Questions and Answers

Lars Perner, Ph.D.
Assistant Professor of Clinical Marketing
Deparment of Marketing, Marshall School of Business
University of Southern California, Los Angeles, CA 90089-0443, USA
(213) 740-7127 Cell: (760) 412-0154
perner@marshall.usc.edu

Below are some answers that I have provided in response to media inquiries.

Q.: At what age do kids become brand-loyal?

A.: This depends both on what is meant by “brand loyalty” and the product category in question.

Since there are serious ethical constraints on what kinds of data that academic researchers can collect on children, there is probably no definitive research that specifically assesses the onset of brand preferences. I would suspect that around age 7, many children would start to become quite sensitive to brands used by their peers. Peer influence may cause a child to favor a particular product or brand not because he or she likes the product per se, but rather because friends are using it. Thus, there is likely to be a repeated desire for the favored brand, but this pattern is strictly contingent on the product being "in" with the peers. If "cool" others stop using the product, there really would be little loyalty left. For certain "faddish" products, then, heavy current consumption is more likely to be a sign of lack of long term brand loyalty.

Another factor at issue is the product category in question. There are certain products (e.g., laundry detergent) that a person will not start buying until he or she moves away from home. Here, then, there may be a “transfer” of brand loyalty from parents onto the adult child, but this is expressed late and probably more weakly. For other products, tastes are often "learned." That is, we tend to prefer the tastes of foods that we are used to. Thus, if a person has used a product for some time, a taste for that product in principle could be visible as early as in the toddler years. However, at that time, the child will probably not know of the brand unless is highly visible to the child (e.g., a box of cereal at the table or McDonald's Chicken McNuggets[TM]) or the product is consumed openly with peers. Note that, ironically, younger children are often much "fuzzier" with their foods and may tolerate changes less than when they get older, so there may actually be a stronger drive early on. For less conspicuous products, preferences may start more around age 7. This, for example, could be the case for toothpaste where the child may have a preference for his or her own brand. Again, however, taste preferences tend to become stronger with age, so there may be more experimentation and variety seeking early on.

Another dimension in brand loyalty is the question of willingness to pay extra for the preferred brand. When parents pay for the purchase, cost may not influence the child’s preferences. When it comes to spending one’s own allowance or earned money, price sensitivity becomes a complex matter. It takes more cognitive development for children to make tradeoffs between price as an opportunity cost in terms of what else can be bought by the money saved by buying a cheaper brand. Such cognitive ability may be present to some extent by age 5-7, but the sophistication will tend to improve until at least the early teenage years. Thus, willingness to pay extra for a preferred brand may be stronger in younger years all other things being equal. However, children tend to get greater allowances later on and in the teenage years, they may start making money from part time jobs. Thus, they will have more resources available and can better “indulge” themselves.

Q.: I'm seeking PR experts who can discuss the increasing prevalence of product/message placements in TV and movies. What is the impact for PR: How involved is the PR department in gaining these placements, how can PR coordinate with marketing and advertising on product placements, what are the potential negative repercussions of product placement which could fall to PR to handle?

A.: I cannot comment on the extent of organizational efforts to arrange placements, but I can comment on technological and consumer issues.

Advances in technology has made it much more practical today to "retroactively" insert a particular branded product into a film or other scene. Thus, there is more room to negotiate with producers of the products. There are also more sophisticated methods of measuring actual exposure to establish accountability.

From the point of view of exposure, there are several benefits to being placed in the program relative to an advertisement. First, the placement is more credible and in a sense represents a de facto celebrity endorsement. Thus, there may be more affect transfer onto the product.

Placements may have greater impact than advertisements. An extreme case would be a situation where the product is actually the focus of the programming, but even if they product is placed in the background (e.g., a bottle of Snapple on the table while two characters are talking), viewers are more attentive to actual programming than to advertisements, and are more likely to actually be watching. Another benefit is that the exposure may last for a longer period of time. This means both that there is more time for limited-attention exposure, but also that there is an opportunity for the consumer's attention to "wander" from the main scene onto placed product.

Q.: I'm looking for psychologists or other experts who can comment about
shopping behavior, specifically in grocery stores. The focus is on shopping
with children.

A.: Shopping with children introduces different issues. One, obviously, is that the children will try to get parents to buy things they like. They may actually grab certain things themselves. Over the last decade and a half, some stores have responded to pressure from parents by having "candy free" checkout aisles.

