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Accounting Consumer
Behavior Economics Finance
Management
Human values in organizations
Introduction
Existing theories of consumer behavior [1] help firms and
organizations improve their marketing strategies by understanding
issues such as how consumers think, feel, make decisions,
how customer is influenced by his or her environment, how
limitations in consumer knowledge influence decisions or how
marketers can adapt and improve their marketing campaigns
and marketing strategies to more effectively reach the consumer.
Yet, there is a remarkable absence of empirical works using
welfare approach to consumer behavior (or considering economic
situation) in former socialist countries. Partially this can
be attributed to the lack of an experimental and empirical
traditions of marketing research in those countries [4], partially
to the fact that attention of Western researchers was paid
mainly to countries of the Third World. [2,3]
However, we can not avoid taking into consideration the
comparative poverty and different culture in Eastern Europe,
applying modern theories of consumer behavior. It is odd,
for example, to note that while there has been a proliferation
of new techniques and ideas designed to increase the efficiency
of advertising, none of these has been employed for the purpose
of analyzing the effectiveness of advertising in a former
socialist country, or its impact on the welfare of consumers.
The purpose of this project is to discuss the most important
aspects of customer behavior in Eastern Europe in regard to
economic situation there. More precisely, we’ll see how welfare
affects consumer choice and seller’s approach to advertising,
discuss perception of certain Western goods in former Soviet
Union, and how imperfect knowledge contributes to welfare
losses; we’ll clarify process of consumer learning and make
conclusion about promotion of new goods in Eastern Europe.
1. Consumer choice and welfare
Research in psychology and marketing [1, 13] has identified
a number of distinct phases of the consumer decision process.
This framework is well known and presented simplistically
below:
A multi-stage model of the consumer decision process
Needs/wants
Information search
Analysis of information
Choice
Purchase
Post-purchase behavior
The decision process begins with needs or wants of the consumer,
which determine parameters for information search. The information
search, in turn might itself serve as a determination of relevant
needs or wants. In every case the buyer brings some prior
knowledge (gained from previous search or experience, conversation,
or merely from impressions) to bear on the choice. The process
of pre-purchase search brings to consumer new information,
which is then evaluated or processed to determine the extent
to which competing brands possess the relevant characteristics.
In the next phase the consumer uses the processed information
to make a choice and to purchase. Finally, the consumer will
evaluate the outcome of his choice, which may or may not conform
to his expectations. This entire multi-stage process is repeated
for certain goods (such as foodstuff, detergents, etc) very
frequently and for others (such as refrigerators or cars)
only rarely. This framework is very useful to understand differences
between consumer behavior in countries of Eastern Europe and
“classical” buyer behavior which is explained by theories,
created in prosperous Western countries.
First of all, in regard to “information search”, we take
into consideration numerous factors, ranging from prestige
to serviceability, and price is only one of them. On the other
hand, in relatively poor countries of Eastern Europe, with
GDP per capita around $5000 p/a (at least 5 times less than
that in the poorest member of EU, Portugal) price became the
crucial determinant of consumer’s choice, and we face with
the classical example of economical theory of demand: the
higher price, the lower demand. Information became the crucial
determinant in these demand/supply relationships, in endless
race for maximizing buyers/sellers gains. The consumer’s gain
from making an informed choice is calculated as an absolute
difference in utility between good and bad purchases in terms
of their monetary prices. Attempting to maximize his utility,
the buyer is confronted with a range of sources of information
(defined in terms of perceived objectivity and expertness)
and the costs of acquiring such information. The latter is
a really important issue in Eastern Europe and might include
relatively expensive or even not available Internet access
(especially considering hardware purchase) [14], low level
of objective information on TV and other media, non-existence
of consumer counseling services, etc. These “information constraints”
create situation when consumer can not make efficient choice
not only because of monetary considerations, but also due
to lack of sufficient information. As a result, the final
choice is dictated by efficiency considerations alone: price,
warranty, payment and delivery terms, etc. Summarizing this
information issue, I want to admit that in Eastern Europe
the value for the consumer to make an informed choice is very
high in many cases. This situation, together with presence
of a large number of competing brands, lead to necessity for
marketer to create even more comprehensive “knowledge map”
of own goods or services, than it would be necessary for customers
in prosperous countries. By knowledge map I mean easy accessible
information about features of a product, price, usage, etc.
