Chapter 15 Beyond Consumer Relationships What Do You Think Polling Question When I have a good experience with a brand, I reward it by telling my friends how great it is. _____ Strongly Disagree _____ Disagree _____ Somewhat Disagree _____ Neither Agree nor Disagree _____ Somewhat Agree _____ Agree _____ Strongly Agree Have students access Course Mate at www.cengagebrain.com to answer the polling questions for each chapter of CB. Ask them to take the online poll to see how their answers compare with other students taking a consumer behavior course across the country. Then turn to the last page of the chapter to find the “What Others Have Thought” box feature. This graph is a snapshot of how other consumer behavior students have answered this polling question so far. Learning Objectives After studying this chapter, the student should be able to: 15-1 List and define the behavioral outcomes of consumption. 15-2 Know why and how consumers complain and spread word-of-mouth and know how word-of-mouth helps and hurts marketers. 15-3 Use the concept of switching costs to understand why consumers do or do not continue to do business with a company. 15-4 Describe each component of true consumer loyalty. 15-5 Understand the role that value plays in shaping mutually valuable consumer relationships. Lecture Example Switching costs vary with products. While switching cell phones is fraught with barriers, replacing a car is not. High switching costs may often lead to the abuse of brand loyalty by companies. Conversely, the removal of switching costs may lead to a drop in price. The prevailing view on switching costs affirms that a reduction in such costs would lead companies to lower prices in order to gain new customers. In an environment where the competitive intensity is high and switching costs low, dissatisfied customers are more likely to opt for a switch. Source: “The High Cost of Loving Your Phone,” The New York Times, June 11, 2010, http://www.nytimes.com/2010/06/13/technology/13every.html Lecture Outline with PowerPoint® Slides LO: 15-1. List and define the behavioral outcomes of consumption. I. Outcomes of Consumption CB does not end with the transaction. In fact, a transaction can be a starting place. To help bring customers back, many companies offer satisfaction guarantees. Are all companies really interested in complete satisfaction? If consumers could not return to do business again, the pursuit of satisfaction would represent a purely altruistic exercise. Many firms might lose interest in serving customers if the only opportunity to do business with them is in their first transaction. Exhibit 15.1 illustrates post-consumption CB by expanding the disconfirmation framework traditionally used to represent consumer satisfaction. Disconfirmation results from a cognitive comparison of what a consumer thought would happen (expectations) with the consumer’s actual performance perception. Procedural justice refers to the extent that consumers believe the processes involved in processing a transaction, performing a service, or handling a complaint are fair. At times, a consumer may think the process to get a refund was too difficult but may think the refund itself was fair. In such a case, procedural justice contributes to inequity, but distributive fairness contributes to equity, since the consumer believes the refund was just. Post-consumption cognitions lead to an affective reaction most conventionally represented by consumer satisfaction or dissatisfaction (CS/D). This particular model recognizes that the evaluation process could lead to any number of varying affective outcomes, many of which have stronger behavioral reactions than CS/D. Exhibit 15.1 lists the behaviors; although three of them seem negative, if companies possess the expertise to respond to the behaviors appropriately the result can be a positive value experience for company and customer alike. The term critical incident refers to exchanges between consumers and businesses that the consumer views as unusually negative. [Instructor PPT Slide 5] LO: 15-2. Know why and how consumers complain and spread word-of-mouth and know how word-of-mouth helps and hurts marketers. II. Complaining and Spreading WOM A. Complaining Behavior Complaining behavior occurs when a consumer actively seeks out someone to share an opinion with regarding a negative consumption event. The person may be a service provider, a supervisor, or someone designated by a company to take complaints. Consumers complain about many things, but waiting ranks second only to rude service among things consumers voice complaints about. Complainers Generally, people think of dissatisfied customers as complainers. Not all dissatisfied customers complain. In fact, far less than half of customers experiencing some dissatisfaction complain to management. This means that for every poor service encounter management hears about from a complaining customer, estimates suggest about 20 other customers had something to complain about but chose not to voice that complaint to management. Consumers who complain experience different emotions than do those who do not complain. In contrast to consumers who are merely dissatisfied, angry consumers are very likely to complain and, at times, the anger becomes very strong and reaches the stage of rage. These consumers complain and more. In addition, consumers high in price sensitivity are more likely to complain than consumers with some indifference about the price paid for a service. [Instructor PPT Slides 5, 6] The Result of Complaining Exhibit 15.2 provides a summary of what happens when consumers do or do not complain. The fact of the matter is