CB - Ch02 - PDF

2 Value and the Consumer
Behavior Framework
LEARNING Objectives
After studying this chapter, the student should be able to:
2-1 Describe the consumer value framework, including its basic components.
2-2 Define consumer value and compare and contrast two key types of value.
2-3 Apply the concepts of marketing strategy and marketing tactics to describe the way firms go
about creating value for consumers.
2-4 Explain the way market characteristics like market segmentation and product differentiation
affect marketing strategy.
Dimitri Otis/Getty Images

2-5 Analyze consumer markets using elementary perceptual maps.
2-6 Justify consumers’ lifetime value as an effective focus for long-term business success.
Remember to visit PAGE 43 for additional STUDY TOOLS
Introduction lying is common in these sites. In particular, consum-

ers like to lie about what they own and what they do,
When two people meet for the first time, one of the fast- in addition to embellishing their personal appearance.
est ways to get to know one another is to share informa- Common lies often involve activities like traveling, as
tion about each other’s favorite things. You might ask, people try to portray themselves as living a certain life-
What is your favorite thing to do? What are your favor- style.1 People also choose which hobbies to list based
ite brands? What are your favorite things to eat and to more on how they believe this will appeal to others
drink? And the person may answer, playing poker with than on the way they actually spend time. The fact that
friends, Urban Outfitters, shrimp, and craft beer. Now those seeking dates commonly stretch the truth about
you know something about that person. the things they spend time and money on demonstrates
Online dating has become commonplace. Just un- how important consumer choices are in shaping indi-
der half of single consumers in America report visiting vidual identity.
an online dating site. The choices have grown beyond Many consumers who use dating sites seek a re-
match.com and eHarmony.com to more targeted sites lationship. Likewise, consumers and businesses often
such farmersonly.com, christianmingle.com, outime benefit from relationships. These relationships begin
.com, and blackpeoplemeet.com, just to mention a few. with consumer preference. Consumer preference
All the dating sites involve personal descriptions that can be varied and fickle. For example, one consumer
include physical appearance, occupation, and, as men- likes sauerkraut while another can’t even go near it.
tioned above, favorite things. Can users believe what This book sheds light on why the things that provide
they see in an online profile? Research suggests that so much value to certain consumers in certain times
24 PART ONE: Introduction
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or certain situations don’t really do anything for other 2-1a The Consumer Value Framework
consumers or even the same consumer at a different
Given the potential complexity involved in explain-
time or in a different situation. This chapter intro-
ing consumption, a framework for studying consumer
duces the Consumer Value Framework and some of
behavior is useful. Exhibit 2.1 displays the framework
the core concepts that tie all of CB together and make
used in this book. The Consumer Value Frame-
it actionable in marketing.
work (CVF) represents consumer behavior theory,
illustrating factors that shape consumption-related be-
haviors and ultimately determine the value associated
2-1 The Consumer Value with consumption. The different components shown
with different colors roughly correspond to the differ-
Framework and Its ent parts of this book. However, the student of con-
Components sumer behavior must recognize and accept the fact that
each aspect of the CVF is related in some way to other
components of the model. The arrows connecting the
Consumer behavior is multifaceted. Not only does different components typify these connections.
the study of consumer behavior involve multiple dis-
ciplines, but anyone who has ever made a major pur- 2-1b alue and the
V Consumer Value
chase like a house, an automobile, or an apartment
knows that many factors can affect both the purchase
CVF Components Framework (CVF)
consumer behavior theory that
decision and the way one feels after the purchase. This Value is at the heart of expe- illustrates factors that shape
book tries to explain these sorts of phenomena and in riencing and understanding consumption-related behaviors
and ultimately determine the value
doing so provide clues as to how consumers can be bet- consumer behavior. Thus,
associated with consumption
ter served. we will never get too far
CHAPTER 2: Value and the Consumer Behavior Framework 25
CRM means each cus-
Exhibit 2.1 tomer represents a poten-
tial stream of resources
Consumer Value Framework (CVF) rather than just a single sale.
Relationship quality re-
Internal Influences External Influences flects the connectedness
Consumption Process
Consumer Psychology Needs Social Environment between a consumer and a
Learning Wants Acculturation/ retailer, brand, or service
Search Exchange Enculturation
Perception Costs and Benefits provider.2 In practice, a
Culture and
Implicit Memory Reactions Cultural Values high-quality relationship is
Intuition Reference Groups typified by a consumer who
Information and Peer Influence
Processing Value feels like he or she should
Social Class
Memory Utilitarian Value Family Influence buy the same brand each
Categorization Hedonic Value Social Media time a need for that product
Attitudes Popular Media arises. When relationship
quality is strong between
Personality of Consumer customer and company, cus-
Motivation
Personal Values Situational Influences tomers are highly receptive
Personality Environment to brand extensions and thus
Lifestyle Relationship Quality (Virtual/Physical) the brand enjoys a near ready
Self-Image/Identity CS/D Time/ Timing
Switching Behavior Conditions market for new products.3
Emotional
Expressiveness Customer Share Loyal customers are more
Emotional Intelligence Customer Commitment profitable than custom-
ers who consider switching
brand or providers each

time they make a purchase.
from value in any chapter of this book. We’ll expand more A customer who experiences high value from ser-
on value later in this chapter and throughout the book. vice realizes that relationship quality is high. Over time,
In the rest of this section, we present the basic compo- the consistent value delivery builds customer loyalty.
nents of the CVF that either contribute to or are outcomes Salesforce.com has grown into one of the leading For-
of value. tune 500 firms overall and one of the top 10 firms to work
for, all based on the idea that systems that build customer
Relationship Quality relationships provide win-win exchanges where both cus-
Over the past two decades or so, Customer tomer and business benefit. Their products include ana-
Relationship Management (CRM) has become a lytics tools that push valuable information to a salesforce,
popular catchphrase, not so that salespersons can enter any meeting with a client
just in marketing but in all armed with key information that points toward the types
Customer Relationship of business. A basic CRM of products clients are most likely to need or desire.
Management (CRM)
systematic information premise is that customers
form relationships with Consumption Process
management system that collects,
maintains, and reports detailed companies as opposed to Consumers must decide to do something before they
information about customers to companies conducting in- can receive value. The consumption process involves
enable a more customer-oriented
managerial approach
dividual transactions with deciding what is needed, what the options for exchange
customers. A CRM sys- might be, and the inevitable reaction to consumption.
relationship quality tem tracks detailed infor- The consumption process can involve a great deal of de-
degree of connectedness between
a consumer and a retailer, brand,
mation about customers cision making and thus represents a consumer decision-
or service provider so marketers can make making process and the results of service. Service can
more customer-oriented be thought of as the organization’s efforts and resources
Service an organization’s
efforts and resources applied
decisions that hope fully applied toward value creation. Many factors influence
toward value creation lead to longer-lasting this process, and these factors can be divided into differ-
relationships. ent categories, such as internal and external influences.
Consumers and Technology
A Tech Firm Has to Know Its

