Can someone do my Week 3 Discussion 2 and Week 4 Discussion plus Week 4 journal?

Learning Outcomes

After reading this chapter, you should be able to

• Recall three categories of factors influencing consumers’ purchase decision process.

• Explain why marketers need an understanding of consumers’ emotions and motivations.

• List nine criteria that an effective segmentation strategy must meet.

• Give an example of a marketing strategy driven by insights from the customer relationship management approach.

• Describe three levels that buyer–seller relationships pass through as they deepen.

Consumers and Their Buying Behavior

iStock/Getty Images Plus

7

Consumer Purchasing Behavior

Introduction In the first chapter of this book, you began building insights into consumer buying behavior. In that chapter, your view was framed by the concept of consumers’ search for value, expressed as the customer value equation. In the second chapter, you built on that knowledge as you learned about the marketing process. You learned that insights into consumer behavior are necessary inputs to several steps in that process.

Consumer behavior was never far from the discussion as you progressed through the chapters on each of the marketing mix decisions (the four Ps). Now you’ve come full circle. Consumer buying (or purchasing) behavior is again the focus of study. This time, instead of framing the discussion of consumers in terms of their search for value, we’ll discuss how the innate aspects of consumer behavior interact with marketing practice. We’ll also look at how mar- keters leverage knowledge about consumers to generate profits and long-term relationships.

7.1 Consumer Purchasing Behavior Consumers—the individuals who buy goods and services for personal or household con- sumption—create a mind-boggling market opportunity. More than 7.6 billion people inhabit the planet, and all of them consume. In the United States alone, there are over 125 million consumer households with a median 2016 income of $59,039 (Semega, Fontenot, & Kollar, 2017). That’s a lot of purchasing power.

With so many consumer dollars on the move, it’s not hard to see why marketers study pur- chasing behavior. Data on what consumers buy, as well as where and how much, are relatively easy to find in a company’s own sales transaction records. But what about the “why” behind the buy? What drives consumers’ actions?

Given the diversity of the population, there is no single answer to that question. Marketers attempt to figure out how consumers respond to various marketing efforts—stimuli that pro- duce responses, in the language of social scientists. Some of those stimuli are under mar- keters’ control, produced by marketing mix strategies regarding the four Ps of place, price, product, and promotion. Marketers must also take into account the stimuli they cannot influ- ence—various environmental, cultural, group, and individual factors influence consumer behavior. The sociocultural factors influencing purchasing behavior are summarized in Table 7.1. A closer look at each of the four categories follows.

Table 7.1: Sociocultural factors influencing purchasing behavior Environment Culture/subculture Group Individual

Technology Race/ethnicity Membership Occupation

Ecology Social class Reference Income/wealth

Economy Cohort Aspiration Education

Politics Geographic region Family Beliefs and attitudes

Legal issues Lifestyle Role/status Age/life stage

Psychology

Note. Marketers cannot control or even exert influence on most factors influencing purchasing behavior, but they need to understand the role these factors play in consumers’ purchasing behavior.

Section 7.1

Section 7.1Consumer Purchasing Behavior

Environmental factors include economic, political, legal, and technological forces that influ- ence consumer behavior. It’s not hard to envision the influence environmental factors have on purchasing behavior, from the one-click impulse buying made possible by technology to the legal restrictions governing certain types of purchases, such as guns, cigarettes, or alcohol. We will explore each of the environmental factors listed in Table 7.1.

Cultural factors exert their influence from an early age, shaping wants and motivations. Cul- ture consists of learned values, perceptions, needs, and behaviors. Marketers focus on cul- tural shifts that may bring to light new marketing opportunities—for example, several hun- dred million more people are projected to be living in midsize cities in developing nations by 2025, where most of the population had been rural until recently (Mancini, Namysl, Pardo, & Ramaswamy, 2017). Subcultures are groups of people within the larger culture who share life experiences, situations, and values. Most culture shifts emerge from subcultures. These can be defined by traits such as race or ethnicity, by generational cohort, by geographic region, or by social class. Acohort is a group whose members share a significant experience or have similar characteristics. For example, people born in the same span of years belong to a gen- erational cohort. Women who smoke belong to a cohort within the subculture of smokers. Even lifestyles can be a strong enough organizing principle to produce a subculture, such as homeschoolers or single parents. When a cultural group is large enough to have significant spending power, it often becomes the basis for target marketing. The rise in “athleisure wear” of the kind sold by Lululemon and Under Armour, targeted to a lifestyle that demands cloth- ing for both exercise and casual use, is an example (Kell, 2016).

Group factors influence individual behavior through the desire to belong or conform. One may be an official member of a group, aspire to be a member, or simply be influenced by a dominant group. Reference groups share attitudes, behaviors, beliefs, opinions, preferences, and values that an individual uses as the basis for judgment. Members of a college fraternity, for example, might form a reference group for an arriving freshman. An individual need not be (or even want to be) a member of a reference group to be influenced by it. Likewise, one’s family group has a strong influence on purchasing behavior. Even young children have a role in family buying decisions. One’s role and status within a group adds an element of influ- ence, as people seek the general esteem of the society around them. People’s purchases often reflect the groups they belong to, take cues from, or aspire to join.

Individual factors influence buying behavior in terms of the goods and services people seek. These individual factors change with shifts in occupation, income or wealth, education, age/ life stage, and psychology (motivations, perceptions, beliefs, and attitudes), demanding dif- ferent goods and services to fit those personal shifts. A closer look at the psychological factors of emotion and motivation follows in Section 7.2. But first, let’s consider how this framework for understanding the factors that influence purchasing behavior is evolving as today’s con- sumer changes.

Consumers Are Changing As discussed in other chapters, today’s consumers are unlike consumers 50 or even 25 years ago in many ways. For one, today’s consumers are active participants in the marketing pro- cess. They influence each other by sharing opinions and experiences and expect to have input into customizing products—even, increasingly, into developing marketing messages through customer advisory panels, brand ambassador positions, and the like. Today’s consumers are

Section 7.1Consumer Purchasing Behavior

also increasingly anxious about pressures ranging from the economy to globalization. Mean- while, a creative class has emerged, consisting of professionals and artisans with an increas- ing desire for meaning in their lives. These factors all affect contemporary consumers’ pur- chasing behavior, filtering their choices based on their preference for engagement, Fair Trade sourcing, and/or self-expression, for example.

The Great Recession of 2007–2009, which has been described as the worst since the Great Depression, has also had an effect on consumers’ purchasing behavior (Ferrara, 2012). The economic recovery that has taken place since the Great Recession has been unequally dis- tributed: Some urban centers (primarily those where the creative class thrives, like Seattle) weathered the recession well, while other regions replaced high-paying jobs (primarily in old-sector jobs like construction and manufacturing) with lower paying jobs (for example, in retail and food service), contributing to a widening income gap in America (Plumer, 2013).

Despite an economic recovery, many consumers haven’t been able to return to their previous behavioral purchasing patterns even if they would like to. In addition, consumers’ perception of the customer value equation may have been fundamentally altered by the recession. For example, in switching to lower priced consumer goods at the recession’s outset, consumers may have discovered that the quality of the lower priced brand was higher than they expected (Bohlen, Carlotti, & Mihas, 2009). In this financially constrained landscape, consumers may therefore develop different purchasing behaviors that marketers must closely monitor.

Today’s consumers are also increas- ingly anxious about the environment. A relatively modest number of American consumers adopted an environmental stewardship ethos in the 1960s or 1970s, waxing and waning since then under vari- ous forces, including the political climate, the economy, and social trends. After Al Gore’s documentary An Inconvenient Truth was released in 2006, consumer demand for environmentally sound prod- ucts grew sharply, resulting in a “green” movement that sent marketers into a frenzy of developing new products for eco-conscious consumers (Lash, 2012). Suddenly green products, from recycled toilet paper to cleaning supplies, were fly- ing off store shelves.

But these products generally came at a higher cost. This was due in part to more expensive components but also to smaller volume sales. What consumers considered a good value when the economy was booming sud- denly changed when the economy turned sharply downward in 2008. With reduced incomes and greater uncertainty about their future, many consumers were no longer willing to pay more for the added value of a form/function that promised to be kinder to the planet. Con- sumers still wanted to help the environment but felt they could not afford the extra cost.

georgeclerk/E+/Getty Sales of environmentally sound products illus- trate the dilemma consumers face in a finan- cially constrained but humanity-centric world; green products generally cost more due to more expensive components and smaller sales volume.

Section 7.1Consumer Purchasing Behavior

Therefore, fewer consumers purchased green products, and many waited for sales that would set the customer value equation back to a balance they could afford (Clifford & Martin, 2011). The financial constraints on consumers ameliorated as the economy recovered, but a new “normal” for purchasing behavior emerged. The shock of losing household wealth and seeing familiar corporations close overnight made consumers spend less even as their disposable income neared prerecession levels. Clothing is one of the categories most affected by chang- ing consumers, who not only buy fewer items of apparel but shop less frequently than before the recession, even years later (Reagan, 2015).

What can we assume about these fundamentally different consumers of today? It’s clear that they seek engagement. The Internet has greatly expanded individuals’ ability to find people with whom they share common interests. They connect with ideas that feel meaningful to them—even if they’re just discussing their favorite celebrity’s latest gaffe. Marketers have been quick to respond to this demand for dialogue and engagement—for example, by using technology to personalize interactions, simplify processes, and improve customer experi- ences. Self-serve customer service portals are one example, having emerged to serve the wishes of the 40% of consumers who prefer self-service over human contact (Mistry, 2016).

In summary, consumers’ changing behavior reflects shifts in the macro environment around them. Shifts in any factor influencing purchasing behavior will cause consumers to continue to change what, how, where, and why they buy.

The Purchase Decision Process The behavior of consumers as they move from recognizing a need to making a purchase fol- lows a predictable process. Each step in the process triggers a new set of thoughts and feel- ings. To design effective strategies, marketers need to be aware of what consumers face as they move from step to step, as illustrated in Table 7.2 and Figure 7.1.

Table 7.2: Purchase decision process

Step Description

1. Needs recognition Triggered by a stimulus, an individual recognizes a need or desire.

2. Information search Motivated to find out more, the individual pays attention to information, including relevant marketing messages, developing purchase criteria that reflect his or her expectations and beliefs about what will satisfy the need.

