consumer behavior answers provided. cont: dr prasanth mba ph.d. mob: +91 9924764558 web:

Pinnacle School of Business ManagementSubject: Consumer Behavior Marks: 100

Note: Solve any 4 Case Studies

Case 1: Cub Foods

In 2003, Cub Foods had 78 corporate and 30 franchised stores. The chain built its success by focusing on its primary market: families of four or five individuals with adults ages 24 to early 40s who are informed. Value-conscious consumers – consumers like Leslie Wells.

Leslie Wells’s recent expedition to the new Cub Foods store in Melrose Park, Illinois, was no ordinary trip to the grocery store. “You go crazy,” says Wells, sounding a little shell-shocked. Overwhelmed by Cub’s vast selection, tables of samples, and discounts as high as 30 percent, Wells spent $76 on groceries - $36 more than she had planned. Wells fell prey to what a Cub executive calls “the wow factor”. A shopping frenzy brought on by low prices and clever marketing. That’s the reaction Cub’s super warehouse stores strive for and often get.

Cub Foods has been a leader in shaking up the food industry and forcing many conventional supermarkets to lower prices, increase services, or, in some cases go out of business. With Cub and other super warehouse stores springing up across the country, shopping habits are changing too. Some shoppers must drive 50 miles or more to a Cub store instead of going to the nearest neighborhood supermarket and bag their own groceries at Cub Foods. Their payoff is that they find almost everything they need under one roof, and most of it is cheaper than at competing supermarkets. Cub’s low prices, smart marketing, and sheer size encourage shoppers to spend far more than they do in average supermarket.

The difference between Cub and most supermarkets is obvious the minute a shopper walks through Cub’s doors. The entry aisle, called a “power alley” by some, is lined two stories high with specials, such as bean coffee at $2 a pound and half-price apple juice. Above the ceiling joists and girders are exposed, giving “the subliminal feeling of all the spaciousness up there. It suggests there’s massive buying going on that translates in a shopper’s mind that there’s tremendous savings going on as well,” says Paul Suneson, director of marketing research for Cub’s parent, SUPERVALU Inc., the nation’s largest food wholesaler.

Cub’s wider-than-usual shopping carts, which are intended to suggest expansive buying, fit easily through the wide aisles, which channel shoppers toward high-profit impulse foods. The whole store exudes a seductive, horn-of-plenty feeling. Cub customers typically buy in volume and spend four times the supermarket average per shopping trip. The average Cub store has sales quadruple the volume of conventional stores.

Cub Foods has a simple approach to grocery retailing: low prices, made possible by rigidly controlled costs and high-volume sales; exceptionally high quality for produce and meats – the items people build shopping trips around; and immense variety. It’s all packaged in clean stores that are twice as big as most warehouse outlets and four times as big as most supermarkets. A Cub store stocks between 35,000 and 49,000 items, double the selection of conventional stores, mixing staples with luxury, ethnic, and hard-to-find foods. This leads to overwhelming displays: 88 kinds of hot dogs and dinner sausages, 12 brands of Mexican food, and fresh meats and produce by the ton.


The store distributes maps to guide shoppers. But without a map or a specific destination, a shopper subliminally led around by the arrangement of the aisles. The power alley spills into the produce department. From there the aisles lead to highly profitable perimeter departments: meat, fish, bakery, and frozen foods. The deli comes before fresh meat because Cub wants shoppers to do their impulse buying before their budgets are depleted on essentials.

Overall, Cub’s gross margin – the difference between what it pays for its goods and what it sells them for – is 14 percent, sex to eight point’s less than most conventional stores. However, because Cub relies mostly on word-of mouth advertising, its ad budgets are 25 percent less than those of other chains.

Questions:

1. List at least five marketing tactics Cub Foods employs in its stores to increase the probability of purchases.

2. What accounts for Cub’s success in generating such large sales per customer and per store?

3. Given Cub’s lower prices, quality merchandise, excellent location, and superior assortment, offers reasons that many consumers in its trading areas refuse to shop there.


