Consumer Buying Behavior

Analyzing Consumer Markets and Buying Behavior

Interest in examining aggregate market response to firm specific decision variables understanding explaining predicting

Method analyze individual level behavior analyse aggregate market behavior

Analysing Consumer Markets and Buying Behavior

Translation of individual level behavioral analysis to aggregate level market response is faced with the issues of aggregation bias and consumer heterogeneity

A prime characteristic of consumers is their variation in preferences, tastes, likes, dislikes, purchase behavior patterns. Meaning thereby that markets are heterogenous and consumers exhibit heterogeneity

Object of consumer behavior analysis - buyer or user ? answer - both with emphasis on decision maker

Behavioral processes of consumersAn integrative conceptual framework

Communicationsensitivity

Acculturedindividuality

Rational and EconomicDecision making

Society andMarket Environment

() – Behavioral Process of Consumers

Behavioral Processes of Consumers- Communication Sensitivity

WithinMarket

Communication sensitivity

Firm To Market

Communication

Within Market

Word of Mouth

Diffusion Processes

Firm to Market

-Consumer Behaviour Concepts-One way/Two way.

Behavioral Processes of Consumers- Communication sensitivity

Consumer Behaviour Concepts – Endogenous Factors

SelectivityInvolvementPersuasion

Selectivity

Selective attention – Marketers have to work hard to get consumer’s notice – consumers are more likely to notice stimuli of current need, stimulithey anticipate, stimuli whose deviations are large e.g. $25 off $100 rather than $5

Selective distortion – tendency to twist information into personal meanings thatwill fit our preconceptions e.g. A customer of LG may interpret an advertisement saying that they are No. 1 company in Microelectronics tobe No.1 company in all of consumer durables

Selective Retention – consumers likely to remember good points of products theylike and forget good points of competing products e.g. a user may remember that Pears soap is the only soap good for dry skin though in the market Dove and Mysore Sandal Gold is also good for dry skin

Involvement

Krugman proposed the concept of level of involvement influencingbuyer behavior. Products purchased are either low involvement Or high involvement. Assael has classified types of buying behaviorbased on involvement – See slide next

Persuasion

Low Involvement products use the peripheral route to persuasione.g. celebrity endorsements

High Involvement products use both the central route (cognitive reason)to persuasion and the peripheral route to persuasion.

Assael’s Classification of types of Buying Behaviour

Complex Buying Behaviour

Variety-Seeking’Buying Behaviour

DissonanceReducing Behaviour

Habitual BuyingBehaviour

SignificantDifferenceBetweenBrands

Few DifferenceBetweenBrands

High Involvement Low Involvement

Assael’s Classification of types of Buying Behaviour

Complex: First develop beliefs about product. Then develop attitudes and then make a choiceDissonance: First Act, then develop beliefs. Then end up with attitudesHabitual: salt- out of habit, beliefs from passive learning-choice- evaluation/attitudesVariety seeking- lot of brand switching- chocolates (Low involvement)-Beliefs-Choice-Attitudes.

Behavioral Processes of Consumers- Accultured Individuality

Accultured Individuality

Culture Sub CultureSocial Class

Personal - Age and Life cycle - Occupation - Economic Circumstances

Social -Reference groups-Family-Roles and Status

Consumer BehaviourConcepts•Personality and Self concept•Life style•Motivation

Independent Factors

1. Culture –a) Cultural factors exert the deepest and broadest influence onbuyer behavior. Culture is fundamental determinant of a person’s wantsand behaviorb) Subculture – countries, regions, races, religionsc) Social class

2. Social factorsa. Reference groups – primary (family, coworkers), secondary

(religious groups)b. Reference groups – aspirational groups and disassociative groups

c. Three influences of reference groups –1. individual exposed to new behaviors, lifestyle2. create pressures for conformity (affects choice thereby)3. influence attitudes and self concept

2. Social Factors- Family

- Family of orientation – influences beliefs, values, attitudes- Family of procreation – influences day-to-day living and

purchases

3. People buy products that communicate their role and status in society

Endogenous Factors – Accultured Individuality

Lifestyle

A lifestyle is a person’s pattern of living in the world as expressed inactivities, interests, opinions. Lifestyle portrays the ‘whole person’.Marketers search for relationships between their products and lifestylegroups. If it is found that most computer buyers for home purpose areachievement oriented, then the marketer may aim his brand at achiever lifestyle

Psychographics is a way of using psychology and demographics for understanding consumers. VALS of SRI consulting is a useful framework

Accultured Individuality – Endogenous factors

Personality and Self Concept

Personality is a set of distinguishing human psychological traits that lead to Consistent responses to environmental stimuli. E.g. Self Confidence, dominanceAutonomy, sociability, defensiveness

Brand Personality is a specific mix of human traits attributable to a particular brandConsumers choose brands which have a personality similar to that of their own.