Limitations
When we think about technology firms, we have
expectations that they all will develop the next big
thing! So much so that Samsung latched on to “the
next big thing” as its slogan. Inevitably, firms want to
grow. But, how should they grow? Very often, when
Rawpixel.com/Shutterstock.com
a tech firm builds lots of resources, they attempt
to build a product at the next layer of technology.
Eventually, the next big thing is something more
technologically complex.
The term “stack fallacy” refers to the mistaken
belief that success lies in creating the next, more
complicated, layer of technology. However, history
shows that success often comes from moving down its core service—facilitating search! A firm has to know
the technology stack, not up. Google tried moving up its limitations to create value for customers.
to social networking with less than outstanding results Sources: Mims, C. (2016), “Why Companies Are Being Disrupted,” Wall Street Journal (January
(Google +). However, its move down to create its own 25), B4. Limer, C. (2015), “Samsung Galaxy 6: Not the Next Big Thing, Just a Great Phone,”
http://gizmodo.com/samsung-galaxy-s6-review-not-the-next-big-thing-just-1695061015,
servers has allowed it to better provide value through accessed February 10, 2016.
Internal Influences: The Psychology child may develop a dislike of smoking. Affect refers to
and Personality of the Consumer the feelings experienced during consumption activities or
feelings associated with specific objects. If the child con-
The Psychology of the Consumer. Most consumers
tinues to receive negative information about smoking,
can think of a place they try hard to avoid solely because
the belief that it’s nasty may result in feelings of disgust.
of the irritating music played there. Consumers fear they
Many people think of these types of things when they
may develop an earworm, a term that refers to the real
think of CB. Certainly, our perceptions help shape the desir-
phenomenon of a song that “gets stuck in my head.” Is
ability of products, which can influence decision processes
getting a song stuck in someone’s head a good idea if you
and the value perceived
want to sell something? Repetitive rhythms provide a
from consuming something.
mechanism that facilitates learning.4 But the effect can internal influences
Recall that value is a subjec-
also be irritating, as evidenced by the fact that songs like things that go on inside the mind
tive assessment. Therefore, and heart of the consumer or that
Single Ladies (Beyoncé), Ice Ice Baby (Vanilla Ice), and,
value is very much a matter are truly a part of the consumer
perhaps the top example, It’s a Small World (Disney),
of perception. psychologically
drive many consumers up the wall. Questions like this
involve the psychology of the consumer. In other words, The Personality of the cognition thinking or mental
processes that go on as we process
the mechanisms that create such effects are internal in- Consumer. Every con- and store things that can become
fluences, things that go on inside the consumer’s mind sumer has certain char- knowledge
and heart or that are indeed truly a part of the consumer. acteristics and traits that
affect feelings associated with
The psychology of the consumer involves both cog- help define him or her as objects or activities
nitive and affective processes. The term cognition re- an individual. We refer to
fers to the thinking or mental processes that go on as we these traits generally as individual differences
characteristic traits of individuals,
process and store things that can become knowledge. A individual differences. including demographics,
child hears parents talk about smoking as a nasty thing to Individual differences that personality, and lifestyle
do. Smoking becomes associated with nastiness, and the tangibly make one person
distinct from another, which include personality and safety. She clicks through and finds a link to a video of
lifestyle, help determine consumer behavior. Consumer a new eight-floor apartment building two miles from
researchers focus increasingly on the self-identity of con- campus. The video provides a virtual visit and clearly
sumers. The increased attention may be driven in part by displays the friendly doorman (in a security uniform)
the theory that today’s teens and young adults are more providing entry to the building and pointing the way to
self-absorbed than previous generations. This belief is built the elevator. She talks about her fears with her room-
largely on the fact that narcissism scores, a personality trait mate, friends, and parents. Her parents agree to pay
capturing self-absorption, are higher among these con- to break the lease and tell her to find a safer place.
sumers than those from previous generations.5 What do Now she goes back to the Web and searches for the
you think? If this is so, how would it influence marketing? address of the high-rise apartment complex and checks
Companies have spent vast amounts of money and for other apartment buildings nearby. At this moment,
time trying to harness individual differences in a way Pam experiences what some call the “zero moment
that allows consumer choice to be predicted. They do of truth.” That’s the point when a passive shopper
so because individual differences like these include becomes an active shopper and actively seeks out ex-
basic motivations, which trigger consumer desires. change alternatives.6
Also, individual differences shape the value experi- In this example, numerous external influences
enced by consumers and the reaction consumers have have come together to change the value equation for
to consumption. Pam, change the relationship with her current apart-
ment complex, activate a need, and trigger the desire
External Influences for a better place to live. External influences include
Every consumer contains a storehouse of information social, cultural, media, environmental, and temporal
internally, but in many cases some external influence factors, among others. They are critical to understand-
triggers the consumption process or provides infor- ing CB.
mation necessary for a consumer to make a decision.
Social Environment. The social environment in-
Pam, a 20-year-old student at an urban university, de-
cludes people and groups who help shape a consum-
cides to move to a university apartment complex with
er’s everyday experiences. Some influence is personal,
a roommate she’s known since high school. The com-
meaning the consumer actually knows the people;
plex is typical, and they have a ground-floor flat with
some is impersonal, coming from unknown people like
two reserved parking spots in the back, about 40 yards
celebrities; and still other influence is virtual, coming
from their apartment door. They like the quiet location
from unknown sources online or in social networks.
facing the rear of the complex. Both are content and
excited about their new place. One day, Pam is surfing
Slideshare.net as she has a bite to eat near her place.
She takes a look at a slideshow called “What they didn’t
tell me.” The slides contain a list of “mistakes” made by
the author, a young woman with whom Pam can relate.
Several slides talk about the horror of break-ins in her
ground-floor flat and warn viewers that ground-floor Syda Productions/Shutterstock.com
apartments are not safe
and to always get an apart-
external influences
social and cultural aspects of life ment with a door in plain
as a consumer view (not rear-facing), or
better, to choose an apart-
social environment
elements that specifically deal ment complex with inte-
with the way other people rior apartment access only
influence consumer decision via a 24-hour doorman. Consumer researchers focus increasingly
making and value
The next day, while on the self-identity of consumers, based
zero moment of truth The Pam is buying a textbook on the theory that today’s teens and
point when a shopper moves from online using her smart- young adults are more self-absorbed than
passive to active and seeks out
phone, she notices a link previous generations were.
exchange alternatives.
to a blog about apartment
Nespresso: So Emotional
I n economics, we typically think lower prices lead to

greater demand. Is that the case? Think of the stron-
gest brands that you associate with coffee. Do they
sell for the lowest price? In fact, no brand in coffee has
gained more strength recently than Nespresso, which
sells for over $50 per pound. But looking at the CVF,
one has to consider the entire model to understand the
Nespresso appeal.
Sorbis/Shutterstock.com
The coffee makers were originally useful in creating
customers for pods. However, coffee is a mere vehicle
to provide customers with an emotional experience.
Nespresso boutiques provide retail theater epitomizing
the hedonic value experience that allows Nespresso
to build and reinforce relationships with its customers.
Nespresso’s huge success lies not in a low price, but in Sources: Foster, J., and McLelland, M. A. (2015). “Retail Atmospherics: The Impact of a Brand-
Dictated Theme,” Journal of Retailing and Consumer Services, 22, 195–205. Wrigley, C. and R. Ramsey
emotional design delivering a total value experience— (2016), “Emotional Food Design: From Designing Food Products to Designing Food Systems,”
not just a cup of coffee. International Journal of Food Design, 1, 11–29.
In addition, any time a consumer chooses to do some- influences like acculturation, the sometimes not-so-
thing, at least in part, to please or appeal to another subtle influence of family and friends.
consumer, the social environment plays a role in that
Situational Influences. External influences also in-
process. Group influence is one mechanism through
clude situational influences. Situational influences
which social influences work. Simple decisions ranging
are temporary factors unique to a time or place that can
from what breakfast foods to buy to complicated things
change the value seen in a decision and received from
like attending a university all are shaped by subtle
consumption. Situational influences include the effect
that the physical environment has on con-
sumer behavior. For example, the presence
Exhibit 2.2 of music in an environment may shape con-
sumer behavior and even change buying
External Influences Shape patterns. Timing also plays an important
role. Research suggests that for a short time
Consumers’ Decisions following the purchase of a lottery ticket,
This looks like my
consumers are more likely to participate in
I think I saw this
on Pinterest. friend Jen’s new impulsive shopping.7 More enduring tem-
shirt.
poral factors, such as the economic condi-
This store is so
tion at any given time, also affect the value
I wonder if my
much fun!
mom will like it?
of things. Exhibit 2.2 shows some of the ex-
ternal influences on one consumer.
The Cus-
This is a great Tomorrow is pay tomer Value situational influences
sale! day. I can afford it.
Framework things unique to a time or place
(CVF) helps that can affect consumer decision
making and the value received
organize the
from consumption
remainder of
this book. The CVF should be a valuable a later chapter. In contrast to these examples,
study aid, particularly given that the contriving a situation where
different theoretical areas of CB consumers are not seeking
are so closely related to each value is virtually impossible.
other. Additionally, the CVF is a In fact, everything we do in life we
good analysis tool for solving con- do in pursuit of value.
sumer behavior business prob-
lems. Lastly, the CVF is a valuable 2-2a The Value Equation
tool for businesses that are trying
shutteratakan/Shutterstock.com Exhibit 2.3 reflects some compo-
to understand the way consumers
nents of value and how a consumer might put these
respond to their product offerings. Thus, the CVF is useful
together to determine the overall worth of something—
in developing and implementing marketing strategy.
or its value. Worth to a consumer is actually a function of
much more than price. Value can be modeled by playing
the “what you get” from dealing with a company against
2-2 Value and Its Two the “what you have to give” to get the product. The “what
Basic Types you get” includes all sorts of benefits or positive conse-
quences of consumption. The “what you give” includes
sacrifices or the negative consequences of consumption.
The heart of the Consumer Value Framework, and the
Opportunity costs play a role. For instance, if a student
core concept of CB, is value. Value is a personal as-
goes to the movies on a weeknight, he may be giving up
sessment of the net worth a consumer obtains from
the opportunity to attend a class. In major decisions, like
an activity. From a marketing perspective, the firm
where to attend college, purchasing a smartphone, or
serves consumers well when consumers realize value
buying a home, one can easily see that the entire CVF
from activities involving interactions with the firm or
is involved. However, even in simpler situations, all the
its products. Value is what consumers ultimately pur-
components of the CVF are subtly in play. Thinking back
sue, because valuable actions address motivations that
to the chapter opening: when someone lies on an online
manifest themselves in needs and desires. In this sense,
value captures how much gratifi-
cation a consumer receives from
consumption. In return, the firm
receives value from consumers as Exhibit 2.3
they make purchases.
Most consumers would not list The Value Equation
a convenience store as their favor-
ite place to shop. Consumers see Value —
— What you get — What you give
the selection as small, the prices
high, and the service minimal.
Yet consumers return repeatedly
Benefits such as: Sacrifice of:
because, as their name implies, Quality Time
convenience is the key to value in Convenience Money
this setting. Consumers will actu- Emotions Effort
ally repeat behavior for which they Prestige Opportunity
have previously experienced low
Experience Emotions
satisfaction. Walmart stores do not
have a relatively high consumer sat- Image
isfaction index, yet many customers Other factors like:
repeatedly visit Walmart. Walmart Scarcity
delivers Nostalgia
value, as
value a personal assessment of the
net worth obtained from an activity we will
see in
dating site, they are attempting to distort the value equa- else good to happen or be accomplished. Search en-
tion from reality. gines provide value as a means of providing the end of
Later in the book, a chapter is devoted to further finding potentially useful information.
describing value and other related concepts, including
expectations, satisfaction, and quality. However, because
value is an essential part of consumer behavior, a basic
2-2c Hedonic Value
overview is provided in this chapter. While theoretically The second type of value is referred to in CB as hedonic
one could probably break down value into many very value. Hedonic value is the immediate gratification
specific types, a very useful value typology can be devel- that comes from experiencing some activity. Seldom
oped using only two types. Thus, we distinguish utilitar- does one go to a horror film or play Face Swap Online in
ian value from hedonic value. an effort to get a job done. With hedonic value, the value
is provided entirely by the actual experience and emo-
2-2b Utilitarian Value tions associated with consumption, not because some
other end is or will be accomplished.
Activities and objects that lead to high utilitarian Conceptually, hedonic value differs from utilitar-
value do so because they help the consumer accom- ian value in several ways. First, hedonic value is an end
plish some task. Utilitarian value is gratification de- in and of itself rather than a means to an end. Second,
rived from something that helps the consumer solve hedonic value is very emotional and subjective in nature.
problems or accomplish tasks that are a part of be- Third, when a consumer does something to obtain he-
ing a consumer. When consumers buy something in donic value, the action can sometimes be very difficult to
pursuit of utilitarian value, they can typically provide explain objectively.
a clearly rational explanation for the purchase. For Rather than being viewed as opposites, the two
instance, when a consumer calls a plumber, she un- types of value are not mutually exclusive. In other words,
doubtedly has a problem like a stopped-up toilet. The
the same act of consumption can provide both utilitar-
consumer purchases the plumbing services because
ian value and hedonic value. Dining in a place like the
they accomplish something. In this case, the services
Hard Rock Café is an event. One doesn’t have to go to
accomplish the end of getting a toilet working. Actions
Hard Rock to eat, but dining there is a lot of fun—an
that provide utilitarian value are worthwhile because
experience. However, the Hard Rock consumer also ac-
they provide a means to an end.8 The actions provide
complishes the task of having something to eat—getting
value because the object or activity allows something
nourished. In fact, the very best consumer experiences
are those that provide both high utilitarian value and
high hedonic value.
What are your favorite movies of all time? Exhibit 2.4
shows the top 10 grossing movies of all time.9 Is anything
surprising about the list? All are rated G, PG, or PG-13.
Not even a single R rating appears among the top 10,
even though Hollywood produces more R-rated movies
than any other rating. Maybe Hollywood doesn’t under-
stand all the ways a movie provides value. With a family
film, parents can take the kids to the movie and accom-
wavebreakmedia/Shutterstock.com
plish the job of keeping the kids happy while at the same
time enjoying the movie themselves. In this way, mov-
ies like these provide high
value and the value trans- utilitarian
lates into business success value gratification derived
for the studios. because something helps a
consumer solve a problem or
Exhibit 2.5 illustrates accomplish some task
Going to the movies? What are the gets and the value propositions of
gives that determine value from the movie example brands. Marketers hedonic value value derived
from the immediate gratification
experience? can do well by concentrat- that comes from some activity
ing on providing one type
imagination and cap off a tantaliz-
Exhibit 2.4 ing hedonic experience for the tar-
geted segment of the population.
All Time-Box Office Sales Leaders It’s easy to start thinking about
utilitarian and hedonic value as op-
Domestic posites, but one does not exclude
Year Total sales sales the other. In fact, some brands and
Rank Movie released ($millions) ($millions)
experiences offer high or low levels
1 Avatar 2009 $2,788.00 $760.50 of both. Many may find their smart
2 Titanic 1997 $2,186.80 $658.70 devices typify high utilitarian and
3 Star Wars: The Force 2015 $2,026.60 $914.80 high hedonic value. The Wood-
Awakens house may not be high-tech, but
it clearly offers high levels of both
4 Jurassic World 2015 $1,670.40 $652.30
types of value through an indulgent
5 Marvel’s The Avengers 2012 $1,519.60 $623.40 day spa experience that is also good
6 Furious 7 2015 $1,516.00 $353.00 for clients’ minds and bodies. The
7 Avengers: Age of Ultron 2015 $1,405.40 $459.00 day spa business is fast growing in
the United States; in fact, some
8 Harry Potter and the 2011 $1,341.50 $381.00 hospital brands are opening medi-
Deathly Hallows Part 2
cal spas to enhance customers’
9 Frozen 2013 $1,276.50 $400.70 physical and emotional well-being.
10 Iron Man 3 2013 $1,215.40 $409.00 The decision of just how to deliver
value becomes an important mar-
Source: http://www.boxofficemojo.com/alltime/world/, accessed October 17, 2016.
keting strategy question.
of value or the other. In the best-case scenario, they pro-

