Module – 3

Consumer Behavior
Dr Virupaksha Goud

Topics to be covered :
Motivation : Basics of Motivation, Needs, Goals, Positive and Negative Motivation, Rational Vs.
Emotional Motives, Motivation Process, Arousal of Motives, Selection of Goals.
Motivation Theories and Marketing Strategy – Maslow’s Hierarchy of Needs, McGuire’s
Psychological Motives (Cognitive Preservation Motives, Cognitive Growth Motives, Affective
preservation Motives, Affective Growth Motives).
Personality : Basics of Personality, Theories of Personality and Marketing Strategy (Freudian Theory,
Neo-Freudian Theory, Trait Theory), Applications of Personality Concepts in Marketing, Personality
and understanding consumer diversity (Consumer Innovativeness and related Personality traits,
Cognitive personality factors, Consumer Materialism, Consumer Ethnocentrisms), Brand Personality
(Brand Personification, Gender, Geography, Colour), Self And Self-image (One or multiple selves, The
extended self, Altering the self).
Perception : Basics of Perception & Marketing Implications, Elements of Perception (Sensation,
Absolute Threshold, Differential Threshold, Subliminal Perception), Dynamics of Perception
(Perceptual Selection, Perceptual Interpretation, Perceptual Organization, perceived price, perceived
quality, price/quality relationship, Perceived Risk, Types of risk, How consumer’s handle risk.
Customer Relationship Management : Meaning & Significance of CRM, Types of CRM (Operational,
Collaborative, Analytical), Strategies for building Relationship Marketing, e-CRM, Meaning,
Importance of e-CRM, Difference between CRM & e-CRM.

Motivation : Basics of Motivation (Motivation Process)

Motivation is the driving force within individuals produced by a state of tension caused by unfulfilled
needs and wants. Individuals strive to reduce this tension through appropriate behaviour that they
expect will satisfy their needs. Much depends on individual thinking and learning in selecting the
goals and the patterns of behaviour that they believe will satisfy their needs. Whether an individual’s
need is fulfilled leading to reduction of tension depends on the course of action the individual takes.

Learning

Unfulfilled needs, Felt Tension Drive Appropriate Goal or need

wants and Behaviour Fulfillment
desires

Cognitive Processes

Tension Reduction
Motivation Process
Needs
Need has been defined as a felt state of deprivation of some basic satisfaction. Every person has
needs. Some of these needs are basic to sustaining life and are born with individuals. These basic
needs are also called physiological needs and include the needs for air, water, food, shelter, sleep,
clothing and sex. Physiological needs re primary needs or motives because they are essential for
survival.
Acquired needs are learnt needs that we acquire as a result of being brought up in a culture and
society. For eg. Needs for self-esteem, prestige, affection, power and achievement are all considered
as learned needs. Acquired needs are generally psychological, resulting from an individual’s
subjective psychological makeup and relationship with others and are considered as secondary
needs or motives.

Goals
Human behaviour is goal-oriented. Marketers are particularly interested in consumer’s goal-oriented
behaviour that concerns product, service or brand choice. To satisfy any specific need there are a
number of solutions or goals. For eg. To satisfy hunger any type of food is good enough but the
individual consumer’s goal may be a burger. The goal selection depends on an individual’s personal
experiences, physical capacity and prevailing cultural norms and values and whether the goal object
is accessible.

Positive and Negative Motivation

If an individual experiences a driving force towards an object or person or situation, it is called
positive motivation. Whereas a driving force compelling the person to move away from someone or
something will be known as negative motivation. For eg. A person purchases a book to improve his
knowledge and to score good marks (positive goal) and on the other hand, a person purchases a
helmet to avoid any head injury (a negative goal) while riding a bike.

Rational Versus Emotional Motives

Consumers who are rational will select the goals after ascertaining various objective criteria such as
size, weight, price etc. Emotional motives are those goals which are selected on the basis of
emotion’s involvement. Usually such goals are selected purely on personal or subjective criteria such
as desire for recognition of status, fear, pride, esteem, love etc.

