Consumer Behavior: A Comprehensive Consumer Audit in Respect of Phillip Morris Cigarettes - Research Paper Example

___________ ____________ ____June 2006 Consumer Behavior Introduction Many companies are, as a matter of selling in different markets without even comprehending the existence of such markets. These companies have a fixated product-centric view of their entire business. If they make cars; they usually think that they are in the market for cars. And, adopting a very narrow and fixed perspective they tend to think that there is only one cars' market. However it is abundantly clear that customers' uses and expectations from cars' may vary from one customer type to another and each sold car may serve to fulfill different needs. This product-centric view of market segments has been long discarded as being inadequate for very logical and plausible reasons. For any given product or service, there are usually at least four or five different segments of prospective customers that may utilize that product to solve a particular problem or satisfy a specific need. Each one of these segments will have different needs and values. But companies with a product-centric view cannot even sight these differences not to approach the issue of comprehending them and using them to advantage in their marketing plans. They end up treating the various customers' segments with a one-size-fits-all, generic solution. This fixated view is virtually a chink in the armor which competitors are waiting to pounce upon. In fact such an approach works to leave entry gates to the various segments wide open to the competitor. The competitor quietly enters in, reads the consumer needs and behavior and positions his products attributes and qualities with requisite differentiation to make up a most relevant product bundle to the most valuable segment and skim it happily. Therefore it is a prudent marketing stance to examine in depth not only one's own products and services but also the market of users for such products and services. Who buys our products, for what reasons and puts them to what uses are three critical questions that must be asked to broaden marketing thought away from generic fixation. Consumer audit is an oft used marketing tool just to do this. This paper has chosen the Marlboro cigarettes (three brands 'reds','lights' and 'mediums') of Phillip Morris (PM) as a generic product and would attempt a comprehensive consumer audit in respect of the chosen product in the following paragraphs. Market Segmentation We have always stayed with a short menu of brands as a strategic focus. Some critical buyer behavior shifts, however, have defined new segments. Newer needs have emerged which help consumers acquire and reinforce newer images. Our products have to transform to address these needs. First our smokers had turned health conscious primarily as a result of robust state funded and persistent campaign against smoking highlighting its hazards. The macho image of Marlboro man was overcast by dark health awareness clouds. Then there was a distinct movement towards several other 'light' consumer goods the consumption of which defined an entirely new segment of consumers; movement was fuelled by both factors viz.health consciousness as well as to be a part of this new sophisticated 'light' segment. We found that this movement was particularly strong among the young, educated urban dweller in the developed world. This was a fairly strong external stimuli driving consumers to Lights. This was immediately set as the Marlboro Light's target group. We further discovered that this breed of consumer ate low fat spread, drank light beers, used ozone friendly deodorant, drove a lead free car and had a distinct preference to smoke Marlboro Lights. To many smokers around the world, Marlboro Lights presented a product image of a definitive light cigarette. It was serving two internal consumer ambitions viz to be identified as a Macho Man without hurting health or being Macho in a 'clinical' manner. Marlboro Light was a big success with this segment cutting across demographic lines. Soon a gap was perceived by us when we found that our regular macho red was left by consumers not for our "Lights' but rival brands which had tar/nicotine levels intermediate between the 'reds' and 'lights'. This was the segment which was only partially affected by health campaign and still had an overriding desire to present a macho image. Thus mediums were introduced to target this segment. With 'mediums' introduced in 1991 such switch overs to rival brands was effectively checked. Medium (a mid tar cigarette) targeted smokers who perceived Lights as unmanly and unmacho. It was ensured that 'mediums' retain the packaging of 'reds' and therefore did not have the appearance of a 'light' brand. Although only achieving limited success in the US (in spite of a $45 million campaign), Medium was introduced in Germany and Hong Kong in 1993 and France in 1994 and has been a substantial success. It may be easy to see that given medical ethics the consumer preferences for reds, lights and mediums had cut across social, regional, or religious subcultures influences. While females had preference for Lights its consumption was widely prevalent across males too indicating gender neutrality. Reds and mediums had a distinct male orientation. Similarly the light segment was young and the medium and red segments had a mature smoker orientation. Income wise all segments had a relatively median to upper income group smokers partly due to 'premium' image of our brands. Household life cycle groups' usages were determined by the ages of such group members. Due to low budget item purchases were more or less independent and not deliberated. Lights suited lifestyles of health conscious customers whereas reds and mediums helped portray macho images. A distinct pattern was seen in occasion/event usages connected with projection of such images. We estimate that potential customers may not switch over easily to other rival brands particularly after introduction of 'mediums'. For example, discussions of freedom and consumer behavior have been there for at least 15 years (e.g., Kozinets 2002; Thompson, Locander, and Pollio 1989). Also, the intermingling contributions