CONSUMER BEHAVIOUR

CONSUMER BEHAVIOUR OVERVIEW Definitions : Preface Intro to consumer behaviour ? Why Study Consumer Behaviour ? Introduction to Consumer Behaviour The Consumer Behaviour Theory Models/Theories influencing CB Major factors influencing CB

OVERVIEW

CONSUMER BEHAVIOR

the study of exchange processes involved inacquiring, consuming, and disposing ofgoods, services, experiences, and ideas

CB is defined as activities people undertake when obtaining, consuming,and disposing of products and services.( three primary activities are included in the definition of consumer behaviour)

Acquisition/Obtaining: Activities leading up to and including the purchase or receipt of a product, some of these activities include searching for information regd pdt features and choices, evaluating alternatives pdts or brands and purchasing.

A consumer behaviour analyst examines these types of behaviour including how consumers buy pdts-do they buy at specialty stores, at shopping malls, or on internet. Other issues might may be how consumers pay for pdt (with cash or credit), whether they buy as a gift or as a for themselves, whether consumers transport pdts or have them delivered ,where do consumers get information about the pdt and store alternatives and how brands influence consumers pdt choices.

The factors that influence the product/service choices of consumers. Much of CB research has focused on this stage. E.g., how did you decide to purchase one brand of car over another?

Consumption: Means how, where,when and under what circumstances consumers use the product.

e.g-whether the consumer uses the pdt at home or at the office .Do they use the product according to the instructions and as intended or do they find their own unique way of using pdts?Is the experience of using the entertaining or purely functional? do they use the entire pdt before disposing of it or is some of it never consumed?How consumers actually use a product/service. E.g., what sorts of attitudes are you forming during the time that you own a car, and how does these affect future purchases?

Disposition: refers to how the consumers get rid of the pdts and packaging .

Consumer Analysts may analyse from the ecological point of view :how do consumers dispose of pdt packaging or pdt remains ?are pdts biodegradable ?can they be recycled?What consumers do with a product once they have completed their use of it. E.g., if you purchase a new car several years later, do you keep the old one, trade it in, sell it yourself through the newspaper, give it to a friend, or have it towed to a junk yard?

Definitions :

Consumer Behaviour (or Buyer Behaviour) is broadly defined by various scholars & researchers as :

1. It’s the behaviour displayed by the consumers during the acquisition, consumption and disposition of products, services, time and ideas by decision making units.

2. It is the body of knowledge which studies various aspects of purchase and consumption of products and services by individuals with various social and psychological variables at play.

3. The behaviour that the consumers display in searching for, purchasing, using, evaluating and disposing of products and services that they expect will satisfy their needs.

4. The process and activities people engage in when searching for, selecting, purchasing, using, evaluating, and disposing of products and services so as to satisfy their needs and desires.

5. The activities directly involved in obtaining, consuming, and disposing of products and services, including the decision processes that precede and follow these actions.

6. The American Marketing Association (AMA) defines consumer behaviour as “The dynamic interaction of cognition, behaviour & environmental events by which human beings conduct the exchange aspect of their lives.

The study of consumer behaviour involves search, evaluation, purchase, consumption and post purchase behaviour of the consumers and includes the disposal of purchased products keeping environment and personal characteristics in mind.

Consumer behavior is the study of how people buy, what they buy, when they buy and why they buy. It blends elements from psychology, sociology, sociopsychology, anthropology and economics. It attempts to understand the buyer decision making process, both individually and in groups. It studies characteristics of individual consumers such as demographics, psychographics, and behavioural variables in an attempt to understand people's wants. It also tries to assess influences on the consumer from groups such as family, friends, reference groups, and society in general.

Consumer behavior: the study of individuals, groups, or organizations and the processes they use to select, secure, use, and dispose of products, services, experiences, or ideas to satisfy needs and the impacts that these processes have on the consumer and society.

Belch and Belch define consumer behavior as 'the process and activities people engage in when searching for, selecting, purchasing, using, evaluating, and disposing of products and services so as to satisfy their needs and desires'. What is Consumer Buying Behavior?

Definition of Buying Behavior:Buying Behavior is the decision processes and acts of people involved in buying and using products. Need to understand:

Why consumers make the purchases that they make? What factors influence consumer purchases? The changing factors in our society.

Consumer Buying Behavior refers to the buying behavior of the ultimate consumer. A firm needs to analyze buying behavior for:

Buyers reactions to a firms marketing strategy has a great impact on the firms success. The marketing concept stresses that a firm should create a Marketing Mix (MM) that satisfies (gives

utility to) customers, therefore need to analyze the what, where, when and how consumers buy. Marketers can better predict how consumers will respond to marketing strategies.

The study of consumer behavior (CB) incorporates theories and concepts from all of the behavioral sciences:

cognitive, experimental, social psychology sociology anthropology economics - etc.

EVOLUTION:The study of consumer behaviour is not altogether a recent activity, while it has blossomed into a much studied science only during the last two decades, it finds mention even in the earliest of treatises” The wealth of Nations” by Adam Smith published in 1776.It was given due place in the microeconomic theory &attracted the attention of economists, at that time it was purely a part of economic theory, viewing the behaviour of the consumer as a result of economic compulsions.In the early theory simplistic assumptions were made that consumers pursue their needs with limited incomes and are compelled to exercise choices to derive optimised satisfaction levels utilizing the available incomes. Much of the theory was built on such analyses but the underlying assumption was that CB is an unidisciplinary economic activity. By the later part of the twentieth century as marketing became an important activity marketers were seeking answers for questions like how do consumers behave ,the early economic theory were found to be inadequate, it was realized that CB is much more complex and involved concepts from various human behaviour sciences, the effects of sociology,psychology,anthropology were recognized the science of CB took root. Ever since marketing became universal marketers were in constant quest to find out why certain products achieved better acceptance than others ,in the initial stages they investigated only the product and compared the competing product benefits to establish the rationale for acceptance or rejection. however they found that even identically placed products had different receptions .It did not take long to realize that the purchase behaviour was based on several internal factors as well as external.

WHY DO WE STUDY CONSUMER BEHAVIOUR?

Basic objective of the studying consumer behavior is that the firm needs to know who buys their product. How they buy? When and where they buy? Why they buy? How they respond to marketing stimuli. Because they study consumer behavior what is Consumer Behavior about? How, why, where and when consumers make purchase decisions? Considers who influences the decisions? What is Consumer Behavior about? All these are important questions, which are to be known to the companies so that they can design, and implement marketing strategies to satisfy the customers.

Consumers determine the sales and profits of a firm by their purchase decisions, thus the economic viability of the firm. what is Disposable income and what is Discretionary income what is the stage of family life cycle stage because these all these factors influence the consumer behaviors which are very important to the marketers.

Consumer behavior is the procedure throughout the final purchaser makes buy assessments. This can be defined as Consumer Behavior Defined as of the processes involved when individuals or groups select, purchase, use, or dispose of products, services, ideas, or experiences to satisfy needs and desires (Solomon, 1996). Those actions directly involved in obtaining, consuming and disposing of products and services, including the decision processes that precede and follow those actions. Consumer behavior examines mental and emotional processes in addition to the physical activities.

Some more reasons to why Consumer Behaviour needs to be studied?

