中国经济管理大学 Analyzing Consumer Markets
Analyzing Consumer Markets
中国经济管理大学/中國經濟管理大學
I.
In addition to a company’s marketing mix and factors present in the external environment, a buyer also is influenced by personal characteristics and the process by which he or she makes decisions. A buyer’s cultural characteristics, including values, perceptions, preferences, and behavior learned through family or other key institutions, is the most fundamental determinant of a person’s wants and behavior. Consumer markets and consumer buying behavior have to be understood before sound marketing plans can be developed.
The consumer market buys goods and services for personal consumption. It is the ultimate market in the organization of economic activities. In analyzing a consumer market, one needs to know the occupants, the objects, and the buyers’ objectives, organization, operations, occasions and outlets.
The buyer’s behavior is influenced by four major factors: cultural (culture, subculture, and social class), social (reference groups, family, and roles and statuses), personal (age and life cycle state, occupation, economic circumstances, lifestyle, and personality and self-concept), and psychological (motivation, perception, learning, and beliefs and attitudes). All of these provide clues as to how to reach and serve buyers more effectively.
Before planning it’s marketing, a company needs to identify its target consumers and their decision processes. Although many buying decisions involve only one decision maker, some decisions may involve several participants, who play such roles as initiator, influencer, decider, buyer, and user. The marketer’s job is to identify the other buying participants, their buying criteria, and their influence on the buyer. The marketing program should be designed to appeal to and reach the other key participants as well as the buyer.
The amount of buying deliberateness and the number of buying participants increase with the complexity of the buying situation. Marketers must plan differently for four types of consumer buying behavior: complex buying behavior, dissonance-reducing buying behavior, habitual buying behavior, and variety-seeking buying behavior. These four types are based on whether the consumer has high or low involvement in the purchase and whether there are many or few significant differences among the brands.
In complex buying behavior, the buyer goes through a decision process consisting of need recognition, information search, evaluation of alternatives, purchase decision, and post purchase behavior. The marketer’s job is to understand the buyer’s behavior at each state and what influences are operating. This understanding allows the marketer to develop an effective and efficient program for the target market.
Opening example of LEGO illustrates how an organization changed its organization to present itself as a lifestyle brand
· Understand the major factors influencing consumer behavior.
· Identify the psychological processes that influence consumer responses to marketing efforts.
· Understand the stages in the buying decision process.
I. Introduction
II. What Influences Consumer Behavior? – Consumer Behavior is the study of how individuals, groups and organizations select, buy, use and dispose of goods and services, ideas or experiences to satisfy needs and wants.
A. Cultural factors
1. Culture - values, perceptions, and preferences that are the most fundamental determinant of a person’s wants and behavior
2. Subcultures - nationalities, religions, racial groups, and geographical regions
3. Social class - hierarchically ordered divisions in a society; members share similar values, interests, and behavior
a) Example of U.S. social class breakdown: lower lowers, upper lowers, working class, middle class, upper middles, lower uppers, upper uppers
b) Social class members can be grouped other ways;
(1) Distinct product and brand preferences
(2) Language differences
B. Social factors
1. Reference groups - all groups that have a direct or indirect influence on a consumer’s attitudes or behavior
a) Membership groups - the most influential primary reference group (family of orientation - parents and siblings, family of procreation - spouse and children). Secondary groups may include religious, professional and trade-unions.
b) Aspirational – person hopes to join
c) Dissociative – values or behavior rejected
2. Family – most influential primary reference group
a) Family of Orientation – parents and siblings
b) Family of Protection – spouse and children
c) New pattern – increase in direct and indirect influence wielded by children and teens on family purchases
3. Roles and Status
a) Role – activities a person is expected to perform
b) Status – affected by role type (e.g. one role may provide the person with a higher status than that of a person in a different role)
C. Personal factors – characteristics that influence a buyer’s decision
1. Age and stage in the life cycle
a) People buy different goods over their lifetime
b) Family life cycle, from independence to retirement and beyond, also shape buying habits
c) Psychological life-cycle stages and transitions (e.g., marriage, college graduation)
d) Adults experience “transformations” as they progress through life
e) Critical Life Events influence behavior (e.g. marriage, childbirth, first job, spousal death, career change)
2. Occupation and economic circumstances
a) Blue collar versus white collar consumption considerations
b) Spending income, savings and assets, debts, borrowing power, and attitude toward spending versus saving all impact product choice
3. Personality and self-concept
a) Personality characteristics that influence buying behavior (self-confidence, sociability, etc., tie to brand personality
b) Development of brand personalities to attract consumers with the same self-concept
(1) actual self-concept – how we view ourselves
(2) ideal self-concept – how we would like to view ourselves
(3) others
4. Lifestyle and values
a) Lifestyle - pattern of living as expressed by activities, interests, opinions. Shaped partly by whether consumer is time or money constrained
b) LOHAS segments – Acronym for lifestyles of health and sustainability. These people worry about the environment, care about sustainability and are very health conscious (e.g. organic foods) refer to table 5.1 for LOHAS segment breakdown
c) Core values – influences by the belief systems that underlie attitudes and behavior
III. Key Psychological Processes
A. Motivation - correlated to the strength of a need (Freud, Maslow, Herzberg)
