Learning

I've recently been thinking about starting a new business, and have been thinking specifically about how customers learn to do different things. It's my strong belief that consumers are largely creatures of habit. If you want to go buy groceries, you have a specific path that you follow. For some people, it means looking in your fridge, writing down a list, and heading off to Giant Eagle to pick up the things you need. For others, it means hopping in the car right away, going to Costco, stocking up, then heading to Shop'n'Save to pick up everything that they didn't have at Costco. For others still, it means heading to the local produce shop, picking up your vegetables, then going to the butcher and picking up your meat, then heading to CVS to pick up anything that was missed.

In short, most customers have their habit, and changing that habit to fit a new business model is an extremely complicated and difficult proposition. Luckily for us, however, it is possible to change the consumers habits that they have learned over many years. This was shown very recently by the dot-com boom. Granted, many dot-coms were here and gone so quickly that we don't even remember them at this time, but the rise of the dot-coms that have stuck around has totally shifted the way many companies do business. I will highlight a few of these.

Insurance
Shopping for term life insurance used to be a complicated process. You had to visit agents, have meetings with them, get individual quotes, and then compare them. This was time consuming, so most consumers simply went to one agent and took whatever price they were told. Here's the thing, though. A $50,000, 10-year term policy from Nationwide is exactly identical to a $50,000, 10-year term policy from New York Life. Or Aflac. Or MetLife. So this was an issue. Customers had virtually no way to compare price, which should be the main factor in their decision, on identical "commodity" products. This is where the internet changed everything. The internet brought about websites that brought together pricing information from all of the major insurers, and forced them to start competing on price in order to get business. This reduced the price of life insurance dramatically, and gave consumers a greater ability to be well informed about their purchases.

A similar effect has been seen in a number of other insurance markets, and in markets for cars and many other products. Now, comparing prices on almost any product is simple.

Online Shopping
Most people traditionally made large purchases in "Big Box" stores such as Sears. Teaching customers to start making purchases online, using their credit cards, and allowing that merchandise to be delivered directly to their house, was a large learning process that had to completely change the way people thought about shopping. There were many obstacles, such as confusing ordering processes and the perceived insecurity of using a credit card online. After combating these hurdles, though, people found online shopping to be a useful, convenient way to get many of the things they normally had to go to the store to buy. While this was a process that took some time for customers to learn and become comfortable with, the online shopping world is now growing larger every day and will become more and more pervasive in the future.

Price changes Product

Interesting development over the last few years with the Beer market. Most people have their consideration sets pretty much set in stone when it comes to beer, and these consideration sets are almost entirely based on price. There are two main categories I will discuss. The first is the low-priced domestic beers:

• Natural Light
• Pabst Blue Ribbon
• Milwaukee's Best
• Keystone Light

Then, there are the high priced domestic beers:

• Coors light
• Bud Light
• Miller Light

Now, some will tell you that the high priced beers taste better than the low priced beers, but in the end, they are all very similar. Pabst Blue Ribbon realized this, and decided that they wanted to re-position their product into the high priced beer segment. This was an interesting strategy, and one that figured to make a lot of loyal PBR drinkers quite angry. It also brings up an interesting marketing issue: how does the price of a product affect a customers perception of a product?

Interesting question. Unfortuntately, I don't have any data to suggest this, but I'd be willing to bet that 90% of people would rate Coors Light, Bud Light, and Miller Light ahead of all of the low-priced alternatives in a taste test where they knew the brands. I'd also be willing to bet that if the same taste test was done blindly, they would only rate the higher priced brands better about 50% of the time. This is clearly what PBR figured out. They realized that they could reposition their brand, charge more for it, and do all of this without having to change their product at all. Indeed, they could make customers perceive that their brand tastes better and is of a higher quality by just increasing the price of it.

This is a phenomenon that is not limited to beer. Many generic products in grocery stores are exactly the same as their brand name counterparts, and some are even manufactured by the same companies, but many consumers swear that the brand name simply tastes better. In automobiles, there is an assumption that the more expensive car is the better car. While these assumptions are sometimes true, they are not universally true, and show how prices of items affect the perceptions of the products by consumers.

Winning and Losing

Reading Forbes Magazine's online sections about the business of sports the other day really got me to thinking about how exactly sports teams create value. It's easy to make the assumption that value in a sports team is created by championships, and there are certainly some examples of this being the case (think the New York Yankees). But really, what makes a team valuable and successful? In the NHL, the most valuable team and the most profitable team is the Toronto Maple Leafs, who haven't won a Stanley Cup in over 40 years.

So what makes them successful? Many different aspects go into making it a successful enterprise, but a great deal of the value is tied up in the brand. The owner of the Maple Leafs understands this perhaps better than any other NHL owner, and as well as some of the best owners in sports. He leverages his brand for everything. He has luxury condominiums and hotels in a square nearby to the arena named after the team. He has created offshoot products such as his own digital television station. He created a state of the art arena. He also sold stock in the team, such that the people of Ontario have a stake in the running of their favorite brand.

All of these savvy moves have created a very powerful brand for the owner of the Toronto Maple Leafs. In short, branding in sports is vitally important to the generation of value for a professional sports franchise.

Webkinz and Beanie Babies

Recently, in class and team discussion, the topic of Webkinz came up. Webkinz are a toy that I knew nothing about before discussing them in class, but the discussion made me realize how similar they were to a toy that was popular during my younger days. Beanie Babies were all the rage during my elementary school years, and they shared many similar aspects to Webkinz (minus the web aspect). Both "retire" certain toys to encourage them to be sold on the secondary market, and also to encourage people to snatch up the toys while they're still around. Both are meant to be collected by people. And both appeal to both kids as toys and adults as collectibles.

This really makes me think about what a brilliant marketing strategies both companies employ. By making certain items more rare than other items, it makes consumers almost compete to get them, and creates a huge sense of pride in the customers that are able to land the rare or retired items. Both also follow many of the things discussed in class. I recall that the back when Beanie Babies were big, word-of-mouth advertising was a huge aspect of their marketing. It was so big that when a store would get a new shipment with rare Beanie Babies, people would hear this through the grapevine so quickly that all of the good ones would be snatched up by whenever you made it to the store.

Heck, even I was sucked into this a little bit. OK, maybe that's an understatement. I recently found a website that I created that highlighted many different Beanie Babies, and even had rumors about happenings in the Beanie Baby world. I will warn you, this was created in my Elementary School days and it's quite a horrific sight. Enter at your own risk. Some may call this sad. Yes, it's definitely sad. But it also shows some very impressive marketing on the part of the TY company, and a definite model for how to successfully market a product that is really nothing more than a stuffed animal.