Most important components that affect to the buying behavior of a consumer

Most important components that affect to the buying behavior of a consumer

There are many major factors that affect consumer buying decision. The major components affecting consumer buying decisions are as follows:

A. Economic Factors: Buying decision primarily depends upon the several economic factors. They are as follows:
  1. Personal income: The ability of the consumers to pay money depends upon the level of their personal income. The higher the level of income, the higher will be the purchasing power and the lower the income, the lower will be the purchasing power.
  2. Income of other members of the family: In a joint family like Nepalese societies, change in income of one family may affect the buying capacity of another member of the same family.
  3. Expected future income: Expectation of future income determines the buying behavior of the consumer.
  4. Liquid assets: When a consumer posses adequate liquid assets, he will be able and willing to spend more on goods and services although his regular income is minimum. Bank balance, short term bank deposit, share, Government bonds, etc. are the examples of consumer liquid assets.
  5. Credit facility: If adequate credit facility is available to the consumer, he will tend to spend more on goods and services although his regular income is low. Refrigerators, cars, scooters and TV, washing machine are sold on an installment basis. Cellular phones are also provided on installment basis.
B. Demographic Factors: Buying decision is affected and determined by demographic factors also. They include the following factors:
  1. Age and life cycle stage: Consumer buys different goods and services over their life time. Consumption is also shaped by the stage of the family life cycle. For instance, a young person is usually fashion conscious, while a middle-aged person is usually status conscious.
  2. Occupation: A person’s buying behavioral pattern is also influenced by his occupation. For example, a company president will buy expensive suit, credit card membership etc.
  3. Gender (Sex): The product needs of male and a female significantly differ.
  4. Life style: Life style is defined as the patterns in which people live and spend time and money. Life style is concerned with the overt actions and behavior of consumers. The life-style categories are different from one person to the other.
C. Socio-cultural Factors:
a) Social factors: The major social factors that affect consumer behavior are as follows: 
  1. Reference group: It is a relatively small social group to which person belongs or aspires to belong and that provide guides to acceptable beliefs, values, attitudes and behavior. Well known athletes, players, musicians, actors, and professionally successful people are reference groups. They influence product and brand choice.
  2. Family: It is also considered as one of the strongest sources of group influence for the individual consumer. The joint family is the most common form family system in Nepal. From the marketers point of view the decision making role in the joint family system is being played by the oldest member of the family.
  3. Roles and status: A person participates in many groups throughout the life. The person’s position in each group can be defined in terms of roles and status. A role consists of activities that a person is expected to perform according to the persons around him. Each role carries a status. A manager has more status than a salesman. Marketers are aware of status symbol potential of products and brands. However, status symbol varies for social classes and also geographically. On the basis of roles and status marketers target their product.
b) Cultural Factors: The major cultural factors that affect consumer’s behavior are as follows:
  1. Culture: Culture is an important determinant of human behavior in the society. Marketers need to understand the major characteristics of culture such as: cultural values keep on changing through the passage of time and they are shared by the society as a whole.
  2. Sub-culture: Sub-cultures include nationality, ethnic group and geographical regions. Many sub cultures make up important market segments and marketers often design product and marketing programmes tailored to their needs. They influence food preferences, clothing choices, recreation etc.
  3. Social class: It is identified as relatively permanent homogeneous group of people having certain identifiable characteristics. There are three types of social classes:
    1. High class
    2. Middle class
    3. Lower class
The marketer has to study the behavioral patterns of these classes so as to formulate his marketing strategy and promotional communication.

Patterns of Target Market Selection

Patterns of Target Market Selection

After evaluating the segments on the basis of segment potential, competitor’s position and potential goal and objective achievement, the firm can select the segment that will be the target market(s). The firm can consider five patterns of target market selection. They are as follows: 

1. Single segment concentration: In the simplest case, the firm selects a single segment. It is also called as concentrated marketing (see following figure)
Single Segment Concentration
Through single segment concentration strategy, the firm achieves a strong market position in the segment owing to its greater knowledge of the segment’s needs and the special reputation it gains. Furthermore, the firm enjoys operating economies through specializing its production, distribution and promotion. As it captures leadership in the segment, the firm can earn a high return on its investment. At the same time, concentrated marketing involves higher than normal risks. The particular market segment can turn bitter.

2. Selective specialization: In this strategy, the firm selects a number of segments (see following figure), each objectively attractive and appropriate, given the firm’s objectives and resources. There may be little or no synergy between segments but each segment promises to be a money maker.
Selective Specialization
This strategy has the advantage of diversifying the firm’s risk. Even if one segment becomes unattractive, the firm can continue to earn money in other segments.

3. Product specialization: The firm makes a certain product that it sells to several segments (see following figure). An example would be a microscope manufacturer who sells to university, government, and commercial laboratories. The firm makes different microscopes for the different customer groups and builds a strong reputation in the specific product area. The downside risk is that the product may be supplanted by an entirely new technology.
Product Specialization
4. Market specialization: The firm concentrates on serving many needs of particular customer group (see following figure). An example would be a firm that sells an assortment of products only to university laboratories. The firm gains a strong reputation in serving this customer group and becomes a channel for addition products the customer group can use. The downside risk is that the customer group may suffer budget cuts.
Market Specialization
5. Full market coverage: When a company decides to enter all or at least most segments, full coverage market segmentations is used. This is a high sales strategy, since greater penetration into each segment is combined with broad coverage of a total market (see following figure).
Full Market Coverage
Extensive resources are required to implement the strategy because it affords limited opportunity for economies of scale. Full coverage market segmentation is therefore most likely to be adopted by a large organization.

6. Niche marketing: The niches are the market segment that has been neglected by large organizations. Market niches are identified by dividing the market segments into sub-segments or by identifying customer groups whose needs have not been met by the large organizations.
Niche Marketing
Many companies succeed by producing a specialized product aimed at a much focused segment of market (or ‘niche’). In this pattern an organization concentrates on niche market segments to exploit market opportunities.

