Impact of attitudinal and behavioural loyalty on future purchase intentions in cross-cultural context

Companies across the world recognize the importance of customer satisfaction and loyalty. The results of higher satisfaction in most cases are positive word-of-mouth and repeat purchase. This has direct impact on firm performance in terms of sales and profits as well as firm valuation. While the task of satisfaction in a single market is dynamic enough, the issue becomes highly complex in cross-cultural context. In such market situations, customer satisfaction and resultant loyalty can make or brake a company.

Researchers argue on two distinct theoretical steams with regard to customer satisfaction. On the one hand, researchers argue that customer satisfaction occurs when a product or service meets prior expectations of consumers. However, on the other hand, researchers give more importance to the experience and feelings evoked by the product or service and its relationship to satisfaction. One thing however is fairly clear that both these strands suggest that the impact of customer satisfaction and loyalty on future buying behaviour is significant.

Researchers suggest two separate dimensions of loyalty which affect satisfaction. Firstly, 'behavioural loyalty' is associated with the level and amount of past purchase activities. Secondly, 'attitudinal loyalty' is reflected in consumer's attitude towards a product or service. Several researchers suggest that behavioural loyalty precedes attitudinal loyalty. However, others argue that the two constructs merge and create a larger single loyalty constructs. Furthermore, researche in this area has mostly focused on Western developed nations and there is a need for focusing on the rapidly developing emerging markets such as the BRIC countries.

One such study was conducted by Broyles in 2009 focusing on the US and China as representative countries with a final sample containing 236 Chinese respondents and 224 from the US. Coca-Cola and KFC were the brands eventually chosen because of their widespread availability and leading brand status in both countries. It was also noted that the Coca-Cola and KFC have “dissimilar complexity and consumer involvement” in relation to the service provision from employees to customers.

The results provide interesting insights. It was clearly observed that both the loyalty constructs are separate in nature. Furthermore, a contrasting results was observed wherein attitudinal loyalty was found to be preceding behavioural loyalty rather than what is being suggested in prior literature. This is striking result and may require further studies to support the notion. It was also observed that, the nature of the directive relationship between attitudinal loyalty and behavioural loyalty indicates that behavioural loyalty likewise does not influence an individual's feelings toward a product and their future intention to purchase or not.

Companies such as Coca-Cola may find better results if they focus on behaviour loyalty. However, other food companies such as KFC may be better off focusing on their emphasis on behavioural loyalty in developed markets while using attitudinal loyalty in emerging markets. There is a possibility of replicating such studies in other market and industry contexts.

There is also a great research opportunity in measuring the impact of loyalty on satisfaction.
While a lot of earlier research has focused on impact of satisfaction on loyalty, the resultant impact of loyalty on satisfaction has not been studied in same details by researchers. Most researchers assume the single purchase situation. This is mostly due to prominence of cross-sectional research in the field of marketing and international marketing. However, one has to remember that consumers don't engage with a product or service once only and therefore the multiple engagement which could lead to higher loyalty may have a different level of satisfaction associated with it.

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If you can't convice them, confuse them...

In the market with umpteen me-too products and brands marketers have few choices with how to develop, maintain and enhance relationships with their customers. The situation is worsened with multiplicity of communication channels including online (internet based) marketing and offline marketing and advertising.

The increasing pace of media innovations is hard to keep up with. Added to that, marketers hardly know what is the ROI on most communication mix (advertising, sales promotions, direct marketing and others) avenues. Therefore it becomes further difficult for marketers to balance and achieve the targets on their communications budget.

When facing such market reality, the marketers are left with two real choices:

1. Convince the consumers; or
2. Confuse the consumers

The convincing part requires increasing effort to develop and maintain because of the market complexities and therefore many marketers are driving their skills and organizational resources in confusion the consumers.

For example, if you wish to buy a mobile phone have a look at what happens?

You have more than:
a) six - ten mobile phone service operators (depending on the country)
b) twenty different mobile phone brands (with increasing numbers every year)
c) thousand different price plans
d) thousand different mobile phones types (with phenomenal number of features)

The marketers claim that this choice provides consumers with the freedom. However, in one of their seminal papers Simonson and Tversky( 1992) claimed that consumers hardly can judge and value the products they choose.

In case of such product choices (i.e. mobile phones) instead of freedom the overchoice creates consumer confusion.

The case of confusion exists in almost every product we purchase in today's marketplace.

So, the revised adage for today's marketplace seems to be Confuse them and confuse them more...

In the coming posts, I shall focus on the concept of consumer confusion and how it affects our choice process. I shall also focus on managerial implications of consumer confusion and how managers can avoid causing confusion.

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Impulsive buying behaviour in recession

Researchers suggest that 90% people across the world make occasional impulse purchases. However, when asked about impulsive buying behaviour approximately 30% to 50% only classify themselves as impulsive. This highlights two interesting issues: (1) consumers’ own understanding of what is impulsive; and (2) the difference between what consumers portray and what they really do. While impulsive buying has been strongly associated with female consumers (especially in the categories of fashion, accessible luxury, and so on), man are not really far behind in this area. Moreover, the communication channels including the electronic channels such as web marketing, email marketing among others provide added impetus for impulsive purchases.

A recent survey of more than 70,000 American consumers representing a wide range of income groups by Taylor Nelson Sofres (TNS), one of the largest market research firms in the world, found an increasing shift from branded products to own-labels. Furthermore, it the survey results also highlighted increasing usage of coupons among the survey’s highest income bracket customers. In an earlier consumer market research focusing specifically on luxury consumption (http://pauravshukla.blogspot.com/2009/02/rise-of-affordable-luxury-consumption.html) we observed similar results where many consumers were moving towards buying affordable luxury.