In the highly specialised study of “BUSINESS MANAGEMENT”, “BUSINESS ADMINISTRATION” or just “MANAGEMENT” today, “MARKETING MANAGEMENT” function plays a very critical role. This is because this functional area of management (1) “EARNS” the revenue, & (2) “WORKS” in the close proximity with the public or persons outside the organisation. Controlling these two attributes to have the desired benefits are the most difficult part of the management, because none of these two are within the direct control of the marketers. This doesn’t mean that the other functional areas are not useful, but they are not “DIRECTLY” involved in the activities mentioned above. 

Similarly, within the study of Marketing Management, the “Consumers” or the “Customers” play a very critical role as these are the people who finally BUY the goods & services of the organisation, and the firm is always on the move to make them buy so as to earn revenue. It’s crucial from both the points of view as given below:

From the customers’ point of view :

Customers today are in a tough spot. Today, in the highly developed & technologically advanced society, the customers have a great deal of choices & options (and often very close & competing) to decide on.

1. They have the products of an extreme range of attributes (the 1st P - Product),

2. they have a wide range of cost and payment choices (the 2nd P - Price), 3. they can order them to be supplied to their door step or anywhere else (the

3rd P - Place),

4. And finally they are bombarded with more communications from more channels than ever before (the 4th P - Promotion).

How can they possibly decide where to spend their time and money, and where they should give their loyalty?

With the study of Marketing Management, the “Consumers” or the “Customers” play a very critical role as these are the people who finally BUY the goods & services of the organisation, and the firm is always on the move to make them buy so as to earn revenue. It’s crucial from both the points of view as given below:

From the marketers’ point of view :

“The purpose of marketing is to sell more stuff to more people more often for more money in order to make more profit”. This is the basic principle of requirement for the marketers in earlier days where aggressive selling was the aim. Now it can’t be achieved by force, aggression or plain alluring. For the customers are today more informed, more knowledgeable, more demanding, more discerning. And above all there is no dearth of marketers to buy from. The marketers have to earn them or win them over. 

The global marketplace is a study in diversity, diversity among consumers, producers, marketers, retailers, advertising media, cultures, and customs and of course the individual or psychological behaviour. However, despite prevailing diversity, there also are many similarities. The object of the study of consumer behaviour is to provide conceptual and technical tools to enable the marketer to apply them to marketing practice, both profit & non-profit. 

The study of consumer behaviour (CB) is very important to the marketers because it enables them to understand and predict buying behaviour of consumers in the marketplace; it is concerned not only with what consumers buy, but also with why they buy it, when and where and how they buy it, and how often they buy it, and also how they consume it & dispose it.

Consumer research is the methodology used to study consumer behaviour; it takes place at every phase of the consumption process: before the purchase, during the purchase, and after the purchase. Research shows that two different buyers buying the same product may have done it for different reasons, paid different prices, used in different ways, have different emotional attachments towards the things and so on. 

According to Professor Theodore Levitt of the Harvard Business School, the study of Consumer Behaviour is one of the most important in business education, because the purpose of a business is to create and keep customers. Customers are created and maintained through marketing strategies. And the quality of marketing strategies depends on knowing, serving, and influencing consumers. In other words, the success of a business is to achieve organisational objectives, which can be done by the above two methods. This suggests that the knowledge & information about consumers is critical for developing successful marketing strategies because it challenges the marketers to think about and analyse the relationship between the consumers & marketers, and the consumer behaviour & the marketing strategy. 

Consumer behaviour is interdisciplinary; that is, it is based on concepts and theories about people that have been developed by scientists, philosophers & researchers in such diverse disciplines as psychology, sociology, social psychology, cultural anthropology, and economics. The main objective of the study of consumer behaviour is to provide marketers with the knowledge and skills, that are necessary to carry out detailed consumer analyses which could be used for understanding markets and developing marketing strategies. Thus, consumer behaviour researchers with their skills for the naturalistic settings of the market are trying to make a major contribution to our understanding of human thinking in general. 

The study of consumer behaviour helps management understand consumers’ needs so as to recognise the potential for the trend of development of change in consumer requirements and new technology. And also to articulate the new thing in terms of the consumers’ needs so that it will be accepted in the market well. 

The following are a few examples of the benefits of the study of consumer behaviour derived by the different categories of people :

1. A marketing manager would like to know how consumer behaviour will help him to design better marketing plans to get those plans accepted within the company.

2. In a non-profit service organisation, such as a hospital, an individual in the marketing department would like to know the patients’ needs and how best to serve those needs.

3. Universities & Colleges now recognise that they need to know about consumer behaviour to aid in recruiting students. “Marketing Admissions” has become an accepted term to mean marketing to potential students.  

Consumer behaviour has become an integral part of strategic market planning. It is also the basis of the approach to the concept of Holistic Marketing. The belief that ethics and social responsibility should also be integral components of every marketing decision is embodied in a revised marketing concept – the societal marketing concept – which calls on marketers to fulfill the needs of their target markets in ways that improve society as a whole

Main applications of consumer behavior (How we apply Consumer behavior):

(1. The most obvious is for marketing strategy — i.e., for making better marketing campaigns. For example, by understanding that consumers are more receptive to food advertising when they are hungry, we learn to schedule snack advertisements late in the afternoon.

2. By understanding that new products are usually initially adopted by a few consumers and only spread later, and then only gradually, to the rest of the population

3. We learn that (1) companies that introduce new products must be well financed so that they can stay afloat until their products become a commercial success and (2) it is important to please initial customers, since they will in turn influence many subsequent customers’ brand choices

TYPES OF BUYERS :

Personal Consumer: buys goods for own use. Household Consumer: buys goods for the household or family unit. Organisational: businesses, government and institutions. Buy to use for business purposes so

MOTIVATION IS DIFFERENT

ORIENTATIONS IN CB

AnthropologyEconomicsHistory and geographyPsychologySociology

PERSPECTIVES TOWARD THE STUDY OF CB

Marketer: How to best satisfy the wants and needs of a target market.

Consumer: How to become a better consumer by learning how people go about consumption activities and how marketers sell products.

Public policy maker: How to make rules, regulations, or laws which influence marketers and consumers in the marketplace.

PERSPECTIVES ON ACQUISITION BEHAVIOR

Decision-makingConsumers move through a series of steps when making a purchase:

problem recognition search alternative evaluation choice post purchase evaluation

E.g., we might go through the above steps in buying an expensive product such as a car or house. In the study of consumer behavior, we are less interested in whether or not this generic model is the "correct" model, and are more interested in the sorts of factors that influence this as a generic model. Hence, we are interested in the intrinsic and extrinsic influences on this model.

Experiential:People do not always make purchases according to a rational decision-making process; they sometimes buy products to have fun, create fantasies, and obtain emotions and feelings.

E.g., concerts, movies, camping: these are experiences that do not result in the ownership of a physical thing, but rather result in a pleasant (or unpleasant) memory. Why would someone go out to eat at a fancy restaurant when they could make dinner at home for less cost in money and time?

Behavioral:Environmental forces propel consumers to make purchases without necessarily first developing strong feelings or beliefs about the product.

E.g., using a coupon, responding to a contest, feeling proud when the national song is played. If the national song is played during commercials for a political candidate, we might later associate a feeling of pride with that candidate (classical conditioning) even though we otherwise know nothing substantial about the candidate.

