MM-M3-CUSTOMER VALUE BUILDING & MAXIMISING CUSTOMER VALUE

Creating loyal customers is at the heart of every business.Don Peppers & Martha Rogers: The only value your company will ever create is the value that comes from customers-the ones you have now and the ones you will have in the future. Businesses succeed by getting, keeping and growing customers. Customers are the only reason you build factories, hire employees, schedule meetings…..or engage in any business activity. Without customers, you don’t have a business.”

Fig.5.1 p.117

Managers who believe the customer is the true ‘profit center’ consider the traditional organization – a pyramid with the president at the top, management in the middle and frontline people and customers at the bottom – obsolete.

Successful marketing companies invert the chart; at the top are customers, next in importance are frontline people who meet, serve and satisfy the customers; under them are middle managers, whose job is to support the frontline people, so that they can serve the customers well; and at the base is top management, whose job is to hire and support good middle managers. Managers at every level must be personally involved in knowing, meeting and serving customers.

With the rise in digital technologies, such as the internet, today’s increasingly informed customers expect companies to do more than connect with them, more than satisfy them, and even more than delight them. They expect companies to listen to them.

CPV – Customer Perceived Value.Customers are more educated and informed than ever. They have the tools to verify companies’ claims and seek out superior alternatives.Customers estimate which offer will deliver the most perceived value and act on it. Whether the offer lives up to the expectations affects customer satisfaction and the probability that the customer will purchase the product again.Fig.5.2 p.117

Customer perceived value is the difference between the prospective customer’s evaluation of all benefits and all the costs of an offering and the perceived alternatives.

Total customer benefit is the perceived monetary value of the bundle of economic, functional and psychological benefits customers expect from a given market offering because of the products, services, personnel, and image involved.

Total customer cost is the perceived bundle of costs customers expect to incur in evaluating, obtaining, using, and disposing of the given market offering, including monetary, time, energy, and psychological costs.

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CPV is based on the difference between what the customer gets and what he or she gives for different possible choices. The customer gets benefits and assumes costs. The marketer can increase the value of the customer offering by some combination of raising economic, functional or emotional benefits and/or reducing one or more of the various types of costs.

Applying Value Concepts:Managers conduct a customer value analysis to reveal the company’s strengths and weaknesses relative to those of various competitors. The steps involved are –

1. Identify the major attributes and benefits that customers value- Customers are asked what attributes, benefits and performance levels they look for in choosing a product.

2. Assess the quantitative importance of the different attributes and benefits. Customers are asked to rate the importance of the different attributes and benefits.

3. Assess the company’s and competitor’s performances on the different customer values against their rated importance. Customers describe where they see the company’s and competitors’ performances on each attribute and benefit.

4. Examine how customers in a specific segment rate the company’s performance against a specific major competitor on an individual attribute or benefit basis. If the company’s offer exceeds the competitor’s offer on all important attributes and benefits, the company is in a position to charge a higher price or it can charge the same price and gain more market share.

5. Monitor customer values over time. We must periodically re do the studies of customer values, and competitor’s standings, as the economy, technology and features change.

How does the buyer choose?

In spite of all the precautions and offering a product of value, the buyer may opt for the competitor’s product, the reason being,

1. The buyer might be under orders to buy at the lowest price. – the sales person’s task here is to convince the buyer that this will result in lower long-term profits and customer value.

2. The buyer will retire before the company realizes that product purchased is expensive to operate. It is the job of the salesman here to convince other people in the customer company that we deliver better customer value.

3. The buyer enjoys a long-term friendship with the competitor’s salesperson.Here the salesperson should convince the buyer that the purchase will result in complaints when they discover the high operating cost. This will spoil his reputation.

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Maximising Customer Value:

Buyers operate under various constraints and occasionally make choices that give more weight to their personal benefit than to the company’s benefit.CPV is a useful framework that applies to many situations and yields rich insights. Here are its implications.First, the seller must assess the total customer benefit and total customer cost associated with each competitor’s offer in order to know how his or her offer rates in the buyer’s mind.Second, the seller who is at a CPV disadvantage has two alternatives: to increase total customer benefit by strengthening or augmenting the economical, functional, and psychological benefits of the offering’s product or to decrease total customer cost by reducing the price or cost of ownership and maintenance, simplifying the ordering and delivery process or absorbing some buyer’s risk by means of a warranty.

