Buyer Behavior Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250 Outline Introduction Goals of the course Requirements Grading Honor code My obligations About.
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Buyer Behavior Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250 Outline Introduction Goals of the course Requirements Grading Honor code My obligations About me 2 Introduction This course is an overview of concepts of consumer behavior Drawing from psychology, our study of behavior will emphasize an understanding of consumer learning, memory, preference, choice and attitudes 3 Goals of the Course Introduce you to key concepts and theories relating to consumer behavior Demonstrate how an understanding of consumer behavior drives marketing strategy 4 Requirements Readings REQUIRED TEXT: • Wayne D. Hoyer & Deborah J. MacInnis, Consumer Behavior, 3rd ed., Houghton Mifflin, 2004. • Arbinger Institute, Leadership and Self-Deception; Getting Out of the Box, Berrett-Koehler, 2002. OPTIONAL TEXTS: • Frank R. Kardes,Consumer Behavior and Managerial Decision Making, 2nd ed., Prentice Hall, 2001. • Dawn Iacobucci, ed., Kellogg on Marketing, John Wiley & Sons, 2001. 5 Requirements Class attendance is mandatory Students with perfect attendance receive 5% extra-credit award Missing more than 3 classes results in drop in student’s overall grade by one letter grade (B+ to C+) Sign attendance sheet 6 Requirements Group work Groups will be assigned Peer evaluation is component of overall grade (5%) Collaborative work has pedagogical purpose 7 Grading Grading will be based on evaluations of individual effort and team work Positioning analysis# Case analysis# Quantitative analysis* Exam I* Exam II* Team project# Team dynamics# Class participation^ 10 % 10 % 10 % 20 % 20 % 20 % 5% 5% # Team work * Individual effort ^Preparation for class discussion may be done in teams 8 Grading Assignments Positioning analysis Case analysis Quantitative analysis Team project Readings Cold calling Class discussion Exams Midterm I Midterm II Final 9 Honor Code Team work Duty to the team Conflict in the team Peer evaluation Infractions and suspected violations are taken seriously Applies to attendance, course requirements, preparation of assignments, exams 10 My Obligations I will return assignments within one week of submission I am available during office hours TTh 2-3 pm and by appointment I will return all student phone calls and emails within 24 hours Phone: 303 492 5616 Email: [email protected] 11 About Me Education University of Pennsylvania, BA Kellogg School of Management, Northwestern University, MBA, PhD Experience Northwestern University, lecturer Price Waterhouse Coopers LLP, consultant Philadelphia Inquirer, editor Boston Globe, reporter, editor 12 Review of Marketing Concepts Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250 Outline What is marketing? What is consumer behavior? Why focus on understanding behavior? Review of marketing management Analyzing the marketing environment & marketing opportunities Aspects of strategy 14 What is Marketing? Marketing is a social and managerial process by which individuals and groups obtain what they need and want through creating, offering and exchanging products of value with others (Philip Kotler, 1991) 15 What is Consumer Behavior? Consumer behavior reflects the totality of consumers’ decisions with respect to the acquisition, consumption, and disposition of goods, services, time, and ideas by decision-makers over time 16 Paradigm Shift “Selling focuses on the needs of the seller; marketing on the needs of the buyer. Selling is preoccupied with the seller’s need to convert his product into cash; marketing with the idea of satisfying the needs of the customer by means of the product and the whole cluster of things associated with creating, delivering and finally consuming it.” (Theodore Levitt) 17 Historic Overview Selling concept has been historically dominant Whatever was produced (crops, livestock, goods) had to be sold at market Industrial Revolution shifted production from home to factory, prompting focus to be on the marketing concept 18 Selling versus Marketing Selling Concept Products Selling & Promoting Profits through sales volume Marketing Concept Customer needs Integrated Marketing Profits through customer satisfaction 19 Selling versus Marketing Selling concept Focuses on selling what you can make Marketing concept Focuses on making what you can sell 20 Marketing Concept Analyze Marketing Opportunities - Environmental Analysis - Competitive Analysis - Consumer Analysis Select Target Markets - Segmentation - Targeting - Positioning Marketing Research Formulate the Marketing Mix - Product - Promotion - Pricing - Distribution/Place Implementation & Control 21 Marketing Management Management of change, a necessary focus in a dynamic marketplace Sensitivity to external changes is key in identifying opportunity • Competitors • Consumers Sensitivity to internal changes is key in formulating a strategy 22 Marketing Management How is marketing management distinct from plain old management? Customer focus Customer focus “Customer is always right” Customer focus implies scrutinizing how strategic motivations are relevant to the customer Involves keeping a disciplined vision of how to create the kind of value the customer is willing to pay for 23 Marketing Management In essence, marketing management is about value creation and value delivery Choose the value Provide the value Communicate the value 24 Advertising Provide the value Sales promotion Sales force Distribution Choose the value Sourcing Pricing Product Positioning Targeting Segmentation Value Creation & Delivery Communicate the value 25 Marketing Strategy Strategic planning is important management activity What is strategy? A fundamental pattern of present and planned objectives, resource deployment, and interactions of an organization with markets, competitors and other environmental factors 26 Marketing Strategy 5 components within well-developed strategy Scope • Where should firm compete? Goals and objectives • Specify levels of accomplishments – profit, revenues, ROI Resource deployments • How resources are obtained, allocated Synergy • Is total performance enhanced by sum of parts? Identify sustainable competitive advantage • Strategic fit 27 Scope Firm must decide where to compete Product line decisions • Honda Motor Co. made small, cheap cars • Started to make motorcycles and lawn mowers • Honda became a small motor manufacturer • Clorox was seller of bleach • Expanded cleaning supplies business • Acquired Hidden Valley, Glad and Brita Competitive field • Southwest chose not to go head-to-head against United, American 28 Goals & Objectives Firm must decide what the goals are Profitability through market share • High volume strategy Profitability through margins • High margins can be achieved through • Low costs • High prices 29 Resource Deployments Firm must decide how to allocate resources Allocation among businesses in portfolio • Cash cow? Rising star? Allocation across marketing functions • Coupons or trade promotions? • Advertising or service? 30 Competitive Advantage Firm must decide what is its sustainable competitive advantage Achieving competitive advantage means outperforming the industry 2 sources of advantage • Differentiation • Cost 31 Competitive Advantage How can a firm sustain competitive advantage? Barriers to entry Isolating mechanisms (Rumelt, 1984) • • • • • Distinctive capabilities Legal restrictions on imitation, patents Superior access to inputs or customers Economies of scale Early-mover advantages 32 Company: Core Competencies How does a firm know what its core competency is? Misidentifying core competencies results in missing attractive opportunities and chasing unprofitable ones 33 Core Competencies 3 dimensions of core competencies Operational excellence Product leadership Customer intimacy 34 Which Discipline to Choose? Company Traits Disciplines Operational Excellence Product Leadership Customer Intimacy Core business processes that... Sharpen distribution system and provide no-hassle service Nurture ideas, translate them into products, and market them skillfully Provides solutions and help customers run their businesses Structure that... Has strong, central authority and a finite level of empowerment Acts in an ad hoc, organic, loosely knit, and ever-changing way Pushes empowerment close to customer contact Management systems that... Maintain standard operating procedures Reward individuals’ innovative capacity and new product success Measure the cost of service, maintaining customer loyalty Culture that... Acts predictably and believes “one size fits all” Experiments and thinks “out-of-the-box” Is flexible and thinks “have it your way” Source: M. Treacy and F. Wiersema The Discipline of Market Leaders Addison-Wesley: Reading MA, 1995 35 Operational Excellence When practicing the operational excellence discipline, it is necessary to balance the need to respond to consumer and competitor changes in the marketplace A company must tradeoff consumer heterogeneity, slowing demand and product proliferation if the core discipline is to be maintained • Economies of scale, efficiency are crucial • Mass market is competitive space 36 Product Leadership When practicing the product leadership discipline, the