Six: Cost
The chapter opens with a brief consideration of the manner in which people's behavior seldom creates a lasting advantage. (EN: He refers to Nash Equilibrium, but his account is not accurate to that theory and seems to imply that a Nash Equilibrium is inevitable in all instances, rather than relevant only under a very specific set of conditions, so take it with a grain of salt.)
He gives the example of traffic: a shorter route is opened. Assuming that drivers favor time over distance, and assuming they have knowledge of the amount of time it will take, they will choose the faster route. Initially, the short road is faster, but when a sufficient number of people have taken the short road, traffic becomes congested to the point that it takes just as much time as the long road, and the long road may even become faster - at which time some drivers will switch back to the long road. Ultimately, it results in the two roads taking equal time.
(EN: This works in theory - but the theory is based on perfect knowledge and an infinite supply of drivers, neither of which exist in reality. And this is why Nash Equilibrium is an observation after the fact rather than a predictive model for behavior.)
He then talks about basketball. A temporary advantage is gained by a player or team that uses an unusual tactic that catches their opponent unprepared. But as soon as the opponent learns their "trick" they develop defenses against it and it is no longer effective.
Finally to marketing: in a stable market, the only way one brand will gain customers is to win them away from another brand - but other brands do not passively allow their customers to be taken, and instead match tactics so that neither brand has a sustained advantage. The products, prices, and the entire buying experience becomes commoditized such that there is no reason to choose one over another.
But in general, this makes buying decisions more difficult for the consumer. It's very easy for the consumer to select a product when there is differentiation - one choice is obviously better suited to their needs - but when the differences are negligible, selecting among them becomes more difficult because the customer must perform more research to determine which is truly a better value for him. And because consumers don't put much effort into most purchases, they simply become indifferent to the options and choose at random based on convenience.
Cost Sensitivity
It is a common mistake for firms to consider only the money price of their product, assuming that when goods are commoditized the cheapest wins. Money is only a part of the cost to consumers - their time and frustration is also taken into consideration.
Consider that a supermarket and a corner store stock the same brand of milk, but the corner store charges nearly twice as much. Even if customers are aware of the price difference, some will still purchase from the corner store for the convenience of not having to drive to the supermarket, park in a large lot, and wait in a checkout line. The better money cost at the supermarket are outweighed by the additional time cost.
Or consider buying the same product from different sellers online: assuming price, shipping charges, and delivery time are equal, the customer will buy from the site that is most convenient to them: it has an easier shopping process. It may be more efficiently designed, more familiar to them, already stored payment and shipping information, or different in some other manner that makes one easier than the other, even negligibly. (EN: In truth, it's not the actual convenience but the perceived convenience that matters.)
Back to the theory of equilibrium: sellers and brands that focus on price and ignore convenience are often dumbfounded by their inability to compete with more expensive alternatives. It is because they fail to consider that the customer considers their total cost, not just the money price. It is likened to the manner in which drivers considered the length of their commute rather than its distance when selecting a route to take.
Price Comparison
Money price is also correlated to the perception of value: customers maintain the perception that a cheap product is likely a compromise on quality, and once that perception is seeded they become attentive to evidence, or even invent evidence where not exists. Particularly for brands that sell through different retailers, the price differences create dissonance which seldom resolves in a way favorable to the brand.
In terms of price, neither the cheapest nor most expensive tends to win. In one experiment, different versions of a catalog were printed with a given product priced at an average point, then about 10% above average, then about 10% below average - and had the greatest sales volume when it was average priced. However, when the item was sold at 10% below average and was identified as a "sale" it performed even better.
The conclusion is that customers perceive a cheap item as being inferior, but the stigma of cheapness goes away when the product's "regular" price is comparable to others (signaling its quality is the same) but a discount is offered (indicating the lower price is not attached to the qualities of the product).
Willingness to Pay More
It's generally accepted that customers will pay more for a product they perceive to be better in some functional way, but what's more curious is that customers are willing to pay more for the exact same product when it's sold by different retailers.
An interview study is mentioned in which customers were asked what they expected to pay for a beer in various locations - with the understanding that they were buying the product to consume at a different location. For the exact same product, people expected to pay far more if they purchased it at a bar (to carry out) than at a grocery store.
(EN: This is particularly significant to customer experience - because in this scenario the product is the same and the need is the same, but the buying experience is the only thing that differs.)
Largely, this is because of the expectations of given business formats. People expect that grocery stores are low-cost, that they make money in volume, that they have lower overhead costs, and so on.
Location and convenience are significant factors, but there is a paradox: higher prices are expected of convenience stores simply because they are convenient, but higher prices are also expected of locations that are inconvenient (the hotel bar, in this example). (EN: Reminds me of the principle in marketing luxury brands: people expect luxury to be difficult to obtain. This seems to suggest that works in reverse, that something that is hard to obtain is better.)