Organizational Buyer and Its Process

Organizational Buyer 

Organizations make purchase decision in order to satisfy their goods, as do the final consumers. But, the goals differ. Organizations have goals of producing goods or services. Organizational buying is the decisions making process by which organizations establish the need for purchase of product and services, and identify, evaluate and choose among alternative brands and suppliers. Thus, organizational buying behavior is a process by which company/organization establishes a need for purchasing products and chooses among competing brands and suppliers. 
According to Pride and Ferrell –“Organizational buying behavior refers to purchase behavior of producers, government units, institutions and resellers.”
According to Bennett, Webster and Wind –“Organizational buying behavior is the decision-making process by which a buying group establishes the need for goods and services and identifies, evaluates, and chooses among alternative brands and suppliers.” 
In conclusion, organizational buying behavior refers to the buying behavior of organizations that buy for business use, resell or to make other products. Organizations consist of business, industries, retailers, government and non-government organizations. Marketing management needs to understand the organizational buyer behavior.

Organizational Buying Process 

Organizational buying process involves six stages. They are as follows: 
  1. Problem recognition: The buying starts with problem recognition. In this stage, one or more individuals in the organization recognize that a problem or a need exists. Problem recognition may arise under several circumstances, such as when a new product is being introduced or an existing product is being modified or when a machine break down occurs. Individuals in the buying center, such as users, influencers and buyers may be involved in the problem recognition stage. 
  2. Developing product specifications: This stage consists of determining what will be required to solve the specific problem. In this stage, several individuals in the organization, such as technical personnel, users, deciders and buyers participate jointly in developing specifications about the product needs of the organization. 
  3. Search for products and suppliers: The third stage involves searching for possible products to solve the problem and locating possible suppliers of the product. Search activities may involve looking into company files and trade directories, contacting suppliers for information, inviting proposals for supply and so forth. 
  4. Evaluation: The fourth stage consists of evaluation of the products and the suppliers on the basis of price, service, quality, reliability and consistency of supply factors. 
  5. Selection: The fifth stage involves selecting of the product to be purchased and the supplier from whom to buy it. Specific details regarding terms credit arrangement, delivery dates and methods are worked out in this stage. 
  6. Evaluation of product and supplier performance: The final stage in the organizational buying process involves the product’s performance and also the performance of the supplier. This stage helps organization to take corrective actions. The results of such an evaluation are used as important feedback for further purchase decisions.

Buying Center and Its Types

Buying center is the decision making unit of a buying organization. It is composed of all the individuals and units that participate in the business decision-making process. The buying center includes all members of the organization who play a role in the purchase decision process. They share common goals and the risks arising from the decisions. The members includes the actual users of the product or service, those who make the buying decision, those who influence the buying decision, those who do the actual buying and those who control buying information.

The members of the buying center or decision-making unit of the organization fulfill various functions and often engage in complex interactions, both among themselves and with outsiders such as salespeople and suppliers.

Types of Buying Center

The buying center includes all members of the organization who play any of seven roles in the purchase decision process.
  1. Initiators: Initiators are those people who request that something to be purchased. They may be users or others in the organization.
  2. Users: Users are those people who will use the product or services. They are so-called because the work they do in the organization is directly affected by the purchase under consideration. They can range from trainees to executives.
  3. Influencers: Influencers are the people who influence the buying decision. They help to shape criteria by providing useful information. In the complex world of modern business, technical and legal experts often influence buying decisions, although they may have no direct connection with the buying process itself.
  4. Deciders: Deciders are the people who decide on product requirements or on suppliers. They have the final authority over buying decisions. In some cases, they buyer may also be that decider, but in most cases the two roles are performed by separate individuals. For example, engineers have the final say in deciding with suppliers of raw materials to choose.
  5. Approvers: Approvers are the people who authorize the proposed actions of deciders or buyers.
  6. Buyers: Buyers are those people who have formal authority to select the supplier and arrange the purchase items. They can range from the chief of the company to its purchasing agent. They contact suppliers and negotiate business transactions. Buyers often have the power to choose suppliers or to develop lists of suitable suppliers.
  7. Gatekeepers: Gatekeepers are those people who have the power to prevent sellers or information from searching members of the buying center. They can be purchasing agents, salespersons, or secretaries. They control the information flowing into the buying center and they are often the members of the organization who contact suppliers or vendors to solicit a quote for their products.

Matrix Organization Structure

Matrix organization is a newly evolving organization structure which has received considerable attention in the developed as well as developing countries. This organization is formed to complete various types of project of specific and unique nature. This is also known as project management structure. It requires diverse technical and administrative experts to adjust efficiently with the dynamic and rapidly changing environment of the business.

The matrix organizational structure superimposes a divisional structure over a functional structure in order to combine the efficiency of the functional approach with the flexibility and responsiveness to change of the divisional approach. Each employee in a matrix unit reports to two bosses – a functional manager and a product or project manager. This means that there are dual lines of authority in the matrix organization.
Matrix Organization Structure
As seen in figure, there is a vertical chain of command for the functions of production, finance, marketing and research and development. There is a lateral chain of command for the three projects. An engineer who is assigned to work in project A will report to both project manager A and the production manager of production department.

A matrix structure is the most complex of all designs because it depends upon both vertical and horizontal flows of authority and communication (hence the term matrix). In contrast, functional and divisional structures depend primarily on vertical flows of authority and communication. A matrix structure can result in higher overhead because of more management positions. Other characteristics of a matrix structure that contribute to overall complexity include dual lines of budget authority (a violation of the unity command principle), dual sources of reward and punishment, shared authority, dual reporting channels, and a need for an extensive and effective communication system. Despite its complexity, the matrix structure is widely used in many industries, including construction, healthcare, research and defense.

Usefulness of Matrix Organization Structure

A matrix structure is useful when the following conditions exist:

  • When there is an external pressure for a dual focus, a matrix structure will be useful. The external pressure in the organization requires focusing organization’s efforts on responding to multiple external factors as well as on internal operations at the same time.
  • When there is pressure for a high information-processing capacity.
  • When there is pressure for sharing resources.

