Marketing 330

Myths about Marketing
– primary objective is to make people buy things they don’t need
– marketing adds little value to the product
– marketing leads to higher prices
– marketing is propaganda for a materialistic life
Truths about Marketing
– centered around building CONSUMER VALUE
– the consumer is the reason why marketers exist
– you fulfill consumer needs by developing products, pricing, and promoting them
– is an academic discipline
Consumer Behavior
the science behind marketing and consumption
– “The set of value seeking activities that take place as people go about addressing and attempting to address real needs”
– Explaining, rather than predicting, consumer behavior
– Helping us understand the needs of consumers and how to create value for them
Marketing stems from different studies
– Cognitive Psychology
– Marketing
– Anthropology
– Social Psychology
– Sociology
– Economics
Who benefits CB
– Marketing managers
– Advocacy and consumer welfare groups
– Public policy makers
– Consumers
Segment 1
General Marketing + Psychology (Internal Influences)
Segment 2
External Influences
Segment 3
Decision Making Process: Problem Recognition –> Information Search –> Evaluation of Alternatives –> Decision Implementation –> Post-purchase Evaluation
What is a consumer?
1. Purchaser
2. User
3. Influencer
What is consumer behavior?
“The study of human thought and action involved in consumption”

Anne’s definition:
1. CB is more than just buying – acquiring, using, dispensing
2. CB is more than just products and services – offerings and ideas
3. CB involves more than just one person

Who benefits from CB?
– Marketing managers
– Advocacy and consumer welfare groups
– Public policy makers and regulators
– Consumers
Key Questions
1. Why do people consume – because they have needs and wants
2. How do they decide what/when/where/how to address these needs – value judgements
Consumption
the process by which goods, services, or ideas are used and transformed into value
Consumer behavior is a behavioral science
behavioral sciences vs. physical sciences:
– Dynamic vs Static
– Physical is more controllable (behavioral is more uncertain)
– Closed system where work is within a particular framework
– Revolves around humans and societies
Why do we marketers need to know consumer behaviors?
– understand the consumer
– “Fit” our products to the needs (and desires) of the consumer
– Develop better marketing strategies

In sum, create VALUE
– personal assessment of the net worth obtained from an activity

Value
Personal assessment of the net worth obtained from an activity. Captures how much gratification a consumer receives from consumption.
What is Value?
Benefits – Costs
What influences value?
Internal – psychology and personality, Cognition and affect

External – situation, social

Consumer Value Framework
http://i.imgur.com/pwCTokI.png
Examples of Value
Can vary depend on the product:
– Value of fast food
– Value of Walmart
– Value of facebook
Utilitarian Value
Gratification derived because something helps a consumer solve a problem or accomplish some tasks

Consumers provide a rational explanation for their purchases

Value is provided because the object or activity allows something good to happen or be accomplished

e.g. FRUIT

Hedonic Value
Value derived from immediate gratification that comes from some activity. Value is provided by the actual experience and emotions associated with consumption.

e.g. CHOCOLATE CAKE

Differences between Hedonic and Utilitartian
Hedonic is an end in itself rather than a means to an end. It is emotional in nature.
Marketing Strategy
Way a company goes about creating value for customers. Provides an effective way of dealing with competition.

Firms that fail to realize how their products provide value develop marketing myopia.

Marketing Myopia
condition where a company views itself in a product business rather than in a value or benefits-producing business.
Marketing Tactics
Way by which marketing management is implemented (involves price, promotion, product, distribution)
Marketing Strategy and Consumer Value BOTTOM LINE
Marketing strategy and tactics should maximize the total value received by customers
What does value influence
Value influences the quality of the relationship
– switching behaviors
– customer loyalty
– customer share
CB Research and Segmenting, Targeting, and Positioning
Developing a Customer-Oriented strategy

– Marketing activities are designed to fulfill customer needs
– Consumers can be segmented based on differing needs and wants
– CB research identifies segments and helps determine which to select as target market

Segmenting
Market segmentation separates a market into groups based on the different demand curves associated with each group. Requires marketing researchers to identify segments and describe its members
Product Differentiation
Marketplace condition in which consumers do not view all competing products as identical to one another
Marketing Mix
Combination of product, pricing, promotion, and distribution strategies used to implement a marketing strategy
Target Market
Identified segment or segments of a market that a company serves
Perceptual maps
develops an idea of a new product’s likely success as compared to other competing products
Customer Lifetime Value CLV
Calculates long term profitability of a single customer. It is the approximate worth of a customer to a company in economic terms.

