Nitika Garg

Both research and popular media tell us that emotions and eating are intrinsically related. How many times have we seen a character in a TV show reaching for the ice-cream tub when feeling particularly down or after a break-up?

What is it about sadness that leads to such behaviour?

Feelings of loss and helplessness spurred on by sadness are what drives the unhealthy behaviours, whether it’s overeating or overspending. Research has shown sad people consume significantly more fatty, tasty food products, such as chocolate or buttery popcorn, than those who are feeling happy. They are also willing to pay a higher price for ordinary products such as a bottle of water.

This tendency to compensate and reward by engaging in unhealthy albeit pleasurable behaviours in the short run, has serious consequences in the long run especially with rising concerns about obesity in most developed countries.

Unlike “retail therapy”, which involves a more conscious decision to engage in a behaviour seen as rewarding and mood-uplifting, these behaviours operate at a more non-conscious level.

Interestingly, much as sad individuals crave a reward, recent research found that merely engaging in rewarding, hedonic activities, such as eating fatty foods, is not sufficient to break the sadness-overconsumption link.

This is troublesome as it suggests that in spite of engaging in unhealthy behaviours to alleviate their mood, people still do not find respite. The research suggests this might lead to a vicious cycle where engaging in such behaviours further induces guilt and dampens mood.

So, if engaging in compensatory behaviours is not an answer, then what is? Researchers have been looking for the answer.

Apart from the sense of loss, the theme that dominates sadness is that of helplessness or lack of control over the situation. And so researchers have begun to explore the issue of control.

An important way to gain a sense of control is via choice. When people make a choice, even a trivial, potentially meaningless one, they feel more in control.

New research implemented this idea and found that when sad individuals were given a choice between two common objects (a chocolate bar versus a ballpoint pen), regardless of what they chose (and most of them chose the chocolate bar), they were significantly less likely to engage in indulgent consumption.

This same effect was not obtained when sad individuals were simply given the chocolate bar as a gift (no choice). This established that rather than getting the chocolate bar, it was the manner in which it was obtained that mattered.

Should marketers of tasty and fatty food products start marketing these products as feel-good options that boost consumers’ mood? Although on the surface it might make sense, this is a short-sighted strategy.

It is possible for marketers to create strategies that improve consumption habits as well as profits. One such initiative was the 100 calorie (~400 Kj) packs that let consumers indulge but still stay in control.

In the same vein, research findings suggest it would make sense for product managers to market products that may be low-fat, low-energy versions of products as direct choices in contrast to the unhealthy choices the consumer may be drawn to, making the former more attractive.

Consumers can also learn from these findings and develop strategies for the way they shop, especially when they may not be feeling their best.

Rather than looking at purchases in isolation (such as, need to buy soft drink), they can teach themselves to build choices around such purchases (such as, need to buy something to drink – soft drink or juice) which would give them a greater sense of control and, in turn, help them move away from indulgent consumption.

The same idea can be used for impulse purchases where most of us usually give in to buying things that are pleasurable and hedonic in the immediate, but guilt-ridden and adverse (sometimes) in the longer run.

The real issue is not “to choose or not to choose”, but rather to have a real choice.

Nitika Garg is a senior lecturer in marketing at UNSW Australia Business School. A version of this post appeared on The Conversation

Peter Swan

A passer-by happens upon a drunk searching for a lost wallet under a streetlight. With nothing in plain sight, the passer-by asks, “Where did you drop your wallet?”
“Over there,” gestures the drunk across the street, “but I’m looking here because this is where the light is.”

We often look for answers in the easiest place and not necessarily where the answer is to be found. As marketing moves from subjective art toward objective, data-driven science, are we seeing the emergence of a streetlight effect? Are even the very best big-data driven practices guilty of asking the wrong questions of the wrong data?

Most companies turn to analytics when early growth starts to slow. The familiar refrain, “Let’s make better use of our existing data”, heralds the onset of maturity, when the halcyon early days of triple and double-digit growth are well and truly past.

