Research Korner: Consumer Behavior Examples

Relationship Marketing

Marketing Coursework   Relationship Marketing   Introduction             Relationships are essential in the various aspects of life, whether in romance, family, or in business, for this becomes the foundation of good interrelations with one another. Making good relationships benefit many individuals, including many business organizations. This also becomes one of the good foundations of companies and organizations to attain growth and profit in the market, for their relationships with their customers, shareholders, and employees become strong and established, if each individual would strive to make good interrelationships. With the fast-changing world today, many gadgets and technologies have become a means for many individuals to enhance their relationships with the use of the Internet and the World Wide Web. With the innovation and evolution of technology, many business organizations are able to identify and focus on the needs of their customers, which enhance customer value in terms of marketing. In addition to this is the use of other factors in marketing, such as traditional marketing, selling, and database marketing, which are responsible for enhancing and developing good relationships with customers. In this paper, the factors concerning customer value within relationship marketing will be evaluated. Customer value will be discussed to how the customer perceives potential benefits in their relationship with the business organization.   Customer Value and Relationship Marketing              (1991) reports that positioning begins with the customer, for customer thinks about products and companies in relation to other products and companies, and what really matters is how existing and potential customers think about a company in relation to its competitors. Customers set up a hierarchy of values, wants and needs based on empirical data, opinions, word-of-mouth references, and previous experiences with products and services, and use this information to make purchasing decisions (1991). Today, the importance of market positioning depends on not only the products, services, and needs of the customers, but on the company’s competitive strategy, pricing, packaging, distribution, service, support and communications, such as the use of advanced technologies. This is why, traditional positioning strategies are inadequate because they do not consider technology and change to be significant factors, and because building and sustaining customer relationships is never their central aim. They believe that a static, impersonal customer and marketplace exist, where technologies, products and customer perceptions change very slowly (1991). In contrast, dynamic positioning strategies are very different, for it is based on manipulation of the customer’s mind, on using a bag of marketing tricks to entice the customer into awareness of a company’s desired position, which is company centered than customer centered. This strategy is applicable in a complex, fast-changing industry, where radical changes are occurring everyday. These changes become a response to the fact that products evolve, markets change, competitions change, and new technologies emerge. This is why new and established companies are constantly trying to innovate and improve their products and services ( 1991). In addition to this, are the company’s continuous strategies of improvement in terms of customer value, for these are important in sustaining relationship marketing.             It has been reported that relationship marketing is a form of marketing, in which emphasis is placed on building longer term relationships with customers rather than on individual transactions, involves understanding the customer’s needs, and emphasizes in providing a range of products and services to existing customers as they need them ( 2006). Relationship marketing is important for it enables many companies to become permanently established in the market and provide longer-term service and products to new and existing customers. With relationship marketing, the company not only can serve their customers, but also generate profit and company gain for a longer period. The application of relationship marketing also provides the consumers with great value to their money, which gives the company a good reputation in the market, for the company relies on building a strong and long-lasting personal relationship with their customers.             However, the concept of relationship marketing will not be complete without the existence and influence of customer value.  (2003) provided several definitions of customer value. First, customer value is what the customer believes that a product or service provides in a certain use situation. Second, it is an implicit comparison between what the customer receives from the provider and what the customer provides in time, effort, and money, where the frame of reference is not just the price tag on the product, but also the ease and convenience in the acquisition and use of the product and the entire interactive experience the customer has with the firm. Third, is that customer value can be shaped by attitudes, opinions, and behaviors of others, such as friends, family, media, the providing firm, and other competitors in the industry as well as in substitute industries. Lastly, is that customer value determines customer satisfaction and the likelihood of brand or firm loyalty, where the cause-effect relationship could be affected by comparisons with competitors and other substitutes (2003). Moreover, many firms focus on the product rather than on the customer, but when the focus is on the customer, the business is defined in terms of customer value, not in terms of product, for the product is viewed as a customer solution and experience, which is the most fundamental definition of any business firm. If firms are focused on the customer, they ought to see themselves in the role of providing solutions, not products, which leads to giving importance for customer value (2003). By focusing on customer value and customer’s perspectives, business organizations can identify their mission and values, and can better understand their strengths and sources of competitive advantage, for business firms are better positioned and more effective in allocating resources and efforts both strategically and operationally, if they are better situated to understand what would be considered superior customer value ( 2003).   Factors concerning Customer Value             In line with the advantages in determining customer value are several factors, which are important to identify in response to providing value-added and high-quality products and services to the consumers. Important factors include perceived value, service quality and value, and social and emotional value in terms of brand loyalty. These factors are related to marketing and technological means, which also determine the effectiveness and success of the company in the market.             It has been reported that customer perceived value could be related to a single purchase of a good or a service, or to a relationship between a supplier and a customer, or even to a net or network of such relationships ( 2004). Professional services are always customized, which creates a need for the parties to interact intensively in every phase of their joint value creation, thus, are often bought within relationships. In business relationships, two exchange partners coordinate a number of activities in a way that it increases their interdependence, thus, raising their joint productivity and creating value (2004). If the customer has a positive or pleasant perceived value towards a product or service, then most likely, consumers purchase that specific product regularly. However, if the customer has a negative perceived value towards a product or service, then consumers will be patronizing other brands from other industries. The role of communication and technology somehow determines the building up of the consumer’s perceived value, as more consumers today rely on what different media can say about a specific product or service. A good venue for developing perceived value is through the Internet, representing a state of pure competition, where there exist many buyers and sellers and a lot of market information on which to base decisions in purchasing or patronizing a product or service (2004). In addition to the influence of the Internet and the World Wide Web is the influence brought about by other means of communication, such as the television, radio, and printed media. Moreover, the perceived value factor of consumers determines relationship marketing, for with this perceived value, the company can base the innovation and features of their products to satisfy their customers and attain customer loyalty. This is a way of responding to the needs of their customers, for taking note of their perceived value regarding a product or service would mean listening and paying attention to their needs.                        