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CUSTOMER PERCEPTION OF PACKAGING AND PRICE ON LOYALTY OF DULUX PRODUCTS IN THE NORTH-WEST OF JOHANNESBURG by TSHEPISO DUMASI STUDENT NUMBER: 9715967 Submitted in partial fulfillment of the requirements for the degree M-TECH (BUSINESS ADMIN) In the discipline MARKETING In the faculty of MANAGEMENT SCIENCES at the VAAL UNIVERSITY OF TECHNOLOGY Supervisor: Dr. M. DHURUP
Transcript
Page 1: Research Report 1

CUSTOMER PERCEPTION OF PACKAGING AND PRICE ON LOYALTY OF

DULUX PRODUCTS IN THE NORTH-WEST OF JOHANNESBURG

by

TSHEPISO DUMASI

STUDENT NUMBER: 9715967

Submitted in partial fulfillment of the requirements for the degree

M-TECH (BUSINESS ADMIN)

In the discipline

MARKETING

In the faculty of

MANAGEMENT SCIENCES

at the

VAAL UNIVERSITY OF TECHNOLOGY

Supervisor: Dr. M. DHURUP

Co-Supervisor: Ms. N McFarlane

OCTOBER 2005

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Declaration

I declare that:

“Customer perception of packaging and price on loyalty of Dulux products in the North-West of Johannesburg”

is my own work, that all the sources used quoted, have been indicated and acknowledged by means of complete references, and that this dissertation had not previously been submitted by me for any degree at another institution.

Tshepiso Dumasi 15 October 2007

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Acknowledgements

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Executive Summary

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Table of contents

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Chapter 1

CUSTOMER PERCEPTION ON PACKAGING AND PRICE ON LOYALTY OF

DULUX PRODUCTS IN THE NORTH-WEST OF JOHANNESBURG

Keywords: Branding, loyalty, packaging, pricing, perceptions.

1. INTRODUCTION AND BACKGROUND TO THE STUDY

Perception is the process by which an individual selects, organizes, and interprets the

information received from an environment (Sheth & Mittal, 2004:129). Perceptions are

influenced by customer characteristics, notably what customers already know and feel

about a stimulus. The line between perception and reality is a thin one. Consumers

respond to packaging with a whole set of prejudices, learned reactions, and individual

preferences that help make products winners (Aaker, 1991:78-90). Certain shapes,

colours, sizes, and textures cause consumers to respond positively, while others evoke

negative reactions. One reason that the physical container of a product has an impact on

consumers is that it’s the first intangible encounter a consumer has with that product.

Packaging was once considered part of the production process and was regarded as so

insignificant that it was overseen by purchasing people (Sheth & Mittal, 2004:131).

Companies are recognizing the power of well-designed packages to contribute to instant

recognition of the company or brand (Duffy, 2003:339). Rising consumer affluence

means consumers are willing to pay a little more for the convenience, appearance,

dependability and prestige of better packages (Kotler, 1991:147). Good packaging

attracts consumer attention, convincing consumers to pick-up the package in order to

examine it more closely. Paint manufacturers often include interior decoration options to

give consumers other reasons for purchase.

In addition, the number of price complains attained from monthly surveys conducted by

Dulux has uncovered that the pricing strategy is the central theme of the business.

According to the survey conducted (http://dulux.marketing/research/html), the price

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structure of the business is not accepted by most of the customers, thus reflecting on the

selling price of the company’s products. This will ultimately force the company to change

their pricing structure. In the last two years, Dulux market price has increased by over

forty percent, thus inducing consumers to withdraw their purchases towards the brand

(http://dulux.marketing/research/html). The reactions of potential and existing consumers

to different prices vary considerably. A small increase in the price of a product may lead

to a relatively substantial decrease in sales (Lucas, 1983:473-479). The assumption often

made in the economic price theory, namely that lower prices usually lead to increased

loyalty and vise versa, is not always true. Shapiro (1998:233) found the following

regarding the price-quality relationship. Firstly, the price is generally an indicator of

quality. Secondly, the influence of price is not more important than product reference.

Price as an indicator of quality is important to determine the loyalty of the consumer

(Kotler, 1991:499). Improper pricing of a product may nullify the effect of the marketing

mix. The company has to look at the following factors before it determines their pricing

strategy. Firstly, if you have low prices in the market, consumers may think your product

is off inferior quality or the product is defective. Secondly, a higher price may carry some

positive meanings to consumers: the product is “hot” and might be unobtainable unless it

is bought soon; the product represents an unusually good value or the product is excellent

in quality (Linstrom, 2003:312-332).

The proliferation of brands within the Dulux brand product category reflects a major shift

in consumer tastes and preferences. The direct indicators which influence the perception

of the consumers are; colours, textures and price (Dick, 1996: 19-20).

This study investigates the consumer perspective to Dulux brands by analyzing how

consumers perceive Dulux products and the meanings they associate with different

individual products. The Dulux brand is well-known and established in the region.

2. PROBLEM STATEMENT

In the ongoing effort to grow the market, Dulux has turned to brand alliance, a marketing

strategy wherein two brands, Dulux and Rockgrip join to form one brand, Dulux

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Rockgrip. Brand alliance may also cause a problem in that consumers think that the

Rockgrip range is of inferior quality. Numerous market trends suggest a growing role for

product packaging as a brand communication vehicle (Underwood, Klein & Burke, 2001:

402- 403). More recently, research examining the visual impact of packaging includes

studies measuring the impact of relative package appearance (e.g. typical, novel, colour)

on consumer attention, categorization and evaluation, as well as examination of visual

attention during brand choice (Chisnall, 1997: 112-122). Despite these works, little is

known about the specific type and amount of product information that is appropriate for

the package stimulus in order to maximize communication effectiveness at point of

purchase (Underwood, et al., 2001: 403- 404).

