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Relationship of Customer Satisfaction with Product Variety
July 2010
Department of Management Sciences
The Islamia University of Bahawalpur
Relationship of Customer Satisfaction with Product Variety
Written by:
Wajahat Hussain
BBA (Hons) Marketing
Instructed By:
Muhammad Suhail NazarAssistant Professor
Department of Management Sciences, IUB
Department of Management Sciences
The Islamia University of Bahawalpur
Preface
In the world of dynamism and competition, companies are striving hard to find
ways of profitability. Companies are finding ways to attract, retain and satisfy
more and more customers. Trying to get loyalty of the customer by satisfying
his/her needs best. Product variety is seen in this regard as one of those tools used
to satisfy customers and meet organizational goals. Yet its been proven that
product variety dose not guarantee profitability in long run and sometimes even
worsen the competitive advantage. Consumer really wants multiple options of
choices. Researches say that it is human urge to have new and many options while
making choice over a time period. But careful management of product variety is
very much crucial to business success. Right blend of varieties at right time can
surely satisfy the customer but wrong management can confuse and frustrate the
consumer choice. It is not just an easy task. Cost and other limitations- technology
harness the effectiveness of product variety.
This paper explains how product variety satisfies customer. What are the
limitations? What and how management of product verity is done?
We conclude that product variety has a positive effect on customer satisfaction if
in optimal level. Careful management is always crucial to everything so as to
product variety.
Hope this paper will help in further studies. Wish all the readers a good luck
Team Members
Acknowledgement
“All gratitude and thanks to almighty “ALLAH” the gracious, the most merciful
and beneficent “
ALLAH gave us courage to undertake and complete this task. We are very much
obliged to our ever caring and loving parents whose prayers have enabled to
reach this stage.
We are grateful to almighty ALLAH who made us able to complete the work
presented in this report. It is due to HIS unending mercy that this work moved
towards success.
We are highly indebted to Mr. Suhail Nazar, Assitant Professor, DMS, for
providing us an opportunity to write this research paper, which is vital ingredient
to advance studies.
We feel great pride and pleasure on the accomplishment of this report.
RegardsTeam Members
Abstract
In the world of dynamism and competition, companies are striving hard to
find ways of profitability. Product variety is one of those tools used to attract,
retain and satisfy customer. This paper tries to understand the influence of product
variety on customer satisfaction. How it affects customer satisfaction what are the
cost associated with it and can it guarantee profitability?
First we will explain the product variety, how its management can be done,
how it affects the customer satisfaction, what are the costs associated with it?
In our research we came to the point that product variety really has affects
on customer satisfaction but it does not guarantee the profitability.
In the last we suggest further research on enhancement of customer
satisfaction.
Introduction
In the world of dynamism and competition, companies are striving hard to
find ways of profitability. Product variety is one of those tools used to attract,
retain and satisfy customer. This paper tries to understand the influence of product
variety on customer satisfaction. And it can be an important in generating
customer satisfaction. But it does not guarantee profitability in long run in fact can
worsen the competitiveness (Ramdas and Sawhney 2001).
Product variety pass on to the number of different products (SKU)
integrated in one product line (e.g., Dixit and Stiglitz 1977). In current years,
swiftly embryonic technologies, brutal competition and demanding customers
have contributed to a continuous increase of product variety in almost all product
categories (Ho and Tang 1998).
However increasing product variety doesn’t guarantee the increase in
profitability, as it requires great cost to manage. Thus hurting the profitability.
Careful and optimal level of product variety can lead to customer satisfaction and
generate profitability.
Customer satisfaction is a measure of how products and services supplied
by a company meet or surpass customer expectation (Wikipedia, the free
encyclopedia). In the world of competition where businesses compete for
customers, customer satisfaction sees as key differentiator and a core company
strategy.
Measuring customer satisfaction is very necessary. It gives insight that
where the business stands (Wikipedia, the free encyclopedia). To consumers,
wider variety means better choice thus is habitually desirable. Product variety that
matches customer demand let firms charge higher selling price and/or increase
sales volume. Increasing product variety has somewhat positive impact over the
product line's revenue. However, the exact effect is usually difficult to state,
especially when customer demand is stochastic and difficult to understand (Null
Lifang Wu, 2007).