firm must be willing to cannibalize existing products, but the focus should be on providing consumers with a reason to “trade up” to the product innovation rather than “trade down” Product innovation must be constant Continual investment is necessary Requires partners’ cooperation 37 Customer Intimacy When practicing the customer intimacy discipline, the firm aims to serve a small segment who pay a high premium Customer intimacy cannot be achieved on a large scale The smaller the segment, the higher the price charged, the higher the quality of the product or service 38 Choosing a Discipline Operational Excellence Product Leadership Customer Intimacy BIC Gillette British Airways Wal-Mart Hewlett-Packard American Express Toyota Intel Lexus 39 Overview: Marketing and Consumers Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250 Outline What is strategy? Strategy starts with analysis 3 C’s SWOT What is consumer behavior? How does consumer behavior impact marketing? STP 4P’s 41 Marketing Strategy What is the goal of strategy? To develop and maintain strategic fit between the company’s abilities and changing market opportunities • Strategy positions the firm to optimize • Strategy must consider alignments of internal, external factors • Internal: company • External: competitors, consumers 42 Marketing Management Competition Market Opportunity Consumers Company 43 SWOT Analysis Basic approach starts with evaluating Internally • Strengths • Weaknesses Externally • Opportunities • Threats 44 What is Consumer Behavior? 45 What Affects Consumer Behavior? Psychological Core Process of Making Decisions Consumer’s Culture Consumer Behavior Outcomes 46 What Affects Consumer Behavior? Psychological Core Having motivation, ability, and opportunity Exposure, attention, and perception Categorizing and comprehending information Forming and changing attitudes Forming and retrieving memories 47 What Affects Consumer Behavior? Psychological Core Process of Making Decisions Problem recognition and search for information Making judgments and decisions Making post-decision evaluations 48 What Affects Consumer Behavior? Psychological Core Process of Making Decisions Consumer’s Culture External processes: Regional and ethnic influences Age, gender, and household influences Reference groups 49 What Affects Consumer Behavior? Psychological Core Process of Making Decisions Consumer’s Culture Consumer behaviors can symbolize who we are Consumer behaviors can diffuse within a market Consumer Behavior Outcomes 50 Implications: Segmentation Developing a customer-oriented strategy starts with a segmentation scheme What is known about the market? How is the market segmented? • Different types of consumers • Different needs • Perception of value • Willingness to pay 51 Implications: Targeting Choose a target How profitable is each segment? What are the characteristics of consumers in each segment? Are customers satisfied with existing offerings? 52 Implications: Positioning Positioning How are competitive offerings positioned? How should our offerings be positioned? Should our offerings be repositioned? 53 Implications: Product Developing products or services What are consumers’ ideas for new products? What attributes can be added to or changed in an existing offering? What about guarantees? Post-purchase service? Repeat-buying opportunities Any consumer trends that can inspire development? 54 Implications: Promotion Making promotion decisions Sales promotion objectives and tactics (push) • When should sales promotions happen? • Have our sales promotions been effective? • How many salespeople are needed to serve customers? • How can salespeople best serve customers? Advertising (pull) • • • • What should our advertising look like? Where should advertising be placed? When should we advertise? Has our advertising been effective? 55 Implications: Price Making pricing decisions What price should be charged? How sensitive are consumers to price and price changes? • What is price elasticity? When should certain price tactics be used? How do price changes affect the firm? 56 Implications: Place Making distribution decisions Where are target consumers likely to shop? How should stores be designed? 57 Perception, Memory & Learning Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250 Outline Perception Memory Organization of long-term memory What is retrieval? What are the types of memory? How memory is enhanced What are the types of retrieval? How retrieval is enhanced Learning 59 Perception Hemispheric lateralization 60 Perception When do we perceive stimuli? Absolute and differential thresholds • Just noticeable difference • Weber’s law Selective – cocktail party Subliminal perception • Does subliminal perception affect consumer behavior? 61 Perception Does subliminal messaging make people buy? 1956 N.J. movie theater flashed subliminal messages, “Hungry? Eat popcorn. Drink Coca-Cola.” • Increased popcorn sales 58% and Coca-Cola sales 18%, but results were not replicated Erotic stimuli and sexual symbols in ads purported to increase receptivity to suggestions in the ad 62 A Model of Memory Perceived information is encoded Explicit Implicit Then stored in memory Short-term store Long-term store Retrieval involves calling up stored bits from memory 63 A Model of Memory Stimulus Short-Term Memory Consolidation Recall Retrieval Long-Term Memory 64 A Model of Memory Sensory Short-term Long-term 65 A Model of Memory Sensory Echoic Iconic Characteristics of sensory memory 66 A Model of Memory Short-term memory (STM) Imagery processing Discursive processing Characteristics of short-term memory • Short-term memory is limited (7±2) • Short-term memory is short-lived 67 A Model of Memory Long-term memory (LTM) Autobiographical (episodic) memory Semantic memory Characteristics of long-term memory • Stable memory of events of more distant past • Unlimited capacity • Organized by nodes 68 A Model of Memory Converting short-term memories to longterm store is physically located in the hippocampus Elaboration, or rehearsal, of information increases consolidation Recall from long-term storage is a function of recency and availability Availability is aided if memory is organized into a well-defined associative network of nodes • Categories • Hierarchies 69 A Model of Memory Beverages Carbonated Colas Pepsi Coke Mixers Non-carbonated Juices Water Evian Poland Spring 70 A Semantic (or Associative) Network 71 How Memory Is Enhanced Chunking Rehearsal Recirculation Elaboration Y=mx+b Y=mx+b Y=mx+b Y=mx+b 72 What Is Retrieval? Semantic network Trace strength • Accessibility Spreading of activation • Priming Retrieval failures • Decay • Interference • Primacy and recency effects Retrieval errors 73 What Are the Types of Retrieval? Explicit memory Recognition Recall Judgments Implicit memory Judgments 74 Retrieval Perceptual • “His name started with a ‘J’ . . .” Conceptual • “A brand of personal computers that competes with IBM . . .” 75 How Retrieval Is Enhanced Characteristics of the stimulus Salience Prototypicality Redundant cues The medium in which the stimulus is processed 76 How Retrieval Is Enhanced What the stimulus is linked to Retrieval cues Where do retrieval cues come from? The brand name as a retrieval cue Other retrieval cues Consumer implications • Consideration set 77 How Retrieval Is Enhanced How a stimulus is processed in shortterm memory Dual coding Consumer characteristics affecting retrieval Network of associations Expertise Mood 78 Information Processing Selective Exposure Attention Interpretation Memory 79 A Model of Learning Perception Exposure Random Deliberate Attention Lowinvolvement Highinvolvement Interpretation Lowinvolvement Short-term Active problem solving Highinvolvement Memory Long-term Stored experiences, values, decisions, rules, feelings Purchase and consumption decisions 80 Information Processing & Implications Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250 Outline A model of information processing The structure of knowledge Role of attention, or cognitive resources How the structure of knowledge leads to understanding and persuasion Implications for positioning 82 A Model of Information Processing Awareness Attention Knowledge Old Paradigm Relevance New Paradigm Preference Differentiation Loyalty 83 Information Processing Selective Attention Relevance Differentiation Memory 84 Relevance Determining relevance is based on existing knowledge structures Interpretation is subject to prior learning • • • • Schemas and associations Categorization Images Scripts 85 Taxonomic Category Structure 86 Knowledge Structure Categories and their structure Prototypicality Correlated associations Hierarchical structure • Superordinate level • Basic level • Subordinate level 87 Using Knowledge to Understand Consumer inferences Brand names and brand symbols Inferences based on misleading names and labels Inferences based on inappropriate or similar names Product features and packaging Inferences based on product attributes Inferences based on country of origin 88 Implications for Positioning Target Audience Frame of Reference Differentiated Benefit Reason to Believe Must be broad enough to support a meaningful business, but sufficiently discriminating to guide communication and strategy. This is where segmentation strategies are relevant. The category of