This information must be presented not only in advertising,
but also in product reviews and customized advisory services.
Secondly, the evaluation of information by buyers differs
by the level of trust between sender and receiver of advertising
message. For example, others things being equal, the individual’s
confidence in the credibility of TV message in Russia is higher
than in USA [6], where TV advertising is “considered by many
to be a suspect source of reliable information”. [3] Thus,
if individual in Russia is uncertain of his choice of a certain
good, such discrepancy might prevent acceptance of other types
of information and serve as a trigger for purchase decision.
We’ll discuss it later how acceptance of information conveyed
by advertising influences the welfare of the consumer and
society.
Finally, in CEE countries many goods, especially technically
complex or durable ones, have been purchased for a relatively
longer period of time. In this respect we can see greater
gap in utilizing efficiencies produced by modern newly introduced
goods and by already purchased ones, which in turn increase
gap in the “learning by consuming” [13], since customer loses
opportunity to obtain new skills or basic knowledge about
product. For example, a relatively simple issue for American
customer to choose a fax machine, may pose a serious problem
for customer in Russian Siberia, where fax belongs to goods
used mainly in business, not at home.
It is necessary to conclude that used multi-stage model
must be viewed in terms of relationship between the process
of consumption and individual welfare; this approach will
help us to enrich “classical Western” consumer behavior theory
and overcome various constraints in application of this theory
to the countries of CEE.
2. Advertising and Welfare
There can be little doubt that advertising affects consumer
choice at all levels. “Of course, this tells us nothing about
whether consumer’s choices are in some sense “better” after
advertising has taken place than before it” [7]. Such question
became even more difficult in Eastern Europe, where approaches
to advertising depend on the level of economic development
and might, in turn influence the welfare state of a country.
To make things simple, I would mention two effects of advertising
on customer’s welfare: positive and negative. In the first
case advertising might give information about good, customer
was unaware before, which brings unambiguous advantages, such
as quality, effectiveness, price, etc. Spending his budget
on good with better traits, customer maximizes own utility
and improves own welfare [5]. Negative effect of advertising
works even more dramatically in Eastern Europe, where customers
spend higher proportion of income in everyday purchases and
are often exposed to situations where probability to minimize
own utility, and consequently, create welfare loss is relatively
high. For example: even use of expensive, but heavily advertised
detergent, such as Ariel, may lead to welfare loss in Ukraine,
because it takes reasonable part of monthly income, but do
not increase at the same proportion productivity and quality
of house work.
Discussing advertising, we can not avoid mentioning customer’s
perception. It is highly individual matter, which depends
on a range of experiences and associations of a particular
person. [1] But there are also associations, which are more
general and predictable and which are exploited by advertisers
in creating favorable perception of their own brand. For example,
P&G’s advertisement stresses that Ivory is "floating
soap". [9] In the minds of many consumers this may be
taken to imply that this brand is also more effective, although
there is in fact no direct relationship between effectiveness
and "floating". In many countries of Eastern Europe,
however, the very fact that a good is advertised will tend
to lead to some over-valuation of its characteristics relative
to those of non-advertised brand [8]. Firstly, this may be
due to a view that it is only successful and worthwhile brands
are able to advertise, and its converse that non-advertised
brands are “inferior”. Secondly, such over-valuation is closely
associated with well known (especially in regard to Hungary,
Chech, Slovakia) propensity of customers in CEE countries
to perceive as superior goods imported from or identified
with the West (which are also generally heavily advertised
in relation to domestically produced substitutes). For example,
the biggest advertiser in Russia and Ukraine is P&G.[8]
Their approach to advertising in that region is pretty simple
(although P&G is a very sophisticated promoter): low variety
of commercials, which serve as reminder of a certain brand
(Ariel, Tide, Blend-a-Med, etc), and high volume of these
ads on TV, especially in prime time, in other media. Management
of P&G was smart enough not to start confusing consumers
with “floating soap”, but rather to establish strong and solid
company’s and brand’s images through constant presence in
consumer’s mind. It’s amazing that competitors have no other
choice except stressing low prices of their brands in comparison
to “those expensive detergents”: so often this tactics is
used in commercials of Lever Brothers, Henkel, others.