Arousal of Motives
The arousal of any particular need may be as a result of an individual’s :
a) Internal stimuli (Physiological, emotional or cognitive processes).
b) External Environment (Environmental)
Physiological arousal : Individuals may be aroused by his or her body’s physiological needs at that
specific period of time. During summer the individual experiences perching of the throat, which will
trigger the feeling of thirst. There are certain advertisements of products such as : ice cream,
cadbury’s chocolate, designer clothes etc. which could cause arousal of physiological motives in the
viewers mind.
Emotional Arousal : While day dreaming individuals may imagine themselves to be in a very
attractive position. At that time their thoughts tend to arouse dormant needs which will make him
feel uncomfortable and then push them into a goal directed behaviour. A young woman may
visualize herself as a good dancer will get enrolled in a recognized dance school.
Cognitive Arousal : There are instances when random thoughts or personal achievement may lead
to a cognitive arousal of motives. An advertisement which proves to be reminders of home or
friends will trigger an urge to speak to loved ones.
Environmental Arousal : Here specific cues from the environment will arouse the set of needs. For
eg. The nice aroma from the road side restaurant, smell of freshly baked cake, the advertisement of
pizza or other fast food, advertisement of noodles on TV on returning from school etc. can all act as
the environmental cues resulting in arousal of feeling or hunger.
Type of stimulus Mechanism Need aroused
Physiological Fall in the blood sugar level Hunger
Cognitive Seeing an ad which reminds social
you to wish a friend on her
wedding anniversary
Emotional Elderly couple staying alone Security
have a fear of being burgled
Environmental Finding a dream house to Success
match your budget and convey
your prestige and status

Selection of Goals
For a given need, choice of the goal to satisfy the need will depend on a number of things :
a) Personal experience : If the individual’s past experience has been satisfactory when a
particular goal was used to satisfy a need, it is more likely that it would be selected again.
For eg. If a housewife has been satisfied with ‘Vimbar’ for washing utensils, it is more likely
that she patronises Vimbar again in future also.
b) Social and Cultural norms and values : Free consumption of hard drinks openly is against
our cultural norms. Thus consumers are not seen consuming liquor openly as it is not the
‘done thing’ in our culture.
c) Personal norms and values : If a person is very much concerned about the killing of animals
and birds and green minded he will avoid non vegetarian food and may prefer to purchase
products which are environmental friendly.
d) Physical and intellectual capacity : Suppose a person is very fond of consuming tea but has
got an acidity problem then he will have to go for an alternative goal.
e) Accessibility of goal : For eg. The housewife may want to purchase only Tata Salt but in the
vicinity of her house only Annapoorna salt is available in the retail shops. Thus she is forced
to buy Annapoorna salt.
f) Self image : A man who perceives himself as ‘young’ may drive the ‘Yamaha RDX’ while a
woman who perceives herself as ‘rich and upwardly mobile’ will drive a ‘Lancer’. Thus
human beings often choose goal objects which will symbolically reflect his or her self self
image along with satisfying their specific need.

Maslow’s Hierarchy of Needs

Maslow’s theory goes by the notion that there are basically five levels of human needs
arranged in their order of importance. It starts from the lower level basic needs and goes to
higher level needs. He suggested that needs have a certain priority and individuals try to
satisfy their lower level needs and then only go to satisfy his higher level needs.
Physiological needs : These primary level of needs include all those needs required to
sustain biological life – such as hunger, thirst, air, sex and clothing.
Safety needs : Once the first level of needs are satisfied, safety and security needs will
become the driving force behind an individual’s behaviour. These needs are more concerned
with personal needs and security. This level of need is satisfied by opening savings account,
take insurance policies, through education and sufficient vocational training etc.
Social needs : The third level of needs is related to needs such as love, affection, belonging
and acceptance. When this need becomes dominant, a person will strive for satisfying
relations with others and are motivated by love for their families.
 Esteem needs : The esteem needs are concerned with ego. They reflect an individual’s need
for self respect, self confidence, a feeling of personal worth, prestige, success, power and
control.
Self-actualisation needs : This refers to the need to maximise one’s potential -i.e. he or she
desire to become everything he or she is capable of becoming.

Marketing applications of Maslow’s hierarchy of needs

This hierarchy of needs has proved to be useful to marketers enabling them to devise
suitable advertising appeals depending on the need level for a particular product. And
marketers have used it for market segmentation and brand positioning.
Each product or service always addresses a natural needs hierarchy. At times the advertising
appeals can address one or more level of needs. For instance soft drink ads such as ‘Fanta’,
‘Mirinda’ etc., stress or satisfy two level of needs simultaneously. They help to satisfy the
thirst (physiological need) of the individual as well as sharing good times with friends (social
needs).
Product positioning : Marketers have been using the hierarchy of needs for positioning their
products that is deciding how they should be viewed or perceived by the target audience.
They try to position their products so as to differentiate the brand from competitors. To
quote a few examples of product positioning Nestle’s ‘Milkmaid’ has been positioned as a
base for desert recipes (physiological as well as social needs are taken care of).