The second factor is service quality and value. In understanding customer value, improving service quality and value is important, being an element of customer focus and service orientation. In order for the company to deliver customer value, it must strive to aim at customer satisfaction, to achieve customer loyalty. Firms design a product concept based on their understanding of the customer’s expectations, and then configure their value-creating assets accordingly in an operations design, which determines the customer experience. Thus, customer value must be closely aligned with customer expectations, and this can be achieved by continuously improving, developing and innovating a company’s products and services (2003). Through the influence and role of communication means, the service quality and value of a product or service can be altered. This includes the assessment of the media on the reliability and quality of the product or service, which determines its success in the market. In relation to relationship marketing, the improvement in service quality and value of a product or service would enable the company and customers create a good and lasting relationship, for the customers provide solutions to the problems of the consumers, and in turn, the consumers provide the company profit through continuous loyalty and patronage.             In line with this, a study done by  (2005), which aims to examine the relative impact of service quality on service value, customer satisfaction, and customer loyalty, including positive word-of-mouth communication, proves the positive impact of good service quality and value to relationship marketing. The first implication of their study is that the greater the tangibles, assurance, and sensory dimensions of service quality, the greater are the perceived service values by the customers. The second result is that the greater the empathy dimension of service quality, the greater is the customer satisfaction. Third, the greater the service value, the greater are the customer satisfaction, the positive word-of-mouth communication, and continuous patronage of the customers. Lastly, the greater the customer satisfaction leads to greater positive word-of-mouth communication and patronage of the customers (2005). This study proves that with good service quality and value, consumers have positive response regarding a product or service.             The third factor is the social influence in terms of brand loyalty. Brand loyalty is the consumer’s conscious or unconscious decision, expressed through intention or behavior, to repurchase a brand continually, and occurs because the consumer perceives that the brand offers the right product features, image, or level of quality at the right price (2002). The different aspects present in society, such as media, advertising and communications, influence brand loyalty. With the advancement of technology, advertising brands is not anymore a hard task, so many companies invest on making advertisements to introduce their brands in the market. Because most consumers are exposed to the different means of communication media, many consumers base their judgments and decisions in purchasing and patronizing a specific product or service.             In relation to relationship marketing, companies can easily introduce their products and services to the public through the different advertising media. Companies can express their aim of targeting the needs of their customers by properly and effectively advertising their products and services. This is why, companies should always strive to improve and develop their products and services, because the society can easily detect the qualities and characteristics of products through the advertising media. Through good customer value, companies can attain brand loyalty from their consumers, as a consequence of implementing an effective relationship marketing strategy with the consumers.             The last factor is the emotional value of consumers in terms of brand loyalty. It has been reported that emotional loyalty occurs on one of two pathways, each with its own threshold (1999). The first pathway suggests that emotional loyalty is born out of a consumer’s personal relationship with a brand, and this relationship may very well start through the satisfaction of a functional need or an expressiveness need. Consumers cross the threshold from a mere brand relationship into emotional loyalty when they “animate” the brand, and relating to it in the same way they relate to human beings ( 1999). The second pathway is the formation of a strong user community around the brand, where the consumer crosses the threshold to emotional loyalty when membership in the brand’s user community becomes an end in itself. In essence, the emotional value of consumers toward a product or service depends on certain circumstances when they have found attachment to the product or service. This attachment well depends on customer value, which in turn creates good interrelationships between the producers and the consumers. In addition, the key to creating value from emotionally loyal consumers is to manage simultaneously their purchase behavior and their influence on others, for the halo effect created by this small consumer segment can be used to expand the value of the brand, create line extensions, or build a beachhead into other categories (1999). The company must make sure to maintain the good and high quality of their brand to ensure the public of their perceived value and in turn, the brand loyalty and continuous patronage of their consumers.   Conclusion              Relationship marketing is important in the aim of many business organizations to identify customer needs and provide answers or solutions to their problems. In having a good relationship with customers, the company can continue innovating solutions to serve consumers and establish the company in the market. In line with relationship marketing, is the concept of customer value, which is important to determine and evaluate to successfully and efficiently provide the needs of the consumers. Customer value can be influenced by several factors, namely, perceived value, service quality and value, and social and emotional value in terms of brand loyalty.             Perceived value determines the success of a product or service, because with a positive perceived value of consumers creates a positive effect in the value of a product or service. Similarly, a good service quality and value helps generate a good profit for the company. In addition, the society has a big influence on brand loyalty, with the role played by the different advertising media. Likewise, emotional loyalty affects relationship marketing, for with the continuous patronage of consumers on specific products or services, the company can cater to their needs. With relationship marketing, customer value can always be determined by the company, which is essential in their aim to efficiently providing their consumers with good and high quality products and services.

