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Chapter 2 Value and the Consumer Behavior Value Framework What Do You Think Polling Question I get a lot out of shopping even when I don’t buy anything. _____ Strongly Disagree _____ Disagree _____ Somewhat Disagree _____ Neither Agree nor Disagree _____ Somewhat Agree _____ Agree _____ Strongly Agree Have students access Course Mate at www.cengagebrain.com to answer the polling questions for each chapter of CB. Ask them to take the online poll to see how their answers compare with other students taking a consumer behavior course across the country. Then turn to the last page of the chapter to find the “What Others Have Thought” box feature. This graph is a snapshot of how other consumer behavior students have answered this polling question thus far. Learning Objectives After studying this chapter, the student should be able to: 2-1 Describe the consumer value framework, including its basic components. 2-2 Define consumer value and compare and contrast two key types of value. 2-3 Apply the concepts of marketing strategy and marketing tactics to describe the way firms go about creating value for consumers. 2-4 Explain the way market characteristics like market segmentation and product differentiation affect marketing strategy. 2-5 Analyze consumer markets using elementary perceptual maps. 2-6 Justify consumers’ lifetime value as an effective focus for long-term business success. Lecture Example Walmart, considered the world’s largest retailer, is facing stiff competition from Amazon these days. Shoppers who are primarily focused on value, are now turning to the world’s largest online retailer, Amazon, for many common purchases. Walmart’s target consumers were those who were primarily interested in low prices and not the overall shopping experience. This is where Walmart is losing out to competitor Amazon, which scores by providing more value to the shopper with their competitive prices and free shipping for many of their products. Source: Brad Tuttle, “Today’s Value Shopper Heads to Amazon, Not Walmart,” Time Moneyland, April 10, 2012, http://moneyland.time.com/2012/04/10/todays-value-shopper-heads-to-amazon-not-walmart/ Lecture Outline with PowerPoint® Slides LO 2-1: Describe the consumer value framework, including its basic components. Q: Ask students to identify some of the factors that can change a consumer’s favorite brands or products over time. A: Students’ answers will vary. Some of the factors that can change a consumer’s favorites include declining quality, the perception that value gained is less than the perceived value, price increases, the influence from their reference groups or peer groups, situational factors, etc. [Instructor PPT Slides 4, 5] I. The Consumer Value Framework and Its Components A. The Consumer Value Framework The Consumer Value Framework (CVF) represents consumer behavior theory, illustrating factors that shape consumption-related behaviors and ultimately determine the value associated with consumption. Exhibit 2.1 displays the CVF in detail. Each aspect of the CVF is related in some way to other components of the model. The model consists of the following elements: Internal influences External influences Consumption process Value Relationship quality B. Value and the CVF Components Value is at the heart of experiencing and understanding consumer behavior. Relationship Quality Over the past two decades or so, Customer Relationship Management (CRM) has become a popular catchphrase, not just in marketing but in all of business. A basic CRM premise is that customers form relationships with companies as opposed to companies conducting individual transactions with customers. A CRM system tracks detailed information about customers so marketers can make more customer-oriented decisions that hopefully lead to longer-lasting relationships. Relationship quality reflects the connectedness between a consumer and a retailer, brand, or service provider. Consumption Process The consumption process involves deciding what is needed, what the options for exchange might be, and the inevitable reaction to consumption. Service can be thought of as the organization’s efforts applied toward value creation. Many factors influence this process, and these factors can be divided into different categories such as internal and external influences. Internal Influences: The Psychology and Personality of the Consumer Internal influences are things that go on inside the consumer’s mind and heart or that are indeed truly a part of the consumer. The psychology of the consumer involves both cognitive and affective processes. The term cognition refers to the thinking or mental processes that go on as people process and store things that can become knowledge. Affect refers to the feelings experienced during consumption activities or feelings associated with specific objects. Individual differences are characteristic and traits that help define a person as an individual. Individual differences that tangibly make one person distinct from another, which include personality and lifestyle, help determine consumer behavior. Companies have spent vast amounts of money and time trying to