Determinants of Consumer Behaviour

The study of Consumer Behaviour is quite complex, because of many variables involved and their tendency to interact with & influence each other. These variables are divided into three major sections that have been identified as the most important general influences on Consumer Behaviour. Imagine three concentric circles, one at the outer most, one in the middle & one at the inner most, and they represent the following :

1. External Environmental Variables Influencing Behaviour : These are the factors controlled by external environments like the following form the basis of external influences over the mind of a customer (outer circle) :

1. Culture, and Sub-culture, 2. Social Class, and Social Group, 3. Family, and Inter-Personal Influences, 4. Other Influences (which are not categorised by any of the above six, like

geographical, political, economical, religious environment, etc.).  

1. Individual Determinants of Behaviour : Major individual determinants of Consumer Behaviour are portrayed in the middle ring. These are the human mind and its attributes. These variables are personal in nature and they are influenced by the above set of external factors and in turn influence the way consumers proceed thro’ a decision making process regarding products & services. They are :

1. Personality & Self-concept, 2. Motivation & Involvement, 3. Perception & Information Processing, 4. Learning & Memory, 5. Attitudes.

INFLUENCES ON CONSUMER BEHAVIOR

Intrinsic:Individual, internal influence factors: personality, motivation, beliefs, attitudes, etc.

Extrinsic:External factors of influence:

group influences, such as culture, family, reference groups Environmental and situational factors, such as time of day, temperature, etc.

The Consumer Decision Making Process

The buying decision comes as a product of the complex interaction of the external factors and the personal attributes. The inner most circle denotes the consumer decision making process regarding products & services, whose major steps are:

1. Problem Recognition, 2. Information Search, 3. Evaluation of Application, 4. Purchase Decision, 5. Post-Purchase Behaviour.

Marketers are frequently uncertain about the variables that are at play influencing & affecting consumers. Sometimes this occurs because they don’t clearly understand the extent of variables that might be having an influence. The details of all external, internal, environmental, economical etc. are discussed above. Sometimes some variables are not directly observable. Other times variables are known to the marketers but their exact nature & relative strength of influence is not apparent. In these circumstances, it is useful to understand the above mentioned concepts and how the consumers behave, so that their decision making process can be predicted to a reasonable extent. The human mind being as complex as it is, the understanding of the buying behaviour of the consumers becomes a continuous activity of application of various theories & concepts by the marketers.

The Consumer Behaviour Theory

An understanding of how the theory of consumer behaviour and its application tools evolved over the years will enable us to appreciate the validity of the theory and give us guidance in its practical application. Consumer behaviour, like all human behaviour is very complex. But the consumer behaviour theory, like all theories is a simplified & abstract representation of reality. The more simplified picture of consumers provided by the theory helps us enormously to understand the consumers. It not only helps us to think about consumers, but also provides us with a language to talk about them. This language is very useful, because to be effective in an organisation – for profit or non-profit – one has to persuade others to accept his ideas. And in fact, lack of this language has been one of the greatest drawback of the modern marketers. 

Market Research or Marketing Research (MR) has been developing since “MARKETING” which brings together all customer elements, grew out of the concept of “SALES” in the early fifties. The theory of consumer behaviour draws heavily upon the famous psychologist Sigmund Freud, particularly with respect to the emotional, psychological, mental, subjective or non-utilitarian aspects of buying decision or behaviour of a consumer. The theory represents the hidden order in this very complex activity, which we call consumer behaviour. On the surface, this highly complex & varied display of behaviour by consumers seems essentially unexplained. But slowly as the theory develops, the hidden pattern emerges, describing the order we suddenly see, and explaining why the behaviour pattern takes place. 

Now, what is the magic stuff called consumer behaviour theory that does all these wonderful things. It’s not just a theory, as explained earlier, but more than that. It helps us to make better marketing decisions for profit & non-profit organisations. Thus we can examine the characteristics of a theory that enables us to do so. Researchers G Zaltman and M Wallendorf have came out with the most important attributes of a good & sound theory, after very close and careful thought. These are the following :

1. A theory which does both : explains how consumers buy & predicts what consumers will buy.

2. It unifies previously unrelated areas of knowledge, for example, it relates to information that consumers get from advertising so as to decide what brands they buy.

3. The theory is simple. If not, it can be so complex that we can’t understand well enough to apply it to our practical problems.

4. It is testable so that we can verify whether the theory is valid and therefore dependable.

5. Implied in the previous characteristic, it is supported by the facts. This means, to lay the theory up against data describing how consumers buy in the market and thereby determine if the facts confirm the theory. If they don’t, then either the theory should be modified till the facts do verify it or abandon the theory.

6. The theory is general, which means that it can be applied to a wide range of products & services. If it is not, then it won’t be very useful.

7. It has heuristic value, meaning that it poses new questions for us that had not been previously asked. While trying to answer these questions, new knowledge is created and that becomes the part of the theory.

8. It is internally consistent. This means that the theory is internally free from logical incongruencies or else the prediction will be doubtful & flawed. Lack of this quality will make the theory a dangerous tool.

9. It is original. If not, it adds little to the existing knowledge. 10. It is plausible. If not, it can’t be seen by others as making any sense, and

hence, they will not likely to accept the theory and so it won’t be useful. 11. And if all the above ten points are in order, then it can be applied to

designing marketing strategy and marketing plans.

CONSUMER RESEARCH

market research organized use of sample surveys, polls , focus groups, and other techniques to study market characteristics (e.g., ages and incomes of consumers; consumer attitudes) and improve the efficiency of sales and distribution. Development of new products, opening of new markets, measurement

Marketing research is a form of business research and is generally divided into two categories: consumer market research and business-to-business (B2B) market research, which was previously known as industrial marketing research. Consumer marketing research studies the buying habits of individual people while business-to-business marketing research investigates the markets for products sold by one business to another.

Consumer market research is a form of applied sociology that concentrates on understanding the behaviors, whims and preferences, of consumers in a market-based economy, and aims to understand the effects and comparative success of marketing campaigns. The field of consumer marketing research as a statistical science was pioneered by Arthur Nielsen with the founding of the ACNielsen Company in 1923.

Thus marketing research is the systematic and objective identification, collection, analysis, and dissemination of information for the purpose of assisting management in decision making related to the identification and

solution of problems and opportunities in marketing The goal of marketing research is to identify and assess how changing elements of the marketing mix impacts customer behavior.

Role of marketing research

The task of marketing research is to provide management with relevant, accurate, reliable, valid, and current information. Competitive marketing environment and the ever-increasing costs attributed to poor decision making require that marketing research provide sound information. Sound decisions are not based on gut feeling, intuition, or even pure judgment.

Marketing managers make numerous strategic and tactical decisions in the process of identifying and satisfying customer needs. They make decisions about potential opportunities, target market selection, market segmentation, planning and implementing marketing programs, marketing performance, and control. These decisions are complicated by interactions between the controllable marketing variables of product, pricing, promotion, and distribution. Further complications are added by uncontrollable environmental factors such as general economic conditions, technology, public policies and laws, political environment, competition, and social and cultural changes.

Another factor in this mix is the complexity of consumers. Marketing research helps the marketing manager link the marketing variables with the environment and the consumers. It helps remove some of the uncertainty by providing relevant information about the marketing variables, environment, and consumers. In the absence of relevant information, consumers' response to marketing programs cannot be predicted reliably or accurately. Ongoing marketing research programs provide information on controllable and non-controllable factors and consumers; this information enhances the effectiveness of decisions made by marketing managers.