Relationship Marketing

Marketing Coursework Relationship Marketing Introduction Relationships are essential in the various aspects of...

MANAGEMENT ACCOUNTING

The Role of Management Accounting in the Firm’s Pricing Decisions                 This paper is an essay about the role of management accounting in the pricing decisions of firms. This is a research type of essay paper, which makes use of journals and textbooks to show the actual application of management accounting in the firm’s final pricing decisions. The first part is intended for the background on management accounting, to give the readers a bird’s eye view of the topic. Then a slow interconnection of the topic to pricing issues is made as it approaches the middle part of the paper. The existing relationship between the two topics is then illustrated through presentations for further and clearer evaluation of the situation to the reader. This is also a way of showing how management accounting can affect a firm’s pricing decisions. On the last part, the topic is summarized to end the discussion and to give a clear conclusion for the readers.      Management Accounting             While other branches of accounting is concerned with the considerations of accounting information of business enterprises for the use of external decision makers, managerial accounting is focused on the realm of enterprise-related accounting information for the use of a different set of decision makers – the enterprise’s management itself. Therefore, managerial accounting is the branch of accounting thought and practice concerned on providing useful information to decision-makers within the enterprise. These decisions are related to the development of resources and the exploitation of the opportunities available for the enterprise.             The boundaries of managerial accounting are not rigid.  One thing that managerial accounting and financial accounting have in common is their focus on the enterprise and its activities. Their difference, on the other hand, lies on the decision interests of the class or the decision makers that they served. Additionally, most of the decision models that have evolved for management use and for which accountants supply the necessary information inputs have been developed within the disciplines of managerial economics and managerial finance. These models are described as part of the managerial accounting due to its vital role in supplying the relevant information for decision-making. Without it, it would be hard to understand the models of management decision.             Management decisions can be divided into two types. They are the long run and the short-run decisions. Long-run decisions are defined as decisions whose outcomes commit the enterprise or have direct influence on its numerous future-period activities. The long run is thought of as a span of time sufficiently long for the planning, implementation and running of the enterprise’s significant project or program. Short-run decisions, on the other hand, are decisions whose outcomes commit the enterprise or directly influence its actions for perhaps only a year at most. The latitude available in the selection of short-run alternatives is restricted considerably by the commitments made by the enterprise in past long-run decisions.             Given the objective of profit maximization in the long-run, the success of the enterprise (management) in the long-run hinges on the ability of the management in the identification and implementation of the most promising product lines, projects, and programs within its capabilities, as well as its environmental and money-capital limitations. The active seeking of opportunities is the first requisite to success. It is done to assist, either in providing new and better products/services, or in the development of new and better means of production. The former requires at least some minimal level of involvement, in the research of present markets and consumer/industrial preferences, plus on the research on product development. On the other hand, the latter requires at least some involvement with industrial engineering as well as organizational, institutional, and behavioral research. All of these are essentially information- seeking activities contributed by specialists other than accountants. The accountants’ contribution comes into play in the selection of the most promising set among the identified alternatives. This is another important requisite to the enterprise’s success in the long run.               One essential feature of the opportunities (alternatives) in the long run is that they usually require considerable initial outlays of the enterprise’s limited money capital for implementation. These initial outlays include expenditures for things like long-lived assets to be employed in the program, legal fees, and further developmental and organizational research costs. Additional outlays are required when relating to several future periods. This enables the production of benefits in the form of cash inflows or lower total outlays compared to the programs they replace. Since long run programs generally require outlays of scarce money capital, the process of the selection of the best set among the available alternatives (opportunities) is usually referred to as capital budgeting.             This is where the role of the managerial accountant enters. Upon the decision maker’s discretion, he may perform not only the information-gathering step in the decision process but parts of the problem definition and evaluation steps as well. He also acts as the translator of the resource flows connected with a product, project, or program into financial or money flow implications.   Cost Behavior Analysis: A Flexible Tool             The discovery and application of cost and revenue behavior patterns are relevant in producing information for all types of management decisions. As noted earlier, one important task of managerial accounting is the association of financial (money) flows with the resource flows that are expected from various decision alternatives. Costs measured in money terms are associated with these alternatives in order to evaluate them in the context of the enterprise’s long-run goal, which is profit maximization.             The basis of associating these costs with particular decision alternatives is usually cost behavior patterns derived by the cost behavior analysis. A cost behavior pattern is a functional relationship between various activities or events that represent a decision alternative and the expected cost to be incurred in connection with that alternative. Cost behavior analysis, on the other hand, is the process of the discernment and the description of the forms of these cost behavior patterns.                          How are cost behavior patterns used in managerial decision making? First, the cost-behavior implications of various activities and events are used in constructing an overall cost-function for a decision alternative or variable. Then the cost function (usually together with a revenue function) is manipulated to generate decision-relevant information about the alternative or variable.             Since most of the managerial decision making focuses on the production and sales of products and services, the frequent concern of accountants is on the use of cost behavior patterns in supplying information for decisions on production and sales. This type of application is called the cost-volume-profit analysis or break-even analysis. This is frequently used in practice and is the most appropriate context in acquainting the reader with the application of cost behavior patterns.   The Translation of the Actual Production Plans into Budgets               There are many kinds of activities involved in the operations planning and the control phases of the overall cycle of short-run management decision. These two phases are best described involving a series of steps. Each of these steps is necessary in accomplishing the purpose of each phase. Accounting takes a significant part for both phases.             