Level of needs Products appealing to this category

Physiological needs ‘Kellogs’ cereal rich breakfast provides you
with a cereal rich food.
Safety and security needs LIC offers various schemes to provide
insurance against various types of risks.
Social needs Motorola advertises the mobile phone helps
you keep in touch with family and friends
across various cities.
Esteem needs Omega watches advertisements suggest that
ownership of omega is a sign of excellence.
Self-actualization IGNOU’s distance education program
encourages one to further enhance their
knowledge.
Maslow’s Hierarchy of Needs

Self-Actualisation
(Self fulfillment)

Esteem Needs (Prestige, status,

self-respect)

Social Needs (Affection, friendship, belonging

Safety and security needs (Protection, order, Stability)

Physiological needs (Food, water, air, sex)

McGuire’s Psychological Motives
William Mcguire divides motivation into four main categories:
1. Cognitive or Affective Motivation.
2. Preservation or Growth Motivation.
Cognitive motives focus on a person’s need for maintaining a coherent and organised view
of the world to achieve a sense of meaning. Affective motives deal with the need to reduce
or avoid any tension and accomplish satisfying feeling states and achieve personal goals.

Preservation oriented motives focus on trying to maintain balance, and growth motives
relate to personal development.
These four principal categories are further subdivided on the bases of motivation source and
motivation objective.
3. Is the behaviour proactive or a reaction to something in the environment?
4. Is the behaviour helping to attain a new internal state or a new external relationship to the
environment?
The third criterion differentiates between internally aroused motives and motives aroused in
response to circumstances. The fourth criterion helps distinguish outcomes that are internal to the
individual and those concerned with relationship with the environment.
Active (Proactive) Passive (Reactive)

Cognitive Preservation Consistency Attribution Categorisation Objectification

(Thinking)
Growth Autonomy Stimulation Matching Utilitarian

Affective Preservation Tension Self- Ego Defence Reinforcement

(Feeling) Reduction expression
Growth Assertion Affiliation Identification Modelling

Cognitive Preservation Motives

Consistency-Need : Include beliefs, attitudes, behaviours, opinions, self-images and view of
others etc. Because of this need for internal consistency, consumers are often reluctant to
believe information that disagrees with their existing beliefs.
Attribution-Need : This need focuses on understanding and inferring cause for various
occurrences. Consumers often view ad messages or salesperson’s advice as having sales
motive and tend to discount these. However, if a friend gives the same favourable message
or advice about a product or service, it is attributed to a desire of being helpful and might be
viewed favourably.
Categorisation-Need : Consumers have a need to categorise complex information in order
to organise and understand it easily. For eg. There are different price ranges for computer
notebooks. Some are above Rs. 100,000 some others are priced below Rs. 100000 but above
Rs. 80000. These different price ranges carry different meanings because of information
arranged in different price categories.
Objectification-Need : Focus on observable stimuli or symbols that helps people to draw
conclusions about what they feel and know. The way people dress often communicates the
subtle meaning of a desired image and the lifestyle.

Cognitive Growth Motives

Autonomy-Need : The need for independence and individuality is viewed as an important
characteristic in many cultures around the world. One way of expressing this need for
autonomy is that consumers acquire or possess products that are considered as unique in
some way.
Stimulation-Need : This need focuses on seeking stimulation through new events,
circumstances, or exploration. Consumers indulge into variety seeking just for the sake of
change and brand switching to satisfy this need.
Matching-Need : People are motivated to create mental images of ideal situations according
to their perceptions and on an ongoing basis match their perceptions of actual situations to
these ideals. For eg. Consumers may compare a new car model to their ideal car rather than
other brands in the same range.
Utilitarian-Need : This type of motivation focuses on the need to make use of different
sources of information in the external environment for one’s advantage. For eg. Many
consumers go around doing window shopping to learn about prices and new trends in
clothing styles.

Affective Preservation Motives

Tension-Reduction Need : People are faced with various situations in their daily lives when
their needs are not fulfilled, causing undesirable stress and tension. Some persons avoid
buying new brands.
Self-expression Need : This need deals with projecting one’s identity to others so that others
know who they are , what type of products they use and make a statement about their
lifestyle. Purchase of different types of products such as clothing and autos allows
consumers to project an identity.
Ego-Defence Need : Consumers who are high self-monitors avoid social risk in case of
socially visible products and buy well known brands to avoid any chance of making socially
incorrect purchase.
Reinforcement-Need : People often experience strong motive to behave in certain manner
because that behaviour brought rewards in similar situations in the past. For eg. Many sales
promotions such as contests bring tangible rewards for some consumers and excitement to
all the participants.