Advantages of Matrix Organization Structure

Some advantages of a matrix structure are as follows:

  1. Environmental Adaptation: Matrix organization has been designed to cope with the complexities of multi-product, multinational organizations. This structure is able to adapt to changes in the environment. Responses to environmental changes are quickly made in this structure.
  2. Sharing Resources: This structure facilitates the proper sharing and utilization of highly specialized staff, equipment and resources. Each project or product unit can share the specialized resource with other units, rather than duplicating it to provide independent service for each.
  3. Professional Identification: The matrix organization provides the professional identification of specialists and professionals based on their specialization and efficiency. Talented specialists can be utilized more efficiently under this structure.
  4. Flexibility: Matrix structure fosters flexibility throughout eh organization. Various skills can be brought together in this type of organization.
  5. Effective Control: The main responsibility of the project manager is to maintain coordination among interrelated factors of a particular project. He has to communicate both with the horizontal and vertical authorities so that the project work can be run smoothly. Similarly, functional managers are responsible for providing technical and administrative guidance to projects. This leads to a better and more effective control over regular operation.
  6. Strategic Thinking: This structure encourages delegation of authority to project managers. They are responsible for regular operation of the project. They have the authority to take decisions related to the day-to-day operation of projects. This provides sufficient time to the top management to strategic thinking such as to make strategic planning and policies rather than operational activities. The initiation and creativity of the top level management are necessary for further development of organizational activities.

Disadvantages of Matrix Organization Structure

Matrix structure has several disadvantages. They are as follows:

  1. Lack of Unity of Command: In matrix structure, subordinates have to follow instructions from more than one superior. Generally, they receive orders from functional managers as well as from project managers. In some cases, subordinates may receive instructions from both the superiors at a time. This structure violates the principle of unity of command.
  2. Costly: This structure increases administrative cost. In this structure, specialists from the project as well as functional authorities involve in project works. It increases paperwork and other information costs. Besides, it is essential to pay lump-sum remuneration to functional and project specialists. Hence, this structure is costly to implement and maintain.
  3. Power Struggle: One of the main problems with the matrix structure is that the project manager and functional manager may not agree on priorities or resource allocations, leading to conflict and power struggle.
  4. Difficulties: Matrix structure requires a high level of interpersonal relations and skill. It is essential to involve both functional and project specialists. Besides, it is essential to maintain a balance among these authorities to bring about uniformity in the organizational performance. In practical field, it is more difficult to maintain a balance among these authorities, especially if they have no positive attitude towards each other.
  5. Slowness in Decisions: Functional and project specialists can shift responsibility for decision making. This delays decisions. Likewise, all decisions may become group decisions, leading to gross inefficiency.

Difference between Consumer Buying Behavior and Organizational Buying Behavior

The differences between consumer buying behavior and organizational buying behavior can be listed as follows:
Bases
Consumer Buying Behavior    
Organizational Buying Behavior
Purpose of Buying
The individual consumers buy goods and services for ultimate use or satisfy their needs. The buying purpose of such consumers is not to earn profit by reselling the goods and services.
The organizations buy goods and services for their business needs. The buying purpose of them is to earn profit by using and reselling the goods and services.
Quantity
Although consumers buy various kinds of goods, the quantity of goods remains small. They buy only the necessary quantity of goods, which they need for regular use.
Organizational buying is done in large quantities. There are several reasons why organizations must buy the goods they need in bulk. In the first place, they use large quantities of each item and must maintain inventories at a level high enough that they will not run out of stock. Secondly, it is cheaper and more efficient to make large-volume purchases.
Purchase Decision
Consumer buying takes decision by consumers themselves. Sometimes they can consult with family members and friends. They need not fulfill any formality like organizational buying.
Organizational purchasing is a rational process because the purchasing behavior of organizations is guided by objective factors having to do with production and distribution. It takes long time than consumer buying.
Market Knowledge
Most of the consumers may not have adequate knowledge and information about market situation, available goods and services, etc. The educated customers may be aware and have knowledge about market and goods.
Organizational purchase criteria are specifically defined. Organizational buyers usually have fewer brands to choose from than do individuals, and their purchases must be evaluated on the basis of criteria that are specific to the overall needs of the organization. The organizational buyers have full knowledge of market and suppliers.
Types of Goods
Consumers buy many goods to use to satisfy personal or family needs.
Organizational buyers buy limited goods to use to conduct business.
Effect
Consumer buying behavior is effected by age, occupation, income level, education, gender etc. of consumers.
Many individuals are involved in the buying process. Within large organizations, rarely is one individual solely responsible for the purchase of products for the purchase of products or services. Instead, many individuals and departments may be involved and departments may be involved in the buying process.
Buying Process
The consumer buying process is very simple. No need to fulfill any formality. There is also no need to maintain extensive contact with sellers.
Buyers and sellers in the organizational market must maintain extensive contact.

Role of Market Segmentation in Marketing Decision Making

Market segmentation is the act of identifying and profiling distinct groups of buyers who might prefer or require varying products and marketing mixes. It is a process of dividing the total market for a good or service into several groups, such that the members of each group are similar with respect to the factors that influence demand. It plays a vital role in marketing decision-making. Market segmentation plays the following roles in marketing decision making. They are:

1. Identification of market opportunities

Without segmentation organization cannot find the needs of customer easily. Organization can identify the market opportunities like most profitable sectors, through well segmentation.

2. Understanding of the customer

A segmentation perspective leads to more precise definition of the market in terms of consumer needs. Segmentation thus improves management’s understanding of the customer and more importantly, why he/she buys.

3. To direct marketing programs

Management, once it understands consumer needs, is in a much better position to direct marketing programs that will satisfy these needs and hence parallel the demands of the market.

4. Strengthen management capabilities

A continuous program of market segmentation strengthens management capabilities in meeting changing market demands.

5. To assess competitive strengths and weakness

Management is better able to assess competitive strengths and weakness of greatest importance; it can identify those segments where competition is thoroughly entered. This will save company resources by forgoing a pitched battle of locked-in competition, where there is little real hope of market gain.

6. Systematic planning

It is possible to assess a firm’s strengths and weakness through identifying market segments. Systematic planning for future markets is thus encourages.

7. Efficient allocation of marketing resources

Segmentation leads to a more efficient allocation of marketing resources. For example, product and advertising appeals can be more easily coordinated. Media plans can be developed to minimize waste through excess exposure. This can result in a sharper brand image, and target consumers will recognize and distinguish products and promotional appeals directed at them.

8. Market objectives

Segmentation leads to a more precise setting of market objectives. Targets are defined operationally, and performance can later be evaluated against these standards.

