Brand Value, Preference and Customer Value Effects of Non-conventional Utility Products: An Experimental Analysis in Mexican Market

Transcription

1 Brand Value, Preference and Customer Value Effects of Non-conventonal Utlty Products: An Expermental Analyss n Mexcan Market (Keywords: Customer value, product attractveness, advertsng, pont of sales promotons, retalng, brand value) Rajagopal JEL Classfcaton: B41, C13, C51, D11, E21, M37, M39 Workng Paper 02/2006 Department of Marketng, Busness Dvson Monterrey Insttute of Technology and Hgher Educaton, ITESM Mexco Cty Campus, Mexco DF February

2 Contact Dr. Rajagopal, Ph.D. Professor, Department of Marketng Busness Dvson, Insttute of Technology and Hgher Educaton, ITESM 222, Calle del Puente, Tlalpan Mexco DF E-mal : rajagopal@tesm.mx Personal Home page: Insttuton s Home page: Acknowledgement Author sncerely acknowledges the support provded by Ananya Rajagopal, Graduate student of Industral and Systems Engneerng of ITESM, Mexco Cty Campus n computng the data and developng Tables n ths paper. 2

3 Abstract The role of customer value has been largely recognzed over tme by the frms as an nstrument towards stmulatng market share and proft optmzaton. The customer values for nnovatve products and unfamlar brands of frm n compettve markets are determned largely by habts, renforcement effects, and stuatonal nfluences than strongly-held atttudes. Marketng organc cosmetcs s a recent phenomenon n the busness and t s largely beng encouraged by the growng envronmental conscousness among the customers. Many multnatonal companes have entered the market of organc cosmetcs and toletres (OCT) n the global marketplace. However, there has been lttle awareness among the elte customers n Latn Amercan markets about the harmful effects of synthetc cosmetcs on prolonged usage. Ths study attempts to dscuss the mpact of economc and relatonal varables on customer and brand values n reference to OCT products n Mexco through emprcal nvestgaton n selected departmental stores that attract hgh profle customers. 3

4 Use of organc cosmetcs and toletres (OCT) manufactured from herbs and plant extracts has been popular n many developed countres. The organc consttuents n the cosmetcs categorcally place them as ecologcal products and the process of marketng such products may be explaned as green marketng. Marketng organc cosmetcs s relatvely recent outgrowth n the busness and t s largely beng encouraged by the growng envronmental conscousness on the part of ctzens and a growng market for cosmetcs and toletres, several global and local companes have entered developng countres lke Mexco. An nternatonal company, The Body Shop, and General Nutrton Centre (GNC) have employed green marketng strateges to buld ther customer base n the Mexcan market. In response to customer demand for products wth natural orgns and ant-agng functons, some of the multnatonal frms n Asa have developed herbal medcnal cosmetc after years of scentfc research on capturng the pharmacologcal essence of the ngredents used n tradtonal medcne (Hwang, 2004). However, t has been observed that the organc cosmetcs are yet not famlar brands n the Mexcan market. An ncrease n customer value may be attrbuted manly to an ncrease n the perceved values of brands n the market, whle the prce effect measures value change caused by addng unfamlar brands lke GNC n OCT products to the exstng brands. The customer value seemed to decrease as the prces of the famlar brands ncreased n a large proporton and the prce ncrease was most pronounced among the users of OCT products. In the markets of developed countres lke USA and Europe, organc products related to det, cosmetcs and general health medcnes are tghtly regulated and mandatory labelng laws are mposed. Although regulatons are strctly adhered to, customer groups have pushed for comprehensve nformaton on the process and nutrtonal values of such organc products. There have been many research studes provdng emprcal estmates of customer demand for synthetc 4

