Impact of Marketing Mix on Customer Buying Decision
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Impact of Marketing Mix on Customer Buying Decision of Luxury Housing Industry in UK
01. Introduction (Research proposal)
01.1 Industry background of the study
01.1.1 Industrial review
Property development industry can be classified into several sectors, the largest being middle income land and property market which is increasingly being dominated by property developers selling ready build houses and plot of land. This sector is largely depended on the domestic economy and the housing loans market, which is driven by prevailing rate of interest. The demand for houses, condominiums, commercial property and office space, leisure property segments is also a significant contributor to the property market & luxury segment generates lucrative profits.
1.1.2 International overview
International property development industry; especially luxury housing industry shows same industry conditions worldwide. The Luxury Home Council (Authority for world luxury houses - based in USA) has presented lot of findings on this industry with their primary collected information. Their findings are very interesting and show some cross functional relationships towards the industry and customer behavior and trends. Professionals in the real estate industry says luxury homes are more optimistic industry and majority (around 55%) is willing to get growth in the industry. These predictions based on the trends will appear in next twelve months. Based on the Forbes magazine (USA) shown better world growth of 25% in the year 2006. This trend really affected to the luxury housing industry worldwide. But existing recession conditions shows pure hit to the luxury housing industry. People try to fulfill their basic requirements.
As per the survey conducted by American Affluence research center shows richest 10% will invest in real estate industry. Survey realized that portion 49% for new constructions and 11% for pre own home market. Balance invests in land sales market.
1.1.3 Market trends in the UK
Based on the UK government, housing and planning statistics there are many trends find around 22 million in year 2007 contributed for the dwellings. From this market in the England 82% are bungalows, but in the London around 43% dwellings are flats. There are some secondary information released in the year 2008 and showing many rational findings. 68% are living in their own houses. Around 18% people are social tenant and private renters are around 14%. (Source:http://www.communities.gov.uk/publications/corporate/statistics/housingplanningstatistics2009)
The global economic crisis has adversely affected the UK property market - In the wake of the collapse of the sub-prime mortgage market in the United States, the global financial system has changed significantly. Long-established UK financial organizations have had to change their working practices with particular focus on management and containment of further lending and exposure to higher risk activities such as property investment.
As a result the UK Construction industry has suffered - The UK Construction industry has been hit particularly hard as the rate of investment into property-based activity slows significantly. The appetite for new private development has reduced dramatically as the economic crisis affects the financial performance of businesses. Equally the UK banks, which are already heavily exposed to property investment, are reluctant to fund new projects. There are also significant concerns that the UK Government's spending plans for large scale public projects will be cut to help balance the books.
Falling workloads are changing market behavior - UK Construction workloads are currently falling at a rate faster than any time since the late 1980s. As workloads fall customers are clearly taking advantage of increased competition amongst contractors and driving prices down accordingly. Contractors margins are reducing and businesses face a fight for survival.
The competitive arena is changing as contractors seek new work - As the market place changes and reliable opportunities in familiar sectors dwindle, contractors are widening their interest in projects previously outside of their regular scope and size. This is changing the nature of the competitive arena and is forcing firms to re-consider their approach to marketing strategies and their existing customers.
Long-term strategies must be adopted by contractors - Forward predictions indicate that the downturn in workload has years, not months, to run. As such, contractors have to develop new strategies to develop their markets and protect existing customer relationships or history tells us that they may not survive.
1.1.4 Segmentation according to UK context
Top 10% to 1%
Top 1 % to 0.1% (adults)
Top 0.1 % (or the "very, very rich)
Entry level for group
Mean Value for group
Average Income tax paid
Percentage of personal income tax revenue
(Source: http://en.wikipedia.org/wiki/Income_in_the_United_Kingdom - 08/12/2009)
Worth of each segment can range as follows, (lower income earners not create value to the luxury housing industry.) Source: Introduced by the researcher
1.2 Research Problem
Even though number of players trying to capture or maintain, UK Luxury Housing industry has very limited opportunity of the total market. Because of niche situation it is difficult to find potential customers to sell premium houses for GBP millions. Industry rivalry has doubled this limited prospect. Because of stagnant conditions, many companies can't sell their luxury hoses and making losses due to loan interests & construction cost increases. Customers will take time, check other options and need total solution for their requirement with strong confident. To build customer confident should focus on customer decision making and buying behaviour. Thereafter developers can provide perfect solutions for customers' requisitions.
United Kingdom context based on the http://www.emeraldinsight.com/Insight/ there are lot of possibilities can arise. Developer's brand positioning & promises should be supported by the - quality of houses, attributes, customer service, staff responsiveness, technical services, engineering, architecture, after sales, inter departmental relationships etc. All these divisions have to set the highest standards in order to deliver what they promise.
The number of customer dissatisfaction is on the increase. Sometimes the customer- developer conflict has intensified with a large number of customers unhappy with many issues such as - quality of the houses, legal issues, product faultiness, after sales service, etc. The number of competitors tying to position themselves at the level of existing market leaders. A large number of luxury housing projects are being launched in London & suburbs which signifies the rising competition in the niche property market. There is no truthful information based on Accurate Market research is essential for decision making & implementation of the correct management process. Don't have proper understanding about market trends, opportunities and further developments in the industry. Especially house features are expecting by customers, suitable and matching price, location and place, effective promotional methods.
1.3 Research Objectives
Key Objective -
To identify that what extent Marketing Mix impact on Customer Buying Decision of Luxury housing industry in UK.
Through the research want to identify that what are the forfeiting factors will affect to the consumer buying behaviour and how major marketing elements / marketing mix affect to the buying decision making process. Will discuss major 4 elements and extended mix to gain clear understanding about Therefore, through this research will identify the “impact of marketing mix on customer behavior of Luxury housing industry.”