that for consumers as well as marketers, complaining pays off. The U.S. Better Business Bureau (BBB) reports that over three out of four consumer complaints across all industries are resolved in a way that leaves the customer satisfied. The following list gives service providers advice for handling consumer complaints effectively: Thank the guest for providing the information. Ask questions to clarify the issue. Apologize sincerely. Show empathy for the customer’s situation. Explain the corrective action that will take place. Act quickly. Follow up with the customer after the corrective action. Today it’s easier than ever for consumers to complain publicly. Certain websites allow consumers to lodge formal complaints, make their complaints public, and get advice on the proper steps to follow should the consumer need to take further official action. Q: Ask students to share their experiences of being dissatisfied with a service. Did they complain? What action was taken by the service provider to rectify the situation? A: Students’ answers will vary. Every student will have his or her own experience to narrate. Responses Pay Off A host of evidence suggests that it’s better for companies to respond aggressively to complaining. Companies sometimes do more than just offer a refund when a service has gone bad. Sometimes, the something more comes in the form of a coupon or voucher that amounts to a prepayment for future purchases. However, for firms that act slowly, taking a week or more to respond, complaining consumers reduce their spending by a total of over $1 million per year. The Result of Not Complaining So, what happens when the consumer does not complain? These customers are likely to be very appreciative and become more likely to maintain a relationship with the firm. Revenge On occasion, consumers’ verbal complaints to the marketing company do not eliminate the negative emotions they are experiencing. Rancorous revenge is when a consume yells insults and makes a public scene in an effort to harm the business. Retaliatory revenge is a term that captures these extreme types of behavior. Revenge often occurs out of feelings of inequity; in particular, violations of procedural or interactional justice can lead to revenge. B. Word-of-Mouth/ Publicity Negative word-of-mouth (negative WOM) takes place when consumers pass on negative information about a company from one to another. Some estimates suggest that consumers who fail to achieve a valuable consumption experience are likely to tell their story to more than ten other consumers. WOM is not always negative. In fact, positive WOM occurs when consumers spread information from one to another about positive consumption experiences with companies. Conventionally, negative WOM is seen as more common than positive WOM. Further, consumers who have bad experiences with companies become agents of positive WOM if they believe the transgression was handled with high procedural justice. [Instructor PPT Slide 7] Negative Public Publicity When negative WOM spreads on a relatively large scale, it can result in negative public publicity. Negative public publicity could even involve widespread media coverage. The outcome of such events questions the old cliché that bad publicity is better than no publicity at all. Sometimes, negative publicity starts with an individual consumer behavior. Consumers have more options than ever when it comes to spreading negative publicity. Q: Ask students to describe the incidents where they participated in negative WOM and positive WOM. A: Students’ answers might vary. Students would engage in positive WOM if they are satisfied with a product and if they are dissatisfied with a product then they will tend to engage in negative WOM. How should a firm handle negative public publicity? Here are some alternative courses of action: Do nothing; the news will eventually go away. Deny responsibility for any negative event. Take responsibility for any negative events, and be visible in the public eye. Release information allowing the public to draw its own conclusion. Doing Nothing Doing nothing is neither the best nor the worst option. Taking action seems to be a responsible thing to do, but the action might backfire and bring more attention to the issue. Sometimes, an issue may be so politically sensitive that any response has the chance of being misinterpreted. Other times, a claim is just ridiculous and responding may only give it some credibility that it does not deserve. Denying Responsibility Denials can also be tricky given the potential to bring attention to something that may not even be true. Denials should be made only when the evidence unambiguously supports the actual truth. Taking Responsibility One might easily see that attribution theory plays a role in dealing with negative publicity. If consumers blame the company for the event surrounding the negative public publicity, then the potential repercussions appear serious. However, public action taken to deal with any consequences of a negative event can mollify any negative effects. Releasing Information Sometimes, a company may be able to release some counter-PR to media that allows consumers to make up their own minds about the potential source of any negative PR. If this is done properly, the company does not publicly deny any allegation about the event and instead insists that actions are being taken to get to the bottom of the event. Participating in Negative WOM Consumers can be angry when they believe they have been wronged in this way, and these actions are a small way of trying to get revenge. Consumers who spread negative WOM without complaining to the company