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Dear Readers, In coming days the blog-site Consumer Gateway well be re-dressed. The format applied in the past decade (which I still like) has become outdated, and it also no longer supports new editing and design features. During the transition period disruptions may be caused to the look of some posts and pages; your patience and forgiveness will be much appreciated until I sort these out. I hope you find the new appearance pleasant to view and to read through. 


Brands can be imagined as signposts that help consumers navigate through their purchase decision processes. On many occasions brands simplify and shorten the decision process; a strong brand may show the consumer the route to an easier and safer choice decision. Over the years, symbolic (e.g., self-expression, self-image), social (e.g., status, relationship) and emotional meanings of brands gained more attention and emphasis in research and practice. However, we should not let those latter influences of brands overshadow or mitigate our recognition of the essential and useful role reserved for brands in organising and directing consumer decision-making.

An insightful approach to the function of brands in decision-making draws from the theory of information economics. Consumers are commonly met with imperfect and asymmetric information about products they intend to buy, and under these terms they have to make decisions. ‘Imperfect’ implies that the information is usually partial, and may also be inaccurate; ‘asymmetric’ information in particular means that the producers or suppliers know more about the products they sell (e.g., physical attributes, costs) than the consumers who buy from them.  The brand of a product can function in such settings as a signal of the credibility of the product’s origin. The signal could thus serve as a decision aid that helps consumers make a better or more gratifying choice. Theory and research of the past twenty years suggest that the brand as a signal may have impact not only on the outcome of the choice decision (e.g., its quality) but furthermore on the whole course of the decision process (e.g., consideration, evaluation, choice).

The perspective of information economics is relatively less familiar than other theoretical viewpoints. Reference is made here primarily to cognitive-driven theories of attitudes and information processing that receive greater coverage than information economics in the context of brands. Yet, the information economics viewpoint of the brand as a signal, led by Erdem, Swait and Louviere, can be employed beneficially side-by-side with Aaker’s model of brand assets or Keller’s concept of (differential) brand knowledge. These views offer complementing aspects with respect to the role and effects of brands in decision processes. The efficacy of the brand as a signal for credibility applies especially to strong brands. Moreover, each approach describes how consumer-based brand equity is built-up or materialised through decision processes, and also proposes how to model and measure it.

A more formal definition of the brand as a signal specifies the ability of a brand to act as a credible signal (e.g., trustworthy, believable) reflecting on positioning overall of the branded products. It implies that consumers’ perceptions of the branded product on multiple aspects, primarily perceived quality, would be stronger, more believable, or more reliable. Subsequently, we need to understand what can make the brand a more credible signal. Main drivers that contribute to brand credibility include consistency of the brand owner in delivering on its claims or promises (e.g., in advertising), which would make those claims more trustworthy; consistency in the performance of actions on marketing mix elements (e.g., pricing, product capabilities); clarity of messages (e.g., to support its positioning); and the scale of investment in the brand (e.g., offline and online advertising, website and mobile app, sponsorships).

Greater brand investment directly enhances brand credibility. But consistency in execution of marketing actions seems even more important by contributing directly, and strongly, to brand credibility as well as by supporting clarity, which is likely to further add to credibility of the brand. Consequent benefits of higher credibility to consumers are likely to be support for higher perceived quality, reduced perceived risk, and lower information costs (e.g., less search and validation of information). Perceiving less risk in buying the branded product can in addition free the consumer from looking for more information, and therefore reduce in turn the information costs even lower. [1, 2]

In a multi-attribute choice model, each product alternative is assigned values on a set of attributes according to a consumer’s perceptions or beliefs about those attributes. These perceptions may be ‘coloured’ by associations that the consumer holds with the product’s brand name (some associations would ascribe to physical or functional attributes of the product {or service} whereas others may relate to an intangible image of the brand). Utility weights are added for attributes, as applicable by the decision rule — these weights may differ between brands, for any attribute that may be judged, for example, as more compatible with, important for, or even unique to a specific brand. The brand hence may impact the choice decision from consideration of which brands to include in the choice set, through perceptions about the branded products, to utilisation of the information in the decision rule applied (e.g., by alternative or by attribute). (Note: Details about  random error components of perceptions and utilities are omitted here.)[2]

A wider-angle view will account for additional phases or processes surrounding the framework of choice model described above, for instance: (1) The search for information upon which perceptions are formed or updated and the costs that may be incurred in gathering the information; (2) Learning about products by using a form of hypothesis testing to evaluate and screen information; (3) Mental processes engaged during learning and decision-making (e.g., encoding, search and retrieval from memory, preference formation). When a brand helps to organise the information, it is employed as a basis or reference for testing a hypothesis, or affects the meaning given to attribute information, it exercises, and possibly enhances, its brand equity in the minds of consumers.[2]


  • Swait, Erdem, Louviere, and Dubelaar proposed a measure (metric) of consumer-based brand equity, constructed from the perspective of information economics which regards the brand as a signal for higher quality and reputation. They called their measure the “Equalization Price“. Deriving the EP estimate for a brand is based on a comparison between two settings: (1) A hypothetical market where there is no differentiation between brand alternatives, and total utility for all alternatives is the same (for simplicity, it can be set to 0 for all brands); (2) A simulated market (choice set scenario) where brand alternatives exhibit different total utilities. Their approach is rather different from many others in its reference to a ‘hypothetical alternative’ and to the total utility of an alternative instead of a brand-specific component.
  • The Equalization Price denotes the level to which the price for a brand-product alternative can be raised until its total utility for a consumer in the simulated market (choice scenario) becomes equal to the ‘common’ utility {0} (i.e., the price at which the utilities are equivalent). Weaker brands could be assigned a negative EP. The researchers applied their brand equity estimates to analyse the potential of brands to extend from the ‘mother’ category into a ‘new’ category (e.g., Levi’s extending from jeans to athletic shoes). (Technical note: The EP estimates are derived from a probabilistic multinomial choice model based on a choice experiment — the ‘total utility’ refers to the deterministic portion of utility). [3]

Let us look next in greater resolution at differences in the chain of effects of brand credibility between stages of the decision process. The contribution of brand credibility in reducing perceived risk is more crucial in the early stage of considering which brands are eligible at all to be chosen from. Brands associated with too much risk will be eliminated in this stage of constructing the consideration set, and they will be excluded from any further operations. The savings that can be gained in information costs will also be important at this stage. In other words, “perceived risk and information costs saved play a screening role in the choice process”. On the other hand, enhancing perceived quality, in virtue of greater brand credibility, has greater impact when evaluating alternatives prior to making the choice decision. Therefore, brand credibility can increase the probability of the branded product of both being considered for buying and of being eventually chosen, but there is a difference in how the outcomes are achieved between those decision stages. [1]

It has also been found that this distinction in impact of perceived risk and perceived quality between stages will be more pronounced in product categories characterised by greater uncertainty and higher sensitivity to uncertainty. At the brand level, inconsistency in executing marketing mix elements (e.g., pricing, distribution) is likely to increase consumer uncertainty regarding the brand claims, and thereof hurts the credibility of the brand (see the effect via clarity noted earlier). Erdem and Swait discuss managerial implications of the role of brand credibility for customer relationship management (e.g., cognitive and affective impacts of credibility) and brand extensions. They also review other research in which they substantiated the contributions of specific aspects of brand credibility over choice stages and product categories (e.g., overall and distinct effects of trustworthiness by consistently delivering on brand claims and expertise in execution of elements of the marketing mix, such as technological competence in product development and design).

The Internet opens before the consumers an ocean rich with information at their fingertips on personal computers and mobile devices, in a plethora of commercial and non-commercial websites and mobile applications. So it would seem that a great part of the problems confronted by the field of information economics have been resolved for consumers. Yet, searching and gathering relevant information for a purchase decision in many product categories still takes time and requires cognitive effort, and sometimes also psychic effort or emotional stress.

Different costs may be more significant these days than were in the pre-Internet age but they cannot be discarded. For example, with so many sources of information available and easily accessible, it takes more time to review just several of them, and it is increasingly necessary to cross-check information found on various websites or apps (e.g., direct competitors, online shopping platforms, trade and professional portals). In reality, consumers normally access and review only a small portion of information available in a domain (e.g., how many and how often consumers open a window to read technical specifications).