The Dulux pricing strategy changes too often, thus making the consumer unsure of the

company’s prices. Consumers may be willing to focus their attention on another brand of

paint, due to price variations. The overall quality of the Dulux brand, especially products

like Bergermaster and Rockgrip may be perceived as being of inferior quality, because of

the low price strategy. Consumers tend not to follow the instructions on the packaging,

thus leading to product failure and if they do, they are often misunderstood due to

contracting information. Price plays a major role on consumer’s perceptions of brand

quality, because consumers often use price to infer product quality (Uusithlo, 2001: 216-

218). On the other hand, packaging that does not describe the product’s features and data

sheets, presents the consumer with an unusable product.

According to (Underwood et al., 2001: 404), there are three important questions that need

to be answered about packaging:

Does the inclusion of a picture of a product on the package significantly influence

attention to the product choice?

Do the effects of placing a product picture on the package differ according to the

degree of consumer familiarity with the brand?

Do the effects of placing a product picture on a package differ for products that vary

in the level of experiential benefits they provide?

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The positive effect of package pictures on consumers’ perceptions and choice may not be

equally strong for all products (Underwood et al., 2001:407). Consumers perceive the

Dulux brand as a brand that does not have sub products, because of the lack of awareness.

3. THE OBJECTIVES OF THE STUDY

3.1. PURPOSE OF THE STUDY

The main purpose of this study is to evaluate consumer perceptions of packaging and

price on Dulux brand loyalty.

3.2 THEORETICAL OBJECTIVES

In order to achieve the primary objectives, the following theoretical objectives are

formulated for the study:

To conduct a literature study on product branding.

To establish from literature, the importance of packaging on consumer brand

perception.

To establish from literature the importance of pricing on consumer brand

perception.

3.3 EMPIRICAL OBJECTIVES

The following empirical objectives were formulated to support the primary and

theoretical objectives:

To assess the importance of intrinsic cues (size, ingredients and application)

on loyalty.

To assess the importance of extrinsic cues (brand name, packaging and price)

on loyalty.

To assess the overall level of satisfaction in terms of Dulux branding among

consumers.

To identify gaps in Dulux branding strategy by comparing consumer’s

perceptions and Dulux positioning strategy in the market place.

4. HYPOTHESES

Intrinsic cues (size, ingredients and application) may significantly influence

brand choice.

Extrinsic cues (brand name, packaging and price) may significantly influence

brand choice.

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5. SCOPE OF THE STUDY

For the purposes of this study, the research will be conducted with consumers who buy at

Dulux retail outlets. The study will be conducted within the North West region of

Johannesburg. The towns that are included in the region are, Randburg, Cresta,

Fourways, Honeydew and Roodepoort.

6. RESEARCH METHODOLOGY/DESIGN

Two methods of research will be undertaken:

6.1 LITERATURE REVIEW

A literature study on customer perception on packaging and pricing will be undertaken.

This would include books on packaging and pricing, journals, magazines, newspaper

articles and the Internet to establish a theoretical background. The literature study will

primarily focus on customer perceptions, packaging and pricing, and the importance of

branding.

6.2 THE SAMPLING DESIGN PROCEDURE

The following steps as eluded by (Nel, Radel & Loubser 1998: 289-314) will be used in

developing the sampling procedure.

6.2.1 TARGET POPULATION

The target population will be restricted to the North West Johannesburg district. For the

purposes of the study, the population will comprise individuals, male and female thirty

years and over, from the designated areas.

6.2.2 IDENTIFICATION OF THE SAMPLING FRAME

Hair, Bush & Ortinau (2002: 330) maintains that it is often very difficult to gain access to

accurate or representative sampling frames. The survey location (i.e. retail outlets) will be

used to conduct the research.

6.2.3 SAMPLING TECHNIQUE

A non probability sampling technique will be used in the study. The nature of the

research necessitated the use of convenience and judgment sampling. Convenience and

judgment sampling allows a large number of respondents to be interviewed in a relatively

short period of time.

6.2.4 SAMPLE SIZE

Since the sample size formulas cannot be appropriately used for non-profitability

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samples, the determination of sample size is usually a subjective, intuitive judgment

made by the researcher based on past studies. The goal of this study is to understand a

particular phenomenon more profoundly. A sample of 200 respondents from ten retail

stores will be selected. The sample size is consistent with consumer research done in this

field (Fullerton, 2004:103).

6.3 METHOD OF DATA COLLECTION AND MEASURING INSTRUMENT

Data on consumer perceptions will be collected through personal interviews. Primary

data will be collected by means of a structured questionnaire. The questionnaire will

comprise three sections. Section A will address packaging perceptions, section B will

focus on pricing and section C will concentrate demographic questions.

6.4 STATISTICAL ANALYSIS

Descriptive statistics will be undertaken to analyze the composition of the sample.

Categorical and graphical frequency distribution will be undertaken to analyze the

questionnaire. Prior to the analysis, the scale reliability will be tested using coefficient

alpha (Cronbach alpha). Analysis of variance (ANOVA) and Pearson correlation

coefficient will be computed to analyze relationships between variables. Validity analysis

will also be undertaken. The statistical package for social scientists (SPSS) version 11.0

for windows will be used for the above analysis.

6.5 CHAPTER CLASSIFICATION

Chapter one will compromise the scope and background of the study focusing on the

perception of consumers on packaging and price. It highlights the problem statement, the

research objectives and scope of the study. The research methodology is spelt out in this

chapter.

Chapter two will provide an overview of the importance of packaging, pricing and

loyalty.

Chapter three will concentrate on the design and the research method utilized in the

research.

Chapter four will deal with analysis, interpretation and evaluation of the research

findings.

