Digital marketing impact on consumer buying behavior free essay sample

Marketers are learning how regular contacting affects the building and sustaining of customer relationships. The dominant logic of marketing is shifting from the exchange of goods toward service, interactivity, connectivity and ongoing relationships (Vargo and Lusch 2004). Technological innovations, new channels, and changing media environments facilitate this shift (Bhattacharya and Bolton 2000), and the question of how firms should interact with their customers is gaining in importance, especially as firms consider the cost differences between traditional communications media, such as television and sales forces, and electronic media, such as the Web and email (Reinartz et al. 2005). The cost efficiency and interactivity of digital channels facilitate ongoing dialogue between the enterprise and the customer (see e. g. Deighton and Barwise 2000; Peppers and Rogers 2004). Marketers can now be in touch with their customers on a more frequent basis and increase the level of personalization and interactivity with low or non-excessive cost. Our main claim is that being frequently in touch with customers should help achieve positive effects on customer loyalty. For instance, customers can be offered additional information and brand communication when buying products or when using them. This can include newsletters, maintenance and repurchase reminders, help for keeping their products up-to-date, and tools for interacting with friends and peers. For example, Lensmart sends their customers email reminders when they expect customers to start running out of their supply of contact lenses. Lensmart uses database and purchase information to predict the repurchase moment and produce the personalized email. This way Lensmart can sell cost-effectively to their existing customers, and automate the re-selling process. While Lensmart gains in decreased sales costs, this kind of reminder also adds value to the customer. It may strengthen customer loyalty as customers feel that Lensmart takes care of their stock and assists them to repurchase at the right time with low effort. Customers might perceive emotional value for being personally remembered and cared, and appreciate the extra service (see e. g. Cram 2001). For being regularly in touch with customers is also one of the central ideas of CRM. Recent studies have found that the relational information processes of CRM (regular communication, information collection, etc. ) play a vital role in enhancing an organization’s customer relationship performance (Jayachandran et al. 2005). Furthermore, the use of CRM applications is positively associated with improved customer knowledge and improved customer 4 satisfaction (Mithas et al. 2005). Reinartz and Kumar (2003) show how profitable customer lifetime duration is positively related to the number of mailing efforts of the company. Simulations show that to maximize customer profitability by optimising spending the dominant form of communication should be email (Reinartz et al. 2005). While email is substantially cheaper to send than conventional direct mail, research also suggests that it can deliver significantly better response rates (Brondmo 2000; Di Ianni 2000; Rosenspan 2000). That is, from a company point of view, digital channels offer cost efficient opportunities for a brand to keep frequently in touch with customers which not only improves marketing performance, but particularly customer loyalty. With such prospects in mind, it is not surprising that the use of digital channels in marketing is becoming an essential part of strategy in many companies. Car manufacturers use the Internet and email to launch new models, as well as engaging their customers into interaction on their web sites and with email. BMW uses a mobile portal to distinguish itself from its competitors, providing customers pictures of new models, games, and service. Nike targets the youth segment by launching a digital spring fashion show, which allows consumers to use the brand’s latest fashion catalogue online to create their own looks and photos, and a virtual identity (Hargrave-Silk 2005). Canon iMage Gateway helps consumers share their digital photos with friends online. L’Oreal’s brand Lancome uses email newsletters to keep in touch with customers and hence strengthen their brand loyalty (Merisavo and Raulas 2004). Magazine publishers can activate and drive their customers into the Internet with email and SMS messages to improve resubscription rate (Merisavo et al. 2004). Such interaction and low cost communication with customers increases the effectiveness compared with traditional direct marketing efforts that publishers have used to win orders. In line with Fournier’s (1998) ideas, marketers increasingly bring brands closer to consumers’ everyday life. The changing role of customers as co-producers of value is becoming increasingly important (Prahalad and Ramaswamy 2004). Interactivity in digital media offers customers better options to search for information, work as initiators, and get help. Interactivity also offers customers new ways to spend time with a brand, like playing games, participating in an activity on a website, or learning about the product or service they are using. This is what Canon pursues with iMage Gateway service, which can lead to improved customer involvement and satisfaction. Interactivity also provides marketers with more information about customer needs, preferences and interests. 