What is Consumer Behavior?

How many times throughout the day do people make product decisions? If you stop to think about it, many product decisions are made every day, some without much thought. What should I wear? What should I eat? What am I going to do today? Many product decisions are answered routinely every day and they help move the economy of cities, countries and ultimately the world.

Product decisions also shape life for the consumer. How can simple decisions be so important? Why do marketers spend millions of dollars to uncover the reasons behind these decisions?

To define consumer behavior: it is the study of consumers and the processes they use to choose, use (consume), and dispose of products and services. A more in depth definition will also include how that process impacts the world. Consumer behavior incorporates ideas from several sciences including psychology, biology, chemistry and economics.

"All marketing decisions are based on assumptions and knowledge of consumer behavior," (Hawkins and Mothersbaugh, 2007). 

 Researching consumer behavior is a complex process, but understanding consumer behavior is critical to marketers-they can use it to:

• Provide value and customer satisfaction.
• Effectively target customers.
• Enhance the value of the company.
• Improve products and services.
• Create a competitive advantage
• Understand how customers view their products versus their competitors' products.
• Expand the knowledge base in the field of marketing,
• Apply marketing strategies toward a positive affect on society (encourage people to support charities, promote healthy habits, reduce drug use etc.)

by Mkt Teachers

The Customer Life Cycle (CLC) and CRM

The Customer Life Cycle (CLC) has obvious similarities with the Product Life Cycle (PLC). However, CLC focuses upon the creation of and delivery of lifetime value to the customer i.e. looks at the products or services that customers NEED throughout their lives.

It is marketing orientated rather than product orientated, and embodies the marketing concept. Essentially, CLC is a summary of the key stages in a customer's relationship with an organisation. The problem here is that every organisation's product offering is different, which makes it impossible to draw out a single Life Cycle that is the same for every organisation.

Let's consider an example from the Banking sector. HSBC has a number of products that it aims at its customers throughout their lifetime relationship with the company. Here we apply a CLC. You can start young when you want to save money. 11-15 year olds are targeted with the Livecash Account, and 16-17 year olds with the Right Track Account. Then when (or if) you begin College or University there are Student Loans, and when you qualify there are Recent Graduate Accounts.

When you begin work there are many types of current and savings account, and you may wish to buy property, and so take out a mortgage. You could take out a car loan, to buy a vehicle to get you to work. It would also be advisable to take out a pension. As you progress through your career you begin your own family, and save for your own children's education. You embark upon a number of savings plans and schemes, and ultimately HSBC offer you pension planning (you may want to insure yourself for funeral expenses - although HSBC may not offer this!).

This is how an organization such as HSBC, which is marketing orientated, can recruit and retain customers, and then extend additional products and services to them - throughout the individual's life. This is an example of a Customer Life Cycle (CLC).

Another important point is that a lifetime CLC is made up many shorter CLC's. So, for example, Volkswagen Cars retains a customer for many years and one can predict the products that meet a customers needs throughout his or her family lifetime. However the purchase of each car, will in itself be a CLC with many Customer Touch Points. The consumer may need a bigger vehicle as his or her family expands - so they visit VW's website and register.

The customer reviews models and books a test-drive with her or his local dealer. He or she decides to buy the car and arranges finance. The car is then delivered from the factory, and returns every year for its annual service. Then after three years, the customer decides to trade in his or her car, and the cycle begins again. The longer-term life cycle is simply the shorter-term life cycles viewed consecutively.

by Mkt Teachers

What is Value Curve?

Blue Ocean Strategy

The term value curve appears in three key Harvard Business Review articles by W. Chan Kim and Renee Mauborgne, as well as their 2005 book - Blue Ocean Strategy. The value curve is a tool for strategic managers to see visually how their strategy works in relation to close competitors. It is not the same as a value chain since it does not focus upon internal sources of value, more so what our customers value from our products and services. However value curves and value chains can be used in conjunction - bridging the internal value creation with the external factors of competition valued by our customers.

This lesson is based upon Charting Your Company's Future (Chan Kim and Mauborgne 2002). There is an argument that more traditional strategic planning frameworks work sometimes, whereas on some occasions they don't. A traditional standard planning framework ultimately ends up as a document, having gone through a series of steps. Instead managers decide upon a strategy canvas - which has three stages. Firstly managers decide upon the critical factors that affect the nature of competition in an industry. Secondly managers consider how current (and potential) competitors invest in their strategy. Finally, a value curve is drawn up which paints a picture of how your company invests in factors of competition now and in the future.
So to draw your own value curve you should brainstorm the factors of competition and list them along the horizontal axis. Then mark along the vertical axis the extent to which the business invests in each factor of competition. Then map your own business and the business of your close competitors. Once strategy is crafted, you need to consider the three complementary qualities which characterise an effective strategy according to Chan Kim and Mauborgne - focus, divergence and a compelling tag line.

