PROJECT REPORT

AT

BANGALORE
A Project Report submitted in partial fulfillment of the requirements for the award of the degree
of

MASTER OF BUSINESS ADMINISTRATION

(INDUSTRY INTEGRATED)

TO

MADURAI KAMARAJ UNIVERSITY, MADURAI

BY

RITESH RANJAN
Reg. No. A8753428

Under the guidance of

Mr. S. Mukharjee

BANGALORE SCHOOL OF BUSINESS, BANGALORE

JULY 2010

Page 1
 CERTIFICATE
This is to certify that the project report at

EDELWEISS BROKING LIMITED, BANGALORE

Submitted in the partial fulfillment of the requirements for the

award of the degree of

MASTER OF BUSINESS ADMINISTRATION

(Industry Integrated)
TO

MADURAI KAMARAJ UNIVERSITY, MADURAI

is a record of bonafied training carried out by

RITESH RANJAN
Under my supervision and guidance and that no part of this report has
been submitted for the award of any other degree/diploma/fellowship or
similar titles or prizes

FACULITY GUIDE

Signature:
Name: Mr. S. Mukharjee
Qualification: MBA Signature & seal of the Learning center

Page 2
 STUDENT’S DECLARATION
I hereby declare that the Project Report conducted at

EDELWEISS BROKING LIMITED, BANGALORE

Under the guidance of

Mr. S. Mukharjee
Submitted in Partial fulfillment of the requirements for the
Degree of

MASTER OF BUSINESS ADMINISTRATION

(Industry Integrated)
TO

MADURAI KAMARAJ UNIVERSITY, MADURAI

Is my original work and the same has not been submitted for the
award of any other Degree/Diploma/Fellowship or other similar
titles or prizes.

Place: BANGALORE RITESH RANJAN

Date:7th July. 2010 Reg. No. A8753428

Page 3
 AKNOWLEDGEMENT

I would like to express my profound sense of gratitude to Prof. S.P. Reddy,

Director, Bangalore School of Business, Bangalore, who has given me the

opportunity to carry out my Training Program in Edelweiss broking Ltd. and

whole heartedly guided and encouraged me towards the successful

completion of this project work.

I wish to express my deep sense of gratitude to Mr. R.M.V Srinivas(Sales

manager), Mr. Sudhir Divakara (Area sales manager), Mr. Amit Malik

(Regional Manager), and Mr. Srikant(Team Leader) who granted the

permission for the fulfillment of this project and for his guidance and advice

given during the course of study

My special thanks to Mr. S.Mukharjee,(marketing faculty) and Mr. K.Prakash

who has given valuable suggestions and stood by me as a greater source of

motivation during the compilation of my project. I would like to thank all the

staff members for their kind co-operation. My sincere thanks to Ms.

Bhagyalaxami Training Officer in Charge, NIAM.

I am thankful to all my friends and well-wishers who gave me their support

and valuable time.

RITESH RANJAN

Page 4
CHAPTER 1 INTRODUCTION
1.1 General introduction about the sector
1.2 Industry Profile.
a. Origin and development of the industry.
b. Growth and present status of the industry.
c. Future of the industry.

CHAPTER 2 PROFILE OF THE ORGANIZATION

2.1 Origin of the Organization.
2.2 Growth and development of the Organization.
2.3 Present status of the Organization.
2.4 Functional Departments of the Organization.
2.5 Organization structure and Organization chart.
2.6 Product and service profile of the organization competitors.
2.7 Market profile of the Organization.
CHAPTER 3 DISCUSSION ON TRANING.
3.1 Student’s work profile (Role and responsibilities).
3.2 Description of live experiences.
CHAPTER 4 STUDENT OF SELECTED RESEARCH
PROBLEM
4.1 Statement of research problem.
4.2 Statement of research objective.
4.3 Research design and methodology.
4.4 Analysis of data.
4.5 Summary of Findings.
CHAPTER 5 SUMMARY AND CONCLUSIONS.
5.1 Summary of Learning Experience.
5.2 Conclusions and Recommendations.

Page 5
1.1 General Introduction
Edelweiss, a rare flower found in Switzerland. You will discover in

our identity: A graphic flower that represents ideas. Around it, the

protective arms of the letter ‘e’: We believe ideas create wealth, but

values protect it. It is the practice of this core thought that has led

to Edelweiss becoming one of the leading financial services

company in India. Its current businesses include investment

banking, securities broking, and investment management. We

provide a wide range of services to corporations, institutional

investors and high net-worth individuals. The core inspiring thought

of ‘ideas creating wealth and values protecting it’ is translated into

an approach that is led by entrepreneurship and creativity and

protected by intellectual rigor,  research and analysis.

The Edelweiss Group is a conglomerate of 44 entities including 39

Subsidiaries and 4 Associate companies (September‟09), engaged

in the business of providing financial services, primarily linked to

the capital markets. Edelweiss Capital Limited (www.edelcap.com),

incorporated in 1995, today has emerged as one of India’s leading

integrated financial services conglomerates. The Edelweiss Group

offers one of the largest range of products and services spanning

varied asset classes and diversified consumer segments. The

Group’s product offerings are broadly divided into Investment

Banking, Brokerage Services, Asset Management and Financing.

The company’s research driven approach and consistent ability to

Page 6
capitalize on emerging market trends has enabled it to foster strong

relationships across corporate, institutional and HNI

clients. Edelweiss Capital Limited now employs about 1200

employees, leveraging a strong partnership culture and unique

model of employee ownership. It is a listed company since

December 2007 under the symbols NSE: EDELWEISS, BSE: 532922

and Bloomberg: EDEL.IN.

Page 7
1.2 INDUSTRY PROFILE
A. Origin and development of the organization

The Company is promoted by Mr. Rashesh Shah and Mr. Venkatchalam

Ramaswamy. Mr. Rashesh Shah, co-founder of Edelweiss, is a science

graduate from Mumbai University and has done his MBA from IIM,

Ahmedabad. He has been associated with the Company since 1995 as CEO

and MD. Prior to this, he was the head of research, Prime Securities Private

Ltd. He has also been part of a World Bank aided program for export-oriented

projects at ICICI.

Mr. Venkatchalam Ramaswamy is an Engineering Graduate from Karnataka

University and holds a masters degree in Business Administration from

University of Pittsburgh. Prior to joining Edelweiss, he was a fund manager at

Spartek Emerging Opportunities of India fund. He has also worked as

Assistant Manager at ICICI, where his primary responsibilities involved project

appraisal, financial modelling and disbursement of loans & grants. Mr.

Ramaswamy is the co-founder of Edelweiss and is the head of the Investment

Banking Division.

Edelweiss Capital Ltd is a diversified financial services organization, which

provides a wide range of products and services such as investment

banking, institutional equities, wealth management, and wholesale

financing services to corporate, institutions, and high net worth individuals.

The Company, currently operating from 43 offices, is well poised to exploit

the huge potential offered by the fast growing financial sector owing to its

integrated business model and strong relationships with its clients.

Page 8
 B. Growth and present status of the industry.
Company has always been a growth-hungry organization and our ability

to seek out adjacent opportunities remains constant. Strong economic

growth, increased geographic penetration, growth of SMEs and the

increasing need for capital among Indian corporations are expected to

continue to drive India’s financial services industry. The Company is

already well established in domains such as investment banking. Moreover,

it plans to invest a large part of its IPO in prepaying of loans, enhance margins

with stock exchanges and establish new offices. Based on our valuation

and analysis of the business along with the industry’s growth prospects,

we believe that the valuation looks attractive. Therefore, we recommend

investors to subscribe with a long tem horizon on account of the

Company’s higher margins and strong financial performance.

C. Future of the industry.

Page 9
Page 10
2.1 Origin of the Organization

The Company is promoted by Mr. Rashesh Shah and Mr. Venkatchalam

Ramaswamy. Mr. Rashesh Shah, co-founder of Edelweiss, is a science

graduate from Mumbai University and has done his MBA from IIM,

Ahmedabad. He has been associated with the Company since 1995 as CEO

and MD. Prior to this, he was the head of research, Prime Securities Private

Ltd. He has also been part of a World Bank aided program for export-oriented

projects at ICICI.

Mr. Venkatchalam Ramaswamy is an Engineering Graduate from Karnataka

University and holds a masters degree in Business Administration from

University of Pittsburgh. Prior to joining Edelweiss, he was a fund manager at

Spartek Emerging Opportunities of India fund. He has also worked as

Assistant Manager at ICICI, where his primary responsibilities involved project

appraisal, financial modelling and disbursement of loans & grants. Mr.

Ramaswamy is the co-founder of Edelweiss and is the head of the Investment

Banking Division.It is offering 8.3 mn shares to raise Rs. 6.08 bn to Rs.

6.91 bn to Enhance margins with stock exchanges, prepay loans,

establish new offices and upgrade its technology. We see this issue as

an investment opportunity because the Company:

• has an integrated business model, which specializes in providing a

wide range of financial products and services such as investment

banking, institutional equities, wealth management, and wholesale

finance.

• is well positioned to leverage growing financial sector in India

and become a significant market player, especially in areas like

Page 11
investment banking, institutional equities etc.

• has a strong research platform with research products, such as

fundamental and alternative research, catering to institutions and HNIs.

• is an established brand with strong track record of high growth and

profitability.

• is strongly focused on nurturing & maintaining strong business

relationships with corporate & institutional clients.

2.2 Growth and development of the Organization.

Page 12
2.3 Present status of the Organization.

2.4 Functional Departments of the Organization.

Business Overview

Edelweiss operations are broadly divided into Agency and Capital

business lines. The Agency business line includes Investment Banking,

Broking - both Institutional and HNI/Retail, Asset Management and

Investment advisory and distribution services. The Capital business line

includes Financing and Treasury Operations. The strategies employed

ensure that broadly one-third of the total revenues are contributed by each of

Agency fee & commission, Treasury Arbitrage & Trading income and

Interest income thereby achieving the intended diversification in revenue

streams.

Investment Banking

Edelweiss has one of the most extensive product offerings within

Investment Banking in India, catering to different market and client

Page 13
segments. The verticals within Investment Banking include Equity Capital

Markets and Advisory services which offer Mergers & Acquisitions

Advisory, Private Equity Syndication, Structured Finance Advisory, Real

Estate Advisory and Infrastructure Advisory. Edelweiss leadership position in

Mid-market space is reflected in the # 1 ranking in both Bloomberg

tables for Mid-market Private Equity placements in CY2007 and Prime

Database league tables for IPOs in Mid-market segment in FY2008. It was

adjudged winner in the Best Merchant Banker category in the Outlook Money

NDTV Profit Awards 2008.

