Marketing Lifestyle Bundles to Affluent Consumers Michael Levens, Ph'D'

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Marketing Lifestyle Bundles to Affluent Consumers
Michael Levens, Ph.D.
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Michael Levens Biographic Information

• Assistant Professor of Marketing, Walsh College
  of Accountancy and Business Administration
• General Motors
• OnStar Manager, Applied Research and Innovation
• Saab Brand Manager
• GMSPO Manager, New Product Development and
  Market Research
• GM International Operations Manager,
  Advertising and Brand Research
• GM International Operations Manager, Asia
  Pacific Business Development
• Ph.D. (Capella), M.B.A. (Bond), B.S.M.S.
  (Kettering)

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Michael Levens Biographic Information

• Major Conference Speeches / Papers
• American Marketing Association (2002, 2004, 2006)
• Advertising Research Foundation (2004)
• Automotive Market Research Council (2003)
• Canadian Marketing Association (2005)
• Areas of Research Interest
• Luxury Brand Marketing
• International Market Segmentation

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Key Ideas from this Presentation

• Understand how luxury consumers respond to
  lifestyle marketing
• Explore how to bundle a lifestyle offering
• Discuss how limited brand choice within a luxury
  product bundle changes purchase consideration

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Agenda

• Context
• Concept
• Research Design
• Results
• Implications

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Underlying Concepts Idea Integration
Consumer Decision-makingProcess for Luxury Goods
Affluent ConsumerBehavior / Trends
Bundling Theory for Luxury Marketing Strategies
Cooperative Marketingfor Brand Development
Conjoint / MarketSegmentationMethodologies
Development of a Basis for Bundled
Multi-Category Luxury Offering for Affluent
Consumers
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Lifestyle Marketing / Trends

• Literature Applications
• Segmentation variables
• Marketing communications theme
• Media trends include a strong relationship
  between approach products and likeability (Youn
  et al, 2001)
• Societal trends include growing level of
  disposable income and affluence (Luxury Marketing
  Council, 2004)

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Affluent Consumers

• The 50,000 income level is considered to be the
  starting point for consumers to purchase luxury
  products (Cline, 2004)
• 5.6 million households earn over 150,000
• Purchase most vehicles over 50,000, homes over
  750,000, and second homes and resort-related
  investments (Luxury Marketing Council, 2004)
• 87 claim they would spend more if they could
  find better products or services (Accenture,
  2004)
• Spending more time with family and friends
  provides the greatest pleasure to this group
  (Revealing new insights, 2004)
• Reputation of brand is more important than even
  price / value proposition for experiential
  products (Unity Marketing, 2004)

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Consumer Decision-making for Luxury Products

• Basis is emotional
• Focus in meaning of product
• Influencers of consumer decision-making
• Product category
• Brand stature
• Involvement
• Integration
• Traditional hierarchy models focus on rational
  process
• Recent models focus on primacy of emotion over
  cognition and involvement over likeability

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Bundling Concept

• Bundling involves the marketing of two or more
  products in a single offering (Yadav, 1994)
• Bundling considered most effective when
• Marginal costs of products are low
• Demand for goods is inelastic
• Valuation for individual goods are similar
• Three types of bundling
• Pure, mixed, unbundled
• Current Bundling Strategies based on Utility
  Theory
• Alternatively, complexity or time sensitivity
  could mitigate evaluation of bundle (Bakos
  Brynjolfsson, 1996)

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Cooperative Marketing Concept

• Cooperative marketing involves a wide range of
  collaboration between brands
• Co-promotions to joint ventures
• Basis for cooperative marketing is brand
  management
• de Chernatony (2002) considers brands to be a
  defining experience in the minds and hearts of
  consumers
• Keller (2002) argues that brand equity creates a
  differential effect on consumer response to
  marketing
• Functional benefit comes from brand promise and
  emotional benefit comes from image
• Brands influence both supply and demand

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Propositions

• A marketing offer that communicates value and
  convenience increases purchase consideration
• Consumer demand for products or services is
  commonly considered to be influenced by context
  of past purchases, actual ownership, usage, and
  multi-category interaction
• While utility theory is the basis for many
  econometric models of consumer behavior, the
  assumption that consumers consider all the
  available information that is before them in a
  comprehensive manner may not hold for a
  multi-product category bundle
• Purchasing a single bundle reduces search and
  transaction costs while also reducing purchase
  risk
• Consumers consider that a pre-developed bundle is
  designed to fit together and is less risky than
  consumers constructing bundling that do not fit
  together

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Propositions

• Complexity or time sensitivity contributes to
  bundling actually hiding consumer valuation of
  individual products or services
• Some components are more important that others in
  a bundle and subsequently influence consideration
• Bundling of products from different categories
  collectively fulfills consumer wants and needs
• Strong brand relationships are easier to form for
  luxury brands as category involvement is higher
  and marketing communication messages are more
  deeply considered than for other low-involvement
  products or categories
• Decision-making for luxury product purchases is
  different from decision-making for non-luxury
  products due to their emotional component

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Study Question

• What are the effects of a bundled offering,
  marketed as a lifestyle, of home, vehicle, and
  vacation club on the purchase consideration of
  affluent consumers
• as opposed to those within the
• bundle being offered separately?

