Pricing Revisited - Balancing Gains and Losses by Bill Johnson * [12]

People generally fear losses more than they covet gains; losses are weighted more heavily than an equivalent amount of gains, e.g., the absolute joy felt in finding $50 is a lot less than the absolute pain caused by losing $50, a phenomenon known as “loss-aversion”.  Kahneman and Tversky stumbled upon loss aversion after giving their students a simple survey, which asked whether or not they would accept a variety of different bets. The psychologists noticed that, when people were offered a gamble on the toss of a coin in which they might lose $20, they demanded an average payoff of at least $40 if they won. The pain of a loss was approximately twice as potent as the pleasure generated by a gain. As Kahneman and Tversky aptly put it, “In human decision making, losses loom larger than gains.”

If you ever kept a gym membership long after it has become clear that you are not now and will never be a gym rat, then you have felt the effects (i.e. “dead-loss” effect) of loss aversion. Think about how insurance is sold, not on what consumers will gain, but what they stand to lose—insurance (and warranties) is by definition designed to mitigate “loss”.

Consider the following example of how loss aversion works.  A grocery retailer has tried to decrease people’s use of plastic grocery bags. One approach was to offer a five-cent bonus to customers who brought reusable bags. That approach had essentially no effect. Later the retailer tried another approach, which was to impose a five-cent tax on those who ask for a grocery bag. Though five cents is not a lot of money, many people do not want to pay it. The new approach has had a major effect in reducing use of grocery bags.

Here is another example of where loss aversion comes into play.  Suppose two companies sell calling plans. Company A advertises their plan for $25.00 per month, with a $12 rebate for continuing the contract for at least one year.   Company B advertises their plan for $24 per month, with a $12 surcharge for dropping out of the program before a year is up. Which is the better deal after one year’s worth of calls?  Of course, the economic costs of these two plans are identical, except that the plan offered by Company B is framed differently, i.e. as a potential loss, and would more strongly appeal to loss-averse customers.

Loss aversion has many practical applications in marketing, in particular when it comes to pricing, i.e. when using price increases, reference prices, limited time offers and price bundling.

Price increases – Whenever a customer sees a price increase, they interpret this as a personal loss.  Hence, businesses often see extremely emotional reactions resulting in lost business (e.g. Netfix lost 800,000 subscribers in the 3rd quarter of 2011 after an announced price hike).  One strategy, if possible, is to change the packaging of the product, e.g., Kellogg’s reduced the size of its Frosted Flakes and Rice Krispies cereal boxes from 19 to 18 ounces. Frito-Lay reduced Doritos bags from 12 to 10 ounces. Dial Soap bars shrank from 4.5 to 4 ounces, and Procter and Gamble reduced the size of Bounty paper towel rolls from 60 to 52 sheets.

Reference prices – A reference price is what your customers expect to pay.  If they are forced to pay more than this they consider it a loss.  Less is a gain.  Existing customers often use the last price paid as their reference price (and smart phones now offer instant reference pricing data).  However, for new customers, firms have the ability to influence their reference price.  We often see retailers show MSRP and then a marked down price--this to influence the reference price.  Alternatively, some companies choose to compare their product to one that is much more expensive in hope of increasing the prospect’s reference price (a tactic frequently used by off-price retailers like Ross or T.J. Maxx).

Limited time offers – If Macy’s is willing to sell a jacket at 50% during a sale that ends Sunday, why wouldn’t they sell it at 50% off on Monday?  The answer is loss aversion.  If potential buyers are on the fence about buying the jacket, they are more likely to go purchase it while it’s on sale.  Once Monday comes they have lost the opportunity.  If Macy’s doesn’t stop the sale on Monday they don’t have the extra incentive to go buy on Sunday (Walgreens features “Senior Tuesday” sales).  Loss aversion is one factor that drives the success of “sales”.

Bundling – charging a single net price for the overall exchange hides gains and losses on the component transactions and allows consumers flexibility in mentally apportioning the net price across the components in a manner they construe favorably.

People and customers in particularly don’t like to lose. This is why good marketing and sales is often all about convincing prospects that what they are about to buy is worth more than what they must pay for it.  Something is seen as a good value when any perceived pain of loss will be more than offset by the joy of gain. 