The major steps involve in the planning phase of the decision cycle for the short-run includes: the assignment of goals to responsibility centers; the development of plans for the operations of each center; the translation of these plans into budgets, the coordination and combining of the different budgets (making of the master budget); and the final review and possible re-planning of the master budget.             After the determination of the best feasible one among the available production plans presented, a financial representation of that plan is prepared. This is called the budget, which is the operating plan for a certain period, expressed in money terms. Accountants take the role of assistance in the formulation of budgets. This process consists of the combination of the individual unit resource requirements (based on a selected plan), with the assigned goal on the production activity. The process of budgeting relies heavily on the predictions of the cost behavior patterns.        The Master Budget             After the formulation of the budgets for all of the lowest-level responsibility centers, a process involving the combination of the said unit budgets into budgets for the higher-level responsibility centers follows. The lower-level centers are part of the higher-level ones. Then after that combination, they are put together finally to form a coordinated whole. That is what they call the master budget. It consists of a coordinated set of financial estimates for the budget period. This includes the balance sheet, income statement, and other statements deemed to be useful for the said budget.              The master budget differs from the budgets of high-level responsibility areas, it is not a “summing up” of the budgets of the lower-levels. Instead, it allows for the financial consequences of the various conflicting, major activities like production and sales.   The Final Review of the Master Budget and the Replanning             The master budget serves as a means for checking all of the individual plans. This is due to the fact that it is where the different plans for all of the activities of an enterprise is integrated, and expressed in financial terms. It does not pinpoint any potential production bottlenecks and other defects on the technical planning. However, it is useful in other ways. One case is on the careless seeking of the optimal plans for operation. The lack of rigor may not be discernible in their individual budgets due to this situation. Nevertheless, the result will turn out to be a less-than-satisfactory estimated income figure, after the combination of the budgets into the master budget.               On the other hand, certain adaptation forms are considered desirable in case the master budget turn out to be ineffective. It should only happen before the start of the operations. The exact adaptation form depends on the cause of the poor outcome. If the foreseeable cause lies either on the lack of rigorous planning on the part of the responsibility centers, or on the selection of overambitious goals by the management, a reiteration of the entire planning process is needed. For the first case, more attention must be dedicated for the selection process of the best (least-cost) plans for each subunit. While for the second case, goals that are more realistic must be assigned throughout.             On the other hand, if the cause of the frustration is beyond the management’s control in the short-run, the problem becomes a matter to be considered in the long run by the management. That is, if it is due to some identifiable internal or external constraint. Even though the initial operational plan is a failure, it is not necessarily abandoned, unless adaptation could lead to a better plan under the circumstances.          Pricing of Products and Services             Pricing involves a delicate act of balancing. The higher the prices are, the more revenue earned per unit sold. However, this will drive down the unit sales. One difficult problem here is the actual setting of prices in its exact amount in order to maximize profits. In general, however, the mark-up over cost for those products, whose customers are least sensitive to price, should be the highest. In particular, the demand for such products is termed as being price inelastic.             Managers often rely on cost-plus formulas in setting their target prices. In the approach of absorption costing, the cost base is the absorption costing unit product cost, while the mark-up is computed to cover both non-manufacturing costs as well as to provide an adequate investment return. However, costs will not be covered here and there will be no adequate return on investment unless the unit sales forecast used in the cost-plus formula is accurate. If through the application of the cost-plus formula resulted in a price that is too high, the unit sales forecast will be unattainable.             Some companies, however, make use of a different approach for pricing. Instead of starting with costs and determine the prices afterwards, they start first with the prices and then determine the allowable costs. Companies using the target costing approach used the new product’s anticipated features as well as the prices of the existing products in the market, as their basis to estimate the likeness of the new product’s market price. In order to arrive at the product's target cost, they subtract the desired profit from the estimated market price. Thus, the responsibility of ensuring that the actual cost of the new product should not exceed the target cost is given to the team of design and development.   Conclusion             Managers have to make decisions, whether it be in the allocation of its limited resources, on pricing products, whether to drop a product line or not, or on the way of organizing its product and process. These decisions are based on information as its source. If the source (the information) turns out to be good, the decision will also turn out to be a better result. Nowadays, there is the emphasis of computer specialists on the “systems” nature of information and decisions. They argued that the way of the data development, summarization, and presentation determines the way a situation is viewed. In turn, it also determines the actions to be taken. Accounting reports, therefore, are the major source of performance information and the only source regarding the profitability information of a company. However, due to its service extended to external groups, it has not focused enough on its task of supporting managers in their full range decisions. Accuracy and validity in representing the companies’ activities are also compromised for uniformity and simplicity in its external reporting. This will further mislead the managers, resulting into the development of inappropriate strategies, which in turn, will also result into bad decisions.             A recent development solves this problem. This is the activity-based costing, which provides the management the opportunity to bring the overhead allocations into line, with the way the plant actually operates. The activities (which cause the costs) are identified in order for the products (which cause the activities) to pay for them. The activity-based costing is not considered as a radical or dramatic change. Instead, it is defined as a subtle, fine-tuning. It has the potential of improving the usefulness of accounting significantly, as a decision support system for the strategic move of the manager in rebuilding its competitiveness.             , editor of Management Accounting and director of NAA research, summarize the developments in activity-based costing. He also states that activity accounting is a technique for better understanding of costs. Therefore, every company should make improvements with the use of the activity-based costing concept. The estimation of the potential costs of running a business is difficult with the use of inaccurate information. Activity-Based Costing, therefore, is an offering of opportunity made by the accountants. Every company who wish to improve their accounting reports’ accuracy should take this in modeling their company.   References

