’s need for social status. They do not, however,
create the need for social status.

FIGURE 3.2
Maslow’s Hierarchy of Needs
Source: A. H. Maslow, Motivation and Personality, 3rd ed. (Upper Saddle River, NJ: Prentice Hall,
1987). Printed and electronically reproduced by permission of Pearson Education, Inc., Upper Saddle
River, NJ.
Since she sprang into being a century ago, Betty Crocker has lent her name to more than 200 General
Mills products and has even hosted her own radio and TV cooking shows.
Source: Chronicle/Alamy Stock Photo
 Some customers have needs that they are not fully conscious of or cannot
articulate. What does the customer mean when asking for a “powerful” lawn
mower or a “peaceful” hotel? The marketer must probe further. Responding
only to the stated need may shortchange the customer.35 Consumers did not
know much about tablet computers when they were first introduced, but Apple
worked diligently to shape consumer perceptions and adoption of this
technological innovation. To gain an edge, companies must help customers
learn what they want—and make it convenient for them to obtain it. Dollar
Shave Club’s subscription service helped customers realize they could pay less
for razors and Blue Apron helped people overcome a lack of confidence in
their culinary skills that made cooking at home appear difficult.

Consumer Motivation. We all have many needs at any given time. A need
becomes a motivation when aroused to a sufficient level of intensity to drive
us to act.36 Motivation has both direction (we select one goal over another)
and intensity (we pursue the chosen goal with more or less vigor).
Motivation researchers often conduct in-depth interviews with a few dozen
consumers to uncover deeper motives triggered by a product. They do this by
using various psychology-based projective techniques such as word
association, sentence completion, picture interpretation, and role play to probe
consumers’ mindset indirectly, which can yield information not elicited by
explicit questioning.

Betty Crocker The name Betty Crocker, synonymous with cooking and
baking, came into being in 1921 to personalize responses to consumer
inquiries resulting from a promo for Gold Medal Flour. Betty catapulted to
fame via a popular radio show and, according to Fortune magazine, in 1945
was second only to First Lady Eleanor Roosevelt in popularity. Betty’s
image has morphed from the first rather motherly figure in 1936 to that of a
modern working woman, and she has managed to stay relevant throughout
the years through painstaking research. For example, when sales of its
instant Betty Crocker cake mix began to plateau in the 1950s, General Mills
looked to Viennese-American psychologist and behavioral marketer Ernest
Dichter. The dry cake mix required only the addition of water. Using
 Freudian methods to query focus groups of women, Dichter concluded that
the ritual of baking a cake was rife with relationship and fertility symbolism
and suggested removing the powdered egg from the mix, instead making
housewives add their own fresh eggs. Sales soared after General Mills
followed this advice.37

Another motivation researcher and cultural anthropologist, Clotaire

Rapaille, worked on breaking the “code” behind product behavior—the
unconscious meaning people give to a particular market offering. Rapaille
worked with Boeing on its 787 “Dreamliner” to identify features in the
airliner’s interior that would have universal appeal. Based in part on his
research, the Dreamliner has a spacious foyer; larger, curved luggage bins
closer to the ceiling; larger, electronically dimmed windows; and a ceiling
discreetly lit by hidden LEDs.38 The opposite occurred with Chrysler’s PT
Cruiser, which reached the end of the road in less than a decade.

PT Cruiser When introduced at the beginning of the 21st century, the PT

(Personal Transportation) Cruiser’s retro looks and accessible price proved
to be a hit with consumers in all age groups, although the polarizing design
(“a cross between an old-time milk truck and luxurious sedans of the
1930s”) had its critics as well as its imitators, like the Chevrolet HHR. The
PT Cruiser was the first DaimlerChrysler vehicle designed using archetype
research, a qualitative method developed by French medical anthropologist
Clotaire Rapaille. Rapaille’s approach focused on uncovering the deep-
seated psychological drivers of consumers’ behavior that go beyond such
specific product attributes as color, size, and convenience to capture the
feelings and emotions that define the “cultural unconscious” (or, in the
words of Rapaille, consumers’ “reptilian hot button”) that defines product
choice. The result was a five-door, tall-roofed hatchback that was intended
to evoke a nostalgic emotional reaction. Upon its launch, the PT Cruiser
was considered a massive success, selling 145,000 vehicles in 2001. But by
2009, sales had plummeted to 18,000. The reason for the PT’s decline came
down to Chrysler’s failure to invest in improving and updating the car, as
well as its failure to release new models in response to consumer demand.
 In addition, the design appealed to a distinctly American audience during a
time when globalization was becoming increasingly important to recouping
research and development costs.39

The PT Cruiser was DaimlerChrysler’s first foray into vehicle design using archetype research
intended to trigger an emotional appeal and lead to purchase.
Source: imageBROKER/Alamy Stock Photo

PERCEPTION
Perception is the process by which we select, organize, and interpret
information inputs to create a meaningful picture of the world.40 A motivated
person is ready to act. How this person will act is influenced by his or her
perception of the situation. In marketing, perceptions are more important than
reality because they affect consumers’ actual behavior.
Perception depends not only on physical stimuli but also on the stimuli’s
relationship to the surrounding environment and on conditions that exist
within each of us. One person might perceive a fast-talking salesperson as
aggressive and insincere, whereas another might regard the salesperson as
intelligent and helpful. Each will respond to the salesperson differently. People
emerge with different perceptions of the same object because of three
perceptual processes: selective attention, selective distortion, and selective
retention.

Selective Attention. Attention is the allocation of processing capacity to some

stimulus. Voluntary attention is something we do purposefully; involuntary
attention occurs when our attention is grabbed by someone or something. It’s
estimated that the average person may be exposed to thousands of ads or brand
communications every day. Because we cannot possibly attend to all these, we
screen out most stimuli, a process called selective attention. Selective
attention means that marketers must work hard to attract the notice of
consumers. The real challenge is to determine which stimuli people will
notice. Here are some findings:
People are more likely to notice stimuli that relate to a current need. A
person who is motivated to buy a smartphone will notice smartphone ads
and be less likely to notice non-phone-related ads.
People are more likely to notice stimuli they anticipate. You are more likely to notice laptops than
portable radios in a computer store because you don’t expect the store to carry portable radios.
People are more likely to notice stimuli whose deviations are large in relationship to the normal
size of the stimuli. You are more likely to notice an ad offering $100 off the list price of a
computer than one offering $5 off.

Although we screen out much information, we are influenced by unexpected

stimuli, such as unanticipated offers in the mail, over the internet, or from a
salesperson. Marketers may attempt to promote their offers intrusively in order
to bypass selective attention filters.
Selective attention mechanisms require active engagement and thought on
the part of the consumer. Subliminal perception has long fascinated armchair
marketers, who argue that marketers embed covert, subliminal messages in ads
or packaging that consumers are not consciously aware of but that affect their
behavior. Although it’s clear that mental processes include many subtle
subconscious effects,41 no evidence supports the notion that marketers can
systematically control consumers at that level, especially enough to change
strongly held or even moderately important beliefs.42

Selective Distortion. Ever noticed that stimuli don’t always come across in
the way the senders intended? Selective distortion is the tendency to interpret
information to fit our preconceptions. Consumers will often distort
information to make it consistent with prior brand and product beliefs and
expectations. For a stark demonstration of the power of consumer brand
beliefs, consider taste tests in which one group of consumers samples a
product without knowing the brand, while another group is aware of the brand
during sampling. Invariably, the groups will have different opinions despite
consuming exactly the same product.
When consumers report different opinions of branded and unbranded
versions of identical products, it must be that their brand and product beliefs,
created by whatever means (e.g., past experiences, brand promotions, familial
preferences), have somehow changed their product perceptions. We can find
examples of this for virtually every type of product. When Coors changed its
label from “Banquet Beer” to “Original Draft,” consumers claimed the taste
had changed even though the formulation remained the same.
In another study, Frédéric Brochet, at the University of Bordeaux, gave
glasses of red and white wine to wine science students and asked for
descriptions. At a follow-up tasting, the students received glasses of the same
white wine, with the catch that half the wine was dyed red. They described the
white wine as they had previously but described the same red-tinted white
wine in terms of red wine, showing that visual cues can override smell, taste—
and expertise.43
Selective distortion can work to the advantage of marketers with strong
brands when consumers distort neutral or ambiguous brand information to
make it more positive. In other words, coffee may seem to taste better, a car
may seem to drive more smoothly, and the wait in a bank line may seem
shorter, depending on the brand.

