MARKETING MANAGEMENT

Module 3:
Consumer Analysis
OUTLINE:
Why do we need to connect with customers?
1) Good marketing starts with strong customer
relationships Creating Long-term Loyalty
Relationships
2) To understand how consumers think, feel, and act;
and offer clear value to each and every target
consumer Analyzing Consumer Markets
3) Sellers need to understand business
organizations, in order to create and capture
value Analyzing Business Markets
 OUTLINE:
Why do we need to connect with
customers?
1) Good marketing starts with strong customer
relationships Creating Long-term Loyalty Relationships

2) To understand how consumers think, feel, and act;

and offer clear value to each and every target
consumer Analyzing Consumer Markets
3) Sellers need to understand business
organizations, in order to create and capture
value Analyzing Business Markets
Connect with Customers
 Connect with Customers
Successful marketing companies invert the chart to look like
Figure 5.1(b). At the top are customers; next in importance are
frontline people who meet, serve, and satisfy them; under them
are the middle managers, whose job is to support the frontline
people so they can serve customers well; and at the base is top
management, whose job is to hire and support good middle
managers.
5.1(b) to indicate that managers at every level must be
personally engaged in knowing, meeting, and serving customers.
Creating loyal customers is at the heart
of every business.
• Marketers must build:
Customer Perceived Value
Total Customer Satisfaction
Loyalty
Customer Perceived Value

Customers are more than ever

better informed and educated.
• They have tools to verify
companies’ product claims.
• They can seek for better
alternatives.
• They are value
maximizers.
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 monetary 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.
Customer-perceived value is thus based on the difference between
benefits the customer gets and costs he or she assumes for different
choices.
The marketer can increase the value of the offering by raising
economic, functional, or emotional benefits and/or reducing one or more
costs.
Customer Value
Managers must analyze their strengths and
weaknesses versus competition.
• Customer Value Analysis steps:
1. Identify attributes and benefits that customers value
2. Rate in terms of priority or importance
3. Compare with competitors’ attributes and benefits
4. Examine customer values in specific segments
5. Monitor customer values over time
Customer Value

Delivering a high customer value means

creating a compelling value proposition.
• A value proposition…
– Consists of all the benefits the company
promises to deliver
– Is more than the core positioning of the
offering
– A promise about the experience customers can
expect
Customer Satisfaction
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.
Customer assessments of product or service performance depend on many
factors, including the type of loyalty relationship the customer has with the
brand.
Consumers often form more favorable perceptions of a product with a
brand they already feel positive about. Research has also shown an
asymmetric effect of product performance and expectations on satisfaction.
The negative effect on customer satisfaction of failing to meet expectations
is disproportionally stronger than the positive effect of exceeding
expectations.
Customer Satisfaction

A product offer must meet customer expectations to generate

satisfaction.
• A customer-centered firm seeks to create high customer
satisfaction. (But this is not the ultimate goal.)
• The company must balance delivering high customer
satisfaction and delivering acceptable levels to other
stakeholders, given its total resources.
Customer Satisfaction
• Satisfaction also depends on product or service
quality.
• Higher levels of quality can better support higher
prices and lower costs.
• Quality is clearly the key to value creation and
customer satisfaction.
Monitoring Satisfaction

Many companies are systematically measuring how well they treat customers,
identifying the factors shaping satisfaction, and changing operations and
marketing as a result.

Wise firms measure customer satisfaction regularly because it is one key to

customer retention.

A highly satisfied customer generally stays loyal longer, buys more as the
company introduces new and upgraded 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.
Measurement Techniques

Periodic surveys can track customers’ overall satisfaction directly and ask
additional questions to measure repurchase intention, likelihood or willingness
to recommend the company and brand to others, and specific attribute or
benefit perceptions likely to be related to customer satisfaction.

The University of Michigan’s Claes Fornell has developed the American

Customer Satisfaction Index (ACSI) to measure consumers’ perceived
satisfaction with different firms, industries, economic sectors, and national
economies.

Research has shown a strong and consistent association between customer

satisfaction, as measured by ACSI, and firm financial performance in terms of
ROI, sales, long-term firm value (Tobin’s Q), and other metrics. Table 5.2
displays some of the 2014 ACSI leaders. “Marketing Insight: Net Promoter and
Customer Satisfaction” describes why some companies believe just one well-
designed question is all that is necessary to assess customer satisfaction.
Companies need to monitor their competitors’ performance too. They
can monitor their customer loss rate and contact those who have
stopped buying or who have switched to another supplier to find out
why.