Loyalty is defined as a deeply held commitment to rebuy or repatronise a preferred product or service in the future despite situational influences and marketing efforts having the potential to cause switching behaviour.

The Value Proposition consists of the whole cluster of benefits the company promises to deliver; it is more than the core positioning of the offering. For example, Volvo’s core positioning has been ‘safety’, but the buyer is promised more than just a safe car; other benefits include a long-lasting car, good service, and a long warranty period.

The value proposition is a statement about the experience customers will gain from the company’s market offering and from their relationship with the supplier. The brand must represent a promise about the total experience customers can expect. Whether the promise is kept depends on the company’s ability to manage its value delivery system.

The value delivery system includes all the experiences the customer will have on the way to obtaining and using the offering. At the heart of a good value delivery system is a set of core business processes that help to deliver distinctive customer value.

Customer Satisfaction and Loyalty.Whether a buyer is satisfied after purchase depends on the offer’s performance in relation to the buyer’s expectations and whether there is any deviation between the two.

Satisfaction is a person’s feelings of pleasure or disappointment that result from comparing a product’s perceived performance (or outcome) to their expectations.

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If the performance falls short of expectations, the customer is dissatisfied.If the performance matches the expectations, the customer is satisfied.If the performance exceeds expectations, the customer is highly satisfied (delighted).

The company has many stakeholders – employees, dealers, suppliers, and stockholders.Although the customer-centered firm seeks to create high customer satisfaction, that is not its ultimate goal. The company must operate on the philosophy that it is trying to deliver a high level of customer satisfaction subject to delivering acceptable levels of satisfaction to the other stakeholders, given its total resources.

A customer’s decision to be loyal or to defect is the sum of many small encounters with the company. Many companies are systematically measuring how well they treat their customers, identifying the factors shaping satisfaction, and making changes in their operations and marketing as a result.A company would be wise to measure customer satisfaction regularly because one key to customer retention is customer satisfaction. A highly satisfied customer generally stays loyal longer, buys more as the company introduces new products and upgrades existing products, talks favorably to others about the company and its products, pays less attention to competing brands and is less sensitive to price, offers product or service ideas to the company, and costs less to serve than new customers because transactions can become routine.The link between customer satisfaction and customer loyalty, however, is not proportional. Suppose customer satisfaction is rated on a scale from one to five, at a very low level of customer satisfaction (level one), customers are likely to abandon the company and even bad-mouth it. At levels two to four, customers are fairly satisfied but still find it easy to switch when a better offer comes along. At level five, the customer is very likely to repurchase and even spread good word of mouth about the company. High satisfaction or delight creates emotional bond with the brand or company, not just a rational preference.When customers rate their satisfaction with an element of the company’s performance, the company needs to recognize that customers vary in how they define good performance. Good delivery could mean early delivery, on-time delivery, order completeness and so on. Thus two customers can report ‘highly satisfied’ for different reasons.

Measurement of Satisfaction:Periodic surveys can track customer satisfaction directly and also ask additional questions to measure repurchase intention and the respondent’s likelihood or willingness to recommend the company and brand to others.Besides surveys, companies can monitor their customer loss rate and contact customers who have stopped buying or who have switched to another supplier to find out why. Finally, companies can hire mystery shoppers to pose as potential buyers and report on strong and weak points experienced in buying the company’s and competitors’ products. Managers themselves can enter company and competitor sales situations where they are unknown and experience firsthand the treatment they receive, or they can phone their own company with questions and complaints to see how employees handle the calls.

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Companies need also to monitor their competitors’ performance in the area.Today, companies need to be especially concerned with their customer satisfaction level because internet provides a tool for consumers to quickly spread bad word of mouth- as well as good word of mouth- to the rest of the world. Companies who are able to achieve high customer satisfaction are able to use this as a good marketing tool. J.D.Powers customer satisfaction ratings gave number-one status to Maruti who advertised that fact.Customer complaints: Studies have shown that customers are dissatisfied with their purchases 25% of the time, but only 5% complain. They either feel complaining is not worth the effort. Or they do not know how or to whom to complain, and they just stop buying.If the registered complaint is resolved quickly and efficiently, most customers will do business with the organizations again. Out of those whose complaints are thus resolved, one out of two will have a good word to speak about the company and about the good treatment they received. But a dissatisfied and annoyed customer will speak to eleven others. The bad word of mouth will grow exponentially if these 11 once again spread the news to others and so on.Even in a well designed and implemented marketing programme, mistakes can happen. The best thing a company can do is to make it easy for the customer to complain, through suggestion forms, web sites, e-mails allowing for quick two way communication.