The other issue is the amount of attention left for the shopping process. Not only is the amount of attention available for product choices reduced at any given time, but parents are often also more in a hurry to get out of the store with children in tow. This means that they may make less optimal choices and may not compare products as much. They will also be less likely to inspect new products.

I have heard of parents who are especially receptive to online grocery shopping since this avoids a trip to the supermarket with children. Even though there is often a fixed delivery charge and less choice of products, it may in some cases be more cost effective to go this route to avoid buying unhealthy and expensive foods that children want.

In his book Why We Buy: The Science of Shopping, Paco Underhill has a chapter on issues of accommodating shoppers with children.

Q.: For an article I'm doing on … "reward cars" -- what we used to call "midlife-crisis cars," or the ones you go out and buy because you damn well think you deserve it, not because you need it -- I'd like to talk to a psychologist or two who could discuss what it means when people buy a car like this.

For many people, cars are very much what we call the "extended self." That is, the car tends to be an expression of who we are, or at least how we would like others to see us. During midlife crisis, image presentation is important. The hope for many people--particularly men--is that the strength and stylishness of a car will "rub off" on the owner.

As people hit the midlife crisis stage, the children may be gone, and this will serve as an opportunity to move away from a family car toward a greater indulgence. Greater salaries achieved at that point may help bring this dream about.

Q.: I'm writing about using direct marketing as a traffic generator for a Web site now (as opposed to doing so under the conditions five years ago, etc.) and making it work -- despite having to work around objections to spam and other factors. I would like to hear from people who've done this or have suggestions for making it work.

A.: A significant problem in getting traffic to one's site is that there now are so many web sites that it is easy for one's site to "drown" among others on the same topic.

Nowadays, most firms tend to include their web sites in advertisements. Again, such information is likely to "tuned out" because it is so common-place nowadays, but the pioneering firms who included this information probably generated attention.

This is where direct marketing may come in since it can provide more attention. If one considers electronic marketing as direct marketing, this has a significant history over the last five years. Banners on other web sites have a relatively low click-through rate in percentage terms, but a small percentage of a very large number of people can be significant. (I am including this as direct marketing since these can be more closely targeted than conventional media advertising). Such banners may be more affordable now that the Internet bubble has burst since rates have come down considerably. Some organizations will use e-mail "spam" to attract visitors, but this is questionably ethical and will result in a large loss of customer goodwill.

Conventional direct marketing, such as sending postcards, letters, and catalogs to consumers is considerably more expensive but will often get more attention since most people will at least look at material to see if it should be thrown away. Individuals can be targeted quite precisely based on the "merge-purge" process in direct marketing. Again, however, there is a considerable question of motivation in actually going to the site. An alternative is "inserts" into bank and utility statements. This is less expensive and will get more attention than a conventional ad, but attention is still limited and the expense will be considerable.

One approach may be to offer a free premium, such as a pen, pencil, Frisbee, or calendar, which features the address of the site. This, again, is expensive. Some firms used to give away impressive screen savers, but I have not seen a lot of those lately, and to use this to attract a viewer to your site, your screen saver must be better than one it would displace.

Q.: I'm working on an article about younger shoppers. This is the basic summary: Older shoppers have well-developed shopping patterns, often in the grocery store. Younger consumers, however, don't abide by the same rules, and the supermarket can be the one stop that they leave out. How does the industry get these shoppers back before it is too late? Defining younger consumers as twenty-somethings, most single, but employed and living on their own. Describe the generation. What are they like? What do they want? What are their goals and priorities? What is their purchasing influence?

A.: To the extent that this group involves young people who have moved away from home and without children, the biggest concern is probably convenience. This may be why so many have gone to the convenience stores rather than supermarkets.

A very important subsegment is college students who live on their own. Income is obviously a major factor here, but many work part time and receive support from home. Here, again, convenience is likely to be important, and this group (as well as all young people) may shop at odd hours.

More than older segments, this group contains more foreign born individuals. Some recent immigrants and some have spent much of their childhood in the U.S. The latter group is somewhat more assimilated, but there may be a desire for ethnic foods that parents used to make. Many of these young people--especially the males--will not have learned to make the foods themselves, so there may be a considerable demand for prepared foods here. Word-of-mouth may be quite important to reach this group.

Q.: What does this group want out of shopping? How does that different from both teens and older generations? What do they look for when they go to a grocery store?