EMOTIONS
Emotions are mental states that arise spontaneously rather than from conscious
effort and reflect people’s positive or negative reactions to internal and
external stimuli. We typically have little control of feelings such as joy,
sorrow, anger, fear, and ambivalence, which vary in intensity and complexity
depending on our personal reactions and can be accompanied by physiological
and behavioral changes.
Consumer response is not all cognitive and rational. Many responses may
be emotional and evoke different kinds of feelings. A brand or product may
make a consumer feel proud, excited, or confident. An ad may create feelings
of amusement, disgust, or wonder. Brands like Hallmark, McDonald’s, and
Coca-Cola have made an emotional connection with loyal customers for years.
Marketers increasingly recognize the power of emotional appeals, especially if
they are rooted in some functional or rational aspects of the brand.
To help teen girls and young women feel more comfortable talking about
feminine-hygiene and feminine-care products, Kimberly-Clark used four
different social media networks in its “Break the Cycle” campaign for its U by
Kotex brand. With overwhelmingly positive feedback, the campaign helped
Kotex move into the top spot in terms of word-of-mouth share for that
feminine-care target market.44
An emotion-filled brand story has been shown to trigger’s people desire to
pass along things they hear about brands through either word of mouth or
online sharing. Firms are giving their communications a stronger human
appeal to engage consumers in their brand stories.45 Ray-Ban’s 75th
anniversary campaign, “Never Hide,” showed a variety of stand-out and
stylish hipsters to suggest that wearers of the brand’s aviator glasses and
sunglasses feel attractive and cool. Some brands have tapped into the hip-hop
culture and music to market a brand in a modern multicultural way, as Apple
did with its iPod.46
Many marketers like Ray-Ban have leveraged the emotional appeal of the
past to connect with current customers, particularly younger ones. Although e-
mail, Webinars, and social media platforms have seriously displaced direct
mail, seminars, and trade shows, the latter can still play an effective role in
marketing efforts. Retro marketing tactics and products have shown that
nostalgia can pay, as costumed mascots, spinning signs, community
gatherings, and billboards continue to capture the attention of customers.
Products like the revived Beetle, the Fiat 500, and Cadbury’s resurrected
Wispa chocolate bar show that products steeped in the aura of days gone by
enjoy a visceral connection with customers. Fashion houses base new designs
on those of past eras. MillerCoors announced a retro marketing campaign for
Miller Lite beer, along with a version of the original Miller Lite label from the
1970s. Cartier, Motel 6, and Life Savers are among other major brands that
have gone retro with ad campaigns. Even football players cash in on nostalgia
marketing: The NFL Pittsburgh Steelers have worn jerseys that are a
throwback to the team’s 1932 uniforms.47
Just as products and brands can elicit certain emotions, different emotional
states can influence people’s judgments and decisions. For example, emotions
such as fear can increase or decrease the effectiveness of different marketing
strategies that include social proof (e.g., communicating a product’s
popularity) and scarcity (e.g., “limited edition”).48 Similarly, seeing the
emotions of others can also be used as a marketing tool. For example,
displaying sad (vs. neutral or happy) faces of victims could increase the
likelihood that people will donate to a charity.49

MEMORY
Memory—the brain’s ability to record, store, and retrieve information and
events—also plays a role in consumers’ purchasing decisions. The different
types of memory and the way memory processes work are described in the
following sections.

Memory Models. Cognitive psychologists distinguish between short-term

memory—a temporary and limited repository of information—and long-term
memory—a more permanent, potentially unlimited repository. All the
information and experiences we encode as we go through life can end up in
our long-term memory.
Researchers distinguish three types of long-term memory: episodic,
semantic, and procedural.
Episodic memory is responsible for storing information about events (i.e.,
episodes) that we have experienced in our lives. It is an individual’s
 memory of autobiographical events that capture the context—such as
times, places, and associated emotions—in which a particular event has
occurred.
Semantic memory is responsible for storing information about the world, such as facts, meanings,
and concepts. Unlike episodic memory, which is directly linked to an individual’s personal
experience, semantic memory captures general knowledge that is independent of personal
experience.
Procedural memory is responsible for knowing how to perform certain procedures such as
walking, talking, and riding a bike. It is a memory of motor skills typically acquired through
repetition and involves automatic sensorimotor activities that are so deeply embedded in our
minds that they do not involve conscious thought.

Most widely accepted views of the structure of long-term memory assume

we form some kind of associative model. For example, the associative network
memory model views long-term memory as a set of nodes and links. Nodes are
stored information connected by links that vary in strength. Any type of
information can be stored in the memory network, including verbal, visual,
abstract, and contextual information.
An activation process that spreads from node to node determines how much
information we retrieve and can recall in any given situation. When a node
becomes activated because we’re encoding external information (when we
read or hear a word or phrase) or retrieving internal information from long-
term memory (when we think about some concept), other nodes are also
activated if they’re associated strongly enough with the initially activated
node.
Based on the associative network memory model, we can think of consumer
brand knowledge as a node in memory with a variety of linked associations.
The strength and organization of these associations are important determinants
of the information we can recall about the brand. Brand associations consist
of all brand-related thoughts, feelings, perceptions, images, experiences,
beliefs, and attitudes that become linked to the brand node. For example, the
Adidas brand can conjure thoughts of soccer, shoes, running, tennis, sports
apparel, health, fitness, active lifestyle, and outdoor adventures. It also might
evoke associations with competitive brands such as Nike, Puma, and Reebok;
brand ambassadors such as Lionel Messi and Kylie Jenner; and country of
origin—Germany.
 In this context, we can think of marketing as a way of making sure
consumers have product and service experiences that create the right brand
knowledge structures and maintain them in memory. Companies such as
Procter & Gamble like to create maps that depict the key associations likely to
be triggered in consumers’ minds by a particular brand in a marketing setting
and their relative strength, favorability, and uniqueness.

Memory Processes. Memory is very much a process of construction, because

people don’t remember information completely and accurately. Often, we
remember just bits and pieces and fill in the rest based on whatever else we
know. In general, memory can be described as a process of encoding and
retrieval.
Memory encoding describes how and where information gets into memory.
The strength of the resulting association depends on the degree to which we
process the information we’re encoding (e.g., how much we think about it) and
in what way.50 In general, the more attention we pay to the meaning of
information during encoding, the stronger the resulting memory associations.
And the more we are able to associate new information with other information
already encoded in our memory, the better we will be able to remember it.
Memory retrieval is the way we reclaim information from memory. Three
facts are important about memory retrieval.
Cognitive psychologists believe that once information is encoded and
stored in long-term memory it is extremely durable and its strength of
association decays very slowly.
Information may be available in memory but not be accessible for recall without the proper
retrieval cues or reminders. The effectiveness of retrieval cues is one reason why marketing inside
a supermarket or retail store is so critical: The product packaging and use of in-store mini-
billboard displays remind us of information already conveyed outside the store and become prime
determinants of consumer decision making. Accessibility of a brand in memory is important for
another reason: People talk about a brand when it is top of mind.51
Information about other offerings can produce interference effects and cause us to either overlook
or confuse new data. One marketing challenge in a category crowded with many competitors—
e.g., airlines, financial services, and insurance companies—is that consumers may mix up brands.

