April 2, 2008

1. April 2, 2008 GO DEEP The Application of Virtual Reality and Neuroscience to Develop Deep Consumer Insights M D CMarket Data Corporation

2. Overview • MDC – IDENTITY is a marketing research and marketing and planning consultancy whose mission is to provide insight through innovative research and creative thinking • We have developed innovative research and planning techniques • New twists on current procedures • New models for application of knowledge and insight • Revolutionary techniques that push the envelopein understanding consumers To deliver deep and actionable insights

3. Agenda • A little bit more about us • Perspectives on deep consumer insights • The application of virtual reality and neuroscience to go beyond explicit (cognitive structure) knowledge  to understand implicit knowledge (how consumers really feel, and how they really behave)

4. Market Data Corporation MDC is an amalgamation of four sister companies MDC Innovative market research Applying virtual reality and neuroscience to gain deeper consumer insights IDentity Applying insight for innovation and planning Synapse Planning Product, brand and advertising planning Building loyalty and increasing volume among customers Customer Share Group

5. MDC | IDentity M D CMarket Data Corporation Chicago based full-service marketing research firm established in 1982. Two managing partners • Bruce MillerPresident • Marci CohenExecutive Vice President Partnership launched in 2002 and devoted to adapting techniques based in experimental psychology to marketing research • Jeremy Bailenson Ph.D.Department of CommunicationsStanford University

6. MDC - IDentity Strong theoretical and practical underpinnings • University of Chicago Graduate School of Business • Abel Jeuland Ph.D. Charles H. Kellstadt Professor of Marketing • Stanford University • Jeremy Bailenson Ph.D. Professor of CommunicationsDirector of Virtual Human Interaction Lab (VHIL) • Roughly 2,000 marketing research studies We are students of . . . • Consumer behavior: understanding how consumers behave, and why they behave as they do • Marketing: the dynamics of the marketplace and the strategy and tactics that impact behavior – the acceptance of products and brands • Marketing research: research theory and its application to understanding behavior and strong marketing

7. MDC - IDentity Brand Experience . . .

8. APPAREL Food Beverages Retail Apparel Auto Kids Leisure Travel MORE . . .

9. Home HBA Restaurants Media Electronics Organizations Finance & Insurance

10. New Product Oriented Key new product successes: • Zima • Slates (menswear) • Gap product rebirth • Kohl’s Beauty – American Beauty, Flirt, Good Skin • Kohl's New Fashion Departments: Apartment 9; Daisy Fuentes • Smart Start cereal • Oust • Edge Men’s Personal Care Key members of new product and strategic teams: • Past • Coors • Levi’s • Gap • Hyatt • Current • SCJ: air care; personal care • IHOP • Kohl’s • Kellogg’s • Carnival

11. Research and Insight Landscape Quantitative • Online survey research • Exit interviews • As needed, mall intercepts/phone • Statistical analysis (e.g., conjoint) • Market segmentation and structure • Brand awareness, usage and equity • Developing, refining and evaluating: • Concepts • Advertising (TV, print, POP, web) • Packaging • Names • Logos • Products • Price elasticity • Tracking • Benefit laddering • On-going panels • Customer satisfaction Qualitative • Focus groups • One-on-one in depths • Ethnography

12. Deep Insight – Perspective • A search for the truth • The need for deep insights goes beyond the need to be better marketers and rests in our need to know the truth – to understand and affect behavior • Definition • Insight is perception of the obvious • Deep insight is explaining what makes it obvious – (what makes the obvious, obvious) • Deep insight is penetrating perception of the obvious

13. Deep Insight – Perspective The HopeDeep insights can be stated to us or unfold in such a way that they ring immediately true and their consequences in terms of innovation and brand positioning are easily apparent The RealityDeep insights take hard work or genius – usually a bit of both

14. Deep Insight – Perspective How insights are typically developed • Through observation and behavior diagnostics – anthropologically accounting for behavior • Science is not exact and does not necessarily translate well to consumer buying behavior • Observation and analysis of data, highlighting the structures and dynamics that influence behavior • Recognition of patterns and constructs that explain data. Hard work and takes real knowledge, intuition and genius • Observation and recounting of behavior with deep probes that try to get beyond and underneath identifying motivations that drive behavior • Current qualitative and some quantitative techniques often fall short and are losing legitimacy • Hypothesizing insights and solutions and presenting them to consumers • Has shown some promise – but is dependent on talent and developing the proper reference frame for consumers

15. Deep Insight – Perspective • The problem: how to Go Deep? • Consumers: • Don’t know or can’t recognize feelings and needs • Can’t or won’t articulate how they feel • Answers are not easily found in current techniques

16. Development of Deep Insights Going beyond traditional research techniques • Innovating new procedures and analytical methods that push current techniques farther • Developing revolutionary new techniques based on neuroscience – how people think and feel • Incorporating virtual reality to make choices and experiments more real