Self Concept - Actual self concept – how he/she views him/herself- ideal self-concept – how she/he likes to view her/himself- others self concept – how he/she thinks others see him/her

A marketer has to judge the form of self concept from the above to market his brand

Endogenous Factors – Accultured Individuality

Motivation

A person has many needs (biogenic, psychogenic). A need becomes a motiveWhen it is aroused to a sufficient level of intensity. In other words a motive is a need that is sufficiently pressing to drive the person to act.

Motivation Theories

Freud’s Theory

Maslow’s Theory

Herzb

Herzberg Theory

Freud’s Theory

Consumers’ behavior is shaped largely by unconscious psychological forces.A technique called LADDERING is used to trace the person’s motivationFrom the stated ones to the terminal ones. The marketer can then decide toTarget his appeal to the most appropriate level.

Motivation researchers also use projective techniques such as word associationSentence completion, picture interpretation etc.

Maslow’s Theory

Physiological Needs

Safety Needs

Social

Social Needs

Esteem Needs

Self Actualization Needs

This helps how various products fit into lives, goals and plans of consumers.Consumers fill their needs starting from lowest to highest. So it is not of much useto target a high end need product to a person who is still satisfying his lower end need.

Endogenous Factors – Accultured Individuality – Motivation

Herzberg Theory

Factors for buyer motivation are of two types – hygiene factors (orDissatisfier removers) and motivators (satisfiers). It is not enough if hygieneFactors are present. Motivators must be present for a purchase.

Behavioral Processes of Consumers- Beliefs and Attitudes

Society & Mkt. Environment

Beliefs/Values Experience & usageIn Decision making

For consumption

Attitudes

Inputs from rational and Economic Decision Making

Communicationsensitivity

AcculturedIndividuality

Beliefs / Values and Attitudes

A Belief is a descriptive thought that a person holds about something. On BlindTest Diet Coke and Diet Pepsi are equally preferred. But on revealing brand Names Diet Coke was preferred by 65% of consumers and Diet Pepsi by 35%.This is an illustration of role of beliefs.

An attitude is a person’s enduring favorable or unfavorable evaluations, emotional feelings and action tendencies toward some object or idea.

A marketer is well advised to fit his product into existing attitudes rather than tryTo change attitudes, which take a long time. Sometimes it pays to change Attitudes

1. Buying New in exchange for old – pays to change attitude as marketis going to be large

2. These days food brands should have a diet variety as there is health consciousness in the market – pays to fit product

Behavioral Processes of Consumers-Rational and Economic Decision making

Decision making process

- Need Recognition- Information Search- Evaluation (perception)- Purchase (Preference)- Post-Purchase

Behavioral Processes of Consumers-Rational and Economic Decision Making

Consumer Behaviour

Processes/ConceptsIndividual constraints

Budget constraints

Situational factors Beliefs and valuesAttitudes

Market environment

Store Environment

Firm decision variable

Competitor decision variable

Rational and

Economic

Decision making

Post Purchase

Feelings

-Cognitive Dissonance

-Contrast Theory

Behavioral Outcomes of Rational and Economic Decision making Process

Rational and

Economic

Decision making

Post purchase feelings

Evoked set

Consideration set

Purchase intention

Purchase preference

Purchase Behaviour

Purchase behaviour decisions

What to Buy (Basket of goods decision)

Where to Buy (Store choice)

Which brands to buy (Brand choice)

How much to Buy (purchase quantity)

How often to Buy (Purchase timing)

Analysing Consumer Markets and Buying Behavior

Buying Roles Initiator, Influencer, Decider, Buyer, User

Stages of the Buying Decision Process Problem Recognition Information Search Evaluation of alternatives Purchase decision Post Purchase behavior

