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Buyer Behavior Professor S.J. Grant Spring 2011 BUYER BEHAVIOR, MARKETING 3250.

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Presentation on theme: "Buyer Behavior Professor S.J. Grant Spring 2011 BUYER BEHAVIOR, MARKETING 3250."— Presentation transcript:

1 Buyer Behavior Professor S.J. Grant Spring 2011 BUYER BEHAVIOR, MARKETING 3250

2 2 Outline Introduction Goals of the course Requirements Grading Honor code My obligations About me

3 3 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

4 4 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

5 5 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.

6 6 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

7 7 Requirements Group work Groups will be assigned Peer evaluation is component of overall grade (5%) Collaborative work has pedagogical purpose

8 8 Grading Grading will be based on evaluations of individual effort and team work Positioning analysis # 10 % Case analysis # 10 % Quantitative analysis*10 % Exam I * 20 % Exam II * 20 % Team project # 20 % Team dynamics # 5 % Class participation ^ 5 % # Team work * Individual effort ^Preparation for class discussion may be done in teams

9 9 Grading Assignments Positioning analysis Case analysis Quantitative analysis Team project Readings Cold calling Class discussion Exams Midterm I Midterm II Final

10 10 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

11 11 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:

12 12 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

13 Review of Marketing Concepts Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250

14 14 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

15 15 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)

16 16 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

17 17 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)

18 18 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

19 19 Selling versus Marketing Selling Concept Selling & Promoting Products Profits through sales volume Customer needs Profits through customer satisfaction Marketing Concept Integrated Marketing

20 20 Selling versus Marketing Selling concept Focuses on selling what you can make Marketing concept Focuses on making what you can sell

21 21 Marketing Concept Analyze Marketing Opportunities - Environmental Analysis - Competitive Analysis - Consumer Analysis Implementation & Control Marketing Research Select Target Markets - Segmentation - Targeting - Positioning Formulate the Marketing Mix - Product - Promotion - Pricing - Distribution/Place

22 22 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

23 23 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

24 24 Marketing Management In essence, marketing management is about value creation and value delivery Choose the value Provide the value Communicate the value

25 25 Value Creation & Delivery Choose the value Provide the value Communicate the value Segmentation Targeting Positioning Product Pricing Sourcing Distribution Sales force Sales promotion Advertising

26 26 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

27 27 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

28 28 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

29 29 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

30 30 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?

31 31 Competitive Advantage Firm must decide what is its sustainable competitive advantage Achieving competitive advantage means outperforming the industry 2 sources of advantage Differentiation Cost

32 32 Competitive Advantage How can a firm sustain competitive advantage? Isolating mechanisms (Rumelt, 1984) Distinctive capabilities Legal restrictions on imitation, patents Superior access to inputs or customers Economies of scale Early-mover advantages Barriers to entry

33 33 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

34 34 Core Competencies 3 dimensions of core competencies Operational excellence Product leadership Customer intimacy

35 35 Company Traits Disciplines Operational Excellence Sharpen distribution system and provide no-hassle service Has strong, central authority and a finite level of empowerment Maintain standard operating procedures Acts predictably and believes “one size fits all” Product Leadership Nurture ideas, translate them into products, and market them skillfully Acts in an ad hoc, organic, loosely knit, and ever-changing way Reward individuals’ innovative capacity and new product success Experiments and thinks “out-of-the-box” Customer Intimacy Provides solutions and help customers run their businesses Pushes empowerment close to customer contact Measure the cost of service, maintaining customer loyalty Is flexible and thinks “have it your way” Core business processes that... Structure that... Management systems that... Culture that... Source: M. Treacy and F. Wiersema The Discipline of Market Leaders Addison-Wesley: Reading MA, 1995 Which Discipline to Choose?

36 36 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

37 37 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

38 38 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

39 39 Choosing a Discipline Operational Excellence Product Leadership Customer Intimacy BICGilletteBritish Airways Wal-MartHewlett-Packard American Express ToyotaIntelLexus

40 Professor S.J. Grant Spring 2005 Overview: Marketing and Consumers BUYER BEHAVIOR, MARKETING 3250

41 41 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

42 42 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

43 43 Marketing Management Market Opportunity Consumers Competition Company

44 44 SWOT Analysis Basic approach starts with evaluating Internally Strengths Weaknesses Externally Opportunities Threats

45 45 What is Consumer Behavior?

