Customer Analysis

Introduction

Professor Andrés Musalem
Marketing Management
Fuqua School of Business

Three C’s




Customer
Company
Competition
Four P’s





What’s
Marketing?
Product
Promotion
Price
Placement
Summary
1
Agenda
1.
2.
3.
4.
Value Proposition
Consumer Behavior
Measuring Consumer Perceptions
Measuring Consumer Preferences
2
The Value Proposition
Net
Value to
Target
Market
Benefits
(including
EVC) to
Target
Market
Cost
to
Target
Market
3
Examples of Successful Value Propositions
Volvo Station Wagon



Benefits: Durability and safety
Price: 20 percent premium
Target market: Safety-conscious
“upscale” families
4
Volvo Safety Firsts
1927 Safety glass windshields with automatic windshield wipers
1944 Steel cage created to help protect passenger compartment
1944 Laminated windshields installed 15 years before mandatory
1958 Three-point shoulder/lap seat belt patented by Volvo
1959 Three-point shoulder/lap seat belts introduced in some models
1960 Padded instrument panel installed
1967 Three-point seat belts included in rear outboard seats
1970 Industry's first auto accident investigation team established
1973 Electric rear window defroster made standard on all models
1984 Antilock brakes (ABS) installed
1987 Three-point seat belts included in rear centre seat
1991 Integrated booster cushion added for children
1992 Side impact structure installed five years before mandatory
1995 World's first Side Impact Air Bags introduced
2000 Whiplash Protection System introduced
2003 World’s first SUV with Rollover Protection System and Roll
Stability Control
Understanding My Customers
Who are our customers?
 Why do they buy?
 What important benefits do we provide
them with?

6
Purchase Funnel: Barriers to Purchase
Is the customer aware of our product?
No
Yes
Are prior beliefs favorable?
No
Yes
Is information available to customer?
Yes
Is evaluation favorable?
Yes
Is the product available?
No
No
Buy a
competing
product
No
Yes
PURCHASE
Yes
Yes
Is usage
satisfactory?
No
7
Hypothetical Example:
Marketing Research Results





85%
60%
68%
50%
75%
of
of
of
of
of
customers are aware of our product
those are willing to consider our product
those can find information
those decide to buy it
those find it when they need it
8
Purchase Funnel
9
Understanding Our
Customers
10
Investment Behavior:
Boys Will be Boys
Men are dramatically more confident in
their investment skills than women
 They in turn trade 45% more than women
with comparable portfolios
 This leads men to earn an average return
of 0.93% less than women

Barber and Odean, QJE 2001
11
The Pepsi Challenge
One cup has M, the other Q?
 M or Q?

12
The Pepsi Challenge
>
13
The Pepsi Challenge
M
>
Q
14
How many F’s?
FINISHED FILES ARE THE RESULT OF YEARS OF SCIENTIFIC STUDY COMBINED WITH THE
EXPERIENCE OF MANY YEARS
15
How many F’s?
16
What’s More Important?
 Objective
reality
 Perceived
reality
17
Perceived vs. Objective Reality:
An amateur bicycle racer in Los Angeles, has concluded
that his iPod's Shuffle command favors the rapper 50
Cent -- and perhaps more important, that it knows
exactly the right time to play 50 Cent's biggest hit, ''In
Da Club.''…
…The iPod knows somehow when I am reaching the
end of my reserves, when my motivation is flagging,''
Mr. Greist insisted. ''It hits me up with 'In Da Club,' and
then all of a sudden I am in da club.''
NYTimes 8/26/2004
18
How can we measure perceptions?
attribute
products
19
How can we measure perceptions?

Average Perceptions:
Attributes /
Brands
World
US
BusEco
People
Politics
Sports
A&E
Photo
Entertaining
Fun
Useful daily
Useful career
Time Newsweek US News Economist Fortune BusWeek
4.9
5.2
4.2
4.2
5.3
3.0
4.2
5.5
4.7
4.8
4.5
4.5
4.8
5.3
4.4
3.7
5.2
2.9
3.8
4.8
4.3
4.5
4.6
4.6
4.9
5.4
4.6
3.3
5.2
2.8
3.5
4.3
4.2
4.2
4.6
4.8
5.9
5.1
6.3
2.9
5.2
2.0
2.9
3.7
4.0
4.4
5.2
5.8
4.6
5.1
5.6
3.5
4.1
2.2
3.0
4.0
4.4
4.5
4.6
5.3
4.8
5.2
5.9
3.1
4.3
2.3
2.9
4.0
4.2
4.5
5.0
5.6
People Sports Ill.
2.6
3.7
2.0
6.1
2.6
2.9
5.1
5.6
5.1
4.8
2.5
2.3
2.4
3.7
1.8
5.0
1.8
6.4
3.3
6.1
5.2
5.0
2.9
2.5
20
How can we measure perceptions?
Positioning Map: Politics vs A&E
6.0
Time
Economist US News
5.0
Politics
BusWeek
4.0
Newsweek
Fortune
3.0
People
Sports Ill.
2.0
1.0
2.0
3.0
4.0
5.0
6.0
Arts & Entertainment
21
What about applying this idea to men’s fragrances?
22
A possible solution:
Multi-dimensional scaling (MDS)