MANAGEMENT ACCOUNTING

The Role of Management Accounting in the Firm’s Pricing Decisions This paper is an essay about the role of managemen...

Consumer Behavior Patterns in the Era of Globalization

Consumer Behavior Patterns in the Era of Globalization Globalization spawned elevated consumer awareness at increased tangible rates. The growing trend of stagnate income levels attribute to globalization as an effect came under pressure to fit to a new generation of markets driven to constantly changing consumer preferences and demand contemporary from the effects of a globalized economy. This effectuate to provide flexible mechanisms appropriate to varied consumer preferences that cause increased supply chains markets with a proportional number of buyers and sellers alike that respond to increasing competition among markets fit to different consumer categories. This, in turn, lead to driving factors on how consumer behavior and preferences are affected for the long term in different scales from varied national economies and in return, how consumer behavior responds to various consumer goods according to needs and at consumer profile segments with respect to lifestyle, quality, brand and price with the overall economic profile the national jurisdiction under which the consumer in question holds (Spiewack, n.d., p. 1).Another alternative driving factor is how respective national legal systems vary that employ different antitrust and legislative approaches with respect to international trade policy according to the dictates by international economic dynamics (Feinburg et al., 2010, p. 1). This drives the whole consumer matrix on behavior from the lowest hierarchal actor, the consumer, in ways the preference factor impacts the market on macroeconomic levels, and to what extent, national economies on a respective country basis respond. This spurs how the competition factor shapes among markets on a national and international purview and the pace international economic policy institutions form and permeate varied national societies and business communities manifest in different norms and purchasing choices the public employ based on culture. Along to note the institutionalization policymaking adjuncts to in international levels involve how international arbitrage measures on pricing function in different countries taken to control a country’s international trade performance through the flow of goods and services  affect foreign currency and consumer behavior incited by inflation (Anderson and Ginsburgh, 1999, p.1). Added to the diversity spread on a dominant scale attribute how internet technology breakthrough influence users across the globe institutionalized a convenient and efficient purchasing system stretching the consumer preference scale to avail a wider pool of choices with increased quality and more affordable prices at one’s fingertips as an increasing trend (Spiewack, n.d.,p.1).  That said this provides with elevated sense to discuss economic players and indicators in the international level that shape consumer behavior along the basic tenets on price, brand, quality  as central macroeconomic determinants. International economic principles centralize the supply-demand relationships and foreign currency markets. Demand is the determinant factor by which supply depends on. Demand which bear weight on purchasing power and income level distribution remain asymmetrical.  Due to varied concentrations of these determinant factors around the globe, the economic performance and foreign currency market between developed and developing countries dictate the purchasing power for trade and goods that vary. The credit risk factor also associates to the economic matrix that depend on the economic profile linked to a country, dictates the level interest rates central banks and their capability offer, and the growth and availability of diverse equity market and debt based financing packages or fixed income markets to these countries dictate the supply level accord to their purchasing power respectively. The greater the economic performance through well distributed income the greater chances for larger financing avail at lower interest rates, the greater the purchasing power for good and services, then the greater the supply in accord to the demand. This is also proportioned to a weaker economy. Should this be true a greater supply and demand means a wider coverage for quality goods and services.  The degree of flow of goods and economic performance relative to supply and demand corresponds to varying indices among countries inherent to their economic rank. Contemporary economic recessions that ravage developed countries impact the prime markets with high liability margins with lesser equity, along with high interest rates ongoing as prevalent economic issues. Due to the mutual degenerate effects, to give leverage to purchasing power with respect to good and services uniformly distributed among all markets to maintain tolerable demand levels with respect to supply, between developed and emerging markets, rests on international arbitrage as a necessary price control mechanism which provide to discriminate prices yet able to generate marginalized profits considering the market in question is exposed to monopolistic conditions (Anderson and Ginsburgh, 1999, pp.1-2). However sheer level adjustment in international price arbitrage technique is a disadvantageous measure and warrant compensation to offset deficits is imperative by encouraging foreign direct investments. This was similar in situation to China reflected on the Engel’s coefficient as the governing index that sheered foreign trade, international and national economic policy restructuring that shifted consumer demand to be lower than income level due to national income growth (Anderson and Ginsburgh,1999,p.5). On the national level, the higher income distributed, demand is likely distributed among consumers who prefer known and higher quality brands, but is not the necessary factor for purchase nowadays because of income constraints while quality is not sacrificed. These dynamics cause to study how economic indicators play. Consumer preference proved a factor respective to national trade policy and antitrust enforcement on national trade policies governed by legislative decisions.  Research on international political dynamics show respective nations the vested interest expressed with their culture influence who control international competition by imposing limits on the flow of trade and goods and therefore results to limited choices left to consumers.  Due to the onset of trade liberalization through free trade agreements or mergers and acquisitions between countries as the concurrent trend, a wide exposure to free competition among markets can yield likely to a lesser market share among competitors, with less revenue from sales. If a foreign competitor hovers in sales rank over a domestic competitor and in cases when the former has a stronger currency over the weaker on the average, meaning public preference on imported goods than domestic, then the outflow to pay imported goods will be costly and harmful to the economic welfare. Aside that demand on certain markets thrust heavily on religious belief and its adherence to a group of people. For example, Muslims require covered gowns and headdresses than the modern contemporary fashion world offers. Mergers and acquisitions among countries pose to disclose trade secrets that pose substantial antitrust risk while championing greater investment opportunities and market expansion. Other reasons bear on national security, economic and political interests especially that thrust on sensitive technologies by economic powers. Once violations occur legislators take action to file antitrust suits against any firm regardless of nationality for the protective welfare of constituents. This especially pervaded international intellectual property law to govern and model national legal structures prevalent in developed nations to dispose legal guidance implementing certain rules to address a wide spectrum of issues. That said antitrust laws serve to evade competitive market behavior and hence limit consumer choices (Feinburg et al., 2010, p.2). But the onset of internet technology introduce international boundaries to merge by which trade costs are reduced  to minimal levels and come to equilibrium resulting to affordable price while antitrust risks increase that subject to careful mutual corporate governance among mergers.

