Consumer purchasing cycle: Habit or conscious thought

I highly recommend any marketer charged with driving growth in consumable products or driving traffic in a specific channel, whether it is a website, app or storefront read Hooked by Nir Eyal.  Nir argues that Habit is quickly replacing classical marketing, especially in high frequency purchases.  The power of Habit works very well in technology based consumer actions, such as Facebook, Pinterest or Candy Crush, but it also works exceptionally well in regular purchases, for example, purchasing a morning cup of coffee.  Additionally, how much thought do you typically put into which market you are going to shop in this week or which station you will take your car to the next time it needs work?

Nir lays out a process for increasing the likelihood of creating Habits that reinforce your customer purchasing from you.  These are: 1.) Trigger, 2.) Action, 3.) Variable Reward and 4.) Investment.

Over the next several points, I’ll be talking about Nir’s process in more detail.

Consumer buying behavior: Deliberate decisions or habits?

The consumer buying process, at least in Marketing academia, is a straight forward five step process: 1.) problem/need recognition, 2.) information research, 3.) evaluation of alternatives, 4.) purchase decision and, finally, 5.) post-purchase behavior but is the process really so rational?  Why would we, marketers, care?  Most of marketing is focused on targeting one or more these steps to encourage consumers through the process.  If the process doesn’t follow this process, then your marketing expenditure isn’t going to be effective.

Well if the buying process is not this well worn path, what else could it be?  Habit.  Humans are dominated by habit.  Habits are wonderfully effective tools your brain uses to efficiently move through the day and your habits can be beneficial or harmful, depending on the habit.

Try a little experiment.  Keep all of your personal receipts for one month.  Grab your check book, credit card statement, your Paypal account and anything else that you to purchase something over the last 30 days.  Put them all on a spreadsheet and then add a few columns, for example channel, store, brand, product, etc.  Which columns are most meaningful to you will depend on the segment you manage.  Mark those purchases that relate to the segments you manage.

For each purchase, fill in each  column whether that purchase was a habit, a thought through decision or a trapped decision (a monthly expenditure on a 2 year cellphone contract would be trapped).  For example, stopping into Starbucks on the way into work is likely a habit in any column you may put up.  Total up your purchases.  What percent of your purchases each month are made out of habit?  Was the habit the store you went to, the brand you picked, the exact product, etc.?

This throws a twist into marketing for many of us.  If your segment is heavily dependent on habit, whether in channel, store, brand, etc., then you customers’ buying process is no longer the classically defined process listed above and your marketing will have to change.

Book review: My Fire’s Gone Out!

My Fire’s Gone Out my Liam O’connell is a very quick read about change. While written on the level of a children’s book about four little devils it has some important messages about change. Liam summarized it with these few bulletpoints:
1.) change happens
2.) anticipate change
3.) react positively
4.) take action
Bonus point: change can be good!

Can your company survive without a brand identity?

Well…. yes it can.  Someone will also win the lottery.  Running a company without a clearly articulated and execute brand identity makes the future of your company an issue of luck instead of skill.  Creating a clear and consistent brand identity significantly reduces the amount of luck your company needs to rely on.  It allows your success to depend on skill, strategy and hard work.

So what is brand identity?  It is how you want your customers to perceive your company.  Ideally, it also means how your customers will perceive your company relative to what ever alternatives they have.

The components of brand identity do include visible representations of your brand, such as logo, name, colors, etc. but it goes far beyond that.  Brand identity also identifies how your products should be developed, priced and marketed.  It clarifies the functionality that your products should have and the overall level of quality in which you need to invest.  It tells you which channels are appropriate for your business, which partners fit and which promotions make sense.  Basically, it is the yardstick that can be used throughout your company to tell if any individual action is measuring up.

A brand identity should be short, a sentence or two, clear and be used to align the rest of your business.  It needs to state what you provide, how your product differentiates from the market place and identify key aspects of your target customer.  It can also include what your company is values above all else.  It should read like, “We provide quality decor at a luxury price to upper income customers with classic taste.  Every aspect of our customers’ experiences will be best in class.”  In this case, the company needs to invest in customer service, product quality and training.  Employees need to be empowered to make quick decisions that are customer oriented.

How to grow your business

There are four ways to grow your business.  First, you can sell more of your existing products to your current channel.  Second, you can offer new products and services to your current channel.  Third, you can offer your existing products and services to a new channel.  Fourth, you can offer new products and services to new markets.

It is easiest to expand in your current channel because you know the players and with a little effort, you know their needs.  Unfortunately, the size of the opportunity is typically more limited as well.  This is because you and your competitors have been trying to grow your businesses this way and have already realized many of the opportunities.

Going after new channels frequently has a larger opportunity for growth but it typically requires a larger investment of time and resources.  The key is to not lose focus on your bread and butter business while expanding.

Competitive Advantage

It is a common misconception that Competitive Advantage means that you must be better than your competitors.  In reality, Competitive Advantage means that you must be must be better attuned to your customers values than your competitors.  What is the difference?  Customers balance a combination of Marketing’s 4 P’s; Price, Product, Place and Promotion.  Some marketers add a fifth P; People.  One customer may value safety over all else and be willing to sacrifice features, convenience and price to have the safest product on the market.  Another customer may require a reasonably safe product but demands the lowest price available.  To have a competitive advantage, you must segment the customers and define your target customer.  Then research that customer to determine exactly what combination of features, quality, convenience, etc. that your target customers value.  Once this is defined, everything in the company should reflect that combination of values.  Every product, process, customer service interaction and communication must reflect those values.  Select your partners and distribution points in alignment to your chosen values.  The final step is to create specific and targeted communication to your target customers.

