Category Archives: Consumer Behavior

Keeping Your Clients Informed and Providing A Timely Response Are Essential To Great Customer Service

customer-service

Photo Credit: Flickr

I have written before about customer service on this blog (e.g., poor customer service hurts your business and customers leave you because of poor customer service).

In this post, I want to talk about the importance of providing timely responses to customer questions/inquiries and keeping your clients informed, and how failure to do either one or both will hurt your business.

Two instances come to mind when I think about consultants who lost clients because they either ignored their clients’ emails or neglected to keep their clients updated about the status of a project.

The first example involved a skilled consultant who was hired to provide technical services for a client. Although highly talented, the consultant neglected answering client emails, a key to maintaining good relationship with the customer. Multiple questions from one client went unanswered, and by the time this consultant responded, the client either had already come up with a solution or the opportunity to address the issue had already passed.

The second example involved another experienced consultant who failed to keep clients informed about problems or issues that might delay delivery of services. After the first missed deadline, inquiries from a client were met with excuses for why the deadline was missed, and instead of taking ownership and responsibility for the missed deadline, the consultant blamed others for the delay.

In both examples, highly skilled consultants lost clients.

A health professional once told me that in health care, providers will sometimes make a mistake because, let’s face it, no one is perfect and as hard as professionals try, they’re still human and can and do mess up. However, this health professional told me that he learned a very important lesson in running his own healthcare practice. He said if you have a great relationship with your clients, even if you screw up, you’ll have a much better chance of retaining your client than if you have a shoddy relationship. He told me that even if you are highly skilled, if your relationship with your clients are second-rate, the chances of losing them are much greater than if you are moderately skilled but provide excellent customer service.

“Many times . . . consumers do not complain . . . but instead take actions such as switching brands [or companies] or engaging in negative word of mouth (WOM)” (Hawkins & Mothersbaugh, 2010, p. 636).

Take-Away: No matter how skilled or good you are at your job, if you provide a service to customers (whatever that service might be), be sure to remember that you need to also provide exceptional or first-rate customer service, which includes providing timely responses to customer questions/inquiries and keeping your clients informed. Failure to do so can result in lost business (or clients) or damage to your reputation, or both.

Reference

Hawkins, D. I., & Mothersbaugh, D. L. (2010). Consumer behavior: Building marketing strategy (11th ed.). New York, NY: McGraw-Hill/Irwin.

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Consumer Behavior and Importance of Context

Sale In A Sale Shop Selling Sale Signs | Credit: the justified sinner
Sale In A Sale Shop Selling Sale Signs | Credit: the justified sinner

[NOTE: This post was corrected* October 2016]

A recent article in the Harvard Business Review talks about how J.C. Penney’s switch to the Fair and Square Everyday Low Pricing Strategy failed. The idea was to get rid of discounts and there won’t be any need to promote sales because, well, every day is a sale with low pricing. Sounds reasonable. The campaign was spearheaded by new CEO, Ron Johnson, who was formerly head of Apple’s retail store division.

The Fair and Square Everyday Low Pricing Strategy even features Ellen DeGeneres in funny TV commercials. One commercial had Ellen complaining about the cost of a hat. Another one showed her having a hard time trying to return a toga. And in another TV ad, Ellen is wondering why she has to wake up so early to get to a sale. I like Ellen and the TV commercials are funny. But I had a bad feeling that consumers would not connect with the ads, and it seems I was right.

According to the Harvard Business Review article (2012), J.C. Penney’s same store sales dropped by 18.9%, store visits decreased by 10%, and the average spend was down by 5% for the first quarter under this new pricing strategy. J.C. Penney lost $163 million (compared to earning $64 million in the first quarter of 2011) and its stock was $43 per share after the new pricing strategy was first announced in January 2012, now trades below $30.

In the HBR article, Mohammed (2012) said that during an investor conference call in mid-May, CEO Johnson maintained that the problem is that customers just don’t know about J.C. Penney’s new pricing strategy. Not only is this an understatement, it also underscores an important misunderstanding. Even if customers do understand, I don’t believe they would buy into that strategy. In other words, just because I understand what a company is attempting to do to market its product, it does not mean that I will go out and spend money for it.

