Welcome to

Introduction to Marketing!

MKTG-UB.0001

Professor Eric Greenleaf

January 2019

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© Prof. Eric Greenleaf 2019
 Today’s Agenda:
Introduction to Marketing and to Your Class

 What is marketing?
 How is marketing different from other
business skills?
 Course details and your
responsibilities

2
 Today’s Agenda:
Consumer Behavior

 Consumer Decision Making Process

 Why consumers sometimes skip
decision steps
 Perceived risk
 Neuroscience in Marketing
 Behavioral Decision Making
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Introduction to Marketing
and to Your Class

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 What marketing successes
and failures can you think of?

Why did they succeed or fail?

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 Most business successes or failures are
caused by successful or failed marketing

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 What is
marketing?

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 What is
marketing?

A quick tour of Marketing,

and of our class this semester

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 What is marketing?
1) Marketing strategy

 Marketing Strategy - What is our

overall plan for our product?
– Consumer behavior
– Segmentation
– Positioning
– Economic value of customers
– Profit: Crunch the numbers
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 Don’t forget marketing research

 “Eyes and ears” of the firm

 Keeps you in touch with
– Customers
– Competitors
– Trends in the marketplace
– Be proactive, not reactive

10
 What is marketing?
2) The marketing mix – “Four Ps”

 Marketing Mix – What actions will we

use in the marketplace to implement
our strategy?
– Pricing
– Partnerships
– Product
– Promotion (Communication)
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 Marketing mix is more than
sum of its parts

 Balance
– Don’t put too much emphasis on any
single activity in the marketing mix
 Coordinate
– Each part of marketing mix must work
well with other parts

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 Most successful concept
of marketing
 Effective marketing satisfies consumer
needs and creates consumer value
while allowing the firm to achieve its
objectives.
 Concept we’ll study in this class
 Let’s take a closer look at this concept

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 Satisfy customer needs

 Define product or service in terms of

customer needs

= ?

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What customer needs does
a GoPro satisfy?

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 React to changing customer needs -
Garmin has expanded from GPS
l Fish finders and other marine products
l Hiking
l Airplanes
l Kid-trackers
l Wrist activity bands
l As well as GPS apps
l Compete with GoPro
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 New for 2017 -
Garmin VIRB 360
Spherical Camera

Fortune
8.02.17
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 Try to anticipate consumer needs
before most consumers have them

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 The rise of
delivery-only
restaurants

The
Telegraph
3.20.17

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 Will future
consumers
still want
movie theaters?
At the Regal L.A. Live entertainment
complex, a marketing team for 20th
Century Fox recently roped off part of
the cinema lobby and set up a row of
chairs and Oculus Rift rigs. The team
persuaded moviegoers wandering the
lobby to strap on headsets and watch
the free promotional tool “Alien:
Covenant in Utero,” a two-minute, 360-
degree video that lets users experience
what it’s like for an alien to burst out of
someone’s chest.

LA Times
6.02.17 20
 Create consumer value
 Value = Utility - price
 Satisfy needs at a price that consumers
are willing to pay

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 Allow firm to achieve objectives
 Expensive to satisfy consumer needs and
provide consumer value
 Firm must achieve its objectives
 Marketing should be a profitable
investment
 Firm must understand and predict the
bottom-line impact of marketing actions

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Can MoviePass survive?: May 2018

MoviePass lost $98.3

million on revenues
of $48.6 million in Q1
2018

Should it have cut

price of a monthly
membership from
$15 - $50 to $9.95?

WSJ
5.16.18

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Can MoviePass survive?: August 2018

Fortune
8.06.18

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 MoviePass
gets some
competition:
June 2018

600,000
members
as of
late Dec. 2018

Business
Insider
6.20.18

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Spotify 2016: high revenues but losing money

Music Business Worldwide 5.26.16 Digital Music News 5.24.16

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 Spotify 2017: higher revenues,
more customers, but losing even more money

 FY 2016-17:
– Spotify’s revenues increased 52%, to $3.3 billion
– Spotify earned almost half of all streaming music
revenue earned by all companies worldwide
– Total subscribers grew 38% to 126 million
– “Premium” paid subscribers grew 71% to 48 million
 BUT:
– Losses increased 133%, to $601.4 million

Forbes and WSJ

6.15.17
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 Spotify Q2 2018: Now a public company
More customers, more revenues,
but losing even more money

 Q2 2018 (now a public company worth $35 BN):

– Spotify’s revenues increased 26%, to $1.49 billion
– Spotify earned almost half of all streaming music
revenue earned by all companies worldwide
– Total subscribers grew to 180 million
– “Premium” paid subscribers grew 43% to 83 million
 BUT:
– Losses increased to $461 million in quarter

Techcrunch
7.26.18
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Boston Dynamics Robots – fun,
but not profitable

NYT 9.22.18 29
 What marketing is not –
Three concepts of marketing to avoid
 Technology and production driven

vs.