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.
 Customer-Product Profitability Analysis
Ultimately, marketing is the art of attracting and keeping profitable
customers. Yet every company loses money on some of its customers. The well-
known 80–20 rule states that 80 percent or more of the company’s profits come
from the top 20 percent of its customers. Some cases may be more extreme—the
most profitable 20 percent of customers (on a per capita basis) may contribute as
much as 150 to 300 percent of profitability. The least profitable 10 to 20 percent,
on the other hand, can actually reduce profits between 50 and 200 percent per
account, with the middle 60 to 70 percent breaking even.29 The implication is that
a company could improve its profits by “firing” its worst customers.

Companies need to concern themselves with Return on Customer (ROC)

and how efficiently they create value from the customers and prospects
available.30 It’s not always the company’s largest customers who demand
considerable service and deep discounts or who yield the most profit. The smallest
customers pay full price and receive minimal service, but the costs of transacting
with them can reduce their profitability. Midsize customers who receive good service
and pay nearly full price are often the most profitable.
• Customer-Product Profitability Analysis:
Marketing is the art of attracting and keeping
profitable customers.
Customer profitability analysis (CPA) is best conducted with the tools of an
accounting technique called activity-based costing (ABC). ABC accounting tries
to identify the real costs associated with serving each customer—the costs of
products and services based on the resources they consume. The company estimates
all revenue coming from the customer, less all costs.

With ABC, the costs in a business-to-business setting should include the cost not only
of making and distributing the products and services but also of taking phone calls
from the customer, traveling to visit the customer, paying for entertainment and gifts
—all the company’s resources that go into serving that customer.

ABC also allocates indirect costs like clerical costs, office expenses, supplies, and so
on, to the activities that use them, rather than in some proportion to direct costs. Both
variable and overhead costs are tagged back to each customer.
Measuring Customer Lifetime Value :

Customer lifetime value (CLV) 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, applying the
appropriate discount rate (say, between 10 and 20 percent, depending on cost
of capital and risk attitudes). Lifetime value calculations for a product or
service can add up to tens of thousands of dollars or even run to six figures.
Many methods exist to measure CLV.

CLV calculations provide a formal quantitative framework for planning

customer investment and help marketers adopt a long-term perspective. One
challenge, however, is to arrive at reliable cost and revenue estimates.

Marketers who use CLV concepts must also take into account the short-term,
brand-building marketing activities that help increase customer loyalty.
 Customer Loyalty
Companies must use information wisely and
interact with their customers.
• To cultivate strong customer relationships,
companies must…
1. Manage customer relationships
2. Attract and retain customers
3. Build Loyalty
Cultivating Customer Relationships
Cultivating Customer Relationships :
The goal of customer relationship management
(CRM) is to maximize loyalty.
• CRM is a process that…
– Manages detailed information about
individuals
– Distinguishes customer “touch points”
– Enables companies to provide real-time
customer service
Cultivating Customer Relationships:
Companies can create stronger bonds with
customers by personalizing relationships.
• CRM can be practiced through…
 Personalized Marketing
–Creating brand relevance for each individual
 Customer Empowerment
– consumers as brand
– evangelists/ambassadors
 Recommendations from consumers
Cultivating Customer Relationships :
Attracting and retaining customers require companies
to manage various consumer levels.
• The different levels in a Marketing Funnel:
Behavioral Segmentation Breakdown
Cultivating Customer Relationships :

Winning companies improve their value through excellent

management of their customer base.
• Strategies in managing the customer base:
1. Reducing customer defection
2. Increasing company-customer engagement
3. Creating new offerings and opportunities
for existing customers
4. Managing low-profit customers
5. Focusing on high-profit customers
Cultivating Customer Relationships :
Creating a strong, tight connection to customers is the key to
long-term success.
•Building loyalty though…
 Understanding customer point of view
 Developing loyalty programs
 Creating customer databases
Cultivating Customer Relationships :
Database marketing helps companies in knowing more
about their target market.
• However, assumptions gathered from these
databases may not always hold true.
• Companies must proceed thoughtfully in how they
would use the information provided.
Customers are value maximizers.

• They form expectations of value and act on it.

• They will buy from the company that they perceive
has the highest customer- delivered value.
• Companies must cultivate strong customer
relationships to capture consumers and build loyalty.
 OUTLINE:
Why do we need to connect with
customers?
1) Good marketing starts with strong customer
relationships
Creating Long-term Loyalty Relationships
2) To understand how consumers think, feel, and act; and
offer clear value to each and every target consumer
Analyzing Consumer Markets
3) Sellers need to understand business organizations, in
order to create and capture value Analyzing Business
Markets
The aim of marketing is to meet & satisfy target’s
needs and wants (better than competitor).