Because of selective retention, we’re likely to remember only the positive

aspects of a product we like, forgetting its negative aspects and the good
points about competing products.
THE BUYING DECISION PROCESS
The basic psychological processes we’ve reviewed play an important role in
consumers’ actual buying decisions. Here are some key consumer-behavior
questions that marketers should ask in terms of who, what, when, where, how,
and why:
Who buys our product or service? Who makes the decision to buy
the product or service?
Who influences the decision to buy the product or service? How is
the purchase decision made? Who assumes what role in the decision
process?
What does the customer buy? What needs must be satisfied? What
wants are fulfilled?
Why do customers buy a particular brand? What benefits do they
seek?
Where do customers go or look to buy the product or service?
Online and/or offline? When do they buy? Any seasonality factors?
Any time of day/week/month?
How is our product or service perceived by customers? What are
customers’ attitudes toward our product or service?
What social factors might influence the purchase decision? Do
customers’ lifestyles influence their decisions? How do personal,
demographic, or economic factors influence the purchase decision?45
Smart companies try to fully understand a customer’s buying decision
process, which involves all the experiences in learning, choosing, using, and
even disposing of a product. Marketing scholars have developed a “stage
model” of this decision process (see Figure 3.3), in which the consumer
typically passes through five stages: problem recognition, information search,
evaluation of alternatives, purchase decision, and postpurchase behavior.52
The process by which consumers make purchase decisions and their
postpurchase behavior are often referred to as the consumer decision
journey.53 The reference to a journey stems from the fact that the manner in
which consumers make purchase decisions is not always linear, as depicted in
Figure 3.3. Instead, it is often an iterative process in which consumers are
influenced by the new information they encounter at the different stages of
their decision, which can involve the need to go back and revisit their earlier
judgments. Recognizing this, marketers must develop activities and programs
that reach consumers through different touchpoints at all stages of the decision
process.
Consumers don’t always pass through all five stages; they may skip or
reverse some. When you buy your regular brand of toothpaste, you go directly
from the problem-recognition stage to the purchase decision, skipping
information search and evaluation. The model in Figure 3.3 provides a good
frame of reference, however, because it captures the full range of
considerations that arise when a consumer contemplates a new purchase or a
high-involvement product that entails functional, psychological, or monetary
risk. Later in the chapter, we will consider other ways in which consumers
make decisions that are less calculated.

PROBLEM RECOGNITION
The buying process starts when the buyer recognizes a problem or need
triggered by internal or external stimuli. With an internal stimulus, one of the
person’s basic needs—hunger, thirst, sex—rises to a threshold level and
becomes a drive. A need can also be aroused by an external stimulus. A person
may admire a friend’s new car or see a television ad for a Hawaiian vacation,
which inspires thoughts about the possibility of making a similar purchase.

FIGURE 3.3
Five-Stage Model of the Consumer Buying Process

Marketers should identify the circumstances that trigger a particular need by

gathering information from a number of consumers. They can then develop
marketing strategies and effective advertising campaigns that spark consumer
interest. Increasing consumer motivation can be particularly important to
encourage serious consideration of discretionary purchases such as luxury
goods, vacation packages, and entertainment options. The drivers behind
consumers’ recognition of a need that they want fulfilled include factors such
as natural depletion—e.g., the need to replace a regularly used item like
toothpaste; dissatisfaction with the current offering, which causes consumers
to seek other means of fulfilling their need; lifestyle and goal changes—e.g.,
the birth of a child or a job promotion, which can have a significant impact on
purchasing habits; and social influences—e.g., the opinions of family, friends,
and colleagues or competition from peers.

INFORMATION SEARCH
Surprisingly, consumers often search for only limited information. Surveys
have shown that half of all consumers look for durable goods at just one store,
and a mere 30 percent look at more than one brand of appliances. We can
distinguish between two levels of engagement in the search. The milder search
state is called heightened attention. At this level a person simply becomes
more receptive to information about a product. At the next level, the person
may enter an active information search: looking for reading material, phoning
friends, going online, and visiting stores to learn about the product.
Marketers must understand what type of information consumers seek—or
are at least receptive to—at different times and places. Unilever, in
collaboration with Kroger, the largest U.S. retail grocery chain, has learned
that meal planning goes through a three-step process: discussion of meals and
what might go into them (heightened attention), choice of exactly what will go
into a particular meal (information search), and, finally, purchase. Monday, it
turns out, is the critical meal-planning day for the week ahead. Conversations
at breakfast time tend to focus on health, but later in the day, at lunchtime,
discussion centers more on how meals can be repurposed for leftovers.54

Information Sources. Major information sources to which consumers turn

fall into four groups: personal, such as family, friends, neighbors,
acquaintances; commercial, such as advertising, websites, e-mails,
salespersons, dealers, packaging, displays; public, such as mass media, social
media, consumer-rating organizations; and experiential, such as handling,
examining, or using the product.
The relative amount of information obtained from these sources and their
influence vary with the product category and the buyer’s characteristics.
Generally speaking, although consumers receive the greatest amount of
information about a product from commercial—that is, marketer-dominated—
sources, the most effective information often comes from personal or
experiential sources or public sources that are independent authorities.55 The
ubiquity of social media has forever blurred the boundaries and widened the
range of information sources. People sharing information about their
purchases on Facebook or writing product reviews on Amazon can be viewed
by others as independent authorities whose opinions carry great weight and
far-ranging influence.
Each source performs a different function in influencing the buying
decision. Commercial sources normally perform an information function,
whereas personal sources perform a legitimizing or evaluation function. For
example, physicians often learn of new drugs from commercial sources but
turn to other doctors for evaluations. Many consumers alternate between going
online and offline (in stores) to learn about products and brands.
Consumers rely on both internal and external information to help them
arrive at a decision. Internal information is based on one’s own individual
experiences. For example, an individual who wants to go out for dinner might
recall having a great meal at a local Italian restaurant or seeing an ad for a
recently opened French bistro. External information sources are typically
sought for high-involvement decisions such as purchasing a car or buying a
high-end appliance. External sources can include the suggestions and opinions
of family, friends, and work colleagues; making trips to dealers and searching
online to compare models and prices; and consulting sources like Consumer
Reports.

Search Dynamics. By gathering information, the consumer learns about

competing brands and their features. The first box in Figure 3.4 shows the
total set of brands available. The individual consumer will come to know a
subset of this group, the awareness set. Only some brands, the consideration
set, will meet the consumer’s initial buying criteria. As the consumer gathers
more information, just a few options, the choice set, will remain strong
contenders. The consumer makes a final choice from these.56

