Dr. Jagdish Sheth: Buyer Behavior and the Evolution of Marketing Theory

A History of Marketing / Episode 7

“Consumers don't make choices. They reduce choices.” - Jag Sheth

This week my guest is a marketing legend, Dr. Jagdish Sheth. Dr. Sheth is a renowned scholar and has published more than 300 research papers and over 30 books. He’s the namesake of the Jagdish Sheth School of Management and recipient of the Padma Bhushan—the third-highest civilian honor awarded by the Government of India.

In our conversation, we dive into the influence of psychology on marketing, Jag’s contributions to consumer behavior, and Sheth’s incredible life and career.

Dr. Sheth co-authored a landmark 1969 book called The Theory of Buyer Behavior with one of his mentors, John Howard. This laid the foundational framework for what became known as The Howard-Sheth Model of Consumer Behavior.

We also cover Sheth’s book, Marketing Theory: Evolution and Evaluation which chronicles the evolution of marketing theories and the rationales behind them.

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Read the interview transcript, enhanced with links and images:

Dr. Jagdish Sheth’s Early Biography

Andrew: Dr. Jagdish Sheth, welcome to A History of Marketing. Thank you so much for joining me.

Jag Sheth: Thank you, Andrew.

Andrew: You've lived a remarkable life. You were born in Burma, now known as Myanmar, and your family immigrated to India when you were a child. You moved to the United States in your early 20s to enter business school at the University of Pittsburgh. What were your initial impressions of Western advertising and marketing?

Jag Sheth: Quite a shock, because I came from a country where branded products were not as popular yet. For example, you had to make your shirts by buying the cloth and taking it to a tailor. Nothing was really branded except a few shampoos or Western company products, like Unilever products. I came to America, and everything was branded.

Andrew: Everything was branded. Were there any other differences that you noticed in marketing or advertising?

Jag Sheth: My first major encounter was that in India, in a tropical climate, you don't wear white shirts; you wear more colored shirts. So you could buy cloth material. All my shirts were in color – blue, yellow, and so on. There was a dress code at my university that said you have to have a white shirt and a tie, and wear a suit. But I needed to buy a white shirt.

So, I went to a store and said, "I need a white shirt." The sales clerk was a young man. He showed me the white shirt, and I said, "How much?" He said, "$5." My immediate reaction was, "How about $2.50?" I said, "Look, $3, take it or leave it," because my friend was waiting in the car to go back to class. Then my friend educated me that in the consumer market, especially, prices are fixed. He said, "No negotiating." That was my first major encounter with a cultural difference.

Andrew: That's right. We don't haggle too often here in the United States. I've been on the other side of that. When I've grown up here and then traveled internationally, haggling is part of the culture. It's something that's totally unfamiliar to me, and I need to get better at.

Becoming an "Accidental Scholar" and Marketer

Andrew: Your 2014 autobiography is called The Accidental Scholar. So, I take it that your career in academia and your specialization in marketing was not part of your original plan. Can you share what initially drew you to marketing as a field of research?

Jag Sheth: It came by accident. My original intention was to learn production management because my brother had a factory that needed to be mechanized more and more, with a shortage of labor, especially skilled labor. So I said, "I'll go to America, get my MBA, learn the practical side for one year, and then come back and join the family business." That was my intent.

But I got turned on by psychology. The most influential professor, by reading his material, was Maslow and his hierarchy of needs. I resonated with it. Because of that, I said I would like to go and do my doctorate in Behavioral Sciences, not in marketing. Behavioral Sciences. My minor was in social psychology, and then my applied field was marketing, which is understanding the psychology of customers rather than marketing a product.

I needed money to bring my family. I was earning $287 as a monthly stipend; we needed $400. So I looked around, and by accident, John Howard, who was a marketing professor, had funding, and he gave me the extra assistantship. That's how I went into marketing. Otherwise, I would have been in management.

Andrew: I suppose extra money is as good a reason as any to get into marketing.