Specific Objectives -
* To measure the impact on product on consumer buying behavior of Luxury housing industry.
* Ensure the impact on price.
* Understand the impact on location.
* Quantify the impact on promotional methods.
* To measure the impact on extended marketing mix (People, Process, and Physical Evidence).
1.4 Research Questions
What extent Marketing Mix impact on Customer Buying Decision of Luxury housing industry in the United Kingdom?
How product features (luxury house) impact on buying decision?
How house design, plinth area & architectural design specifications influence?
How fittings, using materials & additional features & engineering solutions on house will impact?
How Brand image impact?
To what extent impact additional services (total solution package)?
How impact price factor to customer buying decision?
How selling price, land value, construction cost persuade?
How legal & stamp fee, bank loans, special discounts for cash payments, interests on delay payments convince?
How payment structure encourage?
How other costs involve?
How location influence to buying decision?
How convenience, easy access, security force?
How neighborhood, community & number of houses change the decision?
How area recognition, name of the district, provincial council or urban council concern?
How view, higher elevation, nature beauty concern?
How promotional methods & communication influence to buying decision?
How promotional method, media selection & media schedule success?
How selling and marketing strategies should use?
How advertising, personnel selling, direct marketing, public relation, word of mouth, sales promotions effective?
How use internet promotions, event organizing and foreign promotions effectively?
How extended marketing mix (People, Process, and Physical Evidence) influence to buying decision?
People - How sales and marketing staff, architectures, engineers, supervisors, maintenance team members, labours involve?
Process - How time period to build the house, bank loan arrangement, payment arrangement, realize customer requirement, legal framework, after sales service cause?
Physical Evidence - How company image, dress code of officers, traveling method (vehicle), equipments (laptop, etc), office location and layout, stationeries, language affect to first impression?
1.5 Theoretical Background
1.5.1 Marketing Mix
Jerome McCarthy has suggested the 4P's via major tools as product, price, place and promotions as the marketing mix. But in recent practices has introduced another basic three parts as people, proceed and physical evidence. Through controlling major four variables can any organization to achieve their objectives. These variables are currently practicing with modern trends. After McCarthy's introduction Bernard Booms and Mary Bitner built an extended theory model and modernized the marketing mix and named as 7P's. (Booms,B. and Bitner, M. 1981).
* Product - Philip Kotler (1988) suggest that three distinct elements should be considered as the product's attributes, its benefits, and the nature of the support service.
* Price - More important element for some industries is the price potentially the most controllable and flexible element of the marketing mix. Price is also in many cases one of the most important elements and, together with the product as a key component of an organizations marketing strategy. (Source: D. Mercer, ‘Marketing' (Blackwell, 1996)
* Place / Location - Neil H.Borden's clarifying the Marketing Mix is named the distribution as Place. There are lot of definitions as channel, intermediary methods, distribution and etc to the same task. The majour task is delivering goods from the manufacturer to the final end user.
* Promotion - Marketing mix has its own identical ‘promotions mix'. The basic elements of the promotion mix are advertising, sales promotion, direct marketing, public relations and personal selling. The final outcome is determined as how to handle these tools.
* People - According to the Kotler, People are the most important element of any service or experience. Services are produced and consumed at same time. Services are combined with individuals who deliver the services and according to the personality, experience and personal qualities of the service provider the quality of services are altered.
* Process - this is another important element of the extended marketing mix. The process is determining the efficiency. Emending automated systems can increase the efficiency of processes. There are a number of perceptions of pro buying process or luxury housing.
* Physical evidence - this is the tangible aspect of the service. As services are intangible, people rely on tangible items to build their perception on services. In the case of luxury houses, the tangible aspect and appearance of houses play a mojor role in building customer perception.
1.5.2 Consumer behavior
According to the Belch and Belch consumer behavior is “ The process and activities people engage in when searching for, selecting, purchasing, using, evaluating, and disposing of products and services so as to satisfy their needs and desires”
To understand consumer behavior we need to examine how an individual interact with the marketing mix elements. According to Cohen (1991), the 4P's should be adapted according to the psychology needs of each individual. The Psychological requirements are based on consumers own culture, attitude, learning and experience. Based on these values consumers decide whether or not to purchase. If the product or service match with their own values consumers decide to buy it.
1.6 Research Methodology
Research has given priority to primary data to take impartial result through the study. Both of qualitative and quantitative techniques have being used to collect primary data from the target audience. Also has being used effective secondary sources to develop the research and to have a sophisticated output (Broadly discussed under the research methodology part). There are few methods has being applied by the researcher to get perfect solution. Survey method, interview method, internal data collections of property developers & published secondary data has used as data collection method.
1.6.1 Survey Method
Given the priority and research analysis based on the collected data through the survey. Questioner focused on customers who already bought luxury house.
1.6.2 Interview Method
Researcher not given more priority to this method, but has added more findings through industry expert ideas.
1.6.3 Published Secondary data
Internet, Industry Magazines, Government Institutions, News paper articles added more findings to the research.
1.6.4 Internal data of Property Developers
Internal data collections as existing customer researches, competitor analysis, marketing and communication plans and other important and relevant data captured.
1.7 Limitations of the Study
Sample size not enough - For 100% accurate conclusion should cover 50% of the total market. Because of difficulties to find particular target market researcher have selected small sample size. (Limited number of people can afford for luxury house and they having busy scheduled life pattern).
Limited secondary data - there are no more information on luxury housing industry. Also can't find updated records through any government institute related to the housing industry and having only outdated records. Also researcher has concerned only the London and suburbs, but in some others cities & other suburb areas should include to island wide result. For convenience has selected grater London and suburbs and it is difficult to based on these data to get overall picture. Didn't't put more weight on other macro factors as governmental influences as regulations, legal issues & economic changes. Political stability, foreign forces, employments and wages, etc. Not consider other luxury alternative can invest or spend. Through comprehensive research should pay attention on alternatives.