Initial questions asked of big data are typically, “Who are our best customers?” and “Which products are most profitable?” It soon becomes clear that performance differs by region, season and a host of other factors. So, it’s not long before we want to know, “How do quarterly sales in region A compare with region B, on products X, Y, and Z?”
Next comes propensity to respond (PTR) modelling, used to classify prospects for acquisition, cross sell, churn, or fraud. Where they exist, single customer views enable an entire family of PTR models used to determine next best actions.

Competing marketing priorities soon warrant marketing mix modelling (MMM), to estimate the marginal product of advertising spends across different channels.  Next, MMM naturally leads to attribution modelling, to estimate how each channel contributes to the final sale.

The current holy grail of big-data driven marketing is to offer in real time the most likely product, at the most likely price, to the most likely customer, at the most likely time, via the most likely channel.

But, does big data and analysis make sense in the first place? Like the drunk under the streetlight, have we been seduced into looking for the answers where it was easiest.  Namely, in the data we gathered from past sales to previous customers. But is this relevant for understanding future sales to future customers?

Nothing in the customer data gathered, or in the way it is presently being analysed, addresses the fundamental consumer desire to find the best available combination of price and product with the lowest search cost. All that segmenting and clustering and PTR scoring leaves our future consumers cold, stranded, outnumbered – feeling besieged and beset upon.

Consumers are boundedly rational humans optimised over generations for “fight or flight” and not for solving the n-dimensional optimisation problem that is rational consumer choice.

Tasked with buying a car, my siblings, with common genetic and environmental influences, will likely arrive at different consumption choices to mine. If those closest to me exhibit different preferences, then why are these “previous customer” strangers with no overlapping nature or nurture to me being used to suggest products for me?
Why model the choices of thousands of people I don’t know, and who don’t know me, in an effort to suggest products to me?

No consumer identifies with the clusters or segments thrown up by maximum likelihood (ML) models. All this ML exertion belies the constant state of flux wrought by Adam Smith’s invisible hand, and writ large in every single consumption choice.

It is a complex and rapidly changing world we inhabit with little known by these analytical models about my current preferences and circumstances.

The circumstances of markets, like those of individuals, can change in an instant.  Products sell out, forcing consumers to choose from what’s available or to wait. Products stagnate. Promotions and discounts alter the relative attractiveness of one product compared with another, stimulating sales of one and depressing sales of another.

Individual finances wax and wane as personal circumstances alter. Each and every purchase decision is a moveable feast. Even simple choices become rapidly complicated.  Little wonder consumers throw their hands up and head for the safe harbour of brand, or convenience, or availability.

The data we should be analysing − small data − is the time varying vector of product attributes and prices. This is the data consumers – your customers and your competitors’ customers – are using when choosing.

To the extent of their ability, each consumer is assessing, comparing and evaluating the products and services on offer as bundles of attributes with their corresponding “shadow prices”. Trading this attribute off against that, trying to identify the best combination of attributes with their shadow prices to suit oneself, taking into account one’s own dynamically altering preferences over the attributes and one’s own changeable circumstances.

What you should be doing is maximising the net utility of your potential customers, depending on the attributes of your product.
Analysing customer data to minimise the error of estimation, isn’t helping your customers to solve their problems – it is proliferating them. The manifold combinations and permutations are adding to the burden, not lightening the load.

Customers will pay you with their custom, for simply reducing their search costs. Faced as they are with overwhelming choice, customers want up-to-date, reliable, valid and trustworthy recommendations that embody their own personal preferences and budgets that are instantly available.

Peter Swan is a professor of finance at the Australian School of Business and co-inventor, with data scientist Stuart Dennon, of Choice Engine.

From the Knowledge@Wharton today blog.

With the introduction earlier this week of the Surface tablet, most observers seem to agree that Microsoft got a lot of things right, launching a well-designed product with features lacking in its chief competitor — Apple’s iPad — including a cover that functions as a keyboard and the ability to run desktop software programs.

