Buyer Behaviour and Viability of Customer Loyalty Programmes - Essay Example

?BM3604: Buyer Behaviour Table of Contents 0. How Do You Define and Explain Consumer Loyalty? Critically Evaluate The Viability LoyaltyProgrammes, Bringing In Recent Research Findings 3 1.1. Definition and Explanation of Consumer Loyalty 3 1.2. Critically Evaluation of the Viability of Customer Loyalty Programmes 4 1.3. Conclusion 6 2.0. How Does Advertising Work? Discuss the Main Theories on Effects of Advertising on the Receivers 7 2.1. Process of Advertising 7 2.2. Effects of Advertising on the Receivers 8 2.3. Conclusion 9 3.0. Discuss How Consumers Respond To Price. Report Evidence and Suggest Explanations. 10 3.1. Consumers’ Response to Price 10 3.2. Explanation with Evidences 11 3.3. Conclusion 12 References 13 Bibliography 17 1.0. How Do You Define and Explain Consumer Loyalty? Critically Evaluate The Viability Of Customer Loyalty Programmes, Bringing In Recent Research Findings 1.1. Definition and Explanation of Consumer Loyalty The concept of ‘Customer Loyalty’ relates to the propensity which depends on the psychological attributes of the customers. Thus, it lacks in providing an appropriate and unambiguous definition. However, as stated by East & Et. Al. (2000), the concept of customer loyalty can be defined as the propensity shown by the customers in terms of their buying behaviour and/or attitude towards a product, service or brand (East & Et. Al., 2000). From the modern day perspective of marketing, it can be stated that gaining customer loyalty has become quite crucial for a company in order to attain a stimulated competitive advantage in the market. Thus, it can be identified as a central facet of modern marketing. The motive of various researchers to comprehensively conceptualise the phenomenon have been remarkably beneficial in identifying the two most important typologies of customer loyalty. The typologies are termed as the behavioural and attitudinal loyalty. Behavioural loyalty refers to the buying behaviour of customers considering their number of repeated purchase, the volume of purchase and other attributes. Although, this typology indicates to a rational and comprehensive description of the buying behaviour of the customers, it lacks in reflecting their motive or intention in buying the products or services (Smith, 2002). It is considered to be a significant shortcoming as a marketing concept. It is due to the fact that information regarding the customer motives shall increase the marketing potential of the company to a large extent which is unattainable with the assistance of behavioural loyalty (Shugan, 2005). It is in this context that attitudinal loyalty has been developed with its prime focus on the motive of the customers signifying their psychological preferences. However, it lacks in conveying the frequency of the buying decision undertaken by customers. Therefore, it is quite essential to accumulate both the approaches, i.e. the behavioural and attitudinal approaches while defining and implementing the strategies related to customer loyalty (Smith, 2002). 1.2. Critically Evaluation of the Viability of Customer Loyalty Programmes Loyalty programmes can be defined as an organised and well-structured marketing effort undertaken by companies with an intention to attain higher customer loyalty. With this objective, loyalty programmes are often structured to analyse the products and services according to the volume of customers’ investment and its frequency. Another major characteristic of loyalty programmes are that these initiatives focuses on the stimulation of products and services on which the customers tend to invest largely over a long-term period (Pohl, 2007). These loyalty programmes have often been criticised in the recent context. The marketers in the 21st century observed to adopt strategies, such as product segmentation and considered financial tricks in order to execute their loyalty programmes. Few of the mostly implemented strategies to execute the loyalty programmes can be observed as price discrimination strategies which evidently attract the customers who tend to be price-sensitive. Managers also focus on reward systems to maintain the customers’ loyalty by providing cash and quantity discounts. Differentiating their product in the market and customizing their products and services are also recorded to be certain implemented strategies to execute loyalty programmes (Shugan, 2005). However, loyalty programmes are facing various claims in terms of its viability in the modern era. For instance, many marketers claim that loyal customers can be retained with an allocation of minimum investment. Empirical evidences depict that the claims may prove to be true in few industries, but differ largely according to the characteristics possessed by the products and/or services and by the industries. To be illustrated, long-term customer relationship can be retained in the software development industry with the allocation of a minimum cost but in the case of brokerage firms the claim somewhat misleads the marketer. Another claim suggests that larger volume of price can be gained from loyal customers for an analogous