Traditionally, marketing researchers were responsible for providing the relevant information and marketing decisions were made by the managers. However, the roles are changing and marketing researchers are becoming more involved in decision making, whereas marketing managers are becoming more involved with research. The role of marketing research in managerial decision making is explained further using the framework of the DECIDE model:

D —- Define the marketing problem

E —- Enumerate the controllable and uncontrollable decision factors

C —- Collect relevant information

I —- Identify the best alternative

D —- Develop and implement a marketing plan

E —- Evaluate the decision and the decision process

The DECIDE model conceptualizes managerial decision making as a series of six steps. The decision process begins by precisely defining the problem or opportunity, along with the objectives and constraints. Next, the possible decision factors that make up the alternative courses of action (controllable factors) and uncertainties (uncontrollable factors) are enumerated. Then, relevant information on the alternatives and possible outcomes is collected. The next step is to select the best alternative based on chosen criteria or measures of success. Then a detailed plan to implement the alternative selected is developed and put into effect. Last, the outcome of the decision and the decision process itself are evaluated.

Marketing research characteristics

1. First, marketing research is systematic. Thus systematic planning is required at all the stages of the marketing research process. The procedures followed at each stage are methodologically sound, well documented, and, as much as possible, planned in advance. Marketing research uses the scientific method in that data are collected and analyzed to test prior notions or hypotheses.

2. Marketing research is objective. It attempts to provide accurate information that reflects a true state of affairs. It should be conducted impartially. While research is always influenced by the researcher's research philosophy, it should be free from the personal or political biases of the researcher or the management. Research which is motivated by personal or political gain involves a breach of professional standards. Such research is deliberately biased so as to result in predetermined findings. The motto of every researcher should be, "Find it and tell it like it is." The objective nature of marketing research underscores the importance of ethical considerations.

3. Marketing research involves the identification, collection, analysis, and dissemination of information. Each phase of this process is important. We identify or define the marketing research problem or opportunity and then determine what information is needed to investigate it., and inferences are drawn. Finally, the findings, implications and recommendations are provided in a format that allows the information to be used for management decision making and to be acted upon directly. It should be emphasized that marketing research is conducted to assist management in decision making and is not: a means or an end in itself. The next section elaborates on this definition by classifying different types of marketing research.

Comparison with other forms of business research:

Market research is broader in scope and examines all aspects of a business environment. It asks questions about competitors, market structure, government regulations, economic trends, technological advances, and numerous other factors that make up the business environment (see environmental scanning). Sometimes the term refers more particularly to the financial analysis of companies, industries, or sectors. In this case, financial analysts usually carry out the research and provide the results to investment advisors and potential investors.

Product research - This looks at what products can be produced with available technology, and what new product innovations near-future technology can develop (see new product development).

Advertising research - is a specialized form of marketing research conducted to improve the efficacy of advertising. Copy testing, also known as "pre-testing," is a form of customized research that predicts in-market performance of an ad before it airs, by analyzing audience levels of attention, brand linkage, motivation, entertainment, and communication, as well as breaking down the ad’s flow of attention and flow of emotion. Pre-testing is also used on ads still in rough (ripomatic or animatic) form.

Classification of marketing research

• Descriptive in nature.• Enables marketers to “predict” consumer behavior.• Research methods include experiments, survey techniques, and observation.• Findings are descriptive, empirical and generalizable

Positivism: A consumer behavior research approach that regards the consumer behavior discipline as an applied marketing science.

Qualitative Research• Consists of depth interviews, focus groups, metaphor analysis, collage research, and projective

techniques.• Administered by highly trained interviewer-analysts.• Findings tend to be subjective.• Small sample sizes.

Interpretivism

A postmodernist approach to the study of consumer behavior that focuses on the act of consuming rather than on the act of buying.

Comparison b/w Positivism and Experientialism

Positivism Experientialism

Purpose To predict consumer actions To understand consumption behaviour

Methodology Quantitative research methods Qualitative methods

Assumptions Customers make rational decisions The cause &effect of behaviour can be

identified Individuals are problem solvers and engage in

information processing. A single reality exists Objective measurements of events possible

There is o single “objective truth” Reality is subjective Cause and effect cannot be identified Each consumption experience is

unique Interactions b/w researcher/respondent

affect research findings.

Cause of behaviour can be identified and by manipulating causes the marketer can influence behaviour.

Findings can be generalized to larger populations.

Findings are often Not generalized to larger populations

Interpretivism

• No single, objective truth• Reality is subjective• Cause and effect cannot be isolated• Each consumption experience is unique• Researcher/respondent interactions affect research findings

Positivism

• Rationality; consumers make decisions after weighing alternatives• The causes and effects of behavior can be identified• Individuals are problem solvers • A single reality exists• Events can be objectively measured

Consumer research process

– defining the objectives of the research– collecting and evaluating secondary data– designing a primary research study– collecting primary data– analyzing the data– preparing a report on the findings

The Consumer Research Process

Develop Objectives

Collect Secondary Data

Design Qualitative ResearchMethod

Screener questionnaireDiscussion guide

Prepare Report

Analyze Data(Subjective)

Conduct Research(Using highly trained

interviewers)Exploratory

Study

Prepare report

Analyze Data(Objective)

Collect Primary Data(Usually by field staff)

Design Quantitative ResearchMethod

Sample designData collection instrument

SPECIFY RESEARCH OBJECTIVES

1. Secondry research-2. Primary research

A company collects primary research by gathering original data. Secondary research is conducted on data published previously and usually by someone else. Secondary research costs far less than primary research, but seldom comes in a form that exactly meets the needs of the researcher.A similar distinction exists between exploratory research and conclusive research. Exploratory research provides insights into and comprehension of an issue or situation. It should draw definitive conclusions only with extreme caution. Conclusive research draws conclusions: the results of the study can be generalized to the whole population.Exploratory research is conducted to explore a problem to get some basic idea about the solution at the preliminary stages of research. It may serve as the input to conclusive research. Exploratory research information is collected by focus group interviews, reviewing literature or books, discussing with experts, etc. This is unstructured and qualitative in nature. If a secondary source of data is unable to serve the purpose, a convenience sample of small size can be collected. Conclusive research is conducted to draw some conclusion about the problem. It is essentially, structured and quantitative research, and the output of this research is the input to management information systems (MIS).

Exploratory research is also conducted to simplify the findings of the conclusive or descriptive research, if the findings are very hard to interpret for the marketing manager

DATA COLLECTION METHOD

FOUR POPULAR METHODS OF DATA COLLECTION ARE:

1. DEPTH INTERVIEWS

2. FOCUS GROUP

3. PROJECTIVE TECHNIQUES

4. LADDERING (end chain model)

Consumer Research Methods

Market research is often needed to ensure that we produce what customers really want and not what we think they want.

Primary vs. secondary research methods.  There are two main approaches to marketing.  Secondary  research involves using information that others have already put together.  For example, if you are thinking about starting a business making clothes for tall people, you don’t need to question people about how tall they are to find out how many tall people exist—that information has already been published by the U.S. Government.  Primary research, in contrast, is research that you design and conduct yourself.  For example, you may need to find out whether consumers would prefer that your soft drinks be sweater or tarter.Research will often help us reduce risks associated with a new product, but it cannot take the risk away entirely.  It is also important to ascertain whether the research has been complete.  For example, Coca Cola did a great deal of research prior to releasing the New Coke, and consumers seemed to prefer the taste.  However, consumers were not prepared to have this drink replace traditional Coke.

Secondary Methods. 

Primary Methods. Several tools are available to the market researcher—e.g., mail questionnaires, phone surveys, observation, and focus groups.  Surveys are useful for getting a great deal of specific information.Surveys can contain open-ended questions (e.g., “In which city and state were you born? ____________”) or closed-ended, where the respondent is asked to select answers from a brief list (e.g., “__Male ___ Female.” 

