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 consumers An integrative conceptual framework

Communication sensitivity Accultured individuality Society and Market Environment () – Behavioral Process of Consumers Rational and Economic Decision making

Behavioral Processes of Consumers Communication Sensitivity

Within Market

Within Market Word of Mouth Communication sensitivity Firm To Market Diffusion Processes

Firm to Market

-Consumer Behaviour Concepts -One way/Two way.

Behavioral Processes of Consumers Communication sensitivity

Consumer Behaviour Concepts – Endogenous Factors Selectivity Involvement Persuasion

Selectivity Selective attention – Marketers have to work hard to get consumer’s notice – consumers are more likely to notice stimuli of current need, stimuli they anticipate, stimuli whose deviations are large e.g. $25 off $100 rather than $5 Selective distortion – tendency to twist information into personal meanings that will fit our preconceptions e.g. A customer of LG may interpret an advertisement saying that they are No. 1 company in Microelectronics to be No.1 company in all of consumer durables Selective Retention – consumers likely to remember good points of products they like 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 influencing buyer behavior. Products purchased are either low involvement Or high involvement. Assael has classified types of buying behavior based on involvement – See slide next Persuasion Low Involvement products use the peripheral route to persuasion e.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

High Involvement Low Involvement Significant Difference Between Brands Few Difference Between Brands Complex Buying Behaviour Variety-Seeking’ Buying Behaviour Dissonance Reducing Behaviour Habitual Buying Behaviour

Assael’s Classification of types of Buying Behaviour

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

Behavioral Processes of Consumers Accultured Individuality

Culture Sub Culture Social Class Accultured Individuality Consumer Behaviour Concepts •Personality and Self concept •Life style •Motivation Personal - Age and Life cycle - Occupation - Economic Circumstances Social -Reference groups -Family -Roles and Status

Independent Factors 1.

Culture – a) Cultural factors exert the deepest and broadest influence on buyer behavior. Culture is fundamental determinant of a person’s wants and behavior b) Subculture – countries, regions, races, religions c) Social class 2.

Social factors a. Reference groups – primary (family, coworkers), secondary b.

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

Three influences of reference groups – 1. individual exposed to new behaviors, lifestyle 2. 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 in activities, interests, opinions. Lifestyle portrays the ‘whole person’.

Marketers search for relationships between their products and lifestyle groups. If it is found that most computer buyers for home purpose are achievement 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, dominance Autonomy, sociability, defensiveness Brand Personality is a specific mix of human traits attributable to a particular brand Consumers 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 motive When 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.

Freud’s Theory Motivation Theories Maslow’s Theory Herzberg Theory H r e z b

Freud’s Theory Consumers’ behavior is shaped largely by unconscious psychological forces.

A technique called LADDERING is used to trace the person’s motivation From the stated ones to the terminal ones. The marketer can then decide to Target his appeal to the most appropriate level.

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

Maslow’s Theory Self Actualization Needs Esteem Needs i S Social Needs o c Safety Needs l 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 use to 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 (or Dissatisfier removers) and motivators (satisfiers). It is not enough if hygiene Factors are present. Motivators must be present for a purchase.

Behavioral Processes of Consumers- Beliefs and Attitudes

Communicati on sensitivity Accultured Individuality Society & Mkt. Environment Beliefs/Values Experience & usage In Decision making For consumption Attitudes Inputs from rational and Economic Decision Making

Beliefs / Values and Attitudes A Belief is a descriptive thought that a person holds about something. On Blind Test 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 try To 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 market is 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

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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/Concepts Individual constraints Budget constraints Situational factors Beliefs and values Attitudes Rational and Economic Decision making Post Purchase Feelings -Cognitive Dissonance -Contrast Theory Market environment Store Environment Firm decision variable Competitor decision variable

Behavioral Outcomes of Rational and Economic Decision making Process

Rational and Economic Decision making Evoked set Consideration set Purchase intention Purchase preference Purchase Behaviour Post purchase feelings 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

Institutional markets Large organizational markets Organizational markets Government markets Small business market

1.

Fewer, Larger Buyers – Tire manufacturers have OEM contracts with few automobile manufacturers.

2.

Close supplier customer relationship – as there are fewer customers, suppliers tend to develop a closer customer relationship. WIPRO’s close relationship with 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 purchasing policies, constraints and requirements 4.

