China’s new pragmatic consumers

They spend more in categories they highly value, and they generally trade down in less compelling ones.

OCTOBER 2010 • Yuval Atsmon, Vinay Dixit, Max Magni, and Ian St-Maurice

Source: Marketing & Sales Practice 

Increasingly, Chinese consumers are behaving like their counterparts in the developed world. They are more demanding and pragmatic than ever as their horizons expand beyond basic concerns about product features. Also, they are willing to pay for better value and quality and are spending more time researching and are exploring product nuances. Yet McKinsey’s 2010 survey of China’s consumers also found that they are blazing a uniquely Chinese trail (see sidebar “About the research”). The country obviously offers some of the world’s biggest growth opportunities—but only for consumer product companies that understand and respond to this rapidly evolving marketplace.

Chinese consumers remain brand conscious but, unlike shoppers elsewhere, they focus on value so intensely that brand loyalty is often secondary. The needs or interests of their families have greater importance for them than for their counterparts in the developed world. Word of mouth has become a more significant source of product information than it is elsewhere, thanks largely to fast-growing use of the Internet, which Chinese consumers see as a credible information source (see sidebar “Chinese consumers and the Internet”).

Most intriguingly, though, China’s consumers prioritize purchases across different product categories by trading off among them: the Chinese maximize their buying power by spending more in the categories they care about most and less in others. Also, the size and reach of China’s far-flung markets mean that any trend’s impact may vary from place to place, depending on local circumstances (see sidebar “A geographically diverse consumer base”).

These trends bear witness to a transformation in the behavior of the Chinese as they develop into some of the world’s most complex consumers. China is now the planet’s second-biggest economy, after the United States, and its consumer sector may be the healthiest of any major country. In the past, consumer companies could enter China with their existing products, strip them down to basics, and then sell them at low prices throughout the country, thus hitching their wagons to China’s double-digit consumption growth. Today, local consumers, like those in developed markets, appreciate and demand better products. Many companies that have struggled to find a niche in China may therefore now find a market for their products and attract partners. Conversely, companies that have relied on low-cost, low-quality business models may end up on the losing end of trade-off decisions and could require a shift to value. In this article, we highlight the major changes in Chinese consumer behavior and offer some ideas about how to address them.

Fewer trips, bigger baskets

Historically, Chinese consumers have shopped about five times a week more often than their US counterparts, but their average basket size has been only a quarter of the US equivalent. Our research this year, however, found that shopping frequencies were declining and basket sizes growing. Overall, in China’s home and personal-care category, the number of weekly purchasing trips fell from 0.6 in 2008 to 0.5 in 2010; the average basket size rose from 18.42 renminbi in 2008 to 24.10 renminbi in 2010.
The trend toward fewer but more costly shopping trips reflects the Chinese consumer’s convergence with developed-world norms. One reason for this change is that Chinese shoppers are increasingly attracted to modern retail formats such as hypermarkets, which offer a broad selection of attractively priced goods of consistent quality. Also, the Chinese have more money than they did and can spend more on each shopping excursion, so they don’t have to waste time making multiple trips to stores. This finding suggests that as the Chinese consumer’s quality of life improves, time becomes more valuable.
One unusual aspect of the evolving behavior of Chinese consumers is their enthusiasm for shopping as entertainment: families transform shopping trips into fun days at the mall or hypermarket. In our survey, some 73 percent said they regarded shopping as a leisure activity, 45 percent identified it as one of their favorite pursuits, and just over half said it was among the best ways of spending time with the family. Those numbers are greater—by an order of magnitude—than those for consumers in the West. Chinese consumers often shop without any intention of buying. Sometimes they are window-shopping or comparing prices. At other times, they may be shopping as a sport, competing with friends to find the best deals.
Chinese consumers still shop much more frequently than their counterparts in developed markets do, but we expect the trend to fewer visits and bigger basket sizes will continue, at least among segments such as young professionals with families. As a result, we think many current global retailing practices will become more relevant in China—from bigger package sizes to home delivery services to loyalty programs. Also, fewer shopping trips mean fewer chances to hook consumers, so companies will have to maximize each opportunity, perhaps using promotions such as instant coupons and bundled-product discounts. Compelling in-store displays will rise in importance.
Attracting consumers to the stores will increasingly be front of mind. In several cities, the French hypermarket chain Carrefour runs a fleet of regularly scheduled buses for shoppers and offers free parking. In the future, making the shopping experience even more a form of family entertainment could prove fruitful—for example, putting restaurants on the premises of stores, adding children’s play areas, or opening adjacent movie complexes.

More than the basics

For years, Chinese buyers have regarded a product’s functional attributes—does it work reliably or taste good?—as the most important buying factor. That’s still true, but our survey also found a shift toward more sophisticated criteria. Flat panel–TV buyers, for example, are now concerned not only with picture quality but also with aesthetic appeal or innovative features. Purchasers of laundry detergent increasingly demand a “good scent” (up to 61 percent this year, from 40 percent in 2008) and “appealing package design” (28 percent today, compared with 16 percent in 2008). As in other parts of the world, this development reflects a transition to an environment where consumers have the means to demand more than basic product features, and catering to refined tastes is increasingly the norm.
Nonetheless, a local perspective informs purchase decisions. After a spate of food safety scandals, Chinese consumers, like their counterparts in the developed world, have become more health conscious. Much more than elsewhere, fear of possible contamination has driven a broader concern about unsafe products, especially everything used by children (food, beverages, toys, and apparel). As a result, Chinese mothers have become among the most sophisticated in the world at looking for materials or ingredients they deem potentially harmful for their children.
Chinese shoppers are also moving in the direction of consumers elsewhere in that emotional considerations increasingly influence purchase decisions. In particular, the importance of any given purchase’s status value has grown strongly since 2008, especially for aspiring or lower-middle-class consumers, for whom the appearance of success is most significant. Another fast-growing key buying factor is the “what fits me” (or “what’s good for me”) category emerging in China’s younger (and more affluent) mass-market demographic. These shoppers are less concerned about following the crowd or the way what they buy defines them in the eyes of others than about how specific products fit their real-life needs. This factor is the main reason consumers trade up when their circumstances change and also explains why they tend to be more satisfied with better products. The “what fits me” mentality, prominent mainly in major cities such as Shanghai, will probably grow in significance nationwide as incomes rise throughout the country.
In addition, intangible, emotional factors are beginning to drive the purchase decisions of younger, often better-off consumer segments. This trend favors companies that had problems marketing products in China but can now create effective strategies resembling those long used in Western markets. These companies could create emotionally driven consumption occasions (in social settings, for example) or introduce brands aimed at satisfying emotional needs (for example, self-indulgence or rewards).

Brand appeal, but only at the right price

One tenet of Chinese retailing is that consumers are extremely brand conscious: 45 percent believe that higher prices correspond to better quality, compared with just 16 percent in the United States and 8 percent in Japan. Likewise, far more Chinese consumers than shoppers elsewhere are willing to buy more expensive branded products.
Chinese consumers are extremely pragmatic, however, so they base purchase decisions on more than just branding. Indeed, the fact that Chinese consumers are conscious of brands does not necessarily mean they are loyal to them. While consumers tend to gravitate toward the biggest brands, the assessment of relative value offered by a handful of competing products is often the basis of choice. Our survey showed that 23 percent of shoppers in China would go out of their way to buy from stores that offered the best prices, compared with 18 percent in the United States and 12 percent in Japan. While quality remains a critical consideration, value is the most important one.
Chinese shoppers first budget for purchases, then compile a shortlist with a handful of specific brands, and finally hold a “beauty contest” to determine the most appealing one. The decision often involves significant research, perhaps conducted in leisure time window-shopping. Since consumers generally make the final purchase decision in stores, promotions and ads in their premises are still effective to tip the balance toward particular brands. In addition, promotions often lead shoppers to make impulse purchases as they seek to maximize value by stocking up on perishables.

