Monday, November 16, 2015

SM: Session3: Service Classification, Characteristics and Triangle

Classification of Services

One of the better known service classification is come from the analysis of what is being processed. In some cases, customer’s presence is important as the service is processed on them, while in some other cases customer’s possessions are processed. Some services require a lot of input from customers and some are conducted with less or no input from customers. There are different level of participation also.  Christopher Lovelock has identified four broad categories of services – people processing, possession processing, mental stimulus processing and information processing. These categories are defined on a two dimensional matrix;
  • Who or what is the direct recipient of the service
  • Nature of the service act

People Processing
Common belief about services is that the services are directed to customers. Number of very popular services like airlines, beauty treatments, health care and hospitality are people processing where, to receive the service customer must enter the service operation. According to Lovelock, these service facilities are service factories, where production and consumption happens simultaneously. For such services, customers need to cooperate actively with the service operation and required to give more time and efforts

For effective marketing in people processing services, marketers should think about process and output from the customer’s perspective and needs to identify benefits created and non-financial costs: Time, mental and physical effort

Possession Processing
In such services, people’s possessions are processed. Services like car repairs, house cleaning, pest control, laundry are of such type where, production and consumption are separable. Customer involvement is limited as they explain the problem and drop off the item that requires repair or service.

In some cases like landscaping, servicing of heavy equipment, the service factory has to go to the customer. Usually there is a tangible enhancement to the item being processed

Mental Stimulus Processing
These are the services that interact with peoples mind like education, news and information, professional advice, psychotherapy, entertainment etc. These services can be ‘inventoried’ and can be easily converted into digital formats. Customer’s physical presence may not be required at the time of production.

Marketers should maintain ethical standards required and should not manipulate customers as core content of services is information-based.

Information Processing
This is the most intangible form of service. May be transformed into enduring forms of service output. It may be transformed into tangible forms represented by reports, books, tapes, disks. Strictly speaking personal contact is not needed in this case.

Examples of such services are, financial services, professional services like accounting, law, market research, management consulting, medical diagnosis etc.


Characteristics of Services
The very basic difference between services and physical products is that the very intangible nature of services. Service marketers face a number of challenges due intangibility and several other service characteristics that makes services different from physical goods.

Intangibility
As discussed, intangibility is a unique service characteristics. Most Services are experienced that cannot be seen. They can only be used. For example, a taxi ride or hotel stay. Marketers are very concerned about this aspect as it increases the customer perceived risk. Thus they provide number of physical evidences (also known as servicescape) to enhance the experience. The service environment covers up for intangibility and reduces the perceived risk.

According to Berry, Walls and Lewis, in interaction with services, customers consciously or unconsciously filter experience clues – something that customer perceived by its presence or absence. These clues are:
  • Functional clues – technical quality of the offering – service reliability
  • Mechanical clues – technical quality of the offering
  • Humanic clues – behaviour and appearances of service providers.


Inseparability
Services are produced and consumed simultaneously and hence cannot be transferred from place of production to place of consumption. Some services like house cleaning, pest control and some medical and nursing service comes at customers door step, but they last only till the service provider is present.

To overcome such limitations, service firms can offer its customer some tangible clues like souvenir and gifts. McDonald’s Happy Meal toys are very popular amongst children. Jet airways gives miniature aircraft toy to children traveling with them. Some beauty parlours, gives a gift hamper. Hotels in Goa give a local wine bottle as souvenir to its customers.

Variability
In services, human element plays an important role. Service quality is based on performance of service employees. Due to this human element, services cannot be standardised. There is always variability from one service product to other. To deal with this issue, service firms can;
  • Standardise the repetitive process.
  • Invest in technology to enable standardization
  • Train employees using hard measures of service quality
  • Offer service guarantees to reduce customer perceived risk.


Perishability
Since services are intangible, they cannot be stored for future consumption. Most services are actions, performances and an experience that lasts only till the services is delivered. Service product is essentially intangible (though in some cases some services include use of physical products like meals in restaurant), thus perish after consumption.

