Consumer behavior

The Indian Institute of Business Management & Studies
SUBJECT: Consumer Behavior Marks: 100
Note: Solve any 4 Cases Study’s
CASE: I Starbucks
In 2003, Starbucks accomplished something that few companies ever do: It became a Fortune 500 company
—a phenomenal achievement for a company that went public only 12 years earlier. The company had over
6,000 stores worldwide—all company owned, as Starbucks does not franchise its outlets—and planned
to expand rapidly to over 10,000 stores.
Starbucks created not only a successful business but a thriving industry. When the company started
its massive expansion in the early 1990s, the United States had about 200 coffeehouses. In 2003 there were
over 14000 coffeehouses, the majority of them not Starbucks but mom-and –pops that bloomed after the
dawn of the $3 cup of coffee. According to a Starbucks executive, “We changed the way people live their
lives, what they do when they get up in the morning, how they reward themselves, and where they meet.
That’s more important to me than just building a company.”
More than 10 million coffee lovers spend an average of $3.60 at Starbucks weekly, and 10 percent of
them come in twice a day. Starbucks has 7 percent of the U.S. coffee-drinking market and less than 1
percent abroad, suggesting ample room for growth. The coffee market is huge; coffee is the second
most consumed drink in the world (water is first).
Starbucks’ iced beverages, which offer larger profit margins than regular drip coffee, are big sellers
in the South and Southwest. After making some adjustments, such as adding outdoor seating and couches
to stores to better serve the needs of its customers, Atlanta locations have shown double-digit sales growth.
Atlanta boasts 33 successful Starbucks, and plans for expansion are in the works. Plans for further
expansion in cities with even more Starbucks stores, such as New York City and San Francisco, are also on
the drawing board. Although 70 stores operate in New York City alone, it is estimated that growth there will
continue until 200 stores are operating in the city! As for fears of market saturation, Starbucks has none. In
fact, the java giant has two highly profitable outlets that face each other on Robson Street in Vancouver,
British Columbia. Each store has more than $1 million in annual sales. International expansion is also taking
place. In fact, the number one Starbucks in the world is located in Tokyo, and a total of 500 stores are
slated to be operational in Asia in the next three years.
What is the secret of Starbucks’ phenomenal success? According to Howard Schultz, chairman and
CEO of Starbucks Corporation, the company’s success is due to the experience created within the stores
as well as the unsurpassed quality of the coffee. A steaming café au lait must be perfectly replicated,
whether the store is in Seattle or New York City. In a world filled with people leading busy, stressful lives,
Schultz believes he has created a “third place” between home and work where people can go to get their
own personal time out or to relax with friends.
Schultz also attributes his company’s success to the 40,000 employees working worldwide.
Starbucks’ employee training program churns out “baristas” by educating 300 to 400 new hires per month in
classes such as “Brewing the Perfect Cup at Home” and “Coffee Knowledge.” Here they are taught to remind
customers to purchase new beans weekly and that tap water might not be sufficient when brewing the
perfect cup of coffee. They are also encouraged to share their feelings about coffee, selling, and working for
Starbucks. Employees are also given guidelines to maintain and enhance self-esteem, to learn how to listen
and acknowledge, and to know when to ask for help. E-mail, suggestion cards, and regular forms allow
unsatisfied workers to communicate with headquarters. If the annual barista turnover of 60 percent,
compared with 140 percent for hourly workers in the fast-food industry, is any indication of quality of its
training programs, Starbucks seems to have a handle on how to gain and maintain employee loyalty. What
about the demographic makeup of the work force? About 80 percent of the employees are white, 85 percent
have some education beyond high school, and the average is 26.
The Starbucks success story is continuing into the 21st century as the company is quickly expanding
into Europe and Asia. However, one question remains regarding the success of the company in countries
already known for their coffee-making expertise: Will such Romans and Parisians care for Starbucks?
Continued expansion and visibility has been created domestically as Starbucks has formed partnerships with
companies such as United Airlines and Barnes & Noble Booksellers, both of which draw form the same type
of knowledgeable customer.