02. Literature Review
2.1 Theoretical background of Marketing Mix
Meaning of the Marketing Mix
The meaning of the Marketing Mix is a mixture of core factors which affecting to marketing strategies as well as consumer purchasing decision. Basic marketing mix comprises four elements as product, price, place & promotion. When provide a service it should be an extended mix with people, process and physical evidence. According to McCarthy. J marketers should work with all marketing mix variables. Also he described that even change all variables it is difficult to change the product and distribution channel.
Kotler, P. K. (2005). What is Marketing Mix. In P. K. Kotler, "Marketing Management". Prentice Hall.
Kotler (1988) suggest that three distinct elements need to be considered; the product's attributes, its benefits, and the nature of the support service.
* Product attributes are associated with the core product and include such elements as features, styling, quality, brand name, packaging, and size and color variants.
* Product benefits are the elements that consumer perceive as meeting their needs. This is some time refers to as the “bundle of potential satisfactions” that the product represents.
* The marketing support services comprise of all the elements that the organization provides in addition to the basic product. These typically include delivery, installation, guaranties, after sales service and reputation.
(Source: Strategic Marketing Management by Richard M.S. Wilson Colin Gilligan)
(Source: researcher developed based on www.wikipedia.org , 15/01/2010)
Core Product - this is the basic output of the product. Even you cannot touch it crates the vale to the entire product. The house example, the benefit is shelter, place to live with basic facilities.
Actual product - This is the tangible product of the output / physical product. As an example, it is the house with modern featured, quality construction, serenity appeal & etc.
Augmented Product - This is the value additions can add to the particular product. Most of the time augmented value use to delight the customer. Structural warranty, customer support service from maintenance team, after sales service & etc can show as examples.
For many industries price is the potentially the most controllable and flexible element of the marketing mix. It is also in many cases one of the most important elements and, together with the product, a key component of an organizations marketing strategy.
When buying a luxury house will consider selling price, easy payment structure, discount and other cost as legal & stamp fee.
Mercer, D. (1996). Pricing. In D. Mercer, ‘Marketing' . Blackwell.
Premium Price - Premium pricing strategy is the best and normal payment method which is applicable to the luxury housing strategy.
Channel of distribution comprises a set of organizations which perform all of the activities utilized to make difference in the process up to the consumption. (Bucklin - Theory of Distribution method Structure, 1966). Neil H.Borden's has introduced location factor as more important variable in the Marketing Mix. Location is most crucial factor in luxury housing industry. Because of easy access, neighborhood, serenity, reputation of the area will consider according to the above facts.
Another step of the 4P's is 'promotion'. This consists all of the tools available to the marketer for 'marketing communication'. As with Neil H.Borden's marketing mix, effective marketing communications has its own 'promotions mix.' Think of it like a cake mix, the fundamental ingredients are always the same. However if you vary the sum of one of the ingredients, the final outcome is different. It is the similar with promotions. The functions of the promotions mix are integrated to form a coherent campaign.
* Advertising - is a 'paid for' effective communication. It is used to develop attitudes, add awareness, and transmit information in order to gain a response from the particular market. There are many advertising 'media' as newspapers (local, national, free, trade), trade magazines and journals, television (local, national, terrestrial, satellite) cinema, outdoor advertising (such as posters, bus sides)
* Personal Selling - is an effective way to control personal customer relationships. The sales person acts on behalf of the organization. They tend to be well experienced in the approaches and techniques of personal selling. However sales people are too expensive and should only be used where there is a decent return on investment. For example salesmen are generally used to sell cars or home improvements where the margin is high
* Sales promotion - this tends to be thought of as being all promotions vary from advertising, personal selling, and public relations. As an example the BOGOF promotion, or Buy One Get One Free. Others include couponing, money-off promotions, competitions or free accessories (such as free blades for a new razor), introductory offers (such as when buy digital TV and get free installation), and so on. All sales promotion should be carefully cost and compared with the next best alternative
* Public Relation - This is defined as 'the deliberate, planned and sustained effort to be established and maintain mutual understanding between an organization as well as its publics' (Institute of Public Relations). It is relatively cheaper, but certainly not cheap. Successful strategies tend to be long run and plan for all eventualities.
* Direct mail - Thi is very highly focused upon targeting consumers based upon a database. As with all marketing, the potential consumer is named based upon a series of attributes and similarities. Creative agencies are working with marketers to design a highly focused communication in the form of a mailing. The mail is sent out to the relevant consumers and responses are carefully monitored. For example, if you are marketing medical text books, you would be used a database of doctors' surgeries as the basis of your mail shot.
* Trade fair & Exhibitions - Such methods are very good for making new contacts and renewing old ones. Companies will individually sell much at such events. The purpose is to develop awareness and to encourage trial. They offer the opportunity for companies to meet with both the business and the consumer. Expo has recently finished in Germany with the next one planned for Japan, despite a recent decline in interest in such events.
* Sponsorship - this is where an organization pays to be associated with a relevant event, cause or image. Companies will sponsor to sports events such as the Olympics or Formula One. The attributes of the all event are then associated with the sponsoring organization.
Gilligan, R. M. (1995). Strategic Marketing Management. In R. M. Gilligan, Strategic Marketing Management. Business & Economics
People are the more important element of any service or experience. Services tend to be produced and consumed at the same time, and aspects of the customer experience are options to meet the 'individual needs' of the person consuming it. Most of us can think of a condition where the personal service offered by individuals has made or tainted a tour, vacation or restaurant food. Remember, people buy from people that they more like, so the attitude, skills and appearance of all staff need to be first class. Here are some ways in ways of people add value to an experience, as part of the marketing mix - training, personal selling and customer service.
