buyer behavior professor s.j. grant spring 2011 buyer behavior, marketing 3250
DESCRIPTION
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 attitudesTRANSCRIPT
Buyer Behavior
Professor S.J. GrantSpring 2011
BUYER BEHAVIOR, MARKETING 3250
2
Outline
Introduction Goals of the course Requirements Grading Honor code My obligations About me
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
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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
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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.
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Requirements
Class attendance is mandatoryStudents with perfect attendance
receive 5% extra-credit awardMissing more than 3 classes results in
drop in student’s overall grade by one letter grade (B+ to C+)
Sign attendance sheet
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Requirements
Group workGroups will be assignedPeer evaluation is component of
overall grade (5%)Collaborative work has pedagogical
purpose
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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
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Grading
Assignments Positioning
analysis Case analysis Quantitative
analysis Team project
Readings Cold calling Class discussion
Exams Midterm I Midterm II Final
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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
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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 hoursPhone: 303 492 5616Email:
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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
Review of Marketing Concepts
Professor S.J. Grant Spring 2005
BUYER BEHAVIOR, MARKETING 3250
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
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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)
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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
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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)
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Historic Overview
Selling concept has been historically dominantWhatever 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
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Selling versus Marketing
Selling Concept
Selling & PromotingProducts
Profits through sales
volume
Customer needs
Profits through customer
satisfaction
Marketing Concept Integrated Marketing
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Selling versus Marketing
Selling conceptFocuses on selling what you can make
Marketing conceptFocuses on making what you can sell
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Marketing Concept
Analyze Marketing Opportunities- Environmental Analysis- Competitive Analysis- Consumer Analysis
Implementation & Control
MarketingResearch
Select Target Markets- Segmentation - Targeting - Positioning
Formulate the Marketing Mix- Product - Promotion- Pricing - Distribution/Place
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Marketing Management
Management of change, a necessary focus in a dynamic marketplaceSensitivity to external changes is key
in identifying opportunity• Competitors• Consumers
Sensitivity to internal changes is key in formulating a strategy
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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
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Marketing Management
In essence, marketing management is about value creation and value delivery
Choose the value
Provide the value
Communicate the value
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Value Creation & Delivery
Choose the value
Provide the value
Communicate the value
Segm
enta
tion
Targ
etin
g
Posi
tion
ing
Prod
uct
Pric
ing
Sour
cing
Dis
trib
utio
n
Sale
s fo
rce
Sale
s pr
omot
ion
Adve
rtis
ing
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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
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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
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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
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Goals & Objectives
Firm must decide what the goals areProfitability through market share
• High volume strategyProfitability through margins
• High margins can be achieved through• Low costs• High prices
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Resource Deployments
Firm must decide how to allocate resourcesAllocation among businesses in
portfolio• Cash cow? Rising star?
Allocation across marketing functions• Coupons or trade promotions?• Advertising or service?
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Competitive Advantage
Firm must decide what is its sustainable competitive advantageAchieving competitive advantage
means outperforming the industry2 sources of advantage
• Differentiation• Cost
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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
Barriersto entry
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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
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Core Competencies
3 dimensions of core competenciesOperational excellenceProduct leadershipCustomer intimacy
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Com
pany
Tra
its
DisciplinesOperational Excellence
Sharpen distribution systemand provide no-hassleservice
Has strong, central authorityand a finite level ofempowerment
Maintain standard operatingprocedures
Acts predictably and believes“one size fits all”
Product Leadership
Nurture ideas, translatethem into products, andmarket them skillfully
Acts in an ad hoc, organic,loosely knit, andever-changing way
Reward individuals’innovative capacity andnew product success
Experiments and thinks “out-of-the-box”
Customer Intimacy
Provides solutionsand help customersrun their businesses
Pushes empowerment closeto customer contact
Measure the cost ofservice, maintainingcustomer loyalty
Is flexible and thinks“have it your way”
Core businessprocesses that...
Structure that...
Managementsystems that...
Culture that...
Source: M. Treacy and F. Wiersema The Discipline of Market Leaders Addison-Wesley: Reading MA, 1995
Which Discipline to Choose?