Open ended questions have the advantage that the respondent is not limited to the options listed, and that the respondent is not being influenced by seeing a list of responses.  However, open-ended questions are often skipped by respondents, and coding them can be quite a challenge.  In general, for surveys to yield meaningful responses, sample sizes of over 100 are usually required because precision is essential.  For example, if a market share of twenty percent would result in a loss while thirty percent would be profitable, a confidence interval of 20-35% is too wide to be useful.Surveys come in several different forms.  Mail surveys are relatively inexpensive, but response rates are typically quite low—typically from 5-20%.  Phone-surveys get somewhat higher response rates, but not many questions can be asked because many answer options have to be repeated and few people are willing to stay on the phone for more than five minutes.  Mall intercepts are a convenient way to reach consumers, but respondents may be reluctant to discuss anything sensitive face-to-face with an interviewer. Surveys, as any kind of research, are vulnerable to bias.  The wording of a question can influence the outcome a great deal.   The respondent may catch on and say something more positive than his or her real opinion.   Finally, a response bias may occur—if only part of the sample responds to a survey, the respondents’ answers may not be representative of the population.

Focus groups are useful when the marketer wants to launch a new product or modify an existing one.  A focus group usually involves having some 8-12 people come together in a room to discuss their consumption preferences and experiences.  The group is usually led by a moderator, who will start out talking broadly about topics related broadly to the product without mentioning the product itself.  For example, a focus group aimed at sugar-free cookies might first address consumers’ snacking preferences, only gradually moving toward the specific product of sugar-free cookies.  By not mentioning the product up front, we avoid biasing the participants into thinking only in terms of the specific product brought out.   Thus, instead of having consumers think primarily in terms of what might be good or bad about the product, we can ask them to discuss more broadly the ultimate benefits they really seek.  For example, instead of having consumers merely discuss what they think about some sugar-free cookies that we are considering releasing to the market, we can have consumers speak about their motivations for using snacks and what general kinds of benefits they seek.   Such a discussion might reveal a concern about healthfulness and a desire for wholesome foods.  Probing on the meaning of wholesomeness, consumers might indicate a desire to avoid artificial ingredients.   This would be an important concern in the marketing of sugar-free cookies, but might not have come up if consumers were asked to comment directly on the product where the use of artificial ingredients is, by virtue of the nature of the product, necessary.

Advantage: Focus groups are well suited for some purposes, but poorly suited for others.  In general, focus groups are very good for getting breadth—i.e., finding out what kinds of issues are important for consumers in a given product category.  Here, it is helpful that focus groups are completely “open-ended:” The consumer mentions his or her preferences and opinions, and the focus group moderator can ask the consumer to elaborate.   In a questionnaire, if one did not think to ask about something, chances are that few consumers would take the time to write out an elaborate answer. 

Focus groups also have some DRAWBACKS, for example:

They represent small sample sizes.  Because of the cost of running focus groups, only a few groups can be run.  Suppose you run four focus groups with ten members each. This will result in an n of 4(10)=40, which is too small to generalize from Therefore, focus groups cannot give us a good idea of:

What proportion of the population is likely to buy the product? What price consumers are willing to pay? The groups are inherently social.  This means that: Consumers will often say things that may make them look good (i.e., they watch public television rather

than soap operas or cook fresh meals for their families daily) even if that is not true. Consumers may be reluctant to speak about embarrassing issues (e.g., weight control, birth control).

Personal interviews involve in-depth questioning of an individual about his or her interest in or experiences with a product.  The benefit here is that we can get really into depth (when the respondent says something interesting, we can ask him or her to elaborate), but this method of research is costly and can be extremely vulnerable to interviewer bias. To get a person to elaborate, it may help to try a common tool of psychologists and psychiatrists—simply repeating what the person said.  He or she will often become uncomfortable with the silence that follows and will then tend to elaborate.  This approach has the benefit that it minimizes the interference with the respondent’s own ideas and thoughts.  He or she is not influenced by a new question but will, instead, go more in depth on what he or she was saying.

Personal interviews are highly susceptible to inadvertent “signaling” to the respondent.   Although an interviewer is looking to get at the truth, he or she may have a significant interest in a positive consumer response.   Unconsciously, then, he or she may inadvertently smile a little when something positive is said and frown a little when something negative is said.  Consciously, this will often not be noticeable, and the respondent often will not consciously be aware that he or she is being “reinforced” and “punished” for saying positive or negative things, but at an unconscious level, the cumulative effect of several facial expressions are likely to be felt.   Although this type of conditioning will not get a completely negative respondent to say all positive things, it may “swing” the balance a bit so that respondents are more likely to say positive thoughts and withhold, or limit the duration of, negative thoughts.

Projective techniques are used when a consumer may feel embarrassed to admit to certain opinions, feelings, or preferences.  For example, many older executives may not be comfortable admitting to being aintimidated by computers.   It has been found that in such cases, people will tend to respond more openly about “someone else.”  Thus, we may ask them to explain reasons why a friend has not yet bought a computer, or to tell a story about a person in a picture who is or is not using a product

Advantage - Projective techniques are inherently inefficient to use.  The elaborate context that has to be put into place takes time and energy away from the main question.  There may also  be real differences between the respondent and the third party.  Saying or thinking about something that “hits too close to home” may also influence the respondent, who may or may not be able to see through the ruse.Disadvantage-   The main problem with this method is that it is difficult to analyze responses

Observation of consumers is often a powerful tool.  Looking at how consumers select products may yield insights into how they make decisions and what they look for.  For example, some American manufacturers were concerned about low sales of their products in Japan.  Observing Japanese consumers, it was found that many of these Japanese consumers scrutinized packages looking for a name of a major manufacturer—the product specific-brands that are common in the U.S. (e.g., Tide) were not impressive to the Japanese, who wanted a name of a major firm like Mitsubishi or Proctor & Gamble.  Observation may help us determine how much time consumers spend comparing prices, or whether nutritional labels are being consultedA question arises as to whether this type of “spying” inappropriately invades the privacy of consumers.   Although there may be cause for some concern in that the particular individuals have not consented to be part of this research, it should be noted that there is no particular interest in what the individual customer being watched does.   The question is what consumers—either as an entire group or as segments—do.  Consumers benefit, for example, from stores that are designed effectively to promote efficient shopping.  If it is found that women are more uncomfortable than men about others standing too close, the areas of the store heavily trafficked by women can be designed accordingly.  What is being reported here, then, are averages and tendencies in response.   The intent is not to find “juicy” observations specific to one customer.

Online research methods.  The Internet now reaches the great majority of households in the U.S., and thus, online research provides new opportunity and has increased in use.