Eg: Marketing staff, architect, engineers and financial officers will participate to buying process of luxury housing.
Process is another constituent of the extended marketing mix, or 7P's.There are a of perceptions of the concept of process within the big business and marketing literature. Some see processes as a means to attain an outcome, for example - to achieve 30% market share company equipment a marketing planning process. One more view is that marketing has a number of procedures that integrate together to create an in general marketing process
This is the material fraction of a service. Strictly speaking there are no corporeal attributes to a service, so a customer tends to rely on fabric cues. There are many examples of physical evidence, including Packaging, Internet/web pages, Paperwork (such as invoices, tickets and dispatch notes), Brochures, Furnishings, Signage (such as those on aircraft and vehicles), Uniforms, Business cards, The building itself (such as prestigious offices or scenic headquarters) and etc.
www.marketingteacher.com. (2010, January 12). lesson_marketing_mix. Retrieved from www.marketingteacher.com: http://www.marketingteacher.com/Lessons/lesson_marketing_mix.htm
2.2 Theoretical background of the Consumer behavior
Consumer behavior is the findings of how people buy, what they buy, when they buy and why they buy. It blends factors from psychology, sociology, psychology, anthropology and economics. It attempts to realize the buyer decision making process, both individually and in groups. It examines characteristics of individual consumers such as demographics, psychographics, and behavioral variables in an effort to understand people's wants. It also tries to assess affect on the consumer from groups such as family, friends, reference groups, and society in general.
Belch and Belch defined consumer behavior as “The process and activities people work in when searching for, selecting, purchasing, using, evaluating, and disposing of products and services so as to make their needs and desires”.
Consumer decision making process
Consumer decision making process is the best as well as crucial factor to change and influence to the buying decision. Number of philosophers had been introduced their own idea about the buying decision process. But all of them accepted the normal buying decision process.
Consumer decision making process can shows as following model. With few changes in this model can apply in to luxury house buying decision process. Wikipedia-encyclopedia explains consumer decision making process according to number of researches and consumer behavior books. This common process can identify in each buying decision (consumer). In organizational buying behavior will be change the process with few rational approaches).
In luxury housing industry also can apply normal buying process. But customers will be more rational than other buying products as FMCG or low valued product or service. Standard buying process will explain that to what extent it will affecting to the buying decision making.
The consumer perceives a need and normally motivated to solve the problem.
The consumer searches for data required to make a purchase decision
The consumer comparing various brands and products
The consumer decides which brand should purchase
The consumer is evaluates their purchase decision
Howard, J. S. (1968). Theory of Buyer Behavior. In J. S. Source: Howard, Theory of Buyer Behavior. J. Wiley & Sons, New York, NY.
* Problem recognition
Problem recognition shows when there is a difference between one's desired state and one's actual state. Consumers are form to address this discrepancy and therefore they commence the buying process. Sources of problem recognition exists:
o An item is out of the stock
o Dissatisfaction with a existing product or service
o Consumer needs & wants
o Related products purchases
o New products
The relevant internal psychological activity that is associated with problem identification is motivation. A motive is a element that compels action. Belch and Belch (2007) give an explanation of motivation based on Maslow's hierarchy of needs & Freud's psychoanalytic theory.
* Information Search
Once the consumer has realized a problem, they search for information on products and services that can solve that problem. Belch and Belch (2007) introduced that consumers undertake both an internal (memory) and an external search. Sources of datainclude:
o Personal sources
o Commercial sources
o Public sources
o Personal experience
The correct internal psychological process that is associated with information search is perception. Perception is recognized as 'the process by which an individual receives, selects, organizes, and interprets information to develop a meaningful picture of the world'
The selective perception process step Description Selective exposure consumers choose which promotional messages they will expose themselves to. Selective action consumer's select which promotional messages they will put attention to Selective comprehension consumer communicate messages in line with their beliefs, attitudes, motives and experiences Selective retention clients remember messages that are more meaningful or important to them
* Alternative Evaluation
At this time the consumer compares the existing brands and products that are in their evoked set. How can the marketing organization develop the likelihood that their brand is part of the consumer's evoked (consideration) set? Consumers find alternatives in terms of the functional and psychological benefits that they offer. The marketing organization should understand what benefits consumers are seeking and therefore which attributes are most significant in terms of making a decision.
The relevant internal psychological process that is merged with the alternative evaluation step is attitude formation. Note that attitudes are 'learned predispositions' in an object. Attitudes comprise both inner cognitive and affective elements - that is both what you think and how you feel the something. The multi-attribute attitude model shows how consumers evaluate alternatives on a range of attributes. Belch and Belch (2007) identify a number of ways that can be used to influence the process (attitude change strategies).
* Purchase Decision
Once the alternatives have been analyzed, the consumer is ready to make a purchase decision. Sometimes purchase intention does not show in an actual purchase. The marketing organization must give the consumer to act on their purchase intention. The provision of credit or payment terms may motivate purchase, or a sales promotion such as the opportunity to get a premium or enter a competition may provide an incentive to buy now. The relevant internal psychological process that is goes with purchase decision is integration.
* Post Purchase Evaluation
Once the consumer has bought and used the product, they will evaluate their purchasing decision. They compare the product's performance with their own expectations. If the product does not perform as expected they will be experienced post purchase dissatisfaction. When consumers buy high involvement products, that are more priced products for which they exert a greater purchasing effort in terms of time and search, they generally experience some level of discomfort after the purchase. That is, they are experienced some doubt that they made the right choice. This situation is named 'cognitive dissonance' (thinking disharmony).
