5 Marketing Management Theories That Every Serious Marketer Should Know

The better we understand the theory, the better our decision-making becomes, without even having to think about it.

Marketing is the psychology behind selling more products or services. 

By understanding more about consumption and the thought processes behind it for customers, the better we can please them. The more we understand about how businesses work, the more we can improve the processes. The more chances of success!

This article explores five theories and models that all business owners and marketers should understand.

The 80/20 rule, The Expectancy Disconfirmation Theory, The Product Life Cycle, Porter's Five Forces, and The Ansoff Matrix.

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The 80/20 rule

The 80/20 rule suggests that 80% of sales come from 20% of customers.

This theory dates to 1896, conceived by Italian economist Vilfredo Pareto, to explain wealth distribution when he noticed that 80% of Italy’s land was owned by approximately 20% of the country’s total population. It is thought that his initial observation was that 20% of the pea pods in his garden produced 80% of the peas!

“The Pareto Principle, which is sometimes called the 80/20 rule, states that a small proportion (e.g., 20 percent) of products in a market often generate a large proportion (e.g., 80 percent) of sales.” (Brynjolfsson, Hu & Simester, 2011).

 

The Pareto Principle

In the 1940s, Joseph M. Juran developed Pareto’s principle for use in strategic business management, naming it after Pareto — the Pareto Principle.

The underlying belief that the relationship between inputs and outputs is imbalanced and unequal, and for many phenomena, 80% of the output, consequences or effects are produced by 20% of the input or causes.

Representation of the Lorenz curve and the Concept of the 80–20 Rule (Dunford, 2014)

The rule transcends disciplines. It has since been applied for numerous purposes across the business, including in sales, marketing, economics, management and even computer sciences. 20% of athletes win 80% of the time, 20% of patients consume 80% of healthcare resources, and 20% of society holds 80% of the world’s wealth.

When applied to business, the underlying assumption is that 80% of the outcomes or results come from 20% of the effort. Other variations of this rule in a business context are:

• 80% of profits or revenue come from 20% of customers
• 80% of product sales from 20% of products
• 80% of sales from 20% of advertising
• 80% of customer complaints from 20% of customers
• 80% of sales from 20% of the sales team

However, this ‘rule’ is an observation, rather than a law or science. The two numbers don’t have to add to 100% — it is only used as a rule of thumb. It could be 80–20, 90–10, or even 90–20.

What we learn from this principle is to focus your efforts by working harder on the things that matter. That 20% of activities that provide 80% of results. The small stuff does not need to be sweated if it does change the overall result.

“It helps to realize that often the majority of results comes from a minority of inputs.” (Dunford, Su, and Tamang, 2014)

Individuals and businesses should focus most of their time and energy on accomplishing the tasks with the largest return on investment. They can do this through recognising how and where results are achieved. Similarly, the focus with sales should be on developing strong relationships with the best and most profitable clients.

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The Expectancy Disconfirmation Theory

Expectation confirmation theory is a popular model used in services marketing for measuring customer satisfaction, introduced by Richard L. Oliver in 1977.

“An individual’s expectations are (1) confirmed when a product performs as expected, (2) negatively disconfirmed when the product performs more poorly than expected, and (3) positively disconfirmed when the product performs better than expected.” (Churchill & Surprenant, 1982)

The performance of a product or service is compared or measured against the customer’s expectations. Those expectations (or desire) of performance (or experience) are subjective to everyone, based on their prior knowledge of that product.

Performance becomes the mediator for satisfaction. The evaluated performance or experience influenced by previous experiences with that brand and consumers without prior expectations base their satisfaction judgements solely on the performance of the product.

The resultant difference between expectations and performance the basis for the disconfirmation of expectation (or desire) and can be positive or negative. Negative disconfirmation meaning the customer is left dissatisfied.

The theory has been applied across multiple fields to gain a better understanding of customer’s expectations and requirements, such as marketing and consumer behaviour, tourism, psychology, information technology, and the airline industry.

The expectancy disconfirmation theory involves four primary variables: expectations, perceived performance, disconfirmation of beliefs, and satisfaction.

The original expectancy disconfirmation model (Oliver, 1980)

Expectations

Consumers associate certain attributes or characteristics with a brand which is anticipated by that person. These expectations form the basis of comparison judgement — directly influence both perceptions of performance and disconfirmation of beliefs, and indirectly influence their post-purchase evaluations and feelings.

Expectations of a brand, product or service can be based on aspects such as feedback from friends and family, online reviews, marketing material, salespeople, and previous consumption experiences.

“First, customers have an initial expectation according to their previous experience with using a specific product or service. Second, new customers that don’t have a first-hand experience about performance of product or services.” (Elkhani, & Bakri, 2012)

 

Perceived Performance

After consumption, the consumer forms perceptions of the performance of a product, service or experience. These perceptions are influenced by their pre-purchase expectations, then influencing the disconfirmation judgement.

Aspects that performance is based on will be subjective depending on the product, service or experience — for example, for a mobile phone, one performance factor is how long the battery lasts.

Perceived performance can also indirectly influence customer satisfaction.

Disconfirmation

The judgments or evaluations that a person makes regarding a product, service or experience is called the disconfirmation of beliefs. These are made in comparison to the consumer’s original expectations.

If it outperforms expectations, the disconfirmation is positive. If it underperforms, the disconfirmation is negative. Thus, increasing or decreasing post-purchase satisfaction.

Disconfirmation mediates the relationship between performance and satisfaction.

Satisfaction

Post-purchase satisfaction is the extent of how pleased, contented or unhappy a person is after consumption.

The consumer’s disconfirmation of the perceived performance directly influences their satisfaction, satisfaction also indirectly influenced by both expectations and perceived performance through the mediating effects of disconfirmation.

How satisfied or dissatisfied a consumer has influenced their post-purchase behaviour. This includes their attitude towards the brand, their loyalty and whether they repeat purchase, and their word of mouth intent. If people are happy, they are more likely to purchase again and tell friends about their positive experience.

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The Product Life Cycle

The lifecycle of a product is the length of time it is on the market. Beginning when it is introduced into the market and lasting until it is taken off the shelves.

When a product is introduced to the market if successful, demand increases. Then, as new products enter the market and become successful, they push more dated ones from the market, replacing them.