The following procedure can help to recover customer goodwill:

1. Set up a seven day, 24-hour hotline (phone, fax, e-mail) to receive complaints.2. Contact the complaining customer as quickly as possible.3. Accept responsibility for the customer’s disappointment; don’t blame the

customer.4. Use customer service people who are empathic.5. Resolve the complaint swiftly and to the customer’s satisfaction and make the

customer feel that the company cares.

Product and Service Quality:Quality is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs. We can say that a seller has delivered quality whenever its product or service meets or exceeds customers’ expectations. A company that satisfies most its customers’ needs most of the time is called a Quality Company.

Product and service quality, customer satisfaction and company’s profitability are intimately connected. Higher levels of quality result in higher levels of customer satisfaction, which support higher prices and often (lower) costs. Companies who have lowered costs by reducing quality or features, have paid the price when the expected performance suffers.

How do Marketers contribute towards total quality management?

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Total quality is everyone’s job just as marketing is everyone’s job. Marketers play several roles in helping companies define and deliver high quality goods and services to target customers.

1. They bear the major responsibility for correctly identifying the customers’ needs and requirements.

2. They must communicate customer expectations properly to product designers.3. They must make sure that customers’ orders are filled correctly and on time.4. They must check that customers have received proper instructions, training, and

technical assistance in the use of the product.5. They must stay in touch with customers after the sale to ensure that they are

satisfied and remain satisfied.6. They must gather customer ideas for product and service improvements and

convey them to the appropriate departments. When marketers do all this, they are making substantial contributions to total quality management and customer satisfaction.

Customer Portfolios:There is need to manage customer portfolios made up of different groups of customers defined in terms of their loyalty, profitability and other factors. One perspective is that the firm’s portfolio consists of a combination of ‘acquaintances’, friends’, ‘partners’, that are constantly changing. These types of customers will differ in their product needs, their buying, selling, and servicing activities, and their acquisition costs and competitive advantages.

Customer Database and Database Marketing:

Marketers must know their customers. In order to know the customer, the company must collect information and store it in a database from which to conduct database marketing.A customer database is an organized collection of comprehensive information about individual customers or prospects that is current, accessible, and actionable for such marketing purposes as lead generation, lead qualification, sale of a product or service, or maintenance of customer relationships. Database marketing is the process of building, maintaining and using customer databases and other databases (products, suppliers, resellers) to contact, transact, and build customer relationships.Many customers confuse a customer mailing list with a customer database. A customer mailing list is simply a set of names, addresses. And telephone numbers. A customer database contains much more information, accumulated through customer transactions, registration information, telephone queries, cookies, and every customer contact.A customer database also contains the customer’s past purchases, demographics (age, income, family members, birthdays), psychographics ( activities, interests, and opinions), mediagraphics (preferred media), and other useful information. (eg.Piza Hut)

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A business database would contain business customers’ past purchases; past volumes, prices, and profits; buyer team member names (and ages, birthdays, hobbies, and favourite foods); status of current contracts; an estimate of the supplier’s share of the customer’s business; competitive suppliers; assessment of competitive strengths and weaknesses in selling and servicing the account; and relevant buying practices, patterns, and policies.

Customer Lifetime Value:Customer lifetime value describes the net present value of the stream of future profits expected over the customer’s lifetime purchases. The company must subtract from its expected revenues the expected costs of attracting, selling, and servicing the account of that customer. CLV calculations provide a formal quantitative framework for planning customer investment and help marketers adopt a long-term perspective.

Maximising CLV:Marketing is the art of attracting and keeping profitable customers. Yet every company loses money on some of its customers. The well-known 20-80 rule says that the top 20% of the customers often generates 80% or more of the company’s profits. Sometimes the most profitable 20% of customers may contribute as much as 150% to 300% of profitability. The least profitable 20% can reduce profits between 50-200%. The middle 60% break-even. The company could improve the profitability considerably by ignoring the worst 20% customers.It is not always that the company’s largest customers yield the most profit. The largest customers can demand considerable service and receive deepest discounts. The smallest customers pay full price and receive minimal service, but the costs of transacting with them can reduce their profitability. The midsize customers who receive good service and pay nearly full price are often the most profitable.