Chapter five, the recommendations to the findings will be highlighted.

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Chapter Two

PACKAGING, PRICING AND LOYALTY

2.1 INTRODUCTION

The growth within retail chain outlets has been operating in a slow growth environment

and thus the pursuit for market share is becoming more aggressive in relation to

packaging, pricing and loyalty. As a result, according to Wells, Farley and Armstrong

(2007: 677) food product development and innovation continues to be seen as a

fundamental strategy for competitive success and survival within a competitive global

market. The retail structures are becoming more increasingly standardized and

homogeneous. Over two decades ago, Rossiter (1976: 523) warned us that consumer

research has largely ignored product-relevant information stored in visual memory,

information that may be quite sufficient to engender product choice.

This is presenting companies with challenges of sourcing other marketing avenues to

improve market share. In the last two years there has been an increasing emphasis on

improving the quality of packaging, maintaining competitive pricing and creating loyalty

programs for existing customers. It was yet perceived that marketers turned a blind eye

on the importance of visual memory because 20 years later, Zaltman (1997: 425-6)

echoed this concern by reminding us that most market research tools are verbocentric and

should be enriched with techniques that accommodate non-verbal expressions of

perception, learning and thought since two-thirds of all stimuli reach the brain through

the visual system.

In today’s competitive retail environment consumers are exposed during each visit to a

retail store to thousands of messages on packs and merchandising. This presents

marketing with a challenge to depend heavily on the visual communication of packaging

to inform and persuade consumers both at the point of purchase and at the point of

consumption (McNeal & Ji, 2003: 401). According to Welles (1986) nine out of ten

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shoppers at least occasionally buy on impulse and a survey of studies shown in a paper by

Phillips and Bradshaw (1993) suggest unplanned purchase of items might be as high as

51 percent of purchases (Nancarrow, Tiu Wright & Brace, 1998:110). This suggests the

opportunity to persuade at point of sale is one that cannot be ignored but that the

competitive environment is a challenging one. The importance of communicating the

right product and brand values on pack is paramount as well as achieving the appropriate

level of aesthetics and visual stand-out. Rettie and Brewer emphesise this through the

research conducted which estimates that 73 percent of purchase decisions are made at

point of sale; the design of packaging must play a key role at point of sale.

Packaging seems to be one of the most important factors in purchase decisions made at

the point of sale, where it becomes an essential part of the selling process (Silayoi &

Speece, 2004: 607). Klevas (2005: 116) also stresses the importance of the pack design,

packaging and logistics which become highly interdependent and together they have a

great impact on supply chain activities. Marketers need to ensure that the latter are

correlated, Silayoi and Speece (2004: 607) have indicated that with the move to self

service retail formats, packaging increases its key characteristic as the “salesman on the

shelf” at the point of sale. Due to the importance of packaging, visual cues such as taste,

odour, information from labeling and images increases the chances of your product being

sold at point of sale (Imram, 1999: 226).

Pricing can present a unique opportunity to create loyalty and retain existing and

prospective customers. In terms of providing a basis for inter-company price setting in

order to attract and retain customers to the brand, the most significant of these, certainly

is standard engineered component part industries where lean and collaborative principles

are arguably most mature, has proved to be a target costing and kaizer costing. This

combined approach has been taken from the Japanese automotive industry where it plays

a central part in the achievement of the quality, customer retention, cost and delivery

goals stipulated in customer specification (Hines, Francis & Bailey, 2006: 241)

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The price like other key variable in the exchange relationships is one of the tools

marketers may use to face the market, either attracting and retaining clients or fighting

against competitors. Most of the companies especially in the service market use

promotional tools such as price to motivate the sale of a specific product (Campo &

Yague, 2007: 269). For instance, Dulux (a South African paint manufacturer), may use

pricing on strategic lines like Bergermaster and Rockgrip brands to compete more

aggressively against regional paint manufacturers. Dulux has built its reputation in the

market by offering good quality paint at afforadable prices. Two strategies often used by

leading paint manufacturers should not be forgotten. These are the every day low prices

(EDLP) and the high and low prices (hi-lo) (Cataluna, Franco & Ramos, 2005:331). The

use of simple, one-dimensional prices, quoting single figures (e.g. 10), has made way for

complex price communication strategies aimed at exploiting particular information

elaboration process or perspective biases associated with specific price presentations, e.g.

instead of pricing the product at R10.00, you price it at R9.99 (Romani, 2006:131).

Another phenomenon which poses a challenge to marketers is reference pricing, Anttila

(2004: 47) describes it as a price against which consumers compare the listed price of a

product or service. In this way consumers evaluate whether a price is too low or too high

and thus making their product choices. Due to the sensitivity of price, retailers started to

introduce generic products or house brands to try and cater for the price sensitive section

of the market (Yelkur, 2000: 446). But this is contrary to consumers who react differently

to price promotions, for some consumers, high price simply means giving up more

resources for the product but some consumers believe that high prices are directly related

to better quality and prestige (Jin & Sternquist, 2003: 647).

Ang, Leong and Tey (1997: 116) issue a stern warning that, the practice of promoting

products on sale can accomplish both short and long term objectives. So it is vital for

markers to choose their strategies in terms pricing correctly. Having said that Herrmann,

Xia, Monroe and Huber (2007: 49) argue that satisfaction is a function of price,

performance and expectations with support for the expectations-satisfaction link being

weak and they propose that perceived price fairness might be the dominant determinant

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of satisfaction. Often marketers debate whether to introduce a fixed or discounted price.

