CHAPTER 1 Technology-Driven Consumer Behavior LEARNING OBJECTIVES After reading, studying and analyzing this chapter, students should be able to understand: 1.1 The evolution of the marketing concept, the most prominent tools used to implement marketing strategies, and the objectives of socially responsible marketing. 1.2 How the Internet and related technologies improve marketing transactions by adding value that benefits both marketers and customers. 1.3 The interrelationships among customer value, satisfaction and retention, and technology’s revolutionary role in designing effective retention measures and strategies. 1.4 Consumer behavior as an interdisciplinary area, consumer decision making, and the book’s structure.
CHAPTER SUMMARY Learning Objective 1.1: To understand the evolution of the marketing concept, the most prominent tools used to implement marketing strategies, and the objectives of socially responsible marketing. Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society. Consumer behavior consists of consumers’ actions during searching for, purchasing, using, evaluating, and disposing of products and services that they expect will satisfy their needs. Consumer behavior explains how marketers can do so and how individuals make decisions to spend their available resources (i.e., time, money, effort) on products and services. Marketing and consumer behavior stem from the marketing concept, which maintain that the essence of marketing is satisfying consumers’ needs, creating value and retaining customers. Subsequently, companies must they produce only those goods they had already determined that consumers would buy. Marketing myopia, that is, a focus on the product rather than on the needs it presumes to satisfy. The marketing mix (also known as the Four Ps) consists of four elements: Product, price, place (distribution) and promotion. Market segmentation, targeting and positioning are the foundation of turning consumers into customers. Market segmentation is the process of dividing a market into subsets of consumers with common needs or characteristics. It consists of groups with shared needs that are different from those shared by other groups. Targeting is selecting the segments that the company views as prospective customers and pursuing them. Positioning is the process by which a company creates a distinct image and identity for its products, services, and brands in consumers’ minds. The image must differentiate the company’s offering from competing ones and communicate to the target audience that the particular product or service fulfills their needs better than competing offerings. The societal marketing concept requires marketers to fulfill the needs of the target audience in ways that improve, preserve, and enhance society’s wellbeing and simultaneously meeting their business objectives.
Learning Objective 1.2: To understand how the Internet and related technologies improve marketing transactions by adding value that benefits both marketers and customers. Technology has revolutionized the marketing mix, segmentation, targeting, positioning, and customer retention. When consumers use their computers, mobile phones, electronic readers, tablets and other electronic gadgets, they provide marketers with the kind of information that enables companies to target them immeasurably more effectively than during the pre-Internet days. Thus, online technologies create a “value exchange”: Marketers provide value to consumers in the form of information that turns shoppers into sophisticated customers, opportunities to customize products easily, entertainment content, and much more. While online, consumers provide value to marketers by “revealing themselves,” which enables companies to market their products more efficiently and precisely. Surfing online allows consumers to locate the best prices for products or services, bid on various marketing offerings, bypass distribution outlets and middlemen, and shop for goods around the globe and around the clock. They can also compare the features of different product models and engage in social networks with consumers who share the same interests, and provide and receive information about their purchases. Online communications created sophisticated and discerning consumers, who are hard to attract, satisfy, and retain. More than ever before, marketers must customize their products, add value to the physical product or the core of a service, provide the right benefits to the right consumer segments, and position their products effectively. Technology also enables marketers to refine their strategies because they can readily customize their offerings and promotional messages, offer more effective pricing, shorter distribution channels, and build long-term relationships with customers. By using rapidly advancing technologies track consumers, marketers can identify opportunities for creating new offerings, as well as improving and extending existing products and services. They can gather comprehensive consumer information by tracking consumers online, requiring prospective buyers to register at their websites, and combining this knowledge with demographic and lifestyle data gathered off line Learning Objective 1.3: To understand the interelationships among customer value, satisfaction and retention, and technolgy’s revolutinary role in designing effective retention measures and strategies. Customer value is the ratio between customers’ perceived benefits (economic, functional and psychological) and the resources (monetary, time, effort, psychological) they use to obtain those benefits. Customer satisfaction is customers’ perceptions of the performance of the product or service in relation to their expectations. Customer retention is turning individual consumer transactions into long-term customer relationships by making it in the best interests of customers to stay with the company rather than switch to another firm. It is more expensive to win new customers than to retain existing ones. Technologies often enhance customer relationships and retention by engaging consumers with brands. In addition to engaging customers with marketers, social media has transformed market research. Many companies can easily collect input and customers’ preferences, and, sometimes without actively questioning consumers. The objective of understanding customers’ emotional and transactional motives when buying from a company is to understand the drivers of customer satisfaction, which lead to customer retention and long-term relationships. As consumer buy more and more online, it has become important to understand what makes them satisfied during electronic Customers who are highly satisfied or delighted keep purchasing the same products and brands, provide positive and encouraging word-of-mouth to others, and often become “customers for life.” On the other hand, those who less satisfied or feel neutral either switch to a competitor immediately or wait until another marketer offers them a
somewhat lower price and then do so. In addition, highly dissatisfied customers spread negative
personnel. Behavioral and motivational experts agree that employees would “go the extra mile” to try and retain customers only if they are treated like valued “internal customers” by their employer. Learning Objective 1.4: To understand consumer behavior as an interdisciplinary area, consumer decision making, and the book’s structure. Consumer behavior stems from four disciplines: Psychology is the study of the human mind and the mental factors that impact behavior (i.e., needs, personality traits, perception, learnt experiences, and attitudes). Sociology is the study of the development, structure, functioning and problems of human society (the most prominent social groups are family, peers and social class). Anthropology compares human societies’ culture and development (e.g., cultural values and subcultures). Communication is the process of imparting or exchanging information (including media and persuasive strategies). The process of consumer decision-making consists of: the input, process and output. The “input stage” of includes two influencing factors: the firm’s marketing efforts (i.e., the product, its price and promotion, and where it is sold) and socio-cultural influences (i.e., family, friends, neighbors, social class, and cultural and subcultural entities). This stage also includes the methods of transmitting the information from firms and socio-cultural sources to consumers. The “process stage” focuses on how consumers make decisions. The psychological factors (i.e., motivation, perception, learning, personality, and attitudes) affect how the external inputs from the input stage influence the consumer’s recognition of a need, prepurchase search for information, and evaluation of alternatives. The “output stage” consists of two post-decision activities: purchase behavior and post-purchase evaluation. This book includes five parts. Part One provides an overview of marketing and consumer behavior and the components of strategic marketing. Part Two describes the consumer as an individual and explains the psychological factors that impact consumer behavior. Part Three addresses the communication and persuasion process along its four components: The sender, message, media, and receiver. Feedback is the mechanism that alerts the sender as to whether the intended message was, in fact, received. Part Four examines consumers in their social and cultural settings. Part Five includes a discussion the consumer decision-making process, consumers’ reactions to innovative products, marketers’ social responsibility and potential ethically questionable marketing practices, and the methodology of consumer research.