Affective Growth Motives

Assertion-Need : This need leads one to compete, achieve success, power and admiration.
Many nutritious products are promoted on this theme (the commercial of Butter Bite
biscuits).
Affiliation-Need : People seek acceptance, affection and warm personal relationships with
others. Many commercials of soft drinks and Dominos Pizza focus on this motive.
Identification-Need : This motive drives people to adopt new identities and role to increase
one’s self-concept. Many ads focus on encouraging a good host image by using certain
brands.
Modelling-Need : Children imitate the behaviour of elders and learning takes place. Many
ads use endorsers that are believed to be role models using certain brands to convince
consumers.

Personality : Basics of Personality

The characteristic and distinctive trait of an individual, the stable and shifting pattern of
relationship between these traits and the way the traits interact to help or hinder the
adjustment of a person to other people and situations.
 Personality becomes more rounded with age but only to the extent that the particular
individual’s life is eventful. Education, love, travel, experience in jobs, achievements, reading
habits, recognition and enlargement of family are some of these events.

Basic personality is
sharp-concerned and
uncompromising.

Education levels the sides

by teaching logic.

Travel increases exposure

and appreciation of the
world.

Experience, Interaction and

achievement bring full
maturity and full rounding.

Characteristics or Nature of Personality

a) Personality is a reflection of an individual’s preferences or differences : No two
individuals are alike and this is reflected in the way they express themselves, their
attitudes and interest, mode of behaviour, acting, ability to adapt to the environment
and so on.
b) Personality of an individual is more stable; quite consistent and enduring : Man has
adopted a consistent pattern of responding to all the external and internal factors in the
environment, which is reflected in his personality.
c) Personality can change : Very often an individual’s personality can undergo changes due
to some happenings : death of a close family member, marriage, career, promotion,
maturity etc.

Theories of Personality
Freudian Theory (Psychoanalytic Theory) : The psychoanalytic theory of Freud emphasises on
the fact that human personality is made up of three main interdependent forces – the Id, the Ego
and the Superego. And human behaviour is dependent on the interaction of these three systems.
Id : According to the theory, the id is the source of an individual’s strong basic drives and urges such
as hunger, sex, aggression and self-preservation. The id operates on what is called the ‘pleasure
principle’, that is to seek immediate pleasure and avoid pain. Many of its impulses are not
acceptable to the values of organised society. For eg. A hungry man needs food immediately by nay
means.
 Superego : The superego constitutes the moral part of an individual’s personality. It represents the
ideal rather than the real, defines what is right and good and it influences the individual to strive for
perfection. It often represses certain behaviour which would otherwise not be socially acceptable.
For eg. Having food by stealing from others is not socially acceptable.
Ego : The ego is the individual’s conscious control. It comes into being because of the limitations of
the id in dealing with the real world by developing individual’s capabilities of realistic thinking and
ability to deal suitably with his environment. Ego operates on ‘reality principle’. It is capable of
postponing the gratification until that time when it will be suitably and effectively directed at
attaining the goals of the id in a socially acceptable manner.

Id (basic, instinctive, Super Ego (Internal expression

GRATIFICATION
TION
needs, desires, impulses of society’s values and ideals,
that demand immediate the moral conscience arm of
gratification) personality)

Ego (Individual’s conscious

control. Internal monitor to
balance the impulsive demands
of the id and restraints put by
the superego)

Researchers tend to see consumer purchases and or consumption situations as a reflection and an
extension of the consumer’s own personality. In other words, they consider the consumer’s
appearance and possessions – grooming, clothing, jewellery as reflections of the individual’s
personality. Several themes are used by marketers in attempting to influence consumers such as
fantasy, wish fulfillment, aggression and escape from life’s pressures (perfume, hair dye, skincare
products, dresses, farm houses, and motorcycles are some examples of product categories.

Neo-Freudian Theory (Social/Cultural Theory)

Neo-Freudians believed that social relationships are fundamental to the formation and development
of personality. Carl Jung grouped consumers into two fundamental characteristics
1) Extrovert : Very much interested in building a social relationship
2) Introvert : Found to be pre-occupied with his own inner world of fantasy and body activity
and was relatively incapable of outgoing social interactions.
This concept is further elaborated into four fundamental activities :
 Sensing
 Feeling
 Thinking
 Intuiting
According to Jung, individuals are strong either in sensation or intuition while gathering information,
and while evaluating information they are strong either in thinking or feeling.
Horney proposed that individuals be classified into three personality groups :
1. Compliant individuals are those who move toward others. (they desire to be loved, wanted
and appreciated.)
2. Aggressive individuals are those who move against others. (they desire to excel and win
admiration.)
 3. Detached individuals are those who move away from others. (they desire independence, self-
reliance, self-sufficiency and individualism or freedom from obligations.)
Research showed that highly compliant individuals found to prefer name brand products
such as Sony, aggressive showed a preference for Old Spice deodorant over others because
of its masculine appeal, and highly detached individuals proved to be heavy tea drinkers.
(reflecting their desire not to socialize).