This poses as significant challenge for companies. Companies like P&G, the world's largest consumer products company, have already adopted an approach called ‘performance-based value messaging’. This, I believe is due to the nature of most P&G products which belong to Fast Moving Consumer Goods (FMCG) area. This is the area where most consumers make decisions when in the store and therefore the overall behaviour may be highly impulsive. In this recessionary times, P&G has focused on communicating to the frugally minded consumers that it is worth spending more on its products as they perform much better in comparison to own-labels and therefore provide better value overall.

While many academic researchers define impulse buying as a sign of immaturity and lack of behavioural self-control, impulsiveness and resultant impulsive buying is a significant reality of our everyday lives. In recessionary times, we all tend to become more frugal and therefore less impulsive. It is believed that our behaviour becomes more planned when we face economic and financial strains.

However, the above stated notion of reduction in impulsive buying in recessionary times raises interesting questions.

Following are some of the interesting research questions relating to impulsive buying behaviour in recession:

1. Does our impulsive buying behaviour get affected in recession? Do we seriously adopt more planned approach to buying?
2. If the impulsiveness reduces, what sort of reduction is observed?
3. Is the reduction in impulsive purchase behaviour substantial that managers should worry about it?

I am really interested in knowing your views about it. Therefore, could I request you to answer the above three questions from your own perspectives?

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Power of public relations and the rise of celebrity hype

This week has brought about an interesting news item in terms of marketing thinking. On almost every mainstream daily newspaper in the UK this week the sad demise of Jade Goody has appeared to be on the front page. While it certainly is a sad event, when I saw this news item grabbing 2 of the top 5 read news on http://news.bbc.co.uk website two things clicked in my mind with regard to celebrity hype and the pr strategies and marketing.

Firstly, I remembered one of my colleagues at Liverpool who researches into the area of celebrities and their impact on masses. He is a fanatic football fan and I remembered him telling me that he had read more than 50 celebrity biographies (including many footballers and entertainers) and had concluded that there was hardly anything inspiring in those memoirs (BTW, jade goody had one!). It was just one skill which had put most of these people in the mainstream media and once they are there we know the human struggle to be there.

The second thought which arrived in my mind related to the power of high tech public relations (PR). I might be completely wrong but even the BBC obituary of Jade Goody notes "...she hit the headlines as a young woman with shockingly poor general knowledge, who was often the object of her fellow housemates' derision" (BBC, 2009). However, when you just type Jade Goody in Google it turns up with 5,130,000 results. These include a wikipedia which is several print pages long, official website, news (obviously in terms of celebrity gossip), a perfume website and a FAN website (yes...)!!!

Thinking about this I ran another google search for Prof. Amartya Sen (yes, yes, the 1998 nobel prize winner) and it returned with 659,000 entries. Pardon me Prof. Sen for even comparing.

However, this demonstrates the power of public relations and how pr firms exploit it.

I am amazed to see that society as a whole what do we really look for and how our thoughts can be manipulated. Reminds me of Edward Bernays - the father of public relations and the newphew of Sigmund Freud - who believed in manipulating society and resultant public opinion. In one of his seminal works 'the propaganda' he argued that the manipulation of public opinion was a necessary part of democracy. He successfully used it in 'breaking the taboo against woman smoking in public' and even helping United Fruit Company (today's Chiquita Brands International) and the U.S. government to facilitate the successful overthrow of the democratically elected president of Guatemala, Jacobo Arbenz Guzman.

Today's, high tech public relations firms have honed their skills with such a finnesse that a 'Miss Piggy' who reportedly thought a ferret was a bird, an abscess a green drink from France, that Pistachio painted the Mona Lisa, that there was a part of England called East Angular and that there was a language called Portuganese (Jeffries, 2009) gets 2 out of 5 top news items on BBC and gets coverage on all the world media. I have hardly ever seen that being achieved...

Something has surely going wrong at the macro societal level or I guess Bernays was so right when he said "The public has its own standards and demands and habits. You may modify them but you dare not run counter to them." This is what we demand as news today, don't we?

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Rise of affordable luxury consumption

In past few posts, I have discussed the impact of recession on luxury consumption. In two of these posts (Luxury consumption: will it really be affected by recession? and Luxury Consumption Tendencies in Recession: Early Evidence) looking through an exploratory study, I opined that the overall luxury consumption will not decline as much in this recession due to several factors including, mass consumption trends, tourism trends and the rise of emerging markets.

The mass consumption trends have shown an interesting consumption trend overall which has been termed 'the lipstick effect'. The effect relates to tougher economic conditions when consumers who are used to buying luxury products tend to consume lesser costly luxury products but the consumption pattern continues. It was first observed by analysts at Estee Lauder who saw a huge jump in Lipstick sales after Sep 11 attacks and Leonard Lauder, Chairman of Estee Lauder promoted it. Later on when analysed, this effect was observed through various recessionary phases world has seen across countries.

There is conclusive trend emerging to support this effect. Rather than changing their overall spending habit and becoming thrifty, consumers are simply trading down (another term quite known in fashion world) to cheaper luxury products to cheer themselves up. The trend is clearly seen from the recent sales figures from the world's big cosmetic firms including Shiseido, L'Oreal and others. The European personal products index is an excellent proxy for the global cosmetics sector because it is dominated by L'Oréal and Beiersdorf. So far in the downturn, this index has already outperformed the broader market by 45%.