of history and culture in consumer behavior have been lucidly analyzed (Arnould and Thompson 2005). More research efforts have looked for consumer choice across time and as a function of social interactions (Ariely and Levav 2000; Coulter et al. 2003; Ward and Reingen 1990 ;), in addition to the impact of consumer choice on matters of personal and social well being (e.g., Carmon et al. 2003). Consumers can go through three types of decision-making. The first is routine decision-making which is used when the purchase is simple, inexpensive, and familiar. Another is called limited decision-making. The consumer uses this type when decision-making involves a moderate search and purchasing effort. The final decision-making process is referred to as extensive and is used when the product is unfamiliar or very significant to consumers. Consumers may search for brand and outlets in combinations (Hawkins et.al, 1983). Most consumers are influenced by various groups in the decision-making buying process. Consumer choices are nested and interlocked across the assorted contexts of daily life (e.g., First and Dholakia 1982; Huffman, Ratneshwar, and Mick 2000).While 'mediums' were in third category of consumer decision making however through concerted campaigns all three brands fall into first category decision making which makes for robust sales. Product Position It has been fairly well established by various national studies that Marlboro has for many years had its highest market penetration among younger smokers. Most of these studies have been restricted to people age 18 and over, but data relied by some other studies shows even higher Marlboro market penetration among 15-17 year olds. The teenage years are also important because they are the years during which most smokers begin to smoke, the years in which initial brand selections are made, and the period in the life-cycle in which conformity to peer-group norms is greatest. Today's teenager is tomorrow's potential regular customer, and the overwhelming majority of smokers first begin to smoke while still in their teens. In addition, the ten years following the teenage years is the period during which average daily consumption per smoker increases to the average adult level. It is during the teenage years that the initial brand choice is made: At least part of the success of Marlboro Red during its most rapid growth period was because it became the brand of choice among teenagers who then stuck with it as they grew older.PM also had an enviably record of retaining a maximum percentage of its teen smokers in their adult smoking habits. The general semantic memory of the Marlboro cigarette-across most of it brands-appear to be that of a "Macho Man Image" which consuming it is perceived to promote. While in teen years it is a first impression which gets dug deep; in later years it assumes a mature perception of seriousness but still quite macho. It is essentially a promotion of male virility which is the lasting image. This is the deal version at least in its 'reds' and 'medium' segments where even female smokers tended to project a macho image. Female smokers of these two categories of cigarettes were mostly those that were employed in male dominated professions or in entertainment industry. Regarding PM cigarettes in 'lights' category persistent general semantic memory is associated with health consciousness and a desire to smoke just for the sake of it without affecting health adversely. Another persistent memory is associated with smoking Marlboro Lights meant that fitting in with the crowd. It was seen to provide psychological and social support in terms of having fun and being cool. This was the deal version for 'lights'. The entire decision process leading to purchase was routine decision-making involving simple, inexpensive and repetitive purchases. Apart from social and psychological factors in major market segment of youths the main evaluative criteria was price/discounts/offers. A price increase tended to result in brand switching in favor of rivals and vice versa. Pricing The majority of cigarette marketing dollars are being spent on price discounts paid to cigarette retailers or wholesalers (in order to reduce the price of cigarettes to customers with what they call "off-invoice discounts," buy-downs, voluntary price reductions and trade programs). Whatever the exact figures and relative percentages invested in advertising and promotion, it is clear that corporations are currently expending tremendous amounts of money in what Baran and Sweezy (1966) called the "sales effort." Smokers are highly conscious of prices and discounts bundled as an overall product package. For instance PM's 1982-83 round of price increases caused two million adults to quit smoking and prevented 600,000 teenagers from starting to smoke. In addition, promotional allowances to retailers(used to facilitate the sale and/or placement of cigarette brands including but not limited to volume rebates and incentive payments);promotional allowances to wholesalers like volume rebates, incentive payments and value added services; retail value added expenditures for promotions involving free cigarettes (like buy one get one free promotions) or non-cigarette items (buy one pack, get one free lighter promotions) ; and coupons targeted to and redeemed by smokers totaled continue to occupy important places in marketing budget at PM. These promotional expenditures total 90.4% of all the cigarette industry's marketing expenditures in the year 2002 (or $11.3 billion of the $12.5 billion), and they all essentially relate to price. Price promotions have virtually no spillover to non-smokers. They are only relevant to a smoker, whose evaluative criteria becomes -my brand is now more expensive than a cheaper competitor why not switch right away It is like a person without a dishwasher will not buy dishwasher detergent because it is under price promotion; likewise, a non-smoker is not going to buy Marlboro simply because it is 20 cents off. Second, when a manufacturer temporarily lowers its price, whether with a coupon or a price promotion, it has not really "spent" anything. Instead, it has chosen to miss some of the profit it could have earned if it could sell the product