1. Freud - forces shaping people’s behavior are largely unconscious; they cannot understand their own motivations
2. Maslow - hierarchy of needs
3. Herzberg - two-factor theory that distinguishes satisfiers from dissatisfiers
4. Biogenic needs - arise from physiological states of tension (e.g. hunger, thirst)
5. Psychogenic needs - arise from psychological states of tension (e.g. recognition)
B. Perception - process by which an individual selects, organizes, and interprets information inputs to create a meaningful picture
1. Selective attention - increased amount of stimuli has led to individuals ignoring stimuli unless it appears to relate to a current need or appears to be outside the norm of other stimuli
2. Selective distortion - tendency to modify input information into personal meanings and interpret in a way to fit one’s pre-conceptions
3. Selective retention - retain only that information that supports an attitude or belief
4. Beliefs and attitudes - a belief is a descriptive thought a person holds about something; an attitude is a person’s enduring favorable or unfavorable evaluations, emotional feelings, and action tendencies toward some object or idea
C. Learning - changes in behavior arising from experience
1. Drive - strong internal stimulus that impels action
2. Cues - minor stimuli that determine when, where, and how a person responds
3. Generalization - make assumption and generalize future response to similar stimuli source (e.g. good experience with a Dell computer may lead one to assume that they will have a similar experience with a Dell printer)
4. Discrimination - recognize differences in sets of similar stimuli and adjust responses accordingly
D. Emotions - response may not be rational or cognitive
E. Memory
1. Short term memory (STM) - temporary repository
2. Long term memory (LTM) - more permanent repository. Associative network memory model views LTM as a set of nodes (information) connected by links that vary in strength. Brand information can be in the node. Brand associations consist of all brand-related thoughts, feelings, beliefs, perceptions, images, experiences, attitudes, and so on that become linked to the Brand node. See Dole example of a mental map in figure 5.2
3. Associative Network Memory Model
a. LTM can be viewed as a set of nodes and links. Nodes are stored information connected by links that vary in strength. ,
b. Refer to Figure 5.2 for a Hypothetical Mental Map
4. Memory Processes
a. Encoding – how and where information gets into memory
b. Strength of resulting association depends upon how much of the information is processed at encoding.
5. Memory Retrieval - how information gets out of memory – Three factors impact retrieval
1. Other product information in memory can produce interference effects causing one’s brand information to be overlooked or confusing
2. The longer the time elapsed from encoding to recall, the weaker the association
3. Information may be available in memory but not accessible without cues or reminders
IV. The Buying decision Process: The Five-Stage Model
The five-stage model - the consumer may proceed sequentially through the following stages, skip one or more stage, or move forward and backward depending on the specific situation (refer to Figure 5.3)
A. Problem recognition: internal stimuli (e.g. feeling of hunger or thirst), or external stimuli (e.g. advertisement) trigger need(s) or problem recognition, which starts the buying process
B. Information search
1. Two levels of arousal
a) Heightened attention where consumer is open to
more information
b) Active information search utilizing four areas of
resources: personal (e.g. family, friends,)
commercial variety of channel communications),
public (information and resources in public
domain), experiential (trying the good or service)
2. Steps to gathering more information (see figure 5.4)
a) Total potential brand set
b) Awareness set: consumer becomes aware of some,
not all brands
c) Consideration set: some brands will meet initial
buying criteria
d) Choice set: more information is gathered on brands
under consideration and a priority is set
e) Consumer arrives at a decision on brand
C. Evaluation of alternatives
1. Consumers attempt to satisfy a need or resolve a problem by determining if a brand’s attributes provide the benefit(s) required to fulfill the need or resolve a problem
2. The evaluation process often reflects beliefs and attitudes
a. A belief is a descriptive thought that a person holds about something
b. An attitude is a person’s enduring favorable or un-favorable evaluation, emotional feeling, and action tendencies toward some object or idea
3. Organizations should attempt to match their product or service attributes close to the consumer’s attitudes rather than trying to change the attitudes
4. Consumers attitudes (i.e. judgments and preferences) are derived via an attribution evaluation process
5. An expectancy-value-model can be used to identify the importance a consumer places on each attribute and the respective perception of the benefit of each attribute by brand (good example imbedded in the text in this area)
D. Purchase decision - consumers form preferences among brands in their choice set. Two factors can intervene between purchase intention and decision that reduce the accuracy of identified preferences and purchase intentions
1. Attitudes of others may impact decision depending upon:
a. Intensity of other person’s attitude toward consumer’s preferred alternative
b. Consumer’s motivation to comply with the other person’s wishes
2. Unanticipated situational factors
a. Consumer impacted by uncontrollable forces such as job loss, bad service, or opportunity costs
b. Consumer’s propensity for risk
E. Post-purchase behavior (refer to “Marketing Skills Inert: Dealing with customer defections)
1. Consumers may experience post-purchase dissonance. Organizations must manage this dissonance. This could be something as simple as a phone call to reassure the consumer that his or her decision was a good decision
2. Consumers may be satisfied or dissatisfied with the product or service. Both have an impact on customer loyalty as well as their “word-of-mouth.” Each must be managed appropriately by the organization
3. Marketing skills: Winning back lost customers
a. It costs more to acquire new customers than to retain existing customers or recapture lost customers
b. By applying a profile of lost customers to existing customers, an organization can attempt to prevent attrition
c. Effective post-purchase communications can reduce product returns, speed problem resolution, and better understand product use
4.