Analyzing customer markets

Consumer Behavior is the study of how individuals, groups and organizations select, buy, use, and dispose of goods, services, ideas or experiences to satisfy their needs and wants. A consumer’s buying behavior is influenced by cultural, social, and personal factors, with cultural factors exerting the broadest and deepest influence. Cultural factors:Culture is the fundamental determinant of a person’s wants and behaviour. The growing child acquires a set of values, perceptions, preferences, and behaviors through his or her family and other key institutions. A child growing up in a middle class family in India is exposed to the following values: respect and care for elders, honesty and integrity, hard work, achievement and success, humanitarianism, and sacrifice.Each culture consists of smaller subcultures providing specific identification and socialization for their members. Subcultures include nationalities, religions, racial groups, and geographic regions.

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Multicultural marketing grew out of careful marketing research, which revealed that different ethnic and demographic niches did not always respond favorably to mass-market advertising. Companies capitalized on well thought out multicultural marketing strategies in recent years. As countries become more culturally diverse, however, many marketing campaigns targeting a specific cultural target can spill over and positively influence other cultural groups.All human societies are divided into social stratas which sometimes take the form of a caste system where members of different castes are reared for certain roles and cannot change their caste membership. Frequently, it takes the form of social classes which are relatively homogeneous and enduring divisions in a society, which are hierarchically ordered and whose members share similar values, interests and behavior. Social classes have several characteristics: 1) those within each class tend to behave more alike than persons from two different social classes. Social classes differ in dress, speech patterns, recreational preferences, and many other characteristics. 2) Persons are perceived as occupying inferior or superior positions according to social class. 3) Social class in indicated by a cluster of variables—occupation, income, wealth, education and value orientation, not by a single variable. 4) Individuals can move up or down the social-class ladder during their lifetimes. The extent of mobility depends on the rigidity of the social stratification.Social classes show distinct product and brand preferences in many areas, including clothing, home furnishings, leisure activities and automobiles. In media preferences, upper class prefers magazines and books, and lower class television. There are also language differences among social classes.

Social factors:A person’s reference groups are all the groups that have a direct or indirect influence on their attitudes or behaviour. Groups having a direct (face-to-face) influence are called membership groups. Some of these are primary groups with whom the person interacts fairly continuously and informally – family, friends, neighbours, and coworkers. They may also belong to secondary groups such as religious, professional, trade-union groups which are more formal.Reference groups influence members in three ways – they expose an individual to new behaviors and lifestyles, they influence attitudes and self-concept, and they create pressures for conformity that may affect product and brand choices. People are also influenced by groups to which they do not belong.Aspirational groups are those a person hopes to join. Dissociative groups are those whose values an individual rejects.Where reference group influence is strong, marketers must determine how to reach and influence the group’s opinion leaders. An opinion leader is the person who offers informal advice or information about a specific product or product category – such as ‘which is the best brand’ or ‘how a product may be used’. Marketers try to reach opinion leaders by identifying their demographic and psychographic characteristics, the media they read, and directing messages at them. E.g. Teenage icons as brand ambassadors for Levi’s, Provogue, Planet M.Family:

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Family members constitute the most influential primary reference group. A family orientation consists of parents and siblings. From parents a person acquires an orientation toward religion, politics, and economics, and a sense of personal ambition, self-worth, and love. A more direct influence on everyday buying behaviour is the family of procreation-one’s spouse and children.Family members influence buying decisions. In traditional joint families, the influence of grandparents on major purchase decisions, and to some extent on the lifestyles of the younger generations, is still in tact, though diminishing. Western researchers on family decision making have focused more on husband, wife and child dominance in different situations, and have found evidence where one of these dominate, or there is joint decision making.Roles & Status: People choose products that reflect and communicate their role and actual or desired status in society. Marketers must be aware of the status-symbol potential of products and brands. A role consists of the activities a person is expected to perform. Each role carries a status. VP has more status than Manager, and manager more status than clerk.Personal Factors:A buyer’s decisions are also influenced by personal characteristics. These include age and stage in the life cycle; occupation and economic circumstances; personality and self-concept.Age and stage in the life cycle: Taste in food, clothes, furniture and recreation is often age related. Consumption is shaped by the family life cycle. Trends like delayed marriages, children migrating to distant cities or abroad for work leaving parents behind, tendency of professionals/working couple to acquire assets such as a house or car in early stages of their career, has resulted in different opportunities for marketers. Marketers should also consider critical life events-marriage, childbirth, illness, relocation, divorce, career change, widowhood-as giving rise to new needs. These should alert service providers-banks, lawyers, marriage, employment and berievement counselors- to ways they can help.Occupation and economic circumstances:Occupation influences consumption patterns. While a blue collared worker will buy work clothes, work shoes, and lunchboxes, a company President will buy dress suits, air travel and club memberships.Product choice is greatly affected by economic circumstances: spendable income, savings and assets. Debts, borrowing power and attitudes towards spending and saving. Luxury goods makers are vulnerable to an economic downturn. If economic indicators point to a recession, marketers can take steps to redesign, reposition, and reprice their products or introduce or increase the emphasis on discount brands in order to offer value to target customers.Personality and self-concept:Each person has personality characteristics that influence his buying behavior. We often describe personality in terms of such traits as self-confidence, dominance, autonomy, deference, sociability, defensiveness and adaptability. Brands also have personalities – Sincereity (down-to-earth, honest, wholesome and cheerful)-Campbell.

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Excitement (daring, spirited, imaginative, and up-to-date)-MTV.Competence (reliable, intelligent, and successful)-CNN, TIMES NOW.Sophistication (upper-class and charming) Raymond, Reid & Taylor.Ruggedness (outdoorsy and tough) Levi’s geans.Consumers often choose and use brands that have a brand personality consistent with the self-concept they have in mind.

Lifestyle and values:People from the same sub-culture, social class and occupation may lead quite different lifestyles. A lifestyle is a person’s pattern of living in the world as expressed in activities, interests and opinions. It portrays the “whole person” interacting with his environment.Lifestyles are shaped partly by whether consumers are money constrained or time constrained. Companies aiming to serve money constrained consumers will create lower-cost products and services. Walmart and IKEA.Consumers who experience time famine are prone to multitasking, doing two or more things at a time. They will pay others to perform tasks. Companies aiming to serve them will create convenient products and services for this group.Core values are the belief systems that underlie attitudes and behaviors and which go deeper than behavior or attitude and determine people’s choices and desires over the long term. Marketers who target consumers on the basis of their values believe that with appeals to people’s inner selves, it is possible to influence their outer-selves i.e. their purchase behaviour.

Key Psychological Processes:

The starting point for understanding consumer behavior is the stimulus-response model. Fig.6.1 p.153Marketing and environmental stimuli enter the consumer’s consciousness, and a set of psychological processes combine with certain consumer characteristics to result in decision processes and purchase decisions. The marketer’s task is to understand what happens in the consumer’s consciousness between the arrival of the outside marketing stimuli and the ultimate purchase decisions.

Four key psychological processes-motivation, perception, learning and memory-fundamentally influence consumer responses.

Motivation Theories: Sigmund Freud, Abraham Maslow, Frederick Herzberg.

Motivation: We all have many needs at any given time. Some are biogenic – they arise from physiological states of tension such as hunger, thirst or discomfort. Other needs are psychogenic – they arise from psychological states of tension such as the need for recognition, esteem or belonging.

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A need becomes a motive when it is aroused to a sufficient level of intensity to drive us to act. Motivation has both direction (we select one goal over another) and intensity (the vigor with which we pursue the goal).

FREUD’S THEORY OF MOTIVATION:Assumptions: Psychological forces shaping people’s behavior are largely unconscious; a person cannot fully understand his or her own motivations.When a person examines specific brands, she will react not only to their stated capabilities, but also to other, less conscious cues such as shape, size, weight, material, color and brand name. A technique called laddering let us trace a person’s motivations from the stated instrumental ones to the more terminal ones. Then the marketer can decide at what level to develop the message and appeal.Motivation researchers often collect ‘in-depth-interviews’ with a few dozen consumers to uncover deeper motives triggered by a product. They use various productive techniques such as word association, sentence completion, picture interpretation, and role playing.