The pragmatic trade-off

As income rises in China, so does the desire to buy more and better products. In our survey, we found that three-quarters of urban households said they had traded up in at least one product category. This trend accounted for half of all consumption growth nationwide in 2009. But trading up is only half the story. Chinese consumers are doing so by explicitly choosing to finance increased spending in categories that mean the most to them by “trading off”—cutting expenditures—in less important categories. That’s why 2010’s 74 percent upgrade rate is misleading (Exhibit 1); in reality, only 24 percent of consumers upgraded without trading off. Fully 50 percent of Chinese urban residents actively traded off spending increases in one product category with reductions in others. Trading up in one to three categories involved corresponding reductions in as many as seven (Exhibit 2).

Obviously, trading off isn’t a specifically Chinese phenomenon. When we compare China with developed countries, differences are clear, however. Consumers elsewhere tend to trade up as they get wealthier. Some start relying on credit, often spending more than they can afford. Not in China. Consumers there remain very concerned about financial stability and spend within their means. When Chinese consumers decide to spend more in a category they particularly value, they generally trade down in one or more less compelling categories. These behavior patterns underline our assertion that the Chinese have become among the world’s most pragmatic consumers, willing to make explicit choices about spending their growing income. This is an important insight for marketers seeking growth opportunities.
Our survey found significant trade-off activity in seven product categories. More than 70 percent of trade-up demand for dining out and 50 percent for alcohol come from white-collar men who want to improve their standing with clients or colleagues and trade down on personal-care and packaged-food and snacking products to balance their overall spending. Some 80 percent of trade-up demand for higher-quality clothing, shoes, and accessories came not from high-income “fashionistas” but from lower-middle-income consumers looking to impress job interviewers or advertise their ascent from the working to the consumer class. In each case, trade-down decisions in three to four product categories balanced increased spending.
This distinctive consumption trend has implications for the way companies develop local marketing strategies. For one, they can invest more in consumer education (for example, through corporate Web sites or in-store promoters) to encourage trading up. Manufacturers that focus on convincing consumers of the importance of a particular category—and, within it, of a better, more expensive product—have a stronger chance of persuading potential buyers to upgrade in that category rather than another one. Apparel manufacturers, for instance, often emphasize the importance of owning better, trendier clothes to showcase one’s status. We find that consumers who buy into this idea are much more likely to upgrade their purchases of clothes and accessories, trading off in other categories.
Companies can also use cross-category promotions to influence purchase decisions in a category consumers have targeted for upgrading. Since consumers who upgrade their entertainment venues may well upgrade their alcohol consumption, wine and spirit vendors might partner with trendy bars and restaurants. Consumers who upgrade dairy products are likely to upgrade their snacks, chocolates, and health supplements, creating further copromotion possibilities.

Smarter shopping and word of mouth

Chinese consumers have adopted various techniques to help them decide which products to buy. Online comparisons or reviews are increasingly important research tools for younger audiences and for the middle class and above—the Internet had about 420 million users in mainland China by June 2010.¹ These trends are broadly in line with consumer behavior throughout the world.
In our 2010 survey, 56 percent of Chinese consumers said they regarded online advertising as credible, up from 29 percent in 2009. Similarly, 70 and 67 percent of Chinese shoppers said they found retailers’ and manufacturers’ Web sites, respectively, credible. (In the developed world, by contrast, consumers prefer to get product information from third-party sites.) The fact that online information is so highly regarded in China makes the Internet extremely important for shaping consumer opinion. On average, 25 percent of mainland shoppers said they never buy a product without first checking the Internet, compared with half that percentage in the United States. For big-ticket items, the proportions can be significantly higher in China, approaching 45 percent for autos.
Chinese consumers do much more research before purchasing a product than average consumers in the developed world do, so middle-class consumers often take a long time to make decisions, if only because some things can cost more than their monthly income. In a survey on PC purchases, for example, Chinese consumers said they might take three to six months to buy a computer and visit a store three to five times. Decision making is especially protracted for big-ticket items but can take quite a while for foods, beverages, and personal-care offerings, as well, given the increasing number of brands and new products available.
Word of mouth has grown strongly in recent years as a source of consumer information: shoppers are sounding out family and friends and getting advice online through chat forums. True, television advertising continues to dominate in China as an information channel for products and brand awareness. But word of mouth is by far the next most popular source of leads: in 2010, 64 percent of respondents said that it influenced their purchasing decisions, compared with 56 percent in 2008. Word of mouth and online research also play an important role in complementing TV ads by helping consumers to analyze the merits of different products and to arrive at their final decisions.
Word of mouth may be more powerful in China than in developed countries. An independent survey of moisturizer purchases, for example, observed that 66 percent of Chinese consumers rely on recommendations from friends and family, compared with 38 percent of their US counterparts. Word of mouth seems to have become such an important channel because a huge number of brands and offerings now tempt Chinese consumers—who are not accustomed to such product diversity—as well as the fast pace of product innovation. While TV demonstrates which brands are big (and therefore a “safer” choice), it is not a trusted medium; in-store information is critical but mostly influences the final decision. Chinese consumers therefore want to shape their short list with help from family and friends. Often, they also aim to make sure that their choices make them look smart.
For companies, these findings suggest that it has become essential to invest in and develop a world-class Web site that provides extensive information to consumers. Viral marketing is crucial too. In one product category we recently researched, we found that recommendations from SMS (short message service) text messaging accounted for nearly a quarter of the influence on the final brand selected. Some manufacturers have set up sites on the Web to promote discussion of their products in forums they control.
One of the clearest messages from our 2010 survey is that as Chinese consumers become more like their developed-market counterparts, they are also creating a distinct identity. They have not only distinctive tastes and priorities but also unique ways of choosing and buying products. As new offerings emerge and more people in China find themselves with significant discretionary income and choices, consumer product companies must adapt their strategies to capture the opportunity.

Chinese consumers and the Internet

The Internet in China, new McKinsey research shows, is poised for rapid growth and change. It is already an important, even routine, part of making a purchase; Chinese consumers use it to learn about products they have considered buying and to hunt for bargains. Even among the majority who have so far spurned e-commerce, use of the Internet to research purchasing decisions is extensive. And it’s striking how quickly connectivity has woven itself into the texture of daily life. More than 75 percent of users agreed or somewhat agreed that “I cannot live without the Internet.”
Like most things in China, the numbers are staggering. As of June 2010, China had 420 million Internet users—more than five times as many as India and nearly twice as many as the United States—and was adding new users at a rate of 6 million a month. About half of China’s urban population uses the Internet, and one in every seven rural residents. By 2015, we expect, urban Internet PC penetration will reach 66 percent, a level similar to that of Western Europe today, and rural penetration will double, to almost 30 percent. All told, China will have more than 750 million Internet users, including those with mobile devices.
Here we present a summary of the most important findings from our 2010 survey.