V. Behavioral Decision Theory and Behavioral Economics – Behavioral decision Theory (BDT) identifies situations when consumers make irrational choices. Refer to Marketing Insights: Predictably Irrational”.
A. Decision Heuristics – “Mental shortcuts” or “rules-of-thumb”
1. Availabilty Heuristic – how quickly and easily a particular example of an
outcome comes to mind.B. Framing
2. Representative Heuristics – consumers base their predictions on how similar
the outcome is to other examples
3. Anchoring and Adjustment Heuristic – Consumers arrive at an initial
judgement and then adjust it based on additional information. .......
B. Framing
1. Decision framing – manner in which choices are presented to and seen by a
decision maker.
2. Consumers use “mental accounting” when handling their money as a way of
coding and evaluating financial outcomes.
3. Prospect Theory – Consumers fram their decision alternatives in terms of
gains and losses according to a value function. They are loss-averse.
VI. Executive Summary
II.
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This discussion focuses on a major demographic change in the U.S. and global marketing environment. As a result, there are and will be changes to many business patterns. The discussion will open the door for many current examples of developments that augment this material. Based on this material, students will be able to identify the changes occurring in society as related to their growing knowledge of various marketing management techniques and issues.
Teaching Objectives
· Consider the role of marketing in the societal change and development process.
· Introduce an example of one of the more important contemporary environment issues.
During the 1990s, U.S. household spending patterns changed dramatically. There were some very different demographics facing businesses during those years, and some of the same variables will continue to influence the marketplace into the future.
The U.S. economy grew through the 1990s at a rate not seen since the 1960s, unemployment and inflation were the lowest in decades, and the stock market set records with regularity. Some economists explained the situation by claiming that a new economy was at work, one driven by deficit reduction, low interest rates, and technological advances. Others pointed to the Asian economic bust, the Dot-com stock market collapse in 2000, and began to consider the inevitable limits to the economic and marketing environment. Some analysts felt that many firms would not be able to maintain the pace of the new market environment, and they were correct, as the dot-com bust and the market decline demonstrated.
Even with the 2000-2001 market jitters and the Federal Reserve interest rate responses, many felt that the economy was more stable and long-term than we gave credit because consumer spending, which accounted for two-thirds of the nation’s economic output, continued to roll along at a steady pace. However, the inevitable slowdown in the economy and consumer spending had already begun, and the attacks on the United States in September, 2001, and the Enron/Anderson corruption scandals at the end of 2001 set the groundwork for not just a rethinking of America’s security and growth but also some rethinking about the way we would do business in the future. With this re-evaluation of many issues in the economic, social, and political environments, we find the basis of a new economy and a new marketing environment.
New life Cycle Patterns
One of the more important predictors of the future direction for the new economy is life-cycle stage. Typically, households headed by twenty-somethings spend less than average on most products and services because their households are small and their incomes are low. Spending reaches the maximum in middle age, as family size increases and incomes peak, then falls again in older age as household size and income decline.
These stages, combined with the baby booms and busts of past decades, have made evaluating and forecasting the marketing environment a complex endeavor. Add in a fundamental change that has been taking place in the life-cycle pattern of spending, and marketers are discovering that doing business today is a lot like building a house in an earthquake zone.
Two big quakes in spending patterns have reshaped consumer markets in recent years. One is the dramatic decline in spending by householders aged 35 to 44. This downturn is of significance to business because the 35 to 44 age group accounts for the largest share of American households, over 23 percent, and consequently the largest share of most consumer markets. Ten years ago, this group spent 29 percent more than the average household on goods and services. Today, it spends only 16 percent above the average. Between 1987 and 2001, householders aged 35 to 44 cut their spending 9 percent, after adjusting for inflation.
Their spending once matched that of those in the age group (cohort) 45 to 54, but the recessions of 1991 and 2001 changed that, and the impact on retailers and manufacturers has been significant. While the number of households headed by 35-to-44 year olds increased 31 percent from 1987 to 2000, their aggregate spending rose only 19 percent. By contrast, during the same period, the number of households headed by 45-to-54 year olds rose 44 percent, and their aggregate spending rose an even faster 46 percent. The shift has spelled trouble for toy companies, turmoil among fast-food retailers, and closings and consolidations in the shopping center industry. Even though some of these changes have been beneficial, getting rid of some of the weaker players in these industries, there are some fundamental long-term issues emerging. Depending on your perspective, this can be both good and bad.
What accounted for the younger group’s spending decline? The answer is economic insecurity. In this life-cycle stage, people tend to have growing families and huge debts. The two recessions forced 35-to-44-year-old householders to cut their discretionary spending in order to make ends meet. This is the bad side, from the perspective of some analysts, but others argue that given the huge amount of debt and lack of a savings habit with this younger group, the trend could be good for the future. The “big spender” title has moved on to another age group.
Older Americans account for the second quake in life-cycle spending patterns. Between 1987 and 2001, spending by the 65-plus set rose faster than in any other age group, fueled by a more educated and affluent generation entering senior citizen status. Thus, older Americans’ spending is rising to approach the average, and the trend will only intensify as the hyper-educated boomers hit their sixties in 2006.