3. Alternative evaluation Newly armed with information, the individual develops a set of acceptable alternatives.

4. Purchase decision Having considered each alternative, the individual (knowingly or not) assigns each a value in terms of its customer value equation and thus decides which to buy.

5. Postpurchase behavior The individual experiences either satisfaction or dissatisfaction, based on whether expectations of the purchase were met. Postpurchase behavior might take the form of a future repurchase or new purchase decision process, as well as positive or negative buzz.

Section 7.1Consumer Purchasing Behavior

Figure 7.1: Purchase decision process illustrated

The purchase decision process carries an individual from one step to the next, subject to sociocultural influences.

Kotler, P., & Armstrong, G. (2006). Principles of Marketing, 11th Ed., ©2006. Reprinted by permission of Pearson Education, Inc., New York, New York.

Individuals’ purchase decision process is seldom completely linear, and each step may require a different amount of time. In addition, people are subject to the sociocultural influences on their purchasing behavior listed in Table 7.1. New information may cause a consumer to back- track. Individuals frequently pause at a stage—perhaps the purchase is not urgent, or the shopping process itself is pleasurable. In some situations, the individual never reaches the step of purchasing at all, because other needs or desires arise and cut the process short.

Many major purchases, because of the complexity of purchase criteria to be met, leave the consumer with some degree of dissatisfaction. Some trade-off will have taken place, leav- ing an opening for the cognitive dissonance known as buyer’s remorse. Because customer satisfaction is essential to building long-term relationships, marketers need to manage their consumers’ postpurchase emotions with supportive information such as testimonials from satisfied customers, warranties, and after-sales service.

Degree of Involvement The degree of involvement a consumer feels affects the consumer’s purchase decision pro- cess. Some buying decisions require a high level of involvement. If the purchase reflects a high level of personal, social, or economic significance, a consumer is likely to feel deeply invested in the outcome and will put a good deal of energy and thought into making a choice. The infor- mation search step will take longer than for lower involvement purchases, and the potential

Needs recognition

Alternative evaluation

Postpurchase behavior

Information search

Purchase design

Theoretical process

Situational influences

Section 7.1Consumer Purchasing Behavior

for buyer’s remorse is higher. Think about buying a loaf of bread and buying a car. The cost and the life span (and therefore the frequency of purchase) are quite different between the two. The buyer’s degree of involvement is quite different as well.

Consumers’ degree of involvement can be judged by considering the category in which a pur- chase falls (previously introduced in Chapter 3).

1. Convenience products (such as snack foods and cleaning products) call for routine problem solving. These purchases are typically a matter of habit, reflecting a low degree of involvement in the outcome. Consumers have little concern whether a convenience offering is likely to meet their expectations of value.

2. Shopping products (such as furniture and clothing) call for limited problem solving. Several brands might be evaluated, depending on the time and effort the consumer has to spend, but the outcome does not carry enough risk to require greater effort.

3. Specialty products (such as a car or a computer) call for extended problem solving. Purchases in this category require high consumer involvement to differentiate a long list of features and attributes, with far-reaching consequences to the decision.

4. Unsought products (such as funeral services and fire extinguishers) may call for routine, limited, or extended problem solving depending on the offering—but only after consumers have become aware of them and recognize a need or desire. Con- sider when frozen microwaveable dinners first became available in groceries—until people learned about the new products’ utility, they did not feel desire for them or seek them out.

Purchasing a $2 candy bar to support a local cause would call for a low degree of involve- ment. Getting a vision screening might call for limited problem solving to choose an optom- etrist. Choosing a charity to name as beneficiary in one’s will would call for extended prob- lem solving.

Exceptions to these categories exist, of course. Sometimes people choose different brands just for the variety, like trying a new brand of pizza because it’s on sale or new to the market, or trying frozen yogurt just to see if it tastes as good as higher calorie ice cream. Sometimes the situation is such that consumers must take what’s offered. The person who walks into a convenience store for cough drops is not likely to agonize like the purchaser of a car or computer—or even ice cream or pizza. When the purchase is a gift for someone else, that too affects the decision process in subtle ways. These categories merely offer a framework on which fuller understanding of consumer behavior can be built.

Other Influences on the Purchase Decision Process We have discussed sociocultural influences and the level of involvement the consumer brings to the task of making a purchase decision. But more is going on here. The situational influ- ences surrounding the purchase decision process include the following.

• Marketing mix: The strategies regarding product, price, promotion, and place that marketers have chosen to make the offering appeal to the consumer.

Section 7.1Consumer Purchasing Behavior

• Customer value equation: The buyer’s own beliefs about which benefits constitute a “good enough” or—better yet—a “great” value at a given price.

• Purchase task: Specifics of the level of involvement, number of brands, sellers, prod- uct attributes, and information sources required to make a purchase decision.

• Social surroundings: Presence of others can alter how a purchase decision is made. • Physical surroundings: The retail environment affects what is purchased; merchan-

dise assortments, traffic flow, displays, and perceptual cues (such as sale signs) all matter.

• State of mind: The buyer brings to the purchase decision certain attitudes and beliefs. Hunger, fatigue, or a recent glance at bank balances can positively or nega- tively influence willingness to spend.

Add to what you have learned about sociocultural influences, degree of involvement, and situational influences the discussion coming up of psychological influences—motivation— and you will have a complete, 360-degree view of the influences on the consumer purchase decision process. How these will evolve as an increasingly diverse population of consumers changes is not yet known.

It’s time for a concrete example. Let’s consider a potential customer of the Wing, an upscale combination of coworking space and social club for women that launched in Manhattan in 2016. Imagine Elle, a hypothetical New Yorker self-employed in her own business consult- ing firm. She is tired of working out of her home in Long Island and managing tiring com- mutes into the city to visit her clients. Choosing to become a member of a coworking space is a serious decision, because she will commit to paying monthly dues. Coworking spaces in the United States average $195 a month (Deskmag, 2010). Membership access to the elegant Wing premises in Soho begins at $250 a month.

What Elle wants most is a place to recharge, refresh, and be productive between client calls. For Elle, this isn’t a convenience or shopping product—a desk in a coworking space is a specialty prod- uct requiring extended problem solving that takes into account the influences on the purchase decision process listed above. The Wing’s marketing mix, from its feminist branding to its upscale locations, are appealing to Elle. She’s visited alterna- tives to evaluate the Wing’s customer value equation and soon realized that the physical and social surroundings the Wing offers appealed to her more than other coworking spaces. But that $250 monthly rent is more expensive than other cowork- ing spaces she has looked at. What tipped Elle into applying for a Wing membership? Her state of mind, after trying to take a conference call from a table at Starbucks yet again, then changing clothes in its bathroom. She convinced herself the Wing would significantly enhance her quality of life at work. She told herself its membership fee is justifiable because it will bring exposure to potential new clients and referrals through her new sisterhood.

Associated Press The Wing’s marketing mix includes feminist branding.

Section 7.1Consumer Purchasing Behavior

The Purchase Decision Process for Businesses Is the purchase decision process different for businesses buying from other businesses? Yes and no. The process is similar in that influences on decision makers come from environmen- tal factors. These include organizational factors such as policies, procedures, and systems and interpersonal factors such as authority, status, control of rewards, and persuasiveness. All the individual factors influencing consumer purchases described previously also influence busi- ness buying decision processes, since people don’t stop being who they are when they get to work each day.

The business buying decision process differs from the consumer buying process in that busi- nesses often require significant time to identify requirements, put out requests for proposals, and/or engage in extensive negotiations. The organizational buying process usually involves more decision makers than the consumer buying process does. In addition, most business purchases are based on derived demand, and the buyers themselves are less often involved in the actual consumption of the product or service than in consumer buying processes.

When buyers in business-to-business situations need to make purchases, they may be looking for a

• straight rebuy (a routine reorder, requiring little thought or process); • modified rebuy (in which the situation is complicated by the need for a new consid-

eration set to meet changes sought in specifications, prices, terms, or suppliers); or • new task (in which the full purchase decision process will take place, virtually iden-

tical to the consumer process described previously).

A business buying process may include additional steps of assigning responsibility for the purchase decision, identifying selection criteria per the needs of those who will actually use the purchased product or service, and establishing a selection procedure that includes a team made up of users, influencers, and the actual individual(s) with buying authority.

With Cocreation, the Purchase Decision Process Evolves The purchase decision process has been a staple of marketing education for decades. Does the arrival of Marketing 3.0, with its emphasis on collaboration and cocreation, require an update to the way we conceptualize this aspect of our consumers’ experiences? Evidence sug- gests the answer is yes. The term customer experience journey has entered the conversa- tion, meaning the cumulative impact of the experiences a customer has through interacting with a company, its brand, and its goods and services. The shift is toward a focus on the holis- tic customer experience, as opposed to the transactions or stages along the way.

David Nour, in his 2017 book Co-create: How Your Business Will Profit From Innovation and Strategic Collaboration, depicts the customer experience journey as an infinity symbol, in which customers continually travel through loops of evaluation, discovery, and consider- ation (equivalent to the three steps of the traditional purchase decision process) followed by loops of evaluation, purchase decision, and use (postpurchase behavior) that ends in a “trial” relationship with the company and its offering, as shown in Figure 7.2 (Nour, 2017). If the trial relationship is positive, it will deepen into a mutually beneficial long-term connection,

Section 7.1Consumer Purchasing Behavior

characterized by cocreation of value. If the trial is negative, that opportunity is lost. Nour’s con- tribution to the subject is to emphasize marketers’ need to focus on the transitions between these stages, rather than treating each as an isolated transaction. The motive is to harvest lifetime value from customers, and the implication is that companies will need to reorganize their marketing, sales, and customer support functions to give customers the personalized, meaningful experience they seek throughout the journey.

Figure 7.2: David Nour’s customer experience journey

David Nour’s customer experience journey.

Nour, D. (2017). Co-Create: How Your Business will Profit from Innovation and Strategic Collaboration, St. Martin’s Pres. Used by permission of the author.

A technique called customer experience mapping (or customer journey mapping) has come into use to support this shift to the holistic view of the customer purchase decision process. It is essentially “a walk in the shoes” of a typical customer as he or she heads around Nour’s infinite loop. Often conveyed by infographics, these “maps” tell the story of various target customer segments’ experience in a way that reinforces the centrality of the customer experi- ence and demonstrates the need for the entire organization to adopt the marketing orienta- tion. Both concepts advance the way we conceptualize a brand’s orientation to its consumers’ experiences.