Trait Theory
The orientation of trait theory is primarily quantitative, it focuses on the measurement of
personality in terms of specific psychological characteristics called traits. A trait is defined as
any distinguishing, relatively enduring way in which one individual differs from another.
These tailor-made personality tests measure such traits as consumer innovativeness,
consumer materialism, and consumer ethnocentrism.

Personality and understanding consumer diversity

1. Consumer Innovativeness : How receptive a person is to new experiences and new ideas.
Such measures of personality traits provide important insights into the nature and
boundaries of a consumer’s willingness to innovate. Consumer’s responses to distinctively
unfamiliar products or product features , called the level of DOGMATISM is of keen interest
to marketers of technologically rich-products like mobile phones, electronic gadgets etc.
Highly innovative people are good in brand switching and in restaurants, are very much
willing to try for new dishes everytime.
2. Consumer Materialism : It is the degree of the consumer’s attachment to worldly
possessions. Materialism, as a personality trait distinguishes between individuals who regard
possessions as essential to their identities and their lives and those for whom possessions
are secondary. Researchers have found some general characteristics of materialistic people :
1) They especially value acquiring and showing off possessions. 2) they are particularly self-
centred and selfish, 3) they seek lifestyle full of possessions, 4) their many possessions do
not give them greater personal satisfaction. Materialistic people own things that impress
people and own expensive cars, homes and clothes.
3. Consumer Ethnocentrism : It is the consumer’s likelihood to accept or reject foreign-made
products. Consumers who are highly ethnocentric are likely to feel that it is inappropriate or
wrong to purchase foreign-made products because of the resulting economic impact on the
domestic economy whereas nonethnocentric consumers tend to evaluate foreign made
products for their extrinsic characteracteristics. For eg. An ethnocentric Indian always prefer
to purchase Tata Indica or Indigo whereas a non ethnocentric man will prefer to purchase
German automobiles because of its better technology.

Cognitive Personality Factors

Need for Cognition : It measures a person’s craving for or enjoyment of thinking. Consumers who
are high in NC are more likely to be responsive to the part of an ad that is rich in product related
information or description, consumers who are low in NC are more likely to be attracted to the
background or peripheral aspects of an ad, such as an attractive model or well-known celebrity.

Visualizers versus Verbalizers : Some people seem to be more open to and prefer the written word
as a way of securing information, whereas others are more likely to respond to and prefer visual
images or messages as sources of information. Cognitive personality research classifies consumers
into two groups : Visualizers (consumers who prefer visual information and products that stress the
visual , such as membership in a videotape club) or verbalizers (consumers who prefer written or
verbal information and products, such as membership in book clubs or audiotape clubs)
 Brand Personality
Consumers attribute various descriptive personality like traits or characteristics to different brands
in a wide variety of product categories. For eg. Consumers tend to see KFC chicken as representing
freshness, Nike as the athlete in all of us, and BMW as performance driven. In a similar fashion,
brand personality for Levis Jeans is dependable and rugged, real and authentic, and American and
Western.
Brand Personification
It tries to recast consumer’s perception of the attributes of a product or service into a human like
character. For instance, well known brands of dishwashing liquid have been likened to high energy
people. McDonalds has been personified as a fun-loving person.
Product Personality and Gender
A product personality endows the product or brand with a gender. For eg. TVS Scooty has been given
a feminine personality whereas Bajaj Scooters a masculine personality.
Product Personality and Geography
Marketers learned long ago that certain products, in the minds of consumers, possess a strong
geographical association. For eg. Volkswagen and Mercedes are associated with German culture.
Personality and Colour
Consumers also tend to associate personality factors with specific colours. For instance, Coca-Cola is
associated with red, which connotes excitement. Yellow is associated with novelty, and black
connotes sophistication.

Brand Personality

Sincerity Excitement Competence Sophistication Ruggedness

Upper class Rough

Down to earth Daring Reliable
Charming Tough
Honest Spirited Intelligent
Wholesome Imaginative Successful
Cheerful Up to date

Perception
Perception is defined as the process by which an individual selects, organizes and interprets stimuli
into a meaningful and coherent picture of the world. It can be described as “how we see the world
around us”.