5 Furthermore, interactive and virtual brand communities, like those built by Harley Davidson and Ducati, bring consumers with specific interests together from different geographic areas to strengthen their brand loyalty (McAlexander et al. 2002; Wind et al. 2002, 97). McDonald’s uses online channel to reinforce brand messages and relationships. They have focused their online community building on communities for children, such as the Happy Meal web site with educative and entertaining games (Rowley 2004). Digital channels also contain opportunities and tools for personalization. By using digital channels, customers can actively create or shape the form of brand communication, for example by stating their channel and content preferences. Likewise, marketers can create more personal brand communication based on customers’ behavior and preferences, which can increase the effectiveness of brand communication by making customers perceive it as more relevant and interesting, and wanting to maintain a relationship with the marketer (Simonson 2005). As Simonson notes about customized offers; â€Å"If successful, marketers will be rewarded for the superior value they provide with higher customer loyalty. † (see also Peppers and Rogers 1997, 177). For example, L? Oreal’s CRM initiative aims to enhance personal communications with customers by analytical profiling, segmentation, database build and design, and bolstered data gathering (Brown 2003). This way L? Oreal seeks to increase the return on investment and capitalise on their customer insight for the long term. Despite the growing use of digital channels in marketing and the evolving research around it, there are few models for explaining the mechanism of how digital marketing communication works from a relationship marketing perspective, especially for enhancing customer loyalty. Ideas have been suggested in many areas of marketing literature. Relationship marketing (RM), customer relationship management (CRM), as well as brand management and service literature emphasize the importance of building and managing customer relationships, and offer useful models to understand how customer relationships develop. Also consumer behavior, advertising, direct marketing, and e-marketing literature give insight into how digital channels can be used to communicate with customers in order to enhance customer loyalty. The objective of this paper is to draw together previous research into an integrative conceptual model for understanding how digital marketing communication affects customer loyalty. In the following, we first define digital marketing communication. We then present and describe the model. Next we examine in more detail the components of the model and the theories behind 6 it, and construct research propositions. The paper concludes with a discussion and suggestions for future research. 2 DEFINITION OF DIGITAL MARKETING COMMUNICATION The use of digital channels to strengthen customer loyalty has received surprisingly little attention, despite the obvious opportunities for using these channels to keep in touch and serve customers cost-effectively. It seems like the concept of â€Å"digital marketing† has been used more operationally, while the theoretical understanding and comprehensive models of how and why to use different digital channels are still developing. Despite the growing use of ICT in marketing, there are few definitions of digital marketing. Urban (2004, 2) suggests that â€Å"Digital marketing uses the Internet and information technology to extend and improve traditional marketing functions. † This is a broad definition, concerning all of the traditional 4 P’s, and both customer acquisition and retention. We also acknowledge that terms like â€Å"interactive marketing,† â€Å"one-to-one marketing,† and â€Å"e-marketing† are close to digital marketing, but neither are they defined very precisely. Coviello, Milley and Marcolin (2001, 26) have defined e-marketing as â€Å"using the Internet and other interactive technologies to create and mediate dialogue between the firm and identified customers. † They also consider emarketing as a subset of e-commerce. In their view, more than creating discrete transactions, emarketing is focused on managing continuous IT-enabled relationships with customers by creating dialogue and interactivity. In this paper we focus mainly on the communication function of digital marketing, and how it helps to enhance the loyalty of existing customers. Hence, in this paper we refer to digital marketing communication (DMC) as communication and interaction between a company or brand and its customers using digital channels (e. g. the Internet, email, mobile phones, and digital TV) and information technology. This definition appreciates that communication can be two-way, initiated by either the marketer or the customer. Communication can be general messages to a larger audience or personalized messages. A customer relationship aspect acknowledges that communication can also include relational and service elements (e. g. news, reminders, tips), not just advertising and offers aiming for immediate purchasing transactions. That is, in addition to increasing sales DMC can be used to enhance customer loyalty in the long term. 7 3 AN INTEGRATIVE MODEL OF THE EFFECTS OF DIGITAL MARKETING COMMUNICATION ON CUSTOMER LOYALTY In this section we