There is also a factor of competition among brands: when a retailer offers several different brands of a given product, the price is lower because the manufacturers must compete with one another at the place where the buying decision is made. A dealership that sells only one brand of car is less willing to discount than a dealership that sells multiple makes and the customer can choose among them.
It's also suggested that general stores, who sell a wide range of product categories, is expected to charge less. So the same pair of jeans costs more from a clothing store than it does from a supercenter that sells clothing, groceries, automotive supplies, appliances, and other goods.
There is also the suggestion that the quality of the selling environment impacts the price: that the same item sells for less in a barren and unattended warehouse-type store than it would in an elegantly furnished and staffed boutique - though hit is arguable whether this is because the customer understands the cost structure of the retailer or because they expect a better price if the service experience is worse.
Erikson's Stages
The author makes some vague observations about the difference between consume behavior at various ages, and then attempts to correlate it to Erik Erikson's stages of development.
(EN: Most of this is simply paraphrasing Erickson while adding nothing to the theory. The author's stages and numbers are a little off, but the content seems roughly accurate.)
Infancy (up to 2 years)
The infancy stage of development is largely one of exploration and learning, and the fundamental conflict is trust or mistrust. The infant is unable to conceive of anything outside of the moment and the scope of his sensory perception (anything out of sight is out of mind) and is interested only in finding out if things gratify his immediate needs.
The infant's actions are reactionary and emotional: he is happy when something he wants is given to him, querulous when it is withheld, unable to abide waiting or discomfort even when it achieves a better outcome later. This leads to confusion when the same object is "good" and "bad" depending on his desire of the moment.
The infant is the ultimate hedonist, living for the pleasure of the moment, largely driven by survival instincts: pleasure and gratification support his survival, pain and denial are signs of danger. His mind is binary good/bad and he does not perceive degrees.
(EN: There is no mention of product or brand here, likely because an infant does not have a voice in purchasing decisions: everything they have is chosen by someone else.)
Early Primal (2-3 years)
In the early primal state, human beings explore their own capabilities: they desire to have greater autonomy and are frustrated by their inability and dependence on others.
It is during this time that children generally learn to walk and talk. Emphasis is placed on toilet training, as this is an attempt to control one's own body. There is great frustration and shame in the process of learning to become self-reliant.
(EN: There is likewise no mention of product or brand here, possibly for the same reason, but it does seem that children of this age would be more vocal about what they want, though likely not in any rational or consistent manner.)
Preschool (3-5 years)
In this stage, children balance their continued desire for autonomy against their desire to please others, and seek to be more assertive. They wish to be successful at becoming independent, but seek the praise of others to reassure them that they are doing the right thing.
They also begin exploring their relationship with their peers, in play with other children that establishes a pattern of dominance or submissiveness.
For the first time, the author mentions connection to products: at this age, a child is pleased to consume products that challenge them to think and be creative (puzzles and building blocks), but will also use things in original ways (making a fortress of pillows).
School Age (6-11 years)
During this phase, an individual's actions consider their relationship with society, particularly in the notion of fair exchanges: a child wants things from others, but realizes he must give them things in return.
Their personal capabilities and competences are not developed "just because" but as a means to an end - the ability to do something as a method for achieving a goal that is not directly related (e.g., flattering an adult to get presents from them).
Products that appeal to this age group often involve practicing negotiation: team sports that balance collaborating with some while competing with others, collecting and trading various things, and the like.
Pubescence (12-18 years)
During this phase, an individual's primary concern is conformity: they wish to be part of one group, which also entails distancing themselves form other groups. They remain interested in independence, but focused largely on the benefits while attempting to escape the responsibilities.
It is the resolution of this conflict that forms their identity, so strongly that the personality they develop in their teenaged years typically shapes their character as an adult.
Most experiment with different roles and behaviors, changing groups and changing their personal fashion at a whim as a means to experiment with their role and relationships to others. This constant change leads to instability and uncertainty, as they do not have a strong sense of self but are experimenting to find out what they want to be.
At this age, products and brands become part of the masquerade: their adoption corresponds to what they believe is appropriate to the kind of person they are experimenting with being. They listen to a certain kind of music, wear a certain kind of clothing, and use certain kinds of products because they are props in the act.
Young Adulthood (19-40 years)
(EN: This seems a rather long stage, even Erickson defines it as ages 20-39, but it seems to me that the two different decades have two distinctly different sets of initiatives.)
In this stage of life, an individual is becoming mature and are torn between intimacy with others and isolation from them. They tend to settle into a role and a pattern, and drastic changes are rare: they have largely decided who they are, and are attempting to do a better job of conforming to their chosen role.