Many businesses still haven’t noticed the aging consumer markets. Some are ignoring it entirely. Clearly older consumers are spending money, but they’re spending it on the industries that have been courting them. Here’s a look at some of the winners and losers as the new consumer paradigm takes hold.
§ The Casual Consequence
Between 1987 and 1997, the average American household cut spending on apparel 15 percent, after adjusting for inflation. Spending on women’s clothes fell even more, down 20 percent. Householders aged 35 to 54 made the biggest cut. The average household in this age group spent one-third less on women’s clothes in 1997 than it did in 1987.
No wonder so many clothing retailers are wondering where their customers went. The growing popularity of khakis and polo shirts, less expensive than business suits, explains part of the decline. “There are a lot more wearing occasions for casual apparel due to a lot of companies going casual in the workplace,” explains a Levi Strauss & Co. spokesperson. A 1997 survey commissioned by Levi Strauss found that 53 percent of U.S. workers now dress casually every day of the week, not just on Fridays.
However, more important is the clothing industry’s failure to create products that appeal to middle-aged women. The biggest spenders on women’s clothes are householders aged 45 to 54, followed by those aged 55 to 64. Yet, most clothing is designed and marketed to teens and young adults. With so little to choose from, women aged 35 and older are spending their money elsewhere.
One forward-thinking company that has captured the attention of older women is DM Management in Hingham, Massachusetts, a catalog retailer that targets a neglected category: affluent women over 35 (see “New Look, Better Numbers,” October 1998). Sales through its J. Jill and Nicole Summers catalogs have grown rapidly, up more than 61 percent in 1998-9. Why? Maybe it is because the biggest spenders have nowhere else to shop.
§ Focus on Fun
The entertainment industry continues to boom, not surprisingly. Each year since 1987, Americans have devoted more of their budget to entertainment. In 2000, the average household spent over $1,900 entirely discretionary dollars on good times, up from $1,686 in 1987, after adjusting for inflation—an 8 percent jump. Behind this boom is an affluent population and the growing enthusiasm of older Americans for having fun.
As in almost every other category, the pattern of entertainment spending has shifted markedly. Whereas householders aged 35 to 44 once were the biggest spenders on entertainment, that role has been overtaken, again, by householders aged 45 to 54. Between 1987 and 1997, the average household headed by a 35-to-44 year old cut its entertainment spending 10 percent. Meanwhile, spending by householders aged 45 to 54 surged 16 percent. By 2000 the 45-to-54 group spent 33 percent more on entertainment than the average, pushing 35-to-44 –year olds into second place. Rising to third place were householders aged 55 to 64, displacing the 25-to -34 age group.
Nevertheless, the senior citizens have become America’s true party animals. The average household headed by a 65-to-74 year old spends more on entertainment than does the average household headed by someone under age 25. Even the very oldest householders are in on this revolution: Those aged 75-plus spent 98 percent more on entertainment in 2000 than in 1990, the biggest increase of any age group.
The bottom line is that Americans aged 55 and older account for a larger share of spending on entertainment than those under age 35. Despite this fact, the entertainment industry has done little to serve fun-loving older Americans, with some exceptions. Elderhostel is booming, precisely because it targets older consumers. However, many other businesses have risked bankruptcy rather than change their mind-set. The shopping center industry is a prime example, obsessively pursuing teens and young adults when they could reinvent themselves as entertainment venues for older consumers. Mall visits fell from 2.62 to 1.97 per person per month between 1994 and 1997, according to Maritz Marketing Research polls. “What could possibly lure someone who is 49 or 59 years old?” asks a retail consultant. “If anything, they are repelled by congested aisles and merchandise that is not appropriate.”
§ Stomach Wars
Americans are spending less on food than they once did, and that is a problem for the restaurant industry. Between 1987 and 2000, spending by the average household on food at home fell 3 percent, adjusting for inflation. Spending on food away from home fell a much larger 13 percent. When Americans cut their discretionary spending in the early 1990s, restaurants were hit hard, as people turned to less-expensive take-out food. “Consumers opt for a take-out dinner at home a whopping 61 percent more often than they did 10 years ago, whereas they choose to eat dinner in a restaurant 4 percent less often,” reports Restaurants USA, the trade magazine of the National Restaurant Association.
Younger householders have cut their food spending the most. In 1987, the best customers in the food-away-from-home category were householders aged 35 to 44, but the recession took away their appetites. From 1987 to 1997, they cut their restaurant outlays by an enormous 23 percent, ranking them second to 45-to-54year olds in restaurant spending. Not only that, the average household headed by a 55-to-64yearold now spends more on food away from home than those headed by 25-to-34-yearolds, despite the fact that older households are smaller. Adding insult to injury, householders aged 65 to 74 spent considerably more on food away from home in 1997 than householders under age 25. Good-bye Planet Hollywood, hello early-bird special.
Restaurants will have a difficult time recapturing those lost customers. “The low end of the industry is in for big trouble,” says the editor and publisher of a weekly newsletter for food marketers. “It’s falling behind because so many supermarket chains have made an effort to supplement their sales with home meal replacements.”