draw together previous research into an integrative conceptual model for understanding how digital marketing communication affects customer loyalty. Figure 1 proposes an integrative model of the effects of digital marketing communication on customer loyalty. FIGURE 1 An Integrative Model of the Effects of Digital Marketing Communication on Customer Loyalty MEDIATORS: CUSTOMER CHARACTERISTICS, INVOLVEMENT, RELATIONSHIP, SITUATIONAL FACTORS MODERATORS PERSONALIZATION †¢Content †¢Timing †¢Channels BRAND COMMUNICATION †¢Frequency †¢Content INTERACTIVITY †¢Functions †¢Processes †¢Perceptions †¢Time spent with a brand OUTCOMES INFORMATION PROCESSING MEANS PERCEIVED VALUE †¢Functional †¢Economic †¢Emotional †¢Social and self-expressive †¢Epistemic COMMITMENT †¢Affective commitment †¢Continuance commitment CUSTOMER LOYALTY †¢Behavioral loyalty -Purchases -Product/service usage -Store/website visits -Recommendation †¢Attitudinal loyalty -Brand attitudes -Brand image -Brand knowledge -Satisfaction -Service perceptions COMPANY CUSTOMER CHANNELS The model consists of means (brand communication via different channels), moderators (personalization and interactivity), outcomes (perceived value, commitment, and customer loyalty), and mediators (customer characteristics, involvement, relationship, and situational factors). By â€Å"brand communication† we refer to communication between the brand and customers. This can include advertising, direct marketing, newsletters, or consumer’s activity 8 in a brand community. This complies the view that the process of building brands and customer relationships is much more than traditional media advertising of (see e. g. Aaker and Joachimsthaler 2000, 42; Duncan and Moriarty 1998). The main focus in our model is on how brand communication affects customer loyalty. Two main factors in brand communication that are expected to affect customer loyalty are frequency (e. g. how many brand messages) and content (e. g. promotional or relational). The main outcome, customer loyalty is divided into behavioral (e. g. purchases) and attitudinal loyalty (e. g. brand attitudes). For true customer loyalty to exist, a pattern of repeat purchase must be accompanied by a positive attitude (see Jakoby and Chestnut 1978). This distinguishes it from spurious loyalty, where only behavioral loyalty is detected with low relative attitudes (Dick and Basu 1994). We acknowledge that different elements of DMC can influence both types of loyalty. Brand communication can also be personalized. For example, customer profiles or preferences can be used to create customized message content for different segments or individual customers, sent via their preferred channels. This should increase the value of communication to the customer. We have identified content, timing, and channels to be the personalized elements. Furthermore, brand contacts can be interactive; customers can search for information, make inquiries, give feedback and engage in various other activities with marketers or other customers. This can likewise have positive effect on customer loyalty. We have divided interactivity into functions (e. g. a web contact form), processes (e. g. that messages are contingent upon previous messages), perceptions (how customers perceive interactivity), and time spent with a brand (e. g. playing games on brand’s website). The effects of brand communication are constructed in customers’ minds through information processing, leading to perceived value and commitment. Finally, the effects of brand communication on customer loyalty can be detected from behavior and attitudes: e. g. purchases, website visits, brand attitudes, and satisfaction. There are also mediating factors that affect how the loyalty effects of DMC are created. For instance, a message received in a specific situation can be perceived as more valuable. One example to demonstrate the model is General Motors’s internet-based owner center My GMLink (www. mygmlink. com), which offers customers a single location to manage all postpurchase needs. With the use of this information and service portal, customer-brand 9 communication and interactivity are increased because customers are able to visit the website anytime, anywhere more often than stores. This way, the frequency of brand communication is increased, with the positive moderating role of interactivity. Customers also get different types of value from services like email service reminders, maintenance tips, seasonal safety tips, and special privileges and offers. GM also provides personalized information to customers. For example, they can check the current resale value estimate of their own car and determine the optimal time for selling it, which brings economic value. This can also lead to a shorter buying or trading cycle for cars. When customers get used to visiting the website regularly they may become emotionally attached to it, which builds commitment. Overall, customers’ increased brand contacts by using My GMLink service possibly strengthen GM’s customer relationships with more sales, and enhanced attitudinal and behavioral loyalty. Next we examine in more detail the components of the model and theories behind it, and construct research propositions. We first discuss the effects of regular brand communication on customers, and then examine the additional effects of personalization and interactivity, and finally examine how to measure the outcomes of DMC on customer loyalty. 