CHAPTER OUTLINE INTRODUCTION 1. Consumer behavior is the study of consumers’ actions when searching for,
purchasing, using, evaluating, and disposing of products and services that they expect will satisfy their needs. 2. Consumer purchases are determined not by needs alone, but also by how the product helps owners express their characteristics. *****Use Key Term consumer behavior Here, Use Figures #1.1 and #1.2 Here*****
The Marketing Concept 1. Marketing and consumer behavior stem from the marketing concept, which
maintains that the essence of marketing consists of satisfying consumers’ needs, creating value, and retaining customers. *****Use Key Term marketing concept Here, Use Learning Objective #1.1 Here; Use Figure #1.3 Here; Use Review and Discussion Question 1.1 Here***** 2. The production concept focused on cheap, efficient production and intensive
distribution. a) It assumes consumers are mostly interested in product availability at low prices. b) It works if consumers are more interested in obtaining the product than in getting the features they really want. 3. The product concept assumes consumers will buy the product that offers the highest quality, the best performance and the most features. a) A product orientation leads companies to focus on quality and add features if feasible (vs. if desired by the end consumer). b) A product orientation may lead to marketing myopia, or a nearsighted focus on the product and its direct competitors vs. the market’s needs. 4. The selling concept maintains that marketers should sell the products they have decided to produce. *****Use Key Terms production concept, product concept, marketing myopia, selling concept Here***** Consumer Research 1. Consumers are highly complex individuals, subject to a variety of psychological and
social needs quite apart from their basic functional needs. a) The needs and priorities of different consumer segments differ dramatically. b) The objectives of a company should be to target different products and services to different market segments in order to better satisfy different needs. c) In order to design new products and marketing strategies that would fulfill consumer needs, they had to study consumers and their consumption behavior in depth. 2. The term consumer research represents the process and tools used to study consumer behavior. *****Use Key Term consumer research Here ***** Market Segmentation, Targeting, and Positioning 1. The focus of the marketing concept is satisfying consumer needs.
2. Market and consumer researchers seek to identify the many similarities and
differences that exist among the peoples of the world. 3. The marketer must adapt the image of its product so that each market segment
perceives the product as better fulfilling its specific needs than competitive products. 4. Market segmentation is the process of dividing a market into subsets of consumers
with common needs or characteristics. 5. Targeting is the selection of one or more of the segments identified as prospective
customers for the company to pursue. 6. Positioning refers to the development of a distinct image for the product or service in the mind of the consumer a) The image should differentiate the offering from competing ones and faithfully communicate to the target audience that the particular product or service will fulfill their needs better than competing brands. b) Successful positioning focuses on the distinct benefits that the product will provide rather than the product’s features. *****Use Key Terms market segmentation, targeting, and positioning Here; Use Review and Discussion Question #1.2 Here***** The Marketing Mix 1. The marketing mix consists of a company’s service and/or product offerings to
consumers and the methods and tools it selects to accomplish the exchange. 2. Four basic elements (known as the four Ps) include: a) The product or service —features, designs, brands, packaging, post-purchase b) c) d)
benefits, etc. The price—list price (including discounts, allowances, and payment methods). The place—distribution of the product or service. Promotion—advertising, sales promotion, public relations, and sales efforts designed to build awareness of and demand for the product or service. *****Use Key Terms marketing mix and four Ps Here*****
3. Socially responsible marketing suggests marketers would be better off if they
integrated social responsibility into their marketing strategies because companies prosper when society prospers. a) The societal marketing concept requires marketers to fulfill the needs of the target audience in ways that improve, preserve and enhance society’s well-being while simultaneously meeting their business objectives. b) Some marketers ignore laws and market potentially harmful products (e.g. Monster Beverage Corp.) c) Some companies incorporated social goals into their mission statements because they believe it is important for organizational effectiveness. d) Non-profit organizations also advance causes they believe are ethically and morally right.