Consumer Behavior Patterns in the Era of Globalization

Consumer Behavior Patterns in the Era of Globalization Globalization spawned elevated consumer awareness at increased tangible rates. ...

Thesis Chapter 2: To What Extent Will Consumer Resistance Inhibit The Growth Of Internet Banking In The UK?

CHAPTER TWO. LITERATURE REVIEW     2.1 OVERVIEW We cannot refuse that the development of technology was a need of the current age.  Businesses must embrace and adopt new technologies to offer outstanding business services and operation to their customers. The bank industry is not an exception with regards to this adaptation. With the emergence of computers and internet, communication between businesses and clients are becoming faster than before. In accordance to this, this part of the research, the resources are based on the facts draw together from journal articles, books and other studies which is associated to customer resistance and acceptance towards technology and internet banking in UK. The data gathered helps the author in evaluating and attaining the aims and objectives of this study. Simultaneously, such details from the literatures can also serve as leads for the discussions and the creation of conclusions. 2.2 INTERNET BANKING IN THE UK There are two types of Internet bank in the UK. One is an integrated Internet bank that is an operation of a traditional bricks-and-mortar bank. The major traditional high street retail banks in the UK are: Barclays, NatWest, HSBC, Lloyds TSB, Nationalwide, Woolwich, Royal Bank of Scotland, Bank of Scotland and Abbey. Another one owned by traditional banks or established independently of traditional banks, It operates pure on the Internet like Egg (owned by the Prudential Insurance Company), Smile (Co-operative Bank), Intelligent Finance (Halifax) or First Direct (HSBC) etc. This study focuses only on high street retail banks. Barclays was the first bank in the UK that introduced Internet banking service in 1997 and this trend is increasing since (www.barclays.co.uk). Due to intensifying competition in the financial industry, Barclays, HSBC, Lloyds TSB, Nationalwide and NatWest etc. all have taken steps into the Internet banking arena, each trying to downsize their branch networks in order to save costs. The primary factor determining the level of demand for Internet banking is the number of people connected to the Internet. Mintel’s consumer research report found that a large proportion of the population in the UK have Internet access, two-fifths of the population are now Internet users in the UK and Internet usage has grown rapidly (eMarketer, 2002). This greater acquaintance with the Internet has in turn fuelled interest in Internet banking as a new service that enables the consumer to monitor their bank accounts and undertake various financial transactions such as fund transfers and the payment of bills. According to the report of Association of Payment Clearing Services’ (APACS, 2007) that between 2001 and 2006 the number of Internet bank users rose by 350%.  This compared to a 175% rise in the total number of adults banking online. 17 million adults in the UK banked online in 2006, compared with 6.2 million in 2001. For instance, Barclays, the largest Internet bank in the UK, reported that in 2003, 20% of transactions were ‘online’ with 19% of the population having online bank accounts (Jupiter Research, 2003). Compared with other retail banks, Barclays represents 49.0% of the market in volume terms has ranked the top of Internet banking (Datamonitor, 2005).    Figure 1. Customer volume from 2000 to 2002 Source: Datamonitor 2005, United Kingdom- online banking In UK, a highly educated, young market appears to be ready for Internet banking. The 25-34 year old age group is seen the most active banking online, representing 49.0% of the market in volume terms. It is expected that younger age groups would be more willing to use Internet banking (Business Insights, 2003). Such a segment represents a highly profitable and less risky customer base for several reasons. First, this group is relatively young; they represent banking relationships that could be sustained for a long time. Second, this group is likely to be highly mobile, both within the geographical limits of the country and outside it (Bradley & Steward, 2003). The Internet particularly provides the most reliable method for maintaining these banking relationships irrespective of geographical boundaries. According to a survey of UK retail banking customers, it has been proved in figure 2 that as one of the key channels, Internet banking, comparing with telephone banking is more likely to be adopted with less time pressure by UK consumers. A latest statistic shows (APACS, 2007) that 17 million adults in the UK banked online in 2006 out of almost 40 million holders of current accounts, while from December 2006 their online counterparts outstripped telephone bank customers for the first time[1] (BBC, 2007). This means that Internet banking has been growing rapidly in the UK.   Figure 2. Internet banking and telephone banking usage in the UK 2006 Source: Association of Payment Clearing Services (2007)   Although Internet banking users in the UK are growing fast, however, physical banks are still the most popular channel and dominate the current account market in the UK. From a representative survey of UK bank customers, 45.8% of customers still prefer to visit a branch to manage their accounts (Datamonitor, 2005). 2.3   INTERNET BANKING ACCEPTANCE STUDIES Internet banking acceptances has gained a lot of attention in academic studies during the past few years. There are two fundamental reasons underlying Internet banking service development and diffusion. According to Pikkarainen et al., (2004), found that firstly banks provide an Internet rather than physical service because of cost saving and secondly customers complained that time is wasted while waiting in the banks. Therefore, cost saving, time and removal of geographical constraints have been identified as the main reasons underlying Internet banking service acceptance by researchers (Black et al., 2002 & Howcroft et al., 2002). In fact, the ATMs have been a popular channel as an alternative way of cost reduction since they were introduced in the early 1970s in the UK. However, it has been reported that the actual usage of them has decreased because of the appearance of other channels like telephone banking and Internet banking (Business Insight, 2003). Although retail banks have shifted their attention on improving their banking service quality over the Internet and offer many benefits to customers, many of them still seem to be lagging behind their customer’s ever increasing demands and expectations (Jun & Cai, 2001). It seems that Internet bank usage might not be as optimistic as retail banks expected. There are many reasons for this. Firstly, customers need to have an access to the Internet in order to utilise the services. It requires acceptance of a new system, which involves the changing of behavioural patterns (Meuter et al., 2000). Furthermore, new online users need to first learn how to use the service (Mols, 1999) because this new system simplifies consumers’ understanding of exchange and would make consumers’ understanding more difficult, especially for aged consumers. Secondly, some customers complain that Internet banking has no social dimension. For example, there is no traditional face-to-face service like in a branch (Matiila, 2003). Thirdly, the most important reason is that customers have been afraid of security issues like hackers (Hamle & Strube, 2000 and Howcroft et al., 2002). 2.4 PERCEIVED USEFULNESS AND EASE OF USE OF TECHNOLOGY IN BANKING Consumer technology acceptance has received wide and intense interest among information system researchers (Adams, et al., 1992 and Venkatesh & Davis, 2000). The factors that are significant in technology acceptance have been examined across varied information technologies and user populations (Adams, et al., 1992).  A cumulative tradition has already been established in consumer technology acceptance research, especially in the management and information system disciplines. Of all the models proposed, the Technology Acceptance Model (TAM) has been widely referenced and adopted by information system researches. Davis (1996) noted that behavioural intention to use a new technology is determined by the individual’s attitude toward using this technology.  Perceived usefulness and perceived ease of use are relating to the intention and behaviour.  Perceived usefulness is defined as the extent to which a person finds using the system will enhance his or her job performance, while perceived ease of use is defined as the extent to which a person believes that using a particular system will be free of effort (Doll et al., 1998 and Wang et al, 2003). These two have been confirmed and validated in many empirical studies to be important factors in affecting system usage (Adam et at.,1992; Subramanian, 1994; and Moon & Kim, 2001). Venkates and Davis (2000) found that the perception of usefulness is formed in interaction with other individuals and a system. The perceived usefulness of something is its ability to provide a relationship, for example, the given thing as a means to a desired end, or to provide a rational upon which to make decisions (Barczak et al., 1997).  