CHAPTER TWO
REVIEW OF LITERATURE
This chapter reviews the literature in 5 areas: (1) Marketing mix theory, (2)
Consumer behavior theory, (3) Buyer decision processes, (4) Cognitive and personal
biases in decision making, and (5) Relevant research.
2.1
MARKETING MIX THEORY
The four P’s marketing mix consists of price, place, product and promotion,
describing the position of a product in the market. Culliton (1948) wrote that a
marketing decision should be a result of something similar to a recipe that is the
origin of the marketing mix. McCarthy (1960) proposed the Four P’s theory which is
the most popular marketing concept, enumerated in many textbooks and classes.
The Marketing Mix model can be used by marketers as a tool to assist in
defining the marketing strategy. Marketing managers use this method to generate the
optimal response in the target market by blending 4 (or 5, or 7) variables in an optimal
way. It is important to understand that the Marketing Mix principles are controllable
variables. The Marketing Mix can be adjusted on a frequent basis to meet the
changing needs of the target group and the other dynamics of the marketing
environment. The 7-Ps or Extended Marketing Mix of Booms and Bitner is a
Marketing Strategy tool that expands the number of controllable variables from the
four in the original Marketing Mix Model to seven. The Traditional Marketing Mix
model was primarily directed and useful for tangible products. The 7-Ps model is
more useful for services industries and for knowledge-intensive environments.
Whilst there were 7Ps in the services marketing mix, which included the
traditional 4Ps plus Process, People and Physical Evidence, academics and experts
from the sector have recently added an 8th P (Lovelock & Wirtz, 2007, pp. 22-23).
Thus, the 8Ps of services marketing are defined as follows:
2.1.1
Price
The price is money that customer pays for service or product. It is
determined by various factors such as market share, competition, material costs,
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product desirability and customer satisfaction. The price may be increased or
decreased depending on the demand and supply in the market.
2.1.2
Place
Place is the location where product or service can be purchased. It is
often related to a sale channel, physical or virtual, such as a bank’s branches or a
website.
2.1.3
Product
Product or service can be mass produced or specifically manufactured.
For example, the hotel industry is generally a mass produced service; a car is a mass
produced product; a database application is a specific product.
2.1.4
Promotion
Promotion has four outstanding components – advertising, public relations,
word of mouth and point of sale (POS). It is marketers’ communications to consumers
that they may use in the market. Firstly, advertising includes any communication from
television, radio, internet, billboards, print media and cinema commercials for which
the advertiser has paid a fee to be included in the media. Secondly, public relations
efforts are indirectly paid for, and include sponsorship deals, exhibitions, conferences,
seminars or trade events. Thirdly, word of mouth is any informal communication
about product or service by ordinary individuals, satisfied customers or people
specifically engaged to create word of mouth.
2.1.5
People
An essential ingredient to any service provision is the use of
appropriate staff and people. Recruiting the right staff and training them appropriately
in the delivery of their service is essential if the organization wants to obtain a form of
competitive advantage. Consumers make judgments and deliver perceptions of the
service based on the employees they interact with. Staff should have the appropriate
interpersonal skills, aptitude, and service knowledge to provide the service that
consumers are paying for.
2.1.6
Process
Process refers to the systems used to assist the organization in
delivering the service. For example, Banks that send out Credit Cards automatically
when their customer’s old one has expired again require an efficient process to
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identify expiry dates and renewal. An efficient service that replaces old credit cards
will foster consumer loyalty and confidence in the company.
2.1.7
Physical Evidence
Physical evidence is the overall layout of the place i.e. how the entire
bank has been designed. It refers to all factors that help make the process much easier
and smoother. Within the new marketing mix structure, physical evidence refers to
whatever customers can see before purchasing. This can include the physical
environment, packaging, supporting collateral and anything else that helps in
presentation. Physical evidence as one of the components of the marketing mix is
most useful in selling and marketing services and intangible products. Physical
evidence within the marketing mix structure should be tied into trying to understand
the customer's perspective.
2.1.8
Productivity and Quality
Improving productivity is a requisite in cost management; but quality,
as defined by the customer, is essential for a service to differentiate itself from other
providers. (Lovelock & Wirtz, 2007). Productivity relates to how inputs are
transformed into outputs that are valued by customers, whereas quality refers to the
degree to which a service satisfies customers by meeting their needs, wants, and
expectations. Improving productivity is essential to keep costs under control, but
managers must beware of making inappropriate cuts in service levels that are resented
by customers. Service quality is essential for product differentiation and building
customer loyalty. However, investing in quality improvement without understanding
the tradeoff between incremental costs and incremental revenues may hurt
profitability.
