A Basic Model Of Consumer Decision Making Marketing Essay

A Basic Model Of Consumer Decision Making Marketing Essay The demographic environment is defined as the demographic factors that marketers used to analyze market trends by segmenting the targeted population. BusinessDictionary.com, 2013. It consists of six factors which are; population ethnic mix, education levels, population size and rate of growth, age distribution and migration shifts and attributes. According to statistics, Singapore Residents Growth Rate has decreased from 0.9 to 0.8 from 2010 to 2011 (Department Of Statistics Singapore [DOSS], 2012). However, the growth rate is insignificant as compared to the Non-Residents which grew from 4.1 to 6.9 ( DOSS, 2012). As most of the non-residents are workers that cater to the low end jobs in Singapore, they do not earn high income and may find Singapore Airlines (SIA) too expensive. Therefore, SIA view it as an opportunity to launch a budget airline service to cater to this group. The age distribution of the Singapore population also affects the marketing strategies of SIAs decision to launch Scoot. Singapores population percentage for ages between 45 and over accounted for 38.4% (DOSS, 2012). This is a significant result and it indicates a trend to an ageing population. It is projected that by 2030, there will be a 2.1 replacement ratio to each citizen above age 65 (Our Demographic Challenges And What These Mean To Us, n.d.). Therefore, compared to SIA, the lower cost fare of Scoot is able to cater to this group of consumers as many of the aged are retirees who may not be able to afford the standard flight fare. This may be due to reasons such as not having stable incomes, high medical and living expenses. The other group of consumers that may opt for cheaper ticket fares are the young adults. They are aged between 15 to 34 and accounted for 28.4% of the population (DOSS, 2012). They represent an opportunity for Scoot as their commitments to family, work and study means they may have to control their expenses. Thus, they may have lower purchasing power and might be unable to afford SIAs travel fares. In addition, foreigners are projected to take up half of Singapores population by 2030 (Singapore Population Half Foreigners By 2030, 2013). This trend can be attributed to the migratory movement of foreigners from developing countries such as India and China to Singapore. They come from different parts of China and India and pose an opportunity for Scoot. Thus, this provides a wider targeted consumer group for marketers to promote their services. Citing from the case study, it states that Scoot, which will compete in the growing low-cost travel sector, will fill a gap that now exists within the group. This group of commuters may travel back to their own countries annually for festive seasons or visiting of families and would not desire an expensive trip to exotic countries for holidays such as Europe or Japan. Therefore, SIA launched Scoot to provide low cost travels for these expanding targeted consumers to increase its profitability. To further maximize its market potential, the c ase study also states that Scoot will do longer flights, to Australia, China, India and eventually Europe. Thus, SIA aims to create more opportunities by increasing services to this group of people. The political-legal environment is defined as the legal and political factors that affect marketing decision making strategies. The factors are; changes in business legislation and laws, the number and strength of special interest groups and market reforms and corruption. The recent growth of special interest groups over the years may have contributed to SIAs decision to launch Scoot to serve the lower income consumers needs. The groups such as CASE (Consumer Association Of Singapore) serves to protect the consumers interest, educate and inform the consumers. It also ensures business ethics within the company by advocating fairer legislation. Since SIA is a private competitive firm with no government intervention, it has to maintain constant good services to consumers. Since such consumerist movement is increasing and SIA being one of largest airline company, it will need to establish relationships with consumers and formulate policies to increase consumers interest and reduce custom er complaints. With regards to the political-legal factor, Singapore is liberal in its aviation policy and has continue to adopt this policy in recent times by signing agreements with more countries such as United Kingdom, United States, United Arab Emirates , New Zealand and other countries (The impact of international air service liberalization on Singapore, 2009). This allows Scoot with its bigger aircrafts to fly to more destinations and longer distances where other budget airline competitors cannot reach. The economic environment is defined as the economic factors that affect the marketing decision making strategies. The economic factors include income distribution and savings, debt and credit availability of the population. As per reported, the income levels of all classes have risen over the years. The median monthly household income has risen from 5,600 SGD per month per household in 2010 to 6,310 SGD per month per household in 2011 (DOSS, 2012). Although median income has increased, majority of the increment is due to