muthu.shree

1. Developing Customer Insight:
The Determination of Customer Preference

2. The Need to Understand Customer Preference
Have you ever wondered why your company often loses relatively satisfied customers?
Why is it that customers will often indicate they are satisfied with how they have been
treated but then leave for a competitor at the first opportunity? Why is customer defection
often unrelated to price? The answers to these and other related questions are found in
coming to an understanding of customer preference.
The idea that customers prefer one product or one service over another is not new. The
ability to identify and measure the elements of such preference decisions with any
accuracy and reliability has only recently become available.
Research into this area of consumer behavior has brought understanding to some of the
major issues with standard customer satisfaction research. Most importantly, we have
come to realize that high customer satisfaction does not assure continued customer
preference. Satisfaction research over the past fifteen years demonstrates that high
satisfaction scores, while a measure of corporate performance on a set of important
criteria, do not adequately explain the composition of preference formation and therefore
often serve as insufficient predictors of sustained preference or what is normally referred
to as customer loyalty.
Loyalty as a concept has also shown itself to be difficult to define. Like beauty, loyalty is
truly in the eye of the beholder. We understand there are different types and degrees of
loyalty and some of these are not appropriate in describing the relationship between a
consumer and a company. However, preference (defined as The power or ability to choose
one thing over another with the anticipation that the choice will result in greater satisfaction, greater
capability or improved performance) has demonstrated the ability to be effectively measured
and to provide meaningful insight into the choices consumers make when selecting one
provider over another and when determining to continue a relationship over time.
The Application of the Theory of Reasoned Action Model
The theory of reasoned action represents a comprehensive integration of the attitude
components that ultimately are the building blocks of preference. The model is designed
to provide a better understanding of how consumer preference is formed and,
correspondingly, to provide the means to accurately predict consumer preference
behavior. Figure one provides an overview of customer preference formation from the
theory of reasoned action point of view
In order to understand preference we need to determine the functional or performance
demands involved in the purchase, the desired emotive outcomes, and the subjective
norms consumers use to determine their desire for one product or service over another.
The primary assumption of the model is that individuals make considered purchases. In
some cases the consideration may be minimal and the purchase behavior almost habitual
(as when deciding to buy a new comb while standing in line at Target). In another the
period of consideration (incubation) may be extensive and each element of the
consideration process carefully examined (as when deciding to purchases a new home).

3. Conviction that the
Attitude toward the
choice leads to certain
behavior
desired functional
outcomes Evaluation of the
outcomes
Conviction that the
choice leads to certain
desired emotive
outcomes
Preference
Intention Behavior
Conviction that the
choice is considered
correct by others Subjective comparison
norm
Motivation to comply
with the opinion of
others
Figure One – Basic Structural Model of Customer Preference Formation
Consumer Behavior by Leon Schiffman and Leslie Kanuk
The important contribution of the reasoned action model is the realization that consumers
utilize the model in all purchase experiences to a lesser or greater extent. Of equal
importance is the realization that the components used to make a preference decision are
also the ones employed by a consumer to evaluate the performance success of the
product or service purchased and the company responsible for them. Therefore, as the
components of preference change, the elements influencing satisfaction change
accordingly. The relationship is dynamic and fluid therefore static or predetermined
satisfaction analytic packages often miss the most important elements of preference and
can create a false sense of security on the part of companies who think that since their
customer satisfaction scores are high they must in turn have relatively loyal customers.
Let’s look at the last part of our definition of preference.
The power or ability to choose one thing over another with the anticipation that the choice
will result in greater satisfaction, greater capability or improved performance.
The theory of reasoned action assumes a consequence for the action taken. We prefer
some product, someone, or some service because we determined the object was best
aligned with our performance and emotive requirements as judged through our
comparative norms. We evaluate the performance in light of how well the product, person
or service meets our preference expectations. Here is the problem with most
“preordained” customer satisfaction programs. Companies tend to ask their customers
about corporate performance on a predetermined set of behavioral topics which may or
may not align to the preference expectations of those customers. This mistake is
amplified when companies treat their customers monolithically and assume that the

