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7/17/2015 MKTG522 Week 2 Lecture (NOV14)

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Understanding Consumer Change

Gaining Customer Insights | Understanding Consumer Behavior | The Consumer Decision-Making Process | Segmentation and Targeting |

Customer-Driven Marketing: The Value Proposition | Marketing Practice

In Week 2, our focus is on understanding consumer change. One aspect of our own behavior that we are very familiar with is the role we

perform as consumers of products and services. Some of us may be more aware, or more involved, than others with the activity of

shopping, but few of us are completely oblivious to the process that we go through when we are making consumption choices. If we reflect

on our own consumption behavior, we can probably determine specific patterns of buying behavior, preferences for certain brands, and

changes in consumption activities as we have progressed through our life cycle—or perhaps as our lifestyles have changed. As

marketers, we need to understand all of this consumption-related activity, and we need to be able to use that understanding to predict

what consumers will need or want next.

Print

Marketing has evolved significantly since the days when the customer could have any color

they liked so long as it was black, as was the case with the Model T Ford. Rather than pushing

products on to consumers, we now prefer the notion that consumers can pull what they desire

from the marketplace. We have shifted from mass marketing (one product for everyone) to

mass customization and products for markets of one. Underpinning this shift are a whole host

of consumer changes and changes in technology that have impacted marketing research,

communications, manufacturing, and logistics (more on this in the weeks to come).

In Week 2, we are concerned with how we gain customer insights. Although we continue to

gather customer data using traditional approaches, we are currently experiencing a major shift

to customer insights derived from big data. As we shop online or in the store, the pathway we travel on as we negotiate the retail

Gaining Customer Insights Back to Top



environment is tracked, our preferences and our behavior are recorded, which leads to real-time retail responses (e.g., Amazon’s

promotion to spend $25 and get free shipping, which the customer is presented with after placing a $15 book in his or her shopping cart),

as well as providing data for future analysis and marketing decision making.

The traditional approach to gathering consumer data entails following a rigorous process and developing a research design that includes

the collection of secondary and primary data with qualitative and quantitative methods using a variety of instruments, such as in-depth

interviews, focus groups, questionnaires, and observation—and more recently, a range of new approaches that use new technology, such

as measuring pupil dilation and field of vision or magnetic resonance imaging (MRI) to determine brand preferences. The main point here

is the need to gather data that will facilitate effective marketing decision making by a manager or by a machine (i.e., an algorithm).

To develop a sound understanding of consumer behavior, we should begin by defining the terms. The American Marketing Association

(AMA) defines the consumer as

the ultimate user or consumer of goods, ideas, and services. However, the term also is used to imply the buyer or decision maker as well

as the ultimate consumer. A mother buying cereal for consumption by a small child is often called the consumer, although she may not be

the ultimate user. (AMA Dictionary, https://www.ama.org/resources/Pages/Dictionary.aspx?dLetter=C)

Consumer behavior is defined as the following.

1. The dynamic interaction of affect and cognition, behavior, and the environment by which human beings conduct the exchange aspects

of their lives.

2. The overt actions of consumers.

3. The behavior of the consumer or decision maker in the market place of products and services. It often is used to describe the

interdisciplinary field of scientific study that attempts to understand and describe such behavior. (AMA Dictionary,

https://www.ama.org/resources/Pages/Dictionary.aspx?dLetter=C)

These definitions, rather than clarifying the issue, perhaps suggest the complexity of the problem we are focusing on: the who, what, why,

where, when, which, and how we buy. We are concerned with exchange—an exchange that creates value, which is influenced by many

Understanding Consumer Behavior Back to Top



factors—environmental, sociological, and psychological—that can pertain to individuals or groups of consumers or business or industrial

buyers.

Consumer decision making takes place in a context where there are many influences. This context is simplified by the following model.

Although slightly different, both consumers and business buyers follow very specific stages in the buying process. The ultimate buying

decision will be influenced by both marketing and environmental stimuli. For example, both price and economic conditions will play a part

in any eventual buying decision. In addition, the buyer's own characteristics play an important role. For example, a buyer from an ethnic

minority may tend to buy products related to his or her cultural background and experiences.

The consumer buying process is summarized in the following.

The Consumer Decision-Making Process Back to Top



The process begins with problem recognition. Next, the potential buyer gathers information and determines the set of characteristics or

product features needed to fix the problem. The alternative solutions are then evaluated, and a purchase decision is made. This cycle

may last from a few seconds to months or even years. The process you see here is one that a consumer routinely makes for a major

purchase decision, such as a new car (when several models of different manufacturers are being considered) or any product about which

a consumer may lack information, such as a new digital device. Of course, a consumer's decision-making process will be sped up if the

consumer has strong brand preferences, and in the case of impulse purchases, we tend not to approach the decision in a logical manner

—we are responding emotionally.