5 cosmetcs (e.g., Noussar et al., 2004; Lusk et al., 2005) whereas other studes have offered theoretcal models to explan the value effects of botechnology (e.g., Gannakas and Fulton, 2002). The value effects of botechnology on varous customer products have been nvestgated by few macro level studes, whch dscuss the customer preferences and value parameters n reference to genetcally modfed food (e.g., Nelsen et al., 2003). There has been lttle awareness among the elte customers n Latn Amercan markets about the harmful effects of synthetc cosmetcs on prolonged usage. It has been observed that such customer knowledge has generated wllngness to buy OCT products wth a prce advantage and other benefts, compared wth organc and ordnary types of foods, employng a robust expermental method. The customer preference to the organc cosmetcs has been ncreasng as customer fears surroundng perceved rsk decrease and customer benefts are communcated (Mather et.al, 2005). Ths study focuses on measurng the mpact of economc and relatonal varables on buldng customer and brand values n Mexco through emprcal nvestgaton n selected departmental stores that attract hgh profle customers. The study dscusses the extent of nfluence of varous factors affectng the brand value and customer behavor towards nnovatve products and unfamlar brands of the frms n a gven market. The value effects of OCT products n selected departmental stores whch attract hgh profle customers have also been dscussed n the study. Theoretcal Motvaton Accordng to the customer choce model of Gannakas and Fulton (2002), ndvduals are assumed to consume optmum one unt of the product of ther nterest wthn a gven tme. The construct of the model of customer behavor, assumes that pror to choce of OCT product, 5

6 customer derves perceved use value, for t non-oct or synthetc products havng U v wllngness to pay for the non-oct product on the perceved used value of customer at prce p. In order to explan the customer preference to the product and estmatng the brand value n t reference to ths study t may be derved that customer obtans the perceved use value ( U p ) from consumng non-oct product. The customer also exercses hs opton of buyng a hgh value substtute (OCT products) at an alternate prce a a t p where ( p ) avalablty of OCT products, the customer value may be derves as: p. Hence wthout v t t a t [( U p ) ( U p )] = ( U p ) = lm 0 v, v v () Followng the scenaro when the customers get access to the OCT products n the market, customers enhance the perceved use value of the OCT product by factor E. Ths parameter s subjectve to the customer decson n vew of ther preferences towards consumng organc products. However, due to lack of awareness, advertsng and sales promotons, many customers may not be able to establsh ther preferences explctly towards the synthetc and non-oct products. If α represents the market segment for the OCT products, the customers would access the products and perceve ts value by( α E v ). Accordngly, the customer value after the OCT products are made avalable n the market segment may be descrbed as: v t a vg [( U p ) E,( U p ) B ] = lm 0 v α v v (), 6

7 Wheren, the expresson denotes the enhancement of customer value for OCT products n reference to the advertsng and promoton strateges of the frms and vg B represents the brand value of OCT products perceved by the customers. Further, IP functon of nterpersonal communcaton ( ) ma ps commercals ( ) and pont of sales promotons ( ) enhancement of customer value may be expressed as: may be understood as a comprsng word of mouth and referrals,. Hence, the factors nfluencng the IP ma ps lm ( ) 0,, = f () Motvatonal forces are commonly accepted to have a key nfluencng role n the explanaton of shoppng behavor. Personal shoppng motves, values and perceved shoppng alternatves are often consdered ndependent nputs nto a choce model. It s argued that shoppng motves nfluence the percepton of retal store attrbutes as well as the atttude towards retal stores (Morschett et.al, 2005). The lberal envronment of the self-servce stores for merchandse decsons, servce qualty and learnng about compettve brands are the major attrbutes of retal self-servce stores (Babakus et.al, 2004). The retal self-servce stores offer an envronment of three dstnct dmensons of emotons e.g. pleasantness, arousal and domnance. The change n the customer value observed among the synthetc and OCT products n reference to advertsng and promotonal strateges used by the frms, may be descrbed as: t = t t (v) 7

8 The model assumes that f N rs number of customers n a gven retal store has preferred to use OCT products, the change n the customer value may be derved as: Nrs1... Nrs n t t = = 1 (v) The customer value across dfferent retal locatons and brands n Mexco as exhbted n Table 1 has been nvestgated n the study. Customers choose the product whch offers maxmum utlty n reference to the prce, awareness and promotonal advantage over other non-oct products. Hence, the customer value for OCT products may be expressed as: C Ev t ( C ) Ev t Nrs= 1 = α (v) Where, Ev C represents the customer value n total derved by all factors. Value and prcng models have been developed for many dfferent products, servces and assets. Some of them are extensons and refnements of conventon models on value drven prcng theores (Gamrowsk and Rachev, 1999; Pedersen, 2000). There have also been some models that are developed and calbrated addressng specfc ssues such as model for household assets demand (Perraudn and Sorensen, 2000). The key marketng varables such as prce, brand name, and product attrbutes affect customers' judgment processes and derve nference on ts qualty dmensons leadng to customer satsfacton. The expermental study conducted ndcates that customers use prce and brand name dfferently to judge the qualty dmensons and measure the degree of satsfacton (Brucks et.al., 2000). The value of corporate brand endorsement across dfferent products and 8