Service firms need to manage demand and supply by create rate fences and buckets and by using differential pricing.

Lack of ownership
Since services are perishable and inseparable, customers do not own anything but avail an experience only. The implication is that the customers feel hesitant to spend a big amount as it does not accumulate as a wealth like in case of many physical products. To overcome this limitation service marketers stress on advantages of services and encourage customers to spend by providing easy payment schemes, offers and discounts.


The Service Triangle

The 3 vertices of the triangle are the company, customers and the providers (employees). The sides joining these vertices are external marketing, internal marketing and interactive marketing.


External Marketing Efforts
This is about making promises, i.e., efforts the firm engages in to set up its customer’s expectation and makes promises to customers regarding what is to be delivered.

Interactive Marketing
This is about keeping promises. Here is where the promises are kept or broken by the firm’s employees or agents.

Internal Marketing

This tangent is enabling promises, i.e. the activities firm engages in to aid the providers in their ability to deliver on the service: recruiting, training, motivating, rewarding and providing equipment and technology.

Tuesday, November 10, 2015

SM: Session 11 Service Quality

Service quality is an important parameter of success for most firms. In services context, quality and productivity create value for customers and companies. Service quality focuses on the benefits created for customers; productivity addresses financial costs incurred by firm. It keep costs down to improve profits and/or reduce prices, enable firms to spend more on improving customer service and supplementary services, secure firm’s future through increased spending on R&D and impact service experience.

Monday, November 9, 2015

SM: Session 9 Service Process

Service process in the 5th P of service marketing mix. It is peculiar to services as in services, production and consumption happens simultaneously. Service processes are set of operations and systems that guides the flow of service production from the service provider and the consumption by the customer. 

Saturday, November 7, 2015

SM: Session 8 Service Promotion

The word promotion is derived from the Latin word meaning ‘to move forward’. In services marketing mix, promotion is the fourth P. Many service businesses do not spend much on promotional activities. For example, advertising agencies do not advertise-for themselves. Marketing Research companies rarely advertise (in India). The reasons may be...
  • For many service products, the target market may be a narrow segment
  • Many service providers rely on word of mouth
Many services also need trials. Service provider needs a critical mass of early birds to try your service product in the initial stages. For this, an objective-based promotion plan is a must. In today’s jargon, it could be termed an Integrated Marketing Communication plan.

Friday, November 6, 2015

CB:Session 4 Models of Consumer Behaviour

In order to understand the dynamics of consumer buying decision making process, researchers, authors, marketing consultants and practitioners have devised several model that can explain consumer buying behaviour. Early authors focussed on approaches that relates to buying behaviour that are highly influenced with the parent subjects of consumer behaviour. There is economic model that deal with rationality of consumer decision making. Sociological model on the other hand that emphasize that behaviour is driven by social compulsions rather than needs. The learning model related to man's ability to learn, forget and discriminate.

Tuesday, November 3, 2015

POM: Session 12 Marketing Strategy - Positioning

What is Positioning?

As defined by Philip Kotler, Positioning is the act of designing a company's offering and image to occupy a distinctive place in the minds of the target market.

A good positioning not just give the company that competitive advantage but also help company in realizing the customer focused value proposition. These are the target market customer attributes carefully studied and incorporated in the company’s marketing efforts.

Monday, November 2, 2015

POM: Session 11 Marketing Strategy - Targeting

After identifying different market segments, the company selects one or more as target markets. To select effective market segments the company evaluate segments on three factors:

  1. Segment size and growth, i.e. number of consumers are sufficient in the segment and they will increase. The company should also judge the pace as per its capabilities. 
  2. Segment structural attractiveness, i.e. influence of forces like suppliers bargaining power, customers bargaining powers, threat for competitors and substitute products. The company also needs to examine major structural factors that affect long-run segment attractiveness. 
  3. Company objectives and resources, i.e. the firm should have resources to go for a segment (in case of up market stretch) and should match company's objective (in case of down stretch). A segment is less attractive if it already contains many strong and aggressive competitors. The existence of many actual or potential substitute products may limit prices and the profits. 