quantity of product and/or services. But this certain argument also possesses a vital limitation. According to the statement, customers avoid switching to other brands due to their reluctance to pay higher prices as switching costs but are readily available to pay a higher price to a certain extent for the early brand. From an economists’ point of view, if customers tend to pay higher prices the companies are also likely to increase their prices at a large volume which will conversely affect customer loyalty. The third claim signifies the loyal customers as the marketers of the brand. Stating precisely, loyal customers are observed to market their preferred brand through word-of-mouth publicity which certainly increases the customer base of the company. But it was also found that the increment was for a short-term period in most of the instances (Reinartz & Kumar, 2002). 1.3. Conclusion According to most of the business managers, the concept of ‘Customer Loyalty’ is referred to as the repeated buying intention of customers. Other managers define the concept as an increment in the total number of customers achieved through referrals of valuable customers. While few others state the concept to be a reflection of customers’ emotional commitment towards the product (Thompson, 2007). To be summarised, in all the claims the focus was on the buying behaviour of the loyal customers with due consideration to their attitudes. It can be stated as one of the major reasons to affect the viability of loyalty programmes in the modern era. Hence, the prime attention of the loyalty programmes should be towards the recognition of customers’ actions rather than solely upon their behaviour and attitude (Passikoff, 2006). 2.0. How Does Advertising Work? Discuss the Main Theories on Effects of Advertising on the Receivers 2.1. Process of Advertising With continuous development and innovation, advertising tactics have changed in the modern context to a large extent from that of the past centuries. Notably, the chief objectives of advertising are to retain valuable customers, persuade new customers, increase brand recognition in the market and enhance the overall competitive advantage of the brand (Lee & Johnson, 2005). In the modern era, advertising concepts can be structured based on the relevant models which effectively depict the entire process of advertising and its objectives as well. A few of the mostly implemented advertising models are the AIDA, Lavidge and Steiner Models, DAGMAR models, and ATR model. Although the models tend to describe the entire process of advertising in a form which is quite different from one another, the demonstrated principles of advertising can be observed as the same in every case. It is worth mentioning in this case that advertising works on these identified principles (Kitchen, 1999). The basic principles of advertising suggest to inform the potential customers regarding the products and/services rendered in an unambiguous form. It is also important to maintain preciseness and link the information with other attributes of the marketing mix. After generating awareness among the potential customers, advertising campaigns intend to persuade them or influence them to purchase the products and/or services. The process of advertising ends with the ultimate purchase of the customers (Ehrenberg & Barnard, 1997). 2.2. Effects of Advertising on the Receivers Due to the fact that advertising is referred to as a significant tool of marketing mix and is used to persuade the customers by influencing their psychological fondness, it is often criticised in terms of its impact over the receivers of the information (Coffman, 2002). However, the effectivity of advertising depends on the impulse it creates on the receiver to ultimately influence him/her to purchase the products and/or services. To be precise, effective advertising must derive significant outcomes in terms of reduced costs, increased profit on scale, increased sales revenue at the end of the process (East, 2003). It is in this context that despite the fact that advertising has been recognised as a valuable instrument in the modern marketing approach, its effects have often been criticised by analysts. Surprisingly, its strengths are being termed to conversely affect the customers’ choice from an ethical perception. As stated by Ehrenberg & Barnard (1997), advertising strategies are intended to persuade the customers in favour of the product and/or services. However, due to the aggressiveness and strong indulgence created by the advertisements, customers are most likely to get misled in many cases (Ehrenberg & Barnard, 1997). 