 Selling driven
– Convince consumers to buy product with advertising
and salesforce
 Marketing driven
– Build a huge marketing organization
– Lots of levels of marketing decision making 30
 How is marketing different from
other business skills?
 Combines quantitative and qualitative
analysis
– Both kinds of information important for
creating best strategy and mix
– Use numbers to justify your qualitative
reasoning
 We’ll start Quantitative Analysis in
Marketing early in the course
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 How is marketing different from
other business skills?
 Marketing forces business to confront
uncertainty in environment
– Consumer tastes
– Competition
– Economic environment
– Legal and Regulatory
 Often don’t have all information you would
like to have when making decision
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 Course details and your
responsibilities
Please read the syllabus carefully
 Course calendar

 Detailed description of assignments

 Course policies and your

responsibilities
– Includes class Honor Code

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 Course details and your
responsibilities
 Class materials
– All assignments and slides on NYU Classes
– Will provide printed copies in class
 Powerpoint slides
– Help organize class material
– Slides are not a substitute for your own
class notes
– Will not have Powerpoint for all classes
– If you miss a class, get notes from at least two
classmates 34
 Course details and your
responsibilities
Class Participation (15% of grade)
 You are a very important part of course
– We have very different backgrounds and
experience
– We learn a lot from each other
– Makes your class participation valuable
 Everyone wants to know who you are
– Please use name card every day: big, first name
and last initial
– Fill out seating chart
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 Course details and your
responsibilities
Class Participation (15% of grade)
 I would like to know more about you
– Complete Personal Information Form
– Include picture of yourself
– If you are not a Stern student, upload a
digital photo of yourself to seating chart
software – posted instructions

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 Course details and your
responsibilities
 Class Etiquette
– Behave as in a business meeting
 But have some fun
– Let me know if you will miss class
– Please arrive on time
– Leave class only if absolutely
necessary
– Listen carefully to your classmates
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 Course details and your
responsibilities

 Class Etiquette
– Create a challenging but respectful
environment for expressing ideas
– Participate meaningfully, and allow
others to participate
– Stay with the topic we are discussing
Class time valuable

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 Course details and your
responsibilities
 Electronic Etiquette
– No laptops, tablets, phones, etc.
– Turn off all other electronic devices
 Cell phones – no conversations or texting

 Music players

 No recording class

 Standard Stern course policies at:

http://www.stern.nyu.edu/portal-partners/current-
students/undergraduate/resources-policies/academic-policies/index.htm
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 Do not try to cheat your classmates:
You are expected to follow NYU’s and
Stern’s Honor Code
 Please read Stern HC carefully – URL in syllabus
– Convincing evidence of violations will result in
sanctions – usually at least an F for the
course, and possible suspension or expulsion
 Violations of Honor Code referred to Assistant
Dean of Academic Advising & Judicial Affairs,
and Stern School Judicial Committee
 Honor code violations pursued even if finished
course or graduated
– Degrees have been revoked
 Submit written case assignments to TurnItIn
– Requested by students – protects you
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 Course details and your
responsibilities
Text:
Looseleaf, eBook, and rental
versions, and combinations of
these – but old fashioned printed
version not available at NYU
Bookstore

Roger Kerin and Steven Hartley, Marketing,

14th edition, Irwin/McGraw-Hill.
Sets important foundation for class discussion
• Class will be conducted under assumption you
have done assigned reading for that day
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 Course details and your
responsibilities
• Articles from business and popular
press
• Show how concepts from class are used in
the real world
• You can link to these using Bobst
electronic databases
• e.g. NYU Virtual Business Library

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 Course details and your
responsibilities
Marketing cases:
– Apply what you learn to an actual firm
 Variety of products and industries

– See complexities of marketing problem

– Get involved in decision making
– Cases have no single “right answer”
 You should be able to justify your analysis
– Case study questions in syllabus
 Helps focus class discussion
– Syllabus has advice on preparing a case
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 Course details and your
responsibilities
• Cases for class discussion
• Mediquip – Organizational Decision
Making
• Z Corporation – Marketing Partnerships
• Written case analysis – 35% of grade
• LG Electronics- Due last day of class –
Jan. 24