Industry Ecosystem

Customer

Customer experience

Discover

Consider Use

Purchase

Evaluate

Field Trip 7.1: Changing Consumer Demand

As a consumer, do you feel confident about the economy? Environmentally sound products function as an indicator of consumers’ relative optimism.

Enter the phrase “consumer demand for environmental products” in your favorite search engine to find recent articles that may shed light on the changing consumer.

Section 7.2“It’s All In Their Minds”—Emotions and Motivations

To summarize: As consumers complete the tasks in the purchase decision process, the three types of factors influencing the purchase decision process (sociocultural influences, degree of involvement, and situational influences) come to bear. Consumers are changing, but to under- stand them, a study of the factors influencing buying behavior will remain useful.

7.2 “It’s All In Their Minds”—Emotions and Motivations Underlying all consumer behavior are individual factors driven by human psychology—the perceptions, beliefs, and attitudes that influence personal behavior. Individuals have always experienced wants and needs, many of them strong enough to demand satisfaction. That inner drive is called motivation.

Multiple frameworks exist for understanding motivation, emerging since the growth of psy- chology in the early 20th century. Today’s marketers study the psychology of motivation to stimulate purchasing a specific product, supporting a cause, or expressing loyalty to a brand.

One of the most prominent psychologists to develop a theory of human motivation was Abra- ham Maslow, whose concept of the hierarchy of needs was discussed in Chapter 1. Maslow laid the groundwork for our contemporary understanding of the drives that propel consumers. Subsequent research takes that groundwork in new directions relevant for marketers.

Today’s theories of motivation recognize that purchasing behavior includes both cognitive and emotional components. Needs may be utilitarian needs or hedonic needs. To under- stand the difference, consider how you feel about two purchases: a water heater and con- cert tickets. The former fills a need, but it isn’t likely to move you aesthetically or help you express yourself the way the latter will. Utilitarian needs derive from a practical service the purchase will perform. Utilitarian needs trigger little emotional response, so advertising for utilitarian products and services typically focuses on facts that help the consumer evaluating service utility.

Hedonic needs reflect a desire to achieve pleasure, not just service, from the offering. Hedonic needs open the door to aesthetic appreciation, self-expression, fantasy, and adventure. Mar- keting messages for offerings that fill hedonic needs usually play on the emotions.

Now consider the difference between buying a leaf blower and a business suit. Technically, each is designed to deliver a specific utility—the blower will rid a yard of leaves, and the suit will keep a businessperson clothed appropriately for certain situations. But most purchasers

Questions to Consider

Consider a recent purchase you made that would qualify as a “shopping” experience requiring limited problem solving, or a “specialty” experience requiring extended problem solving. Describe your own behavior as you completed each task of the purchase decision process, or describe your journey following Nour’s infinite loop. Describe the situational and other influences affecting you as you faced each task.

Section 7.2“It’s All In Their Minds”—Emotions and Motivations

would describe the leaf blower as a utilitarian purchase and would follow a purchase decision path based on utilitarian factors like weight, fuel consumption (electric or gas), and cost. The business suit would likely be seen as closer to a hedonic need, because of the aesthetics and self-expression involved in choosing a style, fabric, and fit. In terms of Maslow’s hierarchy, the individual seeking a leaf blower would likely insist it is a need on the order of safety and security, required for the proper upkeep of that expensive investment, a home. The business suit would ride a little higher on the pyramid, involved as clothing is in the realms of belong- ing and esteem. On the other hand, one could argue that a leaf blower tops a business suit as a display of a kind of performative machismo.

More Influences on Motivation: Self-Expression, Brand Loyalty, and Identity In a consumer society, individuals show each other who they are by what they have. The behavior starts early, as children experiment with forming identities, either copying the style of individuals they admire or inventing their own. Children quickly learn which brand names confer status.

As children grow into adults, they become more sophisticated at using their purchasing power for self-expression. Almost everyone enjoys purchasing the props that project specific identi- ties, whether that means camping gear, runway fashion, or the latest personal technology.

Virginia Postrel, in her book The Substance of Style, makes the case that “the more choices we have, the more responsibility we face—whether or not we want it—to define ourselves aes- thetically. Because others make similar selections, for similar reasons, I like this becomes I’m like this.” Postrel (2003) is talking about the power of brands to confer status.

A line of clothing based on popular movies illustrates Postrel’s point. Disney announced in 2018 it was teaming with lifestyle brand Her Universe to bring activewear featuring Disney, Star Wars, and Marvel characters to chil- dren and young teens, with the first prod- ucts inspired by Marvel Entertainment’s Black Panther and Disney’s Princesses, and Star Wars gear soon to follow. The new products are “opening up opportuni- ties for fangirls to express their fandom and individuality” (as cited in Chen, 2018), says Jimmy Pitaro, chair of Disney Con- sumer Products and Interactive Media. The line includes leggings, sweatpants, hoodies, swimwear, footwear, and acces- sories (Chen, 2018).

Why would a young person want to wear clothing that takes its design cues from characters in a movie? The reason could be to draw on the strength of its hero, like

Associated Press T-shirts based on the Harry Potter movies reflect that consumers define themselves aesthetically through purchases, making a connection between “I like this” and “I am this.”

Section 7.2“It’s All In Their Minds”—Emotions and Motivations

a shaman who wears a bearskin to take on the attributes of the bear. It could be to display membership in a fan community. Or one could choose a Black Panther or Snow White jacket just to feel the connection between “I like this” and “I am this.”

When purchases allow us to feel affiliated with others—part of a tribe—they meet social needs. When purchases make us feel confident and strong, they meet self-esteem needs. The wants and needs of individuals making their way up Maslow’s hierarchy of needs can be seen as drivers of humanity-centric Marketing 3.0 consumer behavior, accepting the responsibility to define oneself aesthetically as described by Virginia Postrel.

More recently, researchers have begun to tie people’s use of consumption for self-expression to brand loyalty. Consumers may develop brand loyalty motivated by a desire to conform to a reference group. Following fashion trends illustrates the use of brands to fulfill a hedonic need to belong. Alternatively, consumers’ hedonic motivation to break away from the present environment can translate to loyalty to the brands that represent freedom from conforming to the constraints of a mass-market society. The Harley–Davidson brand community, whose members integrate the brand into multiple facets of their lives from community events to fashion statements, illustrates consumption of a brand as a sanctuary in which the consumer experiences “a transcendental escape from the mundane” (Labreque, Krishen, & Grzeskowiak, 2011, p. 470). Either hedonic need—conformity or escapism—can have a positive influence on brand loyalty. This is good news for marketers who want to use psychological principles to stimulate and direct consumer purchasing behavior.

Another psychological principle that applies to human motivation is identity-based moti- vation, a theory that explores how people’s identities motivate them to take specific action toward their goals. How does identity-based motivation apply to marketing? Identity drives our behavior related to what we approach or avoid. For example, in 2016 researchers studied how cultural identities influence attitudes about food packaging. They found that the French cultural identity esteems food as a hedonic pleasure, an attitude in conflict with the pragmatic nature of nutrition information on packages. Therefore, if you were preparing to introduce Special K Nourish cereal with probiotics in France, your understanding of identity-based motivation would lead you to alter everything about the cereal’s packaging and brand narra- tive for the French market to emphasize hedonism over utility for digestive health. (Gomez & Torelli, 2015). Like self-expression and brand loyalty, marketers can use the psychological principle of identity-based motivation to encourage certain consumer purchasing behaviors.

The Role of Emotions One more aspect of consumer behavior deserves attention: the role of emotions. Motivations can be experienced as either positive or negative emotions. Emotions produce feelings that trigger the urge to act. People act on positive motivations to achieve desires; they act on nega- tive motivations to avoid worry and uncertainty. Purchasing a motorcycle fulfills a desire to satisfy a positive emotion. Purchasing life insurance fulfills a desire to avoid a negative emo- tion. Advertisers have been accused of preying on fear to trigger purchases (avoid bad breath with Listerine! Drive safely—nobody will mess with you in a Hummer). But joy and connec- tion can be just as powerful motivators as fear. Coca Cola’s Open Happines” campaign is one example (White, 2014).

Section 7.2“It’s All In Their Minds”—Emotions and Motivations

Not only do emotions move a person to make a purchase; emotions can influence that con- sumer’s decision about whether the purchase is a good value. Pleasant emotional experiences often lead to customer loyalty, while unpleasant emotional experiences beg to be shared, which leads to negative word of mouth. Provoking a favorable emotional response through engagement with potential consumers is a fundamental task of advertising and marketing. Marketers make use of this insight to trigger consumers’ motivation to purchase by position- ing their offerings on emotional benefits. The benefit may promise a positive emotion, such as increased happiness or greater energy, or a promise of reduced negative emotion, such as stress relief.

Follow Field Trip 7.2 to practice using what you have learned in this chapter about consumer motivation.

In conclusion: Marketers study consumer behavior, motivation, and emotions because they need to understand how consumers shop and decide what to buy. Marketers need to under- stand how buyers see the world: what stimulates them to feel a need, what triggers them to act, what purchase criteria matter to them, and what mental and emotional processes they go through to decide which item gets rung up as a sale.

Knowing enough about consumer psychology to recognize “where prospective buyers are coming from” is important for any marketer. But as you’re about to learn, all that pales in use- fulness compared to the insights possible from tracking and analyzing hard data about con- sumer purchases. Behavioral profiling yields more marketing insight than psychology. And so, we move on to the data-driven strategy of segmentation, targeting, and positioning.

Field Trip 7.2: Can Emotions Sell Utilitarian Products?

Storytelling has long been a component of advertising, frequently used to stir emotions. Can this technique be used to make a pitch for a utilitarian product? View this advertisement for a washing machine. Consider what emotions it is designed to stimulate and how the story highlights the product’s differentiating feature.

LG SideKick™ Pedestal Washer—Favorite Shirt

https://youtu.be/WgZPOXeaeJc

Questions to Consider

How might you apply your knowledge of consumer psychology to develop marketing tactics? Recall what you learned about the four Ps in previous chapters. Suggest how insights into consumer motivations and emotions might be applied to each of the four areas of the marketing mix: product, place, price, and promotion.