Broking
Institutional Equities

Edelweiss has one of the leading institutional equities businesses in

India backed by a large and experienced research team and a large

and diversified client base. Intense servicing, seamless execution and

innovative research products have helped Edelweiss build strong

relationships with over 300 institutional investors, including FIIs and

domestic institutional investors. Research coverage presently extends to

over 145 companies across 16 sectors accounting for nearly 70% of total

market capitalization. The quality and caliber of research associated with

Edelweiss is widely regarded across the institutional community. Our

commitment to provide cutting edge research has resulted in a pioneering

effort to provide online research to our clients through the portal

www.edelresearch.com with smart features of sorting of information, analysis

and archiving.

Page 14
HNI Broking

Edelweiss offers dedicated brokerage services to high net-worth individuals

with a strong emphasis on building long-term relationships with clients.

Product offerings include specialized trading execution for active trading

clients and structured products like equity linked capital protection products.

Wealth Advisory & Investment Services

The Primary focus is on understanding each client's profile including life style,

risk appetite, growth expectations, current financial position and income

requirements to create comprehensive and tailored investment strategies.

The broad range of offerings includes asset allocation advisory to

Structured Products, Portfolio Management, Mutual Funds, Insurance,

Derivatives Strategies, Direct Equity, Private Equity, and Real Estate Funds

etc.

Retail Initiatives

Retail Broking and Distribution are the new initiatives of the Group under

its Retail Business strategy. An online retail broking portal www.edelweiss.in

is operational and provides advisory and research based broking services.

Distribution business focuses on giving advice and analyzing the best

financial product options available in the market. It involves the distribution

of the full range of third party financial products and services including IPO

syndication for the retail customer. For the half year ended September 30,

2009 Edelweiss is ranked #2 in NIB (non institutional bidder) category and is

ranked 4th in Retail category by the number of applications in IPOs as per

Prime Database. Edelweiss also secured 1st rank in NIB category both in

Page 15
NHPC and OIL India IPOs by the number of applications.

Asset Management

Alternative Asset Management focuses on advisory/management

expertise for India focused Multi-Strategy Fund, Real Estate Fund and a

Bonds Fund. Recent Initiatives that have been announced include setting

up an ARC for which RBI registration has been received. On the

Domestic AMC side, Edelweiss Mutual Fund has launched a mix of debt

and equity funds. The focus of this business is on broad basing the product

portfolio.

Financing

With a deep knowledge and understanding of capital markets, the

Company s primary offering in the financing business includes

collateralized loan products such as promoter funding, loans against

shares, IPO financing, loans against ESOPs etc. Its prudent financing

norms and a conservative margin of safety ensures low or nil non–

performing loans.

Treasury

The Treasury Operations in Edelweiss is similar to that of a Treasury in

a Commercial Bank and focuses on liquidity management and capital

preservation. This business adopts a multi–strategy/multi-book approach

to diversify and grow its portfolio while imparting liquidity in the balance

sheet. The Company follows a disciplined and conservative approach to

cash management with emphasis on strong risk policies.

Corporate Debt Syndication

Our Debt Syndication Desk focuses on origination, sales, trading and

Page 16
research. It has gained a strong foothold and visibility in the market.

• Ranked # 2 as per Prime Database in Short Term Debt Placement

for FY09. We mobilized Rs. 397.6 billion in 256 deals in <1 year

segment with a 21.7% market share.

• Ranked # 2 as per the Prime Database in CP placement for FY09, raising

Rs. 69.87 bn from 129 deals with a 15.3% market share.

• Also ranked # 11 by Bloomberg in Indian Domestic Bonds Market

League Table for FY09. We mobilized Rs. 39.2 billion in >1 year paper
across

52 deals in this period.

2.5 Organization structure and Organization chart.

Corporate Structure

* Edelweiss Capital Limited has 100% holding in its subsidiaries unless

specifically mentioned in parenthesis

Page 17
Shareholding Pattern and Top External Shareholders

Board of Directors

The Board comprises of four independent and two non-executive directors

out of a total of eight directors, each of whom brings in his own expertise in

diverse areas. The focus is on strong corporate governance. There is an

Independent Risk Committee chaired by an external director.

Page 18
Senior Management

Edelweiss has an experienced and capable Senior Management team

with a strong track record of identifying business opportunities and

executing on strategy. The company has experienced business heads

supported by a deep layer of skilled middle managers. Most members of the

senior management team have been with the company for over five years.

Page 19
2.6 Product and service profile of the organization
competitors.

The main competitors of the organization are ICICI DIRECT and

SHAREKHAN. A product for every need: ICICIdirect.com is the most

comprehensive website, which allows you to invest in Shares, Mutual funds,

Derivatives (Futures and Options) and other financial products. Simply put we

offer you a product for every investment need of yours.

1. Trading in shares

ICICIdirect.com offers various options while trading in shares.

Cash Trading, Margin Trading, Margin PLUS Trading, Spot

Trading.

2. TRADE IN DERIVATIVES

FUTURES:- In futures trading, you take buy/sell positions in index or

stock(s) contracts having a longer contract period of up to 3 months.

Page 20
OPTIONS:- An option is a contract, which gives the buyer the right to

buy or sell shares at a specific price, on or before a specific date.

3. Investing in Mutual funds

ICICIdirect.com brings the same convenience while investing in

Mutual funds also - Hassle free and Paperless Investing.

ICICIdirect.com offers you various options while investing in

Mutual Funds: Purchase, Redemption, Switch, Systematic

Investment plans (SIP), Systematic withdrawal plan, Transfer-in

4. IPOs and Bonds Online

Investors can also invest in Initial Public Offers (IPOs) and

Bonds online without going through the hassles of filling ANY

application form/ paperwork.

5. Content Features

There are a host of features on ICICIdirect.com that shall help to

make informed investment decisions. They provide investors

with the indices of major world markets, nifty futures and ADR

prices of Indian scrip’s. Get daily share prices of all scrip’s,

monthly and yearly high/lows etc through Market Watch.

6. Personal Finance

User can use there Personal Finance section and get hold of

tools that can help investor plan there investments, retirement,

tax etc. Analyses there risk profile through the Risk Analyzer

and get a suitable investment portfolio plan using Asset

Allocator.

Page 21
 7. Customer Service Features

With 'ICICIdirect Customer Tools & Updates' investor can

trouble shoot all there problems online.

2.7 Market profile of the Organization.

Financial Performance at a Glance

Edelweiss over the past few years has delivered strong operating and

financial performance. It has a strong track record of high growth and

profitability. Its revenues have grown at a 5-year CAGR of 100% while its

net profits have increased at a 5-year CAGR of 89% up to March 09.

As on March 31, 2009 Edelweiss Group s Net worth post minority interest

stood at over Rs. 21 billion (over Rs. 25 billion including minority interest),

indicating a strong balance sheet. Equity capital is the primary source of

funding for the company besides debt. The leverage as on 31st March

2009 is only 0.3 times indicating the healthy position whereby the balance

sheet can be further levered easily for improving the ROEs.

Consolidated Financial Performance of Edelweiss Capital Limited

Page 22
3.1 Student’s work profile (Role and responsibilities).
I am working in Edelweiss Broking Limited as Management Trainee Sales

executive on the project of competitor analysis for the organization, here my

role and responsibilities are as follow :-

• Maintaining and developing relationships with existing customers via

meetings, telephone calls and emails.

• Visiting potential customers to prospect for new business.

• Acting as a contact between a company and its existing and potential

markets.

• Negotiating the terms of an agreement and closing sales.

• Gathering market and customer information.

• Representing the organization at trade exhibitions, events and

demonstrations.

• Negotiating variations in price, delivery and specifications with managers.

Page 23
• Advising on forthcoming product developments and discussing special

promotions.

• Recording sales and order information and sending copies to the sales

office.

• Reviewing own sales performance, aiming to meet or exceed targets.

• Gaining a clear understanding of customers' businesses and requirements.

• Making accurate, rapid cost calculations, and providing customers with

quotations.

• Feeding future buying trends back to employers.

3.2 Description of live experiences.

Working in EDELWEISS BROKING LIMITED is of great and experience to me

as am not working before at my domain knowledge, it added a lot of

value to my professional career and enhanced my knowledge about the

broking sector it also added to my personality development. In this

organization my work is to add a new design for Product Promotion

and the development for the organization which is suitable for the

broking organization and enhance some new way to promote the

product in front of the customers. This works gave me lot of experience

for my upcoming career and I also got lots of experience in Financial

sector in all fields which comes under broking business, this will

definitely help me for my further career in any sector.

Because of Edelweiss is one of the leading Financial sector in India.

For my further career, this experience will give better opportunities for

my upcoming Organizational Career.

Page 24
4.1 Statement of research problem.
Competition Analysis

4.2 Statement of research objective.

• Who are our competitors?

• What threats do they pose?

• What is the profile of our competitors?

• What are the objectives of our competitors?

• What strategies are our competitors pursuing and how successful are these

strategies?

• What are the strengths and weaknesses of our competitors?

• How are our competitors likely to respond to any changes to the way we do

business?

4.3 Research design and methodology.

Type of Research:- Analytical Research.

Research Design:- Observational Design.

Method Used In context of research design:- Recorded Data, Observable

data, Opportunistic data

4.4 Analysis of data.

• Recorded data: this is easily available in published form either internally or

externally. Good examples include competitor product brochures, Annual

report & accounts, Press releases, Newspaper articles, Analysts reports,

Regulatory reports, Government reports, Presentations/ speeches.

Page 25
• Observable data: this has to be actively sought and often assembled from

several sources. A good example is competitor pricing / price lists,

Advertising campaigns, Promotions, Tenders, Patent applications

• Opportunistic data: to get hold of this kind of data requires a lot of planning

and organization. Much of it is “anecdotal”, coming from discussions with

suppliers, customers and, perhaps, previous management of competitors.

Meetings with suppliers, Trade shows, Sales force meetings, Seminars/

conferences, Recruiting ex-employees, Discussion with shared distributors,

Social contacts with competitors.

4.5 Summary of Findings.

Consumer Behavior and Marketing Strategy

The study of consumers helps firms and organizations improve their

marketing strategies by understanding issues such as how

The psychology of how consumers think, feel, reason, and select between

different alternatives (e.g., brands, products);

The psychology of how the consumer is influenced by his or her

environment (e.g., culture, family, signs, media);

The behavior of consumers while shopping or making other marketing

decisions;

Limitations in consumer knowledge or information processing abilities

influence decisions and marketing outcome;

How consumer motivation and decision strategies differ between products

that differ in their level of importance or interest that they entail for the

consumer; and

Page 26
How marketers can adapt and improve their marketing campaigns and

marketing strategies to more effectively reach the consumer.