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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
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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
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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
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Choosing a Discipline
Operational Excellence
Product Leadership
Customer Intimacy
BIC Gillette British Airways
Wal-Mart Hewlett-Packard American Express
Toyota Intel Lexus
Professor S.J. GrantSpring 2005
Overview: Marketing and Consumers
BUYER BEHAVIOR, MARKETING 3250
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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
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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
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Marketing Management
MarketOpportunity
Consumers
Competition
Company
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SWOT Analysis
Basic approach starts with evaluatingInternally
• Strengths• Weaknesses
Externally• Opportunities• Threats
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What is Consumer Behavior?
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Consumer’s Culture
Consumer Behavior Outcomes
Process of Making Decisions
Psychological Core
What Affects Consumer Behavior?
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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?
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Process of Making Decisions
Psychological Core
Problem recognition and search for information
Making judgments and decisions
Making post-decision evaluations
What Affects Consumer Behavior?
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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?
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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?
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Developing a customer-oriented strategy starts with a segmentation schemeWhat is known about the market?How is the market segmented?
• Different types of consumers• Different needs
• Perception of value• Willingness to pay
Implications: Segmentation
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Choose a targetHow profitable is each segment?What are the characteristics of
consumers in each segment?Are customers satisfied with existing
offerings?
Implications: Targeting
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PositioningHow are competitive offerings positioned?How should our offerings be positioned?Should our offerings be repositioned?
Implications: Positioning
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Developing products or servicesWhat 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 opportunitiesAny consumer trends that can inspire
development?
Implications: Product
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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
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Making pricing decisionsWhat 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
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Making distribution decisionsWhere are target consumers
likely to shop?How should stores be designed?
Implications: Place
Perception, Memory & Learning
Professor S.J. GrantSpring 2005
BUYER BEHAVIOR, MARKETING 3250
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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
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Hemispheric lateralization
Perception
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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
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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
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A Model of Memory
Perceived information is encodedExplicitImplicit
Then stored in memoryShort-term storeLong-term store
Retrieval involves calling up stored bits from memory
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A Model of Memory
Stimulus Short-TermMemory
Long-TermMemory
RetrievalConsolidation
Recall
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A Model of Memory
Sensory Short-term Long-term
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SensoryEchoicIconicCharacteristics of sensory memory
A Model of Memory
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Short-term memory (STM)Imagery processingDiscursive processingCharacteristics of short-term memory
• Short-term memory is limited (7±2)• Short-term memory is short-lived
A Model of Memory
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Long-term memory (LTM)Autobiographical (episodic) memorySemantic memoryCharacteristics of long-term memory
• Stable memory of events of more distant past• Unlimited capacity• Organized by nodes
A Model of Memory
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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
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A Model of Memory
Beverages
Carbonated Non-carbonated
MixersColas Juices Water
Pepsi Coke Evian PolandSpring
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A Semantic (or Associative) Network
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Chunking Rehearsal Recirculation Elaboration
Y=mx+bY=mx+bY=mx+bY=mx+b
How Memory Is Enhanced
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Semantic network Trace strength
• Accessibility Spreading of activation
• Priming Retrieval failures
• Decay• Interference• Primacy and recency effects
Retrieval errors
What Is Retrieval?
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Explicit memoryRecognitionRecallJudgments
Implicit memoryJudgments
What Are the Types of Retrieval?
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Retrieval
Perceptual• “His name started with a ‘J’ . . .”
Conceptual• “A brand of personal computers that
competes with IBM . . .”