So, what about you, are you more likely to avoid losses or pursue gains?

* William (Bill) Johnson, Ph.D., is a Professor of  Marketing (Retired) at Nova Southeastern University. He can be reached at billyboy@nova.edu 

Co-creation of Value - Collaborating with Customers [11]

[Co-creation is the purposeful action of partnering with strategic customers, partners or employees to ideate, problem solve, improve performance, or create a new product, service or business. Christine Crandell]

Customer focus no longer means just researching current and future needs to design expected or desire goods or service. A rising trend in business today is co-creating value with customers. Value is created when product and buyer come together within a particular use situation. Examples include retailers getting the customer involved in the shopping experience to save time (Home Depot’s self-checkout) or costs (IKEA’s assembly and delivery by customers), smart phone personalization through app selection, Dell’s online built-to-order computers, and management consultants collaborating with clients to add value in research projects. As the table below explains, co-creation of value has a dual emphasis on the customer and company as value creators. 

Value Creation and Marketing Opportunities

Marketing Strategy	Market Emphasis	Value-Creation Focus	Corporate Examples
Market driven	Established market	Customer	Coca-Cola, Procter & Gamble, Toyota
Market driving	Emerging or imagined markets	Company	Google, IKEA, Virgin Group
Co-creation of value	Established, emerging or imagined markets	Customer and company (simultaneous)	Amazon, Apple, LinkedIn

Co-creation of value can lower costs and improve the overall service experience. A great example of the new co-creation of value model is illustrated in the case of Crushpad, a Napa-Valley based winery. Crushpad’s value proposition is “Make Your Own Wine” and has transformed their business through technology. Consumers can participate on a limited to a full scale basis depending on their interest in the wine-making process. Some activities that customers engage in include creating a wine-making plan; monitoring the grapes; picking, crushing and fermenting the grapes; and even packaging the bottles. Support services include party planning, advice on wine creation and business guidance on how customers can sell their own wine. Websites, blogs and community events help spread the word about this unique type of co-creation of value.

Here are 6 questions to address as your company ponders the idea of co-creation of value:
1. Do you strive to continually exceed customer expectations?

2. Does your view of value creation go beyond the firm (to include the customer)?

3. Do you actively seek to create an extended community of users?

4. Is personalizing the customer experience a major part of your marketing strategy?

5. Is your marketing team truly obsessed with researching and improving customer experiences?

6. Do you nurture and forge enduring business relationships with customers and collaborators?

This blog post is the 7th in a series extracted from Superior Customer Value – Finding and Keeping Customers in the Now Economy, 4^th Ed. (2019, Routledge Publishing/ Taylor & Francis). For further information contact Art Weinstein at artweinstein9@gmail.com, 954-309-0901, www.artweinstein.com 

Using Mobile Devices in the Retail Store by Suri Weisfeld-Spolter * [10]

Use of mobile devices has become commonplace for contemporary retail shoppers.  At their fingertips, consumers can easily obtain lots of information to aid their shopping efforts and decisions. This phenomenon has been a challenge for some marketers; for others, a benefit.  For instance, brick-and-mortar retailers have announced store closings (e.g., Macy’s in 2016 and early 2017), dissolution (e.g., Limited’s elimination of its store format in 2016 ), or corporate layoffs (e.g., WalMart in 2017), as their financial metrics are upended through e-commerce. At the same time, e-tailers have parlayed their technological competencies to embrace technologically-savvy buyers. Witness Alibaba’s acute aspirations to become a worldwide e-marketer and Amazon’s tremendous expansion of the breadth and depth of its offerings as well as recent establishment of its own global delivery service.

Retail salespeople have traditionally been providers of information for customers. Indeed, until the advent and enormous growth of the internet and e-commerce, sales personnel tended to be the primary purveyors of information in selling.  As noted above, however, the retailing dynamic has changed markedly. Many retail customers now turn increasingly to marshaling information from alternative sources—particularly from mobile devices. In fact, consumers seem to be replacing traditional retail salesperson functions—such as collecting information, comparing prices, and securing the order—with mobile devices. This situation may well foreshadow a decline in the importance of salespersons in buyer-seller interactions.