competing offerings – substitutes – against which the customer should evaluate the relative merits of the brand The brand’s competitive, differentiated reason for being – ideally an emotional benefit that uniquely identifies the brand. This is where the elevated value proposition is expressed/how elevated value is delivered. The key product attributes or benefits that justifies the customer’s belief that the claimed benefit is true and meaningful to them 89 Positioning New brands or products must establish in consumers’ minds Target Frame of reference (or category membership) Point of difference Reason to believe 90 Positioning Position 1 Position 2 For busy, health-conscious adults For dieters who want to lose weight Frame of reference Prepared, ready-to-eat packaged foods Dietetic food (Weight Watchers, Slimfast) Point of difference Lower fat content, reduced calories Tasty, more satisfying variety of foods Target 91 Positioning Position 1 Position 2 For leisure travelers seeking pampering For business travelers who need to be productive Frame of reference Resorts, spas, vacation getaways Hotels catering to business travelers (Hyatt, Hilton) Point of difference Luxurious furnishings, upscale experience Excellent service, attention to detail Target 92 Positioning Position 1 Target Frame of reference Point of difference Position 2 For upscale convertible lovers For drivers who value Volvo’s safety heritage Other luxury convertibles (BMW, Mercedes, Lexus) Safety-oriented vehicles (station wagons) Volvo’s reputation for safety first, rollover protection A turbocharged convertible with 10-speaker sound 93 Positioning Position 1 Position 2 For customers who buy frozen pizza For customers who prefer delivery pizza Frame of reference Other frozen pizzas Delivery pizza Point of difference Better quality Better value Reason to believe Rising crust Lower price than delivery Target 94 Attitude Theory & Persuasion Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250 Outline What are attitudes? The cognitive, affective, behavioral aspects of attitudes • Attitudes and motivation Forming and changing attitudes Models of attitudes and measurement Instruments to measure attitude 96 What are Attitudes? Attitude defined Evaluative judgment • Valence • Extremity Based on beliefs – not necessarily data Characteristics of attitudes • • • • • Favorability Accessibility Confidence or strength Persistence or duration Resistance 97 Attitudes Affective Behavioral Cognitive 98 Attention Characteristics of attention Attention is selective Attention can be divided Attention is limited Attention (or cognitive resources) is affected by motivation (or involvement) Attention facilitates memory, learning, and ultimately persuasion 99 Methods of Enhancing Attention Personal relevance • Using novelty • Using unexpectedness • Relevant problem • Demographic Pleasant • Using attractive spokespersons or models • Using music • Using humor • Aesthetics Surprising Easy to process • • • • Prominent stimuli Concrete stimuli Contrasting stimuli Amount of competing information 100 Attitudes and Motivation HIGH EFFORT ATTITUDES High involvement with product, message, or decision Low involvement with product, message, or decision Attention focused on central, productrelated features Limited attention focused on peripheral feelings and features Conscious thoughts about attributes and benefits Low or incidental processing of most salient aspects Persuasion occurs through systematic processing Persuasion occurs through heuristic processing LOW EFFORT ATTITUDES 101 What Affects Motivation? Personal Relevance Values, Goals, Needs Perceived Risk Inconsistency with Attitudes 102 What Affects Motivation? Personal Relevance Personally relevant Affects self concept 103 What Affects Motivation? Personal Relevance Values, Goals, Needs Values Goals Needs Types of needs 104 Maslow’s Hierarchy of Needs 105 What Affects Motivation? Personal Relevance Values, Goals, Needs Perceived Risk Types of perceived risk Performance Financial Physical (or safety) Social Psychological Time 106 What Affects Motivation? Personal Relevance Values, Goals, Needs Perceived Risk Inconsistency with Attitudes When inconsistency with attitudes occurs, we try to remove or at least understand the inconsistency 107 Approaches to Attitude Change 108 Forming and Changing Attitudes The foundation of attitudes The role of effort in attitude formation and change Central-route processing • Systematic Peripheral-route processing • Heuristic 109 Influences on Attitudes Source Trustworthiness Expertise Attractiveness Likeability Celebrity vs. anonymous Message characteristics Argument quality 1-sided vs. 2-sided Comparisons Category-consistent information Late id (a.k.a. mystery ads) Music, humor Dramas, story grammars Sex Relative complexity Fear and threat 110 Measurement of Attitudes Scales can elicit responses about overall attitudes, attribute weights, importance Likert scales (agree-disagree) Semantic differential scales (pretty-ugly) Forced choice Response latency can measure attitude accessibility Conjoint analysis Perceptual mapping 111 Psychological Foundations for Marketing Applications Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250 Outline Psychological explanations Judgment • Context effects: assimilation and contrast Consumer choice • Compromise effect Advertising • Negation effect • Message fit Pricing strategies • Self-perception theory Perceptual fluency • Knock-off brands 113 Context Effects Contrast effects Exposure to a prime shifts judgment of a target away from a reference point because of comparison • Buy a $90 tie after spending $1000 on a suit • Honda Accord feels like a luxury car when compared with a Civic • Charlie’s Angels condition (Kenrick and Gutierres, 1980) 114 Context Effects Assimilation effects Exposure to a prime shifts judgment of a target toward a reference point because prime serves as interpretive frame • Clothing in upscale retail store may seem more fashionable • Country of origin (Germany vs. Mexico) helps to interpret product attributes, overall evaluation (Hong and Wyer, 1990) 115 Compromise Effect Convenience Introduction of a 3rd option (decoy) may lead to selection of “compromise” when choice between 2 products is difficult Restaurant A Restaurant B Decoy Restaurant A is higher on convenience but lower on quality; restaurant B is higher on quality but lower on convenience Which would you choose? Quality 116 Compromise Effect Williams-Sonoma increased sales of its bread machine by adding to its inventory a super premium machine Economical Quality 117 Compromise Effect Sunbeam ExpressBake 2-Pound Bread Maker •58-minute cycle with automatic keep-warm feature •Easy-to-use control panel with 13-hour delay-bake timer •3 crust color settings: light, medium and dark •Makes 2-pound horizontal loaf •Baking cycles include: white, wheat, 58-minute ExpressBake, French, sweet, dough, pasta, quick breads, jelly/jam and cake •Instructions and over 100 recipes included •For household use only •14-1/2"L x 10"W x 13-1/2"H •Model No. 5833 $44.96 Was: $49.96 118 Compromise Effect Brushed Stainless-Steel Automatic Bread Baker Owning this machine is like having a custom bakery at your disposal. Its 110 programmable settings allow you to bake breads and cakes, mix pasta and pizza doughs and even cook jams. It makes traditionalshaped loaves in 1, 1 1/2 and 2-lb. sizes. The dispenser automatically adds fruits, nuts and other extras at just the right time in the cycle, and a window lets you monitor the baking progress. You can even set the timer up to 24 hours in advance for baked goods that are ready when you want them. The exterior is brushed stainless steel. Instruction booklet with recipes included. 15" x 13" x 9" high. A WilliamsSonoma exclusive. Regular: $199.00 Special: $149.00 119 Compromise Effect Williams-Sonoma increased sales of its bread machine by adding to its inventory a super premium machine Economical Super premium brand Quality 120 Negation Effects Messages that contain negations require extra computational step to process affirmation + negator When cognitive resources are low, the negator may not be retrieved “McDonald’s burgers do not contain worms” “This is not your father’s Oldsmobile” “It’s not delivery – it’s DiGiorno” 121 Message Fit Messages that promise benefits more compelling to people with approach (or promotion) orientation Merrill Lynch promises to maximize financial returns Milk ads talk about benefits of stronger bones, health Messages about safety or security more compelling to people with avoidance (or prevention) orientation Vanguard reassures investors that portfolio will be safe Milk ads talk about problems associated with calcium deficiency 122 Self-Perception Theory Suggests that people infer their own attitudes from their actions Buying product on sale leads to inference that purchase was motivated by low price, not true preference (Dotson, Tybout and Sternthal, 1980) • May operate on automatic, subconscious level, e.g. nodding head produces more positive evaluations than shaking head 123 (Bargh, 1985) Perceptual Fluency New Entry in Cola Wars Muslims in France who wanted to boycott American brands created Mecca-Cola to protest policies in the Middle East. New York Times, Dec. 30, 2002 124 Brands and Consumers Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250 Outline What is a brand? Case study: Brand equity How are brands built? Brands add value Laddering and goal-based positioning Leveraging a brand Brand extensions Co-branding Global branding 126 What is a Brand? A name, term, sign, symbol or design (or combination of these) intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors Well-established brands activate a network of associations in consumers’ minds 127 Brands Add Value RANK BRAND 2004 1 COCA-COLA 2 MICROSOFT 3 IBM 4 GE 5 INTEL 6 DISNEY 7 McDONALD’s 8 NOKIA 9 TOYOTA 10 MARLBORO BRAND VALUE ($billions) 67.4 61.4 53.8 44.1 33.5 27.1 25.0 24.0 22.7 22.1 Top 10 most valuable brands, as determined by Interbrand Group, 2004, J.P. Morgan. 