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

1

Copyright © 2002

All rights reserved.

CHAPTER 1CHAPTER 1

The Customer:

Key to Market Success

The Customer:

Key to Market Success

CUSTOMER BEHAVIOR: A MANAGERIAL PERSPECTIVECUSTOMER BEHAVIOR: A MANAGERIAL PERSPECTIVE

PART 1:PART 1:


PART 1:PART 1:

Copyright © 1999 by Thomas Southwestern. All rights reserved.

CHAPTER 1CHAPTER 1PART 1Customer Behavior: A Managerial Perspective

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The Importance of Understanding Customer BehaviorThe Importance of Understanding Customer Behavior

A Key to Success Satisfy customers Adopt the marketing concept Gain legitimacy in society



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Satisfying the CustomerSatisfying 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



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Adopting the Marketing ConceptAdopting 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.



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Gaining Legitimacy in SocietyGaining 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

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Customer OrientationCustomer 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

…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



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Competitive Advantages Through Customer SatisfactionCompetitive Advantages Through Customer Satisfaction

Repeat BuyingRepeat Buying

Higher Prices

Higher Prices

Loyalty in Crisis

Loyalty in Crisis

Word of Mouth

Word of Mouth

New Product Innovation

New Product Innovation

Corporate PerformanceCorporate

Performance

One-Stop shoppingOne-Stop shopping

GrowthGrowthProfitsProfits

Customer SatisfactionCustomer

Satisfaction



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Increased ProfitabilityIncreased Profitability

Advantages Cost efficiencies from repeat customers Price premiums from established customers Customer loyalty in corporate crisis



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Increased GrowthIncreased Growth

Advantages Increased word of mouth One-stop shopping New product innovations



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Creates Pride in EmployeesCreates 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



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Customers: Types, Roles,and BehaviorsCustomers: Types, Roles,and Behaviors

Customer Types Roles

Mental ActivitiesPhysical Activities Mental Activities

Physical Activities BusinessHouseholds (consumers)

Payers Users

Buyers



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Customer Behavior DomainCustomer Behavior Domain

HOUSEHOLD BUSINESS

SERVICES

PRODUCTSConsumer Products

Business

Product

Consumer

ServicesBusinessServices



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Three Roles of the CustomerThree Roles of the Customer

User

Payer

Buyer



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Reasons for Role SpecializationReasons 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



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Customer Needs and WantsCustomer 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



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Determinants of Needs and WantsDeterminants 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



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Matrix of Personal and Environmental CharacteristicsMatrix of Personal and Environmental Characteristics

Personal Characteristics

Environmental Characteristics

Physical Contextual

Physical1. 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)



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Market ValueMarket 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



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Classification of Market ValuesClassification of Market Values

Universal Values

Personal Values



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Matrix of Values and Customer RolesMatrix of Values and Customer Roles

CUSTOMER ROLES

User Payer Buyer

UNIVERSAL VALUES Performance Value Price Value Service Value

PERSONAL VALUES

Group specific

Individual-specific

Social value

Emotional value

Credit value

Financing value

Convenience value

Personalization value



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Characteristics of Customer ValueCharacteristics of Customer Value

Values are instrumentalValues are dynamicValues are hierarchicalDiversity of customer values increases with hierarchyValues are synergisticValues are role-specificValues vary across customers

Conceptual FrameworkConceptual Framework

Payer

UserBuyer

Determinants of Customer Behavior:Personal Factors and Market

EnvironmentChapter 2

Determinants of Customer Behavior:Personal Factors and Market

EnvironmentChapter 2

Customer Attitudes:Cognitive and Affective

Chapter 6

Customer Attitudes:Cognitive and Affective

Chapter 6

The Customeras PerceiverChapter 4

The Customeras PerceiverChapter 4

Customer Motivation:Needs, Emotions, and

PsychographicsChapter 5

Customer Motivation:Needs, Emotions, and

PsychographicsChapter 5

The Customer as Learner

Chapter 4

The Customer as Learner

Chapter 4

Trends in Determinants of Customer Behavior

Chapter 3

Trends in Determinants of Customer Behavior

Chapter 3

Individual Customer Decision Making

Chapter 8

Individual Customer Decision Making

Chapter 8

ResearchingCustomer Behavior

Chapter 7

ResearchingCustomer Behavior

Chapter 7

Group/Institution Customer Decision

Making; Household,Business and Government

Chapter 9

Group/Institution Customer Decision

Making; Household,Business and Government

Chapter 9

Customer Loyalty to Products, Brands

and StoresChapter 11

Customer Loyalty to Products, Brands

and StoresChapter 11

Relationship-based Buying

Chapter 10

Relationship-based Buying

Chapter 10

Online Customer Behavior

Chapter 12

Online Customer Behavior

Chapter 12

UNDERSTANDING CUSTOMER BEHAVIOR

UNDERSTANDING CUSTOMER BEHAVIOR

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CHAPTER 2CHAPTER 2

Determinants of Customer Behavior:

Personal Factors

and Market Environment

Determinants of Customer Behavior:

Personal Factors

and Market Environment


PART 1:PART 1:


PART 1:PART 1:



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FrameworkFramework

Payer

UserBuyer

Personal Context• Culture• Groups and Institutions• Personal Worth• Social Class

Personal Context• Culture• Groups and Institutions• Personal Worth• Social Class

Personal Traits• Genetics• Biogenics• Personality

Personal Traits• Genetics• Biogenics• Personality

Market Context• Economy• Government Policy• Technology

Market Context• Economy• Government Policy• Technology

Market Traits• Climate• Topography• Ecology

Market Traits• Climate• Topography• Ecology



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Two Broad ClassesTwo 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

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Personal FactorsPersonal Factors



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Personal TraitsPersonal Traits

Genetics

Biogenics

Race

Gender

Age

Personality



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Genetics: The Cards We Are Dealt at BirthGenetics: 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



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ResearchResearch

Research is in progress on genetics and DNA, seeking to discover secrets of the human condition and behaviorAdvances 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



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Genetics Affect Customer Needs and BehaviorGenetics Affect Customer Needs and Behavior

Four Factors Physiological differences Diseases and mental disorder Circadian rhythm Emotions and behavior



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Direct Effects of GeneticsDirect 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)



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Daily Cycle of ActivityDaily 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



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Human BehaviorHuman 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



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Birth Order MattersBirth 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



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BiogenicsBiogenics

Three biogenic characteristics that influence customer behavior: Race Gender Age



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RaceRace

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



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GenderGender

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



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AgeAge

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



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Chronological Age-based GroupingChronological 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



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Distribution of Online Buyers By AgeDistribution of Online Buyers By Age



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Customer PersonalityCustomer 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



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Behaviorism TheoryBehaviorism Theory

A person develops a pattern of behavioral responses because of the rewards and punishments offered by his or her environment



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Freudian TheoryFreudian Theory

Human personality is driven by both conscious and unconscious motivesThree 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



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Unconscious Tactics of the EgoUnconscious Tactics of the Ego

Aggression

Rationalization

Projection

Repression

Withdrawal

Regression



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Trait TheoryTrait Theory

A person is viewed as a composite of several personality traits

A personality trait is a consistent, characteristic way of behaving



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Personality of the Business CustomerPersonality of the Business Customer

Two personality traits of the “social styles” classification Assertiveness Responsiveness



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Classification of Personality Into Social StylesClassification 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

AS

SE

RT

IVE

NE

SS

LOW HIGH

HIGH

LOW

RESPONSIVENESS

AS

SE

RT

IVE

NE

SS



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Personal ContextPersonal Context

Culture

Institutions and groups

Personal worth

Social class



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CultureCulture

Enculturation Acculturation

Elements of Culture

Characteristics of CultureDimensions 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



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Institutions and GroupsInstitutions and Groups

Institutions More permanent groups with pervasive and

universal presence in society

Groups Two or more persons sharing a common

purpose



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Types of GroupsTypes of Groups

PRIMARY SECONDARY

• 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)

ME

MB

ER

SH

IPS

YM

BO

LIC



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Classification of Groups for Household CustomersClassification of Groups for Household Customers

TYPE OF INSTITUTIONS/GROUPS

INFORMAL FORMAL

CHOICE

Volunteer groups

Community

Friendship groups

Cultural heroes

School

Workplace

Fraternities/sororities

TYPE OF MEMBERSHIP

ASCRIBED OR ASSIGNED

Family

Relatives

Tribes

Religion

Prison



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Private-Public, Luxury-Necessity, Product-Brand InfluencesPrivate-Public, Luxury-Necessity, Product-Brand Influences

PUBLIC

PRODUCTBRAND

WEAK REFERENCEGROUP INFLUENCE (-)

STRONG REFERENCEGROUP 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 REFERENCEGROUP 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

NE

CE

SS

ITY

LU

XU

RY



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Personal WorthPersonal Worth

Three components of personal worth Income Wealth Borrowing power



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Social Class CharacteristicsSocial Class Characteristics

Rank ordering

Relative permanence

Intergenerational class mobility

Internal homogeneity

Distinct from income

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Market EnvironmentMarket Environment



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Two Broad ClassesTwo 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



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Market TraitsMarket Traits

Climate

Topography

Ecology



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ClimateClimate

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



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TopographyTopography

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



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EcologyEcology

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



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Market ContextMarket Context

Economy

Government policy

Technology



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EconomyEconomy

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



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Government PolicyGovernment Policy

Government policy comprises: Monetary policy Fiscal policy Public policy Facilitative infrastructure



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TechnologyTechnology

Technological breakthroughs can significantly change market behaviors and customer expectationsAvenues of impact Increased access to information Product innovation: new options More flexibility and control Customized products and services

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