Chisnall, P. (1992). Marketing: A Behavioral Analysis. In P. Chisnall, A Behavioral Analysis. McGraw-Hill, London.
Abraham Maslow's Motivation Theory
When find the problem it is depending on the customer requirement or need. Through motivational theory explain how can identify the real requirement. (Eg: low income people should build normal house with basic feature to satisfy basic need of the shelter. The person who has enough money will go for luxury house and it will be a second house of them. It will be a esteem need of premium customer.
www.marketingteacher.com. (2010, January 16). lesson_consumer_buying_behaviour. Retrieved from http://www.marketingteacher.com: http://www.marketingteacher.com/Lessons/lesson_consumer_buying_behaviour.htm
Human motivations as shown by Abraham Maslow by his hierarchy of needs: The hierarchy is triangular. This is because as you go it, fewer and fewer people satisfy higher level requirements. We begin at the bottom stage
Physiological needs about food, air, water, heat, and the basic necessities of survival need to be satisfied. At the level of safety, man has a place to live that save him from the factors and predators. At the third level where we meet our society needs i.e. we marry, or join groups of friends, etc. The last two levels are esteem & self-actualization. Fewer people happy the higher level needs. Esteem shows that you get something that makes you recognized and gives personal satisfaction.
Customer Life Cycle
The Customer Life Cycle (CLC) has clear similarities with the Product Life Cycle (PLC). However, CLC target upon the creation of and delivery of lifetime value to the client i.e. looks at the products or services that clients NEED throughout their lives. It is marketing based rather than product orientated, and embodies the marketing concept. Importantly, CLC is a summary of the key steps in a customer's relationship with an organization. The problem here is that each and every organization's product offering is different, which makes it not possible to draw out a single Life Cycle that is the same for each organization
Another significant point is that a lifetime CLC is made up many shorter CLC's. The longer-term life cycle is normally the shorter-term life cycles viewed consecutively. In long term CLC's can show housing requirement. After getting personal loan customers go to buy house as a next step. Therefore luxury housing requirement comes some stages down the mature requirements.
Customer Life Cycle
Customer adoption process
The Adoption Process (also describe as the Diffusion of Innovation) is old more than forty years. It was originally described by Bourne (1959), so it has stood the test of time and remained an important marketing tool ever since. It describes the behavior of clients as they purchase new products and services. The individual sloe categories of innovator, early adaptor, early majority, late majority and laggards are described.
* Innovators are the first to adopt and display behavior that demonstrates that they likely to want to be ahead, and to be the first to own new products, well before the average consumer. They are often not taken seriously by their peers
* Early adaptors are also quick to buy new products and services, and so are key opinion leaders with their neighbors and friends as they tend to be amongst the first to get hold of items or services
* The early majority looks to the innovators & early majority to see if a newly introduced product or idea works and begins to stand the test of time. They stand back and watch the experiences of other people. Then there is a surge of mass purchases
* The late majority tends to buy the product later than the average person. They are slower to catch on to the recognition of new products, services, ideas, or solutions. There is still mass consumption, but it start to end
* Laggards tend to too much late to take on board new products and include those that never truly adopt at all. Here there is little to be made from these consumers.
Luxury house buyers are normally will not be innovator or early adaptors. Because they take time to decide the investment or requirement of them. It is a big investment & compare with certain other alternatives. Many of them never take high risk on big investment on house. Therefore many luxury house buyers are coming under the early majority.
Marketing mix & buying behavior
consumerbuyingprocessBased on Cohen (1991) describe buyer decision making process on simplistic method.
http://www.marketingteacher.com. (2010, January 15). lesson_consumer_buying_behaviour. Retrieved from www.marketingteacher.com:
To realise consumer buyer behavior is to understand how the person work with the marketing mix. As described by Cohen (1991), the marketing mix inputs (or the four's of price, place, promotion, and product) are adapted and focused on the consumer the psychology of each individual find the product or service on offer in relation to their adopted culture, attitude, previous learning, and personal perception. The consumer then take decisions whether or not to purchase, where to purchase, the brand that he or she refers, and other choices.
This is the most important theoretical model extracted by the researcher. Because this framework shows, the impact of marketing mix to the customer decision making. Basically targets major 4p's and most influencing behavioral factors as variables. Cohen's model has been used as researchers based model to the conceptual framework, with some modifications.
2.3 Previous research findings
According to research on “The housing market and demand for building materials by Al Schuler and Craig Adair - 2003” has disclosed that demographic factors affecting to the buying behavior of luxury home buyers and will change market patterns. Remodeling expenditures and related housing & building material demand should also get a boost from favorable demographic forces; the aging housing stock; and the fact that renovations, additions, and maintenance to world's housing stock consumes almost as many lumber and panel products as new housing (APA 2002a). According to past American Housing Surveys (USDC 2000), people aged 35 to 54 are the prime consumers occupied in remodeling, and through the end of this decade, that group will make up concerning 30 percent of the population. The same survey tells us that there are regarding 120 million housing units with a standard age of about 30 years, suggesting that remodel markets will be healthy for many years to come.