4. preference drivers for one group of customers are the same as that for another. It is
essential, especially for companies attempting to serve highly competitive markets with
many product/service offerings, to differentiate preference formation components and
preference expectations within “naturally forming” or emergent customer segments.
With-In Segment Deployment of Customer Preference
Customer preference analysis is really a call to action. By understanding the preference
formation components and the preference expectation evaluations by group or segment of
customers, companies can design response strategies that are truly responsive to vital
customer expectations and that differentiate in the marketplace.
Figure Two – Delivering Performance at the Intersection of Preference and Expectation
Within the framework customer satisfaction can begin to play a very important role as a
measure of a company’s ability to deliver and execute against preference evaluation
elements of a given customer segment. These expectations can now be differentiated
into expectants - basic, cost-of-entry preference expectations, satisfiers - preference
expectations that help to constrain abandonment or churn and attractors - preference
enhancements (often focused on the emotive components) that attract new customers.

5. Exceed Delighted
Attractors
Growth Opportunity
Customer Expectations
Satisfiers
Customer Expectations
Customer Response
Met Satisfied
Problem Area
Expectants
Enterprise Policy Frustrated
Not Met Product/Service Fails
Annoyed/Angry
Consequential Dissatisfaction Plan for Satisfaction Plan to Exceed
Expectations
Figure Three – Customer Expectation across the Lifetime of a Single Product/Service Experience
R.L. Oliver (1994) observed that customer satisfaction results from a process of internal
evaluation that actively compares expectations before purchase of a product/service with
perceived performance during and at the conclusion of a purchase experience. The
deployment of the theory of reasoned action as a model for preference formation explains
why such evaluation takes place. Satisfaction is a product of the alignment between
prescribed functional and emotive performance elements and the ability of the
company to meet the performance expectations. Sustained preference is a product
of meeting these requirements over time.
What we have referred to as functional and emotive performance elements Oliver defines
as “evaluative elements” (expectants, satisfiers and attractors) that, in turn, comprise a
single product/service evaluative experience. Sustained preference can be thought of as
a series of experience interactions that are continuously being modified as the
components of preference are modified over time.

6. Exceed Delighted
Attractors
Growth Opportunity
Customer Expectations
Satisfiers
Customer Expectations
Customer Response
Met Satisfied
Exceed Delighted
Problem Area
Attractors Expectants
Enterprise Policy Frustrated
Growth Opportunity
Customer Expectations
Satisfiers
Customer Expectations
Customer Response
Met Satisfied
Exceed Delighted
Problem Area Not Met Product/Service Fails
Attractors Annoyed/Angry
Expectants
Enterprise Policy Frustrated Consequential Dissatisfaction Plan for Satisfaction Plan to Exceed
Expectations
Growth Opportunity
Customer Expectations
Satisfiers
Customer Expectations
Customer Response
Met Satisfied
Problem Area Not Met Product/Service Fails
Annoyed/Angry
Expectants
Enterprise Policy Frustrated Consequential Dissatisfaction Plan for Satisfaction Plan to Exceed
Expectations
Not Met Product/Service Fails
Annoyed/Angry
Consequential Dissatisfaction Plan for Satisfaction Plan to Exceed
Time
Expectations
Figure Four – Changing customer expectation experiences over time
An Example
Let’s consider an individual considering the purchase of a new automobile. This is, for
most people, a highly considered purchase. The potential automobile customer may have
a preference profile like the one below with a number of emotive and functional
components that must be met for preference to form.
Notice that the evaluation experience, to use Oliver’s words, is not simply focused on the
performance and reliability issues of the automobile; but also on how the customer is
treated and that the emotive elements of customer treatment can be as clearly defined
and measured as the functional components of the automobile. However, just as different
individuals want different types of automobiles with different functional capabilities;
different people have different emotive demands as well. The key to understanding
customer preference is to understand how many evaluation experiences exist within a
single market, what the mix of emotive and functional attributes are with each experience,
and which of the attributes provide the greatest return on investment, that is, comprise a