2.2
CONSUMER BEHAVIOR THEORY
Consumer behavior is the study of how people buy, what they buy, when they
buy and why they buy. This theory attempts to explain the buyer decision making
process both individually and in groups. It studies characteristics of individual
consumers to explain customers’ needs. Moreover, it explains the effects of influences
such as family, friends, reference groups, and society in general. G.E. Belch and
M.A. Belch (2004) define consumer behavior as ‘the process and activities people
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engage in when searching for, selecting, purchasing, using, evaluating, and disposing
of products and services so as to satisfy their needs and desires.
A five-stage model of the consumer buying process (Kotler, 2003) explains
the basic model of consumer decision making according to Table 1.
Table 1. Basic Model of Consumer Buying Process
Stage
Brief description
Feeling
Problem
The consumer perceives a need and becomes
recognition
motivated to solve a problem.
Information
The consumer searches for information required Perception
search
to make a purchase decision.
Information
The consumer compares various brands and
Attitude
evaluation
products.
formation
Purchase decision
The consumer decides which brand to purchase.
Integration
Post-purchase
The consumer evaluates their purchase
Learning
evaluation
decision.
2.2.1
Motivation
Problem Recognition
When there is a difference between the actual stage and the desired
stage, the result is problem recognition. For examples, an item which is out of stock
may cause a customer to feel dissatisfied with a current service. Therefore, the
customer will find other products instead.
2.2.2
Information Search
When consumers have recognized a problem, they will search for more
information related to products/services that can help them. They will search for
information from internal and external sources, as explained by G. E. Belch and M. A.
Belch (2004).
Firstly, internal sources are associated with personal perception,
consumer attitude and experience. If the internal information is not sufficient,
consumers will search external sources for more information. Secondly, external
sources are related to public or commercial sources such as friends, family, and
commercial advertising.
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2.2.3
Information Evaluation
At this stage, consumers can analyze alternative products or services
that they researched in the previous stage. They evaluate functional and psychological
benefits that products or services can provide them. Consumers’ attitudes are
associated with the alternative evaluation stage, which is related to internal
psychological processes. Attitudes describe what people think and how they feel
about something.
2.2.4
Purchase Decision
After consumers have evaluated all alternatives, they are ready to make
decisions about whether to purchase products or services. Purchase intention is not
always an actual purchase, so the marketer must stimulate the consumers to act, by
means of strategies such as sales promotions, special discounts, or free premiums. The
relevant internal psychological strategy should be integrated to purchase decision
making.
2.2.5
Post-purchase Evaluation
The purchase is not the end of consumers’ buying products or services;
information after sales should also constitute feedback to the provider. The marketer
can analyze customers’ satisfaction, and whether they will re-purchase. Moreover,
this is a good opportunity to improve products or services.
2.3
BUYER DECISION PROCESSES
Buyer decision processes are the purchase decision made by consumers who
consider products or services before, during and after the purchase processes.
AIUAPR – Awareness, Interest, Understanding, Attitudes, Purchase and Repeat
purchase – explained by Mercer (2008) is a simple model explaining that consumers
cannot repeatedly purchase without the previous stages of creating products’ or
services’ awareness and convincing consumers to engage in trial use.
2.3.1
Awareness
The marketer should gain the attention of the potential customers to
become aware that the products or services exist before anything can happen. If the
customers never know of the products, they can not respond in any way.
2.3.2
Interest
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The message not only must grab customers’ attention, but it must be
interesting. Also, it must persuade customers to purchase products or services related
to their needs. Good messages clearly and meaningfully answer customers’ needs.
2.3.3
Understanding
Once interest is established, the prospective customers must be able to
appreciate that the offering may meet their needs. Advertising is one important tool to
achieve customer understanding.
2.3.4
Attitudes
The message must persuade audiences to hold a positive attitude
towards services or products they are interested in. The advertisement should focus on
the strength of services or products.
2.3.5
Purchase
While customers are considering the advertisement, they may feel the
above four stages – awareness, interest, understanding and attitudes – in a few
minutes. However, the purchase decision making may take more time because they
may compare information before making the purchase.
2.3.6
Repeat Purchase
The actual success is not only the first purchase but also the repeating
of it. How to ask consumers to re-purchase is a significant challenge for business.
This stage is the most difficult stage creating a customers’ loyalty to a brand.
2.4
COGNITIVE AND PERSONAL BIASES IN DECISION MAKING
It is normal that biases can occur during people’s decision making processes.
