CHAPTER 2

Consumer Behaviour

Creating marketing
strategies for customercentric organisations

Consumer analysis
The process of understanding consumer trends,
global consumer markets, models to predict
purchase and consumption patterns, and
communication methods to reach target markets
most effectively

Strategy
A decisive allocation of resources (capital,
technology, and people) in a particular direction

Customer-centric organisations
A strategic commitment to focus every
resource of the firm on serving and
delighting profitable customers

Characteristics of customercentric organisations

Shared vision and values
Cross-functional integration
System-wide simultaneous training
Customer-based metrics
The goal of a customer-centric organisation is
to provide a consumer with more value than its
competitors

Value
The difference
between what
consumers give up
(pay with time,
money or other
resources) for a
product and the
benefits they
receive

Marketing strategy
Involves the allocation of resources to
develop and sell products or services that
consumers will perceive to provide more
value than competitive products or services

Market analysis
Consumer
Company
Environmental
Political/Legal
Implementation
in marketplace

Segmentation
Demographic
situational
psychographic
Marketing mix
Product, Brand,
Price, Place
Promotion, and
7Rs

Market analysis
The process of analysing changing
consumer trends, current and potential
competitors, company strengths and
resources, and the technological, legal, and
economic environments
One goal is to minimize the number of failed
products introduced to the market by better
understanding the wants and needs of the
market

Market analysis: Consumer insight

and product development
Consumer insight: an understanding of
consumers expressed and unspoken
needs and realities that affect how they
make life, brand, and product choices
Combines fact (from research) and
intuition to yield an insight that can lead to
a new product, existing product innovation,
brand extension, or revised communication
plan

Market analysis:
Consumer environment
Includes demographic trends, personal and group
influences, knowledge, attitudes, motivation,
purchase and consumption patterns, changing
consumer needs, wants, and lifestyles
Changes in the consumer environment can lead to
new product ideas, product adaptations, new
packaging or new services to help consumers
meet their changing needs (e.g. iPod accessories)

Market analysis: Corporate

strengths and resources
Resources:
- Financial
- Technological
- Personnel / managerial
- Production
- Development and design
- Research
- Marketing / advertising

Market analysis: Current and

potential competitors
- Who are current competitors and which firms
are likely to become competitors?
- What are advantages/disadvantages of
competitors and competitive products?
-What do alternative scenarios show of how
competitors react to new products or
innovations?

Market analysis: Market

Environment
Government
stability and
regulations

State of
economy
Market
environment
Physical
conditions

Technology

Inferring other behaviours from

product usage

Market segmentation
Process of identifying groups of people
who behave in similar ways to each other,
but somewhat differently than other groups
Results in market segment: a group of
consumers with similar behaviours and
needs that differ from those of the entire
mass market
Goal: minimise variance within groups and
maximise variance between groups
Opposite of market aggregation

Market segmentation
Market aggregation: when organisations
choose to market and sell the same
product or service to all customers (also
known as mass marketing)

Market segmentation
Identifying segments

Market segmentation
Increasing diversity in consumer needs and wants
leads to mass customisation: customising goods
for individual customers in high volumes and at
relatively low costs
Key is understanding which customized features
customers value the most
Ability to reach segment of one
Segmentation can increase customer satisfaction
and profitability
- decreases marketing expenses
- increases value (and therefore price) to
consumers

Criteria for choosing segments

Measurability: ability to obtain information about the
size, nature, and behaviour of a market segment
Accessibility: degree to which segments can be
reached, either through targeted advertising and
communication programs or multiple retail channels
Substantiality: size of the market is it large enough
to be profitable?
Congruity: how similar members within the segment
exhibit behaviours or characteristics that correlate
with consumption behaviour

Bayesian analysis
Statistical technique based on a theorem
that expresses uncertainty in probability
terms
Allows consumer analysts to make
educated guesses on how the human mind
affects behaviour or why people buy
Analyses data collected from point-of-sale
(POS) scanners to identify patterns of
behaviour that define market segments

Market mix strategies: Product

Product: the total bundle of utilities (or benefits)
obtained by consumers in the exchange process
Internal considerations include:
- What are the costs of developing, producing,
distributing, and selling the product?

External considerations include:

- What form of product best serves consumption
patterns for the target segment
- What packaging will most likely attract
consumers and fulfill transportation, usage,
and disposal of the product?
- How will consumers compare this product to
competitive or substitute products?

Market mix strategies: Place

Place: physical distribution and location
of sale
- Where will consumers expect and want to buy
this product?
- What are the most effective outlets through
which to sell the product and how best to get it
there?