Section 7.3The “STP” Approach: Segmentation, Targeting, and Positioning

7.3 The “STP” Approach: Segmentation, Targeting, and Positioning

The STP fuel additive was designed to increase engine performance and fuel efficiency. “STP” for marketing performs a similar feat—increasing marketing campaign performance while making fuel (money) go further in terms of results (as measured by return on investment, or ROI).

The approach is simple: Companies segment their market to identify clusters of potential cus- tomers, and then target those customers for specific marketing communications, which are designed to position the company’s offering and brand to stand out from competitors.

The STP approach works because it leverages the fundamental insight of market segmenta- tion: Not everybody will buy a company’s goods and services. Some are more likely to buy than others, and for different reasons. When marketers use their understanding of buying behavior to divide the total market into smaller, relatively homogeneous groups, they can deliver greater value to customers, more efficiently and cost-effectively.

No More “One Size Fits All” A market segment consists of a group of people who share a similar set of needs and wants, usually because they share other traits, such as geography, age, income, and/or lifestyle. Because of their commonalities, people within a segment are likely to share perceptions of the specific customer value equation for a particular offering. For example, parents are likely to value Avon Skin So Soft for its usefulness as a bath oil safe for children’s tender skin, while outdoor enthusiasts value the same product for its effectiveness as a nontoxic insect repellent.

Marketers use the insight that some segments are more likely to buy than others to concen- trate resources on the probable buyers. Once a segment has been identified as potentially profitable, marketers focus on identifying the behaviors and motivations that affect the seg- ment’s buying decisions. Only with a clear understanding of those factors can mar- keters develop marketing mix strategies that deliver value to that segment.

Marketers may conduct primary research or purchase secondary research (defined in Chapter 2) to understand market seg- ments. This may result in positioning an existing offering differently or developing a product extension or even a new prod- uct innovation to meet an unfilled need that has come to light.

Information about market segments can be purchased from outside firms or derived from customer transactions in a company’s database or customer

Associated Press People within a segment are likely to value a product for the same reason. Can you think of another product like Avon’s Skin So Soft oil that has such disparate market segments?

Section 7.3The “STP” Approach: Segmentation, Targeting, and Positioning

relationship management (CRM) system. CRM is a strategy for tracking a company’s inter- actions with customers and prospects and organizing information from sales, marketing, and customer service activities. CRM software functions as a central location for all data about customers and prospects. We cover CRM in more detail later in this chapter.

STP is not the only approach to reaching customers. Marketers have at their disposal the undifferentiated strategy, in which all consumers are treated the same. When the offering is a commodity—that is, all competitors’ offerings are about the same in terms of features and price—segmentation may offer little additional profit potential to offset the cost of more complex marketing strategies.

Segmentation strategies call for tough choices. The number of variables that differentiate consumers within any given product category can be bewildering. The variables relevant to purchase propensity must be identified, to weed out those that are not. Marketers need cri- teria to narrow down the possible approaches to those most likely to be both productive and cost-effective.

Selecting Market Segments to Target Target marketing focuses resources on those groups of potential customers who are likely to have greater demand for a good or service. Target marketing requires choosing a specific market segment, with the intent of developing a product offering and promoting a specific value proposition that will motivate that group of people to act.

A segment must meet certain criteria to qualify as a target worthy of its own marketing strat- egy. A target segment must be

• available in the marketplace in sufficient numbers to merit the expense, • readily identifiable, and • able to be profitably served.

Consider Lunchables, the convenience food product introduced in 1988 by Oscar Mayer. Working parents, pressed for time, were struggling to feed their families breakfast, much less get lunches packed. These parents (who in 1988 were mostly moms) were available in the marketplace, easily identified, and—because Oscar Mayer had excess lunchmeat production capacity—able to be profitably served (Moss, 2013).

If a target segment fails to meet any of these three conditions, the company should not pursue it. All segments meeting these conditions are theoretically worthy of targeting, but there are other considerations. In addition to the target segment being large enough to merit invest- ment, readily identifiable, and potentially profitable, consider the following criteria:

• How well is this segment being served by competitors? • Is this segment expected to grow? • Is this segment a good fit with the company’s brand image and market position?

Prepackaged lunches for schoolchildren was a new concept in 1988; there were no competi- tors. Census data clearly revealed a growing segment of households with children and the affluence to buy the product. The fit with the Oscar Mayer brand was unassailable.

Section 7.3The “STP” Approach: Segmentation, Targeting, and Positioning

If a segment is already targeted and well served by competitors, there may not be an opening for a new company to create meaningful positioning. It will be too late to market on a message strategy of being “first” or “best.” Finding another position on which successful marketing messages can be built may be difficult. And even if a workable basis for differentiation can be found, it may not be one that fits well with the company’s existing brand image. A company known for low prices or quality will have difficulty creating a new strategy around a contra- dictory position. If a segment fails to meet these criteria, it’s a weak choice.

Consider three more measures of a target market’s suitability for segmentation strategy.

• Do individuals in the segment share common needs? • Are they likely to respond similarly to a marketing action? • Is the segment reachable? (Are message channels available?)

To conclude our Lunchables example, the product served a huge and fairly homogenous mar- ket segment already proven to respond to mass marketing. Oscar Mayer advertised Lunch- ables on Saturday morning cartoons. In short, the Lunchables concept passed all nine criteria for effective segmentation and, once launched, met with great success.

These three criteria help marketers estimate the likelihood that effective campaigns can be designed for this market segment. Individuals who share common needs will tend to appreci- ate the same benefits, making persuasive marketing messages possible. However, if no mes- sage channel exists that reaches the segment cost-effectively, that can be a deal breaker. A marketer may desire to offer left-handed office supplies to that sizable group (10% of the population) but lack mailing lists or magazines through which to reach lefties. In that case, the left-handed niche is best given a pass.

Table 7.3 summarizes the nine criteria that segments must meet to justify use of a segmenta- tion strategy. Only market segments meeting these criteria for effective segmentation should be considered further.

Table 7.3: Nine criteria for effective segmentation

Is a market segment a suitable target for segmentation strategy? Consider. . .

1. Do enough individuals meet the segment description to merit the expense?

2. Is membership in the market segment readily identifiable?

3. Can members of the segment be profitably served?

4. How well is this segment being served by competitors?

5. Is this segment expected to grow?

6. Is this segment a good fit for the company’s brand image and market position?

7. Do individuals in the segment share common needs?

8. Are they likely to respond similarly to a marketing action?

9. Is the segment reachable? (Are message channels available?)

Note. Market segments must meet nine criteria to qualify as promising for a target marketing strategy.

Section 7.3The “STP” Approach: Segmentation, Targeting, and Positioning

Segmentation Variables The first criterion indicating whether a market niche is suitable for a segmentation strategy is the size of the population meeting the segment description. This raises the question: what description?

Variables used to identify segments have gone through several stages.

Initially, market researchers relied on demographic segmentation because of the availabil- ity of information collected by the U.S. Census Bureau about education, income, and occu- pation, as well as physical attributes such as gender, race, and age. These variables proved reliable predictors for different consumption patterns and thus a workable basis for segmen- tation strategies (Kotler, 2005).

Segmenting on a single variable, such as ethnic group, gender, or age, can be quite effective. Marketing to racial/ethnic groups grew as marketers recognized the rapidly rising spend- ing power among Hispanics, African Americans, and Asian Americans. Marketing to women has increased dramatically as research revealed that female consumers influence the pur- chase of 85% of all products and services (Quinlan, 2003). Young people (ages 8 to 24) have been called the next “big spenders.” A large percentage of children and teens make their own buying decisions, particularly on clothing and entertainment. Plus, with more time, skill, and interest in online product comparison, they exert considerable influence over their parents’ purchases (Gioia, 2012).

Segmenting markets by age groups became popular in the 1990s to leverage the sociological concept known as the cohort effect—the tendency of members of a generation to be influ- enced by significant events occurring during their formative years (Smith & Clurman, 1998). Terms like baby boomer and Generation X identify specific generational cohorts. A shared influence—be it Pearl Harbor or Pearl Jam—can have a lasting effect on a segment’s buying habits and response to marketing stimuli.

Generational cohorts consist of age groups identifiable by a defining event during their for- mative years that led to a sense of shared experience and, to some extent, a shared worldview. There is power in examining a company’s prospective customers by generational cohort. The experiences of each group as it hits life stages of courtship, marriage, child rearing, career advancement, and empty nesting tie to predictable purchasing behavior. With overall popu- lation growth, every generational cohort will expand—through longevity for the oldest seg- ment, birthrates for the youngest segment, and immigration for the middle of the population. The STP approach relies on these insights to craft strategies and messages that are more relevant and appealing to individuals in a cohort.

Bear in mind that generational cohorts are analytical constructs; there is no consensus on the boundaries between one generational cohort and the next. Table 7.4 uses the boundaries defined by the Pew Research Center.

Section 7.3The “STP” Approach: Segmentation, Targeting, and Positioning

Table 7.4: Generational cohorts defined

Cohort Birth years Age in 2020

Generation Z 1998 to early 2000s Up to 22

Millennials 1981 to 1997 23 to 39

Generation X 1965 to 1980 40 to 55

Baby boom 1946 to 1964 56 to 74

Silent generation 1928 to 1945 75 to 92

Greatest generation Before 1928 93 to 105

Note. The experiences of generational cohorts at different life stages provide clues to each segment’s probable needs and desires—useful information for marketers.

Source: Fry, 2016.

Each cohort is believed to share certain traits, which marketers leverage to influence purchas- ing behavior.

• Greatest generation: Affected by growing up during the Great Depression and serv- ing in World War II; they developed a sense of duty to country and a strong work ethic.

• Silent generation: Experienced World War II as children or young adults; this cohort focused on conforming to social norms.

• Baby boom: Experienced assassinations, Vietnam War, and Watergate; developed tendencies toward experimentation and grew disillusioned with government.

• Generation X: Coming of age in the aftermath of the 1960s, they value autonomy and are not as work-centric as prior generations. Sometimes stereotyped as self-involved.

• Millennials: Grew up surrounded by economic prosperity and rapidly advancing technology but entered the workforce during a recession. They value career flexibil- ity and work–life balance (Nisen, 2013).

• Generation Z: Digital natives who grew up in uncertain times marked by military deployments, the Great Recession, and rising income inequality. Entrepreneurial by nature (Dill, 2015).