itself are particularly likely not to ever do business with that company again. [Instructor PPT Slide 8] Implications of Negative WOM One reason why consumers share negative WOM is as a way to prevent other consumers from falling victim to a company. Thus, negative WOM can hurt sales. However, this is not the only potential effect. Negative WOM also can damage the image of the firm. When a consumer hears the negative WOM from a credible source, that information gets stored and associated with the schema for that brand. Thus, not only is the consumer’s attitude toward the brand lowered, but the consumer will also find the firm’s advertising harder to believe. [Instructor PPT Slide 9] Third Party Endorsements Not all publicity is negative. Consumers often see publicity as more credible than advertising because the source is someone other than the firm. A third-party endorsement represents one form of publicity in which an ostensibly objective outsider (neither the customer nor the business) provides publicly available purchase recommendations. These come in two forms. The first type makes recommendations based on cumulative consumer ratings. The second type involves recommendation from subject experts. LO: 15-3. Use the concept of switching costs to understand why consumers do or do not continue to do business with a company. III. Switching Behavior Exhibit 15.1 suggests that a consumer evaluates a consumption experience, reacts emotionally, and then, perhaps, practices switching behavior. Switching, in a consumer behavior context, refers to the times when a consumer chooses a competing choice, rather than the previously purchased choice on the next purchase occasion. All things considered, consumers prefer the status quo. Change brings about, well change, and this can mean costs that diminish the value of an experience. Thus, the consumer will incur some switching costs, or the costs associated with changing from one choice (brand/retailer/service provider) to another. Switching costs are one reason why a consumer may be dissatisfied with a service provider but will continue to do business with them. Switching costs can be divided into three categories: Procedural Financial Relational A. Procedural Switching Costs Procedural switching costs involve lost time and effort. Although Apple computers have a stellar reputation for being easy to use, many computer users stick with PC models. B. Financial Switching Costs Financial switching costs consist of the total economic resources that must be spent or invested as a consumer learns how to obtain value from a new product choice. A new car purchase may involve an increase in insurance, for instance. C. Relational Switching Costs The relational switching cost refers to the emotional and psychological consequences of changing from one brand/retailer/service provider to another. [Instructor PPT Slide 10] D. Understanding Switching Costs Exhibit 15.3 demonstrates the conventional consumer behavior theory that explains switching costs. Consumers become dissatisfied for any number of reasons, and these reasons and dissatisfaction together determine how likely a consumer is to return on the next purchase occasion. Equity judgments, in particular perceptions of unfair treatment, are particularly prone to lead consumers to switch. Perceptions of unfair prices may make consumers temporarily angry, but they also create lasting memories. [Instructor PPT Slide 11] Q: Ask students to provide an example to illustrate the concept of switching. What switching costs did they incur? A: Students’ answers may vary. Students should explain the reason for switching and they should explain the procedural, financial, and relational switching costs associated with their decision. E. Satisfaction and Switching The intermingling of consumer satisfaction/dissatisfaction and switching costs has received considerable attention. In fact, in addition to the measurement difficulties associated with CS/D, switching costs are another important reason why CS/D results often fail to predict future purchasing behavior. Exhibit 15.4 summarizes how vulnerable a company to consumer defections based on the interaction between switching costs, competitive intensity, and consumer satisfaction. As can be seen in Exhibit 15.4, dissatisfaction does not always mean that the consumer is going to switch. Before reaching a conclusion on vulnerability to losing a customer, one also has to take into account at least two other factors. For instance, the amount of competition and competitive intensity also play a role in determining who switches. Competitive intensity refers to the number of firms competing for business within a specific category. When competitive intensity is high and switching costs are low, a company is vulnerable to consumers who will switch providers even when customers are satisfied. The consumer has many companies vying for the business, and changing presents little barrier. In contrast, Exhibit 15.4 suggests that even when consumers are dissatisfied, they may not switch. LO: 15-4. Describe each component of true consumer loyalty. IV. Consumer Loyalty A. Customer Share Marketing managers have come to accept the fact that getting business from a customer who has already done business with the company before is easier than getting a new customer. This basic belief motivates much of relationship marketing. One important concept is customer share, which is the portion of resources allocated by a consumer to one brand from among the set of competing brands. Some managers use the term share of wallet to refer to customer share. Exhibit 15.5 illustrates customer share. Consumer Inertia