Internet usage in China: Who and how

Compared with the average Chinese citizen, Internet users are younger, more educated, and more prosperous. Of China’s Internet users aged 15 to 65, 70 percent are under 34. Forty-one percent have college degrees (but only 25 percent of the population), and 71 percent make at least 55,000 renminbi, the threshold we define as middle class (compared with 33 percent of the population).
For companies marketing to China’s consumers, most of the key target audience is already online. Among middle-class Chinese, for example, 88 percent use the Internet. While 47 percent of Chinese aged 35 to 44 are online, Internet penetration rises to 84 percent (in the same age group) among people with a middle-class income and a college degree.
Once the Chinese start using the Internet, there is little difference in the amount of time they spend online (19 hours a week). Even the applications used are similar. Among the five most popular—music and video streaming, instant messaging, social networking, gaming, and reading—there are only minor differences across groups, regardless of age, income, or location.
We do see variations in the way people in different regions use the Internet. In the Shenzhen area, just across the border from Hong Kong, 60 percent use e-mail, compared with just 26 percent in next-door Guangzhou. Why such a big difference? More than 85 percent of Shenzhen’s residents are migrants, compared with 27 percent of Guangzhou’s; they use e-mail to stay in touch with family.

Reaching Chinese consumers on the Internet

For marketers, an important question is how much to spend on the Internet and how to spend it. TV remains the biggest expense for large advertisers; spending more online, then, implies spending less on television. In fact, recent inflation in the cost of TV advertising, combined with a decline in viewership, means that advertisers must spend more today than they did a few years ago to reach the same number of viewers.
Many advertisers are therefore awaiting the tipping point when Internet advertising becomes a real alternative to TV. In McKinsey’s view, they will have to wait at least a few more years. The Internet is far from replacing TV as a way to communicate with consumers. In 2010, an average of 85 percent of them, across a number of categories, said they had received information from TV in the previous two months. That’s a big number but a noticeably lower one than gave the same response in 2008—98 percent. Online sources, by comparison, reached, on average, 24 percent of consumers. The mass reach of television means that it remains essential. Many Chinese consumers won’t even consider brands they haven’t first seen on TV, believing that those capable of affording expensive advertising spots must be backed by successful companies.
But the Internet has its own advantages. In our 2010 survey, more consumers rated online advertising (56 percent) than TV (46 percent) as credible—a stunning change in perception. In 2009, TV ads were credible to 55 percent of consumers and online ads to only 26 percent. The Internet is gaining clout in other ways too. One in four Chinese Internet users will not purchase a product before researching it online, a sharp increase from 2008. Then there is the growing credibility and popularity of social media, an increasingly important factor in motivating product and brand choice.
Another important consideration is that the Chinese trust the Web sites of retailers and manufacturers and are more likely than consumers in other countries to go there for information. In the United States, consumers prefer to consult consumer and third-party reviews. Of Chinese consumers doing research before purchases, 66 percent browsed company Web sites.

Online shopping

Online sales are growing fast in China but are still limited—no more than 2 percent of the total, McKinsey estimates, although the numbers are difficult to track. So it isn’t surprising that for many companies, e-commerce, by and large, has not been a high priority.
But that may be the wrong way to look at the market; if you consider instead growth and potential, e-commerce matters. The market research firm iResearch estimates that China’s online retail market nearly doubled in 2009, to $39 billion, from $19 billion in 2008. That makes it the world’s second-biggest e-commerce market, after the United States ($156 billion). And the Chinese e-commerce market could get much bigger: only a third of the country’s Internet users shop online, compared with two-thirds in the United States.
Once people start buying things online, the Internet can quickly command a sizable share of their shopping. Apparel is the most popular category, accounting for 36 percent of online Chinese consumer goods spending; personal digital products come next, with 29 percent. In food and beverages (the biggest retail category), e-commerce is still nascent—only 8 percent of online consumers buy them online. That accounts for just 2 percent of online sales and 0.2 percent of all such spending.
Online shoppers are even younger, more educated, and wealthier than online users: 75 percent of online shoppers are 34 or younger, 53 percent have a college degree, and more than half are middle class or above. It’s worth noting that the top 20 percent of online shoppers account for 70 percent of all sales—and this group is still younger, richer, and better educated than the rest.

https://www.mckinseyquarterly.com/Marketing/Sales_Distribution/Chinas_new_pragmatic_consumers_2683?gp=1

Facebook's Mark Zuckerberg, Villain or Hero?

The release of the movie The Social Network about Facebook co-founder Mark Zuckerberg raises a good question about who succeeds in business. For the New York Times, quoting Gawker founder Nick Denton, it's the issue of "whether it is possible to be successful without being at least a bit of a brute."
Despite what you have probably read in the leadership literature, the answer to the question is almost certainly "no."
Even Robert Sutton's bestseller, The No Asshole Rule, has a chapter giving the brutes their due. He presents the evidence that bad behavior often leads to gains in personal power and stature as it helps individuals intimidate and vanquish rivals. At the level of organizational effects, he allows that it can motivate perfectionism and bring underperformers to their senses.
To those grudging compliments I would add another line of defense: People committed to an idea are often so focused on getting the idea implemented that they are insensitive to their effects on others. Their focus, persistence, and resilience blocks out anything that stands in their way — and the feelings of others belong in that category. That might be the story with Zuckerberg.
For that matter, it is probably a big part of Laura Esserman's success. She's the breast cancer surgeon and medical visionary who is featured in Chip and Dan Heath's book Switch and in a recent Wall Street Journal article (which by the way only hints at her achievement, because it covers just one of her four profoundly influential initiatives). Esserman is, by her own admission, quick to anger and sometimes hard on those who work with her. With 45,000 women in the U.S. still dying each year from breast cancer, she has an impatience for progress that is hard to begrudge. Sometimes that overrides her desire to be liked.

The fact is that people who get great things done are, like the rest of us, imperfect human beings. They have weaknesses alongside their strengths, and bad days interspersed with the good. They exhibit both appropriate and inappropriate behavior. This reality seems tough to accept. When I teach my course on power, students typically try to infer people's underlying motivations, decide if they "like" the characters we are studying, and determine whether individuals are "good" or "bad." This human leaning toward oversimplified judgments has a number of negative consequences.
First, it retards learning. Once people determine someone is "bad" or "flawed," they think they don't have much to learn from that individual. That's wrong — we should be focused on learning from all people and all situations. This is true because, as the research literature teaches us, we can learn as much from failures as from successes. It's also true because even a deeply flawed leader can have a strength worth emulating.
Second, characterizing multiply-dimensioned human beings into oversimplified categories like "good" or "bad" inevitably can only deceive us. It eliminates nuance and inappropriately reduces the complex nature of human behavior and social life. A reductionist view may make things seem clearer, but provides a not very veridical view of the world and the people with whom we need to interact.
Third, it resists useful revision. Once we categorize someone, we stop paying attention to their actual behavior and instead assimilate everything into our (already formed) judgments. That compromises our ability to interact effectively with those around us. For the "good," we become too trusting, not seeing the possibility of self-interested behavior on their part. As for the "bad," we foreclose the whole idea of interacting with people who might be beneficial.
Fourth and maybe most importantly, our creation of "heroes" or "villains" is potentially immobilizing. Author and teacher Michael Eric Dyson explains this eloquently as he reveals the dangers of lionizing leaders. Dr. Martin Luther King, for example, was flesh and blood, and "investing in King's perfection allows us to dismiss the humanity of the underregarded." Dyson notes that we would be better off to allow the man his imperfections because "with a more nuanced view of King in play, we should be inspired to create social change in our communities, armed with the belief that good things can be done by imperfect people." Similarly, commenting on the revelation that Jesse Jackson fathered a child out of wedlock, Dyson points out that "leaders cannot possibly satisfy the demand for purity that some make" and that leaders who believe they are heroes "often possess a self-satisfaction that stifles genuine leadership." Leaders, and others, who recognize that good and bad runs through every human being, are more likely to be prudent, not overconfident, and more humble.
It may be true that the search for, and construction of, heroes and villains is inevitable in literature and film and in life. One way to experience The Social Network is with the sense that we must consign Mark Zuckerberg to the one category or the other. But if we really want to understand social behavior, well enough to get important things done, we would be well served to recognize that the keys to success will never be as simple as that.

http://blogs.hbr.org/cs/2010/10/facebooks_mark_zuckerberg_vill.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+harvardbusiness+%28HBR.org%29&utm_content=Google+Reader

Growing up fast: Vietnam discovers the consumer society

Retailers cannot afford to skip Asia’s youngest market. Here’s why.

