Chapter 2: The Consumer

Chapter 2: The Consumer BMI3C

Consumer Demand In 2000, the population of earth reached 6 billion. It is expected that by 2050, that number will have climbed to more than 9 billion, and each of these 9 billion people will be a consumer A _____________ is the person who uses the product A ____________is the person who buys the product Consumer Customer

Day 1 – Response Journal Is the customer always the consumer? Explain your reasoning and give examples. ***Save As Feb. 14 in your Response Journal folder***

Consumer Demand • Although marketers often use the terms consumer and customer interchangeably, a customer is _____ always a consumer • E.g. children are consumers but they are rarely customers • Generally speaking, a parent or guardian, known as the _______________ (a person who oversees the care of another), buys the child’s food, clothing, furniture, toys, etc. • Marketers often attempt to appeal to the gatekeeper as well as the consumer • Why do you think this happens? Not Gatekeeper

Consumer Demands: Needs & Wants • All of us, whether customer or consumer, have similar basic ________; things that are necessary for survival • E.g. food, water, shelter, affection from loved ones, affiliation (a sense of belonging), etc. • Most Canadians can satisfy their basic needs with little difficulty • On the other hand, ________ are items that are not necessary for survival but add pleasure and comfort to our lives • E.g. both a bowl of soup and a gourmet steak with mash potatoes and vegetables would satisfy our need for food, but the soup may not satisfy our want Needs Wants

Consumer Demand: Needs & Wants • The distinction between needs and wants is very important when analyzing consumer demand • In third world countries where poverty and war are present, people have difficulty meeting their basic needs and therefore aren’t very concerned with wants • However, in developed countries, such as Canada, marketers focus more on the ________ • They market new alternatives to items we already have – e.g. a new car or clothing that reflects the latest trends • As you learned in Chapter 1, the value equation is an important part of consumer demand Wants

Consumer Demands: Needs & Wants Example; • If people perceive more value in reading than watching TV or going out with friends, then there would be a greater demand for books • If a specific book received a positive review and many people wanted to read it, then the demand for that particular book would increase • In addition to the value found in reading or in the quality of a specific book, value can also be found in the ________ of buying the book • If a store offers discounts on books, comfy chairs and an on-site coffee shop, then consumers will likely prefer that store to another that doesn’t offer those perks Process

Changes in Consumer Demand Consumer demand is constantly changing based on … Economic Shifts Availability of New Products

Changes in Consumer Demand 1. Economic Shifts • If the economy is stable and unemployment is low, then many consumers will have enough money to buy some “wants” • However, if the city goes into an economic slump, then many consumers will NOT have enough money to buy “wants” and will focus on their “needs” • E.g. if the economy is in a slump, then the demand for novels will __________ Decrease

Changes in Consumer Demand 1. Economic Shifts Continued • Fluctuations in consumer demand that are based on wants, needs and perceived value, can create many challenges • Marketers never know for certain how a specific product will sell, so they have to make an educated guess as to how much of the product to make • Using research and knowledge of the market, marketers translate what they believe consumer demand will be into __________ • However, sometimes mistakes in gauging consumer demand happen • E.g. A publisher might print thousands of copies of a book, only to find out it is a poor seller. The publisher then has an oversupply of the book. Marketers call this oversupply ______ and will reduce the price of the book in order to increase demand for it, thus clearing the surplus supply Supply Glut

Changes in Consumer Demand 2. Availability of New Products • As a product category becomes popular, more retailers enter the marketplace • E.g. A town with 5 existing bookstores may be an attractive location for other bookstore chains to open, but the market can only support a certain number of bookstores. If a 6th bookstore enters the market, there is now 1 too many bookstores open and not enough consumer demand for all to remain open. 1 or more bookstore will not be able to make a profit and will have to close. However, once 1 or more of these bookstores close, demand at the remaining store will go back up, and the cycle starts over again.