The Intersection of Psychology and Marketing

Andrew: When it came to researching marketing, do you think that your status as an outsider, somebody coming from India, gave you any advantages compared to your peers who were born and raised in America?

Jag Sheth: Absolutely. Having a different perspective, coming from a different culture and context, became an asset for me. I could see things in a way that others did not see. It's very much as if there's a galaxy out there, but you look at it, and some discover things, and some don't. The same thing happened to me. That has been an advantage, plus traveling all over the world as part of the academic career, consulting, and advising gives you multiple perspectives. So that has been an advantage.

Andrew: You were studying psychology and marketing at the same time. When I spoke to your friend Philip Kotler, he told me about how marketing emerged from economics, but of course, psychology also played a major role. Can you share who the leading thinkers were in marketing when you were a student and describe how psychology came to play a bigger part in marketing?

Jag Sheth: There was a whole body of writing by one single author called Wroe Alderson. He was a brilliant theorist, and he came out with a theory which he called functionalist. I still don't understand it; he used very complex language, even for academics. Pretty much like reading Greek or Sanskrit. But I had an expert who knew Alderson. There are brilliant theories that came out where they talked about sorting things, warehousing, in his own language.

Andrew: I've come across Wroe Alderson in some of my research, and at some point, I'll have to do a full episode on his biography because he seems like a really fascinating person. Can you ground us – what time frame are we talking about here?

Jag Sheth: This is all in the late '50s. Up to this time, then in the late '50s to early '60s, marketing began to shift toward a behavioral perspective, a non-economic perspective. Economics itself embraced behavioral economics much later; in marketing, we did it very early. That led to buyer behavior – let's understand the psychology of customers, not the offering of the market, essentially. That was a key aspect.

And so that led to the buyer behavior school, that led to the whole consumerism movement. Ralph Nader was the world-class activist. The school of thought about the role of marketing with society began much more. Society and marketing – how can they coexist as true institutions?

The Theory of Buyer Behavior and John Howard

Andrew: You mentioned buyer behavior, and you and John Howard co-authored the 1969 book called The Theory of Buyer Behavior. Before I ask you about buyer behavior, can you share more about who John Howard was and what influence he had on you and your career?

Jag Sheth: John Howard was an economist. He got his doctorate from Harvard University, and his professor was Joseph Schumpeter, who was a very well-known economist – "creative destruction" or "constructive destruction." John was heavily influenced by his own professor's writings, mostly about innovation creating competition.

The main reason Howard became very important in the discipline is that he got a Ford Foundation grant to study the evolution of marketing. He published a book on this called Marketing Theory. And John was actually creating a theory of buyer behavior before I joined him. I joined him in '62, and he had a chapter on loyalty in his own textbook. He was very serious about loyalty.

Then I began to work with him. A great human being, because all great scholars are great learners; they absorb knowledge from their own students. He became a very good listener. We would debate all the time, but he was a good listener. He said, "Do you have a cultural perspective that I don't? You have a psychology background," because my minor was social psychology, my major was economics, and I'm applying it to marketing. So we became very good partners in balancing economic perspectives versus non-economic perspectives.

The fundamental message was that consumers don't make choices; they reduce choices. Think about economics: the trade-off between what's positive and what's negative, the money sacrifice you make – a typical managerial or economic perspective, the "rational economic man". Reducing choices requires a learning theory, a totally different theory. So we anchored to learning theory, and through learning and experience, you reduce the choices.

We came out with three phases of learning. The first time you are buying anything, it's extensive problem-solving. You don't even know what criteria to use to evaluate a brand or a product, or the selection of the brands themselves.

But with one-time learning and reinforcement, you reduce the choice from extensive problem-solving to limited problem-solving, and then ultimately routinized response behavior.

John wanted to call it "habit," which is the right word, actually. I said, "No, don't do it, because 'habit' was criticized at that time." I said, "You will get into the trap of negative criticism because of the word you're using." So we called it "routinized response behavior," but habit is ultimately what we ended up doing.