*****Use Key Term societal marketing concept Here; Use Figure 1.4 Here; Use Review and Discussion Question 1.3 Here; Use Hands-On Assignment 1.10 Here ***** Technology Enriches the Exchange Between Consumers and Marketers *****Use Learning Objective #1.2 Here ***** 1. Marketers provide value to consumers in the form of information, including opportunities to customize products easily and entertainment content. 2. Consumers provide value to marketers by “revealing themselves” while online, which enables companies to market their products more efficiently and precisely. a. Consumers “pay” for the Internet’s seemingly free content by providing virtually unlimited information about themselves to marketers, who gather, analyze, and use it to target buyers. ***** Use Hands-on Assignment #1.9 Here***** b. Figure 1.5 illustrates that across age groups, most Americans own technological gadgets. c. Figure 1.6 details Americans’ use of the Internet’s most prominent features. d. Specialized “information exchanges” track who is interested in what through “cookies” (invisible bits of code stored on Web pages). i. Cookie using exchanges such as eXelate or BlueKai sell the cookies to interested marketers who want to target consumers based on their searches for more precise targeting. ii. Consumers also have access to better information, and can compare products based on attributes in side-by-side comparisons, as done with E-Readers in Figure 1.7. e. Promotional messages are more interactive, personalized and targeted. f. Cross-screen marketing consists of tracking and targeting users across their computers, mobile phones and tablets. ***** Use Key Term cross-screen marketing Here; Use Figures 1.5, 1.6 and 1.7 Here***** 3. Technology increases the availability of customized products and promotional messages. 4. The Internet allows for more effective price comparisons and better distribution. *****Use Review and Discussion Question 1.4 Here***** Customer Value, Satisfaction, Trust, and Retention
1. Customer value is defined as the ratio between the customer’s perceived benefits
(economic, functional, and psychological) and the resources (monetary, time, effort, psychological) used to obtain those benefits. 2. Customer satisfaction is the individual’s perception of the performance of the product or service in relation to his or her expectations. 3. The overall objective of providing value to customers continuously and more effectively than the competition is to have and to retain highly satisfied customers. This strategy of customer retention makes it in the best interest of customers to stay with the company rather than switch to another company. ***** Use Key Terms customer value, customer satisfaction, customer retention Here ***** 4. It is more expensive to win new customers than to retain existing ones for several
reasons: a) Loyal customers buy more products and constitute a ready-made market for new models of existing products as well as new ones, and also represent an opportunity for cross-selling. b) Long-term customers who are thoroughly familiar with the company’s products are an important asset when new products and services are developed and tested. c) Loyal customers are less price-sensitive and pay less attention to competitors’ advertising. Thus, they make it harder for competitors to enter markets. d) Servicing existing customers, who are familiar with the firm’s offerings and processes, is cheaper. It is expensive to “train” new customers and get them acquainted with a seller’s processes and policies. The cost of acquisition occurs only at the beginning of a relationship, so the longer the relationship, the lower the amortized cost. e) Loyal customers spread positive word-of-mouth and refer other customers. f) Marketing efforts aimed at attracting new customers are expensive; indeed, in saturated markets, it may be impossible to find new customers. Low customer turnover is correlated with higher profits. g) Increased customer retention and loyalty make the employees’ jobs easier and more satisfying. In turn, happy employees feed back into higher customer satisfaction by providing good service and customer support systems. ***** Use Review and Discussion Questions #1.6 & #1.7 Here; Use Hands-on Assignment #1.11 Here***** 5. Technologies often enhance customer relationships and retention by engaging
consumers with brands. a) Emotional bonds represent a customer’s high level of personal commitment and attachment to the company. b) Transactional bonds are the mechanics and structures that facilitate exchanges between consumers and sellers. c) Social media include means of interaction among people in which they create,
***** Use Key Terms emotional bonds, transactional bonds, social media Here ***** 6. Emotional and transactional motives should be discerned to understand drivers of
customer satisfaction, which leads to retention and long-term relationships. a) Determinants of customer satisfaction online include adaptation, interactivity, nurturing, commitment, network, assortment, transaction ease, engagement, loyalty, inertia and trust. b) Table 1.1 applies a four-way categorization of transaction-based and emotional bond-based customer relationships with marketers to Amazon’s customers. ***** Use Table 1.1 Here ***** 7. Customers who are highly satisfied or delighted keep purchasing the same products
and brands, provide positive and encouraging word-of-mouth to others, and often become life-long customers. 8. With respect to customer satisfaction there might be several types of customers: a) Loyalists—completely satisfied customers who keep purchasing. b) Apostles—those whose experiences exceed their expectations and who provide very positive word of mouth about the company to others. c) Defectors—those who feel neutral or merely satisfied and are likely to stop doing business with the company. d) Terrorists—those who have had negative experiences with the company and who spread negative word of mouth. e) Hostages—unhappy customers who stay with the company because of no choice (or other reasons). f) Mercenaries—very satisfied customers but who have no real loyalty to the company and may defect. 9. Companies classify customers according to profitability by tracking revenues obtained from individual customers and categorizing them into tiers, as done in a “customer pyramid”: a) Platinum tier – heavy users; not price sensitive; willing to try new offerings b) Gold tier – heavy users; not as profitable/more price-sensitive; more likely to buy from several providers c) Iron tier – spending volume and profitability to not merit special treatment d) Lead tier – cost the company money; claim more attention than merited by spending; tie up resources and spread negative word-of-mouth ***** Use Figure 1.8 Here ***** 10. Companies must develop measures to assess customer retention strategies, which may
include: a) Customer Valuation b) Retention Rates c) Analyzing Defections
a) b)
If done well, every employee will provide and receive exceptional service from other employees. Employees will also understand the significance of their roles and how their roles relate to those of others. ***** Use Key Term internal marketing Here; Use Figure 1.9 Here*****
Consumer Behavior is Interdisciplinary
***** Use Learning Objective 1.4 Here***** 1. Marketing theorists borrowed heavily from concepts developed in other scientific
disciplines to understand consumer behavior: a) Psychology—the study of the human mind and mental factors that affect behavior. b) Sociology—the study of the development, structure, functioning and problems of human society. c) Anthropology—compares human societies’ culture and development. d) Communication—the process of imparting or exchanging information. ***** Use Key Terms psychology, sociology, anthropology, communication Here***** 2. The process of consumer decision making can be viewed as three distinct but
interlocking stages: the input stage, the process stage, and the output stage. a) The input stage influences the consumer’s recognition of a product need and consists of two major sources of information: i) The firm’s marketing efforts (the product itself, its price, promotion, and where it is sold). ii) The external sociological influences on the consumer (family, friends, neighbors, other informal and noncommercial sources, social class, cultural and subcultural memberships). b) The process stage focuses on how consumers make decisions. i) The psychological factors inherent in each individual (motivation, perception, learning, personality, attitude) affect how the external inputs influence the consumer’s recognition of a need, prepurchase search for information, and evaluation of alternatives. ii) The experience gained through evaluation of alternatives, in turn, affects the consumer’s existing psychological attributes. c) The output stage of the consumer decision-making model consists of two closely-related post decision activities: i) Purchase behavior ii) The postpurchase evaluation
*****Use Figure #1-10 Here***** The Structure of this Book The book is divided into four parts, as follows: 1. Part One provides an overview of marketing and consumer behavior and the components of strategic marketing. a) Chapter 1 explains consumer behavior as an interdisciplinary framework centered on people’s consumption-related activities b) Chapter 2 discusses the process of market segmentation, the criteria for selecting target markets, behavioral targeting, and differentiating offerings among competitors. 2. Part Two discusses the consumer as an individual and explains psychological factors that affect consumer behavior. a) Chapter 3 discusses consumer motivation and the impact of personality characteristics on consumer behavior. b) Chapter 4 explores consumer perception/how the way we view the world around us affects our shopping patterns. c) Chapter 5 explains how we learn. d) Chapter 6 explores how attitudes affect buying behavior. 3. Part Three addresses the communication and persuasion process. a) Chapter 7 introduces the communication process, contrasts broadcasting and narrowcasting, and focuses on the message (including appeals). b) Chapter 8 explores communication channels. c) Chapter 9 covers source credibility and word-of-mouth. 4. Part Four examines consumers in their social and cultural settings. a) Chapter 10 examines family as a consumption unit and social class structure and consumption patterns. b) Chapter 11 describes culture and how it is expressed through values, rituals and customs. c) Chapter 12 describes cultural groups, known as subcultures. d) Chapter 13 explores cross-cultural analysis, which includes the basic strategic elements for all companies pursuing markets in countries other than the United States. 5. Part Five consists of three chapters. a) Chapter 14 discusses the consumer decision-making process and integrates parts 1-4. b) Chapter 15 explores marketers’ social responsibility and potential ethically questionable practices. c) Chapter 16 describes the methodology of consumer research.