A psychological studies of consumer behavior reveal that urge for newness
to satisfy the need best is in genes of the consumer (Hansen 1972, Raju 1980,
Baumgartner and steenKamp 1996)
If customer is getting what it want than surely it get satisfied. In this paper
first we will explain the product variety, how its management can be done, how it
affects the customer satisfaction, what are the costs associated with it?
In the last we suggest further research on enhancement of customer
satisfaction.
Product Variety
Product variety pass on to the number of different products (SKU)
integrated in one product line (e.g., Dixit and Stiglitz 1977). Product variety
decisions have both operations and marketing implications (Null Lifang Wu,
2007).
Product variety tries to meet the demand and needs of the customers. But it does
not guarantee profit. Cost for providing product variety and management is high
(Kevin Lancaster).
♦ Product Variety Management
How firm choose to create variety in their products and how functions and supply
chain are managed to foster variety are key factors for successful strategy, thus
requiring excellent management an become concern for the competitive advantage
(Ramdas and Kamalini 2003, Meyer and Lehnerd 1997)
Product variety management examines the consistent problems between the
marketing and production functions in industry. Product variety management is a
up to date action of a multi-disciplinary approach to product variety (Ho and Tang
1998).
Product variety management decisions are required at different organizational
levels, over different time spans, within and crossways functional and
organizational boundaries, before and after product launch (Ramdas and Kamalini
2003)
♦ Cost and limitations
For the best fit of product variety management and firm’s objectives, firm should
strive to balance the revenue and cost impact of variety decisions (Lancaster 1990)
Following are the areas challenging product variety
• Economies of Scales/ Manufacturing
• Distribution
• Lead-time
• Responsiveness
• Supply and Demand
Cost of product variety is high due to economies of scales and distribution cost.
It also incurs many indirect costs that are not easily traceable. For example, higher
the product variety more the complexity would be of manufacturing and in supply
chain coordination. When different SKUs and the included components are added,
generates a wide variety of products results in economy of scope. This could in
turn neutralize the cost pressure of high variety strategy (Ho and Tang 1998).
On the distribution side, wide product line scatters the overall demand and in
doing so makes worse the disreputable mismatch between supply and demand in
uncertain marketplaces (Null Lifang Wu, 2007).
In addition, offering higher variety extends the product introduction lead-time
and thus influences a firm's responsiveness to embryonic customer demand.
Overall, product variety decision influences supply costs in a difficult manner,
which is not well understood by researchers (Null Lifang Wu, 2007).
From the above discussion, it is clear that revenue and cost implications of
product variety is highly complex in nature. Make variety management so
challenging (Null Lifang Wu, 2007).
♦ Variety and information seeking
Management of product variety requires information about consumer’s
preferences and choices in order to meet their demand. But it’s not an easy task.
It’s really very difficult to gather information about consumer preferences. Even
with best marketing research it is not easy to predict consumer preferences
Two major sources of information for multi-product firms are
• Information is obtained by acquiring single-product or small multi-product
firm result in contraction of variety
• Information is obtained by observing sales of other firm’s products result in
increase in variety
(Kevin Lancaster)
Variety and Customer Satisfaction
“Satisfying the customer is a race without finish." (Vernon Zelmer)
“Variety is one of the consumer’s greatest concerns (fortune magazine, 1991)”
Variety seeking in purchase behavior is the tendency of individual to seek
differentiation or diversity in their choices over time (Givon 1985).
For consumer variety in an assortment can offer two advantages.
• First if the consumer is making many choices overtime than variety in
assortment allow them to choose different options overtime to satisfy their
needs.
• Second if single choice is being made than variety and breadth in
assortment allow them to choose customized options that they desire.
(Barbra Kahn)
♦ Why consumer seeks variety?