But the presentation also left many unanswered questions, including the exact price, release date and battery life of the device. Perhaps more importantly, it is still unclear what the Surface offers beyond hardware — and if Microsoft can leverage successful offerings such as its Xbox gaming system and Office productivity suite to create a vibrant ecosystem to rival that of the iPad.

“At first glimpse, Microsoft appears to have gotten a lot right with the Surface tablet,” Wharton new media director Kendall Whitehouse says. “Including an integrated keyboard with the Surface is a great idea. More importantly, however, is that the Surface runs Windows 8. In this regard, Microsoft has leapt ahead of the competition. This is the eventual direction for tablet and mobile products: To close the gap between the mobile/tablet environment and the desktop/laptop environment.”

Whitehouse adds that making Windows 8 the operating system for the Surface is a “big bet” for Microsoft. “But I admire their courage in going ‘all in’ with their new OS. And, if they can pull this off by successfully implementing a consistent user experience across desktop, laptop, tablet and mobile phone devices, they could be back in the game in a big way.”

The move is also reflective of a growing trend in the tech sector, with companies focusing more on offering a full range of hardware and software similar to the Apple ecosystem, says Wharton marketing professor Eric Bradlow. “Every portal is trying to get into the device game,” he notes. “They are worried that someone else taking over the device market will create a friction cost so that the other portals are ‘harder’ to use. I treat Microsoft the same way. They are trying to develop a portal that will keep the Windows 8 platform and the Microsoft suite of products top of mind.”

According to Wharton operations and information management professor Eric Clemons, the iPad is “nearly perfect” as an entertainment device. But it is lacking in the area of productivity, which is where the Surface may be able to make inroads with consumers.

“Providing the Surface with twice the memory of an iPad was a nice move. Adding a USB port was even smarter. Providing Office was smarter still,” Clemons notes. “Until now, when I travel, I need three devices: I need an iPhone. I need a MacBook Pro. And I need an iPad for the plane ride itself. Now I can get away with only two devices, at least on shorter trips…. And a Surface would allow me to write real documents, send real e-mails and view my camera photographs — I mean from a real camera, a Nikon Digital SLR, not a camera phone picture.”

Clemons suggests that sales of the Macbook Air and the iPad could be threatened by the Surface “except that I expected this some time ago from a Microsoft platform, and I bet Apple did, too. So look for an iPad … that runs Office and has a USB port very soon.”

This post previously appeared in the Knowledge@Wharton today blog: Digging Below the Surface of Microsoft’s Tablet Strategy

Dean Wilkie

I have been thinking about Qantas’s moves to start a new airline up in Asia.

Starting a new airline from scratch means that consumers will hold absolutely no information about the new brand. Nothing beats a fresh start right?

Wrong.

I really question Qantas’s approach from this perspective. Qantas as a brand has strong positive associations, which consumers will use in forming brand judgments and in comparing to alternatives. A quick search of the internet and you can see that in 2006 it was voted the 2nd best airline in the world. In 2011 it was voted the 8^th best. A dramatic drop but still, Qantas is seen as the eight best airline in the world and it currently has a 14% share of the Asian market.The point is that Qantas has equity where as a new brand has none.

 The next thing I want you to consider is something called the order of entry effect. Essentially, in many categories a brand’s market share has been shown to decrease with its entry position. The later a brand enters, the lower the brand’s share. There are several economic reasons but from a marketing perspective, consumers will learn more about earlier entrants than later entrants. The more you know about a brand, the more likely you are to purchase it. To illustrate, the market share of airlines in the domestic market is roughly Qantas (65%), Virgin Blue (20%), Jetstar (10%), Tiger (5%). It is no coincidence that it follows the order in which these brands entered the market.

 My rough calculations have it that this new brand into the Asian market will be at least the 20^th entrant. Using the average order of entry estimate, the 20^th entrant into a category will get about 2.4% share. This is based on having parity with all other entrants on every other variable. In the airline category, this would be advertising, number of planes, flights, price, service, lounges etc. If this new airlines was at a disadvantage in any of these (which it will be), the market share will be even lower. In addition, the connection we have to Qantas because it is an Australian airline is the same connection every consumer will have with its local airline carrier. (Another barrier to consider).