A.: Young individuals tend to have lower income than older consumers (see the American Demographics article on income where I am interviewed on this topic), but often they have lower expenses since they do not have children and are probably renting rather than having a mortgage to worry about. Many do, however, have considerable auto expenses since there is a tendency to buy cars in a price range disproportionate to their income. Some may be trying to save up money and may be budget conscious, but convenience may be an overriding factor for many. Since the specification above explicitly refers to people who are living on their own, this group obviously does have some rent expense. This is a main difference from teens, where many have worked long hours, and have had considerable income, while living at home. It should also be noted that many young people may have roommates, and the shopping situation then becomes very complicated since some purchases are made jointly and some are made individually.

Q.: Are supermarkets and grocery stores doing a good job appealing to this
group? What are they or aren't they doing? Where could they improve? Are
there other venues that are doing a better job appealing to younger
consumers, and what strategies do they employ that grocery stores may want
to mimic?

A.: Since convenience is likely to be a main attractor to this group, this might be emphasized. Short check-out lines are probably essential. A good deli section with reasonably priced prepared foods and staying open late at night would be attractors.

Since the main competition here is from fast food restaurants and convenience stores, having some smaller supermarkets located conveniently might attract young people.

The younger generation is obviously more attracted to the Internet, and some grocery stores offer Internet purchases. However, because a single is likely to make smaller purchases, paying the fee for delivery may discourage participation. There is also a question about being home to receive the deliveries. Therefore, having low fee deliveries with flexibility as to when the deliveries are made would be desirable. One interesting possibility is to work with large apartment complexes to have a way to have groceries accepted while the resident is not home.

Q.: What recommendations do you have for retailers when dealing
with this age group, in terms of placement, product selection and in-store
merchandising?

A.: This group will tend to prefer single serving packages. Price and convenience is probably likely to be more important to this group, relative to older consumers, than selection. An exception is "faddish" products such as Jones Soda and Sobe drinks.

Q.: What sort of a mark do you see this generation making on
the supermarket industry over the next five years or so?

A.: This demographic group will increase significantly in numbers due to historical birth rates, so it will become more important as an economic force.

Q.: I'm doing an article on holiday online shopping this season. What's new in online sales? How can companies make the most of this season and keep customers coming back after the holidays are over?

A.: I am not sure that there is so much new. It is probably more a question of how much and how well different techniques are used.

Click-through banners are still a way to get consumers to one's site, but many firms are facing tighter budgets and consumers by now are so used to the banners that they probably get less attention. Pop-ups, although irritating, are still a way to grab consumers' attention, but you must have a good offer to get people to go through.

With consumers being more deal conscious, it may be more important now to be listed on search "bots" such as bizrate.com . For some of these, the merchant must actually pay a fee for a click-through, so there are some costs.

Special promotions may be useful. I see a great deal of merchants offering free or reduced shipping. They may be following Amazon's lead, since this site has gradually reduced the minimum purchase order for free shipping down to $25.

One benefit of having people shop for Christmas in terms of repeat business is that the vendor will get the buyer's e-mail address and may thus be able to send new offers to the customer unless he or she specifically chooses not to receive e-mails. That way, using "dynamic pricing," it may be possible to offer special deals or lower prices to customers who have not bought lately. It may also be possible to target specific products of interest to consumers based on their past purchases.

Since "brick-and-mortar" retailers are doing a great deal of discounting this year, online merchants may have to try to match this. One advantage the onliners may have is that they can offer direct shipping and gift wrapping.

Q.: There's a growing non-Christian population here in the U.S. From the looks of the current holiday advertising mix, ad agencies and advertisers are recognizing this and waking up to the fact that not everyone celebrates the holiday season with a Christmas tree. I'm working on a story about this trend for the Advertising column. I'll be discussing what the trend means to society and advertisers. I'm looking to speak to ad agencies and retailers about their multicultural advertising promotions.

A.: This is clearly a very important issue. Christmas is, for many people, a genuine religious holiday, and for some others, it is more of a nominally Christian one. From a historical perspective, it is generally believed that Christmas was assimilated into Christianity from the old Northern European tradition of "Yule Tide" where people would throw burning pine trees down snowy hills. Some historians believe that this tradition was "sanitized," being revised as the mark of the birth of Christ. This allowed for easier assimilation into Christianity while adding religious purpose.

Christmas contrasts to Thanksgiving in that the latter is generally recognized as a non-religion specific holiday. Christmas is a more explicitly religious holiday, but one that affects much of the rest of the population--e.g., many places of employment shut down or reduce activity at least part of the time between Christmas and New Year's.