The accessories (or what is called affordable luxury) is a very interesting product category. They involve products such as perfumes, belts, glasses, small ticket jewellary, and so on. The accessible luxury goods, even if they are relatively inexpensive in price (comparing to it true and intermediary counterparts), still function as luxury products as they are ‘creative, sophisticated’ and yet ‘sold through luxury distribution’. Many of these products are used for self-gift giving and also general gift-giving. My last blog on Valentine's Day as a marketing opportunity highlighted the day as one of the biggest events for consumption of affordable luxury products.

The affordable luxury products provide an interesting comparative research environment to look into. There are several research gaps in our understanding as to: how do other affordable luxury products (else than Lipstick) perform comparatively? how do affordable luxury products perform against exclusive luxury (the real and very high end luxury); how do consumer engage with these affordable luxury products?

We are working on a research project on similar lines. Till those results are made available in public domain, watch this space!!!

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Valentine's Day as a marketing opportunity

While there are many festivities which are related to various types of consumption (i.e. Christmas with Turkey, Diwali with fire crackers, Easter with Easter eggs and so on) Valentine's day provides a unique opportunity for marketers to target a very vibrant and highly consumption oriented group, the youth.

There are some distinctly unique characteristics of Valentine's Day.
1. It is a seriously global event.
2. The target market for the same is uniquely similar because of the need it caters to.
3. The consumption behaviour pattern is quite predictable.
4. The consumer need and wants are quite structured for this specific event.

The above four points, according to me, makes Valentine's Day a unique marketing opportunity.

In marketing, as stated in one of my earlier blogs (What we don't know in the field of marketing?), marketers are looking for forward looking consumers. In a way, marketers are interested in higher prediction levels of consumers’ consumption patterns. Valentine's Day in that perspective provides a great understanding relating to forward-looking customers.

When such behaviour can be predicted (and that too at a global scale) marketers can take ample advantage. An example of the same is that the U.S. Greeting Card Association estimates that approximately one billion valentines are sent each year worldwide, making the day the second largest card-sending holiday of the year behind Christmas. The association estimates that women purchase approximately 85 percent of all valentines. Similar trends might be observed in other parts of the world.

The other important aspect as I mentioned above is the similarity in consumption pattern globally relating to Valentine's Day. While Christmas may be celebrated around the world for the same reason, the celebratory styles and the events involved are quite different (it's not always the Turkey you see!). With Valentine's Day the consumption pattern across the world (cards and flowers leading to a dinner???).

I am amazed that why other marketers else than the card and flower firms have not yet exploited this window of opportunity in full.

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Download my book on Marketing Research

It took me some time, but I have been able to finish the compendium I wrote on 'Marketing Research'. It is now available on http://bookboon.co.uk/student/marketing/marketing-research-an-introduction

The book contains eight chapters focusing on the marketing research process in details and it's more of a how to guide. It has been written keeping novice researchers and practitioners in mind. Have a look.

Would love to hear from you all about it.

Happy Reading...

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Management and family

MCC has recently acquired a small but successful Swedish software company. Its head founded it three years ago with his son Carl, and was joined by his newly graduated daughter Clara and his youngest son Peter 12 months ago. Since the acquisition MCC has injected considerable capital and also given the company its own computer distribution and servicing in Sweden. This has given a real boost to the business.

MCC is now convinced that rewards for sales people must reflect the increasing competition in the market. It has decreed that at least 30% of remuneration must depend on individual performance. At the beginning of this year Carl married a very rich girl. The marriage is happy and this has had an effect on his sales record. He will easily earn 30% bonus, though this will be small in relation to his total income, supplemented by his wife’s and by his share of the acquisition payment.

Peter has a much less happy marriage and much less money. His only average sales will mean that his income will be reduced when he can ill afford it. Clara, who married while still in school, has two children and this year lost her husband in an air crash. This tragic event caused her to have a weak sales year.

At the international sales conference national MCC managers present their salary and bonus ranges. The head of the Swedish company believes that performance should be rewarded and that favouritism should be avoided; he has many non-family members in his company. Yet he knows that unusual circumstance in the lives of his children have made this contest anything but fair. The rewards withheld will hurt more deeply than the rewards bestowed will motivate. He tries to explain the situation to the American HR chief and the British representative, who both look sceptical and talk about excuses. He accedes to their demands.

His colleagues from France, Italy, Spain and the Middle East, who all know the situation, stare in disbelief. They would have backed him on this issue. His family later say that they feel let down. This was not what they joined the company for.

What solution would you suggest?

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Re-negotiate the contract

A year after the BIG mining company had signed a 10 year long term contract with a foreign buyer to buy zinc in 10 annual instalments, the zinc market collapsed due to credit crisis. Instead of paying £6 a ton below world market price, the buyer now faced the prospect of paying £4 above.

The buyer faxed BIG to say it wished to renegotiate the contract. The final words of the fax read: “You cannot expect us as your new (and long term) partner to carry alone the now ruinous expense of these contract terms.”

BIG negotiators had a heated discussion about the situation.

What of the following statements would you suggest?

• A contract is a contract. It means precisely what its terms say. If the world price had risen we would not be crying, nor should they. What partnership are they talking about? We had a deal. We bargained. We won. End of story.
• A contract symbolises the underlying relationship. It is an honest statement of original intent. Where circumstances transform the mutual spirit of the contract, then terms must be renegotiated to preserve the relationship.
• A contract symbolises the underlying relationship. It is an honest statement of original intent. But such rigid terms are too brittle to withstand turbulent environments. Only tacit forms of mutuality have the flexibility to survive.
• A contract is a contract. It means precisely what its terms say. If the world price had risen we would not be crying, nor should they. We would however, consider a second contract whose terms would help offset their losses.