46 46 Consumer’s Culture Consumer Behavior Outcomes Process of Making Decisions Psychological Core What Affects Consumer Behavior?

47 47 Psychological Core Having motivation, ability, and opportunity Exposure, attention, and perception Categorizing and comprehending information Forming and changing attitudes Forming and retrieving memories What Affects Consumer Behavior?

48 48 Process of Making Decisions Psychological Core Problem recognition and search for information Making judgments and decisions Making post-decision evaluations What Affects Consumer Behavior?

49 49 Consumer’s Culture Process of Making Decisions Psychological Core External processes: Regional and ethnic influences Age, gender, and household influences Reference groups What Affects Consumer Behavior?

50 50 Consumer’s Culture Consumer Behavior Outcomes Process of Making Decisions Psychological Core Consumer behaviors can symbolize who we are Consumer behaviors can diffuse within a market What Affects Consumer Behavior?

51 51 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 Implications: Segmentation

52 52 Choose a target How profitable is each segment? What are the characteristics of consumers in each segment? Are customers satisfied with existing offerings? Implications: Targeting

53 53 Positioning How are competitive offerings positioned? How should our offerings be positioned? Should our offerings be repositioned? Implications: Positioning

54 54 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? Implications: Product

55 55 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? Implications: Promotion

56 56 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? Implications: Price

57 57 Making distribution decisions Where are target consumers likely to shop? How should stores be designed? Implications: Place

58 Perception, Memory & Learning Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250

59 59 Perception Memory What are the types of memory? How memory is enhanced Organization of long-term memory What is retrieval? What are the types of retrieval? How retrieval is enhanced Learning Outline

60 60 Hemispheric lateralization Perception

61 61 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? Perception

62 62 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

63 63 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

64 64 A Model of Memory Stimulus Short-Term Memory Long-Term Memory Retrieval Consolidation Recall

65 65 A Model of Memory Sensory Short-term Long-term

66 66 Sensory Echoic Iconic Characteristics of sensory memory A Model of Memory

67 67 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 A Model of Memory

68 68 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 A Model of Memory

69 69 A Model of Memory Converting short-term memories to long- term 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

70 70 A Model of Memory Beverages CarbonatedNon-carbonated MixersColasJuicesWater PepsiCokeEvian Poland Spring

71 71 A Semantic (or Associative) Network

72 72 Chunking Rehearsal Recirculation Elaboration Y=mx+b How Memory Is Enhanced

73 73 Semantic network Trace strength Accessibility Spreading of activation Priming Retrieval failures Decay Interference Primacy and recency effects Retrieval errors What Is Retrieval?

74 74 Explicit memory Recognition Recall Judgments Implicit memory Judgments What Are the Types of Retrieval?

75 75 Retrieval Perceptual “His name started with a ‘J’...” Conceptual “A brand of personal computers that competes with IBM...”

76 76 Characteristics of the stimulus Salience Prototypicality Redundant cues The medium in which the stimulus is processed How Retrieval Is Enhanced

77 77 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 How Retrieval Is Enhanced

78 78 How a stimulus is processed in short- term memory Dual coding Consumer characteristics affecting retrieval Network of associations Expertise Mood How Retrieval Is Enhanced

79 79 Exposure Attention Interpretation Memory Information Processing Selective

80 80 Exposure Random Deliberate Attention Low- High- involvement Interpretation Low- High- involvement Short-term Memory Long-term Active problem Stored experiences, solving values, decisions, rules, feelings Purchase and consumption decisions Perception A Model of Learning

81 Professor S.J. Grant Spring 2005 Information Processing & Implications BUYER BEHAVIOR, MARKETING 3250

82 82 A model of information processing Role of attention, or cognitive resources The structure of knowledge How the structure of knowledge leads to understanding and persuasion Implications for positioning Outline

83 83 Awareness Knowledge Preference Loyalty Relevance Differentiation Attention Old Paradigm New Paradigm A Model of Information Processing