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Characteristics of the stimulusSaliencePrototypicalityRedundant cuesThe medium in which the stimulus is
processed
How Retrieval Is Enhanced
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What the stimulus is linked toRetrieval cuesWhere do retrieval cues come from?The brand name as a retrieval cueOther retrieval cuesConsumer implications
• Consideration set
How Retrieval Is Enhanced
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How a stimulus is processed in short-term memoryDual coding
Consumer characteristics affecting retrievalNetwork of associationsExpertise Mood
How Retrieval Is Enhanced
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Exposure
Attention
Interpretation
Memory
Information Processing Selective
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ExposureRandom Deliberate
AttentionLow- High-
involvement involvement
InterpretationLow- High-
involvement involvement
Short-term Memory Long-term
Active problem Stored experiences, solving values, decisions,
rules, feelings
Purchase and consumption decisions
Perc
eptio
n
A Model of Learning
Professor S.J. GrantSpring 2005
Information Processing& Implications
BUYER BEHAVIOR, MARKETING 3250
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A model of information processingRole of attention, or cognitive
resources The structure of knowledge
How the structure of knowledge leads to understanding and persuasion
Implications for positioning
Outline
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Awareness
Knowledge
Preference
Loyalty
Relevance
Differentiation
Attention
OldParadigm
NewParadigm
A Model of Information Processing
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Attention
Relevance
Differentiation
Memory
Information Processing Selective
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Relevance
Determining relevance is based on existing knowledge structuresInterpretation is subject to prior
learning• Schemas and associations• Categorization• Images• Scripts
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Taxonomic Category Structure
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Categories and their structurePrototypicalityCorrelated associationsHierarchical structure
• Superordinate level• Basic level• Subordinate level
Knowledge Structure
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Consumer inferencesBrand names and brand symbolsInferences based on misleading
names and labelsInferences based on inappropriate or
similar namesProduct features and packagingInferences based on product attributesInferences based on country of origin
Using Knowledge to Understand
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Target AudienceMust 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
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Positioning
New brands or products must establish in consumers’ mindsTargetFrame of reference (or category
membership)Point of differenceReason to believe
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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
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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
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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 2Position 1
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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 tobelieve
Position 2Position 1
Professor S.J. GrantSpring 2005
Attitude Theory & Persuasion
BUYER BEHAVIOR, MARKETING 3250
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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
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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
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Attitudes
AffectiveAffective
CognitiveCognitiveBehavioralBehavioral
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Characteristics of attentionAttention is selectiveAttention can be dividedAttention is limitedAttention (or cognitive resources) is
affected by motivation (or involvement) Attention facilitates memory, learning,
and ultimately persuasion
Attention
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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
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Attitudes and Motivation
Low involvement with Low involvement with product, message, or product, message, or decisiondecision
Limited attention Limited attention focused on peripheral focused on peripheral feelings and featuresfeelings and features
Low or incidental Low or incidental processing of most processing of most salient aspectssalient aspects
Persuasion occurs Persuasion occurs through heuristic through heuristic processingprocessing
High involvement with High involvement with product, message, or product, message, or decisiondecision
Attention focused on Attention focused on central, product-central, product-related featuresrelated features
Conscious thoughts Conscious thoughts about attributes and about attributes and benefitsbenefits
Persuasion occurs Persuasion occurs through systematic through systematic processingprocessing
HIGH EFFORT HIGH EFFORT ATTITUDESATTITUDES
LOW EFFORT LOW EFFORT ATTITUDESATTITUDES
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Perceived Risk
Inconsistency with Attitudes
Values, Goals, Needs
Personal Relevance
What Affects Motivation?
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What Affects Motivation?
Personally relevant
Affects self concept
Personal Relevance
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What Affects Motivation?
Values Goals Needs Types of
needs
Values, Goals, Needs
Personal Relevance
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Maslow’s Hierarchy of Needs
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What Affects Motivation?
Types of perceived riskPerformanceFinancialPhysical (or
safety)SocialPsychologicalTime
Perceived Risk
Values, Goals, Needs
Personal Relevance
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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
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Approaches to Attitude Change
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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
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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
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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
Professor S.J. GrantSpring 2005
Psychological Foundations for Marketing Applications
BUYER BEHAVIOR, MARKETING 3250
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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
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Context Effects
Contrast effectsExposure 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)
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Context Effects
Assimilation effectsExposure 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)
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Compromise Effect
Introduction of a 3rd option (decoy) may lead to selection of “compromise” when choice between 2 products is difficult
Quality
Conv
enie
nce
Restaurant A
Restaurant B
Restaurant A is higher on convenience but lower on quality; restaurant B ishigher on quality but loweron convenience
Which would you choose?