One potential benefit of online surveys is the use of “conditional branching.”  In conventional paper and pencil surveys, one question might ask if the respondent has shopped for a new car during the last eight months.   If the respondent answers “no,” he or she will be asked to skip ahead several questions—e.g., going straight to question 17 instead of proceeding to number 9.  If the respondent answered “yes,” he or she would be instructed to go to the next question which, along with the next several ones, would address issues related to this shopping experience.  Conditional branching allows the computer to skip directly to the appropriate question.   If a

respondent is asked which brands he or she considered, it is also possible to customize brand comparison questions to those listed.  Suppose, for example, that the respondent considered Ford, Toyota, and Hyundai, it would be possible to ask the subject questions about his or her view of the relative quality of each respective pair—in this case, Ford vs. Toyota, Ford vs. Hyundai, and Toyota vs. Hyundai. There are certain drawbacks to online surveys. Some consumers may be more comfortable with online activities than others—and not all households will have access.  Today, however, this type of response bias is probably not significantly greater than that associated with other types of research methods.  A more serious problem is that it has consistently been found in online research that it is very difficult—if not impossible—to get respondents to carefully read instructions and other information online—there is a tendency to move quickly.  This makes it difficult to perform research that depends on the respondent’s reading of a situation or product description. Online search data and page visit logs provides valuable ground for analysis.  It is possible to see how frequently various terms are used by those who use a firm’s web site search feature or to see the route taken by most consumers to get to the page with the information they ultimately want. 

Scanner data.  Many consumers are members of supermarket “clubs.”  In return for signing p for a card and presenting this when making purchases, consumers are often eligible for considerable discounts on selected products Researchers use a more elaborate version of this type of program in some communities.   Here, a number of consumers receive small payments and/or other incentives to sign up to be part of a research panel.   They then receive a card that they are asked to present any time they go shopping.  Nearly all retailers in the area usually cooperate.  It is now possible to track what the consumer bought in all stores and to have a historical record.The consumer’s shopping record is usually combined with demographic information (e.g., income, educational level of adults in the household, occupations of adults, ages of children, and whether the family owns and rents) and the family’s television watching habits.  (Electronic equipment run by firms such as A. C. Nielsen will actually recognize the face of each family member when he or she sits down to watch).All of these forms of marketing research can be classified as either problem-identification research or as problem-solving research.

Marketing research methods

Methodologically, marketing research uses the following types of research designs

Based on questioning:

Qualitative marketing research - generally used for exploratory purposes - small number of respondents - not generalizable to the whole population - statistical significance and confidence not calculated - examples include focus groups, in-depth interviews, and projective techniques

Quantitative marketing research - generally used to draw conclusions - tests a specific hypothesis - uses random sampling techniques so as to infer from the sample to the population - involves a large number of respondents - examples include surveys and questionnaires. Techniques include choice modeling, maximum difference preference scaling, and covariance analysis.

Based on observations:

Ethnographic studies -, by nature qualitative, the researcher observes social phenomena in their natural setting - observations can occur cross-sectionally (observations made at one time) or longitudinally (observations occur over several time-periods) - examples include product-use analysis and computer cookie traces. See also Ethnography and Observational techniques.

Experimental techniques -, by nature quantitative, the researcher creates a quasi-artificial environment to try to control spurious factors, then manipulates at least one of the variables - examples include purchase laboratories and test markets

Researchers often use more than one research design. They may start with secondary research to get background information, then conduct a focus group (qualitative research design) to explore the issues. Finally they might do a full nation-wide survey (quantitative research design) in order to devise specific recommendations for the client.

It is now possible to assess the relative impact of a number of factors on the consumer’s choice—e.g.,

What brand in a given product category was bought during the last, or a series of past, purchase occasions;

Whether, and if so, how many times a consumer has seen an ad for the brand in question or a competing one;

Whether the target brand (and/or a competing one) is on sale during the store visit; Whether any brand had preferential display space; The impact of income and/or family size on purchase patterns; and Whether a coupon was used for the purchase and, if so, its value.

Interestingly, it has been found that consumers tend to be more influenced by commercials that they “zap” through while channel surfing even if they only see part of the commercial.  This most likely results from the reality that one must pay greater attention while channel surfing than when watching a commercial in order to determine which program is worth watching.

Scanner data is, at the present time, only available for certain grocery item product categories—e.g., food items, beverages, cleaning items, laundry detergent, paper towels, and toilet paper.  It is not available for most non-grocery product items.  Scanner data analysis is most useful for frequently purchased items (e.g., drinks, food items, snacks, and toilet paper) since a series of purchases in the same product category yield more information with greater precision than would a record of one purchase at one point in time.  Even if scanner data were available for electronic products such as printers, computers, and MP3 players, for example, these products would be purchased quite infrequently.  Physiological measures are occasionally used to examine consumer response.  For example, advertisers may want to measure a consumer’s level of arousal during various parts of an advertisement.  This can be used to assess possible discomfort on the negative side and level of attention on the positive side. By attaching a tiny camera to plain eye glasses worn by the subject while watching an advertisement, it is possible to determine where on screen or other ad display the subject focuses at any one time.   If the focus remains fixed throughout an ad sequence where the interesting and active part area changes, we can track whether the respondent is following the sequence intended.  If he or she is not, he or she is likely either not to be paying as much attention as desired or to be confused by an overly complex sequence.  In situations where the subject’s eyes do move, we can assess whether this movement is going in the intended direction.

Mind-reading would clearly not be ethical and is, at the present time, not possible in any event.   However, it is possible to measure brain waves by attaching electrodes.  These readings will not reveal what the subject actually thinks, but it is possible to distinguish between beta waves—indicating active thought and analysis—and alpha waves, indicating lower levels of attention.An important feature of physiological measures is that we can often track performance over time.  A subject may, for example, be demonstrating good characteristics—such as appropriate level of arousal and eye movement—during some of the ad sequence and not during other parts.   This, then, gives some guidance as to which parts of the ad are effective and which ones need to be reworked.

Cautions.  Some cautions should be heeded in marketing research.

First, in general, research should only be commissioned when it is worth the cost.  Thus, research should normally be useful in making specific decisions (what size should the product be?  Should the product be launched?  Secondly, marketing research can be, and often is, abused.  Managers frequently have their own “agendas” (e.g., they either would like a product

Chapter outlineConsumer Research

Consumer Research: The Paradigm Shift

Quantitative vs. Qualitative Quantitative

Enumerative Appropriate Base for Judgment Non-random Sampling

Qualitative High Involvement Relevant Consumer Insights

Combination

Consumer Research Process Defining the Research Problem and Developing Objectives

Identification of a Management Problem or an Opportunity Formulation of Research Problem and Objectives Decision regarding the type of Research

Exploratory Research and Analysis Collection of Relevant Information from the Available Source of Information Exploratory Research Conclusive Research Sources

External Internal

Designing the Conclusive Research Collecting Data from the Primary Source of Information Data Collection Methods and Techniques

Quantitative Data Collection Methods Observation Experimentation Surveys

Quantitative Measurement Techniques Questionnaire Attitude Scale

Data Collection Methods and Techniques Qualitative Data Collection Methods and Techniques

Depth Interviews Projective Techniques Metaphor Analysis Sampling

Data Collection, Analysis and Finding Report Consumer Research: Good or Bad?

Summary: Consumer Research: The Paradigm Shift Consumer Research Process Consumer Research: Good or Bad?

Segmentation, Targeting, and Positioning

A market segment is a group of people or organizations sharing one or more characteristics that cause them to have similar product and/or service needs. A true market segment meets all of the following criteria: it is distinct from other segments (different segments have different needs), it is homogeneous within the segment (exhibits common needs); it responds similarly to a market stimulus, and it can be reached by a market intervention. The term is also used when consumers with identical product and/or service needs are divided up into groups so they can be charged different amounts. These can broadly be viewed as 'positive' and 'negative' applications of the same idea, splitting up the market into smaller groups.