Furthermore, even if information is less imperfect, there are still issues concerning asymmetric information because a greater part of information on products and services is controlled and provided by interested commercial businesses. In addition, biases and diversions could be luring in online information sources that consumers may not suspect, because they are not directly associated with the companies and brands originally providing the product or service of interest (e.g., search engines, online shopping platforms, social media — younger consumers increasingly stay in the confinements of “closed gardens” of social network platforms and do not explore the Internet enough).

Addressing brand equity from the perspective of information economics highlights a crucial value a brand can offer, brand credibility, with a very practical function in purchase decision-making. There is somewhat an illusion in believing that consumers are far less challenged today by constraints and costs of obtaining and using information for making choice decisions. If only for that reason, brands are promised to continue to play a vital facilitating role in the decision process. Moreover, when consumers can rely on credibility of a brand as a signal, this continues to reinforce the brand equity.

Ron Ventura, Ph.D. (Marketing)

Feel Well. Keep Good Health.

 

References:

[1] The Information-Economics Perspective on Brand Equity; Tülin Erdem and Joffre Swait, 2016; Foundations and Trends in Marketing, 10 (1), pp. 1-59 (DOI: 10.1561/1700000041)

[2] Brand Equity, Consumer Learning and Choice; Tülin Erdem, Joffre Swait, Susan Broniarczyk, Dipankar Chakravarti, Jean-Noël Kapferer, Michael Keane, John Roberts, Jan-Benedict E.M. Steenkamp, & Florian Zettelmeyer, 1999; Marketing Letters, 10 (3), pp. 301-318

[3] The Equalization Price: A Measure of Consumer-Perceived Brand Equity; Joffre Swait, Tülin Erdem, Jordan Louviere, & Chris Dubelaar, 1993; International Journal of Research in Marketing, 10, pp. 23-45

 

 

 

 

 

 

 

 

 

 

 

 

Shopping these days feels like making a journey in a different dimension in time, dominated by a strain of nasty Corona virus. It is greatly an unfamiliar, ambiguous dimension that forces consumers to divert from their habits and modify usual forms of shopping behaviour. Their considerations while shopping may change as well. Since the vast majority of shops and stores are closed, we are left to talk about shopping for food and other products for the household (e.g., in supermarkets, minimarkets and neighbourhood grocery shops). In other words, shopping is focused on necessities for maintaining some normalcy in daily living at home.

Time and distance become major factors in the planning and conduct of a shopping journey in a supermarket. Reducing the length of time spent in the store and keeping distance from other shoppers are imposed as constraints on the shopping trip; although they may not be formally enforced, they are very much recognised and felt by consumers. These factors hover above other choice considerations (e.g., format or version, ingredients, brand, and price), likely to cause shoppers to shift their priorities for some of their choices or to reconstruct their preferences on the fly.

Consider, for example, selecting fresh fruits and vegetables from trays in bulk. In normal times, the shopper may try to make an optimal selection, say of tomatoes — scan over the pile for tomatoes that look nice and red enough, pick a few for closer inspection of appearance and touch (but do not squeeze), return if the tomato has some defects on its surface and pick another, and so on until the needed number of good tomatoes is selected. This process is not easy to execute now. First, it is not desirable that two people will pick their tomatoes at the same time side by side, so one has to stand back and wait from a distance or choose another produce to select from. Second, the shopper may not afford to be too picky because each tomato one inspects takes more time and the shopper also may not want to touch too many of them. Hence shoppers would be more lenient and willing to trade-off time with the quality of the produce selected. Not everyone has the patience to carefully select fresh produce, and in these Corona days probably most shoppers have even less of it.

When choosing packaged products from shelves in the aisles, shoppers are likely to exhibit a stronger tendency to rely on habit and to buy the familiar brand one most frequently uses. These could be food products (e.g., pasta or rice, mustard, chocolate), cleaning substances or personal care products. To start with, most shoppers probably do not want to stay in a narrow corridor for too long, especially if another shopper or store employee is present in the aisle. Hence it is likely that the shopper will check first if the usual brand and format is available from a product category, and if so, pick it and quickly move on or out of the aisle. If the familiar or preferred product is not in sight (e.g., out of stock), the shopper may pick the nearest option that seems satisfactory and continue with the shopping journey. This seems less the time to explore new options or to search for the most desired brand, content or flavour of a product. Shoppers would be inclined even more than usual to apply a ‘satisficing’ choice strategy.

Similar behaviour will probably be found also at the department of refrigerated dairy products, though shoppers may take a little more care in selecting items because it is fresh produce. However, it is reasonable to believe that they will be more flexible in their choices with attributes of desire (e.g., flavour, add-ons) than need (e.g., sugar, fat). At service counters of delicatessen (e.g., cheese, salads), meat and fish, shoppers seem to be reluctant to join a line with three or more other shoppers standing before them, so they move on, and may return later or give up. Yet, since in recent weeks the entry of shoppers is monitored at the door (e.g., allowing for no more than ten shoppers to be in-store at any time), crowding of more than three people is quite unlikely near any display, counter, shelf or refrigerator. If crowding does occur, shoppers appear to quickly disperse by their own will and move to another display until the area nearly clears.

A supermarket can be a remarkably quiet place these days as everyone is pre-occupied with completing his or her shopping — allowing for brief amicable exchanges among the shoppers or with staff, no fuss, little arguments. Shoppers may come more prepared for their shopping trip, by relying for instance on a shopping list (for greater efficiency), but this is truly a matter of personal discretion. Ordinarily, research has shown that shoppers in large stores like supermarkets develop a stronger attraction to the cashiers as they progress in their shopping journeys, trying to make their journeys shorter.  But now shoppers can be expected to develop such an attraction sooner, perhaps from the moment they enter the store, even for consumers who largely enjoy to shop, search and select products for home.

The use of means for protection from contracting COVID-19 can make shopping further less convenient. At the entrance, a shopper may wear disposable gloves offered by the supermarket, after cleansing the hands of course with alcoholic gel (hand sanitizer). However, some nylon gloves seem to be sticky, and may also get torn after several hand gestures (e.g., it is not easy or comfortable to pick product items with the gloves). If one does not use them, the shopper better repeat cleansing the hands with alcoholic gel intermittently. Face masks, now mandatory in some countries, additionally make the shopping experience less pleasant (e.g., when talking with service staff, eyeglasses get covered with the steam of breath so it may be better to remove them). These protection means, some if not all, are necessary for protecting our own health and of those around us, but unfortunately they might disrupt and impede the shopping process.

  • Consumers who wish to avoid the hurdles of this shopping experience altogether can order their required products for delivery to  their homes. Albeit, there have been repeated complaints by consumers that deliveries  can take up to ten days.

Shopping in a minimarket store or a grocery shop has its own strengths and weaknesses. On the positive side, a shopper is likely to be exposed to fewer people, staff or peer shoppers, inside and outside the store during his or her visit than in a large supermarket store. On the negative side, however, a minimarket or grocery shop is usually more condensed, with narrower aisles than in a supermarket. Hence social distancing is a greater challenge in these smaller stores: one could be in closer vicinity to another person for a moment or two in-store, and maneuvering to clear the way is more difficult.

The puzzled consumer may have to think more deliberately about a shopping strategy, such as: (1) make short visits to buy a small number of most necessary items (e.g., about five) at the smaller store closer to home just to fill-in supplies at home, and avoid the larger store hubs; (2) make longer and less frequent visits to a large and more spacious supermarket store for renewing the stock of a larger variety of home supplies. Shortages in some products at stores (e.g., toilet paper, pasta, eggs, milk) may require shoppers, nevertheless, to visit more stores than desirable during a week to find the missing needed products. The strategy does not have to be innovative or so different from how consumers planned their shopping until this crisis. Yet the situation and restrictions imposed by government introduce significant constraints that force consumers to pay attention to details they did not consider material before and to calculate their steps for shopping more meticulously.

At this time (mid-April 2020) the vast majority of stores and shops for a variety of products and services are closed for business. For example, on a circular street of premium shopping in Tel-Aviv, with about a hundred active outlets of stores and shops (e.g., fashion, homeware, jewellery, bookshop, hairdressers, and a bank branch), about 15% were open to customers-shoppers in the afternoon in the fourth week of March, having a semi-lockdown imposed. At the end of that week an extensive lockdown went into force. Note that stores never closed on this street in mid-day until this time. This scale of closure was not experienced even during war conflicts of the past thirty years. In the last three weeks the greater part of outlets are completely locked while some 10%-15% maintain some level of presence on premises (e.g., receiving customers by phone appointment only). Some of those that are locked leave a note with a message that they are temporarily closed and others provide a phone number for enquiries and receiving orders.