Elements of Perception
Sensation : Sensation is the immediate and direct response of the sensory organs to stimuli. A
stimulus is any unit of to any of the senses. Examples of stimuli include products, package, brand
names, advertisements and commercials. Sensory receptors are the human organs (the eyes, ears,
nose, mouth and skin) that receive sensory inputs. Their sensory functions are to see, hear, smell,
taste and feel. All of these functions are called into play, either singly or in combination, in the
evaluation and use of most consumer products.
The absolute threshold : The lowest level at which an individual can experience a sensation is called
the absolute threshold. The point at which a person can detect a difference between something and
nothing is that person’s absolute threshold for that stimulus. To illustrate, the distance at which a
driver can note a specific billboard on a highway is that individual’s absolute threshold. Two people
riding together may first spot the billboard at different times , thus they appear to have different
absolute thresholds. Many national advertisers try to change their advertising campaigns regularly.
They are concerned that consumers get so used to their current print ads and TV commercials that
they will no longer see them.
The differential Threshold : The minimal difference that can be detected between two similar
stimuli is called the differential threshold, or the just noticeable difference. Stronger the initial
stimulus, the greater the additional intensity needed for the second stimulus to be perceived as
different. For eg. If the initial price of half litre orange juice is Rs. 55, most consumers will not notice
if there is 1rs. Increase in the price of the juice. Marketers would like that improvement in product
quality, packaging and reduction in price should be noticed by the consumer whereas reduction in
product quantity, increase in price should not be noticed by the consumer.
Subliminal perception : Stimuli that are too weak or too brief to be consciously seen or heard may
nevertheless be strong enough to be perceived by one or more receptor cells. This process is called
subliminal perception. For eg. A very brief exposure to a particular advertisement will not be
recorded by the viewer.

Perceived Product Quality

Perceived Product Quality can be improved or modified by the marketer by making use of attractive
packaging, effective advertisement, changing brand image etc. Eg. Advertisement of Nutrella Soya
Nuggets that it is a vegetarian food and a rich source of proteins.

Perceived Risk
Perceived risk is defined as the uncertainty that consumers face when they cannot foresee the
consequences of their purchase decisions. Consumers are influenced by risks that they perceive,
whether or not such risks actually exist.

Types of Perceived Risk

1. Functional Risk : is the risk that the product will not perform as expected. (“Can the new
laptop operate a full week without needing to be recharged.”)
2. Physical Risk : is the risk to self and others that the product may pose. (“Is a cellular phone
really safe, or does it emit harmful radiation.”)
3. Financial Risk : is the risk that the product will not be worth its cost. (“Will it be justifiable to
spend thousand of rupees to purchase this air conditioner.”)
4. Social Risk : is the risk that a poor product choice may result in social embarrassment. (“Will
my classmates laugh at my new haircut.”)
5. Psychological Risk : is the risk that a poor product choice will hurt the consumer’s ego. (“
Will I be embarrassed when I invite friends to listen to music on my five-year old stereo?”)
6. Time Risk : is the risk that the time spent in product search may be wasted if the product
does not perform as expected. (“ Will I have to go through the shopping effort all over
again?”)
High risk perceivers are often described as narrow categorizers because they limit their choices to a
few safe alternatives. Low risk perceivers have been described as broad categorizers because they
make their choices from a much wider range of alternatives.
How consumers handle risk?
1. Consumers seek information : Consumers seek information about product and product
category through word of mouth communication from friends, relatives, salespeople and
from general media.
2. Consumers are brand loyal : Consumers avoid risk by remaining loyal to a brand with which
they have been satisfied instead of purchasing new or untried brands.
3. Consumers select by brand image : When consumers have had no experience with a
product, they tend to trust a favoured or well known brand name.
4. Consumers rely on store image : If consumers have no other information about a product,
they often trust the judgement of the merchandise buyers of a reputable store and depend
on them to have made careful decisions in selecting products for sale.
5. Consumers buy the most expensive model : When in doubt, consumers often feel that the
most expensive model is probably the best in terms of quality, that is they equate price with
quality
6. Consumers seek reassurance : Consumers who are uncertain about the wisdom of a product
choice seek reassurance through money-back guarantees, government and private
laboratory test results, warranties and prepurchase trial.

