CHAPTER III: LITERATURE REVIEW

RELATIONSHIP BETWEEN CUSTOMER BUYING BEHAVIOUR, CUSTOMER SATISFACTION AND CUSTOMER LOYALTY

Customer Buying Behaviour: Black Box Model A computer program into which users enter information and the system utilizes pre-programmed logic to return output to the user.

The "black box" portion of the system contains formulas and calculations that the user does not see nor need to know to use the system. Black box systems are often used to determine optimal trading practices. These systems generate many different types of data including buy and sell signals. The black box model shows the interaction of stimuli, consumer characteristics, decision process and consumer responses.It can be distinguished between interpersonal stimuli (between people) or intrapersonal stimuli (within people). The black box model is related to the black box theory of behaviourism, where the focus is not set on the processes inside a consumer, but the relation between the stimuli and the

response of the consumer. The marketing stimuli are planned and processed by the companies, whereas the environmental stimuli are given by social factors, based on the economical, political and cultural circumstances of a society. The buyers black box contains the buyer characteristics and the decision process, which determines the buyers response. The black box model considers the buyers response as a result of a conscious, rational decision process, in which it is assumed that the buyer has recognized the problem. However, in reality many decisions are not made in awareness of a determined problem by the consumer.

Information Search: Once the consumer has recognised a problem, they search for information on products and services that can solve that problem. Belch and Belch (2007) explain that consumers undertake both an internal (memory) and an external search. Sources of information include:

Personal sources Commercial sources Public sources Personal experience

The relevant internal psychological process that is associated with information search is perception. Perception is defined as "the process by

which an individual receives, selects, organises, and interprets information to create a meaningful picture of the world". The Selective Perception Process Stage Description

Selective exposure consumers select which promotional messages they will expose themselves to. Selective attention consumers select which promotional messages they will pay attention to. Selective comprehension consumer interprets messages in line with their beliefs, attitudes, motives and experiences. Selective retention consumers remember messages that are more meaningful or important to them.

The implications of this process help develop an effective promotional strategy, and select which sources of information are more effective for the brand. Information Evaluation: At this time the consumer compares the brands and products that are in their evoked set. How can the marketing organization increase the likelihood that their brand is part of the consumer's evoked (consideration) set? Consumers evaluate alternatives in terms of the functional and psychological benefits that they offer. The marketing organization needs to understand what benefits consumers are seeking and therefore which attributes are most important in terms of making a decision.

Purchase Decision: Once the alternatives have been evaluated, the consumer is ready to make a purchase decision. Sometimes purchase intention does not result in an actual purchase. The marketing organization must facilitate the consumer to act on their purchase intention. The organisation can use variety of techniques to achieve this. The provision of credit or payment terms may encourage purchase, or a sales promotion such as the opportunity to receive a premium or enter a competition may provide an incentive to buy now. The relevant internal psychological process that is associated with purchase decision is integration.Once the integration is achieved; the organisation can influence the purchase decisions much more easily.

Post Purchase evaluation: The EKB model was further developed by Rice (1993) which suggested there should be a feedback loop, Foxall (2005) further suggests the importance of the post purchase evaluation and that the post purchase evaluation is key due to its influences on future purchase patterns. Internal influences: Consumer behaviour is influenced by: demographics, psychographics (lifestyle), personality, motivation, knowledge, attitudes, beliefs, and feelings. Consumer behaviour concern with consumer need consumer actions in the direction of satisfying needs leads to his behaviour of every individual depend on thinking

External influences: Consumer behaviour is influenced by: culture, sub-culture, locality, royalty, ethnicity, and family, social class, past experience reference groups, lifestyle, sex and all

CUSTOMER SATISFACTION

Customer

Satisfaction

is

just

that,

customers

sense

of

satisfaction. Speaking simply, customer satisfaction is a measure of expectations being exceeded, met, or not met? Thats it. When thinking of customer satisfaction measurement, we want to know that we are meeting or exceeding customer expectations. We want to believe that we have satisfied customers and that this will lead to their loyalty and improve revenues. Unfortunately, customer satisfaction has little to do with customer loyalty. Recently with several organizations who had invested considerable time and resources to survey the satisfaction levels of their customers. The results were in and overall they were very positive aggregate scores. But while everyone that was a part of the process was pleased with the ratings indicating high levels of customer satisfaction, they were disappointed that customer turnover rates continued to be very high despite these recent findings. How could that be? I was asked. Is it possible that satisfied customers would leave with such high satisfaction scores? The answer to this question is a resounding YES!

