1. Copyright © 2002 All rights reserved. 1 CHAPTER 1 The Customer: Key to Market Success

2. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 2 The Importance of Understanding Customer Behavior A Key to Success  Satisfy customers  Adopt the marketing concept  Gain legitimacy in society

3. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 3 Satisfying the Customer Adopt a Customer Culture  Incorporate customer satisfaction as an integral part of the corporate mission and utilize an understanding of customer behavior as input to all marketing plans and decisions

4. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 4 Adopting the Marketing Concept Market Concept Principle Focus  Making what the customer wants or needs Selling Concept Principle Focus  Finding a buyer for the product  Selling the customer into exchanging money for the product vs.

5. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 5 Gaining Legitimacy in Society A society supports businesses because they serve its members by catering to their needs and wants  Focus on the customer  Pay attention to customer behavior  Respond to customer needs, desires and preferences

6. Copyright © 2002 All rights reserved. 6 Customer Orientation …a thorough understanding of customers’ needs and wants, the competitive environment, and the nature of the market used to formulate all the firms’ plans and actions to create satisfied customers

7. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 7 Competitive Advantages Through Customer Satisfaction Repeat Buying Higher Prices Loyalty in Crisis Word of Mouth New Product Innovation Corporate Performance One-Stop shopping GrowthProfits Customer Satisfaction

8. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 8 Increased Profitability Advantages  Cost efficiencies from repeat customers  Price premiums from established customers  Customer loyalty in corporate crisis

9. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 9 Increased Growth Advantages  Increased word of mouth  One-stop shopping  New product innovations

10. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 10 Creates Pride in Employees Customer orientation has an effect on employee morale in the company  Satisfied employees create satisfied customers  Happy customers lead to employee happiness

11. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 11 Customers: Types, Roles, and Behaviors Customer TypesRoles Mental Activities Physical Activities Business Households (consumers) Payers Users Buyers

12. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 12 Customer Behavior Domain HOUSEHOLDBUSINESS SERVICES PRODUCTS Consumer Products Business Product Consumer Services Business Services

13. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 13 Three Roles of the Customer User Payer Buyer

14. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 14 Reasons for Role Specialization Lack of expertise Lack of time Lack of buying power Lack of access Lack of affordability When the product or service is subsidized by payers When the product or service is free

15. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 15 Customer Needs and Wants Need arousal is driven by discomfort in a person’s physical and psychological conditions Wants occur when and because humans desire to take their physical and psychological conditions beyond the state of minimal comfort

16. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 16 Determinants of Needs and Wants Customer Needs  Individual Traits  Genetics  Biogenics  Psychogenics  Market Traits  Climate  Topography  Ecology Customer Wants  Individual Context  Personal Financial Worth  Institutions  Culture  Market Context  Economy  Technology  Public Policy

17. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 17 Matrix of Personal and Environmental Characteristics Personal Characteristics Environmental Characteristics PhysicalContextual Physical 1. Needs-driven markets (e.g., allergy medicine) 3. Personal needs and environmental wants (e.g., microwavable food) Contextual 2. Personal wants and environmental needs-driven markets (e.g., fur coat) 4. Wants-driven markets (e.g, theatre attendance)

18. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 18 Market Value Market value is the potential of a product or service to satisfy customers’ needs and wants Value is created only if the product or service has the capability to satisfy a customer’s needs and wants

19. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 19 Classification of Market Values Universal Values Personal Values

20. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 20 Matrix of Values and Customer Roles CUSTOMER ROLES UserPayerBuyer UNIVERSAL VALUESPerformance ValuePrice ValueService Value PERSONAL VALUES Group specific Individual-specific Social value Emotional value Credit value Financing value Convenience value Personalization value

21. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 21 Characteristics of Customer Value Values are instrumental Values are dynamic Values are hierarchical Diversity of customer values increases with hierarchy Values are synergistic Values are role-specific Values vary across customers

22. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 22 Value Synergy Best Universal value = (Performance) x (price) x (service value) and Best Personal value = (Social and emotional) x (convenience and personalization) x (credit and financing)

23. Conceptual Framework Payer UserBuyer Determinants of Customer Behavior: Personal Factors and Market Environment Chapter 2 Customer Attitudes: Cognitive and Affective Chapter 6 The Customer as Perceiver Chapter 4 Customer Motivation: Needs, Emotions, and Psychographics Chapter 5 The Customer as Learner Chapter 4 Trends in Determinants of Customer Behavior Chapter 3 Individual Customer Decision Making Chapter 8 Researching Customer Behavior Chapter 7 Group/Institution Customer Decision Making; Household, Business and Government Chapter 9 Customer Loyalty to Products, Brands and Stores Chapter 11 Relationship-based Buying Chapter 10 Online Customer Behavior Chapter 12 UNDERSTANDING CUSTOMER BEHAVIOR

