Chapter 2 Flashcards
what is considered in customer behaviour?
all the mental, emotional, and physical activities that buyers go through to choose, purchase, and use products and services.
What are the 5 formal stages of the purchase decision process?
- problem recognition
- information search
- Evaluation of alternatives
- purchase decision
- postpurchase evaluation.
What is a routine response strategy?
a purchasing strategy that is automatic and typically requires little or no thought by the customers making hte purchase decisions.
When would you use a routine response strategy?
for low-involvement products - which are low-price frequently purchased items.
What are high-involement products?
those products that are bought infrequently, are in an unfamiliar product category, or may involve a large cash outlay.
What is an extensive problem-solving strategy?
a purchasing method that takes the buyer through all five stages of the purchase decision process.
Why is the organizational purchase decision more complicated than the consumer decision process.
- purchase often involves more than one person
- peoiple involved in the deicion typically possess expert knowledge about the product or service
- product is selected for the benefit of an end user who is not involved in the purchase decision process
- organizations are often able to 9negotiate with the seller for feat, pricing etc.
- regulations may restrict an organization’s buying behavior.
What is a buying centre?
an informal, cross-deparment decision unit consisting of several people whose main goal is to acquire, spread and process information for purchase decisions.
When would a problem recognition occur?
- when someone uses the last of an existing supply of a product or recognizes that an existing supply is running low
- when someone recognizes that an existing product no longer fits or works
- purchases a product that requires auxiliary products
- develops new product needs or wants
How does marketing play a role in the problem recognition stage?
by educating customers so that they become aware of needs and wants.
Define the term motivation
the internal force that drives people to reach a purchase decision.
What is the theory that motivation is based on?
Abraham Maslow’s heirarchy of needs- classifies needs into 5 hierachial categories.
According to abraham Maslow’s law, is it lower-level needs or higher-level needs that come first?
lower-level needs, need to be met before high-level needs.
What is considered a personal source of information?
friends, family, work associates and social network contacts.
What is considered a public source?
governmental angencies, industry associations, newspaper and magazine articles, and product testing-organizations.
- considered to be unbiased and therefore valuable.
What is considered a marketer-dominated source?
salespeople, websites, point-of-purchase displays, sales promotion literature, advertisements, facebook pages or any other outlet a company used.
- these sources eventually get used, at some point during the information searching process.
Define the term perception?
is the process by which people select organize and interpret information to give it meaning
Define the term cultural values
the shared forms of learned behaviour that are passed from one generation to another.
What is a reference group?
any group that an individual identifies with so closely that the person adopts many of the beliefs, values, and norms that the group as a whole accepts.
Individuals typically have primary and secondary reference groups. Can you please define these?
- primary: interacts with eachother face to face and may include family, friends, coworkers, or neighbors.
- Secondary- members who share a common interrest./skill and may include professional work or trade association groups. - they have less continuous direct interaction with eachother, and as a result have less influence on customer behaviour
Define the term selective perception
The process by which a person decides to acknowledge and use certain pieces of information and ignore the rest.
Define the term preconceptions
ideas about reality based on values, attitudes, beliefs, learning, and previous experiences - and then organize and interpret new information according tot heir preconceptions.
What is selective distortion?
a perceptual process by which people interpret new information in ways that fit with their preconceptions and block out or modify information that conflicts with their preconceptions.
What is selective retention?
a perceptual process by which people remember and internalize information that supports their preconceptions.
At the end of an informaiton search, people compile a set of alternative choices called evoked set. The size of the evoked set depends on what factors
- the important of the purchase to the customer
- amount of time the customer wants to, or can, spend comparing alternatives
- budget contrainst
> > may also depend on administrative cababilities and strategic priorities.
Define the term evaluative criteria, in terms of method to compare alternative in the evoked set before making a purchase decision
includes products/service features, characteristics or speicifications,
this will include both objective and subjective criteria.
For financial products, the evaluative criteria might include which objective factors?
- price: premiums, commission fees, admin charges
- benefits: faceamount, dividends, aux benefits, illustrated rates of premiums
- financial ratings- of the providing company
For financial products, the evaluative criteria might include which subjective factors?
- feeling about the financial professional selling the product.
- opinions expressed by others about the providing company
- perceptions about the reputation of the company or the financial professional
- overall customer experience.
What is the postpurchase evaluation?
after a purchase is made4 the customer will evaluate the overall purchase experience with the company and how well the purchase satisfies their needs.
Define the term cognitive dissonance
A state of psychological tension or uneasiness
Define the term buyer’s remorse?
when the buyer questions whether he should have purchased a product at all, or whether he should have purchased an alternative brand or a different product at all, or whether he should have purchased an alternative brand or a different product then the one they bought.
Name some reasons a purchase may be delayed
- the product is unavailable for purchase
- a competitor makes a new offer
- adverse information suddenly becomes available
- the customer has too much/too little information
- the customers product needs change
- other circumstances (such as job loos and illness) or other needs take place.
How can insurance companies lessen the effects of cognitive dissonance and buyer’s remorse?
