Review Of The Literature Consumer Buying Behavior Business Essay

Creation of true value for the consumers and thereby addition of value to the society is considered to be one of the most essential for business organizations to make the world a better place was indicated by Brief and Bazerman (2003, 187). Bargh (2002) in his research supported the fact that consumer research should strike a balance between how to influence consumers and how consumers could defend themselves and control such influences.

According to Simonson et al (2001), one of the most essential and influential areas within consumer buying behavior is the consumer decision making process. In recent decades, during the initial stages of the conception of the consumer buying behavior paradigm, various consumer decision making models were proposed. However the theories proposed by the researchers were not specific and considered a overall view of the consumer decision making process. Erasmusm, Boshoff and Rosseau (2001) indicated the importance and need for a specific, situation and product – oriented model in the study of the purchasing behavior of the consumer. Moreover according to Wells (1993) the consumer investigating decisions needed in the purchase of products such as car, house etc would directly make an effective contribution to the consumer buying behavior knowledge. Therefore it is evident that an exploratory research approach with the objective to study the consumer buying behavior would provide opportunities to understand the complexity of specific decision making processes of the consumers.

It is evident from the past researches on consumer buying behavior that most of the real estate study is based on neoclassical economic theory. The neoclassical theory states that the people make rational economic decisions about renting or purchasing real estate as an attempt to maximize their utility. Moreover the various theories of consumer buying behavior do not emphasize nor examine the human influences on the real estate buyers. They concentrate more on production orientation rather than consumer behavior orientation towards the approach for marketing in the case of the consumer buying and decision – making process. The analysts stratify real estate markets by property types that are defined by physical construction rather than consumer benefits. Physical attributes value property more than the consumer perception factors such as space, atmosphere etc. However in some cases such as retail tenants and other retail customers consider non – financial and perceptual factors rather than the financial aspects in the buying process (Smith, Gararino and Martini, 1992).

The study of the consumer decision making process is more important in the case of purchase of a high – involvement and emotionally charged products such as real estate and house etc. Considering this type of consumer decision making process, the objective of the research is threefold. Firstly to generate a conceptual consumer decision making process model for purchase of house, secondly to study the various factors affecting the consumer buying behavior process and finally to provide recommendations about the important factors affecting consumer buying behavior.

Granhaug, Kleppe and Haukedal (1987) in their research explained that the decision – making process involving long – term commitments of resources and affecting the budget available for other goods and services is defined as the strategic decision making process.

In the views of Gibler and Nelson (2003), Mitchell (1999), Beatty and Smith (1987) this process of strategic decision making endures a certain amount of risk mainly because it represents very high financial decisions. Therefore this study concentrates on the various factors and its effect in the case of this complex decision making process such as the process of consumer buying behavior in the real estate industry.

The understanding and the prediction of the consumer perceptions is important in examining and studying the consumer buying behavior and the decision making process. Thus the overall purpose of this research is to understand the factors and influences on consumer buying behavior in the real estate industry and also explains as to how the integration of the theories relating to consumer buying behavior improves the understanding the consumer perceptions in the real estate buying process.

The Study of Consumer Behavior

According to Engel, Blackwell and Miniard (1995), consumer behavior is defined as the study if individuals or groups in obtaining, using and disposing of products and services, including the decision making process and the processes preceding the behaviors following it. Consumer behavior can be explained on a macro level and the micro level views. The consumer behavior involves in examining the reasons for the behaviors of the customers more than the examination of the consumer actions. Considering the macro level, the interests of the marketers lie on the demographic changes, society’s values, beliefs and practices that affect the way the customers interact in the marketplace. In the micro level view, consumer behavior concentrates the human behavior and the reasons behind the behavior. The application of these concepts to developing and increasing the understanding of the consumer buying behavior in context to the real estate industry are explained in the following sections.

Consumer Choice and Decision-Making

Consumer choice is one of the key and important aspects of consumer behavior. The relevance between consumer choice and the decision making process is also depicted in the theory of utility in Economics. In general terms a customer buys a product or service to enjoy the benefits derived from their usage. The theory of utility as described before focuses mainly on the results and outcomes whereas the consumer behavior aspect emphasizes on the process of consumer purchase. The impact of the situational factors on consumer behavior and the variance among the individuals faced with the same conditions are explicitly explained in the theories and researches of consumer behavior.

