A Targeting Approach Based on Consumers' Willingness-to-pay Ranges

Florian Dost Robert Wilken (ESCP Europe Business School Berlin) Marketing Science Conference 2012 Retailing

Introduction
Investments in in-store promotions and advertising grow at 20% annually (e.g., Shankar et al. 2011) However, 50% of all in-store promotions are a failure to the retailer (Ailawadi et al. 2006) MSI Research Priorities thus call for new ways to leverage information about customer preferences to enhance or supplant conventional market segmentation, and targeting approaches to allocate resources more effectively to influence a shopper along the entire path to purchase (MSI 2011, p. 4). How can shopper segmentation be improved and the results be better interpreted and utilized? (Shankar et al. 2011)

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WTP as a range provides three segments

Floor reservation price (FP) certainly buy WTP Range: buy or not buy uncertainty Ceiling reservation price (CP) certainly not buy Price p

Purchase probability Pr (buy|p) 1

WTP (= expected reservation price) Range

Price p

certain buyer

uncertain buyer

certain non-buyer

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Only the uncertain buyers show a reaction to marginal price discounts

Purchase probability Pr (buy|p) 1 gain b gain a

0 pdiscount pregular Range b Range a

Price p

Price discounts (and other marketing mix activities) should be targeted towards the uncertain buyers

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So far we conducted three experimental studies

Study 1 Research setting Online experiment (N = 168) Price Promotions in the FMCG Category 3x2 WTP-Segments (elicited WTP range relative to market price) Study 2 Online experiment (N = 547) Different Marketing Mix Activities in a HighInvolvement Category 2x5 WTP-Segments (self-selection) Study 3 Online experiment (N = 1,156) Price Promotions in the FMCG Category (Competitive Setting) 3x3x2x2 WTP-Segments Brand A (manipulated) X WTP-Segments Brand B (manipulated) Price Level brand A (normal, discounted) X Price Level brand B (normal, discounted)

Product setting Experimental design

Segment Factor (s)

Price Level (normal, discounted) Marketing Mix factor (s)

Marketing Activity (control, discounted price, additional information, visual stimulus, positive consumer ratings) Choice rate WTP as a range

Choice rate Success measure

Choice rates

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Study 2 confirms the highest reactivity of the uncertain buyers to all marketing mix activities

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Study 3 extends the results to a competitive setting

Tide certain nonbuyers Purex certain nonbuyers Purex uncertain buyers Tide uncertain buyers Tide certain buyers

Purex certain buyers

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Study 3 extends the results to a competitive setting First: Changes in choice rates to a tide promotion

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Study 3 extends the results to a competitive setting Second: Purex promotion

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Segment distribution may help to estimate maximum discount potential, switching behavior, or brand uniqueness
Tide certain nonbuyers Purex certain nonbuyers Purex uncertain buyers Tide uncertain buyers Tide certain buyers

19,9% (230)

0,8% (9)

0,3% (3)

21,7% (251)

7,4% (85)

0,9% (10)

Purex certain buyers

20,8% (241)

14,8% (171)

13,5% (156)

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Contributions
Compared with predominant practices (e.g., targeting loyal consumers or consumers of competing brands), our method proposes to target the consumers that are sitting on the fence between buying and not buying. proposes to target the same consumers for any marketing mix activity (as long as it is related to WTP range or price). This targeting approach should be favorable for manufacturers, because the uncertain consumers are most reactive to marketing mix activities in terms of choice behavior changes. retailers, because only targeting the uncertain consumers increases the size of the pie instead of just the share of the pie. The result holds across different product categories (FMCGs and high-involvement electronic devices) varied marketing mix activities different market settings (monopolistic or competitive), and different ways to identify consumer groups (WTP ranges, direct elicitation)
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However
External validity replicate the experimental approach in incentive-compatible settings, with real money Managerial relevance check for identification of the uncertain buyers with observable information Managerial relevance provide retailers with guidelines for a back of the envelope calculation of a price promotion, based on a single WTP survey

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Contact:
London

Florian Dost Tel.: +49-30-97885228 florian.dost@escpeurope.eu

Madrid

Berlin

Paris

Torino

ESCP Europe Business School Berlin

 Florian Dost and Robert Wilken BACKUP: Manuscript 2 Buying probabilities in the linear model

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 Florian Dost and Robert Wilken 1 results BACKUP: Manuscript 2 study

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 Florian Dost and Robert Wilken 2 results BACKUP: Manuscript 2 study

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