Day 1 – Assigned Work Read the Canadian Marketing Profile: The Pet Hotel on pages 36 & 37, and answer the 2 corresponding questions Answer questions 1a, 1b and 2b on page 40

Day 2 – Response Journal Read In The News … on page 43. Do you think it is ethical for Frito-Lay’s to pay for shelf space? Why or why not? ***Save As Feb. 18 in your Response Journal folder***

Product Life Cycles ___________________ describe the changes in consumer demand over time Product life cycles are based on the knowledge that NO product can be in demand forever _________, ______________ and ___________ change, and with them so does consumer demand The product life cycle serves as an alarm system to alert marketers as to when changes in consumer demand might occur Product Life Cycles Trends Technology Lifestyle

The Traditional Product Life Cycle The traditional Product Life Cycle (PLC) consists of five stages; Introduction Growth Maturity Decline Decision Point

PLC: 1. Introduction • A _______________ is the moment when a new product is introduced into the marketplace – it is the birth of a new product • The launch of a new product can be very expensive • Introduction costs often include - purchase of new machinery/equipment, paying for design costs, training, promotional activities, storage, packaging, research, etc. • Due to all these expenses, the initial price of a product as it enters the market is often _______ • Initially, marketers usually focus their selling efforts on ________________ • Consumers who like to be the first to own a new product Product Launch High Early Adopters

PLC: 1. Introduction • During the Introduction stage, marketers focus their efforts on selling to early adopters • Marketers sometimes use ____________ to help introduce their new products • They provide celebrities with their product, for free, in hopes that they will be seen wearing or using it • E.g. Nike - in the US, they supply the latest basketball shoes to star NBA players. Nike then hopes that the early adopters will see the new shoes on these players and want to buy them too • An example of a successful product introduction is the DVD Player - read paragraph 3 on page 42 Celebrities

PLC: 1. Introduction The main purpose of marketing a new product is to … • Inform consumers about the new product • Establish the value equation as early as possible • Marketers are interested in obtaining shelf or floor space in retail stores • Therefore companies offer dealer incentives, discounts and special display units to encourage retailers to make the initial purchase • Some companies even arrange ____________ deals, which allow the retailer to return any unsold products to the manufacturer after displaying them for a certain period of time • Some manufacturers even pay retailers a ________________ to stock and display their new product Consignment Shelf Allowance

PLC: 2. Growth Once early adopters find and use a new product, other consumers are likely to follow The reputation of the product spreads and manufacturers advertise heavily This is the time when a product will either catch on or fail The faster a company can reach the growth stage with a new product or service, the faster it can begin to make a __________ If a product is removed from the market in the initial part of the growth stage, before it has recovered the cost of production and the product launch, it is called a ________ Profit Bust

PLC: 2. Growth The first company to enter a market ends up paying the most for R&D and advertising, but has no competition But, as competitors enter the market, they begin to fight for _______________; a company’s sales as a percentage of the total sales for that market Example; Therefore, Coca-Cola owns 47% market share (47/100) Market Share

PLC: 2. Growth • Many factors prevent competitors from realizing a profit. These factors are called _______________ and include … • Small market size • Cost of R&D • Cost of advertising • Factory and equipment costs • Design costs • Lack of distribution channels • Cost of raw materials • Eventually, because of these barriers, only the most competitive products remain on the market Barriers to Entry

PLC: 3. Maturity The maturity stage in the PLC is the period during which sales of a product increase more slowly, if at all Marketers keep the name of their brand in front of consumers to remind them of the features and it’s history Ads focus on the success and longevity of the product Since initial costs have been recuperated and the costs of sales and distribution are low, products usually make ___________ during this stage Businesses often take this profit and use it to develop new products Businesses will also use the brand’s reputation to promote other products Large Profits

PLC: 3. Maturity Examples; • Sony took the profits made from producing the Walkman and put it into developing the Discman • Disney took the profits from it’s amusement parks to launch a line of cruise ships • This move also expanded the Disney brand into a new market - cruising

PLC: 4. Decline Stage • When a company cannot find new consumers for their product or service, they have entered the decline stage • As profits decrease, marketers try to find the reason for decline • If it is a temporary decline, it may be reversed by a small price change or a new ad • However, if the decline is more serious, the company may turn to other methods in an attempt to reverse a decline such as … • Redesigning • Reformulating • Repackaging • Or the company may decide to remove the product from the market altogether

