INTRODUCTION TO CONSUMER PSYCHOLOGY:Customer Value, Perceived Value

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Consumer Psychology (PSY - 514)

Lesson 04

INTRODUCTION TO CONSUMER PSYCHOLOGY

(CUSTOMER VALUE, SATISFACTION AND RETENTION)

OBJECTIVES:

o Understanding the three drivers of Marketing Concept

Customer Value

Customer Satisfaction

Customer Retention

1. Development of Marketing Approaches

Since its emergence in 1950's many companies have successfully adopted Marketing Concept. Result is extremely

competitive markets. There are more products in more shapes and sizes targeting many different consumer

segments.

Digital Revolution in 1990's enabled marketers to offer even more products and services and distribute them

widely while reducing the costs and barriers of entering into many industries. It has accelerated the rate at which

new competition enters market and has also speeded up the rate at which successful targeting, segmentation and

positioning approaches must be up-dated or changed. Savvy marketers know they must outperform competitors

and achieve full profit potential from each and every customer.

To do this they must make customer the core of company's organizational culture across all departments. Every

employee must view customer as part of customer relationship and not as part of customer transaction. So in the

traditional Marketing Concept there has been a development from transactional approach to marketing to

relationship perspective of marketing.

Transactional to Relationship Marketing

Transactional

Relationship

Relationship-building

One-off

Investment in customers

Investment in products

Customer analysis

Market Segmentation

Long-term profit

Short-term profit

2. Three Drivers of Successful Customer Relationship

Three drivers of successful relationship with customer are:

Customer Value

High level of Customer Satisfaction

Building a structure for Customer Retention

Consumer Psychology (PSY - 514)

1. Customer Value

Customer Value is long-existing concept that emerged from ancient trade practices.

Value: "satisfaction of customer requirements at the lowest total cost of ownership, acquisition and use "

Value has Relative worth or importance

Customer Value is the ratio between the customers's perceived benefits (economic, functional and psychological)

and the resources (monetary, time, effort, psychological) used to obtain those benefits

Value-Driven Marketing

Value-Driven Marketing Strategies Assist in 10 Areas:

1. Understanding customer choices (what kinds of products and features are important to customer? Are the

products designed keeping in view the choices of the customers)

2. Identifying customer segments (what are the specific needs of customers in a particular segment, which

means understanding the common needs of consumers in particular groups)

3. Increasing their competitive options (Means that we add features in the product that would give some

competitive advantage to consumers compared to the competitors)

4. Avoiding price wars (providing value in product and keeping the price low)

5. Improving services quality (add additional services that would not let the customers go to another brand )

6. Strengthening communications (maintaining a constant touch with consumers)

7. Focusing on what is meaningful to customers (concentrating on the perceived needs and associating the

product effectively with the satisfaction of a perceived need)

8. Building customer loyalty (concentrating on the relationship dimension and developing loyalty of the

customer with the product)

9. Improving brand success (using all the handles effectively to improve brand success)

10. Developing strong customer brand success and relationships

Value Proposition

Providing superior customer value requires the organization to do a better job of anticipating and reacting to the

customers needs than the competition does. It is important to understand customer value from the customer's

point of view. The term Unique Selling Proposition is now being widely replaced by the term Value Proposition.

For example notice the following value propositions:

Car manufacturing company:

Zero defects in manufacturing, and superior and personalized customer service

Consumer Psychology (PSY - 514)

PERSONAL COMPUTER MANUFACTURING COMPANY:

Customized PC systems assembled speedily and sold at uniform prices

INTERNATIONAL FAST FOOD CHAIN:

Core Uniform Standards world wide quality, service, cleanliness and value

The Value Creating Organizations:

Organizations (along with individual employees) should be seen as value-creating entities. Value-creating

organizations solve individual customer problems. A strong competitive edge can be gained by consistently

providing superior customer value. In order to create and deliver superior customer value organizations must be

strong in both purpose and process.

2. Customer Satisfaction

Individual's perception of the performance of the product or service in relation to his/her expectations is defined

as Customer Satisfaction.

Customer whose experience falls below expectations will be dissatisfied

Customer whose experience matches the expectations will be satisfied

Customer whose experience exceeds expectations will be delighted

Perceived Value

Customers evaluate experiences as:

Dissatisfaction

- experience

Satisfaction

0 neutral experience

High satisfaction

+ positive experience

Such assessments impact future purchase decisions and ongoing relationships with organizations

Customer Types

Levels of customer satisfaction may be linked together with customer behavior to identify five customer types:

Loyalists: Completely satisfied customers who keep purchasing

Apostles: Customers whose experiences exceed their expectations and who provide very positive word of

mouth

Defectors: Customers who feel neutral or merely satisfied and are likely to stop business with the company

Terrorists: Customers who have negative experience with the company and who spread negative word of

mouth

Mercenaries: Customers who are very satisfied but who have no real loyalty to the company and may defect

because of low price elsewhere or on impulse

Researches propose that companies should strive to create apostles, raise the satisfaction level of defectors and

turn them into loyalists, avoid having terrorists or hostages and reduce the number of mercenaries.

3. Customer Retention

The overall objective of providing value to customers continuously and more effectively than the competition is to

have highly satisfied customers. Even more than that is to have highly delighted customers. So that it is in the best

interest of the customers to stay with the company rather than to switch to another company

The modern day sales environment is characterized by:

Very few transaction oriented sales groups

Sales territories are getting smaller

Customer replacement is expensive

Consumer Psychology (PSY - 514)

The above factors make it imperative for a company to retain their existing customers.

Customer retention makes it in the best interest of customers to stay with the company rather than switch to another company

Why Customer Retention:

Customer retention is important because it is always more expensive to win new customers than to retain the

existing ones.

Loyal customers:

o Are less price sensitive

o Buy more products

o Pay less attention to competitors advertising

o Spread positive word of mouth

Selective Relationships:

Marketers who designate increasing customer retention rates as strategic corporate goals must also recognize that

all customers are not equal. Sophisticated marketers build selective relationships with their customers based on

where their customers rank with reference to profitability rather than merely striving for customer retention.

Selective relationships are built with the customers based upon their respective profitability

Customer Profitability Focused Marketing

A consumer retention savvy company closely monitors its customers consumption volume and patterns and

establishes tiers of customers according to their profitability levels and develops distinct strategies towards each

group of customers

Customers who have received and purchased several of company's products must receive extensive and expedited

customer services.

Classifying Customers @ Profitability:

Classifying customers according to profitability level goes beyond traditional segmentation methods that subdivide

consumers on the basis of demographic, socio-cultural, or behavioral characteristics. Customer Profitability

Focused Marketing tracks costs and revenues of individual customers and then categorizes them into tiers based

upon consumption behaviors that are specific to the company's offerings.

A customer pyramid categorizes consumers into following tiers:

PLATINUM TIER

Heavy users who are not price sensitive and who are willing to try new offerings

GOLD TIER:

Heavy users but price sensitive and may buy from multiple providers

IRON TIER:

Low spending volume

LEAD TIER:

Customers who actually cost the company by asking for more attention, thus tying up the company's resources

and spreading negative word of mouth

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