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

Market Research Segmentation Strategies
4 basic strategies
Geographic Segmentation
is based on regional variables, climate, population density, population growth rate
Demographic Segmentation
is based on variables such as age, gender, ethnicity, occupation, income, and family status
Psychographic Segmentation
is based on variables such as values, attitudes, and lifestyle
Behavioral Segmentation
is based on variables such as usage rate and patterns, price sensitivity, brand loyalty, and benefits sought
The Global Consumer
Pressure to understand similarities and differences of customers in various countries.
Intuition Versus Research
– People are overconfident
– We like to have our beliefs and intuitions confirmed (confirmation bias)
– Tend to base decisions on intuition/vivid information
– Research plays an important role in testing our intuitions
Qualitative
Interpretive (phenomenology, ethnography, netnography)

Pros:
– can help identify patterns of consumer behavior that the researcher was not necessarily aware of beforehand
– allows for a richer exploration of consumer experiences

Cons:
– somewhat subjective
– unstructured

Quantitative
Numbers driven (experiments, analysis of pre-existing datasets, surveys)

Pros:
– statistically validated
– allows for replication, findings are often generalizable

Cons:
– answers are restrictive
– may suffer from confirmation bias

Focus Group (Qual)
Group of people asked about their perceptions, opinions, beliefs, and attitudes
Consumer Panels (Quant)
Pre-recruited group of people who agree to participate, selected from a segment of interest

Provides generalizable data for companies and researcher

Observational Research (Qual)
Draws inferences about the possible effect of a treatment on subject
Experiments (Quant)
Investigator has control over assigning subjects to a treatment group and control group
Market Testing (Both)
to test multiple marketing scenarios and select the most promising for expansion
Test Market (Field Experiment)
Studies the effectiveness of one or more elements of the marketing mix evaluating sales of the product in an actual city
Primary Data
– Collected for the current purpose.
– Could be internal or external
Secondary Data
– Collected for some other purpose
General Rule of Thumb
Collect secondary data first, then turn to primary data.

Secondary data is cheaper and quicker to get.

Disadvantages of Secondary Data – may be out of data or might not be specific enough

3 Factors Necessary for Causation
1. Correlation
2. Temporal Antecedence
3. No third factor driving both
Spurious Correlation
Spurious = artificial

Danger of data mining

Lots of things are correlated, but not all are related

Perception Chart
http://i.imgur.com/BYrvue6.png
Learning
The change in behavior resulting from interaction between a person and a stimulus
Perception
Consumer’s awareness and interpretation of reality

Value is based on perception, not reality.

Learning, intentional or unintentional, depends on perceptions

Exposure
Consumer comes into physical contact with a stimulus – possibility of noticing the information
Ad Competition
We see over 5000 messages per day. Only a small number are remembered. 30% are remembered negatively
Selective Exposure
have to pick a medium to send your messages
Selective Attention
have to do something to get your message noticed
Selective Perception
have to make sure they understand your message
Selective Retention
have to make sure the message makes it to the memory
Influencing exposure
Select the correct medium