Industrial Buying Behavior

Issues in Industrial Markets

Organizational markets

Institutionalmarkets

Smallbusinessmarket

Large organizationalmarkets

Government markets

1. Fewer, Larger Buyers – Tire manufacturers have OEM contracts with fewautomobile manufacturers.

2. Close supplier customer relationship – as there are fewer customers, supplierstend to develop a closer customer relationship. WIPRO’s close relationshipwith IIMB, for the sale of computers

3. Professional purchasing – use of buying instruments such as quotations, proposals and purchasing contracts; buyers guided by firm’s purchasingpolicies, constraints and requirements

4. Several buying influences – the buying committee may consist of technicalexperts, senior management, gatekeepers from consultancies etc. Thus the sellershould send trained sales people.

5. Multiple sales calls – sales cycles extends from few days to few years; thus sellerneeds to make multiple sales calls to win orders.

6. Derived demand – The demand for industrial goods is driven by thedemand for consumer goods. The boom in the construction industry is driving the demand for cement and steel.

7. Inelastic demand – Demand for many business goods and services is inelastic - that is not much affected by price changes. For example the demand for batteries is not going to change much with price as the demand of batteries is driven by the demand for automobiles.

8. Fluctuating demand – A small increase in the consumer demand can give riseto a significantly large increase in industrial demand – this effect is called theacceleration effect. Similarly a 10% fall in consumer demand can cause asignificant decrease of the industrial demand.

9. Geographically concentrated buyers – there is clustering to rationalize production – software in Bangalore; hosiery in Coimbatore; auto-ancillariesin Pune and Nasik etc.

10. Direct Purchasing – Firms buy direct mostly rather than thru intermediaries

Key Elements of Industrial Buying Behavior

Buying Process

Buy Situations Straight Re-buy – routine order – consumables, office supplies; outsideSuppliers tend to get in on dissatisfaction of existing supplier

Modified Rebuy – Modify specs, Prices, delivery requirements. In-Suppliers have to protect an account;Out-suppliers try for an opportunity e.g. computers

New Task – Buy for first time; greater the cost / risk –longer it takes to decidePass through stages – awareness, interest, evaluation, trial, adoption.Includes setting specs, price limits, delivery terms, order qty, acceptableSuppliers and selected supplier(s). Because of complex selling use of Dedicated missionary sales force.

Systems Buying and Selling – also called turnkey solutions – key industrialMarketing strategy in bidding large projects – dams, steel factories etc.

Buying Centre - Includes all members of the organization who play any of sevenroles in the purchase decision process

1. Initiators – those who put up the request

2. Users - Those who use the product; many times the user is the initiator

3. Influencers – help define specs, provide info for evaluatingalternatives, technical people are good influencers

4. Deciders – those who decide on requirements.

5. Approvers – those who authorize deciders and buyers

6. Buyers – members authorized to select supplier and decide terms

7. Gatekeepers – Members who are info conduits to othermembers of buy center e.g. receptionists , agents

Several individuals can occupy a given role (e.g. many users / influencers) and one individual can occupy multiple roles.

The buying center may include people outside the organization such as government officials, consultants, technical advisors and other members of the marketing channel.

Different members of the buy centre have different influences, for e.g. the engineering department may be concerned with actual performance of theproduct, whereas production may be more interested in ease of use and reliabilityof supply.

Members of buy centre – different personal motivations, perceptions and Preferences which in turn are dependent on - age, income, education, job position,personality, attitudes towards risk and culture

Characteristics of BUY CENTER

Characteristics of BUY CENTER ……….. Cont…….

Small sellers are advised to concentrate on key buying influencers. Large sellersGo for multilevel in-depth selling

Sellers are advised to periodically question or revise their assumptions about theBuy center to adapt to organizational changes

Purchasing / Buying Orientations

1. Buying Orientation – Buy at lowest price given a quality level . Use twoTechniques (a) commoditization – regard the product is only a commodity andcare only about price (b) multisourcing to bring in competition among vendors

2. Procurement Orientation – look for collaborative relationships and seeksavings through better management – such as material requirements planning, just-in-time management and even product design.