vide high levels of both. Walmart epitomizes a brand that
does well by concentrating providing utilitarian value
its customers find by shopping in a Walmart store or at
Walmart online. Twin Peaks is a fast-growing but con-
troversial restaurant chain. The Twin Peaks experience
includes a mountain lodge atmosphere and a reasonably
priced bar food menu featuring typical items like chicken
wings, quesadillas, and cold beer. So what’s controver-
sial? Well, Twin Peaks servers’ uniforms leave little to the
Exhibit 2.5
Value Propositions Involve
Roman Samborskyi/Shutterstock.com
Combinations of Value
Utilitarian Value
Low High
Hedonic Low Kodak Walmart
Value
High Twin Peaks Woodhouse High utilitarian and high hedonic value
help build brand success.
Firms that offer low utilitarian and low hedonic
value typically are failing. Kodak, once lauded for its
The company that focuses
marketing genius, has struggled mightily in the digital
era. Currently, most traditional Kodak products, like on value creation builds
traditional cameras, offer little usefulness and little ex-
perience beyond nostalgia. Thus, Kodak is in the unfor-
innovative solutions around
tunate position of offering low levels of both utilitarian consumer needs and wants,
and hedonic value.
not the physical product.
2-3 Marketing Strategy

and Consumer Value When companies define themselves in terms of
products like phones, cable, or even the Internet,
One way that a company can enhance the chance of long- they often fail to realize how they truly serve custom-
run survival is to have an effective marketing strategy. To ers. When firms fail to realize how their products pro-
an army general, a strategy provides a way of winning a vide value, they run the risk of developing marketing
military conflict. Generally, a strategy is a planned way myopia, defined as a condition in which a company
of doing something to accomplish some goal. views itself competing in a product business rather than
in a value- or benefits-producing business.11 Thus, when
technology makes a good or service obsolete, the myopic
2-3a Marketing Strategy business goes out of business. In contrast, the company
If strategy is a way of doing something, given the purpose that focuses on value creation builds innovative solu-
of business, a marketing strategy is the way a company tions around consumer needs and wants, not the physi-
goes about creating value for customers. The strategy cal product. It’s interesting to contemplate what business
also should provide an effective way of dealing with both famous brands like Apple, Google, and Facebook are
competition and eventual technological obsolescence, by really in. Do they know? Eharmony might easily define
making sure the firm’s offerings deliver value in a way that itself only as a dating site, but the company views itself
competitors cannot duplicate easily and in a way not de- as being more in the compatibility business, and is ex-
fined only in terms of the tangible product offered. perimenting with job placement—matching employees
A complete understanding of the value consumers with compatible jobs.
seek is needed to effectively develop and implement a Strategies exist at several different levels. Exhibit 2.6
strategy. The market is filled with competing Internet demonstrates this point. Basically, corporate strategy
service providers (ISPs). CenturyLink, Comcast, Cox, deals with how the firm will be defined and sets general
and AT&T are major ISP players. While they obviously goals. This strategy is usually associated with a specific
compete with each other, each also competes less obvi- corporate culture, which
ously with relatively unknown companies working to- provides an operating ori- strategy a planned way of
ward a solution that bypasses ISPs. One such firm is entation for the company. doing something to accomplish
working on a satellite-based solution that beams free Marketing strategy then some goal
Internet communication directly to consumers’ devices follows. Different business marketing strategy way
through an inexpensive plug-and-play receiver coupled units within the firm may a company goes about creating
to a satellite dish.10 If the Outernet becomes even eas- have different marketing value for customers
ier to access, why would one need an ISP? Couple this strategies. In describing marketing myopia a
with the fact that Skype provides free real-time voice how value is created, the common condition in which a
and video communication, and more and more con- strategies tell why cus- shortsighted company views itself
sumers rely on YouTube and Netflix for entertainment; tomers will choose to buy in a product business rather than
in a value- or benefits-producing
some of these ISPs, cable companies, or phone com- things from the company. business
panies could be in their final years. Each firm needs Strategies must even-
to understand what benefit they truly provide. A com- tually be implemented. corporate strategy way
a firm is defined and its general
munication company may be better than an ISP or a Implementation deals with goals
phone company. operational management.
with about half the total market. Adidas has less
Exhibit 2.6 than half the share of Nike, and Reebok, which
was purchased by Adidas in 2006, has only a small
Business Strategy Exists at Different Levels share. Puma, New Balance, and newcomer to the
footwear market, Under Armour, lag far behind.
Nike is more than a rubber sole with leather and
nylon uppers and laces: the swoosh matters. A
couple of interesting facts that may be more than
coincidental:
▸▸ Nike’s advertising budget is twice the size of its

nearest competitor.
▸▸ Nike’s revenue is boosted by premium shoes tied
to famous athletes like the “Lebron”—a basket-
ball shoe that retails for around $250.
▸▸ Among consumers who run more than ten miles
per week, New Balance has a share comparable
to Nike.
Do these facts shed some light on the way these

