internal and external factors influencing the consumer decision-making process for a home purchase

Question

The Consumer Journal Report requires you to analyze the internal and external factors influencing the consumer decision making process for a major purchase – e.g. a car or a holiday. Your analysis MUST be based on reality, that is, you are required to research this topic with someone who has recently made such a decision. The assignment should be in the report format. Your analysis will integrate a number of elements covered in Lectures 7-10. It is important to be analytical and NOT descriptive, demonstrating an understanding of which theories were at play in this purchase situation.

Answer

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Contents

Introduction. 2

Theoretical background. 2

Internal and external factors. 4

Knowledge and Experience. 4

Motivation. 5

Personality and feelings. 6

Culture and subculture. 6

Family and reference groups. 7

Conclusion. 8

References. 9

Introduction

            There are many internal and external factors that influence the decision making process for a home purchase. This study provides a conceptual model for consumer decisions and behavior with regard to the process of buying a home. The paper is a source of empirical knowledge on a typical prefabricated house purchase. Through an analytical approach, the importance of making proper purchase decisions is highlighted. Information on consumer behavior is gathered through reference to the experiences of recent homeowners. Some of the factors considered include the customer’s idiosyncratic characteristics, environmental factors, personal situation, the role of feelings, subconscious factors, needs, and goals and experience.

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            In the field of consumer research, two main questions that form the point of focus include how consumers make decisions (descriptive theories) and how decisions ought to be made (normative theories). Research findings that focus on how consumers ought to make decisions seem to be taking a center stage nowadays.

Theoretical background

            For many decades, consumer behavior has been a very important research topic. A review of the existing literature indicates that there is a shift from rational to social and psychological decision-making factors. However, even the latest models do not seem to have managed to embrace a satisfactory scope of knowledge relating to consumer behavior. Some of the aspects that have not been exhaustively covered include subconscious processes and the role of needs, emotions, and goals.

            Strategic decision making simply refers to the process through which decisions are made whenever one is buying strategically important goods. The strategic importance of purchase is defined by various aspects. These aspects include a long-term commitment of resources, high involvement in the process and a truncated budget.

In buying a house, many important categories of decisions have to be made. The allocation of the household budget has to be considered. This involves things like the influence of the purchase on the allocation of various items in the budget(Schiffman&Kanuk,2001). Alternatives are categorized whereby a choice is made from various product groups, for example, houses or apartments(Hansen, 2005). A more narrow product category may also be defined, for instance, a house of a given size. The decision is only made after the product category has been defined.

Katona(1968)discusses the adaptive theory of consumer behavior using empirical data collected in different surveys. The theory, according to Katona, is based on socio-psychological principles of expectations and learning. Therefore, it is part of behavioral economics.

In its traditional form, the consumer behavior theory is based on rationality and the complete dependence of expenditures on income. In the adaptive theory, the consumer always chooses the best alternative whenever conceivable courses of action are open to him. Additionally, the primary determinant of consumer expenditures is absolute or relative income. However, according to recent formulations, it is determined by the household’s normal or permanent income as well as tastes.

According to the adaptive theory of consumer behavior, the behavior of the consumer is based on a rational decision-making process. A genuine decision is always reached after all alternative courses of action are weighed. Katona (1968) acknowledges the existence of stereotypes that get in the way of rational thinking. Yet Katona says that consumer behavior is not incomprehensible, implying that it should never be viewed as irrational. Against this backdrop, an adaptive theory that concentrates on changes in consumer behavior is necessary. Such a theory should incorporate and explain changes in tastes, preferences, and attitudes. These variables should be analyzed using the information and experiences of different consumers. 

Internal and external factors

            The internal factors that determine the behavior of consumers when buying a prefabricated house include involvement, knowledge, motivation, experience, personality, and feelings. The external factors include culture, subculture, family, reference groups, demography and social class.

Knowledge and Experience

The buyer has to understand the specific product category that he chooses. In this case, he has chosen to buy a prefabricated home. The main benefit of this home is that it is custom-made. Specific properties such as quality, isolation, warranty, and price per square meter can be accurately specified by the buyer. It appeared that the information gathered from people who had previously bought this type of house was very helpful to the buyer. This is because it increased his knowledge upon which to base his buying decisions.

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Experience is a very important factor in making a major house purchase decision. The original internal and external influences, according to Kokliˇc&Vida (2006), are updated by past experiences and acquisitions. If the buyer believes that the features of the prefabricated house fulfill his needs and goals, the choice will reflect his personal lifestyle.

Old considerations have to be brought into the context of the current purchase in order for past mistakes to be avoided. Attitudes towards alternatives are based on past experiences involving an equally critical purchase and the way they influenced the buying decision. Past experiences have a huge influence, consciously or unconsciously, on the buyer’s behavioral disposition. Additionally, past experiences inform the buyer about known alternatives more vividly than knowledge.