17. Improving Current Techniques Three ways to impact current practices • Incorporate market dynamics and consumer category values as focus points for innovation and brand segmentation • Build a logic and paradigm to highlight need state opportunities against which to focus innovation and brand positioning – the Power Play • Develop new research applications using current techniques – with a twist

18. Revolutionary Techniques for Deeper Insights • Virtual Reality • Enter virtual worlds as a basis for research • Implicit Research • Understand how people feel

19. Applications of Virtual Reality • Key summary points: • Immersive experience: • Consumers behave normally • Ultimate simulation tool: • Gets us closer to the real look and feel of a shopping experience as a way to establish critical measures • Virtual reality allows us to recreate environments, and easily change the environments for experiments • Virtual reality also allows us to measure how consumers feel and behave in these environments

20. Applications of Virtual Reality • Obvious applications: • Retail and merchandising evaluations • Packaging evaluations • Pricing reactions • New product discovery and acceptance • Create a lab – new model of potential • Not so obvious applications: • Brand worlds and brand development • Development of personal Avatars placed into these different worlds to understand implicit feelings

21. Applications of Virtual Reality • Share two virtual worlds and how they are used: • Refrigerated Lunchmeat section of a grocery store: • Developed for Sara Lee (Hillshire Farm Brand): • Applications: • New product discovery and screening acceptance • Packaging evaluations • (Retail sales and SKU efforts) • Kohl’s Department Store: • Panoramas of store that consumers can view • Applications: • Quantitative assessment of store design and organization

22. Lunchmeat worlds taken from world viz: • Hopefully a movie • or two perspectives: • Length of section • E magine

23. Applications of Virtual Reality • Lunchmeat interactive virtual worlds: • Study typologies: • Qualitative research conducted at the Virtual Lab at Stanford, or at MDC-Identity offices in Chicago • Virtual worlds can be portable – for qualitative research at standard focus group facilities • Some Quant/Qual work can be done • Lunchmeat section can be used quantitatively over the web to establish a retail frame of reference

24. Kohl’ s virtual world taken from World Viz • Kohl’s panorama and questionnaire

25. Applications of Virtual Reality • Kohl’s virtual world: • Qualitative explorations in the labs or focus group facilities • Quantitative assessments over the web, etc.

26. Applications of Virtual Reality • Future applications: • Building a bar for Beer Company • Developing brand worlds and Icons • Developing archetype Avatars • Using Morphing technology to develop implicit knowledge

27. Implicit Knowledge Two Types of Knowledge (Memory) Implicit More emotional . . . information which is less accessible to us Explicit Rational, cognitive thought process Influence behavior Differently Experimental psychology has proven that a consumer’s Implicit Memory affects behavior Most art is processed implicitly

28. Implicit Knowledge • Not the Same as Explicit Knowledge • There is a range of correlation between Implicit and Explicit knowledge • Sometimes the correlation is quite high • E.g., entrenched attitudes about pro-choice/pro-life • Other times it is quite low • E.g., stereotypes surrounding Asians • The emotionally laden areas are often the ones that have the lowest correlation

29. A Way to Predict the Impact of a Marketing Action How it will impact consumer perceptions How it will impact consumer behavior Implemented Alongside Standard (Explicit) Research An add-on to (not a replacement for) Explicit/self-reported measures Strong Complement to Research Learning Addresses limitations of Explicit research Suppresses reactions that are too deep into non-conscious thought Creates an environment of over-deliberation – which is not present in the “real world” Requires articulation of a feeling on a formal measurement scale – which may not be relevant to the emotional connectionsbetween consumers and brands Does not allow for consumers’ inherent unwillingness to express negative or embarrassing-to-admit thoughts Difficult to assess pure feelings and associations Not always known Not subject to processing What is Implicit Research? • Especially the case with imagery-laden constructs • Brand identities • Graphics

30. Three Ways to Establish Implicit Measurements • Change Blindness • Lexical Decision Task (LDT) • Implicit Association Test (IAT)

31. Change Blindness • Examples: • Gorilla • Mountain • Venice

32. Change Blindness What Experiments Show • The perceptual system cannot possibly process all visual details from any given scene • Consequently, the visual cortex picks and chooses information to process that it deems relevant by making predictions about what is important in a scene • People don't notice changes to information that they decide in advance to be not relevant • The goal of Change Blindness experiments is to decide what features are important when people process a complex visual scene • And later impact decision making because they have not “made it to the brain”

33. Change Blindness • Package Application • Any or all components of a package can affect perceptions (Implicit and Explicit). Change Blindness can be used to explain the importance of these elements during the shopping experience • Two Approaches • Micro • Focus on one package • Macro • Putting package alternatives on shelves in a competitive retail environment • Output: Measure how long it takes respondents to notice a change • How much time before they notice the change • Number of “shifts” • Noticing it faster = more important during the in-store experience

