Consumer Behaviour and Brand Positioning Lecturer: Dr. Chenguang Li University College Dublin, UCD, Ireland
Consumer Behaviour and Brand Positioning
Lecturer: Dr. Chenguang Li University College Dublin, UCD, Ireland
Food Retailing Industry• Average spending – 5,200 annually • 2.1 trips weekly (weekly before, now 40% stock-up trips;
60% consumer fill-in trips)
http://wsm.wsu.edu/researcher/wsmaug11_billions.pdf
Consumer trends#1--Dwindling of consumer loyalty
– Savvy consumer searching for best deals– Growth of warehouse and superstores--- bulk-buying budget
shopper– Low priced promotions --- specific supermarkets, discount
stores(dollar store) – Shopping trip (weekly before, now 40% stock-up trips; 60%
consumer fill-in trips)
Consumer trends#2—Changing attitude to Private label
– 2005 14%--- 2010, 17%– Higher margin– Store brand – Retailer effort on change of quality perception
Consumer trends#3—Health Conscious
– Whole foods– Health and organic departments– Product selections
A quick review of the retail industry
Supermarket
1980s 2000s
Warehouse club
Supercenter
Specialty grocery retailers
Low‐end channels
Gas Station mini mart& convenient stores
1950s
Dollar store chains
Time
(drug stores)
Brand Positioning Factors• Time (location)• Price• Variety (assortment)• Quality (product, store environment, service, etc.)
Supermarket• Eg. Safeway (Tesco, Supervalu)• Size: 46,800• Assortment: 50,000• Weekly sales: $485,000• Service area: 1-3 miles• Profit margins: 1.5-2.5%
• In-store bakeries• Seafood• Meat• Cold cuts• Produce• Packaged foods• Cleaning products• Health and beauty aids• others
Selection
ONE‐STOP shopping
Convenience
Supercenter• Eg. Walmart. Target • 70,000 sq ft (of 170,000)• Large, free-standing buildings in suburban areas• One-stop shopping, multiple needs• Lower prices• Longer travel times (5-10 miles away)
Warehouse Clubs• Eg. Costco, Sam’s Club• Like airport hangars than supermarkets• Manufacturers’ packing crates• Bulk-packed• Gray industrial shelving (hence the name warehouse club)• Limited brand (one brand soup, one brand of butter…)• Low price (20% lower)• Similar profits
Consumers?
Dollars stores• Eg. Dollar general, dollar tree, family dollars • Packaged food, housewares, clothing, seasonal items, etc.• Low price ($1…)• Size (7,000 tp 10,000 sq ft)• Average shopping ticket ($7-$10)• Limited ranges of food items (what? And why?)• Store environment (… ) • Net profit margin (?) Customers?
Limited selection Stores• Eg. Trader Joe’s • Size: smaller; 8,000-12,000• Assortment: 1,500 • Brand: private labels (85%); imported and specialty food• produce, baked goods, but no in-house meat or bakeries
Lower-end Limited selection stores• Aldi, Lidl• Lean operating model • Private model (95%)• Selection (1,400 items)• Discounted prices• Store environment (clean, bright, pleasant)• Packaging—simple
• 3rd largest town in Ohio• Population 2 million• In 2010, median household
income – 52,000
• (11.6% higher than the state average, slightly higher than the national median)
• Population growth 11% (2000 to 2009) ‐‐‐‐9% national
• Unemployment rate 8.5% (9.8% national)
Why is branding important?
competitive advantages. • high level of consumer brand awareness and loyalty. • more leverage in bargaining with resellers. • more easily launch line and brand extensions. • some defense against fierce price competition.
• Most importantly, a powerful brand forms the basis for building strong and profitable customer relationships.
Why is branding important?
A powerful brand has high brand equity.
Brand equity• Perception or desire about a brand in meeting the
promised benefits.• a measure of the brand’s ability to capture consumer
preference and loyalty.
A brand with high brand equity is a very valuable asset.
The World's Most Valuable Brands, 2016http://www.forbes.com/powerful‐brands/list/https://www.forbes.com/powerful‐brands/list/#tab:rank_header:brandValue_sortreverse:true
Branding
• How are they different?• Why are they different?• Who are the consumers?• What does the brand mean to consumers?• How was the brand communicated to consumers?
Branding is defining, promising, and delivering a unique experience consistently.
Benefits:• Functional • Emotional • Social• Others…
Customer-Based Brand Equity Pyramid
Source: Keller, Kevin Lane, Strategic Brand Management: Building, Measuring, and Managing Brand Equity, Prentice Hall, 2012, 4th edition31
Model of Consumer Behavior
Other:
Economics technological social cultural
Marketing stimuli:
ProductPricePlacePromotion
Buyer’s decision process
Buyer’s characteristics
The environment Buyer’s Black Box
Product choice
Brand choice
Purchase timing
Purchase amount
Company relationship
Buyer’s responses
Buyer’s decision process
Step 1: Recognize a problem
Step 2: Search for information
Step 3: Evaluate Alternatives
Step 4: Choose THE Product
Step 5: Postpurchase Evaluation
HOW?