Trend and Mega Trend

Trend

A trend is a collection or sequence of events that has some momentum and durability. Generally, a trend is last for two to five years. Marketers can find many opportunities by identifying trends. The trend of smoking habits in teenager helps the growth of the tobacco industry. The trend of buying mobile phones is helping Nepal Telecom to expand its transactions. Generally, the trends can be seen mainly in fashionable items like in dress, electronics, beauty products, etc. It helps manufacturers and marketers to design the products and services according to the emerging trends.
According to Faith Popcorn –“A trend has longevity, is observable across several market areas and consumer activities, and is consistent with other significant indicators occurring or emerging at the same time.”
Trend reveals the shape of the future. It is direction of events in the changing environment. A trend is usually active for a period of two to five years.

Following are some of the glaring examples of marketing trends in Nepal:
  • Women’s participation in different NGO’s for raising against social injustice and crime.
  • The demand for self-service
  • The use of miniskirt
  • Digital watches
  • Getting admission in MBBS classes by donating a huge amount of money
  • Sending children for education to foreign countries etc.

Mega Trend

Mega trends are direction or sequence of events in the environmental forces that are of longer duration and they are shown because of political, economic, social, and technological changes. In other words, mega trends are large social, economic, political and technological changes that are slow to form once in place, they influence us for some time-between seven and ten year, or longer.

Some example of mega trends are:
  • The booming global economy
  • A renaissance in the arts
  • The emergence of free-market socialism
  • Global lifestyles and cultural nationalism
  • The privatization of the welfare state
  • The rise of the Pacific Rim
  • The decade of women in leadership
  • The age of biology
  • The religious revival of the new millennium
  • The triumph of the individual
There are some differences between a trend and mega trends. Mega trends are larger than trends. Trend is stable for two to five years whereas mega trends are relatively stable for almost a decade. Mega trend throws a greater influence on marketing than a trend.

The examples of mega trends visible in Nepal are as follow:
  • Cultural invasion from the western countries
  • Privatization of state owned enterprises
  • Liberalization and globalization
  • Increasing use of information technology
  • Westernization of life styles
  • Open university system, etc.
These trends and mega trends create marketing opportunities for the concerned marketing firms. But the firm should develop new products or marketing programs in line with strong trends and mega trends rather than opposing them.

Environmental Scanning and its methods

Environmental Scanning

Scanning is generally defined as acquiring information. In the context of marketing programs and plan environmental scanning involves monitoring changes and developments in the marketing environment that have potential impact on the marketing activities. It is essential for formulating plans.
According to Richard Steers –“Environmental scanning involves monitoring changes and developments in the environment that have potential impact on the organization.”
In conclusion, environmental scanning is the process by which marketing management monitor its relevant environment to identify opportunities and threats affecting the business. Environmental scanning should be done to bring controllable environment in favor of the organization and plans should 

Methods of Environmental Scanning

Environmental scanning is absolutely necessary for strategy formulation. As the environment is complex environmental scanning should be cautiously dealt. For the environmental scanning, some of following methods can be used.
  1. Extrapolation method: These methods require information from the past to explore the future. The future is assumed to be some function of the past. There are a variety of extrapolation methods, including trend analysis, forecasting and regression analysis.
  2. Historical analogy: When past data cannot be effectively used to analyze an environmental trend, the trend is studied by establishing historical parallels with other trends. This method assumes that sufficient information is available from the other trend. Turing points in the progression become guideposts for predicting the behaviors of the trend being studied.
  3. Intuitive reasoning: This method calls for a rational intuition by the scanner. Intuitive thinking requires free thinking unconstrained by past experience and personal biases.
  4. Scenario building: This procedure involves constructing a time-ordered sequence of events that have a logical cause-and-effect relationship to one another. The resulting forecast is based on interrelationships among the events.
  5. Cross-impact matrix: When two different trends in the environment point to two conflicting futures, the trends are studied to see their potential impact on each other.
  6. Morphological analysis: This method is used to identify all possible ways to achieve an objective. It can be used to anticipate and to develop ideal patterns for achieving desired objectives.
  7. Network methods: Two types of network methods are popular: Contingency Trees and Relevance Trees.
    1. Contingency Tree: A contingency tree is a graphic display of logical relationships among environmental trends that focuses on branch points, at which several alternate outcomes are possible.
    2. Relevance tree: A relevance tree is a logical network similar to a contingency tree, but assigning degrees of importance to various environmental trends with reference an outcome.
  8. Missing line approach: This approach combines morphological analysis and the network method. Many developments and innovations that appear promising may be hindered because something is missing. Under such circumstances this unique may be used to study new trends to see if they reveal the missing links.
  9. Model building: This method is similar to network methods but relies more on developing mathematical representations of the environmental phenomena in question. Simulations are good examples of model building techniques.
  10. Delphi technique: The Delphi technique is the systematic solicitation of experts opinion in varying stages, using feedback to develop new forecasts.

Major Tasks of Marketing

Marketing management has to do a set of tasks necessary for success in marketing. The basic tasks of marketing are as follows:

1. Develop marketing strategies and plans

The first and foremost tasks of marketing are to develop marketing strategies and plans. They consist of following tasks:
  • Determining the strategies consist of identifying the marketing objectives or goals of the organization, their determination, and modification as well as determination of specific resources to achieve objectives or goals set. They are concerned with product, price, channel, promotion, competitors, etc.
  • Marketing plans involve mangers by which the marketing goals can be achieved. They involve deciding policy, strategy, tactics, procedures, rules and regulations and marketing programs, budgets and schedules to achieve the long-term as well as short-term goals.
  • Marketing strategies and plans allocate economic, physical and managerial resources of the organization for future.
  • They assess and analyze strength and weakness, opportunities and threats (SWOT).

2. Creating marketing information system

It is concerned with understanding what is happening inside and outside the company. Simply there are four components of marketing information. They are Internal Record System, Marketing Intelligence System, Marketing Research and Decision Support System.

3. Build customer relationship

Marketing needs to build customer relationship. Building customer relationship is a very effective way to increase satisfaction and sustain in market. The relationships can be built by using the emerging concepts such as relationship marketing and customer relationship management.

4. Build strong brands

Marketing needs to build strong brand. It is also a major task of marketing. Strong brand helps in promotion, value creating, image development, product positioning, brand loyalty and expansion of product lines.