Interestingly, a consumer’s mobile device is somewhat similar to retail salesperson input in that it mimics the personal nature of selling. Accordingly, many of today’s consumers tend to consult their smartphone rather than interact with retail sales personnel. Indeed, 73% of shoppers would rather use their phones than deal with the salesperson. 

With increasing consumer preference for mobile devices for both hedonic and utilitarian reasons and avoidance of the retail salesperson, we did a study to explore the consumer’s information search behavior vis-à-vis the salesperson’s selling behavior so as to enhance understanding of how retail salespeople can influence mobile dependent shoppers.

We found that the more searching consumers do on their phones, the more they experience increases in perceived control, which fosters their purchase intention. These findings suggest that retailers should create an environment that facilitates feelings of perceived control because that construct is closely connected to the pathway between search and purchase intention. For example, providing consumers with easy access to free wi-fi in stores is one technique to help create a shopping environment that nurtures mobile phone searching. Retailers might also adopt a selling philosophy that helps consumers in their role as search agents to perceive that they are controlling the interaction with the salesperson (e.g., “Come to our store and be the boss,” “We don’t push you; you are in charge”). Because the mobile phone seems to increase feelings of control, retailers should also assist consumers to stay connected to their phone so that they can continue to search in the store. Furthermore, salespeople should be trained to be search assistants for the customers rather than assume the traditional role of “pushing the sale.” In this context, retail salespeople could assist consumers in their search activities by providing comparison websites, review sites, and alternative search terms. In a similar way, companies can create apps for the mobile phone to engage consumers while in the store, and salespeople can direct them to download these applications. 

* Suri Weisfeld-Spolter, Ph.D., is a Professor of Marketing at Nova Southeastern University. She can be reached at sw887@nova.edu  This post is based on her journal article in Psychology & Marketing titled, “Under the sway of a mobile device during an in-store shopping experience”.

Image Positioning - Differentiate to Communicate Value [9]

[Do what you do so well that they will want to see it again and bring their friends. Walt Disney]

American society is intrigued by image. Consider this related word – imagine. Disney is all about the customer experience and emotionally and magically transports guests to another time or place. Image is often associated with entertainment, fashion, and technology markets. Corporate image is the reputation of an organization viewed by its various stakeholders – investors, employees, customers, business partners, communities, etc. All companies have a singular corporate personality that differentiates them from their rivals. The communication challenge is to manage and enhance the firm’s identity over time.

A perceived image is based on two components: 1) what the company does and says, and 2) what the customers/market say about the organization - this is more important. Companies must manage a strong IMC (integrated marketing communications) program consisting of advertising, selling, sales promotion, online, social media, and public relations activities. Customer-generated content such as Facebook posts, tweets, blogs, and online communities can dramatically impact organizational performance.

Perhaps your company is not a global giant – does image research make sense for you? Consider these seven queries as you revisit your marketing communications strategy: 1) How important is image in your value proposition?, 2)  Should it be even more important?,  3) Does your image clearly resonate with your target market?, 4) How can you get your customers and the market to share more positive messages about your company?, 5) What is your main point of differentiation from your competitors?, 6) Should coolness be a major or minor part of your IMC strategy?, and 7) How can you best tell your business story to communicate value?

This blog post is the 6th in a series extracted from Superior Customer Value – Finding and Keeping Customers in the Now Economy, 4^th Ed. (2019, Routledge Publishing/ Taylor & Francis). For further information contact Art Weinstein at artweinstein9@gmail.com, 954-309-0901, www.artweinstein.com 

A Customer Value Mindset in Asia’s Airlines Business by Michael Santonino * [8]

                      Photos by Michael D. Santonino III/Kim Pei Lu travel photography

Asian airports are transforming the airlines industry by creating value for customers in convenience, availability, and access with a multitude of services. The top airports in the world offer customers a travel experience with a “Disney-like” park feeling as airports display picturesque rainforest waterfalls, lush landscape, open glass designs, cultural artwork, sustainable operations, luxurious amenities, connectivity, and selection of dining and shopping preferences for passengers. Airports (and airlines) are creating value in the Now Economy with Speed, Service, Solutions, Selection, and Sociability (the 5-S model) in many Asian countries (i.e. Singapore, South Korea, Japan, and Hong Kong). 