3. Supply Chain Management Orientation – purchasing is a strategic value adding operation and purchase department betters its role as a part of the value chain from raw materials to finished goods

BUYGRID FRAMEWORK

BUYPHASES

BUYCLASSES

New Modified Straight Task Rebuy Rebuy

1. Problem recognition2. General need description3. Product specification4. Supplier Search5. Proposal Solicitation6. Supplier selection7. Order-routine specification8. Performance review

Yes Maybe NoYes Maybe NoYes Yes YesYes Maybe NoYes Maybe NoYes Maybe NoYes Maybe NoYes Yes Yes

Problem recognition

Marketer stimulates problem recognition byDirect mail, telemarketing, calling on prospects

Internal stimuli – new product developmentfor which parts are needed, breakdown ofequipment, existing suppliers unsatisfactory

Buyer attends a trade showPurchase Manager senses an opportunity toget lower prices or better quality

General need descriptionand product specification

Standard items – go as per internal records oras per specs laid out in ISI documents

Complex items – collaborate with engineers,users; else sit with marketer’s applicationengineers who do consultative selling and work out specs and likely price

Certain buying organizations attach a PVA orproduct value analysis team to the projectwho will conduct extensive analysis to arriveat specs that will lead to minimum cost

Supplier Search

Identify suppliers- trade directories, hunt online catalogs for suppliers- trade shows- trade advertisements- Internet search – Websites have two types of e-hubs

Vertical hubs centered on industries-plastics, steel, paper

Functional hubs centered on logisticsmedia buying, advertising

-Direct extranet links to major suppliers (WalMart – P&G)

-Buying alliances to get best price.Coca-Cola, Sara Lee, Kraft, PepsiCo, GilletteP&G, have joined to form alliance – Transora

-Company buying sites – Firms like GE have theirown site where it places Requests for Proposal,negotiate terms, place orders

Proposal Solicitation

Invite suppliers to make detailed proposals

Set up quality standards if any e.g ISO 9000 orISI etc.

Large technology systems need a detailedTechno-Commercial proposal. The technicalquote will be cleared first and after that onlyqualified technical bidders will be called forcommercial negotiation

Buyers can invite suppliers to make presentations.

Supplier Selection

A supplier rating list is made by some companiesbased on relative importance given to a select setof attributes.

For routine order products the factors are : price,supplier reputation, delivery .

For procedural problem products such as copiers theimportant attributes are : technical service, supplierflexibility, reliability and price

For political problem products such as choice of a set of computers the factors are price, reputation, reliability and flexibility

One way to encounter price factor from supplier sideis to talk of total cost of product or life cycle cost.

Order routinespecification

Buyers negotiate the final order with the selected suppliers, and details the tech. specs., the quantitythe delivery time, return policies, warranties etc.

For maintenance and repair items , firms are moving towards a blanket contract that establishes a long runrelation. Such contracts are called stockless purchase plans as the stock is held by the supplier

Long run contracts are also agreed upon in case of shortage raw materials / inputs so that there is a steady flow of material. In many cases the supplierlocates his factory near the buyer for bringing downinventory and transport costs.

Vendor managed inventory is when the responsibility rests with the vendor for maintaining inventory

Important parameters to see are OT – deliver on timeIF – in full, NE – No error

Performance Review

Three methods of review

1 Ask for evaluation from buyers2 Buyer rates supplier on weighted score

method3. Based on drawbacks of performance the

buyer may come up with adjusted cost of purchase including price

4. Managers are rewarded for good buyingperformance

Institutional and Government Markets

1. Institutional Markets are – schools, colleges, universities, hospitals, nursing homes.

2. Institutions normally ask for lowest price given a minimum quality3. In government organizations the normal process is bidding with the

order going to the lowest bidder(s)4. Negotiated contracts are applicable where the project is complex and

risky.5. Governments tend to favor domestic suppliers6. Government decisions are subject to review, so there is lot of paperwork

in contracting7. Director General of Supplies and Disposals is the central purchasing unit of

Indian Government.

Segmentation, Targeting, Positioning

Identifying Market Segments and Selecting Target Markets

Segmentation is the process of placing together consumers into groups such that consumer heterogeneity on specified characteristics is minimized within groups and maximized across groups e.g. value for money buyers as distinct from economy buyers.Segmentation can also be thought of as taking a market and dividing them into groups based on some common characteristic e.g. diet-colas, regular colas.