This concept is commonly used in marketing management, helping inform the decision-making of business, such as pricing, when to increase spending on advertising, expand to new markets, redesign packaging and cost-cutting.

This life cycle has four or five stages, depending on the source. The original model used four — market development, growth, maturity, and decline.

Other versions have added a fifth, introduction, which is the second phase.

Where a product is in its life cycle impacts how it is marketed. New products have more informational marketing, whilst mature products have marketing which differentiates it from the alternatives.

Large manufacturers often have products each in various stages of the product life cycle at any given time.

Each stage has unique costs, opportunities and risks and individual products have different lengths of time when they remain at any of the life cycle stages.

The Product Lifecycle (Levitt, 1965)

Stage 1 — Market Development & Introduction

When a new product is brought to market, typically there will be some research and development behind it, to make sure it is fit for market and proven demand for it.

Before launched into the market, costs accumulate with no sales. It could take years and a large investment of capital to develop and test some products.

Next comes the introduction to the market, where the goal is to build awareness of the product.

Marketing costs here are high. To reach out to potential customers, substantial investment in advertising is made. Marketing focuses on making consumers aware of the product and its benefits.

Pricing can sometimes be higher to recover costs associated with product development.

“Unit sales are low in introduction, because few consumers are aware of the new good (or service). With consumer recognition and acceptance, unit sales begin to increase… the start of the growth stage. …As more competitors enter the industry and the market becomes smaller… Unit sales reach a plateau, and the product is in the maturity stage.” (Rink, & Swan 1979)

 

Stage 2 — Growth

If a product launch is successful and customers accept the product, it enters the market growth phase as demand increases. The size of the total market inflates, sometimes called the ‘Take-off Stage’, as the company aims to increase market share. Production, distribution and availability are expanded.

If innovation on a product is high and there’s little competition, pricing can remain high. Marketing is aimed at a broad audience as demand and profits are both increasing.

Stage 3 — Maturity

As demand and sales levels off, a product enters the market maturity stage. Sales are the highest at this phase and the costs of production decline as manufacturing becomes more efficient. Marketing costs are also reduced.

As more options become available to customers, as competition increases.

Firms may look at updated product features to stay ahead of competitors and maintain market share. Prices also tend to decline to stay competitive.

Stage 4 — Decline

When products start to lose their appeal with consumers and sales reduce, they enter the market decline phase. Market share is lost, often because of increased competition as new products enter the market, with other firms trying to emulate their success. These can be more suited towards customer needs with the advancement in technology for example or lower prices.

Firms can choose to discontinue the product and remove it from the market, find new product uses to position it differently in the market, or perhaps by exporting the product into new markets.

In any case, the firm by now should be into the research and development phase for their next product.

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Porter’s Five Forces

To help better understand and assess the competitiveness of an industry, Porter’s Five Forces model is commonly used.

“According to Porter (1980), the collective strength of the forces determines the ultimate profit potential in the industry.” (Dobbs, 2014)

Michael E. Porter from the Harvard Business School created the model in 1979. He believed that by understanding the level of competitive intensity of an industry, it will identify the attractiveness of entering that market.

Porter’s 5 Forces (1979)

Attractive markets have few competitors or there might be a gap in the market that a business can target with strategic positioning.

Emphasising the importance of identifying imperfect markets offering more opportunities that are profitable, the model provides useful information to direct a businesses’ strategic approach and marketing.

If they are an existing firm and want to a better understanding of the current market, they can analyse their current position and plan their future direction by aligning it with their strengths and addressing their weaknesses. If a new business or entering a new industry, they can highlight how they are most likely to succeed.

“…Account for long-term variances in the economic returns of one industry versus another… distilling the complex micro-economic literature into five explanatory or causal variables to explain superior and inferior performance.” (Grundy, 2006)

Applying ‘systems thinking’, the model simplifies several complicated microeconomic theories into just five components that impact a market’s long-term profitability:

• The bargaining power of the buyers
• The threat of new entrants
• Competitive rivalry
• Threat of substitution
• Supplier power

Competitive rivalry is the central box of the model, a function of the other four forces. The importance of negotiating power and bargaining arrangements is identified — this focus on external factors more prominent than in other market analysis theories such as a SWOT analysis.

Buyer Power

In certain marketplaces, buyers have more power and can apply pressure on companies to lower prices. If competition is high and the customer has many choices, they have a higher power. Buyers can also join to have a stronger influence on changing the behaviour of a firm. For example, for ethical reasons consumers might boycott a brand.

The Threat of New Entrants

What is the likelihood of new entries in the market? If an industry is perceived as attractive, increased competition is highly likely.

If too many new entrants enter that market, its potential profitability will decline. If a marketplace has few but immensely powerful players in it, they will try and make it as difficult as possible for new companies to enter that market. Other barriers to entering that market also need to be considered to do exit barriers. Entry barriers include government policies, patents and technology.

Competitive Rivalry

The current competition within the marketplace is obviously an important consideration. Understanding competitive rivalry uncovers how many competitors there are and how much they spend on marketing, what competitive advantages they have (if any), the level of continuous innovation and any differences in quality between players.

Threat of Substitution

Customers might be able to choose to substitute a product or service with another. Not to a competitor’s product from the same market — but instead, switching product categories altogether. For example, a person might stop purchasing fast food and instead purchase pre-made frozen healthy meals. The more substitute items there are, the more likely customers are to be drawn to an alternative product.

Supplier Power

Firms must research and consider different alternatives for supply in the market. Raw materials for example can vary a great deal in terms of price, quality and whether. Have the right supplier is critical. How much power does that supplier have? How many competitors do they have? Will their price be consistent or are they likely to increase it? The fewer suppliers there are, the more power they have. The cost of switching suppliers and the ease of distribution is also a consideration.

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The Ansoff Matrix

A popular framework for decision-making about growth and expansion strategies is the Ansoff Matrix. Developed by H. Igor Ansoff, it was first published in the Harvard Business Review in 1957.

His perspective was that firm must continuously grow and change to create a competitive advantage.

“Growth is essential to run a business for profit and, to study the growth, Ansoff Matrix is a planning technique used for deliberate judgment about firm growth through product and market extension networks.” (Hussain, Khattak, Rizwan, & Latif, 2013)

By analysing their market through the four components of the matrix: market penetration, market development, product development and diversification; firms identify strategic alternatives to accomplish their growth objectives.

