Conceptual framework

3.1 Introduction

Consumer perception theory attempts to explain consumer behavior by analyzing motivations for buying or
not buying for particular items.

Consumer perception applies the concept of sensory perception to marketing and advertising. Just as sensory
perception relates to how humans perceive and process sensory stimuli through their five senses, consumer
perception pertains to how individuals form opinions about companies and the merchandise they offer
through the purchases they make. Retailers apply consumer perception theory to determine how and what
their customers perceive about them. They also use consumer perception theory to develop marketing and
advertising strategies intended to retain current customers and attract new ones. Three areas of consumer
perception theory relate to consumer perception theory: self perception, price perception and perception of
a benefit to quality of life.

Self Perception

Self perception theory attempts to explain how individuals develop an understanding of the motivations
behind their own behavior. Self perception by customers relates to values and motivations that drive buying
behavior -- which is also an important aspect of consumer perception theory. For instance, a study by
researchers at the University of Massachusetts at Amherst addressed how self perception shaped consumers'
buying behavior. The study considered the question of whether consumers believed their buying decisions
had a real effect on issues such as environmental impact. The researchers concluded that consumers' self
perception was a driving factor in whether or not they placed a priority on socially conscious purchase and
consumption practices. Consumers who viewed themselves as socially conscious tended to place more
weight on issues such as environmental impact when making buying decisions than consumers who did not
hold similar views of themselves.

Price Perception

While mass merchandisers such as Wal-Mart emphasize low prices as an inherent virtue, upscale merchants
attempt to emphasize quality and value for money to appeal to potential customers. Researchers at the School
of Business Administration at LaSalle University and LeBow College of Business at Drexel University
considered several factors, including price perception -- whether consumers believed they were being
charged fair prices -- in determining whether online shoppers would make repeat purchases through the
same website. The researchers concluded that price perception strongly influenced whether customers were
satisfied with their purchases and whether they would make future purchases. Two factors that shaped price
perception were the perceived quality of the merchandise or service in question and price comparisons with
merchants offering similar merchandise or services.
Benefit Perception

"It's good, and it's good for you." Many consumers are familiar with this phrase frequently associated with
food advertising. Researchers from Marquette University, Louisiana State University and the University of
Arkansas surveyed customers to determine how nutrition claims associated with food affected their
perception of that food's nutritional value. The researchers found that consumers tend to reject general,
unsupported claims of enhanced nutrition, especially concerning high nutritional value for foods that are
traditionally viewed as unhealthy. The researchers also theorized that consumers would demonstrate a trend
toward applying more scrutiny to nutrition claims and would demand more specific information about the
foods they purchase.

3.2 Conceptual Analysis of Customer Perception

The concept of customer perception has also been defined by various researchers as per the needs of the
environment. Human psyche is a very complex process because it involves not only the economic factors
but also the emotional and social factors (Clark and Goldsmith, 2006). Thus, it is really very difficult to
provide an adequate concept of consumer perception. It has been observed by the various researchers that
the success or failure of the product or service is directly related to the human psyche and their preference
(Kauffman, 1996).

Hence, an understanding of the human psychology helps marketers to come up with the innovative product
mixes (Peter and Donnelly, 2002). Consumers are the base of the business of the business organizations. All
the consumers are not similar with each other according to their perception and behavior (Zhang and
Neelankavil, 1997).

In the words of Foxall (1998), Consumer buying behavior is the study of intrinsic qualities of consumers,
such as, motivators, perceptions, personality and learning patterns. According to various theorists, it is the
branch of knowledge, which studies behavior of an individual and its mental state (Hausman, 2000).
According to Sheth and Parvatiyar (1995), evaluation of various factors related to the consumer perception
and behavior allows the business firms to strengthen the relationship between business and consumers.
There are many factors which influence the perception of a human being and the buying process, which
essentially begins from early childhood, remains through the teen years and adult life also (Lal et al, 1996).
The evaluation of perception comprises many factors to understand the psychology of consumers. These
factors belong to culture, values, family, society, feelings, thinking, attitude, personality, etc. These factors
also vary from consumer to consumer and shape their buying behavior.

According to Byron McCann (2011), correlation between behavior, experience and perception of consumer
can help an organization to understand in real time what customers really think, experience and do. He
stated:

Behavior + Perception +Experience= the whole real picture.

 Figure 3.2.1: The whole diagram of Market Scenario.

He also analyzed that the whole of the insight is much greater than the sum of the three parts; it just provides
an information platform on which the firm can align a management team, optimize the customer experience
and implement a continuous process improvement plan that helps in building brand equity.