3. 1 Regular Brand Communication – Benefits of Being in Touch with Customers 3. 1. 1 Frequency The frequency of marketing communication and its effects on customer relationships has gained interest in recent studies. Reinartz and Kumar (2003) found that the number of mailing efforts of a company is positively related to profitable customer lifetime duration. Indeed, being regularly in touch with customers has positive effects on their loyalty. For example, regular e-mailings have positive effects on brand attitudes, purchases and loyalty (DuFrene 2005; Merisavo and Raulas 2004). Similarly, the usage of mobile services and receiving of mobile advertising messages are found to have positive effects on consumers’ brand relationships and long-term purchase behaviour (Merisavo et al. 2006; Nysveen et al. 2005). These results imply that the strategic focus of ongoing brand communication via digital channels should be in creating meaningful brand encounters and deepening consumer-brand relationships, not just in seeking additional sales. This proposition is, for sure, not a new one in marketing as the frequency of marketing communication has been a central research topic. The 10 findings on the effects of frequency thus provide one established base for building the theory of DMC. The rationale behind frequently communicating with customers has been addressed in numerous advertising studies. Regular communication is important, as it has been found that 90% of the cumulative effects of advertising on sales occurs within 3 to 9 months of the advertisement (Clarke 1976; Leone 1995). A central finding is that repeating messages or objects to consumers will translate into awareness and learning, possibly more positive attitudes toward the object, and eventually result in action (Broussard 2000; Crowder 1976; Howard-Brown 1998; Sawyer 1973; Zajonc and Markus 1982; Zielske 1959). Moreover, the repetition of messages is effective only to an extent; the positive effects of repetition increase up to a certain level until the advertisement starts to wear-out. After this point it no longer has an effect or the effect is negative. That is, the relationship between repetition and advertising effects typically takes the shape of an inverted ‘U’ (Batra and Ray 1986; Cacioppo and Petty 1980; Ray and Swayer 1971; Venkatesan and Kumar 2004;). Similarly, DuFrene et al. (2005) have found the positive effects of email campaigns on customers’ band attitudes diminish over time after the first three messages. However, the focus of advertising and campaigns is often on the short-term and immediate results. More research is needed concerning the long-term effects of ongoing brand communication. 3. 1. 2 Information Processing Consumers engage in brand relationships to simplify buying and consuming tasks, to process information, and to maintain cognitive consistency and a state of psychological comfort and gratification (Sheth and Parvatiyar 1995). It has been found that previously presented stimuli are easier to encode and process than are novel or unfamiliar stimuli, which is interpreted by the individual as liking (Bornstein and D’Agostino 1994). That is, increased frequency helps consumers to process brand communication. Repeated exposure to brand communication also enhances brand attitudes by allowing the customer to process more information (Berger and Mitchell, 1989). Also, messages that become familiar through repetition have a tendency to be perceived as more valid (Bacon 1979; Hasher et al. 1977). Repetition also has effects on customer loyalty. It has been found that learning and increased positive experiences with a certain brand decrease the search for information about alternative brands (Dick and Basu 11 1994; Newman and Staelin 1972). A similar finding is that the more attributes associated with a brand the more loyal the customer (Romaniuk and Sharp 2003). Furthermore, when a consumer spends time with a brand and processes information, positive affective responses (emotions, feelings, moods, primary affect, satisfaction) about the brand are evoked in the consumer’s mind (Dick and Basu 1994). In the literature, this information processing is also described as cognitive loyalty, a phase where information on the brand at attribute performance level is the dominant driver of loyalty (Oliver 1999). Later, if the consumer is satisfied, affective effects start to build. 3. 1. 3 Brand Relationship Brand literature shows how frequent communication has positive effects on customers’ brand loyalty, and customer-brand relationships are deepened (Aaker 1996; Kapferer 1998). The development of customer-brand relationships can be described as a process of communication. For instance, Barnes (2001, 259-261) suggests that a brand can be conceptualized as moving through four stages on its journey from being merely a name to being a genuine relationship partner: The following development path has been suggested: brand awareness (using advertising to make customers in the target segment aware of the brand) brand characteristics (associating the brand with certain characteristics and positioning it against competitors) brand personality (attaching personality traits to the brand that are appreciated by the consumer) brand relationships (the brand becomes important in the life of the consumer). That is, a marketer who is frequently in contact with its customers should recognize the different requirements of communication to customers in different stages of the relationship. Our thinking aligns with modern brand theory’s ideas of how brand relationships are developed. When consumers are regularly in contact with a brand, they may begin to perceive it as a person, a trusted friend who is part of their everyday life (Aaker 1997; Fournier 1998). 