The Ansoff Matrix (1957)

Also referred to as the Product/Market Expansion Grid, the Ansoff Matrix also helps businesses to better understand the risks of different growth strategies.

Of the four strategies, market penetration hosts less risk and diversification the most risk.

Market Penetration

Increasing the sales of existing products to an existing market is a market penetration strategy. Firms aim to increase their market share, which can be achieved in the following ways:

• Prices are decreased to attract new customers
• Promotion and distribution increased
• A competitor in the same marketplace is acquired

Often brands new to a marketplace engage a market penetration strategy through offering lower introductory prices.

Product Development

The focus of the next strategy is on developing and introducing new products to existing markets. This involves extensive research and development by a firm to expand on its product range. The strategy is usually used if a firm has a strong understanding of their current market, giving them the ability to meet the needs of the existing market by providing innovative solutions.

Characteristics of product development include:

• Investing in R&D to develop new products to cater to the existing market
• Acquiring a competitor’s product and merging resources to create a new product that better meets the need of the existing market
• Forming strategic partnerships with other firms to gain access to each partner’s distribution channels or brand

An example of this BMW and other premium automobile manufacturers adding an electric sports car model to their fleet of vehicles, to compete in the electric sports car market with Tesla and increasing consumer demand for electric vehicles.

Market Development

Entering a new market with existing products is called a market development strategy. This could be by expanding into new geographic areas, either domestically or internationally, or focusing on new customer segments (groups of buyers with similar needs).

If a company holds a competitive advantage with a certain technology, for example, it can be easily transferred into another marketplace where similar consumer behaviour characteristics with their own market, should mean it is a profitable strategy.

For example, often companies in New Zealand will expand into neighbouring Australia if they are highly successful. Australia and New Zealand share similar consumer behaviour across many segments, meaning the product or service can remain virtually unchanged.

Diversification

Using the introduction of new products as a strategy to enter a new market is called diversification. This is the riskiest strategy in the Ansoff Matrix, as both market and product development are required. But it also offers the most potential for profitability, by accessing consumer spending in a market they previously had no access to.

There are two types of diversification: related diversification and unrelated diversification.

Related diversification means there is an overlap between a business and the new product or market. For example, a company that produces plastic lunchboxes might start producing plastic bumpers for automobiles.

Unrelated diversification is where there is no overlap between the core business and the new product or market. For example, if that same company producing plastic lunchboxes was to start manufacturing steel framing for construction.

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Summary

That is the conclusion of the five theories & models that all marketers and business owners should understand.

That was a fair bit of information, I hope you can digest it all and learnt something that will benefit you and/or your business.

Marketers and business owners, in general, should always be looking for opportunities to increase their understanding of how customers think and how business works.

I hope you enjoyed the article and learnt something new. 

This content was originally posted on the BYB Marketing Blog:  https://brandyourselfbetter.com/blog/post/164457/5-theories-or-models-that-every-serious-marketer-should-know

Consumer Behaviour: Understanding the Psychology Behind Consumption

Each business should have a pretty good understanding of our target consumers, how they think, and the reasons for how they behave.

If not, it is very difficult to give them exactly they want.

The study of consumer behaviour improves decision-making a some of the guesswork is removed.

This article explores the foundations of understanding consumer behaviour so the business can make better choices with their marketing and attract more of their target customers.

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Consumer behaviour is the study of consumption. It aims to have a better understanding of consumer actions and processes used in their purchase decisions, as well as the usage of products and services and how they are disposed of.

Exploring how the consumer’s emotions, attitudes and preferences affect buying behaviour, consumer behaviour draws upon ideas from several fields including psychology, sociology, anthropology, biology, marketing and economics.

“[Consumer behaviour is] all activities associated with the purchase, use and disposal of goods and services, including the consumer’s emotional, mental and behavioural responses that precede or follow these activities.” (Kardes, ‎ Cronley, ‎ & Cline, 2010)

 

A consumer could be an individual, groups or organisations. The study of their consumption investigating characteristics such as demographics, personality, lifestyle, and behavioural variables such as usage rates or occasion. Businesses aim to understand the process and underlying motives when satisfying their needs and wants.

Through a better understanding of what causes the consumers to buy certain goods and services, marketers can better determine the needs in the marketplace and accordingly alter marketing to suit. Consumer behaviour is the who, where, when and how of consumption.

The consumer is not necessarily the purchaser. From the information provider to the decision-maker, the user, the payer or the disposer; consumers play numerous roles. Roles also vary depending on the circumstances — for example, within a family, the Mother could be the purchaser, the children consume the items and the mother also disposes of them.

An early model of understanding consumer behaviour was introduced by Belk (1975), based on a stimulus, organism and response. The stimulus an object and a situation, a person (consumer) is the organism and the response to their behaviour (consumption).

Factors that influence consumer behaviour

Consumer behaviour is not static. It changes over a period and depending on the nature of products. Societal trends change, but also does an individual over their lifetime. Equally, all consumers do not behave in the same manner. Some people spend outside their means, others are quite frugal even if they do not need to be.

For many individuals, knowledge of consumer behaviour enhances their ability to consume more wisely. Given the time and energy we devote to consuming, we should aim to be better at it and have at least a basic understanding of how marketers try and influence our behaviour.

“Most of us spend more time buying and consuming than we do working or sleeping. We consume products such as cars and fuel, services such as haircuts and home repairs, and entertainment such as television and concerts.” (Hawkins & Mothersbaugh, 2010)

Some of the factors influencing consumer behaviour are:

• Marketing factors such as product design, pricing, promotion, packaging, positioning and distribution
• Personal factors such as age, gender, education, and upbringing
• Psychological factors such as buying motives, perceptions and attitudes.
• Situational factors such as physical surroundings, social surroundings and time factor
• Social factors such as social status, reference groups, social media and family
• Cultural factors such as religion and ethnicity
• Lifestyle factors such as status, income and identity
• Geographical factors such as region, country and urban or rural.

In a household, the whole family have influence and may become involved at various stages of the decision process, performing distinct roles.

For example, the mother is often the decision-maker, Dad the purchaser, but the children important influencers.

