Research Report 1

CUSTOMER PERCEPTION OF PACKAGING AND PRICE ON LOYALTY OF DULUX PRODUCTS IN THE NORTH-WEST OF JOHANNESBURG by TSHEPISO DUMASI STUDENT NUMBER: 9715967 Submitted in partial fulfillment of the requirements for the degree M-TECH (BUSINESS ADMIN) In the discipline MARKETING In the faculty of MANAGEMENT SCIENCES at the VAAL UNIVERSITY OF TECHNOLOGY Supervisor: Dr. M. DHURUP Co-Supervisor: Ms. N McFarlane OCTOBER 2005

Declaration

I declare that:

“Customer perception of packaging and price on loyalty of Dulux products in the North-West of Johannesburg”

is my own work, that all the sources used quoted, have been indicated and acknowledged by means of complete references, and that this dissertation had not previously been submitted by me for any degree at another institution.

Tshepiso Dumasi 15 October 2007 Acknowledgements

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Executive Summary

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Table of contents

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Chapter 1

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CUSTOMER PERCEPTION ON PACKAGING AND PRICE ON LOYALTY OF DULUX PRODUCTS IN THE NORTH-WEST OF JOHANNESBURG

Keywords: Branding, loyalty, packaging, pricing, perceptions. 1. INTRODUCTION AND BACKGROUND TO THE STUDY Perception is the process by which an individual selects, organizes, and interprets the information received from an environment (Sheth & Mittal, 2004:129). Perceptions are influenced by customer characteristics, notably what customers already know and feel about a stimulus. The line between perception and reality is a thin one. Consumers respond to packaging with a whole set of prejudices, learned reactions, and individual preferences that help make products winners (Aaker, 1991:78-90). Certain shapes, colours, sizes, and textures cause consumers to respond positively, while others evoke negative reactions. One reason that the physical container of a product has an impact on consumers is that it’s the first intangible encounter a consumer has with that product. Packaging was once considered part of the production process and was regarded as so insignificant that it was overseen by purchasing people (Sheth & Mittal, 2004:131). Companies are recognizing the power of well-designed packages to contribute to instant recognition of the company or brand (Duffy, 2003:339). Rising consumer affluence means consumers are willing to pay a little more for the convenience, appearance, dependability and prestige of better packages (Kotler, 1991:147). Good packaging attracts consumer attention, convincing consumers to pick-up the package in order to examine it more closely. Paint manufacturers often include interior decoration options to give consumers other reasons for purchase. In addition, the number of price complains attained from monthly surveys conducted by Dulux has uncovered that the pricing strategy is the central theme of the business. According to the survey conducted (http://dulux.marketing/research/html), the price structure of the business is not accepted by most of the customers, thus reflecting on the

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selling price of the company’s products. This will ultimately force the company to change their pricing structure. In the last two years, Dulux market price has increased by over forty percent, thus inducing consumers to withdraw their purchases towards the brand (http://dulux.marketing/research/html). The reactions of potential and existing consumers to different prices vary considerably. A small increase in the price of a product may lead to a relatively substantial decrease in sales (Lucas, 1983:473-479). The assumption often made in the economic price theory, namely that lower prices usually lead to increased loyalty and vise versa, is not always true. Shapiro (1998:233) found the following regarding the price-quality relationship. Firstly, the price is generally an indicator of quality. Secondly, the influence of price is not more important than product reference. Price as an indicator of quality is important to determine the loyalty of the consumer (Kotler, 1991:499). Improper pricing of a product may nullify the effect of the marketing mix. The company has to look at the following factors before it determines their pricing strategy. Firstly, if you have low prices in the market, consumers may think your product is off inferior quality or the product is defective. Secondly, a higher price may carry some positive meanings to consumers: the product is “hot” and might be unobtainable unless it is bought soon; the product represents an unusually good value or the product is excellent in quality (Linstrom, 2003:312-332). The proliferation of brands within the Dulux brand product category reflects a major shift in consumer tastes and preferences. The direct indicators which influence the perception of the consumers are; colours, textures and price (Dick, 1996: 19-20). This study investigates the consumer perspective to Dulux brands by analyzing how consumers perceive Dulux products and the meanings they associate with different individual products. The Dulux brand is well-known and established in the region. 2. PROBLEM STATEMENT In the ongoing effort to grow the market, Dulux has turned to brand alliance, a marketing strategy wherein two brands, Dulux and Rockgrip join to form one brand, Dulux Rockgrip. Brand alliance may also cause a problem in that consumers think that the

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Rockgrip range is of inferior quality. Numerous market trends suggest a growing role for product packaging as a brand communication vehicle (Underwood, Klein & Burke, 2001: 402- 403). More recently, research examining the visual impact of packaging includes studies measuring the impact of relative package appearance (e.g. typical, novel, colour) on consumer attention, categorization and evaluation, as well as examination of visual attention during brand choice (Chisnall, 1997: 112-122). Despite these works, little is known about the specific type and amount of product information that is appropriate for the package stimulus in order to maximize communication effectiveness at point of purchase (Underwood, et al., 2001: 403- 404). The Dulux pricing strategy changes too often, thus making the consumer unsure of the company’s prices. Consumers may be willing to focus their attention on another brand of paint, due to price variations. The overall quality of the Dulux brand, especially products like Bergermaster and Rockgrip may be perceived as being of inferior quality, because of the low price strategy. Consumers tend not to follow the instructions on the packaging, thus leading to product failure and if they do, they are often misunderstood due to contracting information. Price plays a major role on consumer’s perceptions of brand quality, because consumers often use price to infer product quality (Uusithlo, 2001: 216218). On the other hand, packaging that does not describe the product’s features and data sheets, presents the consumer with an unusable product. According to (Underwood et al., 2001: 404), there are three important questions that need to be answered about packaging: •

Does the inclusion of a picture of a product on the package significantly influence attention to the product choice?