More recently, Starbucks has opened several full-service dining establishments (Café Starbucks) in
response to customers who want more at lunch and dinner. The menu offers full meals, breads, pastries,
alcohol, and of course coffee. The company has also launched an Internet site that sells not only expensive
coffee but also pricy kitchenware, home furnishings, and gourmet food. After some skepticism by analysts
and a subsequent drop in share price, Schultz emphasized that “Every company must stick to its knitting,
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understand its core competency, know what the value proposition is for the customer, and do everything
possible to get close to the customer. So you won’t see us getting far afield from what we do now” As for the
present, Starbucks is not likely to fall victim to a fad-driven society any time soon. The company seems to
be doing fine.
You can learn more about Starbucks at http://www.starbucks.com.
Question:
1. Based on the case information and your personal experiences, list at least five things you know
about Starbucks. This list offers you some idea about your cognitions concerning the coffee shop
chain.
2. List at least things you like or dislike about Starbucks. This list gives you some idea of your affect for
the coffee shops.
3. List at least five behaviors involved in buying a gourmet coffee drink from Starbucks. This list gives
you an idea of the behaviors involved in a coffee purchase.
2

CASE: II Barnes & Noble
For decades, bookstores were simply that—places that sold books. The typical mom-and-pop bookstore on
the corner was small, quaint, sometimes a little musty, and bursting at the seams with books. It was a
wonderful place to visit now and then, look around for a bit, find a book you like, and go home. Today that
old bookstore seems like a relic of a bygone era. Barnes & Noble’s approach to book selling has
revolutionized the entire industry.
Barnes & Noble has risen from rather ordinary beginnings to become the largest bookstore chain in
the world. Founder and CEO Leonard Riggio began his empire by purchasing a struggling Manhattan
bookstore in 1971. Riggio opened his first superstore, with 100,000 square feet of selling space, in New York
in 1975. That store was so successful that he quickly opened more superstores throughout Manhattan and
downtown Boston. The formula worked and the number of stores multiplied. In the early 1990s, the
company began spreading the superstore concept throughout the United States. Today Barnes & Noble
operates around 950 bookstores and another 426 video game and entertainment software stores. The
company boasted sales of nearly $3.5 billion and operating profit of $232 million in 1999.
Riggio took a decidedly different approach to selling books. “Shopping is a form of entertainment,”
he says. “To customers, shopping is a social activity. They do it to mingle with others in a prosperous-feeling
crowd, to see what’s new, to enjoy the theatrical dazzle of the display, to treat themselves to something
interesting or unexpected.” Riggio made sure both the layout and operation of his stores provide customers
with what they want. Barnes & Noble superstores are huge, yet clubby and inviting. They typically cover
about 25,000 square feet (some are much bigger) and offer a selection of up to 150,000 titles, compared to
10,000 to 20,000 at the typical independent book seller. Books usually are discounted 20-30 percent. But a
Barnes & Noble superstore is not defined merely by size and volume. The atmosphere is friendly, even
somewhat luxurious—almost a cross between a public library and a den. There are large, overstuffed chairs;
reading tables; background music; a coffee bar; bright lighting; and even well-maintained public restrooms.
Book-store used to discourage customers from reading in the store—spend more than a few minutes with a
book and you would have expected an employee to tap you on the shoulder and suggest that you either buy
the book or put it back. But Barnes & Noble actually wants you to pull a book or magazine off the shelf, grab
a cup of coffee, flop down on a sofa, and make yourself at home. A company spokesperson explains, “The
philosophy behind this is, the more customers we attract into the store and the longer they are encouraged
to stay, the more books we sell.” Many Barnes & Noble locations also offer a music section where the same
philosophy applies. Customers are welcome to sit down with a pair of headphones and listen to a CD before
they buy it.
Barnes & Noble also works to ensure that its superstores evolve into community meeting places.
Each store or region is staffed with a public relations coordinator who works to bring events to the store.
Live performances, readings, and book signing are common. Classes of elementary school kinds are
invited to come in and browse on a regular monthly basis. Stores even offer classes, book
discussion groups, puppet shows, and story hours for children. The long store hours (9 AM to 11
PM) also provide a compelling lure. “For people who work all day, this is their leisure time,” explains
Lisa Herling, vice president for corporate communications. “Whether it’s after a movie or after
dinner, it’s a destination location.” Riggio puts it more succinctly: “If I get you for two hours, I’ve got you.”