• The Initiator -the person who proposes a brand (or product) for consideration (something in return)
• The Influencer -someone who recommends a given brand
• The Decider — the person who makes the ultimate purchase decision;
• The Purchaser — the one who orders or physically buys it;
• The User — the person who uses or consumes the product.

Some purchase decisions involve long, detailed processes that include extensive information search to select between competing alternatives. Other purchase decisions, such as impulse buys or habitual purchases, are made instantaneously with little or no investment of time or effort in information search.

All of this illustrates the many complexities of understanding consumer behaviour.

Why consumer behaviour is important to marketers

One of their biggest challenges for businesses is to stay relevant to their target market. We must ask questions of our customers such as:

Why do people buy and use certain products?

What do they buy, when do they buy it and how often?

What are their likes, dislikes and expectations?

Why do they decide to buy one product and not another?

Do consumers behave differently individually and in groups?

Consumer behaviour gives us a better understanding of what motivates consumers to make purchases, and the benefits most valued by them. Knowing what consumers value most will improve the decision-making of businesses when creating more effective marketing campaigns. Ideally to sell more! Marketing needs to be strategic to be at its most effective.

“Marketers spend billions of dollars attempting to influence what, when, and how you and I consume. Marketers not only spend billions attempting to influence our behaviour but also spend hundreds of millions of dollars studying our behaviour.” (Hawkins & Mothersbaugh, 2010)

For example, Procter & Gamble adding the word “repeat” to the instructions of their shampoo in the 1980s is a part of marketing folk law — not because it was required, but because it sold more shampoo.

Not only is consumer behaviour relevant to marketing strategy, but it is also important to research and development, management, sales and advertising.

Remember, marketing is not just advertising. It starts with marketing research — which helps us understand consumer behaviour in our market better, which then influences the product or service itself. We want to make it fit the needs of our target market as closely as possible, as it becomes easier to sell.

However, it is not an exact science. Consumer behaviour is difficult to predict. Applying the principals learnt from consumer behaviour knowledge requires human judgment, therefore is not an objective fixed set of rules.

Marketers must have a good understanding of consumer behaviour. The best way to do this is by using market research to study a range of factors that influence their target customers. Customer relationship management (CRM) statistics are an asset for the analysis of customer behaviour.

Consumption is the ultimate goal for marketers, referred to as a behavioural response. But marketing also aims to elicit an emotional (affective) responses, as well as a mental (or cognitive) responses, influencing a consumer’s thought processes. These are often antecedents for consumption.

“Consumer behaviour is of most importance to marketers in business studies as the main aim is to create and retain customers” (Kumar, 2004).

The benefit of understanding consumer behaviour

Understanding consumer behaviour habits of the target market enables marketers to take appropriate marketing decisions concerning the following factors:

• Product design — If a company fails to understand the reaction of a consumer towards a product, there are high chances of product failure.
• Pricing — what price is the target market most likely to purchase at? Is this profitable?
• Promotion — where is the best place to reach the target market? Facebook? They might spend a lot of time reading car magazines. That would be a good place to put an ad.
• Targeting — a group of consumers with the same or similar behaviour. Each group of consumers are different, their needs and wants different from other groups. Consumer differentiation will help to tailor your strategies to the needs of varying customer groups.
• Packaging — what type and style of packaging will be most attractive to customers? Does it matter?
• Positioning — communicating a brand’s point of difference compared to its competitors, to the target market.
• Branding — monitoring other brands in the customer’s consideration set to optimise planning.
• Place of distribution — what location or type of store to sell a product or service?
• Customer retention — retaining customers is cheaper than attracting new ones, so understanding what customers want is key to maintaining their loyalty.
• Predicting changing trends and behaviours — consumer behaviour changes, especially with fast-evolving technology. A consumer behaviour analysis will indicate a shifting trend so marketing efforts can be aligned accordingly.
• Innovating new products and staying relevant — many new products and services end up in failure. It can range from 33% to 90% based on the industry. Understanding customers helps businesses to design offerings that will be consumed.

Buyer decision process

The buyer decision process (or customer buying process) helps marketers to better understand consumer decision-making and how the journey from knowing about a product to making the purchase decision is completed.

The process consists of 5 distinct stages: problem or need recognition, information search, evaluation of alternatives, purchase, and post-purchase behaviour/evaluation.

Problem recognition

The buyer decision process begins with the problem recognition stage, occurring when the consumer identifies a need or want. The strength of the need drives the decision process and the consumer decides they need a product or service to satisfy this desire. Triggers of problem recognition include:

• Out-of-Stock/Natural Depletion — e.g. when you run out of toilet paper

• Regular purchase — e.g. purchasing a bottle of wine each week with the groceries

• Dissatisfaction — e.g. not happy with their current internet service provider and change to a new one.

• New needs/wants — as a family gets bigger, they purchase a bigger vehicle

• Related product — purchasing on product triggers need for accessories, spare parts or complementary products such as purchasing the latest X-Box gaming console and upgrading the TV, buying games to go with it, and extra controllers.

• Marketing induced — advertising triggers the recognition of a problem or needs that consumers did not realise they had. E.g., my internet IS slow. Yes, I do need faster internet!

Information search

The information search phase aims to identify a list of options representing realistic buying options. Consumers search their internal memory and use external sources for information about options that will potentially satisfy their need. In an internal search, the consumer scans their memory for suitable brands.

The evoked set are preferred brands, typically to around 3- 5 alternatives.

Businesses use marketing to increase brand awareness and the likelihood that their brand becomes a part of their target market’s evoked set. An understanding of their target market’s behaviours means they are can be more objective with putting marketing in places where they are more likely to see it and hopefully remember it.

External sources of search include the internet such as social media or product comparison websites, shopping around and talking to friends/family.

Information search and the next phase of evaluation can occur throughout the entire decision process.

Evaluation of alternatives

Consumers engage in a series of rational evaluations of the alternative options available to them. During this evaluation phase, consumers consider a small number of options that could be viable choices.

Being aware a brand exists does not necessarily mean it will be considered as a potential purchase. Realistic purchase options are known as the consideration set, each consumer will have distinctive characteristics they are looking for, searching for the best value and the best fit for their needs.