When more stores and shops re-open, hopefully as soon as next month, consumers will probably remain cautious, still subject to some restrictive code of behaviour. Therefore, it is likely that consumers-shoppers will follow patterns of behaviour similar to some degree to those described above. It is too early to predict, however, the pace and extent at which consumers will return to be engaged in shopping. It may be a function of priorities set by consumers and their level of confidence, vis-à-vis how many and what types of commercial outlets the government gradually allows to re-open.

Rigorous research, based on observation and surveys, will be most welcome in order to achieve well-founded understanding of the effects of the Corona pandemic crisis on shopper behaviour. Data from directly interacting and observing consumers about their dispositions and behaviour can be supplemented by recorded data on their actual purchases (i.e., their shopping ‘baskets’). Such research will study and substantiate, for example, the changes in shopping tactics and patterns of behaviour effected by the pandemic and public policy (as suggested in the propositions above, based partly on casual observation and personal experience). The research may enquire specifically about the trade-off between taking measures to reduce risky exposure (i.e., avoid virus contagion) and the quality of choices made, or implications of ‘stock shopping’ (i.e., buying varied products in large quantities to create stocks at home).

Shopping in a food store, large and small, can be a tiring and stressful experience under the restrictions of the Corona pandemic and fear of contracting COVID-19. However, there is good reason to believe that consumers will return by and large to their older shopping practices once the crisis is over — consumers are able to adapt well to changing circumstances, and it should be furthermore easier to adjust to familiar conditions from the near past. Nevertheless, the re-adaptation will not be quick or complete as the process of recovery is expected to be gradual and we do not know when it will start and at what pace it will occur. Consumers will probably remain more alert than before, staying ready for more ‘surprises’ like resurgence of the pandemic; this will likely have impact on shopping of any kind, and moreover on receiving services one-to-one. Unfortunately, concerns that arise from economic consequences of this pandemic crisis may replace concerns about the virus itself and extend the recovery of shopping  behaviour and customs. Welcome to the Corona dimension.

Ron Ventura, Ph.D. (Marketing)

Feel Well. Keep Good Health.

 

 

 

In August 2019 the Business Roundtable (BR), an association of CEOs of American major corporations, issued a wholly revised “Statement on the Purpose of a Corporation” (also see in ‘Our Commitment’). It is a complete change in approach of BR for the first time since its statement of 1997 that espoused the concept of ‘shareholder primacy’. In the past six months since then numerous articles and blog posts were published in reaction to the new statement that calls for fuller consideration of interests of different groups of stakeholders; the reactions range from congratulation and appreciation, through doubt and skepticism, to acrimonious criticism and condemnation. This post takes a humble look at the statement from a marketing perspective.

The statement, signed by 181 member-CEOs of BR,  gives a node of agreement to the contribution of businesses to the economy: “Business plays a vital role in the economy by creating jobs, fostering innovation and providing essential goods and services”. But the leading CEOs make a salient declaration in addition: “While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders” (italics added); they subsequently list their commitments to each of the following groups of stakeholders in this order: Customers; Employees; Suppliers; Communities; and Shareholders.

The new stand breaks away from the view that was held in principle by CEOs of BR since 1997 and which regarded the principal purpose of corporations to serve shareholders — hence the concept of ‘shareholder primacy’. The approach taken by BR from 1997 to 2019 contended that: “The paramount duty of management and of boards of directors is to the corporation’s stockholders. The interests of other stakeholders are relevant as a derivative of the duty to stockholders”. That is, the needs and expectations of customers and other stakeholders were made subordinate to those of shareholders (i.e., satisfying the former only if they fit with or do not violate shareholders’ expectations and interests). That view was heavily influenced by the teachings of Milton Friedman.

The commitment made specifically with regard to customers states:

Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.

The headlines of the other commitments include:  “Investing in our employees”; “Dealing fairly and ethically with our suppliers”; “Supporting the communities in which we work”;  and “Generating long-term value for shareholders”. The theme of the new statement, particularly with respect to customers, may be seen as a replacement of the attitude “generating value for shareholders while delivering value to customers” with the reformed attitude “delivering value to customers while generating value for shareholders” — many would admit that these days the latter sounds more reasonable.

Perhaps the CEOs overstepped themselves in putting ‘shareholders’ in the last place — it does not sound very believable and even a bit apologetic. After all, profitability is like fuel for the business, without it executives and investors lack the motivation or ability to keep the company going for long. Yet from a marketing perspective, and furthermore justified in accordance with a customer-centric approach, customers are fundamental to the purpose of a company — for whom is a company making its products and delivering its services if not for the customers. As an old adage says: with no customers there is no business. Acting for the benefit of customers, employees and their communities can be expected to indirectly generate rewards and long-term value for the company and its shareholders. But if managers and investors are still not convinced, consumers, especially younger ones, become more likely to expect and even require companies to act in a socially-responsible way, giving preference to the goods and services of companies who do so over those which do not.

Nevertheless, the attempt to try and set priorities between the groups of stakeholders may be futile. A company cannot provide for its customers, for instance, without its employees — human capital is vital, and can remain so also with the aid and contribution made by artificial intelligence and robots. Instead of listing the stakeholders in any particular order, it could be more sensible to arrange them on a circle line, maybe in the form of a wagon wheel with the company in the centre and arms leading outwards to each group of stakeholders on the circumference, so as to denote the relationships of a company with its different stakeholders. However, the statement remains vague on how a company should balance between conflicting interests of different groups. The statement concludes by saying: “Each of our stakeholders is essential. We commit to deliver value to all of them for the future success of our companies, and our communities and our country” — leaving the challenge to executives in every company how to reconcile and negotiate between interests of different stakeholders.

The updated statement on purpose does not come a moment too early. The recognition of different types of stakeholders, whose needs and interests managers should account for, is at least thirty years old. In a textbook on Marketing Management and Strategy from 2002, Peter Doyle, professor of marketing who taught at Warwick University (UK), named some of these groups, including: shareholders, managers, customers, employees, and creditors. He also argued about the importance of holding more than a single objective for the business, suggesting objectives of profitability, growth, shareholder value, and customer satisfaction.

Furthermore, the attitude of past CEOs at the BR itself had been different before ‘shareholder primacy’ was enshrined in the statement of 1997. As Kristin Bresnahan (Columbia Law School) tells us, the Statement on Corporate Responsibility of BR from 1981 declared that “the long term viability of the business sector is linked to its responsibility to the society of which it is part”.  The statement referred to stakeholders as ‘constituencies’ — it recognised the responsibility of a company to constituencies other than shareholders. Bresnahan suggests seven questions that contemporary executives and directors should contemplate about their responsibilities. So there was a different view in the 1980s prior to the statement of 1997 to which we may now actually return (Directors & Boards, Issue Q3/2019; Bresnahan is Executive Director of the Center for Global Markets and Corporate Ownership).

  • In the context of the 1981 statement, it is interesting to note a comment that Ginni Rometty, CEO of IBM, made in an interview with Alan Murray of Fortune following the 2019 statement: “Society gives each of us a license to operate. It’s a question of whether society trusts you or not. We need society to accept what it is that we do.” Murray documents in his cover story the change in attitudes in recent years among CEOs of leading American corporations [“A New Purpose for the Corporation”, September 2019, Alan Murray, Fortune (Europe Edition), pp. 42-48.]

We can relate to two levels that concern consumers: 

At the customer level, consumers may expect first and above all that companies treat them in fairness. That may include, for example, careful and sensitive consideration when and how much to raise prices (e.g., not taking advantage of states of distress or crisis), or flexibility and tolerance in receiving product returns and giving refunds or compensation for damages. More generally, companies are expected to make it easier, not complicated, for consumers to purchase, obtain and use the products and services offered to accomplish their goals and tasks in life. Employees can have an important role in fulfilling the purpose of a company towards its customers — “when employees are presented with customer understanding that enables a deep sense of empathy, they are more apt to act on behalf of the customer and become a proxy for the corporate mission” (Camille Nicita, Forbes [Council Post], 17 October 2019). A success in enacting this attitude depends on culture and values embedded in the working environment of employees, and authority delegated to them to make decisions in favour of customers without asking for permission. This may also exemplify how a better employee experience can be linked to improved customer experience.