at the higher price. PM's decision to reduce Marlboro's US prices in April 1993 led to a widespread speculation that this move may take PM and its brands down the hill to a diminished business. However, the results proved otherwise and now PM is the market price setter whose lead is followed by rivals.PM also realized somewhere mid way that it's pricing and value added activities had gone out synchronization. This was corrected with innovation and new brands. The subsequent share growth of Marlboro and the decline of the Value for Money segment seem to justify this argument. Now Marlboro sets the price for the whole market and it is whole heartedly seconded by over-proportional trade support. In the past PM has moved away from its single brand strategy to include a number of second line international brands. These brands which include L&M, Chesterfield, Philip Morris and Lark are used strategically to exploit specific price opportunities (e.g. Europe and Latin America), and/or attack dominant competitor positions (e.g. Latin America) or to take advantage of new segments (e.g. lights) - thereby maintaining overall growth momentum for the PM group and achieving its objective of dominating all major consumer segments. It was observed that while consuming Marlboro brands was considered 'mach' and 'in thing' even then it did not tantamount to conspicuous consumption. Providing trade credit was also not a significant factor. Consumers of Marlboro despite price consciousness seem to enjoy sufficient disposable income to afford Marlboro smoking. Enjoying a long established brand premium and being a market price setter PM could not have broadened product diffusion by lowering its prices; however it could have induced new smokers for its recent launches. It was seen that individual smokers tended to evaluate prices and price affecting offers. Prices were generally not considered a status symbol barring high priced premium cigarettes. Purchase of Marlboro did not seem to affect overall economy of lifestyles. Segments' perception of brands altered swiftly in favor of rival brands the moment prices were raised. While prices did not vary much with varying consumption situations; price, nevertheless, formed an important evaluative criteria as noted above. It is estimated that smokers would react favorably to in-store price reductions in Marlboro brands. Distribution Strategy Of late chief factor for Marlboro's sustained success has been its line extension strategy which has broad faced its appeal to new smoker segments and kept the brand current and running in the mind of both smokers and the trade. By managing the bunch of brands as a brand umbrella and using the line extensions to build the overall family franchise, PM has achieved spending synergies. Menthol, 100s, Lights, Ultra Lights, 10s and 25s have all been introduced since the late 1960s. Much of Marlboro's recent worldwide momentum has come from the Lights version which over the last five years has grown on average by 21 % per annum compared with just under 8% for the Red version (which in 1992 actually declined for the first time ever in its international markets). Lights - as smokers became more health conscious from the late 1970s, seeking lower tar/nicotine cigarettes, it was argued within the industry that Marlboro would never introduce a light or mild version, which was considered incompatible with its macho, rugged, 'come to the flavor' image. On the contrary, the Cowboy has worked remarkably well in the Lights and Ultra Lights line extensions by using subtle color variations on existing advertising images (e.g. pale wintery Marlboro country scenes and a white horse) and an appropriate caption 'The flavor/spirit of Marlboro in a light cigarette'. It's the responsibility of a manufacturer to control its supply chain from start to finish, regardless of who puts its products in the hands of consumers. Given the tremendous leakage of state revenue in illegal export-import of cheap cigarettes the European Union (EU) last July reached a $1.25 billion settlement with the $33.4 billion-a-year cigarette maker and ordered it to implement information systems that track and trace its cigarettes all the way from the manufacturing line to the retail shelf. PMI will invest at least $10 million to $20 million in the new information systems needed to put the proper tracking systems in place. One option under consideration is Radio Frequency Identification (RFID) technology, which allows manufacturers to attach tags with antennas and computer chips on goods and track their movement through radio signals. Thus the wide network of distribution inherent in global value chain comprising of distributors,retailers,grocers,supermarkets,hotels,restaurants etc is likely to assume new tracking dimensions. This will work to define a new distribution system value viz.availability of tax paid cigarettes. This may be unpalatable to consumers who wish to consume 'cheap' cigarettes made available illegally avoiding taxes. Other palatable values expected of the distribution system and met in substantial degrees are availability of quantity and desired brand at reasonable distance. These values may not vary across gender distinctions. It is believed that distribution system can capitalize substantially by targeting outlets at use oriented reference groups. They may be clubs, casinos or hotels. However generic product is simple enough not to warrant intensive distribution. It is also observed that logistically outlets system has not been consistent with full coverage of identified market segments. This tends to be tedious and can be achieved only in part through careful planning. There is also sufficient distinction between various outlets based on consumers' lifestyles. Major evaluative criteria is reachability immediately followed by availability as defined above. Promotion Strategy The Marlboro world of the cowboy was perceived to be outdoor, clean and unspoilt, providing a great mood of relaxed smoking satisfaction. Smoking a cigarette was projected as a reward for completing an arduous task and the sociability of smoking in a group. These are themes that the smokers can easily recognize and relate to. The use of rich and eye catching colors (red, brown), flavors