Different evaluation criteria are used depending on each unique buying situation, consumers assessing and then ranking the relative merits of different options available. Consumers with low knowledge about a product category tend to evaluate a brand based on functional characteristics.

Towards the end of the evaluation stage, consumers form a purchase intention.

Purchase decision

Once the alternatives have been evaluated, the decision is made by the consumer and they proceed through to the actual purchase. To increase the chances of customers purchasing with them, businesses use techniques to improve conversion rates, such as a strong call-to-action in advertising. “Buy now while stocks last!”. This encourages an immediate sale.

Some customers might know all along who they want to purchase with. Others might spend an extended period researching information about the different options available before they make their decision.

Post-purchase evaluation

This process is not complete until after the consumption of the product or service and the consumer engages in a post-purchase evaluation. Consumers compare their experience with the product or service and the perceived value with their expectations that were formed during information search and evaluation. This is called expectancy disconfirmation and is a strong driver of satisfaction.

Factors evaluated include price, functionality, and quality.

A consumer’s next purchase decision for that good or service is influenced by this evaluation. If consumers feel some uncertainty or regret towards their choice, they are unlikely to choose that brand again.

Consumer motivations

An underlying motivation drives a consumer to act and purchase. These motivations fit under the problem recognition phase discussed above.

This motivation can be either positive or negative. A positive motivation could be a pleasure — having dinner a nice restaurant or a night on the town.

A negative motivation could be the avoidance of unpleasantness such as purchasing toothpaste to minimise tooth decay, getting toothaches and having to visit a dentist.

Abraham Maslow’s well-known Hierarchy of needs model is one way to help understand the motivation.

Although not a marketing model, it is commonly applied across the social sciences. This model can help marketers to understand the unique needs and levels of motivations of customers.

It contains five levels of needs, organised accordingly to the level of importance. Lower order needs are most important, consumers typically using most of their time, energy and finances attempting to satisfy these.

Only then can they move onto the higher-order needs and they become meaningful.

• Physiological is a human’s basic levels of needs such as food, water and sleep. We need these to survive.
• Safety is the need for physical safety, shelter and security. Purchasing a house or paying rent.
• Belonging the need for love, friendship and a desire for group acceptance. A man buys his new wife an expensive ring when they get married.
• Esteem is the need for status, recognition and self-respect. Purchasing the latest BMW car or a designer handbag and shoes.
• Self-actualisation is the desire for self-fulfilment such as personal growth or artistic expression. You might over to the other side of the world to see a motivational speaker such as Tony Robbins at a conference.

The Co-Creation of Value: Everybody Wins

How the customer and firm can co-create value together to both get what they want.

In 2020, customisation and giving the customer exactly what they want is becoming the norm. How do we give customers exactly what they want? One way is by letting them co-create value.

This week’s article explores the co-creation of value as a strategy and how this approach creates unique value for customers, creating a competitive advantage.

Influencer Marketing in 2020 - Are We Sick Of It Yet?

Influencer Marketing is one of the biggest marketing trends for the past five years. 

If you spend much time browsing Instagram or YouTube, no doubt you will have come across an internet celebrity with a sponsored post or product placement promoting some random brand. 

So how does it all work?

Are Influencers still relevant? 

Or are we getting sick of unauthentic posts from celebrities endorsing a product they don't use? 

What is Influencer Marketing?

Social media influencers are individuals who create content promoting certain brands through social media sites like Instagram, YouTube, Twitter, and Facebook. This is a marketing strategy used by brands who hire these influencers to increase their interactions with their target customers online, increasing their brand awareness and recognition, increasing sales.

These influencers have built a following online through their prominent personal branding.

“Influence can be broadly defined as the power to affect a person, thing or course of events. Influence manifests itself in many ways, from direct purchase advice to subtle shifts in perception of a vendor’s credibility.” (Brown & Hayes, 2008)

Influencers are people who have built a reputation online for their knowledge and expertise on a topic or lifestyle or because of their status. This reputation gives them social influence in their specific niche or area of expertise/fame, their followers taking note of their actions and opinions.

Unlike celebrities of the past who often lead very private lives, influencers give followers access to a snapshot of their personal lives. This glimpse into the good life creates a bond and helps influencers to win the trust of their target audience.

These social relationships become assets for influencers to collaborate with brands to help them reach their marketing goals, as they have the power to affect the purchase decisions of others through their authority and trust of their following. This provides credibility for brands with a shared target audience.

Social media uses love to feel like they can relate to the people they respect and follow. What better way of doing this than consuming the same products? Because of this, social media influencers can often create trends.

Influencers post content on their social media accounts to advertise the brands through product reviews and endorsements and commonly use product placements. This application of a brand into a “real life” situation (social media is often a little staged) entices their audience to view the product positively.

An influencer can have as little as 1,000 followers, or the top celebrity influencers now have hundreds of millions. Portuguese professional footballer Cristiano Ronaldo is the biggest, now at almost 240 million followers.

“Social media influencers represent a new type of independent, third-party endorsers who shape an audience’s attitudes through blogs, tweets, and the use of other social media channels.” (Freberg, Graham, McGaughey, & Freberg, 2011)

The Benefits of Influencer Marketing

The major drawcard of using influencers in a marketing strategy is their ability to give a brand a wider audience online. The following statistics are an indication of the effectiveness of influencer marketing:

• 92% of marketers surveyed believed influencer marketing is effective at generating and converting leads in generating leads (Influencer Marketing Hub).
• One study found that every $1 spent on influencer marketing produced an average return of $18 (Oberlo).
• 80 percent of consumers surveyed had purchased a product after it seeing it in an influencer’s post (Oberlo).

The use of social media influencer marketing as a public relations and marketing strategy has removed many of the barriers between consumers and brands, changing the way they interact. Brands use influencers as a tool to attract and enhance relationships with their target audience, as many social media users use influencers to help guide their target market with their decision making.

The trusting relationship followers have with influencers means their recommendations are almost as trusted as a recommendation from a friend — one study found “56% of users surveyed said they rely on recommendations from friends, while 49% said they rely on influencers” (See Woods, 2016). 

This recommendation from a trusted influencer strengthens a brand’s credibility and reputation, which can form a relationship with the brand.