Millennials are overtaking baby boomers as the largest generational cohort in U.S. history and, as such, are attracting great interest among marketers. Their spending power in the United States is estimated to have reached $200 billion in 2018—the most of any generation (Schroeder, 2017).

Generation Z is estimated to be 25% of the U.S. population, an even larger cohort than the Mil- lennials. What cohort will follow Generation Z, and will they be smaller than the cohort that preceded them, like the silent generation and Generation X, or will they be the largest cohort

Section 7.3The “STP” Approach: Segmentation, Targeting, and Positioning

yet? What shared events will mark their cohort, and what will be the impact on marketing approaches? You will see the answer play out in your lifetime.

We’ll return to the subject of generational demographics in Chapter 8, when we consider social and cultural factors in the marketing environment.

Marketers have also used geographic segmentation, based on where consumers live or work, to find groups with common needs and desires. As researchers grew more sophisti- cated about segmentation, these two techniques blended into geodemographic segmenta- tion. This approach added variables such as consumers’ location relative to city center, sub- urb, or rural area, and type of homes, reflecting the fact that people in similar areas tended to exhibit similar consumption patterns.

Geodemographic segmentation worked, but it left a wealth of useful information still unex- plored, leading researchers to develop behavioral segmentation. In this approach, market- ers classify people according to their motivations and attitudes, including reasons for pur- chases and quantities consumed.

Studying a company’s own transaction records generates a description of a foundation seg- ment already in the customer base—a description of its own customers by their geographic, demographic, and behavioral traits. The goal, of course, is to find more like them. Augment- ing that description with data from the Consumer Expenditure Survey on the buying habits of U.S. consumers can lead to more sophisticated and effective use of specific variables to define market segments like a company’s own best customers. (The Consumer Expenditure Survey is a national household survey administered by the U.S. Census Bureau that provides annual data on expenditures, income, and demographic characteristics of consumers in the United States.)

Marketers have based successful segmentation strategies on variables such as demographics, geography, and behavior, including features/benefits sought, usage rate, and degree of loyalty. But many companies lack the resources to build their own sophisticated segmentation sys- tem around the demographics, geography, and behaviors of their customers and prospects. Service providers developed psychographic segmentation systems available for purchase that accomplished fine-grained targeting by weaving together demographics, geography, and life stage/lifestyle descriptors. These systems assign households to specific clusters based on predictions about their behaviors, needs, and lifestyles. Companies could now purchase data sets based on clusters of households that “look like” their own best customers and fold those prospective customers into their data warehouses. The case study that closes this chapter examines use of the segmentation techniques discussed here.

Segmentation helps marketers understand potential customers in order to focus on those whose needs they can ultimately satisfy. It’s not uncommon to mix and match segmentation approaches. For instance, marketers might combine geodemographic segmentation with seg- mentation on benefits sought, to design effective strategies. Figure 7.3 lists the steps in the process of executing a segmentation strategy.

Section 7.3The “STP” Approach: Segmentation, Targeting, and Positioning

Figure 7.3: The segmentation process

To execute a segmentation strategy, marketers must perform these five steps.

Segmenting business markets can be accomplished using the same process. B2B segmenta- tion approaches can be geographic or demographic based on characteristics of the businesses targeted; this is sometimes referred to as firmographics (the descriptive attributes of firms that marketers use to combine individual firms into meaningful market segments). Size in sales or number of employees, customer business model, and industry are all useful variables on which to segment. The North American Industry Classification System maintained by the U.S. Census Bureau is the standard used for classifying businesses and the source from which firmographic data can be retrieved, sorted, and aggregated for purposes of target marketing.

Step 2

Step 1

Step 3

Step 4

Step 5

• Group potential buyers into target market segments (using one or more of the approaches discussed in this section: demographic; geographic; geodemographic; behavioral; psychographic)

• Group products to be sold into categories potential buyers can relate to.

• Estimate potential for return on investment from the segmentation strategy by analyzing the t of the target segment to the product groupings.

• Select target markets according to the nine criteria discussed earlier (see Table 7.3).

• Develop and deploy marketing actions to reach the selected target market.

Field Trip 7.3: Segmentation and the BSB Buyer

Business markets can be segmented by firmographic variables. But individuals still make purchase decisions on behalf of their companies, so marketers must understand those potential customers. Follow this link to read about how consumer behavior transfers to business buying situations.

The Role of Emotions and Goals in B2B Buying Decisions

http://www.business2community.com/b2b-marketing/the-role-of-emotions-and-goals-in -b2b-buying-decisions-01239685#VxXxilv6J3uyxIRU.97

Section 7.3The “STP” Approach: Segmentation, Targeting, and Positioning

Behavioral segmentation, based on factors like motivations or usage rates, end-use applica- tion, product specifications, or stage in the customer relationship (newly acquired, existing, satisfied, or at-risk), is widely used in B2B marketing.

Psychographic segmentation has not proven as useful in B2B marketing. The more complex makeup of the buying team (as opposed to an individual consumer), as well as the idiosyn- crasies of specific industries, make the psychographic approach less useful in selling to busi- nesses (Barry & Weinstein, 2009).

Positioning: The STP Approach’s Final Step Marketers, having a segmentation strategy to execute and a target market segment to address, face one more strategic task. They must now decide how to position the offering. As you’ve learned from earlier chapters, positioning is the practice of creating an identity in the minds of prospective customers that allows one offering to stand out among many. The concept of positioning was discussed in Chapter 6.

In the 1960s to 1980s, the period in which the STP approach emerged, it was not uncommon for marketers to go head-to-head in pursuit of a target market. They positioned offerings directly against competitors with similar product attributes. An often-used example from that era is the marketing of the rental car companies Avis and Hertz. In 1962 Hertz was using the slogan “Let Hertz put you in the driver’s seat”—a rather generic promise. Rival brand Avis, which had trailed Hertz since its inception, launched its “we try harder” campaign to posi- tion the company as the alternative with greater customer service spirit (Stevenson, 2013). During that era, the rapid increase in goods and services available led to more emphasis on competitive differentiation as marketers sought to stand out.

Developing positioning strategy is part of the creative work of the campaign development step of the marketing process. Marketers write positioning statements that identify the target market and the need/desire that creates demand. The positioning statement describes how the offering delivers a solution that is unlike any competitor’s. The positioning statement is usually part of the creative brief, developed for use within the marketing department.

Positioning strategy reflects three components.

1. the target market’s perception of the customer value equation for products in the consideration set

2. the product offering’s unique selling proposition (the promised benefit so compel- ling it motivates action)

3. assessment of competitors’ positioning strategies

The problems, needs, and desires of the target market are fundamental to selection of a posi- tioning strategy. But just as important, the position must be one the company can authenti- cally claim, and one its competitors have not chosen to emphasize.

To find an opening for a successful positioning strategy, marketers will typically plot com- petitors or products on dimensions of competition that are important to targeted consumers. Such dimensions might include perceived quality and price or style and product assortment.

Section 7.3The “STP” Approach: Segmentation, Targeting, and Positioning

One example of these diagrams, called perceptual maps, is shown in Figure 7.4. This tech- nique can also be used to compare companies with multiple brands or product lines.

Figure 7.4: Perceptual map

Perceptual maps allow marketers to assess competitors’ positioning strategies to find an unclaimed position.

B2B marketers position products just as carefully as consumer marketers do, using the same tools. A marketer might aim to sell a good or service to both business and consumer markets, positioning the same offering for different uses. For instance, a combined printer/scanner sold as a business tool might be adapted by its manufacturer for home use, transforming it into a consumer product.

As you’ve learned, the STP approach is widely used by today’s marketers. Application of the nine criteria for effective segmentation keeps the approach profitable and productive of long- term customer relationships. Analyzing the cost versus benefit of a segmentation approach is critical to its success. The value of the customers gained must be sufficient to warrant the increased cost of a segmentation strategy over the cost of an undifferentiated strategy.

Some marketers ask: Does it make sense to weigh some of the criteria more heavily than oth- ers? For example, can one succeed by targeting “easy” prospects who are readily identifiable, share common needs, and can be reached through available message channels, but who show little potential to be profitably served? Or is it better to target the “harder” prospects who, if attracted, might spend more and thus yield more profit over time? The answer can come only from estimating the potential for return on investment from such a strategy.

Calories

Taste Appeal

Quaker Apple Cinnamon Instant Oatmeal

Low Sugar

Barnum’s Animal

Crackers

Yoplait Blueberry Greek YogurtSwiss Miss

Dark Chocolate Sensation Instant

Cocoa Mix

Snackwell’s Fudge Drizzled Caramel Popcorn

Vitamuffin Vita Top

Starbucks Tall Skinny Vanilla Latte

Skinny Cow Heavenly Crisp Bar

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Snackwell’s Fudge Pretzels

Curves Granola Bar

Sargento Light String Cheese Snacks

Nabisco Nutter Butter Granola Bar

Section 7.4Driving Better Strategies With Customer Data

Does the STP approach assure success? Not if faulty data interferes with decisions about any of the nine criteria in the segmentation process. “Is the segment reachable?” was a problem when Gillette tried to regain market share lost to Dollar Shave Club in 2017. It undertook an STP campaign aimed at young men turning 18, who would receive a birthday promotion that included a free razor with the message, “You didn’t claw your way into manhood only to shave with a toy” (Maheshwari, 2017, para. 11), according to a New York Times article about the campaign. The problem was, people outside the target segment, including women, received the promotion. When asked how it determined who would receive the mailing, Gillette said “it uses sign-ups on its websites and opt-ins from retailers, as well as other ‘commercially avail- able sources’ like magazine subscriptions” (Maheshwari, 2017, para. 10), the article reported. Gillette’s target market was not as reachable as it believed. As this example shows, no criteria in the segmentation process can be omitted without weakening the strategy.

7.4 Driving Better Strategies With Customer Data Marketing practices increasingly rely on customer data, reflecting the shift described in Chap- ter 1 from the marketing era to the relationship era, with its objective of developing long-term relationships with customers. We’ll close this chapter with a deeper look at these customer relationships, but first, an introduction to how data supports managing those relationships will be helpful. As you think about managing customer relationships, bear in mind the cus- tomer experience journey discussed earlier in this chapter. What data can be captured at each of the transactional stages in that journey? How might that data lead to stronger bonds, deeper engagement, and more cocreation of value between companies and their customers?

