Relationship of Customer Satisfaction with Product Variety

July 2010

Department of Management Sciences

The Islamia University of Bahawalpur

Relationship of Customer Satisfaction with Product Variety

Written by: Wajahat Hussain
BBA (Hons) Marketing

Instructed By: Muhammad Suhail Nazar
Assistant Professor Department of Management Sciences, IUB

Department of Management Sciences

The Islamia University of Bahawalpur

Preface
In the world of dynamism and competition, companies are striving hard to find ways of profitability. Companies are finding ways to attract, retain and satisfy more and more customers. Trying to get loyalty of the customer by satisfying his/her needs best. Product variety is seen in this regard as one of those tools used to satisfy customers and meet organizational goals. Yet its been proven that product variety dose not guarantee profitability in long run and sometimes even worsen the competitive advantage. Consumer really wants multiple options of choices. Researches say that it is human urge to have new and many options while making choice over a time period. But careful management of product variety is very much crucial to business success. Right blend of varieties at right time can surely satisfy the customer but wrong management can confuse and frustrate the consumer choice. It is not just an easy task. Cost and other limitations- technology harness the effectiveness of product variety. This paper explains how product variety satisfies customer. What are the limitations? What and how management of product verity is done? We conclude that product variety has a positive effect on customer satisfaction if in optimal level. Careful management is always crucial to everything so as to product variety. Hope this paper will help in further studies. Wish all the readers a good luck Team Members

Acknowledgement
“All gratitude and thanks to almighty “ALLAH” the gracious, the most merciful and beneficent “ ALLAH gave us courage to undertake and complete this task. We are very much obliged to our ever caring and loving parents whose prayers have enabled to reach this stage. We are grateful to almighty ALLAH who made us able to complete the work presented in this report. It is due to HIS unending mercy that this work moved towards success. We are highly indebted to Mr. Suhail Nazar, Assitant Professor, DMS, for providing us an opportunity to write this research paper, which is vital ingredient to advance studies. We feel great pride and pleasure on the accomplishment of this report.

Regards Team Members

Abstract
In the world of dynamism and competition, companies are striving hard to find ways of profitability. Product variety is one of those tools used to attract, retain and satisfy customer. This paper tries to understand the influence of product variety on customer satisfaction. How it affects customer satisfaction what are the cost associated with it and can it guarantee profitability? First we will explain the product variety, how its management can be done, how it affects the customer satisfaction, what are the costs associated with it? In our research we came to the point that product variety really has affects on customer satisfaction but it does not guarantee the profitability. In the last we suggest further research on enhancement of customer satisfaction.

Introduction
In the world of dynamism and competition, companies are striving hard to find ways of profitability. Product variety is one of those tools used to attract, retain and satisfy customer. This paper tries to understand the influence of product variety on customer satisfaction. And it can be an important in generating customer satisfaction. But it does not guarantee profitability in long run in fact can worsen the competitiveness (Ramdas and Sawhney 2001). Product variety pass on to the number of different products (SKU) integrated in one product line (e.g., Dixit and Stiglitz 1977). In current years, swiftly embryonic technologies, brutal competition and demanding customers have contributed to a continuous increase of product variety in almost all product categories (Ho and Tang 1998). However increasing product variety doesn’t guarantee the increase in profitability, as it requires great cost to manage. Thus hurting the profitability. Careful and optimal level of product variety can lead to customer satisfaction and generate profitability. Customer satisfaction is a measure of how products and services supplied by a company meet or surpass customer expectation (Wikipedia, the free encyclopedia). In the world of competition where businesses compete for customers, customer satisfaction sees as key differentiator and a core company strategy.

Measuring customer satisfaction is very necessary. It gives insight that where the business stands (Wikipedia, the free encyclopedia). To consumers, wider variety means better choice thus is habitually desirable. Product variety that matches customer demand let firms charge higher selling price and/or increase sales volume. Increasing product variety has somewhat positive impact over the product line's revenue. However, the exact effect is usually difficult to state, especially when customer demand is stochastic and difficult to understand (Null Lifang Wu, 2007). A psychological studies of consumer behavior reveal that urge for newness to satisfy the need best is in genes of the consumer (Hansen 1972, Raju 1980,
Baumgartner and steenKamp 1996)

If customer is getting what it want than surely it get satisfied. In this paper first we will explain the product variety, how its management can be done, how it affects the customer satisfaction, what are the costs associated with it? In the last we suggest further research on enhancement of customer satisfaction.

Product Variety
Product variety pass on to the number of different products (SKU) integrated in one product line (e.g., Dixit and Stiglitz 1977). Product variety decisions have both operations and marketing implications (Null Lifang Wu, 2007). Product variety tries to meet the demand and needs of the customers. But it does not guarantee profit. Cost for providing product variety and management is high (Kevin Lancaster).

♦ Product Variety Management How firm choose to create variety in their products and how functions and supply chain are managed to foster variety are key factors for successful strategy, thus requiring excellent management an become concern for the competitive advantage (Ramdas and Kamalini 2003, Meyer and Lehnerd 1997) Product variety management examines the consistent problems between the marketing and production functions in industry. Product variety management is a up to date action of a multi-disciplinary approach to product variety (Ho and Tang 1998). Product variety management decisions are required at different organizational levels, over different time spans, within and crossways functional and

organizational boundaries, before and after product launch (Ramdas and Kamalini 2003) ♦ Cost and limitations For the best fit of product variety management and firm’s objectives, firm should strive to balance the revenue and cost impact of variety decisions (Lancaster 1990) Following are the areas challenging product variety
• • • • •

Economies of Scales/ Manufacturing Distribution Lead-time Responsiveness Supply and Demand

Cost of product variety is high due to economies of scales and distribution cost. It also incurs many indirect costs that are not easily traceable. For example, higher the product variety more the complexity would be of manufacturing and in supply chain coordination. When different SKUs and the included components are added, generates a wide variety of products results in economy of scope. This could in turn neutralize the cost pressure of high variety strategy (Ho and Tang 1998). On the distribution side, wide product line scatters the overall demand and in doing so makes worse the disreputable mismatch between supply and demand in uncertain marketplaces (Null Lifang Wu, 2007).

