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When we talk about financial services the first thing that comes into our mind is that it is any kind of service or product which is of a financial nature and eventually which is traded in the financial markets for example shares, government bonds and treasury bills. Customers, they are the ones who are very unpredictable when they make their purchase decisions, they take into consideration a lot of factors while purchasing anything. The same rule applies when the customers go into the financial market to buy the financial services.
In the following report we are going to study in brief about the needs and wants of the customers who buy those financial services and the factors that they consider and analyse while making a purchase decision. There is also a brief explanation on the various approaches that the customers seek while making the purchase decision and also comparison between them.
Books, journals and online websites are the prime source from where the data is collected.
HOW DO FINANCIAL CUSTOMERS MAKE PURCHASE DECISIONS WHEN
PURCHASING THE FINANCIAL SERVICES
When a person goes to buy a financial service by investing in the financial markets he takes into consideration the following points
Reputation of the instrument is really very important. For example in the case of mutual funds the companies to be invested should be reputed.
Amount of return is the most important factor a consumer sees before purchasing that financial instrument. For example in case of banks the return on the loans are well examined by the banks before giving the loan to any consumer.
Economic position of the country is also one of the main factors where the consumers consider before investing in any company. For example in India the banking sector is really very strong and hence the people in India prefer more of investing in Banks rather than companies whereas in U.S.A the banking sector is not so strong so over there more of financial markets are preferred over banks to invest their money.
Risk factor is also equally important. For example investing in equity shares the risk factor is always present and hence the consumer has to take calculated steps before investing in the companies.
The following points are considered when a consumer wants to invest in insurance company.
Reputation of the insurance company
The risk cover of the policies provided.
The return factor on the insurance policies.
DIFFERENT TYPES OF APPROACHES
THE ENGELL - KOLLAT - BLACKWELL MODEL
(Source: Lashley and Upchurch, 2006)
The model which is mentioned above was basically designed for the very purpose of understanding the mindset of the consumer and how the consumer behaves like a problem solver for itself and develops various stages in order to solve that problem.
This model was divided into five stages to make it simpler to understand. Now in the initial stage there is something which is called problem recognition, in this stage the consumer recognizes the problem i.e., the desire, the want; once he identifies what he wants he is automatically inspired to act. It may be also seen that the need or urge to buy something may be due to external factors like a fancy advertising or it may be through internal factors like emotional attachment, lifestyle, culture etc. As the consumer knows what he wants he starts to gather information about that product. For example if a consumer wants to buy equity shares of any company and he is pretty much convinced that the company will do him good, he starts to do research in the financial market about that company to find its net worth and the return expected on that investment. Once the customer is fully satisfied about his research, he then finds out ways to buy it by analyzing the alternatives effectively. Then comes the purchase period and after that period comes the most crucial period which is the post purchase behavior. In this stage the consumer tries to find out whether the service he has bought satisfies his need or not, this period is also useful for the buyer to decide whether he wants to buy that service again.
This above given approach can be explained more effectively with the help of the following example:
There are many insurance companies which offer a wide range of insurance covers to the Indian population. There are many government owned as well as privately owned insurance companies all over India. Mr. Sahil feels the need to have an insurance who then goes to the market to see which company suits his requirement the best. After a lot of research he jotted down two companies named LIC (Life Insurance Corporation of India) and Bharti AXA life Insurance. Sahil then finds out the differences between the two and he found out that LIC gives him more coverage and more return on his investment and moreover it is an government owned company and has a lot of reputation in the market rather than Bharti AXA life insurance which is new to the insurance market and it is a privately owned company, thus he goes to buy LIC life insurance cover. After buying that insurance cover and paying the premiums he finds it very nice and hence he recommends them to other people also.
SERVICE PROFIT CHAIN (HESKETT, 1994)
The above given approach helps to establish a direct correlation between the profitability, customer loyalty, and employee satisfaction, loyalty, and productivity. In simple words it is the process delivering good quality service to the customers in order to gain their loyalty and thus increasing the profits.
There is a strong connection between the profits and the customer loyalty. For example if a customer wants to buy certain products in the market and the seller in order to gain the consumers loyalty offers him a best deal always, this means that whenever the consumer wants to buy that product he will not go anywhere else and he will but from that seller only even if the seller quotes him a high price he will still buy that product. This is commonly found in many clothes brands people go for brand name and not the quality. Thus to gain the loyalty of the consumer is to first provide the consumer satisfaction of the products he has bought. This satisfaction is gained only if the services provided are up to the mark and good quality service is attained when the employees working in that firm are satisfied which motivates them to provide the customers high end quality service.
The above approach can be explained more in detail with the help of the following example
When we talk about quality service the example of Herbert Kelleher, who is the CEO of Southwest Airlines, who believes in providing a nice gesture to its customers is found aboard on the airplanes and also the terminals, having a good chat and an overwhelming interaction with its employees and customers. Kelleher firmly believes that the employees that are hired should have the right attitude. Further he also believes that employees are the heart and soul of the firm and thus to keep them rejuvenated is the sole responsibility of the employer.