Considering the real estate industry, the type of purchase and leases are said to be of high involvement goods. This type of high involvement goods demand a complex decision making process during the purchase time. In accordance with the consumer buying behavior, decision making process and the real estate industry, the three important conceptual models of the decision making process are suggested by Nicosa (1966), Kollat and Blackell (1968) and Howard and Sheth (1969). These models of consumer decision making process are in direct relation with the situations of the real estate industry in Chennai. It is important to note that these models provide a trace of the psychological state and the behavior of the customer from the initial stage of the customer’s conception of the idea of the purchase of the land or house through the entire purchasing process of the product to satisfy the demands of the consumer. A detailed explanation of some of the key elements of the above mentioned conceptual models and provided in the next section. The key elements are listed as information search, evaluation of alternatives and decision rules.

Information Search

Initially when the consumer perceives to buy a real estate property they first seek for information regarding the same. This information search involves both external and internal information search. According to the previous researches on information search by the customers, the effect of quantity of previous experience vary with the amount of type of search undertaken especially in the case of the real estate industry (Baryla and Zumpano, 1995 and Anglin, 1997). Considering the real estate industry, the search for information is supported equally both by external and internal sources. On one hand, the previous knowledge acquired by the customers reduces the search for new information and therefore they depend mostly on internal information. On the contrary this acquired knowledge encourages search for information by supporting the efficient use of the newly acquired knowledge thereby leading to external information search.

Internal information search

In general, initially the customers check and obtain information by means of internal information search (i.e.) they gather information which is they already possess (Bettman, 1979 and Punj 1987). In the views of Kiel and Layton, 1981 and Engel, Blackwell and Miniard, 1995, there are certain factors which affect and have a negative impact the process of internal information search. Such factors are depth of experience, length of time since the last purchase of the land and the level of satisfaction with the previous purchases directly affects the customer’s reliance on the internal information. This unreliability on internal information by the customers in a long run leads to the search of external information for accessing the buying decisions. Moreover since the consumers do not buy real estate very often, at several situations they rarely depend on the past and existing internal knowledge to help in buying decisions, rather they also undertake an external information search.

External information search

In theory, there are basically two perspectives in relevance to the external information search. They are economic and psychological/ information processing approaches. In the case of the economic perspective, the consumer considers the search for external information on a cost/ benefit basis. This search is such that the consumer prolongs their search so long as the marginal benefit of acquiring an additional piece of information exceeds the marginal cost. Considering the case of the psychological approach of external information search, it is cognitive process. The consumers go through in deciding phase to search for information, gathering information phase and finally processing of the gathered information. In both the cases of external information search the impact of the consumer, product and situational characteristics are considered (Schmidt and Spreng, 1996).

The external information search is very effective in the case of real estate industry because a high budget investment and infrequent purchase depends more on the newly acquired information. Moreover when the consumers feel more confident about their ability to access the products they will directly tend to acquire more information regarding the same. Thus in the views of Moorthy, Ratchford and Talular (1997) there clearly exists a inverted U relationship between knowledge and quantity of the external information search.

The ways in which the consumers obtain information from the external sources are directly from personal inspection, real estate brokers, newspapers, friends and relatives (Clark and Smith, 1979; Talarchek, 1982 and National Association of Realtors, 1989). In case of the customers with very little knowledge about the real estate such as first time homebuyers, interurban movers mainly depend on the personal sources like friends, relatives and real estate agents for external information (Kaynak, 1985). Meanwhile in the case of customers with moderate knowledge on real estate issues, they perform extensive information in their own. However consumers with extensive and elaborate knowledge on the real estate property buying and selling need to perform a formal external search of information (National Association of Realtors, 1989).

Constraints affecting external information search

In the case of the external information search, there are some factors which affect the search process. They are as follows

Experience

Experience is the on of the most important factor of external information search. According to Hempel, 1969 and Bettman and Sujan, 1987, experience plays an important role in consumer buying decisions in the case of the real estate industry. The experienced customers know which dimensions and considerations are important. These customers would be very clear and consistent in the decision making process. However inexperienced buyers who not have much external knowledge are more susceptible to the external influences such as the real estate agents in analyzing the criteria they should consider in purchasing a property. It is important to note that the type of information gather is important in the case of experience gained.

Consumer beliefs and attitudes

The beliefs and attitudes is another factor which affects the external information search by the consumers. Some attitudes of the customers have a direct effect on the external information search process. There are certain consumers who like the shopping process rather than the external information search process is indicated by punj and Staelin, 1983; Beatty and Smith, 1987). In this case the consumers would like to visit the open houses and inspect the properties before making any decisions. These types of consumers do not generally go in depth into collecting information from the external sources. However on the contrary the consumers who are satisfied with the amount of information obtained would probe into and collect information from the various external sources rather than visiting the real estate properties.