Vietnam began to liberalize its economy in the 1980s, when the country’s leaders launched doi moi (or “renovation”). It was only after President Clinton lifted the US trade embargo in 1994, though, that multinationals began to pile in. Since then, Vietnam has taken off. In 2007, it joined the World Trade Organization (WTO)—just in time for the global financial crisis. The country weathered the storm well, posting 5 percent growth in 2009. This year should be even better.
For retailers and consumer goods companies, Vietnam is an attractive market: the economy is growing briskly and sustainably, and the population is adding a million people a year. Even more important, the country’s middle class is growing fast: from 7 million households in 2003 to an estimated 25 million in 2013. Vietnam’s literacy rate is 92.5 percent, and from 2003 to 2008 the number of college and university students nearly doubled. The cities, though mostly small, are expanding rapidly. Six of them—Can Tho, Da Nang, Haiphong, Hanoi, Ho Chi Minh City, and Nha Trang—account for 40 percent of the country’s sales, according to AC Nielsen estimates from 2007 (Exhibit 1).

The Vietnamese government estimates that retail sales reached $39.1 billion in 2009—almost twice as high as five years earlier. And the country has room to grow: per capita retail sales, at $450, are among the lowest in Asia. Setting up shop in Vietnam, however, isn’t easy. The market is fragmented and difficult to reach, and although 100 percent foreign-owned retailers can register for an operating license, they are generally allowed to open only one outlet. To expand further, they must pass an “economic needs test,” in which the government analyzes a new project’s economic impact. The test gives local governments an effective—and sometimes arbitrary—veto over new developments. Such regulations are legal and relatively common under WTO guidelines. Even so, they are more broadly applied in Vietnam than in most other countries, limiting access to the domestic market.
McKinsey has worked in Vietnam with a number of domestic and international companies. In June 2010, we spoke with a dozen executives who do business there. We offer the following observations, based on these interviews and our own experiences, about what it takes to succeed in this dynamic market.

Know your consumers

Vietnamese consumers want the same things others do—good, reliable products that enhance their daily lives (Exhibit 2). What makes Vietnam distinctive, though, is how quickly consumers are moving up the ladder—“leapfrogging,” in the words of Unilever Vietnam’s chairman, Marijn van Tiggelen. In personal care, for example, increasing numbers of people are buying more sophisticated products. Urban Vietnamese women aged 20 to 45, for example, spend 18 percent of their monthly income on apparel, according to the General Statistics Office of Vietnam. The Vietnam Ministry of Industry and Trade forecasts that the market for beauty products will grow 15 percent a year for the foreseeable future. Jean-Yves Romagnani, the chief operating officer of TamSon, a leading luxury-goods distributor in Vietnam, with brands such as Hermès and Kenzo, told us that the market for these products, though small, is growing dramatically. (To hear more from executives discussing Vietnam’s quickly growing consumer market, see the video “Understanding the new Vietnam” or download a PDF of the transcript).

Market the message

In 2009, the General Statistics Office estimated that Vietnam had 5 million Internet subscribers and 18 million Internet users. Those figures are impressive for a country at a relatively early stage of digital development, and other estimates suggest the number is even higher. In Hanoi and Ho Chi Minh City, for instance, up to half of the population is now online, spending more than two hours a day, on average. Expenditures on digital marketing for the country as a whole, however, are still very low: only $15 million, according to Cimigo, a market research firm. As Mai Huong Hoang, the chairwoman of one of Vietnam’s leading advertising agencies, the local branch of Saatchi & Saatchi, noted, “TV is still king in Vietnam, because women are the decision makers in the family and they spend a lot of time watching TV.” However, recent McKinsey research in other emerging markets, such as China, India, and Malaysia, suggests that the pace of digital change can be rapid, especially with younger people. Therefore, businesses—particularly consumer goods companies—shouldn’t ignore digital media in their marketing plans.
Regardless of which media channels companies select, they should know that almost all Vietnamese consumers are literate—and also highly literal. Go into a grocery store and you will probably see shoppers reading the product labels. To build brands, companies had better live up to the claims they make about their products—and the more concrete the claims, the better.

See problems as possibilities

Metro Cash & Carry is a global company that sells food and other consumer goods to stores and wholesalers. Each of its nine stores in Vietnam offers tens of thousands of items, nearly all locally produced, and employs some 250 people. The company’s experience in the country shows how to build a successful business while supporting local suppliers and performing an important social function.
Food safety in Vietnam is a significant issue, with an estimated 3 million cases of food poisoning a year. People have good reason to worry about poor food hygiene and refrigeration among street vendors and wet markets. Earlier this year, the government’s food safety agency announced that 2,000 teams had inspected 47,000 businesses and found 13,000 violations during the Tet holiday alone.
Metro has made food safety a core part of its mission. The company’s focus on supply chain management and quality assurance also benefits local producers. Since 2002, Metro has trained almost 19,000 Vietnamese farmers and fisherman in food safety methods as part of its “farm to fork” quality-management system. Producers who meet these standards not only have a reliable buyer in Metro but also get access to foreign markets. Metro has done very well in Vietnam and plans to increase its operations there substantially.

Think creatively about distribution

Running about 1,000 miles from north to south, Vietnam is predominantly rural, and its infrastructure presents challenges. Only three cities (Haiphong, Hanoi, and Ho Chi Minh City) have more than one million people. Modern trade—larger self-service stores, typically belonging to chains, as opposed to wet markets or “mom and pop” shops—is growing, with more than 400 locations. Even so, this segment accounts for only about 10 percent of total retail sales (but closer to 80 to 90 percent in Ho Chi Minh City). Companies that wait for modern trade to mature could miss a chance to win consumer loyalty and market share. So how can retailers reach consumers in this dispersed and fragmented market?
Unilever has developed a network of independent and exclusive distributors that sell and distribute its goods in every nook and cranny of the country’s 63 cities and provinces. “If you want to be a successful consumer goods player in Vietnam, study Unilever,” advises Anh Tu Do, CEO of Diana, one of Vietnam’s leading consumer products companies. “We studied the way Unilever gets its products to market throughout the country, and in our company we use exactly the same model as they do.” Much of Unilever’s success comes from the degree to which it trains and monitors its distributors, giving them responsibility for managing their own operations. Of course, Unilever’s system won’t work for all businesses; the point is to approach Vietnam on its own terms.
Vietnam is one of the world’s fastest-growing economies, and there’s no reason to believe it will slow down. Its infrastructure is improving, and modern trade has made significant inroads. Asia’s youngest population and the rapid adoption of modern technology make Vietnam an exciting market. But it is by no means an easy one.

https://www.mckinseyquarterly.com/Marketing/Sales_Distribution/Growing_up_fast_Vietnam_discovers_the_consumer_society_2655

 

The consumer decision journey

Consumers are moving outside the purchasing funnel—changing the way they research and buy your products. If your marketing hasn’t changed in response, it should.

