Professor S.J. Grant Spring 2005 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

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

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

Requirements Readings REQUIRED TEXT: OPTIONAL TEXTS: 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.

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

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

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

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

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

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: susan.jung.grant@colorado.edu

About Me Education Experience 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

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

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)

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

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)

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

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

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

Implementation & Control 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

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

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

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

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

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

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

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

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

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?

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

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

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

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

Which Discipline to Choose? 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... Company Traits Notes: Source: M. Treacy and F. Wiersema The Discipline of Market Leaders Addison-Wesley: Reading MA, 1995

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

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

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

Operational Excellence Choosing a Discipline Operational Excellence Product Leadership Customer Intimacy BIC Gillette British Airways Wal-Mart Hewlett-Packard American Express Toyota Intel Lexus

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

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

Marketing Management Competition Market Opportunity Consumers Company

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

What is Consumer Behavior?

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

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

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

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

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

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

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?

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

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?

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?

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?

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

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

Outline Perception Memory Organization of long-term 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

Perception Hemispheric lateralization

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?

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

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

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

A Model of Memory Sensory Short-term Long-term

A Model of Memory Sensory Echoic Iconic Characteristics of sensory memory

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

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

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

A Model of Memory Beverages Carbonated Non-carbonated Colas Mixers Juices Water Pepsi Coke Evian Poland Spring

A Semantic (or Associative) Network

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

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

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

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

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

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

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

Information Processing Selective Exposure Attention Interpretation Memory

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

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 The structure of knowledge How the structure of knowledge leads to understanding and persuasion Implications for positioning

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

Information Processing Selective Attention Relevance Differentiation Memory

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

Taxonomic Category Structure

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

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

Implications for Positioning 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. Frame of Reference 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. Differentiated Benefit The key product attributes or benefits that justifies the customer’s belief that the claimed benefit is true and meaningful to them Reason to Believe

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

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

Positioning For leisure travelers seeking pampering Target 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 Frame of reference Point of difference

Positioning For upscale convertible lovers Target 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 Frame of reference Point of difference

Positioning For customers who buy frozen pizza Other frozen pizzas Target 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 Frame of reference Point of difference Reason to believe

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

Outline What are attitudes? Models of attitudes and measurement The cognitive, affective, behavioral aspects of attitudes Attitudes and motivation Forming and changing attitudes Models of attitudes and measurement Instruments to measure attitude

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

Attitudes Think Feel Do Affective Behavioral Cognitive

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

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

Attitudes and Motivation 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 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 EFFORT ATTITUDES LOW EFFORT ATTITUDES

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

What Affects Motivation? Personally relevant Affects self concept Personal Relevance

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

Maslow’s Hierarchy of Needs

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

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

Approaches to Attitude Change

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

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

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

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

Outline Psychological explanations Judgment Consumer choice Context effects: assimilation and contrast Consumer choice Compromise effect Advertising Negation effect Message fit Pricing strategies Self-perception theory Perceptual fluency Knock-off brands

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)

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)

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

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

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

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 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

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

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”

Message Fit 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 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

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)

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

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

Outline What is a brand? Case study: Brand equity 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

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

Brands Add Value 1 COCA-COLA 2 MICROSOFT 3 IBM 4 GE 5 INTEL 6 DISNEY 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.

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

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 Notes: ______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ Goals Emotional Benefit Functional Benefit Product Feature Consumer Brand

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

Laddering Adds life Refreshing Bubbly Goes with food Traditional Emotional Benefits Functional Benefit Refreshing Bubbly Goes with food Traditional Features

Laddering Healthy living Great taste Select oranges Squeezed within Emotional Benefits Functional Benefit Great taste Select oranges Squeezed within 24 hours Not from concentrate Features

Laddering A family place Friendly Clean facilities Happy Meals Brand Essence Emotional Benefits Friendly Clean facilities Happy Meals Reliable fare Functional Benefits

Laddering Good parent Caring Choosy Making tough choices Wanting best Goal Brand Essence Caring Choosy Making tough choices Wanting best for kids Emotional Benefits