The concept of consumer inertia presents an analogy. Consumer inertia means that a consumer will tend to continue a pattern of behavior until some stronger force motivates them to change. In fact, resistance to change is one of the biggest reasons why new products fail in the marketplace. Change often means consumers must give something up. Loyalty Programs Many marketers have experimented with loyalty cards or programs as a way of increasing customer share. A loyalty card/program is a device that keeps track of the amount of purchasing a consumer has had with a given marketer (as well as a list of actual items purchased by the consumer); once some level is reached a reward is offered, usually in terms of future purchase incentives. However, the results are mixed with respect to the effectiveness of loyalty cards. In fact, they can sometimes even backfire by appealing too strongly to consumers who are bargain shoppers. Consumers with a strong economic orientation display lower customer share with all competitors, instead choosing to shop in the place with the current best offer. [Instructor PPT Slides 12, 13] Q: Are loyalty cards important to you as a consumer? Do you shop in certain places because of your loyalty card? A: Students’ answers might vary. The loyalty card and its promise of rewards or discounts might be tempting to most consumers. That may be the only thing cementing the relationship between the customer and the service provider. B. Customer Commitment True consumer loyalty consists of both a pattern of repeated behavior as evidenced by high customer share and a strong feeling of attachment, dedication, and sense of identification with a brand. Customer commitment captures this sense of attachment, dedication, and identification. Exhibit 15.6 depicts the components of loyalty. Customer share is behavioral, and commitment is an affective component of loyalty. Highly committed customers are true assets to a company. They are willing to sacrifice to continue doing business with the brand and serve as a source of promotion by spreading positive WOM. [Instructor PPT Slide 14] C. Preferred Customer Perks Loyalty programs reward good customers with perks. From a behavioral learning perspective, these can be looked at rewards that condition behavior so that consumers repeat good behavior (like buying drinks at Starbucks). Although perks often are very expensive for companies to provide, they make sense because the so-called good customers are disproportionately profitable for the companies. D. Antiloyalty Loyalty is almost always discussed from a positive perspective. However, at times consumers act in an antiloyal way. Antiloyal consumers are those who will do everything possible to avoid doing business with a particular marketer. Antiloyalty is often motivated by a bad experience between a consumer and the marketer that the marketer could not redress. E. Value and Switching Exhibit 15.7 reproduces the center portion of the Consumer Value Framework (CVF). The exhibit clearly shows that value plays a role in the post-consumption process. For a host of reasons, consumers may end up maintaining a relationship even if they experience dissatisfaction. However, consumers do not maintain relationships in which they find no value. Exhibit 15.8 suggests ways in which value plays a role in shaping loyalty and preventing switching behavior for different types of businesses. LO: 15-5. Understand the role that value plays in shaping mutually valuable consumer relationships. V. Value, Relationships, and Consumers A. Relationships and the Marketing Firm Marketers have come to realize that the exchange between a business and a consumer comprise a relationship. Two factors help to make this clear: Customers have a lifetime value to the firm. True loyalty involves both a continuing series of interactions and feelings of attachment between the customer and the firm. In return, many firms that truly adopt a relationship marketing approach with customers enjoy improved performance. Generally, relationship quality represents the degree of connectedness between a consumer and a retailer. When relationship quality is high, the prospects for a continued series of mutually valuable exchanges exist. When consumers are truly loyal, and this loyalty is returned by the marketer, relationship quality is high. Q: What is your favorite brand of soap or cereal? Are you exhibiting brand loyalty or inertia? A: Students’ answers will vary. Some might maintain that the soap or cereal are not objects that would invite loyalty. [Instructor PPT Slide 15] B. Value and Relationship Quality A healthy relationship between a consumer and a marketer enhances value both for the consumer and the marketer. For the consumer, decision making becomes simpler, enhancing utilitarian value, and relational exchanges often involve pleasant relational and experiential elements, enhancing hedonic value. For the marketer, the regular consumer does not have to be resold and thus much of the selling effort required to convert a new customer is not necessary. Exhibit 15.9 displays some of the characteristics of a marketing relationship that is very healthy. Q: Ask students to analyze the relationship that they share with their cell phone service provider. A: Students’ answers will vary. The discussion can focus on the components that would lead to a healthy relationship- competence, communication, trust, equity, and personalization. Video material for this chapter is starting on page 20 of the IM Instructor Manual for CB Consumer Behaviour Barry J. Babin, Eric G. Harris 9781305403222, 9781305577244
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