Based on formerly conducted researches and their results, the more useful the system is seen, the more likely it is to be that the system is also being used. Hence, Eriksson et al., (2005) argued that perceived usefulness could be the only major factor directly influencing the attitude towards online banking. It has been found that amount of information has a significant influence on perceived usefulness. In the context of bank marketing planning, Eriksson et al., (2005) identified information about the benefits of using a product or service as an essential service and product promotion strategy. If people believed the system would enhance their performance very well, then the technology system would be useful. Their opinions are consistent with Gerrard & Cunningham’s findings. Gerrard & Cunnigngham (2003) found only perceived usefulness and information of online banking significantly affecting use of Internet banking services. Moreover, adoption is the acceptance and continued use of a service. Rogers & Shoemaker (1971) found that consumers go through a process of knowledge, persuasion, decision and confirmation before they are ready to adopt a product or service. If consumers are not adopting Internet banking, it may be because they are not aware about information or this service being available. Additionally, Tornatzky & Klein (1982) and Tan & Teo (2000) suggested that relative advantage is an important factor in determining adoption of innovations. This is also supported by Roger’s study of Innovation Diffusion Theory that found the perceived usefulness of an innovation is positively related to its rate of adoption (Rogers, 1983). Similarly, as Internet banking service allows users to control their accounts from anywhere at their own convenient time at lower cost, it provides many advantages to the user in terms of price and convenience (Polatoglu and Ekin, 2001). As a consequence, the greater the perceived usefulness of using Internet banking services, the more likely that Internet banking will be adopted. Besides, Gerrard & Cunningham (2003) found people don’t adopt technology to perceive the service it may be because the Internet Web sites are more complex and not easy to operate. Thus, perceived ease of use might be another of the most significant determinants of a user’s acceptance of Internet banking. Perceived ease of use is derived from the Davis’s model (1989). It is another very essential piece in TAM. Davis (1996) found that users are driven to adopt an application primarily because of function if performs for them and secondarily for how easy or hard it is to get the system to perform those functions. Thus, it shows that a high score on ease of use can never compensate for a system that users perceive useless.  The effect of perceived ease of use on Internet banking acceptance may reflect the concern of the newness of the Internet environment to users. Researchers also confirmed that it is especially very important to see the role of perceived ease of use in the early adoption stage of a new technology (Mathieson, 1991). Perceived ease of use means the user’s perception of the level of easiness to use the system. Teo et al., (1999) found the easier Internet banking is to use, the greater will be a user’s feelings of self-competence and determination. The feelings may increase a user’s intrinsic motivation, which in turn will lead to the exploration of detailed system functions and features, thereby increasing perceived system usefulness. Therefore, if an online service is found to be very difficult to use, it is obviously that the customer is less likely to do the transactions in a more traditional way. Consequently, users’ attitudes about the Internet banking service will be created, which will eventually motivate them to spend more time navigating the financial accounts over Internet.  In addition, perceived ease of use has an influence on attitude. Understanding perceived ease of use affects consumers’ attitude and intention toward Internet banking is important to identify the latent dimension of this construct in the Internet setting. According to TAM, Davis (1989, 1993) found that perceived ease of use is particularly of influence in the early stages of user experience with a technology or system. Following this, Venkatesh & Davis (2000) stated that with increasing direct experience with the target system, individuals adjust their system-specific ease of use to reflect their intention with the system. Implying that if consumers get more experienced with the Internet, they will adjust their perceptions regarding the perceived ease of use of the Internet as a banking medium in a positive direction. On the other hand, before consumers can fully adopt Internet banking, they should be proficient in the use of computers and web browsers. Lee et al., (2005) indicated that a lack of experience with technology-based services, especially on the basis of Internet banking, it would significantly decreases a consumer’s likelihood of adopting technology-based services. Consumers who are non-Internet users generally lack experiences that are compatible with the computer and Internet skills needed to use Internet banking. Hence, such technological barriers may be the main factors that prevent persistent non-adopters from adopting a technology-based service. General adoption and widespread diffusion of Internet banking will occur only after such technological barriers are lowered.  Therefore, to improve acceptance of Internet banking, any online banking services should be designed with a good Web interface in terms of its ease of use (Mathieson, 1991). 2.5  TRUST It is true that usefulness and ease of use are the major issues in a new technology’s acceptance, however, Davis (1998) found other factors affect the acceptance of a new technology are likely to vary with the technology, like trust.  Researchers have found that trust has a powerful influence on user willingness to engage in online money issue and sensitive personal information (Moon & Kim, 2001; Hoffman & Novak, 1999; Friedman et al., 2000). Consumer trust is considered a one of determinant factors in purchasing behaviour (Rexha et al., 2003; Lehu, 2001, Ba, 2001; and Mukherjee & Nath, 2003). Given that the level of risk that the consumer associates with financial services is very high. Although the consequence of trust in business-to-customer relationship has been firmly established by researcher, the trust has been seen in an ambivalent manner. For example, Gwinner et al., (1998) proposed trust at a confidence benefit rated highly by customers in long-term relational exchanged with service firms. On the other hand, Tax et al, (1998) found trust, together with commitment to be consequence of satisfaction with complaint handling. However, Levesque & McDougall (2000) indicated that complaint handling could have a qualitative different impact on trust from that on satisfaction. In a research of Internet banking customers, Mukherjee & Nath (2003) found that trust has a significant positive influence as a driver of customer relationship commitment. These findings suggest that where customers maintain long-term contractual relationship with their bank, trust would be likely to be a strong driver of customer relationship commitment (Kassim & Abdulla, 2006). And from the marketing channels’ view, when banks try to maintain this commitment, customer satisfaction alone may not be adequate enough. Thus, it is necessary to look at trust beyond satisfaction to other variables that strengthen retention. In Internet banking environment, trust is critical because customers may feel they do not have much control over the misuse or security of personal information transmitted via the Internet. Customers do not trust Internet technology for two reasons: system security and worries about the reliability of Internet services (Lee & Turban, 2001 and Min & Galle, 1999;). In addition, lacking of familiarity and physical proximity shows a distinct disadvantage of Internet banking (Durvasula et al., 1992, and Murray, 2000). Kramer (1999) found that distrust is a complex state that comes about because individuals do not know what the motives and intentions of others are. Corritore et al., (2003, p. 740,) define online trust as:“… an attitude of confident experience in an online situation of risk that one’s vulnerabilities will not exploited.” Trust may be regarded as a striking influence on user willingness to engage in online exchanges of money and personal sensitive information when it is seen a dimension of technology acceptance model (Hoffman et al., 1999; Friedman et al., 2000; Wang et al., 2003, Kassim et al., 2003). Therefore, the trust levels how the customer’s trust in their banks is affecting the customers’ usage of Internet banking. In general, the distrust has been found a mostly inhibitor of preventing consumers to use Internet banking compare with traditional channels. When a consumer conducts a transaction online that is seen to be operating in an uncertain environment (Fung & Lee, 1999), the feeling of lack trust appears obviously. Apparently, the consumer is less likely to trust his transaction online compared to visit a branch because it has no physical interaction with people that he is unable to effectively evaluate the levels of risk. More important, the increasing problem with spam, periodic reports on hacker attacks and viruses have prevented consumers from adopting Internet banking. Moreover, trust partly depends on the experience from interacting with the service provider - the bank (Kassim et al., 2006). For example, a customer has been using a service with the bank and is satisfied with the service, and then the trust feeling will incline as along with cooperation. However, from the service quality review, it is hard to manage the relationship of trust because a customer must buy a service before experiencing it. It is assumed to be risky for some consumers who lack knowledge of service and new technology to try Internet banking. Not alone, Stell & Paden (2002) suggested that inexperience might lead to concerns and avoidance of the Internet and a lack of trust. Also, previous experience may be another mitigating factor in developing trust on a rational basis (Rotter, 1971). Houston (1995) thinks in order to achieve success on the Internet; organisations must build up a trust relationship. For instance, as consumers become aware of a corporation’s reputation, they develop a trust in the belief that the firm will maintain certain quality standards to maintain the reputation.  