Influencers help to increase brand awareness of their clients and broaden their audience through the exposure of the brand to their followers. Brands need to choose a relevant influencer who is popular and relevant to their target audience. They give brands a fresh perspective, as they are already regularly creating unique and engaging content for their audience. Their audience perceives this marketing content as more credible and authentic than traditional advertising due to the trust the influencer’s following has.

Brands can now target audiences through influencers that were previously unreachable through mass marketing. Nano and Micro-influencers often have strong followings and credibility in niche markets and communities that traditional marketing cannot reach.

“You log onto Instagram and a celebrity confesses their love of Chipotle with a burrito in their hand. Later you are scrolling through Twitter and one of your friends tweets an image with their Starbucks Frappuccino. Both of these are examples of influencer marketing, the only difference being the first one is paid by advertisers and the second is not. This blurring of the lines between what is a genuine endorsement and what is a paid one through content-rich platforms is what makes influencer marketing so powerful.” (Woods, 2016)

How is influencer marketing so effective?

Social media has broken down the barriers between been brands and their consumers. Influencers have made this even more of a two-way relationship, where previously advertising was one very one way.

influencers promote brands by using them in their personal lives, it does not seem like advertising. The product placements they use in an everyday setting makes brands seem more relatable to consumers. In this sense, influencers serve are a connector between a brand and a consumer.

Through openness and honesty in their social media content, influencers seem authentic, giving them credibility with their audience (We’ll talk about this further later).

Social media followers learn from the example of influencers, and through this observation, people have a higher likelihood of adopting those behaviours. Social Learning Theory (see Bandura, 1969) proposes that people can develop new social behaviours through observing and imitating others.

Electronic Word of Mouth can also explain why using influencers is so powerful — this is any positive or negative statement made about a product or brand online. Word of mouth is one of the most credible and trusted sources of marketing and helps form consumers’ opinions on products and services. Consumers are more likely to have a positive perception of a message from a friend or a trusted influencer than a sponsored post that comes from a company.

Types of Influencers

Not every influencer has celebrity status. There are four broad categories of influencers:

1. Celebrities

2. Industry experts and thought leaders

3. Bloggers and content creators

4. Nano, Micro & Macro Influencers

Celebrities

The top tier of influencers is celebrities. They could be sports stars, actors, pop stars or just people who are famous for being famous. The Kardashian and Jenner family the perfect example of the latter, with three of the family (Kim, Kylie and Kendall) in the top 10 most followed on Instagram.

These celebrity influencers typically have more than a million followers and tend to have a wide range of followers rather than in one niche. The cost to use this celebrity influencers is extremely high, and their followers are not as defined — they often come from all walks of life.

Top 5 Instagram Influencers in 2019 (https://hypeauditor.com/top-instagram/)

Industry Experts and Thought Leaders

Influencers can also gain their status by gaining it through their qualifications, position, or experience in their area of expertise. They often gain this reputation and respect through having a prominent role in the workplace. For example, although now you could almost consider her a celebrity, New Zealand’s Prime Minister Jacinda Adern, has a large following on LinkedIn and Facebook.

These experts and thought leaders include journalists, CEOs at large corporations, academics and industry experts.

Content Creators and Bloggers

Content creators are everywhere on YouTube, Instagram, TikTok and even LinkedIn. They typically post a variety of informational content about a topic of interest and build a following through this. These influencers differ from industry experts as they are not in a position of power or have widespread credibility because of their professional reputation. They can be small business owners or just passionate about a certain topic.

One such niche which is growing in prominence is gaming. Gaming influencers live-stream their games over YouTube or other video platforms and their fans watch to get better at the game. Brands can promote products and offers through these streams to generate sales. For example, a headset or controller brand. 

A gaming influencer called PewDiePie has over 100 million followers on YouTube.

Bloggers publish content on topics such as travel, marketing, fashion, lifestyle or business and promote their blog content across various social media platforms. Those with a large following become a credible authority in their niche so their audiences are likely to trust their recommendations.

Nano, Micro and Macro Influencers

Nano and Micro-influencers are the other end of the scale from Celebrities. Nano influencers have small followings of under 10,000 and Micro-influencers are the next tier up with between 10,000 to 10,000 followers.

These influencers are typically are normal people with normal jobs, who have become well known because of their content and knowledge in a specific niche. They are credible and their social media following are people interested in that niche and engage often in their content. They have a strong relationship with their following and because of this, they usually do not want to harm their reputation through promoting something that does not fit.

They are likely to become vocal and loyal advocates for a brand and their audience are more likely to perceive their recommendations as an authentic testimonial, instead of the branded endorsement of a celebrity.

These influencers are perfect for small businesses with modest marketing budgets.

Macro Influencers sit between Micro-influencers and Celebrities, sharing characteristics of both, usually having a following of between 100,000 and 1 million people. A bigger audience than micro but not the same loyal following. Often Macro Influencers found their fame online, through being a content creator on YouTube for example.

Current Influencer trends for 2020 and beyond

The use of influencer marketing has exploded over the past five years. But there has recently been some backlash against influencer marketing (more about that soon), however, the online search for “influencers” search term itself has seen a 1500% increase between 2016 and 2019 (https://influencermarketinghub.com/). This shows influencer marketing still has a massive relevance to businesses.

There are still plenty of businesses investing in influencer marketing according to Oberlo:

• Nine out of 10 marketers believe that influencer marketing is effective
• 93% of marketers used influencer marketing in 2019
• 57% of marketers plan to increase their influencer budgets in 2020.

Influencer Fatigue

Even though social media users know that brands pay influencers for their endorsements, many are still able to remain a trusted and authentic source to their followers. However, this is starting to change. People are getting sick of plastic and unauthentic social media posts that are obviously staged, where a promoted product is different from an influencer’s niche that they do not even use it. 

Why would you trust somebody just saying something just for the money?

The growing demand for authentic content from Gen Y and Z has means that some brands are starting to move away from the use of influencers. They want REAL content and that is what they enjoy engaging with.

‘Faking’ Influence

The use of fake followers and likes has become increasingly more widespread, where a person pays for artificial engagement and growth to boost their social media accounts. Bots often used to inflate these numbers — Numerous influencers were caught using these services. This artificial following used to ‘trick’ brands into collaborating with them

I too have been approached many times by direct message on Instagram, asking if I want to increase my number of followers and get a certain amount of likes per post, for a fee.