Meaning & Significance of CRM

• CRM “is a business strategy that aims to understand, anticipate and manage the needs of an
organisation’s current and potential customers”
• It is a “comprehensive approach which provides seamless integration of every area of
business that touches the customer- namely marketing, sales, customer services and field
support through the integration of people, process and technology” .
Goal of the CRM macro process is to generate customer demand and facilitate transmission
and tracking of orders. Key processes under CRM are as follows :
• Marketing – Involve decisions regarding which customers to target, how to target
customers, what products to offer, how to price products and how to manage the actual
campaigns targeting customers.
• Sell – The sell process includes providing the sales force the information it needs to make a
sale and then execute the actual sale.
• Order management – Important for the customer to track his order and for the enterprise
to plan and execute order fulfillment.
• Call/service center – Helps customers place orders, suggests products, solves problems, and
provides information on order status.
• E.g. Of CRM software – Siebel, Salesforce.com, SAP and Oracle, loyalty cards, cookies etc.
• Amazon, uses “cookies” to provide a personalised service for its customers. Amazon requires
customers to register with the service when they purchase items. When registered
customers log in to Amazon at a later time, they are ‘greeted’ with a welcome message
which uses their name (for e.g. “Hello John”). In addition, their previous purchases are
highlighted and a list of similar items that the customer may wish to purchase are also
highlighted.
• The supermarket chain, Tescos, offers loyalty cards to its customers. When customers use
the loyalty cards during pay transactions for goods, details of the purchases are stored in a
database which enables Tescos to keep track of all the purchases that their customers make.
At regular intervals, Tescos sends its customers money saving coupons by post for the
products that the customers have bought in the past. The aim of this is to encourage
customers to continually return to Tescos to do their shopping.
Purpose of CRM
• The focus [of CRM] is on creating value for the customer and the company over the longer
term.
• When customers value the customer service that they receive from suppliers, they are less
likely to look to alternative suppliers for their needs.
• CRM enables organisations to gain ‘competitive advantage’ over competitors that supply
similar products or services

Benefits of CRM
• Reduced costs, because the right things are being done (i.e. effective and efficient
operation)
• Increased customer satisfaction, because they are getting exactly what they want (i.e.
meeting and exceeding expectations)
• Ensuring that the focus of the organisation is external
• Growth in numbers of customers
• Maximisation of opportunities (e.g. increased services, referrals, etc.)
• Increased access to a source of market and competitor information
• Highlighting poor operational processes
• Long term profitability and sustainability
CRM Strategies
• Customer Acquisition : Gain the greatest number of new “Best” customers as early in their
“lifespan” as possible.
• Customer Retention :Retain and expand your business and relationships with your
customers through up-selling, cross-selling and servicing.
• Customer Loyalty : Offer programs to ensure that your customers happily buy what you
offer only from you.
• Customer Evangelism : Enable loyal customers to become a volunteer sales force.
• Cost Reduction :Reduce costs related to marketing, sales, customer service and support.
• Improve Productivity

Types of CRM
Nowadays, three major types of customer relationship management systems, namely
operational CRM, analytical CRM and collaborative CRM are being used in many organizations.
Operational CRM
It provides support to front-office business processes that involve direct interaction with customers
through any communication channel, such as phone, fax, e-mail, etc. The details of every interaction
with customers, including their requirements, preferences, topics of discussion etc., are stored in the
customers’ contact history and can be retrieved by the organization’s staff whenever required.
Thus, it presents a unified view of customers across the organization and across all communication
channels. Examples of operational CRM applications are sales force automation (SFA), customer
service and support (CSS), enterprise marketing automation (EMA),etc.
Analytical CRM
It enables to analyze customer data generated by operational CRM applications, understand the
customers’ behavior, and derive their true value to the organization. This helps to approach the
customers with pertinent information and proposals that satisfy their needs. The analytical customer
relationship management applications use analytical marketing tools like data mining to extract
meaningful information like the buying patterns of the customers, target market, profitable and
unprofitable customers, etc., that help to improve performance of the business.
Collaborative CRM
It allows easier collaboration with customers, suppliers, and business partners and, thus, enhances
sales and customer services across all the marketing channels. The major goal of
collaborative customer relationship management applications is to improve the quality of services
provided to the customers, thereby increasing the customers loyalty. Examples of collaborative CRM
applications are partner relationship management (PRM), customer self-service and feedback, etc.

Strategies for building Relationship Marketing

Successful businesses don't just communicate with prospects and customers for special sales. Today,
making your company indispensable is a vital key to marketing success. It's a terrific way to add
value, enhance your brand and position against your competition.

1. Communicate frequently. For best results, it's important to communicate frequently and vary the
types of messages you send. Instead of a constant barrage of promotions, sprinkle in helpful
newsletters or softer-sell messages. The exact frequency you choose will depend on your industry
and even seasonality, but for many types of businesses, it's possible to combine e-mail, direct mail,
phone contact and face-to-face communication to keep prospects moving through your sales cycle
without burning out on your message.