If marketing has one goal, it’s to reach consumers at the moments that most influence their decisions. That’s why consumer electronics companies make sure not only that customers see their televisions in stores but also that those televisions display vivid high-definition pictures. It’s why Amazon.com, a decade ago, began offering targeted product recommendations to consumers already logged in and ready to buy. And it explains P&G’s decision, long ago, to produce radio and then TV programs to reach the audiences most likely to buy its products—hence, the term “soap opera.”
Marketing has always sought those moments, or touch points, when consumers are open to influence. For years, touch points have been understood through the metaphor of a “funnel”—consumers start with a number of potential brands in mind (the wide end of the funnel), marketing is then directed at them as they methodically reduce that number and move through the funnel, and at the end they emerge with the one brand they chose to purchase (Exhibit 1). But today, the funnel concept fails to capture all the touch points and key buying factors resulting from the explosion of product choices and digital channels, coupled with the emergence of an increasingly discerning, well-informed consumer. A more sophisticated approach is required to help marketers navigate this environment, which is less linear and more complicated than the funnel suggests. We call this approach the consumer decision journey. Our thinking is applicable to any geographic market that has different kinds of media, Internet access, and wide product choice, including big cities in emerging markets such as China and India.

We developed this approach by examining the purchase decisions of almost 20,000 consumers across five industries and three continents. Our research showed that the proliferation of media and products requires marketers to find new ways to get their brands included in the initial-consideration set that consumers develop as they begin their decision journey. We also found that because of the shift away from one-way communication—from marketers to consumers—toward a two-way conversation, marketers need a more systematic way to satisfy customer demands and manage word-of-mouth. In addition, the research identified two different types of customer loyalty, challenging companies to reinvigorate their loyalty programs and the way they manage the customer experience.
Finally, the research reinforced our belief in the importance not only of aligning all elements of marketing—strategy, spending, channel management, and message—with the journey that consumers undertake when they make purchasing decisions but also of integrating those elements across the organization. When marketers understand this journey and direct their spending and messaging to the moments of maximum influence, they stand a much greater chance of reaching consumers in the right place at the right time with the right message.

How consumers make decisions

Every day, people form impressions of brands from touch points such as advertisements, news reports, conversations with family and friends, and product experiences. Unless consumers are actively shopping, much of that exposure appears wasted. But what happens when something triggers the impulse to buy? Those accumulated impressions then become crucial because they shape the initial-consideration set: the small number of brands consumers regard at the outset as potential purchasing options.
The funnel analogy suggests that consumers systematically narrow the initial-consideration set as they weigh options, make decisions, and buy products. Then, the postsale phase becomes a trial period determining consumer loyalty to brands and the likelihood of buying their products again. Marketers have been taught to “push” marketing toward consumers at each stage of the funnel process to influence their behavior. But our qualitative and quantitative research in the automobile, skin care, insurance, consumer electronics, and mobile-telecom industries shows that something quite different now occurs.
Actually, the decision-making process is a more circular journey, with four primary phases representing potential battlegrounds where marketers can win or lose: initial consideration; active evaluation, or the process of researching potential purchases; closure, when consumers buy brands; and postpurchase, when consumers experience them (Exhibit 2). The funnel metaphor does help a good deal—for example, by providing a way to understand the strength of a brand compared with its competitors at different stages, highlighting the bottlenecks that stall adoption, and making it possible to focus on different aspects of the marketing challenge. Nonetheless, we found that in three areas profound changes in the way consumers make buying decisions called for a new approach.

Brand consideration

Imagine that a consumer has decided to buy a car. As with most kinds of products, the consumer will immediately be able to name an initial-consideration set of brands to purchase. In our qualitative research, consumers told us that the fragmenting of media and the proliferation of products have actually made them reduce the number of brands they consider at the outset. Faced with a plethora of choices and communications, consumers tend to fall back on the limited set of brands that have made it through the wilderness of messages. Brand awareness matters: brands in the initial-consideration set can be up to three times more likely to be purchased eventually than brands that aren’t in it.
Not all is lost for brands excluded from this first stage, however. Contrary to the funnel metaphor, the number of brands under consideration during the active-evaluation phase may now actually expand rather than narrow as consumers seek information and shop a category. Brands may “interrupt” the decision-making process by entering into consideration and even force the exit of rivals. The number of brands added in later stages differs by industry: our research showed that people actively evaluating personal computers added an average of 1 brand to their initial-consideration set of 1.7, while automobile shoppers added 2.2 to their initial set of 3.8 (Exhibit 3). This change in behavior creates opportunities for marketers by adding touch points when brands can make an impact. Brands already under consideration can no longer take that status for granted.

Empowered consumers

The second profound change is that outreach of consumers to marketers has become dramatically more important than marketers’ outreach to consumers. Marketing used to be driven by companies; “pushed” on consumers through traditional advertising, direct marketing, sponsorships, and other channels. At each point in the funnel, as consumers whittled down their brand options, marketers would attempt to sway their decisions. This imprecise approach often failed to reach the right consumers at the right time.
In today’s decision journey, consumer-driven marketing is increasingly important as customers seize control of the process and actively “pull” information helpful to them. Our research found that two-thirds of the touch points during the active-evaluation phase involve consumer-driven marketing activities, such as Internet reviews and word-of-mouth recommendations from friends and family, as well as in-store interactions and recollections of past experiences. A third of the touch points involve company-driven marketing (Exhibit 4). Traditional marketing remains important, but the change in the way consumers make decisions means that marketers must move aggressively beyond purely push-style communication and learn to influence consumer-driven touch points, such as word-of-mouth and Internet information sites.

The experience of US automobile manufacturers shows why marketers must master these new touch points. Companies like Chrysler and GM have long focused on using strong sales incentives and in-dealer programs to win during the active-evaluation and moment-of-purchase phases. These companies have been fighting the wrong battle: the real challenges for them are the initial-consideration and postpurchase phases, which Asian brands such as Toyota Motor and Honda dominate with their brand strength and product quality. Positive experiences with Asian vehicles have made purchasers loyal to them, and that in turn generates positive word-of-mouth that increases the likelihood of their making it into the initial-consideration set. Not even constant sales incentives by US manufacturers can overcome this virtuous cycle.

Two types of loyalty

When consumers reach a decision at the moment of purchase, the marketer’s work has just begun: the postpurchase experience shapes their opinion for every subsequent decision in the category, so the journey is an ongoing cycle. More than 60 percent of consumers of facial skin care products, for example, go online to conduct further research after the purchase—a touch point unimaginable when the funnel was conceived.
Although the need to provide an after-sales experience that inspires loyalty and therefore repeat purchases isn’t new, not all loyalty is equal in today’s increasingly competitive, complex world. Of consumers who profess loyalty to a brand, some are active loyalists, who not only stick with it but also recommend it. Others are passive loyalists who, whether from laziness or confusion caused by the dizzying array of choices, stay with a brand without being committed to it. Despite their claims of allegiance, passive consumers are open to messages from competitors who give them a reason to switch.
Take the automotive-insurance industry, in which most companies have a large base of seemingly loyal customers who renew every year. Our research found as much as a sixfold difference in the ratio of active to passive loyalists among major brands, so companies have opportunities to interrupt the loyalty loop. The US insurers GEICO and Progressive are doing just that, snaring the passively loyal customers of other companies by making comparison shopping and switching easy. They are giving consumers reasons to leave, not excuses to stay.
All marketers should make expanding the base of active loyalists a priority, and to do so they must focus their spending on the new touch points. That will require entirely new marketing efforts, not just investments in Internet sites and efforts to drive word-of-mouth or a renewed commitment to customer satisfaction.