Andrew: That seems very academic – to take a simple word like "habit" and turn it into "routinized response behavior" so it's harder for lay people like me to understand.

Jag Sheth: The second thing we added: I said, "There's a point of learning where you get satiated." I was studying psychology – novelty-seeking, variety-seeking. Dan Berlyne is a giant of the University of Toronto. So I borrowed his idea, and I told John that there is a psychology of simplification, to habit and learning, but then afterward, you have a psychology of complication from habit.

That you have been using the same toothpaste, using the same shampoo, so you say, "I'll search for new brands, new experiences." I created a psychology of complication, which means don't take loyalty for granted. People may shift because they're just bored, satiated, looking for a change of pace. "We drink coffee; let me drink tea once in a while." It's a cyclical time.

The Howard-Sheth Model of Consumer Behavior

Andrew: So what exactly was the conventional wisdom at the time you wrote this paper? You mentioned the idea of people reducing choices versus making choices. Was that the primary new contribution you made with this paper?

Jag Sheth: One was clearly the economic trade-offs between what you are getting and what you are paying. But the second thing was that each decision a consumer made was ad hoc. We make it again and again – repeated consumable products, grocery products. We go and buy every week – milk is one of them, meat is another one, vegetables are there, shampoo is there. So economics never thought about repeated purchase behavior, which means there's a previous choice which has a huge influence in guiding the next time. Virtually, the previous choice will be the most predictive way of forecasting what choice you will make today. We call it consumer data mining, consumer insights. So in a Bayesian approach in statistics, conditional probability would be what you purchased last is what you will purchase again.

Andrew: This has become known as the Howard-Sheth Model of Consumer Behavior. What was the reaction from businesses and marketing departments at the time? Did this have an impact on how companies performed their market research and marketed their products?

Jag Sheth: What happened is that for the book that we were writing, he was able to get great publicity, which began to influence companies. At that time, there were several industry leaders, mostly from consumer packaged goods, who came out with the idea that we should take a consumer perspective, not a marketer perspective – from a product to a customer. Since this is repeated purchase, there was interesting panel data – longitudinal panels. And one large corporation at that time was called Market Research Corporation of America (MRCA). General Electric then started their own consumer durables panel, with a frequency more than every week; it's about three months, six months – dishwashers. So the market began to shift to having panel data. So that was a key change.

Marketing Theory: 12 Schools of Thought

Andrew: The Theory of Buyer Behavior was published in 1969. I want to flash forward nearly 20 years to your book Marketing Theory: Evolution and Evaluation. And in this book, you take a look at marketing history, and you identify 12 schools of marketing, buyer behavior being one of these 12 schools. What inspired you to take on this project?

Jag Sheth: It was again by accident. At the University of Illinois, my department head was Kenneth L. He was a brilliant guy. He taught a marketing theory Ph.D. seminar, and unfortunately, he died suddenly. I was on vacation, and I got this call in December saying that Ken is gone. So they said, "Can you come back sooner than what you are planning to?" So I came back immediately.

So I had to teach marketing theory. I like theory. I loved Robert Bartels' writings – a brilliant writer about the history of marketing thought, and I really enjoyed that. So given that interest, I said the best way to learn is to teach. So I designed this evolution…

Andrew: So you designed this evolution of marketing theory, and it's a lens of viewing marketing history, which is what this podcast is all about. So I'm curious if there were any misconceptions of marketing history, or if there were parts of marketing history that seemed overlooked or underrated as you were writing your book?

Jag Sheth: Three different areas are overlooked. The classical literature – many people did not even know that marketing began in the '50s with the managerial school, not realizing there were world-class thinkers before, mostly coming from either agricultural areas because marketing began in agricultural marketing, selling commodities. So going back, that literature was ignored by scholars and practitioners. It was a lot the functional school. Eventually, Michael Porter, through the value chain that he created, became more popular. So the old literature was missing. That was one, in practice. And there was also a pricing literature on psychological pricing – at what price, 79 cents versus 99 cents, makes a difference. Elasticity – very practical.