Levels of MarketSegmentation

Mass Marketing or Undifferentiated Marketing e.g. Ruf & Tuf Jeans, Model T Henry Ford

Segment Marketing - Cars

Niche Marketing – specialize to a narrowly definedcustomer group – Temple jewellery for South Indianwomen wanting to take part in cultural programmes

Local Marketing – Athica for IIMB and around

Individual Marketing

One to One Marketing

Mass customization – ability to prepare on amass basis individuallydesigned products

Segment Marketing

Flexible market offering – naked solution containing theNo frills product and discretionary options that arePriced extra such as A/C, power windows, moon roof

Homogenous preferences e.g. bite size candies, eclairs

(Patterns of SegmentMarkets)

Diffused Preferences – House Buildings

Clustered Preferences – distinct clusters in the Market also called natural market segmentse.g. car market

Why is segmentation useful ?

Segmentation helps firm tailor their marketing programs

focuses an actionable and accessible set of the market.

cuts of wasteful expenditures on unwanted consumers

matches needs and wants of specific groups of buyers to firm’s offerings

stimulates demands through multi-products for multi-segments

resource allocation to segment specific marketing mix activities will be mademore efficient

Segmentation is a way to plan rather than explain

Criteria for Segmentation

1. Measurable – size, purchasing power etc – finding the size of market for refurbished home appliances is not that easy.

2. Substantial – large enough for the firm to find it as a marketing

opportunity – Premium car market in India may not be substantial to warrant local manufacture

3. Accessible – segments can be effectively reached and served –in communication, serving last mile is not easy

4. Differentiable – segments should be differentiable from one another –if rural consumers and urban consumers showno difference in features of mobile handsets

5. Actionable – It should be possible for formulating marketing programs forserving the segment (it cannot add segment descriptors so easily) – how to sell money for value products such asexpensive watches and pens – not only the monetarily richbuy it, the mentally rich also buy – how to identify

Bases for Consumer Market Segmentation

Bases

Geographic - Rural / Urban; metropolis/city/town/village; modern retail stores/kirana stores / mandis/ haats

Demographic – Age, Family Size (nuclear or joint ), gender,Income, Occupation, Education, SEC, religion, race,Nationality, social class

Psychographic – Use of Psychology and demographics* Lifestyle (AIO) – Nike, Benetton, Gatorade* Personality – Femina – woman of substance* Values – HiDesign leather accessories – consumerswho hold the value ‘style and elegance in a classical sense’

Behavioral Segmentation – next slide

Behavioral Segmentation - based on buyer’s knowledge of, attitude towards, use of, or response to a product

Occasions – Marriage, Birth – Archies and Hallmark cards

Benefits – In soaps - Dettol – antiseptic, Lux – Beauty

User Status – Non users, first time users, potential users, regular user

Usage rate – Light users, medium users, heavy users

Buyer Readiness State – Cold Prospect, Hot Prospect

Loyalty status – Hard Core Loyals, Split Loyals, Shifting Loyals, Switchers

Attitude – enthusiastic, positive, indifferent, negative, hostile

Bases of Industrial Market Segmentation

Nested Basis

Nested Approach

DemographicOperating variables

Purchasing approachesSituational factorsPersonal Characteristics

Classification of Nests

Personal characteristics Purchase process Purchase

decision

Situational factors

Company variablesDemographicsPurchasing approaches

Operating variables

Inner middle nest

Innermost nest

Outer nests

Demographic VariablesIndustry, Company Size (Large, SMEs) , Location

Operating VariablesTechnology, User or Nonuser status (light, medium, heavy users)Customer requirements (few services or extended requirements)

Purchasing VariablesPurchasing function approach (centralized or decentralized), Power structure( technology top, finance top, marketing top), Nature of existing relationships( old firms or new firms), general purchasingpolicies ( leasing, service contracts, sealed bidding ) , purchasing criteria (quality, service, price)

Situational FactorsUrgency of requirement, size of order

Personal CharacteristicsLoyalty, attitude toward risk, some similarities between buyer-seller

Segment based on existing relationship

First time prospects, novices, sophisticates

Segment based on purchasing criteria –

price oriented customers, solution oriented customersstrategic value customers (enterprise selling or partners)

Super Segments

A set of segments sharing some exploitable similarityPerfume manufacturers target to modern women ratheronly to working women or rich women. Both segments havea similarity of attempting to obtain – independent identity

Methods to Segmentation

Self Selection

Profiling

Competitive Market Structuring

Attitudinal Segmentation - Survey Method

Self Selection

One of the powerful means of segmenting markets is to allow consumers toSelf select by mass-customizing the marketing offer

American Express works on self selection of customers on dimension ofextent of spending by offering different categories of rewards for light andheavy users ; Heavy users – 2 airline round trip tickets to extra-spending within six months; Light users – money towards purchase of car by saving in five years.