Positioning within a medium
– magazine
– tv
– in store

Choose product distribution and placement – selective exposure

Intentional Exposure
Consumer Reports
Intentional Avoidance
– Junk mail
– Fast-forward through commercials
– Switching channels during commercials
– Blocking senders
So we are exposed
Now we have to get consumers to pay attention
Attention = Gateway to Perception
Markers need to break through the clutter to get people to pay attention to ads (e.g. orkin ad)
Ways to Enhance Attention
– Intensity
– Contrast
– Movement
– Surprise
– Size
– Involvement
Selective
at a party, but you can still hear your name mentioned across a room
Divided
Talk on the phone and clean house
Limited
Turn down radio when we are looking fora particular address
Pre-attentive Processing
Can we attend to something in or peripheral vision even if we are already focusing on something else?
Hemispheric Lateralization
Left – numbers, words
Right – music, pictures
Habituation
Novelty can wear off

When a stimulus is too familiar it loses attention-getting ability

e.g. aqua pods

Exposure and Attention Summary
Exposure is necessary but not sufficient

Attention is the gateway – and there are many ways get through the gate

BUT once you are in, you must convey something substantive and lasting

Phases of the Consumer Perceptions Process (Sensing)
Sensing – immediate response to stimuli that have come into contract with one of the consumer’s five senses
Phases of the Consumer Perceptions Process (Organizing)
Organizing – cognitive organization is the process by which the human brain assembles sensory evidence into something recognizable
Phases of the Consumer Perceptions Process (Reacting)
Reacting – end of the perceptual process. Occurs as a response to behavior. Includes physical and mental responses to the stimuli encountered
Perception/Comprehension
Interpretation or understanding that a consumer develops about some attended stimulus in order to assign meaning.

Perception is constructive. People construct interpretations on the fly.

Perception is crucial in CB
Perception IS Reality
What customers perceive is what affects their actions
What is perceived is not necessarily what is “true”.
Subliminal Messages
below the sensory threshold. We cannot articulate what we have seen because we are not consciously aware that we have seen it

Supraliminal is not paying attention… conscious that something is changing, but can’t put your finger on how or what

Mere Exposure
The more we are exposed to a stimulus, the more familiar it becomes and the more we like it.
What do we perceive? (JND)
JND (Just Noticeable Difference) – condition in which one stimulus is stronger than another so that one can notice that the two are not the same
What do we perceive? (Weber’s Law)
Weber’s Law – consumer’s ability to detect differences between two levels of a stimulus decreases as the intensity of the initial stimulus increases
What do we perceive? (JMD)
JMD (Just Meaningful Difference) – smallest amount of change in a stimulus that would influence consumer consumption and choice
JND Marketing Implications
– Pricing
– Quality
– Quantity
– Add On Purchases
Gradual Change
Campbells soup cans
Change Takeaway
– Less change made at a time may be unnoticed by a consumer
– Change a lot at once and it will be noticed
– Not all noticeable changes may be meaningful and impact choice
The Perceptual Process
Interpretation is constructed as needed and is based on:

– The ACTUAL stimulus or event
– Prior expectations

What we see depends on what we expect to see. What we hear depends on what we expect to hear.

Perceptual Biases
– Figure and Ground
– Proximity
– Similarity
– Closure
– Continuation
Gestalt Principle
Seeing things as wholes rather than parts.

People desire perceptions that are simple, complete, and meaningful

Perceptual Constancy
People strive to perceive the world as relatively unchanging
Intentional Learning
Process by which consumers set out to specifically learn information devoted to a certain subject
Unintentional Learning
Occurs when behavior is modified through a consumer-stimulus interaction without any effortful allocation of cognitive processing capacity toward that stimulus

Consumers in unintentional learning
– sense and react to the environment
– learn without trying to learn
– do not attempt to comprehend the information presented
– exposed to stimuli and respond in the same way

Types of Memory
– Sensory Memory (registers)
– Short term (workbench) Memory
– Long term memory
Sensory Memory
Information that comes in through our senses

– echoic memory – very brief memory of things we hear
– iconic memory – very brief memory for things that we see

If it is not processed, we lose it.