This opinion is supported by Ennew (2003). She found that the continuing uncertainty and doubts of consumers in regard to the Internet shows that acquiring their trust will be an incremental process. Therefore, for the majority of Internet users, trust in transactions online will be built up experientially over time. 2.6 PERCEIVED RISK Internet banking is now regarded as a significant complementary channel of distribution to traditional forms of retail banking, but it has encountered significant consumer resistance. Consumers are generally motivated to avoid financial losing. Most people conduct a bank transaction with human interaction. For many people the prospect of carrying out a bank transaction over Internet seems a very detached and mysterious method of banking. As many researchers argued earlier (Sathye 1999; Tan & Teo, 2000; Polatoglu and Ekin, 2001; Black et al., 2002; Giglio, 2002; and Hamlet & Strube, 2000), one important factor consumers consider before adopting an innovation is the risk. By understanding the risks and uncertainties associated with the diffusion of this specific new service, Internet banking, it may be possible to gain insights that can find out what factors prevent consumers from using Internet banking.   Risk is defined as “some degree of uncertainty about the outcome of an action which caries the possibility of physical harm or some other damage” (Harriage-March, 2006). In the service marketing literature, it was found that consumers generally perceive more risk when purchasing services than goods (Murray & Schlacter, 1990 and Zeithaml, 1981). Hence, risk perception can increase because especially in Internet banking there is no personal face-to-face contact with added potential financial risks, for example, potential loss of assets and perceived threats to privacy like release of sensitive personal information (Milne &Boza, 1999). Perceived risk is a well-established concept in consumer behaviour (Bauer, 1960). It arises because consumers’ actions are faced with potentially negative consequences. Kogan & Wallach (1964) found that it has two components: a cost dimension and a chance or probability dimension. Cunningham (1967) noted that it consisted of the amount that would be lost if the consequences of the act were not favourable, and the individual’s subjective feeling of certainty that the consequences will be adverse. The two components are often multiplied together to provide an overall perceived risk. As Peter & Ryan (1976) noted the rationale for this is not provided, although it is might based on the belief that the expected value of loss in gambling behaviour. Perceived risk is clearly founded on some form of implicit or explicit judgment (Wilkie, 1986) or calculation of proximities of possible outcomes. Sjoberg (1980), however, criticised both Cunningham (1967) and Kogan & Wallack (1964) and suggested that perceived risk will be rarely viewed by consumers as consisting of probabilities and consequences. 2.6.1 RISK AND UNCERTAINTY Researchers found that in consumer behaviour literature, risk and uncertainty are often interchanged in the sense that “uncertain” consequences are considered as a component of risk (Dowling & Staelin, 1994; and Hoyer & MacInnis, 1997). Dowling & Staelin (1994, p. 119) emphasised that “the concept of perceived risk most often used by consumer researches define risk in terms of the consumer’s perceptions of the uncertainty and adverse consequences of buying a product or service”. In theory risk can be viewed as distinct from uncertainty (Peter & Ryan, 1976) which in itself exists when there is a lack of knowledge about the possible outcomes and, logically therefore, of the probabilities that can be ascribed to them. In the case of technologically innovative offerings, Mintel (2001) found that adopters may not necessarily undertake a considered, detailed evaluation but rather may make leaps from awareness of an innovation to adopting and using it. 2.6.2 SECURITY AND PRIVACY Security and privacy are seen to be main factors on attitude in the context of Internet banking acceptance. As many researchers argued earlier (Black et al., 2002; Giglio, 2002; Hamlet & Strube, 2000; Howcroft et al., Tan & Teo, 2000, Eriksson et al., 2005; Mukherjee & Nath, 2003), these important factors that the consumer considers before adopting an innovation are the levels of risk involved. The usage intention of Internet banking could be affected by users’ perceptions of credibility regarding security and privacy (Wang, et al., 2003). Security concerns have been highlighted as the one of the most important issues delaying the inhibitors of Internet banking.   Flavian et al., (2006) define perceived security as  “ the subjective probability with which consumers believe that their personal information (private and monetary) will not be viewed, stored and manipulated during transit and storage by inappropriate parties in a manner consistent with their confident expectations”.             Fear of lack of security has been identified in most studies as affecting the use of Internet banking.  Privacy refers to the protection of various types of data that are collected during users’ interaction with the Internet banking system that may also affect the usage of the system (Kassim & Abdulla, 2006). The concept of privacy is not new and many researchers have discussed it as an individual’s ability to control the terms by which his personal information is acquired and used (Westin, 1967; and Galanxhi-Janaqi & Fui-Hoo Nah, 2004).  The growths of new technologies’ capacity for information processing and its complexity have made privacy an increasingly concern.             As the more products and services offered via the Internet grow rapidly, consumers are concerned about security and privacy issues. Thus, the importance of security and privacy to the acceptance of Internet banking has been paid lots attention in many banking studies (Sathye, 1999; Hamlet & Strube, 2000; Tan & Teo, 2000; Polatoglu & Ekin, 2001; Black et al., 2002; and Giglio, 2002). No doubt, privacy and security are seen to be significant obstacles to the adoption of Internet banking in the UK and which led a big challenge to the growth and development of Internet banking. Although consumers are aware of Internet banking there is a weak understanding of Internet banking security risks (Roboff & Charles, 1998). Consumers often believe their bank protect privacy issues and concerns. It is proved by Howcroft et al., (1998) that consumers’ confidence in their bank was strong and their confidence in technology was weak. Customers are not willing to accept this new technology service because of the concerns of private financial information. Consumers, of course, want to master their own acts and avoid financial risks (Kobsa, 2001, 2002).   2.7 PERCEIVED NEEDS Consumer needs and motives are at the heart of marketing. Discussion in buying behaviour on financial services specially centres on the nature of needs and wants and the extent to which consumers are motivated to satisfy those needs and wants. Thus, it is important to address what basic and financial needs consumers have and what motivates or drives consumers to acquire financial services. Foxall & Goldsmith (1995) implied that needs and wants operate on a specific consumer plane. They defined a need is “a felt manifestation of a psychological, personal or social motive which essentially arises from a discrepancy between an actual and a desired state. “ (Harrison, 2000, p. 54) Applying the figure 3 into financial service, for example, the individual may have a desire to achieve convenience of demand that may be stimulated by a feeling of insecurity about the technology or service. The way in which this may need to be achieved could be through a goal objective (Harrison, 2000).   Figure 3. Elements in a Motivating Situation Source: Adapted from Foxall and Goldsmith, 1994   Significant technological developments have made money transfers easier, faster and have reduced reliance on cash. However, Gerrard et al., (2006) found some existing account bank customers have no needs of Internet banking with non-benefits scenarios. 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Thesis Chapter 2: To What Extent Will Consumer Resistance Inhibit The Growth Of Internet Banking In The UK?

CHAPTER TWO. LITERATURE REVIEW 2.1 OVERVIEW We cannot refuse that the development of technology was a need of the current age....