REVIEW AND DISCUSSION QUESTIONS 1.1 Describe the interrelationship between consumer behavior and the marketing
The term consumer behavior refers to the behavior that consumers display in searching for, purchasing, using, evaluating and disposing of products and services that they expect will satisfy their needs. The study of consumer behavior is the study of how individuals make consumption-related decisions. The key assumption underlying the marketing concept is that a company must determine the needs and wants of specific target markets, and deliver the desired satisfaction better than the competition. The marketing concept is based on the premise that a marketer should make what they can sell, instead of trying to sell what they have made. Thus, a company which adopts the marketing concept must continuously research and monitor its customers’ and potential clients’ needs and consumption-related behavior in order to develop, effectively promote, and deliver products and services which satisfy clients’ needs better than the competition. Individual, Easy, 3-5 minutes Objective 1.1: Understand the evolution of the marketing concept, the most prominent tools used to implement marketing strategies, and the objectives of socially responsible marketing. Learning Outcome: 1. Define consumer behavior and describe its influence on marketing practices AACSB: Reflective thinking
1.2 A company is introducing a new e-Reader. Suggest segmentation, targeting, and positioning strategies for the new product. The focus of the marketing concept is consumer needs. Three elements for creating a strategic framework for discovering and analyzing those needs are market segmentation, market targeting, and positioning. Market segmentation is the process of dividing a market into subsets of consumers with common needs or characteristics. Because most companies have limited resources, few companies can pursue all of the segments identified for the company to pursue. Targeting is selecting one or more of the segments identified for the company to pursue. Because many companies have adopted the marketing concept, the marketplace is filled with many products and services claiming to satisfy consumer needs. Positioning is developing a distinct image for the product or service in the mind of the consumer, an image that will differentiate the offering from competing ones and squarely communicate to consumers that the particular product or service will fulfill their needs better than competing brands. In answering this question, students need to think about the need or want for an eReader. As thought starters, the instructor may ask the students, “what segment of the market is most interested in an e-Reader? What segment also has the resources to purchase an e-Reader?” These questions should get the conversation started. Individual, Moderate, 5 minutes
Objective 1.1: Understand the evolution of the marketing concept, the most prominent tools used to implement marketing strategies, and the objectives of socially responsible marketing. Learning Outcome: 1. Define consumer behavior and describe its influence on marketing practices AACSB: Application of knowledge 1.3 Define the societal marketing concept and discuss the importance of integrating marketing ethics into the company’s philosophy and operations. The societal marketing concept requires marketers to fulfill the needs of the target audience in ways that improve, preserve, and enhance society’s well-being while simultaneously meeting their business objectives. Not all companies focus on society, but some companies believe socially responsible marketing is a part of organizational effectiveness. Generally speaking, if society prospers, firms prosper, so it is in the marketer’s best interest, in the long-run, to focus on external stakeholders as well as profits. Individual, Easy, 3-5 minutes Objective 1.1: Understand the evolution of the marketing concept, the most prominent tools used to implement marketing strategies, and the objectives of socially responsible marketing. Learning Outcome: 1. Define consumer behavior and describe its influence on marketing practices AACSB: Application of knowledge 1.4 Describe how technology enhances the exchange between marketers and consumers. Marketers provide value to consumers in the form of information, including opportunities to customize products easily and entertainment content. Consumers provide value to marketers by “revealing themselves” while online, which enables companies to market their products more efficiently and precisely. Consumers “pay” for the Internet’s seemingly free content by providing virtually unlimited information about themselves to marketers, who gather, analyze, and use it to target buyers. The information allows marketers to customize promotional messages and products. Technology also improves the ability to compare prices, distribution, and allows consumers with the ability to interact with the firm, which may improve satisfaction and, ultimately, retention. Individual, Moderate, 3-5 minutes Skill: Concept Objective 1.2: Understand how the Internet and related technologies improve marketing transactions by adding value that benefits both marketers and customers.