•

Do the effects of placing a product picture on the package differ according to the degree of consumer familiarity with the brand?

•

Do the effects of placing a product picture on a package differ for products that vary in the level of experiential benefits they provide?

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The positive effect of package pictures on consumers’ perceptions and choice may not be equally strong for all products (Underwood et al., 2001:407). Consumers perceive the Dulux brand as a brand that does not have sub products, because of the lack of awareness. 3. THE OBJECTIVES OF THE STUDY 3.1. PURPOSE OF THE STUDY The main purpose of this study is to evaluate consumer perceptions of packaging and price on Dulux brand loyalty. 3.2 THEORETICAL OBJECTIVES In order to achieve the primary objectives, the following theoretical objectives are formulated for the study: •

To conduct a literature study on product branding.

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To establish from literature, the importance of packaging on consumer brand perception.

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To establish from literature the importance of pricing on consumer brand perception.

3.3 EMPIRICAL OBJECTIVES The following empirical objectives were formulated to support the primary and theoretical objectives: •

To assess the importance of intrinsic cues (size, ingredients and application) on loyalty.

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To assess the importance of extrinsic cues (brand name, packaging and price) on loyalty.

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To assess the overall level of satisfaction in terms of Dulux branding among consumers.

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To identify gaps in Dulux branding strategy by comparing consumer’s perceptions and Dulux positioning strategy in the market place.

4.

HYPOTHESES •

Intrinsic cues (size, ingredients and application) may significantly influence brand choice.

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•

Extrinsic cues (brand name, packaging and price) may significantly influence brand choice.

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SCOPE OF THE STUDY

For the purposes of this study, the research will be conducted with consumers who buy at Dulux retail outlets. The study will be conducted within the North West region of Johannesburg. The towns that are included in the region are, Randburg, Cresta, Fourways, Honeydew and Roodepoort. 6.

RESEARCH METHODOLOGY/DESIGN

Two methods of research will be undertaken: 6.1

LITERATURE REVIEW

A literature study on customer perception on packaging and pricing will be undertaken. This would include books on packaging and pricing, journals, magazines, newspaper articles and the Internet to establish a theoretical background. The literature study will primarily focus on customer perceptions, packaging and pricing, and the importance of branding. 6.2 THE SAMPLING DESIGN PROCEDURE The following steps as eluded by (Nel, Radel & Loubser 1998: 289-314) will be used in developing the sampling procedure. 6.2.1 TARGET POPULATION The target population will be restricted to the North West Johannesburg district. For the purposes of the study, the population will comprise individuals, male and female thirty years and over, from the designated areas. 6.2.2 IDENTIFICATION OF THE SAMPLING FRAME Hair, Bush & Ortinau (2002: 330) maintains that it is often very difficult to gain access to accurate or representative sampling frames. The survey location (i.e. retail outlets) will be used to conduct the research. 6.2.3 SAMPLING TECHNIQUE A non probability sampling technique will be used in the study. The nature of the research necessitated the use of convenience and judgment sampling. Convenience and judgment sampling allows a large number of respondents to be interviewed in a relatively short period of time.

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6.2.4 SAMPLE SIZE Since the sample size formulas cannot be appropriately used for non-profitability samples, the determination of sample size is usually a subjective, intuitive judgment made by the researcher based on past studies. The goal of this study is to understand a particular phenomenon more profoundly. A sample of 200 respondents from ten retail stores will be selected. The sample size is consistent with consumer research done in this field (Fullerton, 2004:103). 6.3

METHOD OF DATA COLLECTION AND MEASURING INSTRUMENT

Data on consumer perceptions will be collected through personal interviews. Primary data will be collected by means of a structured questionnaire. The questionnaire will comprise three sections. Section A will address packaging perceptions, section B will focus on pricing and section C will concentrate demographic questions. 6.4

STATISTICAL ANALYSIS

Descriptive statistics will be undertaken to analyze the composition of the sample. Categorical and graphical frequency distribution will be undertaken to analyze the questionnaire. Prior to the analysis, the scale reliability will be tested using coefficient alpha (Cronbach alpha). Analysis of variance (ANOVA) and Pearson correlation coefficient will be computed to analyze relationships between variables. Validity analysis will also be undertaken. The statistical package for social scientists (SPSS) version 11.0 for windows will be used for the above analysis. 6.5

CHAPTER CLASSIFICATION

Chapter one will compromise the scope and background of the study focusing on the perception of consumers on packaging and price. It highlights the problem statement, the research objectives and scope of the study. The research methodology is spelt out in this chapter. Chapter two will provide an overview of the importance of packaging, pricing and loyalty. Chapter three will concentrate on the design and the research method utilized in the research. Chapter four will deal with analysis, interpretation and evaluation of the research findings.