Decoy
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Compromise Effect
Williams-Sonoma increased sales of its bread machine by adding to its inventory a super premium machine
Quality
Econ
omic
al
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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
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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: $199.00Special: $149.00
Brushed Stainless-Steel Automatic Bread Baker
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Compromise Effect
Williams-Sonoma increased sales of its bread machine by adding to its inventory a super premium machine
Quality
Econ
omic
al
Super premium brand
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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”
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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
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Self-Perception Theory
Suggests that people infer their own attitudes from their actionsBuying 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)
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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
Brands and Consumers
Professor S.J. GrantSpring 2005
BUYER BEHAVIOR, MARKETING 3250
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
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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 competitorsWell-established brands activate a
network of associations in consumers’ minds
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Brands Add Value
RANK BRAND 2004 1 COCA-COLA 2 MICROSOFT 3 IBM 4 GE 5 INTEL6 DISNEY 7 McDONALD’s 8 NOKIA 9 TOYOTA 10 MARLBORO
BRAND VALUE ($billions) 67.461.453.844.133.527.125.024.022.722.1
Top 10 most valuable brands, as determined by Interbrand Group, 2004, J.P. Morgan.
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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 BridgeProduct Feature - why I believe this
ProductFeature
FunctionalBenefit
Emotional
Benefit
Goals
Consumer Brand
Functional Benefit - what it does for meEmotional Benefit - how this makes me feelConsumer Goals - how this allows me to achieve an important, universal goal
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Laddering
Physically attractivePhysically attractive
Virtuous, leanVirtuous, lean
Low inLow incaloriescalories Fat freeFat free NutritiousNutritious
breakfastbreakfastFunctionalBenefits
EmotionalBenefits
Brand Essence
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Laddering
Adds lifeAdds life
RefreshingRefreshing
BubblyBubbly Goes withGoes withfoodfood TraditionalTraditionalFeatures
FunctionalBenefit
EmotionalBenefits
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Laddering
Healthy livingHealthy living
Great tasteGreat taste
Select Select orangesoranges
Squeezed Squeezed within within
24 hours24 hoursNot fromNot from
concentrateconcentrateFeatures
FunctionalBenefit
EmotionalBenefits
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Laddering
A family placeA family place
FriendlyFriendly
CleanClean facilitiesfacilities
HappyHappyMealsMeals
ReliableReliablefarefare
FunctionalBenefits
EmotionalBenefits
Brand Essence
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Laddering
Good parentGood parent
CaringCaring
ChoosyChoosyMakingMakingtoughtough
choiceschoices
WantingWantingbestbest
for kidsfor kids
EmotionalBenefits
Brand Essence
Goal
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Laddering
Elite establishmentElite establishment
AcceptanceAcceptance
PreppyPreppystylingstyling
American American casualcasual
QualityQualitymaterialmaterial
FunctionalBenefits
EmotionalBenefits
Brand Essence
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Leveraging the Brand
Product line extensionsDiet Coke Bayer Select
Country Time Cider A1 Poultry Sauce Crystal Pepsi
Cool Mint ListerineHershey’s Hugs
Brand extensionsMarlboro Clothing BIC PerfumeJello Pudding PopsAunt Jemima Pancake
SyrupJack Daniels Charcoal
Woolite Tough Stain Rug Cleaner
DuPont StainmasterMarquis by Waterford
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
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
Brand Extensions
Brands may launch extensions as a way to leverage strong brand equityStarbucks coffee – Starbucks ice
creamHewlett Packard calculators – Hewlett
Packard PCs and printers
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
Co-Branding
Ingredient brands Intel InsideNutrasweetDuPont Stainmaster
Composite brandsMaster Card and issuing bankHealthy Choice from Kellogg’s
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
Segmentation and Targeting: DemographicsProfessor S.J. GrantSpring 2005
BUYER BEHAVIOR, MARKETING 3250
145
Outline
What is market segmentation? Why segment? How to segment?