Let us take another example: Mr Suniel who is a trader in equity shares in the BSE (Bombay Stock Exchange). He wants to open a Fixed Deposit account in ICICI (Industrial Credit and Investment Corporation of India) bank in India. When he enters the bank premises he is welcomed by trained staff of the bank and is offered a seat. He is then given personal attention and employee of the bank gives him a brief description of the formalities for opening the account and the return on his amount invested. Earlier suniel had decided to go to any public sector bank but there he was not given proper attention and proper assistance. Thus he chose private sector banks who firmly believe in providing excellent quality service to their customers and their main aim is customer satisfaction and they make more and more profits and attract more and more customers only because of this service.
HOWARD SHETH MODEL OF CONSUMER BEHAVIOUR
The Howard Sheth model (1969) based approach is a very practical and a very comprehensive assumption towards consumer behaviour. This model is bifurcated into 3 types of decision making of the consumers which are extensive problem solving, limited problem solving and routinized responses behaviour.
It is explained briefly as follows:
Extensive problem solving - In this stage the consumer is not sure of what to buy and where to buy. The consumer is very sceptical about his decision making on the basis of his knowledge about the brand. Thus before making any choice of the products the consumer takes into consideration a lot of points and alternatives.
2) Limited problem solving - In this the consumer has only a one sided information about the brands and has still not decided to purchase
3) Routinized responses behaviour - in this the consumer is not only well informed about the brand but also he is confident to go out in the market to purchase them.
The Howard Sheth model has four most important components they are (1) input variables, (2) Perpetual constructs (3) Learning constructs and (4) Output variables.
(Source: google images)
Inputs: The first component which is input. Input is the significative input which deals with the physical characteristics of the service. Then is the symbolic input which deals with the verbal or visual characteristic of the brand and lastly is the social input which is the social factor of the brand.
Perpetual and learning constructs: The second component is the perpetual constructs. This theory deals with the psychological behaviour of the consumers when the consumer is taking a purchase decision. There are many variable factors involved in it and some of them are perpetual in nature.
Output variables: it is comprised of the five output variables which is the result of the right amount of input. Firstly there is attention which says that the buyer has sufficient information to intake secondly there is comprehension where the buyer keeps a constant track of the brand information. Then is the attitude where the consumer evaluates the potential of the brand he wants to buy. Finally comes the intention where the buyer buys the brand without any hesitation.
The nicossia model basically depicts the relation between the firm and its loyal customers. The firm does it business by communicating to its customers through various marketing channels like advertisement or campaigns and thus the response given by the customers is by purchasing the firms product and services. In short the firm and its customers are connected to each other, whereas the each one of them tries to influence the latter by its decisions.
COMPARISION AND CONTRAST BETWEEN THE MODEL APPROACHES
When we talk about the engel - kollat- blackwell model it refers to the process starting from identifying a need or a desire or a want to get that product or service till ensuring the product satisfaction after buying it. Whereas the service profit chain deals with satisfying the needs and wants of the consumer and its employees in order to attain maximum profits, it focuses more on customer satisfaction and internal harmony within the firm to get best results in way of profits to the firms. Both the approaches are totally different from each other. The engel - kollat- Blackwell approach is more of an individual person who thinks to satisfy its wants by doing research and buying the product whereas the service profit chain approach is more broader concept where any particular firm has the only aim of maximizing profits by taking care of customer and its employees. The engel - kollat- Blackwell approach is not a realistic approach, it believes that the decision making is very predictable and linear and the consumer behaviour is also the same at all times whereas the profit chain is more of a realistic approach which is very much required in the todays dynamic competitive markets in order to survive. Thus this approach is widely accepted and adopted by the consultants and managers all around the world.
When we compare the Howard Sheth model of consumer approach and Nicossia model they are two extreme ends of rope. The Howard sheth model is basically the process of input and output of variables a consumer adopts in order to arrive to a purchase decision of a brand. Whereas the Nicossia model is a simple relationship between a firm and its customers, it is the marketing channel between the both. The Howard sheth approach is a very lengthy and a time consuming approach and it also assumes that all the variable factors are same for every consumer; it assumes that the consumer tastes and preferences remain constant for one particular brand or so. Whereas the Nicossia approach is very short and sweet and it is more relevant to the current business scenarios.
The Nicossia and the service profit chain approach are more or the less similar in business sense. But in Nicossia the firm wants to earn profits but its main aim is not customer satisfaction instead its main aim is to be manipulative with the customers to only sell the products.
The engel - kollat- blackwell model and the Howard sheth model have some similarities like both are individual approach but the Howard sheth model being a bit more lengthy process than engel - kollat- blackwell model.
From the above report we can conclude by saying that there are many different types of approaches that the consumer or a firm adopts in order to fulfil its wants. There are a wide range of varieties of the financial services and products available in the financial market. Thus it becomes very important for the consumers to realise what is good and best for them while buying the financial services and take into consideration all the factors before purchasing them.