According to Nagle and Holden (1994: 91) a fixed price offer suggests to a consumer that

the price is non-negotiable or will remain the same whenever they decide to purchase the

product. A fixed price offer implies that the product is excluded from consumer

promotions or price discounts but some retailers prefer the every day low price strategy

as it ensures consistency (Suri, Manchanda & Kohli, 2000: 194). Prices are used by retail

establishments as an advertising appeal to attract consumers (Alvarez & Casielles, 2005:

54). It is important for marketers to choose price communication strategies, both at the

point of sale and by the means of various media forms, that are capable of drawing

consumers’ attention to the product’s value and thus induce them to buy (Romani, 2006:

130).

Both academics and practitioners recognize the importance of loyal customers, because

such customers usually spend more, buy more frequently, have more motivation to search

for information, are more resistant to competitors’ promotions, and are more likely to

spread positive word of mouth. Research has shown that increases in consumer retention

result in increased profitability for companies that compete in mature and highly

competitive markets. Recently both academics and consultants have recommended that

companies orient their strategies for customer retention toward superior customer value

delivery, because customer value is a key antecedent of customer retention (Jiang &

Rosenbloon, 2005: 151).

2.2 Packaging methods or techniques

There are different kinds of packaging methods marketers can use to attract and retain

customers. A pack has many functions – some, if not all, presenting marketers with the

opportunity to gain competitive advantage.

2.2.1 Bonus packs

The bonus pack is of the dozens of techniques used in sales promotion. A bonus pack is a

special factory pack that offers the consumer extra product at no additional cost. For

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example, Dulux periodically offers a free one litre of paint when you buy the normal five

litre drum. Many companies have reported successes with bonus packs promotions, yet

somehow, bonus packs have eluded marketing scholars’ attention (Reiter, 1994).

2.2.1.1 Positive roles of bonus packs

Since today’s shoppers are more value-conscious than ever, bonus packs promotions are

rapidly becoming the accepted way for a company to boost sales. Furthermore, this

technique saves the company form having to reduce prices in order to gain a competitive

edge (Ong, Ho & Tripp, 1996: 2).

In most cases, bonus packs promotions represent limited time offers, designed to

stimulate short term sales and boost product awareness (Reitek, 1994). That extra value

for a consumer presents a good opportunity for a company to win a sale. In the Dulux

Paints Summer Promotion for 2006, sales rose by 20% by selling the normal 5 litre paint

and the consumer benefited by receiving a free 1 litre drum.

(http://dulux.marketing/research/htm).

2.2.1.2 Drawbacks of bonus packs

Marketing bonus packs can have drawbacks in terms of production capability,

warehousing, shipping, inventory and shelving. Some oversize containers need

significant modifications in the filling process. In some cases, the bonus pack container

may be an inch higher and thus not fitting on the shelf. Paint manufacturers often

complain that retail stores are reluctant to take bonus packs for this reason (Ong, Ho &

Tripp, 1996: 2).

When a consumer sees a container of paint labelled “Extra one litre for free”, he may

think that in the past the company has been robbing him. In addition, consumers may not

realise that the ‘bonus’ is a temporary offer, and hence not appreciate its ‘value’ (Ong,

Ho & Tripp, 1997: 103). Shultz et al., (1994) pointed out that bonus packs are generally

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unappealing to consumers who do not usually buy the product “(If I don’t usually use

margarine, why should I want an extra 6oz of the product?)”. Also in many cases,

consumers may not believe that they are getting an extra product for their money,

suspecting that the price had been raised or that the new quantity offered is actually the

regular amount (Ong, Ho & Tripp, 1997: 103).

2.2.2 Packaging decisions

Packaging can be described as the group of activities concerned with the design,

production and filling of a container or wrapper with the product item in such a way that

it can be effectively protected, stored, transported and identified, as well as successfully

marketed. Packaging should be designed in such a way that the product can be handled

without damaging the quality of the contents. Even more important is the fact that

packaging should promote product sales. The consumer should be able to identify the

packing standing on the shelf and distinguish it from that of numerous other competing

brands (Cronje, Du Toit, Motlala & Marais, 2003: 314-317).

2.2.2.1 Different kinds of packaging

Marketing management usually devotes a great deal of attention to choosing packaging

and a packaging design that will show off the contents in the possible way. The different

kinds of packaging that can be chosen are the following (Cronje, Du Toit, Motlala &

Marais, 2003: 314-317):

Family packaging. All the products in the range are more or less identically

packed – the same packaging material is used, and the size is more or less the

same. Family packaging is usually related to family brands. All KOO jams are

sold in identical packaging – obviously with different labels to indicate the

contents.

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Specialty packaging. This gives an image of exclusivity of the product. Perfume,

jewellery and expensive liquor (like Chivas Regal whisky) are often sold in

specialty packaging. Such products are popular gifts.

Re-usable packaging. This creates the impression that the consumer perceives a

‘free’ container if he or she buys the product. The container can be re-used for

something else later. A paint container is often used as a bulk storage bucket, you

will notice this at different ceremonies where the bucket is cleaned and re-used as

a liquid storing facility.

2.2.2.2 Choice of packaging design

Choice of packaging design might hugely affect the perception of the consumer with

regards to the product in the pack itself. This is where the decisions of marketers become

critical because this can make or break the brand. Glass bottles containing bottled fruit

are, for example more attractive than cans, but they are impractical to transport and even

more expensive. The shape of the packaging may have a specific functional value, such

as margarine in re-usable plastic tub. The shape may have a specific symbolic value,

which may subconsciously influence buyers.

2.2.3 Product differentiation

Marketing management also has to decide on the way in which the product should be

differentiated from other competing brands. Product differentiation means that the

business distinguishes its product, whether physically and/or psychologically, from what

are essentially identical competing product, so that it is regarded as a different product by

consumers in a specific target market. Physical and psychological differentiation can take

place on the basis of design, quality, colour, taste, size, brand, packaging or any other

distinguishing feature such as price of the product, the marketing communication

message used to bring it to the attention of consumers, and the type of distribution outlet

where it offered for sale.

