Understanding Customers Shantanu Dutta

1. Understanding CustomersShantanu Dutta • Objectives • Customer Orientation • Use differences in desired benefits by customers to segment markets • The example of Levi’s in the men’s wear market • Was Levi’s customer oriented in this example

2. Customer Orientation: Perceived Benefits • Customers buy products for the perceivedbenefits that the product offers • Perception: Process by which an individual selects, organizes and interprets stimuli into a meaningful picture of the world.

3. Customer Orientation: Perceived Benefits contd. • Perception is a function of : • The key salient dimensions that exist in the mind of the consumer when they are making decisions about products/services • Examples of stimuli that affect perceptions • physical attributes (e.g, 6.5 pounds for lap top) • intangible attributes like “brand image” (e.g, Calvin Klein) • store image (e.g, Neiman Marcus versus T. J. Maxx)

4. Customer Orientation • In order to understand customer benefits, it is important to allow customers to describe the benefits they seek in their own words • Example: Portable P.C. Customer Benefits In Their Own Words Not heavy to carry in my briefcase Easily usable on airplanes Can use coast to coast Easily carry running through airports Engineering Characteristics/ or Solutions 6.5 pounds 8” by 11.5” 5.5 hour battery life Has a handle

5. Customer Orientation • For new technologies it is not possible for customers to be able to express what they want to see in the products • Customers can express their feelings in terms of benefits • e.g., customers never did ask for cellular phones • However, if you ask them “whether they would like to be able to call their children at home from their cars when stuck in traffic” • When you get input from customers, ask them to articulate benefits they seek for typical situations and allow customer’s to describe their needs in their own words. Do not try to impose your technical terms/engineering attributes on to customers

6. Customer Orientation • When you get input from customers also encourage them to articulate benefits for “edges of the performance envelope” i.e., what additional benefits would they ideally like to have if there were no technological or cost constraints • What is critical is not only what question is asked but also how the question is asked • New Coke failed not because people lied about how much the liked it, but because Coke’s marketing research did not place people in the context of having the New Coke with the original Coke pulled from the market.

7. Is A Marketing/Customer Orientation Important ? • Ignore your customers ? • Basic research such as microprocessor developed at the Bell Lab or a better understanding of DNA pattern will be researched often without concern about whether customers see benefits or not • Sales and Technology Driven Firms often • Focus is on the next product/technology • R&D develops and given to sales to sell • Marketing and sales are the same • Feel that customers do not understand products/ technologies

8. Is A Marketing/Customer Orientation Important ? • However to develop the initial concept into actual products that customers will buy is not possible without a marketing orientation • My research findings from the semiconductor industry • Firms that have a strong interaction between marketing and R&D tend to have higher profitability • A strong marketing capability enhances the firm’s R&D capability to come up with innovative technologies • Firms with strong R&D get the biggest bang for the buck from a strong marketing orientation

9. Levis: Segmentation • Definition: Segmentation is the process of dividing potential customer into distinct subsets of customers. Each segment consists of people who desire similar benefits that lead them to respond in a similar way to a particular product/service offering. • Levis interviewed 2000 men to arrive at a segmentation scheme in the men’s wear market. This segmentation is based on their perceived benefits. • This perceived benefit is influenced by the physical attributes they would like in the product, the image they want to convey, where they like to shop, their preference for brand name, price sensitivity etc.

10. Levis’ Focus on the Classic Independents In The Mens Wear Market • Levis has an initial hypothesis that the classic independents are more likely to respond to their new concept and thus commission a focus group study to understand these buyers • The objective of the focus group in the Levi study • Understand the response of the “classics independent segment” to the idea of Levis introducing separates

11. Levis’ Segmentation of the Mens Wear Market • Utilitarian jeans customers: • they do not care much about clothes • wear jeans for work and play • loyal jeans customers • they constitute 26% of the market • Trendy casual: • buys high fashion brands • loves to be noticed • comes to life after dark • they constitute 19% of the market • Price shoppers: • buy primarily on price, look for bargains • shop in department stores or discount stores • constitute 6% of the market

12. Levis’ Segmentation of the Mens Wear Market • Mainstream traditionalists: • love polyester • over 45 • conservative politically and in their tastes • love to shop with their wives and value their opinions • shop in department stores • constitute 28% of the market • Classic Independent: • they like the freedom to be able adjust clothes during purchase to get a better fit, looking right is really important to them • less price sensitive • do not like the association of Levis name with suits • though they constitute only 21% of this market they buy 46% of wool and wool blended clothing • shop at specialty stores

13. The Tailored Classic:Perceptual Map And Ideal Benefit Desired By Segments Segment Description Q1 Mainstream traditional Q2 Classic independent Q3 Utilitarian Q4 Trendy casual Q5 Price shopper Specialty stores Q2 ideal point Q4 ideal point Q1 ideal point Rack Polyester (low price) Tailored Wool (hi price) Q3 ideal point Q5 ideal point Discount stores

14. Customer Orientation:Understanding And Listening to Customers • Was Levis customer focused in this example • Important to incorporate customer input in the product development decisions, not allow the company tastes and biases to influence the decision

15. Levi’s since the Tailored Classic • Docker’s slacks • - Market segment: 25-35 yr. old; yuppie, classic, traditional • Loose jeans • - Market segment: (1) 30 yr. olds (gaining weight) • (2) 15 yr. olds (prefer baggy style) • Slates ‘suits’ • - Market segment: 30-40 yr. old; upper scale, like quality