Problem Recognition

The first step occurs when the consumer realizes that he or she has a consumption need or problem. Something is not right and that

problem manifests itself in symptoms that cost money, cost time, make the consumer feel socially inept, disturb the customer's peace of

mind, impact safety, and so on. Marketers can initiate problem recognition by introducing new products or stimulating demand through

advertising; this helps us identify the paucity of our actual state and motivates to achieve our desired state (self-concept theory).



Information Search

Once the consumer recognizes a need, he or she will begin researching the item or product category. An internal search calls on memory.

Is the company or brand respected? Do I have experience with a similar product? An external search seeks information from outside. This

may involve many sources, including looking at the label in the grocery store, consulting consumer reports online for advice, reading

magazine ads, watching TV ads, or asking friends and family.

Evaluation of Alternatives

We tend to generate a broad set of possible solutions and brands of which we are aware, but this set of possibilities is reduced due to

experience with the brand and availability. A smaller subset of real alternatives emerges, from which the final selection is made. When the

consumer has completed the information search, an evaluation of the alternatives begins. The consumer's evaluation criterion determines

how the choices are evaluated. What elements are most important? Does price or quality matter? What trade-offs can be considered?

What is my top-of-mind brand?

Purchase Decision

At some point, the consumer comes to a buying decision. A specific brand and retailer is selected, and the purchase is made. Although

the consumer may have made a choice before going to the store or going online, this decision may be overturned at the point of sale

(POS) by a better offer.

Post-Purchase Behavior

After the product or service is purchased, the consumer is either happy or dissatisfied with the purchase. He or she compares it to

expectations built through advertising or research. Much marketing is geared to ensure postpurchase satisfaction. This includes customer

service, warranties, and refund policies. Cognitive dissonance, sometimes referred to as buyer's remorse, may be experienced by the

consumer, who will seek affirmation that the right purchase decision was made. Retailers can seek to minimize this problem by providing

the information needed to support the purchase. Some companies charge a restocking fee to dissuade customers from returning goods,

which effectively punishes customers who have made a poor choice and does not seem to be part of a customer-oriented marketing

strategy.

Another term that we should consider is customer-perceived value, whichis the value that the customer expects to receive based on the

customer's evaluation of the benefits, costs, and perceived alternatives. In other words, customer-perceived value is the difference

between what the customer gets and what he or she gives for different possible choices. Whether the offer lives up to the expectation

affects customer satisfaction and the probability of that customer purchasing the same product again. Satisfaction is the basis for building

brand loyalty and ensuring the consumer decision-making process is much simpler next time around.



In a series of articles that have appeared in McKinsey Quarterly, the idea of a consumer decision journey is being explored as a means of

developing a better understanding of consumer behavior in the digital age

(http://www.mckinsey.com/insights/marketing_sales/the_consumer_decision_journey). The decision-making process is viewed as a circular

process with four phases: initial consideration, active evaluation, closure, and postpurchase. This is not radically different from the

traditional approach. However, the authors argue that viewing this process as a journey helps us incorporate all of the touch points the

empowered customer has with the brand and provides a more interactive experience for the consumer that aligns all of the components of

the marketing mix with the journey, anywhere and anytime

(http://www.mckinsey.com/insights/marketing_sales/digitizing_the_consumer_decision_journey).

Some final points on choice are worth thinking about. If you explore YouTube, you will come across Barry Schwartz, who has done a

considerable amount of research on the manner in which the explosion of options in the marketplace actually leads to paralysis and

depression (http://www.youtube.com/watch?v=VO6XEQIsCoM). Conversely, Malcolm Gladwell argues that offering choice is what we need

to do to create and sustain a product category like spaghetti sauce (http://www.youtube.com/watch?v=iIiAAhUeR6Y). The TED talks (also

see http://www.ted.com) are highly recommended. These are excellent resources for business students to use to gain an understanding of

state-of-the-art thinking.

The term STP marketing is often used to refer to the key activities that a marketing manager engages in, including segmentation,

targeting, and positioning.

Marketers segment the market by identifying and locating manageable segments. Probably the best segmentation variable is

needs. We should focus on the consumer’s needs and then look for additional characteristics or variables to help identify the

segment. Specific variables are used to identify groups of consumers who share similar characteristics, such as demographic,

geographic, lifestyle, or usage characteristics (light, medium, or heavy users).

Targeting involves selecting potential segments and evaluating them using certain criteria to establish accessibility, ability to

respond, and financial viability; determine the match between the segment and the company; and then develop a target customer

profile.

Positioning involves aligning the marketing mix and developing a positioning based on benefits sought, user characteristics, and

competitors positioning.