marketing practices AACSB: Information technology; Reflective thinking 1.5 It is often said that consumers receive “free” content online. Is this the case? Why or why not? Consumers “pay” for the Internet’s seemingly free content by providing virtually unlimited information about themselves to marketers, who gather, analyze, and use it to target buyers. Individual, Moderate, 1-2 minutes Objective 1.2: Understand how the Internet and related technologies improve marketing transactions by adding value that benefits both marketers and customers. Learning Outcome: 1. Define consumer behavior and describe its influence on marketing practices AACSB: Information technology 1.6 Discuss the interrelationships among customer expectations and satisfaction, perceived value, and customer retention. Why is customer retention essential? Perceived value is relative and subjective while customer satisfaction is the individual’s perception of the performance of the product or service in relation to his or her expectation. The concept of customer satisfaction is a function of customer expectations. Customers whose experiences match expectations will be satisfied and customers whose expectations are exceeded will be very satisfied or delighted. The overall objective of providing value to customers continuously and more effectively than to competition is to have and to retain highly satisfied customers. This is called customer retention. The purpose of customer retention is to make it the best interest of customers to stay with the company rather than switch to another firm. The reason that customer retention is essential is that in almost all business situations, it is more expensive to win new customers than to keep existing ones. Individual, Moderate, 3-5 minutes Objective 1.3: Understand the interrelationships among customer value, satisfaction and retention, and technology’s revolutionary role in designing effective retention measures and strategies. Learning Outcome: 1. Define consumer behavior and describe its influence on marketing practices AACSB: Analytical thinking; Reflective thinking 1.7 How can marketers use technology to improve customer retention and enhance their bonds with customers? The Internet and cell phones have helped marketers maintain closer relations with
company if they have questions, problems, or suggestions. Marketers also use databases to track revenues by consumer, which allows marketers to categorize customers based on profitability and customize benefits to consumers accordingly. Individual, Easy, 2-3 minutes Objective 1.3: Understand the interrelationships among customer value, satisfaction and retention, and technology’s revolutionary role in designing effective retention measures and strategies. Learning Outcome: 1. Define consumer behavior and describe its influence on marketing practices AACSB: Reflective thinking 1.8 Discuss the role of the social and behavioral sciences in developing the consumer decision-making model. Consumer behavior was a relatively new field of study in the mid- to late-1960s. Because it had no history or body of research of its own, marketing theorists borrowed heavily from concepts developed in other scientific disciplines. These disciplines were psychology (the study of the individual), sociology (the study of groups), social psychology (the study of how an individual operates in groups), anthropology (the influence of society on the individual), and economics. Many early theories concerning consumer behavior were based on economic theory on the notion that individuals act rationally to maximize their benefits (satisfactions) in the purchase of goods and services. Later research discovered that consumers are just as likely to purchase impulsively and to be influenced not only by family, friends, advertisers, and role models, but also by mood, situation, and emotion. All of these factors combine to form a comprehensive model of consumer behavior that reflects both the cognitive and emotional aspects of consumer decision-making. Individual, Easy, 3-5 minutes Objective 1.4: Understand consumer behavior as an interdisciplinary area, consumer decision making, and the book’s structure. Learning Outcome: 10. Describe the stages of consumer decision making AACSB: Reflective thinking HANDS-ON ASSIGNMENTS 1.9 Locate two websites that you visit regularly and discuss how they track your behavior and enable marketers to target you more effectively. Instructor’s Discussion In order to answer this question, students should take notice of the use of information technology, databases, interactive communications, and usage of satisfaction surveys. Students might also wish to be aware of how technology’s impact on our understanding of and interactions with consumers might be relevant to the exercise.
The idea behind targeting is related to customer value, since collecting information should allow marketers to provide more attractive offerings based on their understanding of your preferences. Note that customer value is defined as being the ratio between the customer’s perceived benefits (economic, functional, and psychological) and the resources (monetary, time, effort, and psychological) used to obtain those benefits. Individual, Moderate, 10-15 minutes, Outside of Class Objective 1.3: Understand the interrelationships among customer value, satisfaction and retention, and technology’s revolutionary role in designing effective retention measures and strategies. Learning Outcome: 1. Define consumer behavior and describe its influence on marketing practices AACSB: Application of knowledge 1.10Locate two examples (e.g., advertisements, articles, etc.) depicting practices that are consistent with the societal marketing concept and two examples of business practices that contradict this concept. Explain your choices. Instructor’s Discussion The societal marketing concept is described as being one where the marketer is required to adhere to the principles of social responsibility in the marketing of their goods and services; that is, they should endeavor to satisfy the needs and wants of their target markets in ways that preserve and enhance the well-being of consumers and society as a whole. Thus, the restructured definition of the marketing concept calls on marketers to fulfill the needs of the target audience in ways that improve society as a whole, while fulfilling the objectives of the organization. A serious deterrent to widespread implementation of the societal marketing concept is the shortterm orientation embraced by most business executives in their drive for increased market share and quick profits. Students should be clear as to why examples fit the pro and con approaches. Open the discussion with a clear definition of what the societal marketing concept is (see above). Next, match this concept to the supplied advertisements or articles. Conclude the discussion with comments on the applicability of the concept to modern business. Individual, Moderate, 15-20 minutes, Outside of Class Objective 1.1: Understand the evolution of the marketing concept, the most prominent tools used to implement marketing strategies, and the objectives of socially responsible marketing. Learning Outcome: 1. Define consumer behavior and describe its influence on marketing practices AACSB: Application of knowledge
1.11 Locate two examples of technological innovations designed to enhance customer retention and discuss them in class. Instructor’s Discussion Student examples may vary. Take the opportunity to remind students how the examples relate to satisfaction, which contributes to retention, and review the advantages of customer retention. Also, ask students to differentiate between technological innovations that facilitate emotional bonds from those that facilitate transactional bonds. Individual, Moderate, 5-10 minutes Objective 1.3: Understand the interrelationships among customer value, satisfaction and retention, and technology’s revolutionary role in designing effective retention measures and strategies. Learning Outcome: 1. Define consumer behavior and describe its influence on marketing practices AACSB: Application of knowledge