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The culture conundrum

Mr. Geddy Teok, an American – Chinese (second generation) employee of a large New Jersey pharmaceutical firm, was based in Tokyo, Japan. His main aim was to get a major joint venture going with one of the largest Japanese pharmaceutical manufacturers. After four years of negotiating, the supreme moment had come for signing contracts. Obviously the lawyers from HQ in New Jersey were well prepared and sent the contract to Geddy one week before the ‘ceremony’.

After four years of Japanese experience, Geddy was shocked when he received the document from the USA. He thought: “I could not even count the number of pages. There were just too many. But I remember the number of inches it measured when laying it on the table. I would guess that with every inch one of the Japanese would leave the room in despair. I hope they come will come with a group of ten. Then at least I will keep one person to talk to. The Japanese will sign the contracts, but this can’t be taken this far.”
Geddy Teok decided to call HQ and ask for some help. The legal department said that the relationship was so complex that the contract needed to cover many possible instances. Moreover, a consultancy firm that advised them regularly said that Asians in general and Japanese in particular had a reputation of being quite loose in defining what was developed by them and what came from the USA: “we better have some pain now and be clear in terms of our relationship, than to run into problems later because of miscommunication. If they sign it at least they show that they are serious.”

Geddy was in despair, but he only had a day to decide what to do. The meeting was tomorrow. Should he perhaps call the Japanese CEO, with who he had built up quite a relationship? Or should he just go for it? Geddy framed his dilemma quite clearly. “Whatever I would do, it would hurt my career. If I insist on the Japanese partners signing the contract they will see it as proof of how little trust has been developed over the years of negotiations. This might mean a postponement of the discussions and in the worst case the end of the deal. If I reduce the contract to a couple of pages and present it as a ‘letter of intent’, HQ in general and even worse the whole legal department will jump on me, jeopardizing my career.”

If you were Geddy, what would you do?

(Adapted from: Riding the Waves of Culture: Understanding Cultural Diversity in Business by Fons Trompenaars and Charles Hampden Turner)

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Marketing practices in European Mid-Sized firms

Recently, Keith Perks and I published a paper on the marketing practices in entrepreneurial mid-sized firms in high-tech and conventional industries. We studies companies from France, Germany and Italy. The research started as a debate we had on the interface between entrepreneurship and marketing which has emerged as one of the major research constructs in the past decade. However, there was relatively little or no research focusing on the mid-sized firms. We selected firms on the basis of following criteria.

Criterion 1: Entrepreneurial involvement-privately owned
Criterion 2: Operating in high-tech (electronic, telecommunications and software) or ‘conventional’ industries (mechanical engineering, metal).
Criterion 4: Located in Italy (high-country culture context), France (medium-country culture context and Germany (low-country culture context).
Criterion 5: Employing between 100-499 staff.

Our research explored the ideas of entrepreneurs on market orientation issues namely; opportunistic behaviour, sales and marketing approach, strategic planning effort, and customer orientation. Our research further explored the entrepreneur’s conceptualization of marketing and approaches to strategy and planning. We employed a grounded theory and multiple case methodology approach exploring perceptions and practices of marketing among entrepreneurs in France, Germany and Italy. As our focus was to gain in-depth information in-depth interviews as a method was employed.

Findings (excerpts only):
1. Opportunistic behaviour:
The pattern of responses related to seeking opportunities in foreign markets indicated that entrepreneurs in our study sample spent a substantial amount of their time seeking opportunities in domestic and international markets. Most respondents stated that they spent 25%-50% of their total time travelling and developing the market for their company. This phenomenon was observed across countries and business contexts.

2. Sales and marketing approach:
SMEs are frequently reported as rarely having marketing departments or employing marketing professionals. In our analysis there is evidence that several of the firms have marketing departments and marketing professionals in product management and marketing communications. This is prevalent among the high-technology firms. However, among the ‘conventional’ industries there are no marketing departments or marketing professionals. While differences were observed across industries, there were no differences across countries.

3. Strategic planning effort:
In most cases the entrepreneurs’ discussed strategy in terms of intuition and experience rather then formalized managerial analysis and decision-making. The firms also referred to the involvement of the top managers in leadership and strategic direction and vision. Some of the respondents articulated explicit views which indicated they were using formal strategy making and business and marketing plans. However, many of them also suggested a cautionary approach towards the structured marketing planning process. The ‘academic way’ of developing marketing plan was also questioned.

4. Customer orientation:
All entrepreneurs stated with emphasis that they work closely with their customers and are engaged in developing solutions and innovations in collaboration with them. It could be observed from the discussion that the customer orientation was not only limited to the marketing activities and relationship building but also channelled into the production, engineering as well as the R&D departments. The issue of positive customer partnership in innovation was observed across all of the responses. However, activity intensity and integration of customer partnership ranged widely.

Overall, we found interesting similarities among European mid-sized firms and their market orientation. We observed the sector specificity and its impact on market orientation however the no significant impact of country culture context. Several other interesting findings are summarised in the paper published in the ‘International Journal of Entrepreneurship and Small Business’. The full reference to the paper is:

Perks, K. J. and Shukla, P. (2008), "An exploratory study conceptualising marketing thought in entrepreneurial medium-sized firms in high-tech and conventional industries in France, Germany and Italy", International Journal of Entrepreneurship and Small Business, Vol. 6 No. 2, pp. 192-211.

The findings provide insights to entrepreneurs and budding entrepreneurs across the world as to what factors they should focus on while managing a growing firm.