84 84 Attention Relevance Differentiation Memory Information Processing Selective

85 85 Relevance Determining relevance is based on existing knowledge structures Interpretation is subject to prior learning Schemas and associations Categorization Images Scripts

86 86 Taxonomic Category Structure

87 87 Categories and their structure Prototypicality Correlated associations Hierarchical structure Superordinate level Basic level Subordinate level Knowledge Structure

88 88 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 Using Knowledge to Understand

89 89 Target Audience Must be broad enough to support a meaningful business, but sufficiently discriminating to guide communication and strategy. This is where segmentation strategies are relevant. Reason to Believe 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 Differentiated Benefit Frame of Reference Implications for Positioning

90 90 Positioning New brands or products must establish in consumers’ minds Target Frame of reference (or category membership) Point of difference Reason to believe

91 91 Positioning For busy, health-conscious adults Prepared, ready-to-eat packaged foods Lower fat content, reduced calories For dieters who want to lose weight Dietetic food (Weight Watchers, Slimfast) Tasty, more satisfying variety of foods Target Frame of reference Point of difference Position 1 Position 2

92 92 Positioning For leisure travelers seeking pampering Resorts, spas, vacation getaways Luxurious furnishings, upscale experience For business travelers who need to be productive Hotels catering to business travelers (Hyatt, Hilton) Excellent service, attention to detail Target Frame of reference Point of difference Position 1 Position 2

93 93 Positioning For upscale convertible lovers Other luxury convertibles (BMW, Mercedes, Lexus) Volvo’s reputation for safety first, rollover protection For drivers who value Volvo’s safety heritage Safety-oriented vehicles (station wagons) A turbocharged convertible with 10-speaker sound Target Frame of reference Point of difference Position 2 Position 1

94 94 Positioning For customers who buy frozen pizza Other frozen pizzas Better quality Rising crust For customers who prefer delivery pizza Delivery pizza Better value Lower price than delivery Target Frame of reference Point of difference Reason to believe Position 2 Position 1

95 Professor S.J. Grant Spring 2005 Attitude Theory & Persuasion BUYER BEHAVIOR, MARKETING 3250

96 96 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 Outline

97 97 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

98 98 Attitudes Affective Cognitive Behavioral

99 99 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 Attention

100 100 Methods of Enhancing Attention Personal relevance Relevant problem Demographic Pleasant Using attractive spokespersons or models Using music Using humor Aesthetics Surprising Using novelty Using unexpectedness Easy to process Prominent stimuli Concrete stimuli Contrasting stimuli Amount of competing information

101 101 Attitudes and Motivation Low involvement with product, message, or decision Limited attention focused on peripheral feelings and features Low or incidental processing of most salient aspects Persuasion occurs through heuristic processing High involvement with product, message, or decision Attention focused on central, product- related features Conscious thoughts about attributes and benefits Persuasion occurs through systematic processing HIGH EFFORT ATTITUDES LOW EFFORT ATTITUDES

102 102 Perceived Risk Inconsistency with Attitudes Values, Goals, Needs Personal Relevance What Affects Motivation?

103 103 What Affects Motivation? Personally relevant Affects self concept Personal Relevance

104 104 What Affects Motivation? Values Goals Needs Types of needs Values, Goals, Needs Personal Relevance

105 105 Maslow’s Hierarchy of Needs

106 106 What Affects Motivation? Types of perceived risk Performance Financial Physical (or safety) Social Psychological Time Perceived Risk Values, Goals, Needs Personal Relevance

107 107 What Affects Motivation? When inconsistency with attitudes occurs, we try to remove or at least understand the inconsistency Perceived Risk Inconsistency with Attitudes Values, Goals, Needs Personal Relevance

108 108 Approaches to Attitude Change

109 109 The foundation of attitudes The role of effort in attitude formation and change Central-route processing Systematic Peripheral-route processing Heuristic Forming and Changing Attitudes

110 110 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

111 111 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

112 Professor S.J. Grant Spring 2005 Psychological Foundations for Marketing Applications BUYER BEHAVIOR, MARKETING 3250

113 113 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 Outline

114 114 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)