a raise in the income for the higher income group. The middle and lower income groups might not have higher income and might even be worse off due to inflation. The rich are getting wealthier and the poor are getting poorer. Hence SIA can cater to the wealthier consumers who want premium air travel services and Scoot can cater to people who need to travel at a budget air fare (Scoot: Asias Newest Low-Cost Airline, 2012). The other factor is Singapore populations savings, debt, and credit availability. The Singapore economy has contracted in the 2nd quarter in 2011 triggered by the economic crisis that happened in 2008 (Singapore may escape technical recession but downside risks remain, 2011). This uncertain outlook of the economy combined with inflation rate at 5.7%, (Global recession likely, Singapore says, 2011) may have contributed to SIAs launch of Scoot. With higher inflation rate and slower economic growth, people may be worried about the future and cut back on unnecessary expenditures. Consumers may choose to travel by other cheaper alternatives hence, demand for SIAs flight services will decrease. However, the trend of Singapores future economy and inflation rate remains uncertain as economists have forecasted that for 2013, median inflation rate for CPI would be high at 3.0% (Monetary Authority Of Singapore, 2012). Singapores GDP forecasted growth is expected to be between 1% to 3% indicating a slow economic growth ( Singapore economy expected to grow 1-3% in 2013, 2012). Thus, majority of the people in Singapore are most likely going to save more and spend less on luxury goods and services like expensive air fares which will lead to a decrease in the demand for SIA air travel. As disposable income reduces, more people would opt for budget airlines such as Scoot, Tiger Airways and Jetstar Asia for air traveling. This presents an opportunity for Scoot to expand its services. However, it might be a threat if competitors pricing of tickets are comparatively lower and economy continues to shrink in the future. Question 2 All companies which render services to customers should be highly sensitive to their own service quality and achieved level of customer satisfaction. Service quality is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs (Kotler, Keller, Ang, Leong, Tan, 2009). Companies performances may fall short, meet or exceed customers expectations. Therefore, companies performances and customers expectations determine customer satisfaction which is customers feelings of pleasure or disappointment resulting from comparing a product or services perceived performance (or outcome) in relation to his or her expectations (Kotler et al., 2009). A business entitys main aim should be to generate consistent profits for its shareholders or owners. Sustained profitability is achieved when companies yield revenue streams that exceed the cost streams of attracting, selling and servicing the customers over time (Kotler et al., 2009). Scoot is a budget airline which strives to be sustainable, at the same time retaining and expanding its market share through ensuring desired service quality and achieving customer satisfaction. For cost reduction purposes, Scoot emphasizes to its customer that they are no-frills. With the removal of certain features which are prominent in full-service airlines, it is unavoidable that customers will make comparisons and mark down the service quality of Scoots flights. Scoot has made conscious efforts to distance itself from its parent company Singapore Airlines (SIA), as well as to create deeper impressions in its customer that it is a budget airline, by having its cabin crew to wear casual crew uniform (Kaur, 2011). With the use of Boeing 777 aircrafts, Scoot provides its customers with more leg space and rooms in the aircrafts to maneuver. This gives Scoot a comparative advantage over its budget airlines, which usually operate smaller aircrafts. Air travelers are expected to be more hands-on when they travel on budget airlines. With no dedicated customer service platform available to these air travelers, they have to navigate the budget airlines websites and online systems themselves, in order to obtain information or make amendments to their bookings. With large pool of available resources and experience, SIA has an efficient and comprehensive online system for its customer. Through the introduction of SIA, Scoot can discuss with SIAs service providers on how to design and implement a user-friendly online system, which is cost effective at the same time. Even though Scoot will not respond to complaints from its customers, they must take note of the complaints and implement corrective and preventive measures, in order to maintain or even improve service quality. Additionally, Scoot can also provide Feedback forms to its customers. This will give quick and accurate information on their service quality, at relatively low costs. Like most if not all budget airlines, Scoot does not offer flight packages which include free in-flight entertainment, food and drinks. With the limited services provided, it is difficult for Scoot to achieve customer satisfaction. Therefore, Scoot has to focus on constantly improving its performances, as well as to mitigate the expectations of its customers. SIA is world renowned to provide great services to its customers, therefore meeting