4-5-6

CREATING LONG-TERM LOYALTY RELATIONSHIPS

What is Customer-Perceived Value?
➢ As Adam Smith observed more than two centuries ago in “The Wealth of
Nation”:
“The real price of anything is the toil and trouble of acquiring it.” Total customer cost therefore also includes the
buyer’s time, energy, and psychological costs expended in product acquisition, usage, maintenance,
ownership, and disposal. The buyer evaluates these elements together with the monetary cost to form a total
customer cost.

What is Customer-Perceived Value?

➢ Consumers are better educated and better informed than ever, and they have the tools to verify companies’
claims and seek out superior alternatives. Even the best-run companies have to be careful not to take customers for
granted.
➢ Customer-perceived value (CPV) is the difference between the prospective customer’s evaluation of all the
benefits and costs of an offering and the perceived alternatives.
➢ Total customer benefit is the perceived value of the bundle of economic, functional, and psychological benefits
customers expect from a given market
offering because of the product, service, people, and image.
➢ 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.
Delivering High Customer Value
➢ Consumers have varying degrees of loyalty to specific brands, stores, and
companies.Loyalty has been defined as “a deeply held commitment to rebuy a
preferred product or service in the future despite situational influences and
marketing efforts having the potential to cause switching behavior.”
➢ 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 good performance, design, and
safety for the environment.
What is Customer-Perceived Value?
Discussion
“Why do some people satisfy and others dissatisfied for the same
product?
Customer Satisfaction
➢ Customer satisfaction is a person’s feelings of pleasure or disappointment that
result from comparing a product or service’s perceived performance (or
outcome) to expectations. If the performance or experience falls short of
expectations, the customer is dissatisfied. If it matches expectations, the
customer is satisfied. If it exceeds expectations, the customer is highly satisfied
or delighted.

Acquiring new customers can cost five times more than satisfying and retaining current ones. It requires a
great deal of effort to induce satisfied customers to switch from their current suppliers.
• The average company loses 10 percent of its customers each year.
• A 5 percent reduction in the customer defection rate can increase profits by 25 percent to 85 percent,
depending on the industry.
• Profit rate tends to increase over the life of the retained customer due to increased purchases, referrals,
price
premiums, and reduced operating costs to service.

**Customer Value Analysis: Understanding Strengths and Weaknesses**

Managers conduct customer value analysis to identify a company's competitive position by:
1. **Identifying Major Attributes and Benefits**: Customers' valued attributes and benefits are identified broadly to
encompass all decision-making inputs.

2. **Assessing Importance**: Quantitative assessment of attribute and benefit importance among customers,
potentially leading to segmentation.

3. **Comparing Performance**: Evaluating the company's and competitors' performances on attributes and benefits
according to customer ratings.

4. **Segment-Specific Evaluation**: Examining how customers in specific segments rate the company's performance
against competitors.

5. **Monitoring Over Time**: Periodically reassessing customer values and competitors' standings due to changing
economic, technological, and product features.

**Factors Influencing Customer Choices**

While some may perceive customer decision-making as rational, several factors influence choices, including:

1. **Price Considerations**: Buyers may prioritize lowest price under certain constraints, necessitating persuasion on
long-term profitability.

2. **Short-Term Benefit Maximization**: Buyers may prioritize personal benefit over long-term company interests,
necessitating education on long-term value.

3. **Relationship Factors**: Long-term relationships with salespersons or brands can influence decisions, requiring
evidence-based persuasion.

**Delivering High Customer Value**

Effective delivery of high customer value involves:

1. **Assessing Total Customer Benefit and Cost**: Understanding customer-perceived value and managing the value
delivery system accordingly.

2. **Strengthening Customer Benefits**: Enhancing economic, functional, and psychological benefits of products,
services, personnel, and image.

3. **Reducing Customer Costs**: Lowering monetary costs, simplifying processes, and absorbing risks to decrease
total customer cost.

**Customer Satisfaction: Goal and Marketing Tool**

Customer satisfaction is pivotal for long-term success:

1. **Goal and Metric**: Satisfaction drives loyalty, repeat purchases, positive word-of-mouth, and reduced service
costs.
2. **Monitoring and Improvement**: Regular assessment of satisfaction through surveys and other methods informs
improvements and maintains competitiveness.

3. **Influence on Reputation**: High satisfaction levels are communicated to target markets to enhance brand
reputation and competitiveness.

lesson 5 ANALYZING CONSUMER AND BUSINESS MARKETS

ANALYZING CONSUMER
AND BUSINESS MARKETS
What Influences Consumer Behavior?
➢ 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.
➢ 1. Cultural Factors - Culture, subculture, and social class are particularly
important influences on consumer buying behavior. Culture is the fundamental
determinant of a person’s wants and behavior. ach culture consists of smaller
subcultures that provide more specific identification and socialization for their
members. Subcultures include nationalities, religions, racial groups, and
geographic regions. Virtually all human societies exhibit social stratification,
most often in the form of social classes, relatively homogeneous and enduring
divisions in a society, hierarchically ordered and with members who share
similar values, interests, and behavior.
What Influences Consumer Behavior?
➢ 2. Social Factors - In addition to cultural factors, social factors such as reference
groups, family, and social roles and statuses affect our buying behavior. A
person’s reference groups are all the groups that have a direct (face-to-face) or
indirect influence on their attitudes or behavior. The family is the most
important consumer buying organization in society, and family members
constitute the most influential primary reference group. We each participate in
many groups—family, clubs, organizations—and these are often an important
source of information and help to define norms for behavior. We can define a
person’s position in each group in terms of role and status. A role consists of the
activities a person is expected to perform. Each role in turn connotes a status
.