3. 1. 4 Perceived Value When consumers engage in brand relationships and process brand communication, they begin to perceive the value (also often referred as benefits) related to the brand. Customers who have greater expected benefits and utility from an ongoing relationship are more likely to commit to 12 it (Anderson and Narus 1990). Perceived value can be divided into functional, economical, emotional, social/self-expressive, and epistemic (Aaker 1996, 95-101; Bhat and Reddy 1998; de Chernatony 1993; Long and Schiffman 2000; Sheth et al. 1991; Zeithaml 1988). Functional value describes overall satisfaction with the functional quality of a product or service (e. g. a car is reliable). Economic value may be constant (e. g. regular customer’s low price), immediate (e. g. sales offers) or possible (collecting points, competitions). Emotional value includes feelings like enjoyment and entertainment. Social and self-expressive value relates to our relationships with others (e. g. brand as a status symbol, belonging to a community). Epistemic value relates to experienced curiosity, novelty or knowledge gained and learning. Customers may also perceive conditional value that exists only within a specific situation (Holbrook 1994). Due to the unspecific nature of conditional value it is treated as a mediator (situational factors) in our model. In a more holistic view, customer-perceived value can be regarded as a ratio between perceived benefits and perceived sacrifice (Monroe 1991), or in another words â€Å"the consumer’s overall assessment of the utility of a product based on a perception of what is received and what is given. † (Zeithaml 1988). Thus, from the communication perspective marketer’s active contacting decreases perceived sacrifice by lowering customer’s effort to search for information. In addition to traditional products, brands, and services, researchers have also successfully used the previously discussed dimensions of perceived value to assess consumers’ perceptions of technology-based self-services, like mobile services (Heinonen and Strandvik 2003: Heinonen 2004; Pura 2005). Hence, we believe that these value categories should also be effective in capturing the effects of DMC on customer loyalty. 3. 1. 5 Commitment In our model, the perceived value of brand communication relates to commitment, and they both relate to customer loyalty. This is consistent with research indicating that commitment mediates the relationship between brand satisfaction and loyalty (Fullerton 2005). Commitment is defined as a desire to maintain a relationship (Moorman et al. 1992; Morgan and Hunt 1994). Generally, commitment limits the impact of negative brand-related information and enhances 13 the impact of brand-related positive information, which leads customers to resist switching inducements (Ahluwalia et al. 2001). Commitment can be divided into affective and continuance commitment (Gundlach et al. 1995; Fullerton 2003). Affective commitment is based on emotional attachments: identification, shared values, belongingness, dedication, friendship, and similarity (Price and Arnould 1999; Pritchard et al. 1999). Trust is also suggested to be closely related to affective commitment (Morgan and Hunt 1994). Therefore, in our model we include trust as an antecedent of loyalty (see e. g. Reichheld and Schefter 2000) under the affective commitment component. It has been found that affective commitment is positively related to both repurchase intentions and advocacy intentions for a brand (Fullerton 2005). Continuance commitment is based on switching costs, investments, dependence, and lack of choices (Gundlach et al. 1995; Meyer et al. 1990). For example, service agreements can be perceived as continuance commitment. Continuance commitment has been found to be positively but weakly related to repurchase intentions and negatively related to advocacy intentions for a brand (Fullerton 2005). It is worth noting that also a concept of (cognitive) lock-in is also related to continuance commitment, defined as â€Å"Consumers’ decreased propensity to search and switch after an initial investment. † (Johnson et al. 2003; Zauberman 2003). This term seems to be sometimes used as a synonym for continuance commitment, and describes consumer behavior on the Internet. The number of contacts can also prevent the customer from having interest or time to look for competitive offerings, be the contacts initiated by marketer’s active contacting or customer’s active browsing. Customer-initiated contacts are a way to signal commitment, and there is evidence that frequency of communication is positively associated with a partner’s commitment (Anderson and Narus 1990). Interactive media changes the way in which commitment is formed. It has been found that on the Internet consumer lock-in is greater than in a traditional retail environment (Brynjolfsson and Smith 2000). For example, when customers learn how to use a web store and personalize their own menus, continuance commitment is created. Also, the Internet can be very effective in creating affective commitment, one