Customer Relationship Management: A Philosophy The marketing practice known as CRM emerged from contact management software devel- oped to serve B2B sales management in the 1980s. The first simple systems were designed to replace Rolodexes but quickly expanded with features designed to automate routine sales and customer service tasks, such as quote management (Muhney, 2011).

CRM was sold as a technology solution that would manage detailed information about individ- ual customers and thus drive greater precision in identifying the most desirable prospective

Questions to Consider

Managing the STP approach seems straightforward when one considers a company with one product. But companies following the product line expansion strategy develop products to fulfill unmet needs and soon are managing many products. A focus on one-to-one marketing communications creates even more complexity. What issues do you foresee related to managing increasing complexity when applying the STP approach?

Not all differences between offerings are meaningful to the consumer. When it comes to positioning, how do marketers decide which differences to promote? What could marketers do to ensure that the differences they’ve elected to emphasize in a positioning strategy will resonate with consumers?

Section 7.4Driving Better Strategies With Customer Data

customers. As technology, it was little more than a database harnessed for marketing pur- poses. But CRM is more than a technology. It’s more than a customer service support system or a customer-acquisition marketing program—it’s an entire philosophy of customer-cen- trality. CRM is technology with a marketing orientation.

Living by the CRM philosophy calls for breaking down silos that separate customer data col- lected by a company from sales, marketing, and customer service activities. It means bringing the data together into a centralized warehouse. Some practitioners separate the terms used for the data warehouse from the CRM system itself, referring to the database as the market- ing customer information file. Data from such a database can be analyzed in depth and the resulting knowledge applied to marketing actions that build stronger customer relationships. Another tool closely linked to CRM is a marketing information system, designed to support managers’ decision making by distributing access to timely, accurate information about cus- tomers, market trends, and more. Whatever the system is called that supports the CRM phi- losophy, its strength lies in its potential for data mining. Analyzing the collected data reveals significant trends, patterns, and relationships.

Computing power, communication, and Internet technologies expanded exponentially in the 1990s and early 2000s, which led to rapid growth in the number of companies using CRM. But not every company benefits from attempting to adopt CRM. Tracking every purchase, sales contact, service encounter, website visit, and payment transaction for every individual in the system demands a lot of resources. Expertise in data analytics also comes at a high cost. For some companies, the work flow required to manage customer information on such a fine- grained level is simply too expensive and labor intensive. CRM has proved to be most effective in industries that are already generating reams of data and serving large customer markets, such as financial services, telecommunications, and large-scale retailers.

Stocking the Data Warehouse Customer information originates in various systems across an organization. A financial insti- tution, for example, maintains files on loans and deposits, plus records from credit cards, online banking, and investments. Those records stock the data warehouse. Routine upkeep of the warehouse requires data cleansing: detecting and correcting (or removing) corrupt or inaccurate records, followed by basic analytics that combine accounts at identical addresses into households. These are referred to as relationships, the basic building block of CRM. The data warehouse is typically augmented with demographic information purchased from third- party suppliers. This makes the data set even more useful (if the purchased data is reliable, that is).

Analytic routines performed on these augmented data sets produce reports that answer marketers’ questions and suggest campaign strategies. Mining customer data can produce reports such as the following.

• Life stage segmentation: Grouping customer records by geodemographic and behav- ioral variables to develop target market segments.

• Firmographic segmentation: Developing target market segments for B2B marketing. • Customer metrics: Measuring customer satisfaction, engagement, loyalty, risk for

attrition, and so on.

Section 7.4Driving Better Strategies With Customer Data

• Customer lifetime value: Estimating the dollar value based on total profit (or loss) likely to result from a customer over the life of the relationship.

• RFM analysis: Combining the recency, frequency, and monetary (RFM) value of customer transactions to quantify the value of the relationship as a basis for segmentation.

• CPA analysis: Calculating cost per acquisition (CPA) against marketing campaign ROI.

These insights from CRM lead to stronger relationships and better marketing strategy development.

Information relevant to segmenting, targeting, and positioning can be drawn from the data warehouse, including the following.

• descriptive information, such as demographics and media habits • product usage information, including buying behavior, consumption patterns, and

loyalty to specific brands • customer perception information, such as likes and dislikes, perceptions of a prod-

uct or service’s features, and whether those features deliver benefits valued by consumers

Customer transaction data can also be brought to business planners. Information flowing from the CRM system can be used to guide market research and strategic planning.

Making Marketing Information Useful For customer data to be useful to a company, much more is needed than names, addresses, and contact/transaction history. Each campaign addressed to each relationship should be tracked. If a particular household received a New Movers promotion triggered by a change of address and a Thank You promotion triggered by a first purchase, that information is extremely useful to marketers planning subsequent promotions to that household.

The information in the data warehouse is useful for more than planning targeted and one-to- one marketing campaigns. That information leads to more successful marketing strategies using a concept introduced in Chapter 6: predictive analytics, the science of making calculated guesses about unknown future events. At the core of this technique are predictive models, analytic routines that attempt to predict the probability of an outcome given a set of input data. Predictive modeling produces relationship-level models that describe the likelihood that a customer will take a particular action. Predictive modeling helps marketers answer questions like the following.

• Will my customer switch to a competitor? When? Which customer relationships could be saved with marketing action?

• Who will buy which of our products? • Which product will the customer buy next? When? • Where should we locate our next store?

Section 7.4Driving Better Strategies With Customer Data

What does the average marketer need to know about the highly technical field of data analyt- ics? Just the basics: Predictive analytics work when good data exists, when the right statistical tools are used to test the analyst’s hypothesis, and when the assumptions that undergird the predictive model are valid.

Lack of good data is a common barrier, which is why attention to stocking the data warehouse is so important. A good, clean, current customer data set—meaning one in which duplicates have been removed and inaccuracies corrected on a regular basis—is a significant asset for a company.

One of the most commonly used tools for predictive modeling is regression analysis. (Other analytic tools are used as well, but let’s stick with the basics.) In its various forms, regression analysis determines the strength of the relationship between one dependent variable and other independent variables. Usually, analysts develop a hypothesis about a set of indepen- dent variables, such as income, age, and website visits, and then tests the hypothesis with a regression analysis performed on a sample of the data set to test how the variables correlate to each other. This usually takes several iterations. The result allows the analyst to score all records in the data warehouse with a number representing likelihood of a specific outcome, like website visits or product purchases.

Every predictive model rests on assumptions. The grand assumption behind predictive mod- els is that past behavior predicts future behavior. And yet people change—and so does their behavior. Factors in the environment shift as well. The collapse of the housing market in 2008–2009 was caused largely by faulty assumptions about the future of housing prices, lead- ing to invalid predictive models about mortgage loan repayment. Predictive models become obsolete over time and must be reassessed (Davenport, 2014).

With predictive models in hand, marketers develop plans for marketing actions to stimu- late desirable outcomes or forestall undesirable ones (SAS, 2011). Predictive models can, for example, drive trigger marketing, a technique in which an action by a consumer automati- cally “triggers” a marketing action.

Consider the case of a hypothetical cell phone service provider, Calluniverse. Its marketers recognize a need to reduce churn (attrition of customers) and set a goal of increasing con- tract renewals. Calluniverse data analysts draw on their data warehouse to define market segments with high churn and high customer lifetime value scores. Analysis reveals three distinct clusters of users across two dimensions—usage revenue and access revenue share.

1. users with high-usage revenue share (earned from per-minute charges) 2. users with high balances 3. users with high-access revenue share (earned from rate plans)

Each segment is then targeted with distinct offers to encourage contract renewal. Based on the analysis, Calluniverse marketers decide to offer the high-usage revenue cluster a free phone upgrade, the high-balance cluster free text messaging, and the high-access revenue cluster a 15% discount on the first month’s fee after contract renewal. Because each offer targets the specific usage pattern of a distinct segment, it generates higher responses. Thus, it not only increases revenue but also accomplishes the ultimate campaign goal—reduced churn.

Section 7.4Driving Better Strategies With Customer Data

Figure 7.5 shows the distribution of the three target segments by usage revenue share and access revenue share.

Figure 7.5: Predictive modeling: Segment analysis

Analysis of customer data provides insight for better targeting of offers.

Reprinted by permission of the SAS Institute Inc.

Customer lifetime value, one of the scores Calluniverse used in the hypothetical example, was defined in Chapter 1 as the total profit (or loss) estimated to result from a relationship with a customer over time. This score is worth noting as we make the transition to our final topic in this chapter: the emphasis on relationships with customers. Formulas for calculating a cus- tomer’s lifetime value can be intimidatingly complex. The variables typically used are recency, frequency, and monetary value of past purchases. From these “knowns” the “unknown” can be projected: the likelihood of retention and likely rate of repurchase in the future. Once the customer lifetime value of current customers has been calculated, the marketing analyst needs to create a scoring system to separate the most valuable customers from the rest, to be used when purchasing data from vendors (called third-party data) to find more new pros- pects who “look like” the company’s best current customers.

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Dimension of the circle defines the share of subscribers per cluster.

100%

High-access revenue shareHigh balances

High-usage revenue share

Field Trip 7.4: Data Quality and CRM

It should now be clear that the quality of data used to drive marketing strategies is of utmost importance. Follow the link below to an article summarizing a discussion among marketers on data quality issues in using first-, second-, and third-party data.

Third-Party Data: A Quest for Quality

http://www.targetmarketingmag.com/post/third-party-data-quest-quality

Section 7.5Emphasis on the Relationship

In summary, CRM supports the orientation toward customer relationships required to suc- ceed in the Marketing 3.0 paradigm, having emerged from B2B marketing practices as tech- nology for data management progressed. Adoption of the approach by consumer marketers has been most successful when both the customer-centrality required and the availability of vast transaction data have come together to yield sufficient additional revenue to cover CRM’s higher cost.

The CRM philosophy aligns a company around its customers, bringing together and enhanc- ing the data collected at all its touchpoints. Drawing on that deep supply of customer informa- tion, data mining produces insights that optimize results as marketers execute the STP approach, based on predictive models. The practice by Calluniverse of segmenting its custom- ers on revenue and access share is one example of CRM applied to improve marketing results.