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2.2.3.1 Different kinds of differentiation

Differentiation by means of packaging and brand. The various types of margarine

on the market are distinguished by the use of different types of packaging, such as

plastic, foil or waxed paper, the brands, the designs on the labels and the colours

used.

Differentiation by advertising appeals. Advertising appeals for one brand of

detergent emphasize the ‘enzyme active ingredients’, for another, the ‘stain

removing power’, and for yet another, the ‘clean fresh smell’.

Differentiation on the basis of price. There are big differences in the pricing of

cosmetic products, for example, Revlon products vs. Estee Lauder products.

Differentiation on the basis of distribution outlet. Rolex watches are available

only at the biggest and best known jewellers.

2.3 Role of the pack in marketing communications

A pack has many functions – some, if not all, presenting marketers with the opportunity

to gain competitive advantage. A typical pack design brief will clarify the following

(Nancarrow, Wright & Brace, 1998: 1-2):

What it needs to hold and in what form

The amount

Shelf life required and under what conditions

Point of sale communication requirements

Branding requirements

Conditions for accessing/dispensing contents

Copy/illustrations needed to encourage optimum use

In addition the pack design brief will specify the marketing and legal requirements of the

pack. In the latter case there may be regulations about showing the amount of contents

and ingredients or similar. There are, broadly speaking, seven occasions when marketers

become involved in the pack design:

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Of a new product or variant

A dated/tired pack

A product (Changing what it competes with and/or its functional or symbolic

benefits)

Its target market

Cost reductions in packaging are required

Legal or regulation requirements demand it

New packaging technology becomes available

In all instances, an understanding of the consumer is central to the success of a pack

design. We examine relevant model of consumer behaviour and the psychological

processes in perception and information processing.

2.4.1.1 The elaboration likelihood model (ELM)

Advertising by manufacturers is used as a ‘persuasive’ tool to encourage product change

or take-up. The elaboration likelihood (ELM) of persuasion (Petty and Cacioappo, 1983,

1984) takes account of the way in which consumers evaluate advertised messages in

order to provide an understanding of the thought process underlying the way in which

‘persuasion’ takes place. The context in which consumers process the information

presented to them on the labels of packaging is, therefore, of significance.

The need for attention to be paid to more effective labelling by manufacturers is

reinforced by the Financial Times (1995) estimate that 1,000 new consumer products

reach British supermarket shelves each month. In 1994 supermarket shelves had 312 new

yoghurts and 375 new sauces and pickles. Effectiveness in labelling would help

consumers, as the Financial Times suggests, choosing ‘between rows and rows of almost

identical products’. Since the business of advertising is an expensive one, the knowledge

gained about the psychology of their consumers is important to assist manufacturers to

understand the ‘hows’ and ‘whys’ of consumer responses to their packs and

advertisements. Effective labelling on the packaging would underpin the main forms of

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marketing communications of advertising, personal selling, publicity, public relations,

direct marketing and sponsorships.

Persuasion is likely to occur when brand associations are positive. Executional cues in the

design of labels and advertisements where brand familiarity is strong, result in cognitive

shortcuts on the part of purchasers along the peripheral route (underlying the need for

semiotic analysis of the competitive set). In the whiskey market, consumers use a number

of design cues to infer ‘aged’, yet these could be misleading. It may be tempting in some

markets to ‘imply’ certain product characteristics when they do not exist.

Consumers become motivated and able to elaborate when the message content is

perceived as relevant to their needs and when they have the knowledge and ability to

think about these messages. For example, cognitive processing of food claims on product

labels can be influenced by the need to be efficient in allocating disposable income or

selecting a diet meeting nutritional needs and avoidance of harmful products for

consumption.

This illustrates the sequence of stages in consumer behaviour:

Product exposure using the major forms of marketing communications;

Information search, sometimes may be difficult by lack of data or standardization

in product labelling;

Reception of food claims and contents information concerning the addition of

flavourings and additives;

Motivation and ability to elaborate (process messages and information) along the

central and peripheral routes to persuasion;

Integration, retention of information and action in purchasing.

2.4.1.2 How can we ensure the pack and its messages are noticed?

It is important that, when we are considering the visual impact of a pack in store,

consumers’ perceptual processes and their limitations are understood. Two key aspects

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are considered, namely, selective attention processes; and what is detected and what is

registered.

Selective attention

How can a pack capture a shopper’s attention? Schiffman and Kanuk (1983) examine a

number of aspects of human perception principally based on the work of experimental

and cognitive psychologists. They argue that in a typical supermarket, there is a multitude

of potential distractions from your product – competition, other shoppers, smells wafting

from other sectors, and sounds in and out of the store. Yet the shopper regularly manages

to accomplish the shopping mission. This is because the shopper ‘exercises selectivity in

perception’. This selectivity is influenced by two internal factors:

Experience (what the shopper expects to see, known as perceptual set);

Motives (needs, wants or desires, interest and values)

Of course, the nature of the stimulus (the design characteristics of the pack) will also

have a bearing on whether the pack is noticed and how it is perceived. While a pack

should clearly signal its relevance to the needs and wants of its target shopper, it will

often need to stand out in a display of many other offerings.

Marketing research producers are available to check the visibility of the pack and its key

elements. Eye scan apparatus track the movement of a customer’s eye across a display of

packs – showing what the eyes travel across and time spent at any point. The test is

carried out in a laboratory because of the limitations of the apparatus and the need to

control the test and exclude extraneous stimuli. Different new packs can be tested against

competitors’ pack. Of course eye movement does not necessarily mean attention is being

paid. The consumer may be thinking about other things. It may be necessary, therefore, to

follow up with a questionnaire to determine what was noticed or recalled.