FIGURE 3.4
Successive Sets Involved in Consumer Decision Making

Marketers need to identify the hierarchy of attributes that guide consumer

decision making in order to understand different competitive forces and how
various decision sets are formed. The process of identifying this attribute
hierarchy is called market partitioning. Years ago, most car buyers first
decided on the manufacturer and then on one of its car divisions (brand-
dominant hierarchy). A buyer might favor General Motors cars and within this
set choose a Chevrolet model. Today, many buyers decide first on the nation or
nations from which they want to buy a car (nation-dominant hierarchy).
Buyers may first decide they want to buy a German car and then opt for an
Audi before zeroing in on the Audi A6.
The hierarchy of attributes also can reveal customer segments. Buyers who
first decide on price are price dominant; those who first decide on the type of
car (sedan, coupe, SUV, hybrid) are type dominant; those who choose the
brand first are brand dominant. Type/price/brand-dominant consumers make
up one segment; quality and service buyers make up another. Each segment
may have distinct demographics, psychographics, and behaviors, as well as
different awareness, consideration, and choice sets.
 Figure 3.4 implies that a company must strategize to get its brand into the
prospect’s awareness, consideration, and choice sets. If a food store owner
arranges yogurt first by brand (such as Dannon and Yoplait) and then by flavor
within each brand, consumers will tend to select their flavors from the same
brand. However, if all the strawberry yogurts are put together, then all the
vanilla, and so forth, consumers will probably choose the flavors they want
first and then choose the brand they want for that particular flavor.
Search behavior can vary online, in part because of the manner in which
product information is presented. For example, product alternatives may be
presented in order of their predicted attractiveness for consumers, who then
may choose not to search as extensively as they otherwise would have.57
Increasingly sophisticated recommendation engines use algorithms and data to
uncover patterns in consumer choices and recommend the most relevant
offerings for a particular consumer’s needs and interests.
Amazon’s item-to-item collaborative filtering algorithm presents
recommendations to customers based on product lines and subject areas that
match a customer’s purchases to similar products. This involves the analysis
of billions of data points derived from viewing online customer behavior, from
purchase history to abandoned carts. Recommendations appear in several
places: in personalized recommendations and previously viewed products
links, as well as in a “Frequently Bought Together” section that helps Amazon
cut delivery costs. Studies suggest that more than a third of consumer
purchases on Amazon come from product recommendations.
The company must also identify the other brands in the consumer’s choice
set so that it can plan the appropriate competitive appeals. In addition,
marketers should identify the consumer’s information sources and evaluate
their relative importance. Asking consumers how they first heard about the
brand, what information they learned later, and the relative importance of
these different information sources will help the company prepare effective
communications for the target market. Digital marketing allows for easier
detection and analysis of the other sites that are sending potential customers to
the company’s website. For instance, Amazon’s affiliate network shows which
websites and blogs are driving traffic not only to Amazon’s site but also to
specific products.
EVALUATION OF ALTERNATIVES
The way consumers decipher the pros and cons of available options is affected
by the beliefs and attitudes they hold, whether these are valid or erroneous.
These perceptions and the differing ways in which consumers process
information weigh heavily in the purchase decision, as the following sections
show.

Beliefs and Attitudes. Through experience and learning, people acquire

beliefs and attitudes. These in turn influence buying behavior. A belief is a
conviction that something is true or real, regardless of whether or not it is. Just
as important are attitudes, a person’s enduring favorable or unfavorable
evaluations, emotional feelings, and behavioral tendencies toward an object or
idea. People have attitudes about almost everything: religion, politics, clothes,
music, food.
Attitudes put us into a frame of mind: liking or disliking an object, moving
toward or away from it. They lead us to behave in a fairly consistent way
toward similar objects. Because attitudes economize on energy and thought,
they can be very difficult to change. As a general rule, a company is well
advised to adapt its product to existing attitudes, rather than trying to change
attitudes. If beliefs and attitudes become too negative, however, it may be
necessary for the company to take more active steps.
Understanding consumers’ attitudes is beneficial for marketers, because
attitudes may at times predict behavior during the consideration and choice set
stages of the customer decision process. For example, attitudes that are
developed from interacting with a product during a trial can more accurately
predict the likelihood of consumers purchasing the product than attitudes
formed from exposure to a product ad.58

Information Processing. How does the consumer process the information

about the available options and make a final value judgment? No single
process is used by all consumers or by one consumer in all buying situations.
The most current models see the consumer forming judgments largely on a
conscious and rational basis.
 Some basic concepts will help us understand the consumer evaluation
process. First, the consumer is trying to satisfy a need. Second, the consumer
is looking for certain benefits from the product offering a solution for that
need. Third, the consumer sees each product as a bundle of attributes with
varying abilities to deliver the benefits desired. The attributes of interest to
buyers vary by product: for example, hotels—location, cleanliness,
atmosphere, price; mouthwash—color, effectiveness, germ-killing capability,
taste/flavor, price; tires—safety, tread life, ride quality, price. Consumers will
pay the most attention to attributes that deliver the sought-after benefits. We
can often segment the market for a product according to attributes and benefits
important to different consumer groups.
More choice seems like a good thing, but this isn’t always so—particularly
when a consumer has no marked preferences or when no superior option exists
in the awareness/consideration sets. Negligible differences among the options
and time constraints further complicate the decision. Also, consumers will
expend brainpower, time, and effort only in proportion to the importance of
the decision task. The astute marketer must know when to reduce choice
overload (and the cognitive effort imposed) by adding a superior option to the
assortment (total set), reducing the amount of information customers must sift
through, asking pertinent questions that aid in decision making, and alleviating
time constraints involving sales or special offers.

Expectancy-Value Model. The consumer arrives at attitudes toward various

brands through an attribute-evaluation procedure, developing a set of beliefs
about where each brand stands on each attribute.59 The expectancy-value
model of attitude formation posits that consumers evaluate products and
services by combining their brand beliefs—both positive and negative—
according to importance.
Suppose a consumer has narrowed her choice set to four laptops (A, B, C,
and D). Assume she’s interested in four attributes: memory capacity, graphics
capability, size and weight, and price. Table 3.1 shows her beliefs about how
each brand rates on the four attributes. If one computer dominated the others
on all the criteria, we could predict that this consumer would choose it. But, as
is often the case, her choice set consists of brands that vary in their appeal. If
she wants the best memory capacity, she should buy C; if she wants the best
graphics capability, she should buy A; and so on.

TABLE 3.1 Laptop Computer Choice Set

If we knew the weight this consumer attaches to each of the four attributes,
we could more reliably predict her choice. Suppose she assigned 40 percent of
the importance to the laptop’s memory capacity, 30 percent to graphics
capability, 20 percent to size and weight, and 10 percent to price. To find this
consumer’s perceived value for each laptop according to the expectancy-value
model, we would multiply these weights by her beliefs about each computer’s
attributes. This computation leads to the following perceived values:

Laptop A  0.4(8)  0.3(9)  0.2(6)  0.1(9)  8.0

Laptop B  0.4(7)  0.3(7)  0.2(7)  0.1(7)  7.0
Laptop C  0.4(10)  0.3(4)  0.2(3)  0.1(2)  6.0
Laptop D  0.4(5)  0.3(3)  0.2(8)  0.1(5)  5.0

An expectancy-model formulation predicts that this consumer will favor

Laptop A, which (at 8.0) has the highest perceived value.60 The expectancy-
value model implies several strategies that a company can use to increase the
probability that consumers will choose its offering. Suppose most laptop
buyers form their preferences the same way. Knowing this, the marketer of
Laptop B, for example, could apply the following strategies to stimulate
greater interest in Brand B. First, the company might choose to redesign the
laptop—for example, by changing its functional attributes, modifying its form,
and improving service. Alternatively, the company can alter consumers’
beliefs about the laptop, without necessarily modifying the laptop itself, by
better communicating its benefits. The company might also alter consumers’
beliefs about competitors’ offerings by communicating the drawbacks of the
competitive products. Finally, the company might alter consumers’ beliefs
about the importance of the different product attributes by persuading buyers
to attach more weight to the attributes in which the brand excels.61

PURCHASE DECISION
In the evaluation stage, the consumer forms preferences among the brands in
the choice set and may also form an intention to buy the most preferred brand.
In executing a purchase intention, the consumer may make as many as five
purchase decisions: brand (Brand A), distribution channel (Retailer X),
quantity (one computer), timing (weekend), and payment method (credit card).
This decision complexity often leads consumers to use mental shortcuts, or
heuristics.