Whether they are ready-to-eat or ready-to-heat, home meal replacements are changing the way supermarkets do business. Chefs and nutritionists now create signature menu items that shoppers can buy on the fly-everything from ethnic dishes to all-American comfort foods, and separate checkout counters speed customers on their way. In the battle for share-of-stomach, “supermarkets are winning.” In the future, an analyst predicts, restaurant dining “will be more of an occasion.”
§ Health Care Costs Continue the Spiral Upward
No one escaped the rising costs of medical care in the past decade: The average household spent $1,914 out-of-pocket on health care costs in 1997, a 16 percent increase since 1987, adjusting for inflation. Nearly half that amount was for insurance. But since spending on insurance by the average household grew more than 40 percent across all age groups, the spending pattern did not change significantly. Householders 65 and older spent the most out-of-pocket, 52 percent to 58 percent more than the average. The youngest householders spent the least.
Not surprisingly, health care consumes a sizable share of older householders’ budgets. People aged 65 to 74 devote 10 percent of their annual spending to out-of-pocket health care costs. Those aged 75 or older shell out even more—14 percent of spending overall, or $2,799 in 1997. Despite Medicare coverage, 53 percent of seniors’ health care dollars go to insurance bills. Out-of-pocket Medicare costs, plus the supplemental insurance purchased by many, boosts their spending on health insurance far above that of any other age group.
These facts are of utmost importance to today’s middle-aged adults. Proposals to raise the age of Medicare eligibility could mean boomers would have to devote an even larger share of their retirement income to medical costs. Few boomers are aware of the enormous burden health care costs place on older householders. Their awareness-and their political involvement-is likely to grow as they approach retirement age.
§ Changing Buying Patterns
Perhaps nothing exemplifies the battle for discretionary dollars better than the war between the furniture and computer industries. As spending on computers has surged, spending on furniture has fallen.
By all accounts, these should be golden years for the furniture industry. The economy is up, homeownership is at a record high, and the baby boomers are in their peak furniture-buying years. However, the average household spent 13 percent less on furniture in 1997 than in 1987. In addition, householders aged 35 to 44, traditionally the biggest hearth-and-home spenders, cut their furniture budgets by a stunning 34 percent. By 1997, householders aged 45 to 54 were the biggest furniture buyers, despite the fact that they, too, were spending 8 percent less than a decade ago.
Forget the new sofa: householders want a computer and Web access. In 2000, the average household spent $260 on computer hardware, software, and online services for non-business use. While that may not sound like much, it is an average and includes those who spent something and those who spent nothing. More impressive: if you rank all the products and services people buy for their homes, computers are in fourth place. The only items that account for a greater share of the household operations budget are telephone equipment and services (average, $909); furniture ($387); and day care ($232). The average household spends more on computer technology than on major appliances, lawn and gardening, or housewares.
The biggest computer spenders are aged 45 to 54, and they spent 61 percent more than the average household in 1997. Second are aged 35 to 44. Seniors aged 55 to 64 are third, spending more on computers than householders aged 25 to 34.
With computer spending surging, other discretionary categories have suffered-and a reversal is unlikely as the Internet’s popularity grows.
§ The New Adventurers
Americans spend a lot on travel. In 2000, the average household spent $1,259 on travel-related transportation, food and alcohol, lodging, and entertainment.
The travel market has long been dominated by older Americans, and for good reason: it’s one of the few industries that courted them. “They saw the opportunity. They looked at who had discretionary income and time. The industry has boomed ever since.”
In 1997, the biggest travelers were householders aged 45 to 54, 55 to 64, and 65 to 74-in that order. All other age groups spend less than average on travel. Householders aged 55 to 64 devote the largest share of their spending money to travel, nearly 5 percent. In fact, this age group spends more on travel ($1,706 in 1997, on average) than it does on clothes ($1,656), and almost as much as it spends on furniture, appliances, floor coverings, bed sheets, and bathroom linens combined ($1,728).
Thanks to the aging boomers, the travel industry is likely to experience years of surging growth. When today’s workers, regardless of age, are asked what activity they most look forward to when they retire, travel is mentioned by the largest share-32 percent, according to a Gallup survey. When asked whether there is something workers are waiting to do until they retire, once again travel is the hands-down winner cited by 45 percent of respondents.
The news could not be better for the travel industry, and it could not be worse for other industries that will lose out to wanderlust. Before the losses mount, businesses should follow the money, targeting the growing numbers of affluent, sophisticated, older consumers.
Retail consultants are optimistic. As boomers inflate the ranks of older consumers, businesses may finally begin to get it. “Boomers are actually going to convince us that youth is something to be endured while you wait for your forties, fifties, and sixties.”
Concerns”
The focus is on several major new issues in studies and strategies related to consumer marketing. After considering the privacy issue related to the consumer’s right to privacy, the discussion flows to the different types of consumers and the implications for marketers in the future.
Teaching Objectives
· To stimulate students to think about the privacy issue, pro and con, for a firm when it attempts to achieve a better understanding of its customers.
· To communicate the role of various types of information that help the firm achieve a clearer understanding of its customers and the consumer behavior environment of the present and future.
Discussion
Introduction
Americans today feel more protective of their privacy than they did during most of the 1990s. That is the fundamental conclusion of two surveys on privacy issues. Polls by Yankelovich and Louis Harris & Associates indicate continued high levels of concern over the way business obtains, uses, and disperses consumer information.