We are concentrating our efforts here on understanding consumer similarities or differences as the basis for identifying a market

Segmentation and Targeting Back to Top



opportunity, and we will continue the discussion of positioning next week. So far, we have determined that market segments should be

homogeneous, measurable, of significant size, likely to generate significant revenue, and stable. Marketers often find that lifestyle and

psychographics provide more comprehensive insights into consumer behavior and allow us to fully understand the entire constellation of

brands the consumer owns and how he or she feels about them. This approach is giving rise to the many brand partnerships that we can

see in the marketplace, such as Apple and Nike. We should also give some more thought to the idea that we are looking for groups of

consumers who share similar traits. The idea of mass customization, personalization, and perhaps even 3D printing may eventually

challenge the logic underpinning market segmentation.

The table below visually demonstrates the many ways that consumers can be segmented.

Major Segmentation Variables for Consumer Markets

Geographic regionPacific Mountain, West North Central, West South Central, East North Central, East

South Central, South Atlantic, Middle Atlantic, New England

City or metro sizeUnder 5,000; 5,000–20,000; 20,000–50,000; 50,000–100,000; 100,000–250,000;

250,000–500,000; 500,000–1,000,000; 1,000,000–4,000,000; 4,000,000 or over

Density Urban, suburban, rural

Climate Northern, southern

Demographic age Under 6, 6–11, 12–19, 20–34, 35–49, 50–64, 64+

Family size 1–2, 3–4, 5+

Family life cycle

Young, single; young, married, no children; young, married, youngest child under 6;

young; married, youngest child 6 or over; older, married, with children; older, married,

no children under 18; older, single; other

Gender Male, female

Under $10,000; $10,000–$15,000; $15,000–$20,000; $20,000–$30,000; $30,000–



Income $50,000; $50,000–$100,000; $100,000 and over

Occupation

Professional and technical workers; managers, officials, and proprietors; clerical

salespeople; craftspeople; forepersons; operatives; farmers; retired people; students;

homemakers; unemployed people

EducationGrade school or less, some high school, high school graduate, some college, college

graduate

Religion Catholic, Protestant, Jewish, Muslim, Hindu, other

Race White, Black, Asian, Hispanic

Generation Baby boomers, Generation Xers

Nationality North American, South American, British, French, German, Italian, Japanese, other

Social classLower lowers, upper lowers, working class, middle class, upper middles, lower uppers,

upper uppers

Psychographic lifestyle Culture oriented, sports oriented, outdoor oriented

Personality Compulsive, gregarious, authoritarian, ambitious

Behavioral occasions Regular occasion, special occasion

Benefits Quality, service, economy, speed

User status Nonuser, ex-user, potential user, first-time user, regular user

Usage rate Light user, medium user, heavy user

Loyalty status None, medium, strong, absolute



Readiness stage Unaware, aware, informed interested, desirous, intending to buy

Attitude toward product Enthusiastic, positive, indifferent, negative, hostile

The current emphasis in our discipline is on customer-driven marketing. This entails developing a value proposition that resonates with

the target market. The value proposition traditionally was created by the business and pushed out into the market. Increasingly, as we

have observed, we are looking at a situation where the empowered consumer wants to dictate the terms of the relationship with the

business. The customer wants to collaborate, and this may involve the co-creation of value and involvement in communicating and

delivering the value that is encompassed in the brand (Ikea would be a very good example here, or NIKEiD, where the customer has

involvement in creating the product) and do this anytime and anywhere in the digital environment; furthermore, the consumer will share

this experience with his or her friends using social media.

As a consequence, the idea of what constitutes the value proposition is changing. This goes far beyond value for money in a narrow

sense of an exchange of money and time for a product or service to a more complicated exchange of a co-created bundle of benefits and

experiences that includes the following.

Functional benefits—basic, mechanical product features

Emotional benefits—how does this make me feel?

Self-Expressive Benefits—what does this say to everyone about me?

It is how these benefits are perceived in relation to the price, and how that price is determined and paid for, that constitutes value for

money and satisfaction.

Customer-Driven Marketing: The Value Proposition Back to Top

Marketing Practice Back to Top



Marketing Production Coordinator in HigherEducation

Marketing Practice

My key marketing tasks:

Production Process Workflow:

Communication

Oversee the initial stages of the

production process for creative design,

copywriting, and content development.

Coordinate and communicate with key

internal stakeholders and external

vendors to ensure alignment of activities

with company brand standards.


Execution

Oversee the intermediate stages of the

production process: quality control of

work in progress, adherence to deadlines

and managing internal and external

stakeholder expectations.


Analysis

Perform post-project analysis in an effort

to create discussion amongst department

members. Make recommendations for

future processes stem from these

discussions to further enhance

department creativity, efficiency, and so

on.

Centralized Project Tracking

Create, optimize, and maintain the

company’s project tracking system. This

tracker essentially encompasses all



project plans for the department and

provides a platform for remaining on

deadline and within budget. I have

responsibility for managing the creative

brief process with both internal

colleagues and external vendors.

Special Projects

Enhance the department’s capacity in

times of excessive workflow volume by

taking on special projects on an as-

needed basis. Special projects include

customer satisfaction survey analysis

and presentation, advertisement copy

writing, and project management–related

tasks.

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