The simple answer to this is that they need better options in order to satisfy their
need. And mostly they search variety in low-risk products (FMCGs) daily-
consumed products (Van Trijp, 1995). So more the product variety in this section
more the satisfaction will be and vice versa. Where as when consumer is making
single choice and is not much aware of the options offered here offering to much
variety could confuse the consumer and frustrate the choices (Barbra Kahn). More
in this regard is that consumer wants something new when gets bored with its
current choice. When a consumer reaches the optimal level of consumptions the
satiation sets in and desire for something new sets in for the next choice (Jeuland
1978, McAlister 1982). Different researches on consumer psychology reveals that
it’s in genes of the consumer to explore something neew even there is no satiation
(Hansen 1972, Raju 1980, Baumgartner and steenKamp 1996). Consumers are not
same in psyche so as in needs thus consumers in need of high stimulation require
more variety products (Zukerman 1979 and Barbra Kahn).
♦ Assortment of options; why consumer demand?
Consumers in order to satisfy needs require variety. One other believe in requiring
variety according to researches is that consumer feel that they cant get all in one
product. To get best they require multiple products or simply variety (Barbra
Kahn). Not all attributes of the products are of same level (Hurber and Reibster
1978). Thus to get maximum for their needs consumer require or search for the
mix of products each having own distinct advantage (Farquhar and Rao1976).
Another option that consumer require variety in the products is because of
uncertainty in future preferences (Kahnman and snell 1990, Simson 1990, Walsh
1993) for example choosing the restaurant before the selection of meal, making
sense to choose a place that would provide sufficient variety (Kahn and Lehman
1991).
Conclusion
In the world of dynamism and competition, companies are striving hard to find
ways of profitability. Companies are finding ways to attract, retain and satisfy
more and more customers. Trying to get loyalty of the customer by satisfying
his/her needs best. Product variety is seen in this regard as one of those tools used
to satisfy customers and meet organizational goals. Yet its been proven that
product variety dose not guarantee profitability in long run and sometimes even
worsen the competitive advantage. Consumer really wants multiple options of
choices. Researches say that it is human urge to have new and many options while
making choice over a time period. But careful management of product variety is
very much crucial to business success. Right blend of varieties at right time can
surely satisfy the customer but wrong management can confuse and frustrate the
consumer choice. It is not just an easy task. Cost and other limitations- technology
harness the effectiveness of product variety.
Product variety and customer satisfaction has a positive relationship. Consumers
require variety in their choices “Variety is one of the consumer’s greatest
concerns (fortune magazine, 1991)”. Consumer seeks variety because they require
better options in order to satisfy their need. And mostly they search variety in low-
risk products (FMCGs) daily-consumed products (Van Trijp, 1995). So more the
product variety in this section more the satisfaction will be and vice versa. Where
as when consumer is making single choice and is not much aware of the options
offered here offering to much variety could confuse the consumer and frustrate the
choices (Barbra Kahn).
Thus with careful management and providing optimal level of product variety
satisfaction of customer can be achieved.
References
• MacDuffie, J.P., Sethuraman, K., and Fisher, M.L. (1996), ‘Product Variety
and Manufacturing
• Performance’, Management Science, Vol 42, No 3
• Wu, L. 2007. Toward an Understanding of the Product Variety Decision:
An Integrative Model.
• International Journal of Management, 24(3): 499-506.
• Lancaster, K. 1990. The Economics of Product Variety: A Survey.
Marketing Science, 9(3): 189- 206
• Kahn, B. 1998. Dynamic Relationships with Customers: High-Variety
Strategies. Journal of the
• Academy of Marketing Science, 26(1): 45-53.
• Walter, Jr. R. M. 1997. Organizational Experimentation: Embracing
Uncertainty.
• Proceedings of the 1997 national Conference on Emerging Issues in
Business and Technology
• Wikipedia, the free encyclopedia, Customer satisfaction
• Tek-Hua Ho, Christopher S. Tang, 1998, product variety management,
research advances
• Barbra Kahan, Product variety management, research advances: Variety;
from the customers perspective