Case 2: Amazon.com

In 19194, Jeff Bezos, a young senior vice president at a Wall Street investment firm, decided to become a part of the Internet revolution. He decided to try to sell books via the World Wide Web. Why books? Because about 1.3 million books were in print at the time. Also, Bezos thought he would be able to provide the customer with discounted prices, the opportunity to get any book wanted, and convenience. Bezos initially come up with a list of possible items to sell online, including books, music, PC hardware and software, and magazines. After eliminating all but books and music, he realized that only 250,000 music CDs were available at any one time compared to 1.5 million English book titles (3 million titles if all languages were considered). So Bezos decided to go with books and drew up a business plan as he and his wife drove westward in search of their new home. He subsequently decided to start his new business in Seattle and sold his first book in July 1995. And with that, Amazon.com began its rapid ascent toward becoming one of the most recognized businesses in the world.

While it still hasn’t turned a profit, Amazon.com has succeeded where so many other fledgling Internet companies have failed. Bezos, who was recently named Time magazine’s “Pearson of the Year” and Advertising Age’s 1999 “Marketer of the Year” is the first to admit that first-mover advantage was instrumental in the growth of his company. He also credits the company’s success to the comprehensive selection of books available. “There’s no way to have a physical bookstore with 1.1 million titles,” he says. “Our catalog, if you were to print it, would be the size of seven New York City phone books.” In addition, Amazon.com is known for its ability to fulfill and deliver, thanks to large investments in nationwide warehouse distribution centers.

If you are worried that your local Barnes and Noble bookstore might be forced out of business any time soon, however, don’t be. Amazon.com cannot compete when customers want the physical presence of a bookstore. The online book behemoth cannot provide soft, comfortable couches, music and gourmet coffee. Nor does it allow consumers the opportunity to page through a book before purchasing it, savoring the crisp new pages and creaking of the binding when first opened. The company does, however, offer several advantages in the way of customer-to-customer and customer-to-author interaction. Customers can log on to the site, post a review on any book they have read, and have it permanently associated with that book’s entry in the online catalog. Also, authors are able to answer a variety of stock interview questions, which are then posted on the site associated with all of their books. Authors can also leave their email addresses so readers may email their own opinions or comments. Bezos believes that his is the world’s most “customer-centric” company.

Another unique feature of the company offers readers who have their own websites is the opportunity to set up their own specialized bookstores. For example, an expert on investing can list several investment strategy books on his or her website and then link them from the site directly into the Amazon.com catalog. The company is able to track books that are purchased in this manner and gives the individual a commission on all sales.


What else can customers expect when purchasing a book from Amazon.com? Discounts. Roughly 30 percent of the book titles are discounted by 10 to 30 percent. The others are sold at list price.

The company’s strategy of providing customers with a sense of community within its website seems to be working. While many retailers went out of business and many others were barely surviving, Amazon.com’s revenues were growing at 20 percent per year and reached $4 billion in 2003. It’s operating profit margin at 5 percent beat most retailers and approached Wall-Mart’s 6 percent. One analyst projected the company’s net income to be $800 million on $8 billion in revenues by 2007.

Recently the mammoth bookseller has branched into other areas. You can now purchase CDs, toys, home improvement products, software, videos, and DVDs, and small appliances at Amazon.com. With this push into selling other products, the company faces increasing competition from traditional retailers and e-commerce startups. Some believe the risks diluting its brand name by expanding its business to too many lines, too quickly. But Bezos begs to differ. He says, “I get asked a lot, ‘Are you trying to be the Wal-Mart of the Web?’ The truth is, we’re not trying to be anything of the Web. We’re genetically pioneers.” The company’s former UK managing director, Simon Murdoch, adds, “It’s a great name. ‘Amazon’ is not tied to any product category. The brand is extendible; it stands for delivery.”

Time will tell if the company will continue to deliver. For now, Amazon.com is one of the few Internet brands recognized around the world. It is the most frequented website in America and one of the top few in France, Britain, Germany, and Japan. Jeff Bezos’s vision has certainly become one of the great entrepreneurial success stories.

Questions:

1. Why have books and CDs sold successfully online while other many products haven’s sold well?

2. Do you think consumers who buy from Amazon.com also shop at other websites for books and CDs and buy from the site that offers the lowest price?

