Consumer Behaviour and Brand Positioning

Lecturer: Dr. Chenguang Li University College Dublin, UCD, Ireland

CASE STUDY—RETAIL BRAND POSITIONING

Food Retailing Industry• Average spending – 5,200 annually • 2.1 trips weekly (weekly before, now 40% stock-up trips;

60% consumer fill-in trips)

http://wsm.wsu.edu/researcher/wsmaug11_billions.pdf

Consumer trends#1--Dwindling of consumer loyalty

– Savvy consumer searching for best deals– Growth of warehouse and superstores--- bulk-buying budget

shopper– Low priced promotions --- specific supermarkets, discount

stores(dollar store) – Shopping trip (weekly before, now 40% stock-up trips; 60%

consumer fill-in trips)

Consumer trends#2—Changing attitude to Private label

– 2005 14%--- 2010, 17%– Higher margin– Store brand – Retailer effort on change of quality perception

Consumer trends#3—Health Conscious

– Whole foods– Health and organic departments– Product selections

A quick review of the retail industry

Supermarket

1980s 2000s

Warehouse club

Supercenter

Specialty grocery retailers

Low‐end channels

Gas Station mini mart& convenient stores

1950s

Dollar store chains

Time

(drug stores)

Brand Positioning Factors• Time (location)• Price• Variety (assortment)• Quality (product, store environment, service, etc.)

Supermarket• Eg. Safeway (Tesco, Supervalu)

Supermarket• Eg. Safeway (Tesco, Supervalu)• Size: 46,800• Assortment: 50,000• Weekly sales: $485,000• Service area: 1-3 miles• Profit margins: 1.5-2.5%

• In-store bakeries• Seafood• Meat• Cold cuts• Produce• Packaged foods• Cleaning products• Health and beauty aids• others

Selection

ONE‐STOP shopping 

Convenience 

Supercenter• Eg. Walmart. Target

Supercenter• Eg. Walmart. Target • 70,000 sq ft (of 170,000)• Large, free-standing buildings in suburban areas• One-stop shopping, multiple needs• Lower prices• Longer travel times (5-10 miles away)

Warehouse Clubs• Eg. Costco, Sam’s Club

Warehouse Clubs• Eg. Costco, Sam’s Club• Like airport hangars than supermarkets• Manufacturers’ packing crates• Bulk-packed• Gray industrial shelving (hence the name warehouse club)• Limited brand (one brand soup, one brand of butter…)• Low price (20% lower)• Similar profits

Consumers?

Dollars stores• Eg. Dollar general, dollar tree, family dollars

Dollars stores• Eg. Dollar general, dollar tree, family dollars • Packaged food, housewares, clothing, seasonal items, etc.• Low price ($1…)• Size (7,000 tp 10,000 sq ft)• Average shopping ticket ($7-$10)• Limited ranges of food items (what? And why?)• Store environment (… ) • Net profit margin (?) Customers?

Limited selection Stores• Eg. Trader Joe’s

Limited selection Stores• Eg. Trader Joe’s • Size: smaller; 8,000-12,000• Assortment: 1,500 • Brand: private labels (85%); imported and specialty food• produce, baked goods, but no in-house meat or bakeries

Lower-end Limited selection stores• Eg. Aldi

Lower-end Limited selection stores• Aldi, Lidl• Lean operating model • Private model (95%)• Selection (1,400 items)• Discounted prices• Store environment (clean, bright, pleasant)• Packaging—simple

• 3rd largest town in Ohio• Population 2 million• In 2010, median household 

income – 52,000

• (11.6% higher than the state average, slightly higher than the national median)

• Population growth 11% (2000 to 2009) ‐‐‐‐9% national

• Unemployment rate 8.5% (9.8% national)

Choice Dilemma

• Price cut?• Value-added?

What would you suggest?

Brand is everywhere in our lives

LogoImagePromiseexperiencePerception 

Why is branding important?

competitive advantages. • high level of consumer brand awareness and loyalty. • more leverage in bargaining with resellers. • more easily launch line and brand extensions. • some defense against fierce price competition.

• Most importantly, a powerful brand forms the basis for building strong and profitable customer relationships. 

Why is branding important?

