1. MARKETING MANAGEMENT Creating Customer Value and Loyalty Buyer Behavior

2. 5-2 Loyalty A deeply held commitment to re-buy or re-patronize a preferred product or service in the future despite situational influences and marketing efforts having the potential to cause switching behavior.

3. 5-3 Measuring Satisfaction Periodic Surveys Customer Loss Rate Mystery Shoppers Monitor competitive performance

4. 5-4 Maximizing Customer Lifetime Value Customer Profitability Customer Equity Lifetime Value

5. 5-5 Figure 5.3 Customer-Product Profitability Analysis

6. 5-6 Estimating Lifetime Value Annual customer revenue: $500 Average number of loyal years: 20 Company profit margin: 10 Customer lifetime value: $1000

7. 5-7 Drivers of Customer Equity Value Equity Relationship Equity Brand Equity

8. 5-8 Framework for CRM Identify prospects and customers Differentiate customers by needs and value to company Interact to improve knowledge Customize for each customer

9. 5-9 CRM Strategies Reduce the rate of defection Increase longevity Enhance “share of wallet” Terminate low-profit customers Focus more effort on high-profit customers

10. 5-10 Table 5.1 Mass vs. One-to-One Marketing Mass Average customer Customer anonymity Standard product Mass production Mass distribution Mass advertising One-way message Economies of scale One-to-One Individual customer Customer profile Customized market offering Customized production Economies of scope Share of customer

11. 5-11 Customer Retention Acquisition of customers can cost 5 times more than retaining current customers. The average customer loses 10% of its customers each year. A 5% reduction to the customer defection rate can increase profits by 25% to 85%. The customer profit rate increases over the life of a retained customer.

12. 5-12 Describing Market Dynamics Permanent Capture Markets Simple Retention Markets Customer Migration Markets

13. 5-13 Customer Migration Model Where, p i =probability to return at time i Suppose p 1 =.3, p 2 =.2 p 3 =.15, and p 4 =.05

14. 5-14 Customer Migration Model JOURNAL OF INTERACTIVE MARKETING VOLUME 12 / NUMBER 1 / WINTER 1998

15. 5-15 Figure 5.4 The Customer- Development Process Prospects Suspects Disqualified First-time customers Repeat customers ClientsMembers Partners Ex-customers

16. 5-16 Building Loyalty Partnership Proactive Accountable Reactive Basic

17. 5-17 Figure 5.5 Levels of Relationship Marketing

18. 5-18 Reducing Customer Defection Define and measure retention rate. Distinguish causes of customer attrition. Estimate profit loss associated with loss of customers. Assess cost to reduce defection rate. Gather customer feedback.

19. 5-19 Forming Strong Customer Bonds Add financial benefits Add social benefits Add structural ties

20. 5-20 Financial Benefits

21. 5-21 Social Benefits

22. 5-22 Structured Tie

23. 5 - 23 Definitions Consumer buyer behavior refers to the buying behavior of final consumers – individuals and households who buy goods and services for personal consumption All of these final consumers combine to make up the consumer market

24. 5 - 24 Significant Differe nces between bra nds Complex buying behavior Low involvement Few Differences bet ween brands Dissonance-reduci ng buying behavior Habitual buying beh avior Variety-seeking buyin g behavior High involvement Types of Buying-Decision Behavior Four Types of buying behavior

25. 5 - 25 The Buyer Decision Process Post-purchase Behavior Purchase Decision Information Search Need Recog nition Evaluation of Alternatives

26. 5 - 26 The Buyer Decision Process Need recognition Information search Evaluation of alternatives Purchase decision Postpurchase behavior Needs can be triggered by:  Internal stimuli Normal needs become strong enough to drive behavior  External stimuli Advertisements Friends of friends Process Stages

27. 5 - 27 The Buyer Decision Process Need recognition Information search Evaluation of alternatives Purchase decision Postpurchase behavior Consumers exhibit heightened attention or actively search for information. Sources of information:  Personal  Commercial  Public  Experiential Word-of-mouth Process Stages

28. 5 - 28 The Buyer Decision Process Need recognition Information search Evaluation of alternatives Purchase decision Postpurchase behavior Evaluation procedure depends on the consumer and the buying situation. Most buyers evaluate multiple attributes, each of which is weighted differently. At the end of the evaluation stage, purchase intentions are formed. Process Stages