harness individual differences in a way that allows consumer choice to be predicted. External Influences The “zero moment of truth” is the point where a passive shopper becomes an active shopper and actively seeks out exchange alternatives. External influences include social, cultural, media, environmental, and temporal factors, among others. The social environment includes people and groups who help shape a consumer’s everyday experiences. External influences also include situation influences. Situational influences are temporary factors unique to a time or place that can change the value seen in a decision and received from consumption. Situational influences include the effect that the physical environment has on consumer behavior. Q: Ask students to recall a recent solitary shopping experience. How is the experience different from shopping in a group? Does shopping with peers influence their buying decisions? A: Answers will vary. While shopping alone, people have a lot of time at their disposal to go through all the products, weigh their pros and cons, and then make a decision, whereas shopping with peers will influence the buying decision to some extent as shoppers may have less time, or be influenced by the opinions of their peers. LO 2-2: Define consumer value and compare and contrast two key types of value. [Instructor PPT Slide 6] II. Value and its Two Basic Types Value is a personal assessment of the net worth a consumer obtains from an activity. Value is what consumers ultimately pursue, because valuable actions address motivations that manifest themselves in needs and desires. In this sense, value captures how much gratification a consumer receives from consumption. In return, the firm receives value from consumers as they make purchases. A. The Value Equation Exhibit 2.3 reflects some components of value and how a consumer might put these together to determine the overall worth of something. Value can be modeled by playing the “what you get” from dealing with a company against the “what you have to give” to get the product. The “what you get” includes all sorts of benefits or positive consequences of consumption. The “what you give” includes sacrifices or negative consequences of consumption. While theoretically one could probably break down value into many very specific types, a very useful value typology can be developed using only two types—hedonic and utilitarian values. [Instructor PPT Slides 7–9] B. Utilitarian Value Utilitarian value is gratification derived from something that helps the consumer solve problems or accomplish tasks that are part of being a consumer. When consumers buy something in pursuit of utilitarian value, they can typically provide a clearly rational explanation for the purchase. C. Hedonic Value Hedonic value is the immediate gratification that comes from experiencing some activity. Conceptually, hedonic value differs from utilitarian values in several ways. First, hedonic value is an end in and of itself rather than a means to an end. Second, hedonic value is very emotional and subjective in nature. Third, when a consumer does something to obtain hedonic value, the action can sometimes be very difficult to explain objectively. The same act of consumption can provide both utilitarian and hedonic value. The book uses the example of parents taking their children to the movies. It assures the children’s happiness as well as the parents’ enjoyment. Exhibit 2.4 shows the top 10 grossing movies of all times among U.S. consumers. A person who chooses a quick takeaway for a bite on the run is not actually thinking of settling down in a fancy restaurant that provides quality food with impeccable service. Restaurants that provide one of the values will survive as against places that are low on both values. A consumer is most likely to repeat an experience of a place that serves high-quality food in a great atmosphere with efficient staffs. Q: Ask students to give examples (other than the ones provided in the text) of products that deliver both hedonic and utilitarian values. A: Students’ answers will vary. For example, when a person buys a chocolate bar, he or she intends either to consume it or to give it to someone. This is the utilitarian value of the chocolate bar. The hedonic value of the chocolate bar comes into play when that person consumes it and enjoys the taste, or gifts it and sees the pleasure on the receiver’s face. LO 2-3: Apply the concepts of marketing strategy and marketing tactics to describe the way firms go about creating value for consumers. III. Marketing Strategy and Consumer Value Generally, a strategy is a planned way of doing something to accomplish some goal. [Instructor PPT Slides 10–12] A. Marketing Strategy Exhibit 2.6 indicates how business strategy exists at different levels. Marketing strategy is the way a company goes about creating value for customers. The strategy should also provide an effective way of dealing with both competition and eventual technological obsolescence. Marketing myopia is defined as a condition in which a company views itself competing in a product business rather than in a value-, or benefits-producing, business. Thus, when technology make a