A Conceptual Framework Sugar D. Augural Roll NO. : 102 MS – Marketing K. J. Somalia Institute of Management Studies & Research Veterinary, Vidalia (E), Iambi -400 077 The authors capture our attention by asking why some companies succeed at going multinational while others continue to struggle Inspire of making significant efforts to gain market share by Investing time and human and financial resources.
For example, despite its presence in India since 1993, Coca-Cola has yet to bypass the popularity of the local Indian drink, Thumps Up. Conversely, there are success stories: General Motors’ performance in Brazil, McDonald’s ability to create niches In China and India. This article has more than 20 concise findings (what to doodads not to dos) for a company to do achieve “Profitable Customer Loyalty’.
The study highlighted in this article was a qualitative study interviewing 42 managers of multinational companies from US, Canada, Asia, Europe and Australia to glean Insights that Identify possible factors that drive the creation of both a profitable and loyal customer base (termed “profitable loyalty” in the study) in emerging economies. The finding related to “innovation” was “Incremental and adaptive innovations are more likely to create PC in emerging economies than radical innovations”.
This article proposes a conceptual framework that can be used to establish profitable customer loyalty In emerging economies. It focuses on the key factors namely- Customer specific, Marketing Mix, Firm specific as well as Moderating variables that can help the Macs to establish profitable customer loyalty in the long run. The emerging economies continue to hold much promise to Macs because of the: (1)
Presence of a significantly larger middle-class population with a higher per capita income (2) Higher levels of disposable income (3) Wider selection of customer groups with varying tastes and preferences, and (4) unmet demand for necessary and luxury products/services. Traditionally, Mac’s have relied on two sets of strategies to guide them in foreign markets: standardization and adaptation.
The standardization strategies are followed ‘OFF market structure, competition, and business process in a newly entered market resembles a market in which the NC is already operating. Whereas, adaptation strategy can be fruitful, only if the markets are not alike. However, the Macs are unsure of which international marketing strategies to adopt in these emerging economies. Thus, the author propose that the establishment of “profitable customer loyalty’ (PC) is the key to ensuring the success of an NC in the emerging markets.
Profitable customer loyalty refers to customers who exhibit both behavioral and attitudinal loyalty and provide profits for the firm. Traditionally, customer loyalty is classified into two aspects: behavior and attitude, which says that the company would focus on building both behavioral and attitudinal loyalty simultaneously to achieve true loyalty. The researchers have hypothesized that at the firm level customer loyalty varies with product categories and finds that loyalty toward a brand depends on how widely the brand is distributed.
At the customer level research has uncovered several linkages such as customer delight leading to customer satisfaction, which in turn leads to the creation of customer loyalty. For Macs aiming to establish a loyal customer base in overseas markets, the country-specific factors would play a vital role in determining the success of the company. However the author Kumar and Shah proposes that the companies should focus on the creation of PC rather than increasing only metrics such as loyalty, revenue, or market share, among others.
They have also shown that when companies implement actions that focus on the creation of PC in a developed economy, they result in enhancing the firm’s profitability, market capitalization, and shareholder value. Research has also shown that the creation of PC cultivates customer engagement with a company in four key ways: (1) Increased purchases through up-sell and cross-sell efforts, (2) rod-of-mouth referrals and references leading to purchases by other customers, (3) influence on social media outlets leading to more purchases, and (4) customer feedback/review.
To better understand the marketplace realities prevalent in the emerging economies, authors have conducted a qualitative study using managerial interviews to obtain market-level insights. They interviewed 42 (22 face to face and 20 telephonic) manager from 40 business-to-consumer firms headquartered in North America, Europe, Asia and Australia, which were selected based on the following criteria: (1) hey belonged to companies that already have a market presence in the emerging economies, (2) they aimed to increase firm profitability, and (3) they wanted to build a loyal customer base.