Saturday, October 31, 2015

POM: Session10 Marketing Strategy - Segmentation

Zara, a Spanish retail brand is very popular in almost all age groups. As compare to other retail brands they are low on advertising and discount offers, still able to do well in the competitive market. Why people buy from Zara? It is their marketing and distribution strategy that keeps them ahead. Fast fashion as they are perceived in the minds of their patrons, concentrate on three winning formulas:
  • Short leading time that results in more fashionable cloths.
  • Lower quantities increase in demand and scare supply
  • more choice, i.e. something for everyone
Most companies, like Zara, have moved away from mass marketing and toward target marketing—identifying market segments, selecting one or more of them, and developing products and marketing programs tailored to each.

Wednesday, October 28, 2015

SM: Session 7A Revenue Management in Services

Revenue Management

Revenue Management (Yield management) is the process of understanding, anticipating and influencing consumer behavior in order to maximize profits from a fixed, perishable resource. The goal of yield management is to produce the best possible financial returns from a limited available capacity. It attempts to allocate the fixed capacity of a service provider, such as airline seats or hotel room reservations.

Revenue Management is effective in the following conditions:

1. High fixed cost structure
2. Relatively fixed capacity
3. Perishable inventory
4. Variable and uncertain demand
5. Varying customer price sensitivity

Revenue management (RM) is price customization as it charge different value segments different prices for same product based on price sensitivity. It uses mathematical models to examine historical data and real time information to determine

  • What prices to charge within each price bucket
  • How many service units to allocate to each bucket
  • Rate fences deter customers willing to pay more from trading down to lower prices (minimize consumer surplus)


Yield Calculation


Yield = Actual Revenue / Potential revenue
Actual revenue = Actual capacity used x average actual price
Potential revenue = Total capacity x Maximum price
A hotel has 200 rooms and the maximum possible price is $ 200 per room
Potential revenue is $ 40000
But if 200 rooms are rented at $ 150 each then,
Yield = 30,000 / 40,000 = 75%

Multiple demand and capacity management strategies help service firm to obtain optimal usage and hence maximize profits. However, determining an appropriate mix can be difficult as different parameters like service quality, customer loyalty and customer demand can be crucial in finding revenue buckets.


Relating Price Buckets and Fences to Demand Curve


Key Categories of Price Fences

Rate Fences
Examples
Physical (product-related) Fences
Basic product
§  Class of travel (business/economy class)
§  Size and furnishing of a hotel room
§  Seat location in a theater
Amenities
§  Free breakfast at a hotel, airport pickup, etc.
§  Free golf cart at a golf course
Service level
§  Priority wait-listing
§  Increase in baggage allowances
§  Dedicated butler service
§  Dedicated account management team
Nonphysical Fences - Transaction Characteristics
Time of booking or reservation
§ Requirements for advance purchase
§ Must pay full fare two weeks before departure
Location of booking or reservation 
§  Passengers booking air tickets for an identical route from different countries are charged different prices
Flexibility of ticket usage
§  Fees/penalties for canceling or changing a reservation (up to loss of entire ticket price)
§  Nonrefundable reservation fees
Nonphysical Fences - Consumption Characteristics
Time or duration of use
§  Early-bird special in restaurant before 6PM or 7PM
§  Must stay over on Saturday for airline, hotel
§  Must stay at least 5 days
Location of consumption
§  Price depends on departure location, especially  in international travel

Challenges in Revenue Management



On one side revenue management can improve revenues but it can bring many risk.
1. Loss of competitive focus: Overfocus on profit maximization can neglect the long term competitiveness of the firm. Price buckets gives number of price points to competitors.

2. Customer alienation: Customer may perceive price buckets unfair. In some cases customers are informed about unavailability of tickets for a particular flight two weeks prior because the tickets are kept for last minute bookings!

3. Overbookings: The success of revenue management system lies heavily on the accurate demand analysis. Due to some situational factors, if the demand is wrongly assessed and overbooking is done foreseeing some cancellations, the firm may face problems. In such cases, proper compensation mechanism should be devised.