Decision Heuristics. The expectancy-value model is a compensatory model,

in that perceived good things about a product can help to overcome perceived
bad things. Thus, even though Brand A in the previous example lacked the
graphics capability of Brand C, had the second lowest size/weight evaluation,
and was more expensive than any other brand, its overall memory and
graphics capacity won out relative to the other computers in the choice set.
With non-compensatory models of consumer choice, positive and negative
attribute considerations don’t necessarily net out. Evaluating attributes in
isolation facilitates decision making for consumers, but it also increases the
likelihood that they would have made a different choice if they had deliberated
in greater detail.
Rather than calculating the perceived importance of every attribute across
products in a consideration set, consumers often take “mental shortcuts,”
called heuristics or rules of thumb, in the decision process. This is especially
true when people are short on time or cognitive resources.62 Our brand or
product knowledge, the number and similarity of brand choices, time
pressures, and the social context (such as the need for justification to a peer or
boss) may affect whether and how we use choice heuristics. Consumers don’t
necessarily use only one type of choice rule. For example, they might use a
non-compensatory decision rule.
A number of factors will determine the manner in which consumers form
evaluations and make choices. University of Chicago professors Richard
Thaler and Cass Sunstein show how marketers can influence consumer
decision making through what they call choice architecture—designing the
environment in which consumer decisions are structured and buying choices
are made. According to these researchers, presenting choices in the right
environment can give consumers a “nudge” via some small feature that attracts
attention and leads to a specific desired behavior. They maintain that Nabisco
is employing smart choice architecture by offering 100-calorie snack packs,
which have solid profit margins, while nudging consumers to make healthier
choices.63

The Level of Consumer Involvement. The expectancy-value model assumes

a high level of consumer involvement and active processing by the consumer
in response to a marketing stimulus. Richard Petty and John Cacioppo’s
elaboration likelihood model, an influential model of attitude formation and
change, describes how consumers make evaluations in both low- and high-
involvement circumstances.64
There are two means of persuasion in their model: the central route, in
which attitude formation or change stimulates much thought and is based on
the consumer’s diligent, rational consideration of the most important product
information; and the peripheral route, in which attitude formation or change
provokes much less thought and results from the consumer’s association of a
brand with either positive or negative peripheral cues. Peripheral cues for
consumers might include a celebrity endorsement, a credible source, or any
object that generates strong emotional response.
Consumers follow the central route only if they possess sufficient
motivation, ability, and opportunity. In other words, they must want to
evaluate a brand in detail, have the necessary brand and product or service
knowledge in memory, and have sufficient time and the proper setting. If any
of those factors is lacking, consumers tend to follow the peripheral route and
consider less central, more extrinsic factors in their decisions. We buy many
products under conditions of low involvement and without significant brand
differences. Consider salt. If consumers keep reaching for the same brand in
this category, it may be out of habit, not strong brand loyalty.
Evidence suggests there is low involvement with most low-cost, frequently
purchased products. Low-involvement products carry little cost or risk and are
not well differentiated, which also means that it’s easy for consumers to switch
to other products in this category or indulge in impulse buying to satisfy their
need for variety. Marketers can boost habituation to the purchase of these
products by stressing quality and brand affiliation and by ensuring effective
distribution so that consumers aren’t forced to look elsewhere if, for example,
their usual bath gel or soap is not available.
Marketers use four techniques to try to convert a low-involvement product
into one that encourages higher involvement. First, they can link the product to
an engaging issue, as when Crest linked its toothpaste to cavity prevention.
Second, they can link the product to a personal situation—for example, fruit
juice makers began to include vitamins and calcium to fortify their drinks.
Third, marketers might design advertising to trigger strong emotions related to
personal values or ego defense, as when cereal makers began to advertise to
adults the heart-healthy nature of cereals and the importance of living a long
time to enjoy family life. Fourth, they might add an important feature—for
example, GE’s introduction of “Soft White” lightbulbs. These strategies at best
raise consumer involvement from a low to a moderate level: They do not
necessarily propel the consumer into highly involved buying behavior.
If consumers have low involvement with a purchase decision regardless of
what the marketer does, they are likely to follow the peripheral route.
Marketers must give consumers one or more positive cues to justify their
brand choice, such as frequent ad repetition, visible sponsorships, and
vigorous PR to enhance brand familiarity. Other peripheral cues that can tip
the balance in favor of the brand include a beloved celebrity endorser,
attractive packaging, and an appealing promotion.

Intervening Factors. Even if consumers form an evaluation, two general

factors can intervene between the purchase intention and the purchase decision
(see Figure 3.5). The first factor is the attitudes of others. The degree to which
we’re influenced by another person’s attitude depends on two factors: (1) the
intensity of the other person’s attitude toward our preferred alternative and (2)
our motivation to comply with the other person’s wishes.65 The more intense
the other person’s attitude and the closer he or she is to us, the more we will
adjust our purchase intention. The converse is also true.

FIGURE 3.5
Steps between Evaluation of Alternatives and a Purchase Decision

Related to the attitudes of others is the role played by infomediaries’

evaluations: The New York Times Wirecutter website, which offers
recommendations for tech and electronic products; Consumer Reports, which
provides unbiased expert reviews of all types of products and services; J. D.
Power, which provides consumer-based ratings of cars, financial services, and
travel products and services; professional movie, book, and music reviewers;
customer reviews of products, books, and music on such sites as Amazon.com;
and the increasing number of chat rooms, bulletin boards, blogs, and other
online sites like Angie’s List where people discuss products, services, and
companies.66
The second intervening factor involves the situational considerations that
may erupt to change the purchase intention. The consumer might lose her job
before she purchases a laptop, some other purchase might become more
urgent, or a store salesperson might turn her off. Preferences and even
purchase intentions are not completely reliable predictors of purchase
behavior.
 A consumer’s decision to modify, postpone, or avoid a purchase decision is
heavily influenced by one or more types of perceived risk.67 These involve the
functional risk that the product does not perform to expectations, the physical
risk that the product poses a threat to the physical well-being or health of the
user or others, the financial risk that the product is not worth the price paid,
the social risk that the product results in embarrassment in front of others, the
psychological risk that the product affects the mental well-being of the user,
and the opportunity risk that the failure of the product results in spending more
time and money to find another, more satisfactory product.
The degree of perceived risk varies with the amount of money at stake, the
amount of attribute uncertainty, and the level of consumer self-confidence.
Consumers develop routines for reducing the uncertainty and negative
consequences of risk, such as avoiding decisions, gathering information from
friends, and developing preferences for national brand names and warranties.68
Marketers must understand the factors that provoke a feeling of risk in
consumers and provide information and support to reduce it.

POSTPURCHASE BEHAVIOR
After the purchase, the consumer might experience dissonance from noticing
certain disquieting features or hearing favorable things about other brands and
will be alert to information that supports his or her decision. Marketing
communications should supply beliefs and evaluations that reinforce the
consumer’s choice and help her or him feel good about the brand. The
marketer’s job doesn’t end with the purchase. Marketers must monitor
postpurchase satisfaction, postpurchase actions, and postpurchase product uses
and disposal.
Satisfaction is a function of the closeness between consumer expectations
and the product’s perceived performance.69 If performance falls short of
expectations, the consumer is disappointed; if it meets expectations, the
consumer is satisfied; if it exceeds expectations, the consumer is delighted.
These feelings make a difference in whether the customer buys the product
again and talks favorably or unfavorably about it to others. The larger the gap
between expectations and performance, the greater the dissatisfaction. This is
where the consumer’s coping style comes into play. Some consumers magnify
the gap when the product isn’t perfect and are highly dissatisfied; others
minimize it and are less dissatisfied.
Satisfaction influences customers’ postpurchase actions. A satisfied
consumer is more likely to purchase the product again and will also tend to say
good things about the brand to others. In fact, one can argue that the highest
level of success is achieved when a customer becomes an advocate and
recommends the company’s offering to others. Dissatisfied consumers may
abandon or return the product. They may take public action by complaining to
the company, going to a lawyer, complaining directly to other groups (such as
business, private, or government organizations), or expressing their
dissatisfaction to others online. Private actions include deciding to stop buying
the product (exit option) or warning friends (voice option).70
Postpurchase communications to buyers have been shown to result in fewer
product returns and order cancellations. Computer companies, for example,
can send a letter to new owners congratulating them on having selected a fine
new tablet computer. They can place ads featuring satisfied brand owners.
They can solicit customer suggestions for improvements and list the location
of available services. They can write intelligible instruction booklets. They can
send owners e-mail updates describing new tablet applications. In addition,
they can provide effective channels for speedy redress of customer grievances.
An important aspect of postpurchase behavior that marketers should
monitor involves the use and disposal of the product. A key driver of sales
frequency is the product consumption rate: The more quickly buyers consume
a product, the sooner they may be back in the market to repurchase it.
Consumers may fail to replace some products soon enough because they
overestimate product life.71
 Quip created a sleek and simple toothbrush that relies on a subscription service that mails replacement
batteries and brush heads to users every three months.
Source: ZikG/ShutterstocK