Most managers were asked to discuss the importance of building PC in the emerging economies and the factors that restricted them in implementing an effective PC strategy in the emerging economies. Most of them stressed the importance of factors such as market potential, marketing-mix elements (product, price, promotions, distribution, services, and social media), customer heartsickness (preferences, satisfaction, trust, awareness, and demographics), economic characteristics (income and growth of the economy), distribution channels (e. G. Wholesalers, retailers, online stores), innovation and technology prevailing in the emerging economies, country-of-origin (COO) effects, and organizational structure Establishing PC: The PC (Profitable Customer Loyalty) framework has been developed to work in all the emerging economies; it closely reflects the market dynamics operating in the fastest-growing group of the emerging economies: the BRICKS nations. The variables eave been categorized into different factors for creating PC as; (1) customer-specific factors, (2) marketing-mix variables, and (3) firm-specific variables.
In addition to these, a few factors that moderate the creation of PC. Typically, these factors are outside the companies’ control and are related to the country’s economic environment. Customer Specific Variables: These are specific to each customer and therefore determine the nature of interaction between the company and the customer. These also helps determine the firm-initiated efforts that are required for the creation of PC in the emerging economies. The customer-specific variables include both behavioral and attitudinal variables along with demographic characteristics and product awareness.
The behavioral variables pertain to the exchange characteristics present in a customer-firm relationship. In emerging economies understanding the customers through their spending and shopping patterns, relationship duration, cross-buying patterns, and frequency of visits can also help an NC to propose specific loyalty program initiatives targeted at certain (groups of) customers. This will help an NC develop a long-term customer-centric allegations that eventually leads to the creation of PC. Attitudinal characteristics refer to the feelings consumers express toward the company and its offerings.
These include preference, satisfaction and trust. A company can create PC by garnering consumers’ trust and satisfaction. For example, Augured, Eureka Forbears line of water purification systems, achieved this by focusing its efforts on (1) educating customers about the perils of unsafe drinking water, (2) positioning Guarded as a health and hygiene product, and (3) offering it at an affordable price point. Subsequently, recognition from UNESCO and the Indian Medical Association helped in creating trust and indisputable credibility for the brand.
Demographic variables such as age, income, gender, and location also tend to influence consumers’ attitudinal characteristics. Designing and implementing a loyalty program based on various combinations of demographic variables pertaining to consumers from the base of the pyramid is likely to lead to the creation of customer loyalty. Marketing Mix Variables: Similar to developed economies, the marketing-mix elements influence the creation of customer loyalty strategies in emerging economies as well.
The perceived value of Products and product quality are positively related to customer loyalty. Typically, customers compare the benefits of each product they use and then decide on their final choice of purchase. To differentiate themselves, many companies have changed the way their products have been positioned, by either emphasizing special ingredients or attaching a sentiment to the product. By focusing on the products’ core benefits, it is possible to create PC for such products.
Because of the diversity in the emerging economies and regional differences that exists in terms of their ultra, economic condition, and preferences of their customers, marketers need to use a combination of promotional and advertising strategies to achieve the desired results. Region-specific advertising and promotion campaigns are more effective in economies. In the emerging markets, as the consumers are known to be price sensitive, a market-penetration pricing strategy is more effective in creating PC than a market skimming pricing strategy in emerging economies.
To support this, the author has cited the examples of Dell, P&G pricing strategy in Indian Market. Service laity and well-managed customer relationships help a firm build loyalty. The limited availability of data and the limited usage of data analytics in emerging economies indicate that a standardized quality of service is more likely to create PC than a customized quality of service. Dell has been known for its use of superior data analytics to ensure product customization and standardized quality of service across the world.
Dell has been able to achieve a 40% year-on-year increase in revenue in Russia. Innovation in distribution networks in emerging economies helps an NC lid customer loyalty. Examples of this innovation are HULL Project Shasta, P&G Mom & Pop Stores etc. A hybrid distribution system is more likely to create PC in emerging economies than a single distribution system as (1) It enables on-time delivery, (2) it creates a faster information flow, and (3) it offers a backup or reserve channel.