3.3 The factors that influence customer perception.

There are sufficient evidences and empirical resources that explain about the various factors that influence
the perception of consumers and affect their buying behavior. Many factors are available in the environment
that influences the behavior of consumers. Internal factors comprise consumer’s lifestyle, personality,
attitude, knowledge, affordability etc. These factors integrate culture, values and norms, family and friend
circle, social status, family, reference groups, etc.
(Sjo’berg and Elisabeth, 2005).
Environment is the external condition, which affects the perception and the consumer behavior. It consists
of both physical and social factors. Physical factors, also known as macro factors, include demographic,
economic, changes in technology, political elements and globalization (Mourali et al, 2005).

Economic Factors: Economy of a country impacts the perception of consumer in a great manner and also
emphasizes his buying pattern. High economy means high income level, which ultimately influences the
consumer to purchase expensive and luxury items (Clark and Goldsmith, 2006). Due to the continuous
changes in the technology, the world has become a global village, which provides a large variety of products
and services to the consumers. Often the environments are not in the hands of the manufacturers, so they
have to modify the marketing strategy in order to influence internal factors, which in turn affects the
perception and behavior (Kotler, 2002). Thus, this factor and environment has a great impact on the
customers’ choice and is largely responsible in shaping his liking and preference for the product.

Social and Cultural Factors: A marketer should be able to produce a product that will capture the need
and demands of the consumers. Following social and cultural factor affect the buying behavior of
consumers. in a society, the interaction of persons with the family, groups, and social classes is highly
responsible for the influence on the perception of consumer’s (Tanja and Piri-rajh, 2003). The term attitude,
values and buying process are generally influences by social class. Social class can be defined as a group of
people in which all members have the similar social status, which is generally overlooked by the people.
The classification of target market falls into four groups, i.e. upper class, upper middle, middle class and
lower class (Mourali, et al, 2005).

Components of culture are patterns of living, norms of behavior, life style, communication tool, eating habit,
political, economical, technological outlook and values (Zhang and Neelankavil, 1997). In the words of
Hanse (2005), it is very important to interpret the customer’s tastes, preferences and habits so as to
manufacture the products according to their demands and desires as per their culture. Language and values
play a very important role in marketing a product (Kaynak and Kara, 2001).

Customer perception is affected by several components like grades, education, age, psychological attributes,
etc., so these factors should always be considered while manufacturing products. Brand name and product
quality has also its own importance in the society (Sirgy, 1985) and players in the retail industry have
identified that according to the social and cultural development, people have become more concerned about
the brand name and quality of the products. Brand name ultimately raises the living standard of the people
in the society which helps in developing the perception of self-esteem.

Different Geographic Region: Different Geographic region have different culture and values that lead to the
perception of consumers in different manner. Diversity is the main concept in the different geographical
areas and it is popular in every cultural and geographical area. In these geographical areas, the marketers
always look at various aspects such as consumer’s personal values, language, social behavior, income level,
etc. that are directly related to the external environment of geographic area (Clark and Goldsmith, 2006).

It is necessary for the organization to understand the diversity regarding language and culture of a particular
geographic region before expanding their business. In the era of globalization, culture is also moving
towards change and personal values are also changing according to the geographic areas (Dubois, 1993).
The perception of the consumer highly depends on the elements of culture and diversity.

3.4 The Drivers and Determinants of success to attract and retain customers

In today’s environment, according to the consumer’s perception, companies are competing not only to attract
new customers but also for loyalty and retention. Helgesen, (2007), describe that companies are developing
strategies to maintain and grow average revenue per user through customer retention, process improvement
and product innovation. Companies are looking to drive value from the customer management, value chain
and cost reduction strategies, which can provide highest level of customer service (Miocevic, 2008).
The main aim of the retention strategy is to keep existing customers of organization, increase brand loyalty
and spread positive word of mouth for referral based sales. Retention drivers are policies and promotion
activities that increase the time duration of customers. These drivers and factors are as follows:

Effective Communication System: Effective Communication System and innovative information tools with
the customers, is a successful business model to retain them (Meyer-Waarden, 2008). In order to establish
and maintain a long term relationship with customers, companies develop two-way communication model
and presently it has become multisided communication model. It is helpful in exchange of thoughts, feelings
and reaction of customers with the companies (Egan, 2000).

Companies provide products and services according to their customer need and ability. These information
tools and communication process enables the stakeholders to share their thoughts, feelings, and open-ended
questions about his/her family background, habits, cultural values, employment, goals and tastes (Romano
and Fjermestad, 2003). From this database of information about customers, organizations create a long term
relationships and make profits from their retained customers (Ahmed and Buttle, 2002).