At the community level, wherever a company has a presence it may support, for instance, community social centres and cultural projects; more broadly, a company may contribute to protecting the environment (e.g., clean energy, green spaces). Importantly, in local community areas where a company maintains a large store, offices (e.g., managerial HQ, development centre), or a factory, employees in those facilities who are resident in the community would feel greater pride and motivation to do their best for the company and its customers. This can work for the benefit of the company, the employees, and consumers in the community and beyond.

In real life, ideals and expectations do not necessarily materialise. Consumers have difficulty at times in believing a corporate or brand purpose. Without practising it pro-actively, there is concern that the purpose statement, including one as collective as BR’s , is no more than lip service. A brand purpose should be positioned at the ‘right altitude’, suggests Ali Demos (The Drum [Opinion], 3 February 2020), that is in a way that will keep it authentic (e.g., consistent with brand history, personality), believable and trustworthy. An ‘altitude’ that fits the brand may be chosen from the functional level to emotional or social level, close to the ground or more aspirational.  Andrew Winston (Harvard Business Review Online, 30 August 2019) congratulates the initiative of the leading CEOs in issuing the revised purpose statement, but he also raises some doubts. Winston notes that shareholder primacy as a guiding principle cannot solve problems of business and society encountered in America, and it has always had its skeptics; yet, shareholder primacy may not be the real problem but only one of its symptoms. Subsequently, he poses the question: What it will really mean for those major companies to follow the new principles of BR? Winston culminates that the new commitment will be no more than empty rhetoric if we do not “hold these companies to their words”, thereby caring about all their stakeholders.

The CEOs of major American companies could be somewhat late in updating the statement of the Business Roundtable on purpose; but now that it is made public it should be praised, to be used as an example to many companies in the US and worldwide. Notwithstanding, the public should follow-up on these leading corporations, that their CEOs apply their own teachings, with the support of their executive suites and boards of directors. Companies are not asked to be altruistic and deliberately sacrifice value at the expense of their shareholders; the companies (and shareholders) are asked to be willing to give up on some value at present if they can help out in achieving goals of the other groups of stakeholders. In the long term, and if ideals have any validity, then there may be no sacrifice of value but really an enhancement of future value.

Ron Ventura, Ph.D. (Marketing)

Feel Well, Keep Good Health

 

The Theory of Jobs to Be Done has the power of shifting perspective in the areas of marketing and consumer behaviour, customer choice in particular: it advocates changing the focus of marketers from consumers as targets to what the consumers or customers wish to achieve by ‘hiring’ their companies’ products or services. The Jobs to Be Done Theory (or Theory of Jobs in short) is the central theme in the book “Competing Against Luck: The Story of Innovation and Customer Choice” (2016) authored by Clayton M. Christensen (with three colleagues). Christensen, a professor of Business Administration at Harvard Business School, passed away in late January 2020 at the age of 67.  His book is one of the more illuminating, and nonetheless captivating, books I have read in the field in recent years; this post is written in tribute to Clayton Christensen and his valued contribution to knowledge and practice.

Christensen is probably known better to many engaged in management for his important, foundational work on disruptive innovation: how enterprises with original and ‘unorthodox’ approaches get to disrupt existing markets and unsettle incumbent companies or non-profit organizations. In many cases the new approach may alter the boundaries defining existing markets. Most often the innovation is technology-enabled, yet it is not all about technology but about a divergent and ingenuine way of thinking. The Theory of Jobs is actually aligned with his previous research: giving an innovative, better answer to a job consumers try to complete, where other solutions failed or disappointed, can cause disruption in a respective market.

Consumers have goals they wish to achieve or tasks they aim to accomplish — a ‘job’ is defined by a task or goal set by the consumer in a certain condition. More punctually, the ‘job’ is the progress consumers are making towards accomplishing their task, or getting the job done. It may often be constituted by a problem the consumer wants to solve. Christensen views consumer needs as something too vague and general, not describing closely enough the issue a customer faces and tries to resolve in a given situation. The job, however, is context-specific, described from the viewpoint of the consumer. The job can have functional, social and emotional aspects or drives that may change with circumstances (e.g., is George driving to work or spending time with his children in the mall? — in each case a milkshake can serve a different job, is Jane looking for something to eat in front of her TV or something to prepare for dinner for her family?)

The approach proposed by Christensen is not entirely new — it is inspired by a concept put forward by Theodore Levitt in the 1960s when criticising ‘marketing myopia’ — it is not the product that is of interest to consumers but what they need it for (e.g., solve a problem) or what they want to do with the product (e.g., people are looking for transportation, not necessarily for trains or cars, one does not buy the electric driller but the hole in a wall that can be made with it, for example to install holders for a shelf). In the same spirit, Christensen suggests that consumers do not buy products or services — they ‘hire’ a product or service to get a particular job done. Furthermore, the job does not dictate any specific type of product — a consumer may consider different types of solutions that lead each to hiring possibly a different type of product or service (e.g., taking a bus, riding a scooter, or walking {shoes}). However, Christensen seems to have evolved such ideas into a much more concrete plan for execution, one that goes beyond abstract needs and preferences to realistic tasks and goals, jobs encountered in specific circumstances in people’s everyday lives.

Customers remain central in the marketing strategies, plans and efforts of companies, but the emphasis of planning and analyses should not be put squarely on the customers and their characteristics (e.g., demographics, personality traits, lifestyles, needs, preferences). From the perspective of Jobs to Be Done, too much attention is given by managers to “who” the customer is, or even to “what” the customer did — the theory is focused  primarily on “why” the customer did something. Marketers have to understand much better the jobs that underlie the eventual choices made by customers. Because if  marketers understand why a certain choice was made, what job led to it in order to make progress, then they (and their associates) might be able to invent or develop an alternative solution (product or service) that customers would consider a better answer for that job the next time it arises. To obtain such understanding, Christensen and his colleagues advise that marketers should observe the behaviour of customers carefully and methodically (with aid of video), and listen to them. They propose five essential elements that should be captured in a struggle of a customer to make progress — what progress, circumstances, obstacles, compensating behaviour, and what makes a better “quality” solution.

A state of struggle is a crucial condition for a company to make impact on a customer’s choice– if a customer does not find himself struggling to get a job done, then one has no reason or motivation to replace his current solution, and is not likely to be open to alternative suggestions and offers. When a struggle does happen, a customer may ‘fire’ a product or service currently in use for the job in progress and ‘hire’ another as a solution to get the job done. Customers may be struggling to complete a job when a product they have so far employed turns out to be inadequate (e.g., terms of the job have changed, not necessarily due to the product’s fault) or its performance is disappointing. The theory seems to be concerned more with situations where the customer is not satisfied by the progress made with available solutions known to him or her and is voluntarily looking for alternative solutions. Additionally, customers may be struggling when they face a job for the first time. Whether a consumer is novice or experienced with a certain type of task or job, he or she may expand the range of product types and brands considered until identifying an apparently suitable solution for completing the job successfully (e.g., from the more usual and familiar options to the more novel and exceptional ones). Customers hire products or services, but may also fire others beforehand, and this can work in favour of a company or against it, thus creating threats as well as opportunities.

Christensen offers five ways where to find and uncover opportunities to create innovative solutions for Jobs to Be Done: (1) Finding a job close to home — gaps may arise in the more essential, daily and ordinary activities and tasks performed by consumers; (2) Competing with nothing — consider non-users who so far avoided tackling an issue or goal they have with available solutions because they believe those to be inappropriate or unsuitable for them — addressing ‘non-consumption’ can awake a new market segment; (3) Workarounds and compensating behaviours — when consumers cannot find a satisfying answer with available products or services offered as solutions they try to improvise and ‘invent’ their own solutions with existing means, often not intended for the made-up application — such cases should be identified to create a ‘tailored’ product-solution; (4) Look for what people don’t want to do — identify ‘negative jobs’ that are necessary but are seen as nuisance or burden (e.g., it comes at the worst time) to offer a relieving service that smoothens or reduces the burden of doing the job; (5) Unusual uses — a product that is consistently and constantly used for a purpose other than intended by the manufacturer may suggest a missing solution for an existing but unrecognised job that may now be fulfilled (this route seems close to the third route above). The five ways are briefly summarised here merely to demonstrate the scope of opportunities that Christensen (with his colleagues) opens up to practitioners to take initiative, not to rely on luck, and create innovative solutions that consumers may appreciate and adopt for their jobs.