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Chapter five, the recommendations to the findings will be highlighted. Chapter Two PACKAGING, PRICING AND LOYALTY 2.1 INTRODUCTION The growth within retail chain outlets has been operating in a slow growth environment and thus the pursuit for market share is becoming more aggressive in relation to packaging, pricing and loyalty. As a result, according to Wells, Farley and Armstrong (2007: 677) food product development and innovation continues to be seen as a fundamental strategy for competitive success and survival within a competitive global market. The retail structures are becoming more increasingly standardized and homogeneous. Over two decades ago, Rossiter (1976: 523) warned us that consumer research has largely ignored product-relevant information stored in visual memory, information that may be quite sufficient to engender product choice. This is presenting companies with challenges of sourcing other marketing avenues to improve market share. In the last two years there has been an increasing emphasis on improving the quality of packaging, maintaining competitive pricing and creating loyalty programs for existing customers. It was yet perceived that marketers turned a blind eye on the importance of visual memory because 20 years later, Zaltman (1997: 425-6) echoed this concern by reminding us that most market research tools are verbocentric and should be enriched with techniques that accommodate non-verbal expressions of perception, learning and thought since two-thirds of all stimuli reach the brain through the visual system. In today’s competitive retail environment consumers are exposed during each visit to a retail store to thousands of messages on packs and merchandising. This presents marketing with a challenge to depend heavily on the visual communication of packaging

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to inform and persuade consumers both at the point of purchase and at the point of consumption (McNeal & Ji, 2003: 401). According to Welles (1986) nine out of ten shoppers at least occasionally buy on impulse and a survey of studies shown in a paper by Phillips and Bradshaw (1993) suggest unplanned purchase of items might be as high as 51 percent of purchases (Nancarrow, Tiu Wright & Brace, 1998:110). This suggests the opportunity to persuade at point of sale is one that cannot be ignored but that the competitive environment is a challenging one. The importance of communicating the right product and brand values on pack is paramount as well as achieving the appropriate level of aesthetics and visual stand-out. Rettie and Brewer emphesise this through the research conducted which estimates that 73 percent of purchase decisions are made at point of sale; the design of packaging must play a key role at point of sale. Packaging seems to be one of the most important factors in purchase decisions made at the point of sale, where it becomes an essential part of the selling process (Silayoi & Speece, 2004: 607). Klevas (2005: 116) also stresses the importance of the pack design, packaging and logistics which become highly interdependent and together they have a great impact on supply chain activities. Marketers need to ensure that the latter are correlated, Silayoi and Speece (2004: 607) have indicated that with the move to self service retail formats, packaging increases its key characteristic as the “salesman on the shelf” at the point of sale. Due to the importance of packaging, visual cues such as taste, odour, information from labeling and images increases the chances of your product being sold at point of sale (Imram, 1999: 226). Pricing can present a unique opportunity to create loyalty and retain existing and prospective customers. In terms of providing a basis for inter-company price setting in order to attract and retain customers to the brand, the most significant of these, certainly is standard engineered component part industries where lean and collaborative principles are arguably most mature, has proved to be a target costing and kaizer costing. This combined approach has been taken from the Japanese automotive industry where it plays a central part in the achievement of the quality, customer retention, cost and delivery goals stipulated in customer specification (Hines, Francis & Bailey, 2006: 241)

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The price like other key variable in the exchange relationships is one of the tools marketers may use to face the market, either attracting and retaining clients or fighting against competitors. Most of the companies especially in the service market use promotional tools such as price to motivate the sale of a specific product (Campo & Yague, 2007: 269). For instance, Dulux (a South African paint manufacturer), may use pricing on strategic lines like Bergermaster and Rockgrip brands to compete more aggressively against regional paint manufacturers. Dulux has built its reputation in the market by offering good quality paint at afforadable prices. Two strategies often used by leading paint manufacturers should not be forgotten. These are the every day low prices (EDLP) and the high and low prices (hi-lo) (Cataluna, Franco & Ramos, 2005:331). The use of simple, one-dimensional prices, quoting single figures (e.g. 10), has made way for complex price communication strategies aimed at exploiting particular information elaboration process or perspective biases associated with specific price presentations, e.g. instead of pricing the product at R10.00, you price it at R9.99 (Romani, 2006:131). Another phenomenon which poses a challenge to marketers is reference pricing, Anttila (2004: 47) describes it as a price against which consumers compare the listed price of a product or service. In this way consumers evaluate whether a price is too low or too high and thus making their product choices. Due to the sensitivity of price, retailers started to introduce generic products or house brands to try and cater for the price sensitive section of the market (Yelkur, 2000: 446). But this is contrary to consumers who react differently to price promotions, for some consumers, high price simply means giving up more resources for the product but some consumers believe that high prices are directly related to better quality and prestige (Jin & Sternquist, 2003: 647). Ang, Leong and Tey (1997: 116) issue a stern warning that, the practice of promoting products on sale can accomplish both short and long term objectives. So it is vital for markers to choose their strategies in terms pricing correctly. Having said that Herrmann, Xia, Monroe and Huber (2007: 49) argue that satisfaction is a function of price, performance and expectations with support for the expectations-satisfaction link being