In marketing, this level includes activities known as
brands’ shoes provide value to the consumer? Probably
tactics. Marketing tactics, which involve price, pro-
so. Is the Nike image, fueled by massive amounts of ad-
motion, product, and distribution decisions, are ways
vertising and celebrity tie-ins, as important to the serious
marketing management is implemented. Together, mar-
runner as it is to the mass market?
keting strategy and marketing tactics should maximize
While we associate airlines with transportation,
the total value received by a company’s customers.
they have other ways of providing value. While dis-
count airlines may charge for all sorts of extras, many
2-3b Total Value Concept full-service airlines still offer things like complimentary
food and drink and individual electronic entertainment
Products are multifaceted and can provide value in many
ways. Consider the market for athletic shoes.
Different brands of athletic shoes appear very
similar. A running shoe from Nike appears to be Exhibit 2.7
made from much the same materials and in much
the same manner as a running shoe from Adidas Market Share for Athletic Shoes
or New Balance. Take a look at the prices and
one finds that they have shoes at the same price
points, too. However, the market share for the
competing brands is nowhere near the same. Adidas
Exhibit 2.7 displays the approximate rela- Reebok
tive market share for the top athletic shoe com- Nike
panies.12 If all the products are much the same Puma
and sell for about the New Balance
same prices, then Under Armour
marketing tactics ways they should have Other
marketing management is comparable mar-
implemented; involves price,
ket share. Yet that’s
promotion, product, and
distribution decisions not nearly the case.
Nike dominates
systems for playing games, watching movies, or creating
a playlist. Airlines also offer their preferred customers 3. The feelings associated with driving
perks like flight lounges, with comfortable work spaces, the car. The car can go from 0 to 60 mph in
food, drinks, and sometimes even a place to shower. The three seconds flat. At a top speed of over 200
term augmented product means the original product mph, the car can exceed the speed limit, but we
plus the extra things needed to increase the value from know consumers always obey the speed limit—
consumption. right? The excitement that is the Ferrari driving
experience provides hedonic value.
4. The positive feelings that go along with
Nike is more than a rubber ownership. The Ferrari owner will certainly
take pride in the car. He may also believe that
sole with leather and nylon social status comes from being seen as a Ferrari
uppers and laces: the owner. He can even impress friends with a drive
on the Pacific Coast Highway.
swoosh matters.
5. The feelings of status and pride that
come with ownership. A Ferrari jacket and
cap help make the statement, “I’m a Ferrari
Thus, every product’s value proposition is made owner.” The realization of ownership provides
up of the basic benefits, plus the augmented product, a hedonic value.
plus the “feel” benefits. A company must try to un-
6. The negative feelings that go along
derstand all the ways a product offers value to its cus-
tomers. The total value concept is practiced when with ownership. Hopefully, our Ferrari
companies operate with the understanding that prod- owner is independently wealthy. At a price tag
ucts provide value in multiple ways. Many products and of about US$300,000, the car loan could be the
brands, for instance, provide some benefits that pro- size of a modest mortgage—not including in-
duce utilitarian value and some that provide hedonic surance. If the Ferrari is a financial strain, then
value. This value, in turn, helps instill a brand’s meaning worry will result when the owner thinks about
in the consumer psyche. the car. Friends may have also suggested that
Ferraris are unreliable. All of these feelings
2-3c The Total Value Concept Illustrated may detract from the hedonic value offered by
the car.
Let’s consider a consumer who purchases a 2017 Fer-
rari 458 Speciale. Does the consumer buy the car for its
near 600 horsepower V-8 engine, carbon-filament doors,
bright red color, or dual-clutch seven-speed gear box? The total value proposition
No, the consumer buys the car because of the total value
offered. What does the Ferrari 458 Speciale value prop-
includes the basic benefits,
osition offer? the augmented product, plus
the feel benefits.
1. Transportation. In other words, the Ferrari
solves the job of getting a consumer from point augmented product
Altogether, most
A to point B. This is one way the Ferrari provides actual physical product purchased
readers would certainly
value—utilitarian value in this case. plus any services such as installation
like to drive the Ferrari and warranties necessary to use the
2. The Ferrari service plan. A Ferrari needs but probably would not product and obtain its benefits
TLC. Ferrari offers a three-year warranty, which care to pay the high price. total value concept
means for at least three years, the problem Thus, the Ferrari does not business practice wherein
of repairing the Ferrari is solved—utilitarian offer enough benefits for companies operate with the
value is added. understanding that products
us to make the necessary provide value in multiple ways
sacrifice. If the idea of a
2-4 Market Characteristics:
Shaun.P/Shutterstock.com
Market Segments and
Product Differentiation
Marketing management involves managing the mar-
How does the Ferrari provide value? If you
keting mix and deciding to whom the effort will be di-
understand this, you understand the total
rected. The marketing mix is simply the combination
value concept.
of product, pricing, promotion, and distribution strate-
gies used to position some product offering or brand in
the marketplace. The marketing mix represents the way
a marketing strategy is implemented within a given mar-
driverless car (like the one Alphabet now is working ket or exchange environment. Marketers often use the
on commercializing) is appealing to you, then you are term target market to signify which market segment a
looking for a different value proposition than the one company will serve with a specific marketing mix. Thus,
offered by Ferrari.13 target marketing requires that managers identify and un-
derstand market segments. But what exactly is market
segmentation?
2-3d Value Is Co-Created
Alone, a marketer can only propose a way of creat- 2-4a Market Segmentation
ing value to consumers. In other words, the marketer
Market segmentation is the separation of a market
cannot create value alone.14 Rather, consumers add
into groups based on the different demand curves asso-
resources in the form of knowledge and skills to do
ciated with each group. Market segmentation is a mar-
their own part in the consumption process. The mar-
ketplace condition; numerous segments exist in some
keter’s offering does not create value directly, but
markets, but very few segments may exist in others. We
rather consumption involves value co-creation.
can think of the total quantity of a product sold as a sim-
The marketer serves its customer by making poten-
ple mathematical function (f) like this: 15
tially beneficial outcomes of consumption available,
but the customer plays a role in whether or not the Q 5 f(p, w, x, . . . z)
offering’s attributes actually do prove beneficial, and
therefore valuable. The consumer and marketer, as a where Q 5 total quantity sold, p 5 price, and w, x, and
true service provider, are active in turning the offer z are other characteristics of the particular product. The
into value. For example, function means that as price and the other characteris-
a 24-hour fitness cen- tics are varied, the quantity demanded changes.
value co-creation the ter serves customers by For example, as the price of tablet computers de-
realization that a consumer is creases, the quantity sold increases; in other words, there
necessary and must play a part in making workout facilities
order to produce value available any time of day. is a negative relationship between price and quantity
However, the consumer sold. Negative relationships occur when as one variable
marketing mix increases the other decreases. This type of relation-
combination of product, pricing, can only realize value
promotion, and distribution from the offer by paying ship represents the typical price-quantity relationship
strategies used to implement a for this service and apply- commonly depicted in basic economics courses. As the
marketing strategy ing diligence, skill, and length of the warranty increases (w in this case), more
target market identified effort to a workout re- tablets are sold. Thus, if we limit the demand equation to
segment or segments of a market gime. In many instances, two characteristics (price p and warranty w in this case),
that a company serves a bad consumption ex- the equation representing demand for tablets overall
market segmentation perience is not entirely might be:
separation of a market into the fault of the business. Q 5 23p 1 2w
groups based on the different The consumer plays a
demand curves associated with
each group
role in the value equation The numbers, or coefficients, preceding p and w, respec-
as well. tively, for each group represent the sensitivity of each
segment to each characteristic. The greater
the magnitude (absolute value) of the number, Exhibit 2.8
the more sensitive that group is to a change in
that characteristic. In economics, elasticity is Total Market Sales and Sales within
a term used to represent market sensitivity to
changes in price or other characteristics.16 This Market Segments
equation suggests that consumers are more Q Q
sensitive to price than warranty, as indicated in
this case by the respective coefficients, 23 for
price and 12 for warranty.
However, this overall demand “curve” may
not accurately reflect any particular consumer.
Instead, the market may really consist of two
groups of consumers that produce this particu-
lar demand curve when aggregated. In other
words, the two groups may be of equal size and P P
be represented by equations that look some-
thing like this:
price is negatively related to quantity. The frame on the
q1 5 21p 1 3w
right breaks this market into three segments:
q2 5 25p 1 1w
1. The orange line depicts a segment that is highly sensi-
tive to price. Changes in price correspond to relatively
In this case, q1 and q2 represent the quantity that large changes in sales. In this particular case, price
would be sold in groups one and two, respectively. increases reduce the quantity demanded.
Group one is more sensitive to the warranty (|3| . |1|),
2. The green line represents a segment also sensitive
and group two is more sensitive to price (|25| . |21|). If
to price, so that higher prices are demanded less,
we put all the segments together, we get total demand but this segment is not nearly as sensitive as the first
once again: segment. Changes in price are not associated with as
large of a change in quantity sold.
Q 5 q1 1 q2
3. The violet line turns out to be perhaps most inter-
Thus, a market for any product is really the sum of esting. Here, when price goes up, the quantity sold
the demand existing in individual groups or segments of actually goes up, too. Thus, the group is sensitive to
consumers. The fast-food market may consist of many price but actually buys more at a higher price than at
a lower price.
segments including a group most interested in low price,
a group most interested in food quality, a group most Actually, although a positive relationship between
interested in convenience, and perhaps a group that is price and quantity may seem unusual, backward slop-
not extremely sensitive to any of these characteristics. In ing demand, a term used in economics to refer to this
this sense, market segmentation is not really a marketing situation, is hardly rare. When one considers product
tactic because the segments are created by consumers category demand, a market segment for many prod-
through their unique preferences. Market segmentation ucts will feature a positive price-to-quantity demanded
is critically important to effective marketing, though, relationship. For instance, how much perfume with a
and the marketing researcher’s job becomes identifying brand name of Très Cher could be sold in a gallon con-
segments and describing the segments’ members based tainer for $2? Probably not very much. However, Cha-
on characteristics such as age, income, geography, and nel No. 5 is highly demanded at about $325 an ounce.
lifestyle. Earlier, we discussed the athletic shoe market in the
Exhibit 2.8 depicts the market segmentation process. context of the total value concept, and how higher-priced
For simplicity, we consider the quantity sold as a func- brands were the best sell-
tion of price alone. The frame on the left depicts overall ers. If we think of a change elasticity reflects how sensitive
a consumer is to changes in some
quantity demanded. Typically, as price goes up (moves in price as the difference in product characteristic
right on the x-axis), the quantity sold goes down, meaning price between the bargain
added value comes not
just from the tangible
characteristics of offerings,
but also from the feelings
that come with knowledge of
the brand.
another. We refer to commodities very often as prod-

ucts that are indistinguishable across brands and/
Image Courtesy of The Advertising Archives