Why? Satisfied customers will stay until there is a better alternative offered to them even if there expectations are exceeded! This is true for both external and internal customer groups. When ex-customers are surveyed in exit interviews, they typically reveal that they left because they received a better deal or offer. They did not feel committed to the prior company. No emotional investment or connection. On the other hand, loyal customers are a different breed. Loyal customers will stay with a product or service provider through thick and thin. The mistake we make is confusing loyal customers with satisfied customers. Much research over the years has indicated that there is no connection between customer loyalty and customer satisfaction. None just because a customer indicates a high level of satisfaction does not mean that they are or will be loyal to you. Customer loyalty entails an emotional connection. You have embedded yourself in the heart and mind of that customer. Customer satisfaction and customer loyalty are the best predictors of customer retention. According to George Box "All models are wrong, however some models are useful". We believe you will find this model (graphic) which starts with customer satisfaction, customer loyalty and customer retention useful. A large factor in determining the likelihood of success and profits in an organization is customer satisfaction. When there is customer loyalty the customer retention rate is high and business results tend to follow. There exists an interaction between the desired results and customer satisfaction, customer loyalty and customer retention. They may go by other names such

as patients, clients, buyers, etc. Without the customer it is impossible for any business to sustain itself. Achieving the desired results is frequently a result of customer actions. Any business without a focus on customer satisfaction is at the mercy of the market. Without loyal customers eventually a competitor will satisfy those desires and your customer retention rate will decrease.

There are several levels of customers:

1. Dissatisfied customer--Looking for someone else to provide product or service.

2. 3.

Satisfied Loyal

customer---Open

to despite are

the

next by

better the

opportunity. competition. group.

customer--Returns customers

offers an

Dissatisfied

interesting

For every one that complains there are at least 25 who do not. Dissatisfied customers by word of mouth will tell eight to sixteen others about their dissatisfaction. With the web some are now telling thousands. 91% of dissatisfied customers never purchase goods or services from the company again. A prompt effort to resolve a dissatisfied customer's issue will result in about 85% of them as repeat customers depending upon the business, new customer sales may cost 4 to 100 times that of a sale to an existing customer.

There has been less research on satisfied customers to determine what it takes for a satisfied customer to change. Why take a chance on mere satisfaction? Loyal customers don't leave even for an attractive offer elsewhere. At the very minimum they will give you the opportunity to meet or beat the other offer. Maintaining loyal customers is an integral part of any business. One of the ways to help obtain loyal customers is by having products and services that are so good that there is very little chance that the customer requirements will not be met Of course one of the difficulties understands the true customer requirements. Even when you have the requirements in advance the customer can and will change them without notice or excuse. Having a good recovery A process is for the a dissatisfied important customer person is in a any necessity. business Customer most

A customer is not dependent upon us. We are dependent upon him. A customer is not an interruption of our work. He is the sole purpose of it. A customer does us a favor when he comes in. We aren't doing him a favor by waiting on him. A customer is an essential part of our business--not an outsider. A customer is not just money in the cash register. He is a human being with feelings and deserves to be treated with respect. A customer is a person who comes to us with his needs and his wants. It is our job to fill them. A customer deserves the most courteous attention we can give him. He is the lifeblood of this and every business. He pays your salary. Without him we would have to close our doors. Don't ever forget it. Several surveys have been done on why customers do not give a business

repeat business. Reasons given by customers for not returning for repeat business:

Moved Other Competition Dissatisfaction Employee Attitude Friendships

3% 5% 9% 14% 68%

These surveys would indicate that in addition to the technical training and job skill training provided to employees, some effort aimed at customer satisfaction and employee attitude is appropriate. Remember these may not be the people normally thought as "Sales People". For example Managers, Supervisors, Secretaries, Accounts Payable, Engineers, Accountants, Designers, Machine Operators, Security, Truck Drivers, Loading Dock, etc. if not helping to cultivate Loyal Customers are hurting your customer retention. 68% of lost customers are due to one cause, employee attitude!!! In order to know how you are doing in this area there must be some measurement. Data indicate that less than 4% of dissatisfied customers ever bother to lodge a complaint. Most just take their business elsewhere. Test this on yourself. The next time you get less than what you consider idealat a store, business supplier, restaurant, movie theatre, hotel, or any other business what do you do?

Cultivating the customer relationship is key in achieving the desired business results. A passive system that depends upon your customers to inform you without effort on your part is not likely to yield the information necessary to improve customer retention.

CUSTOMER LOYALTY I live and work in Silicon Valley here in Northern California. And I confess there are several restaurants in Silicon Valley that serve high-quality, satisfying, delicious breakfasts. But, when I want to go out to breakfast on the weekend, I jump in the car and head over the hill to Santa Cruz to have breakfast at Lindas Seabreeze Caf. The food is okay, but the service is incredible. It feels like visiting family when Tex the owner greets me by name even if it has been several months since my last visit. Denise always has a warm smile and brings out a cup of coffee and a warm cinnamon roll before we order she knows that we like that. I feel an emotional tie to this restaurant. What is the difference between the customer satisfaction and loyalty? Its all on the emotional level. In order to gain customer loyalty, you need to engage my mind and pierce my heart. Its that simple. I need to feel as though I am a part of the process and business I initiate and that you care about that business.

How can you differentiate between your satisfied customers and your loyal customers? Here are eight ways. They are equally relevant to your external customers as they are to your internal employee customers. 1. Pricing. You negotiate prices with satisfied customers. You negotiate

costs with loyal customers.

2.

Payment. Satisfied customer pay at their discretion. Loyal customers

pay on time. 3. Referrals. Satisfied customers become referrals of your competitors.

Loyal customers willingly provide referrals to you. 4. Turnover. Generally, you will experience turnover rates of 15% or

higher of satisfied customers. The turnover rate of loyal customers will be less than 5% and will be for reasons out of your control. 5. Competitive data. Your satisfied customers are seeking competitive

data. Your loyal customers are sharing competitive data. 6. Perception. Satisfied customers perceive you as a commodity

provider. Loyal customers perceive you as a partner. 7. Contract. You will need a contract to keep many satisfied customers

in place. You have a virtual lifetime contract with your loyal customers.

8.

Difficult times. Satisfied customers will leave you. Loyal customers will stay by your side.

People, Products, and Processes

Loyalty comes primarily from a customers emotional connection and experiences with an organizations people. Secondarily, Customer Loyalty is driven by customer experience with products and processes. A companys customer satisfaction metrics are a superset of customer perceptions regarding their people, products, and processes. At aggregate levels, customer satisfaction metrics have no value. Understanding the drivers of customer satisfaction at granular levels (by agent, by product, by process) and taking timely action to improve them in a way customers notice, creates and drives Customer Loyalty and markedly improved customer retention. There are two important keys in the last sentence that merit repeating: 1. Understanding drivers of customer satisfaction at granular levels

by agent, by product, by process or transaction type, and taking timely action to improve them. Customers experiences with people, products, and processes will determine their emotional connection and loyalty to an organization. An analysis in the Harvard Business Review showed that a 5% increase in customer retention could increase profits by as much as 100%. A large customer of ours that

leveraged Amae Software technology to understand if a customer had been seriously considering competitive products or services was alarmed to learn that over 11% of a specific queue was in fact planning to defect. By understanding the drivers of their perceptions and reaching out to the entire group to take action, they were able to save 88% resulting in literally millions of dollars of customer revenue. Action Follows Feelings Customer decisions and customer behaviors ultimately align with feelings regarding people, products, and processes. Customer Loyalty is determined by how the drivers of Customer Satisfaction are managed this is the essence of Customer Experience Management.