DemographicsGeographicPsychographicsEthnicitySocial class
146
Overview of the STP Process
1. Identify dimensions for segmentation 2. Develop profiles of the resulting segments1. Evaluate attractiveness of each segment2. Select the target segment(s)1. Identify positioning concepts for segment2. Select, develop and communicate the chosen positioning
Segmentation
Targeting
Positioning
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
Market Segmentation
One size fits all? Physician
• General practitioner versus pediatric neurosurgeon
Business consultant• Specialist versus generalist
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
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 womenhttp://www.americandemographics.com/
151
Demographics
Generational segmentsBaby 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
Demographics
Declining birth rateCouples having fewer childrenSegment of couples at child-bearing
years is smaller (Generation X)Causing a shift in age distribution
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
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
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
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
Geographics
Regions in the US have distinct character – though somewhat diminished because of migratory culture, but still preserved
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
http://courses.bus.ualberta.ca/consumer-behavior/Lectures/98-99LectureNotes/VALSPERS.html#The VALS Psychographic Inventories
159
Ethnicity
050
100150200250300350400
2010 2020 2030 2040
WhiteHispanicAfrican Amer.Asian Amer.
160
Ethnicity: Hispanic
Largest minority group by 2010(ish) Significant within group diversity Acculturation levels vary
AcculturatedBiculturalTraditional
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
Ethnicity: African Americans
Currently the largest minority group Politically and morally charged role
and place in US history
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
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
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
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
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
Social Class
Trickle Down:Upscale can do downscale
Status Float:Downscale aspire to upscale
Professor S.J. Grant Spring 2005
Segmentation and Targeting: Usage
BUYER BEHAVIOR, MARKETING 3250
170
Outline
What is segmentation? Why segment? How to segment?
TraditionalUsage based
• Non-users, current users, competitor’s users
• Benefits
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
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
How to Segment
Segmentation divides diverse set of consumers into homogeneous groups that can be addressedWith common positioningWith common benefitsWith common media vehicle
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
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
Why Segment by Usage?
Communicating with consumers about a category is facilitated when a pre-existing knowledge structure in placeAllows storage of information that is
consistent with prior notionsPersuasion is difficult when you are
contradicting beliefs
177
Why Segment by Descriptors? No other information is available Most useful way of addressing
specific segments
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
Effec
tiv
e
Ideal Point Segment 1
Ideal Point Segment 2
Bayer
Excedrin
Tylenol
Bufferin Private Label
Anacin
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
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
Current Users
Current users are the most important segment to targetCurrent users have already favorable
associations to the productCustomer 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
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
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 beliefsMaking a challenging claim often
encourages consumers to rehearse their own thoughts
184
Non-Users
Targeting non-users may be warranted if targeting other segments do not enhance opportunities for growthPoint-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
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
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
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
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
Segmentation: Example 2
Consumers as Decision Makers
Professor S.J. Grant Spring 2005
BUYER BEHAVIOR, MARKETING 3250
191
Overview
Stages in consumer decision making Problem recognitionInformation searchEvaluation of alternativesProduct choice
Problemrecognition
Informationsearch
Evaluationof alternatives
Productchoice
192
Stages in Consumer Decision Making
Problemrecognition
Informationsearch
Evaluationof alternatives
Productchoice
“I’m hungry”“Subway orMcDonald’s”
“Fat? Cost?Taste?” Choose
McDonald’s
193
Stages in Consumer Decision Making
Problemrecognition
Informationsearch
Evaluationof alternatives
Productchoice
Attribute search • Effort• Expertise • Confirmation biasBrand search• Stimulus based • Memory basedAvailability bias
Non-compensatory• Conjunctive• Disjunctive• Elimination by aspects• LexicographicCompensatory• Multi-attribute• Additive difference
Compromise effectAttraction effectContrast effectAssimilation effectHeuristics• Brand loyalty• Price
Ideal stateActual state
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
Search for attribute information Effort Expertise Confirmation bias
Search for brands Consideration set
• Stimulus based • Memory based
• Availability bias
Information Search
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
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
Information Search
Availability biasWhat 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
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
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
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
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
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
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.