What was noticed or detected

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There may be occasions when a change to the pack is designed to affect the consumer

perceptions but the marketer may not wish the change to be noticed. The need is to keep

the product looking up-to-date without loosing the benefit of the look in which so much

marketing spend has been invested to make the brand familiar and build a specific image.

The Campbell Soup Company has made subtle changes to their packaging in terms of its

typography and logotype over the years – keeping it up-to-date in appearance without any

loss of image. Other examples in the USA include Ivory Soap and Crackerjack.

Psychologists describe the minimal difference between two stimuli that can be detected

as the differential threshold or the just noticeable difference (JND). Marketers have tive

adopted the concept in several areas - pricing, pack design and size in particular. In the

case of up-dating packaging, research procedures can be set up to test new more up-to-

date designs to see whether consumers notice a change. A similar research procedure may

be used to see at what point a reduction in size or increase in price might adversely affect

sales.

2.4.1.3 How can we check if the pack communicates effectively and appealingly?

In addition to checking the visibility or visual impact of new or revised pack designs, it is

important to establish whether they communicate effectively and in an appealing way.

While qualitative research may be helpful in diagnosing what elements of a pack work or

do not work, marketers seek marketing research that is more reliable (based on a larger

and more representative sample). The typical study will probe impressions of the product

the consumer forms based on the new pack. These impressions may be captured by

asking research participants to rate the product on a battery of relevant attribute scales

probably based on preliminary qualitative research. However, because the impact test

may influence (bias) the way in which research participants responds to the

‘communication’ check, the two exercises may be carried out on different samples.

The following issues need to be considered in such checks:

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There are several new designs, for cost reasons it may be decided to test them

against each other on the same respondents, then test the wining pack at a later

stage against the competition. If this is the case, if two of four pack designs are

very similar to each other, beware the split vote phenomenon.

In some markets the immediate competition may not be easily defined (for

example certain convenience desserts). In such situations you may decide to test

the new pack monadically (without competition present), letting the consumer

rate the product with his/her unique competitive set in mind.

There is a more clearly defined competitive set you may still need to change the

display reflecting the research participant’s normal retail outlet. Generally, this

means putting the relevant own label in the display.

3. Pricing

Pricing is a highly conspicuous element of the marketing mix and therefore has many

publics to satisfy. Furthermore, in the buying public there are many other interested

parties such as competitors, society and government – particularly if there is a domestic

prices and incomes board, other governments if the item is exported and possibly even

supranational bodies, such as the EU. For management there is no such thing as ‘perfect

knowledge’ of any market situation nor is there ‘perfect competition’ where all

companies active in a market are equal.

The major problem with price setting is that there are few goal posts. Pricing within the

domestic market, there are strategic implications as to whether one chooses to price high,

low, or merely be a price follower, and the same strategies can be pursuit internationally

(Paliwoda & Thomas, 1998: 252).

3.1 Price determination process

The price determination process consists of the following four phases:

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Determination of the cost price. The first step in determining the price of a

product is the responsibility of the cost accounting department, and not the

marketing department. The unit cost to produce and market the product are

calculated. The product cost cannot be lower than cost because this would entail

financial loss, which would ruin the business.

Determination of the market price. The market price is the price a consumer is

prepared to pay, or the current market price at which competing products are sold.

It is marketing management’s task to determine the market price. This can be

done by launching a marketing research project involving consumers or dealers.

Determination of target price. The target price is the price that will realise the

target rate of return, taking into consideration the cost structure, the business

capital needs, and the potential sales volume of the product. One way of

calculating the target price is the cost-plus method. This is done by adding the

profit margin to the product unit cost.

Determination of the final price. The final price is the price at which the product

is offered to consumers. This price is determined through a reconciliation of the

market price and the target price. The final price therefore lies somewhere

between the market price and the target price.

3.2 Adaptations of the final price

3.2.1 Skimming prices

If the product is an innovation, and therefore a unique new product, the final price may

have a much higher profit margin. There are consumers who would be prepared to pay

the high price, because such new inventions usually have prestige value.

3.2.2 Market penetration prices

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Marketing management may decide against setting a high skimming price and rather set a

market penetration price. Here, the initial price of a new product is lower, and the

marketer hopes to penetrate the market rapidly, discouraging competitors in the process.

3.2.3 Market price level

This strategy is followed if there is keen competition and numerous similar products have

to compete against one another. In such a situation the marketer has to maintain the

market price. If he or she sets the price of the product higher than those of competitors,

consumers will tend to avoid the product. If the price is lower than those of competing

products, consumers will think there is something wrong with the product.

3.2.4 Leader prices

Leader pricing concerns special offer widely used by retailers – the so-called ‘specials’.

A very small profit is made on leader prices products. These products are sold at a lower

than the current market price for a limited period only.

3.2.5 Odd prices

Odd prices indicate that the final prices of products have odd numbers. The even prices,

for example, R2, R4, and R10 are avoided, and products are rather marked R1.99, R3.79

and R9.95. It is thought that consumers are more likely to accept odd prices because they

appear to be lower than even number prices.

3.2.6 Bait prices

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Bait prices are unethical and therefore avoided by honest retailers. A bait price item has a

particularly low price and it is widely advertised. On arriving to buy it, purchasers are

then encouraged to buy a far more expensive item (Cronje, Du Toit & Motlala, 2003:

321–323).

3.3 Pricing strategies

Prices and promotional activities may affect the image that customers have from stores.