A powerful brand has high brand equity. 

Brand equity• Perception or desire about a brand in meeting the 

promised benefits.• a measure of the brand’s ability to capture consumer 

preference and loyalty. 

A brand with high brand equity is a very valuable asset.

The World's Most Valuable Brands, 2016http://www.forbes.com/powerful‐brands/list/https://www.forbes.com/powerful‐brands/list/#tab:rank_header:brandValue_sortreverse:true

Benefits... Brand equity• Perception or desire about a brand in meeting 

the promised benefits.

Branding

• How are they different?• Why are they different?• Who are the consumers?• What does the brand mean to consumers?• How was the brand communicated to consumers?

Branding is defining, promising, and delivering a unique experience consistently. 

Benefits:• Functional • Emotional • Social• Others…

Customer-Based Brand Equity Pyramid

Source: Keller, Kevin Lane, Strategic Brand Management: Building, Measuring, and Managing Brand Equity, Prentice Hall, 2012, 4th edition31

Increasing consumer orientation

Model of Consumer Behavior

Other:

Economics technological social cultural 

Marketing stimuli:

ProductPricePlacePromotion

Buyer’s decision process

Buyer’s characteristics

The environment Buyer’s Black Box

Product choice 

Brand choice 

Purchase timing 

Purchase amount 

Company relationship

Buyer’s responses

Buyer’s decision process

Step 1: Recognize a problem

Step 2: Search for information

Step 3: Evaluate Alternatives

Step 4: Choose THE Product

Step 5: Postpurchase Evaluation

HOW?

Lancaster’s consumer theoryAlso known as “product attributes model”, assumes that consumer choice is based on the characteristics ( or attributes) of a brand. The consumer maximizes his utility based on the bundle of these attributes existing in the brand that he chooses within a budget constraint.

AttributeY

Attribute x

AB

C

Linking consumer choices with product attributes

Gwin, C. F., & Gwin, C. R. (2003). Product attributes model: A tool for evaluating brand positioning. Journal of Marketing Theory and practice, 11(2), 30‐42

Lancaster, K. J. (1966). A new approach to consumer theory. Journal of political economy, 74(2), 132‐157.

Kelvin Lancaster, 1924‐1999

Suppose you want to rent a house …

location

A

B

C

M2

Your choice is based on the bundle of product attributes that maximizes the consumer's utility, subject to budge constraint.

Health

AB

C

TasteThe product attributes model can be used to analyze a brand's positioning and its effect on consumer choice.

STRATEGIC IMPLICATIONS FOR BRAND POSITIONING

• Market Segmentation/Target Market • Positioning 

New Product  Changes in Existing Product 

• Promotion (Change Perceptions)

Eg. processed meat, functional food, whey, super milk etc. 

What can affect consumer preference and choicesCultural:

Culture; Subculture; Social class

Social:Reference groups; Family; Role and status

, 

Personal:Age; occupation; lifestyle; personality

, Psychological:

Motivation; Perception; Learning; Beliefs &attitude

BuyeBuyer

Chicken, spaghetti sauce 

Opinion leader

Lifestyles reflect a pattern of living

Consumers’ lifestyles are measured and described according to AIOs– activities– interests – opinions

Consumer Lifestyle

Source: Bord Bia (Irish Food Board)  Consumer lifestyle Trends report (2014 update)

http://www.bordbia.ie/industry/manufacturers/insight/publications/bbreports/ConsumerLifestyleTrends/Consumer%20Lifestyle%20Trends%20Update%20‐%20June%202014.pdf

• fluid lives, 

• simple pleasure, 

• response living, 

• quest for health and wellness, 

• consumers in control, 

• keeping it real. 