Next step in discussing influence of advertising on welfare
is to identify duration of that influence. Let’s assume advertisement
served as a trigger to purchase a certain good, which later
appeared inferior to other, non-advertised one. Theory of
cognitive dissonance says that consumer will experience anxiety
to the extent the good was important, valuable or expensive
for him. [1] We might conclude that the higher proportion
of income was spent on purchase, the higher will be level
of dissonance and the longer will be its duration. One way
to reduce the duration is to give customer possibility to
invalidate any unfavorable information about own choice by
exaggerating good’s positive features, minimizing its negative
characteristics and letting him to find additional desirable
properties. For example: good smell of P&G’s detergents
serves as additional justification of their relatively high
prices for customers in CEE. Constant presence of brand’s
commercials on air is another important way to reduce duration
of dissonance: finally customer may reject the unchosen alternatives.
Because of high level of socialization in this region [6],
consumer may even try to gain social support for his selection
by persuading others of its superiority. As a result “an individual
rather than learning from his mistakes, increase the likelihood
of making them again through justification and rationalization”
[3] That is, because of ineffective process of learning, an
initial welfare loss may be capable of being perpetuated on
individual’s and his social group’s level.
3. Advertising and Perception
In this chapter I will try to evaluate the influence of
the advertising of detergents on individual choice in republics
of former Soviet Union. I will use results of survey of laundry
cleaning products in Ukraine. [8] Laundry cleaning products
were chosen because they are most heavily advertised, most
households possess some form of these products, and they can
be compared objectively using laboratory testing. Ukraine
was chosen as a suitable post-Soviet country with cultural
and ethnic diversity. Summary of the research is presented
in the table below. I used data only for 3 brands; the first
two occupy 80% market share and are most heavily advertised.
The third brand was chosen to underline contrast in perception
of relatively new, expensive and high quality products (Ariel,
Tide) with that of old, inexpensive and medium quality brand
Lotus. Lotus is the less advertised brand, and its image is
based mainly on low price and former monopoly on the Ukrainian
market (the brand was produced since 1954).
Table 1 Brand prices and Advertising Expenditures (AE), EURO,
2001
Brand
|
Price
per kg
|
Television
AE
|
Other
AE
|
Total
AE
|
Ariel
|
2
|
11000000
|
9000000
|
20000000
|
Tide
|
1,5
|
7000000
|
4000000
|
11000000
|
Lotus
|
1
|
1000000
|
200000
|
1200000
|
Each brand differs in way it differentiates itself on the
market and promotes the most important features. The table
below shows how effective those features are presented to
different types of customers. Effectiveness in this case means
percentage of respondents capable to recall a certain advertised
feature of a brand. Since these features were promoted as
positive (cleaning ability, whiteness, smell, etc), percentage
of claim’s recall might show us also percentage of “supporters”,
those who perceive given brand positively. Of course, those
who can not recall the brand’s claim can also perceive it
positively, but they can hardly be called “supporters”.