or even exceeding the expectations of its customers. Scoot can leverage on SIAs experiences and methods, as well as the trainings regimes provided to its staff, in order to achieve similar results and have a pool of well-trained staff. Scoot has vigorously tried to shed the public impression of it being a subsidiary of SIA. The marketing strategy of Scoot has to continue in this line, that is to distance itself from premium, full-service carriers and to be in the same market as other budget airlines. Scoot can distance itself from full-service carriers, by having its customer to board and alight from its aircrafts in the same airline terminals also utilized by other budget airlines. This could also prevent customers from using full-service carrier expectations, to judge the performances of Scoot. Scoot will be able to achieve fuel-efficiency by using Boeing 777 aircrafts. This allows Scoot to have lower costs than its competitors who are using older and less fuel-efficient aircrafts. With greater savings from less fuel consumption, Scoot should pass on some of the cost-saving benefits to its consumers. For example, Scoot can afford to reduce its air ticket prices due to lower costs. This will enable Scoot to maintain and capture a bigger market share through securing new customers from its competitors. With the advancement in technology and the popularized use of social media, many companies have turn to social media and internet to advertise their products and services. Scoot has actively tried to portray a lively and young image. Therefore, they should further strengthen this image, as well as to reach out to greater market of potential customers, by exploring and utilizing the social media platform. For example, Scoot can engage fresh-faced foreign celebrities with positive images who are active on the social media platforms, to be their spokespersons in destinations where they wish to gain greater market share. This couples with more online advertising spending, could assist Scoot to reach out to greater diversity of air travelers who are not based in Singapore. Budget airlines like Scoot face mammoth tasks in achieving desired levels of customer satisfaction and service quality, while cutting costs and maximizing revenues to ensure sustained profitability. With concerted efforts in providing basic and necessary services, as well as improving performances and lowering expectations, Scoot can secure its customer base and reduce operating costs which will in turn result in Scoot meeting its main aim of earning consistent revenues and profits. Question 3(a) With the availability of a wide range of choices for air traveling, which includes budget and full-service airlines, air travelers will make thorough comparisons to decide on the most value for money option for leisure travel and business purposes. The procedure from recognizing a need to fulfilling it is shown in Figure 3.1 which is a form of cognitive learning that depicts the five-stage decision making process model. The definition of consumer learning is the process by which individuals acquire the purchase and consumption knowledge and experience they apply to future related behaviour (Belch, Belch, Guolla, 2011). Figure 3.1 A basic model of consumer decision making. (Source) According to Bauer, Consumer behavior involves risk in the sense that any action of a consumer will produce consequences which he cannot anticipate with anything approximating certainty, and some of which at least are likely to be unpleasant (1960, p. 24). Thus, consequences and uncertainty are the two basic factors that are used to determine the level of perceived risks. Bauer stresses that his main concern is only with subjective (perceived) risk and not real world (objective) risk. This is because consumers will only buy a product that he believes to be good and trustworthy. Perceived risk might not be actual risk but the amount of risk a consumer believes that could be incurred when he buys a certain product from a certain vendor (Kotler et al., 2009). The risks include functional, physical, psychological, financial and time risks. Functional risk occurs when the product is not up to consumers perceived level of service. As Scoot is a subsidiary of Singapore Airlines (SIA), most of us will expect it to be exceptional. However, Scoot is a budget airline and hence, like all other budget airlines, its main concern is to provide cheap air transportation. The basic air fare covers only transportation from one point to another. So, one has to pay for whatever is desired. The utilitarian approach is to ensure that all costs are reduced to the minimum which allows the air fare to be low, yet, profitable. Thus, consumers who expect regular amenities on budget airlines will be greatly disappointed. If a person thinks that consuming a certain product can be harmful to him or his loved ones, then this is a physical risk perceived and he would probably never consume that product. When travelling with budget airlines, the usual complaint would be limited space and uncomfortable seats. When one has to sit in a cramped aircraft with little moving space for a few hours, it can be very uncomfortable and may cause backaches and other minor aches or even death (space adaption syndrome). These are physical risks of travelling with budget airlines that travellers might want