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weak and they propose that perceived price fairness might be the dominant determinant of satisfaction. Often marketers debate whether to introduce a fixed or discounted price. According to Nagle and Holden (1994: 91) a fixed price offer suggests to a consumer that the price is non-negotiable or will remain the same whenever they decide to purchase the product. A fixed price offer implies that the product is excluded from consumer promotions or price discounts but some retailers prefer the every day low price strategy as it ensures consistency (Suri, Manchanda & Kohli, 2000: 194). Prices are used by retail establishments as an advertising appeal to attract consumers (Alvarez & Casielles, 2005: 54). It is important for marketers to choose price communication strategies, both at the point of sale and by the means of various media forms, that are capable of drawing consumers’ attention to the product’s value and thus induce them to buy (Romani, 2006: 130). Both academics and practitioners recognize the importance of loyal customers, because such customers usually spend more, buy more frequently, have more motivation to search for information, are more resistant to competitors’ promotions, and are more likely to spread positive word of mouth. Research has shown that increases in consumer retention result in increased profitability for companies that compete in mature and highly competitive markets. Recently both academics and consultants have recommended that companies orient their strategies for customer retention toward superior customer value delivery, because customer value is a key antecedent of customer retention (Jiang & Rosenbloon, 2005: 151). 2.2 Packaging methods or techniques There are different kinds of packaging methods marketers can use to attract and retain customers. A pack has many functions – some, if not all, presenting marketers with the opportunity to gain competitive advantage. 2.2.1 Bonus packs

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The bonus pack is of the dozens of techniques used in sales promotion. A bonus pack is a special factory pack that offers the consumer extra product at no additional cost. For example, Dulux periodically offers a free one litre of paint when you buy the normal five litre drum. Many companies have reported successes with bonus packs promotions, yet somehow, bonus packs have eluded marketing scholars’ attention (Reiter, 1994). 2.2.1.1 Positive roles of bonus packs Since today’s shoppers are more value-conscious than ever, bonus packs promotions are rapidly becoming the accepted way for a company to boost sales. Furthermore, this technique saves the company form having to reduce prices in order to gain a competitive edge (Ong, Ho & Tripp, 1996: 2). In most cases, bonus packs promotions represent limited time offers, designed to stimulate short term sales and boost product awareness (Reitek, 1994). That extra value for a consumer presents a good opportunity for a company to win a sale. In the Dulux Paints Summer Promotion for 2006, sales rose by 20% by selling the normal 5 litre paint and

the

consumer

benefited

by

receiving

a

free

1

litre

drum.

(http://dulux.marketing/research/htm). 2.2.1.2 Drawbacks of bonus packs Marketing bonus packs can have drawbacks in terms of production capability, warehousing, shipping, inventory and shelving. Some oversize containers need significant modifications in the filling process. In some cases, the bonus pack container may be an inch higher and thus not fitting on the shelf. Paint manufacturers often complain that retail stores are reluctant to take bonus packs for this reason (Ong, Ho & Tripp, 1996: 2). When a consumer sees a container of paint labelled “Extra one litre for free”, he may think that in the past the company has been robbing him. In addition, consumers may not realise that the ‘bonus’ is a temporary offer, and hence not appreciate its ‘value’ (Ong, Ho

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& Tripp, 1997: 103). Shultz et al., (1994) pointed out that bonus packs are generally unappealing to consumers who do not usually buy the product “(If I don’t usually use margarine, why should I want an extra 6oz of the product?)”. Also in many cases, consumers may not believe that they are getting an extra product for their money, suspecting that the price had been raised or that the new quantity offered is actually the regular amount (Ong, Ho & Tripp, 1997: 103). 2.2.2 Packaging decisions Packaging can be described as the group of activities concerned with the design, production and filling of a container or wrapper with the product item in such a way that it can be effectively protected, stored, transported and identified, as well as successfully marketed. Packaging should be designed in such a way that the product can be handled without damaging the quality of the contents. Even more important is the fact that packaging should promote product sales. The consumer should be able to identify the packing standing on the shelf and distinguish it from that of numerous other competing brands (Cronje, Du Toit, Motlala & Marais, 2003: 314-317). 2.2.2.1 Different kinds of packaging Marketing management usually devotes a great deal of attention to choosing packaging and a packaging design that will show off the contents in the possible way. The different kinds of packaging that can be chosen are the following (Cronje, Du Toit, Motlala & Marais, 2003: 314-317): •

Family packaging. All the products in the range are more or less identically packed – the same packaging material is used, and the size is more or less the same. Family packaging is usually related to family brands. All KOO jams are sold in identical packaging – obviously with different labels to indicate the contents.

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•

Specialty packaging. This gives an image of exclusivity of the product. Perfume, jewellery and expensive liquor (like Chivas Regal whisky) are often sold in specialty packaging. Such products are popular gifts.

•

Re-usable packaging. This creates the impression that the consumer perceives a ‘free’ container if he or she buys the product. The container can be re-used for something else later. A paint container is often used as a bulk storage bucket, you will notice this at different ceremonies where the bucket is cleaned and re-used as a liquid storing facility.