Laddering Elite establishment Acceptance Preppy styling American Brand Essence Emotional Benefits Acceptance Preppy styling American casual Quality material Functional Benefits

Leveraging the Brand Product line extensions Brand 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

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

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

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

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)

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

Global Branding Global target Global category needs Global equity 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 Notes:

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

Overview of the STP Process Segmentation 1. Identify dimensions for segmentation 2. Develop profiles of the resulting segments Targeting 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 Positioning

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

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

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

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 http://www.americandemographics.com/

Demographics Generational segments Baby Boom Generation Generation X 78 million (born 1946-1964) Generation X 45 million (born 1965-1976) Generation Y, or Echo Boomers 72 million (born 1977-1994)

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

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

Demographics Depression World War II Post-War Boomers I Boomers II 25% 23-6 1995-2012 1977-1994 17% 34-24 1984-1994 1966-1976 21% 45-35 1973-1983 1955-1965 14% 54-46 1963-1972 1946-1954 72-55 1946-1963 1928-1945 5% 78-73 1940-1945 1922-1927 3% 88-79 1930-1939 1912-1921 Share of Population Age in 2000 Coming of Age Born Cohort Depression World War II Post-War Boomers I Boomers II Generation X Generation Y

Demographics Depression/WWII Baby Boomers Generations X & Y 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

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)

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

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/98-99LectureNotes/VALSPERS.html#The VALS Psychographic Inventories

Ethnicity

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

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

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

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

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

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

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

Nouveau Riche vs. Old Money 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

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

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

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

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

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

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

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

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

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

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

Market Segmentation Example 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. 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. 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. 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. 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. 18% of buyers 16% of buyers 27% of buyers 21% of buyers 20% of buyers ® 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

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

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

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

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

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?

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

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

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 This segmentation scheme

Segmentation: Example 2

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

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

Stages in Consumer Decision Making Problem recognition Information search Evaluation of alternatives Product choice Ideal state Actual state 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

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

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

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?

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

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?

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

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

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

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

Examples Lexicographic model Elimination-by-aspects 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

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. Elimination- Rank the evaluative criteria in terms of importance and establish by-aspects 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.

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

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

Decision Making Biases Heuristics Elicit judgments that might be considered “irrational” or inconsistent with utility maximizing assumptions Heuristics Simplifying strategies that aid decision making Rules of thumb

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

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

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

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?

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

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

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”

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?

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

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?

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

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

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)

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

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

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

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

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

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?

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

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

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. Pepsi One is advertised as tasting “more like regular cola.”

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

Case Study: MasterCard VISA: Everywhere you want to be American Express: Membership has its privileges Notes: ____________________________ 8