to avoid. Psychological risk is defined as the product that affects the mental well-being of the user (Kotler et al., 2009, p. 186). Some conservative consumers may feel that flying in bigger aircrafts would give them more sense of security and comfort. Hence, they would avoid by travelling by budget airlines such as Scoot. If one purchases a product and it is defective, he will incur financial losses when he has to pay extra money to repair or find a replacement. Hence, the cost exceeds the value of this product. If one intents to travel by budget flight, then he must be prepared to carry extra cash in case he gets stuck in a foreign country when his flight is delayed or cancelled. This is because budget airlines do not provide any other recompense besides ticket refund. That means, one needs to pay for whatever expenses incurred, be it lodging or purchase of another ticket to fly to the next destination. It is believed that budget air flights experiences frequent delays and cancellations. Thus, it is commonly believed that one should avoid budget flights to avoid financial risks. Moreover, with frequent cancellations and delays for budget flight is time wasted. One needs to wait indefinitely or buy another air ticket, which requires extra time and effort. In addition, one could miss an important appointment which might have undesirable consequences. Question 3(b) In order to overcome the perceived risks, marketers should know that consumers are worried about risks that they believe are true and not necessarily real. As per Gordon Allport (1935), Attitudes are learned predispositions to respond to an object in a consistently favorable or unfavorable way.. Consumers hold attitude toward many things that are vital to the marketer. Moreover, their attitudes indicate their emotions, assessment and behavioral tendencies towards a product. Therefore, we need to change the consumers attitude regarding budget airlines. To overcome perceived risks, Scoot could publish statistics of the level of customers satisfaction, of light delays, cancellations and the amount of money saved compared to the cheapest flight available. This can be done through the market research process in which marketers could identify the problem caused by the five perceived risks and provide decision alternatives. When consumers realise that the level of statistics shown is actually similar to other regular carriers, plus the incentive of the amount of money saved, they will feel more encouraged to travel on Scoot. The proven performance will help to build customers confidence in Scoots ability to meet their expectations. Hence, the perceived functional risk is solved. The growth of competitors such as Tiger Airways, Jetstar , Airasia and Webjet may influence consumers purchasing decision with extremely competitive prices and numerous attractive promotions. Scoot marketers could identify the consumers needs and wants and apply differentiation strategies through product improvement, better services and well trained personnel. Some of the frequent complaints while flying budget airlines are poor services, cramped spaces and uncomfortable chairs. Scoot uses product differentiation by offering wider spaces in planes and more comfortable seats. Also, there are pictures of the aircraft interior posted in their website to allow people to see their offerings. Additionally, on-line forums or memo boards on Scoots website allows consumers who have used Scoots service to post their reviews and share their experiences. This marketing strategy could alleviate the conservative consumers psychological risk. These include good and bad experiences and tips when fly ing Scoot. The feedback and control system also allows Scoot to track its results such as customer satisfaction and retention rate and sales. This will also allow Scoot to adapt to a shift in consumers expectations such as better services or technological access. In this way, Scoot has addressed perceived physical risks of the consumers. The purpose of using budget airlines is to save money. It defeats the purpose if consumers have to pay extra money in order to proceed with the journey. However, occasional delays are inevitable and the worst case scenario would be stuck without accommodation. Since budget airlines sustain with minimum expenses, it is impossible to make allowance for lodgings. Thus, Scoot could make a list of cozy corners or cafes that offer comfortable resting venues at minimum or no cost for the passengers as a reference. Hence, the consumers will not need to spend extra money on contingency plans. This will reduce financial risk of a consumer. It is true that delays and cancellations are possible when flying on budget flights. This is because budget flight operates like a bus and travels the identical path to and fro many times daily. Minor delays could occur but, after a long day, the slight delays become significant when many delays build up into major time lapse and even cancellations. However, delays could also happen to any regular air flights. So, it should be made very clearly to passengers that punctuality is very important and any delays will affect subsequent flights. As Scoot target consumers are the young and young at heart, a comic strip could be used to illustrate this scenario to make it fun but not offensive. In conclusion, perceived risks are what