Profiling

Method of describing a set of consumers on marketCharacteristics and attaching a tag description to it.

Basic profiling of customers in toothpaste market

Segment 1 Segment 2

Demographic

Age 15-40 years 3-60 years

Family size Small (<4) Large (5+)

Education Well educated Moderately educated

Psychographics Conservative shopper Utilitarian shopper

Behavioral Quality seeking twice a day brusher, loyal

Economy seeking once-a-day brusher deal-prone

Possible segment descriptor

Upwardly mobile nuclear family

Conventional large family

Segment Profiling Based on Cluster Analysis

The severe sufferers

The severe suffers are the extreme group on the potency side of the Market. They tend to be young, have children, and be well educated.They are irritable and anxious people, and believe that they suffer more severely than others. They take the ailment seriously, fuss about it, pamper themselves, and keep trying new and different products in search of greater potency. A most advanced product with new ingredients best satisfies their need for potency and fast relief, and ties in with their psychosomatic beliefs.

The Active Medicators:

The Active Medicators are on the same side of the motivational spectrum. They are typically modern suburbanites with average income and education.They are emotionally well adjusted to the demands of their active lives.They have learned to cope by adopting the contemporary beliefs of seekinghelp for every ill, and use remedies to relieve even minor signs of ailments and every ache and pain. In a modern product they seek restoration of theircondition and energy, mental recovery, and a lift for their active lives.They tend to develop strong brand loyalties.

The Hypochondriacs

The hypochondriacs are on the opposite side of the motivational spectrum. They tend to be older, not as well educated, and women. They have conservative attitudes toward medication and a deep concern over health. They see possible dangers in frequent use of remedies, are concerned over side effects, and afraid of remedies with new ingredients and extra potency. To cope with these concerns they are strongly oriented toward medical authority, seeking guidance in treatment and what products they should use. They hold rigid beliefs about the ailment and are disciplined in the products they use and how frequently they use them. They want a simple, single-purpose remedy that is safe and free from side effects and backed by doctors or a reputable company.

The Practicalist:

The practicalists are in the extreme position on this side of the motivational spectrum. They tend to be older, well educated, emotionally the most stable, and least concerned over their ailment or the dangers of remedies. They accept the ailment and its discomforts as part of life, without fuss and pampering. They use a remedy as a last resort, and just to relieve the particular symptom. They seek simple products whose efficacy is well proved, and are skeptical of complicated modern remedies with new ingredients and multiple functions.

(Wells 1975, p.203; Journal of marketing research published by the AMA)

Competitive Market Structuring

C CF C CF C CF C CF

BRANDS

Cola

DietRegular

Diet

Regular

Non-cola

Market Structure of Soft drinks

Caffeine

Caffeine-Free

Decaffeinated Caffeinated

Hierarchical definition of the coffee market with perceptual maps in each submarket (Urban Johnson and Brudnick 1981)

Coffee Ground Instant

Mildness

Brimsanka

TasteMaxwell

HillsBrosFolger’s

Chuck Full o Nuts

Regular Freeze Dried Regular Freeze dried

Store brands

Mildness Mildness Mildness Mildness

Taste Taste Taste Taste

Nescafe’Folger’s

Maxwell house

Taster’s Choice

Maxium

High Point

Sanka Nescafe’

SankaTaster’s Choice

Brim

Competitive Market structuring can also be obtained, by putting brands Together in groups based on choice probabilities. In this way, market segmentsAre a group of consumers who are homogenous in terms of probabilities ofChoosing different brands in a product class

Coke, Pepsi – consideration set

Segment 1 Segment 2 Segment 3

Coke 0.50 0.30 0.70Pepsi 0.5 0.70 0.30

Descriptor Hedonist or Next Generation Seekers ofVariety Seeker Protagonist ‘Real Thing’