and aromas (the campfire, cooking and coffee), textures (leather) and dramatic landscapes was emotively appealing. The underlying themes of adventure, freedom, independence, being in charge of your destiny, open spaces and escapism for the urban dweller have proved appealing to several market segments. They still retain contemporary relevance; the cowboy is an icon of solid independence, the kind of person who chooses to smoke, a quiet defender of free choice and a hero.PM has surpassed any other cigarette brand in its use of television media.PM and its campaign themes and images have lived on beyond television advertising bans. Outstanding aesthetics, filming execution and the distinctive 'Magnificent- Seven' music have all contributed to Marlboro's success. Targeting and communicating primarily with the younger smoker - a key factor in the success of Marlboro advertising has been its consistent targeting of 18-24 year old men who are sophisticated, intelligent city dwellers, advertising literate and most importantly, fashion influencers- PM has managed to develop and maintain the appeal of Marlboro for the younger smoker. The message has sunk in so well that for this target consumer smoking Marlboro is steadfastly believed to be more trendy and exclusive. Their general opinion is that smoking Marlboro will make them feel rugged, macho and sexy. They establish a clear distinction between mainstream cigarettes smoked by the older generation and Marlboro. By targeting communications at the club/disco/bar environment and using well produced direct mail magazines, covering topics which are currently in vogue with the younger generation, PM has successfully built up lasting brand loyalty. The effectiveness of this strategy is demonstrated by the fact that Marlboro's market share is usually higher among its target group than in a market overall - it would not be untypical to find a 60/70% market share among smokers under 25, whereas overall market share could be much lower at say 20%. Successful Integration of Above and Below the Line activity - as television, press and radio advertising bans have become more common place across the world; Marlboro has successfully shifted a larger proportion of its promotional effort to below the line activity. This has worked well because PM has retained the dominant above the line themes and images (made possible by their simplicity and versatility), thereby ensuring maximum leverage from communications integration. A good example is the Formula One sponsorship: The glamorous, up market image compliments Marlboro's premium product positioning, whilst at the same time reaching a wide audience around the world. Segments expect communications that will address their needs.PM has consistently targeted this issue with success-particularly with its largest segment of young smokers. This segment cuts across gender roles genrally; however lights can be offered as 'mild offering' to suit sensibilities of females. On verbal communication system appears to be predominantly a desire to portray a 'macho' image and to belong to the group of 'Marlboro smokers'. It is felt that reference groups and opinion leaders can be used effectively in our advertising campaigns as has been proven in the past. Particularly we can hire leading sports personalities and catch their 'off the sporting arena' moments with Marlboros in their hands. Similarly role related clusters can be easily targeted given the premium image PM enjoys in the market. Innovation in short length cigarettes can have positive contributions from promotion if such promotion is targeted to office goers who have effective official bans on smoking in offices. The above description indicates that PM's advertising campaign has been holistic to cover its major segments ensuring clarity and comprehension of messages. In particular consumer motivations produced by 'macho' image are well remembered. Our high profiled and glamorous advertisements generally induce emotional euphoria and enthusiasm and add to ' macho' factor. It is believed that present campaign has most use situations which can enthuse consumers however they can be improved by including sporting situations as mentioned above. In most of the PM brands the purchase decision process is routine. The need identification is already and naturally present.Ctitical information variables pertain to nicotine/tar levels on the one and pricing on the other. Most of it is sought at the point-of-purchase. It is also unlikely that consumer can develop product dissonance subsequent to use because of high product quality. Product performance also seem to match as that portrayed by promotion. Products Marlboro is recognized in the industry as the leader in terms of product technology (at the time of its US relaunch in 1954, Marlboro's filter tip was considered revolutionary). This mostly allowed PM to strategically orient leaf and manufacturing to its advantage. It is in fact the benchmark brand against which others are compared. Constant improvements are made to the product whilst at the same time retaining its essential character. PM has consistently maintained and upgraded the quality of the Marlboro product at the factory gate. The packaging and its contents always meet the highest standards. In respect of quality of the Marlboro smoke it turns very difficult to separate the brand's actual product qualities (i.e. taste, impact etc) from the perception of quality resulting from the promotion of the brand. Smokers' views of the product's quality are intertwined to the fact that it is the number one selling brand, thereby conferring an inbuilt guarantee that the product is of highest quality. Some studies, in the past, for instance indicated that ammonia technology and its effects are the 'secret' of Marlboro, giving it its unique taste and character. Smokers' panels and blind testing have also indicated that Marlboro appears to benefit from lower irritability than other comparative brands, but with the same impact. Although PM aims for a consistent Marlboro blend across all markets, it is prepared to use local characteristics in the basic product make-up (whilst retaining a common smoke sensory experience). 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