The second thing that was missing, surprisingly, was taking multiple perspectives. In other words, there's a dealer perspective, there's an economic perspective, there may be a sociological perspective, an anthropological perspective, from the same entity called "consumer" or "customer." That was missing in the literature quite a lot.

The literature had, in general, literature of industrial marketing, but industrial marketing was becoming more and more account management. Relationship marketing came later on. So, early history about how do you manage your sales organization in a B2B or industrial marketing area? There are journals for that one, but they were not in the mainstream. So that literature was generally not known.

But most important, the conspicuous lack of understanding was the rise of consumerism. President Kennedy actually had a Bill of Rights for consumers. I was advocating consumerism, organizing social marketing as an area.

Philip Kotler and Sid Levy began to write about the generic concept of marketing – marketing can equally be important for nonprofit organizations, not just for-profit organizations. That began to change as a new area came in. So those are the areas that were neglected in the mainstream literature.

The Rise of the Consumer Movement

Andrew: When it comes to the consumer movement, you mentioned President Kennedy's Consumer Bill of Rights, and earlier you mentioned Ralph Nader and his book Unsafe at Any Speed. So it really seems like the consumer movement had its renaissance in the 1960s. I'm wondering why the 1960s? Why didn't this start earlier? I'm thinking of figures like Upton Sinclair and his book The Jungle, and I think that's from back in the 1920s (Note - Andrew was wrong here. The Jungle was published in 1906). So it seems it took several decades for the consumer movement to emerge.

Jag Sheth: Very true. If you look at the movement toward consumerism, it goes back to the days of mass production, the way you treated your employees, who had no life. Agriculture is the hardest work, but factory work is supposed to be more humanistic. So that whole area – a reaction by critics or thought leaders saying, "This is not acceptable. You can't treat humans like animals" – that literature began.

Similarly, it happened with the consumer side. "We are offering products which are not qualified; adulteration is possible. We don't care about what happens to the consumer in the process; they're exploiting them." So that literature was coming back. By Kennedy, for example, J.K. Galbraith was a very influential economist at Harvard that President Kennedy relied on. He began to write in this area. So even the economists were questioning the traditional price theory, marginal utility theory, for example. Alfred Marshall was a giant writer at one time for consumer surplus in economics. Marshall was a deep person; we all studied Marshall. The other side was more macro – Keynes' foundational books in economics.

Some of that thinking of consumer surplus began to spill over into the marketing area. And that all led to, basically, talking about: the consumer is defenseless, the marketer is so powerful, there's an asymmetry of power. How can you create consumer protection agencies, law that protects the consumer? Which led to – truth in lending, for example, came out. Truth in advertising came out. Eventually, legislation…you had the FCC, in communication, but the FTC became a very, very important agency.

Four New Schools of Marketing Thought

Andrew: You published this first edition in 1989, and that version had 12 schools of marketing thought. And you just recently published the second edition, and you added four new schools of marketing thought that have emerged over the last 35 years or so. Can you share more about these new schools or speak more broadly about the changes in marketing since 1989?

Jag Sheth: One of the key new schools that came in, with its own perspective, is a focus on services industries. Everything was organized around manufactured products – its branding, its distribution, warehousing. And lots of consumer services, because America was becoming a service-driven economy. And that led to a whole start of services marketing being different than product marketing.

For example, services are perishable. Services cannot be stored. Services are co-produced between the consumer and the provider. In healthcare, the patient has to cooperate, for example. In airlines, the passenger has to cooperate along with the flight attendants. So experiential marketing came eventually as the dominant force that we are experiencing now.

Services marketing became a very large body of knowledge, and there was a journal that came out, Journal of Service Research, because traditional journals didn't think about services. It really took off when telecommunications became an interesting industry, from a regulated monopoly to a competitive one, especially wireless technology. So services marketing became one major school of thought, with hundreds of articles. So that's what we identified as one.