Decision Rules Used by Consumers
Heuristics and Biases
Professor S.J. GrantSpring 2005
BUYER BEHAVIOR, MARKETING 3250
206
Outline
Biases in judgmentsLoss aversionFraming effectsAnchoring and adjustmentBase-rate neglectCounterfactual thinking
Kinds of heuristics
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
Thought Experiment 1
Imagine that a new experimental cure for Sudden Acute Respiratory Syndrome (SARS), a fatal flu-like epidemic, has been discoveredKills 3 out of 10 patients who are
given the experimental treatmentSaves 7 out of 10 patients who are
given the experimental treatment
209
Thought Experiment 2
How would you rate hamburger that is 80% lean?
How would you rate hamburger that is 20% fat?
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
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
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
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
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
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
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
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
Counterfactual Thinking
Counterfactual thoughts are reflections on an alternative state of reality due to a change in a specific action or outcomeThinking “if only . . .”Olympic medalistsThe kind of counterfactual invoked has
implications for consumer satisfaction or regret
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
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
Availability
People exaggerate or overestimate the relative frequency of events that are available in memory
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
Heuristics
Buy based on priceCheapest productMost expensive productMid-level product
Buy the highest status brand Buy the most familiar brand
Consumer Insights
Professor S.J. GrantSpring 2005
BUYER BEHAVIOR, MARKETING 3250
225
Outline
Need for consumer insightsRole in product developmentMessage clarity
Case: Pepsi One Case: MasterCard Case: Altoids Case: DiGiorno Pizza
226
Need for Consumer Insights
Concept of value must be defined in context of what targeted consumers are willing to pay forIt is not always clear what features
provide valueWhat is level of optimal
tradeoff?
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
Need for Consumer Insights
Product quality is not just the strength of its attributesCoca-Cola introduced an improved
formula after losing Pepsi Challenge taste tests, but consumers rejected New Coke
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
Case Study: MasterCard
There are some things money can’t buy. For everything else there’s MasterCard.
231
Case Study: MasterCard
VISA: Everywhere you want to be
American Express: Membership has its privileges
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
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 relationsMaterial consumption was
almost taken for granted
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
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
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
Case Study: Altoids
Drawing on a retro image, Altoids brand is built on the benefit of having “curiously strong” breath-freshening capabilities
238
Case Study: Altoids
239
Case Study: Altoids
240
Case Study: Altoids
01020
3040
Percentage
1996 2000 2001
Market Share
Tic TacsAltoids
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
Case Study: DiGiorno
Pizza, which is sold in supermarket freezer, was positioned against delivery pizza as the frame of referenceHigher quality ingredientsSelf-rising crust
Point of difference: “It's like getting a $12 pizza for $5”
Product
Professor S.J. Grant Spring 2005
BUYER BEHAVIOR, MARKETING 3250
244
Outline
New product successTapping into a needTapping into an emotionTapping into an aspirationTapping into a trend
245
Creating a Need
Do marketers create needs?Women’s razorsSalad in a bagDesigner water
246
Livestrong and Nike
17,516,398 requests since Tuesday 04 November, 2003
Post 9/11 Post 9/11 patriotismpatriotism
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 enjoymentIdealist
(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 initiatedby Idealists
• Often era of economic downturn• Feelings of negativity and disenfranchisement
ubiquitous
248
Target
GenerationIdealists (Baby boomers)Reactives (Generation X)Civics (Generation Y)Adaptives (Parents of boomers)
249
Intergenerational Trend
Pricing I
Professor S.J. Grant Spring 2005
BUYER BEHAVIOR, MARKETING 3250
251
Outline
Economic approaches used to understand and determine pricingCost basis (seller focused)
• Breakeven analysis• Margin calculations
Demand basis (customer focused)• Elasticity
252
Cost Basis Pricing
A seller-focused approach takes into account the cost of productionMaterial costsLabor costsDistribution costsOpportunity costs
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 CostBreak-even
point
254
Margin
Margin refers to profit in terms of selling priceManufacturer’s marginRetailer’s margin
Manufacturer Retailer Consumer
Cost: $1Profit: $.50Margin: 33%
$1.50 $1.80
Cost: $1.50Profit: $.30Margin: 16.7%
255
Markup
Markup refers to profit in terms of costManufacturer’s markupRetailer’s markup
Manufacturer Retailer Consumer
Cost: $1Profit: $.50Markup: 50%
$1.50 $1.80
Cost: $1.50Profit: $.30Markup: 20%