Quality of Products and Services: Product or services offered by the companies are the key element of the
business. These products and services also show the concern of the companies towards the society. Highest
quality and minimum cost of the products and services are preferred by the customers. According to
Adebanjo (2001), in less developed countries, in Retail and Grocery stores, people want all the products and
services under one roof. This in both developed and newly industrialized countries, by offering high quality
products the firms can retain consumers for long time. High quality product attracts new customers and
builds brand loyalty.

Customer Loyalty Program: Customer Loyalty programmes are also one of the main strategies to retain and
attract customers for long time. These kinds of programs are held by almost all the Multi-national Retailers
or small stores to maintain long term relationships with the consumers. These loyalty programs also provide
an opportunity for the companies to create competitive advantage. Helgesen (2007) asserted that the main
aim of these kinds of programs and strategies is to provide incentive for relevant customers to attract them
for participating in buying process from a particular store.

These programs include credit card payment, heavy discount offers, giving loyalty points, membership cards
etc. Customer loyalty programs increase the overall value of the product and motivate loyal customers to
upgrade their purchase (Miranda, 2008). Such programs allow the companies to build stronger relationship,
create enclose trade, increase revenue, etc. But, if these are launched without proper insight, they can have
adverse affects such as decrease in profit, irritation to customers and negative image.

Effective and Lower Cost: Along with product quality, cost is one of the main features to attract and retain
the consumers for long term. According to the marketing concepts given by Kotler and Keller (2009),
retailers should always concentrate on the pricing strategies to maintain a balance between the competitor’s
prices and profitability. An effective pricing strategy allows them to keep similar prices or lesser price as
compared to other stores.

Retailers provide offers, coupons and discount schemes to increase sales and influence the buyers to
purchase company’s product (Ranjan and Agarwal, 2009). These strategies attract new customers and after
this retailers can retain them through customer Loyalty Programs.

Talented and Motivated Employees: In order to get success and increased sales, retailers also need highly
motivated and talented employees. Employee’s communication skills, right and positive attitude, strong will
power, good manner, strong communication skills are essential to attract customers. According to Miocevic
(2008), these employees supply quality services to the customers and produces higher rates of sales.
Motivated employees can deal more effectively with customers and customers are affected by those persons
who give a positive and polite response to the consumers.

Reference Groups: One of the main driving forces to attract and retain customers is reference group. Frow
and Payne (2009), described in their research that consumer perception and buying behavior is affected by
some reference groups also such as friends, family members and peers. They create publicity of the company
by spreading their words and perception is influenced by words also. This driver of success enables the
companies to increase number of customers as many retailers provide a local environment to their customers.
This affects their social and cultural values and thus they are attracted.

It is really a difficult task for the companies to attract and retain customers for long time, but these above
explained driving forces and strategies enables the companies to retain consumers as per their changing
perception, attitude and buying behavior. Firms operations may be affected by a shortage of qualified drivers
and its ability to service customers and thus, revenue could also be adversely affected.

3.5 Link between CRM and Customer Perception.

As it has been very clear that customer relationship process is a process of developing long-term relationship
with customers by knowing more about customers need and about their thinking pattern (Reynolds,2002),
it has a direct relationship with the perception of consumers. In the words of Ahuja,et al (2003), with the
help of CRM , businesses know about their customers by using different technology and human resources.

In the era of relationship marketing, the consumer perception and buying behavior are directly proportional
to each other. Bose (2002), explained in his research, about the link between CRM and customer buying
behavior that a company that collects lots of data regarding the buying patterns of customers can make
effective CRM strategy easily in comparison of those companies that have less data about consumer’s
buying pattern. He also stated in his research that financial companies and telecommunication companies
can make effective CRM strategies as they have lots of data regarding their customers buying patterns. In
the same manner, Retail companies should also collect sufficient data and information about customers to
retain them for a long time.

Based on the above literature review, a conceptual relationship of link between CRM and consumer
perception can be explained in the following manner.
The main objective behind implementation of CRM process is to develop a long term relationship with the
consumers and understand those factors that influence their perception in a particular region (Sarlak and
Fard, 2009). This is because consumer perception is a process through which customers make decision
regarding their selection, purchase and use of goods and services (Dibb and Simkin, 2001). So, by analyzing
this process of customer perception, CRM manager can plan, organize and control the customers according
to their product offering. Thus, both CRM and customer perception are linked with each other and also
affect operation of each other (McMahon, 2008).

With the help of study of customer perception and their buying behavior, an organization can also measure
the success of its CRM strategies. It has been discussed in the below table that different customers should
be kept into different categories, so that the companies can review their CRM process and develop a high
potential to maintain customers for long term. It is because if the implementation of CRM strategy helps in
increasing the buying of their customers then it is considered that CRM system is effective (Roberts et al,
2003). On the other hand, if the implementation of CRM strategy does not increase the buying of their
customers then it is considered that CRM system is not effective. It motivates an organization to make an
effective CRM system (Du et al, 2008).