• Marketers must understand:

 What influences consumer behavior
 Key psychological processes
 The buying decision process
Influences of consumer behavior 1:
Culture is the fundamental determinant of a
person’s wants and behavior.
• Values differ per country
• Subcultures exist
• Social classes
 Influences of consumer behavior 2:

Social factors also affect our buying behavior.

• Reference groups
• Family
• Social roles/status
Influences of consumer behavior 3:

Personal factors have a direct impact on consumer behavior.

• Age
• Occupation
• Personality
• Lifestyle and values
It’s important to understand how marketing stimulus affects
consumers’ purchase decision.
• Model of consumer behavior:
Key Psychological Process 1:

Motivation is when a need becomes aroused to a level of intensity

that drives us to act.
• 3 theories of human motivation:
1. Freud’s
2. Maslow’s
3. Herzberg’s
Freud’s Theory Sigmund Freud assumed the psychological forces shaping people’s
behavior are largely unconscious and that a person cannot fully understand his or her
own motivations. Someone who examines specific brands 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 lets 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
Simply Psychology Maslow's Hierarchy of Needs
Key Psychological Process:2

Perception is the process of how we interpret information to

create a meaningful picture of the world.
• Different perceptions of things result from:
Selective…
1. Selective Attention
2. Selective Distortion
3. Selective Retention
4. Subliminal Perception
 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. It’s
estimated that the average person may be exposed to more than 1,500 ads or
brand communications a day. Because we cannot possibly attend to all these, we screen
most stimuli out—a process called selective attention.

Selective attention means that marketers must work hard to attract consumers’
notice. The real challenge is to explain which stimuli people will notice.

Here are some findings:

1. People are more likely to notice stimuli that relate to a current need. A person who
is motivated to buy a smart phone
will notice smart phone ads and be less likely to notice non-phone-related ads.
2. People are more likely to notice stimuli they anticipate. You are more likely to
notice laptops than portable radios in a
computer store because you don’t expect the store to carry portable radios
SELECTIVE DISTORTION
Even noticed stimuli don’t always come across in the way the senders intended.
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.

For a stark demonstration of the power of consumer brand beliefs, consider that
in blind taste tests, one group of consumers samples a product without knowing
which brand it is while another group knows. Invariably, the groups have
different opinions, despite consuming exactly the same product.

Selective distortion can work to the advantage of marketers with strong brands
when consumers distort neutral or ambiguous brand information to make it more
positive. In other words, coffee may seem to taste better, a car may seem to drive
more smoothly, and the wait in a bank line may seem shorter, depending on the
brand.
SELECTIVE RETENTION
Most of us don’t remember much of the information to which we’re exposed,
but we do retain information that supports our attitudes and beliefs.

Because of selective retention, we’re likely to remember good points about

a product we like and forget good points about competing products.

Selective retention again works to the advantage of strong brands. It also

explains why marketers need to use repetition—to make sure their message is
not overlooked.
SUBLIMINAL PERCEPTION

The selective perception mechanisms require consumers’ active

engagement and thought. Subliminal perception has long fascinated
armchair marketers, who argue that marketers embed covert, subliminal
messages in ads or packaging.

Consumers are not consciously aware of them, yet they affect behavior.
Although it’s clear that mental processes include many subtle
subconscious effects, no evidence supports the notion that marketers can
systematically control consumers at that level, especially enough to
change strongly held or even moderately important beliefs.
Key Psychological Process 3:

Learning induces changes in our behavior arising

from experience.
• Learning is produced through the interplay of
drives, stimuli, cues, responses, and reinforcement.
• Marketers can thus build product demand by
associating it with strong drives, using motivational
cues, and providing positive reinforcement.
Key Psychological Process 4:

Emotions are involved when consumer response is not all

rational but invokes different feelings.

• Emotional marketing campaigns help build stronger

connections with consumers.
• People can relate more to the brand instead of just
associating it as a product.
Key Psychological Process 5:

Memory helps us create brand associations.

• Brand associations consists of all brand- related
thoughts, feelings, images, experiences, and so on that
become linked to the brand.
• Marketing can be a way of making sure that
consumers have positive brand experience and
knowledge.
 Smart companies know that they must understand
customers’ buying decision process.

• The 5-stage model of the Consumer Buying Process:

 Stage 1: Problem recognition

• Circumstances that trigger a particular need should be

identified.
• The process starts when the buyer
recognizes a problem or a need.
• Gathering information to identify these triggers
are needed to develop key marketing strategies.
Stage 2: Information search

Companies must strategize to get its brand into consumers’

awareness and choice sets.