Market segmenting is the process that a company divides the market into distinct groups who have distinct needs, wants, behaviour or who might want different products & services Broadly, markets can be divided according to a number of general criteria, such as by industry or public versus private although industrial market segmentation is quite different from consumer market segmentation, both have similar objectives. All of these methods of segmentation are merely proxies for true segments, which don't always fit into convenient demographic boundaries.The process of segmentation is distinct from targeting (choosing which segments to address) and positioning (designing an appropriate marketing mix for each segment). The overall intent is to identify groups of similar customers and potential customers; to prioritize the groups to address; to understand their behaviour; and to respond with appropriate marketing strategies that satisfy the different preferences of each chosen segment. Revenues are thus improved. Improved segmentation can lead to significantly improved marketing effectiveness. Distinct segments can have different industry structures and thus have higher or lower attractiveness (Michael Porter). With the right segmentation, the right lists can be purchased, advertising results can be improved and customer satisfaction can be increased leading to better reputation.

Successful Segmentation

Successful segmentation requires the following

homogeneity within the segment heterogeneity between segments segments are measurable and substantial segments are differentiable segments are accessible and actionable target segment is large enough to be profitable

Variables Used for Segmentation

Geographic variables o Region of the world or country, East, West, South, North, Central, coastal, hilly, etc. o Country size/country size : Metropolitan Cities, small cities, towns. o Density of Area Urban, Semi-urban, Rural. o Climate Hot, Cold, Humid, Rainy.

Demographic variables o age o gender Male and Female o family size o family life cycle o Education Primary, High School, Secondary, College, Universities. o income o occupation o socioeconomic status o religion o nationality/race (ethnic marketing) o language

Psychographic variables o personality o life style o value o attitude

Behavioral variables o benefit sought o product usage rate o brand loyalty

o product end use oo readiness-to-buy stage o decision making unit o profitability o income status

Techno graphic variables o motivations o usage patterns o attitudes about technology o fundamental values o lifestyle perspective o standard of living o profit is there in business from the existing clients

When numerous variables are combined to give an in-depth understanding of a segment, this is referred to as depth segmentation. When enough information is combined to create a clear picture of a typical member of a segment, this is referred to as a buyer profile. When the profile is limited to demographic variables it is called a demographic profile (typically shortened to "a demographic").

Top-Down and Bottom-Up

George Day (1980) describes model of segmentation as the top-down approach: You start with the total population and divide it into segments. He also identified an alternative model which he called the bottom-up approach. In this approach, you start with a single customer and build on that profile. This typically requires the use of customer relationship management software or a database of some kind. Profiles of existing customers are created and analysed. Various demographic, behavioural, and psychographic patterns are built up using techniques such as cluster analysis. This process is sometimes called database marketing or micro-marketing. Its use is most appropriate in highly fragmented markets. McKenna (1988) claims that this approach treats every customer as a "micromajority". Pine (1993) used the bottom-up approach in what he called "segment of one marketing". Through this process mass customization is possible.

Using Segmentation in Customer Retention

Segmentation is commonly used by organizations to improve their customer retention programs and help ensure that they are:

Focused on retaining their most profitable customers Employing those tactics most likely to retain these customers

The basic approach to retention-based segmentation is that a company tags each of its active customers with 3 values:

Tag #1: Is this customer at high risk of canceling the company's service? (Or becoming a non-user)One of the most common indicators of high-risk customers is a drop off in usage of the company's service. For example, in the credit card industry this could be signaled through a customer's decline in spending on his card.

Tag #2: Is this customer worth retaining?This determination boils down to whether the post-retention profit generated from the customer is predicted to be greater than the cost incurred to retain the customer.[2]

Tag #3: What retention tactics should be used to retain this customer?For customers who are deemed “save-worthy”, it’s essential for the company to know which save tactics are most likely to be successful. Tactics commonly used range from providing “special” customer discounts to sending customers communications that reinforce the value proposition of the given service.

Process for tagging customers The basic approach to tagging customers is to utilize historical retention data to make predictions about active customers regarding:

Whether they are at high risk of canceling their service Whether they are profitable to retain What retention tactics are likely to be most effective

The idea is to match up active customers with customers from historic retention data who share similar attributes. Using the theory that “birds of a feather flock together”, the approach is based on the assumption that active customers will have similar retention outcomes as those of their comparable predecessors.[3]From a technical perspective, the segmentation process is commonly performed using a combination of predictive analytics and cluster analysis.

Illustration of retention-based segmentation process:

Segmentation, targeting, and positioning together comprise a three stage process.  We first (1) determine which kinds of customers exist, then (2) select which ones we are best off trying to serve and, finally, (3) implement our segmentation by optimizing our products/services for that segment and communicating that we have made the choice to distinguish ourselves that way.

Segmentation involves finding out what kinds of consumers with different needs exist.  In the auto market, for example, some consumers demand speed and performance, while others are much more concerned about roominess and safety.  In general, it holds true that “You can’t be all things to all people,” and experience has demonstrated that firms that specialize in meeting the needs of one group of consumers over another tend to be more profitable. Generically, there are three approaches to marketing.  In the undifferentiated strategy, all consumers are treated as the same, with firms not making any specific efforts to satisfy particular groups.  This

may work when the product is a standard one where one competitor really can’t offer much that another one can’t.  Usually, this is the case only for commodities.  In the concentrated strategy, one firm chooses to focus on one of several segments that exist while leaving other segments to competitors.  For example, Southwest Airlines focuses on price sensitive consumers who will forego meals and assigned seating for low prices.  In contrast, most airlines follow the differentiated strategy:   They offer high priced tickets to those who are inflexible in that they cannot tell in advance when they need to fly and find it impractical to stay over a Saturday.  These travelers—usually business travelers—pay high fares but can only fill the planes up partially.  The same airlines then sell some of the remaining seats to more price sensitive customers who can buy two weeks in advance and stay over. Note that segmentation calls for some tough choices. 

There may be a large number of variables that can be used to differentiate consumers of a given product category; yet, in practice, it becomes impossibly cumbersome to work with more than a few at a time.  Thus, we need to determine which variables will be most useful in distinguishing different groups of consumers.  We might thus decide, for example, that the variables that are most relevant in separating different kinds of soft drink consumers are (1) preference for taste vs. low calories, (2) preference for Cola vs. non-cola taste, (3) price sensitivity—willingness to pay for brand names; and (4) heavy vs. light consumers.  We now put these variables together to arrive at various combinations. Several different kinds of variables can be used for segmentation. 

Demographic variables essentially refer to personal statistics such as income, gender, education, location (rural vs. urban, East vs. West), ethnicity, and family size.  Some consumers want to be seen as similar to others, while a different segment wants to stand apart from the crowd. 

Another basis for segmentation is behavior.  Some consumers are “brand loyal”—i.e., they tend to stick with their preferred brands even when a competing one is on sale.  Some consumers are “heavy” users while others are “light” users.  For example, research conducted by the wine industry shows that some 80% of the product is consumed by 20% of the consumers—presumably a rather intoxicated group. 

One can also segment on benefits sought, essentially bypassing demographic explanatory variables.  Some consumers, for example, like scented soap (a segment likely to be attracted to brands such as Irish Spring), while others prefer the “clean” feeling of unscented soap (the “Ivory” segment).  Some consumers use toothpaste primarily to promote oral health, while another segment is more interested in breath freshening.