128 Laddering Goal-based positioning deepens consumers’ understanding of a brand by showing brand helps to achieve goals Concrete features imply functional benefits Functional benefits imply emotional benefits Emotional benefits imply brand essence Brand essence implies goal attainment Features Benefits Emotions Essence Goal 129 The Consumer Connection Bridge Product Feature - why I believe this Functional Benefit - what it does for me Emotional Benefit - how this makes me feel Consumer Goals - how this allows me to achieve an important, universal goal Goals Emotiona Functional l Benefit Benefit Consumer Product Feature Brand Laddering Brand Essence Physically attractive Virtuous, lean Functional Benefits Low in calories Fat free Emotional Benefits Nutritious breakfast 131 Laddering Emotional Adds life Benefits Functional Refreshing Features Bubbly Goes with food Benefit Traditional 132 Laddering Emotional Benefits Healthy living Functional Great taste Features Select oranges Squeezed within 24 hours Benefit Not from concentrate 133 Laddering Brand Essence A family place Emotional Friendly Functional Benefits Clean facilities Happy Meals Benefits Reliable fare 134 Laddering Goal Good parent Brand Caring Emotional Benefits Choosy Making tough choices Essence Wanting best for kids 135 Laddering Brand Essence Elite establishment Emotional Acceptance Functional Benefits Preppy styling American casual Benefits Quality material 136 Leveraging the Brand Product line extensions Diet Coke Bayer Select Country Time Cider A1 Poultry Sauce Crystal Pepsi Cool Mint Listerine Hershey’s Hugs Brand extensions Marlboro Clothing BIC Perfume Jello Pudding Pops Aunt Jemima Pancake Syrup Jack Daniels Charcoal Woolite Tough Stain Rug Cleaner DuPont Stainmaster Marquis by Waterford 137 Product Line Extensions Opportunities Way to serve a segmented market Adapt to consumer variety seeking and update or expand the core brand’s image Increase shelf-space and attract more consumer attention Offer a broader range of price points and thereby serve a wider audience of consumers Utilize excess capacity Increase sales quickly Create a barrier to entry by increasing control of shelfspace 138 Product Line Extensions Threats Blurring the rationale for each product in the line Encouraging variety seeking Diluting the core brand image Increasing costs without increasing total sales, cannibalization Reducing credibility with trade if extension sales are lower than promised Offering competitors more opportunities to match products 139 Brand Extensions Brands may launch extensions as a way to leverage strong brand equity Starbucks coffee – Starbucks ice cream Hewlett Packard calculators – Hewlett Packard PCs and printers 140 Brand Extensions The “extendibility” of a brand is a function of its associations Brands that have “laddered-up” and thus connect with broad values and goals often can be extended successfully to other categories that serve the same goal (e.g. Polo) Brands that remain closely tied to their product category may only succeed with extensions to related categories (e.g., Aunt Jemima Pancake Mix and Aunt Jemima Syrup) 141 Co-Branding Ingredient brands Intel Inside Nutrasweet DuPont Stainmaster Composite brands Master Card and issuing bank Healthy Choice from Kellogg’s 142 Global Branding Global target Teens, business travelers, affluents/aspirers Global needs: simplicity, elegance, status Global category needs Yes: high tech, high signal (style, fashion) No: local tastes, rituals, personal hygiene Global equity Country-of-origin imagery relevant (Coke, Levi’s, HarleyDavidson, Chanel, Evian, Nissan) Weak, fragmented local competitors Can leverage economies of scale 143 Segmentation and Targeting: Demographics Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250 Outline What is market segmentation? Why segment? How to segment? Demographics Geographic Psychographics Ethnicity Social class 145 Overview of the STP Process 1. Identify dimensions for segmentation 2. Develop profiles of the resulting segments 1. Evaluate attractiveness of each segment 2. Select the target segment(s) Segmentation Targeting 1. Identify positioning concepts for segment 2. Select, develop and communicate the chosen positioning Positioning 146 Segmentation Segmentation is the dividing of a market into subsets, on the basis of similar needs, characteristics or behavior, by which any subset can be selected as a marketing target to be reached with a distinct positioning and marketing mix 147 Market Segmentation One size fits all? Physician • General practitioner versus pediatric neurosurgeon Business consultant • Specialist versus generalist 148 Commonly Used Variables Demographic Females vs. males Teenagers vs. senior citizens Geographic East Coast vs. West Coast Urban vs. rural Psychographic Lifestyle, individual differences Ethnic Class Working class vs. middle class Nouveau Riche vs. Old Money 149 Demographics 289.9 million people in the US Minorities make up more than 29% of the US population 85 million households Hispanic Americans African Americans Asian Americans Native Americans 12.5% 12.3% 3.6% 1% Almost half the work force is women http://www.americandemographics.com/ 150 Demographics Generational segments Baby Boom Generation • 78 million (born 1946-1964) Generation X • 45 million (born 1965-1976) Generation Y, or Echo Boomers • 72 million (born 1977-1994) 151 Demographics Declining birth rate Couples having fewer children Segment of couples at child-bearing years is smaller (Generation X) Causing a shift in age distribution 152 Demographics Generation Y 60% of children under 6 have mothers who work outside the home (compare to 18% in 1960) 60% of households with children under 7 have PCs in home Teenage population expected to peak in 2006 with 30 million • Highest since 1975 • $100 billion in annual purchasing power 153 Demographics Cohort Born Coming of Age Age in 2000 Share of Population 1912-1921 1930-1939 88-79 3% 1922-1927 1940-1945 78-73 5% Post-War 1928-1945 1946-1963 72-55 17% Boomers I 1946-1954 1963-1972 54-46 14% Boomers II 1955-1965 1973-1983 45-35 21% Generation X 1966-1976 1984-1994 34-24 17% Generation Y 1977-1994 1995-2012 23-6 25% Depression World War II 154 Demographics Depression/ WWII Orange juice FDR Flattops No more butter Sunday drives Mom, Dad, Grandma, Grandpa Dr. Spock Baby Boomers Generations X&Y The Juice runs Nixon HAIR No more war Drive-thrus Mom and Dad The Juice walks Reagan Skinheads No more ozone layer Drive-bys Mom or Dad Dr. Strangelove Dr. Kevorkian 155 Geographics Shifts in population Pre-1950s: people from rural, agricultural areas moved to urban areas After World War II, urban dwellers began to move to the suburbs In the 1980s, populations moved from the Northeast (New England, New York) and Midwest (Illinois, Ohio) to the South (Georgia), West (California, Washington) and Southwest (Arizona) 156 Geographics Regions in the US have distinct character – though somewhat diminished because of migratory culture, but still preserved 157 Psychographics Psychographics is a quantitative investigation of consumers’ personalities, values and lifestyles Assessing dominant values of individuals can help lead to better predictions of consumer behavior http://courses.bus.ualberta.ca/consumer-behavior/Lectures/9899LectureNotes/VALSPERS.html#The VALS Psychographic Inventories 158 Ethnicity 400 350 300 250 White Hispanic African Amer. Asian Amer. 200 150 100 50 0 2010 2020 2030 2040 159 Ethnicity: Hispanic Largest minority group by 2010(ish) Significant within group diversity Acculturation levels vary Acculturated Bicultural Traditional 160 Ethnicity: Hispanic Family orientation/extended family Strong ethnic pride/work ethic Importance of religion Younger than national average Brand loyal Preference for literal messages 161 Ethnicity: African Americans Currently the largest minority group Politically and morally charged role and place in US history 162 Ethnicity: African Americans Representation in highest and lowest income groups is increasing Urban – 15 largest cities Higher within-group identification Religious groups/Church membership important Preservation of cultural identity Pay more attention to ads/prestigious brands Less trust in unadvertised brands Sales force interaction important 163 Ethnicity: Asian Americans Highly significant within group diversity On average, greater discretionary income High value on education, upward mobility Emphasis on family, tradition, cooperation Strong work ethic Buy for quality Loyal to “high quality” (i.e.,expensive) brands 164 Middle Class “Do the right thing” (i.e., the “done” thing) Influenced by popularity