Demographics

The external information search depends and is in relation to the demographic characteristics in specified by Beatty and Smith (1987). According to Cole and Balasubramanian (1993), age is one such demographic characteristic which is negatively related to the amount of external information search. It is evident that greater the accumulated knowledge and experience for an individual there is a reduced desire to search and obtain more information. Apart from age, in the view of Hempel (1969) the educational level of the consumers also plays an important role in the external information search process. The consumers who are well educated seek for more information due to the greater confidence and also their ability to search and the make effective use of the information gathered.

Situational constraints

Situational constraints as specified by Beatty and Smith (1987) are the quantity and availability of information in the marketplace and also the time pressure on the consumer. These situation constraints are also proved to affect the external information search of the consumer. The quality and quantity of information from the external sources varies by market. According to Cahill (1995), most of the consumers feel that they lack sufficient information from the external sources to make a suitable and favorable decision while purchasing the property. Moreover most of the consumers feel that they have less access to information especially after they have decided to purchase the property. In regard to the uniformity of the access to the information, it is found that the access to information is not uniform. Therefore this uneven access leads to differing time period and differing intensity. This scenario makes the consumers more dependent on the real estate agents in accordance with the information needed for the purchase of the property. Since the agents are gatekeepers who are very biased in their suggestions, the consumers are devoid of the actual information (Jud, 1983).

Time constraint is a part of the situational constraints which is of major consideration. This type of constraint is directly associated with the real estate decisions. According to Baryla and Zumpano (1995) time constraint reduces the level of the external information search by the consumers. For example, considering a situation when a consumer is transferred to a new city in regard with his work, this leaves him with less time to find a real estate property. This situation reduces the extent of external information which the customer can obtain.

Product determinants

Kiel and Layton (1981) in their research emphasize on product determinants as one of the constraints which affect the consumer buying decisions. The variety, type of product features and the price are some of the variables associated with the product determinants. In case of products where the consumers perceive few differences between the available choices, they are likely to make fewer comparisons and view fewer properties. Considering the innovative smart houses requires the customers to acquire new information about the various features of the house to analyze the beneficial factors. This analysis indeed requires a lot of information for understanding and decision making. Moreover since the investment is high which leads to the same amount of financial risk involved, the consumers look out for extensive information in evaluating and selecting the right alternative.

On the whole the information search involving the external and the internal sources is to develop an information base for the consumers to analyze and make the right decisions when they are purchasing the house. The following discussion describes the methods in which the consumers use the information base to evaluate the various alternatives.

Evaluation of Alternatives

The researches indicate that the information gathering process is a two stage sequence; first the consumer gathers information about the broad – based environment and the location variables. Secondly the consumer gathers information on the individual housing unit variable (Talarchek 1982 and Cahill 1994). Evaluation of alternatives is the next most important part in the consumer decision making process. Searching the market and the environment for all the possible alternatives is generally not feasible. The consumer should establish certain limitations in case of evaluating the choices. In the views of Brown and Moore (1970), Speare, Goldstein and Frew (1975) and Wiseman (1980) the decision making process for purchasing a real estate property falls into three stages namely the decision to relocate, selection of the destination and finally the selection of the particular real estate property.

Engel, Blackwell and Miniard (1995) in their research indicated that the evoked set which the reduced set of alternatives from which the consumer makes a decision regarding the purchasing of the property is of major consideration in assessing the behavior of the consumer in the house buyer market. In order to evaluate the alternatives from the evoked set to make the final decision, the consumer should understand the salient attributes or the criteria which would produce them the desired results. The real estate buyers in recent years conducted surveys among the house buyers market to understand the salient features and its impact on the customer behavior. But the varied list of salient features and the different rankings among different markets lead way to complications in understanding the important salient features. These scenarios lead to the continuous demand to better understand the local markets and the salient features specific to consumers in each market (Kaynak and Meidan, 1980; Freiden and Bible, 1982; DeLisle, 1984; Kaynak, 1985; Smith, Garbarino and Martini, 1992; and Bergsman, 1993).

According to Alpert (1971), if the salient features for the various choices in the evoked set are equal then it is evident that it is not relevance in choosing among the alternatives. For example considering a situation in which the consumer believes that all the schools in the particular city are good, then it may not be a deciding factor in purchasing the house even though the quality of the school plays an important role. Therefore among the salient attributes, the attributes which directly influence the evaluation of the alternatives and the decision over purchasing a property is defined as the determinant attributes. Engel, Blackwell and Miniard (1995) in their research has indicated that the determinant attributes are influenced by the situational influences, similarity among the choices, motivation and also the knowledge regarding the attributes.