A result-oriented CRM helps an organization to change the perception and also retrieve buying behavior of
consumers. A relationship and profitability potential between CRM process and their perception can be
evaluated with the help of following table:
Table 3.5: Categorizing customers through CRM process to evaluate the potential of CRM and
profitability
High Low

High • No choice but handle the • Cultivate relationship.

customer carefully. • Spend Energy.
• Will consume energy. • Go out of your way
• Thinking about innovative
ways to retain consumer for
long term.

Low • Focus on short term • Very cautious decision needed.

profitability. • Re-examine business plan and
• Spend minimum energy to strategy to regain consumers.
meet company’s objective • Need in depth strategies
and customer’s
 requirements. review.
Utilization of optimum resources.

Relationship and Profitability Potential are used to categorize customers as per their buying behavior.

In the words of Frow and Payne (2009), the main activities of CRM process are creating profits, learning
from customers and prospects, acquiring new customers, creating value for customers, creating and retaining
loyal customers, etc. All these activities are directly linked with the formation of consumer perception.
Without gaining understanding about the consumer’s perception and what is going in his mind, it would not
be possible for the companies to complete all the activities and create competitive advantages (Baran et al,
2007).

Ranjan and Agrawal (2009) described that CRM is related with the management of customer experience.
For the effective management of this, it is necessary for organizations that they continuously understand
about their customers need and buying pattern. It is also important that they effectively manage their
interaction with customers. Companies can also earn competitive advantage by linking CRM and customer
perception. It is because the better linkage between CRM and customer perception provide several benefits
to the companies such as increase in profit by customer retention and loyalty (Frow and Payne, 2009). To
describe the link between CRM and perception, Ranjan and Agrawal (2009), define CRM as a process of
initiation, enhancement and maintenance of customers. In this process, organizations develop long-term
relationship with their customers on the basis of information that are related with their perception.

In any organization, the main aim of CRM is to retain its customers in comparison of building new
customers. This is the reason why CRM is closely related with consumer perception (Mithas et al, 2005). It
is because organizations create relationship marketing on the basis of information about customer such as
their needs, preferences, perception, buying patterns and price sensitivity. It helps in maximizing the overall
value of its customer (Chen and Popovich, 2003).

Focus of CRM system is to retain their profitable customers for which they try to make their customers
realize that they are important for them and the organization. Meyer –Waarden (2008) stated that on the
basis of the perception of the consumers retailers create value for their customer. They collect information
about consumer attitude, behavior, perception, expectations etc with the use of different information
technology such as data warehousing and data mining.

In current business scenario, retailers manage the information regarding customer perception through the
use of some sources such as call centers, account management personnel and interactive response system
(Wilson, 1996). This information is further used by them to make better CRM strategies such as decide core
services of customer to build better customer relationship and provide extra benefit for these services.
Customer’s perception is affected by several factors such as culture, social, personal and psychological and
CRM process allows the retailers to understand the extent of all these factors on the purchasing process of
customers (Palan, 2001).

All these factors affect the consumer’s perception. Thus, also affect the CRM strategies. It is because CRM
is closely related with customer perception and the effect on customer perception also affects the CRM
(Verhoef, 2003).

3.6 Summary

This chapter broadly explores various concepts and ideas of CRM and customer perception. It investigates
various factors associated with the CRM and customer perception process such as factors and forces that
influence perception including buying behavior of consumers such as economical, social, cultural,
geographical, languages, reference groups, family, society , etc.

This chapter also discusses about the various driving forces and strategies to retain and attract the consumers
for long term These driving forces are product quality, effective cost, effective communication process, uses
of IT techniques and the systems to run effective CRM Process for both B2B and B2C business models.

Additionally, this chapter also provides a theoretical description about the basic concept of CRM and
Customer perception. The explanation about the link between customer relationship management and
consumer perception helps in developing knowledge about the conceptual framework of both these notions.
These determinants play a significant role to develop competitive advantage for the firm as well as for
customer acquisition and retention. At the same time various determinants of CRM and consumer perception
and their interrelationship is also described to understand the philosophy of consumer to buy a particular
product that too from a particular store.

This idea of customer relationship management has been brought forward in the context of consumer
perception. It also argues that in order to retain and attract consumers for long term it is really essential for
the companies to implement an effective CRM process and practice, so that the retailers can understand the
perception and buying behavior of consumers and attract them towards their store for a long time period.