The book “Competing Against Luck” is abundant with examples of jobs encountered by consumers and actual products and services developed and created to provide useful (working-functional) and fulfilling (social or emotional) solutions for them. The cases described help to illustrate jobs with different goals and in varying circumstances, and also to demonstrate research and enquiry methods for uncovering the jobs and devising solutions. The products and services cover a wide span of areas and domains for the interested readers to discover (e.g., distant online learning, shopping for matrasses, medical guidance and treatment, lodging, savings for children).

  • A Nugget for Thought: We could contemplate why men are shaving in different ways in the morning. Is M shaving every morning, every other day, or maybe just on weekends? M may be pressed in time for work and he just wants to keep a clean and decent look hassle-free (no time, no cuts, no mess); he can thus leave more time for other duties in the house before going out. His friend L may be keen about a particular look, an exact shape and cut of beard, that fits his self-image or the image he desires to have in the eyes of others (colleagues, friends etc.). We could also think about men who do not shave: N might grow a constant beard for religious reasons, but he may still wish to appear orderly and respectable, maybe even authoritative. The most suitable solution for the job of M may be an electric shaver whereas L may turn to a manual razor; N may be helped for his job by a set of scissors, a trimmer and a small brush. All three men would probably complete their jobs with some form of lotion or cream for their face (and beard). But are there any new devices, toolsets and services that can be made to help M, L, & N get their jobs done to even higher satisfaction and pleasure?

As an exception, I chose to conclude the post with a citation of Clayton Christensen from the chapter of Final Observations in the book “Competing Against Luck”  (p. 231):

I could go on for hours about how the Theory of Jobs helps us see the world in unique and insightful ways. Good theories are not meant to teach us what to think. Rather, they teach us how to think. I encourage you to continue the conversation from here in your home or your office after you put this book down.

I believe that this wish of late Clayton Christensen deserves to be adhered and fulfilled.

Ron Ventura, Ph.D. (Marketing)

Reference: 

Competing Against Luck: The Story of Innovation and Customer Choice; Clayton M. Christensen, with Taddy Hall, Karen Dillon and David S. Duncan, 2016; Harper Business (Harper Collins Publishers).

 

 

 

 

 

 

 

 

 

 

 

Surge pricing is a variant of dynamic pricing (also known as variable pricing). The dynamics of prices means that prices can now change much more frequently and vary across customers, time and place at ever higher resolution; a price surge or hike at peak moments in demand can be described as an outcome of dynamic pricing. Surge pricing received great attention due to Uber’s application of this strategy, and not least because of the controversial way that Uber implemented it. But dynamic pricing, and surge pricing within it, is a growing field with various forms of applications in different domains.

A price surge is generally attributed to a surge in demand. In the case of Uber, when the number of customer requests for rides (‘hailing’) critically exceeds the number of drivers available in a given geographic area, Uber enforces a ‘surge multiplier’ of the normal (relatively low) price or tariff (e.g., two times the normal price). The multiplier remains in effect for a period of time until demand can be reasonably met. The advantages, as explained by Uber, are that through this price treatment (1) drivers can be encouraged to join the pool of active drivers (i.e., ready to receive requests on Uber app), as well as  pulling drivers from adjacent areas; and (2) priority can be given to a smaller group of those customers who are in greater need of prompt service and are willing to pay the higher price. Consequently, waiting times for customers willing to pay the price premium will be shorter.  (Note: Lyft is applying a similar approach.)

There are some noteworthy aspects to the modern surge pricing. A basic tenet of economic theory says that when demand surpasses the supply of a good or service, its price will rise until a match is reached between the levels of demand and supply so as to ‘clear the market’. Yet the neo-classic economic theory also assumes that the equilibrium price applies to all consumers (and suppliers) in the market for a length of time that the stable equilibrium prevails; it does not account well for temporary ‘shocks’. Proponents of surge pricing argue that this pricing strategy is an appropriate correction to a market failure caused by short-term ‘shocks’ due to unusual events in particular places. There is room in economic theory for more complex situations that allow for price differentials such as seasonality effects or gaps between geographic regions (e.g., urban versus rural, central versus peripheral). Still, seasonal prices are the same “across-the-board” for all; and regions of different geographic markets are usually well separated. On the other hand, in surge pricing, and in dynamic pricing more broadly, it is possible through advanced technology to isolate and fit a price to a very specific group of consumers in a given time and space.

One of the concerns with surge pricing in ride e-hailing is that the method could take advantage of consumers-riders when they have little choice, cannot afford to wait too long (e.g., hurry to get to a meeting or to the airport) or cannot afford a price several times higher than normal (e.g., multipliers of more than 5x). The problem becomes more acute as surge pricing seems to ‘kick in’ at worst times for riders, when they are in distress [1a](e.g., in heavy rain, late at night after a party). The method seems to screen potential riders not based on how badly they need the service but on how much they are willing to pay. The method may fix a problem for the service platform provider more than for its customers. Suppose hundreds of people are coming out at the same time from a hall after a live music concert. If the surge multiplier shown in the app at the time the prospect rider wants to be driven home is too high because of the emerging peak in demand, he or she is advised to wait somewhat longer until it slides down again. How long should riders wait for the multiplier to come down? Often enough, so it is reported, it takes just a few minutes (e.g., minor traffic fluctuations). But in more stubborn situations the rider may be able to catch a standard taxi by the time the multiplier declines, or if the weather permits, walk some distance where one can hail a taxi or get onto another mode of public transport.

Another pitfall is reduced predictability of the occurrence of surge pricing. Consumers know when seasons start and end and can learn when to expect lower and higher prices  accordingly (though it used to be easier thirty years ago). In public transport, peak hours (e.g., morning, afternoon) are usually declared in advance, wherein  travel tariffs could be elevated during those periods. Since surge pricing is based on real-time information available to the service platform provider, it is harder to predict the occasions when surge pricing will be activated, and furthermore the extent of price increase. Relatedly, drastic price changes (e.g., due to high frequency of updates, strong fluctuations) tends to increase the uncertainty for service users [1b].

The extent of price surge or hike is a particular source of confusion. Users are notified before hailing a Uber driver if surge is on, and a surge multiplier in effect at that time should appear on the screen. The multiplier keeps being updated on the platform. It is sensible, however, for the multiplier to stay fixed for an individual rider after the service is ordered. Thus the rider can make a decision based on a known price level for the duration of the ride (or an estimate of the cost to expect). Otherwise, the rider may be exposed to a rising price rate while being driven to destination — but the rider should also benefit if the multiplier starts to slide down (or entering another area where surge is off). The first scenario resembles more a situation of bidding whereas the latter scenario looks more like gambling. Stories and complaints from Uber users reveal recurring surprises and unclarity about the cost of rides (e.g., claims the multiplier was 9x, a ride of 20 minutes that cost several hundreds of dollars, a claim the multiplier dropped but the total price did not go down in accordance). Users may not pay attention sufficiently to the multiplier before hailing a ride, do not comprehend how the pricing method works, or they simply lose track of the cost of the ride (i.e., the charge is automatic and appears later on the user’s account).

Discontent of customers may also be raised by a sharp contrast experienced between the relatively low normal price rate (e.g., compared with a standard taxi) and the high prices produced by surge multipliers [1c].  A counter argument contends that the price hikes or surges allow for low rates at normal times by subsidising them [2]. More confusion about Uber’s pricing algorithm could stem from reports on additional factors that the company might use as input (e.g., people are more receptive of surge prices when the battery of their mobile phone is low, and customers are more willing to accept a rounded multiplier number than a close non-rounded figure just below or above it (MarketWatch.com, 28 December 2017).