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 Course details and your
responsibilities
 Assignment on Basic Quantitative
Analysis in Marketing
– Due Jan. 11
– 10% of your grade
– Applies basic quantitative language
and skills needed to analyze and plan
marketing

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 Course details and your
responsibilities
Exam, 40% of grade
– Thursday, Jan. 24
– Stress applying concepts, not just
memorizing them
– Bring a calculator
– Study questions for quantitative
concepts and frameworks

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 Teaching Fellow – here to help you
Office hours in LC27

 Stan Sheremeta
ss9386@stern.nyu.edu

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 Consumer
Decision Making

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 Consumer Decision Making

 Consumer decision making process

 Why firms need to understand the
consumer decision process
 Best strategies for each decision step
 Why consumers skip decision steps
 Perceived Risk
 Neuroscience in Marketing
 Behavioral Decision Theory - Framing 49
 Why do firms need to
understand
consumer decision making?

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 We discussed that successful firms
satisfy consumer needs
 But – consumers usually don’t buy as
soon as they have a need
 Go through a decision-making process

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 Must understand decision process to
create best marketing strategy and mix

 Which process do consumers use

for our product?
 How can we influence consumers
at each stage?
 Why do consumers sometimes skip
steps?

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 Steps of consumer
decision-making process

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Consumer Decision Making Process
Need Recognition

Information Search

Compare Alternatives

Purchase

Post-Purchase Evaluation
Look at each stage more closely
for the Nissan Leaf

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 1) Need Recognition:
No need = no purchase!
 What consumer needs does the Leaf
satisfy?
 How can Nissan and its dealers
motivate consumers to recognize need
for a Leaf?

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 Don’t get the stage wrong
 Suppose we treat a consumer
as if she is in purchase stage
– But actually she is in need
recognition
 How will consumer react?

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 2) Gather information
 Gather information on product’s
attributes
 Different kinds of attributes for
electric cars

 Attribute perceptions matter 58

 2) Gather information
 Consumer doesn’t gather information
on all products in category
 Creates consideration set

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 Information sources
Personal Family, friends, neighbors
Word-of-mouth (WOM)

Advertising
Commercial Salespeople
Firm’s web site

Media
Public, Neutral Consumer-rating groups
Not always “neutral”

Handling the product

Experiential Examining the product
Using the product

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 Neutral
information
source

Engadget
6.14.18
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Influence of neutral information sources

Quartz
5.31.17 62
Attempts to manipulate “neutral” information

Guardian
2.26.18

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Influence of Word of Mouth

Money.CNN
6.11.17 64
 Information sources
 How can Nissan and its dealers
– Get Leaf into consideration set?
– Use information to influence
consumers?

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Do car dealers need physical stores?

WSJ
6.05.16

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 3) Compare Alternatives

Perceptions Preferences

 Preferences indicate rank order

 Why could two consumers with
identical perceptions of electric cars
have different preferences?

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 3) Compare Alternatives

Perceptions Preferences
 Preferences require a utility function
– Includes “attribute importance”
 Importance of attributes often differs
across consumers
 More than one brand may be
acceptable to purchase

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 3) Compare Alternatives
 Which electric car attributes are
most and least important to
you?
 How can Nissan and its dealers
influence consumers who are
comparing alternatives?

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 Samsung’s new “Addwash” washer.
How important is “addwash”for you?

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Too many alternatives can hurt consumers

“Too many choices

may create
confusion, resulting
in poorly informed
consumer decisions.”

WSJ
2.07.16

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“How Grocery Giant Aldi Plans to Conquer
America: Limit Choice”

WSJ
9.21.17

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 4) Purchase
 Firm does not make a sale unless
consumer purchases
Purchase intentions Purchase behavior
 Consumer may be willing to purchase
any acceptable alternative

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 4) Purchase
 How can Nissan and its dealers
– Influence consumers in purchase
stage to buy the Leaf?
– Motivate them to buy sooner
rather than later?

