Life Style Marketing

The Mind of the Affluent Consumer: Intrapersonal Conflict

Durkheim proposed that society imposes restraints that limit the behavior of individuals. This proposal was part of the rationale for believing that society has a reality independent of the wills of individuals.

We have just completed a review of our data from this perspective. Our surveys ask affluent consumers to rate the relative importance of almost 2 dozen motives related to the acquisition of discretionary goods and services. One statistical group of these "personal drivers" describe how important a purchase is to, in effect, "being oneself." The two other group of persoal drivers describe (a) various types of feedback that a person might get from others and (b) reactions the individual might have to that feedback.

In a stratistical test that observes the relationship among these various personal drivers it was determined that there are signficant negative relationships bewteen satisfying a driver related to "being myself" and the majority of drivers related to feedback from others and the response to that feedback.

We interpret these results that Durkheim's premise is correct at least to the extent that a consumer anticipates how others will react and how the consumer him/herself will respond to that feedback.

The implication for merchants is to recognize that each potential choice of a good or service carries with it a consideration of others reactions. Anything that can be done to mitigate anticipated negative feedback, or the impact of that feedback, will be useful. (This phenomenon is also related to the issue of "avoidance of regret" mentioned by Thaler in his research.)

Our next step is to look at consumer preferences in brands in light of their sensitivity to feedback from others. One interesting note is that the personal driver of "show good taste" was not in opposition to any of the drivers associated with "being myself."

Quasi Rational Marketing: LifeStyle as a Sunk Cost

As marketing becomes more data driven there is an increasing need for models which can explain consumer behavior, develop recommendations for action and predict results. This has proven to be a difficult task because so much of consumer behavior seems irrational. For example, why would someone buy an article at full price knowing that in a short period of time it will be available on sale? Or why would someone buy an article at full price on the internet when it is available at a discount at a nearby store?

Richard Thaler (http://en.wikipedia.org/wiki/Richard_Thaler) provides an explanation of reasons why consumers make what appear to be unreasonable choices. He uses examples from various simulations to illustrate his points. He explains that the difference between what he calls "quasi rational economics" and classical economics is, at least in part, the result of substituting the concept of "values" for what has been classically known as "utility." The concept of "values" enables the inclusion of non-monetary variables into decision models. For example the weight given to either "pain" or "pleasure." Another difference is the inclusion of the context of the decision-maker. For example a decision regarding winning or losing $10 will be made differently by someone worth $10M than it will by an unemployed person with no income or assets. Another set of siituations are those with either forward looking or backward looking costs. One involvies "sunk costs," (when a person already has made a partial investment, say in buying a membership); another is "regret avoiidance" in which an individual reduces his future alternatives in order to avoid missing a clear opportunity (all-inclusive vacations are an example).

Many of the hypotheses of quasi rational economics have been tested and validated against data sets like stock market transactions and pari-mutual betting which have very defined start-and-stop periods.

Thaler indicates an interest in finding other types of data which might prove relevant over longer time periods. We are struck by the ability of quasi rational economics to explain consumer decisions involved in the multi-year process of developing and maintaining "life style." For example, having a livingroom already full of a certain style of furniture would represent a "sunk cost" for a consumer who is considering adding an additional piece. The prior choices (called "prior disposition") would heavily influence the current consideration. This might also relate to what Thaler terms "framing."

In a similar fashion the importance we have recorded in people's desire to avoid criticism or attention for making a choice would be analogous to "regret avoidance." Such factors would help explain the equivalent of "opportunity loss."

Regarding the initial example of a person choosing to buy now or wait and buy on sale, life style research has idnetified the explicit value of "trendiness" to which some consumers gives great weight (and get psychic pleasure) to having an article early in the fashion cycle. In any event, we are encouraged that our data and metrics may prove useful demonstrations of quasi rational economics. It certainly will provide a powerful economic explanation for why consumers maintain life styles.

Customer Capital and Quasi Rational Marketing

The information in this blog entry summarizes new information about what individual customers value in a firm's products and services. This information (called "customer capital") will be used to calculate the value of customers on a much more accurate and actionable basis .

For some time sociologists have known that affluent people purchase discretionary goods and services for symbolic as well as practical value. Some have argued that the primary value of these goods and services is their effectiveness in communicating status. The benefits of these insights have been available to marketers of luxury brands in the form of marketing consulting and/or market research.

Economists have also studied luxury goods and recognize that these goods provide "utilities" in addition to their functionality. Economists recognize the importance of "personal taste" in influcing these decisions at the individual level. As a result they have not attempted to measure the decision making process of affluent individuals due to the lack of reliable "preference" metrics. In this case "reliable" means metrics that are repeatable over multiple purchases and are applicable across multiple product categories. The classic economic problem might be identifying and measuring the preferences of individuals for using the same amount of money for the purpose of making a down payment on an automobile versus taking a vacation. Some economists (Richard Thaler, for example) refer to this type of decision as "quasi rational" since factors other than economic play such an important role.(https://www.russellsage.org/publications/quasi-rational-economics).

We are very pleased that our research regarding "personal drivers of consumption" may provide a set of preference metrics that economists can include in their designs. These preference metrics claerly differentiate the "tastes" of individuals and correlate with spending behavior across multiple product and service categories. We are looking for a University that would like to have access to our data base. And we are working with several clients to help them achieve the benefits of what we may call Quasi Rational Marketing.

Customer Experience Management: Loyalty of the Best Customer

Our data indicates the customer who is currently spending the most in apparel is probably the LEAST likely to change brands. Is this loyalty an effect of how they are being treated? Or, is it the result of their knowledge, experience and care in selecting brands in the first place?