(Research Economist, USDA Forest Serv., Northeastern Res. Sta., Princeton, WV 24740; and Director, Market Research, APA - The Engineered Wood Association, Tacoma, WA)
View of Professor David Foot, author of Boom, Bust, Echo (1996), “Demography - the study of human populations - is the most influential and most underutilized tool we have for understanding the past and foretelling the prospect.” Foot goes on to say that demographics can explain two-thirds or more of all. Demographic forecasting is based on two key pieces of information as the cipher of people in each age group; and the probability that a person within a specific age group will participate in a given performance, such as buying a home or car, remodeling a home, or buying furniture (called participation rate). Contribution rates are usually determined from an examination of historical demand data, if to be had, or from consumer assessments if more appropriate. For example, we can consider historical data to tell us which part of the population is most likely to purchase, rent, or even remodel a home. For example, hit the highest point spending on starter homes is age 33; remodeling and furnishings expenditures peak at age 40; spending on custom homes/trade-up homes peaks at 44; holiday homes at 52; and peak spending on retirement homes is age 65 (Dent 1999). Peak overall spending is at age 46.5 years. We can decide with some certainty the answer to the number of people who will end up in each age group based on information of birth rates, death rates, and some basic supposition regarding net migration rates. Because behavior patterns can alter over time due to changing financial conditions or evolving social values, we can't decide participation rates with the same degree of confidence. For example, two trends that impact housing command are more women getting married later in life as they fit in careers with parenthood, and more single-parent households unpaid to the increase in divorce rates.
Through these researches on the whole target to find only the demographical affect on luxury house buying. To get an overall image about consumer behavior this data will be not sufficient. Also these factors will modify according to the Sri Lankan context.
The demand for housing is based on demographic factors (net family formations, births, deaths, and net immigration), net removals, and alter in vacancies. Demographic factors historically explanation for approximately two-thirds of demand, even as replacing homes that are demolished (net removals) plus insist for vacation homes and inventory (change in vacancies) make up the other third (NAHB 2001a). Demographic command is shaped primarily by shifts in the age and family work of art of the adult population. These shifts have been heavily influenced by colonization during the past two decades. Demographic factors establish what many economists refer to as “trend” or sustainable demand for sanctuary (Joint Center for Housing Studies 2002). Macroeconomic factors such as interest rates, consumer self-assurance, income growth, and employment status affect short-term fluctuations about the trend. A demand forecast offer by the National Association of Home Builders (NAHB - US) shows that housing demand should move toward 2 million units annually in this decade
Luxury cars in lieu of the normal Chevy and Ford, is made up mostly of aging, well-off baby boomers, and there are 75 million of them. They are starting to see more builders offering forthcoming buyers the opportunity to “custom design” their own home. (Grundahl, K. 2001. Knowledge is power. Structural Building mechanism August pp. 8-23) The key to practically priced custom-designed homes is compatible component (modular) building blocks like panelized wall systems, engineered roof and floor schemes, and specialist estimating software, which gives customers pricing on tradition design changes (often within 1 hr.). Wilshire Homes in the San Antonio/Austin area is developing a folder of customization amenities that will allow clientele to view their customized changes on a computer when purchasing a new home (Wilshire Homes 2002).
Research report in 2002, area production and market Outlook (PA Economics Rept. E 68. APA, Tacoma, WA) marketing professionals affirmed that while some pro dealers, stand-alone part manufacturers, and builders are making mechanisms, it's not yet clear how the delivery channels will expand in the future. The marketers recognized that buying power is gradually shifting toward the brokers. Part manufacturers, large dealers/ distributors, and the timber mills grasp less power to simply produce or deliver what they want. They foresee more “supply chain linkage” in the future that will force the buying process. These will eventually consequence in mill orders responding to the builder's list of resources for a large number of homes. One decision-making speculated that consolidation of builders and members of the sharing chain could even contribute to more consolidation of property companies. They said that some builders are approaching for more “installed components,” away from just windows and doors. Some are asking pro dealers for installed floor systems or total framing packages. Builders want to spend more time with financing and customer kindred and less time finding and training jobsite labor. This will push the labor reason away from the jobsite and into factories.
(Joint Center for Housing Studies 1999 Improving America's housing: the remodeling futures program. The Joint Center for Housing Studies of Harvard University, Cambridge, MA 43 pp).
Through this report also not reviewed the crash on marketing mix unless few marketing factors. The Luxury Home Council has done wide-ranging research on market growth and consumer buying behavior. (The 2007 State of the Luxury Home Market Report a Luxury Home Council White Paper, By: Jim Remley 1224 NE Walnut Suite 324 / web www.luxuryhomecouncil.com )
This let go explaining that luxury Even as sales sag in the overall real estate market, the luxury home sector shows no signs of slowing down. According to statistics Quick, a market research firm, sales of homes priced at $5 million and above jumped 18 percent in 2006 and an astonishing 31 percent in the first quarter of 2007. Not surprisingly, real estate professionals who sell luxury homes are hopeful about the affluent market with 55 percent expecting to see either strong or self-effacing growth within the high-end housing sector over the next twelve months. This optimistic outlook is bolstered by the fact that the world economy grew 25% in 2006 according to Forbes Magazine, the best ever growth in recorded history. As most luxury home buyers explain themselves as either a large business executive (46%) or an entrepreneur (51%) this has led many to either acquire or upgrade to a luxury home. One clear pointer of this growth - the Census Bureau's decennial census which exposed that the number of homes valued in the $1 million plus variety increased 470 percent between 2000 - 2005 accounting for 1.92 percent of the national home list.
Study conducted by Luxury Home Council reviewed that Luxury home buyers fit a only one of its kind demographic space in the residential real estate market. As described by the managers who sell high end homes, luxury home buyers are by and large middle aged, hard working couples, who have completed their own fortunes and are now in a position to live the luxury lifestyle they have earned.
* The majority of luxury home buyers be aged 40-50 (48%) or 50-65 (44%). These wealthy buyers are what many market experts describe as the “Baby Boomer” market.
* Virtually all affluent households consist of a wedded couple, with roughly half this group having children inside or outside of the home.
* The typical luxury home buyer makes large cash speculation in their home purchase - on average over 33 percent. This compares to the median down imbursement of all buyers of just over 9 percent.
* By far, the vast preponderance of luxury home buyers active in the market today are best described as “New Money” (89%).