29. 5 - 29 We have, so far, been talking about uni- dimensional scales – even if they use several items there is only one, underlying dimension of concern (which is why we test for reliability). But, attitude scales are a different sort of unidimensional scale… We have, so far, been talking about uni- dimensional scales – even if they use several items there is only one, underlying dimension of concern (which is why we test for reliability). But, attitude scales are a different sort of unidimensional scale… An attitude is composed of a bundle of perceptions about attributes, that all sum to an overall attitude, or impression Measuring attitude…

30. 5 - 30 She’s really cute! She’s not that bright, though Her Mother scares me I want to date her date her She would be a good companion Overall attitude Overall attitude Attitudes are a bundle of +ve and –ve perceptions about attributes, benefits and values; they have cognitive, affective and behavioral aspects She has great legs! Measuring attitude…

31. 5 - 31 Physical beauty Score Girl1 Girl2 Lifestyle Personality 6 6 6 6 1 1 Likert 1-7 Likert 1-7 1 1 4 4 6 6 You are so lucky! You have two girls (or boys if you are offended) to compare 11 13 Total

32. 5 - 32 Note that there are two dimensions to every attitude scale, weight and scale. E.g., Physical beauty Importance Score Total Lifestyle Personality Constant sum, 10 Constant sum, 10

33. 5 - 33 Physical beauty Importance Girl1 Girl2 Total Lifestyle Personality 5 5 3 3 2 2 You want to choose a girl to go out and have some fun with

34. 5 - 34 Physical beauty Importance Girl1 Girl2 Total Lifestyle Personality 5 5 3 3 2 2 For Your Date 18 5 5 30 1 1 6 6 6 6 4 4 6 6 1 1 12 2 2 Girl1 Girl2 Total 29 50 11 13

35. 5 - 35 Physical beauty Importance Girl1 Girl2 Total Lifestyle Personality 3 3 2 2 5 5 You had enough fun. Now you want to find a girl to marry and feel home with her. New weight maybe? New weight maybe?

36. 5 - 36 Physical beauty Importance Girl1 Girl2 Total Lifestyle Personality 2 2 3 3 5 5 You had enough fun. Now you want to find a girl to marry and feel home with her. 18 2 2 12 1 1 6 6 6 6 4 4 6 6 1 1 5 5 30 Girl1 Girl2 Total 44 35 11 13

37. 5 - 37 Who’s Your Girl Now! Note: a tiny improvement in the importance score (weight) results in a huge change in o/all attitude Note: a tiny improvement in the importance score (weight) results in a huge change in o/all attitude

38. 5 - 38 The Buyer Decision Process Need recognition Information search Evaluation of alternatives Purchase decision Postpurchase behavior Two factors intercede between purchase intentions and the actual decision:  Attitudes of others  Unexpected situational factors Process Stages Goal 3: Understand types of buying decisions and stages in the process

39. 5 - 39 The Buyer Decision Process Need recognition Information search Evaluation of alternatives Purchase decision Postpurchase behavior Satisfaction is important:  Delighted consumers engage in positive word- of-mouth.  Unhappy customers tell on average 11 other people.  It costs more to attract a new customer than it does to retain an existing customer. Cognitive dissonance is common Process Stages Goal 3: Understand types of buying decisions and stages in the process

40. 5 - 40 Buyer Decision Process for New Products New Products  Good, service or idea that is perceived by customers as new. Stages in the Adoption Process  Marketers should help consumers move through these stages. Goal 4: Comprehend the diffusion & adoption process for new products

41. 5 - 41 Stages in the Adoption Process Buyer Decision Process for New Products Awareness Evaluation Interest Trial Adoption Goal 4: Comprehend the diffusion & adoption process for new products

42. 5 - 42 Stages in the Adoption Process Awareness Interest Evaluation Trial Adoption Buyer Decision Process for New Products

43. 5 - 43 Buyer Decision Process for New Products Individual Differences in Innovativeness  Consumers can be classified into five adopter categories, each of which behaves differently toward new products. Product Characteristics and Adoption  Five product characteristics influence the adoption rate. Goal 4: Comprehend the diffusion & adoption process for new products