For some religious groups, there is a significant tension between assimilation and preserving one's religious identity. Some Jewish families, for example, have adopted "Hanukkah bushes." Hanukkah gifts are not a significant part of the Jewish tradition, but has been adopted to some extent in the U.S., although children tend to receive a number of small daily gifts for some period of time.

After 9-11, Muslim families may face some conflict over Christmas. Since Islam accepts the existence of Jesus as a historical figure of some significance (though not as God or the son of God), Christmas could possibly be adapted to some extent, and there might be some pressure to do this in order to fit better into a more suspicious society. On the other hand, because the rejection of the trinity is a very central part of Islam, this could be dangerous.

What may be left are people who are not Christians but are not particularly religious, either, but would likely observe Christmas as a secular holiday (e.g., people who might be nominally Christian but only nominally so, agnostics, and atheists). These groups might like to avoid too much emphasis on the religious aspects, but might like a focus on the holiday season. These people, for example, might like to see snow Santa Claus, and the elves presented, along with other icons such as "A Christmas Carol."

Interestingly, although Japan has only 2% of its population as Christians, celebrating Christmas there has become fashionable in the last two decades.

Q.: I'm doing a story for a major business and finance magazine about small-business owners with a completely new product or service, requiring a process of educating customers about how they might need something they never thought about -- a missionary sell. I need examples of entrepreneurs who did this. Best would be examples from the past two years.

A.: A completely new product is known as a "radical new innovation." These innovations may completely change how things are done (e.g., having a PDA rather than an "old fashioned" appointment book). The marketer faces several challenges:

1. The consumer must be made aware that the product exists. This is more difficult than it sounds since the consumer has tremendous competition for his or her attention. Merely putting a new product in a store will not necessarily motivate consumers to notice it and investigate what is used for. (The more complex and non-intuitive the product is, the more difficult it is). Creating awareness through advertising requires tremendous repetition, and few firms have advertising budgets for this. If a product can be tried with low risk (e.g., an inexpensive grocery item) it will tend to face less resistance to products where a commitment has to be made (e.g., for the XM satellite radio, the consumer has to invest in equipment before he or she knows that it will meet expectations.

2. The consumer may perceive a great deal of risk. In some cases, if the manufacturer does not succeed, it may be difficult to get service, and it may be difficult to get accessories to the product. The technology for new products is also more unstable early on, increasing risk.

3. The consumer has to be persuaded that this product has significant benefits over and above the original product.

4. Consumer "inertia" has to be overcome. If a product involves any kind of learning curve, this can be difficult.

The topic of "diffusion of innovation" is discussed in more detail on my web site http://www.ConsumerPsychologist.com .

Q.: I am a business reporter working on a story on retailers' pricing policies. I'm particularly interested in legal restrictions on "percent-off full price" advertising and whether such laws actually protect consumers

A.: Restrictions of advertising of "percent off" could occur in two different types of situations.

One would involve a reduction off the full price (the manufacturer's suggested retail price) of the product. In some product categories, few if any retailers charge the full MSRP, but this practice allows even full service retailers to imply that they are giving a discount. Microsoft actually abandoned MSRPs back in the mid- to late 1990s since it was recognized that these in practice are purely fictional. I am not an expert on law, but I believe this practice is legal in the U.S. (but not in Germany). In general, U.S. antitrust law encourages vigorous competition among retailers, so they are expected to price aggressively (but not below their own fully absorbed cost).

Another practice is having near "continuous" sales. There is a real question, then, about the legitimacy of a "regular" price that is actually offered a minority of the time. In the early 1990s, Sears reportedly sold 55% of its merchandise on sale. As I understand it, referring to a "regular" price that actually rarely exists can be found to be deceptive to the extent that it misleads consumers into thinking that they are getting a bargain not available most of the time. The Federal Trade Commission has "cracked down" on this practice occasionally.

References to MSRPs are probably considerably less deceptive than referring to rarely occurring "regular" prices. The latter does most likely have a potential to confuse consumers to some extent. Consumers would probably benefit from laws that specified clearly how such sales could be advertised. To some extent, however, consumers are already somewhat cynical about discounts, and at least two studies found that consumers "discount" discounts--that is, they tend to believe that the regular price is not quite as much as what the advertiser claims. However, "regular" prices, even if not believed, have been found to raise the consumer's expectation of what regular market prices are.

A significant factor that affects the extent to which higher "comparison" (or "external reference") prices are believed is frequency with which the product category is purchased. Products such as yogurt and soft drinks are both frequently promoted and frequently purchased, and consumers are therefore more knowledgeable about market prices. There is a greater potential for deception among less frequently purchased items.