4. Incompatible incentive and reward system: Employee may not any performance based incentives as they are not able to sell many.

5. Inappropriate organization of yield management system: Revenue management system requires a centralized booking and reservation system that may not be feasible for small firms.


Designing Fairness into Revenue Management

A service firm should design clear, logical, and fair price schedules and fences. They should use high published prices and present fences as opportunities for discounts rather than quoting lower prices and using fence as basis to impose surcharges. They can optimize revenue management by communicating consumer benefits. Bundling can be used to “hide” discounts so that customers don’t misunderstand reference prices. All the policies must be designed to take care of loyal customers. In case of overbooking due to inaccurate demand analysis there should be provision for compensation.

Reference: Services Marketing: People, Technology, Strategy - Lovelock, Wirtz & Chatterjee & Service Marketing - Zeithmal, Bitner, Gremler & Pandit

Monday, October 26, 2015

SM: Session 7 Pricing In Services

In services prices are known by many name. They are rate of interest in bank or other loans, fees in education, consultancy, brokerage as in commission on sale or purchase of shares. They are termed as rent in property deals, toll in road or bridge use, premium in insurance, commission in advertising, admission fee in Museums, tourist attractions and honorarium for guest speakers.

Issue in Pricing Decisions


Reference Prices

In case of services it is difficult for customers to predict the price for a service. They may have some internal price reference, which is based on a price point in a memory for a good or service and can be price last paid, the price most frequently paid, or the average of all prices customer have paid for similar offerings. But these reference prices rarely give accurate idea of prices. The reasons for that are:

1. Service Variability

An important characteristics of service is its variability. Service products are usually designed considering number of permutations and combinations and offered by different people. For example, a hair spa may contain different product use (Kerastase, Schwarzkopf and Wella), given by different people (master stylist, senior stylist, trainee) and for different duration ( 30 mins, 45 mins and 1 hour) that itself comes to 3 X 3 X 3 = 27 combinations. If a customer asks for any additional service like hair wash ( 3 types of shampoos) or anti dandruff treatment (4 varieties) its adds up to 27X3X7 = 324 combinations. In such cases it is very difficult to predict reference prices.

2. Inaccurate Advance Price Estimations

In many cases the service provider can give an idea of the base price in advance. They are usually unwilling to discuss prices in advance as they themselves don't know what service will involve until the service is delivered. For example, a legal practitioner can't predict in advance how much time and efforts are required and hence can't predict the price. 

3. Varying Individual needs

Another reason for customer lack accurate reference prices are their individual needs. For example, if the reference prices are based on previous experience, next time the service combination may be different. If the reference prices are based on recommendations of a friend, for a hair care service, the quality of hair may be the different and hence a different product may be used. 

4. Contrasting Information

Reference price estimation is also difficult due to amount of information is available for various service products and providers. This leads to a lot of references for a given category and results in customer confusion. At times consumer confuses promotional prices (special offers and discounted prices) to reference prices. 

5. Hidden Prices

In service price visibility may be limited. In many service like financial and banking services, many elements of costs are hidden or implicit. For example their may be a penalty clause or taxes. 

Price Calculations - Non Monetary Costs


Service prices calculation is difficult as compared to that of physical goods. The reason being difference in consumer perception regarding pricing for the two. In case of services there are other considerations also and with monetary price other non monetary costs also play a role.

NON MONETARY COSTS

1. Time costs

The time cost is important in the services where customers physical presence required. The customers has to invest time to avail the service and there is waiting time also. For example, long waiting hours on a visit to a physician.

2. Search costs

The efforts put in identifying the desired service are also non monetary costs. Due to intangibility of services, it is difficult to evaluate various options. Initially, the customer may contact number of service providers and compare different prices and schemes. The search may also be done on internet. For example, for booking a tour customer may inquire with many travel agents for the desired itinerary and compare prices.

3. Convenience Cost

The other element of non monetary cost is the cost of convenience (or inconvenience) If the customer is traveling far to a preferred service providing, there is traveling time (to and fro) involved. Heavy traffic in most of the cities cause further inconvenience.