S.T.A.R. PROJECTS Ethical Issues in Consumer Behavior S.T.A.R. Project #1 H&R Block is the 500-pound gorilla of individual income tax preparation. The company has a significant presence in the U.S. market (especially during the spring tax season). H&R Block has always been an aggressive competitor in this highly competitive market. A trade organization for accountants believes that H&R Block became too aggressive when it ran an ad campaign that showed a consumer running in a dark alley confronted with neon signs flashing “Prestige CPA,” “Taxes Here,” and “Tax Consortium.” The consumer appears confused and frightened. At the end of the alley a solution to the fear and confusion appeared in the form of a warm and friendly H&R Block sign that promised that consumers do not have to pay until they are completely satisfied. NonBlock CPA professionals question whether H&R Block has fairly represented their businesses and consumer policies. a. Is this form of advertising ethical? Why or why not? b. With respect to what you have learned about the societal marketing concept in the chapter, what suggestions do you have for H&R Block? Instructor’s Discussion The H&R Block case is a good example of aggressive marketing that might exceed acceptable limits. The ad is much different than the H&R Block approach used on their Web site (see www.hrblock.com). Could a code of ethics help H&R Block? Possibly. CPA professionals do not see themselves as neon sign merchants nor do they believe that
the average citizen has complaints with their preparation practices or guarantees. When
does innuendo and appearance become unethical? This should be an interesting issue for the students to discuss. It will also be a good way to introduce the concept of a code of ethics. (See the exercise below for more work on a code of ethics.) S.T.A.R. Project #2 Many consumers trust their medical supply needs to Johnson & Johnson. Johnson & Johnson is very clear as to its mission and commitment to the health and safety of its customers. The company is often cited as an example of how to do things right with respect to relations with customers and the public. Johnson & Johnson has gone so far as to construct a company credo that it features on its Web site (see www.jnj.com : Our Company: Our Credo Values). a. Assume that you have just been hired as a customer relations expert by Johnson & Johnson to answer a growing number of complaints that JNJ products are overpriced and have lost their sense of value for the consumer. The complainants cite lower priced private labels and store brands as illustrations of frustrations with JNJ. As one consumer states, “A band aid is just a band aid after all!” What would be your response? b. How could you use the Johnson & Johnson Credo to aid you in your response? Instructor’s Discussion First, all students should read the JNJ Credo. The credo itself can be the discussion in this question. Next, students must carefully think about the scenario that has been presented. How could the company use its commitment to quality as an answer? How could the company comment without disparaging the competition? How can the company focus on value? Take the two to three best responses and read them in class. An additional aid is to download the JNJ credo and prepare it as a handout. What does the JNJ credo say about the company’s commitment to ethical behavior? Small Group Projects S.T.A.R. Project #3 Who designed the chicken sandwich? According to information provided on the Chickfil-A Web site (www.chick-fil-a.com) it was Chick-fil-A founder Truett Cathy. Mr. Cathy is also known for his unique approach to the fast food business. This unique approach has at its center an appreciation of family values (the restaurants are closed on Sundays and all children’s toys emphasize values rather than gimmicks or cartoon characters). After visiting the company Web site, your group’s assignment is to list the ways that Chick-fil-A provides customer value, satisfaction, and retention for its customers. Instructor’s Discussion The student group should not have a problem listing the ways that Chick-fil-A provides
however, students will appreciate the chapter comments more fully. After the list is complete, the second assignment sounds easy. Students should, however, observe that Chick-fil-A matches both of the two concepts rather well. The astute student will see that Chick-fil-A may still have some way to go with respect to technological application to the business, databases, and customer segmentation. S.T.A.R. Project #4 Nike is not just for males. This shoe giant has made great strides in market segmentation, customization, and customer relationship development. The result is that Nike is also a premier female shoe company. Your group assignment is split your team and analyze Nike. To do this, one team should review the www.nike.com Web site and analyze its contents based on its appeals to the male market segment (i.e., styles, language, colors, celebrity endorsers, games, customer relationships, etc.). The second team should analyze the Web site based on its appeals to the female segment (i.e., styles, language, colors, celebrity endorsers, games, customer relationships, etc.). The two teams should now match their findings and write a summary report. What has Nike learned about market segments and market targets? How do the two sections of the nike.com Web site assist Nike in its marketing efforts? Instructor’s Discussion This exercise gives two small groups within a larger group the chance to explore Nike’s marketing efforts to two distinct market segments. If you would like to add additional comparison criteria, feel free to do so. Be sure to ask students what they have learned about consumer behavior from the Nike Web site. This exercise will also give groups a chance to learn to work with each other and will pave the way for future group participation projects.
CHAPTER 2 Segmentation, Targeting and Positioning
LEARNING OBJECTIVES After reading, studying and analyzing this chapter, students should be able to understand: 2.1 The interrelationship among market segmentation, targeting, and positioning, and how to select the best target markets. 2.2 The bases used to segment consumers, including demographics, psychographics, product benefits sought and product usage-related factors. 2.3 Behavioral targeting and its key role in today’s marketing. 2.4 How to position, differentiate and reposition products.
CHAPTER SUMMARY Learning Objective 2.1: To understand the interrelationship among market segmentation, targeting and positioning and how to select the best target markets. Segmentation is defined as the process of dividing a potential market into distinct subsets of consumers with a common need or characteristic and selecting one or more segments to target with a specially designed marketing mix. Besides aiding in the development of new products, segmentation studies assist in the redesign and repositioning of existing products, in the creation of promotional appeals, and the selection of advertising media. In order to be a viable target market, a segment must be identifiable (by some criteria such as demographics, lifestyles, or others), sizeable (i.e., large enough to be profitable), stable or growing, accessible (i.e., can be reached economically), and congruent with the marketer’s objectives and resources. Learning Objective 2.2: To understand the bases used to segment consumers, including demographics, psychographics, product benefits consumers seek, and other product usage-related factors. A segmentation strategy begins by dividing the market for a product into groups that are relatively homogeneous and share characteristics that are different from those of other groups. Such characteristics include factual and classified as follows: behavioral and cognitive variables, consumer-intrinsic features, and consumption-related data. The bases for segmentation include demographics, personality and psychographics, geodemographics, product benefits, media exposure, usage rate and occasion and level of brand loyalty. All segmentation strategies in the “real world” stem from multiple segmentation bases. Learning Objective 2.3: To understand behavioral targeting and its key role in today’s marketing.