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 5) Post – Purchase Evaluation
 Consumers don’t stop thinking
about a product once they
purchase
 Post-purchase behavior:
1. Reduce cognitive dissonance
 “Did I buy the right car?”
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 Post – Purchase Evaluation
2. Satisfaction perceptions
Satisfaction = Perceived Performance - Expectations

 Satisfaction leads to:

 Loyal customers
 Favorable word-of-mouth
 High customer value
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 Post – Purchase Evaluation
 How can Nissan and its
dealers
– Reduce cognitive dissonance?
– Increase satisfaction?
– Make the best use of satisfied
consumers?
– Turn dissatisfied consumers into
satisfied ones?
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Consumer satisfaction for cameras:
Canon vs. Nikon

Canon press release 12.06.16 78

 Federal payments to
hospitals depend on
customer satisfaction

WSJ
10.14.12

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Don’t set expectations
too high:
Amtrak’s WiFi service

NYT
5.30.12

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Amtrak Press Release 5.18.18

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Disney manages expectations
for wait times at theme parks

Mouseplanet.com
6.04.15
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Why consumers may skip
decision-making steps

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 Why consumers skip steps
 Consumers do not always go
through all five steps
 You purchase a Nissan Leaf
– Badly damaged when hit in a
parking lot a month later
– What will you do?

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Consumer Decision Making Process
Need Recognition

Information Search

Evaluate Alternatives

Purchase

Post-Purchase Evaluation
 Why consumers skip steps
Consumers often use “heuristics”
Why?
 Cognitive miser
 Satisficer

 Willing to make Effort-Accuracy

tradeoffs
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 Why consumers skip steps
 You are hungry between
classes and buy a candy bar
from a machine
– Go through all five steps?
 Candy bar is low involvement

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 Consumer Involvement
 Involvement increases with:
– Importance of consumer need
– Importance of product performance
– Personal ego at stake
– Personal security at stake
– Involvement is not the same as price
 Involvement varies across:
– Products
– People
– Usage situations
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 Consumer Involvement
 Level of involvement affects how
extensively consumer searches:
– Number of brands examined
– Number of sellers considered
– Number of product attributes evaluated
– Number of external information sources used
– Time spent searching

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 Types of Consumer Decision-
Making Processes

High Involvement Low Involvement

Decision Complex 1. Impulse Purchase

Making Decision-Making 2. Variety Seeking
3. Limited Decision
Making

Habit Brand Loyalty Inertia

(skip steps)

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 Best marketing strategy and mix depends
on which DMP consumers use

 Best distribution intensity for yogurt?

vs.

91
Encouraging Brand Loyalty by making
it easy – Amazon Dash Buttons
Also turn Inertia into Brand Loyalty?

92
Loyal Customers
may not like
product change

Guardian
8.07.18

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Perceived Risk

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 Consumers worry
 Product may not give them the
satisfaction they expected
– Worry: Performance < expectations
– Last stage of DMP
 Worry before purchase
 Termed “perceived risk”
– Perceptions of risk matter
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 Perceived Risk
 Perceived risk can prevent consumers
from purchasing
 Risk reduction is a source of consumer
value
 Marketing strategies should reduce
perceived risk

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 Performance Risk
 Risk that product does not
perform as expected
– 3D TV
– Restaurant
– Running shoes

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 Social Risk
 Other people do not approve of your
purchase as highly as you had
hoped
– Clothes
– Wine
– Yacht
 Especially people in group you
belong to or aspire to
98
 Psychological Risk
 Product just isn’t “right” for me
– Piano
– Gym membership
– High performance bicycle

101
 Financial Risk
 Product can hurt financial
wellbeing
– Expensive vacation
– Identify theft from
web purchase
– Adjustable rate mortgage

102
 Using perceived risk strategically

Firms should ask:

l What kinds of perceived risk do
consumers experience
– For our product?
– For competitor?
l How can we reduce perceived risk?
– Important source of consumer value
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 How can firms reduce each kind of
perceived risk?

 Performance
 Social
 Psychological
 Financial

104
 One important way to reduce
perceived risk

l Use a well-known brand name

105
 What kind of perceived risk does
Sandal’s all-inclusive pricing reduce?

106
Behavioral Decision Theory:
Framing

107
 Framing
 Consumer decisions are affected by the
context (or “frame”) in which they are
made
 Frames can include
– General price level of product
– Language used in marketing
communications
– Past events

108
 Framing
 Buying a calculator (Tversky and Kahneman 1981)
– You are at Store A, which has a calculator you
need for $15. Another customer tells you that
the same calculator is available at Store B for
$10. Store B is a 20-minute drive away. Would
you drive to Store B?
 Buying a jacket
– You are at Store A, which has a jacket you need
for $125. Another customer tells you that the
same jacket is available at Store B for $120.
Store B is a 20-minute drive away. Would you
drive to Store B?
109
Nobel Prize for Economics, 2002
Dr. Daniel Kahneman
“… for having
integrated insights
from psychological
research into
economic science,
especially
concerning human
judgment and
decision-making
under uncertainty.”