9 product lnes, and at lower levels of the brand herarchy also needs to be assessed as a customer value drver. Use of corporate brand endorsement ether as a name dentfer or logo dentfes the product wth the company, and provdes reassurance for the customer (Rajagopal and Sanchez, 2004). The cost of acqurng OCT products would be the dfference n tradtonal good prce, varaton n sc the perceved use value and search cost as ndcated by ( ) apprecaton of customer value to obtan OCT products may be expressed as: C for each customer. Hence the C Krs t a sc t [( E + p + C ) ] = α (v) v Where, Krs C represents the cost of acqurng the OCT products from a gven retal store. The compettve advantage of a frm s also measurable from the perspectve of product attractveness to generate new customers. Gven the scope of retal networks, a feasble value structure for customers may be reflected n repeat buyng behavor ( Rˆ ) that explans the relatonshp of the customer value wth the product and assocated marketng strateges. The mpact of such customer value attrbutes n a gven stuaton may be descrbed as: n Nsr=1 = R = C ˆ E v (v) The repeat buyng behavor of customers s largely determned by the values acqured on the product. The attrbutes, awareness, tral, avalablty and repeat (AATAR) factors nfluence the 9

10 customers towards makng re-buyng decsons n reference to the marketng strateges of the frm. The decson of customers on repeat buyng s also affected by the level of satsfacton derved on the products and number of customers attracted towards buyng the same product, as a behavoral determnant (Rajagopal, 2005). The new product attractveness may comprse the product features ncludng mproved attrbutes, use of advance technology, nnovatveness, extended product applcatons, brand augmentaton, perceved use value, compettve advantages, corporate mage, product advertsements, sales and servces polces assocated therewth, whch contrbute n buldng sustanable customer values towards makng buyng decsons on the new products (Rajagopal, 2006 a ). The attrbutes of the new products lead to the satsfacton to the customers and s reflected through the product attractveness ( F ). It has been observed that the OCT products have been consdered as new and x expermental products n Mexco by a sgnfcant number of consumers. Hence product attractveness ( F x ) may be explaned along the assocated varables n the followng equaton as: F x [ E ( )] a t v t, q, Z x p = α, (x) Wheren, q denotes qualty of the product and Z x represents the servces offered by the retalers towards prospectng and retanng customers who ntend to buy the OCT products. The customer value may also be negatve or low f the attrbutes are not bult nto the new product to maxmze the customer value as per the estmaton of the frm. The perceved use value of customers by market segments α s a functon of advertsng and promoton Ev, and prce apprecaton 10

11 a p and retaler servces Z x n a gven tme t. Hence has been used as a multplcaton operator n the above equaton. The qualty of the product and volume are closely assocated wth the customer values. The ntroducton of new technologcal products makes t mportant for marketers to understand how nnovators or frst adopters respond to persuason cues. It has been observed n a study that the nnovatveness and perceved product newness whch are one of the consttuents of new product attractveness were ndependent constructs that had ndependent effects on customer's atttude toward the brand and purchase ntent for the new product (Lafferty and Goldsmth, 2004). Hypotheses The customer values are governed by the percepton on economc and relatonal varables conceved by the buyers on the products. The organzatonal values and customer relatonshp approaches of the company also nfluences the customers to acqure hgher values. The measure of customer value as the product effcency may be vewed from the customer s perspectve towards a rato of outputs (e.g., perceved use value, resale value, relablty, safety, comfort) that customers obtan from a product relatve to nputs (prce, runnng costs) that customers have to delver n exchange. The effcency value derved can be understood as the return on the customer s nvestment. Products offerng a maxmum customer value relatve to all other alternatves n the market are characterzed as effcent. Dfferent effcent products may create value n dfferent ways usng dfferent strateges (output-nput combnatons). Each effcent 11