Our second one had to do with relationship marketing, which I led. Back in that '89 book, I mentioned that what's more important in advanced economies is retention of customers. 90% of the consumers are the same as who were there yesterday. A new customer is... so market the acquisition. It's... consumers, you convert them into consumers from unbranded consumption or home-making things. So I said, in the advanced economies, we need to focus on relationship more – key account management, or in consumer banking, having a relationship manager. That was a second school of thought.

The third school of thought that came in in the '90s was actually marketing strategy, or strategic marketing, as they call it. Michael Porter was coming in a big way. His Competitive Strategy book in 1984 launched a whole new discipline altogether.

All of that led to strategic marketing, but marketing is an asset; brand is an asset. There's a value of the asset. Think about the future; do the SWOT analysis – strengths, weaknesses, opportunities, threats. For example, the Boston Consulting Group framework of cash cows, dogs, became very popular in marketing, because each brand could be positioned into one of those categories. So there's a whole new literature that arose around strategic marketing or marketing strategy. So we have a new chapter on that.

And the last one is international marketing. International marketing was always there, but not in an organized way. In the '90s, when trade became the driver of economic growth, not GDP… so we abolished the GATT agreement – General Agreement on Tariffs and Trade – we instead created a WTO. Trade blocs and groups like NAFTA were created, where the EU… the EU started out with common market countries. ASEAN block was created. So trade became the dominant factor, and because of that, international marketing took a new approach to, basically, international business. So we have a separate chapter on international marketing.

Learn more about Dr. Jagdish Sheth

Andrew: Wrapping up, I see on your virtual background you have a bookshelf that's full of your books. For listeners or viewers who have not read your work yet, where would you point them? What is the best way for listeners to find out more about you and your work?

Jag Sheth: The best place is to go to my own website, jagdishsheth.com. Most of my articles and books are listed there, and I update it pretty regularly. This has been my bumper year in terms of publications. Several books have come together.

One that just came out is Purpose-Driven Pricing. How Can You Use Pricing to Serve Societal Problems While Making Money? Pricing is the most powerful weapon; very immediately, I can do it. I can manipulate or change it instantly if I want – dynamic pricing. So I have a colleague, a young colleague, she's a pricing expert, and we worked together on this book – about three years to find case studies, interview executives. It has resonated very well with the nonprofit sector – their pricing mechanism, subsidizing, supporting – corporations, and also policymakers. So that just came out.

My second book that came out is very different. It is India's Road to Transformation. In India, what matters is leadership. People talk about resource advantages, location advantages, historically, about the rise of a nation. This is what matters is leadership – managing a country as an enterprise. So we did transformative leaders historically, about all of them, from Genghis Khan to Kemal Atatürk, Also FDR, Lincoln. We found a common denominator: it takes 15 years of political continuity, a minimum requirement, to bring about a transformative change. It takes the same political leadership – not a leader, necessarily, like a party. And then you need a leader who knows how to execute as well as imagine. They have to be both a visionary, aspiring people about the future of the nation – positive view, ambition, aspiration – but executing on that. And then we compared, in India, three leaders historically among 14 prime ministers: Jawaharlal Nehru, the first Prime Minister; his daughter, Indira Gandhi, in the '70s; and now, Narendra Modi. And Narendra Modi scores very high on several dimensions. That's the second book.

The third book that is coming out – it's a book that I'm writing with Can (John) Uslay called Navigating Brand Activism. We had a book out called Firms of Endearment with Raj Sisodia, which led to conscious capitalism, where John Mackey, from Whole Foods, embraced the idea. His company said, "I'll do the same thing." So that conscious capitalism… same idea we have taken to: Brands can serve society, but get active. But there is a double-edged sword. So we have stories after stories about how brand activism actually destroyed the brand because it was managed so badly, or how it actually enhanced the brand. Called Navigating Brand Activism.

Andrew: Dr. Sheth, thank you so much for joining me for this conversation. I've really enjoyed it a lot, and I appreciate you sharing your wisdom, your insights, and your stories with me today.

Jag: Thank you.

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