Market Realities (Buyer Behaviour) Flashcards
3 models of consumer behaviour
- EKB (Engel, Kolatt and Blackwell)
- AIDA
- ATR(N)
Issues with EKB
- EKB is highly complex
- There is no research/empirical evidence that supports it
ATR(N), how it works
Awareness, Trial, Reinforcement, Nudging
- If consumer is unaware, advertising can make him/her aware
- Once consumer is aware, advertising can induce trial
- Once consumer tries, advertising can reinforce usage
- When making purchase decisions, advertising might nudge him/her to buying a brand over the other
Attitudes vs Behaviour (Importance of measuring behaviour)
- If using attitudinal research to develop new brands/re-position existing ones, there must be a strong congruence between attitude/behaviour
- Attitudes matter for monitoring change, but most markets change slowly
- Evidence: People’s attitudes explained only 9% of variance in people’s behaviours (behaviour is explained by over 90% other factors than attitude)
4 key measures of stationary markets (evaluating stationary markets - e.g. FMCG)
- Penetration
- Purchase frequency
- Repeat buying rate
- Brand switching rate
How do we measure purchase behaviour?
Using the Dirichlet
The Dirichlet
- Not ‘why’ but ‘what’ first
- Descriptive model
- Assumes stationarity
- Understand what market looks like and what are the constraints
Double Jeopardy concept
Big brands benefit in two ways
- More buyers
- Who buy more frequently
Big brands gain higher proportion of light buyers, whom are ‘loyal’ (less knowledge, choose most well-known)
Sole buyers (definition, misconceptions)
- Buy only one brand
- Are not valuable: tend to be light buyers of the category
- Buy at same or slightly lower rate than ‘multi-brand’ buyer
80:20 rule
80% of buyers account for half of sales (light buyers), 20% of buyers account for the other half (heavy buyers)
Market realities: how brands compete
- Brands sell to all category buyers, not a particular segment
- Leaky bucket theory is wrong: its about refreshing and maintaining existing loyalties
- Category growth leads to loyalty declines
- Successful new brands receive almost immediate ‘normal’ purchase rates
Market realities: buyer behaviour
- Consumers are polygamously loyal to several brands
- Loyalty is stable in the medium to long term
- Price promotions increases purchases, but then rates go back to normal levels
- Seasonal brands have two buyers - peak-season and year-round buyers
Benefits of Dirichlet
- Benchmark to interpret brand performance
- See through stochastic variation that conceals underlying loyalties
- Robust to minor seasonal variations
- Accurately describes buying behaviour over time
Stationary model
Brands don’t grow or decline (market share), consumers (although different from one another) don’t change loyalties
Random/stochastic wobble
Events sway purchases, but rarely produce ongoing change in loyalty (promotions, advertising, life events)
Share of category requirements (SCR)
Average number of times buyers of brand X buy that brand, divided by average number of times they buy the category
Purchase frequency
Total purchases or sales, divided by number of buyers (average number of purchases per buyer)
Penetration
Proportion of population buying brand
Issues with AIDA
- AIDA is only good for a brand-new category/product purchase, not for repetition
- Assumes that every advertisement indices interest and desire
- Assumes linearity and a boxes-and-arrows progression
Why loyalty is not a good objective (for FMCG brands)
- Dirichlet: stationarity (loyalties don’t change)
- Similar brands attract similar loyalties
- Consumers are polygamously loyal to several brands
- Drops in loyalty are accompanied by category growth
- Brand-loyal consumers tend to be light buyers
- Limit/constraint of how much product a family/individual can actually use/purchase