12 product can be vewed as a benchmark for a dstnct sub-market. Jontly, these products form the effcent fronter, whch serves as a reference functon for the neffcent products (Bauer et.al, 2004).Accordngly, t has been hypotheszed as: H1: Hgher perceved value acqured by the customers help consumers to determne ther buyng decsons on the non-conventonal products of unfamlar brands n the market. The equatons () and () whch descrbe the mpact of customer preference on measurng the customer value factors and role of technology n shftng the customer values respectvely support the above hypothess and have been used as the bass of analyss to test the hypothess. H2: The brand value of the products s enhanced by deployng the communcaton tools effectvely by the frm whch help augment the customer value by margnalzng the gap between consumer perceptons and product attrbutes. The equatons (), (v) and (v) descrbe the value drvers assocated n determnng the customer knowledge, perceptons and use value on the products through the publc communcatons on the brand as dssemnated by the frm. These equatons have been taken as the bass for dervng the analyss from the relevant varable to justfy the hypothess H2. The desgn standards and attrbutes of the new products offered, buld the product attractveness and the customer drven products help n acqurng hgher level of satsfacton. 12

13 The success of non-conventonal product prcng practces refer to the use of nformaton on customer value, competton, and costs(ingenbleek et.al., 2003). An expermental study conducted ndcates that customers use prce and brand name dfferently to judge the qualty dmensons and measure the degree of satsfacton (Brucks et.al., 2000). The value of corporate brand endorsement across dfferent products and product lnes, and at lower levels of the brand herarchy, also needs to be assessed as a customer value drver. Use of corporate brand endorsement ether as a name dentfer or logo dentfes the product wth the company, and provdes reassurance for the customer (Rajagopal and Sanchez, 2004). Some of the marketplace and expermental studes show that consumers are more senstve to changes n prce than to nnovaton and new products ntroduced by the frm (Gourvlle and Koehler, 2004). There are some crtcal ssues assocated to the prce senstve consumer behavor, whether customers are equally prce-senstve whle purchasng products for functonal (e.g. purchasng frozen vegetables, toletres or paper towels) versus hedonc (e.g. purchasng a hgh technology computer or a vdeo camera) consumpton stuatons and whether perceved value derved durng consumng the product nfluences prce senstvty. It may also be stated that hgher prce volatlty makes consumers more senstve to gans and less senstve to losses, whle ntense prce promoton by competng brands makes consumers more senstve to losses but does not nfluence consumers senstvty to gans (Han et.al, 2001). The companes may nvolve the customers n the product desgnng process and ncorporate ther preferences n order to optmze the applcaton derved customer values. So, the hypothess may be framed as: H3: The brand value, qualty of the product, compettve advantages and prce along wth other relatonal varables determne the customer value for the non-conventonal products of unfamlar brands n the market. 13

14 The factors assocated wth the customer value n reference to brand value, prcng and compettve advantages the have been envsaged n the equaton (), (v) and (v) derved through nterdependent varables. These equatons on one hand support the hypothess H3 conceptually and also help n dervng the framework for analyss on the other. The customer values are created towards the new products through ndvdual perceptons, and organzatonal and relatonal competence (Johanson et.al., 2001). The frms need to ascertan a contnuous organzatonal learnng process wth respect to the value creaton chan and measure performance of the new products ntroduced n the market. In the growng compettve markets the large and reputed frms are developng strateges to move nto the provson of nnovatve combnatons of products and servces as 'hgh-value ntegrated solutons' talored to each customer's needs than smply 'movng downstream' nto servces (Daves, 2004). The product attractveness may comprse the product features ncludng mproved attrbutes, use of advance technology, nnovatveness, extended product applcatons, brand augmentaton, perceved use value, compettve advantages, corporate mage, product advertsements, sales and servces polces assocated therewth whch contrbute n buldng sustanable customer values towards makng buyng decsons on the new products (Lafferty and Goldsmth, 2004). The attractveness of new products s one of the key factors affectng the decson makng of customers and n turn s related to market growth and sales. The hgher the postve reactons of the customers towards the new products n vew of ther attractveness, hgher the growth n sales and so n market. Hence the hypothess may be descrbed as: 14