2.3. Conclusion In the modern day phenomenon, advertising initiatives have emerged to be one of the most successful tactics to attract new customers and retain the loyal customers as well. Subsequently it is termed to be one of the most significant facets of the determined marketing mix. It is defined as a paid form of non-personal communication between the marketer and the ultimate customer (Hansen & Christensen, 2003). It is of no doubt that effective advertising significantly enhances the competitive advantage of a company in the modern phenomenon. It not only derives larger customer loyalty, but also reduces the marketing cost which in turn fuels up the financial strength of the organisation. However, it possesses both negative and positive impacts on the customer buying behaviour. Therefore, it becomes the sole responsibility of the marketer to reduce the negative impacts created by advertising. In order to attain a significant amount of effectiveness in advertising, marketers should focus on the rationalisation and directness of the information provided with due consideration to the social and cultural values of the target market area (Liu, n.d.). 3.0. Discuss How Consumers Respond To Price. Report Evidence and Suggest Explanations. 3.1. Consumers’ Response to Price Evidences have revealed the fact that knowledge regarding price of a particular product and/or services, possessed by the customers affect their buying behaviour to a large extent. The knowledge regarding the price can on one hand, attract price-sensitive customers and simultaneously, let go the quality-receptive customers. It is due to the fact that majority of the customers tend to believe that low price indicates a low quality products and/or service while high price indicates superior quality of products (Shiv & Et. Al., 2005). On the similar context, it is worth mentioning that customers’ responses regarding their purchase decision also depends on the characteristics of the product or service rendered, other than price (Janakiraman & Et. Al., 2006). For instance, price discounts on bread can influence the customer to purchase an extra unit of the product, but cash discounts on painkillers are not likely to affect the purchase volume effectively. Therefore, it can be stated that the buying decisions undertaken by the customers depend on the price information strongly but subject to the characteristic of the product (Janakiraman & Et. Al., 2006). Customers’ buying behaviour also depends on the environmental issues of the marketing area. However, the impact of price change or price information on the buying decisions of the customers, principally relates to the switching cost in the industry. Studies based on this concept reveal that when there is a high switching cost existing in the industry; customers are likely to respond to price changes quite robustly. But when there exists a lower switching cost, customers tend to consider other influencing factors, such as the quality, quantity and available substitutes of the products and/or services (Bell & Et. Al., n.d.). 3.2. Explanation with Evidences Evidences have revealed that when information indicates an increase in the price of a commodity, the buying behaviour of majority of customers tend to minimise the volume of purchase. For instance, in the case of electricity demand, when the price per unit increases, households intend to minimise their expenses on the consumption of electricity. However, it is only true when the increase in price is at a large volume, as electricity is termed to be a basic product in the modern era (Shin, 1985). According to the theorem of Swan, regarding the influence of price information of customers’ buying decision, when the price changes at an equivalent ratio along with the change in quantity, customers are likely to respond indifferently. However, a converse change in price and quantity leads to a considerable impact on customers’ buying behaviour, although, the unit changed in equivalent. In comparison to price change, customers have often been observed to respond more strongly to the quantity changes. In most of the cases depicting quantity change, the decision was based on emotional needs rather than consideration to the financial aspects. Therefore, it is quite likely that changes in price and quantity as well should have different long-run effects on the consumer buying behaviour (Snir & Levy, 2010). 3.3. Conclusion Price is considered to be one of the most significant influencing factors to drive the buying behaviour of customers. Thus, it is quite likely that due to the change in price of a particular product and/or service, the buying decision of customers will also change. However, responses revealed by customers as an impact of price information states that other than the pricing factors; their decision also depends on the quantity, characteristic of the product or service, demand for the product or service and available substitutes of the product and their prices. Therefore, marketers should consider all the elements of marketing mix while opting for price change (Zeithaml, 1982). References Bell, D. R. & Et. Al., No Date. Price Competition Under Stockpiling and Flexible Consumption. Journal of Marketing Research, Vol: 39, pp. 292-303. Coffman, J., 2002. Public Communication Campaign Evaluation. Harvard Family Research Project. [Online] Available at: http://www.mediaevaluationproject.org/HFRP.pdf [Accessed May 3, 2011]. East, R., 2003. The Effect of Advertising and Display: Assessing the Evidence. Springer. East, R. & Et. Al., 2000. Loyalty: Definition and Explanation. Visionary Marketing for the 21st Century: Facing the Challenge. ANZMAC 2000. 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