The United States with its aging airport infrastructure has not been a passenger’s preferred choice in comparison to these Asian countries airports, as many of the service quality performance measures used by the various industry rating agencies exclude the aged US airports. The airlines have equally transformed their businesses with new aircraft, new cabin configurations, and extended ancillary services/fees (baggage, seat upgrades, fast-boarding, in-flight meals, WiFi, cancellation/changes, etc.).

Maximizing Value Attributes in Airport Layouts 

Suvarnabhumi Airport, in (Bangkok) Thailand, offers an excellent example of convenience, accessibility, cultural art, open-glass design, and luxurious amenities. It is strategically designed with seamless passenger movement flow to gates, multiple access points for shopping and tax refunds, and cultural art photo stop points, and is one of the most tourist-friendly airports in the world.

What a Jewel!

The Jewel located at Changi Airport in Singapore is creating value in the Now Economy with airport solutions and product selection for customers. The Jewel has an amazing sustainable architectural design with an integrated nature-themed entertainment park known as the Canopy and a retail mall complex. Value attributes of experience differentiations (product/services that tap into the five human senses) can be found throughout this airport complex with its customer interactive activities (walking trails, explorer slides, water mists, flower garden, and other family-centric fee paid services). 

The Jewel is strategically designed between terminals with seamless passenger movement flow to gates, shopping, dining, scenic photo taking areas, play-stations for kids, and interactive-themed park experiences for visitors, passengers, and local Singaporeans. Changi is ranked the number one airport in Asia and the world for its outstanding customer service. 

Changi Airport provides a mere glimpse of the future with technology and innovation as it relates to products (or services) in the pre-introduction stage of the product life cycle with artificial intelligence (AI), robots, virtual reality (VR), blockchain, and real-time data analytics. Expect fully autonomous aircraft or other global transportation vehicles as the technology evolves.

Creating Value with Technology for Better Passenger Experiences
Airports and airlines are incorporating technology to improve the overall passenger experiences. The use of virtual assistant holograms are being utilized by more airports to help arriving passengers make that transit to the next departure (or arrival hall) a better experience. Airlines are increasingly offering more extra room seating cabins for better comfort, as Air Asia Behad offers “hot seats” (with red headrest seats) for an upgraded fee. Tray tables and cabin bins are prime shelf-space designs for airlines (from the traditional supermarket shelf-space for products) as airlines expose passengers to new routes, tours, and other advertisements to its captive audience. Airlines are transforming cabins with newer aircraft designs that include the blue-red-yellow mood change lighting for improved cabin comfort. Airlines are upgrading the in-flight entertainment (IFE) systems to offer more TV channels, movies, games, and other IFE services for improved in-flight experiences throughout the entire journey.

The Now Economy is dominated by the services sector with an emphasis on creating exceptional customer experiences for the digitally-savvy customers. Sustainability, holistic perspectives, and personalized platforms are value attributes that digital-native customers are sensitive toward the future of airports and airline travel. The airline industry in Asia and worldwide is rapidly changing to build a competitive advantage through flexible production, innovative business models and strategies, hiring the best people, speed-to-market, and collaboration with the right business partners.  

 * Dr. Santonino is Associate Professor, College of Business, Embry-Riddle Aeronautical University Worldwide. Contact him at Michael.Santonino@erau.edu

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Ethnographic Research Uncovers What Customers Value by Herb Brotspies * [7]

Now, more and more marketers are turning to ways to find what customers value—why consumers buy the products they do, how they use them, and importantly, how they relate to products in ways big data or conventional market research surveys cannot.  They are increasingly using techniques used by anthropologists called ethnographic research, studying consumers where they live, where they work, in the kitchen, in the bathroom, in the stores, restaurants, concerts, malls, or college campuses.  This observational method helps marketers by showing how products are used, the meaning of products in their lives, and the lifestyles that influence purchase decisions. 