Short Term Memory (STM)
Portion of Memory where incoming information is encoded and interpreted

– Limited capacity – increased for higher involvement

Short-lived duration – working memory

Repetition/Rehearsal
Holding a thought in short-term memory by mentally repeating the thought
Dual Coding
Two different sensory “traces” are available to remember something
Meaningful encoding
Occurs when preexisting knowledge is used to store new information e.g. phone number with words
Chunking
Grouping stimuli by meaning so that multiple stimuli becomes a single memory unit. e.g. SSN
Long Term Memory
Permanently stored knowledge
– autobiographical memory
– semantic memory – knowledge about the world
Implicit Memory
Unintentional learning (without conscious recall)
Explicit Memory
Intentional learning (with conscious recall)
Associative Networks Organize Memory
Network of mental pathways linking knowledge within memory
Declarative Knowledge
Cognitive components that represent facts.

Nodes – Concepts found in an associative network

Paths – Representations of the association between nodes

Associative Network Influence Retrieval
– Stronger links are more accessible – marketers try to strengthen links between brands and associations
– Spreading activation – explains our seemingly random thoughts
– Responsible for false recall – can’t retrieve when link fades
– Sleeper effect – source decays faster than message
Cognitive Schema
Schema – a type of associative network that works as a cognitive representation of a phenomenon that provides meaning to that entity
Taxonomic Categorizing
Similar objects in the same category

Objects can have the same features (lots of sharing within, little sharing across)

3 Levels:
– Superordinate
– Basic
– Subordinate

Feature Identification
We tend to group things based on common features because that is the way the world is usually organized. When we don’t know how to interpret something new, we look for common features that will help us identify the concept.
Prototype (Prototypicality)
Graded structure – some members represent category better than others
Membership Classification
Cognitive categories appear to have graded membership. Some objects are better members of the category than others

Prototype – compare stimulus in each group ( classify it as belong to the group with the most similar prototype)

Exemplar – compare stimulus to all existing brands in each category (classify it as belonging to the group which is it is on average most similar)

Why does categorization matter
Determines competition among products and brands.

Categorization affects the consideration set.

Category structure affects retrieval and evaluation of alternatives

Categorization influences inference making and elaboration about alternatives

First Mover Advantage
Allows you to be the prototype

Easier recall increases sales

Positioning
Position close to or away from the prototype

Position relevant to the goal

Repositioning – can we use placement to change categorization

Brand Image
refers to the schematic memory of a brand
Brand Equity
the value consumers assign to a brand above and beyond the functional characteristics of the product
Brand Leverage
marketers capitalizing on brand equity by using an existing brand name for new products (brand extensions, family branding, umbrella branding)
Strong Brand
– make clear promises that are kept over time
– have rich unique brand equity
– dependable
Weak Brands
– make vague promises over time
– low brand equity
– create doubt
Objective Comprehension
– whether the meaning that the consumer extracts from a message is consistent with what the message actually stated
Subjective Comprehension
the different or additional meaning consumers attach to the message, whether or not these meanings were intended
Miscomprehension
Occurs when consumers inaccurately receive the meaning contained in a message. Greater chance of occurring when messages are complex, only shown for a few seconds, or only scene once or twice.
Memory Takeaway
Few consumer decisions are based on just the information in the environment. Almost all consumer decisions include some memory component.
Motivation
Driving forces behind human actions that push consumers to address real needs
Homeostasis
Maintaining a current acceptable state
Self Improvement
Changing from current to ideal
Drive
a gap between where you are creates arousal or tension
Drive Theory
proposes that consumers seek only to achieve homeostasis, an elimination of biological needs
Expectancy Theory
proposes that consumers consider whether their behavior will tend to result in desirable or undesirable outcomes (a cognitive approach). These goals have positive and negative valence, respectively. Goal pursuit can result in change (not just homeostasis).
Promotion Focus
Driving towards positive outcomes; pursuing ideals or aspirations
Prevention Focus
focus on avoiding negative consequences
Maslow Hierarchy
Physiological Needs –> Safety Needs –> Social Needs –> Esteem Needs –> Self Actualization Needs
Utilitarian Motivations
usually regard functionality
Hedonic Motivations
Usually provide emotional satisfaction, desires
Motivational Conflict
consumers have multiple needs/goals/values, which leads to conflict
Approach-Approach
a conflict between 2 desirable alternatives
Approach-Avoidance
a conflict between the desirable and the undesirable aspects of a single item
Avoidance-Avoidance
a conflict in that each alternative is predominantly negative
Marketing Theory and Strategy
Consumers do not buy products, they buy the motive satisfaction or problem solutions.