Attitudinal Segmentation – Survey Method

1. Whom to Interview.In a survey of finding segments of customers who are travelers / touriststo Europe, it is not appropriate to count only those who have been toEurope, because that accounts for a small percentage. You have totalk to potential travelers

2. Frame of reference for questioningWhen you are questioning customers on vacations do you take (a) overallexperience of vacations (b) last vacation

3. Find different ways of segmentationFor example : Vacation to Europe, segment on (a) Favourability towardsEurope (b) Segmenting on Income brackets © segmenting customersbased on desires sought on their last vacation

In a study on 1750 interviews for vacationing the following segments wereUncovered – (1) visit friends and relatives segments (2) good for family sight-Seeing (3) outdoor vacationeer (4) resort vacationeer (5) foreign vacationeer

Shell’s Customer Segmentation study Methodology

•Surveyed 5000 respondents in 6 markets.•Questions included * Behavior patterns * Desired Features * Frustrations * Brand Ratings * Psychographics * Demographics

* Statistically identified 10 distinct “Clusters” of customers with different needs/ attitudes

•Studied Survey results from each cluster•Developed name and personality for each cluster

Source: Wharton School

Shell Customers Target Segments and Characteristics

Premium speedsters13%

Struggling survivors 9%

Value minded Planners 6%

Safety firsters 6%

Sentimentalist 13%

Comfort Zoners 15%Relationship shoppers 13%

Low octane communicators 7%

Hands-on individualists

12%

Simplicity seekers 11%

Source: Wharton School

Segments selected Premium speedsters

Simplicity SeekersPersonality: Overburdened, Frustrated, Loyal to others, caring, sensitive. Hard to motivate.Gas Purchasing:Reactive. Want things that make buying gas easy. Major brand= product reassurance.In a Word…”Overwhelmed”

Safety FirstersPersonality: Confident, Self-assured, ResponsibleControl oriented, well prepared.Gas purchasing: want cleanliness, comfort, Efficiency, safetyIn a word….”Safety Minded”

Source: Wharton School

Personality : Internally driven, CompetitiveMentalityGas Purchasing : Fast pumps, quick accessIn a word: Power minded

Brand Identities Considered

One stop convenience(Value minded planners,

struggling survivors)

Friendliest Service(Relationship Shoppers,

Comfort Zoners)

Community support(Comfort Zoners)

Lowest Price(Low octane commuters,

Sentimentalists)

Best Gasoline performance

(Hand’s on individuals, premium speedsters)

Quick & Easy

(Premium speedsters, simplicity seekers, safety firsters)

Source: Wharton School

Market Targeting

Market Targeting

Single Segment ConcentrationZodiac concentrating on executive and professionals

Selective Specialization – may be or may not beSynergy among the segments selected

HLL in Soaps

Product specialization - Specialized product to several segments – TVS makes scooters of allranges to several socio-economic classes

Market specialization – Serving many needs ofa single customer group. Financial services toNRIs

Full Market Coverage - General Motors,

What is Positioning

To some it means the segmentation decision (economy and premium segments).To others it is an image question (Casual, sporty wear – Benetton)To still others it means selecting which product features to emphasize – (flavor

or foaminess of toothpastes)

Positioning a brand is obtaining mind-space of the consumer for the brand withRespect to competition

Positioning is the act of designing the company’s offering and image to occupya distinctive place in the mind of the target market so as to maximize the Potential benefit to the firm. The result of positioning is the successful creationOf a customer focused value proposition

e.g. – Colgate Total – Multi-benefit toothpaste as a one product solution forpeople with tooth problems

As against Colgate Dental Cream – Core Identity for strong, white teeth meaninga toothpaste to maintain healthy teeth.