2. Offer customer rewards. Customer loyalty or reward programs work well for many types of
businesses, from retail to cruise and travel. The most effective programs offer graduated rewards, so
the more customers spend, the more they earn.

3. Hold special events. The company-sponsored golf outing is back. With the renewed interest in
retaining and up-selling current customers, company-sponsored special events are returning to the
forefront. Any event that allows you and your staff to interact with your best customers is a good
bet, whether it's a springtime golf outing, a summertime pool party or an early fall barbecue.

4. Build two-way communication. When it comes to customer relations, "listening" can be every bit
as important as "telling." Use every tool and opportunity to create interaction, including asking for
feedback through your Web site and e-newsletters, sending customer surveys (online or offline) and
providing online message boards or blogs.

5. Enhance your customer service. One of the best ways to add value and stand out from the
competition is to have superior customer service. Customers often make choices between parity
products and services based on the perceived "customer experience." This is what they can expect
to receive in the way of support from your company after a sale is closed.

6. Launch multicultural programs. It may be time to add a multilingual component to your

marketing program. For example, you might offer a Spanish-language translation of your Web site or
use ethnic print and broadcast media to reach niche markets.

7. Visit the trenches. For many entrepreneurs, particularly those selling products and services to
other businesses, it's important to go beyond standard sales calls and off-the-shelf marketing tools
in order to build relationships with top customers or clients. There's no better way to really
understand the challenges your customers face and the ways you can help meet them than to
occasionally get out in the trenches.

e- CRM
The eCRM or electronic customer relationship management encompasses all the CRM functions
with the use of the net environment i.e., intranet, extranet and internet. Electronic CRM concerns all
forms of managing relationships with customers making use of information technology (IT). eCRM is
enterprises using IT to integrate internal organization resources and external "marketing" strategies
to understand and fulfill their customers needs. Comparing with traditional CRM, the integrated
information for eCRM intraorganizational collaboration can be more efficient to communicate with
customers.

Importance
As the Internet is becoming more and more important in business life, many companies consider it
as an opportunity to reduce customer-service costs, tighten customer relationships and most
important, further personalize marketing messages and enable mass customization. ECRM is being
adopted by companies because it increases customer loyalty and customer retention by improving
customer satisfaction, one of the objectives of eCRM. E-loyalty results in long-term profits for online
retailers because they incur less costs of recruiting new customers, plus they have an increase in
customer retention. Together with the creation of sales force automation(SFA), where electronic
methods were used to gather data and analyze customer information, the trend of the upcoming
Internet can be seen as the foundation of what we know as eCRM today.
As we implement eCRM process, there are three steps life cycle:

1. Data collection: About customers preference information for actively (answer knowledge)
and passively (surfing record) ways via website, email, questionnaire.
2. Data aggregation: Filter and analysis for firm’s specific needs to fulfill their customers.
3. Customer interaction: According to customer’s need, company provide the proper feedback
to them.
eCRM can be defined as activities to manage customer relationships by using the Internet web
browsers or other electronic touch points. The challenge hereby is to offer communication and
information on the right topic, in the right amount, and at the right time that fits the customer’s
specific needs.
Difference between CRM & e-CRM
Major differences between CRM and eCRM:
Customer contacts

 CRM – Contact with customer made through the retail store, phone, and fax.
 eCRM – All of the traditional methods are used in addition to Internet, email, wireless, and PDA
technologies.
System interface

 CRM – Implements the use of ERP systems, emphasis is on the back-end.

 eCRM – Geared more toward front end, which interacts with the back-end through use of ERP
systems, data warehouses, and data marts.
System overhead (client computers)

 CRM – The client must download various applications to view the web-enabled applications.
They would have to be rewritten for different platform.
 eCRM – Does not have these requirements because the client uses the browser.
Customization and personalization of information

 CRM – Views differ based on the audience, and personalized views are not available. Individual
personalization requires program changes.
 eCRM – Personalized individual views based on purchase history and preferences. Individual has
ability to customize view.
System focus

 CRM – System (created for internal use) designed based on job function and products. Web
applications designed for a single department or business unit.
 eCRM – System (created for external use) designed based on customer needs. Web application
designed for enterprise-wide use.
System maintenance and modification

 CRM – More time involved in implementation and maintenance is more expensive because the
system exists at different locations and on various servers.
 eCRM – Reduction in time and cost. Implementation and maintenance can take place at one
location and on one server.