Understanding these issues helps us adapt our strategies by taking the

consumer into consideration. For example, by understanding that a number of

different messages compete for our potential customers’ attention, we learn

that to be effective, advertisements must usually be repeated extensively. We

also learn that consumers will sometimes be persuaded more by logical

arguments, but at other times will be persuaded more by emotional or

symbolic appeals. By understanding the consumer, we will be able to make a

more informed decision as to which strategy to employ.

One "official" definition of consumer behavior is "The study of individuals,

groups, or organizations and the processes they use to select, secure, use,

and dispose of products, services, experiences, or ideas to satisfy needs and

the impacts that these processes have on the consumer and society."

Behavior occurs either for the individual, or in the context of a group (e.g.,

friend’s influence what kinds of clothes a person wears) or an organization

(people on the job make decisions as to which products the firm should use).

Consumer behavior involves the use and disposal of products as well as the

study of how they are purchased. Product use is often of great interest to the

marketer, because this may influence how a product is best positioned or how

we can encourage increased consumption. Since many environmental

problems result from product disposal (e.g., motor oil being sent into sewage

systems to save the recycling fee, or garbage piling up at landfills) this is also

an area of interest.

Page 27
Consumer behavior involves services and ideas as well as tangible

products.

The impact of consumer behavior on society is also of relevance. For

example, aggressive marketing of high fat foods, or aggressive marketing of

easy credit, may have serious repercussions for the national health and

economy.

There are four main applications of consumer behavior:

The most obvious is for marketing strategy—i.e., for making better

marketing campaigns. For example, by understanding that consumers are

more receptive to food advertising when they are hungry, we learn to

schedule snack advertisements late in the afternoon. By understanding that

new products are usually initially adopted by a few consumers and only

spread later, and then only gradually, to the rest of the population, we learn

that (1) companies that introduce new products must be well financed so that

they can stay afloat until their products become a commercial success and (2)

it is important to please initial customers, since they will in turn influence many

subsequent customers’ brand choices.

A second application is public policy. In the 1980s, Accutane, a near miracle

cure for acne, was introduced. Unfortunately, Accutane resulted in severe

birth defects if taken by pregnant women. Although physicians were instructed

to warn their female patients of this, a number still became pregnant while

taking the drug. To get consumers’ attention, the Federal Drug Administration

(FDA) took the step of requiring that very graphic pictures of deformed babies

be shown on the medicine containers.

Page 28
Social marketing involves getting ideas across to consumers rather than

selling something. Marty Fishbein, a marketing professor, went on sabbatical

to work for the Centers for Disease Control trying to reduce the incidence of

transmission of diseases through illegal drug use. The best solution,

obviously, would be if we could get illegal drug users to stop. This, however,

was deemed to be infeasible. It was also determined that the practice of

sharing needles was too ingrained in the drug culture to be stopped. As a

result, using knowledge of consumer attitudes, Dr. Fishbein created a

campaign that encouraged the cleaning of needles in bleach before sharing

them, a goal that was believed to be more realistic.

As a final benefit, studying consumer behavior should make us better

consumers. Common sense suggests, for example, that if you buy a 64 liquid

ounce bottle of laundry detergent, you should pay less per ounce than if you

bought two 32 ounce bottles. In practice, however, you often pay a size

premium by buying the larger quantity. In other words, in this case, knowing

this fact will sensitize you to the need to check the unit cost labels to

determine if you are really getting a bargain. There are several units in the

market that can be analyzed. Our main thrust in this course is the consumer.

However, we will also need to analyze our own firm’s strengths and

weaknesses and those of competing firms. Suppose, for example, that we

make a product aimed at older consumers, a growing segment. A competing

firm that targets babies, a shrinking market, is likely to consider repositioning

toward our market. To assess a competing firm’s potential threat, we need to

examine its assets (e.g., technology, patents, market knowledge, awareness

of its brands) against pressures it faces from the market. Finally, we need to

Page 29
assess conditions (the marketing environment). For example, although we

may have developed a product that offers great appeal for consumers, a

recession may cut demand dramatically.

Research Methods

There are two main categories of research methods. Secondary research

uses research that has already been done by someone else. For example,

marketers often find information compiled by the U.S. Census very useful.

However, in some cases, information specific enough to satisfy a firm’s needs

is not publicly available. For example, a firm will have to run its own research

to find out whether consumers would prefer that more vanilla taste be added

to its soft drink brand. Original research that a firm does for it is known as

primary research. There is no one perfect primary research method. Each has

strengths and weaknesses, and thus the appropriate method must be

selected based on research needs. Surveys are useful for getting a great deal

of specific information. Surveys can contain open-ended questions (e.g., "In

which city and state were you born? ____________") or closed-ended, where

the respondent is asked to select answers from a brief list (e.g., "__Male ___

Female." Open ended questions have the advantage that the respondent is

not limited to the options listed, and that the respondent is not being

influenced by seeing a list of responses. However, open-ended questions are

often skipped by respondents, and coding them can be quite a challenge. In

general, for surveys to yield meaningful responses, sample sizes of over 100

are usually required because precision is essential. For example, if a market

share of twenty percent would result in a loss while thirty percent would be

profitable, a confidence interval of 20-35% is too wide to be useful.

Page 30
Surveys come in several different forms. Mail surveys are relatively

inexpensive, but response rates are typically quite low—typically from 5-20%.

Phone-surveys get somewhat higher response rates, but not many questions

can be asked because many answer options have to be repeated and few

people are willing to stay on the phone for more than five minutes. Mall

intercepts are a convenient way to reach consumers, but respondents may be

reluctant to discuss anything sensitive face-to-face with an interviewer. A

survey, as any kind of research, is vulnerable to bias. The wording of a

question can influence the outcome a great deal. For example, more people

answered no to the question "Should speeches against democracy be

allowed?" than answered yes to "Should speeches against democracy be

forbidden?" For face-to-face interviews, interviewer bias is a danger, too.

Interviewer bias occurs when the interviewer influences the way the

respondent answers. For example, unconsciously an interviewer that works

for the firm manufacturing the product in question may smile a little when

something good is being said about the product and frown a little when

something negative is being said.

The respondent may catch on and say something more positive than his or

her real opinion. Finally, a response bias may occur—if only part of the

sample responds to a survey, the respondents’ answers may not be

representative of the population.

The case of "The Pentagon Declares War on Rush Limbaugh" illustrated that

biased surveys are often taken at face value. It was reported in the national

media, without question of the validity of the research, that only 3.8% of

listeners to the Armed Forces Network wanted to listen to Rush Limbaugh. It

Page 31
turned out, however, that this inference was based on the question "What

single thing can we do to improve programming?" Only if a respondent wrote

in an answer mentioning Rush Limbaugh were he or she counted as wanting

to listen to Rush.

Experiments are used when the researcher wants to rule out all but one

explanation for a particular observation. Suppose, for example, that we

observe that sales of our brand increase when we send out coupons.

However, retailers may also give us better shelf space when the coupon is

out; thus, we can’t tell if it was the coupon or the shelf-placement that caused

sales to increase—the two variables are confounded. In an experiment, we

carefully control what varies. In this case, we invite in one hundred people and

ask them to shop in a simulated store. Half of the respondents are randomly

selected and get a coupon; the others do not. Since the only difference here

was whether the subjects got a coupon or not, we can be more confident that

differences in brand choice were due to the coupon. Experiments do,

however, have a serious drawback in that the consumer is removed from his

or her natural surroundings.

For example, if we pay some consumers to come into a lab and watch TV "as

you normally would," these consumers, figuring that they are being paid, may

give more attention to the advertisements than they would at home. Focus

groups involve getting a group of 6-12 consumers together to discuss product

usage. Focus groups are especially useful if we do not have specific

questions to ask yet, since we don’t know what consumers’ concerns might

be.

Page 32
We start out talking broadly about the need that a product might serve, and

only gradually move toward the product itself. For example, a firm considering

the marketing of sugar free cookies might start out its group talking about

snacks—why people consume them and the benefits they expect. Gradually,

we then move toward concerns people have about snacks. Eventually, we

address sugar content and concerns that consumers have about that. Only

toward the end of the session do we show consumers the actual product we

are considering and ask for feedback. We postpone our consideration of the

actual product toward the end because we want to be sure that we find out

about the consumer’s needs and desires rather than what he or she thinks

about the specific product we have on the drawing board right now (that

product can be changed, and it can be repositioned). Drawbacks of focus

groups include high costs and the fact that generalization toward the entire

population is difficult for such small sample sizes. The fact that focus groups

involve social interaction also means that participants may say what they think

will make they look good rather than what they really believe (the social

desirability bias).

Personal interviews involve in-depth questioning of an individual about his or

her interest in or experiences with a product. The benefit here is that we can

get really into depth (when the respondent says something interesting, we can

ask him or her to elaborate), but this method of research is costly and can be

extremely vulnerable to interviewer bias.

Projective techniques are used when a consumer may feel embarrassed to

admit to certain opinions, feelings, or preferences. For example, many older

executives may not be comfortable admitting to being intimidated by

Page 33
computers. It has been found that in such cases, people will tend to respond

more openly about "someone else." Thus, we may ask them to explain

reasons why a friend has not yet bought a computer, or to tell a story about a

person in a picture who is or is not using a product. The main problem with

this method is that it is difficult to analyze responses.

Observation of consumers is often a powerful tool. Looking at how consumers

select products may yield insights into how they make decisions and what

they look for. For example, some American manufacturers were concerned

about low sales of their products in Japan. Observing Japanese consumers, it

was found that many of these Japanese consumers scrutinized packages

looking for a name of a major manufacturer—the product specific-brands that

are common in the U.S. (e.g., Tide) were not impressive to the Japanese, who

wanted a name of a major firm like Mitsubishi or Proctor & Gamble.

Observation may help us determine how much time consumers spend

comparing prices, or whether nutritional labels are being consulted.

Physiological measures are occasionally used to examine consumer

response. For example, advertisers may want to measure a consumer’s level

of arousal during various parts of an advertisement.

Segmentation

Although the text makes references to segmentation, this issue is not

discussed explicitly in much detail. However, segmentation is important in

consumer analysis because understanding the consumer will allow us

segment the market more meaningfully.

Segmentation basically involves dividing consumers into groups such that

members of a group (1) are as similar as possible to members of that same

Page 34
group but (2) differ as much as possible from members other segments. This

enables us then to "treat" each segment differently—e.g., by:

Providing different products (e.g., some consumers like cola taste, while

others prefer lime)

Offering different prices (some consumers will take the cheapest product

available, while others will pay for desired features)

Distributing the products where they are likely to be bought by the targeted

segment.