Jack Trout issues on Positioning

1. Embrace the obvious position possible in the market or granted by themarket. Positioning should be in line with the perception of consumers’ mind not against it

Coke: ‘The Real Thing’ is fine; it is the original colaCoke: Always Coca-Cola may not be fine as half the market is Pepsi

2. Many positioning ideas are founded on how company estimates the future

Samsung – Challenging Limits – Looks alrightAvis: We are No.2. We try harder

3. Be Simple: Volvo – Drive Safely

4. Positioning is long term. Do not be driven by the stock market

Kotler et.al on Positioning

Steps to a Positioning Strategy

1. Determine Target Market

Laptop for the business professional

2. Determine category membership of the brand under consideration

Hewlett Packard dv1000 is a sophisticated business laptop

3. Identify the competition

Sony, Toshiba

4. Establish the Category Points of Parity to fulfill the necessary conditionsof category membership

there are three main ways to convey a brand’s category membership- announcing category benefits

centrino mobile technology

- comparing to exemplarson par with HP’s excellence in instrumentation

- relying on the product descriptorHP Pavillion dv1000 is an entry level business

laptop

5. Establish the Competitive Points of Parity to establish the equivalence ofProduct benefits, attributes, values with respect to competition

HP’s manufacturing quality is no way behind Sony or Toshiba. It isbacked by decades of manufacturing electronic systems

6. Establish the Points of Difference if any to take a differentiated positionIf no POD exists then the brand takes a head on position or a me-too position

HP has an excellent service network in India as compared to Toshiba.HP is not as expensive as Sony

7. Write out the Positioning Statement

To the young urban professional (target market) our product – HPPavilion dv 1000 is a rugged system with all the necessary features of a state-Of-art business computer and is offered as a value for money laptop with Excellent service backup.

Important considerations in choosing Points of Difference (PODs)

(1) PODs are desirable by the customer

- Relevant and important to the customer – e.g. price of HPLaptop

- Distinctiveness – Service backup is not a common featureof all foreign made laptops in India

- Believable – HP has been in the electronic business fordecades

(2) PODs are deliverable to the customer

- Feasibility – HP has the required organization to make theservice deliverable and the required technologyto offer a value for money product

- Communicability- HPs products are not known as very expensive

- Sustainable- HP has the required R&D to continue makingstate-of –art upgrades

In this case PODs are anchored at the benefit level, sometimes they could be Anchored at the attribute or value level

Handling Conflicting POPs and PODs

Sometimes attributes and benefits are negatively correlated or move in the oppositeDirection. Ideally consumers want to maximize their benefit package. Examples of such cases are

(1) Low Price vs High Quality

(2) Taste vs Low Calories

(3) Nutritious vs Good Tasting.

Methods to overcome such situations

- Go for straddle positioning – do both simultaneously. BMW designed its car for both luxury and performance

- Present the communication messages for each attribute / benefit Separately

- Leverage equity of another entity e.g. Intel Inside

- Redefine the relationship – Teach customers that the relation betweenattributes is redefined and now stands positive e.g. Apple is user friendlyand not regarded as powerful. Apple came up with an ad campaign that had the tag – ‘Power to be your best’, teaching customers that they used itbecause it was user friendly and having used it successfully it was powerful.

Differentiation

It is the process of adding a set of meaningful and valued differences toDistinguish a company’s offering from competitor offerings

A difference will be stronger if it satisfies one or more of the following criteria

1. Important - Infrastructure investment of business school

2. Distinctive , but not necessarily superior - Bajaj scooter

3. Superior - Product superiority of Gillette

4. Preemptive - cannot be easily copied - Zilog Processor

5. Affordable - Personal Computer of Acer

6. Profitable - MTR’s food products

Dimensions on which differentiation can be achieved by firms

1. Product / Services

2. Personnel

3. Channel

4. Image

Product / Services

- Product / Service Qualityperformance based – BMWconformance quality – CMM in softwarephysical signs and cues – Tata Indica

- Form - Satchets- Features – Cameras- Durability – Volvo- Reliability – Maytag- Repairability – Maruti- Style – Benetton- Design – Designer wear

Services- Ordering ease – home delivery pizzas- Installation – Mobile- Customer Training – GE Medical Systems- Customer Consulting - Saree selling- Maintenance and repair – Premium apartments in the city.

Personnel

- Trained personnel should exhibit the following

- Competence – Repair engineers of process plants

- Courtesy - Front line staff in premium hotels

- Credibility – Premium hospital doctors

- Reliability – Parallel computers

- Responsiveness and Communication – Beauty Consultants

Channel

- Coverage – HLL

- Expertise – Avon

- Performance - Caterpillar

Image

- Differentiate Identity – Mysore Sandal Gold vs Dove

- Differentiate Logo, colors, slogans, events and sponsorships – Coca-Cola