2.2.2.2 Choice of packaging design Choice of packaging design might hugely affect the perception of the consumer with regards to the product in the pack itself. This is where the decisions of marketers become critical because this can make or break the brand. Glass bottles containing bottled fruit are, for example more attractive than cans, but they are impractical to transport and even more expensive. The shape of the packaging may have a specific functional value, such as margarine in re-usable plastic tub. The shape may have a specific symbolic value, which may subconsciously influence buyers. 2.2.3 Product differentiation Marketing management also has to decide on the way in which the product should be differentiated from other competing brands. Product differentiation means that the business distinguishes its product, whether physically and/or psychologically, from what are essentially identical competing product, so that it is regarded as a different product by consumers in a specific target market. Physical and psychological differentiation can take place on the basis of design, quality, colour, taste, size, brand, packaging or any other distinguishing feature such as price of the product, the marketing communication message used to bring it to the attention of consumers, and the type of distribution outlet where it offered for sale.

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2.2.3.1 Different kinds of differentiation  Differentiation by means of packaging and brand. The various types of margarine on the market are distinguished by the use of different types of packaging, such as plastic, foil or waxed paper, the brands, the designs on the labels and the colours used.  Differentiation by advertising appeals. Advertising appeals for one brand of detergent emphasize the ‘enzyme active ingredients’, for another, the ‘stain removing power’, and for yet another, the ‘clean fresh smell’.  Differentiation on the basis of price. There are big differences in the pricing of cosmetic products, for example, Revlon products vs. Estee Lauder products.  Differentiation on the basis of distribution outlet. Rolex watches are available only at the biggest and best known jewellers. 2.3 Role of the pack in marketing communications A pack has many functions – some, if not all, presenting marketers with the opportunity to gain competitive advantage. A typical pack design brief will clarify the following (Nancarrow, Wright & Brace, 1998: 1-2): •

What it needs to hold and in what form

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The amount

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Shelf life required and under what conditions

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Point of sale communication requirements

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Branding requirements

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Conditions for accessing/dispensing contents

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Copy/illustrations needed to encourage optimum use

In addition the pack design brief will specify the marketing and legal requirements of the pack. In the latter case there may be regulations about showing the amount of contents

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and ingredients or similar. There are, broadly speaking, seven occasions when marketers become involved in the pack design: •

Of a new product or variant

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A dated/tired pack

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A product (Changing what it competes with and/or its functional or symbolic benefits)

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Its target market

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Cost reductions in packaging are required

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Legal or regulation requirements demand it

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New packaging technology becomes available

In all instances, an understanding of the consumer is central to the success of a pack design. We examine relevant model of consumer behaviour and the psychological processes in perception and information processing. 2.4.1.1 The elaboration likelihood model (ELM) Advertising by manufacturers is used as a ‘persuasive’ tool to encourage product change or take-up. The elaboration likelihood (ELM) of persuasion (Petty and Cacioappo, 1983, 1984) takes account of the way in which consumers evaluate advertised messages in order to provide an understanding of the thought process underlying the way in which ‘persuasion’ takes place. The context in which consumers process the information presented to them on the labels of packaging is, therefore, of significance. The need for attention to be paid to more effective labelling by manufacturers is reinforced by the Financial Times (1995) estimate that 1,000 new consumer products reach British supermarket shelves each month. In 1994 supermarket shelves had 312 new yoghurts and 375 new sauces and pickles. Effectiveness in labelling would help consumers, as the Financial Times suggests, choosing ‘between rows and rows of almost identical products’. Since the business of advertising is an expensive one, the knowledge

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gained about the psychology of their consumers is important to assist manufacturers to understand the ‘hows’ and ‘whys’ of consumer responses to their packs and advertisements. Effective labelling on the packaging would underpin the main forms of marketing communications of advertising, personal selling, publicity, public relations, direct marketing and sponsorships. Persuasion is likely to occur when brand associations are positive. Executional cues in the design of labels and advertisements where brand familiarity is strong, result in cognitive shortcuts on the part of purchasers along the peripheral route (underlying the need for semiotic analysis of the competitive set). In the whiskey market, consumers use a number of design cues to infer ‘aged’, yet these could be misleading. It may be tempting in some markets to ‘imply’ certain product characteristics when they do not exist. Consumers become motivated and able to elaborate when the message content is perceived as relevant to their needs and when they have the knowledge and ability to think about these messages. For example, cognitive processing of food claims on product labels can be influenced by the need to be efficient in allocating disposable income or selecting a diet meeting nutritional needs and avoidance of harmful products for consumption. This illustrates the sequence of stages in consumer behaviour: •

Product exposure using the major forms of marketing communications;

•

Information search, sometimes may be difficult by lack of data or standardization in product labelling;

•

Reception of food claims and contents information concerning the addition of flavourings and additives;

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Motivation and ability to elaborate (process messages and information) along the central and peripheral routes to persuasion;

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Integration, retention of information and action in purchasing.