good or service obsolete, the myopic business goes out of business. Corporate strategy deals with how the firm will be defined and sets general goals. This strategy is usually associated with a specific corporate culture, which provides an operating orientation for the company. Marketing tactics refers to the ways in which marketing management is implemented. They involve price, promotion, product, and distribution decisions. B. Total Value Concept Exhibit 2.7 shows the relative market share for top athletic shoe companies in the U.S. Despite the relative similarity of products as well as the prices they sale for, the market share for the competing brands varies widely. Even as Nike dominates almost half the total market, its advertising budget is almost double of its nearest competitor. It is worth noting that among consumers who run more than ten miles per week New Balance has a share comparable to Nike. The term augmented product means the original product plus the extra things needed to increase the value from consumption. Total value concept is practiced when companies operate with the understanding that products provide value in multiple ways. C. The Total Value Concept Illustrated How does the Ferrari Special offer value? The answer may not be the same for all consumers, but here are some likely ways: Transportation The Ferrari service plan The feelings associated with driving the car The positive feelings that go along with ownership The feelings of status and pride that come with ownership The negative feelings that go along with ownership D. Value is Co-Created The marketer’s offering does not create value directly, but rather consumption involves value co-creation. The customer plays a role in whether or not the offering’s attributes actually do prove beneficial, and therefore valuable. For example, a 24-hour fitness center serves customers by making workout facilities available any time of the day. However, the consumer can only realize value from the offer by paying for this service and applying diligence, skill and effort to a workout regime. Q: Ask students to explain the total value concept for different types of products and services, such as fast food, coffee, jeans, a massage, etc. A: Answers will vary. Encourage students to use the book as a guide for comprehending the concept of total value. For example, when a person buys a new air-conditioner, he or she pays for the product, its installation, breakdowns, and maintenance. At the same time, he or she enjoys the experience of owning an air-conditioner and also enjoys the cool air generated by the air-conditioner. And, at some point in time, he or she will have to dispose of it as well. LO 2-4: Explain the way market characteristics like market segmentation and product differentiation affect marketing strategy. [Instructor PPT Slide 13] IV. Market Characteristics: Market Segments and Product Differentiation Marketing management involves managing the marketing mix and deciding to whom the effort will be directed. The marketing mix is the combination of product, pricing, promotion, and distribution strategies used to position some product offering or brand in the marketplace. Target market is a term used to signify which market segment a company will serve with a specific marketing mix. Q: Give students a product, such as a car and list its characteristics and attributes. Based on these characteristics, students must identify possible target markets for the car and justify their answers. A: Answers will vary. For example, if the car is a sports car, it will appeal more to a younger age group. If the car is built for durability and utility and can seat five or more people, it will appeal more to people who want a family car. [Instructor PPT Slide 14] A. Market Segmentation Market segmentation is the separation of a market into groups based on the different demand curves associated with each group. Numerous segments exist in some markets, but very few segments may exist in others. Elasticity is a term used to represent market sensitivity to changes in price or other characteristics. For example, as the price of tablet computers decreases, the quantity sold increases; there is a negative relationship between price and quantity sold. It is suggested that consumers are more sensitive to price than other characteristics. Exhibit 2.8 depicts the market segmentation process. Backward sloping demand refers to the situation where a positive relationship exists between price and quantity. When one considers product category demand, a market segment for many products will feature a positive price-to-quantity demand relationship. B. Product Differentiation Product differentiation is a marketplace condition in which consumers do not view all competing products as identical to one another. An example of product differentiation is how consumers do not consider all Internet retailers the same way. Market segments can be identified based on the way different consumers view Internet shopping and their differing sensitivities to the characteristics of Internet transactions. Q: Ask students to pick a product category and analyze the ways in which different brands differentiate their