  • Not even a strategy of surge pricing appears to be completely immune to attempts of manipulation. It was revealed in 2019 that drivers with Uber (and also Lyft’s) have tried to game the surge mechanism. The ‘trick’ is to turn off the app at a given time in a coordinated manner among drivers, let the surge multiplier rise, and then turn on the app again to gain quickly enough from the higher rate as long as it prevails. The method seems to have been used especially at airports in anticipation of incoming passengers, based on the knowledge of drivers of several flights scheduled to land during a short interval. The motivation for taking this action: the drivers claim they are not paid enough at normal times by the platform operators (BusinessInsider, 14 June 2019).

Uptal Dholakia, a professor of marketing at Rice University (also see [1]), suggested four remedies to the kinds of problems described above. First, he advised to set a cap (maximum) on surge multipliers and notify customers more clearly about them (greater transparency). In addition, he recommended curbing the volatility of price fluctuations and communicating better the benefits of the method (e.g., reduced waiting times). Dholakia also raised an issue about a negative connotation of the term ‘surge’ that perhaps should be replaced in customer communications [3].

Various forms of dynamic pricing, including surge pricing, are already utilised in multiple domains. It is noted, for instance, that the strategy of Uber was not initiated to resolve problems of traffic congestion; ‘surge’ may be activated as its result but the purpose is to resolve the interruptions that congestion may cause to the service. For dealing with traffic congestion and overload in roads, other types of surge pricing are being used by public authorities. First, a fast lane is dedicated on a highway or autoroute (e.g., entering a large city) for a fee — the amount of ‘surge’ fee is determined by the density of traffic on the other regular lanes. Drivers who wish to arrive faster should pay this fee that is displayed on a signboard as one approaches entry to the lane (a few moments are allowed to decide whether to stay or abort). Second, a congestion fee, which could actually be a variable surge fee, may be imposed on non-residents who seek to enter the municipal area of a city at certain hours of the day.

As indicated earlier, public transportation systems in large cities may charge a higher tariff during peak or rush hours. The time periods that a raised tariff applies are usually declared in advance (i.e., they are fixed). Peak and off-peak rates may apply to different types of travel fares. The scheme is employed to encourage passengers who do not really need to travel at those hours to change their schedule and not further load the mass transportation system. There is of course a downside to this approach for passengers who must travel on those hours, such as for getting to work (employers who cover travel expenses should set the amount according to the cost of the more expensive rate). Using surge pricing in this case would mean that passengers cannot tell for certain and in advance when a higher tariff applies, but the scale of ‘surge prices’ can be pre-set with a limited number of ‘steps’, and thus reduce resentment and opposition.

Other types of dynamic (variable) pricing involve strong technological and data capabilities, including demand at an aggregate level and customer preferences and behaviour (search, purchase) at the individual level. A company like Amazon.com keeps updating its prices around the clock based on data of demand for products sold on its e-commerce platform. A more specific type of dynamic pricing entails the customisation of prices quoted to individual users-customers (i.e., different prices for the same book title offered to different customers). The approach maintains that a higher price could be set, for instance, for books in a category in which the customer purchases books more frequently and even based on search for titles in categories of interest. This form of price customisation is debatable because it aims to absorb a greater portion of the consumer’s value surplus (i.e., how much value a consumer assigns to a product above its monetary price requested by the seller), raising concerns of unfairness and discrimination. The risk to sellers is of making products less worthwhile to consumers to buy at the higher customised prices. (Note: Amazon was publicly blamed of using some form of price customisation in the early 2000s after customers discovered they had paid different prices from their friends; however the practice has not been banned and it is suspected to be in use by companies in different domains.)

  • Take for example the air travel sector: Airlines may use any of these methods of variable pricing: (a) Offering the same seat on the aircraft at different price levels (‘sub-classes’) depending on the timing of reservation before the scheduled flight: the earlier a reservation is made, the lower the price; (b) Changing fares for flights to different destinations based on fluctuations in demand for each destination and time of flight; (c) There are claims that airlines also adjust upwards the fares on flights to destinations that prospect travellers check more frequently in the online reservation system.

More companies in additional sectors are expected to join by applying varied forms of dynamic pricing. Retailers with physical stores are expected foremost to use dynamic pricing more extensively to tackle the growing challenges they face particularly from Amazon.com in the Western world (e.g., supermarkets will employ digital price displays that will allow them to change prices more continuously during the day and week according to visitor traffic levels). Restaurants may set higher prices during more busy hours at their premises, and hotels are likely to vary their room rates more intensively, taking into consideration not only seasonal fluctuations but also special events like conferences, festivals and fairs (e.g., see “The Death of Prices”, Axios, 30 April 2019).

Dynamic pricing, and surge pricing in particular, is the new reality in pricing policy, with applications getting increasingly pervasive. As technological and analytical capabilities only improve, the pricing models and techniques are likely to be enhanced and become furthermore sophisticated. Moreover, methods of artificial intelligence will improve in learning patterns of market and consumer behaviour, expected to enable companies to set prices with greater specificity and accuracy. At the same time, businesses need to take greater caution not to deter their customers by causing excessive confusion and aggravation. The question then becomes: What bases of discrimination — among consumers, at different times, and in different locations — would be considered fair and legitimate? This promises to be a major challenge for both enterprises that set prices and for the consumers who have to judge and respond to the dynamic prices.

Ron Ventura, Ph.D. (Marketing)

Notes:

[1a-c] “Uber’s Surge Pricing: Why Everyone Hates It?”, Uptal M. Dholakia, Government Technology (magazine’s online portal), 27 January 2016

[2] “Frustrated by Surge Pricing? Here’s How It Benefits You in the Long Run”, Knowledge @Wharton (Management), 5 January 2016. A talk with Ruben Lobel and Kaitlin Daniels at Wharton Management School at the University of Pennsylvania.

[3] “Everyone Hates Uber’s Surge Pricing — Here’s How to Fix It”, Uptal M. Dholakia, Harvard Business Review (Online), 21 December 2015

The checkout area with its cashier counters is normally the last stop of the shopper in a store, when carrying at least one product to buy. It is easy to neglect this location in the store by thinking that the shopper is arriving there just to pay, collect the items purchased (or hand over to delivery), and leave. But there is more that can happen in checkout beyond payment, specifically in making last minute purchases.

As the consumer spends longer time touring a (large) store on his or her shopping trip, the attraction of the checkout area to the shopper increases (in other words, the shopper more strongly desires to end the shopping trip). This phenomenon is particularly associated with shopping in food stores like supermarkets that sell also other grocery and household products. However, it could also prevail in stores for other types of products (e.g., DIY and home improvement, electrics and electronics, fashion), where the retailer displays many and varied items in a layout spread over a wide-area floor (hence any single large floor in a department store may also apply). The longer the shopping trip progresses, the shopper is likely to less engage in exploring sections in the store (supermarket) and to concentrate on buying products (i.e., the shopper will skip entire parts of the store in favour of entering those sections or aisles where he or she intends to choose products to buy). The tendency to gravitate towards checkout tends to grow in response to increased time pressure perceived by the shopper [*]. Such gravitation may be experienced, for instance, when the shopper enters an aisle from the back of the store and feels urged to exit on its other end closer to checkout rather than return to the back of the store and proceed with the shopping trip.

Yet, when the shopper arrives to a cashier counter, time may pause. Especially if one has to wait in line, this creates an opportunity to consider additional purchases.

Firstly, a shopper may choose from products placed next to the cashier counter. Stores often provide multiple options for last minute purchases at hand’s reach. These are  usually inexpensive items easy to pick-up. One may be reminded for instance that he is out of batteries or tissues and take a pack from the nearby stand. The retailer may also put products on special discount (e.g., ‘last-in-stock’ offers, chocolate gifts in advance of holidays) as shoppers access the cashiers for checkout. Then there are the ‘temptations’ shoppers could buy on impulse to spoil themselves (or their children) from a variety of small sweet or salty snacks (e.g., chocolate-coveted waffles, potato chips, chewing gums or candies of different flavours). By the time consumers get to checkout their self-control is more likely to be depleted and they are more prone to make yet another unplanned purchase.

But shoppers seem to make even more extensive considrations and decisions about products situated more far afield while standing in checkout. Waiting gives shoppers the chance to think again if they have forgotten anything, or maybe re-contemplate making an unplanned purchase they rejected earlier. It is not uncommon to see a shopper leaving the shopping cart in front of the counter and going to bring yet another product (if there is enough time one may go and return even twice). Shoppers may furthermore get ideas for unplanned purchases of products from end-of-aisle displays facing the checkout area — from her place in line the shopper may notice a visually appealing ‘invitation’ and make the short walk to pick-up the product and add to the cart or basket.