115 115 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)

116 116 Compromise Effect Introduction of a 3 rd option (decoy) may lead to selection of “compromise” when choice between 2 products is difficult Quality Convenience Restaurant A Restaurant B Restaurant A is higher on convenience but lower on quality; restaurant B is higher on quality but lower on convenience Which would you choose? Decoy

117 117 Compromise Effect Williams-Sonoma increased sales of its bread machine by adding to its inventory a super premium machine Quality Economical

118 118 Compromise Effect 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 Sunbeam ExpressBake 2-Pound Bread Maker

119 119 Compromise Effect 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 traditional- shaped 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 Williams- Sonoma exclusive. Regular: $199.00 Special: $149.00 Brushed Stainless-Steel Automatic Bread Baker

120 120 Compromise Effect Williams-Sonoma increased sales of its bread machine by adding to its inventory a super premium machine Quality Economical Super premium brand

121 121 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”

122 122 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

123 123 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 (Bargh, 1985)

124 124 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

125 Brands and Consumers Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250

126 126 Outline What is a brand? Brands add value Case study: Brand equity How are brands built? Laddering and goal-based positioning Leveraging a brand Brand extensions Co-branding Global branding

127 127 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

128 128 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.

129 129 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 Emotions Essence Benefits Goal

130 The Consumer Connection Bridge Product Feature - why I believe this Product Feature Functional Benefit Emotiona l Benefit Goals Consumer Brand 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

131 131 Laddering Physically attractive Virtuous, lean Low in calories Fat free Fat freeNutritiousbreakfast Functional Benefits Emotional Benefits Brand Essence

132 132 Laddering Adds life Refreshing Bubbly Goes with foodTraditional Features Functional Benefit Emotional Benefits

133 133 Laddering Healthy living Great taste SelectorangesSqueezedwithin 24 hours Not from concentrate Features Functional Benefit Emotional Benefits

134 134 Laddering A family place Friendly CleanfacilitiesHappyMealsReliablefare Functional Benefits Emotional Benefits Brand Essence

135 135 Laddering Good parent Caring ChoosyMakingtoughchoicesWantingbest for kids Emotional Benefits Brand Essence Goal

136 136 Laddering Elite establishment Acceptance Preppystyling American AmericancasualQualitymaterial Functional Benefits Emotional Benefits Brand Essence

137 137 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

138 138 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 shelf- space

139 139 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

140 140 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

141 141 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)

142 142 Co-Branding Ingredient brands Intel Inside Nutrasweet DuPont Stainmaster Composite brands Master Card and issuing bank Healthy Choice from Kellogg’s

143 143 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, Harley- Davidson, Chanel, Evian, Nissan) Weak, fragmented local competitors Can leverage economies of scale

144 Segmentation and Targeting: Demographics Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250

145 145 Outline What is market segmentation? Why segment? How to segment? Demographics Geographic Psychographics Ethnicity Social class

146 146 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) 1. Identify positioning concepts for segment 2. Select, develop and communicate the chosen positioning Segmentation Targeting Positioning

147 147 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 Segmentation

148 148 Market Segmentation One size fits all? Physician General practitioner versus pediatric neurosurgeon Business consultant Specialist versus generalist

149 149 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 Commonly Used Variables

150 150 Demographics 289.9 million people in the US 85 million households Minorities make up more than 29% of the US population Hispanic Americans 12.5% African Americans 12.3% Asian Americans 3.6% Native Americans 1% Almost half the work force is women

151 151 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)

152 152 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

153 153 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

154 154 Demographics 25%23-61995-20121977-1994 17%34-241984-19941966-1976 21%45-351973-19831955-1965 14%54-461963-19721946-1954 17%72-551946-19631928-1945 5%78-731940-19451922-1927 3%88-791930-19391912-1921 Share of Population Age in 2000Coming of Age BornCohort Depression World War II Post-War Boomers I Boomers II Generation X Generation Y