 So you have to ask the question, does it make sense to launch a new airline or should they try and improve the competitiveness of its existing brand which has 14% share.

Lecturer Dean Wilkie is an expert in branding at the Australian School of Business.

Professor Paul Patterson

A recent American Express survey revealed that customer rage is on the rise. Prior to a customer reaching boiling point, however, an organisation has several chances to placate them and win back their loyalty.

It is a myth that customers suddenly explode into anger. In the vast majority of over 1000 interviews we found a gradual build up of negative emotions as a customer is failed again and again by an organisation, and at each failure the negative emotions become stronger. Prior to customer rage the offending organisation has been given several chances by the customer to redeem itself and every time it has failed to do so.

Excellent service quality only comes at a cost. Customer service and a firm’s productivity or efficiency are like two sides of the same coin, and one that is often traded against the other. Many firms are simply short sighted and fail to invest in excellent customer service, by for example hiring the best people, continuously invest in training, and building a service culture. Telecommunications companies are a case in point – you only have to look at the ever increasing number of complaints to the ombudsman; they have the rhetoric about excellent service but do not invest seriously in it.

An American Express review published today, of consumers in 10 countries, found 33% of Australian consumers think that companies are paying less attention to customer service in the current economy compared to other countries.

Customers have specific psychological needs such as self-esteem, a sense of belonging, a need for control, to be treated fairly and security. During rage incidents it’s important for customer-facing staff to be empowered to solve a problem quickly rather than having to refer it upwards to a more senior colleague. When solved at the first recovery opportunity, damage to the firm’s reputation, loyalty and repeat patronage is minimised. But if the problem is allowed to go unchecked, disaster can follow.

The American Express survey showed that Australian consumers displeasure ranked second only to that of Italians. Almost half the Australians surveyed (46%) said companies did not make any extra effort to retain their business.

A sense of fairness should be restored and often this should involve a sincere apology. Incredibly, out of over 1000 case studies from this research study an apology was only offered by the organisation in 13% of cases. Speedy, respectful, professional and courteous treatment of customers actually boosts self-esteem, and while you’re making your customer feel good, they’ll be friends for life.

Professor Paul Patterson, Head of the School of Marketing at the Australian School of Business.

There’s a war brewing in Sydney over one of life’s staples – food. Consumers might be the ultimate winners, but the supermarket chains involved are bound to get a few bumps and bruises along the way.

This month US discount retailer Costco opens the doors of its second store Australia. The big-box style of food retailing begins trading in Auburn, in the heart of Sydney’s Western suburbs.

In terms of geography, Costco has hit the sweet spot, says marketing professor Paul Patterson from the Australian School of Business. “In Sydney the obvious location was always going to be the Western suburbs, and I suspect there’s a demographic in Auburn that is really looking for value for money in their supermarket spend.”

Patterson says Costco, with its focus of selling goods off shipping pallets out of huge galvanised barns with minimum levels of customer service, certainly is a very different value proposition from what supermarkets currently offer in Australia. But “shoppers today are very price-sensitive”.

Sure Woolworths and Coles might be full-service, however, the arrival of Costco could entice consumers to switch to monthly shopping, buying in bulk to save money. “This will make the existing players up their game,” says Patterson.

Costco – already well established around the globe with 550 stores – differentiates itself on price. “When you sell from a pallet in a large barn-like environment (much like hardware store Bunnings), there’s a perception that the prices are lower, and I’m sure they are, because Costco has a very different business model with lower overhead costs,” says Patterson.

Costco cuts its overheads by reducing above-the-line advertising and providing bare-bones service. The US retailer also saves on not having to depreciate fancy stores. And they have lower fixed costs.

However, there’s also a touch of illusion on pricing, suspects Patterson. “The very nature of the way they’ve set up, I think would give the perception that the prices are lower than they may actually be,” he says.