and current trends Organization and neatness important Joiners Mainstay of branded products 165 Working Class Oftentimes struggling to survive More locally oriented – socially, intellectually, and geographically Because of preoccupation with money, use price as cue to quality 166 Nouveau Riche vs. Old Money Nouveau Riche Intellectual (real or perceived) Self-expression Entrepreneurial Status from achievement Old Money Liberal and socially conscious Understated, but known status symbols Careful search for information vs. price/brand as cue 167 Social Class Status Float: Downscale aspire to upscale Trickle Down: Upscale can do downscale 168 Segmentation and Targeting: Usage Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250 Outline What is segmentation? Why segment? How to segment? Traditional Usage based • Non-users, current users, competitor’s users • Benefits 170 Goal of Segmentation Why segment? Segments seek different benefits and will, therefore, respond to different positionings Segmenting allows a firm to identify which consumers can be most effectively reached instead of employing a broad reach Appealing to a diverse set of users with a common product is difficult, prone to failure 171 Market Segmentation Market segmentation allows firms to: Take into account consumers’ diverse needs and differing behaviors (heterogeneity) Design marketing mix to be more closely matched with consumer needs and deliver value by precisely meeting consumer needs (i.e., consumer propositions not diluted by intra-target variance) Improve the efficiency and effectiveness of resource allocation, boosting profitability 172 How to Segment Segmentation divides diverse set of consumers into homogeneous groups that can be addressed With common positioning With common benefits With common media vehicle 173 How to Segment Criteria for selecting segments as your target? Measurable (have to be able to find them) Addressable (once you find them, must identify media to reach them) Substantial enough to support a business 174 Traditional vs. Usage Segmentation Traditional segmentation Define segments on key descriptors (sex, age) Measure response differences across segments Usage-based segmentation Identify segments that differ on key usage dimensions Profile resulting segments on key demographic and psychographic descriptors 175 Why Segment by Usage? Communicating with consumers about a category is facilitated when a preexisting knowledge structure in place Allows storage of information that is consistent with prior notions Persuasion is difficult when you are contradicting beliefs 176 Why Segment by Descriptors? No other information is available Most useful way of addressing specific segments 177 Benefit Segmentation Segmentation acknowledges consumer heterogeneity Heterogeneity is represented by different ideal points Market segments are formed by clustering individual ideal points together Gentle Tylenol Bufferin Ideal Point Segment 1 Ideal Point Segment 2 Bayer Private Label Anacin Excedrin 178 Market Segmentation Example Road Warriors: True Blues: Generation F3 Homebodies: Price Shoppers: Generally higher-Income, middle -aged men who drive 25,000 to 50,000 miles a year . . . buy premium with a credit card . . . purchase sandwiches and drinks from the convenience store . . . will sometimes wash their cars at the carwash. Usually men and women with moderate to high incomes who are loyal to a brand and sometimes to a particular station . . . frequently buy premium gasoline and pay cash. (for fuel, food and fast): Upwardly mobile men and women-half under 25 years of age-who are constantly on the go . . . drive a lot and snack heavily from the convenience store. Usually housewives who shuttle their children around during the day and use whatever gasoline station is based in town or along their route of travel. Generally aren't loyal to either a brand or a particular station, and rarely buy the premium line . . . frequently on tight budgets . . . efforts to woo them have been the basis of marketing strategies for years. 27% of buyers 21% of buyers 20% of buyers 18% of buyers 16% of buyers 179 ® Mobil Oil Company Segmentation Schemes Once the benefits underlying segments are understood, organizing segments according to usage is necessary for targeting Current users • Heavy users • Moderate users • Light users Competitors’ users Non-users 180 Current Users Current users are the most important segment to target Current users have already favorable associations to the product Customer retention pays off, much more cost effective than pursuing new users • Due to high cost of customer acquisition, relationship may be profitable only after 1 year 181 Current Users Current users are most likely to sustain, increase consumption • Heavy users account for disproportionate share of brand’s volume • 80/20 rule applies to beer drinkers • Men, age 18-34, eat several meals a week at McDonald’s • Heavy users of Campbell’s Soup purchase 300 cans per year • A brand’s first obligation is to address current users 182 Competitors’ Users Success of a strategy that targets a competitors’ users depends on the brand’s ability to convince consumers of its superiority Difficult to change beliefs Making a challenging claim often encourages consumers to rehearse their own thoughts 183 Non-Users Targeting non-users may be warranted if targeting other segments do not enhance opportunities for growth Point-of-entry strategy • Consumers who may be considering using the category, e.g. new parents, diamond ring Category build strategy • Consumers who buy category for uses other than conventional ones, e.g. baking 184 soda Segmentation: Example 1 What is the most useful way to segment diaper market? Traditional variables • Baby’s sex • Baby’s age • Baby’s weight Usage variables • Benefits? 185 Segmentation: Diapers Pampers aims at parents who are expecting their first child • Premium diaper • Outstanding softness • Rash-care • Sesame Street • First-time parents have unique mindset • Nothing but the best • Cautious • Baby is precious 186 Segmentation: Diapers Luvs targets parents of 2nd or 3rd child • • • • “No leaks” point of difference Cheaper diaper “Live, learn and then get Luvs” Barney Rewards loyalty program 187 Segmentation: Example 2 Makers of shower gels have complex segmentation schemes Category Crazies – buy all the latest products Thrifty Concerned – want gels, but price sensitive Shower Freaks – men seeking ‘squeaky clean’ Sensible Selectors – older women seeking pH balance, buying for families Promiscuous Practicals – brand switchers Unsophisticated Bathers – prefer baths to showers Cynical Pragmatists – soap is soap 188 Segmentation: Example 2 Segmentation by Usage 10.8% 18.6% Category Crazies 9.8% Thrifty Concerned 11.8% 12.7% Shower Freaks Sensible Selectors Promiscuous Practicals Unsophisticated Bathers Cynical Pragmatists 16.7% 19.6% 189 Consumers as Decision Makers Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250 Overview Stages in consumer decision making Problem recognition Information search Evaluation of alternatives Product choice Problem recognition Information search Evaluation of alternatives Product choice 191 Stages in Consumer Decision Making Problem recognition Information search Evaluation of alternatives Product choice “I’m hungry” “Subway or McDonald’s” “Fat? Cost? Taste?” Choose McDonald’s 192 Stages in Consumer Decision Making Problem recognition Ideal state Actual state Information search Attribute search • Effort • Expertise • Confirmation bias Brand search • Stimulus based • Memory based Availability bias Evaluation of alternatives Non-compensatory • Conjunctive • Disjunctive • Elimination by aspects • Lexicographic Compensatory • Multi-attribute • Additive difference Product choice Compromise effect Attraction effect Contrast effect Assimilation effect Heuristics • Brand loyalty • Price 193 Problem Recognition Ideal state versus actual state How do consumers have a sense of an ideal state? • Past experience • Clean house • Vacation • Future aspirations • Status • Power • Reference groups, peers • Major life changes • Getting married • Starting a new job 194 Information Search Search for attribute information Effort Expertise Confirmation bias Search for brands Consideration set • Stimulus based • Memory based • Availability bias 195 Information Search Search for attribute information Unique, differentiating, goal-relevant attributes are more memorable Effort and expertise affect how much search consumer is willing to undertake • Search costs • Search benefits Confirmation bias Recall of experiences: Are extremely negative or extremely positive experiences more memorable? 196 Information Search Search for brands Consideration set construction Stimulus-based search Memory-based search Prototypicality Brand familiarity Brand preference Strong, easily imagined visual cues Availability bias Availability has special status 197 Information Search Availability bias What is the most popular motor vehicle in the United States? What is the capital city of New York? What is the most common cause of death in the United States? What is the capital city of Florida? Who was the second president of the United States? 