Table 2 Recall of major claims of brands
|
Urban poor
|
Rural poor
|
Urban medium
|
Urban rich
|
%
able to recall claims of Ariel
|
28
|
26
|
21
|
18
|
%
able to recall claims of Tide
|
19
|
17
|
12
|
7
|
%
able to recall claims of Lotus
|
11
|
5
|
9
|
1
|
It is not surprise to find close relationships between advertising
expenditures and percentages of brand’s “supporters”. The
fact that relatively low promotion budget of Lotus brings
proportionally higher results is explained by simple and straightforward
approach to advertising. The major claim of Lotus is the phrase
“Your old brand”, which is not something innovative or difficult
to remember. Actually, Lotus is an old brand. We can not judge
whether consumer’s perception would change or remain the same
if advertising is stopped for some period of time, say few
months. As I indicated above, such strong market power of
Ariel & Tide is explained by extensive advertising campaign
of P&G and constant “presence of brands in consumer’s
minds”.[6] May be time and lower intensity of P&G’s advertising
campaign would give us answer to the questions whether overvaluation
of certain product characteristics that is caused by advertising
persists over time, and whether disparities between the true
differences and those suggested by the advertisements, are
eliminated through experience with the products.
Because educational differences among income groups in Ukraine
are relatively narrow, we can also make a hypothesis that
lower income groups are more receptive to advertising claims
than those with higher incomes.
Next table shows comparison of laboratory results with customer’s
perception of three brands. Actually, research was made in
slightly different format, where test results were expressed
at the same form, but customer’s perception was evaluated
separately for each brand against the benchmark (Ariel), but
I adapted data for better understanding.
Table 3. Laboratory ratings and perceived quality, rating
1-7.
|
Laboratory
ratings
|
Customer
perception
|
|
Ariel
|
Tide
|
Lotus
|
Ariel
|
Tide
|
Lotus
|
Ease
of lather
|
7
|
6
|
5
|
7
|
7
|
5
|
Soil
removing ability
|
6
|
6
|
6
|
7
|
7
|
3
|
Stain
removing ability
|
6
|
5
|
4
|
7
|
6
|
3
|
Whiteness
of wash
|
5
|
5
|
4
|
7
|
7
|
2
|
|
|
|
|
|
|
|
|
Obviously, we can argue that advertising has resulted in
the misperception of the measurable characteristics of laundry
detergents. Only in the case of ease of lather, which is not
stressed by advertising, is there a close correspondence between
the perception of customers and laboratory results. We can
return to my previous chapter about advertising vs. welfare
and state again that misinformation presented in advertising
has caused welfare losses for Ukrainian customers through
its effect on their choice of brand: by choosing Tide instead
of Ariel consumers could obtain the same amount of benefits
at a lower cost.
We can conclude that the intensity of advertising in Eastern
Europe has a major impact on the perception of characteristics
of laundry detergents. But there’s a substantial divergence
between the product differentiation created by advertising
and the differences that exists in reality, since it is almost
impossible to reach virtual equivalence of certain brands
while working in order to promote and differentiate each of
them separately. On the other hand, it is unrealistic to argue
that everyone would have been possessed of perfect information
about certain good (not only laundry detergents) had it not
been advertised, and it is impossible to even to imagine the
extent, to which customers would have been fully informed
in the absence of advertising. Especially if we’ll consider
the lack of necessary consumer information, also discussed
above in this project.
4. Advertising and Learning
Having made a choice on the basis of imperfect information
conveyed by advertising, the consumer might start process
of learning through the use of the good. But there are many
reasons, why this is unlikely to happen in Eastern Europe.
First of all, advertising may continue to provide information,
which contradicts that, acquired through experience with the
good. Given a high degree of influence of mass media in Eastern
Europe (especially in countries of the former Soviet Union),
initial misinformation and substantial advertising in the
post-purchase period, learning may be slow and perhaps even
incomplete. Secondly, “much depends on the extent to which
use of the product conveys information about the characteristics
that are embodied in it.” [7] We can see confirmation of this
message on the example of laundry detergents discussed above.
Consequently, the less effective is the learning process the
more easily will advertising be able to provide a sustained
influence on perception.
Operation of cognitive dissonance is another factor, which
may influence the learning process in the post-purchase period.
[1, 10] For example, Ariel users systematically value their
brand highly than non-users [8], so good performance of one
characteristic (stain removing ability) would lead to reduction
of dissonance in relation to others (including price). It’s
an excellent opportunity for marketers in relatively poor
countries to reduce consumer’s cognitive dissonance focusing
upon one specific characteristic of relatively expensive,
but not the most advantageous product. This works especially
well with laundry detergents, because they provide some scope
of subjective interpretation of their performance: how can
housewife rank stain removing ability of a few detergents?