The basic assumption: while people may not be
able to reliably report what attributes drive their
choices, they can report perceptions of the
similarities of brand or companies
23
Perceived Similarity
24
Perceptual Mapping of Hotel Chains
Average perceived similarities
Hilton Sheraton Embassy C.Marriott Holiday
Hilton
7.0
Sheraton
5.7
7.0
Embassy
4.2
4.0
7.0
C.Marriott
3.5
3.7
4.4
7.0
Holiday
2.8
3.1
3.4
4.2
7.0
25
Perceptual Mapping of Hotel Chains
Holiday
Sheraton
Dimension 2
Hilton
Courtyard by
Marriott
Embassy
Dimension 1
26
But knowing perceptions is not enough

How are attributes traded off when
choices are made--i.e., what is their
relative importance?
27
Attribute Importance
28
Quadrant Map:
Participants who subscribe to The Economist
Subscribers of The Economist
7
World
Useful career
Political
Useful daily life
Average Perception
6
x
median
5
Business and Econ.
US
Fun
Entertaining
4
Economist
Businessweek
Photo coverage
People
3
Arts & Entertainment
2
Sports
1
2
3
4
5
6
7
Average Importance
w
median
29
Participants who subscribe to Businessweek
Subscribers of Businessweek
7
Business and Econ.
Average Perception
6
World
Useful daily life
Political
median
Useful career
US
5
Economist
Businessweek
Fun
4
Photo coverage
Entertaining
People
3
Arts & Entertainment
Sports
2
2
3
4
5
Average Importance
6
median
7
30
The world’s favorite paintings:
survey results in the U.S.A.

Do you prefer paintings that are
related to religion or not related?

20% related, 63% not related

What seasons would you like to
depict?

15% Winter, 26% Spring, 16% Summer,
33% Fall

Do you prefer outdoor or indoor
scenes?

88% outdoor, 5% indoor

Do you prefer paintings
predominantly of children, women,
men, or it doesn’t matter?

11% children, 6% women, 2% men, 77%
doesn’t matter

Do you like paintings of one person
or a group of people?

24% one person, 48% group

Thinking back on the paintings you
have liked in the past, for the most
part were the figures working, at
leisure, or posed portraits?

23% working, 43% leisure, 27% posed
31
Survey results, continued...

Do you prefer paintings in which
the person or people are nude,
partially clothed, or fully clothed?

3% nude, 13% partially clothed,
68% fully clothed

Do you prefer paintings from a
long time ago, like Lincoln or
Jesus, or more recent figures like
Kennedy or Elvis?

56% long ago, 14% recent

Do you prefer painting of wild
animals, like lions, giraffes, or
deer, or of domestic animals like
dogs, cats, or other pets?

51% wild animals, 27% pets

What type of outdoor scene
appeals to you the most: forests,
lakes, rivers, oceans, and seas;
field and rural scenes, or cities?

19% forests, 49% water, 18%
fields, 3% cities
32
Survey results, continued

If you had to name one color as
your favorite, what would it be?


44% blue, 12% green 11% red,
4% black, 4% purple, 3% brown,
3% pink, 16% others
Do you like to see expressive
brush strokes or the surface of the
canvas to be smooth?

54% strokes, 35% smooth

Do you prefer larger paintings or
smaller paintings?

41% larger, 34% smaller

If large, would it be the size of a
dishwasher, full-sized refrigerator,
or a full wall?

67% dishwasher, 17%
refrigerator, 11% wall
33
America’s “Perfect” Painting
34
France
Canada
Finland
Turkey
35
Italy
Holland
36
Understanding Tradeoffs &
Interactions (Conjoint Analysis)
37
Stated Preferences for Attribute
Bundles (Conjoint Analysis)
38
Partworths for Netbook attributes
(Conjoint Analysis: Average Partworths)
35.0
30.0
Partworths
25.0
20.0
15.0
10.0
5.0
0.0
Dell
Lenovo
Apple
Vaio
20 Gb
40 Gb
60 Gb
$500
$700
$900
2 hours
4 hours
6 hours
Attribute Levels
39
Partworths for Netbook attributes
(Conjoint Analysis)
70
60
Partworths
50
40
r1
r2
30
20
10
0
Dell
Lenovo
Apple
Vaio
20 Gb
40 Gb
60 Gb
$500
$700
$900
2 hours
4 hours
6 hours
Attribute Levels
40
Price Sensitivity & Conjoint Analysis
70.0
64.0
60.0
Utility Points
50.0
40.0
R2
32.0
30.0
26.0
19.0
20.0
16.0
10.0
15.0
6.0
6.0
3.0
0.2
0.1
0.2
0.0
0.0
Dell
Lenovo
Apple
Vaio
20 Gb
40 Gb
60 Gb
$500
$700
$900
2 hours
4 hours
6 hours
Attribute Levels
R2 is choosing between two products:
Vaio, 60Gb, $900, 6 hours
 Utility=16+19+0+6= 41