Mohammed added, “Shifting from offering 590 promotions annually to a trimmed down Everyday Low Price Strategy, as J.C. Penney did, is a big change to communicate to shoppers.”

Philip Graves, in his book “Consumerology,” talks about the significance of considering the consumer in context. He writes:

“If you want to know why someone does or doesn’t buy, you have to understand how the environment shapes behavior. Divorcing the quest for understanding from the context in which it takes place is a recipe for leading yourself astray. To maximize sales or the impact of communication, the environment has to be right” (Graves, 2010, p. 53).

Thus, without taking into account the context, corporate advertising decisions can lead to products that are not well-received by consumers or marketing decisions that are off the mark. In the case of J.C. Penney, the product is J.C. Penney itself or its stores, since Penney is a retailer that sells merchandise and services to consumers through its department stores and online.

Here’s an example,

“When McDonald’s developed the Arch Deluxe burger in the mid-1990s, the company was confident that it had a winning product that would appeal to adult consumers. In the context of its market research the product performed very well, but in the context of a McDonald’s restaurant, complete with “Happy Meals,” Ronald McDonald, and other child-associated cues, the reaction was very different. Ironically, the advertising concept, which featured Ronald McDonald taking part in more grown-up activities, probably reinforced the contradictory associations customers were battling with” (Graves, 2010, p. 59).

So why didn’t market research work, and why didn’t it translate into real-world success?

“McDonald’s developed its “Burger with the Grown-up Taste” from its Oak Brook headquarters in a direct move to appeal more to adults. Away from the plastic seating, bright primary colors, and menus of familiar, child-friendly alternatives, respondents rated the product highly for taste, freshness, and satisfaction. Despite more than $200 million of expenditure, at least $100 million of which was spent promoting this product that research had shown was so appealing, it failed and was withdrawn” (Graves, 2010, pp. 59-60).

J.C. Penney’s Fair and Square Everyday Low Pricing Strategy failed because it did not consider context. Doing a sudden U-turn from offering 590 promotions annually to an Everyday Low Price Strategy is drastic. As a consumer, when I think about department stores and shopping for clothing or other items, I want a “good deal” and I look for “deals.” My brain has become accustomed to seeking out deals, sales, and bargains. There’s also something about finding a deal or catching a good “sale.” J.C. Penney executives are learning this too late, as the new CEO admitted, “We did not realize how deep some of the customers were into [coupons]” (Bhasin, 2012).

The lesson is this: Human behavior is strongly influenced by the environment. It is crucial to consider the context that people are in. “The context can determine not just how the person behaves, but how differently they act from the way they might have expected to, and, in most cases, how they would like to tell themselves they would” (p. 60).

Written By: Steve Nguyen, Ph.D.
Leadership, Training, and Talent Consultant

References

Bhasin, K. (May, 2012). JCPenney Execs Admit They Didn’t Realize How Much Customers Were Into Coupons. Retrieved from http://www.businessinsider.com/jcpenney-didnt-realize-how-much-customers-were-into-coupons-2012-5

Forbes. JC Penney. http://www.forbes.com/companies/jc-penney/

Graves, P. (2010). Consumer.ology: The market research myth, the truth about consumers and the psychology of shopping. Boston, MA: Nicholas Brealey Publishing.

Mohammed, R. (May, 2012). J.C. Penney: Ditch the Risky Pricing Strategy. Harvard Business Review. Retrieved from http://blogs.hbr.org/cs/2012/05/jc_penney_ditch_the_risky_pric.html

The Huffington Post – Ellen DeGeneres’ JCPenney Ads Debut During The Oscars
http://www.huffingtonpost.com/2012/02/27/ellen-degeneres-jcpenney-commercials_n_1304578.html

*Correction: October 24, 2016
An earlier version of this article incorrectly spelled the name of J.C. Penney. It is J.C. Penney, not J.C. Penny.