Motivation

The motivation for buying a prefabricated house is derived from both the importance attached to the product and the high cost involved. Accuracy is critical lest the buyer commits huge sums of money into such a major purchase. The motivation is often derived from the context within which the purchase is made. Alternative decision-making processes need to be followed. The interplay of affective and cognitive factors in the buyer’s mind motivates him to be very enthusiastic in searching for as many details as possible.

Peter and Olson’s (2002)cognitive processing model explains the nature of the consumer’s decision-making process. Peter and Olson say that the process of making the decision is directed towards a ‘goal-directed’ and ‘problem-solving’ approach.  In this regard, affective, cognitive and environmental factors are explained.

Personality and feelings

            Many people, according to Kokliˇc&Vida (2006), view a house as an integral part of their personality or their extended self. Incidentally, this is the case with every major purchase. This is an example of how consumer behavior tends to be shaped by psychological and social factors. The processes involved in meeting these factors, according to today’s theoretical perspectives on consumer behavior, are subconscious(Kokliˇc&Vida, 2006).

            The ownership of the house, for many buyers, is a key expression of lifestyle and personality. Some of the personalities emphasized by the choice of house style include homeliness and warmth. There is a commonly held belief that women and men perceive a home in different ways(Hauser & Urban, 1986). Women tend to relate with a house on an emotional level while men tend to relate with it on a rational and functional level (Kokliˇc&Vida, 2006). However, for women and men, the ‘feeling of wellness’ is a very important choice criterion.

Culture and subculture

            The influence of culture was very evident in the rationale by the buyer in choosing to buy a prefabricated house. This type of custom-made house is both a cultural symbol in the buyer’s locality and a manifestation of the buyer’s individual preferences. Gibler and Nelson (2003) suggested that the value that is placed on individualism as a key cultural element is often reflected in the existing demand for customized homes.

According to Kokliˇc& Vida’s (2006) conceptual model, the cultural and market factors that determine the choice of a prefabricated house can be applied in cross-cultural markets, only that the items selected would be different. When there is a similarity between product and buyer relationships, the model can be applied to any geographical location. The similarity should be in the form of motivation to search for information, experience and high involvement in the buying process. Cross-cultural factors may differ primarily on the basis of the weight that is assigned to individual factors by buyers. Additionally, quantitative and qualitative empirical efforts are needed in order for the buyer to be enlightened on the interactive effects of the factors that impact the buying process.

Family and reference groups

These are two very important external factors that influenced the buyer’s choice of the prefabricated house. The lifestyle that the family is used to determines the features that will be given special attention in the custom-made house. The materials are chosen and the layout desired to provide an impetus for further research on how the home should look like.

            To begin with, the family rarely has enough information on the design of the home. However, through cumulative access to information, they develop a clear image of how the home should look like. Sometimes, the additional features are pointed out when it is too late to incorporate them. In this case, the family members have to adapt their desires and goals to the ongoing house-buying process, as if in response to the adaptive theory of consumer behavior.

            Reference groups are the people who are known by the buyer to have encountered a similar house-buying process. The decisions of the reference group have a huge psychological impact on the choice that one makes when buying a house. In some case, these decisions are also closely linked to the prevailing demographic and cultural realities. For purposes of identity formation, the reference group may inspire the buyer to deviate from the established cultural norms, in an attempt to be unique.

Conclusion

            The task of buying a house is a very emotional, sometimes almost traumatic one, owing to the wide range of decisions that have to be made and their significance in life. In most cases, an individual will buy a house only once in life. The behavior of buyers is said to be influenced by various external and internal factors. Definitely, some factors are more significant to the buyer than others, depending on personal circumstances.

            The adaptive theory of consumer behavior, though insightful, fails to capture the realities of the homebuyer’s cognitive, affective and psychological frames of reference. These frames of reference were highlighted through different internal and external factors discussed here. Therefore, a dynamic theory of consumer behavior would be more appropriate for accommodating the changing trends in the buyer’s preferences.

References

Gibler, K. & Nelson, S. (2003) Consumer behavior applications to real estate education. Journal of Real Estate Practice and Education 6(1), 63–89.

Hansen, T. (2005) Perspectives on consumer decision making: An integrated approach, Journal of Consumer Behavior 4(6), 420–437.

Hauser, J. & Urban, G. (1986) The value priority hypothesis for consumer budget plans. Journal of Consumer Research 12(4), 446–462.

Katona, G. (1968) Consumer Behavior: Theory and Findings on Expectations and Aspirations, The American Economic Review, 58(2), 19-30.

Kokliˇc, M. &Vida, I. (2006) A Strategic Household Purchase: Consumer House Buying Behavior, Managing Global Transitions,7(1), 75–96.

Peter, J. & Olson, J. (2002)Consumer behavior and marketing strategy, New York: Irwin McGraw-Hill.

Schiffman, L. &Kanuk,L. (2001) Consumer behavior, Oxford: Oxford University Press.

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