Behavioral Targeting is sending consumers personalized and prompt offers and promotional messages based on marketers’ tracking of one or more of the following factors: online navigation, current geographic location and purchase behavior. The objective of behavioral targeting is to reach the right consumers and deliver to them highly relevant messages at the right time more accurately than when using conventional segmentation techniques. Tracking online navigation includes identifying the sites consumers’ visit, their engagement with the sites, and their interests, lifestyles and personalities as expressed by the contents of their blogs, twits and Facebook profiles. Many marketers use predictive analytics, which consists of methods predicting consumers’ future purchases on the bases of past buying information and other data, and evaluating the impact of personalized promotions stemming from the predictions. Collecting the right data and analyzing it strategically are essential to effective behavioral targeting. Marketers’ goal is to anticipate occurrences in your life event that impact your shopping behavior and use these insights to get you to spend your money on their products. In addition, they are eager to discover information about your interests and personal data and the social networks with which you connect online. Learning Objective 2.4: To understand how to position, differentiate and reposition products. After segmenting the market and selecting targeting prospects, marketers must persuade prospective buyers to buy the products that they offer, rather than competing products. Positioning is the process by which a company creates a distinct image and identity for its products, services, or brands in consumers’ minds. The image and unique identity are called a “position.” The “position” in intangible, exists in the consumer’s mind, and represents how consumers perceive the product. Positioning is more important to the ultimate success of a product than are its actual characteristics, although products that are poorly made will not succeed on the basis of image alone. The result of effective positioning is a unique position that the product occupies in the mind of the consumer. Most new products fail because consumers perceive them as “me too” offers that do not provide any advantages or unique benefits over competitive products. The positioning strategies used most often are: umbrella positioning, premier position, positioning against competition, key attribute, and finding an “un-owned” perceptual position. These strategies are not mutually exclusive, and often overlap. Repositioning is the process by which a company intentionally changes the distinct image and identity that its products, services, and brands occupy in consumers’ minds. There are several reasons that force marketers to reposition products, such as many competitors focusing on the same product attribute in positioning their offerings. Perceptual mapping is a constructing a map-like diagram representing consumers’ perceptions of competing brands along relevant product attributes. Perceptual maps show marketers: (1) how consumers perceive their brand in relation to competition; (2) determine the direction for altering undesirable consumers’ perception of their brands; and (3) find gaps, in the form of “un-owned” perceptual positions that represent opportunities for developing new brands or products.
CHAPTER OUTLINE INTRODUCTION 1. Market segmentation is the process of dividing a market into distinct subsets with common
needs and characteristics that are different from those shared by other groups. 2. Targeting consists of selecting the segments that the company views as prospective
customers and pursuing them. 3. Positioning is the process by which a company creates a distinct image and identity for its products, services and brands in consumers’ minds. *****Use Discussion Questions #2.1 and #2.2 Here; Use Key Terms market segmentation, targeting, and positioning Here; Use Figure #2.1 Here***** Market Segmentation and Effective Targeting 1. Segmentation and targeting enable producers to avoid head-on competition in the
marketplace by differentiating their offerings on the basis of such features as price, styling, packaging, promotional appeal, method of distribution, and level of service. 2. This approach is generally more profitable. 3. Services also segment their markets and target different offerings to different market segments. 4. Marketers use segmentation research to identify the most appropriate media in which to place advertisements. *****Use Learning Objective #2.1 Here; Use Table 2.1 Here***** 5. Criteria for Effective Targeting: To be an effective target, a market segment should be:
identifiable, sizeable, stable or growing, accessible, and congruent with the marketer’s objectives and resources. a) Identifiable: If segments are separated by common or shared needs or characteristics that are relevant to the product or service, a marketer must be able to identify these characteristics. Some segmentation variables such as demographics are easy to identify, while others such as benefits sought, more difficult. b) Sizeable: In order to be a viable market, a segment must consist of enough consumers to make targeting it profitable. c) Stable and Growing: Marketers prefer segments that are stable in terms of lifestyles and consumption patterns and that are likely to grown larger and more viable in the future. d) Reachable: To be targeted, a segment must be accessible, which means that marketers must be able to reach that market segment in an economical way. e) Congruent with the Company’s Objectives and Resources: Not every company is interested or has the means to reach every market segment, even if that segment meets the four preceding criteria.
*****Use Discussion Question #2.3 Here ***** 6.
Applying the Criteria: Perry & Swift, and investment management firm, used 2011 P$YCLE Segments. *****Use Table #2.2 Here *****
Bases for Segmentation 1. Characteristics used for segmentation can generally be classified into two types: behavioral and cognitive. a. Behavioral data is evidence-based and can be determined from direct questioning. i. Consumer-intrinsic factors include age, gender, marital status, income and education ii. Consumption-based factors include quantity of product purchased, frequency of leisure activities, or frequency of buying a given product b. Cognitive factors are abstracts reside in the consumer’s mind, do not have universal definitions, and can only be determined via psychological and attitudinal questioning. i. Consumer-intrinsic factors include personality traits, cultural values, and attitudes towards politics and social issues ii. Consumption-based factors include attitudes and preferences, such as benefits sought from products and attitudes regarding shopping *****Use Learning Objective #2.2 Here; Use Key Terms behavioral data and cognitive factors Here***** 2. Demographic segmentation divides consumers according to age, gender, ethnicity, income and wealth, occupation, marital status, household type and size, and geographic location. a. The core of almost all segmentations is demographics because: i. Demographics are the easiest and most logical way to classify people and can be measured more precisely than other segmentation bases. ii. Demographics offer the most cost-effective way to locate and reach specific segments because most of the secondary data compiled about any population stems from demographics. iii. Demographics enable marketers to identify business opportunities in the form of shifts in age, income distribution, and populations of various regions. iv. Many consumption behaviors, attitudes, and media exposure patterns are directly related to demographics. *****Use Review and Discussion Question #2.4 Here; Use Key Term demographic segmentation Here*****
b. Age: product needs often vary with consumers’ age, and marketers commonly target age groups. c. Gender is a factual distinguishing segmentation variable, and many products and services are inherently designed for either males or females. However, sex roles have become blurred. d. Families and Households: segmentation is based on the premise that many families pass through similar phases in their formation, growth, and final dissolution. At each phase, the family unit needs different products and services. i. Family life cycle is a classification stemming from factual variables including marital status, employment status, and the presence or absence of children in the household. ii. Each stage in the traditional family life cycle represents an important target segment to many marketers. *****Use Key Term family life cycle Here***** e. Social class can indicate an ability or inability to pay for a product model or brand, and consumers of different social classes vary in terms of values, product preferences and buying habits. i. Income is combined with other demographic variables to define target markets. ii. Income, education, and occupation tend to be closely correlated. iii. Social class can be measured as a weighted index of education, occupation and income f. Ethnicity: Marketers segment some populations on the basis of cultural heritage and ethnicity due to shared values, beliefs, and customs. African Americans, Hispanic Americans and Asian Americans are important subcultural market segments in the U.S. 3. Geodemographics: Where a person lives determines some aspects of consumption behavior, so marketers frequently use geodemographics, a hybrid segmentation scheme based on the premise that people who live close to one another are likely to have similar financial means, tastes, preferences, lifestyles, and consumption habits, in strategic targeting. a. The primary commercial application of this technique is PRIZM, offered by Nielsen’s MyBestSegments. This system uses the ZIP + 4 postal system to classify all of the nation’s households into 66 segments. b. Nielsen also uses P$YCLE (based on household wealth) and ConneXions (based on household receptivity to new technologies. ***** Use Review and Discussion Question #2.9 Here; Use Table #2.3 Here; Use Key Term geodemographics Here***** 4. Green Consumers: Ecologically-minded consumers have been segmented in several ways.