5. Determine marketing mix

Marketing needs to create and determine and effective marketing mix to satisfy needs of target markets. It is the combination of four inputs such as the product, the price, the place and the promotional activities. Different marketing mix is essential for different groups of customers.

6. Deliver value

Marketing needs to deliver value to the target customers. Value is the ratio between what the customers pay and what they receive. Marketing must determine how to properly deliver the value embodied by the products and services to the target market. Customers’ product choice is guided by value. So, marketing should add maximum value to the customers.

7. Communicate value

Marketing needs to communicate value to target markets. It has to develop an integrated marketing communication program that maximizes the individual and collective contribution of all communication activities by which firm attempts to inform, persuade, remain and reassure consumers about the brands. For this, marketing has to set up mass communication programs consisting of advertising, personal selling, sales promotion, public relations and publicity.

8. Create long-term growth

Marketing must take a long-term view of its products and brands and how its profits should be grown. Based on its positioning, it must initiate new-product development, testing and launching.

9. Implementation and control

Marketing must organize its marketing resources and implement and control the marketing plans. It must build a marketing organization that is capable of implementing marketing plans and strategies. Similarly, it must find out any deviations between achieved performances against planned or budgeted performance using predetermined standards. It provides feedback about marketing planning and strategies.

Customer Profitability Analysis

Customer Profitability

Smart marketers should always seek to establish strong relationship with profitable customers. Marketers have to bear so many costs and efforts for attracting, dealing and retaining customers. All such kinds of costs should be recovered for profitability. They should measure the profitability. They should focus on the lifetime stream of revenue and costs. In this regard, customer profitability is the difference between the revenues earned from and the costs associated with the customer relationship in a specified period.

Customer profitability is the result of applying the business concept of profit to a customer relationship. Measuring the profitability of a firm’s customers or customer groups can deliver useful business insights.

Customer Profitability Analysis

Marketers need to analysis customer profitability for corporate growth. A useful type of profitability analysis can be presented in the following figure:
Customer-Product Profitability Analysis
In above figure, columns represent customers and rows represent products. Each cell contains a symbol for the profitability of selling that product to that customer.

  • Customer 1: S/he is very profitable customer. S/he buys three profit making products. (P1, P2 and P4)
  • Customer 2: S/he yields a picture of mixed profitability. S/he buys one profitable product (P1) and one unprofitable product (P3).
  • Customer 3: S/he is losing customer because s/he buys one profitable product (P1) and two unprofitable products (P3 and P4).
Here, customer 2 and customer 3 are unprofitable customers for a company. The company can do the following activities about them.

  • It can raise the price of its less profitable products or eliminate them.
  • It can try to sell them its profit-making products.

Customer Relationship Management, CRM

Customer relationship management is a combination of policies, processes and strategies implemented by an organization to unify its customer interactions and provide a means to track customer information. It involves the use of technology in attracting new and profitable customers, while forming tighter bonds with existing ones.

Customer relationship management pulls together, analyzes and provides easy access to customer information from all these various touch points. It helps to assess the value of individual customers, identify the best ones to target and customize the company’s products and interactions to each customer.

The purpose of customer relationship management is to enable a company to better service its customers through the introduction of reliable service, automated processes, personal information gathering and processing and self-services. It attempts to integrate and automate the various customer serving processes within a company. It can be done through the use of multiple communication channels (phone, WAP Wireless Application Potential, Internet etc.)

Customer relationship management involves three general areas of business. They are as follows:
  1. Marketing information system: It provides information about the business environment, including competitors, industry trends, and macro environmental variables.
  2. Sales-force management system: It automates some of the company’s sales and sales-force management functions. It keeps track of customer preferences, buying habits, and demographics, and also sales staff performance.
  3. Customer service system: It automates some service requests, complaints, product returns, and information requests.

Steps for Reducing Customer Defection Rate

In order to reduce or control the defection rate of the existing customer, the marketing companies need to follow the following steps:
  1. Define measurement basis for retention rate: For reducing customer defection rate, first of all, the measurement basis for retention rate should be defined. For a newspaper, renewal rate is a measure of retention. For college, it is admission in second year after completing first year.
  2. Analyze causes of defection: For reducing customer defection rate, the reasons for defection should be analyzed. The major reasons for defection can be poor service, poor products, high price, inconvenient distribution etc.
  3. Calculate loss of profit: Customer defection results in loss of profit. Profit loss from lost customer should be calculated in terms of life time value of lost customers.
  4. Introduce anti-defection measures: For reducing customer defection rate, the company should introduce anti-defection measures such as extra benefits and services that add value.
  5. Find out cost of reducing defection rate: The cost of anti-defection measure such as extra benefits or services should be calculated. The cost should be less than benefits of reducing defection rate.
  6. Listen to customers: Customer feedback is essential for reducing defection rate. Exit interviews of customers can also be useful. Complaints and suggestions should be carefully handled.

Trends in Marketing

The new trends in marketing as follows:

1. Globalization

Globalization is an emerging trend in marketing. It refers to free flow of ideas, goods and services all over the world. Effect of globalization is increasing in marketing. Increasing globalization is crating both opportunities and challenges for marketers. It is also creating international competition.

2. Changing technology

Changing technology is also an emerging trend in marketing. Development in information and communication technology, electronics, new materials and nano-technology development advances are opening many new opportunities for marketing.

3. Direct marketing

Direct marketing is also increasing. Direct mail, catalogue, telephone, television etc. are used in direct marketing. Now-a-days Internet and websites are also using and e-commerce is getting popular. Business-to-business purchasing is growing fast on the Internet.

4. Service marketing

The role of service products to satisfy needs, wants and demand of customers.

5. Outsourcing

An emerging trend in marketing is outsourcing. It is the process by which marketers purchase inputs such as capital, human resources, technology, machines, raw materials, technical know-how, skills, services from other organizations throughout the world. Outside suppliers are playing greater role in supply of goods and services.

6. Relationship marketing

Relationship marketing is also the emerging trend in marketing. It is concerned with building long-term mutually satisfying relationship with customers. Marketers focus on managing their customers as well as their products and series. They also focus on quality, value, customer satisfaction, customer loyalty and partnership with customers.

