Marketing Management
4.
Czinkota and Kotabe:
Understanding the Buyer
Understanding Customers
Perceptions in Marketing 1.
Major Issues
1.
2.
3.
4.
Marketing Myopia (Levitt): when marketers think that
their own perceptions represent customer perceptions
as well.
Communicating product benefits: helping customers
to develop their own opinions. That’s why advertising
is seen by many as the narrowly defined “marketing”
Perceptions are highly selective and, due to that
selectivity, firms may lose a great many potential
customers
Customers may attach high perceived values to
products that do not provide such real values
Perceptions in Marketing 2.
Selectivity
Stimulus - a television commercial
SELECTIVE
EXPOSURE
Consumer is
exposed to the
ad or not.
SELECTIVE
ATTENTION
Paying attention
to the ad
Loss of
potential
customers who
didn’t see or
hear the ad
Loss of
potential
customers who
didn’t pay
attention
SELECTIVE
COMPREHENSION
SELECTIVE
RETENTION
Understanding the ad
Remembering
the ad?
Loss of
potential
customers who
misunderstood
the ad
Loss of
potential
customers who
didn’t
remember the
ad
Perceptions in Marketing 3.
Improving Perceived Value
Customer-focus: providing product features that are
communicated and perceived by customers as “benefits”
Ex: your new fridge will easily hold a watermelon…
Benefits = Product + Service + Brand benefits
Customer Value = Customer Benefits / Purchase Costs
Perceived Value = Perceived Benefits / Perceived Costs
Estimating Customer Perceptions:
Relative Value (RV)
The Meaning of Relative Value (RV)





Positive RV: strong competitive position for the
product / brand
Around Zero RV: above-average benefits are offset
by above-average price or vice versa
Negative RV: weak competitive position for the
product / brand
Comparing RVs with competitors: Value Maps
Consumer may also seek and obtain this kind of
information easily (ex: Consumer Reports)
A VALUE-MAP for TOASTERS
Buying Process
Problem or need recognition
Information search
Evaluation of alternatives
Purchase decision
Postpurchase behavior
Buying Process
Problem or need
recognition


Consumer recognizes a need
Ex: Consumer recognizes that he needs to upgrade his
computer. He wants faster processing, more memory,
and several other features (benefits).
Buying Process
Information
Search


Consumer seeks out information to fulfill the need.
Ex: Consumer searches through PC World and other
magazines for information on computers.
Buying Process
Evaluation of
Alternatives


Consumer evaluates the options that may fulfill his
needs.
Ex: Consumer selects several different brands and
models of computers to consider and to evaluate them.
Buying Process
Purchase
Decision


Consumer decides which product or brand to purchase.
Ex: Consumer decides to buy a Dell Laptop on the
Internet.
Step 3 and 4: How Do Consumers Make
the Actual Decision?
(A) Compensatory process: evaluating combinations of product
benefits (compensating - / with +)
(B) Non-Compensatory processes:
1.
Conjunctive rule: all benefits must exceed a minimum level
of expectations
2.
Disjunctive rule: at least one, key benefit must exceed a
minimum level of expectations
3.
Lexicographic rule: ranking the benefits and buying the
best brand at the most important benefits, if there is a tie,
go to the 2nd benefit…etc.
4.
Elimination rule: eliminating brands that do not make a
cutoff level at the most important benefit, then go to the 2nd
most important benefits…etc.
Buying Process
Post-Purchase
Behavior



Consumer will use the product and evaluate his or her
decision.
Cognitive dissonance: post-purchase tension resulting
from a poor decision. We tend to justify our decisions
and seek supportive information only
Ex: Consumer decides Dell brand was a good choice.
Customer Retention Tree:
What % of Our Customers Will Buy Our
Product Again?
Group 1
Group 2
Group 3
Customer Retention Rate (CRR): An Example
Total current customer base: 100,000
Satisfied: 70%
100 x .70 = 70,000 retained
Dissatisfied: 30%
100 x .30 = 30,000 (unknown)
Dissatisfied (30%) + Complained (10%) + Retained (80%):
That is = .30 x .10 x .80 = .024 = 2.4% of the total
.024 x 100,000 = 2,400 customers also retained
Dissatisfied (30%) + Did Not Complain (90%) + Retained (10%)
That is = .30 x .90 x .10 = .027 = 2.7% of the total
.027 x 100,000 = 2,700 customers also retained
Total customers retained: 70,000 + 2,400 + 2,700 = 75,100
customers
CUSTOMER RETENTION RATE: CR = 75,100 / 100,000 = .751
The CRR is 75.1%
Customer Life Expectancy (N)
Customers are lifetime partners in relationship marketing
Customer Life: The duration of business relationship with an
average customer.
 N = 1 / (1 – CRR)
 The length of “N” is strongly influenced by the product
category (e.g., bananas vs. computer games vs. medicine)
 Higher customer satisfaction higher CRR  higher
customer life expectancy (N)
In the previous example:
CRR = .751
N = 1 / (1 - CR) = 1 / (1 - .751) = 1/ .252 = 4 years
When the given firm is able to improve its CRR up to 80%
CRR = .80
N = 1 / (1 - CR) = 1 / (1- .80) = 1 / .2 = 5 years
 So, a 5% improvement in the CRR results in a 20% increase
in the average customer life expectancy
Customer Lifetime Value (CLV)




CLV shows the current value of average cash flows from
an average customer during the average length of a
business relationship
Interaction of Finance – Accounting - Marketing
Determines how much a firm could invest in individual
customer relationships
Note: Spinners are customers who take advantage of
favorable business deals without any brand loyalty at all.
Firms want to minimize marketing expenditures on
“spinners (e.g., phone companies)
Estimating CLV
1.
2.
3.
4.
5.
6.
Present Value of average sales revenues per
customer ($)
Lifetime (N)
Average profit margin of the company (%)
CLV = $ x N x %
Rough estimate, but useful in prevention of
overspending on customers
Note: the average revenues are to be counted at
their current value, that means using the Present
Value formulas from Finance