Understanding Consumer Behavior

1. Understanding Consumer Behavior What more do you need??

2. So, what do we know about consumers? • Consumer behavior:

3. Why Study Consumer Behavior

4. 1 1/2 lbs hamburger 2 loaves Wonder Bread 1 bunch of carrots 1 Rumfords Baking Powder Nescafe Instant coffee 2 cans Del Monte peaches 5 lbs potatoes Haire’s Shopping List 1 1/2 lbs hamburger 2 loaves Wonder Bread 1 bunch of carrots 1 Rumfords Baking Powder Maxwell House coffee (drip ground) 2 cans Del Monte peaches 5 lbs potatoes

5. Do consumers stay the same? Y N • (More or less) diversity • Non-traditional methods of buying and selling (increasing/decreasing) • Move from conspicuous consumption to rational consumption. • US consumers age shifting • Therefore, strategies must __________

6. Cultural/Social Environment Consumer Decision Situational Individual Factors Differences Process Influences on Consumer Decision Making Behavioral Adapted from 1997 Irwin/McGraw-Hill

7. BUYER DECISION PROCESS Post- purchase behavior Problem Recognition Information Search Purchase Decision Alternative Evaluation

8. Types of consumer decisions • High-involvement decisions • high importance to the individual • lots of information processing • extensive problem solving • Low-involvement decisions • low importance to the individual • little information processing • routinized response behavior

9. Break out Hi Involvement Lo Involvement Recognize need or problem (how) Search for information (where, what info, how much) Evaluate alternatives (how many) Purchase (easy/hard)

10. STAGE 1: PROBLEM RECOGNITION • Discrepancy between the current state and desired state • Incentives • Drives

11. STAGE 2: INFORMATION SEARCH • Internal then external • Extent of Search = Cost vs Benefits

12. Information may not exist because: • Firm • Natural asymmetry = inefficient markets • Product characteristics: 1. Search 2. Experience 3. Credence

13. STAGES 3 & 4: Evaluation and Choice • COMPENSATORY PROCESSING • NON-COMPENSATORY PROCESSING • MARKETING IMPLICATIONS:

14. Purchasing a Car: A Compensatory Model Rated from 1 (poor) to 5 (good) According to the compensatory decision rule, the Camry would be chosen

15. Purchasing a Car: A Non-Compensatory (EBA) Model Rated from 1 (poor) to 5 (good) According to the non-compensatory decision rule, the Accord will be chosen

16. A CAVEAT • Expectations: • EXPECTANCY EFFECTS: • Examples: • Rosenthal’s - smart/stupid rats • Deighton - Ford Campaign

17. Post-Purchase Behavior • Satisfaction/Dissatisfaction • Dissonance

18. Understanding Customer Satisfaction Perceived Performance Expectations = Satisfaction Adapted from Churchill and Suprenant, JMR 1982.

19. POST-PURCHASE BEHAVIOR • Satisfaction vs Dissatisfaction • A function of ____________ • SO-- UNDER ______ and OVER ________ • Above average satisfaction leads to:

20. Impact of Customer Satisfaction PIMS STUDY: ABOVE AVERAGE CUSTOMER SATISFACTION LEADS TO: 1. 2. 3.

21. Responses to Dissatisfaction • Complain to the retailer • Complain to the manufacturer • Complain to friends • Go to a third party (FTC, Attorney General) • Stop buying the product/supporting the establishment • Which is most likely?

22. Lifetime value of a customer • Is a function of: • Length of an average “lifetime” • Average revenues from the customer for this particular product/service • Sales of additional products and services • Referral sales (WOM) • Costs associated with serving the customer (reduced employee turnover & lower maintenance over time)

23. Example: Tom Peters (In Search of Excellence) and FedEx • 10 year “lifetime” • Small business does $1500 per month • $1500 X12x 10 years= 180,000 • Plus at least one referral over the lifetime: 180,000 x 2 = $360,000

24. Estimating the lifetime value of a customer • Average customer spends $100 on groceries per week • What is the margin on groceries? • What is a reasonable assumption on the lifetime of a “grocery shopper” at a particular store? • What “other products” might be purchased? • What is a reasonable estimate of WOM effects?

25. Post Purchase Behavior • Dissonance • Most likely to occur when: • Dissonance vs Satisfaction/Dissatisfaction

26. Increase Satisfaction Reduce Dissonance IMPLICATIONS:Methods to --

27. RELATIONSHIP MARKETING

28. Definition: Adapted from Kotler 2000

29. Relationship Marketing Model Corporate YOU Customer Employees

30. Relationship Marketing • “build and maintain a base of committed customers who are profitable for the organization” • Focus on your current customers as a long-term asset—keep and improve • Is basing salesperson’s pay on new accounts a sign that relationship marketing is important to a firm? Y N

31. Why All The “Buzz” • Satisfied employees are a prerequisite to satisfied customers • Tailored marketing programs result in greater satisfaction • Most profitable strategies are those that focus on current customers

32. Customer attraction Presale activities Sales & profits Price Compliance Mass Customer retention Post-sale activities Customer satisfaction Value Partnership Customized Transaction vs. Relationship Marketing Transaction Relationship Problem Focus Success Criteria Customer Distributor Communication adapted from Gronroos, Service Marketing

33. Trends Driving Relationship Marketing • Slow rate of market growth • Industrial overcapacity • Increased Competition • Increased Price Sensitivity • Increased Brand Switching Adapted from Kotler 1991, AMA Doctoral Consortium

34. How Relationship Marketing Benefits Consumers • Confidence benefits • trust in firm reduces anxiety • Social benefits • familiarity • personal friends • Special treatment • get benefit of doubt • preferential treatment

35. Benefits to the Firm • Higher ROI • Increased purchases over time • Lower costs over the relationship • Consumer learning • Set-up costs • WOM • Employee retention—happy customers mean happy employees. What might this mean?

36. CUSTOMER RELATIONSHIPS

37. Levels of Relationships • Level 1: Financial bonds • Price-based incentives • Volume discounts • bundling • Easy to initiate and easy for competition to duplicate • Long term advantage? Y N

38. Level 2 • Social bonds— • Based on interpersonal relationships • Client/service provider • Client/client relationships • encourage clients not to switch—increase switching costs • Often used by: • Professional services • Personal care

39. Level 3 • Customization Bonds • Mass customization—a little effort on the consumer’s part creates the service/ product that meets the consumer’s needs • Usually also has a social component

40. Level 4 • Structural bonds • Designing systems that are integrated or that work specifically with the client • Shared processes and equipment • Joint projects • e.g., ordering systems via computer Packaging that fits shelf designs • Downside?

41. Customer and Vendor Appreciation • How do you show it? • Thank yous (hand written, in person or over phone) • MUST be personal • Vendor appreciation?

42. WHAT DO CUSTOMERS EXPECT

43. Breakout 1: What do your customers expect?

44. Playing vs Winning the Game • Defensive Attributes: Needed to play the game • Determinant Attributes: Needed to win the game • Divide your list into defensive vs determinant attributes

45. Defensive Attributes Determinant Attributes

46. A Discount Retail Example 1986 1995

47. UNDERSTANDING YOUR CUSTOMER

48. Scan the Environment for Change • Economic • Competitive • Technological • Political-Legal • Socio-Cultural • Customer NOTE: Environmental changes will cause defensive and determinant attributes to change

49. Get To Know Your Customers • The Wonders of Data • Follow-Up After-the-Sale • Customer Discussions

50. Make It Easy To Complain • Make management accessible • Be Responsive • Suggestion Boxes • 800 Numbers • Email