3. What aspects of customer service have contributed to Amazon.com’s success?

4. Why do you think Amazon.com isn’t profitable even though it generates high sales dollars?


Case 3: Hershey Chocolate USA in 2000

Although Hershey Chocolate USA, a division of Hershey Foods Corporation, did not meet its performance expectations in 1999, the company played an important role in increasing U.S. candy sales. Retail confectionery sales grew at rate of 4 percent in 1999, which was greater than the average growth rate within the general packaged foods industry. The past decade has shown an increase in competition in the candy industry, with companies such as Mars Candy Company introducing a variety of new products, brand extensions, and additional pack types. Similarly, Hershey has diversified its product line and formed alliances with other companies, such as Breyer’s.

Record sales in the early 1990s resulted in part from the introduction of a number of new Hershey products, the most significant being Hershey’s Kisses with Almonds. This product was introduced in 1990 and became one of the top 20 U.S. candy brands during 1991. By reaching the top 20 in less than a one full year of national distribution, Hershey’s Kisses with Almonds became the most successful new-product introduction in the corporation’s history.

In 1991, Hershey Chocolate also received the Equitrend Outstanding Quality Award. This award was based on a national survey that measured how consumers perceived the quality of 190 nationally recognized brand names. Hershey’s milk chocolate bar was the highest-rated confectionary brand.

Part of Hershey’s strategy is to target mothers. The company reasons that mothers determine children’s early taste in candy. In addition, research shows that adults eat more than 55 percent of all candy sold. Bite-size products are especially popular with adult consumers. When wrapped in seasonal colors, these products have tremendous appeal for adults during Christmas and Easter reason. Halloween season, however, is more oriented toward candy bars. In December 1998, Hershey targeted the ever-growing snacking segment of the confectionery industry by transforming some of its most popular bars into “Hershey Bites.” Included in this range of products were Hershey’s Milk Chocolate with Almonds, Cookies ‘n’ Crème, Almond Joy, and Reese’s Peanut Butter Cups. Unwrapped, bite-size chocolate candy now represents about one-fourth of the packaged chocolate candy category.

Hershey also generates interest and excitement in its products by providing fresh, new looks for standard confections. This strategy has allowed the company to align itself with top-of-mind activities. For instance, in 1997 the company successfully implemented a merchandising strategy with the Lost World: Jurassic Park. By using creative selling, marketing, and merchandising techniques, Hershey achieved a retail growth of 5.6 percent in 1998, exceeding the category growth rate and leading to record levels of market share.

In early 2000, Hershey’s creative marketing techniques were evident in its “Keep Easter Easy” campaign, which encouraged parents to incorporate nonchocolate treats like jelly beans, lollipops and gum into their traditional Easter festivities. A brochure full of recipe and game ideas incorporated a variety of Hershey products into activities the whole family could enjoy and could easily be downloaded from Hershey’s seasonal website (www.keepeastereasy.com). Another incentive for parents to implement nonchocolate sweets into the holiday was a mail-in

http://www.keepeastereasy.com/


coupon (located in the brochure)for a limited-edition Jolly Rancher Lollipops Watermelon plush toy that was cross-promoted with brochure.

In addition, Hershey uses a slightly less conventional approach to increase mind share. Hershey, Pennsylvania, the hometown of the chocolate bar, houses not only the company’s headquarters but also a 110-acre amusement park. It may not be the gateway parents dream of, but children seem to enjoy the eight roller coasters, sex water rides, more than 20 kiddie rides, monorail, and zoo. At the end of a long day of fun and frolic, families can retire to one of the 235 luxurious rooms in the Hotel Hershey.

The highly competitive nature of the chocolate candy market has individual companies vying for consumers with increasingly inventive advertising campaigns. Cadbury Schweppes has developed several campaigns to specifically target women consumers. One such television ad starred a woman caught in dilemma: She was unable to choose between her lover and her chocolate bar. More recently the company developed a new line of chocolate bars called Marble (a combination of marbled milk and white chocolate bars with a hazelnut praline center) targeted to women between ages 18 and 24. Hershey has also recently departed from its catchy but childlike jingles in an attempt to draw in a more mature chocolate lover. When introducing its new candy, Bar None, the company aired a TV commercial showing a lion tamer trying to satisfy a “chocolate beast” snarling from behind a door.

