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Consumer behavior

Consumer choice in Eastern Europe

 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 on Figure 1.

Figure 1. 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”

 

 

 


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