Customer Competitor metrix

Think about purchasers of your product or service.  Not Your customer but all the customers of your product being service by you, by your competitors or not being serviced by anyone.  In the simplest terms, all of these customers will be considering a combination of four factors: Price, Product, Place and Promotion.  You and each of your competitors will have relative strengths in the combination of those factors.  One a grid, write product, price, pace and promotion across the top.  Down the side, list you and all of your competitors as well as list unsatisfied.  In the grid, you can then rank how each of you are succeeding in each of the 4 P’s.  Are you where you want to be?  For example, if your unique selling proposition is mid-level price with superior quality and features at somewhat remote locations to keep the cost down, is that where you rank on the grid?  On each feature, you should be, at least, where your unique selling proposition has placed you.  Perhaps better.  Then again, if your rank is better than planned, you may want to either reconsider your plan or adjust your marketing to return to plan  For example, if your unique selling proposition is to be mid-priced and you are ranking as a low priced provider, your business may profit by raising prices.

If Henry Ford asked customers what they wanted, they would have said a faster horse and other myths

Henry Ford supposedly said that if he listened to his customers he would have made faster horses.  There are a few things wrong with this quote.  It doesn’t appear to historically accurate.  OK, perhaps the quote is educational. . . . . well, not so much.  Let’s assume for a minute that one of the things customers said is, “I want a faster horse.”  Fair enough.  A competent market researcher would simplify that comment to, “Faster.”  What else might a pre-automobile customer have said?

“I spent too much time taking car of the horse even when I’m not traveling.”  Which could be said as, “No maintenance when not in use.”

“I don’t like getting wet when riding.” Which could also be, “Covered/enclosed compartment for traveler.”

“It takes too long to get the saddle and gear on the horse when I want to go somewhere.”  Which could be restated as, “No pre-travel time.”

The marketer now has a list of requirements:

“Faster.”; “No maintenance when not in use.”; “Covered/enclosed compartment for traveler.”; “No pre-travel time.”

Steve Jobs is said to not have listened to customers because he said, “It’s really hard to design products by focus groups because sometimes people don’t know what they want until you show it to them.”  Designing by focus groups is incredibly difficult but with a focus group Apple could have understood that before the nano that customers had limited music selection because of carrying all the tapes, it was difficult to carry a big selection and mixing music from different albums was a chore.  That would give the product developers a list of requirements to innovate toward.

Implicit vs. explicit research methods

Implicit methods generally what happened but generally don’t tell you why it happened.  This is good for showing trends or interrelated behaviors.  Explicit methods ask the customer why they acted as they did.  They attempt to understand the customer motivation to understand how the customer would act in a similar situation in the future.

Examples of implicit research methods include analyzing sales and profit numbers, web analytics, customer observations and some types of surveys.  Examples of explicit methods include focus groups, customer service, employees, social media and online communities.

Understanding your customer requires a combination of both methods.  Implicit quantitative analysis tells you exactly what happened.  By comparing different markets, regions, test groups or time periods you will be able to truly understand what outcomes result when changing certain of your inputs.  Unfortunately, you won’t understand why the outcome happened that way.  That limits your ability to transfer that knowledge to slightly dissimilar scenarios.  By laying explicit information over the implicit data, you will have an understanding of why the customer responded the way they did.  That will empower you to better aim your marketing in the a greater variety of scenarios in the future.

Pricing to profit

The simplest way to price is cost plus pricing.  That is, determine how much it costs you to provide your product and add some factor.  A company that supplies to a department store may do a factor of four to the final consumer.  For example, it costs company X to $25 to make a product.  They may sell it to a department store for twice that, $50, and the department store my price it to the final consumer at $100.  Of course little things get in the way of that like promotional strategy.  Department stores are heavily promotional so they may price the product at $200 so that they can sell it to you at 50% off.  Cost plus pricing requires that you have done your market research on which features and functions the consumer requires.  Otherwise you may double the cost of the product and therefore the final retail by adding features the consumer is unwilling to pay for.

Cost plus is simple and it guarantees your products will make a similar margin percentage but it isn’t the most profitable way of pricing your product.  A better method is pricing to what the customer is willing to pay.  For example, working with Swarovski, I priced a foot tall pure crystal bird sculpture (which would have pricing according to Swarovski’s pricing methodology at $650) at $885.  I knew that the consumer would be willing to pay more for such a majestic piece.  What also helped my pricing decision was that I knew the product was supply constrained.  That is, we were likely to not be able to satisfy all of the consumer demand.  Therefore, Swarovski’s profitability was maximized by raising the price where demand would equal supply.

The goal of pricing is to price to the PROFIT maximizing level.  I stress profit because too many people attempt to maximize sales.  Let’s use a simple example.  Through analysis, you feel that you could sell 1000 units of a product at $10, 500 units at $15 or 250 units at $20.  Sales in these examples would be $10,000 at $10, $7500 at $15 and $5000 at $20.  If the product cost you $9 to make at $10 you would only have made $1000 in profit.  At $15, you would have made $3000 and, at $20, you would have made  $2750.  Therefore, pricing to maximize sales would have you at $10 while pricing to maximize profits would have you at $15.