Lancaster’s consumer theoryAlso known as “product attributes model”, assumes that consumer choice is based on the characteristics ( or attributes) of a brand. The consumer maximizes his utility based on the bundle of these attributes existing in the brand that he chooses within a budget constraint.
AttributeY
Attribute x
AB
C
Linking consumer choices with product attributes
Gwin, C. F., & Gwin, C. R. (2003). Product attributes model: A tool for evaluating brand positioning. Journal of Marketing Theory and practice, 11(2), 30‐42
Lancaster, K. J. (1966). A new approach to consumer theory. Journal of political economy, 74(2), 132‐157.
Kelvin Lancaster, 1924‐1999
location
A
B
C
M2
Your choice is based on the bundle of product attributes that maximizes the consumer's utility, subject to budge constraint.
Health
AB
C
TasteThe product attributes model can be used to analyze a brand's positioning and its effect on consumer choice.
STRATEGIC IMPLICATIONS FOR BRAND POSITIONING
• Market Segmentation/Target Market • Positioning
New Product Changes in Existing Product
• Promotion (Change Perceptions)
Eg. processed meat, functional food, whey, super milk etc.
What can affect consumer preference and choicesCultural:
Culture; Subculture; Social class
Social:Reference groups; Family; Role and status
,
Personal:Age; occupation; lifestyle; personality
, Psychological:
Motivation; Perception; Learning; Beliefs &attitude
BuyeBuyer
Chicken, spaghetti sauce
Opinion leader
Lifestyles reflect a pattern of living
Consumers’ lifestyles are measured and described according to AIOs– activities– interests – opinions
Consumer Lifestyle
Source: Bord Bia (Irish Food Board) Consumer lifestyle Trends report (2014 update)
http://www.bordbia.ie/industry/manufacturers/insight/publications/bbreports/ConsumerLifestyleTrends/Consumer%20Lifestyle%20Trends%20Update%20‐%20June%202014.pdf
• fluid lives,
• simple pleasure,
• response living,
• quest for health and wellness,
• consumers in control,
• keeping it real.
Six major lifestyle trends ‐‐ 2014
• Personality: the unique psychological characteristics that lead to consistent and lasting responses to the consumer’s environment
Personal Factors Affecting Consumer Behavior
What can affect consumer preference and choicesCultural:
Culture; Subculture; Social class
Social:Reference groups; Family; Role and status
,
Personal:Age; occupation; lifestyle; personality
, Psychological:
Motivation; Perception; Learning; Beliefs &attitude
BuyeBuyer
A motive is a need that is sufficiently pressing to direct the person to seek satisfaction
Motivation research refers to qualitative research designed to probe consumers’ hidden, subconscious motivations
Motivation
The OLD starvation experiment
A clinical study performed at the University of Minnesota between November 19, 1944 and December 20, 1945. The investigation was designed to determine the physiological and psychological effects of severe and prolonged dietary restriction and the effectiveness of dietary rehabilitation strategies
Scarcity‐‐Why Having Too Little Means So Much
Sendhil Mullainathan, a professor of economics at Harvard University, is a recipient of a MacArthur Foundation “genius grant” and conducts research on development economics, behavioral economics, and corporate finance. He lives in Cambridge, Massachusetts.
NEW economic study of scarcity
• Top of mind, motivation, and efficiency• Different Stage of needs? China ‐‐‐ food safety Ireland, Origin Green‐‐‐ sustainability
The power of Habit
A cue is a trigger. It is the stimulus or experience that starts the cycle of a habit.
5 55
Perception Perception:
– Process by which we select, organize, and interpret information from outside world
Three factors are necessary for perception to occur– Exposure: capable of registering a stimulus– Attention: mental processing activity– Interpretation: assigning meaning to a stimulus
Examples• Blind Test for Coke• Coke with names
Consumer Perception
Selective attention is the tendency for people to screen out most of the information to which they are exposedSelective distortion is the tendency for people to interpret information in a way that will support what they already believeSelective retention is the tendency to remember good points made about a brand they favor and forget good points about competing brands
Are Consumers (We) Rational?Notable for his work on the psychology of judgment and decision‐making, as well as behavioral economics Awarded the 2002 Nobel Prize in Economic Sciences.
"System 1" is fast, instinctive and emotional; "System 2" is slower, more deliberative, and more logical.
His empirical findings challenge the assumption of human rationalityprevailing in modern economic theory.
In 2014, The Economist listed him as the 15th most influential economics in the world.
Source: http://en.wikipedia.org/wiki/Thinking,_Fast_and_Slow
Daniel KahnemanThinking, Fast and Slow
An interview with Kahneman:https://www.youtube.com/watch?v=PirFrDVRBo4
THE MAGIC #9 --- DOES IT MAKE SENSE?
Was $60, now only $45!Was $60, now only $49!