One strategy to speed replacement is to tie the act of replacing the product
to a certain holiday, event, or time of year (such as promoting changing the
batteries in smoke detectors when Daylight Savings ends). Another is to offer
the product on a subscription basis like Dollar Shave Club, whose razors are
shipped monthly, and Quip, which delivers its electric toothbrush head refills
every three months. Companies send monthly boxes to subscribers containing
a variety of related products in areas that range from cosmetics (Birchbox) to
clothing (Le Tote), food (Blue Apron), and dog care (BarkBox).
Another strategy is to provide consumers with better information about
when they need to replace the product to sustain its current level of
performance. Batteries have built-in gauges that show how much power they
have left; razors have colored lubricating strips to indicate when blades may
be worn; toothbrushes have colored bristles to indicate wear; and so on.
Perhaps the simplest way to increase usage is to learn where actual usage is
lower than recommended and persuade customers about the benefits of regular
usage or of increasing the amount of product used on each occasion, which is
behind the “shampoo, rinse, and repeat” instructions on everyone’s favorite
shampoo bottle.

marketing INSIGHT

Behavioral Decision Theory

Consumers don’t always process information or make decisions in a
deliberate, rational manner. One of the most active academic research
areas in marketing over the past three decades has been behavioral
decision theory, which studies how consumers make decisions in these
situations. Behavioral decision theorists have identified many scenarios in
which consumers make seemingly irrational choices. Here we review
some of the decision issues in two broad areas: (1) heuristics and biases
and (2) framing effects.
Heuristics are simple decision rules (or mental shortcuts) that people
use to save time and minimize cognitive effort when forming judgments
and making decisions. Thus, heuristics tend to focus only on the most
relevant aspects of the problem, while paying little or no attention to other
factors. This simplified approach to decision making often leads to
choices characterized by lower accuracy and systematic errors that could
result in suboptimal outcomes. These systematic errors, also referred to as
decision biases, are particularly common in complex decisions when
consumers have limited information while facing time constraints. Some
of the most common decision heuristics are outlined below.
The availability heuristic reflects people’s tendency to judge that an
event is more likely to occur if they can recall more instances of that
event. For example, if asked whether more people in the United
 States die from homicide or emphysema, most people would attribute
a greater number of deaths to homicide because it more easily comes
to mind (news media give more coverage to homicide than to
emphysema), even though in reality emphysema causes more deaths
than homicide.
The representativeness heuristic reflects people’s tendency to judge
the likelihood of an event occurring based on the degree to which this
event is similar to the category it represents. A pale, meek, quiet
person wearing glasses is more likely to be considered a computer
geek than an active, outgoing, and outspoken one. This heuristic
leads to a number of decision biases, including base-rate neglect,
which ignores the actual probability of an event occurring.
The conjunction fallacy results from people’s erroneous belief that
the probability of two events occurring jointly is greater than the
probability of either event occurring independently. A classic
example of the conjunction fallacy provided respondents with a
description of Linda as bright, outspoken, and concerned with
discrimination and social justice as a student. When asked to evaluate
whether Linda is (A) a bank teller or (B) a bank teller and active in
the feminist movement, most respondents chose the latter, even
though a conjunction (B) cannot be more probable than one of its
constituents (A).
Decision framing is the manner in which choices are presented to and
seen by a decision maker. A $200 cell phone may not seem that expensive
when compared to a $400 phone, but it may seem very expensive when
compared to a phone costing $50. Framing effects are pervasive and can
be powerful.
We find framing effects in comparative advertising, where a brand
compares itself favorably to another brand with inferior features (“twice
the cleaning power”); in pricing, where unit prices can make the product
seem less expensive (“only pennies a day”); in product information, where
larger units can seem more desirable (a 24-month warranty versus a two-
year warranty); and in pitting a new product against existing products so
consumers can better understand its superior functions and features.
When making financial decisions, consumers use a specific form of
framing called mental accounting. Research has found that consumers
tend to place different transactions into different mental accounts, even
though there is no logic to doing so because money from any of these
accounts can be used toward achieving any of the goals. Mental
accounting is based on a set of core principles:
Consumers tend to segregate gains. When a seller has a product with
more than one positive dimension, it’s desirable to have the consumer
evaluate each dimension separately. Listing the multiple benefits of a
large industrial product, for example, can make the sum of the parts
seem greater than the whole.
Consumers tend to integrate losses. Marketers have a distinct
advantage in selling something if its cost can be added to another
large purchase. For example, house buyers are more inclined to view
additional expenditures favorably given the already high price of
buying a house.
Consumers tend to integrate smaller losses with larger gains. The
“cancellation” principle might explain why withholding taxes from
monthly paychecks is less painful than making large, lump-sum tax
payments: The smaller withholdings are more likely to be
overshadowed by the larger pay amount.
Consumers tend to segregate small gains from large losses. The
“silver lining” principle might explain the popularity of rebates on
big-ticket purchases such as cars.
Consider a choice between two scenarios. In Scenario A, you spend $50
to buy a ticket for a concert. As you arrive at the show, you realize you’ve
lost your ticket. You decide to buy a replacement. And in Scenario B, you
decide to buy a ticket to a concert at the door. As you arrive at the show,
you realize somehow you lost $50 along the way. You decide to buy the
ticket anyway.
Which loss would you feel less keenly? Most people choose Scenario
B. Although the loss is the same, in the first case you may have mentally
allocated $50 for the concert, and buying another ticket would exceed
your mental concert budget. In the second case, the money you lost did
not belong to any account, so you have not exceeded any mental budget.72
Circular Customer Decision Journey
Proliferation of products and digital channels coupled with rise of more
informed and discerning customers has changed the way customers search
for information, evaluate options and make buying decisions.73 In many
buying situations, the traditional funnel-based, mostly linear buying
process has evolved into a circular decision-making process. The
alternatives being considered expand as well as reduce at different stages
of the decision-making process, unlike the funnel approach where the
options being evaluated shrink with each succeeding stage. This new
circular and iterative journey is more complex as ‘word of mouth’ and
reviews from digital and social channels play a major role in the decision
process.74
The different stages of the decision process, namely initial
consideration, active evaluation, purchase and post purchase decision are
connected with each other in a circular manner with an additional loyalty
loop.
Initial consideration is driven by brand perception, recent exposures,
touch points, and prior experience. Empowered with information from
digital and social media, consumers add or subtract options as they assess
and refine their needs during the active evaluation stage.
The customers take the final decision by selecting the product for
purchase in the third phase. Word-of-mouth and reviews play a major role
in influencing the purchase decision at every stage. The technology
driven, digital consumer is increasingly influenced by non-commercial
sources like reference groups and review sites.
Post-purchase experience updates the brand perception driven by
consumer’s usage experience. A satisfactory experience can potentially
turn the customer into a loyal user who will re-purchase without going
through the entire cycle again.
The circular decision-making process is complex as consumer
behaviour differs across product categories. It reinforces the need for an
integrated marketing approach with a systematic and scientific blend of
marketing activities across multiple touch points to reach the prospects
and customers. Firms that align their marketing approach with consumer’s
purchase journey, have better chance to reach them at the right time, at the
 right place with the right message, influencing each stage of the decision-
making process.75