**Social Factors Influencing Buying Behavior**

Social factors such as reference groups, family dynamics, and social roles significantly influence consumer behavior:

**Reference Groups:**
- **Membership Groups:** Primary and secondary groups with direct and indirect influences on attitudes and
behavior.
- **Influence Mechanisms:** Exposure to new behaviors, influence on attitudes and self-concept, and pressures for
conformity.
- **Opinion Leaders:** Individuals within reference groups who offer informal advice or information, crucial for
marketers to reach.

**Cliques and Communication:**

- **Social Structure View:** Society comprises cliques with frequent interaction, posing a challenge to openness and
information exchange.
- **Liaisons and Bridges:** Facilitators of communication between cliques, aiding in information dissemination.

**Malcolm Gladwell's Factors of Public Interest:**

- **The Law of the Few:** Identifies mavens, connectors, and salesmen as key in spreading ideas.
Best-selling author Malcolm Gladwell claims three factors work to ignite public interest in an idea.
According to the first, “The Law of the Few,” three types of people help to spread an idea like an epidemic. First are
Mavens,
people knowledgeable about big and small things. Second are Connectors, people who know and communicate
with a great number of other people. Third are Salesmen, who possess natural persuasive power. Any idea that
catches the interest of Mavens, Connectors, and Salesmen is likely to be broadcast far and wide. The second factor
is “Stickiness.” An idea must be expressed so that it motivates people to act. Otherwise, “The Law of the Few” will
not lead to a self-sustaining epidemic. Finally, the third factor, “The Power of Context,” controls whether those
spreading an idea are able to organize groups and communities around it

**Consumer Scoring Online:**

- **E-Scores:** Beyond credit reports, estimating buying power based on various factors.
- **Influence Measurement:** Tools like Klout analyze online clout based on multiple factors, aiding in targeted
marketing strategies.

**Word-of-Mouth and Marketing Tactics:**

- **Offline Communication:** Personal referrals from trusted sources remain a valuable source of information.
- **Shill Marketing:** Controversial tactic involving anonymous promotion, both offline and online, poses ethical
concerns.

**Family Dynamics:**
- **Family Influence:** Primary reference group heavily influencing buying decisions, with roles divided between
family of orientation and family of procreation.
- **Changing Roles:** Traditional purchasing roles evolving, necessitating a shift in marketing strategies.

**Children and Teens as Influencers:**

- **Direct and Indirect Influence:** Children and teens increasingly influence family purchase decisions through
direct requests or influencing parents' choices.
- **Media Influence:** Television and advertising targeting children from a young age shape their preferences and
behaviors.

**Roles and Status:**

- **Group Participation:** Involvement in various groups defines roles and statuses, influencing product choices that
reflect desired status symbols.

Social factors intertwine with cultural influences to shape consumer behavior, highlighting the importance of
understanding these dynamics for effective marketing strategies.
What Influences Consumer Behavior?
➢ 3. Personal Factors - Personal characteristics that influence a buyer’s decision
include age and stage in the life cycle, occupation and economic circumstances,
personality and self-concept, and lifestyle and values.
Key Psychological Processes
➢ Motivation - A need becomes a motive when it is aroused to a sufficient level of
intensity to drive us to act.
➢ Abraham Maslow sought to explain why people are driven by particular needs
at particular times. His answer is that human needs are arranged in a hierarchy
from most to least pressing—from physiological needs to safety needs, social
needs, esteem needs, and self-actualization needs. People will try to satisfy their
most important need first and then move to the next. For example, a starving
man (need 1) will not take an interest in the latest happenings in the art world
(need 5), nor in the way he is viewed by others (need 3 or 4), 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.
Maslow’s Hierarchy of Needs

What is Organizational Buying?