  • The ‘trips’ shoppers embark on from the checkout area can sometimes be quite long, deep into the aisles, and take a few minutes until they return with the sought out product. It is hard to anticipate what products shoppers may remember as late. Still, a retailer may identify products that are more essential to consumers, and are ‘fast moving’, so as to place them on shelves inside aisles and closer to the checkout area, quick and easy to access.

But the environment in supermarkets is changing, and shopping patterns that were allowed and even encouraged till now could be forced to diminish.

Supermarkets have been removing in the past few years some of their human cashier counters (in some cases about a half), replacing them with self-service cashier stations — each station includes a small counter and a computer-cashier terminal. The stations are positioned in a special checkout court usually in place where counters with human cashiers stood (thus 8 stations can be positioned, for example, instead of 4 human-staffed counters). The human cashier is now actually the customer. This method should decrease the probability of a customer having to stand in line or the number of customers waiting in line for a free self-service cashier station.

In practice the new method is not helpful and workable for every customer — especially older customers (e.g., 65+) and those less comfortable with computers are reluctant to try the self-service cashier counters. Some customers, particularly with full carts, still prefer to be serviced by a skilled human cashier. All these customers can still be found in lines, often longer ones, at the traditional checkout counters. This can frequently be evident at a time that most of the self-service stations are unused. But those stations do get employed, especially by younger customers (e.g., 30 something), and shoppers in a hurry or with just a few items taken out from a basket. Sometimes customers get mixed-up in the process, such as with scanning a product, weighing fruits or vegetables, or getting the product wrongly identified or unrecognised (errors that happen to staff cashiers as well), or having problems with payment. For those cases a permanent customer assistant must be present at all times to help customers resolve their issues and complete the purchase.

Yet, a conspicuous property of new self-service checkout areas could be noticed recently — the area or court is stripped from products anywhere around the stations. A shopper that enters the court may become isolated from the rest of the store. This has a positive aspect in eliminating any distractions from the checkout process done independently by the shopper and can help to hasten the process. There could also be a health benefit, that is by keeping the shopper away from sweets and snacks. However, it also cancels certain shopping habits that were natural, convenient and helpful to the shoppers (and also to retailers). It should not be that much of a nuisance to place a board with some useful and hedonic products next to the self-service stations. In reality, the opposite seems to happen, that is the number of products placed next to traditional cashier counters dwindles. Stands with products on discount deals may still be found in the traditional checkout area, but it may not be on the way, accessible or immediately visible to shoppers who turn to the self-service checkout area.

  • Note: Self-service cashier stations are still hard to find at this time in stores specialising in other product categories and in department stores.

The next stage is the cashier-less store with no discernible checkout area. Checkout is virtual, digital, and happens once the shopper goes out the gate or door. The early springs of this retail model already exist (e.g., Amazon Go convenience stores — “Just Walk Out”). Anything said above about shopping patterns at checkout supposedly would become irrelevant and non-valid. But the cashier-less model is still in its infancy and there are a number of issues to be resolved (e.g., in technology and application of the method) vis-à-vis human shopping behaviour tendencies.

At the moment Amazon Go stores, for instance, are characterised by quick shopping trips (e.g., “take away” prepared meals and other food items and drinks soon to be consumed), and perhaps trips to fill-in essential items missing at home. It is still unclear how the method would work for ‘heavier’ shopping missions. In particular, the methodology appears to apply to pre-packaged items taken off shelves (including in refrigerators), not to items in bulk to be weighed like fruits and vegetables. There seems to be no indication also where shoppers are supposed to move their purchased items into bags to take with them. Furthermore, at a traditional checkout counter you can ask the cashier for any clarifications about prices, discount validity or the final bill (on paper slip and now also on mobile phone). Even at the self-service station one can see on the screen the items and prices that roll as the checkout proceeds. With cashier-less stores, the shopper gets the bill on mobile app (e.g., Amazon Prime) only after leaving the store; then it is not simple to go back and find a representative to ask anything if needed.

These points suggest that a physical checkout area may not become obsolete; an area before exit with support services and counters to re-organise (e.g., before the gates) will remain needed. Perhaps cashier-less stores are simply not ready for performing more consequential shopping. When the model matures, then it should also be possible to place boards with easy-to-pick products that shoppers can grab just before going out through the gate.

The method for checkout is going through transformation, and even greater changes to this process are expected to take place in the future. However, the concept of a checkout area can remain in a new form that will answer to the needs and conveniences of shoppers. More careful thought should be given to modes of human behaviour, such as the benefit of having the time to pause and think over the shopping trip (e.g., accounting for limitations of human memory). The physical checkout area or court may always be the place for receiving human customer support, re-organising before leaving the store, and why not taking a small dark chocolate bar at the last minute on the way out.

Ron Ventura, Ph.D. (Marketing)

Notes:

[*] Testing Behavioral Hypotheses Using an Integrated Model of Grocery Store Shopping Path and Purchase Behavior; Sam K. Hui, Eric T. Bradlaw, & Peter S. Fader, 2009; Journal of Consumer Research, 36 (October), pp. 478-493 (Herb Sornsen labeled this phenomenon the “checkout magnet” in his book Inside the Mind of the Shopper.)

Also see “Deconstructing the ‘First Moment of Truth’: Understanding Unplanned Consideration and Purchase Conversion Using In-Store Video Tracking” by Yui, Huang, Suher, & Inman, 2013 in the Journal of Marketing Research on planned and planned purchases.

Dan is driving in an inter-city road; on the sideline of the road he notices ahead of him a large ad billboard — he is likely to have about a second, maybe even less, to watch and get any details from the ad. Sharon is sitting in her living room, reading a print magazine; in between articles she may glance at full-page ads — she is dedicating perhaps a couple of seconds to any ad that attracts her attention before moving on. Such short durations are critically limiting the amount of information consumers are able to capture and utilise to make inferences and judgements about an ad.

Research of consumer response to advertising more often deals with the decoding of  messages embedded in ads — how consumers gather (by eye fixations) and process pieces of information from the ad, and how they interpret them to derive key points of the message. This process frequently involves reference by the consumers to text and images in the ad, and any relations between them — these are usually thick slices of information to work with. However, consumers’ exposure durations to ads get shorter, meaning they allow for capturing very few pieces of information (e.g., headline and an image or a portion of it) to make inferences — these are thin slices of information.  A quick exposure may be enforced by the display setting (e.g., rotating online ad banners, road billboards) or being the outcome of shorter attention spans (i.e., consumers choose to view any single print ad only briefly).

In three interesting experiments conducted by Elsen, Pieters and Wedel (2016), the researchers examine the implications of  allowing for short exposure durations (i.e., 100ms up to 2 seconds), compared with longer durations [*]. Shorter durations are likely to enable consumers to capture and use only thin slices of information, and probably  also give too little time to elaborate on them. The researchers suggest that short durations can at least permit consumers to correctly infer the identity of the focal product and brand advertised, and that is not something to be discarded.

Elsen and her colleagues test three different identification types of ads: (1) Upfront — identification is straightforward, with the product and brand presented more explicitly in the ad; the ad is similar to other ads in the same product category and dissimilar from ads in other categories. (2) Mystery — the product in this type of ad could appear in a more sublime way or be implicit within an artful design (visual rhetorical figure); the ad is atypical to its category, dissimilar from ads in the same product category, but also dissimilar from ads in other categories. (3) False Front — the product in this ad format could be disguised by presenting the product in a context of another type of product  (e.g., a metaphor rhetorical figure, such as a bottle of drink presented as if it were a bottle of fragrance); this ad is atypical in being dissimilar from other ads in its product category while being similar to ads in a different category than its own. The brand usually takes a less central place in a mystery or false front ad.