256
Margin
Contribution margin calculations allow managers to understand the added benefit of increasing production
Selling Price – Variable Cost = Contribution Margin
257
ROI
Return on investment is a measure of efficiencyConsider 2 projects you might invest
in – how would you decide?ROI calculation is a way to take
opportunity costs into considerationROI = Profit / InvestmentROI = Profit / Total Costs
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
Demand Basis Pricing
Pricing may be determined according to what the market will bearReal estateAuctionsUsed cars
Calculation of price sensitivity can be helpful to understand consumer demand
260
Demand Elasticity
Elasticity is a measure of responsivenessElasticity 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
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
Inelastic Demand
Same quantities are sold, regardless of priceLower prices do not encourage
consumptionHigher prices do not discourage
consumption• Few substitutes available• E.g. medical care
263
Calculating Elasticity
Elasticity can be defined as:ΔQ/QΔP/P
or(Q2-Q1)/Q1
(P2-P1)/P1
http://www.digitaleconomist.com/elasticity_tutorial.html
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?
Advertising
Professor S.J. Grant Spring 2005
BUYER BEHAVIOR, MARKETING 3250
266
Outline
Introduction to advertisingIt works!How it works
• Memory and wearoutKeys to effectiveness
A case study: Milk
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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
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34%
21%
14%
38%
45%
31% 30%
51%52%
43%
32%
59%
0%
10%
20%
30%
40%
50%
60%
Recallreading ad
Rated adas
believable
Rated adas
effective
Boughtadvertised
productLow involvementMedium involvementHigh involvement
Source: Cahners Advertising Research Report 120.12 (Boston: Cahners Publishing Co.).
Advertising Effectiveness
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
Memory & Wearout
Number of Repetitions
Eval
uatio
n Wearout occurs
271
Memory & Wearout
Why does wearout occur?Fatigue, boredom set inMessage recipient blocks incoming
information • Rehearses own thoughts• Counterargues• Unmotivated to allocate processing
resources to message
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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
Paradox of Familiarity
Novices and experts will process messages differentlyNovices may not apprehend message
at first, pay more attentionExperts, assuming knowledge, will
pay little attention• After a period, experts may return
attention
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Paradox of Familiarity
Number of Repetitions
Eval
uatio
n
ExpertsNovices
275
Breaking through Boredom Skepticism and counterargumentation Information clutter
Tapping a powerful emotion Providing news
Keys to Effective Advertising
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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 campaignin 1995
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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
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"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
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"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
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"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
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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
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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
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Case Study: Milk
Strategic errors?Convincing adults to reconsider milk
as a beverage choice requires delivery of news
• Campaigns introduce little newsBenefits of milk are diffuse, wide-
ranging, conflicting• Milk is touted as beauty aid, but is
associated with fat content
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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
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Case Study: Milk
Dairy Council declares the milk campaigns a success – “decline in milk sales has been halted”
Next step: product changesDean’s packaging “Chug” to make
milk portable, convenientSuiza producing lowfat milk with
consistency of 2%
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26
25
24
1988 1990 1992 1994 1996 1998 2000
Gal
lons
Source: USDA
Ad campaign
Case Study: Milk
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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
Professor S.J. GrantSpring 2005
Advertising Strategy & Tactics
BUYER BEHAVIOR, MARKETING 3250
289
Outline
Evaluating advertisingNOSE model
• Is advertising on strategy?• How well is it executed?
ExecutionsStructuralStylistic
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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?
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Advertising Strategy
Reach vs. frequencyReach: how many people see
advertisingFrequency: how many times each
person sees advertising
Which is better?
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Advertising Strategy
Points of parity vs. points of differencePoints of parity
• Category benefitsPoints of difference
• Brand benefits
Which is better?