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Luxury consumption and relatively little impact of recession: added evidence

In the earlier blog on 'Luxury consumption: will it be affected by recession' I stated three reasons why top end luxury firms were less likely to get affected by the recession. The three reasons I stated were: (a) consumers at large were changing their attitude towards luxury consumption; (b) luxury firms were attracting consumers from much wider regions (especially from emerging markets) than developed markets and (c) world tourism was up which to me has a significant connection with luxury consumption.

Today, in Financial times Lex has written an article (attached below) which provides added evidence to what I suggested.

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PPR

Luxury still sells – for now. Luxury goods shares went into a designer dive last autumn as investors took fright that $1,000 handbags and $300 sunglasses would be the first things credit-crunched consumers stopped buying. In fact, first-half 2008 sales for the big luxury groups were buoyant. Friday’s earnings figures from PPR and Hermès bolstered confidence that sales were not been maintained at the expense of margins. At PPR, the 13 per cent increase in operating profits at Gucci Group – which includes brands such as Yves Saint Laurent and Balenciaga – outsparkled less bling-bling performance from Redcats and Conforama, its retail businesses. At constant currencies, Gucci’s profits were up 36 per cent.

Not all the growth is coming from the Abramovich class in emerging markets. Luxury goods groups have broadened their appeal to young professionals prepared to save up for that Bottega Veneta handbag. They have also been careful to put their golden eggs into different baskets by developing multi-brand portfolios and geographically diverse businesses.

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Managing luxury brands in recession

In the earlier blog 'Luxury consumption: will it really be affected by recession?' I provided my perspective on luxury consumption and effects of recession on it. I stated why there will be little affect of recession on luxury consumption. Furthermore, in a sequel to that blog I wrote another blog titled 'consumption tendencies in recession: early evidence' wherein the propositions I had forwarded were supported by consumers representing various countries and industries.

Respondents in my exploratory study confirmed the relatively lesser effect of recession on consumption pattern with regard to luxury goods. However, they also raised concerns as to companies should not be complacent about it and must take actions to offset the relative decrease in spending. In this blog, I will focus on how and what actions companies should take to gain from the recession.

1. Spend on your brand

During a vibrant and growing economy consumers spend freely. Therefore, having an unclear brand position, while not optimum, is not as risky as during a recessionary period. In growth times, the brand’s weakness in the marketplace is less obvious, as consumers tend to be more forgiving and are not so price-conscious. However, when times get tough, consumer spending habits change dramatically. With negative news percolating from all media avenues the consumption fear sets in and they require much further motivation for spending. In recessionary times, consumers, not only spend less overall, but they become far more selective in how they spend. They gravitate away from brands that fail to provide a clear, meaningful, relevant and emotional engagement.

Conventional wisdom suggests that in times of recession it is better to tighten the belt and cut costs and most companies immediately cut their marketing and branding efforts. However, this is where the opportunity beacons. When others are cutting their spending and loosing the emotional engagement with customers, it will pay in the longer term to spend on the brand.

2. Spend on brand relevancy

The brand spend doesn't always mean monetary spend in every case. It is about generating a buzz around the brand and with the present day technology such efforts can be choreographed much easily than one can think. However, a word-of-caution for those ever so enthusiastic marketers. While creating and opening new communication avenues understand the limitations of it and the consumer engagement process. History of such communications is littered with companies overdoing it and in turn failing to become relevant. With luxury brands, relevance is an extremely important issue and therefore, one must move with caution. However, recession is the best time to build relevance and such relevance will stick for long-term.

3. Avoid the SALE mentality

The increasing wall-street driven short-term focus to outperform competitors everyday is another pitfall associated with most marketers. There is not a single firm in the world which can ever do that. Remember that proverb 'every dog has its day'. This is how simple it is. You cannot outperform the market everyday and every time. It catches up on you. In recession times short-term focused marketer go on sales promotion overdrive. This has a direct impact on the brand erosion and consumers get confused as to what the brand stands for.

Instead of sales promotion spend on engagement. Make your brand relevant. Cement the position of your brand in the customers' minds. Stop the sale mentality. However, simple and logical this may sound, most marketers who are continuously involved in operational thinking miss this and kill their beloved (mostly by the consumers) luxury brands.

STOP. THINK. ACT.

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Luxury Consumption Tendencies in Recession: Early Evidence

In my last blog post (Luxury consumption: will it really be affected by recession?) I stated that luxury brands will not be affected as much by recent recession as they did in past. The main reasons I gave were (a) consumption tendencies of masses (where Armani, LVMH, Gucci, Prada and such others have become a regular consumption item); (b) geographical scope and the emergance of emerging markets in Asia and (c) tourism trends (where Chinese, Indian and other tourists are flocking the Western markets and buying luxury items in numbers).

This led me to do a quick a quick study asking some professionals in my network regarding what they thought about their consumption pattern of luxury brands (those Armani and Gucci) and consumption spending such as entertainment and eating out in posh restaurants. Furthermore, I did put a poll on webpage to see random responses of consumers regarding their luxury consumption habits in recessionary times.

The results corraborate to what I have stated earlier. The poll results show that a large majority of consumers (72%) are unlikely to stop their spending on luxury brands. Furthermore, the professional whom I asked showed a similar response however, an interesting theme emerged from the answers wherein added conscious effort to luxury consumption was observed.

For example, following is a response from one of the heads of marketing at an MNC healthcare firm:

"I wouldn't stop consuming luxury goods in these recessionary times. However, my decision process would be much more thought about, would be longer and would be priority based."

An academic from a reputed University in the UK

"it gets me thinking about my own habits in these times and I realise, as i sit here looking at my new G3 iphone, that no, i'm unlikley to stop consuming luxury goods."

