Behavioral Science that empowers Product Innovation

Today I would like to introduce the conversation that I had the great privilege to conduct with Dr. Helena Rubinstein – Head of Behavioral Science at Innovia Technology.

This interview provides a great set of insights around Behavioral Science and its application to consumer behavior & decision making.

Also, Dr. Helena Rubinstein shares her experience on how product innovation research can be amplified by the academic knowledge and what research methods & approaches can be extremely helpful for the in-depth understanding of consumer behavior.

Why can price promotions become dangerous?

Price promotions is a tool that marketers use across many product and service categories. However, many of us know stories where price promotions have triggered very negative business results reflected in severe not only margin but also share losses.

After a business review where results indicated that 50% of the brand portfolio sells had come from price promotions, I realized a strong need to investigate this topic in more details.

The overall conclusion to which leads academic literature on this topic can be expressed by the words of Ehrenberg, Hammond and Goodhardt (1994): “price promotions don’t affect a brand’s subsequent sales or brand loyalty”.

Definitely, successful price promotion do lead to sales increases during the promotional period, mainly driven by:

1. Brand switchers who take an advantage of the price cut.

2. Consumers stockpiling behavior in response to the reduced price.

3. Newly attracted consumers (i.e. real market expansion) (Dawes, 2004).

The research results show that among these three factors, brand switchers are the key driver of price promotions success (Dawes, 2004). This is driven by the fact that brand switchers are mainly represented by light buyers and each brand has a lot of light buyers who buy a brand only infrequently (Dawes, 2004; Scriven, Ehrenberg, 2002). This is also linked with the fact why after a price promotion there is quite often no huge negative after-effect (Ehrenberg, 2000).

Also, according to Dawes (2004): “the brand is also bought during the promotion by consumers who would have otherwise bought it at regular price”. This linked with the results of the research done by Ehrenberg, Hammond and Goodhardt (1994) who conclude that “almost 70 percent of the buyers during the average sales-peak had bought the brand already in the previous half-year, some 80 percent in the previous year, and nearly all, 93 percent, in the previous 2.5 years”.

Another type of brand switchers can be those who are usually price sensitive and always tend to buy at the lowest price option – “many will switch straight back once our price returns to its normal level and will also switch if a competing brand offers a price cut” (Dawes, 2004). However, even in this case consumer don’t change the repertoire of their brands – they “respond if the bargain is for a familiar brand, i.e., one already in their usage portfolio, but very rarely, if ever, if it is for a previously untried brand” (Ehrenberg, Hammond and Goodhardt, 1994).

Considering the stockpiling effect, it is important to highlight that this will affect a brand as much as other brands who can come up with price promotion – “more significantly forward buying will include loyal customers who would have bought our brand at full price” (Dawes, 2004).

It’s also important to mention that consumers who try a brand in response to price promotion are not especially likely to become regular buyers of the brand (Dawes, 2004). Ehrenberg, Hammond and Goodhardt (1994) underline in their work that “buying a habitual brand once again does not normally increase the likelihood of buying that brand in the future – there is no “learning” in what is generally regarded as a “zero-order” stochastic process… Occasionally consumers do try something new, because of variety-seeking or competitive activity, or both. Sometimes they then develop a new repeat-buying habit. But this usually happens only as an exception and sporadically for different consumers”.

At the same time, price promotions can lead to various negative effects for a brand. Thus, Dawes (2004) mentions that frequent price promotions lower consumer’s reference prices for the brand, so that consumers experience a tendency to buy the brand when it’s promoted. In that case consumers no longer perceive the regular price as “the fair” one.

Moreover, price promotions damage brand perception in terms of the product quality –  this is the reason why luxury brands never sell their products on promo (Dawes, 2004).

To sum up, price promotions don’t represent a strong brand building potential as: 1) their gains are very short term and last only during the promotion period; 2) sales peaks can be followed by strong deeps; 3) they don’t drive trial and loyalty; 4) they can significantly decline “the fair” price point;  5) they can hinder a brand’s quality image.

Price_promo

Sources: Ehrenberg, A.S.C., Hammond, K., Goodhardt, G.J. (1994). The After-effects Of Price-related Consumer Promotions. Journal of Advertising Research, 34(4), pp. 11-21; Scriven, J., Ehrenberg, A. (2002). Is Coke Always Less Price-Sensitive Than Pepsi? Marketing Research, 14(4), pp. 40-42; Dawes, J. (2004). Assessing The Impact Of A Very Successful Price Promotion On Brand, Category And Competitor Sales. The Journal of Product and Brand Management, 13 (4/5), pp. 303-314

How to build a strong loyalty program?

How many times have you heard from your marketing manager that this is the time to think about a new loyalty program? Working on a broad portfolio of brands and channels I’ve discussed this question already for many times….