In addition, pricing allows companies to segment markets, define products, create

incentives for consumers and even send signals to competitors. Different kinds of pricing

strategies are used to affect the latter (Cataluna, Franco & Ramos, 2005:2-4). A supplier

has to price goods and services in a way that achieves profitability for the company and

satisfy customers, while adapting to various constraints. Pricing is a crucial strategic

variable due to its direct relationship with the company’s goals and its interaction with

other marketing mix elements. A pricing strategy must be consistent with the company’s

overall image (positioning), sales, profits and return on investment goals (Berry & Joel,

1998:428-444). There are six basic pricing strategies:

3.3.1 Soft discounts

The soft discount establishments present a commercial offer distributed approximately at

50 percent national brands and private labels. Soft discounts are normally applied to

cheaper brands where everyday low price strategy is implemented.

3.3.2 Hard discounts

They use the price variable more aggressively in all their references, using mainly private

labels that take up between 90 and 95 percent of the total assortment. The stores usually

have a poor environment and customer service is scarce. The number of references the

offer is also smaller, usually under 1,000 items.

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3.3.3 Multiple item discounts

This involves advertising one item for half the price if the consumer buys another item.

Retailers often use this as a form of selling slow moving goods. To ensure the success of

the promotion, point-of-purchase materials should accompany the promotion.

3.3.4 Discount orientation

It uses low prices as the major competitive advantage of the company – which will trade

off a low-status image and low per unit margins in return for a target market of price-

based customers, low operating costs, and high inventory turnover.

3.3.5 At-the-market orientation

The company has average prices, and offers solid service and a friendly atmosphere to

the middle class customers. Profit margins are moderate to good, and average to above-

average products are stocked.

3.3.6 Up-scale orientation

It is where a prestigious image represents the company’s major competitive advantage.

The company is willing to trade off a smaller target market, higher operating costs and

lower inventory turnover in return for customer loyalty, distinctive services and product

offerings and high per unit profit margins.

3.4 The consumer and retail pricing

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There is often a relationship between price and consumers’ purchases, perceptions and

loyalty. Thus the retailers should understand the price elasticity of demand that they face.

The price elasticity of demand relates to the sensitivity of customers to price changes in

terms of the quantities they will buy. If a relatively small percentage change in price

results in a substantial percentage change in the number of units purchased, price

elasticity is high. This occurs when the urgency for a price is low or acceptable

substitutes exist. However, if a large percentage change in price has a small percentage

change in the number of units bought, demand is considered inelastic. This occurs when

purchase urgency is high or there are no acceptable substitutes (Berry & Joel, 1998: 428-

444).

Figure 3.1 Factors affecting retail price strategy

Consumer price sensitivity varies by market segmentation. Here are some of them:

Consumers Government

Manufacturers, wholesalers and other suppliers

Current and potential

competitors

Total Effects on Pricing Strategy

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Economic consumers – they perceive competing retailers as similar to one another

and shop around for the lowest possible prices. The segment has grown

dramatically in recent years.

Status orientated consumers – they perceive competing retailers as quite different

from one another. They are more interested in prestige brands and customer

services than in price.

Assortment-Oriented customers – they seek retailers with strong assortments in

the product categories being considered. They look for fair prices.

Personalizing customers – they shop where they are known. There is a strong

personal bond with retail personnel and the company itself. These shoppers will

pay slightly above-average prices.

Convenience-Oriented consumers – they shop only because they must. They want

nearby locations and long hours, and may shop by catalogue. These people will

pay higher prices.

Figure 3.2 Factors affecting retail pricing strategy

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3.4.1 Pricing objective

Retail ObjectivesSalesProfit in RandsReturn on investmentsEarly recovery of cash

Broad Price PolicySelection of target marketChoice of retail imageComposition of retail mixSelection of price policy

Price StrategyDemandCostCompetitiveIntegrated

Implementation of Price StrategyCustomary & variable pricingOne price & flexible pricingOdd pricingLeader pricingMultiple unit pricingPrice lining

Price AdjustmentsMarkdownsAdditional mark-upsEmployee discounts

FAC

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Table 3.1 provides a list of specific pricing goals other than sales and profits. Although a

number of objectives are enumerated in the table, each company must determine their

relative importance given its particular situation and plan accordingly. Furthermore, some

goals may be incompatible with one another, such as ‘not to encourage customers to

become overly price conscious’ and a ‘we-will not-be-undersold philosophy’.

Table 3.1 Selected specific pricing objectives

To maintain proper image

To not encourage customers to become overly price conscious

To be perceived as fair by all parties (including suppliers, employees and

customers)

To be consistent in setting prices

To increase customer traffic during slow periods

To clear out seasonal merchandise

To match competitors’ prices without starting a price war

To promote a ‘we-will not-be-undersold philosophy’

To be regarded as the price leader in the market area by consumers

To provide ample customer service

To minimize the chance of government actions relating to price advertising and

antitrust matters

To discourage potential competitors from entering the market place

To create and maintain customer interest

To encourage repeat business

3.5 Price reductions and promotional deals

There is ample evidence that in-store price reductions affect brand decisions. The general

pattern involves a sharp increase in sales when the price is first reduced, followed by a

return to near-normal sales over time or after the price reduction ends (Del, Roger &

Best, 2001: 603-732).

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Sales increases in response to price reductions come from four sources:

Current brand users may buy ahead of their anticipated needs. Stockpiling often

leads to increased consumption of the brand, since it is readily available.

Users of competing brands may switch to the reduced price brand. These new

brand buyers may or may not become repeat buyers of the brand.

Non-product category buyers may buy the brand because it is now a superior

value to the substitute product.

Consumers who do not normally shop at the store may come to the store to buy

the brand.

High quality brands tend to benefit more than brands from lower quality tires when prices

are reduced (and to suffer less when prices are reduced). Like brands, households respond

to price reductions and deals differently. Younger and less educated consumers tend to be

somewhat more responsive to deals.

3.6 Pricing issues

Consumer groups want prices that are fair (generally defined as competitively

determined) and accurately stated (contain no hidden charges).