7.5 Emphasis on the Relationship In Chapter 1 we introduced the relationship era in marketing that began about 1990—the era in which companies shifted their marketing focus to establishing relationships with custom- ers that could endure over time and result in a predictable, ongoing share of a customer’s purchases. Recognizing that consumers could easily compare similar offerings with product information readily available through company websites and social media, marketers began relying on positioning strategies to make their offerings distinct and placing value on rela- tionships to earn customers’ loyalty.

Philip Kotler’s paradigm of Marketing 1.0, 2.0, and 3.0 similarly characterized the shift in marketers’ view from customers as passive targets to customers as collaborative partners— again, placing the greatest value on the relationship between a company and its customers.

Relationship marketing has come into its own as marketers have recognized that in the mar- keting of services, the repeated contact between service providers and customers causes relationships to form organically. Viewed through the lens of service-dominant logic, all firms are service firms and thus are able to deepen relationships through repeated contact.

When marketers focus on long-term relationships, they gain a deeper understanding of cus- tomers’ needs. This in turn leads to improvements in all aspects of marketing mix strategies and the value they ultimately deliver. As a result, marketers reduce the need for expensive

Questions to Consider

Calluniverse segmented its customers on revenue and access share and improved marketing results. Can you describe other scenarios for marketing action based on customer analytics?

Do you think the CRM philosophy can be successfully applied in developing countries, where demographic, transaction, and behavioral data are not as readily available? Why or why not? What factors could increase the success of CRM in global markets?

Section 7.5Emphasis on the Relationship

new-customer-acquisition programs and instead enjoy greater marketing ROI through serv- ing a loyal customer base.

The Goal: Customers for Life Long-lasting relationships seldom develop overnight. Instead, trust builds slowly over time. In the first stage, relationship marketing relies primarily on pricing incentives to encourage new customers to begin a relationship with a company. But competing on price leaves a com- pany vulnerable to competitors’ moves. Marketers seeking lasting relationships must offer more than a price advantage.

To create a deeper bond, marketers leverage the reality that service encounters are also social encounters. In the second stage marketers encourage personalization and customization of the offering, or at least the relationship, to move buyers and sellers toward a social bond. Cus- tomer appreciation events, educational seminars, and such lead to a friendship that prompts customers to be more tolerant of the occasional failure and more resistant to competitors’ moves.

In the third stage, sellers find a way to solve important customer problems, achieving an even deeper level of relationship by bringing buyers and sellers into a partnership that offers ben- efits difficult to find elsewhere. This creates true loyalty. Membership programs, such as those that airlines offer, are an example of this third, deepest stage in the relationship (Berry, 1995). Table 7.5 summarizes the deepening levels of the buyer–seller relationship.

Table 7.5: Three levels of the buyer–seller relationship

Level Characteristics Example

1 Relies on pricing incentives to encourage new relationships to form

Discount coupon on package

2 Encourages personalization and customiza- tion to kindle social bonds

Customer appreciation events

3 Offers problem solving that makes relation- ship difficult to replace

Concierge service

Note. Relationships deepen over time. Each level calls for its own marketing strategies.

Marketing programs that encourage multiple transactions, known as frequency marketing programs, move customers toward a deepening sense of loyalty through frequent touches via advertising or direct mail and promotions that reward repeat purchases. Similar are affin- ity marketing programs that leverage customers’ ties to institutions and concepts they hold dear (Kurtz, 2010). Affinity marketing programs link two brands in a mutually beneficial rela- tionship. Hotels and airlines exploit the power of frequency marketing, while colleges and sports teams often use affinity marketing to build relationships. When a university teams up with a major bank to offer a credit card bearing the school’s insignia, that’s an affinity market- ing program. Companies using the “membership economy” model can use affinity marketing programs to build loyalty through a sense of community.

Section 7.5Emphasis on the Relationship

The data warehouses fundamental to CRM provide the depth of knowledge on which a satisfying relationship can be built. The ideal relationship between buyer and seller would be built on face-to-face inter- actions over time. Outside of B2B models (where personal selling dominates), how- ever, that one-to-one conversation more typically takes place through individual messaging via outbound variable-printed direct mail or variable-content e-mail. Monitoring of the consumers’ response (either directly through inquiries and/or orders or indirectly through social media) completes the interaction.

The Prize: Recommendations The best thing about building long-term relationships is that a company gains not only access to the lifetime customer value of each relationship but also more customers from each relationship’s circle of influence through the message channel known as buzz, or word of mouth. Individuals’ willingness to recommend a company or brand is a powerful metric that can be easily obtained simply by asking customers. People’s willingness to recommend a product or service to others is a useful barometer for both their advocacy and loyalty. People take their own advice—those who recommend a brand are also more likely to repur- chase it (Samson, 2006).

Buzz marketing is an increasingly popular message channel among marketers. They hope for positive word of mouth but must also prepare for the opposite. Negative experiences with a brand have even greater impact on loyalty and recommendations than positive experiences; bad buzz persists longer and reaches more people. Practicing CRM, marketers work on reduc- ing negative customer experience before it turns into bad buzz.

Enhancing customer satisfaction is the key. Marketers carefully monitor what matters to cus- tomers and what might affect satisfaction with any aspect of the product, brand, or company. To obtain customer feedback, companies make themselves accessible through their websites and toll-free phone numbers. To monitor word of mouth, they follow social media and blogs and hire mystery shoppers to appraise customer experiences. Proactive methods such as cus- tomer satisfaction surveys also help companies evaluate how well they’re serving customers and if they are earning the ultimate prize of relationship building: recommendations.

Marketing campaigns designed to generate buzz have at their core the desire to build rela- tionships that generate recommendations, face-to-face or via social media. In 2017 Heineken launched a campaign called Open Your World that raised a social issue to generate online mentions of its brand. The brand conducted a sociological experiment to bring people together with opposing points of view, such as feminist and antifeminist, and climate change activist and denier. The experiment called for them to take part in team-building activities, then reveal

Associated Press Rewards cards are intended to move customers toward a deeper sense of loyalty to the provider through earned savings on hotel stays, airline miles, and guest services.

Section 7.5Emphasis on the Relationship

their political viewpoints. Each pair had an option to share a Heineken and discuss their views following the activity—and every pair in the experiment agreed to do so. Heineken used Face- book as the campaign’s primary platform. In the first month following its launch, the cam- paign achieved over 50,000 shares (Digital Marketing Institute, 2017).

To review: In the current relationship or Marketing 3.0 era, companies place great value on relationships with customers. Over time these relationships pass through three stages: price focused at the start, leading to social bonds through repeated interactions, and hopefully coming to a stage of partnership based on solving important customer problems. Each rela- tionship thus built brings not only a lifetime share of customers’ purchases but also new rec- ommendations through word of mouth, which marketers work to make positive rather than negative by delivering customer satisfaction and monitoring what matters to customers. The operational result is costs constrained through reduced need for new-customer-acquisition programs, as well as satisfied customers retained leading to greater return on marketing investment.

Case Study: RC Willey Home Furnishing Rufus Call Willey started selling appliances door-to-door in Syracuse, Utah, in 1932. Fast-for- ward nearly 100 years: RC Willey Home Furnishings (http://www.rcwilley.com) has become a Salt Lake City–based company that operates a dozen retail stores in Utah, Nevada, Califor- nia, and Idaho. The chain positions itself in a competitive, price-conscious field on its deep inventory across five lines (appliances, furniture, electronics, sleep products, and flooring), superior delivery, and financing options that include a popular store-brand credit card.

Field Trip 7.5: Join a Relationship Marketing “Roundtable”

Companies need to offer personalization and customization driven by data, but marketers participating in a roundtable at a Marketing Week event in 2017 agreed that is sometimes easier said than done. Follow the link below to an article summarizing marketers’ discussion at that event.

The Challenge of Achieving Personalisation at Scale

https://www.marketingweek.com/2017/11/15/personalisation-at-scale

Questions to Consider

This discussion of relationships is grounded in research and experience from the North American marketplace. What challenges to relationship development might exist for companies attempting to build customer relationships in global markets?

Section 7.5Emphasis on the Relationship

RC Willey’s marketing strategies focus on targeted direct mail augmented by frequent pro- motions and contests. Traditional advertising has increasingly lost its share of RC Willey’s marketing budget to database-driven tactics and digital media.

Brenda Hoskins holds the title of digital media buyer and direct marketing, which makes her responsible for the company’s database marketing. Hoskins (personal communication, Janu- ary 15, 2011) expressed her enthusiasm for data-driven marketing’s contribution to RC Wil- ley’s bottom line: “It’s a phenomenal sales tool. It’s like having two or three extra weeks of sales in every year.” Hoskins uses highly targeted trigger marketing campaigns to achieve goals in customer acquisition, retention, and reactivation.

RC Willey may be approaching its centennial, but its commitment to data-driven marketing is state of the art and supported with investment in data warehouse management. Its data warehouse passed 3 million records in 2012 as the company celebrated its 80th anniversary. Hoskins’s data team has analyzed those customer data, assigning each household an RFM score based on recency, frequency, and monetary value of past purchases. The data team is constantly reviewing the data by different measures—for example, sales by category, by clus- ter, or by age—looking for opportunities. Hoskins provides updated point-of-sale data to her analytics service provider weekly.

“Behavior dictates what we want to buy and when we’re going to buy it,” Hoskins observed. “A marriage, the birth of a new baby, empty nesting—our products are lifestyle-based.” Hoskins began using trigger marketing in 2011 based on past behavior to reach households at high- opportunity moments with targeted offers matched to recipients’ market niches. The first triggers Hoskins deployed included the following.

• new to file • one purchase, 90 days elapsed without activity • two purchases, 90 days elapsed without activity • new mover

Based on the success of those triggers, Hoskins put in place additional triggers driven by a predictive model based on regressive analysis performed on 7 years of point-of-sale data. The model suggests the next likely product consumers will buy. For example, people who bought carpeting and motion furniture are likely to buy a television next. The additional triggers pro- moted specific product lines, including the following.

• bedroom • living room • motion furniture (recliners, etc.) • carpet • televisions

To constrain the program’s budget, Hoskins mailed to only 5,000 households a month. Three specific offers were used, randomly assorted across the mail pieces within product lines. Hoskins used the response to calculate which offers were most compelling, always fine-tun- ing her messages and offers.