➢ The business market consists of all the organizations that acquire goods and services used in the production of
other products or services that are sold, rented, or supplied to others. Any firm that supplies components for
products is in the business-to-business marketplace.
➢ Business marketers contrast sharply with consumer markets in some ways,
however. They have:
1. Fewer, larger buyers. 2. Close supplier–customer relationships. 3. Professional purchasing
TAPPING INTO GLOBAL MARKETS
Competing on a Global Basis
➢ The world has dramatically shrunk in recent years. Countries are increasingly
multicultural, and products and services developed in one country are finding
enthusiastic acceptance in others.
➢ A German businessman may wear an Italian suit to meet an English friend at
a Japanese restaurant, who later returns home to drink American Coke and
watch a French movie on a Korean TV. Emerging markets that embrace
capitalism and consumerism are especially attractive targets. Some marketers
are finding success both in developing and developed markets.
Deciding How to Enter the Market
➢ Once a company decides to target a particular country, it must choose the best mode of entry with
its brands. Its broad choices are indirect exporting, direct exporting, licensing, joint ventures, and
direct investment. Each succeeding strategy entails more commitment, risk, control, and profit
potential.
➢ There are Five Modes of Entry into Foreign Markets.
Indirect Exporting
➢ Companies typically start with export, specifically indirect exporting—that
is, they work through independent intermediaries.
1. Domestic-based export merchants buy the manufacturer’s products and then sell them abroad.
2. Domestic-based export agents, including trading companies, seek and negotiate foreign purchases for a
commission.
3. Cooperative organizations conduct exporting activities for several producers—often of primary products such as
fruits or nuts—and are partly under their administrative control.
4. Export-management companies agree to manage a company’s export activities for a fee.
Indirect Exporting
➢ Indirect export has two advantages.
1. First, there is less investment: The firm doesn’t have to develop an export
department, an overseas sales force, or a set of international contacts.
2. Second, there’s less risk: Because international marketing intermediaries
bring know-how and services to the relationship, the seller will make
fewer mistakes.
Direct Exporting
➢ Companies may eventually decide to handle their own exports. The
investment and risk are somewhat greater, but so is the potential return.
Direct exporting happens in several ways:
➢ Domestic-based export department or division. A purely service function may evolve into a self contained export
department operating as its own profit center.
➢ Overseas sales branch or subsidiary. The sales branch handles sales and distribution and perhaps warehousing and
promotion as well. It often serves as a display and customer service center.
➢ Traveling export sales representatives. Home-based sales representatives travel abroad to find business.
➢ Foreign-based distributors or agents. These third parties can hold limited or exclusive rights to represent the
company in that country.
Licensing
Licensing is a simple way to engage in international marketing. The licensor issues a license to a foreign company to
use a manufacturing process, trademark, patent, trade Secret, or other item of value for a fee or royalty. The licensor
gains entry at little risk; the licensee gains production expertise or a well-known product or brand name.
The licensor, however, has less control over the licensee than over its own production and sales facilities. If the
licensee is very successful, the firm has given up profits, and if and when the contract ends, it might find it has
created a competitor. To prevent this, the licensor usually supplies some proprietary product ingredients or
components (as Coca Cola does). But the best strategy is to lead in innovation so the licensee will continue to depend
on the licensor.
Joint Ventures
A joint venture (JV) is a standalone, independent organization created and jointly owned
by two or more parent companies. For example, Hulu (a video-on-demand service) is
jointly owned by NBC, Disney-ABC, Fox, and Turner Broadcast System (TBS). Since partners contribute equity to a
joint venture, they are making a long-term commitment. Exchange of both explicit and tacit knowledge through
interaction of personnel is typical. Joint ventures are also frequently used to enter foreign markets where the host
country requires such a partnership to gain access to the market in exchange for advanced technology and
know-how. The foreign firm might lack the financial, physical, or managerial resources to
undertake the venture alone, or the foreign government might require joint ownership as a condition for entry. Joint
ownership has drawbacks. The partners might disagree over investment, marketing, or other policies. One might
want to reinvest earnings for growth, the other to declare more dividends.
Direct Investment
The ultimate form of foreign involvement is direct ownership: The foreign company can buy part or full interest in a
local company or build its own manufacturing or service facilities. It has some types, such as Equity Alliances,
Mergers and Acquisition.

Equity Alliances
In an equity alliance, at least one partner takes partial ownership in the other partner. SDF
Equity alliances are less common than contractual, non-equity alliances because they
often require larger investments. Because they are based on partial ownership rather
than contracts, equity alliances are used to signal stronger commitments. Moreover,
equity alliances allow for the sharing of tacit knowledge—knowledge that cannot be
codified. Tacit knowledge concerns knowing how to do a certain task. It can be acquired
only through actively participating in the process. In an equity alliance, therefore, the
partners frequently exchange personnel to make the acquisition of tacit knowledge
possible.
Mergers and Acquisitions
A merger describes the joining of two independent companies to form a combined entity.
Mergers tend to be friendly; in mergers, the two firms agree to join in order to create a
combined entity. for Example, Live Nation merged with Ticketmaster.
An acquisition describes the purchase or takeover of one company by another.
Acquisitions can be friendly or unfriendly. For example, Disney’s acquisition of Pixar, for
example, was a friendly one, in which both management teams believed that joining the
two companies was a good idea. When a target firm does not want to be acquired, the
acquisition is considered a hostile takeover. British telecom company Vodafone’s
acquisition of Germany-based Mannesmann, a diversified conglomerate with holdings in
telephony and internet services, at an estimated value of $150 billion, was a hostile one. It
was also the largest takeover in corporate history.