7. Quality marketing

Quality marketing is concerned with customer satisfaction. In order to deliver customer satisfaction, marketers have to offer ‘quality’ in their goods and services. Now-a-days total quality management (TQM) is getting popular.

8. Growth of global brands

Global companies, with very large size and scale of activities, have now been growing. These companies are able to establish their brands in global markets. Global brands in electronics, foods, clothing, autos, intellectual property etc. are becoming popular all over the world. Due to the practices of licensing and franchising strategies global brands are increasing.

9. Global life style

Advances in global communication, television networks, transportation, technology, cross cultural exchange, flow of tourists across the globe etc. are promoting global life styles. Global life style is providing added opportunities for marketers.


High-tech industries: Now-a-days high-tech industries also growing. Mechanization, automation, computerization, robotics, information technology, biotechnology, nano-technology, new materials and artificial intelligence are getting popular. Marketers can achieve gain economies of scale by using high-tech.

Considerations for Global Market Entry

This 21st Century is the age of globalization. Today’s world has become a ‘small commercial village.’ Due to the development of trade and commerce, science and technology etc., many companies are going global. The need to think and act from global perspective is universal. Globalization increases global competitive. It brings competition everywhere in the world. Thus, this is the age of competition. Today’s company should pay more attention to quality and price to survive in the competitive market. The variety of products and products forms in the market will significantly and substantially increase the customer choice. Besides these, the companies should create value to global target customers, it should gain competitive advantages, it should focus on needs and wants of target markets and it should follow positioning strategy to create strong brand image in global markets. In this regards, we can say that it is a great challenge to do marketing in the era of globalization.

Consideration for Global Market Entry

Going global is very challenging job. So a company should consider many things for global market entry. They are as follows:
  1. Political risks: A company going global should consider the political risks of global market. The elements of political risks are political instability, terrorism, civil war, etc. These all factors should be uncertainty in global markets.
  2. Access to market: Many factors may limit companies to access to global market. They are reservation policy for nationals, local content requirements, balance of payment problems, competition with local industry, regional cooperation agreements, etc. These all factors should be taken into consideration before going global.
  3. Cost structure: Cost structure should be taken into consideration for the companies going global. They should consider costs associated with factors of production such as land, capital, labor etc. Similarly they must consider the wages rate and tax related matters as well.
  4. Logistics: Logistics which is also known as physical distribution that consists of transportation, inventory management, warehousing, materials handling and order processing. These all are crucial to success in global markets. The cost of making goods and services readily available to global markets are very important for market entry. Similarly, there should be adequate infrastructure facilities, good governance, etc. in host country.
  5. Foreign exchange rate: The companies going global need to deal different currencies at a time. They need to follow foreign exchange regulations of the concerned countries and need to solve the currencies exchange problem. They should consider the exchange risk resulting from changing rates and control procedures.
  6. Marketing programs: Different countries have different political system and different government decisions. Different laws, rules and regulations of their own, govern marketing activities in different countries. So, the companies going global should prepare marketing programs as per the law, acts and local environment of host country.

Holistic Marketing Concept

Holistic marketing concept is an approach to marketing that attempts to recognize and reconcile the scope and complexities of marketing activities. These activities are concerned to the relationship marketing, integrated marketing, internal marketing, social responsibility marketing and performance marketing. Marketers can create, maintain and renew customer value through holistic marketing concept.

The holistic marketing concept is the new and emerging concept which emphasizes the development, design, and implementation of marketing programs, process and activities. This concept recognizes that “everything matters” with marketing. It also recognizes that a broad, integrated perspective is necessary to get success in marketing.

According to Philip Kotler and Kavin Lane Keller –“The holistic marketing concept is based on the development, design and implementation of marketing programs, processes, and activities that recognizes their breadth and interdependencies.”

Components of Holistic Marketing

1. Relationship marketing
It is a key component of holistic marketing. Marketers need to establish long-term relationship with customers. Relationship marketing is an act of building of long term mutually satisfying relationship with the different kinds of customers to earn and retain their long-term loyalty because they are good partners in creating value. Relationship marketing’s focus is not immediate sales; rather it is directed at building a large group of satisfied and loyal customers. Customer retention and winning back lost customer are the key strategy in relationship marketing. This marketing uses sustained long-term efforts in delivering value to the customers and profit to the firm.

2. Integrated marketing
Integrated marketing is coordination of all of a company’s marketing activities in establishing marketing strategies such as packaging, media promotion, point of purchase materials, after sales services etc. It is the process of mixing and matching marketing activities to maximize their individual and collective actions. Marketing organizations must integrate their systems for demand management, resource management and network management.

3. Internal marketing
Internal marketing is the process of bringing out support for a company and its activities among its employees, in order to encourage them to promote its goals. It describes the task of hiring, training and motivating able employees who want to serve customers well. It also refers to investment in human resources to train and motivate employees to better serve the customers.

4. Social responsibility marketing
Social responsibility marketing is a management orientation that holds that the key task of the organization is to determine the needs and wants of target markets and to adopt the organization for delivering the desired satisfactions more effectively and efficiently than its competitors in a way that preserves or enhances the consumers’ and society’s well being. It implies the orientation of the organization’s social responsibility to face the major environmental and demographic challenges.

5. Performance marketing
It focuses on the value of marketing efforts. Performance marketing is practiced to ensure financial accountability in profitability term. Holistic marketing concept uses performance marketing to ensure profitability from marketing efforts and activities.

Value Chain, Primary and Support Activities of the System Approach

Value chain

The value chain is a tool proposed by Michael E. Porter (1985) for identifying methods of creating more customer value. According to him, value chain is a set of inter-linked value-creating activities performed by an organization. These activities begin with inputs, go through processing and continue up to outputs marketed to customers. The value chain identifies two types of activities that can create value and cost in a business. They are shown in following figure:
Value Chain Analysis

Primary Activities

They consist of following five activities:
  1. Inbound logistics: It is the activity of bringing materials into the business. It consists of receiving and storing raw materials; material handling, stock control, material, transport etc.
  2. Operations: It is the activity of converting raw materials into finished products; manufacturing, packaging, assembling, testing etc.
  3. Outbound logistics: It consists of order processing and physical distribution; collect, store and distributes products to customers.
  4. Marketing and sales: It consists of pricing, promotion and selling products to satisfy customer needs.
  5. Service: It consists of installation, repairs, spares and training. These activities help to enhance and maintain value of product.