Perhaps one of the more popular advertising campaigns Hershey has come up with in the past few years stars the eye-catching Hershey’s Syrup animated cows. In mid-1999, the cow commercials were combined with the California Milk Processor Board’s popular “Got Milk?” advertisement. The TV spot depicted two cows sitting together on a couch watching the “Got Milk?” commercial on television. One cow turns to other and says, “That’s a silly question.”

Questions:

1. What are the advantages of targeting candy bars to adults rather than to children?

2. Does targeting to adults require a change in image for candy products?

3. Why do you think bite-size candies are so popular with adults?

4. Describe the most recent purchase of a candy bar in terms of relevant affect and cognition, behavior, and environments.


Case 4: Peapod Online Grocery—2003

The online grocery turned out to be a lot tougher than analysts thought a few years ago. Many of the early online grocers, including Webvan, ShopLink, StreamLine, Kosmom, Homeruns, and PDQuick, went bankrupt and out of business. At one time, Webvan had 46 percent of the online grocery business, but it still wasn’t profitable enough to survive. The new business model for online grocers is to be part of an existing brick-and-mortar chain. Large grocery chains, like Safeway and Albertson’s, are experiencing sales growth in their online business but have yet to turn a profit. Jupiter Research estimates that online grocery sales will be over $5 billion by 2007, about 1 percent of all grocery sales, while it expects more than 5 percent of all retail sales to be online by then. A few years ago, optimistic analysts estimated online grocery sales would be 10 to 20 times that by 2005, but it didn’t work out that way.

One of the few online grocers to survive in 2003 is Peapod, the first online grocer, started by brothers Andrew and Thomas Parkinson in 1990. However, even Peapod was failing until 2001 when Dutch grocery giant Royal Ahold purchased controlling interest in the company for $73 million. Peapod operates in five markets, mainly by closely affiliating itself with Ahold-owned grocery chains. Peapod by Giant is in the Washington, DC, area, while Peapod by Stop and Shop runs in Boston, New York, and Connecticut. The exception is Chicago, where Peapod operates without an affiliation with a local grocery chain. Peapod executives claim the company is growing by 25 percent annually and has 130,000 customers, and all of its markets except Connecticut are profitable. Average order size is up to $143 from $106 three years earlier.

The online grocery business seemed like a sure winner in the 1990s. Dual-income families strapped for time could simply go online to do their grocery shopping. They has about the same choices of products that they would have had if they went to a brick-and-mortar grocery, about 20,000 SKUs (stockkeeping units). They could browse the “aisles” on their home computers and place orders via computer, fax or telephone. The orders were filled at affiliated stores and delivered to their homes in a 90-minute window, saving them time and effort and simplifying their daily lives. For all this convenience, consumers were willing to pay a monthly fee and a fee per order for packaging, shipping, and delivery. Since most of the products purchased were well-known branded items, consumer faced little risk in buying their traditional foodstuffs. Even perishables like produce and meat could be counted on to be high quality, and if consumers were concerned, they could make a quick trip to a brick-and-mortar grocery for these selections. However, while all of this sounded good, most consumers didn’t change their grocery shopping habits to take advantage of the online alternative.

Currently analysts do not expect the online grocery industry to take off in the near future, if ever. Miles Cook of Bain & Company estimates that only 8 to 10 percent of U.S. consumers will find ordering groceries online appealing, but only about 1 percent will ever do so. He concludes: “This is going to remain a niche offering in a few markets. It’s not going to be a national mainstream offering.” Jupiter Media Metrix analyst Ken Cassar concludes that “The moral of the story is that the ability to build a better mousetrap must be measured against consumers’ willingness to buy it.”


Questions:

1. What behaviors are involved in online grocery shopping? How does online shopping compare with traditional shopping in terms of behavioral effort?

2. What types of consumers are likely to value online grocery shopping from Peapod?

3. Overall, what do you think about the idea of online grocery shopping? How does it compare with simply eating in restaurants and avoiding grocery shopping and cooking altogether?