The phenomenon of loyalty is so closely related to the amount of spending (in fact the tendency to be loyal INCREASES with spending) and to the number of channels used (in fact tends to INCREASE with the number of channels shopped) that we are inclined to give credit to the customer rather than to the brand or the merchant.

The best customer has educated herself through shopping (both the amount of spending and the variety of channels shopped) and knows what they want. What are the implications for CEM?

First, we would suggest, is the importance of not underestimating the best customer's sophistication. Do not attempt to sell them inferior merchandise or provide them less than perfect service. When they want to return something, accept it with a smile and learn from them what caused the problem. Fix the problem and let them know you fixed it. Learn from their learning.

Second, we recommend letting them be the first to know when one of their favorite brands has introduced a new item or has a new promotion. Do not risk them learning about it from some other channel (or see an equivalent offering first from another brand).

Third, of course, invite your best customers to be part of your learning. And reciprocate by sharing what you know. Ask for their feedback and, in trade, give them highest priority in your CEM system. Remember their loyalty is their educated decision. They can revoke it when provoked.

For more information on statistics that relate to CEM, contact info@premiumknowledge.net.

 

Theory of Marketing to the Affluent

1. Introduction:

a. Marketing began as an art based on the skill of the individual practitioner. In the last few decades it has become a science, taught at the graduate level in universities. For example, The Ehrenberg-Bass Institute for Marketing Science is a marketing research institute within the School of Marketing at the University of South Australia in Adelaide, Australia. “The Institute aims to uncover law-like patterns and relationships and build empirically grounded theory to explain and predict buyer behaviour and brand performance.” The Institute collaborates with The Wharton Business School on certain projects.

b. The statement, above, suggests that research will identify patterns that relate the performance of brands to the behavior of buyers in a predictive manner.

c. Performance of brands:

i. Others suggest that the “performance of brands” includes the activities of “create, communicate and deliver value” and comprehend (but are not limited to) tasks often summarized as the “4P’s: Product, Price, Place and Promotion.

ii. There seems to be agreement that the objective of brand performance is to create value that is the basis for a monetary exchange with the consumer (buyer).

d. Behavior of buyers

i. Others (e.g., Kotler et. al.) suggest that the buyer’s behavior of making a monetary exchange and taking possession of the product or service creates the value.

ii. Others suggest the buyer’s willingness to make the exchange is the result of the buyer anticipating that the product or service acquired in the exchange will satisfy certain “needs.”

iii. Use of the term “anticipation” reflects the understanding that value received by the buyer is only actualized in the use of the product or service (Nordic School).

e. The purpose of this work is to provide information which may be used in formulating and testing the application of this line of thought to a specific set of conditions: the marketing of discretionary goods or services to affluent consumers in the United States.

i. We will summarize learning from work to date.

ii. Provide application-related information from empirical data

iii. Suggest additional analysis and problems to address

Innovative Marketers Use Personalization

Personalization increases response rates to emails. Simply adding "Mr." or "Mrs." can increase rates by 50%. But innovative marketers go much further with the concept of personalization. Recent tests using LifeStyle to segment and target specific messages to prospects resulted in a 500% increase in open rates. A similar application to of personalized LifeStyle messaging to current customers resulted in a 400% increase in RPE (revenues per email). Visit www.premiumknowledge.net for more information.

Recommendation Engines Based on LifeStyle

The article from the NYT Download _r=1 documents what we all know so well: Affluent people are significantly influenced by recommendations from "people like them." How are people of a similar orientation identified? Being in my contact list or a "friend" might be an indication but it might not. I my case my in-laws are in my directories.

Another approach is give a priority to recommendations from people with a similar LifeStyle. Since we have segmented 70 million-plus individuals into LifeStyles, this may be the basis of a recommendation engine.

Do people with similar LifeStyles actually have similar preferences? Yes, based on analysis we have done in categories as different as furniture and travel. There is a statistically significant difference in the preferences between LifeStyles and a reciprocal similarity among people of a similar LifeStyle.

We are exploring the possibility of developing recommendation engines based on LifeStyle. If you have any interest in the application to your business, please let us know.

Increase Revenues with Predictive Modeling

Download The Business Case for PRI-STAT_3

The attached article lays out the business case: How to increase revenues by looking at your current customers and your local market in a significantly more productive way.

Read it. Imagine increasing your revenues by 10% without increasing marketing expenses.  Let us know what you think.

Predictive Modeling for Marketers-PRI-STAT

A Game-Changer for Marketers

Premium Knowledge Group is pleased to announce the availability of an on-line predictive modeling system with features and benefits specifically designed for those focused on the affluent market.

The system has demonstrated the ability to increase overall revenues by 10 percent and the response rate for individual initiatives by up to 340 percent while also increasing the dollar value of average transactions by 100 percent.

The system (Pri-Stat, for "primary statistics") has motivational and behavioral profiles (AND contact information) of all 71 million individuals in the US making $75K or more.

The motivational profile is based on $1.5 million original research into why and how affluent consumers purchase goods and services.

Implementation of the system is high reward-low risk because in addition to the research being pre-funded, so is the software.  The entire system is available on subscription and the payments are linked to your realization of benefits so there is positive annual cash flow.

How does it work?  First Pri-Stat profiles your customer data base and identifies the motivational pattern of your most profitable customers.  It then analyzes its 71 million affluent consumer data base and finds "live-alike" prospects (with the right demographics/incomes) in each specific market you are focused on.  For each of these, as well as for your current best customers, the system recommends specific messaging and offers most likely to be attractive.

All of this capability is available in a user-friendly on-line interface you can access from any location.

Special releases of the system are available for retail, fashion and accessories, financial services, travel and hospitality and automotive.

 

FOR MORE INFORMATION see www.PRI-STAT.COM