15 H4: The product attractveness combned wth the effectve nformatonal sharng and retalng servces for the non-conventonal products and unfamlar brands help augmentng by provdng compettve advantage. The equatons (v) and (x) descrbe the ntegrated effects of communcaton varables and retalng servces n developng product attractveness and the customer value towards the nonconventonal products and unfamlar brands n order to test the hypothess H4. The product and brand loyalty s bult through an augmented and sustanable customer value. Study Desgn In order to measure the customer value for the OCT products on the above dscussed parameters through the model a prelmnary nvestgaton has been conducted n 11 retal self-servce stores n Mexco Cty ncludng 4 departmental stores spread over 3 locatons n Mexco. Data has been collected from 400 respondents purposvely selected, who were nvolved n shoppng at chosen retal self-servce stores n Mexco Cty admnsterng a sem-structured questonnare. The data of 31 respondents were omtted from the data analyss due to paucty of nformaton. The respondents nvolved n buyng the OCT products have been stratfes brand-wse for the OCT products of The Body Shop, Aubrey Organcs, GNC, Procter and Gamble and Natural Solutons. In all, the data of 369 observatons were analyzed n the study. The data was collected on the varables closely related towards nfluencng the customer values. These varables nclude varous perspectves of customer satsfacton and marketng strateges appled n reference to the postonng, attanng hgh brand value and mprovng the market share of the OCT products for ganng optmal market share and aggregate returns on consumptons. 15

16 Results and Dscusson The values of t,, vg B α E and Krs C, v a p have been determned n the study based on the exstng market response to the OCT products n the selected retal outlets. The OCT products were avalable n the retal stores along wth other non-oct products whch provded opportunty for the customers to determne ther preferences on the crteron dscussed above. The results on the analyss of the above varables refer to the short term customer values assocated wth the new products ntroduced n the retal market by the frms for compettve gans. The relatonal and economc varables selected for the study are llustrated n Table 1. The results presented n the above Table reveal that strategc product postonng and effectve retalng augment the customer perceptons and help buldng the long-run customer values towards the non-conventonal products ownng unfamlar brands. Hence, the hypotheses H1 and H2 framed for the study get establshed. //Table 1 about here// The analyss n the Table reveals that customers derved hgher perceved use value, prce tags and acceptable cost nvolved n acqurng the product for the OCT products whle satsfacton over the non-oct products has been found lower n two locatons as compare to the other one comprsng 3 retals stores under study. The customer values are reflected n ther compettve gans, perceved use values, volume of buyng and level of quntessence wth the customer relatonshp management servces of the organzaton. If these varables do not measure sgnfcantly, the atttude reversal among the customers to the conventonal products may be 16

17 emergng. However, the study revealed that advertsng and promotonal strateges of the OCT brands helped customers revew ther preferences aganst the synthetc cosmetcs and toletres whch apprecated the brand value for the OCT products of the companes n Mexcan market. //Table 2 about here// The Table 2 exhbts the degree of apprecaton of customer value generated through the advertsng and promotonal strateges of the frms towards enhancng the OCT product brands. The value apprecaton on the OCT brands by the customers also nfluences the process of makng buyng decsons. The analyss of the data presented n the above table reveals that there s a close assocaton among the varables of communcaton, organzatonal dmensons and the perceved values of the customers towards new products. The data reveals margnal gaps among these varables whch lead to enhance the customer values. The results exhbted n Table 2, hence establsh the hypotheses H3 and H4 framed for the study. //Table 3 about here// It may be observed from sgnfcant values of the change factor E v t C representng the perceved use value from the Table 3 that the approprate product postonng strateges assocated wth the qualty, prcng and communcaton for the OCT products augments the customer value over the tradtonal or synthetc cosmetcs and toletres across the retal locatons covered under the study. The level of satsfacton derved through the retals stores and personal sellng may be seen from the retalng change factor C Krs t, whch largely keeps the brand value 17