Q.: For an article about income trends, I'm looking for sources who can discuss best practices in marketing to the affluent, the upper middle class and the middle class.

A.: In general, social class in the United States is somewhat ill defined, and thus it is a difficult variable to segment on. Social class is not synonymous with income, as many blue collar workers have very high incomes (e.g., it was reported in the news during the West Coast longshoremen's strike that they had incomes between $80,000-140,000 on the average).

In terms of income, high income does not consistently equate to willingness to spend money. Frequently, many people who became affluent did so in large part through frugal living and consistent savings (e.g., witness the bestselling book The Millionaire Next Door). There are, of course, certain products where sufficient income is a necessary, but not sufficient cause. However, if it is a high enough budgetary priority, even modest income households might be able to finance a Mercedes-Benz automobile.

Interesting market research has shown that the 99 Cents Only chain has had some success in more affluent neighborhoods.

Some brands have positioned themselves as providing a product that is not inexpensive but one of value that will last a long time (e.g., Patrick Henry suits). This may be a good strategy to reach some of the more affluent segments.

The market research firm Claritas uses a clustering system (PRIZM) whereby each zip code is classified based on 60 variables, some of which relate to income and social status. This system may be of some use in identifying the preferences of high status and more affluent segments.

Q.: I am writing a year-end wrap-up that will encapsulate the first full year of China's accession into the WTO. So what are the changes that China made to fulfill the requirements of the WTO and were there bureaucratic delays involved? Has the environment for business changed in the country in the year? In other words, are foreign countries finding it easier to conduct business? Finally, what else needs to be done? I am looking to talk to experts who have knowledge both about the WTO requirements as well the Chinese business scenario. It would also be great if I could talk to companies (U.S. or foreign) doing business on the ground that see changes in the environment.

A.: China is making very rapid progress in becoming accessible to Western firms. Ironically, however, a major problem is the lack of centralized control. One tends to think of a communist country as one that is managed centrally, but in part because of China's difficult terrain, local and provincial government officials have a great deal of power in implementing laws. Because many inefficient Chinese firms are being threatened by more open markets, many of these government officials will drag their feet in implementing directives from abroad. Many countries, in trying to nominally comply with trade agreements while protecting the home market, will put up "non-tariff barriers." Here, theoretically, the foreign firm has free access, but it may prove very difficult to secure certain government approvals--e.g., application guidelines may be vague as to what is required for a permit to be issued, and standards for safety approval of products may fail to specify how the products will actually be tested. Local governments may also make it difficult for foreign products to get into the local distribution channels. There are also major problems with corruption in China--especially at the local level--that may make things especially difficult for American firms to succeed. U.S. business are bound by the Foreign Corrupt Practices Act, which prohibits even small bribes. Many foreign companies do not face such laws at home and can easily pay out a few thousand dollars to win the favor of a government official.

It should be noted that most trade agreements are very complex, with their actual text often running hundreds of pages. There are frequently a great deal of ambiguities in the agreements, and it is to be expected there will be some conflict in resolving disagreements.

The most important thing that needs to be done is probably for China to reduce local corruption and develop a more sophisticated legal system. China has actually executed more than a hundred corrupt officials, seemingly sending out a rather strong message, but corruption continues. Aside from the trade deal per se, China needs to considerably improve its infrastructure to make trade with the inner regions of China cost effective.

The environment has changed significantly in the last year in large part by very rapid modernization of China. Telecommunications and computer technology are growing rapidly. In terms of government attitudes, developments may be somewhat cyclical. Government officials have to be careful as to how strongly they can endorse free trade in a communist country, and sometimes the hardliners get more of a say. The government has shown some ambivalence, for example, about foreign investment in electronic commerce, going back and forth on how much foreigners can own of a venture. Government officials also get very worried about "subversive" ideas being spread on the Internet so that there are sometimes attempts to limit its use while at other times, its importance to national economic growth is being more recognized.

The WTO agreement generally implements free trade gradually. For example, in the banking sector, foreign banks are first being permitted to take only foreign currency denominated deposits, with other markets only being opened over a series of years.

It might be of interest that the China trip I attended back in the spring was sponsored jointly by the Department of Commerce and the local Inland Empire chambers of commerce. Arrangements were made for several business people in the area to meet with potential business partners in China.

For more information, I recommend the book China and The WTO by Supachai Panitchpakdi and Mark L. Clifford (John Wiley, 2002).