* The standard luxury home buyer will look for a home with 3500-4000 square feet, 4-5 bedrooms and 3-4 bathrooms. During their explore, they will spend an average of 11 weeks looking for a home and will view 12 homes ahead of making a buying decision.
(The 2007 Membership Survey of Luxury Housing Market Trends was behavior between April 24, 2007 and May 29, 2007 utilizing software presented by Zoomerang.com. The survey was sent to 1036 members of the Luxury Home Council, a fashionable group of REALTORS® who concentrate in selling Luxury Housing, 202 members provided useable answers to the survey questions). Many agents question whether specializing in a convinced area of the real estate market is a wise decision. Yet, according to the Luxury Home Council's 2007Membership study of Luxury Housing Trends, agents who be paid the Accredited Luxury Home Specialist (ALHS) designation had an usual closed sales volume of just over $7 million dollars in 2006 or nearly three times the sales volume of a classic real estate agent in the United States.
Promotional & selling strategies for luxury houses has established through the same research. By far the vast majority of luxury home buyers are found through a referral or recommendation (75%) go following by the advertisement of a luxury home listing (19%), personal marketing (18%), associations and affiliations (14%), and prospecting (12%). Clearly, within the luxury home field, the market is motorized through word of mouth advertising. Recognizing this fact many luxury home expert routinely ask for referrals (78%) as part of their business strategy. One way luxury home specialists take home those referrals is by appreciating how much affluent family's value their privacy. A full 40 percent of luxury home specialists use a solitude statement as a part of their standard employment agreement. In addition, when asked what they believe sets them separately from their competition, 70 percent answered honesty and honesty followed by their knowledge of the market (67%).
As specialized / distinguished marketing strategies to build value in their services much luxury home specialists offered their clients with both “high touch” and “high tech” services that help set them apart from customary agents. Because of this 49 percent find it essential to use a least one assistant and 10 percent use multiple assistants.
For many global real estate proficient like Denny Austin, an Oregon real estate broker who earned the prestigious Accredited Luxury Home dedicated designation in 2005, the key to selling a luxury home is not just selling the home but selling a way of life. He concludes “When I'm selling a luxury home, I'm not immediately selling a home; I'm selling a way of life.”
Researcher named Remley established (http://www.realblogging.com/luxury-home-council-blog) that marketing or sales person should identify the client first and deliver suitable housing solution. In the first feeling customer will take the decision to buy or not. Eye Contact and Brow Movement, Facial, Upper Body Movements, Leg Activity are the presenting factors regarding consumer from physical behavior. Further more as top management elements has realized Build the Customer Base, Manage the Property, Manage the staff, Manage the client Experience, Add Value, Manage the , Build income, Manage Expenses, Solve Problems Quickly, Simplify and Systemize will effect to the luxury house buying decision.
Number of researches has realized the insight of the consumer buying behavior on luxury house buying. Many of them pointed consumer behavior as influence of demographic factors as well as selling strategies. According to theory records has proved that marketing mix is the critical factor which is control the selling factor as well as buying decision. Because consumer consider house features, place and price. Also communication factors are the more influencing element to update customer mindset.
According to above research findings, it is perfect that marketing mix has important impact on buying decision of luxury house. However there is no empirical evidence to evaluate the condition of Sri Lankan market. Therefore through this research researcher explain that how marketing mix impact on consumer buying decision of luxury housing industry in Sri Lanka.
03. Conceptualization & Operationalization
After consider above literature reviews, researcher has identified some variables which are directly and indirectly affecting to the buying decision on luxury housing industry. Researcher has defined as independent variables, intervene variables and dependent variables. When researcher is building the concept has used indicators and measurement criteria and finally based on each factors has developed an own framework for the decision making process in luxury housing industry.
3.1 Conceptual Framework
This is the conceptual frame work developed by the researcher. According to the framework can identify independent, interviewing and dependent variables. Marketing mix is the significant influencing factor to the buying decision and other factors as buying decision factors and macro factors also effect to the decision. After considering all the factors customer will take the final buying decision.
3.2 Defining Variables
Total framework can define under independent, interviewing and dependent variables as follows.
3.2.1 Independent Variables
Researcher has developed the model with prioritizing the marketing mix factors. Marketing mix is the most influencing factor to the customer buying decision of luxury housing buying decision. According to the luxury housing industry, can describe the marketing mix as follows.
* Product - Customer decision based on the house feature as House design, plinth area, architectural design, specifications, and fittings, using materials, additional features, and engineering solutions on house, brand image, and additional services (total solution package). Each and every customer will expect quality and advanced housing solution in the luxury housing industry. House feature are major factors which affect to initiate the decision.
* Price - Cost factors to the customer as selling price, land value, construction cost, legal & stamp fee, bank loans, special discounts for cash payments, interests on delay payments, payment structure and other costs involvements also create high impact on the buying decision. Before take the buying decision customer will consider these cost and pricing factors. Because it should match with his / her capacity, requirement and value for money expectations.
* Location (Place) - Convenience, easy access, security, neibour hood, community & number of houses, area recognition, name of the district, provincial council or urban council, view, higher elevation, nature beauty and other related factors will influence to the decision making.
* Promotion - Promotional method, media selection & media schedule, selling and marketing strategies, effectiveness of advertising, personnel selling, direct marketing, public relation, word of mouth, sales promotions, internet promotions, event organizing and foreign promotions. Those promotional factors can influence to the customer to take the buying decision. Promotional factors are very strong independent variables, because of the high influencing ability to the customers mind set.
In the luxury housing industry, servicing factor is playing major role. Therefore we can use extended marketing mix with people, process and physical evidence.
* People - How sales and marketing staff, architectures, engineers, supervisors, maintenance team members, labours built rapport with the customer and their after sales service also directly influence to buying decision as well as post purchase decision (repeat sales / word of mouth recommendations).