MASLOW’S NEEDS THEORY OF MOTIVATION:Human needs are arranged in a hierarchy from most to least pressing—physiological needs, safety needs, social needs, esteem needs, and self-actualization needs. Fig.6.2.People will try to satisfy their most important needs first. When a person succeeds in satisfying an important need, he will then try to satisfy the next-most-important need. E.g. A starving man(need 1) will not take an interest in the latest happenings in the art world(need 5), nor in how he is viewed by others (need 3or4), nor even in whether he is breathing clean air(need 2); but when he has enough food and water, the next-most-important need will become salient.

HERZBERG’S TWO FACTOR THEORY:Two factor theory distinguishes dissatisfiers (factors causing dissatisfaction) from satisfiers (factors causing satisfaction). Absence of dissatisfiers is not enough to motivate a purchase; satisfiers must be present.Two implications of Herzberg’s theory: First, sellers should do their best to avoid dissatisfiers (poor service, poor training manual). Although these things will not sell a product, they might easily unsell it. Second, the seller should identify the major satisfiers or motivators of purchase in the market and then supply them.

Perception:Perception is the process by which we select, organize and interpret information inputs to create a meaningful picture of the world. It depends not only on the physical stimuli but also on the stimuli’s relationship to the surrounding field and on the conditions within each of us. E.g. a fast talking sales person perceived as aggressive and insincere by one but intelligently and helpful by another; so both respond differently to the salesperson.People emerge with different perceptions of the same object because of three perceptual processes.

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Selective attention:Attention is the allocation of processing capacity to some stimulus. Voluntary attention is something purposeful; involuntary attention is grabbed by someone or something. Selective attention means that marketers must work hard to attract consumer’s notice. The real challenge is to explain which stimuli people will notice.1) People are more likely to notice stimuli that relate to a current need; (computer

ads rather than DVD ads noticed)2) People are more likely to notice stimuli they anticipate; (expect computer in a

computer store not radios)3) People are more likely to notice stimuli whose deviations are large in relationship

to the normal size of the stimuli. (Rs.100 off noticed easily than Rs.5 off).

Selective Distortion:Selective distortion is the tendency to interpret information in a way that fits our preconceptions. Consumers will often distort information to be consistent with prior brand and product beliefs and expectations.When Coors changed its label from “Banquet Beer” to “Original Draft”, consumers claimed the taste had changed even though the formulation had not.In other words, beer may seem to taste better, car may seem to drive more smoothly, the wait in the bank line seems shorter, depending on the brands involved.

Selective Retention:Because of selective retention, we do not remember much of the information to which we are exposed but retain information that supports our attitudes and beliefs; we remember good points about a product we like and forget good points about competing products. Selective retention works to the advantage of strong brands and explains why marketers need to use repetition—to make sure their message is not overlooked.

Subliminal perception:In subliminal perception, marketers embed covert, subliminal messages in ads or packaging. Consumers are not consciously aware of them, yet they affect behaviour. Although it is clear that mental processes include many subtle subconscious effects, no evidence supports the notion that marketers can systematically control consumers at that level, especially in terms of changing moderately important or strongly held beliefs.

Learning:Most human behaviour is learned, although much of the learning is incidental. Learning theorists believe that learning is produced through the interplay of drives, stimuli, cues, responses and reinforcement. Learning induces changes in our behaviour arising from experience. Two popular approaches to learning are classical conditioning and operant (instrumental) conditioning.

Memory:It is of two types :Short term memory – a temporary and limited repository of information.

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Long-term Memory – a more permanent, essentially unlimited repository.

Memory is a very constructive process, because we don’t remember information and events completely and accurately. Often we remember bits and pieces and fill in the rest based upon whatever else we know.

Memory encoding describes how and where information gets into memory. The strength of the resulting association depends on how much we process the information at encoding (how much we think about it, for instance) and in what way.Recent advertising research has revealed that high levels of repetition for an uninvolving, unpersuasive ad are unlikely to have as much sales impact as lower levels of repetition for an involving persuasive ad.

Memory retrieval is the way information gets out of memory. Our successful recall of brand information does not depend only on the initial strength of that information in memory. It is also that the information has not get disturbed or distorted by other information, say,

1. the presence of other product information in memory can produce interference effects. This may cause us to over look or confuse new data. E.g.airlines, financial services, insurance companies – consumers may mix up brands.