155 155 Demographics Depression/ WWII Orange juice FDR Flattops No more butter Sunday drives Mom, Dad, Grandma, Grandpa Dr. Spock Baby Boomers The Juice runs Nixon HAIR No more war Drive-thrus Mom and Dad Dr. Strangelove Generations X & Y The Juice walks Reagan Skinheads No more ozone layer Drive-bys Mom or Dad Dr. Kevorkian

156 156 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)

157 157 Geographics Regions in the US have distinct character – though somewhat diminished because of migratory culture, but still preserved

158 158 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 99LectureNotes/VALSPERS.html#The VALS Psychographic Inventories

159 159 Ethnicity

160 160 Ethnicity: Hispanic Largest minority group by 2010(ish) Significant within group diversity Acculturation levels vary Acculturated Bicultural Traditional

161 161 Ethnicity: Hispanic Family orientation/extended family Strong ethnic pride/work ethic Importance of religion Younger than national average Brand loyal Preference for literal messages

162 162 Ethnicity: African Americans Currently the largest minority group Politically and morally charged role and place in US history

163 163 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

164 164 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

165 165 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

166 166 Working Class Oftentimes struggling to survive More locally oriented – socially, intellectually, and geographically Because of preoccupation with money, use price as cue to quality

167 167 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

168 168 Social Class Trickle Down: Upscale can do downscale Status Float: Downscale aspire to upscale

169 Professor S.J. Grant Spring 2005 Segmentation and Targeting: Usage BUYER BEHAVIOR, MARKETING 3250

170 170 Outline What is segmentation? Why segment? How to segment? Traditional Usage based Non-users, current users, competitor’s users Benefits

171 171 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

172 172 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

173 173 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

174 174 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

175 175 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 Traditional vs. Usage Segmentation

176 176 Why Segment by Usage? Communicating with consumers about a category is facilitated when a pre- existing knowledge structure in place Allows storage of information that is consistent with prior notions Persuasion is difficult when you are contradicting beliefs

177 177 Why Segment by Descriptors? No other information is available Most useful way of addressing specific segments

178 178 Benefit Segmentation Segmentation acknowledges consumer heterogeneity Heterogeneity is represented by different ideal points Market segments are formed by clustering individual ideal points together Gentle Effective Ideal Point Segment 1 Ideal Point Segment 2 Bayer Excedrin Tylenol Bufferin Private Label Anacin

179 179 Road Warriors: 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. 18% of buyers True Blues: 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. 16% of buyers Generation F3 (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. 27% of buyers Homebodies: 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. 21% of buyers Price Shoppers: 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. 20% of buyers ® Mobil Oil Company Market Segmentation Example

180 180 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

181 181 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

182 182 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

183 183 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

184 184 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 soda

185 185 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?

186 186 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

187 187 Segmentation: Diapers Luvs targets parents of 2 nd or 3 rd child “No leaks” point of difference Cheaper diaper “Live, learn and then get Luvs” Barney Rewards loyalty program

188 188 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

189 189 Segmentation: Example 2

190 Consumers as Decision Makers Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250

191 191 Overview Stages in consumer decision making Problem recognition Information search Evaluation of alternatives Product choice Problem recognition Information search Evaluation of alternatives Product choice

192 192 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

193 193 Stages in Consumer Decision Making Problem recognition Information search Evaluation of alternatives Product choice Attribute search Effort Expertise Confirmation bias Brand search Stimulus based Memory based Availability bias Non-compensatory Conjunctive Disjunctive Elimination by aspects Lexicographic Compensatory Multi-attribute Additive difference Compromise effect Attraction effect Contrast effect Assimilation effect Heuristics Brand loyalty Price Ideal state Actual state

194 194 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

195 195 Search for attribute information Effort Expertise Confirmation bias Search for brands Consideration set Stimulus based Memory based Availability bias Information Search

196 196 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?

197 197 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 Information Search

198 198 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?

199 199 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 Evaluation of Alternatives

200 200 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 Non-Compensatory Decisions

201 201 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 Non-Compensatory Decisions

202 202 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 Non-Compensatory Decisions

203 203 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

204 204 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. Elimination- Rank the evaluative criteria in terms of importance and establish by-aspectssatisfactory 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. Decision Rules Used by Consumers

205 Heuristics and Biases Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250

206 206 Outline Biases in judgments Loss aversion Framing effects Anchoring and adjustment Base-rate neglect Counterfactual thinking Kinds of heuristics

207 207 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

208 208 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

209 209 Thought Experiment 2 How would you rate hamburger that is 80% lean? How would you rate hamburger that is 20% fat?