Exhibit 1: Consumer Decision Journey (Adapted)*

SUMMARY
1. To successfully compete in the market and create customer value,
managers must fully understand both the theory and the reality of
consumer behavior.
2. Consumer behavior is influenced by three factors: cultural, social, and
personal. Research into these factors can provide clues to help companies
reach and serve consumers more effectively. Of these, cultural factors
 exert the broadest and deepest influence on people’s perceptions and
desires and on how they go about fulfilling their needs and wants.
3. Four main psychological processes affect consumer behavior: motivation,
perception, learning, and memory.
4. Understanding consumer motivation begins with understanding the needs
that consumers aim to fulfill with their actions. Some needs are biological
and arise from physiological states of tension such as hunger, thirst, or
discomfort. Other needs are psychological and arise from psychological
states of tension such as the need for recognition, esteem, or belonging. A
need becomes a motivation when it is aroused to a sufficient level of
intensity to drive us to act. Motivation has both direction and intensity.
5. Perception is the process by which we select, organize, and interpret
information inputs to create a meaningful picture of the world. In
marketing, perceptions are more important than reality because they
affect consumers’ actual behavior. People emerge with different
perceptions of the same object because of three perceptual processes:
selective attention, selective distortion, and selective retention.
6. Consumer response is not all cognitive and rational; much may be
emotional and evoke different kinds of feelings. Emotions are mental
states that arise spontaneously rather than from conscious effort and
reflect people’s positive or negative reactions to internal and external
stimuli.
7. Memory—the brain’s ability to record, store, and retrieve information and
events—plays an important role in consumers’ purchasing decisions.
There are two types of memory: short-term memory—a temporary and
limited repository of information—and long-term memory—a more
permanent, potentially unlimited repository. The associative network
model views long-term memory as a set of nodes and links. Nodes are
stored information connected by links that vary in strength.
8. The typical buying process consists of the following sequence of events:
problem recognition, information search, evaluation of alternatives,
purchase decision, and postpurchase behavior. Consumers will not
necessarily go through the buying process in an orderly fashion: They
may skip and reverse stages and alternate between shopping online and
offline. The marketers’ job is to understand the buyer’s behavior at each
stage.
9. Consumers are constructive decision makers and are subject to many
contextual influences. They often exhibit low involvement in their
 decisions, using many heuristics as a result. The attitudes of others and
unanticipated situational factors may influence the decision to buy. A
consumer’s decision to modify, postpone, or avoid a purchase decision is
heavily influenced by one or more types of perceived risk.
10. Marketers must monitor customer satisfaction and the ways in which
customers use the company’s offerings. Satisfaction is a function of the
match between consumer expectations and the product’s perceived
performance. Monitoring satisfaction is important because it reflects the
value customers receive from the company’s offering. Examining
customers’ postpurchase behavior aims to capture the use and disposal of
the offering both to detect potential problems and to identify new market
opportunities.

marketing INSIGHT

Aravind Eye Care System

Aravind Eye Care System, globally renowned for restoring eyesight to
millions—especially for the poor and needy, is the world’s largest eyecare
provider that conducts over half a million surgeries every year. Set up by
Dr. Govindappa Venkataswamy (Dr.V) in 1976, Aravind has pioneered a
high quality, large volume and low-cost service delivery model led by Dr.
V’s enduring vision to provide compassionate and quality eyecare
affordable to everyone. Aravind removes the roadblocks for the poor in
receiving the required treatment, and simultaneously, generates enough
surplus to make the solution sustainable and scalable. The pioneering
eyecare system has handled more than 68 million out patients visits and
conducted over 8.2 million surgeries till date. While more than fifty per
cent of the patients at Aravind receive free or subsidised treatment at its
eyecare camps, vision centres and hospitals, the paid services are also
offered at affordable prices. Surplus generated from paying customers
finance the hospitals’ operations of offering free and subsidized services to
the poor. High quality services are provided with dignity to all users
irrespective of their economic and social strata.76
 Source: ©Aravind Eye Care System, used with permission

It all started when after retiring from the local public medical college at
the age of 58, Dr. V converted a home into a eyecare clinic with 11 beds in
Madurai, Tamil Nadu. The visionary’s inspiring leadership has
successfully shaped Aravind into the world’s largest and most efficient
eyecare system with 14 hospitals, 6 community eye clinics and 95 primary
eyecare facilities in Tamil Nadu, Puducherry (Pondicherry) and Hyderabad
(Telangana). In addition to consultation, treatments and surgeries, Aravind
is also engaged in research, education, training, consultancy and capacity
building.
The hospital chain has also invested in facilities to manufacture
ophthalmic supplies and equipment to reduce cost by substituting imported
goods. High quality but affordable ophthalmic products are produced by
Aurolab, a non-profit trust and manufacturing division of Aravind, set up
in 1992.77 A wide range of ophthalmic consumables like intraocular
lenses, eye drops, sutures, blades, ophthalmic instruments and specialty
products are manufactured at their modern production facilities. These
products are exported to 160 countries around the world. During 1990s,
Intraocular Lens (IOL) used for cataract procedures used to be imported.
Priced at $100, most patients in India could not afford them. Support from
the California-based Seva Foundation helped Aurolab start manufacturing
high quality IOLs at $5—literally, at a small fraction of the cost of the
imported ones. Aurolab now produces around 9% of the global volume of
intraocular lenses.
Aravind’s unique operational model was conceptualized by Dr. V to
fulfil his mission to eliminate avoidable blindness. The assembly line
approach of Ford to reduce costs and standardization achieved by
McDonald’s across its outlets around the world were his inspirations.
Enabling large volume, high quality and affordable service, with a a
patient-centric approach is unique. Designed to maintain equity, Aravind
ensures that all patients are treated and served with high quality services
regardless of their financial or social status.
One of the most critical aspects of Aravind’s operational model is its
ability to manage a large number of patients. The free eye screening camps
conducted in rural areas, usually during the weekends, in partnership with
the local community and voluntary organizations attract large numbers.78
Consultations and basic treatments are provided at these eye camps.
Patients requiring surgeries or more complex treatments are transported to
the nearest Aravind hospital at the end of the eye camp. This structured
process allows Aravind to schedule treatments and achieve maximum
utilization of its resources including doctors, surgeons, operation theatres
and hospital beds. Costs are optimised due to the high volume through
economies of scale. The functional model is well-equipped to provide
efficient quality services with value and financial sustainability for a large
number of people.79 In 2019-20 alone, surgeons across Aravind’s 14
hospitals conducted over 5.19 lakh surgeries and 4.6 million patients
received consultations and treatment.80
The secret of the highly successful operation model of Aravind Eyecare
System lies in its assembly line operations which increases the overall
productivity of the system, making it extremely frugal and efficient81. On
an average, a surgeon at Aravind Eyecare System performs 2000 surgeries
per year—five times the global average of 400 surgeries per year. With its
unique operations and management system, Aravind is an inspiration—its
system being studied and explored for its quality, productivity and
financial self-reliance even as it allows patients to decide for themselves
how much they would pay82. Even with such a generous arrangement,
Aravind manages a surplus that is ploughed back to expand patient
services and set up new projects. Its successful model demonstrates the
power of integrating innovation with empathy, business principles with
service, and outer transformation with inner change.
Nurses form the backbone of Arvind’s efficient system. Mostly female,
these nurses are recruited from rural areas, trained extensively and
equipped for multi-tasking in opthalmic nursing, counselling and other
support functions. Ingrained with compassion for patients, the nurses are
proficient in what they do and serve with empathy.
Aravind regularly conducts free eye screening camps to reach the
underserved. Teams of doctors, nurses and volunteers set up eye camps in
rural areas for free check-up and treatment services. On an average, they
conduct 2,500 camps every year83. These eye camps continue to be
popular and attract thousands of eyecare seekers, but there always remains
the need for permanent facilities to offer regular services. Aravind adopted
tele-medicine to overcome the shortage of doctors in rural areas and set up
vision centres (VC). The VCs are located in a rural town, with easy access
to 15-20 villages within a distance of 5-7 kms, covering a population of
50,000 to 75,000. Managed by a coordinator, a technician, and a field
worker, every VC is connected to a base hospital. Awareness and
education programs conducted by field workers at schools, community
centres and door-to-door home visits encourage patient footfall at the VCs.
The trained technician performs basic tests for patients visiting the VC and
then connects them to a doctor at the base hospital for a video consultation.
All these services are provided for a nominal fee of ₹20. In addition,
Aravind’s large scale centralised procurement system allows patients to
buy low-cost medicines and prescription spectacles at these centres.
Aravind steadily scaled up its VCs after the success of its pilot centre set
up in 2004. By 2020, the eyecare giant recorded consultation and treatment
to around 6.88 lakh patients in its 79 vision centres then. Easy and
affordable access to eyecare has significantly improved healthcare
outcomes in these rural areas. It has also changed the healthcare-seeking
behaviour.84
Aravind has been constantly scaling up its mass outreach through
inclusiveness and affordability. Following a business model driven by
productivity, quality, scalability and transferability, the eyecare chain is
built on a strong foundation of compassion and committed leadership. The
focus on standardisation and volume leads to effective cost-control.
Aravind sets the example of a competent human–process collaboration,
wherein a team of dedicated and motivated individuals equipped with high
quality, efficient procedures and technology, ensures that Dr V’s vision is
realized and benefits thousands of patients every day.85