Several buying influences – the buying committee may consist of technical experts, senior management, gatekeepers from consultancies etc. Thus the seller should send trained sales people.

5.

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

6.

Derived demand – The demand for industrial goods is driven by the demand 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 rise to a significantly large increase in industrial demand – this effect is called the acceleration effect. Similarly a 10% fall in consumer demand can cause a significant decrease of the industrial demand.

9.

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

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

Key Elements of Industrial Buying Behavior

Buy Situations Straight Re-buy – routine order – consumables, office supplies; outside Suppliers tend to get in on dissatisfac tion of existing supplier Buying Process 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 decide Pass through stages – awareness, interest, evaluation, trial, adoption.

Includes setting specs, price limits, delivery terms, order qty, acceptable Suppliers and selected supplier(s). Because of complex selling use of Dedicated missionary sales force.

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

Buying Centre - Includes all members of the organization who play any of seven roles in the purchase decision process 1.

2.

Initiators – those who put up the request Users - Those who use the product; many times the user is the initiator 3.

4.

5.

6.

7.

Influencers – help define specs, provide info for evaluating alternatives, technical people are good influencers Deciders – those who decide on requirements. Approvers – those who authorize deciders and buyers Buyers – members authorized to select supplier and decide terms Gatekeepers – Members who are info conduits to other members of buy center e.g. receptionists , agents

Characteristics of BUY CENTER  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 the product, whereas production may be more interested in ease of use and reliability of 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 ……….. Cont…….

Small sellers are advised to concentrate on key buying influencers. Large sellers Go for multilevel in-depth selling Sellers are advised to periodically question or revise their assumptions about the Buy center to adapt to organizational changes

Purchasing / Buying Orientations 1.

Buying Orientation – Buy at lowest price given a quality level . Use two Techniques (a) commoditization – regard the product is only a commodity and care only about price (b) multisourcing to bring in competition among vendors 2.

Procurement Orientation – look for collaborative relationships and seek savings 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

1.

BUY 2.

PHASES 3.

4.

5.

6.

7.

8.

BUYGRID FRAMEWORK BUYCLASSES Problem recognition General need description Product specification Supplier Search Proposal Solicitation Supplier selection Order-routine specification Performance review New Modified Straight Task Rebuy Rebuy Yes Maybe No Yes Maybe No Yes Yes Yes Yes Maybe No Yes Maybe No Yes Maybe No Yes Maybe No Yes Yes Yes

Problem recognition Marketer stimulates problem recognition by Direct mail, telemarketing, calling on prospects Internal stimuli – new product development for which parts are needed, breakdown of equipment, existing suppliers unsatisfactory Buyer attends a trade show Purchase Manager senses an opportunity to get lower prices or better quality

General need description and product specification Standard items – go as per internal records or as per specs laid out in ISI documents Complex items – collaborate with engineers, users; else sit with marketer’s application engineers who do consultative selling and work out specs and likely price Certain buying organizations attach a PVA or product value analysis team to the project who will conduct extensive analysis to arrive at 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 logistics media buying, advertising -Direct extranet links to major suppliers (WalMart – P&G) -Buying alliances to get best price.

Coca-Cola, Sara Lee, Kraft, PepsiCo, Gillette P&G, have joined to form alliance – Transora -Company buying sites – Firms like GE have their own 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 or ISI etc.

Large technology systems need a detailed Techno-Commercial proposal. The technical quote will be cleared first and after that only qualified technical bidders will be called for commercial negotiation Buyers can invite suppliers to make presentations.

Supplier Selection A supplier rating list is made by some companies based on relative importance given to a select set of attributes. For routine order products the factors are : price, supplier reputation, delivery . For procedural problem products such as copiers the important attributes are : technical service, supplier flexibility, 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 side is to talk of total cost of product or life cycle cost.

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

For maintenance and repair items , firms are moving towards a blanket contract that establishes a long run relation. 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 supplier locates his factory near the buyer for bringing down inventory 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 time IF – in full, NE – No error

Performance Review Three methods of review 1 2 3.

4.

Ask for evaluation from buyers Buyer rates supplier on weighted score method Based on drawbacks of performance the buyer may come up with adjusted cost of purchase including price Managers are rewarded for good buying performance

Institutional and Government Markets 1.