In order for a segment structure to be useful:

Each segment must have an identity—i.e., it must contain members that can

be described in some way (e.g., price sensitive) that behave differently from

another segment.

Each segment must engage in systematic behaviors (e.g., a price sensitive

segment should consistently prefer the low price item rather than randomly

switching between high and low priced brands).

Each segment must offer marketing mix efficiency potential—i.e., it must be

profitable to serve. For example, a large segment may be profitable even

though the competition it attracts tends to keep prices down. A smaller

segment may be profitable if, for example, it is price insensitive or can be

targeted efficiently (e.g., if its members consistently subscribe to one

magazine where all the company’s advertising can be put). Some segments

are not cost effective. For example, a small group of consumers would love to

have a no-sports news channel (similar to CNN), but we are just too small a

group to profitable.

Page 35
There are three "levels" of segmentation. Levels here refer to the tradeoff

between the difficulty of implementing a segmentation scheme and the

benefits that result.

The first level of segmentation involves personal characteristics—e.g.,

demographics. This is a fairly easy method of segmentation to employ

because

(1) We have a good idea of who is in each segment and (2) we can easily

target these segments. For example, if we want to reach male’s ages fifteen

through thirty-five, we can find out which TV shows they watch from firms

such as Nielsen (similar services exist for newspapers and magazines). The

trouble with this method of segmentation, however, is that there is often not a

good correlation between personal characteristics of consumers and what

they want to buy. Perhaps males may want more flavors, and be willing to

settle for more calories, in a soft drink than women do, but there is a great

deal of within group variation. Interestingly, it has been found that people, who

live in the same area, as operationalized by their zip-codes, tend to share a

many consumption relevant characteristics. Firms such as Claritas will sell

profiles of zip-code based communities that can be used in aiming messages

at particularly receptive residents. For example, the U.S. Army aggressively

targets communities dubbed "Guns and Pickups."

Psychographics includes a bit more information about the consumer than his

or her mere descriptive characteristics. For example, two men could both be

plumbers, aged 45, married with two children, and have annual incomes of

$45,000. However, one could be couch potato who comes home and eats fast

food while watching television. The other could be a health enthusiast who

Page 36
spends his time exercising. Several firms have tried to come up with

psychographic profiles of consumers. One is the VALS project from the

Stanford Research Institute (SRI). Since most of these programs are

proprietary, there is not a lot of published research on their usefulness.

However, some firms are paying a great deal of money for these firms’

consulting. For example, Merrill Lynch used VALS to change its advertising

strategy. The firm had seen a disappointing response to its advertising

campaign featuring a herd bulls used to symbolize the bull market. A lot of

consumers responded, but not the wealthier ones the firm had hoped for. By

making a very simple change— substituting a lone bull for the herd—based

on advice from SRI, the wealthier group, which wanted to "stand apart" from

the crowd, was attracted.

The second level is benefit desired—that is, segmenting on what someone

wants rather than who he or she is. Implementing segmentation on benefit

desired is more difficult since we have to research for each product category.

The benefit, however, is that we can now make product that matches more

closely a particular segment’s specific desires, and we can promote, price,

and distribute it according to the desires of the segment. This method, then,

lends itself extremely well to strong product positioning—we make a product

that offers specific benefits, and we aggressively promote this fact to

interested consumers. A drawback, however, is some efficiency is lost in

marketing communication. While we can look up which television programs

male’s ages twenty to thirty watch, we do not have this information for the

segment of consumers that prefers scented over unscented hand soap.

Page 37
The third level is segmentation based on behavior. Behavior here refers to a

person’s response (or lack of response) to a given treatment. For example,

some consumers will switch from their preferred brand to another one that

happens to be on sale (the "switchers,") while others will stay with the

preferred brand (the "loyal.") The trick, then, is to get as many switchers as

possible to switch to your brand (which will take some incentive, such as a

cents off coupon) while not giving this incentive to the brand loyal (who would

have bought your brand even without the discount). In practice, segmenting

on behavior can be very difficult. For example, supermarkets spend a great

deal of money to establish the "clubs" that give price sensitive customers who

are willing to go through with the required paperwork discounts not available

to the "lazier" ones that end up paying full price. Despite this difficulty, the

rewards are often great, because we can tailor the kind of deal we give a

consumer to the minimum concession needed to get that consumer to buy our

(as opposed to a competing) product.

Direct marketing offers exceptional opportunities for segmentation because

marketers can buy lists of consumer names, addresses, and phone-numbers

that indicate their specific interests. For example, if we want to target auto

enthusiasts, we can buy lists of subscribers to auto magazines and people

who have bought auto supplies through the mail. We can also buy lists of

people who have particular auto makes registered.

No one list will contain all the consumers we want, and in recent years

technology has made it possible, through the "merge-purge" process, to

combine lists. For example, to reach the above-mentioned auto-enthusiasts,

we buy lists of subscribers to several different car magazines, lists of buyers

Page 38
from the Hot Wheels and Wiring catalog, and registrations of Porsche

automobiles in several states. We then combine these lists (the merge part).

However, there will obviously be some overlap between the different lists—

some people subscribe to more than one magazine, for example. The purge

process, in turn, identifies and takes out as many duplicates as possible. This

is not as simple task as it may sound up front. For example, the address "123

Main Street, Apartment 45" can be written several ways—e.g., 123 Main St.,

#123, or 123-45 Main Str. Similarly, John J. Jones could also be written as J.

J. Jones, or it could be misspelled Jon J. Jonnes. Software thus

"standardizes" addresses (e.g., all street addresses would be converted into

the format "123 Main St #45" and even uses phonetic analysis to identify a

likely alternative spelling of the same name.

Response rates for "good" lists—lists that represent a logical reason why

consumer would be interested in a product—are typically quite low, hovering

around 2-3%. Simply picking a consumer out of the phone-book would yield

even lower responses—much less than one percent. Keep in mind that a

relevant comparison here is to conventional advertising. The response rate to

an ad placed in the newspaper or on television is usually well below one

percent (frequently more like one-tenth of one percent). (More than one

percent of people who see an ad for Coca Cola on TV will buy the product,

but most of these people would have bought Coke anyway, so the marginal

response is low).

Page 39
Culture

Culture is part of the external influences that impact the consumer. That is,

culture represents influences that are imposed on the consumer by other

individuals.

The definition of culture offered in the text is "That complex whole which

includes knowledge, belief, art, morals, custom, and any other capabilities and

habits acquired by man person as a member of society." From this definition,

we make the following observations:

Culture, as a "complex whole," is a system of interdependent components.

Knowledge and beliefs are important parts. In the U.S., we know and believe

that a person who is skilled and works hard will get ahead. In other countries,

it may be believed that differences in outcome result more from luck.

"Chunking," the name for China in Chinese literally means "The Middle

Kingdom." The belief among ancient Chinese that they were in the center of

the universe greatly influenced their thinking.

Other issues are relevant. Art, for example, may be reflected in the rather

arbitrary practice of wearing ties in some countries and wearing turbans in

others. Morality may be exhibited in the view in the United States that one

should not be naked in public. In Japan, on the other hand, groups of men

and women may take steam baths together without perceived as improper.

On the other extreme, women in some Arab countries are not even allowed to

reveal their faces. Notice, by the way, that what at least some countries view

as moral may in fact be highly immoral by the standards of another country.

For example, the law that once banned interracial marriages in South Africa

was named the

Page 40
"Immorality Act," even though in most civilized countries this law, and any

degree of explicit racial prejudice, would itself be considered highly immoral.

Culture has several important characteristics: (1) Culture is comprehensive.

This means that all parts must fit together in some logical fashion. For

example, bowing and a strong desire to avoid the loss of face are unified in

their manifestation of the importance of respect. (2) Culture is learned rather

than being something we are born with. We will consider the mechanics of

learning later in the course. (3) Culture is manifested within boundaries of

acceptable behavior. For example, in American society, one cannot show up

to class naked, but wearing anything from a suit and tie to shorts and a T-shirt

would usually be acceptable. Failure to behave within the prescribed norms

may lead to sanctions, ranging from being hauled off by the police for

indecent exposure to being laughed at by others for wearing a suit at the

beach. (4) Conscious awareness of cultural standards is limited. One

American spy was intercepted by the Germans during World War II simply

because of the way he held his knife and fork while eating. (5) Cultures fall

somewhere on a continuum between static and dynamic depending on how

quickly they accept change. For example, American culture has changed a

great deal since the 1950s, while the culture of Saudi Arabia has changed

much less. It should be noted that there is a tendency of outsiders to a culture

to overstate the similarity of members of that culture to each other. In the

United States, we are well aware that there is a great deal of heterogeneity

within our culture; however, we often underestimate the diversity within other

cultures. For example, in Latin America, there are great differences between

Page 41
people who live in coastal and mountainous areas; there are also great

differences between social classes.

Cultural rules can be categorized into three types. Formal rules carry relatively

explicit standards as to how one should behave, and violations often carry

severe sanctions. For example, in many countries, two forms of the second

pronoun (you) exist, with different levels of deference associated with each

(e.g., tú and usted in Spanish and tu and vous in Spanish—German even has

three levels!) In Japan, senior executives will enter and leave a meeting room

before subordinates in a very deliberate manner. Informal rules, on the other

hand, are less explicit and may not carry sanctions for violation. For example,

in the U.S., most people would consider eating dinner at 10:00 p.m. weird,

while this is perfectly normal in parts of Latin American and Southern Europe.

Finally, technical cultural rules involve implicit standards as to what

constitutes a good product. For example, in India, a movie must have at least

seven songs to be successful; in the U.S., preempting the soundtrack for that

amount of time would not be desirable.

Language is an important element of culture. It should be realized that

regional differences may be subtle. For example, one word may mean one

thing in one Latin American country, but something off-color in another. It

should also be kept in mind that much information is carried in non-verbal

communication. In some cultures, we nod to signify "yes" and shake our

heads to signify "no;" in other cultures, the practice is reversed.

Different perspectives exist in different cultures on several issues; e.g.:

Page 42
Monochromic cultures tend to value precise scheduling and doing one thing

at a time; in polychromic cultures, in contrast, promptness is valued less, and

multiple tasks may be performed simultaneously. (See text for more detail).

Space is perceived differently. Americans will feel crowded where people

from more densely populated countries will be comfortable.

Symbols differ in meaning. For example, while white symbols purity in the

U.S., it is a symbol of death in China. Colors that are considered masculine

and feminine also differ by culture.