34. Change Blindness Testing • Purpose • Measure the relative importance of package elements MINUS the inherent biases present in explicit (standard) survey measures • Change Blindness is not a “beauty contest” – rather, it is a bias-minimizing evaluation of consumer impressions: • Measures impressions that go deeper than conscious thought • Eliminates bias created by forcing over-deliberation • Eliminates bias created by respondents’ tendency to “tell us what we want to hear”

35. Change Blindness • Change Blindness is a perfect way to assess the importance of key structural and graphic package elements • A recent study for Yoplait established the importance of key package elements to consumers

36. 7 Primary Package Variations V Shape Straight Shape Change Silver Lid Change Current Package French Flower & Typeface No Flower Logo Change Swirl Change No Swirl Solid Red Swirl

37. What the Respondent Sees Two pictures flash on the screen in an alternating sequence Respondent is instructed to “hit the space bar” when she notices something different between the two pictures A validation question follows, and is used to prove that she correctly noticed a change The speed with which she was able to recognize the correct change is recorded # of flickers Total seconds (to the millisecond) The faster a change is noticed – the more important it is in developing shelf recognition Guideline: a difference of 200 milliseconds (0.200) is indicative of a difference in how consumers process what they see Micro Design View in “Slide Show” mode for an example of what the respondent sees

38. Marci? • Yoplait super summary • Most to least

39. Lexical Decision Task (LDT) • What Experiments Show • We process perceptual imagery in part by what we see and explicitly notice . . . and in part by using Implicit (non-conscious) memory • LDT is a Word Recognition Test • In two steps; each respondent completes both steps • We develop Implicit Imagery first (using LDT) • Followed by Explicit Imagery (standard agree/disagree scale) • Output • Reaction time in milliseconds • Less time = greater association • Discussion Points • The proper wordlist is critical • Aim for 100-125 words

40. Lexical Decision Task (LDT) • Proven case histories: • Implicit understanding of the verbal and visual packaging elements that cue freshness across different food categories: • General Mills • Implicit understanding of motivations that drive tax preparation business: • H& R Block (We’ll make you money) • Implicit understanding of key CSD brands to identify key equities as a basis for Advertising development: • Dr Pepper (22 Flavors, Nothing diet about it) • Implicit understanding of key motivations that underlie the brand relationship and drive consumption of Snack product: • Cheez-It (Get your own box) • implicit understanding of the negative advertising cues: • Fosters beer • Unproven case that can revolutionize the world of advertising: • Fanta Fun

41. Goal: understand consumer impressions of the brand, in order to inform creation of a new brand identity for H&R Block LDT Case Study: H&R Block • Explicit Results • Consistent with strong satisfaction and retention rate among customers • Fast, thorough, experienced • Dependable, capable, alert, helper, fair, honest • Friendly, convenient, open, welcome, ready • Implicit Results • Showed category concerns: scary, uncertain, careless, incompetent, cheater(validated as consumer emotions and NOT brand impressions in a separate follow-up study) • Showed H&R Block’s potential role: empower, solution, advocate • Showed hopes: longshot, billion, grow, ambitious • Difference between Loyal Customers and Favorable Noncustomers: Loyals were insecure; Favorable Noncustomers were secure but interested in financial benefits • Marketing Decision • In advertising, leverage consumers’ need for an advocate in H&R Block – someone who can bring them money Resulting ad campaign was highly successful

42. LDT Case Study: Robotic Package Test Old Box New Box A New Box B • Explicit Results • Two new boxes are improvements – fun, adventure, brand personality • A especially strong in communicating escape, fantasy and mystery • B more childish and dull • Logos in isolation – no differences between the two new logos (both better than the old logo) • Implicit Results • Confirmed Explicit results + highlighted associations that drive emotional reactions to the boxes • A captures exploration, discipline and developmental nature of a space oriented toy: NASA, technology, organized, disciplined, complicated, clever, individual, attractive, energy • B communicates the developmental and teaching nature of the toy… but also sad, angry, scary • Logos in isolation: significant differences • Green Logo (on Box B): implicit results highlight its attraction: NASA, adventure, daring, rugged, energy… irresistible, beautiful, original, sophisticated • Red Logo (on Box A): had positives… but was also somewhat threatening: violent, dangerous, scary Marketing Decision • Box A – with Green Logo 80% increase in sales for the first 9 months after relaunch (with no advertising)

43. Implicit Association Task (IAT) • What Experiments Show • Attitudes and perceptions can be defined as associations between concepts • Positives link with positives • Negatives link with negatives • An IAT Test • An associative procedure designed to tease apart implicit divisions of stimuli along binary categories • Good/Bad • Involved/Dissociated • Exciting/Boring • Allows us to understand Implicit depth and intensity of involvement and appeal

44. Thank You • Chicago Market Data Corporation | IDentity 311 W. Superior Street, Suite 300 Chicago, IL 60610 Bruce Miller 312-988-1333 Marci Cohen 312-988-1331 mdc-identity.com • Palo Alto Virtual Human Interaction Lab Stanford University Jeremy Bailenson http://vhil.stanford.edu M D CMarket Data Corporation