“For social media influencer’s whose focus is on lifestyle branding, authenticity is key… The influencer being genuine, honest, and open with her followers. Authenticity allows an influencer to relate with followers on a new level and aids in building a relationship between followers and brands.” (Glucksman, 2017)

Celebrity Influencers are out, Nano-influencers and Micro-influencers are in

The influencer game is changing. Celebrity influencers are no longer as popular as they used to be, as brands move toward the use of teams of micro-influencers instead of using one or two celebrities. Nearly 80 percent of the brands surveyed by Linqia said they want to work with micro-influencers in 2020.

Celebrity influencers require a large pay-check, sometimes of hundreds of thousands or even a million dollars per social media post. If the content does not come across as authentic, then the return on investment is not going to be as high as using micro-influencers with a more genuinely engaged following.

Contrasting the perfect image portrayed by many celebrity influencers (how can that be real?), micro and nano influencers create content that is not glamourous or staged. This is a lot more believable.

Influencers are employed for their ability to influence people. Not just because they have a following. Having the ability to influence the decision-making of consumers in a niche is key.

Businesses must weigh up an influencer’s following with their credibility with their target audience.

The internet has allowed the fragmentation of media into small niches and communities. Because of this, Nano and Micro-Influencers are becoming more attractive; with their penetration into these communities where they have engagement and credibility.

The use of Employee Advocates as influencers

A study by MSL Group suggests that brand messages are re-shared 24 more often when distributed by employees than by the brand itself.

Employees can be immensely proud of where they work and happy to spread positive messages about their company and brands. They live and breathe the brand, so often have the tremendous insight they can share that does not come across as staged or inauthentic and they become the perfect candidate for an influencer. Therefore, businesses should encourage their staff to be advocates — especially on a platform like LinkedIn. 

They might not have much of a following, but it costs nothing, and a team of enthusiastic staff can have as much reach as one or two paid influencers in their niche.

Customer Service: why it matters and 10 key skills

 

Customer service is a vital component of the consumption experience to any firm who wants to retain customers and grow their business. 

Great customer service means customers are likely to come back, but a subpar experience means they are unlikely to come back. 

What Is Customer Service?

Customer service is the support provided by a firm or brand to the customers or potential customers of their product or service. It can happen before, during or after customers purchase or use a product or service. Firms aim to meet the needs, desires and requirements of these customers through delivering professional and supportive and assistance, to ensure an easy and pleasant consumption experience.

Customer service can be face to face in a store, over the phone, through digital activities such as text, social media messaging or email, or by automated means such as an ATM. This interaction between a service organisation and its customers or clients is referred to as a service encounter and a firm has the opportunity to form an impression with customers every time they come into contact.

“Interpersonal interaction between an organisation’s employees and its customers… have a high “impact” on the consumer and the quality of the service encounter… thus a vital ingredient in the overall quality of service experienced by the customer.” (Lewis & Mitchell, 1990)

Why is customer service important?

Customer service is part of the promise brands give customers. There is now an expectation from customers that businesses provide a certain quality of customer service. This is especially true in the services industry. Even the local mechanic now needs to step up their game. Businesses need the ability to learn, identify and adapt to the needs and wants of consumers. Customer-oriented firms have a higher ability to anticipate the developing needs of consumers and respond with goods and services.

Customer service that is at least on par with competitors is critical to competing effectively. If it is better, it can give you a competitive advantage. Customers do not shop based on price as often as they used to. Instead, their overall experience is often the motivator.

“89% of companies now expect to compete mostly on the basis of customer experience.” (Gartner Research, 2014)

It is cheaper to keep existing customers than to acquire new ones. But it is not as simple as just having great products to retain them — your customer service needs to be on point. Bad customer service is enough for previously loyal customers to choose a competitor — if customers are not happy with the service, chances are they will leave.

The benefits of great customer service

Providing customers with an elevated level of service quality has a positive relationship with brand performance and customer satisfaction. Service quality is how well the delivery of that service matches customers’ expectations. Satisfaction has a positive relationship with repeat purchase, and this is particularly true for service industries. Customers are satisfied when a firm performs better than they expected.

Prioritising customer service support might increase the costs of a firm through needing extra staff or tools/technologies, but there are a few benefits that should outweigh the investment. Studies have indicated that over 80 per cent of people would pay more for better customer service.

Some other benefits of providing great customer service include:

• customers are more satisfied with their experience
• enhanced perceptions of the firm’s overall market strategies
• increased positive word of mouth and referrals attracting new customers
• increased customer loyalty and repeat purchase
• increased ability to upsell or cross-sell relevant services
• customers can be willing to pay higher prices for a better experience
• customers perceive products and services as having better quality
• customers perceive the servicescape as being of higher quality

The customer service of a firm or brand can ‘make’ or ‘break’ their reputation.

“…Organisational culture that stresses the customer as the focal point of strategic planning and execution…  Employees consistently exhibit customer-oriented behaviours, and consumers thereby become accustomed to this philosophy.” (Brady & Cronin Jr, 2001)

Having somebody yell through the phone line is nothing new to customer service representatives

Bad customer service

In the world of mobile phones and social media, it is hard to hide a bad customer experience. People can quickly share a negative experience online, which can reach a large audience. With many people using Google search to check out a business, a couple of bad reviews can make a significant difference. People are more likely to share a negative experience on social media or talk about it with their friends than they are with a positive experience.

How can firms improve their customer service?

Improving customer service means making every touchpoint great and not letting any interaction fall between the cracks. There must be consistency across the organisation in providing a great customer experience.

In 2020, it is not enough for firms to only use the traditional means of customer support such as over the telephone for customer support. Customers expect to be able to reach organisations by whatever means they find convenient, whether it is email or social media. Therefore, firms must have a comprehensive approach and provide a range of customer service options to customers.

Businesses can also provide self-service support to customers so they can find the answers they require without needing to deal with customer support staff.

A customer orientation

Marketing has progressively moved towards a customer orientation since Leonard Berry’s seminal writing on Relationship Marketing (1983), now considered a fundamental principle of marketing. To be customer-oriented implies that a firm focuses on the customer as the centre point of their strategic planning and execution. They aim to identify and adapt to consumers’ needs and wants as a competitive strategy through learning from customer perceptions of their experience.

