Tuesday, January 20, 2009

Why We Buy?

Jean Ng, MBA Candidate from MIT Sloan School of Management, shared with a bunch of us on "Why We Buy?", to understand the Consumer Behavior Awareness. Some of the stuff that she shared are from the stuff that she learned from Prof. John Hauser and Prof. Shane Frederick.

I would say that it is definitely a fantastic lecture, where I have quite a number of "aha" moment, that really makes me realize a number of new insights/observations. This is definitely very refreshing, as not many of those public lectures that I have attended over the years have managed to make me say so. Her sharings are definitely much much better than most (if not all) of those lectures that I have attended (not to say that those other lectures are bad).

Some of my observation is that she did spend a lot of efforts to put in clear, structured sharing, with very pertinent examples (especially those that we can relate on) and make it fun! Definitely, a lecture that would not bore anyone. :)

Some of the major insights that I have learned (I know my writing is boring, so I might not be able to do justice to her interesting lecture):-

1. Jean splashed through a bunch of car advertisements (essentially each ad is shown for 1-2 second), and at the end of it, she asked us on number of ads. It was 9. Quite an interesting technique to gauge our observation. She also asked us to recall the names of those companies.

2. She also asked one of us to list names of the brands of soft drink that we can remember (this time, we are not aided by ads), and he was able to list 4 of them. She counted from a 7-11 outlet that there were 42 brands in total, and in Malaysia, there should be around 400-500 brands. So, the recall rate is just 1%.

3. She highlighted the cycle of how a brand should do - Create awareness --> Create desire to buy --> Willingness to buy --> Action of Purchasing --> Direct Feedback or Reevaluation. This is pretty true that most of the time, we go through that cycle, although sometimes, we might be straight away at desire/willingness to buy.

4. She touched on the infamous 4Ps and 5Cs - Price, Place, Product, Promotion, Customer, Company Skills, Competition, Collaboration, Context.

5. "Consumer Behavior is always changing" - She cited Akio Morito from Sony, which started from Product and then try to educate/persuade the consumers to accept this new product. Scott Cook from Intuit started from adapting from customer preference and then try to identify/satisfy their preferences to make their big bucks.

6. Very satisfied customer is shown to be able to help make 15.8 times more than an unsatisfied customer, through a customer lifetime value. When all the levers - more visits per month, more spend per visit and longer customer life multiply, it works wonders.

7. "Consumer Behavior is not always rational" - When "1*2*3*4*5*6*7*8" vs "8*7*6*5*4*3*2*1" is shown, the guesses for the latter is about 4 times more, when in reality, both should be the same. (And in fact, for both of the guesses, they are way lower than the actual value, just 1% to 5% of the correct value). When a product is either sold at 50 cents each or $2 for 4, the one that is sold at $2 for 4 is much more popular. When a product is added "Limited to 12 cans each", it would actually stimulate sales by 150%, instead of actually reducing, since the scarcity concept would cause people to get more.

8. Context Effect - When 2 types of ice cream were sold (Chocolate and vanilla), they were equally popular. But when strawberry flavour is introduced, sales for vanilla actually went up, when in fact, customers have more choices.

9. Compromise Effect - when there are 2 sizes (Small and Medium) being sold, both were equally popular. When a large size is added, it actually caused 70% of them to buy Medium, whereas 5% would buy large.

10. When Economist put in 2 options of "Online $59 and Online + Print $125", about 36% pay for the $125 option. When they add in the extra option of Print $125 option, it increased the proportion of those who choose Online + Print to $125.

11. Often what people perceive as being something, may not actually be the actual reason of something, example people may perceive irrelevant stuff to be the reason of a car being safe.

12. "Study of customer understanding is not to manipulate consumer behaviour, but to have a superior product is not enough without understanding consumer behaviour."

13. Choice Overload - when put more choices of jams, more people stop to look at it, but very few buy. When provide fewer choices of chocolates (but with choice), it has the highest satisfaction.

14. There are tons of info and people don't like vertical scrolling. 20% of consumers spend less than 4 seconds on a page. If they spend at least 4 seconds, chances are they would spend longer.

15. When raise price, do in small step. When reduce price, do it in big step.

And Jane ended with "Studying consumer behavior should make us better consumer". Special thanks to Jane for allowing me to reproduce her sharing here.

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WM said...

I understand why she expresses her views in clear, structured way. She took 15.280. :P

One of the most useful classes at Sloan.

Chen Chow said...

Thanks, WM! I should go OCW to read up more on 15.280 :)