or manufacturers—that is, no matter who produced
them or where they were produced. Regular gaso-
line approaches a commodity status, but even here, a
few consumers will regard certain brands as unique.
In contrast, consumers looking for companionship do
not see all online dating sites as the same. While all of
the sites offer potential utilitarian value in the form
of putting users together, they differ in terms of how
they do so, pricing, and in how potential dates com-
Nike’s long-term market dominance
municate with each other. Some offer to narrow the
illustrates that their value proposition
market based on offering services ostensibly to those
goes beyond footwear.
only of a certain age group, ethnicity, religion, or life-
style. Thus, farmersonly.com brings together farmers.
Narrowing the market adds utilitarian value. Others
brands and Nike, most consumers seem to prefer higher- make the communication process more interesting by
priced shoes. At the very least, athletic shoe consumers offering online flirting or winking. Naturally, certain
appear insensitive to price. Although this may seem incon- segments, each aligned with various demographic and
sistent with “rational” economics, consumer behavior the- or lifestyle profiles, gravitate toward the online dating
ory offers an explanation. Name-brand products like Nike site most suited to them. In the same way, most mar-
are indeed worth more, meaning they are more valuable, kets are characterized by product differentiation and
than bargain-brand shoes. The added value comes not just
market segmentation.
from the tangible characteristics of the shoes, but also from
the feelings that come along with knowledge of the brand.
Market segments are associated with unique
value equations just as they are associated with
unique demand equations. Thus, if each segment is
offered a product that closely matches its particular
sensitivities, all segments can receive high value. This
brings us to product differentiation.
2-4b Product Differentiation

goodluz/Shutterstock.com
Product differentiation
product differentiation is a marketplace condition
marketplace condition in which in which consumers do not
consumers do not view all competing
products as identical to one another view all competing prod-
ucts as identical to one
2-5 Analyzing
Exhibit 2.9
Markets with
Perceptual Maps A Perceptual Map for Alternative Tourist
Product differentiation becomes the
Attractions
basis for product positioning. Po- Authentic
sitioning refers to the way a product IV River Cruise I
Cemetery Visit Culture
is perceived by a consumer and can Explorers
Jazz Museum
be represented by the number and
types of characteristics that consum- Knowledge
Seekers WWII Museum Adventure
ers perceive. A standard marketing Seekers
tool is a perceptual map. Audubon Zoo
2-5a Perceptual Maps

Bourbon Street
Marketing analysts use perceptual Relaxing Invigorating
Aquarium
maps to depict graphically the posi-
tioning of competing products. When Relaxers
Canal Place
marketing analysts examine percep-
tual maps, they can identify competi- Art Galleries Thrill Seekers
tors, identify opportunities for doing
Harrah’s Casino
more business, and diagnose poten-
tial problems in the marketing mix. III II
For instance, the analyst may realize Modern
that by changing the amount of some
product characteristic, they can move
closer to some segment’s ideal point,
strategy or tactics. In this case, the perceptual map de-
and thus increase the competitiveness of the product.
picts consumer beliefs about tourist attractions in New
Alternatively, a new business may choose to position a
Orleans, Louisiana. Each attraction is listed in a small
product in a way that leaves it facing little direct compe-
rectangle.
tition. This can be done by “locating” the product as far
The researcher identified and collected con-
away from other brands as possible.
sumer perceptions of the
Cirque de Soleil followed a marketing strategy that
ten tourist destinations
positioned its offering far away from other circuses by product positioning
and of the ideal points,
eliminating tents and circus animals (moving into are- way a product is perceived by a
meaning the combina- consumer
nas and auditoriums), raising prices (a ticket far above
tion of tourist destination
the normal circus ticket), reducing the number of acts, perceptual map
characteristics providing
and creating themes for acrobatic shows. In doing so, tool used to depict graphically the
the most value among positioning of competing products
they created what marketing analysts refer to as a blue
the five most prominent
ocean. A blue ocean strategy seeks to position a firm
17
blue ocean
consumer segments: Ad- strategy positioning a firm far
so far away from competitors that, when successful, the
venture Seekers, Cul- away from competitors’ positions
firm creates an industry of its own by finding an uncon-
ture Explorers, Relaxers, so that it creates an industry of
tested market space where, at least for a time, it isolates
Knowledge Seekers, and its own and, at least for a time,
itself from competitors. isolates itself from competitors
Thrill Seekers. Colored
18
ovals indicate these seg- ideal point combination

2-5b Illustrating a Perceptual Map of product characteristics that
ments centered on each
provide the most value to an
Exhibit 2.9 illustrates a perceptual map. Perceptual map- segment’s ideal point.
individual consumer or market
ping is used throughout this book as a way to link dif- The x- and y-axes of this segment
ferences in consumer behavior to changes in marketing plane represent important
dimensions that consumers use to separate competitors fewer resources to get started because the major
on specific characteristics. Here, the x-axis identifies competitors are not likely to see the new offering
product offerings based on how relaxing to invigorat- as a threat. Here, the opportunity for rustic, over-
ing consumers view each. The y-axis separates prod- night stays in the swamplands that surround New
Orleans may provide an attractive offering for this
uct offerings based on how relatively modern versus
segment. The success of such an offering depends
authentic consumers view each. The perceptual map
on a steady stream of Adventure Seekers coming to
allows several key observations.
New Orleans.
Perceptual maps are widely used to plot the way
consumers view competitors in an industry. As illus-
1. The competition among attractions viewed as
trated in the example, they are very useful for spotting
highly authentic and relaxing is intense. Con-
opportunities in the marketplace, allowing a business
sumers regard the Mississippi River Cruises, a
to better understand exactly whom they compete with,
visit to the Jazz Heritage Museum, a cemetery
and identifying what-if situations by examining what
visit, and the Audubon Zoo as possessing these
would happen if they changed an offering by raising
characteristics as shown in quadrant IV of the
or lowering characteristics. Very commonly, brands
perceptual map. The World War II Museum also
analyze themselves on a perceptual map with price
competes with these attractions, viewed as a
and quality as the dimensions. If a firm lowers price or
moderately authentic, moderately invigorating
raises quality, their competition may well change in re-
attraction.
sponse. Perceptual mapping is used in practically every
2. Two segments, Culture Explorers and Knowledge competitive industry, including the nonprofit sector.21
Seekers, possess ideal points near the five seg- The simple two-dimensional graphics give the user an
ments mentioned above. easy way to analyze a market.
3. Harrah’s Casino offers an option for the thrill-
seeking market with its position as highly exciting,
highly modern.
4. The city’s numerous art galleries offer the Relaxer Businesses are constantly
segment an attractive option.
using consumer behavior to
5. The Adventure Seeker segment appears under-
served, with no option prominent in quadrant I. make better strategic and
operational decisions.
The marketing analyst draws several conclusions
based on these observations:
1. The highest demand positioning is in quadrant IV
(highly authentic, relaxing). The city’s overall image
2-5c Using Consumer Behavior Theory
as rich in heritage and relatively laid-back—“The Big in Marketing Strategy
Easy” being one of the many nicknames—helps at- Businesses are constantly using consumer behavior to
tract consumers looking for these types of experienc-
make better strategic and operational marketing deci-
es. An entrepreneur wishing to open another major
sions. We will focus considerably on using consumer
tourist attraction positioned in this way may see the
large number of potential customers desiring this po-
behavior in business decision making throughout this
sitioning as an opportunity. However, the downside book. Students, and practicing managers for that matter,
to this positioning is the large number of entrenched sometimes struggle with the application aspect of CB.
competitors. In general, competing directly with In other words, how do we translate knowledge of the
large, entrenched competitors usually requires a large CVF into more effective analyses and decision making?
amount of resources. Checklists can be a powerful aid to decision making as a
2. An opportunity may exist in quadrant I. Here, major way to develop more creative, thoughtful, and logically
competition for the adventure-seeking market sound marketing strategy and tactics. Exhibit 2.10 dis-
appears absent. The advantage of positioning a new plays a checklist inspired by the CVF framework—the
business away from the competitors is that it takes CB idea checklist.
Exhibit 2.10
The CB Idea Checklist
Question Idea
What specific consumer needs and desires are involved?
▸ Is a specific product(s) involved in this situation?
▸ Can something else provide the same value or address the same need or desire?
How is the product positioned (types and amounts of value intended)?

▸ How is our position superior to competitors?
▸ How can we get closer to desirable ideal points?
▸ How is our position inferior to competitors?
▸ How can we isolate ourselves from competition?
How does the consumer actually receive value from this company?
▸ In the current situation,
has value been diminished?
can value be enhanced?
▸ Can the product be modified to enhance value?
▸ Can the company introduce a new product to enhance value?
▸ Can the company add services to improve value for consumers?
▸ Can communication be improved?
▸ Is a competitor in a better position to provide superior value?
▸ If so, how?
Where is this product consumed?
▸ Can value be enhanced by changing the consumption setting?
▸ When do consumers avoid consuming this product?
▸ Can new uses be discovered in different settings?
Who . . .
▸ Is buying the product?
1. Individual consumers
2. Groups of consumers (families)
3. Business consumers
▸ Is not buying the product?
Why should a consumer . . .

▸ Buy this product?
▸ Avoid this product?
When do consumers . . .
▸ Find the product most valuable?
▸ Find the product least valuable?
What are the key CVF elements involved in understanding the consumption process in this case?
Is additional consumer research needed?
▸ Will the information be worth what it would cost to obtain it?
▸ What type of research would be required?
What’s in the Apple?
E veryone with an iPhone knows that the Apple logo

has a bite out of it. But what’s going on inside? The
latest iPhone and iPad releases have underperformed
based on sales growth statistics; their phone business
may be showing signs of maturity. Is Apple trying to
avoid marketing myopia? Well, several things are in the
works inside Apple. In the near term, Apple is work-
Hadrian/Shutterstock.com
ing to reposition the iPad as being higher in utilitarian
value. The company is working with app firms specializ-
ing in professional fields like accounting and medicine
to make the iPad more useful as a work tool. Apple
has also been refining Apple TV, and, in what seems a
drastic departure from their core business, an Apple
Titan test automobile has been spotted on the streets
near San Francisco. A key marketing strategy question Sources: Wakabayashi, D. (2016), “Apple’s Sales Growth Slows,” Wall Street Journal (January 27),
is whether or not there is any consistency behind these B1–B5. Ovide, S. and D. Wakabayashi (2015), “With iPad Sales Cooling, Apple Leans on Partners,”
Wall Street Journal (August 13) B1–B4.
potential innovations.
Thus, not every customer is equally valuable to a