210 210 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

211 211 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?

212 212 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

213 213 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

214 214 Loss Aversion We also make judgments differently about losses vs. gains Gains – risk averse Preference for certain outcome Losses – risk seeking Preference for uncertain outcome “Losses loom larger than gains”

215 215 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?

216 216 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

217 217 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?

218 218 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

219 219 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

220 220 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)

221 221 Availability People exaggerate or overestimate the relative frequency of events that are available in memory

222 222 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

223 223 Heuristics Buy based on price Cheapest product Most expensive product Mid-level product Buy the highest status brand Buy the most familiar brand

224 Consumer Insights Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250

225 225 Outline Need for consumer insights Role in product development Message clarity Case: Pepsi One Case: MasterCard Case: Altoids Case: DiGiorno Pizza

226 226 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?

227 227 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

228 228 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

229 229 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.

230 230 Case Study: MasterCard There are some things money can’t buy. For everything else there’s MasterCard.

231 231 Case Study: MasterCard VISA: Everywhere you want to be American Express: Membership has its privileges

232 232 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

233 233 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

234 234 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 Case Study: MasterCard

235 235 Case Study: MasterCard More recent versions of the ad have off-beat humor, irreverence Represent departure from nostalgic, sentimental executions A change in strategy?

236 236 Males, 20-28, working Smokers Drink coffee, beer Frequent restaurants or carry out Go to movies and clubs frequently Looking for empowerment Case Study: Altoids

237 237 Case Study: Altoids Drawing on a retro image, Altoids brand is built on the benefit of having “curiously strong” breath- freshening capabilities

238 238 Case Study: Altoids

239 239 Case Study: Altoids

240 240 Case Study: Altoids

241 241 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

242 242 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”

243 Product Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250

244 244 Outline New product success Tapping into a need Tapping into an emotion Tapping into an aspiration Tapping into a trend

245 245 Creating a Need Do marketers create needs? Women’s razors Salad in a bag Designer water

246 246 Livestrong and Nike 17,516,398 requests since Tuesday 04 November, 2003 Post 9/11 patriotism

247 247 Generations Civic (Millennials, (Generation Y) Adaptive (Silent) Correct ills of Reactive Era of prosperity and strength Pervasive optimism Uplifting patriotic sentiment Follow trends from Civic More complacent Head down hard work and life enjoyment Idealist (Boomers) Change agents as tired of / rebel against status quo of Adaptive Era of volatility (economic, political, social, etc.) Reactive (Generation X) Left reacting to changes initiated by Idealists Often era of economic downturn Feelings of negativity and disenfranchisement ubiquitous

248 248 Target Generation Idealists (Baby boomers) Reactives (Generation X) Civics (Generation Y) Adaptives (Parents of boomers)

249 249 Intergenerational Trend

250 Pricing I Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250

251 251 Outline Economic approaches used to understand and determine pricing Cost basis (seller focused) Breakeven analysis Margin calculations Demand basis (customer focused) Elasticity

252 252 Cost Basis Pricing A seller-focused approach takes into account the cost of production Material costs Labor costs Distribution costs Opportunity costs

253 253 Break-Even Analysis Calculating the break-even point is helpful for understanding what price is needed to cover costs Total Cost = Fixed Cost + Variable Cost Revenues = Total Cost Revenues = Fixed Cost + Variable Cost Break-even point

254 254 Margin Margin refers to profit in terms of selling price Manufacturer’s margin Retailer’s margin ManufacturerRetailerConsumer Cost: $1 Profit: $.50 Margin: 33% $1.50$1.80 Cost: $1.50 Profit: $.30 Margin: 16.7%

255 255 Markup Markup refers to profit in terms of cost Manufacturer’s markup Retailer’s markup ManufacturerRetailerConsumer Cost: $1 Profit: $.50 Markup: 50% $1.50$1.80 Cost: $1.50 Profit: $.30 Markup: 20%

256 256 Margin Contribution margin calculations allow managers to understand the added benefit of increasing production Selling Price – Variable Cost = Contribution Margin

257 257 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

258 258 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

259 259 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

260 260 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

261 261 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

262 262 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

263 263 Calculating Elasticity Elasticity can be defined as: ΔQ/Q ΔP/P or (Q 2 -Q 1) /Q 1 (P 2 -P 1) /P 1

264 264 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?