Aligning marketing with the consumer decision journey

Developing a deep knowledge of how consumers make decisions is the first step. For most marketers, the difficult part is focusing strategies and spending on the most influential touch points. In some cases, the marketing effort’s direction must change, perhaps from focusing brand advertising on the initial-consideration phase to developing Internet properties that help consumers gain a better understanding of the brand when they actively evaluate it. Other marketers may need to retool their loyalty programs by focusing on active rather than passive loyalists or to spend money on in-store activities or word-of-mouth programs. The increasing complexity of the consumer decision journey will force virtually all companies to adopt new ways of measuring consumer attitudes, brand performance, and the effectiveness of marketing expenditures across the whole process.
Without such a realignment of spending, marketers face two risks. First, they could waste money: at a time when revenue growth is critical and funding tight, advertising and other investments will be less effective because consumers aren’t getting the right information at the right time. Second, marketers could seem out of touch—for instance, by trying to push products on customers rather than providing them with the information, support, and experience they want to reach decisions themselves.
Four kinds of activities can help marketers address the new realities of the consumer decision journey.

Prioritize objectives and spending

In the past, most marketers consciously chose to focus on either end of the marketing funnel—building awareness or generating loyalty among current customers. Our research reveals a need to be much more specific about the touch points used to influence consumers as they move through initial consideration to active evaluation to closure. By looking just at the traditional marketing funnel’s front or back end, companies could miss exciting opportunities not only to focus investments on the most important points of the decision journey but also to target the right customers.
In the skin care industry, for example, we found that some brands are much stronger in the initial-consideration phase than in active evaluation or closure. For them, our research suggests a need to shift focus from overall brand positioning—already powerful enough to ensure that they get considered—to efforts that make consumers act or to investments in packaging and in-store activities targeted at the moment of purchase.

Tailor messaging

For some companies, new messaging is required to win in whatever part of the consumer journey offers the greatest revenue opportunity. A general message cutting across all stages may have to be replaced by one addressing weaknesses at a specific point, such as initial consideration or active evaluation.
Take the automotive industry. A number of brands in it could grow if consumers took them into consideration. Hyundai, the South Korean car manufacturer, tackled precisely this problem by adopting a marketing campaign built around protecting consumers financially by allowing them to return their vehicles if they lose their jobs. This provocative message, tied to something very real for Americans, became a major factor in helping Hyundai break into the initial-consideration set of many new consumers. In a poor automotive market, the company’s market share is growing.

Invest in consumer-driven marketing

To look beyond funnel-inspired push marketing, companies must invest in vehicles that let marketers interact with consumers as they learn about brands. The epicenter of consumer-driven marketing is the Internet, crucial during the active-evaluation phase as consumers seek information, reviews, and recommendations. Strong performance at this point in the decision journey requires a mind-set shift from buying media to developing properties that attract consumers: digital assets such as Web sites about products, programs to foster word-of-mouth, and systems that customize advertising by viewing the context and the consumer. Many organizations face the difficult and, at times, risky venture of shifting money to fundamentally new properties, much as P&G invested to gain radio exposure in the 1930s and television exposure in the 1950s.
Broadband connectivity, for example, lets marketers provide rich applications to consumers learning about products. Simple, dynamic tools that help consumers decide which products make sense for them are now essential elements of an online arsenal. American Express’s card finder and Ford’s car configurator, for example, rapidly and visually sort options with each click, making life easier for consumers at every stage of the decision journey. Marketers can influence online word-of-mouth by using tools that spot online conversations about brands, analyze what’s being said, and allow marketers to post their own comments.
Finally, content-management systems and online targeting engines let marketers create hundreds of variations on an advertisement, taking into account the context where it appears, the past behavior of viewers, and a real-time inventory of what an organization needs to promote. For instance, many airlines manage and relentlessly optimize thousands of combinations of offers, prices, creative content, and formats to ensure that potential travelers see the most relevant opportunities. Digital marketing has long promised this kind of targeting. Now we finally have the tools to make it more accurate and to manage it cost effectively.

Win the in-store battle

Our research found that one consequence of the new world of marketing complexity is that more consumers hold off their final purchase decision until they’re in a store. Merchandising and packaging have therefore become very important selling factors, a point that’s not widely understood. Consumers want to look at a product in action and are highly influenced by the visual dimension: up to 40 percent of them change their minds because of something they see, learn, or do at this point—say, packaging, placement, or interactions with salespeople.
In skin care, for example, some brands that are fairly unlikely to be in a consumer’s initial-consideration set nonetheless win at the point of purchase with attractive packages and on-shelf messaging. Such elements have now become essential selling tools because consumers of these products are still in play when they enter a store. That’s also true in some consumer electronics segments, which explains those impressive rows of high-definition TVs in stores.
Sometimes it takes a combination of approaches—great packaging, a favorable shelf position, forceful fixtures, informative signage—to attract consumers who enter a store with a strong attachment to their initial-consideration set. Our research shows that in-store touch points provide a significant opportunity for other brands.

Integrating all customer-facing activities

In many companies, different parts of the organization undertake specific customer-facing activities—including informational Web sites, PR, and loyalty programs. Funding is opaque. A number of executives are responsible for each element, and they don’t coordinate their work or even communicate. These activities must be integrated and given appropriate leadership.
The necessary changes are profound. A comprehensive view of all customer-facing activities is as important for business unit heads as for CEOs and chief marketing officers. But the full scope of the consumer decision journey goes beyond the traditional role of CMOs, who in many companies focus on brand building, advertisements, and perhaps market research. These responsibilities aren’t going away. What’s now required of CMOs is a broader role that realigns marketing with the current realities of consumer decision making, intensifies efforts to shape the public profiles of companies, and builds new marketing capabilities.
Consider the range of skills needed to manage the customer experience in the automotive-insurance industry, in which some companies have many passive loyalists who can be pried away by rivals. Increasing the percentage of active loyalists requires not only integrating customer-facing activities into the marketing organization but also more subtle forms of organizational cooperation. These include identifying active loyalists through customer research, as well as understanding what drives that loyalty and how to harness it with word-of-mouth programs. Companies need an integrated, organization-wide “voice of the customer,” with skills from advertising to public relations, product development, market research, and data management. It’s hard but necessary to unify these activities, and the CMO is the natural candidate to do so.
Marketers have long been aware of profound changes in the way consumers research and buy products. Yet a failure to change the focus of marketing to match that evolution has undermined the core goal of reaching customers at the moments that most influence their purchases. The shift in consumer decision making means that marketers need to adjust their spending and to view the change not as a loss of power over consumers but as an opportunity to be in the right place at the right time, giving them the information and support they need to make the right decisions.

https://www.mckinseyquarterly.com/Marketing/Strategy/The_consumer_decision_journey_2373

 

A marketer’s guide to behavioral economics

Marketers have been applying behavioral economics—often unknowingly—for years. A more systematic approach can unlock significant value.

