Importance of Understanding Consumer Behavior

Antonio Gabriel Tongco
Customers at a store. Image by RDNE Stock project on Pexels

Customers are perhaps the most important element for retailers as they are the ones who avail the products and services offered by businesses. A huge part of how products and services are sold, however, boils down to consumers’ preferences and decision-making. In this article, we will be discussing consumer behavior, how it forms, the factors surrounding it, its value for retailers, and the challenges and considerations associated with obtaining and using customer data.

Women after shopping. Image by Tim Douglas on Pexels.

Fundamentals of Consumer Behavior

Consumer behavior pertains to how people choose, use, and discard products and services in accordance with their emotional, cognitive, and behavioral reactions in order to satisfy their wants and needs as a consumer. These behaviors are dependent on the consumer’s values, financial situation, lifestyle, as well as their perception of brands and trends. To have a better understanding of what factors can influence buying behavior, we can group them into three main categories.

  1. Personal factors: This pertains to demographics like age, gender, and culture which can affect an individual’s interests and opinions.
  2. Psychological factors: How a consumer reacts to marketing messages will rely mainly on their perceptions and attitudes towards certain products.
  3. Social factors: A consumer’s behavior can also be heavily influenced by their family dynamics, peer influence, educational background, social media presence, and income levels.

Understanding these factors provides a foundation for looking into the influence that brands’ marketing campaigns have over consumer choices. Marketing campaigns, when they are executed properly and consistently, can sway consumers to choose a particular brand, even if it means paying a higher price. This can also increase the chance of impulse purchases from customers. Preferences, especially in fashion or food industries, are based on the customers’ priorities, morals, and values. An example of this would be how vegans might look for alternatives for products coming from an animal or climate change activists purchasing eco-friendly or sustainable products. Consumers will also usually take their budget into consideration before making a purchase – after all, customers may be discouraged from purchasing when they simply cannot afford a product or service.

The type of behavior that a consumer possesses is based on the service or product they need, how involved they are in the decision-making process, and the differences that exist between the consumer’s choices. With that, researchers have identified four main types of consumer behavior.

  1. Complex Purchasing Behavior: Consumers are heavily involved in the buying process by conducting research before purchasing rare and expensive items like a house or a car.
  2. Dissonance-Reducing Purchasing Behavior: Occurs when customers have difficulty in differentiating between brands. They don’t have a preferred brand, so the customer may fear that they will regret buying a product.
  3. Habitual Purchasing Behavior: Customers have little to no involvement in the product or brand category, resulting in mindless purchases.
  4. Variety-Seeking Behavior: Consumers aren’t necessarily dissatisfied with a product, but are exploring different options.

When making purchases, there are typically five stages that occur that can help you understand the consumer behavior process.

  1. Need recognition: The consumer must first acknowledge a specific need or problem, which is usually stimulated by marketing and promotions.
  2. Information search: The consumer will then seek out information on fulfilling that need, which often results in online research or recommendations.
  3. Evaluation of alternatives: The consumer then explores different brands, taking factors such as price, quality, and brand reputation in consideration.
  4. Purchase decision: The purchase is then made after exploring the options. This stage may still be influenced by a last minute recommendation or discount.
  5. Post-purchase behavior: If the product or service meets or surpasses the consumers’ expectation, it is possible for them to buy again or even recommend the brand to others; otherwise, they might not purchase again.

Understanding customer behavior can give you insights that will help build a relationship with your customers, which can then increase brand loyalty and give your consumers the feeling that you care and pay attention to their needs and wants. These insights can then be used to improve the overall performance of your business, as you will be able to understand your consumers’ pain points and preferences.