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 Mastercard   "Priceless" Advertising Campaign: Created by McCann-Erikson. Launched in October 1997. Airs in more than 50 countries and 24+ languages around the world. Awards: Gold Effie, Addy Award, and The Cresta. http://www.mastercard.com/about/press/factsheet.html BRAND RELATIONSHIP: http://www.mastercard.com/about/yearinreview/brand/ Mastercard presents a powerful platform for members’ own branding efforts because the brand and its relationship with consumers are so strong. “The Best Way to Pay for Everything that Matters” is a brand message that resonates with consumers like no other. Marketing efforts aim constantly to strengthen the brand, to further raise consumer awareness, and to encourage usage — all with the goal of driving customer preference and usage for members. Mastercards’s integrated marketing programs, reinforcing high-profile sponsorships with related advertising and promotions, enhance the return on brand investment, generating an even stronger impact on consumers. Strengthening Brand Identify MasterCard cardholders, wherever they are in the world, know and trust the red and gold interlocking circles. They know MasterCard meets their payments needs with security, speed, and convenience. The card’s signage and decal programs consistently reinforce this visibility. MasterCard added nearly 1.2 million acceptance locations in 1999, so cardholders can now use MasterCard at more than 19.1 million places around the world. Raising Profile and Awareness Members and merchants gave MasterCard the charge a few years ago to enhance consumer recognition of the brand, and they listened. The brand-building programs are delivering the kind of results that generate revenue. Advertising and high-profile sponsorships continue to remind consumers of the brand’s promise — The Best Way to Pay for Everything that Matters™ — with energy and style. MasterCard has been able, in addition, to leverage campaigns from one national market into others. The award-winning Priceless advertising campaign has an unprecedented impact, resulting in increased brand recall in markets around the world. In Italy, for example, MasterCard saw an 18 percent increase in unprompted brand awareness. In France, it was 25 percent! MasterCard continues to put their name in front of vast audiences through sponsorship programs and at the same time provide members with pass-through rights and customized business-building programs. These include related card programs and cardholder incentive and reward plans, plus opportunities for links with other cosponsors. Driving Usage Success for MasterCard and its members is founded on customer acquisition, usage, and retention. The brand-building programs are designed not only to raise awareness of the MasterCard name but also to promote it as the brand of choice for consumers. The Priceless advertising makes the message The Best Way to Pay for Everything that Matters™ vivid and pertinent to their lives. It evokes an emotional bond between the brand and consumers. This, plus affinity and co-branded cards, as well as loyalty and rewards programs, encourage cardholders to keep reaching for MasterCard. ·         The Priceless Advertising Campaign Our Priceless advertising campaign is one of the most successful in all of advertising. In 1999, it was honored by the American Marketing Association with its Gold EFFIE Award for having "captured the industry's attention and delivered rapid gains in key brand imagery measures and market share." The Priceless campaign is extraordinarily flexible, and it carries a brand message that's not only relevant globally but also adapts well to different media, different payment channels, and different markets. The campaign is now seen in 47 countries and heard in over 10 languages. ·         Affinity and Co-Branded Card Programs Since MasterCard pioneered the affinity and co-branded cards more than a decade ago, more than one-third of bankcards being issued today employs some kind of affinity or co-branded program. Within the next five years, these programs may account for more than 50 percent of all payment cards in circulation—tied to well-known lifestyle brands such as General Motors, American Airlines, AT&T, and any number of personal-interest organizations. A co-branded or affinity card program has been shown, on average, to raise customer shopping frequency by 25 percent and yield a 10–20 percent higher retention rate. MasterCard remains the co-branding leader, supporting 11,500 co-branded programs in more than 85 countries to date. We maintain that leadership by consulting with members, partnering them with the right lifestyle or personal-interest brands, and bringing to bear our proprietary database mining, market research, and quantitative concept testing. In 1999, MasterCard was chosen as the brand of choice for the following programs: Targa in Italy, Bonus Card in Turkey, Zix in Asia Pacific, Woolworth’s EZY in Australia, e-card in Brazil, Marbles in the UK, and Coastal Petroleum and Continental Airlines-Debit in the US. Tremendous untapped global opportunities are seen in nine key industries: telecommunications, automotive, travel and leisure, retail, petroleum, health care, media and entertainment, the Internet, and affinity groups. ·         Promotions MasterCard's world-class sponsorship portfolio serves to extend the Priceless advertising campaign into almost any local market. Members the world over have effectively used our sponsorship assets to create usage and acquisition incentives, leveraging the universal resonance of Priceless. Related promotions on the national, regional, and grass-roots levels have collectively enabled members to enhance the value of their own brands, as well as MasterCard programs and services. A key goal is to build a cross-industry network of marketing partnerships with category-leading merchants. As the largest single market, the United States provides many specific examples. We have promotions tied to brands such as Barnes & Noble, JCPenney, Loews Cineplex, Travelocity.com, Bed Bath & Beyond, Toys-R-Us, and Babies-R-Us. In the especially important travel category, we have promotional relationships with American Airlines, Virgin Atlantic, Hilton Hotels, Alamo Car Rental, Budget Car Rental, and Caribbean and Princess cruise lines, as well as the vacation-intensive destinations of Florida, Hawaii, and Mexico. To maximize the effect of these partnerships, we provide members with a continuing series of offers and industry intelligence. For usage program support and development, we're using the Internet as an important additional channel. Notes: ____________________________ 8

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 Notes: ____________________________ 8

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 Notes: ____________________________ 8