Six major lifestyle trends ‐‐ 2014

Vigoo freshly squeezed orange, China

Market examples ‐‐ Busy Lives

Market examples – Health and Wellbeing

Market examples – Keeping it real

DIY butchery courses, UK, US, CA

• Personality: the unique psychological characteristics that lead to consistent and lasting responses to the consumer’s environment

Personal Factors Affecting Consumer Behavior

What can affect consumer preference and choicesCultural:

Culture; Subculture; Social class

Social:Reference groups; Family; Role and status

, 

Personal:Age; occupation; lifestyle; personality

, Psychological:

Motivation; Perception; Learning; Beliefs &attitude

BuyeBuyer

A motive is a need that is sufficiently pressing to direct the person to seek satisfaction

Motivation research refers to qualitative research designed to probe consumers’ hidden, subconscious motivations

Motivation

Maslow’s Hierarchy of Needs

Copyright ©2014 by Pearson Education

The OLD starvation experiment

A clinical study performed at the University of Minnesota between November 19, 1944 and December 20, 1945. The investigation was designed to determine the physiological and psychological effects of severe and prolonged dietary restriction and the effectiveness of dietary rehabilitation strategies

Scarcity‐‐Why Having Too Little Means So Much

Sendhil Mullainathan, a professor of economics at Harvard University, is a recipient of a MacArthur Foundation “genius grant” and conducts research on development economics, behavioral economics, and corporate finance. He lives in Cambridge, Massachusetts.

NEW economic study of scarcity

• Top of mind, motivation, and efficiency• Different Stage of needs?  China ‐‐‐ food safety  Ireland, Origin Green‐‐‐ sustainability

The power of Habit

A cue is a trigger. It is the stimulus or experience that starts the cycle of a habit.

Rethinking Product Attributes

Stories about • Febreze

• Toothpaste

5 55

Perception Perception:

– Process by which we select, organize, and interpret information from outside world

Three factors are necessary for perception to occur– Exposure: capable of registering a stimulus– Attention: mental processing activity– Interpretation: assigning meaning to a stimulus

Examples• Blind Test for Coke• Coke with names

Consumer Perception

Selective attention is the tendency for people to screen out most of the information to which they are exposedSelective distortion is the tendency for people to interpret information in a way that will support what they already believeSelective retention is the tendency to remember good points made about a brand they favor and forget good points about competing brands

The perceptual process

An overview of the perceptual process

Are Consumers (We) Rational?Notable for his work on the psychology of judgment and decision‐making, as well as behavioral economics Awarded the 2002 Nobel Prize in Economic Sciences.

"System 1" is fast, instinctive and emotional; "System 2" is slower, more deliberative, and more logical.

His empirical findings challenge the assumption of human rationalityprevailing in modern economic theory.

In 2014, The Economist listed him as the 15th most influential economics in the world.

Source: http://en.wikipedia.org/wiki/Thinking,_Fast_and_Slow

Daniel KahnemanThinking, Fast and Slow

An interview with Kahneman:https://www.youtube.com/watch?v=PirFrDVRBo4

The old classic magic number

“9”

THE MAGIC #9 --- DOES IT MAKE SENSE?

Was $60, now only $45!Was $60, now only $49!

Effects of $9 Price Endings on Retail Sales: Evidence from Field Experiments, http://link.springer.com/article/10.1023%2FA%3A1023581927405

$35 vs $39 

PRICE AS A SIGNAL FOR QUALITY

• Price can act as a signal for quality,• Especially when prior experience is limited• But consumer’s choice is context dependent

$299 or $300 

Small Difference can make big Difference

Source: Yale research published on Psychological ScienceAdding Small Differences Can Increase Similarity and Choice

Scenario 1: ¢63  vs ¢63 

Scenario 2: ¢62  vs ¢64    

Small Difference can make big Difference

Slightly different prices, more likely to buy

46%77%

% made a purchase

2 gums same price

2 gums Different price

Reference PricingReference price is what buyers carry in their minds and refer to when looking at 

a given product.

Different consumers may have different reference price for the same product.

In some cases, marketers try to influence consumers’ expectations of what a product should cost when they use reference‐pricing strategies

NationalBrand

$1.80 $2.50

20% 80%

Fairness in pricing?

See William Poundstone’s book: Priceless: The Myth of Fair Value

$1.80 $2.50

80% 20%0%

$1.60

Fairness in pricing?

$1.80 $2.50

5% 85%

$3.40

10%

Fairness in pricing?

Why does reference pricing works?

Why is it easier for people to pay for a product when there is another more expensive product next to it?

How do you feel when you pay money to buy stuff?

WHY?