Does she interested in providing comprehensive research with
different types of stains, water temperatures, etc? Moreover,
even facing with negative information about the chosen alternative
during the learning process, customer may “attempt to reduce
or eliminate it in ways which negate” that new information.[10]
“A resistance to revising opinion following disconfirming
information appears to be a general phenomenon in studies
of confidence revision, probability estimation, decision making
and information buying.” [11] In other words, consumer may
not only try to misperceive the new information, but he may
also become more receptive to the repeated advertising of
the good that he has purchased. That is, the effectiveness
of advertisement is increased as part of the process of dissonance
reduction. To the extent that dissonance reduction would prevent
the learning process, brand switching will tend to be prevented
as well.
Of course, it’s true only if the size of the discrepancy
between the consumer’s perception of a brand and its real
characteristics (which emerged during usage), is not increased.
That is, learning will be more effective the greater the extent
to which expectations of the customer are disappointed. Consequently,
information that disconfirms expectations about the quality
of a product will tend to be least useful immediately after
a purchase is made, and most useful as the repurchase decision
approaches. This issue is especially important in Eastern
Europe, where consumer spends reasonably more time (than his
counterpart on the West) weighting all aspects of purchase
decision: price, quality, time, etc. For example, it is almost
impossible to hear American saying “we do not look at price
buying food” from customers in countries of Eastern Europe.
Only some social classes may skip serious and sometimes difficult
process of learning by consuming. We can also apply here my
previous example about advertising tactics of P&G’s competitors,
when they try to alter purchase decision offering less expensive
products: customers here became more receptive to price when
they have to buy new portion of detergents.
I can conclude that intensive advertising in Eastern Europe
reduces cognitive dissonance, which lead to favorable re-evaluation
of some characteristics of the chosen good and operates as
a constraint in the customer’s learning process. It’s clear
that firms, which possess the ability to influence initial
choices through advertising and sales promotion, are heavily
favored in relation to those who do not. That’s why the volume
of advertising and market share of such big companies like
P&G are so high in this region, and especially in countries
of the former Soviet Union.
5. Introduction of New Products.
New products are undoubtedly an important fact of economic
life. Tens of thousands of new products are produced and marketed
each year and as many “old” products are changed in significant
respects. [1] Introduction of new products in Eastern Europe
do not differs from that on the West, but the results of introduction
are a bit different. The reason is that new goods are often
produced and promoted by multinational corporations, which
are able to “indulge in relatively heavy promotional expenditures”.
[7] For example, in Russia local firms devote less than 1%
of annual turnover to advertising, while the subsidiaries
of multinationals spend some 6% of sales for this purpose
with major focus on the brand name products. [12] Consumer
subject to such imbalanced promotional efforts will tend to
spend a greater amount on the new products than they would
in the absence of such expenditures.
Almost always new products are produced in accordance to
tastes and preferences, which dominate on the West. Not surprisingly,
the sale of these goods in Eastern Europe led to acceptance
of Western style and habits. It would be even waste of time
to give example to illustrate this situation. Major point,
however is different here. Acceptance of external tastes and
policies alters existing utility functions [5] in countries
of Eastern Europe and makes customers incompetent to judge
own wellbeing and to learn effectively. In other words, marketer
can sell anything in Eastern Europe, which possess features
of successful and prosperous West, and this “anything” may
serve as a substitute for traditional, even better or less
expensive product. Someone might argue that this situation
is not unique and takes place all over the world. Yet Eastern
Europe differs by strong positive perception almost of “anything”
delivered from the West (it’s only about decade after fall
of Berlin wall). And if in many corners of the world Western
products were the only alternatives, the same is difficult
to say about still developed countries of Eastern Europe.
For example, Mobil and Shell are the only brands of fuel in
Malaysia (I’ve seen it), but they can not be such in Hungary.
