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Module 3 Market Analysis FRE 302 Fall 2016 Lecture 7 1 Content Knowing your customer Consumer Behaviour & Involvement Consumer Buying Process Product Life Cycle Product Adoption Process Segmentation Ideal Customer Mass versus Segments variables of Segmentation 2 Custom Textbook Factsheets Market Analysis p117 Readings Consumer Decision‐Making Process ..p169 Market Segmentation .. p177 3 Consumer behaviour 4 Consumer Behaviour Processes a consumer uses to make purchase decisions, as well as to use and dispose of purchased goods or services; also includes factors that influence purchase decisions and the product use. 5 Consumer Buying Decisions and Consumer Involvement Three types of decision making Routine Response Behavior Less Involvement Limited Decision Making Extensive Decision Making More Involvement 6 Consumer Buying Decisions and Consumer Involvement Routine response behavior: Frequently purchased, low-cost goods and services, with low involvement on search and decisions by consumers before making the purchase. Consumers buy first and evaluate later. Limited decision making: Consumer has previous product experience but is unfamiliar with the current brands available. A moderate effort is spent searching for information or in considering alternatives. Extensive decision making: Applies to unfamiliar, expensive products, or an infrequently bought item. The most complex type of consumer buying decisions, and is associated with high involvement on the part of the consumer. Consider food products and the unique considerations of these products! 7 Factors Influencing Buying Decisions Cultural Factors Individual Factors Social Factors Psychological Factors CONSUMER DECISIONMAKING PROCESS BUY / DON’T BUY 8 Factors Influencing Buying Decisions- Components of Culture Values Language Myths Customs Rituals Laws Material artifacts 9 Factors Influencing Buying Decisions - Individual Influences Physiological Age Life Cycle Consumer tastes in clothes, food, cars, and recreation are often age related. Life cycle, an orderly series of stages through which consumers’ attitudes and behavior evolve through maturity, experience, and changing income and status. Personality Self-Concept Lifestyle Psychological makeup and environmental forces. Self-concept combines the ideal self-image and the real self-image. Consumers seldom buy products that jeopardize their self-image. Lifestyle is a mode of living as identified by a person’s activities, interests, and opinions. 10 Example family life cycle 11 Factors Influencing Buying Decisions - Psychological Influences factors consumers use to interact with their world. They are the tools used to recognize feelings, gather and analyze information, formulate thoughts and opinions, and take action. Perception How people select, organize, & interpret stimuli into a meaningful picture. Motivation Maslow’s Hierarchy of Needs in ascending order of importance. Learning Beliefs & Attitudes Behavioral Learning Cognitive Learning Brand Loyalty Attitude Formation & Change 12 Factors Influencing Buying Decisions - Psychological Influences Maslow’s Hierarchy of Needs - arranges needs in ascending order of importance. 13 Factors Influencing Buying Decisions - Social Influences Consumers interact socially with reference groups, opinion leaders, and family members to obtain product information and decision approval. Reference Groups Opinion Leaders People You Know Celebrities Family Members 14 Consumer Buying Process 15 Consumer Buying Process Five-stage decision-making process consumer move through when purchasing a product. Level of Involvement Important to Process An individual’s intensity of interest in a product and the importance of the product for that person. 16 Stages of Process Five-stage decision-making process to purchase a product 17 Stage 1 Need Recognition The buying process starts with need recognition. At this stage, the buyer recognizes a problem or need e.g. I am hungry or responds to a marketing stimulus (e.g. you pass Starbucks and are attracted by the aroma of coffee). 18 Stage 2 Information Search Internal search: Buyers search their memories for information about products that might solve their problem External search: Buyers seek information from outside sources Decide how much information (if any) is required. Cost benefit or economics of information 19 Information Sources include: Personal sources: family, friends, neighbours etc Commercial sources: advertising; salespeople; retailers; dealers; packaging; point-of-sale displays Public sources: newspapers, radio, television, consumer organizations; specialist magazines Experiential sources: handling, examining, using the product Marketers need to identify which information sources are most influential in their target markets. 