Ethnography evaluates consumer behavior in detail, identifying important patterns through observation of people engaging in activities such as browsing, buying and trying products, or using services.  Based on ethnographic findings of consumer value, recommendations are made to conduct quantified market research, develop new products, add features to existing products, or change advertising approaches.

Intel, the computer chip maker, uses ethnographic research to understand how teenagers, who grew up with smart phones, use their devices differently than baby boomers, how television and PC technology converge, and how smart phones are taking over most of the functions of personal computers.  J.C. Penney looks in women’s closets to see the brands and styles of clothing they purchase for work.  Clairol, the marketer of hair coloring, watches how women apply hair coloring at home to improve the ease of product use.

5 Ethnographic Case Summaries by Consumer Research Associates

> Abbvie Pharmaceuticals, a marketer of a drug for HIV, wanted to understand the patient journey to identify opportunities for innovation in packaging, messaging, and service.  Researchers observed physicians with patients and conducted in-home interviews with patients to learn how drugs are used.  As a result of the research, new techniques were developed to help patients comply with their therapies and to help physicians communicate and personalize treatment solutions for patients.  
> Miller Lite wanted to understand how brand updates would be received and understood by their current customers.  Researchers conducted in-home qualitative studies to gauge user reaction to marketing ideas being considered.  Interviews were conducted in stores and bars with different brand concepts in a natural setting to gauge consumer reaction.   Using a variety of ethnographic methods, the project culminated in the successful update of all Miller Lite branding and marketing materials.
> Best Buy, a leading consumer electronics retailer, wanted to explore expanding its selection to include a health and fitness department.  They were interested in how well customers would accept this brand expansion with a particular appeal to female shoppers. They wanted to understand the consumer product research and decision-making processes and to identify value triggers for investing in home fitness equipment. Ethnographers collected stories among women who recently purchased fitness equipment learning about stores the participants liked including Best Buy.  Researchers accompanied consumers on shopping trips for fitness equipment to understand the purchase process.  The ethnographic research helped Best Buy design the fitness department and provided direction in product selection.
> Ethnographic research is also useful in business-to-business situations.  Bosch, a manufacturer of production equipment, wanted to determine how to gain a competitive advantage over rival companies.  They first conducted interviews with production managers and then went into the manufacturing plant to observe how production-line staff used competitive equipment.  The observations revealed there were customer needs that were missed by competitors such as awkward adjustments and difficult maintenance procedures.  The result was a line of Bosch manufacturing products that overcame the shortcomings of competitive products.  Observing the use of competitive products, an ethnographic technique, gave Bosch the market insight they needed.
> Miele, a German household products company, wanted to investigate the cleaning needs of people with allergies.  They sent researchers into homes of people who had children with allergies to observe cleaning practices.  Through ethnographic research, they discovered, parents spent extra time vacuuming mattresses to remove allergens.  Parents could not be sure the mattresses were allergen- free, so they kept vacuuming.  Miele developed a vacuum cleaner with a series of lights that indicated when the item is dust-free.  This reduced the time and uncertainty of parents vacuuming their child’s bed, adding value consumers desired.  Based on this research, Miele also introduced a washing machine with special features to thoroughly clean pillows and bedding of allergens.

Big data, finding unusual relationships in structured and unstructured data, will always play an important part in marketing to understand what is happening.  But to develop insight as to uncovering consumer value, marketers use ethnographic research and visit people in their homes, watch how they use products, listen to stories about how and why they buy, what they buy, and gain deep insight into the purchase decisions. 
Perhaps, you should incorporate ethnography into your marketing research toolbox?  

* Herb Brotspies is an Adjunct Professor of Marketing (Retired) at Nova Southeastern University. For further information, contact Dr. Brotspies at hvb95@aol.com or (561) 302-3060.

Segmenting Business Markets - A New Approach by Herb Brotspies * [6]

Market segmentation is a fundamental concept in identifying profitable business opportunities.  Market segmentation divides markets into subsets of consumers or businesses who share a similar set of needs and wants, evaluating the subset segments, and then implementing strategies to target high value segments. 

Segmentation is widely used in consumer marketing. This becomes very obvious walking down the aisles of your local supermarket seeing product form segmentation such as liquid laundry detergent or powder, special shaving products for African American men, or easy to prepare food products targeted to the working parent.