Long before behavioral economics had a name, marketers were using it. “Three for the price of two” offers and extended-payment layaway plans became widespread because they worked—not because marketers had run scientific studies showing that people prefer a supposedly free incentive to an equivalent price discount or that people often behave irrationally when thinking about future consequences. Yet despite marketing’s inadvertent leadership in using principles of behavioral economics, few companies use them in a systematic way. In this article, we highlight four practical techniques that should be part of every marketer’s tool kit.

1. Make a product’s cost less painful

In almost every purchasing decision, consumers have the option to do nothing: they can always save their money for another day. That’s why the marketer’s task is not just to beat competitors but also to persuade shoppers to part with their money in the first place. According to economic principle, the pain of payment should be identical for every dollar we spend. In marketing practice, however, many factors influence the way consumers value a dollar and how much pain they feel upon spending it.
Retailers know that allowing consumers to delay payment can dramatically increase their willingness to buy. One reason delayed payments work is perfectly logical: the time value of money makes future payments less costly than immediate ones. But there is a second, less rational basis for this phenomenon. Payments, like all losses, are viscerally unpleasant. But emotions experienced in the present—now—are especially important. Even small delays in payment can soften the immediate sting of parting with your money and remove an important barrier to purchase.
Another way to minimize the pain of payment is to understand the ways “mental accounting” affects decision making. Consumers use different mental accounts for money they obtain from different sources rather than treating every dollar they own equally, as economists believe they do, or should. Commonly observed mental accounts include windfall gains, pocket money, income, and savings. Windfall gains and pocket money are usually the easiest for consumers to spend. Income is less easy to relinquish, and savings the most difficult of all.
Technology creates new frontiers for harnessing mental accounting to benefit both consumers and marketers. A credit card marketer, for instance, could offer a Web-based or mobile-device application that gives consumers real-time feedback on spending against predefined budget and revenue categories—green, say, for below budget, red for above budget, and so on. The budget-conscious consumer is likely to find value in such accounts (although they are not strictly rational) and to concentrate spending on a card that makes use of them. This would not only increase the issuer’s interchange fees and financing income but also improve the issuer’s view of its customers’ overall financial situation. Finally, of course, such an application would make a genuine contribution to these consumers’ desire to live within their means.

2. Harness the power of a default option

The evidence is overwhelming that presenting one option as a default increases the chance it will be chosen. Defaults—what you get if you don’t actively make a choice—work partly by instilling a perception of ownership before any purchase takes place, because the pleasure we derive from gains is less intense than the pain from equivalent losses. When we’re “given” something by default, it becomes more valued than it would have been otherwise—and we are more loath to part with it.
Savvy marketers can harness these principles. An Italian telecom company, for example, increased the acceptance rate of an offer made to customers when they called to cancel their service. Originally, a script informed them that they would receive 100 free calls if they kept their plan. The script was reworded to say, “We have already credited your account with 100 calls—how could you use those?” Many customers did not want to give up free talk time they felt they already owned.
Defaults work best when decision makers are too indifferent, confused, or conflicted to consider their options. That principle is particularly relevant in a world that’s increasingly awash with choices—a default eliminates the need to make a decision. The default, however, must also be a good choice for most people. Attempting to mislead customers will ultimately backfire by breeding distrust.

3. Don’t overwhelm consumers with choice

When a default option isn’t possible, marketers must be wary of generating “choice overload,” which makes consumers less likely to purchase. In a classic field experiment, some grocery store shoppers were offered the chance to taste a selection of 24 jams, while others were offered only 6. The greater variety drew more shoppers to sample the jams, but few made a purchase. By contrast, although fewer consumers stopped to taste the 6 jams on offer, sales from this group were more than five times higher.¹
Large in-store assortments work against marketers in at least two ways. First, these choices make consumers work harder to find their preferred option, a potential barrier to purchase. Second, large assortments increase the likelihood that each choice will become imbued with a “negative halo”—a heightened awareness that every option requires you to forgo desirable features available in some other product. Reducing the number of options makes people likelier not only to reach a decision but also to feel more satisfied with their choice.

4. Position your preferred option carefully

Economists assume that everything has a price: your willingness to pay may be higher than mine, but each of us has a maximum price we’d be willing to pay. How marketers position a product, though, can change the equation. Consider the experience of the jewelry store owner whose consignment of turquoise jewelry wasn’t selling. Displaying it more prominently didn’t achieve anything, nor did increased efforts by her sales staff. Exasperated, she gave her sales manager instructions to mark the lot down “x½” and departed on a buying trip. On her return, she found that the manager misread the note and had mistakenly doubled the price of the items—and sold the lot.² In this case, shoppers almost certainly didn’t base their purchases on an absolute maximum price. Instead, they made inferences from the price about the jewelry’s quality, which generated a context-specific willingness to pay.
The power of this kind of relative positioning explains why marketers sometimes benefit from offering a few clearly inferior options. Even if they don’t sell, they may increase sales of slightly better products the store really wants to move. Similarly, many restaurants find that the second-most-expensive bottle of wine is very popular—and so is the second-cheapest. Customers who buy the former feel they are getting something special but not going over the top. Those who buy the latter feel they are getting a bargain but not being cheap. Sony found the same thing with headphones: consumers buy them at a given price if there is a more expensive option—but not if they are the most expensive option on offer.
Another way to position choices relates not to the products a company offers but to the way it displays them. Our research suggests, for instance, that ice cream shoppers in grocery stores look at the brand first, flavor second, and price last. Organizing supermarket aisles according to way consumers prefer to buy specific products makes customers both happier and less likely to base their purchase decisions on price—allowing retailers to sell higher-priced, higher-margin products. (This explains why aisles are rarely organized by price.) For thermostats, by contrast, people generally start with price, then function, and finally brand. The merchandise layout should therefore be quite different.
Marketers have long been aware that irrationality helps shape consumer behavior. Behavioral economics can make that irrationality more predictable. Understanding exactly how small changes to the details of an offer can influence the way people react to it is crucial to unlocking significant value—often at very low cost.

https://www.mckinseyquarterly.com/Marketing/A_marketers_guide_to_behavioral_economics_2536

 

Time vs. Money: Analyzing Which One Rules Consumer Choices

Pick up a magazine or turn on the TV and prepare for a flood of marketing messages about how you spend your time and money. Whether the product is beer or banking, Rolex watches or Ziploc bags, advertisers routinely invoke financial or time-related themes in their ad campaigns. Folgers coffee, for example, reminds you that "the best part of waking up is Folgers in your cup." Citibank recommends that customers "live richly." Honda promotes a clearance event by asserting: "Feels pretty good when you save money, doesn't it?" Yet with all this talk of time and money, little is known about how consumers' attitudes and behaviors are influenced by a product's association with these concepts, says Cassie Mogilner, a professor of marketing at Wharton.

A new paper by Mogilner and Jennifer Aaker, professor of marketing at Stanford University's Graduate School of Business, argues that when companies weigh whether to go for an ad campaign with a time or a money theme, they should be aware that each evokes strong reactions from consumers. "One thing that was surprising," she says, "was to see how consumers' attitudes and behaviors toward products and brands can be shifted by something as subtle and as pervasive as mere mentions of time or money."The concept of time, for example, evokes a personal connection with a product in terms of the experience the consumer gains while using it, she says. To illustrate her point, Mogilner cites a well-known phrase in beer marketing -- "It's Miller Time." The ads are still remembered by many consumers from the 1980s because consumers associated the beer with the routine, end-of-day transition from work to leisure.