2.

3.

4.

5.

6.

7.

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

Institutions normally ask for lowest price given a minimum quality In government organizations the normal process is bidding with the order going to the lowest bidder(s) Negotiated contracts are applicable where the project is complex and risky.

Governments tend to favor domestic suppliers Government decisions are subject to review, so there is lot of paperwork in contracting 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 Market Segmentation Mass Marketing or Undifferentiated Marketing e.g. Ruf & Tuf Jeans, Model T Henry Ford Segment Marketing - Cars Niche Marketing – specialize to a narrowly defined customer group – Temple jewellery for South Indian women wanting to take part in cultural programmes Local Marketing – Athica for IIMB and around One to One Marketing Individual Marketing Mass customization – ability to prepare on a mass basis individually designed products

Segment Marketing (Patterns of Segment Markets) Flexible market offering – naked solution containing the No frills product and discretionary options that are Priced extra such as A/C, power windows, moon roof Homogenous preferences e.g. bite size candies, eclairs Diffused Preferences – House Buildings Clustered Preferences – distinct clusters in the Market also called natural market segments e.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 made more 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 show no difference in features of mobile handsets 5.

Actionable – It should be possible for formulating marketing programs for serving the segment (it cannot add segment descriptors so easily) – how to sell money for value products such as expensive watches and pens – not only the monetarily rich buy 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 – consumers who 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

Demographic Operating variables Purchasing approaches Situational factors Personal Characteristics

Classification of Nests Personal characteristics Situational factors Company variables Demographics Purchasing approaches Operating variables Inner middle nest Innermost nest Outer nests Purchase process Purchase decision

Demographic Variables Industry, Company Size (Large, SMEs) , Location Operating Variables Technology, User or Nonuser status (light, medium, heavy users) Customer requirements (few services or extended requirements) Purchasing Variables Purchasing function approach (centralized or decentralized), Power structure( technology top, finance top, marketing top), Nature of existing relationships( old firms or new firms), general purchasing policies ( leasing, service contracts, sealed bidding ) , purchasing criteria (quality, service, price) Situational Factors Urgency of requirement, size of order Personal Characteristics Loyalty, 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 customers strategic value customers (enterprise selling or partners) Super Segments A set of segments sharing some exploitable similarity Perfume manufacturers target to modern women rather only to working women or rich women. Both segments have a 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 to Self select by mass-customizing the marketing offer American Express works on self selection of customers on dimension of extent of spending by offering different categories of rewards for light and heavy 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 market Characteristics and attaching a tag description to it.

Basic profiling of customers in toothpaste market

Segment 1 Segment 2

Demographic

Age Family size Education

Psychographics Behavioral Possible segment descriptor

15-40 years Small (<4) Well educated Conservative shopper 3-60 years Large (5+) Moderately educated Utilitarian shopper Quality seeking twice a day brusher, loyal Upwardly mobile nuclear family Economy seeking once-a-day brusher deal-prone 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 seeking help 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 their condition 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

Caffeine Caffeine-Free Cola Regular Diet Non-cola Diet Regular C CF C CF C

BRANDS

Market Structure of Soft drinks CF C CF

Brim

Ground

Mildness sanka Store brands Taste Maxwell Folger’s HillsBros Chuck Full o Nuts

Coffee Caffeinated Instant Decaffeinated Regular

Mildness Nescafe’ Folger’s Maxwell house Taste

Freeze Dried

Mildness Taster’s Choice Maxium Taste

Regular

Mildness High Point Sanka Nescafe’ Taste

Freeze dried

Mildness Sanka Taster’s Choice Brim Taste Hierarchical definition of the coffee market with perceptual maps in each submarket (Urban Johnson and Brudnick 1981)

Competitive Market structuring can also be obtained, by putting brands Together in groups based on choice probabilities. In this way, market segments Are a group of consumers who are homogenous in terms of probabilities of Choosing different brands in a product class Coke, Pepsi – consideration set Segment 1 Coke Pepsi Descriptor 0.50

0.5

Hedonist or Variety Seeker Segment 2 0.30

0.70

Segment 3 0.70

0.30

Next Generation Seekers of Protagonist ‘Real Thing’

Attitudinal Segmentation – Survey Method

1.

Whom to Interview.