In the next step, we decide to target one or more segments.  Our choice should generally depend on several factors.  First, how well are existing segments served by other manufacturers?  It will be more difficult to appeal to a segment that is already well served than to one whose needs are not currently being served well.  Secondly, how large is the segment, and how can we expect it to grow?  (Note that a downside to a large, rapidly growing segment is that it tends to attract competition).  Thirdly, do we have strengths as a company that will help us appeal particularly to one group of consumers?  Firms may already have an established reputation.  While McDonald’s has a great reputation for fast, consistent quality, family friendly food, it would be difficult to convince consumers that McDonald’s now offers gourmet food.  Thus, McD’s would probably be better off targeting families in search of consistent quality food in nice, clean restaurants.

Positioning involves implementing our targeting.  For example, Apple Computer has chosen to position itself as a maker of user-friendly computers.  Thus, Apple has done a lot through its advertising to promote itself, through its unintimidating icons, as a computer for “non-geeks.”  The Visual C software programming language, in contrast, is aimed a “techies.”

Michael Treacy and Fred Wiersema suggested in their 1993 book The Discipline of Market Leaders that most successful firms fall into one of three categories:

Operationally excellent firms, which maintain a strong competitive advantage by maintaining exceptional efficiency, thus enabling the firm to provide reliable service to the customer at a significantly lower cost than those of less well organized and well run competitors.  The emphasis here is mostly on low cost, subject to reliable performance, and less value is put on customizing the offering for the specific customer.  Wal-Mart is an example of this discipline.  Elaborate logistical designs allow goods to be moved at the lowest cost, with extensive systems predicting when specific quantities of supplies will be needed.

Customer intimate firms, which excel in serving the specific needs of the individual customer well.  There is less emphasis on efficiency, which is sacrificed for providing more precisely what is wanted by the customer.  Reliability is also stressed.  Nordstrom’s and IBM are examples of this discipline.

Technologically excellent firms, which produce the most advanced products currently available with the latest technology, constantly maintaining leadership in innovation.  These firms, because they work with costly technology that need constant refinement, cannot be as efficient as the operationally excellent firms and often cannot adapt their products as well to the needs of the individual customer.  Intel is an example of this discipline.

Treacy and Wiersema suggest that in addition to excelling on one of the three value dimensions, firms must meet acceptable levels on the other two.  Wal-Mart, for example, does maintain some level of customer service.  Nordstrom’s and Intel both must meet some standards of cost effectiveness.  The emphasis, beyond meeting the minimum required level in the two other dimensions, is on the dimension of strength.Repositioning involves an attempt to change consumer perceptions of a brand, usually because the existing position that the brand holds has become less attractive.  Sears, for example, attempted to reposition itself from a place that offered great sales but unattractive prices the rest of the time to a store that consistently offered “everyday low prices.”  Repositioning in practice is very difficult to accomplish.  A great deal of money is often needed for advertising and other promotional efforts, and in many cases, the repositioning fails.

To effectively attempt repositioning, it is important to understand how one’s brand and those of competitors are perceived.  One approach to identifying consumer product perceptions is multidimensional scaling.  Here, we identify how products are perceived on two or more “dimensions,” allowing us to plot brands against each other.   It may then be possible to attempt to “move” one’s brand in a more desirable direction by selectively promoting certain points.  There are two main approaches to multi-dimensional scaling.  In the a priori approach, market researchers identify dimensions of interest and then ask consumers about their perceptions on each dimension for each brand.  This is useful when (1) the market researcher knows which dimensions are of interest and (2) the customer’s perception on each dimension is relatively clear (as opposed to being “made up” on the spot to be able to give the researcher a desired answer).  In the similarity rating approach, respondents are not asked about their perceptions of brands on any specific dimensions.  Instead, subjects are asked to rate the extent of similarity of different pairs of products (e.g., How similar, on a scale of 1-7, is Snicker’s to Kitkat, and how similar is Toblerone to Three Musketeers?)  Using a computer algorithms, the computer then identifies positions of each brand on a map of a given number of dimensions.  The computer does not reveal what each dimension means—that must be left to human interpretation based on what the variations in each dimension appears to reveal.  This second method is more useful when no specific product dimensions have been identified as being of particular interest or when it is not clear what the variables of difference are for the product category.

Segmenting ConsumersDescribes the session’s objectives in points Define Market Segmentation

Process of dividing the market on various criteria Age Sex Region Culture etc

Leads to Higher Consumer Satisfaction Better Profits to Marketers Reduces Marketers’ Cost Limits Competition

Used for Product Positioning Repositioning To Define Media Strategies Product Packaging and Design To Determine the Appropriate Price and Distribution Channel

Levels

Segment Marketing Niche Marketing Local Marketing Individual Marketing

Bases for Segmentation Geographic Segmentation

Bases of Segmentation Segmentation VariablesRegion Northeast, Southern States, Maharashtra, Delhi

City or Metro Size Metros, Mini-metros, Cities, Towns, Villages, TehsilsDensity Urban, Suburban, RuralClimate Hot, Cold, Rainy

Relevancy of Geographic Segmentation in 21st Century? Demographic SegmentationBases of Segmentation Segmentation VariablesAge Under 3, 3-6, 7-11, 12-19, 20-25, 26-35, 36-50, Above 50

Sex Male, Female

Marital Status Single, Married, Divorced, Widowed

Family Size 1, 2, 3-4, 5-6, 6+

Income Less than Rs.10,000; Rs.10,001-25,000; Rs.25001-50,000; Above 50,000

Education Secondary, Senior Secondary, Graduation, Post-Graduation

Occupation Government Service, Professional, Self-employed

Psychological SegmentationBases of Segmentation Segmentation VariablesNeed-Motivation Love, Safety, Security, Self-confidencePersonality Aggressive, Introvert, Dogmatic, ImpulsivePerception Low-risk, High-risk, Better Quality, More HealthyLearning-involvement Low-involvement, High-involvementAttitude Positive, Negative

Psychographic SegmentationBases of Segmentation Segmentation Variables

Lifestyle Urban MobileCosmopolitanCouch-potatoes

Socio-cultural SegmentationBases of Segmentation Segmentation VariablesCulture Indian, Americans, Japanese, ChineseSubculture Punjabis, Jats, MarwarisReligion Hindu, Muslims, Sikh, ChristiansLanguage English, French, Hindi, Telugu, KannadaSocial Class Lower, Lower-middle, Upper-middle, UpperFamily Life Cycle Bachelors, Newly Married, Married with young kids, Married

with adult kids, Empty Nesters

Use-related SegmentationBases of Segmentation Segmentation Variables

Usage Rate Heavy users, light users, active users, rare users, non users

Awareness Status Unaware, Aware, interested, enthusiasticBrand Loyalty High, moderate, low, non-loyals

Use-situation SegmentationBases of Segmentation Segmentation VariablesTime Leisure, work, morning, nightObjective Personal, Gift, Fun, Time-passLocation Home, Office, Restaurants, In-storePerson Self, Family, Friends, Boss, Peer

Benefit SegmentationBases of Segmentation Segmentation VariablesBenefit Segmentation Economic

DurableValue-for-moneyConvenient

Hybrid SegmentationBases of Segmentation Segmentation VariablesDemographic/psychographic Young urban mobileGeodemographics Working women in HyderabadSRI VALS Actualizers

BelieversAchieversMakersStrivers

Criteria for Effective Targeting of market Segments Measurable Substantial Accessible Differentiable

Characteristics of services

Concentration Strategy Selective Segmentation Strategy Product Specialization Strategy Market Specialization Strategy Full Market Coverage Counter-segmentation Strategy

Summary:

Define Market Segmentation Bases for Segmentation Criteria for Effective Targeting of market Segments Market Segmentation Strategies