2-6 Value Today and firm. Firms increasingly want to know the customer life-
Tomorrow—Customer time value associated with a customer or customer seg-
ment.19 Customer Lifetime Value (CLV) represents
Lifetime Value the approximate worth of a customer to a company in
economic terms. Put another way, CLV is the overall,
Earlier, we defined marketing as value-producing long-term profitability of an individual consumer. Al-
activities that facilitate exchange. In other words, though there is no generally accepted formula for the
marketing makes exchange more likely. Exchange is CLV, the basic idea is simple:
far from a one-way street. Consumers enter an ex-
change seeking value, and so do marketers. The value CLV 5 npv (sales 2 costs) 1 npv (equity)
the company receives from exchange may be slightly
easier to explain than is the value that a consumer re- The customer lifetime value then is equal to the net
ceives. Obviously, when a consumer spends money for present value (npv) of the stream of profits over a cus-
a product, the company receives economic resources tomer’s lifetime, plus the worth attributed to the equity
in the form of revenue that the company then uses to a good customer can bring in the form of positive refer-
pay employees, cover costs, rals and word of mouth. Consider a consumer shopping
and help the firm grow. twice weekly at IKEA (see www.ikea.com). On average,
Customer Lifetime Value The company may also re- this IKEA customer spends $200 per week, or $10,400
(CLV) approximate worth ceive additional benefits per year. If we assume a 5% operating margin, he yields
of a customer to a company if the consumer becomes IKEA a net $520 per year. Even if any potential posi-
in economic terms; overall
a loyal customer who is tive word-of-mouth is not considered, the consumer is
profitability of an individual
consumer an advocate for the firm’s worth about $9,000 to IKEA today, assuming a 30-year
products. life span and a 4% annual interest rate.
Interestingly, until recently IKEA did not record In contrast, the low CLV customers tended to have
customer-level data. Thus, out of over 500 terabytes of quite different characteristics:
data, they had no data on CLV.20 In contrast, other firms,
from convenience stores to Harrah’s Casinos, have elab-
orate systems for tracking individual customer behav- ▸▸ Male ▸▸ Less than $70,000 income
ior and targeting these consumers with individualized ▸▸ 24–44 years of age ▸▸ S
ingle channel shopper
promotions and products. This allows them to practice (meaning only Internet or
one-to-one marketing in a real sense and to identify seg- only stores)
ments of consumers containing a high proportion of very ▸▸ Single
valuable customers. For instance, one retailer found that
high CLV customers tend to have the following charac-
teristics:21 Thus, marketers can maximize the value they re-
ceive from exchange by concentrating their marketing
efforts on consumers with high CLVs. Recently, bargain-
▸▸ Female ▸▸ $90,000 income conscious consumers have latched on to online closeout
▸▸ 30–50 years of age ▸▸ Loyalty card holder retailers like Rue La La. When a consumer names Rue
▸▸ Married La La as a favorite thing, that consumer is worth a lot to
the retailer.
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CASES
Case 1-1 person’s status (as in a designer bag), or reassures him
that he is receiving high quality (as in an expensive appli-
ance). Simply put, people prefer products that don’t just
IDEO: Consumer-Focused
do the job (utilitarian value) but also affect the way they
Innovation feel (hedonic value). Well-designed wheelchairs must not
Written by Professor Vicky Szerko, Dominican College only get people around but make them feel good about
using them, too.
To illustrate how IDEO takes both utilitarian and
A great example of how companies make use of con- hedonic considerations in designing products, consider a
sumer behavior data is the enormously innovative and recent commission: the redesign of the classroom desk.
influential product design firm, IDEO (www.ideo.com). IDEO was asked by Steelcase, a global company in the
It has developed products for many of the world’s most office furniture industry, to help them break into the ed-
successful and exciting companies, from technology ucation market. Could IDEO transform the traditional
leader Apple to the venerable consumer packaged goods tablet-arm desk?
giant, Procter & Gamble. IDEO’s team began by using the desks and observing
While the name IDEO obviously draws from the them in the classroom setting. They saw that the desks
word idea, it is Thomas A. Edison’s famous observa- were uncomfortable for larger individuals (Americans
tion regarding genius as being “1% inspiration and 99% have been increasing in weight), that the word “tablet”
perspiration” that actually guides the firm’s product de- now meant not just spiral notebooks but increasingly re-
velopment process. Preceding every “flash of genius” is ferred to digital devices, and that moving and rearrang-
a painstaking and disciplined approach that focuses ining the desks in the classroom was noisy, cumbersome,
tently on the consumer experience. and annoying. Also, with many more individuals going to
Whenever IDEO is asked by a client to design a new school and class sizes getting larger, the traditional desks
product, it turns to a highly effective form of idea gen- produced a sense of overcrowding, an unpleasant feeling
eration called the “deep dive.”1 The “deep dive” consists for most individuals.
of a total immersion in the customer experience, requir- IDEO created a series of prototypes based on
ing IDEO’s team of developers and designers to place their developers’ experience in the classroom. They
themselves in the actual situation for which the product then invited students and faculty to test each proto-
is ultimately intended. type in the classroom and provide direct feedback. As
For example, a commission to design a better feedback was received and considered in light of the
wheelchair would mean living as a disabled person to desk’s role in the classroom experience, the tablet-arm
learn what it’s like to be dependent on a wheelchair for desk was completely redesigned. It was dubbed the
tasks most of us take for granted. Besides the physical Node chair.
aspects of navigating the wheelchair, developers have “The details betray a remarkable thoughtfulness,”
to ask themselves: How does being in a wheelchair wrote Cliff Kuang in Fast Company. “The seat is a gen-
make you feel? Does the wheelchair provide a sense of erously sized bucket, so that students can shift around
empowerment or frustration? What things about the and adapt their posture to whatever’s going on: the seat
wheelchair are positive or negative? Once the team also swivels, so that students can, for example, swing
has been able to experience the wheelchair from a dis- around to look at other students making class presen-
abled person’s perspective, it can much better address tations; and a rolling base allows the chairs to move
the features and benefits that will be most valuable to quickly between lecture-based seating and group ac-
the user. tivities. In group activities, the proportions are such
Research tells us that people relate to products that the chairs and integrated desktops combine into
from multiple perspectives. Why does someone prefer something like a conference table.”2 Clearly, the whole
Brand X to Brand Y—although they both do, essentially, experience of sitting in a classroom had been substan-
the same thing? It may be because Brand X enhances the tially improved.
CASES
In a recent TED Talk, IDEO’s founder and presi- Questions
dent David Kelley discussed how “human-centered
design,” or looking at things from the user’s point of
view, can solve what may seem to be insurmountable
1 Where does IDEO get inspiration for its product designs?
problems. He used Pittsburgh Children’s Hospital’s