In so doing, they remain conscious of others: they seek to imitate the behavior of those who are successful in ways that are meaningful to them. The "keeping up with the Jonses" practice is the struggle to match others, with the desire to pull slightly ahead but not to a degree that would disqualify them from their role.
Their primary tasks are developing a family and developing wealth, both as means to long-term survival. Establishing home ownership and building an investment portfolio are direct means to security, developing children into capable adults who can care for them in their old age is a more indirect means. Gaining control and dominion over others in society (moving up the ranks and into management) is yet another method of extending personal power and abilities.
Regarding brand, people of this age look for reliability and support. Mostly, they seek brands that correspond to their chosen roles, but they will sometimes seek brands as a means of escaping from the tedious world of reality. Again, they want to distinguish themselves from others of their class while still remaining part of that class.
Maturity (40-65 years)
Between the ages of 40 and 65, adults tend to become more generative and nurturing. Their concern is less about personal achievement and leaving a legacy for the next generation, whether it is focused on people or other achievements.
It is also a time for mid-life crises, recognizing how little has been accomplished and feeling useless and outdated in what was once a comfortable role. This stagnation sometimes results in a frantic attempt to become relevant, combatting feelings of low self-esteem, depression, and disconnection.
To appeal to those in this age bracket, the brand may position itself as a reward for accomplishment or a means to regain relevance, often by catering to nostalgia.
Old Age (65+ years)
From age 65 to death, people become more nostalgic. Some have a sense of fulfillment and contentment, others of failure and regret.
It's noted that medical advances that extend life and increase the quality of life for the elderly have enabled some to prolong the period of maturity.
Of all things, the elderly fear being irrelevant and forgotten, and wish to be treated as individuals rather than stereotypes. Many resist the roles into which previous generations calmly settled. (EN :This has been observed to be particularly true of the Baby Boomer generation, who never did act their age, but time will tell if younger generations continue to cling desperately to youth.)
In general, brands have typically sorted the elderly into four categories: the "indulgers" who are focused on enjoying their final years, "ailing" whose health issues force them into convalescence, "recluses" who tend to cocoon themselves in their homes, and "hermits" who shun their fellow elderly and attempt to remain in touch with younger generations.
Loose Topics
A few off-target topics that were mentioned in superficial detail:
Brand Vulnerability
Brands are vulnerable to attack by competitors when they fail to please their customers. When a brand charges too high a price, fails to provide features customers want, is too difficult to obtain or service, or in other ways disappoints customers, the door is opened to competitors who can remedy that deficiency.
The industry-leading firms often become very complacent, on the assumption that the things they have been doing for years are good enough because they have been profitable in the past. When they become more interested in maintaining their internal practices in the name of tradition, it's just a matter of time until someone who is willing to do things differently takes their customers away.
Industry giants are also slow to change: they do not react until a competitor starts taking their customers - and then, it takes months or years for them to change their ways. In the meantime, customers continue to leave, and winning them back is difficult.
Customer Complaints
People love to complain, and customers complain more than they compliment - social media (and the real media) rewards complainers with attention, and often criticizes those who praise a company for its good behavior.
A firm should not be overly sensitive to complaints - a stern reaction often does more to harm the firm than help it, draws attention to the complaint it might not otherwise have gotten, and always seems like an attempt to silence critics to cover up valid problems.
It's also important to sort out constructive criticism from empty gripes. A complaining customer is the canary in the coal mine, as other customers will eventually notice the same problem - and often many have but have remained silent.
And finally, you can't please everyone all the time: what makes one customer happy will make another one unhappy. So if a change is made to appease a dissatisfied customer, customers who liked things as they were will become dissatisfied. You must be careful and thoughtful about which critics you seek to appease.
Customer Advertising and Brand Esteem
The author suggests that consumers' tastes for conspicuous branding is decreasing, citing a 2014 study that led Abercrombie and Fitch to drop visible logos from their apparel. There's also the growing practice of de-badging vehicles, removing all external indications of make. The indication is that people don't want to be "walking billboards" for the brands they use.
(EN: This is not new and remains a fringe practice. Largely it depends on the brand. Even when conspicuous consumerism had its heyday, it was only prestige brands that people wanted to advertise - it is a stigma, rather than a badge of honor, to sport the logo of a discount brand or one that has fallen into disfavor for any reason.)
He also mentions that people show brands when they wish to be associated to the brand image - but brand images change. A brand that is exclusive or unusual becomes undesirable when the firm grows and becomes an established and popular brand: its logo is no longer a curiosity, but commonplace, and showing the brand makes the consumer seems like a follower rather than a leader.
It's a particular problem for luxury brands to lost their glamor when they become well known. It is very common for poor people to use logos to hide their poverty - to wear logo apparel of brands they cannot afford, or to claim to use them in social media. The luxury customer no longer finds the brand to be a badge of status when undesirable types claim to use it, and moves on to a different brand that maintains its exclusivity.