• Consumers often search for limited amounts

of information.
• Effective information often comes from personal
or experiential sources, if not public sources that
are independent authorities.
Stage 3: Evaluation of alternatives

Current models of evaluation see consumers forming

judgments based on a conscious and rational basis.

• Some basic concepts to better understand the consumer

evaluation process:
1. Satisfy a need
2. Looking for certain benefits
3. Product as a bundle of attributes
Stage 4: Purchase Decision
A consumer may form an intention buy the most preferred
brand in a choice set.

•5 Sub-decisions:
1.Brand
2.Dealer
3.Quantity
4.Timing
5.Payment method
Stage 5: Post-purchase Decision
The Marketer’s job does not end with the
purchase.
• After purchase, marketers must monitor
post-purchase…
 Satisfaction
 Actions
 Uses and disposal
Consumers are constructive decision makers.
• Their decisions are influenced by contextual
influences.
• They often exhibit low involvement in their decisions.
• Thus, marketers must be well informed about consumer
behavior and their buying decision process.
 OUTLINE:

Why do we need to connect with customers?

1) Good marketing starts with strong customer
relationships Creating Long-term Loyalty Relationships

2) To understand how consumers think, feel, and act; and

offer clear value to each and every target consumer
Analyzing Consumer Markets

3) Sellers need to understand business organizations, in

order to create and capture value Analyzing Business
Markets
What is Organizational Buying?

Frederick E. Webster Jr. and Yoram Wind define

Organizational buying as the decision-making process
by which formal organizations establish the need for
purchased products and services and identify,
evaluate, and choose among alternative brands and
suppliers.
 Some of the world’s most valued brands
belong to business markets.
• Business organizations not only sell; they
also buy vast quantities of…
– raw materials
– supplies
– manufacturing components
– plant and equipment
– business services
Business markets differ from consumer
markets.
• Business markets have…
 Fewer and larger buys
 Closer customer relationship
 Professional purchasing
 Multiple buying influences.
 Multiple sales calls
 Derived demand
 Inelastic demand
 Fluctuating demand
 More geographically centered businesses
 Direct purchasing.
Buying Situations

The business buyer faces many decisions in making a

purchase. How many depends on the complexity of the
problem being solved, newness of the buying requirement,
number of people involved, and time required.
Three types of buying situations are the
straight rebuy,
modified rebuy,
and new task
Straight rebuy
In a straight rebuy, the purchasing department reordes items like office supplies and bulk
chemicals on a routine basis and chooses from suppliers on an approved list. The suppliers
make an effort to maintain product and service quality and often propose automatic
reordering systems to save time. “Out suppliers” attempt to offer something new or exploit
dissatisfaction with a current supplier. Their goal is to get a small order and then enlarge
their purchase share over time.
• Modified rebuy
The buyer in a modified rebuy wants to change product specifications, prices, delivery
requirements, or other terms. This usually requires additional participants on both sides.
The in-suppliers become nervous and want to protect the account. The out-suppliers see an
opportunity to propose a better offer to gain some business.
• New task
A new-task purchaser buys a product or service for the first time (an office building, a new
security system). The greater the cost or risk, the larger the number of participants, and the
greater their information gathering—the longer the time to a decision.
Participants in the Business Buying Process
1. Initiators—Users or others in the organization who request that something
be purchased.
2. Users—Those who will use the product or service. In many cases, the users
initiate the buying proposal and help define the product requirements.
3. Influencers—People who influence the buying decision, often by helping
define specifications and providing information for evaluating alternatives.
Technical people are particularly important influencers.
4. Deciders—People who decide on product requirements or on suppliers.
5.Approvers—People who authorize the proposed actions of deciders or
buyers.
6. Buyers—People who have formal authority to select the supplier and
arrange the purchase terms. Buyers may help shape product specifications, but
they play their major role in selecting vendors and negotiating. In more
complex purchases, buyers might include high-level managers.
7. Gatekeepers— People who have the power to prevent sellers or information
from reaching members of the buying center. For example, purchasing agents,
receptionists, and telephone operators may prevent salespersons from
contacting users or deciders.
Participants in the Business Buying Process
 Stages in the Buying Process

1. Problem recognition

2. General need description

3. Product specification

4. Supplier search

5. Proposal solicitation

6. Supplier selection

7. Order-routine specification

8. Performance review
 Cultivating the right relationships with
businesses is important for any holistic
marketing program.
• Business marketers must form strong
bonds with their customers.
• Some customers, however, may prefer a
transactional relationship.
CONCLUSION:
Why do we need to connect with
customers?
• Good marketing starts with…
 Understanding the target consumer
and
Knowing how to satisfy their needs and wants.