Case Study: MasterCard More recent versions of the ad have off-beat humor, irreverence Represent departure from nostalgic, sentimental executions A change in strategy? Notes: ____________________________ 8

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 Notes: _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ ______________________________________________________________________________________________________________________________

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

Case Study: Altoids

Case Study: Altoids

Case Study: Altoids Notes: _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ ______________________________________________________________________________________________________________________________

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

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”

Professor S.J. Grant Spring 2005 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

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

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

Reactive (Generation X) Generations Civic (Millennials, (Generation Y) Correct ills of Reactive Era of prosperity and strength Pervasive optimism Uplifting patriotic sentiment Reactive (Generation X) Adaptive (Silent) Left reacting to changes initiated by Idealists Often era of economic downturn Feelings of negativity and disenfranchisement ubiquitous 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.)

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

Intergenerational Trend

Professor S.J. Grant Spring 2005 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

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

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

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

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

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

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

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

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

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

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

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

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

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?

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

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

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 Brands that enjoy an abrupt increase in sales with advertising – Dreamery Ice Cream, Pantene shampoo, Reebok shoes People consume the advertising—waters Evian, blue bottle Advertising prompts brand name selectionKellogg’s had a brand called corny snaps. Needed a character to promote it to kids. Burnett tried it against the standard beaver, who kept winning. So used the beaver, called him Pierre Beaver and changed the product to Crunchy logs. Notes: ____________________________ 8

Advertising Effectiveness 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

Memory & Wearout Wearout occurs Evaluation Number of Repetitions

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

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

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

Paradox of Familiarity Experts Evaluation Novices Number of Repetitions

Keys to Effective Advertising Breaking through Boredom Skepticism and counterargumentation Information clutter Tapping a powerful emotion Providing news Notes: ____________________________ 8

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

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

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."

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."

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.

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

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 Notes: _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ ______________________________________________________________________________________________________________________________

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

Case Study: Got Milk? Who is the target? What is the positioning? 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

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%

Case Study: Milk 26 Gallons 25 24 Ad campaign Notes: _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ ______________________________________________________________________________________________________________________________ 24 1988 1990 1992 1994 1996 1998 2000 Source: 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

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

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

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?

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

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

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

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”

Hard Sell What is the hard sell? Characteristics 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

Soft Sell Characteristics 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

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

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

Thematic Inferences Gender Social class 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 These themes guide brand usage by appealing to consumers’ aspirational goals and self-relevance.

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

Thematic Inferences More visual cues Fonts Black and white Proximity 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

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

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

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

Layering of Meaning Example 2: Coca-Cola Example 1: Ivory soap 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 Example 1: Ivory soap Name Plain, white bar Advertising emphasizes purity Product is gently cleansing Advertising features the chaste, clean-cut “Ivory girl”

Layering of Meaning Resemblance? How do scripts differ?

Professor S.J. Grant Spring 2005 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

$.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

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

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

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.

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

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)

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

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

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

Professor S.J. Grant Spring 2005 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

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

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)

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

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

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

Target is Hot! Case discussion

Place and Consumer Behavior Store environments have an important impact on consumer affect, cognition, and behavior Store location Store layout In-store stimuli Peter & Olson 2002: 1. Store location: good locations make products readily accessible to target market 2. Store layout: influence how long customers spend in the store; which products customers are likely to encounter; what routes a customer is likely to travel through the store 3. In-store stimuli: signs and price information, shelf space and displays, music, scents Each of these environmental factors influence how a consumer feels during their shopping experience, what they think of the store/product, and ultimately their purchase decisions.

Place and Consumer Behavior Store-related affect and cognition Store image Store atmosphere Store-related behavior Store contact Store loyalty Peter & Olson 2002: Store related affect and cognition – 2 factors: store image (what consumers think about a particular store; perceptions and attitudes based on the store stimuli received through the five senses) and store atmosphere (aspects of the store that influence in-store emotional states—may or may not be conscious—that ultimately influence consumer behaviors Store contact = refers to consumer locating, traveling to, and entering a store Store loyalty = repeat patronage intentions and behavior