Power Trip-Do You Have Enough Power to Impact Change?

I recently rediscovered the wonders of television through fantastic programs offered on Public Broadcasting Service (PBS). I especially love Independent Lens, which showcases documentaries and dramas made by independent filmmakers.

The other night I watched “Power Trip” on PBS World. It’s a powerful film about an American energy company and its attempt to operate an electric company in the former Soviet Republic of Georgia. Of course, the title suggests a power struggle for control and this was certainly the case, but there are also other management lessons that can and should be learned.

The film documents the ongoing challenges that AES (the American energy company) face in running AES-Telasi (the electricity distribution company in Georgia’s capital city, Tbilisi). While the film does a nice job of highlighting the problems of corruption, lack of infrastructure, local poverty, etc. one thing that it failed to mentioned was the ingrained culture against which a foreign company faces when it attempts to run a business in another part of the world, and whether it possesses enough power to ensure success.

Throughout “Power Trip” those working for AES talked about the theft of electricity, but considering the state of poverty the Georgian people were in, they were stuck between feeding themselves or stealing electricity. Of course, even when local people did pay it wasn’t a guarantee that they would actually get electricity because Georgia’s corrupt leaders often stole electricity for themselves or their relatives.

Here are the numbers:

  • Average monthly wage in Tbilisi: $15
  • Average monthly bill prior to AES-Telasi: $0
  • Average monthly residential electricity bill from AES-Telasi: $24
  • Time in Georgia: January 1999 to September 2003
  • Amount of money AES-Telasi spent improving power lines and meters in Tbilisi: $90 million
  • Estimated daily loss at AES-Telasi: $120,000
  • Total loss at AES during its time in Georgia: Over $200 million

In the end, the Enron scandal in 2002 caused energy stocks to nosedive. AES took a financial hit, and unable to support its Georgian operation, was forced to sale AES-Telasi in 2003. The lone buyer, a Russian state-owned company, called United Energy Systems (UES). It, too, encountered the same issues that plagued AES – corruption, poor infrastructure, and financial hardships. AES’ CEO, Dennis Bakke, resigned in the summer of 2002.

While Russia, like China, is viewed as a huge opportunity, there’s also caution that “severe political and social problems still persist in Russia and in many of the former states of the Soviet Union (like Georgia)” (Nickels, McHugh, & McHugh, 2005, p. 93).

Perhaps, in hindsight, had AES studied the history and current social, political, and economic climate of Georgia, it might not have been so hasty in wanting to set up shop. After all, how could the locals afford the average electric bill (which totaled about $24 each month) if their salary was $15 US dollars a month (yes, a month)?

Most importantly, I believe Pfeffer and Sutton (2006) offer the best wisdom. Although their suggestion is about implementing internal organizational changes, I think it’s quite applicable to this case. One question they recommend asking is:

“Do you have enough power to make the change happen?”

Have you figured out the power dynamics, the internal and external politics, as well as the overall political landscape?

As the case of Jim Walker, who was brought on to assist Nomura Securities Asian operation in Hong Kong in the late 1990s, illustrate when a leader fails to “appreciate the political nature of the environment” (Pfeffer, 2010, p. 9) in which he works, the consequence is opposition, rivalry, lost of control, and ultimately surrender.

In AES’ case, the CEO failed to appreciate the political nature of the Georgian environment and how it significantly reduced his own and his company’s power to run AES-Telasi and provide electricity to the people in Tbilisi. Had AES considered this question, it would have realized that power was never within its own control but rested, instead, squarely in the Georgian social and economic systems which were controlled by those at the very top of Georgian politics.

References

Nickels, W.G., McHugh, J.M., & McHugh, S.M. (2005). Understanding business (7th ed.). New York: McGraw-Hill/Irwin.

PBS. Independent Lens. POWER TRIP.

Pfeffer, J. (2010). Power: Why some people have it-and others don’t. New York: HarperCollins.

Pfeffer, J., & Sutton, R.I. (2006). Hard facts, dangerous half-truths, and total nonsense: profiting from evidence-based management. Boston: Harvard Business School Press.

