Author: piousbox

Rational consumer behavior has been a subject of intensive research and modeling, in academic and industrial circles. It is critical for companies to understand how consumers make their choices. With operational and profit margins forever slimming, for-profit companies are increasingly relying on finding unique compatitive advantages, to stay afloat. Understanding consumer behavior is imperative in succeeding on this path.

There are 5 basic needs believed to be satisfiable by purchasing a product (Arbuckle 2019). Physiological needs, safety needs, love and belonging needs, esteem needs, and self-actualization needs. This idea has been repeated by numerous researchers, who have strived to explain what needs are satisfied, by making purchases (Kaufman 2010). Each of these five is a personal factor.

Additional personal factors are: price sensitivity, cost / benefit analysis on the individual level, and regulations and legality, to name a few. An example of how regulations impact personal buying decisions is: I recently bought a Huawei phone, despite that I’m well aware that Huawei is banned in United States, and support and security patches for its phones may not be available. The regulation has been a consideration, but has not been an influence, in that purchase decision.

Demographic factors affect purchasing decisions. Only specific good and services are available in specific demographic areas – and this (un)availability affects purchasing decisions. Sometimes, a product is priced very differently based on demographics. For example, Brasil imposts more than 100% taxes on imported cars. This definitely affects consumer behavior: fewer people can afford a car in Brasil.

Demographics affect how an individual thinks of social status. This plugs into the “love and belonging needs” as well as “esteem needs,” indirectly. For example, North American consumers are strongly insentivized to buy Apple, not Android cellphones, because of the perception of higher quality by the North American demographic.

In conclusion, both personal and demographic factors contribute to buying decisions, on individual and institutional level, across the entire market.

References

Arbuckle, Dani (2019) What Are Needs From a Marketing Perspective? Retrieved from https://smallbusiness.chron.com/needs-marketing-perspective-47599.html

Kaufman, Josh. The Personal MBA: Master the Art of Business. New York: Penguin Group

Using a product (goods or services) and the information from the readings, create a model of buyer behavior for the product. Next, create a model for an organizational buyer vs. an individual consumer.

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This paper analyses buyer behavior, comparing and contrasting cases of an individual consumer, and an institutional buyer. This paper uses coffee as the product in the discussion. Coffee is a good choice for this discussion because both individuals, and institutions purchase it, sometimes in very large quantities. However, the behaviors of rational actors belonging to these two market segments are quite different.

For this discussion, I will restrict the georgaphical market segment to North America only, since I have the most knowledge of that segment. Consumer behavior changes significantly depending on the place in the world. In North America, coffee is a staple but also a luxury item. Coffee can be very cheap (free) or very expensive (e.g. the Blue Bottle brand). Consumers here expect higher quality, and are willing to pay the price. This, in turn, has lead to spectacular growth of Starbucks as a publicly traded company (Akdeniz, 2014).

In this paper I will use the Agile Marketing User Stories approach described by Fryrear (2019) to model the two buyer tiers. For this discussion, our model individual consumer is Bob. Bob lives in San Francisco, CA. Bob is an average coffee drinker, consuming 2 cups of coffee per day. One in the morning, and one at lunch. He tends to drink americanos, but occasionally switches to espressos. He prefers higher-quality beans at a higher cost. At home, he has several types of coffee. He rarely purchases more than 2lb of coffee at a time. He prefers local, independent, and less popular coffee brands. He slightly resents the social impact that Starbucks has had on the world and agriculture in developing countries.

Bob likes to try new sorts of coffee. The coffee shops that he visits have lists of coffee blends that they carry. For example, the Blue Bottle roasters near his house carry the Costa Rica Brunca Regulo de Rivas, Costa Rica Tarrazu Santa Teresa, Bella Donovan, and Winter Blend, to name a few (Blue Bottle Coffee, 2019). Additionally, his neighborhood supermarkets carry a variety of blends. Bob makes the selection based on (1) whether he has tried the blend in quesion, (2) weather he liked it, (3) how different it is from his believed preferences, (4) price, higher price suggesting higher quality, and (5) availability and convenience.

The coffee must flow. Bob will settle for a worse-quality coffee in the morning, rather than nothing at all. Bob makes periodic purchases. As soon as his house supply is expected to run out, he purchases 1-2lb more. He is also likely to buy prepared coffee every day. He is not price-sensitive. He is an established consumer, a repeat customer for most of this vendors, and he has an established purchase behavior that changes only slowly.

The other buyer tier is represented by AMCO, a call center company located in the suburbs of Evanston, IL. AMCO is an institutional buyer: it has a kitchen that needs to be supplied with coffee, for continuing normal operations. AMCO is a price-sensitive buyer: all coffee purchases by the company are bulk purchases, and the bottom line is affected by operational efficiency. AMCO has an established supply chain to stock their kitchen. Costco is a wholesaler from which AMCO buys the majority of food products that it needs. Since AMCO is thrifty, there is only one coffee brand that it buys: the Kirkland brand, owned by Costco. Kirkland is a whitelabel for Starbucks roasts (Baltuth, 2019). It provides a good quality-to-price ratio. AMCO is also interested in minimizing operational overhead by keeping things consistent. The coffee is bought every month, to fill up the reserves – it doesn’t have an expiration, and it never runs out, in AMCO’s storage.

The behaviors of the two buyers are quite different. AMCO does not buy single-portion, or prepared coffee. AMCO’s purchasing of coffee has been largely automated. Although initially quality was a concern, there is no feedback loop from AMCO’s employees to operations managers, and there is little way to make changes to the purchasing decisions. If an employee does not like Kirkland brand, for example, AMCO takes no action. AMCO is price-oriented.

In contrast, Bob is quality-oriented. Furthermore, Bob’s coffee buying is often unplanned and impulsive. He will buy a blend that he hasn’t seen before, making such a decision on the spot. He also buys coffee much more frequently: every day, as opposed to monthly purchases.

Despite the differences, there are many similarities between the two buyers. Perhaps the biggest one is that both are consistent. As mentioned previously, the coffee must flow. Both Bob and AMCO have learned that the negative impact on productivity due to lack of coffee, however small, is indeed noticeable. Both spend a good effort to guarantee availability. And both have set up patterns of buying that do not much change.

References

Akdeniz, Can. (2014) More Than Coffee: The Secrets of Starbucks Success (Best Business Books) (Volume 23) CreateSpace Independent Publishing

Fryrear, Andrea. (2019) Agile Marketing User Stories – Adapting an Agile Tool. Retrieved from https://www.agilesherpas.com/story-agile-marketing-user-stories/

No author. (2019) Subscribe | Blue Bottle at Home | Blue Bottle Coffee. Retrieved from https://bluebottlecoffee.com/store/coffee

Baltuth, Omar. (2019) Is Costco’s Kirkland Signature brand really just repackaged brand name products? Retrieved from https://www.quora.com/Is-Costcos-Kirkland-Signature-brand-really-just-repackaged-brand-name-products