experience with CT scanning of children to illustrate 2 What kind of value do you think successful products
deliver to consumers?
3
his point. Why do you think having a product that simply works
The problem had to do with the CT scanners them- doesn’t always translate to consumer acceptance?
selves. Although the scanners were remarkably accurate
and scientifically advanced, they produced a traumatic
experience in young children; as many as 80% of children
4 What is the relative importance of the utilitarian versus
the hedonic value of products, as suggested by the work
of IDEO?
had to be sedated before the scans could take place.
While the scanners delivered a high degree of utility
from a medical standpoint, they were woefully lacking 5 Do you agree with Edison’s observation that “genius
is 1% inspiration and 99% perspiration”? Explain your
answer.
in providing a good, or even acceptable, experience for
young patients. Doug Dietz, principal designer for GE
Global Design, which had developed and produced the
scanners, set out to see what could be done to improve
Case 1-2
the children’s experience.
“We did simple things that got overlooked. I mean, Born or Reinvented in the
some of the most effective insights came from kneeling “Foreign” Land? Examining
down and looking at a room from the height of a child,”
Brands and Their Country
recalled Dietz.3 The huge machines in the impersonal,
utilitarian rooms frightened the children. Dietz’s solution of Origin
was to divert the children’s attention from the machine Written by Aditi Grover, Plymouth State University
itself by placing it in the context of an exciting fantasy
adventure.
The newly redesigned rooms were dubbed the GE Consumers make choices while considering the ex-
Adventure Series™. The rooms and scanners were spe- pected value they would derive from products and ser-
cially outfitted to resemble a child’s fantasy adventure— vices. Companies likewise seek to enhance the value of
a pirate ship, a jungle, an underwater journey. Sights, their product offering while considering a variety of fac-
sounds, and even smells (such as the piña colada scent tors that might guide consumer decision making.
in the pirate ship adventure) engaged the child’s atten- Among the various factors known to play a role in
tion and turned the scanner into an integral part of the consumer decision making, country of origin—where a
fantasy experience. certain product or brand was manufactured—is seen to
The impact of the redesign was dramatic: The num- play an important role at least in some circumstances.
ber of children having to be sedated dropped from 80% Research has shown consumers might choose brands
to just around 10%. What better testament to the impor- manufactured in their own country over the same
tance of the hedonic, or experiential, dimension in prod- brands manufactured elsewhere. This preference to-
uct design? Before the redesign, the scanners were just wards products manufactured within one’s own country,
highly sophisticated medical devices; afterward, they called consumer ethnocentrism, may be strong enough
provided a delightful experience to children and even to persist regardless of price and quality.1 Furthermore,
simplified the job experience of the medical technicians this phenomenon has been observed not only within the
involved. United States but across the globe—in Africa, France,
Moral of the story? The best products not only get and China, among other regions. Diverse factors may
the job done, but make doing the job a pleasure. drive people’s consumer ethnocentrism. For example,
CASES
in 2011 the ABC World News with Diane Sawyer se- the United States and a top executive at SAP, the Ger-
ries “Made in America” tried to promote products made man firm. She drives a Ferrari and shops only at Cartier
100% within the United States. According to ABC News, for her jewelry and Armani for her clothing, while car-
“Economists say that if every one of us spent an extra rying her cash in her favorite Louis Vuitton bag. She
$3.33 on U.S.-made goods every year, it would create likes to party with friends while sharing a drink of
nearly 10,000 new jobs in this country.”2 Note, however, Corona before a final drink of Nestlé’s instant coffee.
the preference towards products from one’s home coun- Would such a consumer be more likely to have higher
try does not automatically mean animosity towards prod- or lower BoK?
ucts from other countries.
Even though data suggests that some consumers
might show a preference—overt or covert—towards
products manufactured in their country of origin, the Table 1. Test Your BoK
question arises whether consumers possess the accu- 2011
rate knowledge of where a product or brand is manu- Rank Brand Country Sector
factured, or where the brand originated. For example, 1 Facebook USA Social Network
consider the famous chocolate hazelnut spread Nutella.
Did the brand originate in the United States? No, the 2 Amazon USA Internet
Technology
Nutella spread was born in the 1940s in northwest Italy.
How about L’Oreal? How many of us know that Black- 3 LEGO Denmark Toys
Berry is a Canadian company? These examples demon- 4 Nissan Japan Autos
strate that even though individuals might prefer brands
manufactured in their country of birth, consumers 5 Adobe USA Software
might not possess the knowledge to identify a brand’s
country of origin accurately. Researchers have defined 6 Starbucks USA Coffee
consumers’ ability to correctly identify the countries of Experience
origin of well-known brands as Brand Origin Knowl- 7 Zara Spain Affordable
edge, or BoK.3 Fashion
Table 1 lists top growing brands from “2016 Rank- 8 MINI U.K. Auto
ing of Top 100 Brands,” developed by Interbrand—
the world’s leading brand consultancy—alongside 9 Porsche Italy Auto
the brand’s country of origin. Examine the table to 10 Mercedes-Benz Gernamy Auto
test your BoK (or lack thereof). Visit Interbrand’s
11 Huawei China Telcom
website for a complete list of the top brands (www
.interbrand.com/). 12 Hermes France High Fashion
As consumer behavior students, it would be help-
13 Adidas GP Germany Fitness
ful to further understand how BoK might vary from
consumer to consumer, especially if such information 14 Paypal USA Payment Services
makes a difference in consumers’ decision making: 15 Audi Germany Auto
Would BoK be higher for people who are more edu-
cated (versus less educated)? Could BoK vary depend- 16 AXA France Insurance
ing on the demographic factors such as age and gen- 17 Samsung S. Korea Electronics
der? Could the extent to which a consumer has traveled
18 Visa USA Credit Services
across the globe or been exposed to diverse brands be
yet another factor? Consider Ms. Sandler, a citizen of Source: 2016 Ranking of the Top 100 Brands (http://interbrand.com/best-brands/best-global
-brands/2016/, accessed October 17, 2016).
CASES
While the level of knowledge about the origin of the United States versus in Europe would highlight
a brand might be attributed to several factors, an im- how the same brand might employ different market-
portant one could be the length of time a “foreign” ing strategies. Companies analyze varied dimensions
brand has existed within the United States. This might (such as culture and corporate regulations) of a coun-
significantly alter the extent to which it is considered try before launching a product in foreign locations.
foreign. For example, if we trace the history of Adi- However, the core fundamental lesson of consumer
das, the German sporting goods company founded in behavior remains consistent around the globe: To be
1948, we learn that the company has had an interesting successful, companies need to ensure that the product
story as it traversed from Germany into other countries offering meshes well with consumers’ needs and with
of the world. Even though companies such as Adidas what they value.
can successfully and seamlessly surpass the preference
of products manufactured in one’s own country (also Questions
known as the country-of-origin effect), it might not al-
ways be the case.
Characteristics of certain products might be so
1 Examine further the “2016 Ranking of Top 100 Brands.”
Classify these brands while considering the product
category or sector and the country of origin. Can you detect
inextricably mapped onto a consumer’s country that it a pattern? For example, do you see that strong players in the
might be hard to ignore the brand’s country of origin automotive sector emerge largely in Western Europe?
while making a consumption decision. For example,
consider wine: do people generally prefer to buy wine
from France or from the United States? France’s his- 2 List all the brands that you have in your home. Then
research to find the country of origin of all the brands on
your list. What do you find? How can marketing professionals
tory of wine-making is at least as old as the Roman Em-
make use of the information that you have analyzed?
pire, and France has almost always held the title of the
world’s largest producer of wine. In a related vein, the
United States is known for its edge in Internet services 3 Use the “2016 Ranking of Top 100 Brands” table to
test the level of BoK of at least five people (excluding
yourself). Examine and write a short reflection on how the
and electronics, for it gave rise to global powerhouses
extent of their knowledge varies with their lifestyles.
such as Alphabet’s Google, Apple, and Amazon. Within
the realm of brand and its country of origin, when con-
sumers demonstrate preference for products that map 4 Your textbook refers to the concept of perceptual maps.
Construct a perceptual map using the following two
dimensions: (i) product ethnicity (low vs. high), and (ii) level
onto the competitiveness of the country in which they
originate, it may be referred to as “product ethnicity.” of BoK (low vs. high). Choose at least ten brands or product
Therefore, when product ethnicity is taken into ac- categories to represent on the map. You may use the list
of brands/categories available at the Interbrand website
count, consumers might choose to ignore their ethno-
to populate a list for the map. Use the information from
centric values while making consumption decisions.
question 3 to identify the average level of knowledge of
Furthermore, it will be important to see how one product ethnicity and extent of BoK.
brand might be showcased differently in various coun-
tries of the brand’s presence. For example, a KFC that
one sees in the United States has a much different 5 Using the information in question 3, how do you think
a company can enhance its understanding of market
segmentation so as to efficiently target a marketing message
menu offering than does a KFC in China. As another
to its potential and existing consumers?
example, consider Wrigley’s, the chewing gum. Exam-
ining how this brand might be marketed differently in
CASES
Case 1-3 Lee, Walmart, and, of course, Target.4 With increased
global competition and price-conscious consumers,
companies know how important it is to properly seg-
DemandTec®: Using
ment the market and create the right marketing mix
Collaborative Analytics in a for each of those consumer segments. DemandTec pro-
Fragmented Latin American vides companies with the tools they need to optimize
those decisions.
Market American companies, however, are not the only ones
Written by Kristine Pray, Muskingum University faced with increased global competition. Emerging mar-
kets in countries like Argentina, Peru, India, and China
In February 2012, headlines across America alerted con- are appealing to multinational companies. Domestic as
sumers that mass-market retailer Target had discovered well as foreign corporations can also benefit from the
a way to predict the gestational state of their female services of companies like DemandTec.
shoppers, even before family members were aware of In Sao Paulo, Brazil, the largest market in Latin
the pregnancy.1 With this predictive ability, Target would America, Companhia Brasileira de Distribuicao Grupo
be able to capitalize on the life-altering events of their Pao de Acucar (GPA), referred to as the “Walmart of
customers. Imagine anticipating the changing needs of Latin America,” is striving to hold on to the majority
individual consumers with such accuracy that develop- share of the grocery market.5 French-owned supermar-
ing the associated marketing mix brings implementing ket giant Carrefour maintains a close second place, fol-
the marketing concept to a whole other level. Sending lowed by global retail behemoth Walmart, which plans to
targeted promotions to highly segmented markets while invest heavily in the region to edge out the competition
the rest of the competition remains unaware offers a for market leader.6 If that does not make circumstances
strategic advantage to marketers competing in the 21st difficult enough for GPA, the Brazilian market itself is
century. very fragmented. With heterogeneous consumer seg-
The accuracy of these predictions is based on mod- ments coming from diverse socioeconomic backgrounds
els that identify changes in the behavior of consumers. and different geographic areas, determining the appro-
In the case of Target, changes in the purchase behavior priate marketing strategy becomes even more complex.
of female shoppers, such as increased spending on sup- Enter DemandTec.7
plements important to neonatal development, as well as Using “everyday price optimization software-as-
unscented soaps and lotions, were a strong indication a-service” from DemandTec, GPA can optimize their
of pregnancy.2 This is, of course, an oversimplification. pricing strategy at the local level.8 GPA segments their
Aggregating vast amounts of consumer behavior data market using geographic segmentation variables (re-
and creating predictive models to strategically target gion); demographic segmentation variables (income and
individual consumers is only made possible by the use social class); psychographic segmentation variables (life-
of very powerful software, software which has been de- style); and behavioristic segmentation variables (price
veloped to further the emergent practice known as col- sensitivity), resulting in 12 distinct target segments.9 In
laborative analytics. addition to managing all of the consumer segmentation
Although collaborative analytics and cloud-based information, GPA must also integrate stock-keeping unit
software company DemandTec made the news recently (SKU) information. Usually in the form of a machine-
when it was acquired by IBM for $440 million, it is not readable bar code, SKU numbers are assigned to in-
likely that anyone outside of the industry is familiar dividual items in inventory to help monitor inventory,
with the San Mateo, California-based company.3 In the sales, pricing, transactions, and consumer spending pat-
field of collaborative analytics, however, DemandTec is terns.10 With 99 variants for each SKU across each of
well established, with a client list of over 500 retailers GPA’s regions, the amount of data to be processed would
and consumer products companies, including ConAgra be overwhelming without the use of DemandTec’s price
Foods, General Mills, Home Depot, PETCO, Sara optimization software.11
CASES
DemandTec’s powerful modeling software col- Questions
lectively analyzes regional competitor prices and then
aggregates consumer demand for items, vendor costs,
customer characteristics, and consumer segments to 1 Predictive models used by Target identified in female
shoppers changes in their purchase behavior that
indicated they might be pregnant, including increased
arrive at optimal prices for all products across all SKU
spending on supplements important to neonatal
variants.12 Collaborative analytics not only helps GPA to
development as well as unscented soaps and lotions. What
optimize prices but also helps them to optimize the price
other changes in purchase behavior might indicate that a
perception of items which have the most elastic demand; female shopper is expecting?
in other words, products for which consumers exhibit
the most price sensitivity.13
The idea of using “loss leaders” as a form of sales 2 How does the use of collaborative analytics provide
value to the consumer and help to facilitate exchanges
between buyers and sellers?
promotion is not new to the grocery industry. Consumers
tend to be more sensitive to the prices of certain items like
bread or milk, so retailers offer these products at a price 3 Based on collaborative analytics, Target created
targeted sales promotions for newly expectant
mothers, such as mailing coupons to them for purchasing
at or below cost to draw consumers into the store, with
the hopes that the consumers will purchase additional, diapers or baby bottles. GPA, in Brazil, uses collaborative
analytics to optimize prices for their various customer
more profitable items. Without the proper intelligence,
segments. These are only two of the four marketing mix
this promotional strategy can backfire, as consumer price
variables. Can you think of other ways that companies
perception of other items in the store discourages value-
might use collaborative analytics to fine-tune the other
conscious consumers from buying those items with higher marketing mix variables?
margins, cutting into the profitability of retailers. Collab-
orative analytics allows marketing managers to process
volumes of data to make optimal decisions. 4 GPA uses collaborative analytics to look at the
shopping behavior of their customers. The next
time you purchase food items (groceries), make a list of
In an era of social media and mobile technology,
every item you purchased. Try to organize the items in
today’s consumers have access to an infinite amount of
a meaningful way. Imagine that a researcher was using
marketing information in real time. Armed with smart ethnographic methods to analyze your grocery list.
phones and unlimited apps, they can locate product, pro- What insights might they have about you based on your
motion, and pricing information by typing in a product purchases?
name or scanning a bar code as they stand in the aisle of
their local retailers. In order to meet the needs of these
technology-savvy and price-conscious consumers, mar-
5 Choose a local retailer that is not part of a national or
regional chain. Assume they have decided to expand
their efforts internationally and have therefore enlisted
keters must arm themselves with the next generation of the help of DemandTec. How will the use of collaborative
marketing tools, collaborative analytics. analytics help them to better understand consumers in this
new market?
CASES
Case 1-4 products, price gouging was rampant. Richard W. Sears
and Alvah Roebuck teamed up to form their own mail
order company. They began by selling only jewelry and
Sears: A Dying Company?
watches but quickly added other products in order to
Written by Dr. Venessa Funches, Auburn University, meet the need in the marketplace. The catalog business
Montgomery
flourished and grew quickly.
It was not until the 1920s that the firm’s manage-
Ashley is on her way to her local mall. She pulls up to ment saw the need to alter their business model. The
the mall and finds a great parking spot close to the Sears country was changing, and many people were now mov-
entrance. She walks briskly through tools, lawn and gar- ing to city centers. As a result, new chain retailers were
den, as well as kids apparel, noticing nothing. In fact, no gaining popularity. Sears joined the fray by opening their
one seems to notice her either. She is not approached own retail locations and expanding vigorously. Sears
or greeted by any salespeople. What a relief! The store experienced great success and kept on expanding well
seems empty. Ashley is a little concerned. She came to into the 1970s. In 1973, Sears built a new headquarters
hang out with friends, but this place seems pretty dead. located in Chicago called Sears Tower. At that time it
Just as she rounds the corner through the women’s de- was the tallest building in the world. By the 1980s Sears
partment, a shirt catches her attention. As she glances was not only expanding but also diversifying into differ-
at the price tag, she decides she can get it cheaper else- ent businesses like Allstate car insurance, Dean Witter
where. Just then her cell phone rings. It’s her friend; ev- financial services, and Discover credit cards.
eryone is waiting for her at Aéropostale near the food Today, Sears offers a broad array of products and
court. She picks up the pace as she rushes through men’s services. Its offerings include appliances, consumer elec-
apparel, jewelry, and finally bedding. She is relieved as tronics, tools, sporting goods, outdoor living, lawn and
she catches a glimpse of her friends through the crowd in garden equipment, certain automotive services and prod-
the interior of the mall. She is looking forward to a good ucts, home fashion products, as well as apparel, footwear,
time shopping with her friends. As she nears the food jewelry, and accessories for the whole family. Sears offers
court, she is distracted by all the cool outfits displayed in proprietary brands like Kenmore, Craftsman, DieHard,
the windows of stores like American Eagle, Abercrombie Lands’ End, Covington, Apostrophe, and Canyon River
& Fitch, and Buckle. Blues. These brands are important to the company be-
Ashley represents many of today’s shoppers, who cause they signify quality and drive consumer traffic.
hurry on about their business—shunning department Despite the strong brands, many consumers find Sears’
stores like Sears and its competitors. The entire depart- selection bland, unattractive, or too costly. Instead they
ment store category has been experiencing decline in opt for specialty stores like Home Depot, Best Buy, or
recent years. discounters like Target or Walmart.
Sears has a rich history spanning over 100 years. The tide has shifted and Sears is struggling. Over
In the past, Sears was a retail force to be reckoned the past two decades, Sears has ended its catalog services
with. According to the Sears Archives website (www and closed numerous store locations.1 In addition, the
.searsarchives.com), from the 1950s to the 1980s Sears company has gone through multiple restructurings and
was the largest U.S. retailer. The Sears catalog could be divestitures of Dean Witter and Allstate in an effort to
found in virtually every home in America. refocus and strengthen the business.
Sears has been serving the American consumer In 2005, Kmart bought Sears. The newly formed
since the turn of the century. The firm began in 1886 as company became the nation’s third largest retailer be-
a watch company, founded by Richard W. Sears. At that hind Walmart and Home Depot. The hope was that the
time most Americans lived as farmers in rural areas with combined firm would allow for greater cost savings and
limited access to the products they needed. As a result, result in lower prices to consumers. Many questioned
the local general store served as the farmers’ primary the deal, and a lot of the proposed benefits never fully
retail establishment. Due to the limited availability of materialized and the K-mart division is deeply troubled.
CASES
Sears asked the Kardashian sisters, Kim, Kourtney, retailers. Finally, Sears’ traditional mid-range pricing
and Khloé, to develop their own product line. Sears man- strategy has left them stranded, unable to compete with
agement hoped to use the Kardashians’ success and pop- the low prices of discount stores or the broad selections
ularity to create excitement, especially among younger of specialty stores.
consumers. The advertising campaign has tried to capi- Sears is down but not out of the game. The re-
talize on the sexy Kardashian image. The ad campaign maining stores and brands are still valuable assets. The
has showcased Kim, Kourtney, and Khloé in seductive company’s management has a daunting task ahead. Can
lingerie and topless in a denim jean ad. The product Sears refocus and find a new way to deliver value to its
line, which includes denim jeans, dresses, shoes, jewelry, customers?
handbags, intimates, belts, and sunglasses, has thus far
been disappointing and unsuccessful. Despite manage- Questions
ment’s efforts, sales continue to plummet.
Sears has been generally unprofitable for years. The
causes of Sears’ problems are multifaceted. Sears’ busi-
1 Describe how some of the trends mentioned in the
textbook are affecting Sears.
ness model has failed to keep step with changing con-