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Advertising Strategy
Executions“The Big Idea”“Hard Sell”“Soft Sell”
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Big Idea
What is the “big idea”?Distilling your central message or
concept to a few key wordsExample: Subway is about a healthy
fast-food alternative• Jared• Low number of fat grams• Eat fresh• Being “good”
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Hard Sell
What is the hard sell?Presenting the compelling benefits of
an idea, a product, or a serviceUrges the consumer to take action
CharacteristicsA hard sell would list specific items
and sale prices Make specific, actionable offers
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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."
CharacteristicsSoft sell advertisement might sell the
look and feel of a store Doesn’t encourage immediate
purchase
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Symbols & Meaning
Advertising communication relies on meaning, which threads events and objects into an interdependent scheme
Meaning comes fromSelf-awarenessSelf-definition
Advertising – and consumption – is symbolic of human aspiration
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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
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Thematic Inferences
GenderWomen are communal – “Isn’t it hot?”Men are goal-directed – “Turn on the
AC” Social class
Upscale value distinction, tradition Middle class prefer order, organizationWorking class seek functionality, value
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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
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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
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Thematic Inferences
More cues• Film allusions• Literary references
• Orwell’s “1984”
• Biblical figures• Samsonite• Adam & Eve
• Mythology• Historical events
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Examples in Advertising
IBMMasculine, traditional, organized
Apple Feminine, friendly, alternative
Marlboro Arid, strong, independent, frontier
Harley-Davidson Rugged individuality, nonconformist,
testosterone
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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
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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
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Layering of Meaning
Resemblance? How do scripts differ?
Pricing II
Professor S.J. Grant Spring 2005
BUYER BEHAVIOR, MARKETING 3250
308
Outline
Psychological approaches used to understand, determine pricingPerceptual factors
Strategic issuesCompetitionPrice discrimination
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$.99, $1.99, $9.99
Price endings have significanceElasticity when price changes from $2
to $1.99 may be greater than elasticity when price changes from $1.99 to $1.98
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Contrast Effects
Buying $525 pair of shoesMay seem very expensive and
unreasonableMay seem very affordable and
reasonable
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Price Savings
Which is more compelling?
Savings of $25 on a DVD collection that costs $50OR
Savings of $25 on a television set that costs $600
Utility of $25 savings depends on reference price
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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.
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Framing
Would it make a difference if the sale price was expressed as
30% offversus
pay 70%
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 buyYogurt on sale (limit 8)
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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
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Price Discrimination
Price can be used to acquire different consumers, elicit different behaviors
$500 initiation fee and $50 monthly feevs.
$150 initiation fee and $75 monthly fee
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Price Discrimination
Delivery of price savings can also be used to acquire different consumers, elicit different behaviors
Using $1 off coupon for frozen pizzavs.
Supermarket offers $1 off at shelf
Place
Professor S.J. Grant Spring 2005
BUYER BEHAVIOR, MARKETING 3250
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
Place
Retail presence can be more powerful than advertising for promoting awarenessMany brands do little advertising but
spend on tradeRetailer with close relationship to
customer has power• Wal-mart• Target
321
Bricks & Mortar vs. Online
The GapTwo channels of distribution
potentially very costlyOnline order returns processed at
retail outlets, creating complicationsUbiquitous retail presence promotes
impulse buying, fashion seekingOnline presence promotes purchase
of staples (t-shirts, jeans, jerseys)
322
Bricks & Mortar vs. Online
Barnes & NobleStore allows browsing without
purchaseReaders buy more cheaply at
Amazon, rivalsDifferent search experiences
• Consumers who are busy, short on time, value convenience, selection
• Consumers who have lots of time value search
323
Bricks & Mortar vs. Online
L.L. Bean One retail outlet Successful catalogue business
324
Distribution as Competitive Advantage Lock up
Coke vs. PepsiBudweiser vs. CoorsMarket share leaders command
advantage when retail space is competitive
325
Target is Hot!
Case discussion
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
Place and Consumer Behavior Store-related affect and cognition
Store image Store atmosphere
Store-related behavior Store contact Store loyalty