7. preference demand that is a requirement within several of the identified customer
segments. Such understanding requires both qualitative and quantitative rigor.
How ICR Accomplishes the Analysis
If we overlay the theory of reason action with the stages of the purchase experience we
are able to interpret the evaluation experiences in light of a given purchase journey.
Conviction that the
Attitude toward the
choice leads to certain
behavior
desired functional
outcomes Evaluation of the
Incubation outcomes
Trigger Product
Stage
Conviction that the
Stage Selection
choice leads to certain
desired emotive
outcomes
Preference
Intention Behavior
Preference Preference Formation can include:
Choice of channel
Conviction that the Formation Choice of retailer
choice is considered Index
correct by others Choice of product feature
Subjective comparison
Choice of service level
norm
Motivation to comply
with the opinion of
others Post-Purchase
Shopping /
Expectations
Purchase Stage
Stage
Figure Five – Evaluation Purchase Experience – Utilization of the Reasoned Action Model within Different
Stages of the Purchase Journey
Each stage in the purchase journey contains emotive and performance preference
components. The resulting deliverables for an ICR client provide insight into which
components of the preference formation for an individual customer, segment of customers
or consumers in a specific marketplace are essential to a positive preference decision.
The determined relationships between the prominent constructs comprise the issues of
increased customer satisfaction and the required relationships necessary for developing
sustained customer preference.
ICR guides a client through the entire preference formation model development process.
Our research design formalizes the complicated decision making process consumers
employ and what is required of our clients to influence that decision-making process to
result in consumer preference for their product or service. The ICR methodology requires
the development of a research plan that includes the development of a formal customer
preference formation theory for either the entire marketplace of determined customer
segments depending upon the needs of our client. The client-specific preference
formation models have different analytical requirements depending upon their

8. organization and complexity. There is no such thing as one design or a single statistical
model that meets the needs of every client or every market environment. The ICR
methodology results in detailed customer requirement information focused on our client’s
market position and unique to the client’s customer demands and expectations.
ICR’s Preference Formation Model (PFM)
Preference is formed when the customer is bonded to your company through the
establishment of a mutual benefit. Successful companies therefore go beyond delivery of
a commodity or service; they pursue the development of a relationship with their
customers. This bonded relationship will be more likely to survive competitive attacks than
the mere purveying of goods or services or an over reliance on aggressive pricing models.
One of the components of the Preference Formation Process is the development of a
Preference Formation Profile. This profile breaks out the required attributes of each
stage of preference formation.
Incubation Trigger Product
Stage Stage Selection
Preference Formation can include:
Preference • Choice of channel
Formation • Choice of retailer
Index
• Choice of product feature
• Choice of service level
Shopping / Post-Purchase
Purchase Stage Expectations
Stage

9. The profile further differentiates the required attributes of preference into emotive or
functional attributes and defines EACH as attractor, satisfier or expectant. The PFM
results in a likelihood of preference formation index (PFI) which represents the strength of
preference for a given product/service. We have found that the preference formation
index (a standardized score ranging from one to one hundred) can range dramatically
given the market and population under consideration. When the index is weak (seventy-
five or below) it means that while the elements of preference are “in play” there is a
reasonable amount of indifference toward the preference target. For example, the
preference drivers for breakfast cereals may not drive to a prominent index due to the fact
that many consumers are relatively indifferent to many of the considered preference
drivers and focus on price and availability almost exclusively. A strong index (one
hundred and fifteen or above) indicates there is a prominent panoply of formation drivers
that, in combination and often in some sequence, are required for a declared preference
to be formed. An excellent example is a preference for a financial provider. Price and
availability may still be considerations but now many other attributes are required. These
attributes will be both functional and emotive because of the complex nature of preference
development for a financial advisor.
The PFI and the overall PFM model represent both a global assessment and a diagnostic
examination of the developmental requirements of customer preference for a particular
product or service. When used in concert with a brand audit for a particular company or
organization the end result is a strategic roadmap of how to develop loyal customers
(defined operationally as those who identify that organization with their preference), attract
new customers (determine market or segment specific PFM models), and retard customer
departure (by focusing on preference attributes where corporate performance is weak).
Conclusion
John McKean, in an excellent book, Customers are People – The Human Touch thinks of
the organization-customer interaction as a series of cascading touch points. Those touch
points comprise the customer environment and it is through interacting with that
environment that customer preference is formed. The ICR PFM process is an excellent
analytical tool for discovering the nature of these touch points, their essentiality for
preference formation and the combination and sequence of such touch points that result
in a customer environment that maximizes corporate ability to construct sustained
customer preference.