In 1995, a competitor with an entirely different value proposition emerged. Amazon.com began
selling books over the Internet. Barnes & Noble countered two years later with BarnesandNoble.com,
which tries to replicate the superstore experience on the Web. At the site you can participate in live
chats with authors and listen to audio from one of the many archived book readings (featuring such
renowned writers as Kurt Vonnegut, Susan Sontag, and Salmon Rushdie). Now the largest bookseller in the
U.S., BarnesandNoble.com, also offers free online courses through “Barnes & Noble University,” where you
can study subjects ranging from the humor of Shakespeare to overcoming shyness. You can even purchase a
bag of Starbucks coffee and select the music you want to hear while you’re browsing the site. Oh, yes, they
do sell books on the site, too—750,000 titles—along with music, software, and posters. BarnesandNoble.com
has attracted more than 5 million customers since 1997 and has emerged as the fourth-largest e-commerce
site on the Web. Sales were up 4.5% in 2002 as were expectations that the venture would turn a positive
cash flow soon.
Barnes & Noble’s success comes not so much from what it is selling but how it is selling it. Both
the brick-and-mortar stores and the online site provide customers with an atmosphere that turns
book buying into a warm, friendly, inviting experience.
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Question:
1. What affective responses do you think the Barnes & Noble environment creates? How might
consumers’ cognitive systems interpret these responses? From a marketing perspective,
which is more important to Barnes & Noble—affect or cognition?
2. Rob goes to Barnes & Noble location to hang out and meet people. Lisa goes only when she
wants to purchase a specific book or CD. Describe how their integration processes might
convince them to choose Barnes & Noble over the myriad other options they have.
3. Many of the activities that take place at Barnes & Noble stores (or at BarnesandNoble.com)
do not require a purchase. Participating in discussion groups and going to in-store
performances are free. And obviously it doesn’t cost anything to simply go in, sit in a chair,
and read a book. So why do people buy? How do these free activities (behaviors) influence
consumers’ affect and cognition?
4

CASE: III Rollerblade Inc.
In 2002, in-line skating ranked among the most popular sports for children ages 6 to 17, behind basketball
and soccer, according to the Sporting Goods Manufacturers Association. About 7.5 million youths skate an
average of over 25 times per year. This is quite a change from 1980, when Minneapolis-based Rollerblade
Inc. introduced its first in-line roller skate.
Rollerblade’s founder, Scott Olson, was a hockey player with the Winnipeg Jets’ farm teams who
envisioned a roller skate with the action of an ice skate that hockey players and skiers could use to train
during the off-season. At first, the plan was to use modern materials to construct a model based on an 18-
century design. However, Olson discovered a similar in-line skate already on the market and purchased the
patent from Chicago Roller Skate Company. Olson and his brother, Brennan, perfected the design using a
plastic molded ski-type boot atop a blade of polyurethane wheels. Their first sales were to Olson’s
teammates as well as a few to sporting goods stores. Thus began the sport of blading
Although they generally cost twice as much as conventional roller skates, in-line skates are
purchased for two reasons. First, they are faster and therefore more exciting to use than conventional
skates. Second, they provide skaters with a better aerobic workout, requiring the use of more muscles.
However, it is more difficult to learn how to use in-line skates because they require greater balance and their
speeds may cause more severe injuries if a skater falls.
By 1986, wholesale sales of in-line skates had risen to $3.5 million. Recognizing an opportunity to
get in on a growing market, a number of companies began producing competitive products. First Team
Sports, Inc., also based in Minneapolis, started manufacturing its Ultra-Wheels brand skates, which included
the first in-line skates for children. Roller Derby Skate Corporation in Litchfield, Illinois, a manufacturer of
standard roller skates since 1936, produced an in-line skate with a toe-stopper for those accustomed to
conventional skates (Rollerblades had a rubber stopper located on the heel). The ice skate manufacturer
Bauer entered the market with a skate that had a leather rather than plastic boot.
Rollerblade Inc.’s sales increased when it expanded its target market. At first, the product was
targeted to hockey players, who were 95 percent male and 18 to 25 years old. However, by broadening the
target to include 18-to-35-year-old males and females, the company increased sales considerably.
By 1990, industry wholesale sales of in-line roller skates topped $50 million, which almost equaled
sales in the conventional roller skate business.