Questions
1. Explain why Aravind is exceptional at serving patients. What value
does Aravind create for patients?
2. What are the key points differentiating Aravind from other hospitals
and medical facilities?
3. Can other service providers adopt Aravind’s operational and financial
model to scale up? Why or why not?
Paytm
Paytm, arguably the leading fintech firm in India, was founded in 2010 by
Vijay Shekhar Sharma. Set up as a bill payment service provider app,
Paytm steered the mobile wallet revolution in India. Paytm is now
transforming into a digital financial supermarket serving a network of over
20 million merchants and 300 million customers.
 Source: Sharaf Maksumov@shutterstock.com

Driven by its mission to bring half a billion Indians into the mainstream
economy through payments, banking, investments and financial services,
Paytm is playing a leading role in building trust on the digital payments
and financial system. Its user-friendly and interactive features have made
Paytm one of the most popular mobile apps in India. Services ranging from
mobile recharges, utility bill payments, travel bookings, buy tickets for
movies and events, to making hassle free instant in-store payments
continue to attract users. Paytm’s success mantra is simple—identify users’
pain points and then solve them efficiently.86
Prior to the e-wallet revolution, India’s mobile phone consumer, of
whom 85% being pre-paid users, needed to visit a physical store to buy
recharge coupons that provided a long password to top-up talk time and
validity period of their mobile service. Paytm’s wallet eased the customers’
efforts by allowing them to instantly pay into their mobile accounts for
phone recharge and top-ups. This instant top-up service helped Paytm
build brand awareness and a loyal customer base.
The company’s broad portfolio of services cover digital banking
solutions, investment products, mobile games, and insurance. These
services address the evolving needs of its young and tech savvy customers.
 With effective services, in a short span of time Paytm could win over the
trust of Indian customers. In March 2021, the company recorded 1.2
billion monthly transactions led by offline payments and financial services.
It has also achieved a benchmark of serving 150 million active customers
with highest market share in offline payments. Offline payment options for
its 17 million merchants include Paytm All-In-One QR (quick response),
Paytm All-In-One Android PoS (point of sale), Soundbox and Paytm for
Business application. The offline payment market share continues to grow
at the rate of 15% per month.
Product innovation and refinement focused on changing needs of its
customers are at the core of Paytm’s business model. With an emphasis on
meeting the needs of all of its users (merchants and consumers), Paytm
regularly keeps adding new solutions to its portfolio. The journey of
becoming a financial services conglomerate included several milestones
like launch of Paytm wallet, Paytm UPI, Paytm Insurance, Paytm Digital
payment, and the latest ones being multiple offline payment options for its
merchant partners.
Each Paytm product is the result of extensive research, aimed to
understand the altering preferences and requirements of the customers.
Paytm uses the latest analytical tools to capture the consumption behavior
of its customers, to develop an understanding about the changing needs of
the customers.
The leadership counts ‘speed’ as its greatest asset. Paytm’s quick
reaction to the Indian Government’s surprise announcement to demonetize
currency notes of denomination ₹500 and ₹1,000, contributed significantly
to its rapid growth87. The sudden announcement sucked out about 86% of
India’s cash in circulation in the latter part of 2016. People shifted to
digital transactions using QR codes on mobile wallet apps. While
merchants looked for alternatives to cash transactions, Paytm released
newspaper ads that merchants could post on their storefronts “Paytm
Accepted” as a notification of cashless transactions for customers. There
was a remarkable surge in the app download and Paytm’s wallet customer
base grew from 125 million before demonetization to 185 million three
months later.87 By June 2017, over five million offline merchants signed
up to accept payments through Paytm’s QR. The multilingual feature of
the app attracts merchants from small towns and tier II & tier III cities.
Over a quarter of its users prefer using regional language apps that were
strategically rolled out by Paytm. The government’s push for digital
payments has further helped accelerate adoption among the masses and
small merchants.
In addition to expanding the digital payments ecosystem by enabling
small merchants accept payments digitally, Paytm started exploring
opportunities in the broader financial services landscape. Paytm’s entry
into the payments bank business in May 2017 created an opportunity for
the company to build a primary deposit relationship with its customers. In
addition, the app is turning into a distribution channel for financial services
for its users to access a wide range of financial products, from home and
life insurance policies to investment assets and products on its merchant
store.
Paytm Money has become one the fastest growing investment platforms
for stock broking, dematerialization and pension services. It is the largest
contributor of new systematic investment plans (SIPs) in the mutual funds
industry. The recognitions helped Paytm gain customer’s faith in the brand.
Paytm launched its subscription-based loyalty program ‘Paytm First’, to
cater to entertainment needs of the customers. The gaming and
entertainment platforms attracted millions of users. Paytm has now
emerged as a leading player in the competitive market for digital games.
Its e-commerce venture, Paytm Mall, after an initial growth fuelled by
cashback deals, offers and promotional campaigns, however, could not
sustain in the hyper-competitive market with well-established players,
Amazon and Flipkart.88
Paytm’s growth and expansion strategies are analysed in leading
business schools as case studies. The company is a leader in the fintech
industry with its wide portfolio of offerings that meet the evolving needs
of a large customer base through multiple solutions ranging from wealth
management, insurance, digital market space, digital payment platform and
online entertainment & gaming platform.
 Prone to adaptability, one of its recent strategic moves to address the
need of online food delivery during COVID-19 pandemic, included the
partnership with ‘Tata Starbucks’, offering an online food delivery service
platform.89

Questions
1. Why is consumer research critical to Paytm’s success?
2. What value does Paytm’s offerings in financial services create for
customers?
3. What challenges Paytm will face in the near future?