4. Psychological costs

These non monetary cost involve the fear of rejection (application of bank loan), fear of not understanding (using an ATM), fear related to making a choice. Towards the end of it all the customer may feel that there can be better service.

Also price determination take into account the perishibility aspect of the service.

Price a Service Quality Indicator


žIn the absence of other forms of communication from the company, price becomes the sole decisive factor in selection of a service. Customers look for cues like information through advertising, brand image etc. žIn certain services which are perceived as high risk like consultancy services and medical treatment the customers associate pricing with quality assurance.ž Too low a pricing can act as a repellent. It could send negative signals. Too high a price can set very high expectations.

Price Determination

Following three criteria are used to determine prices in services:

1. Cost Based Pricing

A company determines the prices on the basis of expenses adds profit margins and overhead and arrives at prices. The expenses may include human costs, overhead costs are share of fixed costs. 

Price = Direct Cost + Overhead Cost + Profit Margin

This type of pricing is used in services like advertising, contracting etc.

Cost plus pricing is used in services where component costs can be calculated and a markup is added. In complex product lines – like retail banking products, Activity Based Costing is used to determine the price. Cost of the time involved in providing the Service. Example professional services where charges are per hour like consultants, lawyers psychologists etc.

Most services are sold by hour as it is difficult to determine unit price. Also variability of services make it difficult to ascertain uniform cost per hour. 


2. Competition based pricing

This approach is based on using the competitors’ price as the point of reference and used in services where services are standard across providers such as E.g: Fitness clubs, Driving classes, Computer classes Tourist bus services, Car hires etc. 

However, this type of pricing makes competition difficult for small firms as they can't keep prices as large firms. Further heterogeneity of service make it difficult for different service providers and within the service firm. 

Going rate pricing: In this type of pricing strategy the charges offered are the ones that are prevalent in the market for the same type of service. 

Price signaling: Found in markets where there are a number of competitors. If any one company offers a lower cost advantage others immediately match the price. For example when in airlines industry spicejet drops the price, indigo and goair quickly follow.

In some cases there may be an unstated understanding among competitors (group called Cartel, which is illegal) for example Cell phone operators.

3. Demand Based Pricing or Value Based Pricing

This criteria is based on establishing prices consistent with customer perception of value i.e. pricing depends on what customers are likely to pay for the services provided.

Unlike in cost based and competition based pricing, demand based pricing is customer focused and not company or market focused. žThis type of pricing is fixed keeping in mind what the customers are likely to pay for the perceived value offered by the service.

žFor the determination of demand based pricing non monetary costs also have to be considered, as these contribute to the perception of value.

Understanding VALUE
1.Value is low Price.
2.Value is what I want in a service.
3.Value is the quality I get for the price I pay.
4.Value is what all I get for what I give


STRATEGIES FOR EACH PERCEIVED VALUE


Value is Low Price


For some customers the perception of value is to get the product at lowest cost. The monetary price considerations are more important than quality of service. This can be understood as production concept in services. Some of low pricing strategies are:

DISCOUNTING: Price sensitive customers often perceive discounted or reduced prices as value. The service marketers offer number of discounts like off-season discounts, festival discounts, patronage discounts and so on. The problem with such strategy is that over period of time the customers starts considering these discounted price as reference prices. In such cases, it is very difficult for the service provider to go back to original prices.

ODD PRICING: Many time a service is strategically priced just below the rupee to give a feel of a lower price. It is also known as psychological prices. The idea is to make consumer feel that he/she is paying low price.

SYNCHRO-PRICING: This pricing is used to manage the fluctuations in demand. Time, place quantity and incentive differentials are used to attract the price to price sensitive customers.

1. Time differentials: Price variations are offered depending on the time when the service is utilized, so as to gain optimum advantage. For example morning show in movie theaters are less prices than to evening shows.

2. Place differentials: Here location sensitive customers are willing to pay a higher price for the service. Soft drinks and snacks are charged more in a theater or inside a stadium than to a local store. In movie theaters front seats are less priced than higher seats and vice-versa in plays.