Rollerblade Inc. maintained a 66 percent market share, First Team Sports had 22 percent, Bauer had 5
percent, Roller Derby had 3 percent, and other competitors combined had the remaining 4 percent.
Rollerblade could have done better, but it could not fill store orders for several months because it ran out of
inventory early in the year. By 1998 there were 30 million in-line skaters, although growth in the number of
skaters was slowing down; skate boarding was taking off as a cool alternative.
The fierce competition in the industry involved not only product features but also marketing
elements. Companies rushed to sign celebrities to promote their products. Competitors also moved into new
retail markets, including discount and departmental stores. Rollerblade expanded its market by
selling to Macy’s and Nordstrom.
Although the name of Rollerblades may become generic term for this type of skate, the
company’s management will have to work hard to maintain its market lead. “We have been
pioneers and continue to maintain an edge,” a company spokesperson said. “You only get one shot
at pioneering a new sport, and that’s exciting.”
Question:
1. What role do you think modeling could have played in the diffusion of this innovation?
2. How could you use modeling to teach a friend how to use Rollerblades?
3. If you were designing a commercial for Rollerblades to be used for an in-store videotape
demonstration, how would you design the commercial to take advantage of your knowledge
of modeling?
5

CASE: IV The Saturn Family
Consumers are bombarded with advertisements and marketing hype everyday. When you log onto the
Internet, watch television, listen to radio, read a newspaper, or open your mail, you are inevitably greeted
with a plea to purchase brand X or visit store Y or website Z. In any given day, you are exposed to more
information than you can realistically process. In the 1990s, marketers began to look fresh, innovative ways
to make their companies stand out from the media clutter. Few have been as successful as General Motors’
subsidiary Saturn, whose 1994 “homecoming” of car owners has been described as “the mother of all
marketing programs.”
Saturn’s mission statement emphasizes the concept of “family.” In an industry whose history is
replete with labor conflict, Saturn has tried to erase the line between labor and management are somewhat
taboo. Regardless of their positions in the company, all Saturn boasts that no one punches a time clock and
that members of labor and management even eat in the same cafeteria! Moreover, the company expects its
employees and dealers to make customers feel like a part of the Saturn family.
According to Joe Kennedy, Saturn’s corporate vice president of sales, service, and marketing,
“Everything at Saturn hinges on our retail operations being enthusiastic about serving their
customers.” Indeed, salespeople (or, as Saturn prefers to call them, “consultants”) have gone far
out of their way to make current and potential customers happy. In one legendary story, a woman in
Wyoming was interested in purchasing a Saturn only to find that the nearest dealership was hundreds of
miles away in Salt Lake City, Utah. Not to worry. A salesperson from Salt Lake City flew to Wyoming, picked
the woman up, flew back with her to the dealership in Utah, showed her the car, and made the sale. Saturn
instituted a “no-haggle” pricing policy to reduce the traditionally antagonistic relationship between
automobile salespeople and customers. Saturn’s television ads have featured employees discussing the
family feeling at the company and actual customers sharing their own Saturn stories.
The “Saturn family” concept took hold with consumers. Soon delighted customers began
calling and writing the company’s plant in Spring Hill, Tennessee (near Nashville), to learn how they
could tour the facility and maybe meet other Saturn owners from across the country. So
management decided to spend $1 million to hold its first “homecoming” of Saturn owners and their cars the
weekend of June 24-25, 1994 in Spring Hill. It mailed out 650,000 invitations to Saturn owners and also
purchased commercial time on CBS’s late Show with David Letterman.
The response was overwhelming. About 30,000 Saturns—and their owners—made the pilgrimage.
If you were on the highway that week and saw a Saturn with an orange ball on the radio antenna,
that car was probably headed home to Tennessee. Saturn owners came from as far as Taiwan and
filled most of the 24,000 hotel rooms in the Nashville area. In fact, a dealer from Taiwan brought
home the first Saturn ever sold in that country. That car was honored with its own tent. Throughout the
weekend, car owners met members of the Saturn team, toured the plant, and shared their own Saturn
stories. The homecoming had all the trappings of an old-fashioned outdoor revival with music, dancing,
testimonials from celebrities (Olympic speed skater Dan Jansen), and food (everything from “southern
Chinese egg rolls” to barbecued catfish).
