Chapte r 1

Tec hnology- Dr ive n Consume r Be ha vior

Learning Objectives

1 To understand the evolution of the marketing concept, the most

prominent tools used to implement marketing strategies, the
relationship between value and customer retention, and the objectives
of socially responsible marketing.
2 To understand how the Internet and related technologies improve
marketing transactions by adding value that benefits both
marketers and customers.
3 To understand the interrelationships among customer value,
satisfaction, and retention, and technology’s revolutionary role in
designing effective retention measures and strategies.
4 To understand consumer behavior as an interdisciplinary area,
consumer decision-making, and the structure of this book.
Objective 1
Evolution of Marketing concept

Consumer behavior is the study of

consumers’ actions during searching for,
purchasing, using, evaluating, and
disposing of products and services that
they expect will satisfy their needs.
Marketing and consumer behavior
stem/rooted from the marketing concept,
which maintains that the essence of
marketing consists of satisfying
consumers’ needs, creating value, and
retaining customers. It maintains that
companies must produce only those goods
that they have already determined that
consumers would buy
The production concept
A business approach conceived by Henry Ford, maintains
that consumers are mostly interested in product
availability at low prices; its implicit marketing objectives
are cheap, efficient production and intensive distribution.
A product orientation often leads to marketing myopia, that
is, a focus on the product rather than on the needs it
presumes to satisfy.
Marketing myopia occurs when companies ignore crucial
changes in the marketplace and look “in the mirror rather
than through the window.”
The selling concept maintains that marketers’ primary focus
is selling the products that they have decided to produce
Consumer research refers to the process and tools
used to study consumer behavior, Consumer research is
a form of market research,
Market research
is a process that links the consumer, customer, and
public to the marketer through information in order to
identify marketing opportunities and problems,
evaluate marketing actions, and judge the performance
of marketing strategies.
The market research process outlines the information
required, designs the method for collecting information,
manages the data collection process, analyzes the
results, and communicates the findings to marketers.
Market Segmentation, Targeting, and
Positioning

The focus of the marketing concept is

satisfying consumer needs. At the same
time, recognizing the high degree of
diversity among us, consumer researchers
seek to identify the many similarities that
exist among the peoples of the world
The Marketing Mix
The marketing mix (four Ps) consists of four
elements:
1. Product or service: The features, designs, brands, and
packaging offered, along with post- purchase benefits
such as warranties and return policies.
2. Price: The list price, including discounts, allowances,
and payment methods.
3. Place: The distribution of the product or service
through stores and other outlets.
4. Promotion: The advertising, sales promotion, public
relations, and sales efforts designed to build awareness
of and demand for the product or service.
Socially Responsible Marketing
The marketing concept—fulfilling the needs of
target audiences—is somewhat short-sighted.
Some products that satisfy customer needs are
harmful to individuals and society and others
cause environmental deterioration
The societal marketing concept requires
marketers to fulfil the needs of the target
audience in ways that improve, preserve, and
enhance society’s well-being while
simultaneously meeting their business
objectives.
Objective 2
Technology Enriches the Exchange Between
Consumers and Marketers
Say you are in a strange city and need a hotel for
the night. You pull out your smartphone, search
for hotels on Google, and find a nearby one listed
at the top of the rankings, with a little phone icon
that says, “Call.” You tap it, reach the hotel, and
ask for a room. And just like that, Google made
money. That icon was a so-called “click-to-call
ad,” and the hotel paid Google for it when you
called.
Also; Advertising, Surfing online etc.
The following example illustrates a value exchange.

At Amazon, buyers can find books instantly, read

sample pages and reviews posted by other readers, and
begin reading purchased books within minutes after
placing their orders (as opposed to going to a physical
store, picking up a heavy paper copy, standing in line to
pay, and then carrying the book.) Simultaneously, when
consumers visit Amazon’s website, the company
records every aspect of their visits, including the books
they looked at, the sample pages and reviews they
clicked on, and the time spent on each activity. This
enables Amazon to build long-term relationships with
customers by developing customized book
recommendations that shoppers view upon returning to
Amazon’s website.
Behavioral Information and Targeting
In the online world, specialized “information
exchanges” track who is interested in what through
“cookies” (invisible bits of code stored on Web
pages).
Interactive and Novel Communication Channels
In contrast to traditional advertising, electronic
communications enable a two-way interactive
exchange in which consumers instantly react to
marketers’ messages by, say, clicking on links within
websites or leaving them quickly. Thus, marketers
can gauge the effectiveness of their promotional
messages instantly, instead of relying on delayed
feedback
Customizing Products and Promotional Messages
Oakley’s sunglasses can be customized: Consumers
can select frame colors (often in polished or
nonpolished forms), choose from among several lens
shapes and colors, select different colors for the ear
socks and the Oakley icon, and even have their initials
elegantly and discreetly etched on the lenses.
Companies can also customize promotional messages.
For example, an online drugstore may vary the initial
display that returning buyers see when they revisit its
website. Buyers whose past purchases indicated that
they tend to buy national brands will see a display
arranged by brand. Past purchasers who bought mostly
products that were on sale or generic brands will see a
display categorized by price and discounted products.
Better Prices and Distribution
The Internet allows consumers to compare
prices more effectively than ever before.
In addition to better pricing, distribution
strategies are also improving. Combating
failed package delivery—a prominent
problem of online retailers—Amazon has
installed large metal cabinets, named
Amazon Lockers, in grocery, convenience
stores, and drugstores, that function like
virtual doormen, accepting packages for
customers for later pickup.
Objective 3
Customer Value, Satisfaction, and Retention