2.4.1.2 How can we ensure the pack and its messages are noticed? 21

It is important that, when we are considering the visual impact of a pack in store, consumers’ perceptual processes and their limitations are understood. Two key aspects are considered, namely, selective attention processes; and what is detected and what is registered. Selective attention How can a pack capture a shopper’s attention? Schiffman and Kanuk (1983) examine a number of aspects of human perception principally based on the work of experimental and cognitive psychologists. They argue that in a typical supermarket, there is a multitude of potential distractions from your product – competition, other shoppers, smells wafting from other sectors, and sounds in and out of the store. Yet the shopper regularly manages to accomplish the shopping mission. This is because the shopper ‘exercises selectivity in perception’. This selectivity is influenced by two internal factors: •

Experience (what the shopper expects to see, known as perceptual set);

•

Motives (needs, wants or desires, interest and values)

Of course, the nature of the stimulus (the design characteristics of the pack) will also have a bearing on whether the pack is noticed and how it is perceived. While a pack should clearly signal its relevance to the needs and wants of its target shopper, it will often need to stand out in a display of many other offerings. Marketing research producers are available to check the visibility of the pack and its key elements. Eye scan apparatus track the movement of a customer’s eye across a display of packs – showing what the eyes travel across and time spent at any point. The test is carried out in a laboratory because of the limitations of the apparatus and the need to control the test and exclude extraneous stimuli. Different new packs can be tested against competitors’ pack. Of course eye movement does not necessarily mean attention is being

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paid. The consumer may be thinking about other things. It may be necessary, therefore, to follow up with a questionnaire to determine what was noticed or recalled. What was noticed or detected There may be occasions when a change to the pack is designed to affect the consumer perceptions but the marketer may not wish the change to be noticed. The need is to keep the product looking up-to-date without loosing the benefit of the look in which so much marketing spend has been invested to make the brand familiar and build a specific image. The Campbell Soup Company has made subtle changes to their packaging in terms of its typography and logotype over the years – keeping it up-to-date in appearance without any loss of image. Other examples in the USA include Ivory Soap and Crackerjack. Psychologists describe the minimal difference between two stimuli that can be detected as the differential threshold or the just noticeable difference (JND). Marketers have tive adopted the concept in several areas - pricing, pack design and size in particular. In the case of up-dating packaging, research procedures can be set up to test new more up-todate designs to see whether consumers notice a change. A similar research procedure may be used to see at what point a reduction in size or increase in price might adversely affect sales. 2.4.1.3 How can we check if the pack communicates effectively and appealingly? In addition to checking the visibility or visual impact of new or revised pack designs, it is important to establish whether they communicate effectively and in an appealing way. While qualitative research may be helpful in diagnosing what elements of a pack work or do not work, marketers seek marketing research that is more reliable (based on a larger and more representative sample). The typical study will probe impressions of the product the consumer forms based on the new pack. These impressions may be captured by asking research participants to rate the product on a battery of relevant attribute scales probably based on preliminary qualitative research. However, because the impact test may

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influence (bias) the way in which research participants responds to the ‘communication’ check, the two exercises may be carried out on different samples. The following issues need to be considered in such checks: •

There are several new designs, for cost reasons it may be decided to test them against each other on the same respondents, then test the wining pack at a later stage against the competition. If this is the case, if two of four pack designs are very similar to each other, beware the split vote phenomenon.

•

In some markets the immediate competition may not be easily defined (for example certain convenience desserts). In such situations you may decide to test the new pack monadically (without competition present), letting the consumer rate the product with his/her unique competitive set in mind.

•

There is a more clearly defined competitive set you may still need to change the display reflecting the research participant’s normal retail outlet. Generally, this means putting the relevant own label in the display.

3. Pricing Pricing is a highly conspicuous element of the marketing mix and therefore has many publics to satisfy. Furthermore, in the buying public there are many other interested parties such as competitors, society and government – particularly if there is a domestic prices and incomes board, other governments if the item is exported and possibly even supranational bodies, such as the EU. For management there is no such thing as ‘perfect knowledge’ of any market situation nor is there ‘perfect competition’ where all companies active in a market are equal. The major problem with price setting is that there are few goal posts. Pricing within the domestic market, there are strategic implications as to whether one chooses to price high, low, or merely be a price follower, and the same strategies can be pursuit internationally (Paliwoda & Thomas, 1998: 252).

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3.1 Price determination process The price determination process consists of the following four phases:  Determination of the cost price. The first step in determining the price of a product is the responsibility of the cost accounting department, and not the marketing department. The unit cost to produce and market the product are calculated. The product cost cannot be lower than cost because this would entail financial loss, which would ruin the business.  Determination of the market price. The market price is the price a consumer is prepared to pay, or the current market price at which competing products are sold. It is marketing management’s task to determine the market price. This can be done by launching a marketing research project involving consumers or dealers.  Determination of target price. The target price is the price that will realise the target rate of return, taking into consideration the cost structure, the business capital needs, and the potential sales volume of the product. One way of calculating the target price is the cost-plus method. This is done by adding the profit margin to the product unit cost.  Determination of the final price. The final price is the price at which the product is offered to consumers. This price is determined through a reconciliation of the market price and the target price. The final price therefore lies somewhere between the market price and the target price. 3.2 Adaptations of the final price 3.2.1 Skimming prices If the product is an innovation, and therefore a unique new product, the final price may have a much higher profit margin. There are consumers who would be prepared to pay the high price, because such new inventions usually have prestige value.