consumers believe are true but not necessarily real. In order to overcome these perceptions effectively, we need to understand their worries and help them to correct their perceptions and gain a positive Scootitude. Hence, we gain attention from hesitant potential customers and retain current customers. Question 4 Every business needs effective strategies to meet ever changing demands of the market. For a business to be sustainable, it needs to satisfy its customers expectations and build a lasting relationship. This means it needs to fulfill the customers perceived value (CPV) which is the difference between the prospective customers evaluation of all the benefits and all the costs of an offering and the perceived alternatives (Kotler et al., 2009, p. 133). Hence, long term strategies must be implemented to cultivate strong customer relationships. Customer relationship management (CRM) is essential in cultivation of long term customer relationship. It is defined as the process of carefully managing detailed information about individual customers and all customers touch points to maximize customer loyalty (Kotler et al., 2009, p. 144). There are four ways to good CRM which are: identify its prospects and customers, differentiate customer in terms of their needs and their value to the company, interact with individual customers and customize products, services, and messages to each customer (Kotler et al., 2009). When booking air tickets on-line, consumers are already giving their personal details to the airlines. The information includes: gender, date of birth, billing address, nationality, passport number and payment methods. We can use the customer data base to identify the different market types and establish effective communications to the respective consumers. Through such data mining, we can identify the trend and segments to forecast the needs and wants of different consumers. The consumers could be segmented into different nationality, gender and age distribution. With the market segmentation, Scoot could differentiate customers in terms of their needs and values brought to the company. Scoot has limited financial resources, so it needs to attract more good customers, and retain profitable existing customers. In order to build customer loyalty, Scoot need to implement special benefits for long term customers. The main objective for travelling with budget airline is to save money. Customers will have their personal accounts with Scoot upon successful purchase and they will be able to access this account to check their transactions. Hence, Scoot can emphasize this point by letting consumers know how much they have saved by frequently travelling with Scoot. The amount saved will be translated to reward points for reward redemptions. Loyal customers will be able to redeem rewards with Scoot and its overseas partners like getting free transportation at pick up points and drop off at desired destinations. This will make members feel privileged that they are rewarded for their loyalty. This also acts as a one-stop comprehensive portal that provides cost savings to these loyal customers by providing cheap lodging options and discounted ticket prices to places of interest in other countries, offered by working partners of Scoot. This is in line with Scoots objective of providing low cost and no-fr ills travel for consumers and maximise customer perceived value. Scoot needs to interact with individual customers in order to understand the requirements of different customers and implement changes where required. However, a budget airline is operating within budget constraints; hence it will not be viable to maintain a customer service department to entertain consumers enquiries and complains. Booking fees or administrative fees usually incurred when online transactions are performed. In order to encourage consumers to fill up questionnaires and survey forms designed by Scoot, Scoot can offer customers waiver of these fees when they book air tickets, after the completion of the questionnaires and survey forms. With incentives, consumers will be more willing to provide feedbacks which can help to enhance Scoots services. With data collected from these surveys, Scoot can customize communications to each customer by sending them information only for what they are interested in. This will allow Scoot to identify and differentiate customers in terms of their needs and wants. These include promotions for certain locations which are of interest, special occasions in certain countries and new exciting happenings in certain countries. As such, consumers will not feel frustrated when receiving mail trailers but will be anticipating what Scoot can offer them. In conclusion, while Scoot can lookout for potential consumers and offer them some encouragement to become its customers, the focus is still to establish and strengthen long term relationship with current customers. As such, Scoot needs to identify prospects and customers to differentiate their preferences and allocate resources effectively to enhance profitability and retain customers simultaneously. Interaction is essential to understand customers requirements which will allow Scoot to customize their services to loyal customers who will continue to patronize Scoot with its incentives and loyalty programmes which maximizes perceived customer value.