Dell, 20Gb, $700, 2hours
 Utility=26+0.1+32+3= 61.1
Repeating this analysis for all respondents:
69%
41
31%
Price Sensitivity & Conjoint Analysis
70.0
64.0
60.0
Utility Points
50.0
40.0
R2
32.0
30.0
26.0
19.0
20.0
16.0
10.0
15.0
6.0
6.0
3.0
0.2
0.1
0.0
0.2
$900
2 hours 4 hours 6 hours
0.0
Dell
Lenovo
Apple
Vaio
20 Gb
40 Gb
60 Gb
$500
$700
Attribute Levels
What if Sony matches Dell’s price ($900  $700)?
Vaio, 60Gb, $700, 6 hours
 Utility=16+19+32+6= 73

Dell, 20Gb, $700, 2hours
 Utility=26+0.1+32+3= 61.1
Repeating this analysis for all respondents:
69%87%
31%13%
42
The value of brands and product attributes
70.0
64.0
60.0
Utility Points
50.0
40.0
r2
32.0
30.0
26.0
19.0
20.0
16.0
10.0
15.0
6.0
6.0
3.0
0.2
0.1
0.0
0.2
$900
2 hours 4 hours 6 hours
0.0
Dell
Lenovo
Apple
Vaio
20 Gb
40 Gb
60 Gb
$500
$700
Attribute Levels
•
Reducing price by $400 (from $900 to $500) increases utility by 64 points:
•
How much more is R2 willing to pay for getting a Vaio instead of an Apple
Mini-notebook (when all other attributes are equal)?
•
•
Difference in Utility=16-6=10 points.
In Dollars: 10points x $6.25 per point = $62.5
=> We can use Conjoint Analysis to estimate the $ value of a brand.
$400 = 64 utility points
=> 1 utility point = $400/64= $6.25
43
Key Takeaways
1.
Value Proposition = Benefits – Costs
2.
Consumer Decision Process:

Funnel: Multiple opportunities to fall through the
cracks
3. Consumer choices are driven by perceptions
and preferences.
4.
Measuring perceptions: attribute ratings or
similarly ratings (MDS).
5.
Measuring preferences: self-reported
weights or conjoint analysis.
44
Appendix
45
A Model of Consumer Behavior
SOCIAL AND GROUP
FORCES
PSYCHOLOGICAL
FORCES
Culture
Subculture
Social class
Reference groups
Family and households
INFORMATION
Motivation
Perception
Learning
Personality
Attitude
BUYING-DECISION PROCESS
SITUATIONAL
FACTORS
Need recognition
Commercial
sources
Choice of involvement level
Identification of alternatives
Evaluation of alternatives
Social sources
Purchase and related decisions
When consumers buy
Where consumers buy
Why consumers buy
Conditions under which
consumers buy
Postpurchase behavior
46
Conjoint Analysis: Implementation

Two attributes with two values each:



Cuisine: French or Mexican
Food Quality: Excellent or Fair.
Define two dummy variables:

Cuisine:



x1=1 if French Cuisine
x1=0 if Mexican Cuisine
Food Quality:


x2=1 if Excellent Quality
x2=0 if Fair Quality
47
Conjoint Analysis: Estimation

Ask a respondent to rate all possible
combinations:
Cuisine Quality


x1
x2
Rating
French
Excellent
1
1
7
French
Fair
1
0
2
Mexican
Excellent
0
1
5
Mexican
Fair
0
0
1
Estimate linear regression:
Rating=w0+w1x1+w2x2+error
Interpretation of results:


w1: how much more a customer values a French
restaurant over a Mexican restaurant =1.5.
w2: how much more a customer values excellent
over fair quality=4.5.
48
Conjoint Analysis: Interactions

Estimate this alternative model:
Rating=w0+w1x1+w2x2+w12x1x2+error

Interpretation:



w1: how much more a customer values a French
restaurant over a Mexican restaurant =1
w2: how much more a customer values excellent
over fair quality=4.
w12: additional value that a customer assigns
from going to a restaurant that is both “French”
and has “Excellent” quality=1.
49
Conjoint Analysis: More than 2 levels




What if one variable has more than 2 levels?
Example: Excellent, Fair and No Information.
Need as many dummy variables as the number of
levels-1.
Define 2 dummy variables for food quality:




If x2e=1: excellent quality
If x2f=1: fair quality
If x2e=0 and x2f=0: no information
Estimate linear regression:
Rating=w0+w1x1+w2ex2e+w2fx2f+error
50