Market mix strategies: Price

Price: total bundle of disutilities (costs) given
up by consumers in exchange for the
product
Pricing considerations include:
- What is the best pricing policy for the product
or for the store?
- How will consumers react to Everyday Low
Prices or promotional prices?
- Is it more important to have the lowest price
or prices in the range consumers expect to
pay?
- What effect does price reduction or price
ending have on perceived quality of product?
- What does pricing policy need to be to
maintain a healthy profit margin?

Market mix strategies: Promotion

Promotion: activities involved in selling a
product, including advertising, public
relations, sales promotions, and personal
sales
- What message should be sent to consumers?
- Which forms of communication will best reach
specific segments?
- What type of communication should occur at
various stages of purchase and consumption
- How should different product attributes be
positioned through different forms of media?

Market mix strategies: Brand

Brand: A product or product line, store, or service
with an identifiable set of benefits, wrapped in a
recognisable personality
Functional elements
Performance, quality, price, reliability, logistics
Does the brand solve a problem as expected and do what it
is supposed to do?

Emotional elements
Image, personality, style, evoked feelings
Does the brand create an emotional connections between
the customer and the product or firm?

Brand promise
What can consumer expect in exchange for their money?

Market mix strategies: Brand

Brand: A product or product line, store or service
with an identifiable set of benefits, wrapped in a
recognisable personality
Brand Equity
Difference in value created by the brand minus the cost of
creating the brand

Brand Personality
Reflection consumers see of themselves or think will develop
by using a brand

Brand Protection
By promising a certain outcome, brands reduce the risk to
consumers that the product may not deliver as expected

Strategy implementation
Even the best strategies are worthless if not
implemented well in the marketplace
7Rs for formulation and implementation

Customer loyalty and customer

relationship management

Customer loyalty
It is less costly and easier to keep a
customer than it is to create a new one
Loyal customers generate superior margins
and recruit additional customers
With increased choices, consumers are
becoming more fickle and less loyal
Consumer feel entitled to try new brands and
switching behaviour increases
To retain current customers, firms must focus
on customer expectations of future benefits

Customer relationship management

Process of managing all the elements of the
relationship a firm has with its customers and
potential customers with CRM solutions and
enterprise systems
Provides the ability to calculate the Customer
Lifetime Value
- The value to the company of a customer over
the whole time the customer relates to the
company

Customer relationship management

Implementing CRM
- Identify all customers and the nature of
contacts with them
- Identify which types of customers are most
profitable
- Identify and understand behaviours of the most
profitable customers
- Manage contact with most profitable customers
- Manage firm activities including strategies and
tactics to please the most profitable customers

Global marketing strategy

Thinking globally involves ability to understand
markets beyond ones own country of origin with
respect to:

Sources of demand

Sources of supply

Management and marketing

methods
Organisations must understand markets on a
global basis in terms of people
Consumers have a myriad array of foreign-made
and globally branded products
Cultural, ethnic, and motivation variables also
affect consumer decisions

Global marketing strategy

Can marketing be standardised?
- Can a firm use the same marketing
program in all target countries, or must
it create a different program for each?
- Which are greater the similarities
among or differences between
consumers in different countries?
- How do advantages of economies of
scale and unified brand image compare
to advantages of culture-specific
messages?

Global marketing strategy

Cross-cultural analysis: the comparison of
similarities and differences in behavioural and
physical aspects of cultures
Cultural empathy: the ability to understand the
inner logic and coherence of other ways of life and
refrain from judging other value systems
Ethnography: describing and understanding
consumer behaviour by interviewing and observing
consumers in real-world situations

Global marketing strategy

Intermarket segmentation: the identification of
groups of customers who transcend traditional
market or geographic boundaries (similar segments
around the world)
Intermarket segmentation plays a key role in
understanding the similarities and differences
between consumers and countries that become the
foundation of market standardisation

Global advertising effectiveness

Global advertising sends the same message to
consumers around the world
Localised campaigns adapt messages to the norms
of the different cultures
When is global advertising most effective?
- Message is based on similar lifestyle
- Ad appeals to basic human needs and
emotions
- Product satisfies universal needs and
desires

Language problems may occur, but backtranslation, visual language, and local experts
(advice) helps overcome them

Global advertising effectiveness

Before choosing a brand name, marketers
should consider the following:
- Does the name of the product have another
meaning in one or more of the countries where
it might be marketed?
- Can the name be pronounced everywhere?
- Is the name close to that of a foreign brand, or
does it duplicate another product sold in other
markets?
- If the product is distinctly American, will national
pride and prejudice work against the acceptance
of the product?