product offerings. How do brands differentiate their offerings for consumers within the same market segment (teenagers, Hispanics, professional women, etc.) and across different market segments? A: Students’ answers will vary. Encourage students to use the book as a guide for comprehending the concept of market segmentation and product differentiation. For example, a shampoo may be differentiated across different market segments as shampoo for children, women, or men. The shampoo can be further differentiated within the same market. For example, within the shampoo for women category, there may be shampoo for damaged hair, to fight hair fall, to prevent dandruff, etc. LO 2-5: Analyze consumer markets using elementary perceptual maps. [Instructor PPT Slide 15] V. Analyzing Markets with Perceptual Maps Product differentiation becomes the basis for product positioning. Positioning refers to the way a product is perceived by a consumer and can be represented by the number and types of characteristics that consumers perceive. A. Perceptual Maps Perceptual maps are used to depict the positioning of competing products graphically. When marketing analysts examine perceptual maps, they can identify competitors, identify opportunities for doing more business, and diagnose potential problems in the marketing mix. A blue ocean strategy seeks to position a firm so far away from competitors that, when successful, the firm creates an industry of its own by finding an uncontested market space where, at least for a time, isolates itself from competitors. B. Illustrating a Perceptual Map Exhibit 2.9 illustrates a perceptual map depicting consumer beliefs about tourist attractions in New Orleans, Louisiana. The researcher identified and collected consumer perceptions of the ten tourist destinations and of the ideal points, meaning the combination of tourist destination characteristics providing the most value among the five most prominent consumer segments. The perceptual map allows several key observations. Some of which are as follows: The competition among attractions viewed as highly authentic and relaxing is intense. Two segments, Culture Explorers and Knowledge Seekers, possess ideal points near the five segments. The marketing analyst draws several conclusions based on these observations: The highest demand positioning is in quadrant IV (highly authentic, relaxing). An opportunity may exist in quadrant I. Here, major competition for the adventure-seeking market appears absent. The advantage of positioning a new business away from the competitors is that it takes fewer resources to get started because the major competitors are not likely to see the new offering as a threat. Q: Have students choose an example of a product (i.e., car, makeup, household product) using Exhibit 2.9. Students can come up to the board or draw a perceptual map in their notebooks for a classroom discussion. A: Students’ answers will vary. For example, the perceptual map for a car may include dimensions like classic, distinctive, conservative, sporty, practical, or affordable. A consumer will then plot the cars he is considering along these dimensions and finally buy what he thinks is the best for him. C. Using Consumer Behavior Theory in Marketing Strategy Businesses are constantly using consumer behavior to make better strategic and operational marketing decisions. Exhibit 2.10 displays a checklist inspired by the CVF framework—the CB idea checklist. LO 2-6: Justify consumers’ lifetime value as an effective focus for long-term business success. [Instructor PPT Slide 16] VI. Value Today and Tomorrow—Customer Lifetime Value Not every customer is equally valuable to a firm. Firms increasingly want to know the customer lifetime value associated with a customer or customer segment. Customer Lifetime Value (CLV) represents the approximate worth of a customer to a company in economic terms or the overall, long-term profitability of an individual consumer. Although there is no generally accepted formula for CLV, the basic idea is simple and can be represented as follows: CLV = npv (sales – costs) + npv (equity) where npv = net present value. Consider a consumer shopping twice weekly at IKEA. On average, this customer spends $200 per week, or $10,400 per year, at IKEA. If a 5% operating margin is assumed, this customer yields a net $520 per year to IKEA. Q: The value the company receives from exchange may be slightly easier to explain than the value that a consumer receives. Explain. A: The value the company receives from exchange may be slightly easier to explain than the value that a consumer receives. This is because a company has access to numerical data like sales figures and costs figures, which help in calculating a customer’s worth, whereas the only numerical data available to a customer is that of the money he or she spends on a product or service. It is not possible for the customer to assign a numerical value to the satisfaction or dissatisfaction he or she has gained from using the product or service. Video material for this chapter is starting on page 20 of the IM Instructor Manual for CB Consumer Behaviour Barry J. Babin, Eric G. Harris 9781305403222, 9781305577244