Support Activities

The support activities of the value chain are as follows:
  1. Procurement: It involves all the activities related to processes for purchasing inputs.
  2. Technology development: It involves all the activities related to acquiring new technologies and research and development for innovation.
  3. Human resource management: It involves all the activities related to acquisition, development, utilization and maintenance of human resources.
  4. Infrastructure: It involves all the activities related to infrastructure building, such as strategic planning, quality control, accounting, finance, information management, organization design etc.
The value chain analysis identifies separate activities performed to produce, market, deliver and support a product. The firm’s task is to examine its costs and performance in each value-creating activity and to look for ways to improve it. The firm should estimate its competitors’ costs and performances as benchmarks against which to compare its own costs and performance.

How a marketing firm can benefit from the adoption of the system approach?

System

A system is made of components and their interrelationship. It is a set of units with relationship among them. In other word, a system is a network of interrelated and interacting components to achieve desired goals. Regularly interacting group of activities forming a unified whole is known as system. Solar system, natural system, economic system, political system, educational system, marketing system are some of the examples of systems. Their parts and sub systems interact with each other in order to achieve common objectives or goals.
According to J.A. Morton –“A system is an integrated assembly of specialized parts acting together for common purpose.”

According to Fremont E. Kast and James E. Rosenzweg –“A system is an organized, unitary whole composed of identifiable boundaries.”
According to S. A. Sherlekar –“A system is a set of interacting or independent components or groups co-ordinated to form a unified of objectives.”
Now we can conclude that a system is a set of objects together with the relationship among them and their objectives. It is consist of several sub-systems interact each other and work for common objectives. Problems arise in each sub-system affects the performance of whole system.

System can be of two types. They are as follows:
  1. Open system: In an open system, there are interactions between the system and its environment. Open system responds to change. All marketing organizations are open systems.
  2. Closed system: A closed system is one, which does not interact with its environment. It is self-sufficient entity. Automatic machinery system is an example of closed system

System Approach in Marketing

Simply, a system is made of components and their interrelationship. It is an integrated assembly of specialized parts acting together for common purpose. In this regards, a marketing system is a unified whole composed of interrelated and interacting parts to achieve desired objectives.
According to S. A. Sherlekar -“A system is a set of interacting or independent components or groups co-ordinated to form a unified of objectives. Likewise marketing system is also an integrated assembly of interrelated and interacting parts to achieve organization’s marketing objectives.”

According to W. J. Stanton –“Marketing system consists of two interacting elements – the marketing organization and its target market. These two elements are connected by two sets of flows. One the distribution of product/service to its customers in exchange for some kind of payment and the other flow is an information flow from the market to the organization.”
We can apply system approach in marketing. A firm’s marketing system is the set of significant institutions and flows that connect an organization to its market.
System approach in marketing can be made clear with the following figure:
System Approach in Marketing
Under the system approach, marketing is viewed as an organized and integrated effort to secure customer satisfaction and profit. Marketing itself is considered as a subsystem of economics, legal and competitive marketing system. The systems approach also integrates commodity, functional, institutional, and managerial approaches. It emphasizes the importance of the use of right information. Markets can be understood only through the study of marketing information. The system model (inputs-processing, output-feedback) places emphasis on the inputs of resources, outputs produced and it enables the determination of marketing programs to achieve those objectives. System approach to marketing includes the following factors. They are: objectives, inputs, processing, outputs, and feedback.
  1. Objectives: Objectives consist of profit matching products with markets, etc.
  2. Inputs: Inputs consist of capital, raw material, physical assets, human resource, information, machines and technology, management tools and in general, marketing mix elements.
  3. Processing: Processing consists of product planning and development, pricing, distribution and promotion.
  4. Outputs: Outputs consist of products, services, profit, customers’ satisfaction, social responsibility, goal integration etc.
  5. Feedback: Besides these, system approach also includes feedback which provides information to redesign inputs and processing.

Marketing is an open system. It interacts with environment. Definitely, system approach in marketing is used as an orderly method of dealing with marketing problems because it has many benefits. A marketing firm can get many benefits by using system approach in marketing.

Benefits of System Approach

We can apply system approach in marketing. A firm’s marketing system is the set of significant institutions and flows that connect an organization to its market. System approach to marketing has many benefits such as:

1. Synergistic effect

Synergistic is the combined effect of the components of a system that exceeds the sum of their individual effects. 2 + 2 = 5 is the result of synergistic effect. The systems approach in marketing generates synergistic effect. This idea has been well adapted in the marketing system where each sub-system works in close cooperation and coordination in order to achieve higher level results in terms of customer satisfaction or market share. Such-optimization is avoided because all sub-systems work efficiently in a coordinated manner.

2. Marketing effectiveness

By using systems approach in marketing a firm can efficiently coordinate and utilize the marketing resources. It helps to achieve marketing objectives. Under the system approach, all marketing activities and resources are efficiently utilized and coordinated. They look at the total picture and carefully design the marketing mix by giving needed importance to all the elements which definitely enhances the effectiveness or marketing.

3. Environmental adaptation

Marketing is an open system which interacts with its environment. In the interaction process it receives inputs form the environment in the forms of information, trends and resources and it also provides outputs to the environment in the forms of goods, services, ideas and experiences. Changing forces in the environment are carefully responded in designing the marketing program. By adopting systems approach, a firm can carefully consider the changing forces in the environment in designing marketing program. It helps to adopt environment changes.

Relationship Marketing and Customer Development Process

Relationship Marketing

Marketers need to establish long-term relationship with customers. Relationship marketing is an act of building of long term mutually satisfying relationship with the different kinds of customers to earn and retain their long-term loyally because they are good partners in creating value. Relationship marketing’s focus in not on immediate sales; rather it is directed at building a large group of satisfied and loyal customers. Customer retention and winning back lost customer are the key strategy in relationship marketing. This marketing uses sustained long-term efforts in delivering value to the customers and profit to the firm.