198 Evaluation of Alternatives Compensatory decisions Multi-attribute model: • Formula based on strength of belief • Assign an importance weight to each attribute • For each brand: Score = (Importance weight on attribute 1 * Belief strength on attribute 1) + (Importance weight on attribute 2 * Belief strength on attribute 2) + . . . + (Importance weight on attribute n * Belief strength on attribute n) Additive difference model: • Comparisons made on attributes two brands at a time 199 Non-Compensatory Decisions Conjunctive Does a choice satisfy minimum cutoffs on all the attributes? Sets up minimally acceptable standards for attributes – rule out brands that fail to meet them Emphasis on negative information to make a decision Disjunctive Cutoffs established for the most important attributes Sets up standards for each important attribute – look for brands that exceed them Emphasis on positive information to make a decision 200 Non-Compensatory Decisions Conjunctive Consider buying a car • Must meet all cutoffs; discard any options that don’t • Price over $20,000 • Gas mileage less than 20 mpg • Less than 5-year bumper-to-bumper warranty Disjunctive Consider choosing a class • Accept any option that has most important attributes • Marketing area • Meets Tuesday, Thursday at 2 p.m. • No final exam 201 Non-Compensatory Decisions Lexicographic model: Judge options by most important attribute In case of a “tie,” compare all remaining brands on the second-most important attribute Elimination-by-aspects model: Prioritize attributes Establish desired standards for each attribute Retain the brands that meet the cutoff 202 Examples Lexicographic model Consider buying a car • Honda Civic, Toyota Celica, VW Passat, Hyundai Sonata • Price Elimination-by-aspects model Consider choosing a class • Advertising, Sales Force, Corporate Finance • Marketing • Time, day • Teacher evaluations 203 Decision Rules Used by Consumers Conjunctive: Select all (or any or first) brands that surpass a minimum level on each relevant evaluative criterion. Disjunctive: Select all (or any or first) brands that surpass a satisfactory level on any relevant evaluative criterion. Eliminationby-aspects Rank the evaluative criteria in terms of importance and establish satisfactory levels for each. Start with the most important attribute and eliminate all brands that do not meet the satisfactory level. Continue through the attributes in order of importance until only one brand is left. Lexicographic: Rank the evaluative criteria in terms of importance. Start with the most important criterion and select the brand that scores highest on that dimension. If two or more brands tie, continue through the attributes in order of importance until one of the remaining brands outperforms the others. Compensatory: Select the brand that provides the highest total score when the performance ratings for all the relevant attributes are added (with or without importance weights) together for each brand. 204 Heuristics and Biases Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250 Outline Biases in judgments Loss aversion Framing effects Anchoring and adjustment Base-rate neglect Counterfactual thinking Kinds of heuristics 206 Decision Making Biases Elicit judgments that might be considered “irrational” or inconsistent with utility maximizing assumptions Heuristics Simplifying strategies that aid decision making Rules of thumb 207 Thought Experiment 1 Imagine that a new experimental cure for Sudden Acute Respiratory Syndrome (SARS), a fatal flu-like epidemic, has been discovered Kills 3 out of 10 patients who are given the experimental treatment Saves 7 out of 10 patients who are given the experimental treatment 208 Thought Experiment 2 How would you rate hamburger that is 80% lean? How would you rate hamburger that is 20% fat? 209 Effects of Framing We are subject to framing effects Expected value = probability * value of outcome Classical economics predicts if expected values are equal, we should be indifferent, but we’re not Pricing implications: Rebates Sales price 210 Thought Experiment 3 You need a book for a class you are taking. It is on sale at a store that is 45 minutes away for $40. Normally, it costs $100. Would you drive to the store to buy the book? You need a new computer for school. It is on sale at a store that is 45 minutes away for $1140. Normally, it costs $1200. Would you drive to the store to buy the computer? 211 Thought Experiment 4a Imagine that 600 U.S. troops are expected to die in the fighting in Iraq. Two alternative programs are being considered by the Pentagon: Program A – 200 troops will be saved Program B – there is a 1/3 probability of saving 600 troops and a 2/3 probability that no one is saved 212 Thought Experiment 4b Imagine that 600 U.S. troops are expected to die in the fighting in Iraq. Two alternative programs are being considered by the Pentagon: Program A – 400 troops will die Program B – there is a 1/3 probability that no one will die and a 2/3 probability that 600 troops will die 213 Loss Aversion We also make judgments differently about losses vs. gains Gains – risk averse • Losses – risk seeking • Preference for certain outcome Preference for uncertain outcome “Losses loom larger than gains” 214 Thought Experiment 5 There are 70 engineers and 30 lawyers attending a conference in Seattle. At this conference, you meet David, who is married and has two children. He is outgoing and articulate. What is the probability he is a lawyer? 215 Base-Rate Neglect Base-rate information reflects the actual rate of occurrence in the population People tend to rely on individuating information that is vivid or accessible when making probability estimates more than on base rates 216 Thought Experiment 6 Imagine you have 100 shares of stock and you decide to sell half. The next day the stock price goes up. How would you feel? Imagine you have 100 shares of stock and you decide to sell half. The next day the stock price goes down. How would you feel? 217 Counterfactual Thinking Counterfactual thoughts are reflections on an alternative state of reality due to a change in a specific action or outcome Thinking “if only . . .” Olympic medalists The kind of counterfactual invoked has implications for consumer satisfaction or regret 218 Heuristics Simplifying strategies are most often used by low-involvement processors Low motivation or interest Knowledge base is small Purchase is trivial or unimportant Kahneman and Tversky describe 3 heuristics Anchoring and adjustment Availability Representativeness 219 Anchoring and Adjustment Anchor and adjustment process: Starting with an initial reference point and adjusting it with additional information Possible anchors? Brand name Country-of-origin Pricing (e.g. a $99 value, yours for $49.99) 220 Availability People exaggerate or overestimate the relative frequency of events that are available in memory 221 Representativeness An event is judged to be probable to the extent that it represents the essential features of the parent population or of its generating process Sometimes the manner in which the object or event is represented makes one insensitive to the prior probabilities involved Sometimes the manner in which the object or event is represented leads one to ignore the basic rules of the probability calculus, e.g., that the likelihood of a conjunction is always less than the likelihood of each conjunct taken singly Sometimes the manner in which the object or event is represented makes one insensitive to the fact that small samples are less representative than large samples are 222 Heuristics Buy based on price Cheapest product Most expensive product Mid-level product Buy the highest status brand Buy the most familiar brand 223 Consumer Insights Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250 Outline Need for consumer insights Role in product development Message clarity Case: Pepsi One Case: MasterCard Case: Altoids Case: DiGiorno Pizza 225 Need for Consumer Insights Concept of value must be defined in context of what targeted consumers are willing to pay for It is not always clear what features provide value What is level of optimal tradeoff? 226 Need for Consumer Insights Apple introduced the versatile Newton in 1993 But for all its technological advancements, the handwriting recognition software was flawed, and the product flopped Motorola Envoy, launched in 1994, also failed to make inroads with consumers Palm Pilot, an incremental improvement over its predecessors, became a huge success when it was introduced in 1996 227 Need for Consumer Insights Product quality is not just the strength of its attributes Coca-Cola introduced an improved formula after losing Pepsi Challenge taste tests, but consumers rejected New Coke 228 Consumer Insights: Pepsi One Pepsi introduced Pepsi One, a one-calorie cola, in 1998 Addition to line of products: Pepsi, Diet Pepsi, Mountain Dew, Diet Dew, Slice, Mug Pepsi One fits you like a glove. You are viewed by friends as an intellectual and a trendsetter. You go out of your way to learn about new music, fashion, and trends. There's a brainy side of you too. You often pull interesting facts out of your hat and stun people with your worldliness. The same goes for your impeccable taste in music. You also have a spark that lights up the room when you make your entrance. Your smile is magnetic. 229 Case Study: MasterCard There are some things money can’t buy. For everything else there’s MasterCard. 