265 Advertising Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250

266 266 Outline Introduction to advertising It works! How it works Memory and wearout Keys to effectiveness A case study: Milk

267 267 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

268 268 Source: Cahners Advertising Research Report 120.12 (Boston: Cahners Publishing Co.). Advertising Effectiveness

269 269 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

270 270 Memory & Wearout Number of Repetitions Evaluation Wearout occurs

271 271 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

272 272 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

273 273 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

274 274 Paradox of Familiarity Number of Repetitions Evaluation Experts Novices

275 275 Breaking through Boredom Skepticism and counterargumentation Information clutter Tapping a powerful emotion Providing news Keys to Effective Advertising

276 276 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

277 277 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

278 278 "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." Milk Mustache

279 279 "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." Milk Mustache

280 280 "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. Milk Mustache

281 281 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

282 282 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 Case Study: Milk Mustache

283 283 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, wide- ranging, conflicting Milk is touted as beauty aid, but is associated with fat content

284 284 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

285 285 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%

286 286 26 25 24 198819901992199419961998 2000 Gallons Source: USDA Ad campaign Case Study: Milk

287 287 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

288 Professor S.J. Grant Spring 2005 Advertising Strategy & Tactics BUYER BEHAVIOR, MARKETING 3250

289 289 Outline Evaluating advertising NOSE model Is advertising on strategy? How well is it executed? Executions Structural Stylistic

290 290 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?

291 291 Advertising Strategy Reach vs. frequency Reach: how many people see advertising Frequency: how many times each person sees advertising Which is better?

292 292 Advertising Strategy Points of parity vs. points of difference Points of parity Category benefits Points of difference Brand benefits Which is better?

293 293 Advertising Strategy Executions “The Big Idea” “Hard Sell” “Soft Sell”

294 294 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”

295 295 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

296 296 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

297 297 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

298 298 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

299 299 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

300 300 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 Phallic symbols Connote power, strength, dominance technical expertise

301 301 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

302 302 Thematic Inferences More cues Film allusions Literary references Orwell’s “1984” Biblical figures Samsonite Adam & Eve Mythology Historical events

303 303 Examples in Advertising IBM Masculine, traditional, organized Apple Feminine, friendly, alternative Marlboro Arid, strong, independent, frontier Harley-Davidson Rugged individuality, nonconformist, testosterone

304 304 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

305 305 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

306 306 Layering of Meaning Resemblance? How do scripts differ?

307 Pricing II Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250

308 308 Outline Psychological approaches used to understand, determine pricing Perceptual factors Strategic issues Competition Price discrimination

309 309 $.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

310 310 Contrast Effects Buying $525 pair of shoes May seem very expensive and unreasonable May seem very affordable and reasonable

311 311 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

312 312 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.

313 313 Framing Would it make a difference if the sale price was expressed as 30% off versus pay 70%

314 314 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)

315 315 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

316 316 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

317 317 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

318 Place Professor S.J. Grant Spring 2005 BUYER BEHAVIOR, MARKETING 3250

319 319 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

320 320 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

321 321 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)

322 322 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

323 323 Bricks & Mortar vs. Online L.L. Bean One retail outlet Successful catalogue business

324 324 Distribution as Competitive Advantage Lock up Coke vs. Pepsi Budweiser vs. Coors Market share leaders command advantage when retail space is competitive

325 325 Target is Hot! Case discussion

326 326 Place and Consumer Behavior Store environments have an important impact on consumer affect, cognition, and behavior Store location Store layout In-store stimuli

327 327 Place and Consumer Behavior Store-related affect and cognition Store image Store atmosphere Store-related behavior Store contact Store loyalty

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