Customer value is the ratio between

customers’ perceived benefits (economic,
functional, and psychological) and the
resources (monetary, time, effort,
psychological) they use to obtain those
benefits
Customer satisfaction refers to customers’
perceptions of the performance of the
product or service in relation to their
expectations.
Customer Retention
Customer retention involves turning individual consumer
transactions into long-term customer relationships by
making it in the best interests of customers to stay with the
company rather than switch to another firm.
It is more expensive to win new customers than to retain
existing ones, for several reasons:
1. Loyal customers buy more products and constitute a
ready-made market for new models of existing products
as well as new ones, and also represent an opportunity
for cross-selling. Longterm customers are more likely to
purchase ancillary products and high-margin
supplemental products.
2. Long-term customers who are thoroughly familiar with
the company’s products are an important asset when new
products and services are developed and tested.
Reasons...... Continued;
3. Loyal customers are less price-sensitive and pay less attention to
competitors’ advertising. Thus, they make it harder for competitors to
enter markets.
4. Servicing existing customers, who are familiar with the firm’s
offerings and processes, is cheaper. It is expensive to “train” new
customers and get them acquainted with a seller’s processes and
policies. The cost of acquisition occurs only at the beginning of a
relationship, so the longer the relationship, the lower the amortized cost.
5. Loyal customers spread positive word-of-mouth and refer other
customers.
6. Marketing efforts aimed at attracting new customers are expensive;
indeed, in saturated markets, it may be impossible to find new
customers. Low customer turnover is correlated with higher profits.
7. Increased customer retention and loyalty make the employees’ jobs
easier and more satisfying. In turn, happy employees feed back into
higher customer satisfaction by providing good service and customer
support systems.
Technology and Customer Relationships
For every brand, the company’s website includes
suggestions on how to use the product more
effectively
Researchers have identified two interrelated forms
of customer engagement with marketers:
Emotional bonds represent a customer’s high level
of personal commitment and attachment to the
company.
Transactional bonds are the mechanics and
structures that facilitate exchanges between
consumers and sellers
Transaction-Based and Emotional Bond-Based
Customer Relationships
FANS: LOYAL CUSTOMERS:

High bonds and high purchase levels Frequent purchasers, but without
high bonds

DELIGHTED CUSTOMERS: TRANSACTIONAL CUSTOMERS:

High bonds but modest purchase Low bonds and infrequent

levels. purchasers
Customer Loyalty and Satisfaction
1. The Loyalists are completely satisfied customers who keep purchasing. The
apostles are loyal customers whose experiences with the company exceeded
their expectations and who provide very positive word-of-mouth about the
company to others. Companies should strive to create apostles and design
strategies to do so.
2. The Defectors feel neutral or merely satisfied with the company and are likely
to switch to another company that offers them a lower price. Companies must
raise defectors’ satisfaction levels and turn them into loyalists.
3. The Terrorists are customers who have had negative experiences with the
company and spread negative word-of-mouth. Companies must take measures to
get rid of terrorists.
4. The Hostages are unhappy customers who stay with the company because of a
monopolistic environment or low prices; they are difficult and costly to deal
with because of their frequent complaints. Companies should fire hostages,
possibly by denying their frequent complaints.
5. The Mercenaries are very satisfied customers who have no real loyalty to the
company and may defect because of a lower price elsewhere or on impulse,
defying the satisfaction–loyalty rationale. Companies should study these
customers and find ways to strengthen the bond between satisfaction and loyalty.
Customer Loyalty and Profitability
1. The Platinum Tier includes heavy users who are not
price-sensitive and are willing to try new offerings.
2. The Gold Tier consists of customers who are heavy
users but not as profitable because they are more price-
sensitive than those in the higher tier, ask for more
discounts, and are likely to buy from several providers.
3. The Iron Tier consists of customers whose spending
volume and profitability do not merit special treatment
from the company.
4. The Lead Tier includes customers who actually cost the
company money because they claim more attention
than is merited by their spending, tie up company
resources, and spread negative word-of-mouth.
Measures of Customer Retention
Companies must develop measures to assess their customer retention
strategies, and researchers have recommended the following retention
measurement methods:
1. Customer Valuation: Value customers and categorize them according
to their financial and strategic worth so that the company can decide
where to invest for deeper relationships and determine which
relationships should be served differently or even terminated.
2. Retention Rates: The percentage of customers at the beginning of
the year who are still customers by the end of the year. According to
studies, an increase in retention rate from 80% to 90% is associated
with a doubling of the average life of a customer relationship from 5
to 10 years. Companies can use this ratio to make comparisons
between products, between market segments, and over time.
3. Analyzing Defections: Look for the root causes, not mere
symptoms. This involves probing for details when talking to former
customers, an analysis of customers’ complaints, and benchmarking
against competitors’ defection rates.
Objective 4
Consumer Behavior Is Interdisciplinary