Case 5: Mouse-Rid

One hot May morning, Shobha, general manager of Innotrap India Ltd., entered her office in Delhi. She paused for a moment to contemplate the quote, which she had framed and hung on a wall facing her table.

"If a man can make a better mousetrap than his neighbor, the world will make a beaten path to his door." She vaguely recalled that probably it was Ralph Waldo Emerson who said this. Perhaps, she wondered, Emerson knew something that she didn't. She had the better mousetrap - Mouse-Rid - but the world didn't seem all that excited about it.

Shobha had just returned from a Trade Fair in Kolkata. Standing in the trade show display booth for long hours and answering the same questions hundreds of times had been tiring. Yet, this show had excited her. The Trade Fair officials held a contest to select the best new product introduced at the show. Of the more than 150 new products, her mousetrap had won first place. Two women's magazines had written small articles about this innovative mousetrap, however, the expected demand for the trap had not materialized. Shobha hoped that this award might stimulate increased interest and sales.

A group of investors who had obtained rights to market this innovative mousetrap in India had formed Innotrap India in January 2001. In return for marketing rights, the group agreed to pay the inventor and patent holder, a retired engineer, a royalty fee for each trap sold. The group then appointed Shobha as the general manager to develop and manage Innotrap India Ltd.

The Mouse-Rid, a simple yet clever device, is manufactured by a plastics firm under contract with Innotrap India Ltd. It consists of a square, plastic tube measuring about 6 inches long and one and one-half inches- square. The tube bends in the middle at a 30-degree angle, so that when the front part of the tube rests on a flat surface, the other end is elevated. The elevated end holds a removable cap into which the user places bait (piece of bread, or some other titbit). A hinged door is attached to the front end of the tube. When the trap is "open", this door rests on two narrow "stills" attached to the two bottom corners of the door.

The trap works with simple efficiency. A mouse, smelling the bait enters the tube through the open end. As it moves up the angled bottom toward the bait, its weight makes the elevated end of the trap drop downward. This elevates the open end, allowing the hinged door to swing closed, trapping the mouse. Small teeth on the ends of stills catch in a groove on the bottom of the trap, locking the door closed. The mouse can be disposed of live, or it can be left alone for a few hours to suffocate in the trap.

Shobha felt the trap had many advantages for the consumer when compared with traditional spring-loaded traps or poisons. Consumers can use it safely and easily with no risk for catching their fingers while loading. It poses no injury or poisoning threat to children or pets.

Shobha's personal and informal inquiries with acquaintances and friends suggested that women are the best target market for the Mouse-Rid. Most women stay at home and take care of household chores and their children. Thus, they want a means of dealing with the mouse problem


that avoids any kind of risks. To reach this market, Shobha decided to distribute Mouse-Rid through grocery stores, and kitchenware stores. She personally contacted a supermarket and some departmental stores to persuade them to carry the product, but they refused saying that they did not sell such contraptions. She avoided any wholesalers and other middlemen.

The traps were packaged in a simple cardboard, with a suggested retail price ofRs.150 for a piece. Although this price made Mouse-Rid about five 1;0 six times more expensive than standard traps, those who bought it showed little price resistance.

To promote the product, Shobha had budgeted approximately Rs. 300,000 toward advertising in different women's magazines, such as Grah Shobha, and Good Housekeeping. Shobha was the company's only salesperson, but planed to employ sales people soon.

Shobha had forecasted Mouse-Rid's first year sales at 2 million units. Through Aril, however, the company had sold only few thousand units. She wondered if most new products got to such slow start, or if she was doing something wrong.

Shobha knew that the investor group believed that Innotrap India Ltd. had a "once-in-a lifetime chance" with its innovative mousetrap. She sensed the group's impatience. To keep the investors happy, the company needed to sell enough traps to cover costs and make a profit.

Questions:

1. Has Shobha identified the best target market for Mouse-Rid? Why or why not?

2. Does Shobha have enough needed data on consumer behaviour? What type of consumer research should Shobha conduct?

3. What type of advertising can influence consumers for this type of product?

consumer behavior answers provided. cont: dr prasanth mba ph.d. mob: +91 9924764558 web:

Education