Now we can say that relationship marketing is a long-term partnership between marketers and customers in which both parties collaborate on identifying needs and developing as well as up-dating marketing mixed to satisfy needs. Besides these, in a competitive market, it is not enough to build relationship only with
customers; it is equally important to establish relationship with the vendors, intermediaries, and other influence groups.

Importance of Relationship Marketing

The major importance of relationship marketing can be listed as flows:
  • It maintains log term relationship with key customers.
  • It leads to develop loyalty and satisfaction, which in turn increases transactions with the same customers, again and again.
  • It supports for long-run business.
  • It focuses on customer retention. It can stop customers switching to another brand.
  • It results in positive image projection and enhanced brand equity on account of high degree of customer relation, loyalty and customer satisfaction.

Levels of Investment in Customer Relationship Building

A company needs to invest its time and money in building customer loyalty. How much should it invest in building loyalty so that costs do not exceed the gains? We need to distinguish different levels of investment in customer relationship building.

As following figure shows, the likely level of relationship marketing depends on the number of customers and the profit margin level.
Levels of Investment in Customer Relationship Building

  1. Basic marketing: The salesperson simply sells the product.
  2. Reactive marketing: The salesperson sells the product and encourages the customer to call if he or she has questions, comments or complaints.
  3. Accountable marketing: The salesperson phones the customer to check whether the product is meeting expectations. The salesperson also asks the customer for any product or service improvement suggestions and any specific disappointments.
  4. Proactive marketing: The salesperson contacts the customer from time to time with suggestions about improved product uses or new products.
  5. Partnership marketing: The company works continuously with its large customers to help improve their performance.
Most companies practice only basic marketing when their markets contain many customers and their unit profit margins are small. At the other extreme, in markets with few customers and high profit margins, most sellers will move toward partnership marketing. The best relationship marketing going on today is driven by technology. Companies are using e-mail, web sites, call centers, databases, and database software to foster continuous contract between company and customer.

Customer Development Process

The relationship marketing involves a long-term process of building satisfied and loyal customers. The process is explained below:

  1. Suspects: Most firms start from the pool of suspects. Suspects constitute of everyone who has the possibility of everyone who has the possibility of building the firm’s product or service.
  2. Prospects: From the pool of suspects the firm identifies customer groups who are mot likely to buy the product or service.
  3. First time users: They are those who buy a product for the first time. Then, the firm makes its maximum efforts to convert the first time customers into the repeat customers.
  4. Repeat customers: They are the first time customers who repeatedly buy the product or service. This group has the potential to be become loyal customers if the firm tries to build relationship in absence of the firm’s effort to build the relationship, the repeat customers may switch to competing firm’s product or service. They also move to the ex-customer pool.
  5. Clients: They are the loyal and satisfied customers who normally buy the firm’s product or service for a longer period of time. Firms need to work closely with clients so that they maintain long-term loyalty.
  6. Members: They are those clients who join membership programme to take advantage of benefits.
  7. Advocates: They are those clients who enthusiastically recommend the firm and its products and services to other prospects.
  8. Partners: The advocates may convert into partners, who work actively with the firm for mutual benefits.
There may be the possibilities, at each stage of customer development process, that some of the customers may become ex-customers, if they are dissatisfied. So, firm should try to satisfy the customers and to create strong customer loyalty.

How can companies attract consumers and retain them?

How can companies attract consumers and retain them?

Traditionally, the focus of marketing has been on building new markets and attracts new customers. But it is not enough to be skillful in attracting new customers; the firm must keep them and increase their business. Now, firms are found giving more weight to attract customers and retain them. The key to customer retention is customer satisfaction. A highly satisfied customer stays loyal for long periods; buys more when the company introduces new product; talks favorably about the product and the firm; pays less attention to competitor’s advertisement and brands; is less sensitive to competitors price and other offers; provides ideas to the firm to improve the product; and the cost of servicing a loyal customer is lower than the cost of servicing a new.

Firms seeking to expand their market have to attract customers and retain them. For this, they have to spend considerable time and resources. They must develop several advertisements and places them in various indoor, outdoor, direct and display media that will reach new prospects. Advertising is the cheapest, fastest, and reliable medium to attract the new customers as well as current customers.

Besides these, customer retention can be done by the following methods:

1. Erecting High Switching Barriers

In order to make customer retained, the firm can erect high switching barriers. Switching may involve high capital costs, high search costs, and loss of attractive discounts for current customers. It could sometimes be wise to phone recent buyers and get information to what degree they are satisfied with the products and services.

2. Developing Relationship Marketing

Relationship marketing is best tool to retain the customers. Therefore, the firm needs to develop relationship marketing remembering customers between calls, building a personal reputation, improving customer relations, maintaining after sales services, providing solutions to their problems, etc. The firm takes steps to know and serve its customers better.

3. Customer’s Expectation

For the retention of the customer, it is also very necessary to set the customer’s expectation in prior state. The setting of customer’s expectation help to minimize the uncertainty level of offering your services to your clients. The expectation of the customers should be made developed as positive and delivering the services in the particular time. But sometimes, it may also lead to negative, if the delivery the services is not done in the particular time. Due to such negative expectations, the client/ customers may also cancel their order from the business.

4. Being the Expert

Now a days, the small business organization needs to be more dependent upon the services. So, being the expert in the particular services you are delivering surely help to retain the customers towards your services. The business organization should be trusted advisor for building customer loyalty and reduce customer churn.

5. Conduct Customer Surveys

In order to know the reactions of the customers towards the delivered services, it is also very necessary to conduct customer surveys. By conducting the surveys, the business organization can triggered out the weakness of the services and can turn into strength. The feedback of the customers also play great role because the information provided by the customers are very valuable for the services delivered in relation to the customers’ expectations.

6. Online Relationship

In the age of advanced communication technology, business can build online relationship with their clients very easily and building an online relationship is also taken as the way of retaining customers towards your services. Nowadays, there are a lot of social media networking sites that can connect millions of customers within your computer screen. It will be also better to create a social profile in some popular social networking sites like Facebook, LinkedIn, Twitter, Pinterest and many others. Majority of the people are engaged in these media.

7. Post-support Services

Selling huge quantity for a time is not the entire goal of your business. But selling for a long period of time and retain customers for long period of time is a most. For that, business companies should provide post-support services or post-sales services to the clients. By providing such services, customers become more loyal towards your services and continue to use your services.

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