Understanding Consumer Behaviour in the New Millenium

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Understanding Consumer Behaviour in the New
Millenium

• Rory Morgan
• RD Director, RI Group

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Defining our terms

• Loyalty (to brands, services etc.) has become
  they most significant aspect of behaviour
  requiring understanding
• But what do we mean by loyalty?

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Which definition is best?
Emotional loyalty
Behavioural loyalty

• Measured by affect, e.g.
• attitudes
• brand beliefs
• liking, preference
• behavioural intention
• BUT
• There are other measures
• Potentially redundant

Measured by observation Of ultimate
interest BUT Difficult to incorporate into
ad-hoc methods
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In an ideal world ...

• we would want the best of both!
• I.e. using questionnaire based methods measuring
  affective topics, but able to make an accurate
  prediction of consumer choice behaviour
• The Holy Grail of researchers for many years.

Modeling actual behaviour
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Why bother?

• If we can model behaviour, then we can predict it
• Examine strengths and weaknesses of brand
  positions
• Develop marketing strategies designed to maximise
  attraction/minimise defection
• Identify individuals of opportunity and risk

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Two approaches to survey analysis
Question by question
Across questions
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A simple decision model
Behaviour
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AFFINITY Emotional
BRAND EQUITY
BRAND VALUE
PERFORMANCE Functional
PRICE
RI Equity Enginesm
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Affinity

• The closeness of a brand to a person, together
  with its authority and potential for the
  individual

Measured by conventional brand image uni-polar
ratings
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Affinity Authority
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Affinity Identification
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Affinity Approval
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Performance

• Category specific issues
• Product features/configuration
• Functional benefits
• Customer service topics

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Developing the model

• Essentially a hierarchical model, incorporating
  standard elements of a survey questionnaire
• Weights estimated using a Genetic Algorithm

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A Typical Model
Heritage 43
Authority
EQUITY
Trust 15
Affinity
Innovative 42
Bonding 34
Identification
Performance
Caring 33
Approval
Nostalgia 33
Endorsement 17
Prestigious 18
Acceptability 65
Source Credit Cards Market
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including performance issues
EQUITY
Affinity
Performance
Benefits 10
Direct 32
Customer Service 11
Accepted Everywhere 37
Competitive Charges 10
Source Credit Cards Market
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Genetic algorithms

• General purpose optimisation tool
• Based on principles of evolutionary theory
• Finds best fitting parameters within a given set
  of constraints
• Constraints are very useful
• Iterative - so computer intensive

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A simple (!) problem

• A travelling salesman has to visit 25 locations
  in turn (A,B,C,D etc.)
• The exact positions of each location is known.
• What is the single sequence of visits that
  results in the shortest travelling time?

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A Genetic Algorithm solution

• Generate a large number of possible routes
• ACUSDIXOS..
• JITPBEXZAI
• HUWVDIEQB.. Etc. (Maybe 100 or so.)
• Work out how good each route is.
• Take the best ten, and discard the others.
• Make up the full number of routes by mutating
  the top ten.
• Repeat the process until the best answer is
  good enough.

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The way it works
Take the best cases and generate a new set from
them
Eventually some extremely good solutions are
uncovered
Take the best cases and generate a new set from
them
Good
Bad
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All things are relative ...
Affinity
Equity
Value of CURRENT brand
Performance
Price
Affinity
Equity
Value of ALTERNATIVE brand
Performance
Price
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Relationship to behaviour is not linear ...
Probability of switching
100
75
50
25
0
Utility difference between CURRENT and NEW
Source RI Conjoint studies
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Category Differences
Local telephone
airlines
Loyalty
hospitals
automobiles
Relative brand value
Source Jones and Sasser
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Our ultimate objectives

• To answer the following client questions
• How loyal are my existing customers?
• What are the key factors in creating and
  weakening loyalty?
• What additional customers may be available to me,
  and how do I get them?
• What is the impact on customer loyalty of my
  strategies?

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Why do people behave differently?
Overall inclination/ preference
Intervening variables
Actual behaviour
Inertia Circumstance Barriers to switching
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The concept of inertia

• There are factors which act to inhibit (but
  possibly promote) the likelihood that an
  individual will act on their evaluation of
  product alternatives
• These factors operate at the individual consumer
  level
• Therefore, each individual interprets relative
  brand values in the light of their own constraints

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Inertia
Unhappy prisoners
Secure brand fans
MEDIUM switching
LOW switching
Relative current brand value
Committed volunteers
Early leavers
HIGH switching
MEDIUM switching
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An extended model
Brand equity
Brand attractiveness
Price
LOYALTY
Experimentalism
Inertia
Confidence
Barriers
RI Loyalty Driversm
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Experimentalism

• INDIVIDUAL oriented
• Brand differentiation
• Habit
• Variety seeking
• Shopping around
• Susceptibility to new offers
• Importance of right choice

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Confidence

• CATEGORY oriented
• Knowledge of the category, issues, etc.
• Understanding of the products
• Predictability/transparency of products

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Barriers to choice

• CATEGORY specific - both physical and
  psychological
• Effort required to switch
• Availability/difficulty in acquisition
• Financial implication
• Compatibility with prior choices
• Ancillary benefits
• etc.

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Market Models
Continuous contract Opt-out
defecting Banks Utilities
Regular purchasing Probabilistic Market
share/ volume Airlines Hotels FMCGs
Infrequent purchasing Buy/not buy
purchasing Durables Holidays
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Implications for the future

• Survey research is increasingly linked to causal
  models that are constructed for specific purposes
• Questionnaire content is increasingly driven by a
  priori hypotheses
• Analysis will include an increasing amount of
  vertical modelling

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