Developing customer intimacy is essential for developing a sustainable competitive advantage. Whether the products of an organization will have any market potential depends on whether the customers like them or not. Therefore the management of an organization will have to develop an intimate understanding of the customers’ tastes and preferences if that organization is to stay of ahead of the competition.
The process of developing customer intimacy is to conduct periodic market research on what the customer expectations are. One of the first companies to market itself through developing customer intimacy was Dell Computers. Michael Dell wanted to build computers not through idea generation from its internal engineering personnel but through data collection on what the customers’ tastes and preferences were.
The founder of the company himself spent a significant amount of time with the customers to determine what they wanted to see most in a computer. The hardware manufacturing company also developed a website by means of which the customers could share their opinions with the company. As a result, the company hit the fortune 500 list in a very short time. Being in constant touch with customer requirements enabled Dell to develop customer intimacy that also enabled them to develop their products and services very quickly.
The external environment of an organization is the industry in which it operates. The industry is affected by a number of forces such as political, economic, sociological and technological. Therefore a business organization in particular has to conduct a PEST analysis periodically. A company such as Microsoft has to take into account the forces of the external environment very carefully. On first appearances, the political environment would not seem to affect Microsoft’s operations significantly.
However Microsoft is frequently thrust into anti-trust suits the outcome of which would depend considerably on the prevailing political environment. The company would be hard hit if the country it is operating in went through an economic downturn. Whenever there is an economic downturn, companies tend to invest less and one of the first operations that experience cost-cutting is information technology.
Therefore, demand for Microsoft’s products and services would go down when the economic environment is unfavorable. Corporate social responsibility is a very critical issue in today’s business environment. Therefore Microsoft has to fund community projects from time to time in order to endear itself to the society. That is part of the sociological environment. Also relevant in this respect is how the society views the complexities of adopting new technologies. Microsoft would also be affected very significantly by technological shifts. For example, when the use of the internet caught on, Microsoft had to reengineer itself completely to stay in business because previously it had decided not to enter the Internet.
Price is the risk that is at the forefront of the customers’ minds when making a purchase. When making a purchase, consumers must make sure that the price they are paying is equivalent to the value they are receiving in return. If this risk remains high for the customer, then the company will have a negative image in the minds of the customers. Therefore the management of that company must work to reduce that risk. One method is to offer customers price guarantees.
This means that the customers will be paying the lowest possible price available anywhere. Some companies even offer to lower the price even further by a certain percentage if after purchase, the customer comes across another company offering a lower price still. Price guarantees are an admirable way to attract customers in the current age of the Internet because a lot of customers prefer to make their purchases online if the products they are looking for are available there.
This enables to them go price shopping. Rather than walking miles to compare prices, customers shopping online can simply surf and compare sitting in the comforts of home. If they come across a certain company offering price matching or price beating, then customers will be hooked immediately because they can stop price shopping right there. Another perceived consumer risk is how they will be viewed by the society when they buy a certain product. The way to mitigate this risk is to promote certain products as status symbols and the demographics of the people who purchase those products. That will have a positive effect on the customer psyche.
The phenomenon of price sensitivity is a function of demand and supply. When prices are lower, people buy more and vice versa. However there are times when demand peaks and during these times there is lower price sensitivity. Business organizations can take advantage of these times to raise the prices of their products and services in order to maximize their revenue. For example many people like to go skiing during school vacations. As a result, skiing resorts raise their prices when school is in half term because that is the time when demand for skiing is very high.
All the parents like to take their kids skiing during that time and they are willing to pay a higher price at the time. So peaks and troughs in demand are the top influencers of price sensitivity. In other words, the management of the business organization has a powerful tool in the form of price sensitivity by taking demand seasonality into consideration. However price sensitivity also depends type of goods. If the goods in question are necessity goods, then price sensitivity will significantly affect buying behavior. If the goods are status symbols however, then raising prices will not affect demand.
A business organization must promote its products and services in order to attract demand. The management has four methods with which to conduct the promoting. It might want to go for advertising. Usually the media used for this form of communication is radio, television or the internet. It is a non- personal form of communication. The advantage with this form of communication is that it has a wide reach. If the advertising is broadcast by means of the television for example, then millions of people will be exposed to the message. It also has a high emotional value.
The second form of communication is personal selling. As the name implies, this has a personal touch because usually the company sends out its sales representatives door to door promoting its products and services. The advantage with this form of communication is that consumers can ask questions and find out whatever they need to find out about the products immediately. Another form of communication is sales promotion whereby consumers get something else into the bargain when they purchase a product.
The advantage with this form of communication is that it motivates the consumers to consider buying something that they had not bought before. Last but not the least in the list of communication techniques is public relations. This promotional technique is most useful when the management is trying to build a good corporate image.
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Nagle, Thomas T., and John Hogan. The Strategy & Tactics of Pricing: A Guide to Growing More Profitably . South western college pub. 2007.
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