France (2008) explained some common cognitive biases as follows:
1.
Selective information: People tend to accept only information that
supports their conclusion but they refuse other facts that support different conclusions.
2.
Quick termination of search for more information: People tend to stop
searching for more information when they accept the first alternative that looks good.
3.
Inactivity: Some people are unwilling to change their thought despite
new evidence.
4.
Experiential limitation: Some people are unwilling to think beyond past
experiences or accept unfamiliar information.
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5.
Selective perception: Some people ignore information because it is not
immediately outstanding.
6.
Optimism: People tend to notice only positive situations.
7.
Recent information: People tend to pay attention on more recent
information and ignore other information.
8.
Repetition bias: People tend to believe what they have been informed
most often and items repeated from different sources.
9.
Anchoring: People’s decisions are overly influenced by initial
information that shapes their point of view of the next information.
10.
Group think: Some people follow group opinion.
11.
Source credibility bias: People tend to accept information by someone
they like and reject information from someone they dislike.
12.
Incremental decision making and escalating commitment: People tend to
continue a series of similar decisions, correcting themselves incrementally, as
opposed to zero-based decision making.
13.
Inconsistency: People are unwilling to apply the same decision criteria in
similar situations.
14.
Attribution asymmetry: People tend to declare their success are due to
their abilities and talents, but they point to their failures as bad luck and external
factors. On the other hand, they ascribe others’ success to good luck, and others’
failures to mistakes.
15.
Underestimating uncertainty: People tend to underestimate future
uncertainty because they believe they have more control over events than they do.
16.
Faulty generalizations: People tend to group people or objects together
because they need to simplify an extremely complex world. This may cause bias in
the decision making processes.
17.
Ascription of causality: People tend to conclude cause when the
evidence only suggests correlation. For example, just because birds fly to the
equatorial regions when the trees lose their leaves, it does not mean that the birds
migrate because the trees lose their leaves.
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2.5
RELEVANT RESEARCH
Previous research investigated the factors affecting consumers’ decision
making when buying products or services using factors such as product, price, place,
promotion etc.
Narumol Santhawaree (นฤมล สันธวารี, 2551) found that respondents evaluate
ATM usage in terms of service quality. For the financial service providers, it is
important to understand the attributes that are based on the customer evaluation;
whether they have a positive or negative effect on service quality. Financial service
providers need to learn the important aspects of customer self-service and how these
relate to their customers and the overall service level. In the study, it is apparent that
aspects of location, ease of use, speed and reliability need to be considered. Financial
services providers need to struggle for excellence in these aspects as well as be able
communicate their benefits. The result implies that the retail banks should be
concerned with ATM crime and ATM surcharges in the long run.
Rujira Laosuppermpul (2003) studied the degree of satisfaction with services
of the headquarters of Bank of Ayudhya. The respondents consisted of 200 customers
receiving services from the headquarters of the Bank of Ayudhya Public Company
Limited. The researcher used questionnaires to collect data. The findings were as
follows: 1) the customers of the bank are mostly female, aged between 31-40 years
old with a bachelor’s degree; 2) the researcher also indicated that a lot of customers
were satisfied with the level of services provided by the bank, including the security
system, the dress, the new technologies and the variety of services in financial
transactions; 3) some customers were dissatisfied with the bank officers because of
the low level of eagerness, immediate service provision and the lack of politeness.
The researcher’s study also showed that the level of education of the customers really
affected the level of satisfaction the customers had toward the services of the bank.
The study of Pramoch Rodchumras (1997) in “The Buying Behavior of
Consumers Towards the 7-eleven Enterprise in Bangkok Metropolitan” showed that
customers who frequent 7-eleven convenient stores in Bangkok were young people
with little or no salary. They shopped there because the shops were easily approached,
and not too crowded. The shops also provided necessary goods and food in daily life.
Women frequented 7-elevens more than men did.
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Another study was conducted by Supinda Thirawarapich (สุพินดา ธีรวราพิชญ,
2544). It was aimed at comparing the quality of service provided between Thai
Farmer Bank and Housing Bank at Siam Square branch. Parts of the results showed
that good service provision came from a positive attitude of the service providers
themselves. However, they needed to be more optimistic with their job and with their
customers as well. For this study, the focus is on how much the customers are
satisfied with its customer services. The outcome will be a useful and effective mirror
for the banks’ staff to assess themselves as to their effectiveness in dealing with
customers when any problem occurs in the branches. As a result, they can improve
their service provision afterwards in order to keep their jobs and help the banks
succeed.