The situation in which a decision is made or the situation in which a product will be used may influence the attributes used in making the selection. For example, a homebuyer making the purchase decision alone may use a different set of criteria than a buyer who is making the decision as part of a family. A buyer may evaluate properties differently depending on whether he is purchasing a house to occupy himself, furnish for his parents or rent to a tenant.

Decisions involving widely disparate alternatives (a single-family detached house, a mobile home in a trailer park and a houseboat moored at a dock) require the consumer to use criteria that are more abstract to evaluate the alternatives (Johnson, 1984, 1989; Bettman and Sujan, 1987; and Corfman, 1991). The more similar the options, the more the consumer can rely on concrete criteria and price to make comparisons. Thus, identifying and valuing the attributes used by buyers in comparing tract housing is easier than those used by decision-makers choosing custom homes. To further examine the means by which consumers make choices among alternatives, the following section discusses various types of decision rules that consumers use in arriving at final decisions.

Internal Determinants of Consumer Behavior

Each consumer possesses a unique combination of mental and emotional characteristics. This section focuses on several established consumer behavior classifications of these internal characteristics, including motivation, attitudes, perception, personality, self-concept and lifestyle.

Motivation

Motivation is a need arousing a drive for a consumer to take action in an attempt to reach a goal (Engel, Blackwell and Miniard, 1995). Needs arise from the discrepancy between actual and desired states of being. Wants refer to specific products that consumers believe will satisfy the need (Foxall and Goldsmith, 1994).

Needs can be classified as utilitarian or hedonic/experiential. Utilitarian needs lead to consideration of objective product attributes or benefits, whereas hedonic needs elicit subjective responses, pleasures and aesthetic considerations (Holbrook and Hirschman, 1982; and Havlena and Holbrook, 1986). It is common for consumers to try to fulfill both utilitarian and hedonic needs in a single purchase (Srinivasan, 1987).

Thus, when a couple has children, they may decide to buy a single-family house both to give the family more room than found in an apartment and to satisfy an emotional desire to put down roots. A valuation of property based on solely physical attributes may fail to capture the value the buyer places on the ability of the property to satisfy nonfinancial and nonphysical needs such as the desire for permanence. A more complete real estate valuation model will incorporate the psychological benefits the property is providing as well as the physical and financial benefits.

As the discrepancy between the desired and actual state of being increases, a condition of arousal called a drive is activated. Some of the more common drives that trigger a housing move include: neighborhood deterioration, change in employment, increase or decrease in income, preference for ownership, change in stage of family life cycle, family growth and declining health (Brown and Moore, 1970; Lyon and Wood, 1977; Yee and Van Arsdol, 1977; Hempel and Jain, 1978; Boehm and Mark, 1980; Clark and Onaka, 1983; McHugh, 1984; and Litwak and Longino, 1987). Some real estate moves result from being pushed out of current space, while others result from being pulled to a new location. The difference between the current and potential situation encourages the resident to move (Clark, Knapp and White, 1996). The decision to move in real estate is often portrayed via a stress model with stress specified either as psychological or economic (Onaka and Clark, 1983). The models attempt to identify the point at which the discrepancy between desired and actual states becomes great enough that the perceived benefits of moving exceed the perceived costs (Brown and Moore, 1970; Speare, 1974; Huff and Clark, 1978; and Fokkema and Van Wissen, 1997).

Sometimes consumers are willing to endure a wide discrepancy between their desired and actual real estate holdings because of emotional or psychological complications. For example, a retired homeowner may prefer a house with a smaller yard, but does not want to give up the memories associated with the family home. The consumer must overcome cumulative inertia as well as psychological and social attachment to the house and neighborhood to make a change (McGinnis, 1968).

Attitudes

An attitude is an overall evaluation about something that combines cognitive beliefs, emotional affects and behavioral intentions (Engel, Blackwell and Miniard, 1995). Attitudes may vary in terms of strength, direction (positive or negative) and stability (Eagly and Chaiken, 1993). In addition, not all attitudes are held with the same degree of confidence (Berger, 1992). Attitudes based on direct experience with a product are usually held with more confidence than those derived from indirect experience. Confidently held attitudes will usually be relied on more heavily to guide behavior (Fazio and Zanna, 1978; and Berger, 1992). Consumers are more likely to search for additional information before making a decision if they do not feel confident in an attitude. Attitudes held with less confidence are also more susceptible to change. Given this, it would be expected that experienced real estate consumers have developed stronger attitudes about property types, locations and investment values than have first-time buyers. They should be better able to articulate specific preferences and appear more logical in their real estate decision-making processes because they would be acting in accordance with strongly held beliefs. Relatively inexperienced buyers are likely to hold weaker opinions and be more easily swayed by salespeople.