The Changing Consumer Behavior in Japan

Unlike consumers in the U.S. and Europe, consumers in Japan are particularly selective and prefer to pay for premium goods and services. This was evident when I visited my wife’s family in Tokyo on several occasions.

Touring the local supermarkets and outdoor fruit stands, I came across the most amazing displays of fruits I had ever seen. But, these highly prized fruits did indeed cost a premium. For instance, I saw cantaloupes (in photo above) for ¥4,000 (Japanese yen) or $44.20 (USD; exchange rate on 3/21/2010) each in Tokyo, Japan compared to $1.50 each at the local supermarket here in Dallas, TX. While I don’t claim to understand why fruits cost so much in Tokyo, I do know this much — those cantaloupes (noticed how each was individually wrapped and showcased in its own box) were the best-looking, highest-quality cantaloupes I have ever seen!

That photo of the cantaloupes was taken in July of 2007 and I would venture to guess that fruit prices haven’t changed too much since then.

Though fruits, like those gorgeous cantaloupes, may still command premium prices and Japanese consumers willing to pay for them, it appears that in other areas, consumers in Japan—who had previously ignored discount and online stores—are now flocking to them (Salsberg, 2010).

A change in consumer attitudes and behavior has arrived and, it seems, is here to stay. This change “stems not just from the recent downturn but also from deep-seated factors ranging from the digital revolution to the emergence of a less materialistic younger generation” (Salsberg, 2010, para. 2).

Salsberg (2010) stated that three factors helped led to this new consumer trend. First (like elsewhere in the world), the economic downturn. The Japanese economy has been weak for almost two decades. A recent J. Walter Thompson AnxietyIndex suggested that “90 percent of Japanese consumers feel anxious or nervous, the highest rate of any country in the world” (Salsberg, 2010, para. 14).

japanese-economy

“A Gallup Poll conducted in early December 2008 shows just 5% of Japanese rated economic conditions as ‘good’ [and] the percentage of Japanese reporting that economic conditions were getting worse climbed every quarter in 2008, finishing the year at 90%” (Bogart, 2009).

A second factor is that a new generation of Japanese (those in their 20’s) has emerged with very different attitudes. Nicknamed hodo-hodo zoku, or “so-so folks”, many avoid corporate life and material possession. “As the CEO of a leading sports-apparel company in Japan recently said, ‘For the first time, we have a generation of consumers that aren’t at all persuaded by what the professional athletes are wearing. We need a fundamental rethink of how to approach this next generation’” (Salsberg, 2010, para. 16).

The third and final factor contributing to this new trend in consumer behavior is government regulatory actions. For example, the Japanese government reduced freeway toll on weekends which provided more incentives to travel to discount stores outside Tokyo (Salsberg, 2010). On the health prevention front, “regulations [has permitted] the wide sale of over-the-counter drugs…[and]…the Japanese government has also pushed to increase awareness of and access to health remedies, in part to address the challenge of paying to treat these conditions [such as diabetes and high blood pressure]” (Salsberg, 2010, para. 18).

Consumer behavior looks at the processes involved when individuals or groups choose, buy, use, or dispose of products, services, ideas or experiences to satisfy needs and desires (Solomon, 2004). Consumer behavior includes characteristics such as social class and income.

Naturally, the economic situation affecting shoppers in the U.S., Europe, and now Japan play a critical role in altering consumer behavior. When the economy combines with other contributing factors, as in the case of the Japanese consumers, consumer behavior responds accordingly.

References

Bogart, P. (2009, April 27). Japan’s stimulus aims to reverse economic negativity. Gallup. Retrieved from http://www.gallup.com/poll/117877/Japan-Stimulus-Aims-Reverse-Economic-Negativity.aspx

Salsberg, B. (2010, March). The new Japanese consumer. McKinsey Quarterly. Retrieved from https://www.mckinseyquarterly.com/The_new_Japanese_consumer_2548

Solomon, M.R. (2004). Consumer behavior: Buying, having and being (6th ed.). New Jersey: Prentice Hall.