18 of the OCT products hgh n the retal stores n locaton 1 and 2 as compared to retalers n locaton 3. It may also be seen from the data exhbted n the Table through the change factor t that the OCT products enjoy hgher nfluence of nterpersonal communcaton, advertsng and pont of sales promotons over the tradtonal products n all the retal stores except n those located n locaton 3. Ths may be due to the lower level of nvolvement of the customers towards the pont of sales promotons n these retal stores. The results presented n Table 3 endorse the hypotheses H2 and H4. One of the promnent features emerged durng the study s that the customer percepton s largely governed by the marketng communcatons. The word-of mouth, referrals and commercals ssued by the frm drve the decson factors of customers towards the new products. The sgnfcance of the dfferent varables assocated wth the product attractveness whch affect the customer value s exhbted n the correlaton matrx dscussed n Table 4. //Table 4 about here// It may be observed from the analyss that perceved use value ( E ) of the customer s largely affected by the pont of sales promotons, advertsng and promotonal strateges propagated as by the frm n meda and brand value assocated wth the products. The data analyss also nfers that a good retalng practce ( Z x ) coupled wth strong meda apprecaton help generatng favorable nter-personal communcaton. Inference may also be drawn from the correlaton matrx presented n the Table that the brand value for the OCT products s largely contrbuted by the pont of sales promotons as compared to the meda apprecaton on the brand. v 18

19 Concluson and Manageral Implcatons The customer value n terms of satsfacton, use value, retalng practces, prce, qualty and meda apprecaton s one of the ndcators for buldng brand value for the non-conventonal products and unfamlar brands of a frm. The customer value concepts may be appled by the frms to evaluate the product performance of an nnovatve product lke OCT n the gven market and determne the approach for ganng compettve advantage over the tradtonal products. In order to gan the returns n the long run on the aggregate customer value, frms may need to methodcally estmate the proftablty assocated thereof n terms of product attractveness, volume of buyng and market share, whle ntroducng the new products n a compettve market envronment (Rajagopal, 2006 a ). The study proposes framework for future research n measurng the customer value n specfc reference to the non-conventonal products. The model dscussed n ths paper provdes a holstc vew of the customer value by proposng ways to measure the dfferent varable assocated wth t vz perceved use value, product attractveness, cost of product acquston, communcaton and pont-of-sales promotons offered to the customers. The analyss of these varables would help the managers develop approprate strateges to enhance the customer value for the new products and optmze the proft of the frm. Managers of a frm may consder the measurement of customer value wth the advent of one-toone marketng meda, e.g. targeted drect mal or nternet marketng; the opportuntes to develop customer relatonshp management campagns are enhanced n such a way that t s now both organzatonally and economcally feasble to support a substantally larger number of marketng segments n a proftable manner. 19

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22 Table 1 Customer Value Estmatons: Brand, Preferences and Degree of Satsfacton n=369 Locaton- Locaton- Locaton- p Ch- Value Estmaton Varable Measure Square Parameters for New Segments Parameters (3 Retal (4 Retal (4 Retal Products stores) stores) stores) Economc varables Relatonal varables a p Krs C E v t Satsfacton over prce Value apprecaton n reference to cost of acqurng OCT products Satsfacton on applcaton Satsfacton over non-oct products Apprecaton n customer value due to advertsng and promoton vg Brand value of the B OCT products p values * <.05 and ** < * * ** ** ** Varable Segments Communcaton varables Table 2 Customer Value Apprecaton through Effectve Communcaton Measure Parameters IP ps ma Value Estmaton Parameters for OCT Products Inter-personal communcaton Pont of Sales Promotons Meda apprecaton Locaton-1 (3 Retal stores) Locaton-2 (4 Retal stores) Locaton- 3 (4 Retal stores) p n=369 Ch- Square ** * * Z Retaler servces ** x Brand Varables Product F ** x attractveness p values *<.05 and **<.01 22

23 Table 3: Senstvty Analyss for the Varables affectng Customer Value towards Nonconventonal Products of Unfamlar Brands Perceptonal Change Parameters Value Estmaton Parameters for Nonconventonal Products t Communcaton affect on OCT vs. synthetc products E v t C Change n perceved use value between OCT and synthetc products Krs t C Cost of acqurng OCT vs. synthetc products by retal stores p values * <.05 and ** <.01 Locaton-1 (3 Retal stores) Locaton-2 (4 Retal stores) Locaton- 3 (4 Retal stores) p n=369 Ch- Square * * ** Table 4: Correlaton among the Varables Assocated wth Product Attractveness and Influencng the Customer Value for the OCT Products Measure Parameter C Krs v Krs C E v E * vg B IP ps ma Z x vg B IP *** ps *** ma ** * * Z x ** ** p values * <.05, ** <0.01 and *** <0.001 (one-taled) 23