As for the different emotions that money and social status-related campaigns can conjure, Mogilner points to advertisements for Stella Artois, a premium beer from Belgium. One of the product's ads shows a man struggling to earn money -- whether by chasing pigs, hauling sticks or herding goats -- so he can buy his grandmother a pair of beautiful, expensive red shoes. But, alas, just as he's about to present her with the gift, he spies a pint of Stella, and makes a shoes-for-beer trade with the waitress. The commercial is funny, but it also captures the company's "Perfection has its price" tagline, Mogilner says.

Both Miller and Stella are trying to sell beer. But using the concept of either time or money invites consumers to connect with a product -- in this case, beer -- in different ways. Of the two, the researchers found that a "Miller Time" connection typically leads to more favorable consumer attitudes and purchasing decisions because people tend to identify more closely with products they have experienced. "If you can dial up one's thinking about time spent experiencing the product relative to thinking about the money spent to own the product, then you tend to get ... beneficial effects," Mogilner says.

But the "Perfection has its price" crowd is also important, Mogilner adds, even though there are fewer examples of consumers connecting to a product primarily because of its acquisition price. "There are cases where thinking about money can actually be a good thing for particular types of consumers, and particular types of products."

Fungible and Ambiguous

Mogilner and Aaker reached these conclusions after running a series of experiments, whose results they discuss in an article titled, "'The Time vs. Money Effect': Shifting Product Attitudes and Decisions through Personal Connection," published in the Journal of Consumer Research in August. Their work adds to a growing list of studies that have looked at the psychological impact of the notions of time and money. Researchers have found that because time is less fungible -- or less easily replaced -- than money, losing time tends to be a more painful event for people, particularly when they think about how they are not able to make up for it. Another difference is that people feel less accountable for how they spend their time because it can be more difficult to measure than monetary outlays. These two characteristics -- fungibility and ambiguity -- are important differentiators in how consumers think about time and money.

But Mogilner and Aaker's research focuses on a third distinction: the extent to which each concept is linked to consumers' personal experiences, identity and emotions. "We propose that activating the construct of time while consumers evaluate a product will lead them to focus on their experiences using the product, which generally will heighten their personal connection to that product -- their feeling that the product reflects the self," they write."There may be particular instances, however, where the mere possession of the product feels more 'me' than the actual [time spent using] the product.... We predict that for [such] prestige possessions and materialistic consumers, priming money (vs. time) will instead increase feelings of personal connection by increasing focus on product possession."

According to the authors, their initial test of these thoughts was conducted "in a context wherein many first learn effective marketing practices" -- a lemonade stand.

On a Saturday afternoon in San Francisco, Mogilner and her co-author's six-year-old sons set out to sell lemonade along a path in a park. Every 10 minutes or so, Mogilner switched the sign that publicized the lemonade stand according to one of three messages: "Spend a little time, and enjoy C & D's lemonade"; "Spend a little money, and enjoy C & D's lemonade"; and "Enjoy C & D's lemonade." To further test the impact of the messages, customers were told they could choose to pay anywhere from $1 to $3 for the product. Forty out of 391 people who passed by the stand that day purchased lemonade, and customers were surveyed about how they were feeling while they sipped. When the results were tallied, Mogilner found that a greater proportion of passers-by bought lemonade when the sign mentioned time rather than money. What's more, customers who viewed the time message paid more for their cup of lemonade, and enjoyed the product more.

To further explore why time-focused messages might foster happier thoughts and lighter wallets, Mogilner crafted a second experiment involving a group of Stanford University students and their iPods. Students were given one of three questionnaires, all of which depicted the iPod logo on the first page. One questionnaire began by asking how much time the students had spent using their iPods, while a second asked how much money they had spent on the devices. A third survey -- administered to a control group -- didn't ask either question. Next, participants described their thoughts about iPods and their personal connections to the product. All three questionnaires, for example, asked students to react to such statements as: "Listening to my iPod represents who I am." At the experiment's conclusion, the results again showed that consumers who were asked about their time spent with the product expressed more favorable attitudes than those who were asked about money. In addition, statistical analysis of the results showed that students' personal connection to the product seemed to be the driver of their positive attitudes -- in other words, the attitudes didn't subsequently create the connection, Mogilner notes.

While the iPod study confirmed key hypotheses, Mogilner concedes the research at that point came up against an important question. A colleague asked: Couldn't the "time vs. money effect" be explained by the fact that consumers thinking about money are focused on the negative aspect of the product's cost, while consumers thinking about time are focused on the product's benefit?

Mogilner tested that idea by asking consumers about laptop computer repairs, a product experience that few would describe as fun. The researchers conducted a survey among 42 students at the University of California, Berkeley, asking one subgroup how much time they had spent fixing their laptops and another subgroup how much money they had spent on the task. Then, students were asked to share their thoughts about the computers. The key finding: Those who were asked about the time spent on repairs expressed more positive attitudes about their laptops than those asked about the money spent.

"Even if you hold the role of each resource constant as a negative cost, [spending] time is [perceived as] better," Mogilner says. "Consumers think more positively about the product because, with time spent, one becomes more engaged with [it] -- [the product] must say something about you. Spending money is less personally connecting."

When Money Matters

While that's true in many cases, Mogilner and Aaker conducted two experiments showing a different dynamic at play for certain consumers buying products such as handbags, sunglasses and expensive jewelry -- items that could be described as status symbols. In one experiment, 142 Stanford students were asked about either the time or money they spent in the last year going to restaurants or buying designer jeans. Survey respondents were asked to rate their feelings of personal connection to the purchases and to respond to questions evaluating whether they viewed the purchases as "experiential" or "material."

As expected, students described restaurant purchases as more of an experience, and they expressed more favorable attitudes about these purchases if they were primed to think about the time spent on the meal, rather than the money. But the reverse effect occurred among the respondents thinking about their more materialistic designer jeans. For the prestige possession, students reported greater feelings of personal connection when they were primed to recall the money they spent on the product.

Next, the researchers explored whether the dynamic persisted if consumers were asked about their cars, a product that can be valued for both experiential and material reasons. The experiment also evaluated whether the consumers being surveyed were "high" or "low" materialists. The findings showed that for both types of consumers, attitudes about their cars were the result of their feelings of personal connection. Those who highly valued the mere possession of the product had more favorable attitudes when prompted to consider the money involved in the purchase. For those who highly valued the experience of driving, prompting thoughts about time spent in the car increased their feelings of personal connection, which in turn bolstered attitudes.

Ultimately, the researchers conclude: "Brands can cultivate consumer relationships by first considering how consumers most identify with the product (through experience or possession) and then highlighting either their time or money spent accordingly."

Research on the effects of time and money is far from over, Mogilner says. In fact, a related research project now underway is looking at whether getting consumers to think about time as opposed to money can change their behavior in ways that leave them feeling happier. In one experiment, Mogilner stood outside a coffee shop and asked people as they were about to enter the store to complete a word puzzle. Half of the patrons were given puzzles that included a number of time-related words, while the others were given puzzles that included money-related words.

"People who did the time [puzzle] wound up spending more time in the coffee shop, socializing," Mogilner says. The results suggest that "by simply directing people's attention to time, rather than money, you can actually make people make happier decisions."

http://knowledge.wharton.upenn.edu/article.cfm?articleid=2341