The more alarming figures arise from the Yankelovich survey, in which nine out of ten respondents favored legislation to regulate business uses of consumer information. Forty-five percent of those polled strongly feel the need for privacy legislation, up from 23 percent in 1990. According to a Yankelovich partner: “Very seldom do we get 90 percent agreement on anything. That really attests to the fact that this is an enormously important issue to people.”
The Harris study is more reassuring, providing a less negative message. Although 82 percent of the respondents say they are “somewhat” or “very concerned” about threats to their personal privacy, their uneasiness is more focused on the government than business. The majority of respondents (57 percent) think businesses that handle personal information “are paying more attention to privacy issues these days.” An interesting aspect of this poll is, however, that 72 percent of the respondents agreed that “if companies and industry associations adopt good voluntary privacy policies, that would be better than enacting government regulations.”
There are some very consistent messages that have gotten clearer in recent years. They are:
· People regard their transaction information as something they feel they have lost control over, and that concerns them.
· People are different. Some don’t want any direct marketing, some want everything you can give them, and in between there are people who want some say in what gets to them and what doesn’t.
People in the last group (those who want a say in what comes to them) comprise the largest segment of the total (55 percent). This group recognizes the benefits of using personal information for business uses. However, they have to be convinced that the data being sought are relevant and subject to fair information practices. For these people, notice and the ability to opt out are very important. This group “favors voluntary standards,”” but they will back legislation when they think not enough is being done by voluntary means. As it is, over half the respondents (54 percent) do not believe current laws or business practices adequately protect their privacy.
At the same time, the Direct Marketing Association (DMA) reports that consumers purchased over $700 billion through direct marketing channels in 1998. This is not the contradiction it might seem. A 1994 survey regarding interactive services revealed that the respondents who were most interested in subscribing were also the most likely to have made purchases through direct marketing. They were also the most concerned about privacy, and their willingness to release personal information for interactive marketing purposes was contingent on the presence of policies that protected their privacy.
According to various surveys, the best customers for direct marketing are many of the same people who are looking for proper safeguards in the relationship between the marketer, the service provider, and the consumer. The apparent message here is that it would be a mistake for direct marketers to assume that their customers are not interested in privacy. Clearly, they are the people concerned about privacy.
Respondents to one of the surveys actually expressed a desire for better relationships with marketers. The survey indicated the people are tired of having to be vigilant about everything they do, and they would like to be able to trust a little bit again, but still they are looking for protection. The theme seems to be that it will take more than individual effort. A company could be doing everything right, but 10 other companies are doing everything wrong, so in the consumer’s mind all marketers stink. The point is that businesses have to make much more of a concerted effort to show that they really do respect privacy.
From the surveys there are some important conclusions. First, companies cannot brandish the survey data and say they can prove that the industry is rock-solid and forthcoming. Secondly, if one considers the process from a broader point of view, it is clear that the public wants industry to be more forthcoming, and they will listen if the industry responds. If the industry does not respond, there could be potential for more regulation. The number of bills to regulate direct marketing passed and pending in various state legislatures is clear evidence of this point. Legislators are showing that this is an issue that people care about.
Behavioral Analysis
There is a substantial question about how well the American consumer is faring in this era of low inflation, downsizing, and global competition. It can be argued that maybe some of this fits VALS 2, but it is likely that one thing is for sure: Just when we believe that we have a good understanding of the consumer, some movement or person comes along and upsets our theory. We can learn about the consumer by looking at recent surveys. In general, the surveys tell us the consumer is possessive but despite the events of the latter months of 2001 still somewhat passive.
To support this perspective Langer Associates, Inc., conducts an annual survey of American consumers. Langer specializes in qualitative studies of consumer marketing issues. The firm conducted focus groups with thousands of people across the United States and discovered that the following attributes and concerns are widely shared:
· Self-Security. As corporate downsizing continues to make headlines, self-employment is increasingly viewed as the safer option. Educational courses and media focused on starting and running a small business still have widespread appeal, as do ads featuring business owners.
· The “Mine” Generation. Sensing that resources are becoming sparse and stretched, the “Me” Generation is putting more emphasis on preserving what they do have: jobs, family, community, possessions—a change reflected in economics and politics.
· Localization. A new protectiveness following 9/11 has translated into increased interest in issues like school budgets and neighborhood crime. Advertisers can tap into this by localizing their message as well as running national campaigns.
· More Together. Coffee bars and the Internet are becoming increasingly popular in part because they satisfy two conflicting desires:
o Connection with others
o Avoiding intrusive interaction
The message is that stores, restaurants, and clubs similarly can satisfy both needs by building zones of “alone-togetherness” into their layout.
· Topsy-Turvy Retail. Focus group members often give higher marks for customer service to some discounters and off-price stores than the more upscale establishments. Clearly, the higher-price outlets need to work on this, and lower-price stores could promote service along with lower prices.
· Battle of the Superstores. Consumers like the more personal atmosphere of small, independent stores and tend to sympathize more with the owners, but still they spend more at the mega-marts. Although there are signs that the public is beginning to tire of superstores, business remains brisk. Smaller stores will have to maintain excellent personal service, find niches to fill, and do more direct marketing to stay afloat.