A product manager states:

"But one thing i have started doing is calculating the expenditures and doing some preplaning before buying any luxury. Despite of being female who luvs buying, by doing little excercise i put a control on many things."

An analyst from IT industry

"won't stop but reduce buying them."

A similar response from another IT analyst

"To a certain extent, yes. Best to be a bit Frugal"

Another interesting observation confirming point (a) raised above was also observed from one of the respondents who happens to be a project manager.

"I would, and have, certainly reduced, though not stopped consuming luxury goods. Come to think of it, many of them are near-necessities now !"
Furthermore, from the below response one can observe that how luxury consumption is woven into consumer mind-set.

A business analyst states that:

"No i won't as long as my credit cards don't dry out ..."

Another market intelligence professional:

"I wouldn't. Why? Because of its emotional and recognition value"

The early evidence as stated above demonstrates that while there would be some restraint on luxury consumption, most consumers will not stop buying and consuming luxury brands. This is reflected in a business manager stating:

"I think the cusumer will be impacted and the companies shd have different strategies for different segment."

All the above responses show an interesting effect of recession of luxury consumption and show how consumer mind-set has changed regarding luxury brands and their consumption. In the next blog, I shall discuss how companies can manage thier marketing effort in such recessionary times for luxury brands especially.

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Luxury consumption: will it really be affected by recession?

The talk of medium-term recession is in the air. The mainstream media everyday reports so many gloomy results on various fronts that reading a newspaper in the morning makes the breakfast an undesirable event at times. One of my friends has just told me she has actually stopped eating breakfast, for the reason being the prices of food products have gone drastically up and it’s getting harder to make ends meet.

Consumers consume products to satisfy two major needs, namely, (a) utilitarian needs: basic needs such as food, thirst, shelter etc. and (b) hedonistic needs: which includes largely wants such as entertainment and status which mainly focus on pleasure.

Luxury consumption adheres to the later part of the needs and if asked any consumer would state that in tough times the first they will cut is the luxury consumption. However, in my opinion, it doesn’t seem to be the case. Over the past few years of unprecedented economic growth, luxury consumption has caught the eyes of the masses. Historically, such pleasure seeking behaviour was observed in more ‘well to do’ class of society. However, in recent years, our appetite to consume luxury products has increased voraciously.

From my own experience, finding a Louis Vuitton, Gucci or Prada accessory while sitting on a train in London Underground is as common as a finding the Metro newspaper (available freely to every reader on London underground).

On the academic front, we have good many forecasting models which provide some assistance in predicting how utilitarian products will fair in such recessionary scenario. However, we only have anecdotal evidence with regards to luxury products.

Financial analysts using historical sales data predict that luxury goods companies such as Moet Hennessy Louis Vuitton (LVMH) or GUCCI are traditionally hit hard by economic downturns. There is evidence of the same too as LVMH saw it profits drop by at least 20% in the aftermath of 9/11. According to Financial Times, in 2008, Bulgari felt slower sales growth in March, Richemont at the end of last year, while Gucci sold less in the first quarter than last year.





Furthermore, analyst at Lehman Brothers, points out that 50-60 per cent of the luxury goods industry's consumers remain in classic, developed markets, which are hit hard by the recession. While there seems evidence that luxury goods consumption will be hit hard, I tend to disagree with the analysts due to following:
1. Mass consumption behaviour: As I stated earlier luxury products have come much closer to becoming necessity in case of many affluent customers who still represent middle class in the socio-economic classification terms. This was hardly the case in earlier market scenarios.
2. Geographical scope: Half of the luxury consumers live in the Eastern emerging markets. The glitter of Dubai and Shanghai shows the dominant presence of Eastern consumers in consuming luxury products. While market such as India and most other parts of Asia underexposed to global luxury brands, the scope of growth is too hard to predict.
3. Tourism trends: There is an unprecedented growth in terms of tourist travelling from Asian markets to the Western markets. For examples, Indian tourists took the number one spot in terms of visitors to the UK displacing Japanese consumers who has reigned on that spot for a long period of time. Tourists have a huge tendency to purchase luxury goods as souvenirs and such behaviours have to be accommodated in the overall prediction however that will be too difficult to address without substantial research.

The above three points, when included in any economic analysis of luxury products can skew the overall results. They surely seem to have the propensity to create a mini ‘black swan’.

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Service failure II: Norwich Union (Indesit Washing Machine)

In my earlier blog entry AO(HEL)L..., I stated that I shall be discussing two more service disasters and a case of service recovery. Well, here I am writing about another service failure from a service company.

Indesit washing machine It happened so that after buying the washing machine 2yrs and 7 months ago, it suddenly stop responding to washing programme option 3. We thought it was a minor thing and so didn’t really think much of it. However, one fine weekend while sifting through some old bills I realised that while buying it from Argos we had paid £99 for the machine insurance and it included repairs.

The next thing was to call the company and they asked me to call the insurance company (Norwich Union – aka NU). I had seen some ads by them and thought ahh… this is a good firm and they will sort things out quickly. However, like AO(HEL)L… it became Indes(h)it for us.

The first time we contacted Norwich Union (NU) the lady took the details and stated that an engineer will come to your place in between 8 – 5pm on a certain date after 3 weeks. My spouse waited whole day for that engineer to arrive however, he didn’t turn up. In the evening I called up NU to find the reason and we were told he didn’t find parking space as we live in the city centre and so he couldn’t come. This time we were given another date after 2 weeks. This time the engineer did turn up and opened the machine up and then said, ohh… the programme 3 is not working mate and I am sorry but I don’t have the electronic panel to fix that. I was absolutely furious. Shouldn’t they tell the engineer what the problem was (we had already mentioned that)? The engineer said he will be back in a week and gave us another date. So on that specific date my spouse again waited for him but to our surprise he didn’t turn up. Luckily he had given us his mobile number and so we called him up where he said, his territory had been changed by the company and so we will have to rebook the appointment.