20 Stage 3: Evaluation of Alternatives Evaluation stage where customer must choose between the alternative brands, products and services. Evaluative criteria Objective and subjective characteristics that are important to a buyer Framing the alternatives Describing the alternatives and their attributes in a certain manner to make a particular characteristic appear more important especially to the inexperienced buyer Involvement & Frequency of Purchase important here 21 Stage 4 Purchase Purchase the product or service based upon evaluation The choice of seller may affect the final product selection. Factors such as terms of sale, price, delivery, and warranties may affect the sale. 22 Stage 5 Post Purchase Evaluation Post-purchase evaluation – feel good about the purchase Cognitive dissonance A buyer’s doubts shortly after a purchase about whether the decision was the right one Buyers are mostly likely to seek reassurance after the purchase of an expensive, highinvolvement product 23 Product Adoption Process 24 Product Adoption or Diffusion Process Theory Describes the behavior of consumers in terms of how quickly product work their way into markets or acceptance of new product by various segments Threshold model in consumer demand: when one buys depends on the number of previous buyers Categories include: innovator, early adopter, early majority, late majority and laggards. 25 Time and the Adopter Categories “Average consumer” is right in the middle Innovators Adopter Categories Based on Innovativeness 26 Product Adoption or Diffusion Process Theory Innovators: 2.5% Trendsetters who first try a new product and willing to take risks They show the others the product is viable but sometimes Often not taken seriously by their peers. Characteristics: Have higher incomes Better educated than non innovators 27 Product Adoption or Diffusion Process Theory Early Adopters: 13.5% Key opinion leaders with their neighbors and friends Want the newest but not willing to take risks and like others to test the product first Characteristics: Much more reliant on group norms Oriented to the local community Tend to be opinion leaders 28 Product Adoption or Diffusion Process Theory Early Majority 34% Waits to see if a new product or idea works Responsible for mass purchase and increase of sales Characteristics: Collect more information Evaluate more brands than early adopters. Rely on friends, neighbors, and opinion leaders for information 29 Product Adoption or Diffusion Process Theory Late Majority 34% These are called majority because they bring in the majority of the target market. Purchase later than the average. Characteristics: Adopt because most of their friends have already done so Adoption is the result of pressure to conform. Tend to be below average in income and education 30 Product Adoption or Diffusion Process Theory Laggards 13% Characteristics: Do not rely on the norms of the group. Independent because they are tradition-bound Have the lowest socioeconomic status Are suspicious of new products Alienated from an advancing society Not much quantity or sales achieved from this group 31 5 critical factors influencing innovation diffusion RANKING MUNDIAL DE USUÁRIOS INTERNETgrows if innovation has clear AdoptionDE probability Relative advantage advantages for product, service or current behavior 1º 2º 3º Compatibility Complexity of transition Possibility of testing Visibility of benefits 4º 5º 6º The more innovation is consistent with pre-existing higher the adoption probability Complex changes involved in innovation, reduce adoption likelihood A chance to try an innovation before making a final decision increase adoption likelihood The more obvious innovation benefits the greater adoption likelihood 32 Segmentation and the ideal customer 33 TARGET MARKET & SEGMENTATION Target Marketing Identifies the target/s within the total industry which has the greatest potential to purchase the product or service. Determined from information gained through the industry and competitive analysis. Target market may include one or more of the following: consumers, other businesses, manufacturers, dealers, distributors, government departments, or educational institutions. 34 Mass Marketing Firm decides to ignore market segment differences and views the whole market with one product line Undifferentiated marketing Sell to everyone the same way and use the same 4 P’s & logical if all consumers had the same needs, wants, attitudes and demographics Common example: milk, flour, soda, toothpaste, bread and household cleaners. 35 Mass Marketing? Pasta Flour Cheese in Canada Breakfast Cereal Coffee Cookies Eggs 36 Segmentation Market segmentation is the process of dividing a market into distinct subsets of customers called segments Segments based upon common needs and characteristics Marketers select one or more segments to target with the market mix ( 4 P’s) Same market can be segmented and viewed in many different ways. 37 Comparing mass versus segmentation Mass Marketing Offer the same product and marketing mix to all customers Logical if all consumers had the same needs, wants, attitudes and demographics One advertising campaign and one standard product Ex: agriculture products, fruit, milk, eggs, vegetables Segmentation Market segmentation is the process of dividing a market into distinct subsets of customers called segments Segments based upon common needs and characteristics Members are different between segments but similar within. Marketers select one or more segments to target with the market mix ( 4 P’s) 38 Mass Marketing: Advantage & Disadvantage Advantage: Less cost and effort Easier to conduct Economies of scale in cost as produce one standard product Disadvantage: Lack of appeal to anyone as too standard Puts all eggs in one basket. Small shift in the population or consumer tastes can greatly effect the firm. May have trouble expanding into new markets 39 Segmentation: Advantage & Disadvantage Advantage: Better use of limited resources Better understanding of customer needs Understand competition Accurate measurement of goals Disadvantage: More costly More effort 40 Segmentation – Why use it? Better use of limited resources Better understanding of customer needs Understand competition Accurate measurement of goals Overall – More satisfying market results by analyzing market & reviewing natural divisions 41 Example : McDonalds 42 Example : McDonalds 43 Example : McDonalds 44 Example : McDonalds 45 Examples TWEENS HIPSTERS iSegment Baby Boomers 46 Three Step Process for Segmentation 1. 