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Study Significance

• The innovative idea for consumer brand marketers
  is to understand if specific products or services
  from different categories can be marketed as a
  single bundled offer and generate greater gross
  revenue to the contributing brands than from each
  item being sold separately
• Less elastic demand based on the value of the
  combined offer through lifestyle endorsement
• Convenience through a simple value proposition
  that trades off time for price
• Some other rationale yet unidentified

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Methodology

• Hosted on managed Internet panel
• Completed sample of 600 respondents
• 150,000 HHI
• Sole or joint decision making
• 18 age
• Field dates April 19 - April 26, 2005
• 25 minute survey
• Survey Components
• Ownership
• Purchase Horizon
• Concept Exposure, Interest, Valuation
• Attitudinal Evaluation
• Analysis
• Conjoint / Segmentation

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Concept Presentation

• A new concept in lifestyle marketing A single
  luxury offer purchased at one time consisting of
  home, vehicle, and vacation club designed
  specifically to fit your needs, wants and
  desires. Whether you prefer to lease or buy,
  there are numerous financing options that span
  timeframes between 3 and 30 years. The process
  would begin with an in-person consultation with a
  trained lifestyle consultant that would involve
  listening to your interests and desires in
  addition to administering a set of specific
  questions to help identify the best lifestyle
  fit. A personalized profile would be developed
  by the lifestyle consultant and prepared for your
  consideration.

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Demographics

• Purchase horizon (1-year or less)
• - 11 home, 24 vehicle, 2 vacation club

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Concept Evaluation
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Reasons for Low Consideration
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Additions to Increase Consideration
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Deletions to Increase Consideration
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Reasons for Consideration
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Additions to Increase Consideration
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Preferences for Concept Exposure
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Limited Brand Choice Influence
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Additional Findings

• Of those not interested, 8.6 claimed they knew
  someone else who would be interested in this
  concept
• Of those interested in the concept, 61 claimed
  the idea was extremely or very different
• At a 20 premium with limited brand choice (4
  brands), 31 move to ratings of 3 or less
• At 20 premium with limited brand choice, 1 in 6
  respondents claimed ratings of 5 or higher

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A segment of affluent consumers with annual
household incomes of 150,000 or greater will
claim greater purchase consideration and pay a
premium for a bundled luxury offering of home,
vehicle, and vacation club than individual
components (result supported)
Hypothesis 1
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As category experience increases, buyers are
less likely to consider a home, vehicle, and
vacation club bundle versus the individual
components sold separately (result not
supported)
Hypothesis 2
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Claiming a busy lifestyle increases the
likelihood of purchase consideration and
willingness to pay a premium for a home, vehicle,
and vacation club bundle versus individual
components (result not supported)
Hypothesis 3
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Purchase consideration for a bundled lifestyle
offer is not necessarily related to household
income beyond the 150,000 threshold (result
supported)
Hypothesis 4
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Consumers will trade off flexibility with
reduced brand choices for convenience through a
luxury lifestyle bundle(result supported)
Hypothesis 5
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Discoveries / Learning

• Difficult incidence sample with many abandoned
  surveys
• Threshold was at least high enough
• Multi-cycle behavior of interest
• Bundles of interest
• Limited brand choice at premium of interest

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Surprises

• Level of interest in concept
• Level of valuation of concept
• Limited defection from original concept rating
  even when concept presented at premium price and
  reduced brand choice
• Segment of high inelastic demand for luxury
  multi-segment bundles

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Implications

• Lifestyle marketing can take on a broader
  definition
• Opportunity to bundle major capital purchases
  exists and can be expanded
• Opportunity to increase co-operative marketing
  activities
• Opportunity for entities not currently active in
  specific product segments toroll-up
  multi-category products andmarket as a new
  product
• Private offers through the mailand in-person
  meetings are thebest ways to communicate
  newconcepts of this magnitude

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Implications

• Re-think application of Utility Theory to
  lifestyle bundles
• Other consumer groups may demonstratestrong
  response to lifestyle marketing
• Limited brand choice does not significantly
  reduce considerationof multi-category bundles
• Convenience contributesheavily to valuationand
  consideration

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Areas of Further Inquiry

• Detailed segment profiling
• Income threshold
• Additional bundle configurations
• Alternative consumer segments
• Specific brand choice and financial offers could
  be tested
• Refinement to panel methodology

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Contact Details

• Michael P. Levens, Ph.D.
• Assistant Professor of Marketing
• Walsh College of Accountancy and Business
  Administration
• Phone [phone]
• E-mail mlevens_at_comcast.net