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 Framing

 Which meat do consumers rate more

favorably? (Levin and Gaeth 1988)
– 75% lean
– 25% fat
 How would you describe each cup if:
(McKenzie and Nelson 2003)
– Previously full?
– Previously empty?

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Neural Science in Marketing

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 What can studies of the brain tell
us about consumer behavior?

 Advanced methods in brain

scanning
– fMRI (Functional Magnetic
Resonance Imaging)
 Which brain regions are more active
during different kinds of consumer
activities?
 fMRI detects slight increases in blood
flow due to higher need for oxygen in
neurons
113
 Neural studies of
the Coke-Pepsi Challenge

 “Neural Correlates of Behavioral Preference for

Culturally Familiar Drinks,” Neuron, Vol. 44, 379-387,
Oct. 14, 2004

114
 Coke-Pepsi Challenge

 Started when neuroscientist, Read

Montague’s teenage daughter was working
in his lab one summer
 Research question:
– Why does Coke sell better than Pepsi even
though drinks very similar and blind taste tests
show nearly 50-50 split in preferences?

115
 Neural
Coke-Pepsi Challenge
 Research approach:
– Modified version of Pepsi challenge
– Volunteers tasted Coke and Pepsi with brand
names masked.
 Half chose Coke

 No matter which drink they chose the same

brain region showed increased activity
– Ventromedial prefrontal cortex
– Area associated with feelings of pleasure
and reward

116
 Neural Coke-Pepsi Challenge

 When people drank Coke that was

labeled as Coke, new brain regions
activated:
– Hippocampus
 Area involved in recall of emotional memories
– Dorsolateral prefrontal cortex
 Area linked to higher-level thought processes
 Sight of Coke seemed to spark positive
thoughts, memories, and associations
117
 Do consumers really get more enjoyment
from more expensive products?

 Plassmann et al. "Marketing Actions Can Modulate Neural

Representations of Experienced Pleasantness,"
Proceedings of the National Academy of Sciences, Jan.
14, 2008.
 11 Caltech graduate students sampled
wines during fMRI brain scans:
– $5 wine - told costs $5
– $5 wine - told costs $45
– $90 wine - told costs $90
– $90 wine - told costs $10
– $35 wine - told costs $35
118
Do consumers really get more enjoyment
from more expensive products?

 Higher wine prices led to higher activity in

brain region that experiences pleasure
– medial orbitofrontal cortex (mOFC)
 Confirms previous evidence of perceived
relationship between price and quality

119
 Can we observe consumer behavior at
the level of individual neurons?
 Neurons and synapses are the basic
building blocks of the brain
 Different neurons are more active (“fire”
more often) for different neural tasks
 Average human brain has 86 billion neurons

120
 Studies of individual neurons firing:
Can people control their fear?

 Moran Cerf, Eric Greenleaf, Tom Meyvis, and Vicki Morwitz,

(2015), "Using Single-Neuron Recording in Marketing:
Opportunities, Challenges, and an Application to Fear
Enhancement in Communications," Journal of Marketing
Research, 52 (4, August), 530-545.
 Ads sometimes use fear appeals to
discourage or encourage behavior
– Don’t use illegal drugs
– Use seat belts
– Don’t buy the competitor’s product
 Do these ads actually increase fear?
121
 Studies of individual neurons firing:
Can people increase their fear?
 We can identify neurons that fire more often
when people experience fear.
 When consumers are asked to increase
(decrease) their fear in response to an ad,
these neurons fire more (less) often.
 Consumers could only increase fear when
focus of ad is not already highly fearful.
– Climate change Spider

122
Guardian
5.25.18

123
l Neuroscience can improve our
understanding of human thought and
behavior.
l Neuroscience cannot:
– Read minds
– Reliably predict sales
– Tell you which ad is most persuasive
l Be careful of people who claim it can!
124
 Next Class
 Organizational Decision Making
– Mediquip case
 Segmentation
 Read Handout on Basic
Quantitative Analysis in Marketing
– Quantitative Marketing Assignment
due Friday, Jan. 11

125