Section 7.5Emphasis on the Relationship

The vehicle for direct mail to the new-to-file group was “marriage mail,” so termed because multiple advertisers’ offers are “married” in one package for delivery. Using marriage mail provider Valassis allowed Hoskins to reach new prospects at a cost of 4 or 5 cents each with a full-color advertising flyer. By using Valassis’s data models to target the marriage mail to households most like current customers, Hoskins said, “I know I’m looking for the right cus- tomer in the right place.”

Subsequent trigger mailings used the more expensive technique of solo mail pieces person- alized with variable data printing. The addressing of the subsequent trigger mails—which households should receive them and which offers each household should receive—is where the sophistication of RC Willey’s data-driven marketing program really shines.

Customer Analytics, the service provider responsible for RC Willey’s data models, used its proprietary lifestyle/life stage segmentation system to append cluster identifiers to RC Wil- ley’s customer database to achieve an extremely rich understanding of customers, and then matched the resulting clusters to the five RC Willey product lines. “We have identified who our customers are, and then who their lookalikes are,” Hoskins explained. Armed with that information, “we sifted our total market and flagged every potential customer who had never shopped with us and sent them a very aggressive offer.” Hoskins uses the look-alike profile to fine-tune mailing list purchases beyond the ZIP Code level typically used, buying instead at the even finer carrier route level. “In a ZIP Code with maybe 10,000 households, I know that to sell furniture, I only need to reach certain specific carrier routes—so instead of 10,000 house- holds I might mail to only 2,000 or 3,000,” Hoskins explained. Every campaign is marked as a specific “event” so that at any given time results by customer, by store, by dollars spent, or by RFM score can be calculated.

At the time of the interview, RC Willey’s data team had tracked responses and sales from the trigger campaigns executed in the first 10 months of 2011. Across all 11 triggers used, 331,077 total pieces were mailed. Of those, 7.8 households responded; 13.5% made pur- chases. “Very interesting to me was the discovery that 2,144 customers shopped 3,319 times,” Hoskins said. The total cost of the campaign was 3.4% of the sales generated. Based on the success of the initial trigger marketing campaigns, Hoskins planned to double her investment in that program in the coming year.

In addition to the trigger campaigns, Hoskins is focusing on using contests to build an opt- in database of customers and prospects who have agreed to receive e-mails from RC Willey. Customer events are another technique used to engage customers. “We held a Sushi Night in our store,” Hoskins said. “I mailed out 85,000 invites to three specific clusters. I blocked out the latest two events to ensure I’m talking to a rotating customer base.”

Using data-driven marketing, RC Willey can engage its customers at least four or five times a year in some major store event. And Hoskins can prove the results of her campaigns by a vari- ety of measures—RFM code, cluster, sales. “We know exactly how much the campaign cost, who responded, and the sales result,” she said.

RC Willey Home Furnishings is applying leading-edge analytics to the STP approach of seg- mentation, targeting, and positioning. This example of data-driven marketing illustrates mar- keting strategy driven by insights from a CRM approach.

Critical-Thinking Questions

Key Ideas to Remember • Sociocultural influences, degree of involvement, and situational influences are three

types of factors influencing the consumers’ purchase decision process. These fac- tors apply as consumers complete five tasks in the purchase decision process. As consumers change, the nuances of this process may change. Awareness of the factors influencing buying behavior will always be demanded of marketers.

• Marketers study consumer behavior, motivation, and emotions to understand how buyers see the world, how they make selections, and how to position offerings effectively.

• The STP approach is widely used by marketers, requiring familiarity with and appli- cation of the nine criteria for effective segmentation discussed in Section 7.3.

• The CRM philosophy brings together data collected across an organization to align a company around customers. Insights from those data help marketers execute the STP approach effectively, as the example of Calluniverse segmenting its customers on revenue and access share demonstrated.

• Buyer–seller relationships pass through three stages, beginning with a focus on price, progressing to social bonds through interactions, and evolving into a val- ued partnership based on solving problems. Each relationship brings a share of customers’ purchases over time and, if all goes well, new relationships through recommendations.

Critical-Thinking Questions 1. Choose a reference group that influences your individual behavior. Are you a mem-

ber or would you like to be a member of this group? Why or why not? If not, why do the group’s attitudes, behaviors, beliefs, opinions, preferences, or values exert influ- ence on you?

Challenge Question

Can you use the knowledge about consumer behavior and marketers’ use of target marketing to create a hypothetical case study?

In Chapter 1 you were asked to pick a product that interests you or use the examples of quinoa or craft beer. You described that product by analyzing the customer value equation it offers in terms of the four utilities of customer value: form/function, time, place, and ease of possession. In Chapter 2 you were asked to consider how the marketing process might be applied to promotion of that product. You should be able to describe how you would develop, execute, and measure a campaign.

Now that you have gained knowledge about the four Ps of the marketing mix and marketers’ STP approach aimed at motivating consumers to action, it’s time to try your hand at marketing. Describe how you would apply the STP approach to market the product you selected in Chapters 1 and 2 and how you might incorporate CRM philosophy into your marketing program.

Key Terms to Remember

2. Consider a recent major purchase you or someone in your family has made. Describe it in terms of the five steps in the consumer purchase decision process. What was the decision maker’s degree of involvement? Why?

3. How does Maslow’s hierarchy of needs relate to the STP approach? Describe the effect of Maslow’s theory (and more recent interpretations) on marketing practice in terms of segmentation, targeting, and positioning.

4. Describe yourself as part of a market segment. Include your demographic, geo- graphic, and psychographic traits.

5. Appraise the market segment to which you belong as a target niche for a marketer of high-end kitchen appliances. Use the nine criteria for effective segmentation (see Table 7.3).

6. Choose a water park or other vacation destination. Describe a hypothetical market- ing campaign that uses what you’ve learned about the CRM approach.

7. Continuing with the vacation destination, describe how you might apply insights about developing long-lasting relationships with customers to retain or reactivate past visitors.

Key Terms to Remember affinity marketing programs Programs that leverage customers’ ties to institutions and concepts they hold dear, designed to move customers toward a deep sense of loyalty.

behavioral segmentation Market segmen- tation based on differences in motivations and attitudes, including reasons for pur- chases and quantities consumed, of differ- ent groups of consumers.

buyer’s remorse A feeling of guilt associ- ated with doubts about the wisdom of a purchase decision experienced after mak- ing an expensive purchase or one requiring extended problem solving.

churn Attrition or turnover of customers of a business or users of a service.

cognitive dissonance Psychological ten- sion produced by incompatibility among a person’s attitudes, behavior, and/or beliefs, or when a choice has to be made between equally attractive or repulsive alternatives.

cohort A group whose members share a significant experience at a certain period of time or have similar characteristics.

customer experience journey The cumu- lative impact on a customer through inter- actions with a company, its brand, and its products and services.

customer experience mapping Visualiza- tion of the customer experience journey of various target customer segments, intended to reinforce the need for an organization to adopt the marketing orientation.

customer relationship management (CRM) A management philosophy centered on identification and satisfaction of cus- tomers’ needs and wants, supported by a data warehouse and analytic processes for identifying, targeting, acquiring, and retain- ing the best mix of customers.

data cleansing The act of detecting and correcting (or removing) corrupt or inaccu- rate records from a record set.

demographic segmentation Market segmentation based on differences in demographic factors of different groups of consumers.

Key Terms to Remember

firmographics Descriptive attributes of businesses, such as geographic location, annual sales, or employee count, that mar- keters use to combine individual firms into meaningful market segments.

foundation segment Market segmenta- tion based on geographic, demographic, and behavioral traits identified in customer/ transaction records already in a company’s database.

frequency marketing programs Pro- grams that encourage multiple transactions, designed to move customers toward a deep sense of loyalty.

generational cohorts Age groups identifi- able by a defining event during members’ formative years leading to a sense of shared experience.

geodemographic segmentation Market segmentation based on combining data about demographic and location-based fac- tors of different groups of consumers.

geographic segmentation Market seg- mentation based on differences in loca- tion-based factors of different groups of consumers.

hedonic needs Motivation toward pur- chase activity that requires the consumer achieves pleasure from the purchase; often associated with emotions or fantasies relat- ing to consuming a product. See also utili- tarian needs.

marketing customer information file A synonym for data warehouse; a computer- ized file storing all pertinent information about an organization’s customers.

marketing information system A soft- ware tool designed to gather, store, analyze, and distribute access to timely, accurate information to support managers’ decision making.

market segment A subdivision of a market or population sharing a similar set of needs and wants, usually because they share other traits, such as geography, age, income, and/ or lifestyle.

modified rebuy A B2B purchase decisions process that involves goods or services pur- chased previously by the firm but requires a new consideration set to meet changes sought in specifications, prices, terms, or suppliers.

new task A B2B purchase decisions process involving a full purchase decision process.

North American Industry Classification System A system grouping industries into 20 broad sectors identified by a six-digit code based on the type of the establish- ment. Developed jointly by North American Free Trade Agreement member countries Canada, Mexico, and the United States to replace the obsolete Standard Industrial Classification code.

perceptual maps A marketing research technique in which consumers’ views about a product are traced or plotted (mapped) on a chart, typically in two dimensions.

predictive models Analytic routines that attempt to guess the probability of an out- come given a set of input data.

psychographic segmentation Market seg- mentation based on analysis of consumer lifestyles to create a detailed customer profile.

reference groups Groups of individuals whose attitudes, behavior, beliefs, opinions, preferences, and values an individual uses as the basis for judgment.

Key Terms to Remember

regression analysis A statistical measure that determines the strength of the rela- tionship between one dependent variable (usually denoted by Y) and a series of other changing variables (known as independent variables).

RFM score (abbreviation of “recency, fre- quency, and monetary”) A means to quan- tify the value of a customer relationship; useful as a basis for segmentation.

straight rebuy A B2B purchase decisions process involving a routine reorder, requir- ing little thought or process.

trigger marketing A one-to-one com- munication technique in which action by a consumer automatically triggers a market- ing action.

undifferentiated strategy A sales-growth strategy that ignores market segment differ- ences and attempts to appeal to all prospec- tive customers with a single, basic product line through mass advertising and distribu- tion. Also called mass marketing.

utilitarian needs Motivation toward pur- chasing behavior that seeks to achieve some practical benefit from a product; normally associated with product attributes that define performance. See also hedonic needs.