Effects of $9 Price Endings on Retail Sales: Evidence from Field Experiments, http://link.springer.com/article/10.1023%2FA%3A1023581927405
$35 vs $39
PRICE AS A SIGNAL FOR QUALITY
• Price can act as a signal for quality,• Especially when prior experience is limited• But consumer’s choice is context dependent
$299 or $300
Small Difference can make big Difference
Source: Yale research published on Psychological ScienceAdding Small Differences Can Increase Similarity and Choice
Scenario 1: ¢63 vs ¢63
Scenario 2: ¢62 vs ¢64
Small Difference can make big Difference
Slightly different prices, more likely to buy
46%77%
% made a purchase
2 gums same price
2 gums Different price
Reference PricingReference price is what buyers carry in their minds and refer to when looking at
a given product.
Different consumers may have different reference price for the same product.
In some cases, marketers try to influence consumers’ expectations of what a product should cost when they use reference‐pricing strategies
NationalBrand
$1.80 $2.50
20% 80%
Fairness in pricing?
See William Poundstone’s book: Priceless: The Myth of Fair Value
Why does reference pricing works?
Why is it easier for people to pay for a product when there is another more expensive product next to it?
How do you feel when you pay money to buy stuff?
WHY?
Spending Can Cause REAL Pain
Knutson, Brian, Scott Rick, G. Elliott Wimmer, Drazen Prelec, and George Loewenstein (2007), “Neural Predictors of Pur‐chases,” Neuron, 53 (January), 147–56
“prices do not deter spending purely through thoughts of foregone pleasures, as assumed by standard economic theory, but also through immediate pain.”‐‐Scott Rick
Three Types Of Buyers
Characterized by the “pain” they experience when purchasing something
• Ouch, it hurts! ‐‐‐”tightwads” (24%)• Regular pain ‐‐‐ unconflicted (61%)• Not much‐‐‐ spendthrift ( 15%)
Rick, Scott I., Cynthia E. Cryder, and George Loewenstein. "Tightwads and spendthrifts." Journal of Consumer Research 34.6 (2008): 767‐782.
Reduce The Pain--Reframing The Value
• Reframing the value – make it looks smaller
€84/month vs €1,000/year
Or maybe this only works for those who can’t do the math?
To reduce the pain points• Individual purchases create individual pain points • Customers prefer to complete purchase in one time than
separately • upgrade car packages all at once• Compute and accessories
Reduce The Pain‐‐Bundling
Convert consumer without changing the price
Eg: “a $5 fee” to “a small $5 fee”
Effect = 20%
Reduce The Pain—Use the right Wording
Experiment About Framing (Context)
Experiment: Would you opt for surgery if…
Scenario 1: the “survival” rate is 90 percent, Scenario 2: the “mortality” rate is 10 percent.
The first scenario increased acceptance, even though the situation was no different.
“How we spend our time says so much more about who we are than does how we spend our money.”‐‐‐Cassie Mogilner
"Because a person's experience with a product tends to foster feelings of personal connection with it, referring to time typically leads to more favorable attitudes—and to more purchases,”– Jennifer Aaker, Professor of marketing at Stanford Graduate School of Business
Maybe retailers can draw more insights from these research and apply to retail pricing strategies ….
Time, Feeling, Personal Connection…
Take home messages:• Understanding consumer is ultimately important for brand building and
business success.
• Consumer lifestyle and personality affect buying behaviours and brand choices.
• Decision of brand building and positioning depends on the understanding of consumers and market situation (including competition)
• When strong emotional attachment is established between consumers and brands, consumer loyalty is high, in turn business benefits from its high brand value.
Main References• Kotler & Armstrong (2009). Principles of Marketing, 12th edition • Solomon, Bamossy, Askegaard & Hogg (2007). Consumer Behaviour: A European
perspective, 3rd edition • Solomon, Marshall, Stuart, Barnes & Mitchell (2012) Marketing Real People, Real Decisions
2nd edition• Bord Bia (Irish Food Board) Consumer Lifestyle Trend Report (2012; 2014)• Reed Supermarket, a new waves of competitors. (Harvard Business School Case Study)• Lancaster, K. J. (1966). A new approach to consumer theory. Journal of political economy,
74(2), 132-157.• Gwin, C. F., & Gwin, C. R. (2003). Product attributes model: A tool for evaluating brand
positioning. Journal of Marketing Theory and practice, 11(2), 30-42
• Anderson, Eric and Simester, Duncan, (2003), Effects of $9 Price endings on retail sales: evidence form field experiments. Quantitative Marketing and Economics, 1, issue 1, p. 93-110
• Rick, Scott I., Cynthia E. Cryder, and George Loewenstein. "Tightwads and spendthrifts." Journal of Consumer Research 34.6 (2008): 767-782.
• Mogilner, Cassie, and Jennifer Aaker. “The time vs. money effect”: Shifting product attitudes and decisions through personal connection." Journal of Consumer Research 36.2 (2009): 277-291.
• Poundstone, William. Priceless: The myth of fair value (and how to take advantage of it). Macmillan, 2010.
• Kahneman, D. (2011). Thinking, fast and slow. New York: Farrar, Straus and Giroux
• Knutson, Brian, Scott Rick, G. Elliott Wimmer, Drazen Prelec, and George Loewenstein (2007), “Neural Predictors of Purchases,” Neuron, 53 (January), 147–56
Reference