The mystery and false front types of ads are considered more difficult to identify the product than in an upfront ad. An upfront ad is easier to process because it follows a schema familiar to consumers for that category (e.g., including typical perceptual features). The mystery and false front ads are more difficult to interpret but in somewhat different ways. Both types apply a form of artful expressive figure, yet the false front ad could be more confusing (e.g., whereas a mystery ad may include a product of another type positioned in relation to the focal product, the false front would show in front the focal product as if it were another type of product {substitution}). Both ads may build on a relationship between a focal product and another product, yet assuming a different kind of relationship. The implication for the false front ad is that consumers need to switch schemas by which they process and interpret the ad content and identity of the product (i.e., they are likely get at first a wrong impression of what product is upfront, and it takes longer to comprehend what product is actually being advertised).

In a very brief exposure (100msec, less than a typical fixation), consumers can consciously grasp the gist of the ad scene; they can also identify a typical product if it appears centrally and straightforward.  This permits them to hold a more positive attitude towards the upfront ad compared with their attitudes towards mystery or false front ads. The attitude towards the false front ad seems to be somewhat more positive compared with the mystery ad, although not as significantly as the researchers expected — while the focal product may appear obvious in the false front ad, the scene is still not much easier to grasp than in a mystery ad. Yet, as exposure durations extend longer than two seconds, the differences in processing and evaluating the mystery and false front ads become more striking.

An exposure of half a second (500ms) allows for two fixations at two spatially-distinct locations in the ad and processing the information in them; it has been identified as closely the average exposure duration for outdoors ads. A two-second exposure allows already for fixating and processing a few more pieces of information throughout the ad; this is the average duration that consumers have been observed to attend to (fixed) display ads. The findings indicate that from 500ms onwards the attitude towards mystery ads is climbing and the attitude towards false front ads is in decline; it is however at about two seconds of exposure that attitude towards mystery ads closes the gap and becomes more positive than towards false front ads, and further on approaches the level of attitude towards upfront ads (after 10 seconds of exposure).

After exposures longer than 5-10 seconds it becomes apparent that an early impression about the product identity in a false front ad was illusory, and possibly following the realisation of their mistake, consumers seem to turn their evaluation in disfavour of the ad. On the other hand, mystery ads seem to be more positively intriguing, where demystified viewers who decode the “story” in the ad and figure out the product and brand identity become more in favour of the ad. (Note: Changes in attitude towards the ad transfer to changes in brand attitude though with weaker magnitude.)

Our understanding of these findings can be strengthened by considering the intervening effects of consumer knowledge: the feeling that one knows what product (and brand) the ad is for (subjective knowledge) and the accuracy of the inference or conclusion reached by the viewer (objective knowledge); furthermore important is how well subjective and objective knowledge match or calibrate.  Very quickly (after 100ms exposure) ad viewers have a strong feeling they know what type of product is being advertised, and indeed they are found correct (i.e., their knowledge is calibrated). For mystery ads, viewers are in clear difficulty of identifying correctly the product being advertised after brief exposures of 100ms, yet they seem to be aware of this difficulty as they feel quite uncertain about the product identity (i.e., their knowledge is also calibrated).  Objective knowledge with regard to mystery ads seems to improve sooner (at exposure of 500ms) than subjective knowledge, but in any case after two seconds viewers generally get it right, and feel more confident about it. It means that even in mystery ads, two seconds are likely to be sufficient to correctly identify the product being advertised.

With false front ads the situation is rather different: Ad viewers quickly (as early as 100ms) come to believe they know well what type of product is actually being advertised, while in fact they are as wrong as in the case of mystery ads (i.e., knowledge is not calibrated). After just 500ms the situation already improves, and after two seconds they could be on the right track, knowing better what product the ad is for and feeling confident about their conclusion — only that they likely had to change their course of thinking in order to arrive to a new and different conclusion about the product than they had thought before. The analyses of Elsen, Pieters and Wedel further show that the influence of ad types on viewers’ attitudes towards ads is mediated (‘explained’) by the subjective feeling of knowledge, not the accuracy of knowing the product identity. As consumers have more time to verify their inferences and feel successful in decoding the ad, at least identifying the product and brand, they are more likely to develop a higher favourable attitude towards the ad (and brand). Since in false front ads this verification process is more likely to fail and consumers need to rectify their conclusion, their ad attitude is likely to suffer.

  • Note: Certainty about the brand is low for mystery and false front ads after 100ms, and it is also relatively low for upfront ads vis-à-vis product identity; as exposures get longer the gaps in certainty narrow until conversion at 10 seconds of exposure (accuracy for brands is not measured)  — thinking about the specific brand may occur later than the product, and the brand placement may also be less central in the ad.)

Elsen et al. challenge a claim made by other researchers that longer exposures to ‘standard’ upfront ads would lead to a less favourable attitude because they are perceived as boring and routine. They argue instead that consumers-viewers who feel able to confirm their identification of the product (relatively easily) after a little more time of inspecting the ad might making them really more satisfied and favourable towards the ad. The attitude towards upfront ad remains quite stable at a high level over exposure durations. In Experiment 1 the attitude seems to drop a little as exposures get longer (up to 30 seconds), suggesting that after five seconds and longer, viewers do get bored by straightforward ads, but the estimated trend was not statistically significant. However, Experiment 3 revealed that the attitude towards upfront ads even improves after allowing for exposures of up to about 7 seconds. The results suggest that five seconds could be more than enough to interpret what the ad is about and identify the product advertised in an upfront ad; and if somewhat more time is given, this can only help the consumer to confirm an initial feeling he or she knows what product is advertised, thus contributing to the positive attitude towards the ad.


 

Distinguishing between mystery and false front ads is not clear-cut.  It can take a few seconds to realise what kind of rhetoric figure is being used and to understand the “story” being told in either a mystery or false front ad. The problem is that the identity of the product is often intertwined with the message, so that identifying the product requires at least partly interpreting the message (e.g., in a metaphor where an attribute of another product type or object is projected onto the focal product). I therefore suspect that the recommendation of the researchers that it is somehow possible to separate between tuning the ad identity (“what is promoted”) and tuning the ad message (“how it is promoted”) might be easier said than done. Elsen and her colleagues propose that “combining upfront identification with specific creative message templates might be particularly effective in cluttered media environments in which exposure durations are short” (p. 575). While accepting this recommendation, one should take into consideration that the ad may cease being truly “upfront” to the consumers-viewers, and could take longer to interpret and extract the product identity from the creative message.

It is not suggested to avoid false front ads but to acknowledge that they are more risky. If they apply a metaphor, it may take closer to ten seconds rather than two seconds to understand the situation and identify the product correctly; actually there is no guarantee that the viewer will “get it” even after ten seconds. The viewer might leave the ad happy after a brief exposure but associating it with a wrong product. The risk additionally is that the viewer may feel being fooled after realising the true product identity or frustrated of not being able to realise it after a few seconds, and that is manifested in the results about the ad attitude in all three experiments.

The important lesson is to evaluate in what conditions it is most suitable and effective to use each of these ad types. A duration of two seconds appears to be a significant threshold. There is little point in being too clever and showing mystery or false front ads neither on road billboards nor in digital display environments (e.g., Internet, apps) when the ad display rotates and every ad is replaced after a brief period (e.g., 1-2 seconds). Mobile devices in use, particularly smartphones, and screen displays that exhibit a strong competition between content and advertising can be especially challenging environments for the more creative and clever ads. Achieving product and brand identity through simple upfront ads would be a justified and reasonable goal in those circumstances. In other conditions, print and digital, and specifically when the ad is static, there should be greater flexibility for the advertiser to choose from the full spectrum of upfront, mystery, and false front ads (e.g., a mystery ad type could succeed if at least 3-4 seconds of showing an ad between webpages pass before the target page loads or the viewer is given an option to proceed to the target page after that duration). Moreover, grades of creativity may be applied to captivate attention in more cluttered and competitive media environments (consider also pedestrian areas in cities).

Gaining consumer identification of the product and brand in ads is vital and important. But it would be a loss and spoil if advertisers and advertising professionals stop aspiring for higher goals with more creative and clever rhetorical figures and designs. The research of Elsen, Pieters and Wedel highlights the need to choose wisely when and where it would be more suitable and effective to employ a straightforward or a more creative and clever ad design.

Ron Ventura, Ph.D. (Marketing)

Note:

[*] Thin Slice Impressions: How Advertising Evaluation Depends on Exposure Duration; Millie Else, Rik Pieters, & Michel Wedel, 2016; Journal of Marketing Research, 53 (August), pp. 563-579 (DOI: 10.1509/jmr.13.0398).