Spending Can Cause REAL Pain

Knutson, Brian, Scott Rick, G. Elliott Wimmer, Drazen Prelec, and George Loewenstein (2007), “Neural Predictors of Pur‐chases,” Neuron, 53 (January), 147–56 

“prices do not deter spending purely through thoughts of foregone pleasures, as assumed by standard economic theory, but also through immediate pain.”‐‐Scott Rick

Three Types Of Buyers

Characterized by the “pain” they experience when purchasing something

• Ouch, it hurts! ‐‐‐”tightwads” (24%)• Regular pain ‐‐‐ unconflicted (61%)• Not much‐‐‐ spendthrift ( 15%) 

Rick, Scott I., Cynthia E. Cryder, and George Loewenstein. "Tightwads and spendthrifts." Journal of Consumer Research 34.6 (2008): 767‐782.

Reduce The Pain--Reframing The Value

• Reframing the value – make it looks smaller

€84/month  vs €1,000/year

Or maybe this only works for those who can’t do the math?

To reduce the pain points• Individual purchases create individual pain points • Customers prefer to complete purchase in one time than 

separately • upgrade car packages all at once• Compute and accessories 

Reduce The Pain‐‐Bundling

Convert consumer without changing the price

Eg: “a $5 fee” to “a small $5 fee”  

Effect = 20%

Reduce The Pain—Use the right Wording

Experiment About Framing (Context)

Experiment: Would you opt for surgery if…

Scenario 1: the “survival” rate is 90 percent, Scenario 2: the “mortality” rate is 10 percent. 

The first scenario increased acceptance, even though the situation was no different.

“How we spend our time says so much more about who we are than does how we spend our money.”‐‐‐Cassie Mogilner

"Because a person's experience with a product tends to foster feelings of personal connection with it, referring to time typically leads to more favorable attitudes—and to more purchases,”– Jennifer Aaker, Professor of marketing at Stanford Graduate School of Business

Maybe retailers can draw more insights from these research and apply to retail pricing strategies …. 

Time, Feeling, Personal Connection…

Take home messages:• Understanding consumer is ultimately important for brand building and 

business success.

• Consumer lifestyle and personality affect buying behaviours and brand choices. 

• Decision of brand building and positioning depends on the understanding of consumers and market situation (including competition)

• When strong emotional attachment is established between consumers and brands, consumer loyalty is high, in turn business benefits from its high brand value.

Main References• Kotler & Armstrong (2009). Principles of Marketing, 12th edition • Solomon, Bamossy, Askegaard & Hogg (2007). Consumer Behaviour: A European

perspective, 3rd edition • Solomon, Marshall, Stuart, Barnes & Mitchell (2012) Marketing Real People, Real Decisions

2nd edition• Bord Bia (Irish Food Board) Consumer Lifestyle Trend Report (2012; 2014)• Reed Supermarket, a new waves of competitors. (Harvard Business School Case Study)• Lancaster, K. J. (1966). A new approach to consumer theory. Journal of political economy,

74(2), 132-157.• Gwin, C. F., & Gwin, C. R. (2003). Product attributes model: A tool for evaluating brand

positioning. Journal of Marketing Theory and practice, 11(2), 30-42

• Anderson, Eric and Simester, Duncan, (2003), Effects of $9 Price endings on retail sales: evidence form field experiments. Quantitative Marketing and Economics, 1, issue 1, p. 93-110

• Rick, Scott I., Cynthia E. Cryder, and George Loewenstein. "Tightwads and spendthrifts." Journal of Consumer Research 34.6 (2008): 767-782.

• Mogilner, Cassie, and Jennifer Aaker. “The time vs. money effect”: Shifting product attitudes and decisions through personal connection." Journal of Consumer Research 36.2 (2009): 277-291.

• Poundstone, William. Priceless: The myth of fair value (and how to take advantage of it). Macmillan, 2010.

• Kahneman, D. (2011). Thinking, fast and slow. New York: Farrar, Straus and Giroux

• Knutson, Brian, Scott Rick, G. Elliott Wimmer, Drazen Prelec, and George Loewenstein (2007), “Neural Predictors of Purchases,” Neuron, 53 (January), 147–56

Reference