Americans have a lot of quite shallow friends toward whom little obligation is

felt; people in European and some Asian cultures have fewer, but more

significant friends. For example, one Ph.D. student from India, with limited

income, felt obligated to try buy an airline ticket for a friend to go back to India

when a relative had died.

In the U.S. and much of Europe, agreements are typically rather precise and

contractual in nature; in Asia, there is a greater tendency to settle issues as

they come up. As a result, building a relationship of trust is more important in

Asia, since you must be able to count on your partner being reasonable.

In terms of etiquette, some cultures have more rigid procedures than others.

In some countries, for example, there are explicit standards as to how a gift

should be presented. In some cultures, gifts should be presented in private to

avoid embarrassing the recipient; in others, the gift should be made publicly to

ensure that no perception of secret bribery could be made.

The United States has undergone some changes in its predominant culture

over the last several decades. Again, however, it should be kept in mind that

there are great variations within the culture. For example, on the average,

Page 43
Americans have become less materialistic and have sought more leisure; on

the other hand, the percentage of people working extremely long hours has

also increased. The text discusses changes in values in more detail.

Significant changes have occurred in gender roles in American society. One

of the reasons for this is that more women work outside the home than before.

However, women still perform a disproportionate amount of housework, and

men who participate in this activity tend to do so reluctantly. In general,

commercials tend to lag somewhat behind reality—e.g., few men are seen

doing housework, and few women are seen as buyers and decision makers

on automobile purchases. Subculture refers to a culture within a culture. For

example, African Americans are, as indicated in the group name, Americans;

however, a special influence of the African American community is often also

present. For example, although this does not apply to everyone, African

Americans tend to worship in churches that have predominantly African

American membership, and church is often a significant part of family life.

Different perspectives on the diversity in U.S. culture exist. The "melting pot"

metaphor suggests that immigrants gradually assimilate after they arrive.

Therefore, in the long run, there will be few differences between ethnic groups

and instead, one mainstream culture that incorporates elements from each

will result. The "salad bowl" metaphor, in contrast, suggests that although

ethnic groups will interact as a whole (through the whole mix of salad) and

contains some elements of the whole (through the dressing), each group will

maintain its own significant traits (each vegetable is different from the others).

The "melting pot" view suggests that one should run integrated promotions

Page 44
aimed at all groups; the "salad bowl" approach suggests that each group

should be approached separately.

Subculture is often categorized on the basis of demographics. Thus, for

example, we have the "teenage" subculture and the "Cuban-American"

subculture. While part of the overall culture, these groups often have

distinguishing characteristics. An important consequence is that a person who

is part of two subcultures may experience some conflict. For example,

teenage Native Americans experience a conflict between the mainstream

teenage culture and traditional Indian ways.

Values are often greatly associated with age groups because people within an

age-group have shared experiences. For example, it is believed that people

old enough to have experienced the American Depression are more frugal

because of that experience.

Regional influence, both in the United States and other areas, is significant.

Many food manufacturers offer different product variations for different

regions. Joel Garreau, The Nine Nations of North America, proposed nine

distinct regional subcultures that cut across state lines. Although significant

regional differences undoubtedly exist, research has failed to support

Garreau’s specific characterizations

Demographics and Social Stratification

Demographics are clearly tied to subculture and segmentation. Here,

however, we shift our focus from analyzing specific subcultures to trying to

understand the implications for an entire population of its makeup.

Several issues are useful in the structure of a population. For example, in

some rapidly growing countries, a large percentage of the population is

Page 45
concentrated among younger generations. In countries such as Korea, China,

and Taiwan, this has helped stimulate economic growth, while in certain

poorer countries; it puts pressures on society to accommodate an increasing

number of people on a fixed amount of land. Other countries such as Japan

and Germany, in contrast, experience problems with a "graying" society,

where fewer non-retired people are around to support an increasing number

of aging seniors. Because Germany actually hovers around negative

population growth, the German government has issued large financial

incentives, in the forms of subsidies, for women who have children. In the

United States, population growth occurs both through births and immigration.

Since the number of births is not growing, problems occur for firms that are

dependent on population growth (e.g., Gerber, a manufacturer of baby food).

Social class is a somewhat nebulous subject that involves stratifying people

into groups with various amounts of prestige, power, and privilege. In part

because of the pioneering influence in American history, status differentiations

here are quite vague. We cannot, for example, associate social class with

income, because a traditionally low status job as a plumber may today come

with as much income as a traditionally more prestigious job as a school

teacher. In certain other cultures, however, stratification is more clear-cut.

Although the caste system in India is now illegal, it still maintains a

tremendous influence on that society. While some mobility exists today, social

class awareness is also somewhat greater in Britain, where social status is in

part reinforced by the class connotations of the accent with which one speaks.

The text speaks of several indices that have been used to "compute" social

class in the United States, weighing factors such as income, the nature of

Page 46
one’s employment, and level of education. Taken too literally, these indices

are not very meaningful; more broadly speaking, they illustrate the reality that

social status is a complex variable that is determined, not always with

consensus among observers, by several different variables.

Family Decision Making

The Family Life Cycle. Individuals and families tend to go through a "life

cycle."

The simple life cycle goes from child/teenager ---> young single ---> young

couple* ---> full nest ---> empty nest ---> widow(er).

*For purposes of this discussion, a "couple" may either be married or merely

involve living together. The breakup of a non-marital relationship involving

cohabitation is similarly considered equivalent to a divorce. In real life, this

situation is, of course, a bit more complicated. For example, many couples

undergo divorce. Then we have the scenario: full nest ---> single parent

This situation can result either from divorce or from the death of one parent.

Divorce usually entails a significant change in the relative wealth of spouses.

In some cases, the non-custodial parent (usually the father) will not pay the

required child support, and even if he or she does, that still may not leave the

custodial parent and children as well off as they were during the marriage. On

the other hand, in some cases, some non-custodial parents will be called on

to pay a large part of their income in child support. This is particularly a

problem when the non-custodial parent remarries and has additional children

in the second (or subsequent marriages). In any event, divorce often results in

a large demand for: 0 low cost furniture and household items 0 time-saving

goods and services.

Page 47
Divorced parents frequently remarry, or become involved in other non-marital

relationships; thus, we may see full nest ---> single parent ---> blended family

Another variation involves young single ---> single parent

Here, the single parent who assumes responsibility for one or more children

may not form a relationship with the other parent of the child. Generally, there

are two main themes in the Family Life Cycle, subject to significant

exceptions:

o As a person gets older, he or she tends to advance in his or her career and

tends to get greater income (exceptions: maternity leave, divorce, retirement).

o Unfortunately, obligations also tend to increase with time (at least until one’s

mortgage has been paid off). Children and paying for one’s house are two of

the greatest expenses.

Note that although a single person may have a lower income than a married

couple, the single may be able to buy more discretionary items.

Family Decision Making: Individual members of families often serve different

roles in decisions that ultimately draw on shared family resources. Some

individuals are information gatherers/holders, who seek out information about

products of relevance. These individuals often have a great deal of power

because they may selectively pass on information that favors their chosen

alternatives. Influencers do not ultimately have the power decide between

alternatives, but they may make their wishes known by asking for specific

products or causing embarrassing situations if their demands are not met. The

decision maker(s) have the power to determine issues such as:

o whether to buy;

o which product to buy (pick-up or passenger car?);

Page 48
o which brand to buy;

o where to buy it; and

o when to buy.

Note, however, that the role of the decision maker is separate from that of the

purchaser. From the point of view of the marketer, this introduces some

problems since the purchaser can be targeted by point-of-purchase (POP)

marketing efforts that cannot be aimed at the decision maker. Also note that

the distinction between the purchaser and decision maker may be somewhat

blurred:

o the decision maker may specify what kind of product to buy, but not which

brand;

o the purchaser may have to make a substitution if the desired brand is not in

stock;

o the purchaser may disregard instructions (by error or deliberately).

It should be noted that family decisions are often subject to a great deal of

conflict. The reality is that few families are wealthy enough to avoid a strong

tension between demands on the family’s resources. Conflicting pressures

are especially likely in families with children and/or when only one spouse

works outside the home. Note that many decisions inherently come down to

values, and that there is frequently no "objective" way to arbitrate differences.

One spouse may believe that it is important to save for the children’s future;

the other may value spending now (on private schools and computer

equipment) to help prepare the children for the future. Who is right? There is

no clear answer here. The situation becomes even more complex when more

parties—such as children or other relatives—are involved.

Page 49
Some family members may resort to various strategies to get their way. One

is bargaining—one member will give up something in return for someone else.

For example, the wife says that her husband can take an expensive course in

gourmet cooking if she can buy a new pickup truck. Alternatively, a child may

promise to walk it every day if he or she can have a hippopotamus. Another

strategy is reasoning—trying to get the other person(s) to accept one’s view

through logical argumentation. Note that even when this is done with a

sincere intent, its potential is limited by legitimate differences in values

illustrated above. Also note that individuals may simply try to "wear down" the

other party by endless talking in the guise of reasoning (this is a case of

negative reinforcement as we will see subsequently). Various manipulative

strategies may also be used. One is impression management, where one tries

to make one’s side look good (e.g., argue that a new TV will help the children

see educational TV when it is really mostly wanted to see sports

programming, or argue that all "decent families make a contribution to the

church"). Authority involves asserting one’s "right" to make a decision (as the

"man of the house," the mother of the children, or the one who makes the

most money). Emotion involves making an emotional display to get one’s way

(e.g., a man cries if his wife will not let him buy a new rap album).

Group Influences

Humans are inherently social animals, and individuals greatly influence each

other. A useful framework of analysis of group influence on the individual is

the so called reference group—the term comes about because an individual

uses a relevant group as a standard of reference against which oneself is

compared.

Page 50
Reference groups come in several different forms. The aspirational reference

group refers to those others against whom one would like to compare oneself.

For example, many firms use athletes as spokespeople, and these represent

what many people would ideally like to be. Associative reference groups

include people who more realistically represent the individuals’ current equals

or near-equals—e.g., coworkers, neighbors, or members of churches, clubs,

and organizations. Finally, the dissociative reference group includes people

that the individual would not like to be like. For example, the store literally

named The Gap came about because many younger people wanted to

actively dissociate from parents and other older and "uncool" people. The

Quality Paperback Book specifically suggests in its advertising that its

members are "a breed apart" from conventional readers of popular books.

Reference groups come with various degrees of influence. Primary reference

groups come with a great deal of influence—e.g., members of a

fraternity/sorority. Secondary reference groups tend to have somewhat less

influence—e.g., members of a boating club that one encounter only during

week-ends are likely to have their influence limited to consumption during that

time period.