44. 5 - 44 Adopter Categories Buyer Decision Process for New Products Percentage of Adopters Time of Adoption of Innovations Early Late Innovators Early Adopters Early Majority 2.5% 13.5% 34% 16% Laggards Late Majority

45. 5 - 45 Product Characteristics Divisibility Can the innovation be used on a trial basis? Divisibility Can the innovation be used on a trial basis? Complexity Is the innovation difficult to understand or use? Complexity Is the innovation difficult to understand or use? Communicability Can results be easily observed or described to others? Communicability Can results be easily observed or described to others? Compatibility Does the innovation fit the values and experience of the target market? Compatibility Does the innovation fit the values and experience of the target market? Relative Adv antage Is the innovation superior to existin g products? Relative Adv antage Is the innovation superior to existin g products? Buyer Decision Process for New Products

46. Business Markets and Business Buyer Behavior Chapter 6

47. Definition Business Buyer Behavior:  The buying behavior of organizations that buy goods and services for use in the production of other products and services that are sold, rented, or supplied to others.  Also included are retailing and wholesaling firms that acquire goods for the purpose of reselling or renting them to others at a profit. Goal 1: Define the business market

48.  Sales in the business market far exceed sales in consumer markets.  Business markets differ from consumer markets in many ways. Marketing structure and demand Nature of the buying unit Types of decisions and the decision process Characteristics of Business Markets Goal 1: Define the business market

49. Business Markets Characteristics of Business Markets

50. Business Markets Compared to consumer markets:  Business markets have fewer but larger customers  Business customers are more geographically concentrated  Demand is different Demand is derived Demand is price inelastic Demand fluctuates moreCharacteristics Goal 1: Define the business market Marketing Structure and Demand Nature of the Buying Unit Types of Decisions and the Decision Process

51. Business Markets Marketing Structure and Demand Nature of the Buying Unit Types of Decisions and the Decision Process Compared to consumer purchases:  Involve more buyers in the decision process  More professional purchasing effort Characteristics Goal 1: Define the business market

52. Business Markets Marketing Structure and Demand Nature of the Buying Unit Types of Decisions and the Decision Process Compared to consumer purchases  More complex buying decisions  The buying process is more formalized  Buyers and sellers work more closely together and build long-term relationships Goal 1: Define the business market Characteristics

53. Major Types of Buying Situations  Straight rebuy Reordering without modification  Modified rebuy Requires modification to prior purchase  New task First-time purchase Business Buyer Behavior Goal 1: Define the business market

54. Business Buyer Behavior Participants in the Business Buying Process Buying center is all of the individuals and units that participate in the business decision-making process  Users  Influencers  Buyers  Deciders  Gatekeepers

55. Business Buyer Behavior Participants in the Business Buying Process Buying center provides a major challenge Who participates in the process Their relative authority What evaluation criteria each participant uses Informal participants

56. Business Buyer Behavior Participants in the Business Buying Process Users are those that will use the product or service Influencers help define specifications and provide information for evaluating alternatives Buyers have formal authority to select the supplier and arrange terms of purchase Deciders have formal or informal power to select and approve final suppliers Gatekeepers control the flow of information

57. Business Buyer Behavior Major Influences on Business Buyers

58. Business Buyer Behavior The Buying Process

59. Business Buyer Behavior The Buying Process Problem recognition occurs when someone in the company recognizes a problem or need Internal stimuli  Need for new product or production equipment External stimuli  Idea from a trade show or advertising

60. Business Buyer Behavior The Buying Process General need description describes the characteristics and quantity of the needed item Product specification describes the technical criteria Value analysis is an approach to cost reduction where components are studied to determine if they can be redesigned, standardized, or made with less costly methods of production

61. Business Buyer Behavior The Buying Process Supplier search involves compiling a list of qualified suppliers Proposal solicitation is the process of requesting proposals from qualified suppliers

62. Business Buyer Behavior The Buying Process Supplier selection is the process when the buying center creates a list of desired supplier attributes and negotiates with preferred suppliers for favorable terms and conditions Order-routine specifications is the final order with the chosen supplier and lists all of the specifications and terms of the purchase

63. Business Buyer Behavior The Buying Process Performance review involves a critique of supplier performance to the purchase terms