example being virtual communities like Habbo Hotel (www. habbohotel. com). Habbo Hotel is a virtual hotel where you can hang out with your 14 friends or meet new people: walk, dance, eat, drink and chat in the cafes, restaurants, swimming pools and game rooms. You can even decorate and furnish your own room. The following propositions conclude the previous discussion. The effect of regular brand communication on customer loyalty can be stated as: Proposition 1a: Regular brand communication has positive effects on behavioral customer loyalty. Proposition 1b: Regular brand communication has positive effects on attitudinal customer loyalty. Proposition 1c: Positive effects of regular brand communication on both behavioral and attitudinal customer loyalty increase up to a certain level until the communication starts to wearout. After this point it either has no effect, or has a negative effect due to irritation. 3. 1. 6 Content While so far we have discussed how frequency affects customer loyalty, also the content of communication has an effect on how customers perceive and value the information they receive, or retrieve, and how this affects their relationship with the brand and the marketer. It has been argued that communication rather than persuasion is the foundation of customerfocused marketing efforts (Duncan and Moriarty 1998). A basic way to classify the content of brand communication would be to divide it into promotional and relational communication. While promotional communication like price promotions and persuasive letters are intended to quickly generate sales and other responses, relational communication focuses on enhancing customer’s attitudes and loyalty in the long term by providing content such as information about new products, usage tips, or invitations to events. Relational brand communication can be perceived by the recipient as a service rather than as advertisement or offer, which might allow increased frequency before the messages start to wearout. This is also suggested by Tellis (1997), who states that complex messages, including soft-sell or emotional appeals and novel messages, may be able to sustain and benefit from higher ad frequency. In their research on consumer packaged goods, Mela et al. (1997) found that in the long run price promotions (temporary price reduction, feature, or coupon) make consumers more price 15 sensitive in both loyal and nonloyal segments. In contrast, non-price-oriented advertising (e. g. brand building) makes consumers less price sensitive in both segments, the impact being stronger on the nonloyal consumers. Hence, advertising increases the relative strength of brand preference, making consumers more loyal. Similarly, Jedidi et al. (1999) found that in the long term, advertising has a positive effect on brand equity while promotions have a negative effect. Furthermore, their results suggest that frequent promotions of brands may also make it unnecessary for consumers to switch brands because it becomes increasingly likely that a deal on the favored brand will be forthcoming. However, frequent promotions are often unprofitable for a company and may not enhance attitudinal customer loyalty, making customers more likely to switch brands if they get better price deals elsewhere. Parallel implications on the relation of the content of brand communication and customer loyalty can be drawn from more recent studies concerning digital channels. Extensive survey data from more than 2,000 e-tail sites shows that price-sensitive customers may be the least loyal, whereas customer service support is the main factor that attracts repeat buying (Reibstein 2002). Moreover, studies of email marketing have found that nonloyal customers mainly want promotional offers, but loyal customers also appreciate other content, like news, invitations to events, and usage tips (Martin et al. 2003; Merisavo and Raulas 2004). Newsletters with mainly non-price promotion content had better impact on the brand loyalty of the loyal customers than on the nonloyal. Overall, these results imply that the content of brand communication should be tailored to different customer segments in order to further enhance customer loyalty. Based on the discussion of the content of brand communication we expect that: Proposition 2a: Relational brand communication has positive effects on behavioral customer loyalty. Proposition 2b: Relational brand communication has positive effects on attitudinal customer loyalty. Proposition 2c: Promotional brand communication has positive effects on behavioral customer loyalty, which can be negated if competitors make better offers. Proposition 2d: Promotional brand communication has negative effects on attitudinal customer loyalty. 16 3. 2 Personalized Brand Communication Personalization is expected to be an element that can work to boost customer loyalty by creating more personal, interesting and relevant brand communication, and better service. In the literature different terms are used when talking about personalization (e. g. customization, targeting, segmentation, profiling, and one-to-one marketing). Kotler’s (1997) idea of personalization is that the ultimate level of segmentation leads to segment of one, customized marketing, or one-to-one marketing. Peppers and Rogers (1993) define one-to-one marketing quite simply: treating different customers differently. The goal is to differentiate customers individually and cust