Even though two Herculean thunderstorms blew over some tents, injured a few people, and
forced the cancellation of a scheduled concert by country music star Wynonna, it didn’t seem to
dampen many folks’ spirits. Mary Taylor, age 60, was part of a 22-car caravan that trekked 1,800
miles from Nevada to Tennessee to be part of the homecoming. She couldn’t stop raving about the
dealer. “I couldn’t believe how much they cared,” Taylor said. “They know us when we walk in. It’s
such a friendly atmosphere, I look forward to going to the dealership.” Another Saturn owner
compared the weekend get-together with Woodstock: “This is another gathering in a field, except
it’s about cars, not music.” Ruth Morrissey from South Dakota perhaps summed up the weekend
best as she gushed, “We love our Saturns. We are all just a bunch of walking ads.” For those who
couldn’t make it to Spring Hill, Saturn sponsored smaller-scale get-togethers at dealerships around the
United States. An estimated 100,000 additional people attended those events.
The homecoming was just a part of Saturn’s overall strategy of making customers feel like
part of a big Saturn family. Was this approach successful? Apparently it was. Company research in
1994 showed that out of the approximately 650,000 people who owned Saturns, 80 percent planned
to buy another Saturn. Furthermore, Saturn reported that during the homecoming ad campaign (which ran
from January through June 1994), sales were up 25 percent compared to a year earlier.
Other carmakers took notice and copied Saturn homecoming model. Daimler Chrysler’s Jeep
division sponsored an event called Jeep 101 in which Jeep owners—many of whom drive exclusively
on paved urban streets—took their vehicles off-road. Mercedes-Benz of North America invited
100,000 current and potential customers to Los Angeles for an unveiling of new models. The
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opportunity to ogle these pricey new automobiles—plus the lure of good food and wine—apparently
was quite compelling. So many people showed up that they had to close down a highway. In
another promotion, Mercedes invited 1 million people to “fall in love” with a new Mercedes by
attending one of a variety of special customer bonding events at local dealerships.
To be sure, Saturn has had its share of problems since that first homecoming event in 1994.
Some critics have sniped at Saturn’s boring styling and limited choice of models. Others believe
Saturn has slipped compared to other carmakers in terms of performance and reliability. Sales of
the L-series mid-size car were very disappointing, which forced production slowdowns and lay-offs
in 2000. In addition, the harmonious relationship between labor and management hit a snag when
Saturn’s 7,000 unionized employees began to express dissatisfaction with their special labor
agreement with the carmaker. Seeing a problem, General Motors in 2000 pledged to invest $1.5
billion to expand the Spring Hill facility and provide Saturn with a SUV and a redesigned compact
car in time for the 2002 model year. (To check out Saturn’s current model line and other company
information, visit the company’s website at www.saturn.com.
But make no mistake, Saturn’s innovative marketing efforts have accomplished their goal.
Even with the recent problems, surveys reveal that most consumers—especially younger people—
still believe Saturn is, as its ad campaign declares, “a different kind of car company.” In 1999,
Saturn held another large, successful homecoming and many industry experts believe that with new
models in the offing, Saturn can regain the momentum it had in the mid-1990s.
Question:
1. Visit the Saturn website and try to determine the market segments the carmaker is targeting. What
should Saturn do to better serve those segments? How might Saturn tailor its offerings to address
the different stages of the family life cycle?
2. Other vehicles—such as Porsches, Mustangs, and Harley-Davidson motorcycles—also have
“cult” followings. But these products also have very strong symbolic meanings associated
with them. The Saturn is a solid and reliable, but basically unspectacular, car. Identify and
discuss three reasons that you think Saturn has such a devoted following of involved
customers.
3. An automobile is a high-involvement purchase. Discuss how the manufacturer of a lower-cost,
lower-involvement product could generate greater personal relevance and long-term
loyalty. Find and discuss an example of a company that has done so.
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CASE: V Harley-Davidson, Inc.