Managers must discover the motives their product and brands can satisfy and develop their marketing mixes

Manifest Motives
1. known to the individual
2. AND are freely admitted
Latent Motives
1. Unknown to the individual
2. OR individual reluctant to admit them
Measuring Latent Motives
Requires projective techniques or other indirect approaches – association techniques, completion techniques
Measuring Manifest Motives
Can be measured by direct questions
Is motivation enough?
NO – to promote ACTION, all three of motivation, ability, and opportunity, must be in place
Ability to Act
Depends on:

– Knowledge/Experience
– Intelligence
– Education
– Age
– Money
– Cognitive Style (learning style = visual vs verbal)

Opportunity
Marketers must give consumers opportunity to engage in behavior. Determined by:

– Time
– Distractions
– Amount of info
– Complexity of info
– Repetition of info

Motivation is enhanced when something is
1. Consistent with needs
2. Risky
3. Moderately inconsistent with our attitudes
3. Personally relevant (involving)
Involvement
the level of perceived importance and interest evoked by a stimulus (such as a product)

Based on needs, situations, and personality factors

BEWARE: marketers tend to over estimate consumer involvement

Involvement Examples
high personal relevance from pursuing a particular consumption category
Product Involvement
leads to product enthusiasts
Shopping Involvement
leads to higher information processing when shopping
Emotional Involvement
deep personal interest, invokes strong feelings associated with some object
Situational Involvement
temporarily involved in a category, utilitarian, temporarily involved
Enduring Involvement
Personally gratifying, hedonic, ongoing interest in a product or behavior
Consumer Involvement
a moderating variable that changes the nature of the relationship between other variables
Involvement and Segmentation
Strategic Options – concentrate on high or low involvement segment – attempt to build involvement (how!)
Emotions
Provide meaning to a product or brand.

Psychobehavioral reactions to appraisals

Measured by self report and autonomic measures

Mood
General valenced affective state. Influences judgements.
Autonomic Measures
Automatically records responses based on automatic reactions or brain activity. Can be intrusive, but is good at assessing emotional activity
Self Report Measures
Less obtrusive, but requires consumers to recall their affect state from a recent experience.
PANAS (self report)
Positive Affect Negative Affect Scale
PAD (self report)
Pleasure Arousal Dominance, represents emotional experience
Cognitive Appraisal Theory
Thoughts (Appraisals) elicit emotions.

Distinct from positive vs. negative

Cognitive Appraisals
Anticipation – thoughts of future
Agency – thoughts of responsibility
Equity – thoughts of fairness
Outcomes – thoughts of outcomes relative to goals
Flow
Leads to extremely high emotional involvement e.g. Candy Crush
Emotional Expressiveness
extent to which a consumer shows outward behavioral signs and otherwise reacts obviously to emotional experiences
Emotional Intelligence
Awareness of the emotions experienced in a given situation and the ability to control reactions to these emotions
Self Conscious Emotions
Specific emotions that result from some evaluation or reflection of one’s behavior
Emotional Contagion
Extent to which an emotional display by one person influences the emotional state of a bystander
Mood-Congruent Recall
Consumer’s mood can be controlled and memories and evaluations can be influenced
Emotional effect on memory
Superior recall for information presented with mild affective content compared to similar information presented in an neutral way
Emotion/Motivation Takeaway
Advertisers leverage motivation and emotion to involve and engage target customers