* Process - Time period to build the house, bank loan arrangement, payment arrangement, realize customer requirement, legal framework, after sales service are also influence to the buying decision.
* Physical Evidence - Company image / credibility, dress code of officers, traveling method (vehicle), equipments (laptop, etc), office location and layout, stationeries, language proficiency can change the customer idea.
Above mentioned marketing mix factors are playing major role in customer buying decision making process. Therefore we can rationalize the decision has taken them as an independent variables.
3.2.2 Intervene variables
According to the framework has realized two major intermediary factors as influencing factors to the buying decision and macro environmental factors. Researcher has realized the most important factors from above mentioned two interviewing variables. Note that researcher has used literatures and theoretical model and previous research findings to identify these interviewing factors.
* Influencing Factors to the Buying Decision
To the buying decision will influence some consumer behavioral factors. It is based on the demographical factors.
o Age / life cycle stage - Mature stage (above 35)
o Income - Above LKR 500,000/= income per month
o Education / Profession - Medium to large scale business, peak time of the profession (doctor, lawyer) or working as top management position (above general manager position)
o Social Class - Upper middle and upper class.
* Macro Factors
Selected few most influencing macro environmental factors are being used as another interviewing factors.
o Political stability - Number of luxury home buyers are investing as an investment in addition to the living purpose, especially Sri Lankans who are working abroad. Because of political instability they will afraid to invest money on luxury house in Sri Lanka & spend on other alternative option.
o Economy conditions - Inflation rate, taxes, money values depreciation also affecting to the buying decision.
o Social status - Requirement depend on the social class & country social status. To maintain social status will go for luxury house.
o Legal frame work - Some restriction as foreigners can't buy properties under their name, 100% tax for no citizens and other government regulations and legal frameworks applying to the buying decision.
3.2.3 Dependent variables
Dependent variable is consumer buying decision. It is depends on marketing mix and other intervene variables as buying process and macro factors.
Problem recognition results when there is a change between one's desired states and one's real state. There after start information search. Once the consumer has recognized a problem, luxury house requirement, alternative evaluation part is starting as next step. This stage the consumer is compareing the quality of the house and brand recognition.
After once purchase a house will go to next house will be a rare opportunity, especially for a luxury house. They compare the modern house with their expectations. PESTEEL factors and other macro economic factors are influencing to the buying decision. Each every marketing mix elements also create high influence to the buying decision. Because of these elements customer buying decision is a dependent variable. Therefore it is depending on the variables to make the correct actions.
Indicators are realised on that how measure the impact on marketing mix variables to take customer purchasing decision. Also researcher has selected indicators based on the luxury housing industry measurements.
* Product - Design of the house as newest architectural look, Plinth area (square foot), materials and fittings are being used and proper solutions are providing by the developer.
* Price - Selling price of the house, legal & stamp fee, best and easy payment structure, discount or interest on the payment, value of the land and other expenses rose on the property.
* Place - Accessibility & convenience, neighbors and community, natural beauty and recognition of the area.
* Promotion - How customer got the promotional message.
* People - Customer measurement about developer's service providers / staff
* Process - Construction completion time, understanding about the process, efficient solutions, communication process
* Physical Evidence - impact on the company's physical evidence.
Buying behavior (demographic factors)
* Age - based on “life cycle concepts in marketing research” journal of marketing research by Williaum D. Wells and George Gubar. Divided age groups as bachelor stage, newly married couples, full nest 1, 2, 3 and empty nest. (Researcher has realized participants' lifecycle stage while doing the survey). Basically measured through age group and marital status.
* Income - LKR 250,000 per month, LKR 500,000 per month, LKR 750,000 per month and LKR 1,000,000 or above per month.
* Education - profession or income method, business scale
Researcher doesn't focus macro factors to the research, because of complex situation to measure and just mentioned customer comments on environmental factors.
Base on the indicators of each variable, researcher has operationalised the all variables of customer behavior in table.
Design of the house
To what extent customer will consider the design of the house in purchase decision of the luxury house.
Impact on plinth area to the buying decision (Size of the house)
Impact on materials as sand, cement, iron and other construction materials
Toilet fittings, light fittings & other branded fittings how change the buying decision,
Solutions by developer
How additional services providing by the developer affect to the buying decision
How finalize the buying decision on selling price
Legal & stamp fee
Is it influence to the decision
Easy payment structure
Bank loan or any easy payment structure to what extent pushing to the buying decision
Discounts & interest on delay payment
Value against the discounts & interest
Value of the land
Perch value of the area & its impact
Accessibility & Convenience
Location of the house. ( close to the main road)
Neibour-hood & community
People who are living in the surrounding will influence to the decision
Natural beauty & view
How change the buying decision
To what extent influence to the buying decision
How customer received the message
How staff members change the decision
Time period & progress
Communication process, understanding & efficient solutions
What is the process significance of the process to buying decision
Is there any particulars about physical evidence of the property developer
Age /life cycle stage
Age group and marital status
04. Research Methodology
Research has given priority to primary data to take impartial result through the study. Both of qualitative and quantitative techniques have being used to collect primary data from the target audience. Also has being used effective secondary sources to develop the research and to have a sophisticated output.
4.1 Survey Method
Sources of data collected through a questioner which has 10 questions (8 Close ended & 2 open ended) with 30 sub questions. Also has used 4 questions to measure demographic factors. Conducted a self administered survey in hand delivered method & through emails. Target audience was representative sample of who newly bought luxury houses, bought before 10 years, who constructed own luxury house. Because, they are having perfect experience of buy a luxury house.
Surveyed 100 customers as sample plan, of above mentioned target audience. Sample size is small because of difficult to find prospective people in this segment and their busy schedules. But through this sample c
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