3. Quantity differentials: In this strategy higher the purchase in terms of volume, lower is the price per unit. Many hotel charge for minimum number of days of stay. The price per day decreases as number of days increases. 

PENETRATION PRICING : This is the strategy where new services are introduced at very low prices to attract customers. It is useful when sales volume are price sensitive. Economies of scale are achieved by selling large volumes. This strategy is appropriate for the services where there is threat of strong potential competitor. In such markets, no one is willing to pay a higher price for the service.

INCENTIVE PRICING - Low or discounted prices are offered to loyal customers to retain them or to new customers to entice them. Some professional like lawyers, dentists and some physicians offer free service to encourage them to use service and to help them overcome the fear of high prices.


Value is Everything I Want in Service

Here the customer is willing to pay any price for the quality that he expects, the perception being that higher the price better the quality.

PRESTIGE PRICING: Pricing for exclusive services which have a status value. For certain services - restaurants, health clubs, airlines, and hotels - a higher price is charged for luxury. 

PRICE SKIMMING : This strategy is deployed when services are being launched at very high prices or improvised services are launched for which a category of customers is willing to pay the highest prices.

Value is What I Get for the Price I Pay


Here the price and quality are matched depending on the targeted segment. 

VALUE PRICING: It is the scenario when the customer feels "getting more for less". The concept of value meal is practiced by McDonald with their Rs. 20 burgers. Taco Bell also have $0.59 value meal.

MARKET SEGMENTATION PRICING: Customers are charged based upon client category or service version, both used to segment the customers. For example, economy class in airlines.


Value is All that I Get for What I Give


PRICE BUNDLING: – An assortment of services are priced in such a way that buying the services individually would be more expensive. There may be bundling of accompanying services like extended warranties, training and expedited delivery.

The effectiveness of such method depends on how well service firm understands the bundle of value that the customer segments perceive.

COMPLEMENTARY PRICING: – In this method two complementary products are priced are priced together. The three related strategies are: 

1. Captive Pricing: In captive price base service or product and then provides the supplies or peripheral services needed to continue them using the service. For example, Gynecologist, Dentist

2. Two-part Pricing: The firm offers  very low price in the beginning and then charge heavy fees. For example, DTH service providers charge installation fee as the base price and then charge monthly fees.

3. Loss leader Pricing: Typically used in retail stores when service providers place some service on special discount to draw customer to the store. For example, Dry cleaner can offer discount for men formal shirts. 

RESULT BASED PRICING: In some services the outcome is very important but uncertainty is high. Here, the most relevant aspect of value is the result. For example, employment agencies, property dealer charge fee only if the result is achieved.

Contingency Pricing:  A term used for result based pricing in case of a lawyer fighting an accident case.

Result-based pricing are also demonstrated in Google's products - Adsense and Adwords, where they charge their clients on Pay-per-click(PPC) or Pay-per-thousand-impressions (PPMI) methods.

Reference: Services Marketing: People, Technology, Strategy - Lovelock, Wirtz & Chatterjee & Service Marketing - Zeithmal, Bitner, Gremler & Pandit

Tuesday, October 20, 2015

CB: Session 9 : Personality

Personality is defined as those inner psychological characteristics that both determine and reflect how a person responds to his or her environment. The emphasis in this definition is on inner characteristics—those specific qualities, attributes, traits, factors, and mannerisms that distinguish one individual from other individuals. The identification of specific personality characteristics associated with consumer behavior has proven to be highly useful in the development of a firm’s market segmentation strategies.

Personality Reflects Individual Differences

An individual’s personality is a unique combination of factors; no two individuals are exactly alike. Personality is a useful concept because it enables us to categorize consumers into different groups on the basis of a single trait or a few traits.

Personality is Consistent and Enduring

Marketers learn which personality characteristics influence specific consumer responses and attempt to appeal to relevant traits inherent in their target group of consumers. Even though an individual’s personality may be consistent, consumption behavior often varies considerably because of psychological, sociocultural, situational and environmental factors that affect behavior. Personality is only one of a combination of factors that influence how a consumer behaves.