However, this time before bringing consumer insights to my team I’ve decided to revisit a book written by B. Sharp “How brands grow: what marketers don’t know” as well as some related academic papers.

Let’s have a look at the key marketing rules & ideas discussed in the book from a perspective of building a new loyalty program.

Purchase duplication law says that “everybody switches” and that “defection rates don’t vary significantly between competing brands” (Sharp, 2010). The key metric that varies is a penetration – in line with a market share.

That can lead us to the first conclusion that eventually the key objective of the loyalty program should be a growth of its market share (Sharp, Wright and Goodhardt, 2002; Dawes, 2008).

Double Jeopardy law underlines that brands with a small market share “suffer twice – fewer people buy them, and those who buy them do so less often” (Sharp et al, 2012).

Research shows that loyalty programs is a classic example of a strategy skewed towards heavier buyers of a brand and as a result “loyalty programs generate small or no shifts in market share” (Sharp, 2010).

Heavier buyers of a brand are much more prone to join loyalty programs due to two reasons: 1) significantly higher physical and mental availability of a loyalty program for them; 2) sufficiently stronger economic value that heavy buyers receive from a participation in a loyalty program (Sharp, 2010).

However, light buyers do matter for a brand success. This is linked with the fact that all brands have a long tail of light buyers.

As research results show, loyalty programs don’t attract a disproportionate number of new heavier buyers for a brand, they have a potential to attract some light buyers (Sharp, 2010). For instance, loyalty programs that include several brands where bigger brands can attract some light buyers to make a trial / buy more frequently smaller brands presented in the program (Sharp and Sharp, 1997).

So, the second conclusion – as loyalty programs won’t attract disproportionate number of heavy buyers, it is worth to focus on attracting more light buyers.

Dirichlet model highlights that “consumers don’t randomly allocate their purchasing among all brands in a category but do so in a biased fashion…. All buyers have their own particular loyalties… consumers are polygamous loyal to a number of brands in most categories” (Sharp et al, 2012).

Hence, positive short-term results of a loyalty program can be driven by a temporary shift in buyers purchase frequency and/or spend per purchase; however, it won’t be represented in a long-term increase in buyers’ loyalty and will lead only to decrease in company’s profitability (Sharp and Sharp, 1997; Sharp et al, 2012).

Hence, the third conclusion is that since buyers behavior changes very little over the time, loyalty programs actually drive consumers switching within the repertoire of brands that in long-term won’t lead to a substantial impact on a brand share (Sharp et al, 2012).

Taking into account these three conclusions, the following recommendations on development of the loyalty programs can be provided to marketing managers:

1. Shift the focus of the loyalty programs from a decline in a brand retention rate to gaining more brand switchers.

2. Target buyers of diverse brands rather than a particular brand as it will allow to increase a base of the light buyers.

3. Include smaller brands in the loyalty programs to drive cross-selling and trial from the side of the light buyers of big brands.

4. Analyze loyalty program results in a long-term basis and consider market share as a key success metric.

5. Consider alternatives to loyalty programs to build consumers loyalty – e.g. moving from repertoire market to subscription market can increase buyers loyalty without additional loyalty programs (Sharp, Wright and Goodhardt, 2002).

6. Benefit from information received in the frames of the loyalty program – e.g. to build a database of consumers, empower communication channels and monitor purchase behavior.

Loyalty_insights_bestinsightsphere

Source: https:// securityintelligence. com/ cybercriminals-phish-their-way-into-customer-loyalty-programs/

Sources: 1. Sharp, B. (2010) How brands grow: what marketers don’t know, Australia: Oxford University Press; 2. Sharp, B., Sharp, A. (1997). Loyalty Programs And Their Impact On Repeat-purchase Loyalty Patterns. International Journal of Research in Marketing, 14, pp. 473-486; 3. Sharp,B., Wright,M., Dawes,J., Driesener,C., Meyer-Waarden,L., Stocchi,L., Stern,P.(2012). It’s a Dirichlet World. Modelling Individuals’ Loyalties Reveals How Brands Compete, Grow, and Decline. Journal of Advertising Research, 52(2), pp. 203-213; 4. Sharp, B., Wright,M., Goodhardt,G. (2002). Purchase Loyalty is Polarised Into Either Repertoire or Subscription Patterns. Australian Marketing Journal, 10(3), pp. 7-20

How to step-change survey engagement

One more video interview in the blog! Today I would like to share the conversation I had the privilege to conduct with Betty Adamou – CEO and Founder of Research Through Gaming.

Betty is a recognized expert in the development and design of Gamified Surveys and ResearchGames.