Focusing sales efforts on the unrecognized retail sector helps more in the creation of PC in emerging economies than focusing only on the organized retail sector as they (1) contribute to the greater penetration of the Mac’s product offerings, thereby Irving more customers; (2) help the NC optimize channel costs; and (3) ensure constant availability of products in the marketplace. A territory-based sales force structure performs better in creating PC in emerging economies than a product- or customer based sales force structure as these markets are homogeneous within a particular territory but heterogeneous between territories.
Firm Specific Variables: It refer to the factors that an NC can influence in an emerging economy. The factors such as competition, COO effect, innovation, headquarters-subsidiary relationship, ND localization will affect the creation of PC. Competition plays a major role in influencing consumer purchase decisions and customer loyalty creation. Macs’ continuous efforts to position themselves distinctively in relation to the needs of the customers, visit-Г-visit competition, lead to the creation of PC in emerging economies.
For example, P&G and Milliner have been intensely competitive with one another in emerging economies, especially in South Africa. Through effective marketing communication strategies, an NC with a poor COO (Country of Origin Effect) image an reduce the negative impact of the COO effect on PC. The superiority of French perfumes and German cars are two well-known examples of the COO effect. Incremental and adaptive innovations are more likely to create PC in emerging economies than radical innovations examples, biometric enhancement to automated teller machines, Hewlett-Packard’s solar-powered portable charging system for rural India etc.
In the emerging economies, an interdependent relationship between an Mac’s headquarters and its subsidiaries is more likely to create PC than an independent relationship. In addition, the transfer of knowledge and guidance between the headquarters and its subsidiary can ensure successful implementation of the marketing programs in the subsidiary individual market. Localization strategies that accommodate the local product demand, the dominant culture, and the demographics are more likely to create PC in emerging economies than strategies to cater to Indian customers with its “Maharaja Burger”.
Moderating Variables: These are not under the firms’ control and vary significantly in their effect on customer loyalty creation efforts in the emerging economies. Understanding the cultural ideologies of an economy is key to building successful businesses. Product/ service offerings in emerging economies can accelerate the creation of PC, provided that they closely resonate and blend with the country’s culture.
For example, McDonald’s failed to realize that the people of Mexico were very possessive about their national emblem, and the company faced negative consequences when it embossed its placemat with this emblem to celebrate Mexican Flag Day. The presence of a well-developed country infrastructure in the emerging economies enhances the effect of product innovation and distribution in the creation of PC. For example, Nestleg’s “If you don’t have it, you create it” ideology helped the firm increase its milk production in China.
Nestle created its own infrastructure by building “milk roads” that connected various villages with the factory collection points. A contingency approach to the marketing mix variables that accounts for the uncertainty in the political/legal environment is necessary for the creation of PC in the emerging economies because of the differences in government regulations between the emerging economies. For example, government regulations pertaining to business partnerships, export fees, and tax vary significantly between Brazil and China.
Accounting for regional biases in emerging economies enhances the success of an Mac’s innovation efforts in creating PC because regional biases hinder innovation, which indirectly affects the creation of customer loyalty. For example, Brazil is distinctly divided into northeast and southeast regions because of the significant differences between the two regions with respect to income, resources, culture, and lifestyle. Market Structure: In emerging economies, an open economy enables the success of an Mac’s marketing mix strategies in creating PC.
Loyalty/ Rewards Program: According to the Kumar & Shah, a loyalty program that rewards customer behavior without considering profitability runs the risk of imminent failure. The creation of both attitudinal and behavioral loyalty is important to developing long-term relationships. Thus, in the emerging economies, the presence of a loyalty/ rewards program with the right choice of type and timing of rewards increases the ability of the customer-specific variables, the marketing-mix variables, and the firm- pacific variables to create PC.
Substantive Contribution of the Proposed Framework: By ensuring customer engagement through differentiated customer service, creating familiarity at each step for each customer, and collaborating with new technology, an NC can develop PC. The substantive contributions of the framework proposed here are threefold: (1) It contributes to the literature, (2) it offers managerial implications for Macs that are currently operating in the emerging economies, and (3) it offers managerial implications for Macs that are planning to enter into the emerging economies.
