Chapter 2: The Consumer

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Chapter 2 The Consumer

• BMI3C Mr. Greer

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Assignments Due from Chapter 1

• Product Proposal
• due Feb 22nd
• email to Mr. Greer
• greerg_at_limestone.on.ca
• M M Case Study
• due Friday Feb 24th
• hand in or email if you like

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2.1 Consumer Demand

• students can start by reading page 36-37
• discuss in groups
• how did she tailor her business to meet customer
  needs?
• why is word of mouth effective in this instance?
• how does her promotions spending relate to supply
  and demand?
• what important considerations were noted in her
  business plan?

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2.1 Consumer Demand

• Consumer
• a person who uses a product
• Customer
• someone who buys a product
• they may not be the same person
• children are consumers but not customers
• sometimes a gatekeeper makes decisions
• marketers need to understand who they are
  marketing to...

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2.1 Consumer Demand

• Needs
• something you require to live
• food, protection, water, affiliation, etc.
• Wants
• things beyond what is needed to survive
• gourmet meals, iPods, hockey sticks
• while you might want a fancy meal, a simpler meal
  will keep you alive

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2.1 Consumer Demand

• consumer demand is important to understand
• example it is useless to market luxuries to
  people without food
• values change quickly
• technology changes the value of objects
• new trends
• social pressures
• changes in life
• cost

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2.1 Consumer Demand

• Example A technology company produces a new cell
  phone that provides directions to the nearest
  Starbucks (Mr. Greers dream)
• The company does consumer research and finds
  enough interest to produce the phone, but it
  doesnt sell (except to Mr. Greer) creating a
  glut and the product is withdrawn from the Market
• In groups discuss what possible changes in
  consumer demand could have lead to this

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2.2 Product Life Cycles

• Product Life Cycles
• also called Market Life Cycles
• describe changes in consumer demand over time
• based on the idea that no product will be in
  demand forever as consumer demands will change
• allows marketers to predict when changes might
  occur

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2.2 Product Life Cycles
Traditional Product Life Cycle
Maturity
Decline
Sales
Growth
Decision Point
Introduction
Time
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2.2 Product Life Cycles

• 1 Introduction Stage
• product launch is the moment when a new product
  is introduced to the market
• can be launched locally, regionally, etc.
• launch is expensive
• advertising, design, research, training, etc.
• consumers who buy early are called early adopters
  or trendsetters
• during the early stages, marketers target these
  consumers
• galas, trendy publications, ceremonies, etc.

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2.2 Product Life Cycles

• in this stage celebrities are often used
• Angelina Jolie, Sarah Jessica Parker, Dave
  Chappelle, Tiger Woods,
• successful example the DVD player
• note that the original price of a DVD player in
  Canada was 600 (now 40)
• unsuccessful example the Beta video
• in groups, come up with a list of 5 successful
  and 5 unsuccessful product introductions

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2.2 Product Life Cycles

• Pull Strategies
• ads to create a positive association of the
  product with the consumer
• samples, coupons, sales promotions
• Push Strategies
• focus is often on product placement in retail
  stores as the consumer does not know product
• may involve consignment sales
• may involve shelf allowance
• is this ethical? See Frito-Lay item!

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2.2 Product Life Cycles

• 2 Growth Stage
• sales are increasing
• now other consumers follow the trendsetters
• product has become more visible through
  advertising (crucial in this stage) and word of
  mouth
• if product does not catch on, it may be scrapped
• if product is pulled before production costs are
  recovered it is called a bust

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2.2 Product Life Cycles

• the faster it can reach this stage the faster it
  can make a profit
• while the first company in the market with a new
  product has to pay more in advertising, it also
  has no competition
• as other competitors enter the market, the
  companies split the market share
• stated as a percentage of total sales for that
  market
• new features are added and price drops

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2.2 Product Life Cycles

• many factors reduce the possibility of profit
  (these are called barriers to entry)
• ex small market size, research development
  costs, advertising costs, lack of distribution
  channels, materials costs
• eventually only the most competitive companies
  remain
• new competitors reluctant
• companies using the push strategy do well here
  (low prices, retail displays, etc.)

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2.2 Product Life Cycles

• 3 Maturity Stage
• product sales slowly increasing or steady
• marketers promote the name of the product
  (possible as having a good history)
• development costs have been recouped
• large profits are often available, that may be
  used to develop more products
• brand reputation is used to promote other products

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2.2 Product Life Cycles

• 4 Decline Stage
• company unable to find new customers
• profits decrease
• marketers need to determine what is causing the
  decline
• might try and reverse the process by changing
  price, ads, design, etc.
• may remove product from market

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2.2 Product Life Cycles

• 5 Decision-Point Stage
• marketers determine the future of the product
  based on research
• may reformulate, repackage, reintroduce
• New and Improved
• new features
• sell with other products

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2.2 Product Life Cycles

• Nontraditional Product Life Cycles
• Fads
• product that is popular for a short time only
• Rubiks Cube, Furby, Cabbage Patch Kids
• highly unpredictable and risky
• may be highly profitable
• if you can get involved at the right time, it is
  great
• wrong timing means big losses

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2.2 Product Life Cycles

• Trends
• lasts longer that fads
• mass movement of the marketplace toward a
  particular value (ex healthy food choices)
• by identifying trends, marketers can predict
  likely market opportunities
• this gives time to develop products in time to
  get them to the market (it takes months or years
  to develop a product)

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2.2 Product Life Cycles

• Niche Markets
• products with short growth stage and consistent
  maturity stage
• do not take a large market share
• ex The Pet Hotel
• Seasonal Markets
• markets that change by the season
• ex ice-cream sales, snow blowers, air
  conditioners
• marketers try and create more sales outside of
  the season

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2.2 Product Life Cycles
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2.2 Product Life Cycles

• Question for next test
• Choose 4 products, one each in the stages
  Introduction, Growth, Maturity and Decline. For
  each explain in detail based on class notes
• why they belong in the stage
• what marketing strategies are likely being used
• 3 ways that you feel the sales could be increased
  (and why this should work)

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2.2 Product Life Cycles

• visit http//www.badfads.com/home.html
• choose a fad and report on it.
• what was it, why popular, how long
• give your personal appraisal
• what fads have you been a part of? Why?
• is something you are doing now likely to be
  considered a fad?