2. the time between exposure to information and encoding matters – the longer the time delay, the weaker the association.

3. Information may be available, but not accessible without proper retrieval cues or reminders.

BUYING DECISION PROCESS – 5 STAGE MODEL.

Marketing scholars have developed a “stage model” of the buying-decision process.The consumer passes through five stages: problem recognition, information search, evaluation of alternatives, purcvhase decision and post-purchase behavior.Consumers don’t always pass through all five stages in buying a product. They may skip some. When you want to buy your regular brand of toothpaste, you skip information search and evaluation and go directly to purchase decision. (Fig.6.4)

Problem recognition

The buying process starts when a buyer recognizes a need triggered by internal or external stimuli. With internal stimuli, a person’s normal needs like hunger or thirst, rises to the threshold and becomes a drive.A need can also be aroused by an external stimuli. A person sees an ad for a Malaysian vacation, or a new car purchased by his neighbour, which trigger a thought about the possibility of making such a purchase.Marketers need to collect information from a number of consumers in order to develop marketing strategies that trigger consumer interest. In items like Luxury goods, vacation packages and entertainment options – marketers need to increase consumer motivation.

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Information search.Two levels of involvement with search are identified.In the milder search state, a person becomes more receptive to information and is called hightened attention. At the next level, the person may enter an active information search looking for reading material, phoning friends, searching on line and visiting stores to learn more about the product.

Information sources: Personal. Family, friends, neighbours, acquaintances. Commercial. Advertising, Web sites, salespersons, dealers, packaging, displays. Public. Mass media, consumer rating organizations. Experiential. Handlingh, examining, using the product.

Search Dynamics:Through gathering information, consumer learns about competing brands and their features. (Fig.6.5Out of the total set of brands, consumer is aware of only a sub-set, the awareness set.Out of this set, the consumer shortlists two or three _ consideration set – based on features and price considerations.. Out of this he narrows down the choice to two (choice set) and finally makes up his mind about which one he will buy (decision).

Evaluation of alternatives.Firstly, the consumer is trying to satisfy a need;Seondly, the consumer is looking for certain benefits from the product solution;Thirly, the consumer sees each product as a bundle of attributes with varying abilities to satisfy his need. The attributes of interest vary by product.Hotels – Location, cleanliness, atmosphere, price.Mouthwash – color, effectiveness, germ-killing capacity, taste/flavor, price.Tires – safety, treadlife, ride quality, price.Beliefs and Attitudes: Through experience and learning, people acquire beliefs and attitudes.A belief is a descriptive thought that a person holds about something.Attitudes are a person’s enduring favourable or unfavourable evaluations, emotional feelings, and action tendencies toward some object or idea. People have attitudes towards almost anything – religion, politics, clothes, music, food..Attitudes put us in a frame of mind which can be very difficult to change. A company should fit its products into existing attitudes rather than try to change attitudes.

Case Study: NECC (p.162)

The expectancy value model of attitude formation posits that consumers evaluate products and services by combining their brand beliefsn- positives and negatives – according to importance.

Purchase Decision.

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In converting a purchase intention to a decision, the consumer may make five sub-decisions: Brand, Dealer, Quantity, Timing, Payment method.Heuristics are rules of thumb or mental shortcuts in the decision process.Three such choice heuristics are

1. conjunctive heuristics – consumer sets a minimum acceptable cutoff level fgor each attribute and chooses the first alternative that meets minimum standard for all attributes.

2. lexicographic heuristics – consumer chooses the best brand on the basis of pre-conceived most important attribute.

3. elimination-by-aspects heuristics – consumer compares brands on an attribute probabilistically – where the probability of choosing an attribute is related to its importance and eliminates brands that do not meet the acceptable cutoffs.

Intervening factors:

Two general factors can intervene between the purchase intention and purchase decision.1. the attitude of others – this will depend on a) the intensity of the other person’s

negative attitude towards our preferred choice b) our motivation to comply with the other person’s wishes.

2. Unanticipated situational factors – consumer losing her job, some other purchase becoming more urgent, salesperson’s behaviour puts her off.

Post-purchase behaviour.The consumer after purchase notices certain disquieting features, or hears favourable things about competing brands, and will be alert to information that supports his or her decision.Marketing communications should supply beliefs and evaluations that reinforce the consumer’s choice and make him feel good about the brand chosen.

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