This interview sheds light on the key advantages of Gamified Surveys and ResearchGames, their impact on the respondents engagement & the quality of responses for open ended questions.

Top 5 Insights from ESOMAR Research Rally in London

Today I would like to share with you my key ideas & insights from the ESOMAR Research Rally that recently took place in London.

Overall, it was a magnificent event that give Marketing Researchers a fantastic chance to collaborate closely on very inspirational business ideas across various industries.

Combined with my experience in collaboration with different start-up companies in Switzerland, France and the UK, I’ve decided to share my vision on where start-ups need the most support from the side of the Consumer & Market Insights experts and what can be the best way to approach these business need.

bestinsightsphere.com - Research Rally Insights -1.2

Start-ups love their idea and work a lot on it! Some efforts fail, new ideas come up and quite soon many start-ups face the situation that they go in very different directions. Even more, they have lots of directions!

Consumer & Market Insights experts are always able to stay behind and identify this problem that requires a holistic analysis of the markets and their potential. It should allow to identify the Size of The Price for each business idea and decide which of them can have the biggest long term potential.

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Being a start-up you are forced to think about your financials 24 hours a day! But quite often it makes you too much focused on your margins that can lead to a very big challenge for the company.

Consumer & Market Insights experts are to support companies with the most effective and efficient pricing model, keeping the end consumer in mind. Important watch out, traditional pricing research is too much claimed. One of the most attractive solutions here was discussed in the previous post: https://bestinsightsphere.com/2017/02/27/getting-consumer-insights-as-real-as-possible/

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We all love numbers! That’s why start-ups are so much eager to jump into quantitative studies. Seriously, “Are you a researcher? I need a questionnaire!”. And this can bring a big threat in terms of where numbers will lead business decisions.

Consumer & Market Insights experts should always keep the final business objective in mind. Start-ups are about the initial stage of the development both of the business and product offering. This means that explorative research could be much more beneficial for them. And explorative doesn’t mean very expensive – observations, quick charts with shoppers, asking questions on forums & blogs, looking at social media, all these can be done almost for free.

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Despite very disruptive business ideas start-up companies usually don’t look broadly enough on the potential communication channels. Yes, Digital is important, but it’s still not only one!

Consumer & Market Insights experts can provide a broad understanding of the different communication tools and touch points with which consumers are engaged.

bestinsightsphere.com - Research Rally Insights -5.2

Start-ups come with brilliant product/service ideas, but they often miss a lot the initial consumers feedback.

Consumer & Market Insights experts can facilitate the process of the product/service development via co-creation workshops, which can allow to achieve a stronger product offering.

Research Rally London_ Nadia_Morozova

 

 

Getting consumer insights as real as possible

Today I would like to introduce the first video in this blog – an interview with Anouar El Haji, Founder and CEO of the company called Veylinx.

Being a PhD candidate at the University of Amsterdam, Anouar developed a very disruptive idea for Marketing Research – using an auction process for the development of pricing strategy, concept screening, claim testing and product evaluation.

In the interview we’ve discussed this idea in more details as well as some business cases.

Anouar also shared his respective on how to leverage academic knowledge for the business development.

 

Video Research: Key Workshop Highlights

Co-chairing the conference “Market Research in the Mobile World: Europe 2016” in London I had a chance to participate in a workshop called: “Lights, Camera, Action- Take 2 for video research situations” led by Lightspeed.

Here I would like to share my key highlights from this workshop as well as discussions around video research which we had during the Conference.

Video research is taking a central position in consumer research. Nowadays video research can have different forms:

forms-of-video-research

The beauty of video research is that it can incorporate both qualitative and quantitative components. Thus, video script with text analytics can be leveraged for quantitative purposes.

That means that video research can be combined with or used instead of open ended questions. Research conducted by Lightspeed shows that  answers on open ended questions include on average 8 words while video responses have on average 40 – 100 words and provide much deeper insights.

Videos can also help to create shorter surveys as per Lightspeed research one video can replace 3 open ended questions. However, longer timing for the results analysis should be taken into consideration here.

Another point of consideration in video research is linked with willingness of respondents to share their videos.

During the workshop Lightspeed shared the following respondents’ concerns related with video sharing:

concerns-about-video-sharing

We as research professionals should also always keep in mind the quality of content that we’ll receive in video research. Thus, for instance, even if consumers share a video quite often they show only house but not themselves.

So, the key hits & tips before doing a video research:

  • Ask the right questions in the video interviews: describe, show…
  • Determine the length of the video in advance.
  • Specify what should be in the video/ what you want to know.
  • Make questions individualized.

It’s also important to talk to the right people during the video research. Hence, one more watch out is a skew in people who are open to the video research. For example, Lightspeed highlights that introverts and “early mainstream” aren’t very open to participate in video studies.