Another typology divides reference groups into the informational kind

(influence is based almost entirely on members’ knowledge), normative

(members influence what is perceived to be "right," "proper," "responsible," or

"cool"), or identification. The difference between the latter two categories

involves the individual’s motivation for compliance. In case of the normative

reference group, the individual tends to comply largely for utilitarian reasons—

dressing according to company standards is likely to help your career, but

Page 51
there is no real motivation to dress that way outside the job. In contrast,

people comply with identification groups’ standards for the sake of belonging

—for example, a member of a religious group may wear a symbol even

outside the house of worship because the religion is a part of the person’s

identity.

Learning and Memory

Background Learning involves "a change in the content or organization of long

term memory and/or behavior." The first part of the definition focuses on what

we know (and can thus put to use) while the second focuses on concrete

behavior. For example, many people will avoid foods that they consumed

shortly before becoming ill. Learning is not all knowledge based. For example,

we may experience the sales people in one store being nicer to us than those

in the other. We thus may develop a preference for the one store over the

other; however, if pressed, we may not be able to give a conscious

explanation as to the reason for our preference.

Much early work on learning was actually done on rats and other animals (and

much of this research was unjustifiably cruel, but that is another matter).

Classical conditioning. Pavlov’s early work on dogs was known as classical

conditioning. Pavlov discovered that when dogs were fed meat powder they

salivated. Pavlov then discovered that if a bell were rung before the dogs

were fed, the dogs would begin salivating in anticipation of being fed (this was

efficient, since they could then begin digesting the meat powder immediately).

Pavlov then found that after the meat had been "paired" with the meat powder

enough times, Pavlov could ring the bell without feeding the dogs and they

would still salivate.

Page 52
In the jargon of classical conditioning, the meat powder was an unconditioned

stimulus (US) and the salivation was, when preceded by the meat powder, an

unconditioned response (UR). That is, it is a biologically "hard-wired"

response to salivate when you are fed. By pairing the bell with the

unconditioned stimulus, the bell became a conditioned stimulus (CS) and

salivation in response to the bell (with no meat powder) became a conditioned

response (CR).

Many modern day advertisers use classical conditioning in some way.

Consider this sequence:

Beautiful woman (US) ---> emotional arousal (UR) in males

Beautiful woman (US) + automobile (not yet CS) ---> arousal (US) [repeated

many times]

Automobile (CS) ---> arousal (CR)

(For the exam, you should be able to diagram an example given). Operant

conditioning. Instrumental, or operant, conditioning, involves a different series

of events, and this what we usually think of as learning. The general pattern

is:

Behavior ---> consequences ---> behavior is more or less likely to be repeated

There are three major forms of operant learning. In positive reinforcement, an

individual does something and is rewarded. He or she is then more likely to

repeat the behavior. For example, you eat a candy bar (behavior), it tastes

good (consequence), and you are thus more likely to eat a similar candy bar

in the future (behavioral change).

Punishment is the opposite. You eat what looks like a piece of candy

(behavior), only to discover that it is a piece of soap with a foul taste

Page 53
(consequences), and subsequently you are less likely to eat anything that

looks remotely like that thing ever again (changed behavior).

It should be noted that negative reinforcement is very different from

punishment. An example of negative reinforcement is an obnoxious sales

person who calls you up on the phone, pressuring you into buying something

you don’t want to do (aversive stimulus). You eventually agree to buy it

(changed behavior), and the sales person leaves you alone (the aversive

stimulus is terminated as a result of consequences of your behavior).

In general, marketers usually have relatively little power to use punishment or

negative reinforcement. However, parking meters are often used to

discourage consumers from taking up valuable parking space, and

manufacturers may void warranties if the consumers take their product to non-

authorized repair facilities.

Several factors influence the effectiveness of operant learning. In general, the

closer in time the consequences are to the behavior, the more effective the

learning. That is, electric utilities would be more likely to influence consumers

to use less electricity at peak hours if the consumers actually had to pay when

they used electricity (e.g., through a coin-slot) rather than at the end of the

month. Learning is also more likely to occur when the individual can

understand a relationship between behavior and consequences (but learning

may occur even if this relationship is not understood consciously).

Another issue is schedules of reinforcement and extinction. Extinction occurs

when behavior stops having consequences and the behavior then eventually

stops occurring. For example, if a passenger learns that yelling at check-in

personnel no longer gets her upgraded to first class, she will probably stop

Page 54
that behavior. Sometimes, an individual is rewarded every time a behavior is

performed (e.g., a consumer gets a soft drink every time coins are put into a

vending machine). However, it is not necessary to reward a behavior every

time for learning to occur. Even if a behavior is only rewarded some of the

time, the behavior may be learned. Several different schedules of

reinforcement are possible:

o Fixed interval: The consumer is given a free dessert on every Tuesday

when he or she eats in a particular restaurant.

o Fixed ratio: Behavior is rewarded (or punished) on every nth occasion that it

is performed. (E.g., every tenth time a frequent shopper card is presented, a

free product is provided).

o Variable ratio: Every time an action is performed, there is a certain

percentage chance that a reward will be given. For example, every time the

consumer enters the store, he or she is given a lottery ticket. With each ticket,

there is a 20% chance of getting a free hamburger. The consumer may get a

free hamburger twice in a row, or he or she may go ten times without getting a

hamburger even once. Variable ratio reinforcement is least vulnerable to

extinction. Sometimes, shaping may be necessary to teach the consumer the

desired behavior. That is, it may be impossible to teach the consumer to

directly perform the desired behavior. For example, a consumer may first get

a good product for free (the product itself, if good, is a reward), then buy it

with a large cents off coupon, and finally buy it at full price. Thus, we reinforce

approximations of the desired behavior. Rather than introducing Coca Cola

directly in Indonesia, fruit flavored soft drinks were first introduced, since

these were more similar to beverages already consumed. Vicarious learning.

Page 55
The consumer does not always need to go through the learning process

himself or herself—sometimes it is possible to learn from observing the

consequences of others. For example, stores may make a big deal out of

prosecuting shop lifters not so much because they want to stop that behavior

in those caught, but rather to deter the behavior in others. Similarly, viewers

may empathize with characters in advertisements that experience (usually

positive) results from using a product. The Head ‘n’ Shoulders advertisement,

where a poor man is rejected by women until he treats his dandruff with an

effective cure, is a good example of vicarious learning. Memory. There are

two kinds of memory. When you see an ad on TV for a mail order product you

might like to buy, you only keep the phone number in memory until you have

dialed it. This is known as short term memory. In order for something to enter

into long term memory, which is more permanent, you must usually

"rehearse" it several times. For example, when you move and get a new

phone number, you will probably repeat it to yourself many times.

Alternatively, you get to learn your driver’s license or social security numbers

with time, not because you deliberately memorize them, but instead because

you encounter them numerous times as you look them up. A special issue in

memory is so called "scripts," or procedures we remember for doing things.

Scripts involve a series of steps for doing various things (e.g., how to send a

package). In general, it is useful for firms to have their brand names

incorporated into scripts (e.g., to have the consumer reflexively ask the

pharmacist for Bayer rather than an unspecified brand of aspirin).

Motivation, Personality, and Emotion

Page 56
Perspectives on Consumer Behavior and Motivation. We considered several

perspectives on behavior as a way to understand what motivates the

consumer. Each of these perspectives suggests different things as to what the

marketer should do and what can (and cannot) be controlled. Note that each

perspective tends to contain a "grain" of truth and that one should not be too

dogmatic in emphasizing one over the others.

The Hard Core Behavioral perspective is based on learning theories such as

operant and classical conditioning. These theories suggest that consumers

must learn from their own experiences--i.e., in order to avoid getting sick from

overeating, a consumer must experience the stomach and other ailments

resulting from gluttony rather than merely observing other people who overeat

and get sick. This suggests, then, that it is important to reward good behavior

(e.g., buying our brand) to the extent possible. Money spent on advertising is

seen as less useful. Hard core behaviorists tend to look at observable

behavior (e.g., buying our brand or buying another) rather than trying to find

out what is going on inside the heads of consumers--i.e., hard core

behaviorists do not like to mess with "mushy" things like attitudes.

The Social Learning Perspective, in contrast, allows for vicarious learning--

i.e., learning obtained by watching others getting good or bad consequences

for behavior. The models that may be observed and imitated include peers

and family members as well as relevant others that may be observed in

advertising. From our study of social influences, we know that certain people

are more likely to be imitated than others-- e.g., those that are more similar to

ourselves based on relevant factors such as age, social status, or ethnic

group. Consider, for example, the poor man who is rejected by women

Page 57
because of his dandruff until he gets "with it" and uses Head ‘n’ Shoulders

shampoo. Other dandruff sufferers are likely to learn from the model’s

experience. Generally, observations are made of overt behavior, but some

room is made for individual reasoning in learning from others. This

perspective is clearly more realistic than that of the "Hard Core" view, but it

should be noted that the strength of learning tends to be greater for that

gained from own experience.

The Cognitive approach emphasizes consumer thinking rather than mere

behavior--we will encounter this to a great extent when we study decision

making and attitudes. Here, the emphasis is on how people reason

themselves to the consequences of their behavior. Note that it is often

somewhat more difficult to attempt to "get into" a consumer’s head than it is to

merely observe his or her behavior, and what we "observe" is somewhat more

subjective. Note also that a wealth of different factors influence people’s

thinking, and some expectations and assumptions that we hold tend to be

culturally influenced (e.g., an American assumes that hard work will tend to

lead to a promotion, while members of certain other cultures believe that

personal relationships, and perhaps even luck, tend to be more important).

The Biological approach suggests that most behavior is determined by

genetics or other biological bases. By this perspective, it is suggested that

consumers eat the foods they eat in large part because the body craves these

foods. Note that although craving for fatty foods seems quite maladaptive in

today’s society, it could have been very adaptive earlier in human history

where food was scarce and obtaining as many calories as possible helped

ensure survival. Clearly, this perspective is very misleading when one takes it

Page 58
as the only explanation of behavior-- for example, people in different cultures

learn to enjoy various kinds of foods. The main implication of biological

determinism is that the marketer must adapt--for example, food

advertisements are more likely to be effective when people are hungry, and

thus they might better be run in the late afternoon rather than in the late

morning.

The Rational Expectations perspective is based on an economic way of

looking at the World. Economists assume that people think rationally and

have perfect information, even though they know very well that these

assumptions are often unrealistic. However, despite the unrealistic

assumptions made, economists often make relatively accurate predictions of

human behavior. (The Cognitive perspective, however, is able to identify

certain significant exceptions to rational behavior, however).