The Value of Consumer Data for Retail

Upon understanding your consumers, you will be able to make informed decisions on how to create efficient marketing strategies, which includes what types of message you plan on sending to your customers and plan what they are most likely to take notice of and respond to. One way of doing so is through hyper-personalization, which tailors your marketing messages and product recommendation to the specific needs and interests of consumers. In addition, targeted social media advertisements or using customer data to create more personalized email campaigns are also effective ways of reaching consumers. This method of marketing can help boost engagement, as well as conversion rates. An example of this is how Netflix makes use of the user’s watch history to create show and film recommendations for their users. This can make consumers feel understood and valued, which in turn fosters loyalty and increases customer retention.

Making use of digital spaces is especially important today, along with keeping up with the latest trends. The consumer data gathered will also help businesses in forecasting possible trends that may arise, which will ultimately help them stay relevant.

Understanding your customers can also help you develop products that will be much more suitable for their wants, needs, and expectations; this is also a way of finding out if you’ll be able to expand the current offerings of your business. This can mean improving on already existing products or developing something entirely new. Additionally, your customer service team will have a better understanding of how they can help out customers and provide an overall better experience for them.

When all of these add up, it will ultimately result in customer satisfaction and even establish loyalty to the brand. This can also allow businesses and marketing teams to release their products in a way that could maximize profits and bring high revenue. There are a variety of ways in going about gathering customer insights, may it be traditional methods or through the use of technology, which we will explore in the next section.

A man looking a data. Image by Mikael Blomkvist on Pexels.

Gathering Consumer Insights

One way of gathering consumer insights is by conducting surveys and questionnaires for your customers, asking about their preferences, buyin habits, and satisfaction levels. Observational research can also provide the most accurate insights. Businesses can use in-store cameras to see how customers behave, what attracts their attention, or how long they would engage with products.

Another way of getting consumer insight is by analyzing sales data, which can show patterns in consumers’ buying behavior, product popularity, as well as seasonal trends.This is also a way of knowing which of your products are selling well, which ones may need a promotional boost, and how marketing affects certain products.

Customers have a tendency to share their thoughts and experiences on social media, which is why retailers can make use of tools that are focused on monitoring social media platforms for consumer insights on brands’ products and services. Tracking tools are also available for e-commerce which can analyze website visits, clicks, cart additions, and abandonment to understand how consumers engage with a business’ online platforms. Retailers can take this as an opportunity to improve their websites to better the user’s experience, lessen cart abandonment rates, and increase conversions. The customer’s direct feedback will also let retailers know whether they were able to satisfy the consumers’ wants and needs, and what actions they can take in improving their products and services. This can be observed through reviews, comment cards, or customer service interactions. 

While there are various ways of gathering consumer insights, the process on its own comes with different challenges and considerations to make use of data effectively, efficiently, and responsibly.

Challenges and Ethical Considerations in Consumer Data

As important as gathering consumer data can be, there are various challenges and even ethical considerations that businesses must keep in mind. One issue that may arise can be the quality of the data. Poor quality or even missing data can easily lessen its validity. This can result in an inability to identify customers or target them with relevant marketing and promotions, which could then lead to a loss of revenue and poor customer experience. To avoid this, data governance policies must be implemented to guarantee the highest quality source data.

When dealing with consumer data, it is important that businesses maintain honesty and transparency with their customers; this applies to the retailer’s marketing and promotions, and the manner in which they gather and use customer data. Misleading or false advertising can tarnish a retailer’s reputation and lose their consumers’ trust. Retailers should also take measures on ensuring that customer data is safe from any unauthorized access or use. 

Lastly, consumers are growingly concerned about the impact of products to the environment and society. A business may be perceived as more ethical if they prioritize and advocate sustainability and social responsibility, which can be a huge positive for consumers who share these values. This can also be used in marketing strategies in developing plans and campaigns, to show that consumers can build trust with retailers and foster long-term relationships.

Conclusion

Understanding consumer behavior is a two way street that will ultimately benefit both businesses and the consumers themselves. Retailers can use these insights to improve themselves and capture the attention of their customers by satisfying their wants and needs. Still, it comes with its own set of responsibilities to protect customers’ privacy and ensure the appropriate use of consumer data.

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