sumer tastes. Many of its locations are out of date and 2 Describe the external and situational influences that
steer shoppers like Ashley away from Sears.
3
need remodeling. Competitors have outspent Sears in Compare and contrast the total value concept for Sears
terms of modernizing their locations by a wide margin. and your favorite retailer.
Second, many of its stores are located in malls that are
decreasing in popularity and expensive to rent. Third, to-
day’s consumer has a vast number of shopping options.
4 What types of utilitarian and hedonic value does Sears
presently provide to its customers?
Many consumers are opting for convenient one-stop

shopping at open-air shopping centers rather than en- 5 Can Sears be revived? If so what should their new value
equation be? If not, explain.
closed malls, or avoiding them altogether for discount

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2 Value and the Consumer

Dimitri Otis/Getty Images

Remember to visit PAGE 43 for additional STUDY TOOLS

Introduction lying is common in these sites. In particular, consum-

24 PART ONE: Introduction

CHAPTER 2: Value and the Consumer Behavior Framework 25

26 PART ONE: Introduction

A Tech Firm Has to Know Its

CHAPTER 2: Value and the Consumer Behavior Framework 27

28 PART ONE: Introduction

I n economics, we typically think lower prices lead to

CHAPTER 2: Value and the Consumer Behavior Framework 29

30 PART ONE: Introduction

CHAPTER 2: Value and the Consumer Behavior Framework 31

of value or the other. In the best-case scenario, they pro-

32 PART ONE: Introduction

2-3 Marketing Strategy

CHAPTER 2: Value and the Consumer Behavior Framework 33

▸▸ Nike’s advertising budget is twice the size of its

Do these facts shed some light on the way these

34 PART ONE: Introduction

CHAPTER 2: Value and the Consumer Behavior Framework 35

36 PART ONE: Introduction

CHAPTER 2: Value and the Consumer Behavior Framework 37

another. We refer to commodities very often as prod-

Image Courtesy of The Advertising Archives

2-4b Product Differentiation

38 PART ONE: Introduction

2-5a Perceptual Maps

ovals indicate these seg- ideal point combination

CHAPTER 2: Value and the Consumer Behavior Framework 39

40 PART ONE: Introduction

How is the product positioned (types and amounts of value intended)?

Why should a consumer . . .

CHAPTER 2: Value and the Consumer Behavior Framework 41

E veryone with an iPhone knows that the Apple logo

Thus, not every customer is equally valuable to a

42 PART ONE: Introduction

CHAPTER 2: Value and the Consumer Behavior Framework 43

44 PART ONE: Introduction

problems. He used Pittsburgh Children’s Hospital’s

CHAPTER 2: Value and the Consumer Behavior Framework 45

46 PART ONE: Introduction

CHAPTER 2: Value and the Consumer Behavior Framework 47

48 PART ONE: Introduction

CHAPTER 2: Value and the Consumer Behavior Framework 49

50 PART ONE: Introduction

ness model has failed to keep step with changing con-

Many consumers are opting for convenient one-stop

CHAPTER 2: Value and the Consumer Behavior Framework 51

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