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2.3 The Consumer Market

• everyone has a unique blend of personality,
  values, beliefs, physical features, history, etc.
• if marketers are to be successful, they need to
  understand their potential customers to
  anticipate or influence there needs and wants
• marketers create consumer profiles of the kind of
  people most likely to be attracted to a product
• it turns out that groups of people who are
  attracted to one product are often attracted to
  others

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2.3 The Consumer Market

• then they attempt to combine consumers into
  cohorts, groups with similar characteristics
  called consumer segments
• ex teenagers, baby boomers, boarders, etc.
• these are further divided into primary (most
  likely consumers) market and secondary
  (occasional consumers) market
• most marketing is aimed at primary market

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2.3 The Consumer Market

• understanding consumer profiles affects
• distribution methods (how do we best deliver the
  product)
• advertising (how do we create meaningful
  messages)
• product design (consumers may be attracted to
  similar designs and colors)
• media (what media do the groups use)
• international markets (are their opportunities in
  other countries)

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2.3 The Consumer Market

• Demographics is the study of characteristics of
  people (age, family life cycle, gender, income,
  etc.)
• Age - why divided in the ways below?
• may be divided into 65-74 and 75
• or divided 0-9 pre-customers, 10-15 allowance
  customers, 16-19 youth, 20-25 post-secondary,
  25-40 family formation, 40-55 establishment, 55
  mature

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2.3 The Consumer Market

• Baby Boomers
• a huge bulge in population born 1946-1963
• stimulated many trends (rock and roll?)
• huge buying power
• Gender
• few products marketed for males only, but many
  products for females
• many women adopting formerly male products
• why are changes occurring?

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2.3 The Consumer Market

• Family Life Cycle
• consumers use different products at different
  times of their lives
• Income Level
• determines amount, quality and types of products
  consumed
• Culture
• different cultures consume differently

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2.3 The Consumer Market

• Psychographics
• system for measuring consumers beliefs, opinions
  and interests
• looks to recognize patterns so that marketing mix
  can be done more effectively
• ex people who are interested in exercise lilely
  value low fat foods
• see the various Theories on page 60 of the text

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2.3 The Consumer Market

• Geographics
• marketing based on patterns based on where people
  live
• ex rural consumers have different needs (snow
  removal, grass cutting) than apartment dwellers
  in the inner city (may not even need a car)

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2.3 The Consumer Market

• survey of demographics of the class
• gender
• favourite music type
• favourite fast food type
• favourite TV program type
• favourite subject in school
• favourite radio station
• favourite color
• favourite past time
• internet connection speed at home?
• TV in own room?

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2.3 The Consumer Market

• Product Use Statistics
• marketers look to identify how frequently someone
  consumes a product
• for example, when the consumer is a light user
  there is a marketing opportunity to convince them
  to be a heavy user
• non-users are targeted to try and make the
  product have a higher value to them

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2.3 The Consumer Market

• Activity
• Create a consumer profile of yourself
• using the segments of section 2.3, and the
  examples on page 64, create a consumer profile of
  yourself to be shared with your instructor only
• assessment will be based on the thoroughness of
  the profile and proper use of terminology

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2.4 Consumer Motivation

• Motivation is the biological, emotional, rational
  and/or social force that initiates and directs
  behaviors
• since buying is a behavior, marketers need to
  understand motivation
• biological forces are linked to our most basic
  needs for survival
• these need to be satisfied first

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2.4 Consumer Motivation

• emotional forces include love, sympathy, joy,
  anger, fear, etc.
• can either motivate the consumer positively (like
  love) or negatively (like fear)
• most purchases mix of positive and negative
• rational forces are often in conflict with
  emotional ones
• rational forces deal with logic
• ex cost, convenience, safety, needs

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2.4 Consumer Motivation

• societal forces are caused by other people
• friends, family and society in general
• celebrity endorsements are an example
• motivational theories are used to explain human
  behavior
• Thorndikes Law of Effect
• consumers are motivated to buy products that
  produce positive events and reduce negative
  events
• most purchases are influenced by both

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2.4 Consumer Motivation

• Maslows Hierarchy of Needs
• consumers respond to motivation according to
  levels of needs in this order
• physiological
• safety/security
• affiliation
• esteem
• if these needs are met, the person may then be
  motivated by growth needs

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2.5 The Buying Decision

• the buying process occurs in response to a need
  or want, for example
• MP3 player breaks
• decisions made on what to buy
• search made for products available
• decision among products is made
• MP3 player purchased
• purchase is evaluated

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2.5 The Buying Decision

• but the buying process only works for large
  purchases made occasionally
• does not work for impulse purchases
• also does not work for product purchases where
  brand is not important
• in these last two cases, the retailer may
  significantly influence the purchase
• see the Lee Valley item on page 72

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2.6 Industrial/Institutional

• the Industrial/Institutional consumer purchases
  for a business
• purchase criteria are almost entirely rational
• what is the cost/profit margin?
• will the my customer buy it?
• can it be shipped to me on time?
• tenders may be used in purchases here and pricing
  is critical