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3.2.2 Market penetration prices Marketing management may decide against setting a high skimming price and rather set a market penetration price. Here, the initial price of a new product is lower, and the marketer hopes to penetrate the market rapidly, discouraging competitors in the process. 3.2.3 Market price level This strategy is followed if there is keen competition and numerous similar products have to compete against one another. In such a situation the marketer has to maintain the market price. If he or she sets the price of the product higher than those of competitors, consumers will tend to avoid the product. If the price is lower than those of competing products, consumers will think there is something wrong with the product. 3.2.4 Leader prices Leader pricing concerns special offer widely used by retailers – the so-called ‘specials’. A very small profit is made on leader prices products. These products are sold at a lower than the current market price for a limited period only. 3.2.5 Odd prices Odd prices indicate that the final prices of products have odd numbers. The even prices, for example, R2, R4, and R10 are avoided, and products are rather marked R1.99, R3.79 and R9.95. It is thought that consumers are more likely to accept odd prices because they appear to be lower than even number prices.

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3.2.6 Bait prices Bait prices are unethical and therefore avoided by honest retailers. A bait price item has a particularly low price and it is widely advertised. On arriving to buy it, purchasers are then encouraged to buy a far more expensive item (Cronje, Du Toit & Motlala, 2003: 321–323). 3.3 Pricing strategies Prices and promotional activities may affect the image that customers have from stores. In addition, pricing allows companies to segment markets, define products, create incentives for consumers and even send signals to competitors. Different kinds of pricing strategies are used to affect the latter (Cataluna, Franco & Ramos, 2005:2-4). A supplier has to price goods and services in a way that achieves profitability for the company and satisfy customers, while adapting to various constraints. Pricing is a crucial strategic variable due to its direct relationship with the company’s goals and its interaction with other marketing mix elements. A pricing strategy must be consistent with the company’s overall image (positioning), sales, profits and return on investment goals (Berry & Joel, 1998:428-444). There are six basic pricing strategies: 3.3.1 Soft discounts The soft discount establishments present a commercial offer distributed approximately at 50 percent national brands and private labels. Soft discounts are normally applied to cheaper brands where everyday low price strategy is implemented. 3.3.2 Hard discounts They use the price variable more aggressively in all their references, using mainly private labels that take up between 90 and 95 percent of the total assortment. The stores usually

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have a poor environment and customer service is scarce. The number of references the offer is also smaller, usually under 1,000 items. 3.3.3 Multiple item discounts This involves advertising one item for half the price if the consumer buys another item. Retailers often use this as a form of selling slow moving goods. To ensure the success of the promotion, point-of-purchase materials should accompany the promotion. 3.3.4 Discount orientation It uses low prices as the major competitive advantage of the company – which will trade off a low-status image and low per unit margins in return for a target market of pricebased customers, low operating costs, and high inventory turnover. 3.3.5 At-the-market orientation The company has average prices, and offers solid service and a friendly atmosphere to the middle class customers. Profit margins are moderate to good, and average to aboveaverage products are stocked. 3.3.6 Up-scale orientation It is where a prestigious image represents the company’s major competitive advantage. The company is willing to trade off a smaller target market, higher operating costs and lower inventory turnover in return for customer loyalty, distinctive services and product offerings and high per unit profit margins.

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3.4 The consumer and retail pricing There is often a relationship between price and consumers’ purchases, perceptions and loyalty. Thus the retailers should understand the price elasticity of demand that they face. The price elasticity of demand relates to the sensitivity of customers to price changes in terms of the quantities they will buy. If a relatively small percentage change in price results in a substantial percentage change in the number of units purchased, price elasticity is high. This occurs when the urgency for a price is low or acceptable substitutes exist. However, if a large percentage change in price has a small percentage change in the number of units bought, demand is considered inelastic. This occurs when purchase urgency is high or there are no acceptable substitutes (Berry & Joel, 1998: 428-444). Figure 3.1 Factors affecting retail price strategy

Consumers

Manufacturers, wholesalers and other suppliers

Government

Current and potential competitors

Total Effects on Pricing Strategy

Consumer price sensitivity varies by market segmentation. Here are some of them: 29

 Economic consumers – they perceive competing retailers as similar to one another and shop around for the lowest possible prices. The segment has grown dramatically in recent years.  Status orientated consumers – they perceive competing retailers as quite different from one another. They are more interested in prestige brands and customer services than in price.  Assortment-Oriented customers – they seek retailers with strong assortments in the product categories being considered. They look for fair prices.  Personalizing customers – they shop where they are known. There is a strong personal bond with retail personnel and the company itself. These shoppers will pay slightly above-average prices.  Convenience-Oriented consumers – they shop only because they must. They want nearby locations and long hours, and may shop by catalogue. These people will pay higher prices.

Figure 3.2 Factors affecting retail pricing strategy

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FACTORS AFFECTING RETAIL PRICE STRATEGY

Retail Objectives Sales Profit in Rands Return on investments Early recovery of cash

Broad Price Policy Selection of target market Choice of retail image Composition of retail mix Selection of price policy

Price Strategy Demand Cost Competitive Integrated

Implementation of Price Strategy Customary & variable pricing One price & flexible pricing Odd pricing Leader pricing Multiple unit pricing Price lining

Price Adjustments Markdowns Additional mark-ups Employee discounts

3.4.1 Pricing objective

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Table 3.1 provides a list of specific pricing goals other than sales and profits. Although a number of objectives are enumerated in the table, each company must determine their relative importance given its particular situation and plan accordingly. Furthermore, some goals may be incompatible with one another, such as ‘not to encourage customers to become overly price conscious’ and a ‘we-will not-be-undersold philosophy’. Table 3.1 Selected specific pricing objectives • To maintain proper image •