24. Copyright © 2002 All rights reserved. 24 CHAPTER 2 Determinants of Customer Behavior: Personal Factors and Market Environment

25. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 25 Framework Payer UserBuyer Personal Context Culture Groups and Institutions Personal Worth Social Class Personal Traits Genetics Biogenics Personality Market Context Economy Government Policy Technology Market Traits Climate Topography Ecology

26. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 26 Two Broad Classes Personal traits  Those biological and physiological features a person is born with and those that develop as a person grows but whose origin derives from biological heredity.  Individual traits  Group traits Personal context  The characteristics of the socio-econocultural environment in which we have lived and are living, which has intimately influenced our resources, tastes, and preferences

27. Copyright © 2002 All rights reserved. 27 Personal Factors

28. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 28 Personal Traits Genetics Biogenics Race Gender Age Personality

29. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 29 Genetics: The Cards We Are Dealt at Birth DNA (deoxyribonucleic acid)  Chemicals in cell nuclei that form the molecular basis of heredity in organisms  Genes (segments of DNA) provide the code that determines our characteristics

30. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 30 Research Research is in progress on genetics and DNA, seeking to discover secrets of the human condition and behavior Advances in neurology are uncovering various chemicals that regulate human emotions and behavior  These discoveries support the idea of biological determinism – the belief that human behavior is determined by biological factors such as genetics and DNA  Other non-biological factors such as culture, perception, learning, and individual motivation, determine much of adult behavior as well

31. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 31 Genetics Affect Customer Needs and Behavior Four Factors  Physiological differences  Diseases and mental disorder  Circadian rhythm  Emotions and behavior

32. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 32 Direct Effects of Genetics Physical features and physiological characteristics  Height, weight, skin color and tone, color of eyes, color and texture of hair, and bodily reactions to variations in temperature and other environmental changes (i.e., allergies)

33. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 33 Daily Cycle of Activity Circadian Rhythm – biological “clock” governs rhythms like sleep-wake cycles People’s rhythms affect,, when shoppers like to shop, among other things Research is also examining whether consumers might process advertisements differently at different times of the day according to their circadian rhythm

34. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 34 Human Behavior Nature (biological factors)  Behavior is determined by a person’s upbringing, by family life, by parental values, by peer group influences, by school, and by church groups Nurture (the familial and social environment)  Behavior is determined by a person’s genetic makeup: our emotions, our sexual preference, tribalism, love of status, notions of beauty, our sociability, creativity, and morality itself

35. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 35 Birth Order Matters Birth order is the sequence among all siblings born of the same mother  Older children are control freaks, aspiring, ambitious and driven  Younger siblings, in contrast, take themselves much less seriously, are more sociable and less judgmental, more risk taking and more open to new things and change

36. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 36 Biogenics Three biogenic characteristics that influence customer behavior:  Race  Gender  Age

37. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 37 Race In the United States, the Bureau of the Census specifies the following four race categories: 1. Caucasian 2. African American 3. American Indian and Alaskan Eskimos 4. Asian and Pacific Islanders

38. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 38 Gender Gender is a biogenic group trait that divides customers into two groups  males and females This group trait remains constant through a person’s life, and it influences customer values and preferences

39. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 39 Age Age is perhaps the most pervasive influence on customer behavior Both needs and wants vary immensely by age Age helps determine the lifetime revenue from a customer  Lifetime revenue is the estimated revenue a firm may expect to receive from a customer over the customer’s lifetime

40. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 40 Chronological Age-based Grouping The GI Generation (born from 1901 to 1924) Silent Generation (born between 1925) Baby Boomers (born between 1946 to 19640 Generation X (Post 1964) Generation Y (born between 1977 and 1995) Children

41. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 41 Distribution of Online Buyers By Age

42. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 42 Customer Personality Personality refers to a person’s consistent ways of responding to the environment in which he or she lives Customer personality is a function of two factors:  Genetic makeup  Environmental conditioning Personality = Genetics x Environment

43. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 43 Behaviorism Theory A person develops a pattern of behavioral responses because of the rewards and punishments offered by his or her environment

44. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 44 Freudian Theory Human personality is driven by both conscious and unconscious motives Three divisions of the human psyche:  id  the basic source of inner energy directed at avoiding pain and obtaining pleasure and represents the unconscious drives and urges  ego  between the unconscious and impulsive desires of the id and the societal ideals internalized by the superego  superego  the moral side of the psyche, reflecting societal ideals

45. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 45 Unconscious Tactics of the Ego Aggression Rationalization Projection Repression Withdrawal Regression

46. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 46 Trait Theory A person is viewed as a composite of several personality traits A personality trait is a consistent, characteristic way of behaving

47. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 47 Personality of the Business Customer Two personality traits of the “social styles” classification  Assertiveness  Responsiveness

48. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 48 Classification of Personality Into Social Styles Analytical Slow reaction Maximum effort to organize Minimum concern for relationships Historical time frame Cautious action Tends to reject involvement Driving Swift reaction Maximum effort to control Minimum concern for caution in relationships Present time frame Direct action Tends to reject inaction Amiable Unhurried reaction Maximum effort to relate Minimum concern for effecting change Present time frame Supportive action Tends to reject conflict Expressive Rapid reaction Maximum effort to involve Minimum concern for routine Future time frame Impulsive action Tends to reject isolation RESPONSIVENESS ASSERTIVENESS LOW HIGH LOW RESPONSIVENESS ASSERTIVENESS HIGH

49. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 49 Personal Context Culture Institutions and groups Personal worth Social class

50. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 50 Culture EnculturationAcculturation Elements of Culture Characteristics of Culture Dimensions of Cross-cultural Values Values Norms Rituals Myths Culture is learned Culture regulates society Culture makes living more efficient Culture is adaptive Culture is environmental Multiple cultures are nested hierarchically Individual vs. collectivism Large vs. small power distance Strong vs. weak uncertainty avoidance Masculinity vs.femininity Abstract vs. associative thinking

51. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 51 Institutions and Groups Institutions  More permanent groups with pervasive and universal presence in society Groups  Two or more persons sharing a common purpose

52. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 52 Types of Groups PRIMARYSECONDARY Family Work organization Church groups Fraternities/sororities Professional associations Credit unions Political campaign volunteers YMCA Personal role model A significant other The person one “secretly admires” Celebrities Fortune 500 companies Other artists (for an artist) MEMBERSHIP SYMBOLIC

53. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 53 Classification of Groups for Household Customers TYPE OF INSTITUTIONS/GROUPS INFORMALFORMAL CHOICE Volunteer groups Community Friendship groups Cultural heroes School Workplace Fraternities/sororities TYPE OF MEMBERSHIP ASCRIBED OR ASSIGNED Family Relatives Tribes Religion Prison

54. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 54 Private-Public, Luxury-Necessity, Product-Brand Influences PUBLIC PRODUCT BRAND WEAK REFERENCE GROUP INFLUENCE (-) STRONG REFERENCE GROUP INFLUENCE (+) STRONG REFERENCE GROUP INFLUENCE (+) Public Necessities Influence: weak product and brand Examples: Wristwatch, automobile, man’s suit Public Luxuries Influence: Strong product and weak brand Examples: TV game, trash compactor, icemaker WEAK REFERENCE GROUP INFLUENCE (-) Private Necessities Influence: Weak product and brand Examples: Mattress, floor lamp, refrigerator Private Luxuries Influence: Strong product and weak brand Examples: TV game, trash compactor, icemaker PRIVATE NECESSITY LUXURY

55. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 55 Personal Worth Three components of personal worth  Income  Wealth  Borrowing power

56. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 56 Social Class Characteristics Rank ordering Relative permanence Intergenerational class mobility Internal homogeneity Distinct from income

57. Copyright © 2002 All rights reserved. 57 Market Environment

58. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 58 Two Broad Classes Market traits  The physical characteristics of the surroundings in which consumers select, use, and pay for products and services in both household and business markets Market context  The man-made market forces (as opposed to the nature-made forces) of the market as a physical place that affects customer needs and wants

59. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 59 Market Traits Climate Topography Ecology

60. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 60 Climate Climate is the first major component of the geophysical market environment, which consists of temperature, wind, humidity, and rainfall in the area Homeostasis  Influences consumer behaviors  Food consumption  Use of clothing  Housing patterns  Geographical distribution of population  Climate also affects business customers’ needs and purchases

61. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 61 Topography Topography is another major component of the geophysical environment which is the terrain, altitude, and soil conditions of the market where customers buy and use the product or service  Consumption varies across different regions of the world  Geographical variation  Different patterns of consumption in different regions  Regional marketing  Adapting marketing programs according to segmentation based on geographic differences among customers

62. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 62 Ecology Ecology refers to the natural resources and the delicate balance and interdependence among vegetation, animals and humans Ecology affects customer behavior by making certain market options less convenient or less attractive, and by customers exercising their environmental values, which then bear upon their market choices  Green consumer  Environmentally conscious consumer

63. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 63 Market Context Economy Government policy Technology

64. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 64 Economy The economic climate affects customer behavior by:  Encouraging or constraining customer purchases at the individual household levels as well as for business customers  Influencing customer sentiment  Driving business cycles

65. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 65 Government Policy Government policy comprises:  Monetary policy  Fiscal policy  Public policy  Facilitative infrastructure

66. CHAPTER 1 PART 1 Customer Behavior: A Managerial Perspective Copyright © 2002 All rights reserved. Copyright © 1999 by Thomas Southwestern. All rights reserved. 66 Technology Technological breakthroughs can significantly change market behaviors and customer expectations Avenues of impact  Increased access to information  Product innovation: new options  More flexibility and control  Customized products and services