Personality Can Change

An individual’s personality may be altered by major life events, such as the birth of a child, the death of a loved one, a divorce, or a major career change. An individual’s personality also changes as part of a gradual maturing process. Personality stereotypes may also change over time. There is a prediction, for example, that a personality convergence is occurring between men and women. The reason for this shift is that women have been moving into occupations that have been dominated by men and have increasingly been associated with masculine personality attributes.

Freudian Theory of Personality


Sigmund Freud’s psychoanalytic theory of personality is one of the cornerstones of modern psychology. This theory was built on the premise that unconscious needs or drives, especially biological and sexual drives, are at the heart of human motivation and personality.

Freud proposed that the human personality consists of three interacting systems: the id, the superego, and the ego. 

The Id

The Id is the “warehouse” of primitive and impulsive drives, such as: thirst, hunger, and sex, for which the individual seeks immediate satisfaction without concern for the specific means of that satisfaction. 

The Super Ego

Superego is the individual’s internal expression of society’s moral and ethical codes of conduct. The superego’s role is to see that the individual satisfies needs in a socially acceptable fashion. The superego is a kind of “brake” that restrains or inhibits the impulsive forces of the id. 

The Ego

Ego is the individual’s conscious control, which functions as an internal monitor that attempts to balance the impulsive demands of the id and the sociocultural constraints of the superego. 

According to Sigmund Freud’s theory, human drives are largely unconscious, and that consumers are primarily unaware of their true reasons for buying what they buy. These researchers focus on consumer purchases and/or consumption situations, treating them as an extension of the consumer’s personality.

Neo-Freudian Theories of Personality


Sigmund Freud’s faced a strong criticism from his colleagues who disagreed with his contention that personality is primarily instinctual and sexual in nature. They argued that social relations are fundamental to personality development. Individual's actions are driven by its social and status needs. Some of these works are classified as Neo-Freudian Theories of Personality.

Alfred Alder Theory of Personality


Alfred Adler viewed human beings as seeking to attain various rational goals, which he called style of life. This theory emphasize on the individual’s efforts to overcome feelings of inferiority. Therefore product promotions are majorly aiming at confidence boosting appeals. 

Harry Stack Theory of Personality
Harry Stack Sullivan stressed that people continuously attempt to establish significant and rewarding relationships with others, placing emphasis on efforts to reduce tensions. Therefore products are selected to win admiration of others.


Karen Horney Theory of Personality
Karen Horney focused on the impact of child-parent relationships, especially the individual’s desire to conquer feelings of anxiety. She proposed three personality groups: compliant, aggressive, and detached.

Compliant individuals are those who move toward others—they desire to be loved, wanted, and appreciated. 

Aggressive individuals move against others—they desire to excel and win admiration.

Detached individuals move away from others—they desire independence, self-sufficiency, and freedom from obligations.

A personality test based on Horney’s theory (the CAD) has been developed and tested.  It reveals a number of tentative relationships between scores and product and brand usage patterns.

It is likely that many marketers have used some of these neo-Freudian theories intuitively. They focus on different personality types for their products with an aim to target specific segments.

Trait Theory of Personality


Trait theory is a significant departure from the earlier qualitative measures that are typical of Freudian and neo-Freudian theory. It is primarily quantitative or empirical, focusing on the measurement of personality in terms of specific psychological characteristics called traits.

What is a Trait? A trait is defined as any distinguishing, relatively enduring way in which one individual differs from another.

Selected single-trait personality tests increasingly are being developed specifically for use in consumer behaviour studies. The purpose is to identify distinct market segments.

Types of Traits

1. Self Confidence

How confident people are of their actions. People high in self-confidence are first adopters of new products. They do not show high brand or store loyalty. For such people marketers need to maintain brand fluidity.

This trait is also linked to the concept called as Consumer Innovativeness. It is measure of personality traits provide important insights into the nature and boundaries of a consumer’s “willingness to innovate.” Consumer innovativeness has been linked to the need for stimulation, novelty seeking, and the need for uniqueness. Previous studies treated innovativeness as a single trait. 

