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.153
Marketing 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.6.5
Out 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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