I was getting anxious now as the time for the insurance term to expire was coming nearer and we all know how notorious insurance companies are overall. I called up NU again asking about this mishap and booked another appointment. This was another 3 weeks. This time I was at home waiting for the engineer and to my shock he didn’t come. I called up the company at 7pm at last after waiting all day for the engineer and they told me that because we live in a city centre, the engineer needed parking permit to park his vehicle and COULD WE BUY HIM ONE? I literally laughed out sarcastically asking the lady on the phone that is it now my duty to do so? Her response was kind of, if you want the service, get the permit? It really got me upset so I asked her to put me to a supervisor. After re-explaining the phenomenon another date after 2 weeks was given to us.

We waited again on the day for the engineer to arrive, and to our amazement, he again didn’t. So I called up NU again and they said, that you live on the back of the building and from your window, the van cannot be seen and it is the company policy that the engineer must be able to see the van from the service point. This was getting ridiculous so I told that lady that now I am recording this call and my lawyer only shall contact the firm. Suddenly, I was put to a supervisor and I explained the whole situation again. It was nearly 3 months since we reported the fault and insurance expiry term was looming large. This time we were given a date after 7 days.

Interestingly enough, I had told that supervisor that please tell the engineer the programme 3 is not working so bring appropriate stuff to resolve that issue. However, as you can imagine when that engineer turned up at 3pm on that fine day, said ohh the problem is with programme 3. Funny enough, he didn’t have the right equipment but he said he is leaving his tool kit at our place and will be back in an hour with the right electronic equipment. He did come after an hour and in 20 minutes time it was fixed.

While reflecting on this issue there are some interesting questions which are raised here.
First, it makes you think that how ridiculous service system exists in the UK and we still call ourselves a service economy. Why can’t companies give something like 2 or 3 hours lag at the max when providing a service or delivering some stuff? Why customers have to spend all day waiting for that person (delivery or service) to arrive? Why can’t they do such things before or after this 8-5pm time (that is the time most people will be back from work)? Isn’t this commonsense? Don’t these people understand the value of time at all (we roughly wasted 100 man hours our time on this 30 minute solution)? And in this age of technology is it really that difficult to actually provide some specific time for service or delivery?

I believe there is a great opportunity for differentiation for medium term for companies in the UK and elsewhere in the developed markets.

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Middle-aged consumers & conspicuous consumption

When it comes to the issue of branding, there is plethora of knowledge (or rather information) available with regard to the youth market. Research abounds in examining their purchasing behaviour and other extensions of youthful statements. When it comes to conspicuous consumption, purchasing things, especially expensive things in a way that people notice, young consumers are in a league of their own – or are they?

For every youthful consumer there is a middle aged one with more money (and more credit) to spend who would rather like to be noticed too. Those in the 40-60 age brackets are more likely to have a higher income and a better job – a career in fact. They are out there spending their hard earned cash on big ticket items such as cars and houses, big, big ticket items. Bigger ticket items than a few clothes or a better mobile phone which the young consumers focus on. Yet to read the marketing literature you would hardly think so, until now.

This led me to focus on this interesting segment in the latest study published in the Journal of Product and Brand Management on “Conspicuous consumption among middle age consumers: psychological and brand antecedents”. Using the context of automobiles the study looked into how psychological and brand related factors affect this segment’s conspicuous consumption. While their utility matters, automobiles also provide a great opportunity to display status, personality and self-image. People may feel they need cars, although that has become contentious in this more environmentally aware age. But they also provide a great opportunity to say “this is who I am”. It seems that making this statement crosses the generations. How we choose to make it is where there is room for difference.

Marketing's missed opportunity
Coming to terms with conspicuous consumption among the middle aged is to begin to address marketing's missed opportunity – although it's tempting to assume that there are savvy car sales staff who know the emotions rather well already. However, the study reveals that there is more that they can do, opportunities that are being missed. The survey focused on customers of the BMW, Mercedes Benz and Lexus dealerships in East Sussex in the UK. Focusing on how consumers associate themselves with these brands holds the key to marketing them successfully.

It is an interesting and conflicting area to look at. It leads us in to human emotions that pull in opposite directions – the need for uniqueness and the need for conformity. The Irish management academic Ivor Kenny dubbed it “freedom and order”. With conspicuous consumption the drive for uniqueness is the key. On this dimension, the greater the uniqueness of the product the higher the value ascribed to it – the more of them there are around the less they are deemed to be worth.

A study conducted in the 1950s when language was simpler noticed the snobbishness effect and the need to jump on the bandwagon. Essentially if other people are getting them I want one too; the need to be different and the need to be the same once more. We are a contrary species!

It does get slightly more straightforward however as with conspicuous brands, such as BMW, Mercedes Benz and Lexus, buying behaviour is affected more by the personal factors – it says who I am, it will enhance my image – than the societal factors – e.g. gaining respect. Understanding this is at the heart of addressing the missed opportunity.

Big names not quite hitting the spot
Automobiles are designed and built by engineers so perhaps we should not be too surprised when product and engineering features dominate the marketing messages, even for prestigious cars. Lexus' “The pursuit of perfection” reflects technical aspects of the vehicle, BMW's “The ultimate driving experience” highlights performance. It is emotion that will by and large determine the success of the sale. The big brands are spending a fortune on glossy promotion without hitting the spot in terms of the message through which consumers will engage with their brands.