Harley-Davidson, Inc., founded in 1903, is the only remaining American motorcycle manufacturer,
although there are some new upstart companies. During the 1950s and 1960s, Harley-Davidson has
virtual monopoly on the heavyweight motorcycle market. Japanese manufacturers entered the
market in the 1960s with lightweight motorcycles backed by huge marketing programs that
increased demand for motorcycles. These manufacturers, which included Honda, Kawasaki, Suzuki,
and Yamaha, eventually began building larger bikes that competed directly with Harley-Davidson.
Recognizing the potential for profitability in the motorcycle market, American Machine and
Foundry (AMF, Inc.) purchased Harley-Davidson in 1969. AMF almost tripled production to 75,000 units
annually over a four-year period to meet increased demand. Unfortunately, product quality deteriorated
significantly.
More than half the cycles came off the assembly line missing parts, and dealers had to fix them to
make sales. Little money was invested in improving design or engineering. The motorcycles leaked oil,
vibrated badly, and could not match the excellent performance of the Japanese products. Although hard-core
motorcycle enthusiasts were willing to fix their Harleys and modify them for better performance, new
motorcycle buyers had neither the devotion nor the skill to do so.
In late 1975, AMF put Vaughn Beals in charge of Harley-Davidson. Beals set up a quality control and
inspection program that began to eliminate the worst of the production problems. However, Beals and the
other senior managers recognized that it would take years to upgrade the quality and performance of their
products to compete with the faster, high-performance of their products to compete with the faster, high-
performance Japanese bikes.
To stay in business while the necessary changes in design and product were being
accomplished, the executives turned to William G. Davidson, Harley’s styling vice president. Known
as “Willie G.” and a grandson of one of the company founders, he frequently mingled with bikers
and, with his beard, black leather, and jeans, was accepted by them. Willie G. understood Harley
customers and noted:
They really know what they want on their bikes: the kind of instrumentation, the style of bars., the
cosmetics of the engine, the look of the exhaust pipes, and so on. Every little piece on a Harley is exposed,
and it has to look just right. A tube curve or the shape of a timing case can generate enthusiasm or be a
total turnoff. It’s almost like being in the fashion business.
Willie G. designed a number of new models by combining components form existing models.
These included the Super Glide, the Electra Glide, the Wide Glide, and the Low Rider. Although
these were successful, Harley-Davidson was still losing market share to Japanese competitors that
continued to pour new bikes into the heavyweight Market.
By 1980, AMF was losing interest in investing in the recreational market and sold the
company to 13 senior Harley executives in a leveraged buyout on June 16, 1981. Although the company
was starting to make money in the early 1980, its creditors wanted payment, and Harley-Davidson nearly
had to file for bankruptcy at the end of 1985. However, through some intense negotiations, it stayed in
business and rebounded to become a highly profitable company.
In 1996, Harley-Davidson controlled more than 47 percent of the heavyweight (651cc and larger)
motorcycle market, far more than its all-time low of 23 percent. Its products are considered to have
“bulletproof reliability” because of manufacturing and management changes that resulted in products of
excellent quality.
Owners of Harleys are highly brand loyal, and more than 94 percent of them state they would buy
another Harley. The company sponsors the Harley Owner Group (HOG), which has more than 1,200 chapters
and 750,000 members worldwide. Executives of the company frequently meet with chapters to obtain
suggestions for product improvements.
In 2002, Harley sold 215,454 motorcycles domestically and 48,199 in the global market. It also
sold 10,943 Buell motorcycles in that year. Its net revenue for 2002 was over $4 trillion, about
double its 1998 net revenue. Its net income for 2002 was $580 million compared to $213 million 5
years earlier. In 2003, its 100th anniversary product line included 7 Softail models, 7 Sportster
models, 5 Dynaglide models, and 7 Touring models. In addition, its VRSCA V-Rod, a new-style,
$17,000 Harley was selling quickly even though it was a departure for the retro look of traditional Harleys.
Harley-Davidson motorcycles are distributed worldwide by a network over 1,300 dealers. These
dealers typically have upgraded facilities that merchandise not only motorcycles and service but also a
variety of parts, clothing, and accessories. Clothing and accessories are highly profitable items that
enhance the motorcycle-owning and riding experience. For more information, visit the company’s
website at www.Harley-Davidson.com.
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Question:
1. What kind of consumer owns a Harley?
2. What accounts for Harley owners’ satisfaction and brand loyalty?
3. What role do you think the Harley Owner Group plays in the success of the
company?
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