In a survey of finding segments of customers who are travelers / tourists to Europe, it is not appropriate to count only those who have been to Europe, because that accounts for a small percentage. You have to talk to potential travelers 2.

Frame of reference for questioning When you are questioning customers on vacations do you take (a) overall experience of vacations (b) last vacation 3.

Find different ways of segmentation For example : Vacation to Europe, segment on (a) Favourability towards Europe (b) Segmenting on Income brackets © segmenting customers based on desires sought on their last vacation In a study on 1750 interviews for vacationing the following segments were Uncovered – (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

Relationship shoppers 13% Comfort Zoners 15% Low octane communicators 7% Hands-on individualists 12% Sentimentalist 13% Safety firsters 6% Value minded Planners 6% Simplicity seekers 11% Premium speedsters 13% Struggling survivors 9% Source: Wharton School

Segments selected

Premium speedsters Personality : Internally driven, Competitive Mentality Gas Purchasing : Fast pumps, quick access In a word: Power minded

Simplicity Seekers

Personality: 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 Firsters

Personality: Confident, Self assured, Responsible Control oriented, well prepared.

Gas purchasing: want cleanliness, comfort, Efficiency, safety In a word….”Safety Minded” Source: Wharton School

Brand Identities Considered

Quick & Easy Friendliest Service

(Relationship Shoppers, Comfort Zoners) ( Premium speedsters, simplicity seekers, safety firsters)

One stop convenience

(Value minded planners, struggling survivors)

Community support

(Comfort Zoners)

Lowest Price

(Low octane commuters, Sentimentalists)

Best Gasoline performance

(Hand’s on individuals, premium speedsters) Source: Wharton School

Market Targeting

Market Targeting Single Segment Concentration Zodiac concentrating on executive and professionals Selective Specialization – may be or may not be Synergy among the segments selected HLL in Soaps Product specialization - Specialized product to several segments – TVS makes scooters of all ranges to several socio-economic classes Market specialization – Serving many needs of a single customer group. Financial services to NRIs 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 with Respect to competition Positioning is the act of designing the company’s offering and image to occupy a 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 creation Of a customer focused value proposition e.g. – Colgate Total – Multi-benefit toothpaste as a one product solution for people with tooth problems As against Colgate Dental Cream – Core Identity for strong, white teeth meaning a toothpaste to maintain healthy teeth.

Jack Trout issues on Positioning

1.

Embrace the obvious position possible in the market or granted by the market. Positioning should be in line with the perception of consumers’ mind not against it Coke: Coke: ‘The Real Thing’ is fine; it is the original cola 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 alright Avis: 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 conditions of category membership there are three main ways to convey a brand’s category membership - announcing category benefits centrino mobile technology - comparing to exemplars on par with HP’s excellence in instrumentation - relying on the product descriptor HP Pavillion dv1000 is an entry level business laptop

5.

Establish the Competitive Points of Parity to establish the equivalence of Product benefits, attributes, values with respect to competition HP’s manufacturing quality is no way behind Sony or Toshiba. It is backed by decades of manufacturing electronic systems

6. Establish the Points of Difference if any to take a differentiated position If 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 – HP Pavilion 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 HP Laptop - Distinctiveness – Service backup is not a common feature of all foreign made laptops in India - Believable – HP has been in the electronic business for decades

(2) PODs are deliverable to the customer - Feasibility – HP has the required organization to make the service deliverable and the required technology to offer a value for money product - Communicability - HPs products are not known as very expensive - Sustainable - HP has the required R&D to continue making state-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 opposite Direction. 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 between attributes is redefined and now stands positive e.g. Apple is user friendly and 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 it because 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 to Distinguish 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.

3.

Distinctive , but not necessarily superior - Bajaj scooter Superior - Product superiority of Gillette 4.

5.

6.

Preemptive - cannot be easily copied - Zilog Processor Affordable - Personal Computer of Acer Profitable - MTR’s food products

Dimensions on which differentiation can be achieved by firms 1.

Product / Services 2.

3.

4.

Personnel Channel Image

Product / Services Services Product / Service Quality performance based – BMW conformance quality – CMM in software physical signs and cues – Tata Indica Form - Satchets Features – Cameras Durability – Volvo Reliability – Maytag Repairability – Maruti Style – Benetton Design – Designer wear 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