2. 3. Identify Segmentation Variables – 4 variables Identify Risks – Consider the competitive, PESTLE & Industry analysis (Readings p 189 for details) Identify Segment to Target – Meaningful & Segmentation Matrix 47 1 Identify Segmentation Variables The segmentation variables are factors that vary among groups within a market, but that are consistent within groups. Segmentation is generally not limited to single variables but considers multiple dimensions 48 1 Identify Segmentation Variables: Geographic. Area, population density, climate etc. Demographic. Age, sex, lifecycle, income, job, etc Psychographic. Lifestyle, personality. Behavioural (Benefit & Usage) Benefits sought, status Usage rate, frequency 49 1 Identify Segmentation Variables: Geographic Based on regional variables such as region, climate, population density, and population growth rate. Based on idea that people who live in similar areas have similar needs Useful for marketers as easy to conduct campaigns using direct mail, and local media Internet access has blurred geographics 50 Example: - Geographic McDonalds - sell burgers aimed at local markets India - burgers are made from lamb in India rather then beef because of religious issues Mexico - more chili sauce is added Japan – Kobe Beef Malaysia – Spicy chicken burgers 51 1 Identify Segmentation Variables- Demographic Age, gender, family size, life cycle, income, social class, occupation, etc. The most popular variables for segmenting customer groups. Why? Very accessible, cost effective and easy to measure Base helps to locate the market – used with other variables that describe the attitudes and needs of the consumers Obtained through secondary research Reveals trends as well – example: food purchases of organic food increasing as a proportion of total food expenses may indicate this is a good market for food processors Based on concept that needs and interest change with age income etc. 52 Example - Demographic Wal-Mart versus Holts Price Smart vs. Save on Foods Gender and clothing, hairdressing, magazines and toiletries and cosmetics. Club Med for Kids and families Toothpaste for kids 53 54 1 Identify Segmentation Variables- Psychographic Grouping customers together based on social class, lifestyles and psychological characteristics (attitudes, interests and opinions) Details obtained through primary research Assumption that the types of products and brands an individual purchases will reflect that individual characteristics and patterns of living. Influences both consumption patterns and the processing of different forms of marketing communication The "why" component of consumer buying patterns. 55 Example Prius effect : 56 Example: Psychographic 57 Example: Green Consumers LOHAS (Lifestyles of Health and Sustainability) segments consumers into five separate buckets, based on their attitudes - See more at: http://www.a-g.com/thinking/2009/11/how-green-are-yourcustomers/#sthash.v7qjkbYw.dpuf 58 1 Identify Segmentation Variables– Behavioral (Benefit & Usage) Usage rate and patterns and benefits sought: product usage rate - heavy lite nonusers brand loyalty – none some strong product end use benefit wanted Marketers target heavy user or non brand loyalty used Behavioral segmentation has the advantage of using variables that are closely related to the product itself. 59 1 Identify Segmentation Variables– Behavioral (Benefit & Usage) Occasions. Special promotions for holidays. (e.g., Halloween, Hershey Kisses). Special products for special occasions. Benefits sought. Different segments desire different benefits from products. e.g., P&G’s multiple brands of laundry detergents to satisfy different needs in the product category. 60 61 62 2. Identify Risks Consider the competitive, PESTLE & Industry analysis (Readings p 189 for details) that affect your potential segment 63 3.Identify Segment to Target Meaningful Market Segment measurable identifiable accessible by communication and distribution channels sufficient in profitability and number of people stable or durable (not changing too quickly) homogeneity within the segment heterogeneity between segments different in response to a marketing mix 64 3.Identify Segment to Target – Meaningful & Segmentation Matrix Market Segmentation Matrix: Application of more than one matrix – see readings 65 Problems with Segmentation Does not meet the meaningful criteria Inadequate Market Size Availability of Information Limited Access Changes to segments are large Segments merge 66 Ideal Customer Where does the ideal customer fit?? 67 Bandit Wine http://www.youtube.com/watch?v=Ac0ZSsBsSmc http://banditwines.com/ 68 Example: ideal? segment markets 69 End of slides 70 Questions What are the variables used to segment the consumer market? What are the advantages & disadvantages of using segmented versus mass marketing? Explain the relationship between segmentation and the marketing mix. What are the steps to the market segmentation process? How is a market segmentation matrix used to define a target market?? Can you have more than one segment? Why does a segment have to be meaningful? 71 End of slides 72