- providing a free-look over period
- scheduling follow-up calls with new customers to answer any questions
- offering regular updates on products performances and event-driven options
- maintaining regular, ongoing, relevant and meaningful communications with customers
- providing superior and convenient customer service through a variety of methods, such as the telephone, text messages, online chat, or social media forums
- creating advertisements that support and reinforce a customers’ trust in a company.
Define the term heuristic
a simplifying rule, or rule-of-thumb, that people use when making decisions.
What is simplifying rule known as anchoring and adjustment, used in insurance purchasing?
where customers focus on one initial attribute of a product and fail to adequately adjust other variables based on this anchor.
Favourable marketing presentations rely on a concept known as Framing- define this
the tendency of a decision maker to react to a situation differently depending on the way in which the information is presented.
Insurance marketing also must recognize availability bias- define this
the tendency of purchasers to use only information that is easy to find.
This suggests that people who buy insurance ely to a large extent on
- opinions of friends, family and social media
- advice from financial professionals and financial advisors
- company advertisements and marketing materials
What is a customer-centric company?
a company that prioritize customer needs and relationships.
They reguraly gather information from their customers to better satisfy needs and improve the experience.
What are 4 criterias that a company must follow in order to build customer relationships?
- Learn: from every customer interaction, in order to
- Match: products and services and advice to customers needs,
- Create: customer value and satisfaction, and
- Build: customer trust and customer lotalty
What is the ‘customer sacrifice’
The gap between what a customer wants and what a company can provide
What term is given, when a company selects one group of customers over another, the decision not to pursue a particular group?
an oppertunity cost- the benefit that is forfeited or given up in choosing one alternative over another.
What do you call a customer that is a good fit for a company why?
High-value customers
- have needs that the company can satisfy
- desire a company’s products
- purchase multiple products
- buy more expensive or higher-profit-margin products
- are loyal to the company over time
- recommended the company to others
What are low-value customers?
they have needs that a company cannot easily satisfy, who only occasional purchase a company’s products, or buy inexpensive or low-profit-margin products.
What is the Pareto’s Principle
called 80-20 rule, which states 80 precent of a company’s profits are generated by 20% of its customers.
What is lifetime value (LTV)?
the economic benefit a company receives from its relationship with a customer over time.
it requires compnicated calculations to typically predicts times of products that will fit their need.
Value assigned to a customer can be divided into 3 types of values. Define this
- historical value: transactions to date
- current value: value of expected transactions
- potential value: value realizable if the company persuades the customer to increase future spending and/or reduce future expenses by changing behavior pattens.
Define the term Customer satisfaction
The perception that a company’s products and services meet the customer’s expectations and satisfy the customers’ needs.
Define the term customer engagement
this goes beyond customer satisfaction, indicating the emotional attachment or involvement customers have with a company and its representatives.
While satisfied customers oftern will switch to a competitor for a lower price or additional benefit, highly engaged customers are more likely to be loyeal customers who do what for the company?
- provide steady, dependable income
- valuable sorce of new customers through referrals
- provide valuable feedback
- less likely than satisfied customers to switch to a competitor
what is customer retention?
The degree to which customers remain with a company for the long term
How does retaining customers have a direct impact on the company’s profitability?
- new customer 6-8x more expensive then the cost of retaining current customers
- current customers less price sensitive that new customers- reconice the company value
- long-term customers = cheerleaders generating +ve word of mouth
How does an insurance company determine customer retention at a company level?
by measuring persistency- which is the retention of business that occurs when an insurance policy remains in force by continued payment of policy renewal premiums.
What is persistency rate?
the measurement of the persistency of a block of insurance policies determined by the percentage of business in force at the beginnign of a specified period that remains in force at the end of that period, and is determined after calculating a lapse rate.
How do you calculate hte lapse rate?
(business in force that terminates for nonpayment of premium surrenders) / (business in force at the benignning of the period)
Persistancy rate is 100% - lapse rate.
Persistancy is often measured using howmany month lapse rate
13-month lapse rate, which is the proportion of new policies on which no part of any required second-year premium has been paid.
*its too include lapse of annual premium policies.
Why is calculating an accurate lapse rate for first-year policies important?
- first year lapses are usually an early and good indicator of whether quality business is being sold, because lapses are generally higher in first year
- First year lapse allerts the company to problems with product or distribution
- first-year policy lapses have great -ve impact on product’ profitability than lapses in other years
How do companies create value for the customer?
simplifying products, engaging in life event-oriented marketing, customizing products and services to individual customer needs, and offering tiered service.
What is life event-oriented marketing?
its designed to meet specific, definable customer needs as those needs arise.
ie: baby, house, promotion, retirement etv…
What is mass customization?
What benefits does it offer differentiated customer groups?
the high-level personalization of product offerings and service delivery on a large scale.
1/ relevant products iwth optional enhanced benefits
2/ personalized marketing pieces
3/ peronalized human interactions
4/ personalized product and service delivery
What is tiered service?
in this service all customers receive a consistent basic level of service, but high-value customers receive more services or higher levels of service.
How can a company tier service?
- fee variance: high value = pay less,
2. service variance: high value = additional services.