The study found that psychological and brand antecedents are crucial for brand engagement in conspicuous consumption market. The study further highlights the factors that middle aged customers consider when making buying decisions for conspicuous products. The study integrates multiple standards into a single framework for comparison.

The psychological associations to measure are:
* gaining respect;
* gaining popularity;
* noticed by others;
* showing who I am;
* symbol of success;
* symbol of prestige;
* indicates wealth;
* indicates achievement;
* interested in status; and
* enhances my image.

The corresponding brand associations are:
* brand symbolism;
* self-concept and brand image congruency;
* brand familiarity; and
* brand aroused feelings.

These are the factors to measure and the associations to stress. The opportunity is there for the taking.

In western society a prestigious car bought by someone in middle age is often considered a “mid-life crisis”. Well it's mid-life, but something more significant – an ongoing and sustainable pattern of purchasing behaviour, and an opportunity to get the message right, and do better.

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Benefit segmentation in Cyberspace

The Internet has revolutionized the computer and communications world like nothing before. The invention of the telegraph, telephone, radio, and computer set the stage for this unprecedented integration of capabilities. The Internet is at once a world-wide broadcasting capability, a mechanism for information dissemination, and a medium for collaboration and interaction between individuals and their computers without regard for geographic location (Negroponte, 1995).

Benefit segmentation is widely acknowledged as one of the distinctive ways to segment markets. It divides a heterogeneous population into homogeneous groups on the basis of product benefits consumers perceive as important (Chang and Chen, 1995). Marketers who use this segmentation approach are able to identify the key benefits that consumers seek from a particular product type and which of these consumers require which benefits (Dibb, 2000). Benefit segmentation can be used in conjunction with several closely related segmentation bases/variables. These include product/firm loyalty, psychographics, perceptions, preferences, purchase intention and purchase situations/occasions (Weinstein, 1994).

This approach provides a more direct measure of the differences in preferences among customers and offers a more action-oriented analysis for managers (Haley, 1968). Once people have been classified into segments in accordance with the benefits they are seeking, each segment is contrasted with all of the other segments in terms of demographics, volume of consumption, brand perceptions, media habits, personality and lifestyle and so forth. Over the longer term, systematic benefit segmentation research is likely to produce a higher proportion of successes (Haley, 1995). In many markets, segmentation based on benefits, needs, or motivations has proven to be more powerful than demographic factors or product features in understanding market dynamics (Plummer, 1974, Wind, 1978, Lesser and Hughes, 1986, Cermak, File and Prince, 1994).

A study was conducted in 2004 by me which used benefit needs to segment the on-line market. It first used focus groups and a random sampling survey to search for the consumer benefit needs. The on-line market was then segmented using the benefits sought.

The result demonstrated that different segments seek different benefits and have different lifestyles, demographics etc. Thus, benefit sought is an effective segmentation variable for the on-line market. Based on the benefit segmentation results, marketing managers can focus on one or a few segments that exhibit a salient preference for the benefits provided by their products.

To focus the "Effectiveness and Modern seeker" the marketing manager should emphasise the effectiveness, promptness and modernisation of on-line marketing to match their benefit needs. This target segment is primarily female, married and living in cities, about 26 to 40 years old with regular life and they like music. The manager can promote products related to music such as CD, audio, etc. on online.

If the target segment is "Convenience, Information and Safety seeker", the manager should emphasise the benefits of on-line marketing for purchase convenience, information abundance, multiform and trade safety. This segment’s members are mostly group leaders, active, computer lovers, young males, students or executives, single, loves sports and live in the city. To focus on this group, on-line commerce for sports products is the target selection.

If the target segment is "Service and Freedom seeker", the manager should emphasise the advantage of on-line shopping for service quality, delivery speed, selection freedom, company name familiarity etc. This group is characterised by being knowledge seeker; attached to own appearance, spend time at home and like reading. They have the highest rate of on-line shopping but with lower income. The marketing manager might offer lower priced products related to reading such as maps, magazines or books for online shopping.

Through benefit segmentation, companies can divide large, heterogeneous on-line markets into smaller segments that can be reached more efficiently with products and services that match the consumers’ unique needs. As consumers obtain satisfaction for their needs, wants and desires a company can become further successful using this tool.

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Customers customers customers...

• Most dissatisfied customers do not complain to us – probably only 4-5 percent bother. One estimate is that for every single customer who brings us a complaint, another 26 probably also have problems. Six of which are like to be serious, and do not complain to us. The silent majority defect to a competitor, or put up with us being bad and defect.

• Dissatisfied customers tell everyone except us. In consumer markets the estimate is that the disgruntled customer tells about 14 others.

• Dissatisfied customers buy less – and seem to do their best to get other to buy less as well

• Typically the cost of complaint resolution is 10-25 percent of the cost of finding a new customer

• When complaints are resolved satisfactorily these customers tend to be more than those who never experienced a problem in the first place.

But why do so many customers not complain:

• They did not think it would make any difference

• They did not think it was worth their time and effort

• They did not know what they had to do to get help

• They never got round to it

Share your examples when such dissatisfaction occurred in your life and you complained (or didn't complain) and what was the result of the same?

Hoping to hear from you all GLOBAL visitors...

References:
Doyle, Peter (2002), Marketing Management and Strategy, 3rd Ed., Hamel Hempstead: FT – Prentice Hall.
Walther, George, R. (1194), Upside-down marketing, New York: McGraw Hill.
Barley, Peter (1994), ‘Looking for Trouble’, Marketing Business, September, pp. 21-24.

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