The Psychoanalytic perspective is based on the work of historical

psychologists such as Sigmund Freud who suggest that (1) much behavior

has a biological basis which is (2) often sexual in nature, and (3) that early

experiences in childhood will have a profound, but unconscious effect on later

life--e.g., people who are rejected in an early, "oral" phase of development

may become "oral retentive" and end up as wine connoisseurs later in life.

Because of societal injunctions against explicit discussion of sexuality in

Western society at Freud’s time [late 1800s to mid 1900s], many objects were

thought to take on seemingly unrelated symbolic meanings--e.g., a tie might

become a symbol of a male reproductive organ. Although modern

psychologists certainly recognize that early experiences may influence later

psychological well being, the psychoanalytic view has largely been discredited

Page 59
today as being much too centered on the issue of sex. However, this

perspective enjoys a great deal of popularity among many advertising

executives. It should be noted that Freudian psychology tends to violate the

cherished scientific ideal of parsimony, where a scientist is expected to

propose the simplest theory that will account for observed phenomena.

Maslow’s Hierarchy of Needs. The late Abraham Maslow suggested the

intuitively appealing notion that humans must satisfy the most basic objectives

before they can move onto "higher level" ones. Thus, an individual must

satisfy physiological needs (such as food and liquid) before he or she will be

able to expend energy on less fundamental objectives such as safety. Only

when basic objectives have been met will a person move on to seek such

objectives as love and belonging, and only a small minority of people make it

as far as seeking self-actualization.

Maslow’s Hierarchy is useful in understanding different needs of consumers

across the World. However, one must be careful not to take it too literally,

since people may occasionally "swing" between needs. For example, a

homeless person who currently does not have shelter may seek that out even

though he or she is hungry. Properties of motivation. Motivation is described

through several properties:

Motivation is composed of energy and direction. A person may or may not

have enough motivation to engage in a given activity. For example, a person

may be motivated enough to go and shop for food, but not enough to engage

in a comprehensive exercise program.

Motives may be overt, hidden, and multiple. Some motivations are publicly

expressed (e.g., the desire to buy an energy efficient house), while others

Page 60
(e.g., the desire to look wealthy by buying a fancy car) are not. Individuals

may also hold multiple motivations (e.g., buy a car and save money for

retirement) which may conflict.

Many motivations are driven by the desire for tension reduction (e.g.,

eliminate thirst or hunger).

Motivations can be driven by both internal and external factors. That is, a

person may want a painting either because he or she likes it (internal

motivation) or because this will give her status among the artistic elite

(external).

Motivations may have either a positive or negative valence--people may

either be motivated to achieve something (e.g., get a promotion at work) or

avoid something (e.g., being hospitalized without having adequate insurance).

Consumers are motivated to achieve goals. Achieving these goals may

require sustained activity over time (e.g., exercising every day for months or

years) as opposed to just taking some action once.

Consumers maintain a balance between the desires for stability and variety.

Most consumers want some variety (e.g., they do not want to eat the same

meal every day), but also want a certain stability (they do not want to try an

entirely new food every day).

Motivation reflects individual differences. Different consumers are motivated

to achieve different things, and it may be difficult to infer motivations from

looking at actual behavior without understanding these differences in desired

outcomes.

Page 61
The reality that consumers are frequently motivated by multiple motives

suggests a possibility that motives may conflict. Three main types of conflict

exists:

Approach-avoidance. One alternative has both positive consequences (that

one wishes to seek out) and negative consequences (that one wants to

avoid). For example, eating a large banana split is an enjoyable experience

("approach"), but is contains a lot of calories ("avoidance") and may make one

feel ill later (another avoidance).

Approach-approach. A consumer wants to do two incompatible things at the

same time. A classic example is "Rainman’s" desire both to stay with his

brother and stay at the institution. Another example is a consumer who only

has one week’s vacation but wants equally to go to Hawaii and Greenland,

but has time and money only for one of the two.

Avoidance-avoidance. A consumer does not want to go for either of two

alternatives, but must choose the lesser of two evils. For example, the

consumer does not want to pay for car insurance, but does not want to get

into an accident or get caught by the police without it. A "work ethic

disadvantaged" student does not want to study, but does not want to fail his or

her courses, either.

The Means-End chain . Consumers often buy products not because of their

attributes per se but rather because of the ultimate benefits that these

attributes provide, in turn leading to the satisfaction of ultimate values. For

example, a consumer may not be particularly interested in the chemistry of

plastic roses, but might reason as follows:

Highly reliable synthetic content of roses --->

Page 62
Roses will stay in original condition for a long time --->

Significant other will appreciate the roses longer --->

Significant other will continue to love one ---> Self esteem.

The important thing in a means-end chain is to start with an attribute, a

concrete characteristic of the product, and then logically progress to a series

of consequences (which tend to become progressively more abstract) that

end with a value being satisfied. Thus, each chain must start with an attribute

and end with a value.

An important implication of means-end chains is that it is usually most

effective in advertising to focus on higher level items. For example, in the

flower example above, an individual giving the flowers to the significant other

might better be portrayed than the flowers alone.

Personality and consumer behavior. Traditional research in marketing has not

been particularly successful in finding a link between personality and

consumer behavior. Part of the problem here is that much of the theory has

been developed by clinical psychologists who have tended to work with

maladjusted people. Not surprisingly, research that sought to predict, based

on standard personality inventories, which kinds of consumers would buy

Chevrolets as opposed to Fords was not successful.

Emotion. Emotion impacts marketing efforts in several ways. One purpose is

to get attention to a stimulus (since emotionally charged individuals tend to be

less predictable than calmer ones, there has been an evolutionary advantage

in paying attention to emotion). Secondly, emotion influences information

processing. In general, happy people tend to scrutinize arguments given (e.g.,

purported benefits of using a product) somewhat less, since they do not want

Page 63
to lose their happy moods by doing too much thinking. In general, happy ads

are somewhat better liked, and may be better remembered. Empathy may

also increase liking for the ad and the sponsoring product.

Attitudes

Definition. Consumer attitudes are a composite of a consumer’s (1) beliefs

about, (2) feelings about, (3) and behavioral intentions toward some object--

within the context of marketing, usually a brand or retail store. These

components are viewed together since they are highly interdependent and

together represent forces that influence how the consumer will react to the

object.

Beliefs. The first component is beliefs. A consumer may hold both positive

beliefs toward an object (e.g., coffee tastes good) as well as negative beliefs

(e.g., coffee is easily spilled and stains papers). In addition, some beliefs may

be neutral (coffee is black), and some may be differ in valance depending on

the person or the situation (e.g., coffee is hot and stimulates--good on a cold

morning, but not good on a hot summer evening when one wants to sleep).

Note also that the beliefs that consumers hold need not be accurate (e.g., that

pork contains little fat), and some beliefs may, upon closer examination, be

contradictory (e.g., that a historical figure was a good person but also owned

slaves).

Since a consumer holds many beliefs, it may often be difficult to get down to a

"bottom line" overall belief about whether an object such as McDonald’s is

overall good or bad. The Multiattribute (also sometimes known as the

Fishbein)

Page 64
Model attempts to summarize overall attitudes into one score using the

equation:

That is, for each belief, we take the weight, or importance (Wi) of that belief

and mutiply it with its evaluation (Xib). For example, a consumer believes that

the taste of a beverage is moderately important, or a 4 on a scale from 1 to 7.

He or she believes that coffee tastes very good, or a 6 on a scale from 1 to 7.

Thus, the product here is 4(6)=24. On the other hand, he or she believes that

the potential of a drink to stain is extremely important (7), and coffee fares

moderately badly, at a score -4, on this attribute (since this is a negative

belief, we now take negative numbers from -1 to -7, with -7 being worst).

Thus, we now have 7(-4)=-28. Had these two beliefs been the only beliefs the

consumer held, his or her total, or aggregated, attitude would have been 24+(-

28)=-4. In practice, of course, consumers tend to have many more beliefs that

must each be added to obtain an accurate measurement.

Affect. Consumers also hold certain feelings toward brands or other objects.

Sometimes these feelings are based on the beliefs (e.g., a person feels

nauseated when thinking about a hamburger because of the tremendous

amount of fat it contains), but there may also be feelings which are relatively

independent of beliefs. For example, an extreme environmentalist may

believe that cutting down trees is morally wrong, but may have positive affect

toward Christmas trees because he or she unconsciously associates these

trees with the experience that he or she had at Christmas as a child.

Behavioral intention. The behavioral intention is what the consumer plans to

do with respect to the object (e.g., buy or not buy the brand). As with affect,

this is sometimes a logical consequence of beliefs (or affect), but may

Page 65
sometimes reflect other circumstances--e.g., although a consumer does not

really like a restaurant, he or she will go there because it is a hangout for his

or her friends.

Attitude-Behavior Consistency. Consumers often do not behave consistently

with their attitudes for several reasons:

o Ability. He or she may be unable to do so. Although junior high school

student likes pick-up trucks and would like to buy one, she may lack a driver’s

license.

o Competing demands for resources. Although the above student would like

to buy a pickup truck on her sixteenth birthday, she would rather have a

computer, and has money for only one of the two.

o Social influence. A student thinks that smoking is really cool, but since his

friends think it’s disgusting, he does not smoke.

o Measurement problems. Measuring attitudes is difficult. In many situations,

consumers do not consciously set out to enumerate how positively or

negatively they feel about mopeds, and when a market researcher asks them

about their beliefs about mopeds, how important these beliefs are, and their

evaluation of the performance of mopeds with respect to these beliefs,

consumers often do not give very reliable answers. Thus, the consumers may

act consistently with their true attitudes, which were never uncovered because

an erroneous measurement was made.

Attitude Change Strategies. Changing attitudes is generally very difficult,

particularly when consumers suspect that the marketer has a self-serving

agenda in bringing about this change (e.g., to get the consumer to buy more

or to switch brands).

Page 66
Changing affect. One approach is to try to change affect, which may or may

not involve getting consumers to change their beliefs. One strategy uses the

approach of classical conditioning try to "pair" the product with a liked

stimulus. For example, we "pair" a car with a beautiful woman. Alternatively,

we can try to get people to like the advertisement and hope that this liking will

"spill over" into the purchase of a product. For example, the Pillsbury

Doughboy does not really emphasize the conveyance of much information to

the consumer; instead, it attempts to create a warm, fuzzy image. Although

Energizer Bunny ads try to get people to believe that their batteries last

longer, the main emphasis is on the likeable bunny. Finally, products which

are better known, through the mere exposure effect, tend to be better liked--

that is, the

more a product is advertised and seen in stores, the more it will generally be

liked, even if consumers to do not develop any specific beliefs about the

product.