Research indicates a positive relationship between innovative use of the Internet and buying online. Consumer innovativeness can be an important consideration when firms consider brand extensions.

Individuals low in self-confidence relies on others for their decisions. Appeals like doctor tested, approved by a known institution, works well for such people.

2.  Self-Conscious

Individuals are very highly sensitive about the image they communicate to others. For such individuals marketers offer products that can reduce their social anxiety. Cosmetics, clothing, perfumes, are the targeted to such individuals

3. Self Esteem

Individuals high on self-esteem feel positive about themselves. They prefer products that attract their attention in contrast to people who prefer more generic products.

4. Self-Monitoring

People with high self-monitoring are ready to adapt changes. They can easily switch choices based on situations on the basis of the impression they want to create. They are also known as Visualizers as they prefer visual information and products that stress the visual. Marketers target such individuals with celebrity endorsement and image advertising. Low self-monitors are conscious of inner feelings, attitudes and beliefs. They are required to be targeted using quality and rational appeal. They are known as Verbalizers as they are consumers who prefer written or verbal information and products that stress the verbal. This distinction helps marketers know whether to stress visual or written elements in their ads.

 A recent research effort found that there are two distinctly different types of visualizers.
a) Object visualizers encode and process images as a single perceptual unit.
b) Spatial visualizers process images piece by piece.

5. Dogmatism

Consumer Dogmatism is a personality trait that measures the degree of rigidity an individual displays toward the unfamiliar and toward information that is contrary to their established beliefs. A person who is highly dogmatic approaches the unfamiliar defensively and with considerable discomfort and uncertainty.

A person who is low dogmatic will readily considers the unfamiliar or opposing beliefs. Consumers low in dogmatism (open-minded) are more likely to prefer innovative products to established ones and tend to be more receptive to messages that stress factual differences, product benefits, and other forms of product-usage information. Consumers high in dogmatism (closed-minded) are more likely to choose established product innovations and tend to be more receptive to ads for new products or services that contain an appeal from an authoritative figure.


 6. Social Comparison

Social Comparison is a personality trait that ranges on a continuum from inner-directed to other-directed. Inner-directed consumers tend to rely on their own “inner” values or standards in evaluating new products and are likely to be consumer innovators. They also prefer ads stressing product features and personal benefits. Other-directed consumers tend to look to others for direction and are not innovators. They prefer ads that feature social environment and social acceptance.

7. Need for Cognition

Need for cognition (NFC) is the measurement of a person’s craving for or enjoyment of thinking. Consumers who are high in NFC are more likely to be responsive to the part of an advertisement that is rich in product-related information of description. They are also more responsive to cool colors. Consumers who are relatively low in NC are more likely to be attracted to the background or peripheral aspects of an ad. They spend more time on print content and have much stronger brand recall. Need for cognition seems to play a role in an individual’s use of the Internet.

Optimum Stimulation Level
Some people prefer a simple, uncluttered, and calm existence, although others seem to prefer an environment crammed with novel, complex, and unusual experiences. 

Persons with high optimum stimulation levels (OSLs) are willing to take risks, to try new products, to be innovative, to seek purchase-related information, and to accept new retail facilities.

OSL scores also seem to reflect a person’s desired level of lifestyle stimulation. Consumers whose actual lifestyles are equivalent to their OSL scores appear to be quite satisfied. Those whose lifestyles are understimulated are likely to be bored. Those whose lifestyles are overstimulated are likely to seek rest or relief. 

This suggests that the relationship between consumers’ lifestyles and their OSLs is likely to influence their choices of products or services and how they manage and spend their time.

8. State Vs Action Oriented

Action oriented are more prone to advertising as they can easily change their thoughts into actions.

State Approach to Personality


This is individual response to particular situation. How individuals react to changing situations and degree to which they are influenced by others. 

Reference; Consumer Behaviour by Schiffman, Kaunk and Kumar and Consumer Behaviour by Soloman