PLC: 5. Decision Point Stage • This is the final stage of the PLC • At this stage, marketers must make important decisions regarding a product’s future • Based on their research, the product or service may be reinvented and reintroduced as “new and improved” • E.g. an old brand of liquid detergent might reenter the market with a new pour spout or a new scent • However, this most often involves new promotion and/or new pricing • E.g. Cow Brand Baking Soda – read paragraph 2 on page 46 • If decline continues, despite efforts to reposition, the product or service will likely be ______________ Discontinued Discontinued Snack Foods

Day 2 – Assigned Work Complete questions 2a, 2b and 2c on page 49

Day 3 – Response Journal In your own words, describe what you believe a fad is. List a minimum of 3 examples of products or services that you believe were/are fads. ***Save As Feb. 19 in your Response Journal folder***

Nontraditional Product Life Cycles Some products do not follow a traditional product life cycle Fad, trends, niche markets and seasonal markets can pose unique, and at times, highly profitable, marketing opportunities

Nontraditional Product Life Cycles: Fad • A ________ is a product, service or idea that is extremely popular for a very brief period of time, and then it becomes unpopular just as quickly, vanishing soon after from the marketplace • Movies, books, songs and TV programs can be fads • Fads can even be phrases and gestures • However, novelty products, toys and games are the most common fad items • E.g. Furby, Tamagotchi, etc. Fad

Nontraditional Product Life Cycles: Fad Marketers can make or lose a great deal of money on fads Fads are very unpredictable and high-risk If a business can get out of the market just as the fad peaks, then they will realize a significant profit However, if they wait too long the business will get stuck with excess inventory that no one wants to buy

Nontraditional Product Life Cycles: Trends • A __________ is different than a fad, in that is has more of a lasting effect on the marketplace • A trend is a mass movement toward a particular style or value, and can result in a number of other products • E.g. organic foods, The Simpsons, etc. • By paying attention to trends, marketers can predict which markets will grow in the future, or even predict the creation of a new market Trend

Nontraditional Product Life Cycles: Niche Market • Some products have very short growth stages which lead to solid but not financially spectacular maturity stage. These products have a _________, a small section of the market that they dominate • Because the market is so small, there is very little competition • E.g. The Pet Hotel – the market being served consists of pet owners who are dissatisfied with existing kennels, care deeply for their pets, travel and have a relatively high income. In a small city like Peterborough, ON this is a niche market because there are not enough consumers that fit this profile to make the market attractive to competitors. However, the market is large enough for one business to be profitable Niche

Nontraditional Product Life Cycles: Seasonal Markets • Consumer demand changes with the seasons and is effected by the weather, which is why seasonal products do not have a traditional product life cycle • Marketers of seasonal products and services anticipate periods of high and low demand, and work to create off-season opportunities • E.g. Chicopee • Winter – skiing, snowboarding, tubing, etc. • Summer – bike parks and trails, beach volleyball, tennis, etc.

Day 3 – Assigned Work • Complete the Fad or Trend? Activity Worksheet • Instructions for this activity are posted on ClassNet under Tasks • Using your textbook, copy the 4 different PLCs graphs into your notes • The Traditional PLC can be found on page 41, figure 2.5 • The 3 Nontraditional PLCs can be found on page 46, figure 2.11

Day 4 – Response Journal What demographic income level: high, middle or low, do you believe is the most important group for marketers to target? And why? ***Save As Feb. 20 in your Response Journal folder***

Consumer Profiles The more marketers know about their potential customers, the better they are able to anticipate or influence their customers’ buying habits Marketers create _________________, which outline the kind of people most likely to be attracted to a specific product Marketers then to combine consumers into _________; groups of consumers that shares common characteristics and buying habits, also called a __________________ Read In The News … on page 51 Consumer Profiles Cohorts Consumer Segment

Consumer Profiles • Marketers divide their consumer profiles between the _______________; the most likely consumer and the _______________; other, occasional consumers • Knowledge of the target market affects many areas of the marketing plan in the following ways; • Distribution methods • Will indicate how best to deliver the product • Advertising • Will help advertisers create meaningful messages • Product design • Consumers in a target market tend to like the same colours, shapes, materials, etc. • Media • Discovering the media that different groups of consumers use helps marketers reach their target market • International markets • Profiles of consumers in other countries may indicate marketing opportunities Primary Market Secondary Market

