MARKETING STRATEGY O.C. FERRELL MICHAEL D. HARTLINE 5 Managing Customer Relationships

5-2 Understanding Customer Behavior The Consumer Buying Process: –Depicts the possible range of activities that may occur in making purchase decisions –Involves considering which product to buy AND considering where to buy it –Choice of a suitable merchant may take precedence over the choice of a specific product

5-3 The Consumer Buying Process Exhibit 5.1

5-4 Need Recognition Need: –Occurs when the consumer’s current level of satisfaction does not equal their desired level of satisfaction. Want: –A consumer’s desire for a specific product that will satisfy the need. Demand: –When the want for a specific product is backed up by the customer’s ability and willingness to pay for the product.

5-5 Information Search (1 of 2) Marketing stimuli can stimulate a desire for information: –Passive Information Search –Active Information Search Sources of information: –Internal Sources –Personal Sources –External Sources

5-6 Information Search (2 of 2) Time, effort and expense dedicated to information search depends on: –Degree of risk involved in the purchase Financial risk Social risk Emotional risk Personal risk –Amount of expertise with the product category –Actual cost of the search Evoked set: –A narrowed down set of alternatives that the customer is considering

5-7 Customers evaluate products as bundles of attributes –Brand attributes –Product features –Aesthetic attributes –Price Customers place different levels of importance on attributes Important considerations in the evaluation stage: –Products must be in the evoked set –Consumers’ choice criteria must be understood –Marketing programs must be designed to influence consumers’ opinions about product or brand image Evaluation of Alternatives

5-8 Purchase intention and the act of buying are distinct concepts Potential intervening factors between intention and buying (car example): –Unforeseen circumstances –Angered by the salesperson or sales manager –Unable to obtain financing –Customer changes mind Key issues in the purchase decision stage: –Product availability –Possession utility Purchase Decision

5-9 Four possible outcomes in the postpurchase stage: –(1) Delight –(2) Satisfaction –(3) Dissatisfaction –(4) Cognitive Dissonance Cognitive dissonance is more likely to occur when: –Dollar value of the purchase increases –Opportunity cost of rejected alternatives is high –Purchase decision is very involving or emotional Firm’s ability to manage dissatisfaction and cognitive dissonance is: –A key to creating customer satisfaction –A major influence on word-of-mouth communication Postpurchase Evaluation

5-10 Decision-Making Complexity –High/Low Complexity Individual Differences –Demographics, perceptions, motives, interests, attitudes, opinions, lifestyles, etc. Social Influences –Culture, subculture, social class, reference groups, opinion leaders, etc. Situational Influences Factors Affecting the Consumer Buying Process

5-11 Common Situational Influences Exhibit 5.2

5-12 Four types of Business Markets: –Producer markets (a.k.a. commercial markets) –Reseller markets –Government markets –Institutional markets Unique Characteristics of Business Markets –The Buying Center –Hard and Soft Costs –Reciprocity –Mutual Dependence Understanding Business Buying Behavior

5-13 (1) Problem Recognition (2) Develop Product Specifications (3) Vendor Identification and Qualification (4) Solicitation of Proposals or Bids (5) Vendor Selection (6) Order Processing (7) Vendor Performance Review The Business Buying Process

5-14 Customer Relationship Management (CRM): –“A holistic process of identifying, attracting, differentiating, and retaining customers.” CRM Stakeholders: –Employees –Supply Chain Partners –Lateral Partners –Customers Managing Customer Relationships

5-15 Strategic Shift from Acquiring Customers to Maintaining Clients Exhibit 5.3

5-16 Increase share of customer rather than market share Serve current customers rather than focus on acquiring new customers The 80/20 Rule: –20% of the customers provide 80% of the profit Developing Relationships in Consumer Markets

5-17 Stages of Customer Relationship Development Exhibit 5.4

5-18 Relationships must be built on win-win strategies Changes in business relationships: –A change in buyers’ and sellers’ roles –An increase in sole sourcing –An increase in global sourcing –An increase in team-based buying decisions –An increase in productivity through better integration Developing Relationships in Business Markets

5-19 Understanding the Role of Quality –The core product is not enough –Supplemental products are critical Delivering Superior Quality (four issues) –Understand customers’ expectations, needs, and wants –Translate customer research into specifications for quality –Deliver on specifications –Promise only what can be delivered Quality and Value: (1 of 2) The Keys to Developing Customer Relationships

5-20 Components of the Total Product Offering Exhibit 5.5

5-21 Quality and Value: (2 of 2) The Keys to Developing Customer Relationships Understanding the Role of Value –A simple formula for value: –A more useful formula for value: –Core Product, Supplemental Product, and Experiential Quality –Monetary and Nonmonetary Costs Competing on Value

5-22 Satisfaction vs. Quality vs. Value –Expectations Customer Satisfaction and Customer Retention –Understand what can go wrong –Focus on controllable issues –Manage customer expectations –Offer satisfaction guarantees –Make it easy for customers to complain –Create loyalty programs –Make customer satisfaction measurement an ongoing priority Customer Satisfaction: Retaining Customers Over the Long Term

5-23 Examples of Customer Satisfaction Guarantees Exhibit 5.7

5-24 Lifetime Value of a Customer (LTV) Average Order Value (AOV) Customer Acquisition/Retention Costs Customer Conversion Rate Customer Retention Rate Customer Attrition Rate Customer Recovery Rate Referrals Viral Marketing Customer Satisfaction Metrics