Changing behavior. People like to believe that their behavior is rational; thus,

once they use our products, chances are that they will continue unless

someone is able to get them to switch. One way to get people to switch to our

brand is to use temporary price discounts and coupons; however, when

consumers buy a product on deal, they may justify the purchase based on

that

deal (i.e., the low price) and may then switch to other brands on deal later. A

better way to get people to switch to our brand is to at least temporarily

obtain better shelf space so that the product is more convenient. Consumers

are less likely to use this availability as a rationale for their purchase and may

Page 67
continue to buy the product even when the product is less conveniently

located. (Notice, by the way, that this represents a case of shaping).

Changing beliefs. Although attempting to change beliefs is the obvious way to

attempt attitude change, particularly when consumers hold unfavorable or

inaccurate ones, this is often difficult to achieve because consumers tend to

resist. Several approaches to belief change exist:

o Change currently held beliefs. It is generally very difficult to

attempt to change beliefs that people hold, particularly those

that are strongly held, even if they are inaccurate. For example,

the petroleum industry advertised for a long time that its profits

were lower than were commonly believed, and provided extensive

factual evidence in its advertising to support this reality.

Consumers were suspicious and rejected this information,

however.

o Change the importance of beliefs. Although the sugar

manufacturers would undoubtedly like to decrease the

importance of healthy teeth, it is usually not feasible to make

beliefs less important--consumers are likely to reason, why, then,

would you bother bringing them up in the first place? However, it

may be possible to strengthen beliefs that favor us--e.g., a

vitamin supplement manufacturer may advertise that it is

extremely important for women to replace iron lost through

menstruation. Most consumers already agree with this, but the

belief can be made stronger.

o Add beliefs. Consumers are less likely to resist the addition of

Page 68
beliefs so long as they do not conflict with existing beliefs. Thus,

the beef industry has added beliefs that beef (1) is convenient

and (2) can be used to make a number of creative dishes. Vitamin

manufacturers attempt to add the belief that stress causes

vitamin depletion, which sounds quite plausible to most people.

o Change ideal. It usually difficult, and very risky, to attempt to

change ideals, and only few firms succeed. For example, Hard

Candy may have attempted to change the ideal away from

traditional beauty toward more unique self expression.

One-sided vs. two-sided appeals. Attitude research has shown that

consumers

often tend to react more favorably to advertisements which either (1) admit

something negative about the sponsoring brand (e.g., the Volvo is a clumsy

car,

but very safe) or (2) admits something positive about a competing brand (e.g.,

a competing supermarket has slightly lower prices, but offers less service and

selection). Two-sided appeals must, contain overriding arguments why the

sponsoring brand is ultimately superior--that is, in the above examples, the

"but" part must be emphasized.

The Elaboration Likelihood Model (ELM) and Celebrity Endorsements. The

ELM

suggests that consumers will scrutinize claims more in important situations

than in unimportant ones. For example, we found that in the study of people

trying to get ahead of others in a line to use photo copiers, the compliance

rate was about fifty percent when people just asked to get ahead. However,

Page 69
when the justification "... because I have to make copies" was added,

compliance increased to 80%. Since the reason offered really did not add

substantive information, we conclude that it was not extensively analyzed--in

the jargon of the theory, "elaboration" was low.

The ELM suggests that for "unimportant" products, elaboration will be low,

and

thus Bill Cosby is able to endorse Coke and Jell-O without having any special

credentials to do so. However, for products which are either expensive or

important for some other reason (e.g., a pain reliever given to a child that

could be harmed by using dangerous substances), elaboration is likely to be

more extensive, and the endorser is expected to be "congruent," or

compatible, with the product. For example, a basket ball player is likely to be

effective in endorsing athletic shoes, but not in endorsing automobiles. On the

other hand, a nationally syndicated auto columnist would be successful in

endorsing cars, but not athletic shoes. All of them, however, could endorse

fast food

restaurants effectively. Appeal approaches. Several approaches to appeal

may be used. The use of affect to induce empathy with advertising characters

may increase attraction to a product, but may backfire if consumers believe

that people’s feelings are being exploited. Fear appeals appear to work only if

(1) an optimal level of fear is evoked--not so much that people tune it out, but

enough to scare people into action and (2) a way to avoid the feared stimulus

is explicitly indicated--e.g., gingivitis and tooth loss can be avoided by using

this mouth wash. Humor appears to be effective in gaining attention, but does

not appear to increase persuasion in practice. In addition, a more favorable

Page 70
attitude toward the advertisement may be created by humorous advertising,

which may in turn result in increased sales. Comparative advertising, which is

illegal in many countries, often increases sales for the sponsoring brand, but

may backfire in certain cultures. Self-Concept, Situational Influences, and

Lifestyle The self-concept. The consumer faces several possible selves. The

actual self reflects how the individual actually is, although the consumer may

not be

aware of that reality (e.g., many anorexic consumers who are dangerously

thin believe that they are in fact fat). In contrast, the ideal self reflects a self

that a person would like to have, but does not in fact have. For example, a

couch potato may want to be a World famous athlete, but may have no actual

athletic ability. The private self is one that is not intentionally exposed to

others. For example, a police officer may like and listen to rap music in

private, but project a public self-image of a country music enthusiast, playing

country songs at work where police officers are portrayed as heroes. The key

here is to keep in mind which kind of self we are trying to reach in promotional

messages. If we appeal to the hidden self, for example, we must be careful to

make our appeals subtle and hint, if appropriate, on how the individual’s

confidentiality and privacy can be enhanced. Individuals will often seek to

augment and enhance their self concepts, and it may be possible to market

products that help achieve this goal. For example, a successful attorney may

want to wear (in politically correct terms) cow child boots and a cow child hat

to bring home an image as a ranch enthusiast. Lifestyles Self-concept often

translates into a person’s lifestyle, or the way that he or she lives his or her

life. For example, a person may be very materialistic, preferring to wear flashy

Page 71
clothes and drive expensive cars, or prefer instead a simpler life with fewer

visible status symbols. Attempts have been made to classify consumers into

various segments based on their

lifestyles. The Values and Lifestyle (VALS) Project, developed by the Stanford

Research Institute (SRI), attempts to classify people based on a combination

of values and resources. Thus, for example, both "Achievers" and "Strivers"

want public recognition, but only the Achievers have the resources to bring

this about. A global analogue is the Global Scan.

Situational influences. Specific circumstances often influence consumer

behavior. For example, consumers in a rush are likely to take the most

convenient product available. Consumers whose attention is demanded

elsewhere are likely to disregard commercial messages. Consumers shopping

for a special occasion (e.g., a wedding) may buy different products.

Consumer Decision Making

Definitions. Consumer decision making comes about as an attempt to solve

consumer problems. A problem refers to "a discrepancy between a desired

state and an ideal state which is sufficient to arouse and activate a decision

process." Thus, problems can be major (e.g., a consumer has been fired and

is without a job) or minor (e.g., the consumer lacks an eraser necessary to

take an exam the next day), and the broader and more ambiguous a problem

is, the more potential solutions are generally available (see class slides for

examples). Consumer Problem Recognition. Consumers often note problems

by comparing their current, or actual, situation, explicitly or implicitly, to some

desired situation. In terms of the "big picture," what is compared may be the

totality of one’s lifestyle. Once a discrepancy is found, a determination is

Page 72
found as to whether this is large enough to warrant action, in which case a

search for solutions is initiated.

Problems come in several different types. A problem may be an active one

(e.g., you have a headache and would like as quick a solution as possible) or

inactive-- you are not aware that your situation is a problem (e.g., a consumer

is not aware that he or she could have more energy with a new vitamin).

Problems may be acknowledged (e.g., a consumer is aware that his or her car

does not accelerate well enough or unacknowledged (e.g., a consumer will

not acknowledge that he or she consumes too much alcohol). Finally, needs

can be relatively specific (generic), as in the need for enjoyment (which can

be satisfied many different ways), or specific, as in the need for professional

attire to wear at a new job.

Several different methods can be used to detect consumer problems, which

are discussed on pp. 508-509 in the text.

Creating problems for consumers is a way to increase sales, albeit a

questionably ethical one. One way to create new problems, and resultant

needs, is to create a new ideal state. This is often done quite arbitrarily in the

fashion industry, as skirt lengths and the appropriate number of buttons on a

suit often change arbitrarily up and down. It may also be possible to create

dissatisfaction with current states--e.g., a firm may publicize current crime

statistics to increase the sales of handguns and alarms. Many vocational

training schools advertise that better careers than the consumer’s current one

are available upon graduation (a promise on which, by the way, they may not

deliver in the end).

Page 73
There are two main approaches to search. Internal searches are based on

what consumers already know. Thus, it may be important for certain firms to

advertise to consumers before they actually need the product. For example,

one bail bond company advertised its existence to people "in case you ever

find yourself in jail." As another example, if you decide to go out for fast food,

you may not consult any directories, but instead search your memory for fast

food restaurants conveniently located. A problem is that some excellent ones

which are not remembered, or have never been heard of, are not considered.

External searches get people to either speak to others (getting information by

word of mouth) or use other sources (such as advertisements now sought out

or yellow page listings). Because the yellow pages are often the first place to

which people turn, this medium is able to charge very large advertising rates.

Consumers often do not consider all alternatives. Some are not known (the

"unawareness" set), some were once known but are not readily accessible in

memory (the "inert" set), others are ruled out as unsatisfactory (the "inept"

set--e.g., Glad bags attempts to get "bargain bags" into that set), and those

that are considered represent the "evoked" set, from which one alternative is

likely to be purchased.

The amount of effort a consumer puts into searching depends on a number of

factors such as the market (how many competitors are there, and how great

are differences between brands expected to be?), product characteristics

(how important is this product? How complex is the product? How obvious are

indications of quality?), consumer characteristics (how interested is a

consumer, generally, in analyzing product characteristics and making the best

possible deal?), and situational characteristics (as previously discussed).

Page 74
Two interesting issues in decisions are variety seeking (where consumers

seek to try new brands not because these brands are expected to be "better"

in any way, but rather because the consumer wants a "change of pace," and

"impulse" purchases. Impulse purchases are, generally speaking, unplanned,

but represent a somewhat fuzzy group. For example, a shopper may plan to

buy vegetables but only decide in the store to actually buy broccoli and corn.

Alternatively, a person may buy an item which is currently on sale, or one that

he or she remembers that is needed only once inside the store (remember the

Wal-Mart article).

Page 75