a. One study identified three types of green consumers: Environmental activists, Organic eaters, and Economizers. b. Another study identified four types of green consumers: True Greens, Donor Greens, Learning Greens, and Non-Greens. c. Another study divided consumers according to a spectrum of green, where the darkest greens were willing to pay a premium for eco-friendly products to reduce global warming, while the lightest greens were mostly concerned about saving money on energy bills, not saving the planet. (Table 2.4 describes five segments along the spectrum.) *****Use Table #2.4 Here ***** 5. Personality traits shape attitudes and consumption behavior. a. Psychographic factors often overlap with personality traits. b. Personality tests – which are generally in the form of questions or statements presented to the respondent – can be used by researchers to determine one’s personality and use it in segmentation. c. Consumers who are open-minded and perceive less risk than others in trying new things are likely to be innovators. d. Table 2.5 includes descriptions of three groups of online shoppers segmented by personality traits and attitudes about buying online. *****Use Table #2.5 Here; Use Key Term innovators Here ***** 6. Lifestyles, also known as psychographics, consist of activities, interests, and opinions (AIOS). a. The interests and opinions portions are cognitive constructs, which can be measured via surveys but are not evidence-based. b. A psychographic study includes a battery of statements selected from a psychographic inventory and usually accompanied by Likert scales on which respondents are asked to indicate their level of agreement or disagreement with each statement (Table 2.6) c. Because of their versatility, psychographics are widely used in segmentation and are part of almost any hybrid segmentation framework. d. VALS (an acronym for “values and lifestyles”) is the most popular segmentation system combining lifestyles and values. e. VALS focuses explicitly on explaining consumer purchasing behavior. i. VALS includes three primary motivations: ideals motivated, achievement motivated and self-expression motivated. ii. VALS also reflects a continuum in terms of resources and innovativeness (Figure 2.5)
*****Use Hands-on Assignments #2.19 and #2.21 Here; Use Review and Discussion Questions #2.7 and #2.8 Here; Use Tables #2.6, 2.7 and 2.8 Here; Use Figure #2.5 Here; Use Key Terms psychographics and VALS Here ***** 7. Benefit segmentation is based on the benefits consumers seek from products and services. a. Many believe benefits sought are the core of all segmentation strategies. b. Sought benefits represent unfilled consumer needs whereas buyers’ perceptions that a given brand delivers a unique and prominent benefit result in loyalty to the brand. *****Use Hands-on Assignment #2.18 Here; Use Review and Discussion Question #2.6 Here; Use Figure 2.6 Here; Use Table #2.9 Here; Use Key Term benefit segmentation Here ***** 8. Media-based segmentation considers the benefits consumers seek from adopting communication tools. ***** Use Tables #2.10 and 2.11 Here ***** 9. Usage rate segmentation stems from differences among heavy, medium and light users, and nonusers of a specific product, service, or brand. a. Marketers have found that within some product categories that a relatively small group of heavy users account for a disproportionately large percentage of total product usage. b. Targeting heavy users is a common marketing strategy, and it can be more profitable than targeting other user categories. c. However, since all competitors are likely to target the same heavy users, trying to attract these buyers requires a lot of expensive advertising. d. Some marketers prefer to target light and medium users with products that are distinct from those preferred by heavy users. e. A sophisticated approach to usage rate involves identifying the factors that directly impact the usage behavior. f. Understanding nonusers is essential. g. Consumers can also be segmented in terms of their awareness status and also level of involvement. h. Product involvement is also a segmentation factor. 10. The occasion or situation often determines what consumers will purchase or consume, so marketers sometimes use usage situation segmentation. Many products are promoted for special usage occasions. *****Use Review and Discussion Question #2.5 Here; Use Figure 2.7 Here; Use Key Terms usage rate segmentation, product awareness status, product involvement, usage situation segmentation Here *****
Behavioral Targeting 1. Behavioral targeting consists of sending consumers personalized and prompt offers and promotional messages designed to reach the right consumers and deliver to them highly relevant messages at the right time and more accurately than when using conventional segmentation techniques. a. Tracking Online Navigation Includes: i. Recording the websites that consumers visit. ii. Measuring consumers’ levels of engagement with the sites (i.e., which pages they look at, the length of their visits, and how often they return). iii. Recording the visitors’ lifestyles and personalities (derived from the contents of consumers’ blogs, tweets, and Facebook profiles). iv. Keeping track of consumer’ purchases, almost purchases (i.e., abandoned shopping carts), and returns or exchanges. b. Geographic location and mobile targeting have been used effectively due to the prevalence of smartphones and GPS devices. 2. Marketers are using predictive analytics: measures that predict consumers’ future purchases on the bases of past buying information and other data, and also evaluate the impact of personalized promotions stemming from the predictions. *****Use Learning Objective 2.3 Here; Use Review and Discussion Questions #2.10, 2.11 and 2.17 Here; Use Figure 2.8 Here; Use Key Terms behavioral targeting and predictive analytics Here *****
Positioning and Repositioning 1. Positioning is the process by which a company creates a distinct image for its products, services or brands in consumers’ minds. 2. Marketers have to persuade their target audiences to choose their products vs. competitive products. 3. The positioning process includes the following steps: a. Defining the market in which the product or brand competes, who the relevant buyers are, and the offering’s competition. b. Identifying the product’s key attributes and researching consumers’ perception regarding each of the relevant attributes. c. Researching how consumers perceive the competing offerings on the relevant attributes. d. Determining the target market’s preferred combination of attributes. e. Developing a distinctive, differentiating, and value-based positioning concept that communicates the applicable attributes as benefits. f. Creating a positioning statement focused on the benefits and value that the product provides and using it to communicate with the target audiences. 4. Positioning is especially difficult among commodities, where the physical characteristics of all the brands are identical, such as water. Nevertheless, marketers offer many brands of