One of the most widely accepted frameworks of the relationship between attitudes and consumer behavior is the Extended Fishbein model, also known as the Theory of Reasoned Action (Ajzen and Fishbein, 1980). This model states that behavior is best predicted by intention. Intention is a function of a person’s attitude toward a behavior contingent on subjective norms that influence the behavior. Attitudes develop from beliefs about the favorableness of a behavior and the strength of those beliefs. The model stresses subjective perceptions and evaluations of behavioral consequences rather than objective measures. This is an expansion from the original multi-attribute model that calculated a summated weighted attitude score based on salient attributes, importance weights and beliefs about alternative products. A compositional attitude model has been used by Lindberg, Garling and Montgomery (1988, 1989) in modeling housing preference and choice, finding that preferences may be best predicted by a modified multi-attribute utility model, but choice may actually rely on the use of heuristics.

Two consumers may use the same attributes to evaluate real estate choices, but have different beliefs about property features and those features’ ability to satisfy their needs. One consumer may believe that a two-story house design provides better separation of living and sleeping areas while another may believe a one-story design is better. Thus, one consumer would value the two-story house more highly and another would value the one-story house more highly even though having separate living and sleeping quarters is an important attribute to both. Nelson and Rabianski (1988) recognized that the value of single-family housing is a function of demographic, economic and psychographic characteristics of the consumer. They identified housing market segments that were defined in terms of differences in the relative importance of various criteria. Housing can be classified into major types through the clustering of alternatives seen by most probable buyers as providing similar use, not necessarily the most physically similar properties. In appraisal, this would lead to setting the value for adjustments on the beliefs of similar consumers, such as through surveys of recent buyers (Kroll and Smith, 1988). The physical and psychological factors that may affect the perception of product attributes by the most probable buyers should also be considered (DeLisle, 1985). Whether a positive attitude leads to an intention to purchase a product and, subsequently, to its actual purchase depends on several factors. Attitudes and intentions are more likely to be good predictors of behavior when they are measured relatively close to the time when the behavior is to occur, before situational influences and unexpected events can have an impact (Cote, McCullough and Reilly, 1985). Thus, the question ”Do you plan to move in the next three months?” will be a more accurate predictor of behavior than ”Do you expect to move in the next three years?” The level of social pressure present in the purchasing situation also affects whether consumer behavior will be consistent with attitudes (Ajzen and Fishbein, 1980). While a homebuyer may dislike yard work, the social pressures to raise children in a house with a yard may interfere with the otherwise preferred purchase.

Another limitation to acting in congruence with attitudes is whether a consumer has volitional control, that is, whether the person can perform the behavior at will (Ajzen, 1991). A consumer may want to purchase a property, but need a lender to agree to a mortgage. Discrimination may also limit a consumer’s ability to purchase a preferred property. Thus, real estate researchers must attempt to identify as many of the constraints facing the consumer as possible to accurately understand and predict behavior. In addition, the researcher should ask not only about a consumer’s attitude toward a product, but the consumer’s intention to purchase the product. This takes into account the price and social pressures that might inhibit a consumer from purchasing the preferred product.

Perception

Perception deals with recognizing, selecting, organizing and interpreting stimuli to make sense of the world (Solomon, 1996). Consumers tend to use perceptual filtering whereby they only pay attention to stimuli deemed relevant to existing needs, wants, beliefs and attitudes and disregard the rest (Janiszewski, 1993). For example, when someone decides to move, the person will suddenly notice properties that may have been on the market for weeks, whereas someone who is not interested in moving may not even notice advertisements of properties for sale or rent.

An additional element of filtering relates to maintaining cognitive consistency or the tendency to perceive stimuli so that they do not conflict with basic attitudes, personality, motives or aspirations. Thus, people often see and hear only that which is consistent with what they already believe. For example, a potential buyer’s decision about a property is often made based on just the initial impression of the exterior of the building. If the initial impression is positive, the potential buyer is likely to notice all the good features inside the building that reinforce his initial perception and desire to like the property. Real estate agents have long been aware of the importance of curb appeal, which is a prime example of the impact of cognitive consistency.

When a consumer pays attention to a stimulus, he or she attaches meaning to it. The exact meaning a consumer assigns to a stimulus depends on how a stimulus is categorized and elaborated into beliefs and attitudes in relation to the consumer’s existing knowledge. Nasar (1989) found that people use housing architectural style to infer the friendliness and status of its residents. However, these interpretations varied with age, gender and social class. Thus, valuation of individual properties will vary among individuals because of their different pe