· “Woo-Me” Marketing. Customers today will not seek out products or services; they assume that offers will come to them. Therefore, businesses need to be more proactive, approaching consumers with free trials and special offers.
· Yuppies, Gen X Style. Twenty- and thirty-somethings who are settling into careers are spending more, especially the singles. However, they differ from yuppies of the 1980s in that they do not expect to make big money and are less interested in designer labels. Ads that stress value and de-emphasize status as a reason for buying (even if it is the reason) are likely to appeal to this crowd.
· Clothing Cutbacks. Until a new style of dressing renders their current wardrobes obsolete, most consumers feel they already have all the clothing they need. The trend toward more casual dress for work and socializing has added to their resistance, even though there are signs that more formality in clothing and other social matters may be on a comeback. The money that would have gone into the closet is being spent instead on homes, travel, and investments despite national and global economic and political issues.
· High-Tech Polarization. Attitudes toward technology are polarized, with many people still concerned about the impact of computers on employment, the depersonalization of business and personal relationships, and other issues. Possible remedies: Find ways to offer reassurance, and to maintain the “human touch.”
· Data Glut. Complaints about being overwhelmed by information are up sharply, indicating a potential market for those who can help simplify it and screen out extraneous communications.
· Changed Office Structures. Downsizing means more executives doing clerical work themselves, creating a market for foolproof photocopying and computer products. Other growth areas: Outsourcing and products that aid in telecommuting from the home or the road.
· Solitude Time. On-the-job stress is creating the need for quiet time. Products that can be positioned as aids to relaxation include aromas, yoga, and reading materials.
· Working at Relaxing. Nothing is easy; professional/managerial types put a lot of effort into their down time, scheduling massages, gardening, and redecorating their city apartments. Ads can talk about people deserving to relax, and depict the humor inherent in striving for serenity.
These survey results are all very interesting, but the real question here is: What is the meaning of this for the business thinking of changing products or adding to its current offerings? This is an appropriate question to ask the class to stimulate discussion.
C. “Exogenous Variables Related to Consumer Behavior”
The consumer’s ability and willingness to embrace technology advances has created new opportunities as well as challenges for organizations. Organizations have no control over technology advances, and those who do not embrace these new methods will be at a disadvantage as consumers will gravitate to those organizations that do.
Teaching Objectives
· To demonstrate how the Internet and wireless environment has enabled the consumer to become more effective in their information gathering and decision-making process.
Discussion
Organizations, in their efforts to reduce cost, increase their competitivenss, and enhance communication to consumers have greatly enhanced their Web pages with most of the information necessary for consumers to research and purchase their products and services. Additionally, new business entities such as bizrate.com have evolved to provide product and service brand comparison. Comparisons include product and service descriptions, price, and sometimes testimonials from other consumers, which further add credibility to the information. Consumers are becoming acclimated to using the Web for product and service information and have started to expect this from all organizations. Organizations must optimize all consumer touch points with information on where to go on the Web for more information when the consumer is aware of their brand. Organizations must ensure that they have optimized their keywords for search engines when a consumer is searching for information by category and not brand. Consumers who are armed with information acquired on the Web change the sales process. For example, consumers are coming into car dealerships with all relative information on a particular car’s options and what price they are wiling to pay for the car. In some cases the consumer may be more knowledgeable than the sales person. Hence the organization must be better prepared to deal with a more knowledgeable consumer. Consumer “blogs” have also influenced the consumer in both positive and negative ways. A dissatisfied consumer can quickly create their own blog or add his or her experience to an existing blog. In conclusion, technology has provided the consumer with a vehicle to gather and disseminate information relative to his or her product and service purchase. It has provided the organization with a method of efficiently informing the consumer with their relative product and service information. Technology is changing quickly and the rate of change adoption varies by consumer as well as by organization. Therefore, organizations must keep pace with both the technology and consumer technology adoption synamics to remain competitive.
Background Article
Issue: Marketing Shifts with a New Generation of “Senior Citizens”
“Boomer Grandparents A Booming Market,” Kiplinger Report, May 14, 2002.
In the five-and-a-half decades since they first began arriving on the scene, the baby boomers have transformed every American institution with which they’ve come in contact, from popular music to parenthood. Now that the older boomers are in their late 40s and 50s, they’re making their mark on grandparenting.
Just fewer than 20 million, or about 30%, of U.S. grandparents are boomers, born between 1946 and 1964, and their ranks will swell to 32 million by 2007. Boomer grandparents spend roughly 29% of the $50.3 billion doled out annually by U.S. grandparents on products and services for their grandkids, according to data compiled by the Census Bureau and Roper.
Although boomer grandparents are not expected to spend any more on their grandchildren than other grandparents, the sheer number of boomers approaching grandparenthood suggests that it’s wise for retailers and other businesses to pay attention to what they are buying and how they view their grandparenting role.
Researchers believe that baby boomers want to be more of a presence in their grandchildren’s everyday lives than grandparents of earlier generations. This attitude stems partly from the fact that many boomers have the demands of raising children fresh in their minds. Many of them have children from second or third marriages who are almost the same age as grandchildren from their first marriages. Furthermore, remembering the notorious generation gap that colored their own relations with their parents, boomers see helping with grandchildren as one way to keep communication going between them and their own children.