The authors cite Southwest Airlines as an example of good practices. Here we are going to apply the strategic canvas and the complementary qualities to Ryanair - the Irish low-cost airline which is one of the largest in Europe. Ryanair has a large number of competitive factors - although the most salient factors are as follows:

1. Ancillary services e.g. car hire, hotels, phone cards, coach tickets etc.
2. Low fares
3. Online booking
4. Secondary airports
5. Low cost advertising

 

References

Chan Kim, W. and Mauborgne, R. (2005), Blue Ocean Strategy, Harvard Business School Press.
Chan Kim, W. and Mauborgne, R. (2002), Charting Your Company's Future, Harvard Business Review, June 2002.
Chan Kim, W. and Mauborgne, R. (1999), Creating New Market Space, Harvard Business Review, January - February 1999.
Chan Kim, W. and Mauborgne, R. (1997), Value Innovation: The Strategic Logic of High Growth, Harvard Business Review, January - February 1997.

by Mkt Teachers

Process - Ps

Process is another element of the extended marketing mix, or 7P's.There are a number of perceptions of the concept of process within the business and marketing literature. Some see processes as a means to achieve an outcome, for example - to achieve a 30% market share a company implements a marketing planning process.

Another view is that marketing has a number of processes that integrate together to create an overall marketing process, for example - telemarketing and Internet marketing can be integrated. A further view is that marketing processes are used to control the marketing mix, i.e. processes that measure the achievement marketing objectives. All views are understandable, but not particularly customer focused.

For the purposes of the marketing mix, process is an element of service that sees the customer experiencing an organisation's offering. It's best viewed as something that your customer participates in at different points in time. Here are some examples to help your build a picture of marketing process, from the customer's point of view.

Going on a cruise - from the moment that you arrive at the dockside, you are greeted; your baggage is taken to your room. You have two weeks of services from restaurants and evening entertainment, to casinos and shopping. Finally, you arrive at your destination, and your baggage is delivered to you. This is a highly focused marketing process.

Booking a flight on the Internet - the process begins with you visiting an airline's website. You enter details of your flights and book them. Your ticket/booking reference arrive by e-mail or post. You catch your flight on time, and arrive refreshed at your destination. This is all part of the marketing process.

At each stage of the process, markets:

• Deliver value through all elements of the marketing mix. Process, physical evidence and people enhance services.
• Feedback can be taken and the mix can be altered.
• Customers are retained, and other serves or products are extended and marked to them.
• The process itself can be tailored to the needs of different individuals, experiencing a similar service at the same time.

Processes essentially have inputs, throughputs and outputs (or outcomes). Marketing adds value to each of the stages. Take a look at the lesson on value chain analysis to consider a series of processes at work.

by Mkt Teachers

PRICE - P's

There are many ways to price a product. Let's have a look at some of them and try to understand the best policy/strategy in various situations.

Premium Pricing.

Use a high price where there is a uniqueness about the product or service. This approach is used where a a substantial competitive advantage exists. Such high prices are charge for luxuries such as Cunard Cruises, Savoy Hotel rooms, and Concorde flights.

Penetration Pricing.

The price charged for products and services is set artificially low in order to gain market share. Once this is achieved, the price is increased. This approach was used by France Telecom and Sky TV.

Economy Pricing.

This is a no frills low price. The cost of marketing and manufacture are kept at a minimum. Supermarkets often have economy brands for soups, spaghetti, etc.

Price Skimming.

Charge a high price because you have a substantial competitive advantage. However, the advantage is not sustainable. The high price tends to attract new competitors into the market, and the price inevitably falls due to increased supply. Manufacturers of digital watches used a skimming approach in the 1970s. Once other manufacturers were tempted into the market and the watches were produced at a lower unit cost, other marketing strategies and pricing approaches are implemented.

Premium pricing, penetration pricing, economy pricing, and price skimming are the four main pricing policies/strategies. They form the bases for the exercise. However there are other important approaches to pricing.

Psychological Pricing.

This approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis. For example 'price point perspective' 99 cents not one dollar.

Product Line Pricing.

Where there is a range of product or services the pricing reflect the benefits of parts of the range. For example car washes. Basic wash could be $2, wash and wax $4, and the whole package $6.

Optional Product Pricing.

Companies will attempt to increase the amount customer spend once they start to buy. Optional 'extras' increase the overall price of the product or service. For example airlines will charge for optional extras such as guaranteeing a window seat or reserving a row of seats next to each other.

Captive Product Pricing

Where products have complements, companies will charge a premium price where the consumer is captured. For example a razor manufacturer will charge a low price and recoup its margin (and more) from the sale of the only design of blades which fit the razor.

Product Bundle Pricing.

Here sellers combine several products in the same package. This also serves to move old stock. Videos and CDs are often sold using the bundle approach.

Promotional Pricing.

Pricing to promote a product is a very common application. There are many examples of promotional pricing including approaches such as BOGOF (Buy One Get One Free).

Geographical Pricing.

Geographical pricing is evident where there are variations in price in different parts of the world. For example rarity value, or where shipping costs increase price.

Value Pricing.

This approach is used where external factors such as recession or increased competition force companies to provide 'value' products and services to retain sales e.g. value meals at McDonalds.