Nevertheless, many people here are obsessed with the above-mentioned
brands and prefer them to local MOL’s gas. “In fact, they
buy the same Russko-Magyar fuel with some additives”, - very
respective source from KPMG Hungary.
Another special feature of introducing new goods is that
consumer’s choice here can be regarded as the pursuit of status.
[12, 15] It means that possession of new goods (especially
those that are imported) serves as symbol of belonging to
certain social group or class. Given the distribution of income
in societies here, it is easy to conclude that even having
DVD player may serve as a hierarchical symbol; one might work
hard to purchase that stuff and consequently improve own status.
We must also consider differences between social classes in
countries of the Western and Eastern Europe: obviously middle
class in Germany may be regarded as upper class in Ukraine
or Romania with relevant symbols and attributes: house, car,
furniture, etc. For this reason, for instance, TV designed
by Grundig for middle class in Germany, is regarded as high
end in Ukraine. (No one in Germany would buy Toshiba TV, a
middle class TV by Ukrainian classification). At present West
produces mainly for “middle class”, which means “upper class”
here; as a result, after exporting, new goods became an important
attribute of status and prestige in Eastern Europe. [15]
I can conclude that consumers of Eastern Europe are more
receptive to new goods and more flexible in accepting previously
unknown or unfamiliar features or tastes, than those on the
West. Smart marketer uses this situation heavily promoting
and advertising new and old, but improved, goods and services.
Conclusions
I started this project with the claim that model of consumer
decision process in Eastern Europe must consider welfare state
and culture in that region. More specifically, it’s about
high price sensitivity of buyers, together with difficulties
in obtaining objective customer information., high degree
of influence of mass media and greater gap in “learning by
consuming”.
Advertising has a greatest impact on buyer behavior in Eastern
Europe and may lead to welfare loss for an individual customer.
Advertising is a product of affluent societies, and for many
poor countries it is a significant phenomenon. Indeed, countries
of Eastern Europe spend at least as high a proportion of national
product on advertising as some rich countries.
A choice based initially on misinformation conveyed by advertising
may persist over time. This means that considerable advantage
is afforded to large firms in this region, especially multinationals,
which are able through advertising and sales promotion to
influence the initial choice. Furthermore, any such advantage
will be more pronounced the more susceptible are consumers
to advertising claims. It is likely that consumers in Eastern
Europe are more susceptible than in rich countries, because
in the latter advertising and its claims operate within the
context of a certain amount of scepticism on the part of the
consuming public. At the same time, advertising is a relatively
recent phenomenon for Eastern Europe, which together with
high levels of socialization and influence of mass media prevents
customers in this region to establish “adequate system of
discounts”. [3]
Consumers in this region have strong positive perception
of products made in Western countries and regard purchase
of some of these goods as a pursue of status or even social
event. The most visible confirmation of this claim is wide
acceptance of Western style, habits or values influenced by
introduction of new goods and services in Eastern Europe.
Effective research of customer behavior in Eastern Europe,
and consequently changing it, are impossible without integrating
the above mentioned issues in comprehensive and serious approach.
References
1. L. Schiffman, L. Kanuk “Consumer behavior”
2. K. Lankaster “Variety, equity and efficiency”
3. J. James “Consumer choice in the Third World”
4. E. Pessemier “Stochastic properties of changing preferences”
5. J. Sloman “Economics for business”
6. www.gc.kiev.ua Ukrainian business weekly magazine.
7. K. Cowling “Advertising and economic behavior’
8. www.business.com.ua Business and advisory services.
9. www.pg.com Procter & Gamble
10. L.Festinger “A theory of cognitive dissonance”
11. E.S.Geller, G.F.Pitz “Confidence and decision speed”
12. www.rbc.ru Russian Business Consulting
13. www.consumerpsychologist.com/ Consumer behavior and marketing
14. www.algonet.se Report from the Internet frontline
15. Kleine, Robert “Mundane Consumption and the Self: A Social
Identity Perspective”
|