In sharp contrast is business to business (B2B) where recent research shows limited use of market segmentation and where it is used, little value is received. It may be that segmenting business markets is more complex than consumer markets because business to business marketing is much more than a simplistic approach of finding customers who may be interested in your product.

Historically, B2B was viewed as the segmentation between the seller and buyer using a variety of segmentation bases including demographics, sometimes called firmographics, operating variables, purchasing approaches, situational factors, and buyers’ personal characteristics.  Simply, whoever bought from you was the focus of the segmentation analysis.

Today, B2B marketers recognize there are situations where the company buying your product is not the ultimate user or consumer. So, segmentation is more than just B2B. At times it is B2B2B or even B2B2C (consumer), thus segmentation requires a different approach.

B2B

B2B in its simplest form is when a business sells its products to another business who uses the product themselves.  For example, B2B is selling commercial dishwashers directly to restaurants.  The restaurant market may be segmented by large restaurants or hotels depending on segmentation criteria.  Based on analysis, the commercial dishwasher company decides to focus sales on restaurants with seating capacity of at least 150 people. 

This is not to be confused where a business sells products to business intermediaries who resell the product. When Coca Cola sells soft drinks to Wal-Mart, Coca Cola segments the market on the basis of consumer use of soft drinks and uses the B2B intermediary as a channel of distribution. However, Coca Cola may also segment the carbonated drink market by outlet type, food stores, drug stores, mass merchandisers, small grocery stores, convenience stores, and other outlet types.

B2B2B & B2B2C

But what happens when a business sells its product to a business customer and that customer incorporates the product into its own product for resale to either another business or to consumers? Does the segmentation method change? Do they look at segmentation differently?  Do they attempt to segment the market on the basis of their customer or do they also look at the business segments of their customers?

B2B2B

Several examples can help clarify this. XYZ Company manufactures electric motors. Electric motors have widespread application for use in other companies’ products. They are used as components in elevators, escalators, water pumps, oil industry pumps, even electric motors for aircraft.  XYZ segments the market not on the customer purchasing their product as a component first, but rather on the application of XYZ’s capabilities. They develop segmentation criteria for different industries using pumps taking into consideration their own capabilities and strategy.  Once they determine that the market for elevator motors and aircraft electric motors are growing but oil industry pumps and water pumps are not, they then focus on segmenting the suppliers to these industries.  In essence, the demand for their products is derived from the demand of their customers’ products.

B2B2C

This is also evident in the high technology industry. Chip makers sell to Apple, Lenovo, Compaq, HP, Samsung, and Dell, for use in consumer products such as cell phones, computers, and tablets and now smart televisions. Consumer behavior drives demand for these products.  So, a chip maker must understand their customer’s customer. A chip maker will also sell chips to companies for application for cloud computing such as Dropbox, Amazon, and HP Enterprises.  The sales for the cloud businesses of Dropbox, Amazon, and HP Enterprises are driven in part by consumer demand for cloud storage or cloud applications. Companies in the B2B2C business must develop segmentation skills in the consumer market such as psychographic and behavioral bases for segmentation. Thus, additional segmentation skills are required beyond the B2B segmentation skills for B2B2C companies.

In a recent report to analysts, Intel revealed they are reducing investment spending in software, personal computers, and phones and tablets while investing more in data centers with cloud computing, retail solutions, transportation and automotive, smart homes and buildings, and industrial and energy. These are consumer driven segments. They will then focus on companies who are strong in the growth segments they identified. 

Qualcomm similarly looks at the end user of their customers in deciding product developments, sales, and marketing priorities. They have identified segments where consumers drive demand including technology for the automotive market, smart homes, mobile computing, and wearables.  

Segmenting business markets is no longer just looking at your company’s customers or potential customers. With the recognition of B2B2B and B2B2C, segmentation is now focusing on the market segments served by the customers to drive investments in product development, sales, and marketing effort.  

* Herb Brotspies is an Adjunct Professor of Marketing (Retired) at Nova Southeastern University. For further information, contact Dr. Brotspies at hvb95@aol.com or (561) 302-3060.