Unit Pricing is the presentation of price information on a common basis such as per

ounce across the brands. Such information, when properly displayed, can greatly

facilitate price comparisons. Perhaps the most controversial pricing area today is the use

of reference prices. An External Reference Price is a price provided by the

manufacturer or retailer in addition to the actual current price of the product.

3.7 Consumer sensitivity to pricing

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Sampson (1964) has argued that many desensitizing factors operate to diminish the

impact of price changes. Insensitivity will therefore be greater where the following

conditions prevail (Stanley, Paliwoda & Thomas, 1996:256):

Personal selling, and therefore, variation in point of sale effectiveness

Promotion is local rather than standardized nationally

Service after sales is important

Consumer loyalties are significant

Products are highly differentiated and difficult to compare

There are multiple dimensions of product quality

Unit price is low

The product is sophisticated

Shapiro and Jackson (1978) cite five principles of a customer approach to pricing, which

are:

The customer chooses products by measuring benefits against costs

Benefits include more than physical attributes, and additional components such as

services are important in differentiating products

Cost involves more negative aspects of the purchase price alone

Benefits and costs must be understood in terms of a complete usage system, not as

an isolated part of the system

Different customers view benefits and costs in different ways, meaning that

careful market segmentation is necessary.

3.8 A multi stage approach to pricing

There are six major elements which have been identified by Oxenfeldt (1960) in a

domestic pricing decision, which in sequential order are:

Selecting market targets

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Choosing a brand image

Composing a marketing mix

Selecting a pricing policy

Determining a pricing strategy

Arriving at a specific price

However, international pricing has to take many more variables into consideration, and

this is, of course assuming that payment will be made almost immediately.

4. LOYALTY

Loyalty is defined as consistently purchasing a brand over time due to an emotional

attachment to the brand (Hawkins, Best & Coney, 2001: 421-430). Service and store

loyalty are generally defined in the same or similar manner. Thus a loyal or committed

customer has an emotional attachment to the brand or company. The customer likes the

brand in a manner similar to a friendship.

Loyalty can arise through identification, where the consumer believes the brand reflects

and reinforces some aspects of the consumer’s self-concept. This type of commitment is

most common for symbolic products such as automobiles. Loyalty may also arise through

performance so far above expected that it delights the consumer. Such superior

performance can be related to the product or the company itself. Committed customers

are unlikely to consider additional information when making a purchase. They are also

resistant to competitors’ marketing efforts – for example coupons (Hawkins, Best &

Coney, 2001: 421-430).

Even when loyal customers do buy a different brand to take advantage of a promotional

deal, they generally return to their original brand for their next purchase. Committed

customers are likely to be a source of positive word-of-mouth communications. Positive

word-of-mouth communications from a committed customer increases both the

probability of the recipient becoming a customer and of the recipient sharing the positive

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comment with a third person (Hawkins, Best & Coney, 2001: 421-430), e.g. “I have not

used Dulux paint yet but Tshepiso raves about the amazing look and quality of his walls”.

Figure 4.1 Customer satisfaction outcomes

4.1 Brand loyalty

While repeat is more immediate, brand loyalty is a measure of how loyal your consumers

are over a period of time. If your customers primarily use only your company’s products,

they are brand loyal. If they use your product at a majority of the time but occasionally

use your competitors’ products, they are moderately brand loyal. Low brand loyalty

exists if brand or product switching occurs regularly in your category or with your

products (Hawkins, Best & Coney, 2001: 421-430).

BIBLIOGRAPHY

Our total products

Consumer decision process

Superior value expected

Sales Perceived value delivered

Increased use

Repeat purchases

Brand loyalty

Brand switchingCompetitors’

total products

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AAKER, D.A. 1991. Managing Brand Equity: 7th ed. New York Toronto Maxwell Macmillan: Free Press.

CHISNALL, P.M. 1997. Consumer Behaviour: 3rd ed. London: McGraw Hill.

DICK, A. JAIN, A. RICHARDSON, P. 1996. How consumers evaluate store brands. Journal of Product and Brand Management, 5(2). 19-28.

DUFFY, N. 2003. Passion Branding: 1st ed. England: Wiley and Sons Ltd.

FULLERTON, G. 2004. The service quality-loyalty relationship in retail services: does commitment matter? Journal of Retailing and Consumer Services, 12(2):99 -112

KOTLER, P. 1991. Marketing Analysis, Planning, Implementation and Control: 7 th ed. Englewood Cliffs, NJ: Prentice Hall.

LINSTROM, M. 2003. Brand Child: 1st ed. London: Sterling, VA, Kogan Page: Millward Brown.

LUCAS, G.H.G. 1983. The Task of Marketing Management: 1st ed. van Schaik. Johannesburg.

NEL, P.A. RADEL, F.E. LOUBSER, M. 1998. Researching the South African Market: Pretoria: Unisa Printers.

UUSITHLO, O. 2001. Consumer perceptions of grocery retail formats and brands . International Journal of Retail and Distribution Management Branding, 9(5): 214-225.

UNDERWOOD, L.R. KLEIN, N.M. BURKE, R.R. 2001. Packaging communication: attentional effects of product imagery. Journal of Product and Brand Management Packaging,10 (7). 403-422.

SHEITH & MITTAL. 2004. Consumer Behaviour, a Managerial Perspective: 2nd ed. Cincinnati, Ohio: Thomson.

HAIR, J.F. 2003. Essentials of business research methods: 1st ed. New York: Wiley and Sons Ltd.

Marketing info. 2004. December 11. Dulux online. Available at: http://dulux.marketing/research/html.

SHAPIRO, D. 1998. International Marketing on Pricing and Packaging: 2nd ed. London: McGraw Hill.

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