“Having a customer orientation has a positive influence on customer perceptions and, ultimately, the performance of firms.” (Brady & Cronin Jr, 2001)

A customer’s evaluation of the overall service quality is determined by three factors: employee service performance, physical goods/service quality, and servicescape (place of business) quality. Firms must be proactive in collecting and analysing customer data for a better picture of how they are performing and the needs and wants of customers, and to act on this information.

Digital tools for customer service

In the digital age, consumers now have several methods available to communicate with customer service representatives.

Over the past few years, social media has become increasingly popular to request and receive customer service. It is an expectation now to be able to send a message via a major brand’s Facebook page with any questions or problems you may have related to their products or services and receive a prompt response. Around half of the internet users now turn to social media for help. Accordingly, many large organisations implemented dedicated customer service teams to respond to social media messages. Studies (see Xu, Liu, Guo, Sinha & Akkiraju, 2017) have indicated that users who message a brand’s Twitter account expect a response within an hour.

This consumer demand for an instant response and the time-consuming nature of manually addressing these requests lead to the rise of AI for customer service on social media. This led to the creation of chatbots to automatically generate responses for user requests on social media and now on websites. These chatbots provide an opportunity for brands to provide individualised attention to consumers.

“Marketing is concerned with exchange relationships between the organisation and its customers. Quality and customer service are key linkages in this relationship.” (Christopher, Payne & Ballantyne, 91)

A genuine smile goes a long way in customer service 

Key customer service skills

As much as a firm can have a customer orientated strategy, much of the responsibility for great customer service falls on the staff members. Luckily, customer service is a skill that people can learn and develop, rather than a personality trait you either have or you do not.

Here are ten customer service skills that are key to providing great customer service.

1. Patience

Patience is vital for anybody with customer service in their role. From real estate sales to a check out operator at a supermarket. Customers who reach out to support are often frustrated and at their wit’s end. Sometimes they want to vent. There could be a simple solution, but let the customer get it out of their system. For example, a study found that 40% of user requests on Twitter are emotional and not intended to seek specific information. Empathy goes hand in hand with patience, which is a person’s ability to understand another person’s feelings. A staff members ability to see an issue from the customer’s point of view is a huge advantage and customers appreciate it.

2. Listening

The ability to truly listen is not only a key skill for customer service but life in general. Listening allows you to fully understand the customer’s point of view and solve their problem. When you do not listen, it is easy to get it wrong and create a frustrating experience for the customer. Customer service reps can often jump to conclusions about a solution, which can come across as rude and brash. Take time to listen and understand customer issues, it will show you value their needs.

3. Communication

It might sound obvious, but how you communicate with customers is key to their experience. You do not want to come across as condescending, grumpy or rude — this will translate into a negative experience. It is important to be mindful of how staff communication comes across. As well as attitude, the clarity of the communication during customer service is key providing the right outcome. The last thing you want is more confusion on the part of the customer because they do not understand what they are supposed to do or what the solution is.

4. Learning

By learning about the issues and concerns of their customers, so they can provide a solution. How do we learn from our customers? By asking questions and listening when interacting. The more your customer service staff know about your customers’ needs, the more of an asset they are to both the organisation and the customers.

If the same customer issues come up consistently, chances are you have not learnt from this to provide an adequate solution. Staff must communicate these issues to management so they can plan to resolve the problem. If your customer service team is working like a well-oiled machine and learning from the feedback, you will start anticipating problems instead of just solving them.

5. Time management

Customers often expect a resolution as quickly as possible. They hate to wait — especially over the phone, so long waiting times can negatively affect customer experience. So, whilst patience and taking time with customers is important, there is a limit to how long you should commit to each customer. Firms should provide customer service employees with the information and tools to support their customers are as quick as possible. Staff training can help improve resolution times.

6. Composure

Customer service staff must have the ability to stay consistently calm under pressure, even if they are experiencing difficulties with an upset customer. This cool demeanour can help calm down the customer and keep the conversation as objective as possible to find a resolution to their issue. Emotion triggers many of the interaction customers have with customer service, so it is key for staff to remain level-headed — even when customers are being insulting to them or their firm. The staff that can think on their feet are a huge advantage — not every interaction will be in the training manual. Expect the unexpected.

7. Negotiation

Often staff members will need to negotiate with customers to find a resolution. Conversations need to end with a solution and/or with the customer feeling that the firm have (or will) taken care of their needs. Negotiation is not arguing — it is important to remain calm and have a constructive conversation. There will always be one party who feels like they have come out better off than the other party — make sure that is the customer! Do not just give in to the customer demands, there must be some give and take. Customer service staff require good persuasion skills when there is no obvious solution, this reasoning can help convince the customer of a suitable outcome.

8. Teamwork

Teamwork and customer service go hand in hand; both staff and customers will benefit when customer teams work together as resolutions to the customer issues are faster. One customer service representative will never have all the answers, so there must be open communication lines across teams to find a solution to each unique issue. Large firms often have several dedicated customer service teams for different requirements. There might be one team for technical support, another team for accounts and billing, and another team for general inquires. In smaller firms, provide all employees with some customer service training so they can help when required.

9. Positivity

It can be a challenge for customer service staff to spend their days dealing with customer complaints and negativity that comes along with the role. However, it is a key customer service skill to remain upbeat and positive. If staff meet customers with a smile and a cheerful attitude, it makes customers feel a lot better. This can put staff on the front foot when trying to find a resolution. It also creates a better work environment. If staff are happy and they can feel other staff are happy, they enjoy their jobs more and become more productive.

10. Product & brand knowledge

The more your sales staff know about your product or service, the better they are at selling them. Similarly, with customer service, the better staff become at providing a solution. Training should be a key part of customer support. Many large companies onboard every new employee to ensure they know their products inside and out. Onboarding is the process of integrating new employees into an organisation, familiarising them with the products and/or services. The best customer service staff have intimate knowledge of how their products work or order to find each customer an adequate solution to their problems.

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In summary, this article has explored how great customer service can positively influence the performance of a firm and 10 key skills for customer service staff. 

I hope you enjoyed this week’s content and learnt some new tips and strategies for improving your firm’s customer experience.