I was reading a couple of articles on consumer behavior by Dr. Lars Perner, an expert in behavioral psychology at USC. Consumer Behavior is considered a soft science by managers. In today’s know-it-all marketing environments, managers seems to think that they know what the market wants in terms of products and market research, if any, is conducted to confirm those notions rather than being carried out from an exploratory viewpoint. This is really quite disappointing since good consumer research, sometimes, is the difference between success and failure.
Consumer behavior is about understanding the psychology or processes of how consumers think and how they select a particular brand or product for their use. This field is also about understanding how consumers are affected by their environment like media, family, work etc and how all those factors affect their buying decisions. Additionally, this field covers behavioral aspects like buyer behavior, decision making, information processing, the rationalization process etc.
Last year, when gasoline prices were at an all-time high and consumer’s wallets suffered a hit for that as well as higher food prices, the deluxe coffee drinking experience was viewed as a luxury. Which it was. This saw Starbucks register a major decline in sales. It was easier for a consumer to cut a $3 cup of coffee from their budget than say something from their family grocery list.
Back to gasoline; Last year, there was very little that most consumers could do about their gas consumption apart from cutting back on long driving vacations. Many consumers were stuck with big, low-gas mileage cars they picked up when prices were lower. Ironically, because many still owed a great deal on those cars whose resale value had declined, switching to more gas-efficient models was difficult. Until the cash-for-clunkers program which was a government sponsored buyback program (which ran in teh summer of 2009) where consumers could turn in their clunkers which they were driving (A clunker was defined as a automobile that ran less than 13 miles per gallon) for a $4500 reduction on the sticker price of a new gas mileage friendly car. This still didn’t help consumers who had purchased beyond-their-means cars a few years ago. In any case, the gas prices did cut in significantly to consumer retail purchases and the Starbucks cup-a-joe was first to go.
As Professor Lars states, it was different for Starbucks, 15 years ago. Developing the high quality brewed coffee market along with a location to enjoy the same seemed a cinch. People were ready for the mass marketing of this modern day smokers club.
Product life Cycle concept :
In such an early phase (Introduction) of the Product Life Cycle (PLC), the growth in demand is often greater than the increase in supply that results from the entry of new firms into the market. So, price pressure and the risk that premium coffee drinkers would switch to lower cost alternatives are lower than in mature product markets. Today, increased competition means that fast food chains like McDonald’s now offer premium coffee. Dunkin Donuts has already expanded their range of affordable coffees to include some of the exotic variants that Starbucks offers, at lower prices. The entry of the fast food sector into the premium coffee market is no surprise. It was bound to happen given that the premium coffee market had opened up. Starbucks should have thought of a brand extension strategy when sales were at their peak rather than just expanding merchandise at their store and offering more cups and music. And no, more flavors didn’t cut it. Maybe, when Starbucks expanded their reach into supermarkets, they should have experimented with more affordable coffee for the masses.
A luxury brand like Starbucks will not go out of business as premium coffee drinkers will still get their cup of coffee from them though not as frequently. According to Professor Lars, businesses that have high fixed expenses (the cost of real estate and labor) and much lower variable costs (the cost of the actual coffee and cups) are highly sensitive to volume. A ten percent decline in sales, for example, results in much more than a ten percent decline in profits. So, if customers opt for lower priced items when they actually do go to a Starbucks location, this problem is compounded.
Consumer behavior is always going to be a fascinating study. Who would’ve thought that something like Twitter would’ve caught everyone’s fancy? Ditto with Facebook. This voyeuristic aspect of people to peek into the drama in the lives of others is also reflected in televison where reality shows have now become a staple. Also, as in televiosn, the attention span of internet users especially, the youg adult segment (19 – 29 years) is very short and the online message needs to be succint, strong and powerful to make an impact.
The real fun is just beginning…