230 Case Study: MasterCard VISA: Everywhere you want to be American Express: Membership has its privileges 231 Case Study: MasterCard Associated with acceptance at 24 million locations Affiliated with 15,000 financial institutions Market share is in mid 20s, about half that of Visa 232 Case Study: MasterCard Consumer insight: Values were changing in a fundamental way in the late ‘90s More emphasis was being placed on family and human relations Material consumption was almost taken for granted 233 Case Study: MasterCard Market Shares (% Purchase Volume) 1997 1998 2000 2001 MasterCard 25.40 25.50 25.60 27.61 Visa 51.70 52.25 51.75 50.38 American Express 15.90 16.30 17.25 16.14 234 Case Study: MasterCard More recent versions of the ad have off-beat humor, irreverence Represent departure from nostalgic, sentimental executions A change in strategy? 235 Case Study: Altoids Males, 20-28, working Smokers Drink coffee, beer Frequent restaurants or carry out Go to movies and clubs frequently Looking for empowerment 236 Case Study: Altoids Drawing on a retro image, Altoids brand is built on the benefit of having “curiously strong” breathfreshening capabilities 237 Case Study: Altoids 238 Case Study: Altoids 239 Case Study: Altoids Market Share 40 30 Percentage Tic Tacs Altoids 20 10 0 1996 2000 2001 240 Case Study: DiGiorno Consumers who enjoy delivery pizza complained of inconsistent carry out/delivery quality Long waits High price Cold when delivered Idea of high-quality frozen pizza met with cynicism 241 Case Study: DiGiorno Pizza, which is sold in supermarket freezer, was positioned against delivery pizza as the frame of reference Higher quality ingredients Self-rising crust Point of difference: “It's like getting a $12 pizza for $5” 242 Product Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250 Outline New product success Tapping into a need Tapping into an emotion Tapping into an aspiration Tapping into a trend 244 Creating a Need Do marketers create needs? Women’s razors Salad in a bag Designer water 245 Livestrong and Nike Post 9/11 patriotism 17,516,398 requests since Tuesday 04 November, 2003 246 Generations Civic (Millennials, (Generation Y) • Correct ills of Reactive • Era of prosperity and strength • Pervasive optimism • Uplifting patriotic sentiment Reactive (Generation X) • Left reacting to changes initiated by Idealists • Often era of economic downturn • Feelings of negativity and disenfranchisement ubiquitous Idealist (Boomers) • Change agents as tired of / rebel against status quo of Adaptive • Era of volatility (economic, political, social, etc.) Adaptive (Silent) • Follow trends from Civic • More complacent • Head down hard work and life enjoyment 247 Target Generation Idealists (Baby boomers) Reactives (Generation X) Civics (Generation Y) Adaptives (Parents of boomers) 248 Intergenerational Trend 249 Pricing I Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250 Outline Economic approaches used to understand and determine pricing Cost basis (seller focused) • Breakeven analysis • Margin calculations Demand basis (customer focused) • Elasticity 251 Cost Basis Pricing A seller-focused approach takes into account the cost of production Material costs Labor costs Distribution costs Opportunity costs 252 Break-Even Analysis Calculating the break-even point is helpful for understanding what price is needed to cover costs Revenues = Total Cost Total Cost = Fixed Cost + Variable Cost Break-even point Revenues = Fixed Cost + Variable Cost 253 Margin Margin refers to profit in terms of selling price Manufacturer’s margin Retailer’s margin $1.50 Manufacturer Cost: $1 Profit: $.50 Margin: 33% $1.80 Retailer Consumer Cost: $1.50 Profit: $.30 Margin: 16.7% 254 Markup Markup refers to profit in terms of cost Manufacturer’s markup Retailer’s markup $1.50 Manufacturer Cost: $1 Profit: $.50 Markup: 50% $1.80 Retailer Consumer Cost: $1.50 Profit: $.30 Markup: 20% 255 Margin Contribution margin calculations allow managers to understand the added benefit of increasing production Selling Price – Variable Cost = Contribution Margin 256 ROI Return on investment is a measure of efficiency Consider 2 projects you might invest in – how would you decide? ROI calculation is a way to take opportunity costs into consideration ROI = Profit / Investment ROI = Profit / Total Costs 257 Market Share Share of market is calculated based on total market sales Half of $300 million market is worth $150 million $20,000 represents 20% share of $100,000 market Company with 75% market share has revenues of $3 billion in $4 billion industry 258 Demand Basis Pricing Pricing may be determined according to what the market will bear Real estate Auctions Used cars Calculation of price sensitivity can be helpful to understand consumer demand 259 Demand Elasticity Elasticity is a measure of responsiveness Elasticity of demand tells us how much the quantity demanded changes when the price changes • Demand is elastic • Demand is inelastic http://hadm.sph.sc.edu/COURSES/ECON/Elast/Elast.html 260 Elastic Demand At low prices, greater quantities are sold More consumers may buy Consumers may buy more (stockpiling) At high prices, smaller quantities are sold Fewer consumers may buy Consumers may buy fewer Consumers may find substitutes 261 Inelastic Demand Same quantities are sold, regardless of price Lower prices do not encourage consumption Higher prices do not discourage consumption • Few substitutes available • E.g. medical care 262 Calculating Elasticity Elasticity can be defined as: ΔQ/Q ΔP/P or (Q2-Q1)/Q1 (P2-P1)/P1 http://www.digitaleconomist.com/elasticity_tutorial.html 263 More on Elasticity Price elasticity is the % change in demand that occurs in response to a % change in price E.g.10% fall in the price of a good increases the quantity demanded by 20% => 20%/-10% = -2 In economics the minus is often omitted When does demand for a good rise as its price rises? Giffen goods or Veblen goods Examples? 264 Advertising Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250 Outline Introduction to advertising It works! How it works • Memory and wearout Keys to effectiveness A case study: Milk 266 Advertising Works! 1980s: Reebok’s share of the athletic shoe market grew from 0 to 33% share in less than 2 years 1990s: P&G grew Pantene shampoo from a small share brand to the category leader 2000s: Dreyer’s new Dreamery ice cream attained more than a 10% share in 18 months 267 Advertising Effectiveness 59% 60% 52% 50% 40% 51% 45% 43% 38% 34% 31% 30% 32% 30% 21% 20% 14% 10% 0% Recall reading ad Low involvement Medium involvement High involvement Rated ad as believable Rated ad as effective Bought advertised product 268 Source: Cahners Advertising Research Report 120.12 (Boston: Cahners Publishing Co.). Memory & Wearout Repetition (for example, advertising exposures) aids long-term storage of brand name and usually boosts favorableness of evaluation At some point, too many repetitions cause wearout to occur 269 Evaluation Memory & Wearout Wearout occurs Number of Repetitions 270 Memory & Wearout Why does wearout occur? Fatigue, boredom set in Message recipient blocks incoming information • Rehearses own thoughts • Counterargues • Unmotivated to allocate processing resources to message 271 Memory & Wearout How many repetitions before wearout occurs? Depends on message complexity What is message complexity? Information complexity Level of detail Humor Musical or auditory richness Ambiguity Incongruity 272 Paradox of Familiarity Novices and experts will process messages differently Novices may not apprehend message at first, pay more attention Experts, assuming knowledge, will pay little attention • After a period, experts may return attention 273 Evaluation Paradox of Familiarity Experts Novices Number of Repetitions 274 Keys to Effective Advertising Breaking through Boredom Skepticism and counterargumentation Information clutter Tapping a powerful emotion Providing news 275 Case Study: Milk National Fluid Milk Processor Promotion Board launched 2 campaigns in effort to revive a 20-year decline in milk sales • Milk Producers launch Got Milk? Campaign in November 1993 • Dairy Farmers introduce Milk Mustache print advertising campaign in 1995 276 Case Study: Milk Mustache Who is the target for the Milk Mustache campaign? Began with consumer insight based on a correlation: mothers who drink milk have children who drink milk $35 million print campaign sought to reach adults (non-users) • Execution: Celebrity, athlete endorsers 277 Milk Mustache "What's my bag? It's milk, baby, yeah! The calcium in lowfat or fat free milk helps to prevent osteoporosis and keep my bones strong. So I can keep my mojo working overtime. Oh, behave." 278 Milk Mustache "Lick it up. After rock and rolling all night, we need nourishment. And every drop of chocolate milk has the same vitamins and minerals regular milk has. All the more reason to have a really, really long tongue." 279 Milk Mustache "Make ours doubles. My sister and I hate to lose -nutrients, that is. So we drink milk. It has nine essential nutrients active bodies need. You might say it's the only thing we serve. 