As the ranks of boomer grandparents grow, you will see more taking responsibility for child-care. Grandparents will become more involved in day-to-day purchases of what cereals to serve for breakfast or what to pack for lunch. And since baby boomers tend to be more health conscious than previous generations, they’re likely to seek out health foods and vitamins for kids. Also, boomer grandparents will spend more on transportation than other grandparents, shuttling kids to soccer practice and other activities. They’ll be much more likely than older grandparents to purchase sport-utility vehicles and, to a lesser extent, minivans to make their chauffeur duties easier.
The travel industry will be one of the biggest beneficiaries as boomer grandparents shell out big bucks to vacation with their grandkids, particularly on trips that can broaden their grandchildren’s minds. Eco-friendly cruise packages, river rafting, and other adventure tours will be major attractions. Grandkids will have a major say in how the family’s travel money is spent, ranging from the choice of destination to the purchase of second homes or time-shares.
Grandparents who don’t live near their grandchildren will spend freely on airplane and train tickets and road trips to visit them more frequently than older grandparents. Moreover, they’ll be more likely to sign up for Internet accounts to keep in touch with their grandkids by e-mail or instant messaging.
Then there’s the entertainment market. Having grown up on rock and roll, boomers will be far more likely than their senior parents to share their grandchildren’s musical interests. That means not only that they’ll spend more on compact discs for their grandkids, but also that they’ll be joining them in the stands at rock concerts. Similarly, they’ll be more likely to take them out to restaurants, movies and sporting events.
But education concerns will also shape entertainment purchases. Interactive computer games that teach learning skills, such as those featuring the character Thomas the Tank Engine, will be at a premium. Boomers will also focus on nontraditional gifts, such as museum memberships or even wild animal adoptions through the World Wildlife Fund.
Boomers will continue to spend money on the usual fare, such as toys and clothing, but they will go about it with an eye toward keeping themselves informed. If an educational game is something that grandparents can play with their grandkids, so much the better. Kathy Whitehouse, a senior consultant with SRI Consulting Business Intelligence, says that boomer grandparents will be more likely than their own parents to pay attention to sources such as Consumer Reports, not only to assess a gift’s educational value but also to gauge its usefulness, safety and durability.
Probably the best way to appeal to boomer grandparents is to emphasize two things: education and shared experience. For big-ticket items, a major hook is the desire to give grandkids a wider range of experiences, particularly to things the boomers wish they could have experienced as kids but that their parents couldn’t afford. Adventure travel certainly fits that marketing profile, but so do many other things, such as space camp or computer camp and private lessons in painting, music or other artistic endeavors.
IV.
“TiVo”
HBS Case: 501-038 TN: 5-501-057
Teaching Perspectives
TiVo’s new consumer electronics product has the potential to revolutionize media consumption and the structure of the television industry. The TiVo personal video recorder provides television viewers with a variety of user-friendly features, including the ability to record automatically favorite shows, obtain personalized recommendations, skip commercials, and pause/rewind live television. “Watch what you want to watch when you want to watch it” is TiVo’s promise to the consumer. TiVo is confronted with the difficulty of selling a new and complex electronics product that is intended radically to change consumer habits. Moreover, with an ambiguous future impact on the television and advertising industries, TiVo needs to demonstrate that it can play a constructive role in the future media landscape.
Fourteen months into the launch, sales are very disappointing. The VP of Marketing and Sales, wants to combine a catchy communications campaign, product bundling with satellite television receivers, aggressive pricing, and increased sales support, in order to boost demand for the new category. One important goal is to position TiVo as a strong brand before the entry of big player Microsoft.
This case can be used to discuss classical areas of marketing strategy:
· Launch strategy for a truly new product.
· Preemptive positioning/first mover advantage.
· The role of branding in relation to these issues.
· Integrated communications strategy.
This case also can be used to highlight important issues in consumer behavior:
· Factors that inhibit/facilitate the adoption of a new technological product.
· Framing and reference points in consumer decision-making.
· Habit formation/disruption.
Finally, the case can he used to discuss contemporary issues related to marketing in the information age:
· Empowering consumers with more control over their consumption experiences, in order to enhance targeted marketing.
· Consumer privacy.
· Structural impact of information technologies on the functions and power of the various actors in the entertainment/advertising industry.
The best use of the case may be as a marketing strategy exercise (What is TiVo’s perceived value proposition? What is the situation with television networks and competitors? Whom should TiVo target, and what positioning claim should they make? What is the marketing plan?), allowing the other topics (consumer behavior and marketing issues in the information age) to surface as the discussion progresses. This approach has pluses and minuses. On the minus side, the analyses of these specific topics might remain relatively superficial. On the plus side, this approach highlights the criticality of these topics to the process of building an action plan.
Questions
1. Analyze the situation from the consumer’s standpoint. What is TiVo? What factors facilitate its adoption? What factors make adoption difficult? Who is TiVo best suited for?
2. Now adopt the standpoint of the networks, the advertisers, and the cable/satellite companies: What do they want TiVo to be? Thinking about the competition: What are Microsoft’s potential strengths and weaknesses in this market?
3. How would you describe and characterize TiVo’s action plan as given at the end of the case? How do you evaluate the planned communication campaign? Does your situation analysis suggest an alternative plan?
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