Woolworths and Coles won’t not stand by though and let this giant upstart erode their dominance of what is dished up on Australian tables. But to stop Costco from gnawing at their market share, the duo may well need to fight the newcomer on shelf price.

Wars over bread and milk may not be the only price cuts consumers get to see. Costco may well prompt Australia’s existing supermarkets to take a “further look at their own prices”, says Patterson.

Rather than a battle to the bottom, though, the market leaders could also decide to expand their loyalty programs and joint badging of credit cards, and fast-track their plans for one-stop shopping with newsagents, pharmacies and liquor all under the one roof.

The new Auburn Costco will have about 14,000 square metres of shopping area and 800 car parks. Distribution infrastructure was already established for the chain’s beachhead, its Melbourne Docklands operation, which opened in August 2009 and has between 75,000 and 100,000 members.

A similar store is opening in Canberra, and the US retailing giant plans to develop up to a further four Australian stores in the next three years.
The arrival of Costco follows that of German supermarket chain Aldi, which entered Australia’s eastern states 10 years ago.

Costco operates on a membership model, charging consumers $60 a year. “I think human nature will dictate that shoppers will want to recoup that $60,” says Patterson. “Consumers are going to be more likely to go back there to do repeat business, because they’ve invested $60 upfront in a membership.”

The Foster’s slogan might say: “Australian for Beer”. But if the latest suitor in the series of rumoured potential owners has its way, Foster’s will no longer be Australian-owned.

In June, British-based brewing behemoth SABMiller launched a A$4.90 per-share A$9.5 billion takeover bid. The takeover attempt failed but speculation is rife the world’s second-biggest brewer will be back to sweeten its deal.

Foster’s has been brewing beer since 1887. With such a long history in a young nation, and a marketing campaign built on true-blue Aussie accents, sunny beaches, larrikin humour and bikini-clad girls, it might be natural to anticipate a backlash from Australians if Foster’s was to fall into foreign hands.

The funny thing is – and one of the reasons that a takeover could pass without too much fuss – not many Australians actually drink Foster’s lager. Only 100 million litres of the beer, with the distinctive blue and gold logo, is imbibed in Australia each year versus nearly 682 million litres in Britain.

Nevertheless, most Australians know that Foster’s is part of Carlton United Breweries, which brews the more popular VB, Carlton Draft and Pure Blonde labels.

“The Australian association works for Foster’s overseas because the Australian lifestyle appeals to consumers – it’s a point of difference within the market,” says Australian School of Business marketing lecturer Dean Wilkie.

“Locally, many brands try to create an emotional connection with consumers by using their Australian heritage. ‘I am a proud Australian, Brand X is a proud Australian, so I will buy their product.’”

However, such a positioning is ineffective for Foster’s because many beer brands have created stronger connections with consumers through being associated their state (for example, the XXXX brand and Queensland) or their city (Melbourne Bitter) or their lifestyle (VB and the blue-collar worker), observes Wilkie.

If Foster’s ownership goes overseas, it will join a swathe of Australian “iconic” brands that are no longer locally owned. However, Foster’s will still be able to maintain its Australian association, provided the new owners continue to invest in it, Wilkie says. “Think of Vegemite, Arnott’s, Holden and from the beer industry, Tooheys.” Their investors are now in faraway lands, but they “still maintain a very strong association of being Australian”.

“Most consumers have probably experienced an international takeover of one of their favourite brands,” says Wilkie. “Therefore consumers will be less reactive to Foster’s being taken over by SABMiller. You could also argue that Foster’s ‘Australian’ image is mainly associated with the Foster’s beer brand itself.” And that image in recent years has lived on outside of the nation, rather than in it.

In the end does it really matter if Foster’s remains Australian-owned? “It won’t matter to consumers as long as the new owners do not mess with their brands,” says Wilkie.

The blog of Knowledge@Australian School of Business, the online business journal of the Australian School of Business at the University of New South Wales. Knowledge@Australian School of Business covers research in Finance, Strategic Management, Marketing, Leadership, Social Impact, Population Ageing and eight other knowledge research categories.