280 Case Study: Milk Mustache Who is the target? Adults who are nonusers What is the positioning? For nonusers who want to be strong, healthy, attractive, athletic, sexy, smart • New users 281 Case Study: Milk Mustache Reaction 36% of women said campaign would make them drink more milk 70% who viewed entire campaign now consider milk cool, contemporary 86% thought milk is delicious after seeing campaign 1% and skim have made sizable gains and 2% and whole have had sizable losses 282 Case Study: Milk Strategic errors? Convincing adults to reconsider milk as a beverage choice requires delivery of news • Campaigns introduce little news Benefits of milk are diffuse, wideranging, conflicting • Milk is touted as beauty aid, but is associated with fat content 283 Case Study: Got Milk? Who is the target? Adults who already consume milk with food What is the positioning? For milk drinkers who never want to be caught without milk • Incremental usage • Focused on developing heavy users 284 Case Study: Milk Dairy Council declares the milk campaigns a success – “decline in milk sales has been halted” Next step: product changes Dean’s packaging “Chug” to make milk portable, convenient Suiza producing lowfat milk with consistency of 2% 285 Case Study: Milk Gallons 26 Ad campaign 25 24 1988 1990 1992 1994 1996 1998 2000 Source: 286 USDA Case Study: Milk Business results? Since 1945, however, milk consumption has fallen steadily, reaching a record low of just under 23 gallons per person in 2001 • Americans consuming less than 8 gallons per person of whole milk • 1945: nearly 41 gallons • 1970: 25 gallons • In contrast, per capita consumption of total lower fat milks was 15 gallons Interestingly, cheese consumption is rising • In 2001, Americans consumed 30 pounds of cheese 287 Advertising Strategy & Tactics Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250 Outline Evaluating advertising NOSE model • Is advertising on strategy? • How well is it executed? Executions Structural Stylistic 289 Evaluating Advertising Brand companies use the NOSE model Net takeaway • What message is the viewer left with? On strategy • Is the ad message consistent with the brand’s identity, positioning, strategy, benefits? Selling idea • What is the value proposition being expressed? • It should be simple and campaignable Execution • Is the ad engaging, credible, relevant? 290 Advertising Strategy Reach vs. frequency Reach: how many people see advertising Frequency: how many times each person sees advertising Which is better? 291 Advertising Strategy Points of parity vs. points of difference Points of parity • Category benefits Points of difference • Brand benefits Which is better? 292 Advertising Strategy Executions “The Big Idea” “Hard Sell” “Soft Sell” 293 Big Idea What is the “big idea”? Distilling your central message or concept to a few key words Example: Subway is about a healthy fast-food alternative • • • • Jared Low number of fat grams Eat fresh Being “good” 294 Hard Sell What is the hard sell? Presenting the compelling benefits of an idea, a product, or a service Urges the consumer to take action Characteristics A hard sell would list specific items and sale prices Make specific, actionable offers 295 Soft Sell What is the soft sell? It says "Welcome, come look around. Get a feel for who we are and how we can help you." Characteristics Soft sell advertisement might sell the look and feel of a store Doesn’t encourage immediate purchase 296 Symbols & Meaning Advertising communication relies on meaning, which threads events and objects into an interdependent scheme Meaning comes from Self-awareness Self-definition Advertising – and consumption – is symbolic of human aspiration 297 Symbols & Meaning Visual and figurative language of advertising is deliberately chosen to convey a subliminal message in addition to the central message Thematic inferences are code for whom the product is intended 298 Thematic Inferences Gender Women are communal – “Isn’t it hot?” Men are goal-directed – “Turn on the AC” Social class Upscale value distinction, tradition Middle class prefer order, organization Working class seek functionality, value 299 Thematic Inferences How are themes communicated? Visual cues that are imbued with meaning • Colors • Browns, greens, earth tones communicate aridity, masculinity; primary colors imply childishness • Reverse type • Implies technical expertise • Phallic symbols • Connote power, strength, dominance 300 Thematic Inferences More visual cues • Fonts • Bold, block type implies FUNCTIONALITY • Italic type communicates VELOCITY • Serif type conveys formality • Black and white • Conveys seriousness, drama, journalistic veridicality • Proximity • Close-ups imply intimacy, personal relevance 301 Thematic Inferences More cues • Film allusions • Literary references • Orwell’s “1984” • Biblical figures • Samsonite • Adam & Eve • Mythology • Historical events 302 Examples in Advertising IBM Apple Feminine, friendly, alternative Marlboro Masculine, traditional, organized Arid, strong, independent, frontier Harley-Davidson Rugged individuality, nonconformist, testosterone 303 Layering of Meaning Meanings are layered to create a unique brand impression Many layers of meaning add to the complexity of the brand, which can become a point of differentiation Layering also allows a brand to communicate how a concrete attribute can map into an abstract benefit 304 Layering of Meaning Example 1: Ivory soap Name Plain, white bar Advertising emphasizes purity Product is gently cleansing Advertising features the chaste, clean-cut “Ivory girl” Example 2: Coca-Cola Name is a bubbly concoction of sounds Curvaceous, hand-fitting bottle is informal, classic Cursive script of brand logo conveys sense of flowing abundance Times of relaxation, fun are primary usage occasions Red is associated with joy, passion, vigor 305 Layering of Meaning Resemblance? How do scripts differ? 306 Pricing II Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250 Outline Psychological approaches used to understand, determine pricing Perceptual factors Strategic issues Competition Price discrimination 308 $.99, $1.99, $9.99 Price endings have significance Elasticity when price changes from $2 to $1.99 may be greater than elasticity when price changes from $1.99 to $1.98 309 Contrast Effects Buying $525 pair of shoes May seem very expensive and unreasonable May seem very affordable and reasonable 310 Price Savings Which is more compelling? Savings of $25 on a DVD collection that costs $50 OR Savings of $25 on a television set that costs $600 Utility of $25 savings depends on reference price 311 Transaction Utility Judgment of the value of the “deal” Imagine you are lying on a beach on a hot day. All you have to drink is water. You have been thinking how much you would enjoy a cold beer. A friend gets up to make a phone call and offers to bring back a beer from the only nearby place where beer is sold. The beer might be expensive and asks how much you would be willing to pay for the beer. 312 Framing Would it make a difference if the sale price was expressed as 30% off versus pay 70% 313 Anchoring Consumers are more likely to buy more units when pricing is 4 for $1 than when pricing is $0.25 each Consumers are more likely to buy more yogurt when there is a limit on the quantity they can buy Yogurt on sale (limit 8) 314 Effect on Competition Parity pricing induces direct quality comparison Gillette Mach III at $6.29 vs. Schick Xtreme 3 at $6.29 Undercutting competition induces competitive response, price competition Pricing above competition induces loss of market share 315 Price Discrimination Price can be used to acquire different consumers, elicit different behaviors $500 initiation fee and $50 monthly fee vs. $150 initiation fee and $75 monthly fee 316 Price Discrimination Delivery of price savings can also be used to acquire different consumers, elicit different behaviors Using $1 off coupon for frozen pizza vs. Supermarket offers $1 off at shelf 317 Place Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250 Outline Understanding “place” in terms of consumer behavior Bricks & mortar vs. online Gap Barnes & Noble L.L. Bean Distribution as a competitive advantage Push vs. pull 319 Place Retail presence can be more powerful than advertising for promoting awareness Many brands do little advertising but spend on trade Retailer with close relationship to customer has power • Wal-mart • Target 320 Bricks & Mortar vs. Online The Gap Two channels of distribution potentially very costly Online order returns processed at retail outlets, creating complications Ubiquitous retail presence promotes impulse buying, fashion seeking Online presence promotes purchase of staples (t-shirts, jeans, jerseys) 321 Bricks & Mortar vs. Online Barnes & Noble Store allows browsing without purchase Readers buy more cheaply at Amazon, rivals Different search experiences • Consumers who are busy, short on time, value convenience, selection • Consumers who have lots of time value search 322 Bricks & Mortar vs. Online L.L. Bean One retail outlet Successful catalogue business 323 Distribution as Competitive Advantage Lock up Coke vs. Pepsi Budweiser vs. Coors Market share leaders command advantage when retail space is competitive 324 Target is Hot! Case discussion 325 Place and Consumer Behavior Store environments have an important impact on consumer affect, cognition, and behavior Store location Store layout In-store stimuli 326 Place and Consumer Behavior Store-related affect and cognition Store image Store atmosphere Store-related behavior Store contact Store loyalty 327