To not encourage customers to become overly price conscious

•

To be perceived as fair by all parties (including suppliers, employees and customers)

•

To be consistent in setting prices

•

To increase customer traffic during slow periods

•

To clear out seasonal merchandise

•

To match competitors’ prices without starting a price war

•

To promote a ‘we-will not-be-undersold philosophy’

•

To be regarded as the price leader in the market area by consumers

•

To provide ample customer service

•

To minimize the chance of government actions relating to price advertising and antitrust matters

•

To discourage potential competitors from entering the market place

•

To create and maintain customer interest

•

To encourage repeat business

3.5 Price reductions and promotional deals There is ample evidence that in-store price reductions affect brand decisions. The general pattern involves a sharp increase in sales when the price is first reduced, followed by a

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return to near-normal sales over time or after the price reduction ends (Del, Roger & Best, 2001: 603-732). Sales increases in response to price reductions come from four sources:  Current brand users may buy ahead of their anticipated needs. Stockpiling often leads to increased consumption of the brand, since it is readily available.  Users of competing brands may switch to the reduced price brand. These new brand buyers may or may not become repeat buyers of the brand.  Non-product category buyers may buy the brand because it is now a superior value to the substitute product.  Consumers who do not normally shop at the store may come to the store to buy the brand. High quality brands tend to benefit more than brands from lower quality tires when prices are reduced (and to suffer less when prices are reduced). Like brands, households respond to price reductions and deals differently. Younger and less educated consumers tend to be somewhat more responsive to deals. 3.6 Pricing issues Consumer groups want prices that are fair (generally defined as competitively determined) and accurately stated (contain no hidden charges). Unit Pricing is the presentation of price information on a common basis such as per ounce across the brands. Such information, when properly displayed, can greatly facilitate price comparisons. Perhaps the most controversial pricing area today is the use of reference prices. An External Reference Price is a price provided by the manufacturer or retailer in addition to the actual current price of the product.

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3.7 Consumer sensitivity to pricing Sampson (1964) has argued that many desensitizing factors operate to diminish the impact of price changes. Insensitivity will therefore be greater where the following conditions prevail (Stanley, Paliwoda & Thomas, 1996:256):  Personal selling, and therefore, variation in point of sale effectiveness  Promotion is local rather than standardized nationally  Service after sales is important  Consumer loyalties are significant  Products are highly differentiated and difficult to compare  There are multiple dimensions of product quality  Unit price is low  The product is sophisticated Shapiro and Jackson (1978) cite five principles of a customer approach to pricing, which are:  The customer chooses products by measuring benefits against costs  Benefits include more than physical attributes, and additional components such as services are important in differentiating products  Cost involves more negative aspects of the purchase price alone  Benefits and costs must be understood in terms of a complete usage system, not as an isolated part of the system  Different customers view benefits and costs in different ways, meaning that careful market segmentation is necessary. 3.8 A multi stage approach to pricing

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There are six major elements which have been identified by Oxenfeldt (1960) in a domestic pricing decision, which in sequential order are:  Selecting market targets  Choosing a brand image  Composing a marketing mix  Selecting a pricing policy  Determining a pricing strategy  Arriving at a specific price However, international pricing has to take many more variables into consideration, and this is, of course assuming that payment will be made almost immediately. 4. LOYALTY Loyalty is defined as consistently purchasing a brand over time due to an emotional attachment to the brand (Hawkins, Best & Coney, 2001: 421-430). Service and store loyalty are generally defined in the same or similar manner. Thus a loyal or committed customer has an emotional attachment to the brand or company. The customer likes the brand in a manner similar to a friendship. Loyalty can arise through identification, where the consumer believes the brand reflects and reinforces some aspects of the consumer’s self-concept. This type of commitment is most common for symbolic products such as automobiles. Loyalty may also arise through performance so far above expected that it delights the consumer. Such superior performance can be related to the product or the company itself. Committed customers are unlikely to consider additional information when making a purchase. They are also resistant to competitors’ marketing efforts – for example coupons (Hawkins, Best & Coney, 2001: 421-430).

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Even when loyal customers do buy a different brand to take advantage of a promotional deal, they generally return to their original brand for their next purchase. Committed customers are likely to be a source of positive word-of-mouth communications. Positive word-of-mouth communications from a committed customer increases both the probability of the recipient becoming a customer and of the recipient sharing the positive comment with a third person (Hawkins, Best & Coney, 2001: 421-430), e.g. “I have not used Dulux paint yet but Tshepiso raves about the amazing look and quality of his walls”. Figure 4.1 Customer satisfaction outcomes

Our total products

Consumer decision process

Increased use

Superior value expected

Sales

Perceived value delivered

Repeat purchases

Brand loyalty

Brand switching

Competitors’ total products

4.1 Brand loyalty While repeat is more immediate, brand loyalty is a measure of how loyal your consumers are over a period of time. If your customers primarily use only your company’s products, they are brand loyal. If they use your product at a majority of the time but occasionally use your competitors’ products, they are moderately brand loyal. Low brand loyalty exists

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if brand or product switching occurs regularly in your category or with your products (Hawkins, Best & Coney, 2001: 421-430).

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