CONSUMER BEHAVIOR – MAN 432

The slides predominantly refer to Babin and Harris (Chapter 2)

DRY STUFF…

 Mid Term

 End Term

 Field trip?

 Module - already shared

 Have you got the books?

 Michael R. Solomon - Consumer Behavior - Buying, Having, and Being

 Barry J. Babin, Eric G. Harris – CB

 Philip Kotler, Gary Armstrong, Sridhar Balasubramanian - Principles of Marketing

REVISE

 Need <≡≡≡> Want

 “If I had asked people what they wanted, they would have said faster horses“ – Henry Ford

 “It’s not the customer’s job to know what they want” – Steve Jobs

 Alan Cooper

 Set of value-seeking activities that take place as people go about addressing their real needs
 Consider a consumer’s purchase of a can of Coca-Cola. In a supermarket or warehouse club the consumer buys the drink as part of a 24-pack. The price is about 25
cents a can. The same consumer, finding herself in a park on a hot summer day, gladly pays two dollars for a chilled can of Coke sold at the point-of-thirst through a
vending machine. That 700% price premium is attributable not to a better or different product but to a more convenient means of obtaining it. What the customer
values is this: not having to remember to buy the 24-pack in advance, break out one can and find a place to store the rest, lug the can around all day, and figure out
how to keep it chilled until she’s thirsty (Dawar, 2013).

 Consumption is a value-producing process in which the marketer and the consumer interact to produce value.
VALUE
 Good – Worth

 Utilitarianism (Michael Sandel)

 Definition from the book: A personal assessment

of the net worth obtained from an activity

 Role of markets
 VALUE PROPOSITION

Utilitarian : gratification  Google’s value proposition

derived because something helps a
consumer solve a problem or  Uber’s value proposition
accomplish some task
• Functional  Belfort's value proposition
• Tangible
 Fevikwik’s value proposition
• Useful
• Means to an end  Slogans –
 Disneyland
 Where Dreams Come True
Hedonic : value derived from 
the immediate gratification that X
comes from some activity  Blaze Your Glory! (Let’s talk)
• Pleasurable  X (@X) / X (twitter.com)
• Intangible
Price
• Experiential
• End in itself
FILL IN THE BLANKS…

Utilitarian
Low High

High

Hedonic

Low
CONSUMER LIFETIME VALUE (CLV)

 Approximate worth of a customer to a company in economic terms; overall profitability of an individual consumer

 CLV = npv (sales - costs) + npv (equity)

 Consider a consumer shopping twice weekly at IKEA. On average, this IKEA customer spends $200 per week, or $10,400 per year. If we
assume a 5% operating margin, he yields IKEA a net $520 per year. Even if any potential positive word-of-mouth is not considered, the
consumer is worth about $9,000 to IKEA today, assuming a 30-year life span and a 4% annual interest rate.

 Consider option of dropping a customer (Schoder, 2007)

 Imagine a customer that cost $100 to acquire and $100 to retain for each subsequent period, thus costing $500 to keep for five periods. If,
based on data from previous customers with similar characteristics, that customer might be expected to purchase $150 of goods in the first
period, $100 in the next, $50 the next, and $0 in the final two periods, a conventional CLV calculation would show that the customer would be
unprofitable (he generates just $300 of revenue at a marketing cost of $500). But, add in the value of the option of dropping him after the
second period ($100 x 3 = $300) and the same customer suddenly looks profitable: Over the five periods, the marketing cost is $200 ($500
minus the $300 option to drop) and revenues are $250 ($150 for period 1 and $100 for period 2).
CONSUMER LIFETIME VALUE (CLV)

Tutorial

Lifetime Value - Analytics Help (google.com)

TOTAL VALUE CONCEPT

 TVC: business practice wherein companies operate with the

understanding that products provide value in multiple ways Basic

Benefits
Augmented
 Value is co-created. All stakeholders, including (potential) Product

customers participate in the value creation process.

Feel
 Shakespeare in the Bush | Natural History Magazine Benefits

 First iPhone launch - Steve Jobs

Total Value
MARKETING STRATEGY

 What is Strategy?

 Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of

value (Porter,1996).

 What is Marketing Strategy?

 “An organization’s integrated pattern of decisions that specify its crucial choices concerning markets to serve and market segments to

target, marketing activities to perform and the manner of performance of these activities, and the allocation of marketing resources
among markets, market segments and marketing activities toward the creation, communication and delivery of a product that offers
value to customers in exchanges with the organization and thereby enables the organization to achieve specific objectives”
(Varadarajan, 2010)

 The firm’s offerings deliver value in a way that competitors cannot duplicate easily and in a way not defined only in terms of the

tangible product offered. (Textbook)

MARKETING STRATEGY

 Marketing Myopia

 It is not surprising that, having created a successful company by making a superior Marketing
product, management continues to be oriented toward the product rather than the Tactics
people who consume it.

 Look out for the competitors. But who are the competitors?
Marketing
 “Sometimes employees at Netflix think, ‘Oh my god, we’re competing with FX, Strategy
HBO, or Amazon, but think about if you didn’t watch Netflix last night: What did
you do? There’s such a broad range of things that you did to relax and unwind, hang Corporate
out, and connect–and we compete with all of that. You get a show or a movie you’re Strategy
really dying to watch, and you end up staying up late at night, so we actually
compete with sleep.” --- Reed Hastings

 “Our real competition is water, tea, nimbupani and Pepsi... in that order.“ – Coke
 MARKETING STRATEGY AND THE MARKETING MIX*

 Which customers will we serve (segmentation and

targeting)?

 How will we create value for them (differentiation and

positioning)?

 Design a marketing mix - the four Ps or for As - that

delivers the intended value to targeted consumers

* This portion is from Kotler et al. (Chapter 2)

MARKETING STRATEGY AND THE MARKETING MIX

 Segmentation

 A market segment usually consists of consumers who are expected to respond in a similar way to a given set of marketing efforts. Usually,
this shared response is based on shared needs across the customers in a segment.

 How do you think Uber might be doing segmentation?

 Targeting

 Evaluating each market segment’s attractiveness and selecting one or more segments to enter. A company should target segments in which

it can profitably generate the greatest customer value and sustain it over time.

 Positioning and Differentiation

 Arranging for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers

 Actually differentiating the market offering to create superior customer value relative to the competition.
MARKETING STRATEGY AND THE MARKETING MIX
 Perceptual Map

 A marketing tool that evaluates the relative standing

of competing brands along relevant dimensions

 Ideal Point

 Combination of product characteristics that provide

the most value to an individual consumer or market

segment

 Blue Ocean Strategy

 Positioning a firm far away from competitors’

positions so that it creates an industry of its own

and, at least for a time, isolates itself from
competitors
 MARKETING STRATEGY AND THE MARKETING MIX

Seller’s View Buyer’s View

Product Acceptability

Price Affordability

Place Accessibility

Promotion Awareness
MARKETING STRATEGY AND THE MARKETING MIX
WHEN MARKETING IS STRATEGY (DAWAR, 2013)

 Must competitive advantage internal to the firm?

 Upstream vs downstream

 Must you listen to your customers?

 Yes and no

 You can influence consumers as much consumers can influence you

 Must competitive advantage erode over time?

 Network effect

 Power of consumers’ data

WHEN MARKETING IS STRATEGY (DAWAR, 2013)

 Can you choose your competitors?

 Blue Ocean

 Late entry

 Does Innovation always mean better products or technology?

 Duh! No!

 Grameen Bank

 (Technology + R&D ) * Marketing

 Value and hence competitive advantage reside in the market