Demographics • _______________ are the study of obvious characteristics that categorize people. These characteristics include … • Age • Gender • Family life cycle • Income level • Ethnicity and culture • Each of the above characteristics are then subdivided into variables or ranges • Businesses use demographics to develop consumer profiles and define their target markets Demographics

1. Age • Marketers use a number of different age groupings • Age groupings are used because they reveal important info about the consumers within the group • You will explore the specific age groupings further in today’s assigned work

1. Age • _________________ are those who were born between 1946 and 1963, and are the most important group of consumers to many businesses • Shortly after WWII, many Canadian couples got married and started a family. Also, many immigrants came to Canada after the war, leading to a dramatic growth in population and created a variety of new markets • Many of the major trends in the last 50 years were started by the baby boomers • Read paragraph 2 on page 55 • Today, any business that can attract these baby boom seniors will have a strong competitive edge Baby Boomers

2. Gender • Today, there are very few products marketed exclusively to men • Some colognes, some magazines, and a few other products but not very many • However, there are numerous products that are marketed exclusively to women, and women have adopted many formerly masculine products • High-heel shoes, pantyhose, cosmetics, dresses, etc. • Boxer shorts, baseball hats, etc. • This shift is due to the fact that gender roles have changed

2. Gender At one time, women did the grocery shopping and men purchased the family car Today, the act of shopping is done by both genders and purchase decisions are more likely to be shared Therefore, products that were formerly targeted at females (detergent, food products, etc.) or males (cars, sporting equipment, etc.) are now being marketed successfully to both genders

3. Family Life Cycle • A consumer’s stage in the family life cycle can determine many wants, needs and purchasing patterns • A business can sell the same product or service to various life cycle groups, but it will changing the marketing to match the needs of stage • E.g. a cruise line may market its packages as a honeymoon for newlyweds, an exciting adventure for singles, a family holiday for couples with kids or a relaxing dream vacation for retired couples • Examples of life cycle stages include … • Single, never married • Married, no children • Married, with children • Separated, divorced or widowed, with no children • Separated, divorced or widowed, with children • Blended family • For a full list see Figure 2.27 on page 57

4. Income Level • Consumers can also be grouped by how much money they have or earn • Businesses use income data to determine who can afford their product or service • The affluent (high income) group is willing and able to buy items that the middle income group cannot • E.g. Kellogg's Corn Flakes, targets consumers in every income bracket, but BMW and Mercedes only target the wealthy • Businesses look at the following indicators to determine consumer wealth … • Postal Codes • Employment • Number of children • Education • Property ownership

5. Ethnicity & Culture • Businesses that do not understand the culture of their consumers risk offending them • International marketers need to consider cultural differences before they enter the market • Colour, for example, has different meanings in different cultures • In China, white is worn to mourn death and red is worn by brides. Therefore, a Canadian company would have a difficult time trying to sell white wedding gowns in China, or showing a white gown in an ad

Day 4 – Assigned Work Complete the Demographics Age Worksheet Complete the Demographics Profile Worksheet

Day 5 – Response Journal Why do you think a customer’s geographic location (where they live) is important to marketers? ***Save As Feb. 24 in your Response Journal folder***

Psychographics • _________________ are a system for measuring consumers’ beliefs, opinions and interests • Profiles consumer’s according to religious beliefs, tastes in music, attitude toward health, personality traits, and other psychological factors • E.g. marketers believe that consumers who exercise are also likely buy low-fat, healthy foods • Psychographic traits are less obvious then demographics, and much more difficult to measure, but they are equally as important • See Figure 2.30 on page 60 Psychographics

Geographics Marketers are also very interested in where consumers live Consumers living in different areas have different wants and needs There are 3 main categories; Urban Suburban Rural Downtown Kitchener St. Clements East Bridge in Waterloo

Geographics The Urban Consumer … Lives within the boundaries of a city (downtown) Typically lives in apartments, condos or houses with small yards Typically spends money on cultural events, restaurants and public transportation

Chapter 2: The Consumer