In addition, offering higher variety extends the product introduction lead-time and thus influences a firm's responsiveness to embryonic customer demand. Overall, product variety decision influences supply costs in a difficult manner, which is not well understood by researchers (Null Lifang Wu, 2007). From the above discussion, it is clear that revenue and cost implications of product variety is highly complex in nature. Make variety management so challenging (Null Lifang Wu, 2007).

♦ Variety and information seeking Management of product variety requires information about consumer’s preferences and choices in order to meet their demand. But it’s not an easy task. It’s really very difficult to gather information about consumer preferences. Even with best marketing research it is not easy to predict consumer preferences Two major sources of information for multi-product firms are • Information is obtained by acquiring single-product or small multi-product firm result in contraction of variety • Information is obtained by observing sales of other firm’s products result in increase in variety (Kevin Lancaster)

Variety and Customer Satisfaction
“Satisfying the customer is a race without finish." (Vernon Zelmer) “Variety is one of the consumer’s greatest concerns (fortune magazine, 1991)” Variety seeking in purchase behavior is the tendency of individual to seek differentiation or diversity in their choices over time (Givon 1985). For consumer variety in an assortment can offer two advantages.

• First if the consumer is making many choices overtime than variety in assortment allow them to choose different options overtime to satisfy their needs. • Second if single choice is being made than variety and breadth in assortment allow them to choose customized options that they desire. (Barbra Kahn)

♦ Why consumer seeks variety? The simple answer to this is that they need better options in order to satisfy their need. And mostly they search variety in low-risk products (FMCGs) dailyconsumed products (Van Trijp, 1995). So more the product variety in this section more the satisfaction will be and vice versa. Where as when consumer is making single choice and is not much aware of the options offered here offering to much

variety could confuse the consumer and frustrate the choices (Barbra Kahn). More in this regard is that consumer wants something new when gets bored with its current choice. When a consumer reaches the optimal level of consumptions the satiation sets in and desire for something new sets in for the next choice (Jeuland 1978, McAlister 1982). Different researches on consumer psychology reveals that it’s in genes of the consumer to explore something neew even there is no satiation (Hansen 1972, Raju 1980, Baumgartner and steenKamp 1996). Consumers are not same in psyche so as in needs thus consumers in need of high stimulation require more variety products (Zukerman 1979 and Barbra Kahn).

♦ Assortment of options; why consumer demand? Consumers in order to satisfy needs require variety. One other believe in requiring variety according to researches is that consumer feel that they cant get all in one product. To get best they require multiple products or simply variety (Barbra Kahn). Not all attributes of the products are of same level (Hurber and Reibster 1978). Thus to get maximum for their needs consumer require or search for the mix of products each having own distinct advantage (Farquhar and Rao1976). Another option that consumer require variety in the products is because of uncertainty in future preferences (Kahnman and snell 1990, Simson 1990, Walsh 1993) for example choosing the restaurant before the selection of meal, making sense to choose a place that would provide sufficient variety (Kahn and Lehman 1991).

Conclusion
In the world of dynamism and competition, companies are striving hard to find ways of profitability. Companies are finding ways to attract, retain and satisfy more and more customers. Trying to get loyalty of the customer by satisfying his/her needs best. Product variety is seen in this regard as one of those tools used to satisfy customers and meet organizational goals. Yet its been proven that product variety dose not guarantee profitability in long run and sometimes even worsen the competitive advantage. Consumer really wants multiple options of choices. Researches say that it is human urge to have new and many options while making choice over a time period. But careful management of product variety is very much crucial to business success. Right blend of varieties at right time can surely satisfy the customer but wrong management can confuse and frustrate the consumer choice. It is not just an easy task. Cost and other limitations- technology harness the effectiveness of product variety. Product variety and customer satisfaction has a positive relationship. Consumers require variety in their choices “Variety is one of the consumer’s greatest concerns (fortune magazine, 1991)”. Consumer seeks variety because they require better options in order to satisfy their need. And mostly they search variety in lowrisk products (FMCGs) daily-consumed products (Van Trijp, 1995). So more the product variety in this section more the satisfaction will be and vice versa. Where

as when consumer is making single choice and is not much aware of the options offered here offering to much variety could confuse the consumer and frustrate the choices (Barbra Kahn). Thus with careful management and providing optimal level of product variety satisfaction of customer can be achieved.

References
• MacDuffie, J.P., Sethuraman, K., and Fisher, M.L. (1996), ‘Product Variety and Manufacturing • Performance’, Management Science, Vol 42, No 3 • Wu, L. 2007. Toward an Understanding of the Product Variety Decision: An Integrative Model. • International Journal of Management, 24(3): 499-506.

Lancaster, K. 1990. The Economics of Product Variety: A Survey. Marketing Science, 9(3): 189- 206

Kahn, B. 1998. Dynamic Relationships with Customers: High-Variety Strategies. Journal of the

Academy of Marketing Science, 26(1): 45-53.

• Walter, Jr. R. M. 1997. Organizational Experimentation: Embracing Uncertainty. • Proceedings of the 1997 national Conference on Emerging Issues in Business and Technology

• Wikipedia, the free encyclopedia, Customer satisfaction

• Tek-Hua Ho, Christopher S. Tang, 1998, product variety management, research advances

• Barbra Kahan, Product variety management, research advances: Variety; from the customers perspective

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