CH 5 Understanding Consumer Behavior – Flashcards

Women are a driving force in the U.S. automobile industry. Enlightened carmakers have hired women designers, engineers, and marketing executives to better understand and satisfy this valuable car buyer and influencer. What have they learned? While car price and quality are important, women and men think and feel differently about key elements of the new-car buying decision process and experience. Carmakers have learned that women, more than men, dislike the car-buying experience and specifically, the experience of dealing with car salespeople. In particular, women dread the price negotiations that are often involved in buying a new car. Not surprisingly, about half of women car buyers take a man with them to finalize the terms of sale

The actions a person takes in purchasing and using products and services, including the mental and social processes that come before and after these actions.

Behind the visible act of making a purchase lies an important decision process and consumer experience that must be investigated. The stages a buyer passes through in making choices about which products and services to buy is the purchase decision process. 5 Stages: (1) problem recognition (2) information search (3) alternative evaluation (4) purchase decision (5) postpurchase behavior

Problem recognition, the initial step in the purchase decision, is perceiving a difference between a person's ideal and actual situations big enough to trigger a decision In marketing, advertisements or salespeople can activate a consumer's decision process by showing the shortcomings of competing (or currently owned) products.

After recognizing a problem, a consumer begins to search for information, the next stage in the purchase decision process. First, you may scan your memory for previous experiences with products or brands. This action is called internal search. Or a consumer may undertake an external search for information. This is needed when past experience or knowledge is insufficient, the risk of making a wrong purchase decision is high, and the cost of gathering information is low. The primary sources of external information are (1) personal sources, such as relatives and friends whom the consumer trusts (2) public sources, including various product-rating organizations such as Consumer Reports, government agencies, and TV "consumer programs" (3) marketer-dominated sources, such as information from sellers including advertising, company websites, salespeople, and point-of-purchase displays in stores

You might study the comparative evaluation of selected smartphones appearing in Consumer Reports

The information search stage clarifies the problem for the consumer by (1) suggesting criteria to use for the purchase (2) yielding brand names that might meet the criteria (3) developing consumer value perceptions

Represent both the objective attributes of a brand (such as display) and the subjective ones (such as prestige) you use to compare different products and brands. Firms try to identify and capitalize on both types of criteria to create the best value for the money paid by you and other consumers. These criteria are often displayed in advertisements.

The group of brands that you would consider from among all the brands of which you are aware in the product class. Your evaluative criteria result in two brands and their respective models (the Apple iPhone 4and the Sony Ericsson Xperia Play) in your consideration set. If these alternatives are unsatisfactory, you can change your evaluative criteria to create a different consideration set of brands and models.

Two choices remain: (1) from whom to buy (2) when to buy The choice of which seller to buy from will depend on such considerations as the terms of sale, your past experience buying from the seller, and the return policy. Often a purchase decision involves a simultaneous evaluation of both product attributes and seller characteristics. Deciding when to buy is determined by a number of factors. For instance, you might buy sooner if one of your preferred brands is on sale or its manufacturer offers a rebate. Other factors such as the store atmosphere, pleasantness or ease of the shopping experience, salesperson assistance, time pressure, and financial circumstances could also affect whether a purchase decision is made now or postponed.

Use of the Internet to gather information, evaluate alternatives, and make buying decisions adds a technological dimension to the consumer purchase decision process and buying experience.

This feeling of postpurchase psychological tension or anxiety is called cognitive dissonance. To alleviate it, consumers often attempt to applaud themselves for making the right choice. So after your purchase, you may seek information to confirm your choice by asking friends questions like, "Don't you like my new phone?" or by reading ads of the brand you chose. After buying a product, the consumer compares it with his or her expectations and is either satisfied or dissatisfied. If the consumer is dissatisfied, marketers must determine whether the product was deficient or consumer expectations were too high. Product deficiency may require a design change. If expectations are too high, perhaps the company's advertising or the salesperson oversold the product's features and benefits. Sensitivity to a customer's consumption or use experience is extremely important in a consumer's value perception.

Sometimes consumers don't engage in the five-stage purchase decision process. Instead, they skip or minimize one or more stages depending on the level of involvement, the personal, social, and economic significance of the purchase to the consumer. High-involvement purchase occasions typically have at least one of three characteristics: The item to be purchased (1) is expensive (2) can have serious personal consequences (3) could reflect on one's social image. For these occasions, consumers engage in extensive information search, consider many product attributes and brands, form attitudes, and participate in word-of-mouth communication. Low-involvement purchases, such as toothpaste and soap, barely involve most of us, but audio and video systems and automobiles are very involving.

In extended problem solving, each of the five stages of the consumer purchase decision process is used and considerable time and effort are devoted to the search for external information and the identification and evaluation of alternatives. Several brands are in the consideration set, and these are evaluated on many attributes. Extended problem solving exists in high-involvement purchase situations for items such as automobiles and audio systems.

In limited problem solving, consumers typically seek some information or rely on a friend to help them evaluate alternatives. Several brands might be evaluated using a moderate number of attributes. Limited problem solving might be used in choosing a toaster, a restaurant for lunch, and other purchase situations in which the consumer has little time or effort to spend.

For products such as table salt and milk, consumers recognize a problem, make a decision, and spend little effort seeking external information and evaluating alternatives. The purchase process for such items is virtually a habit and typifies low-involvement decision making. Routine problem solving is typically the case for low-priced, frequently purchased products.

Low and high consumer involvement have important implications for marketing strategy. If a company markets a low-involvement product and its brand is a market leader, attention is placed on (1) maintaining product quality (2) avoiding stockout situations so that buyers don't substitute a competing brand (3) repetitive advertising messages that reinforce a consumer's knowledge or assure buyers they made the right choice. Market challengers have a different task. They must break buying habits by using free samples, coupons, and rebates to encourage trial of their brand. Advertising messages will focus on getting their brand into a consumer's consideration set. Marketers of high-involvement products know that their consumers constantly seek and process information about objective and subjective brand attributes, form evaluative criteria, rate product attributes in various brands, and combine these ratings for an overall brand evaluation—like that described in the smartphone purchase decision. Market leaders ply consumers with product information through advertising and personal selling and use social media to create online experiences for their company or brand. Market challengers capitalize on this behavior through comparative advertising that focuses on existing product attributes and often introduce novel evaluative criteria for judging competing brands. Challengers also benefit from Internet search engines such as Microsoft Bing and Google that assist buyers of high-involvement products.

Often the purchase situation will affect the purchase decision process. Five situational influences have an impact on the purchase decision process: (1) the purchase task (2) social surroundings (3) physical surroundings (4) temporal effects (5) antecedent states. -The purchase task is the reason for engaging in the decision. The search for information and the evaluation of alternatives may differ depending on whether the purchase is a gift, which often involves social visibility, or for the buyer's own use. -Social surroundings, including the other people present when a purchase decision is made, may also affect what is purchased. Consumers accompanied by children buy about 40 percent more items than consumers shopping by themselves. -Physical surroundings such as decor, music, and crowding in retail stores may alter how purchase decisions are made. -Temporal effects such as time of day or the amount of time available will influence where consumers have breakfast and lunch and what is ordered. -Finally, antecedent states, which include the consumer's mood or the amount of cash on hand, can influence purchase behavior and choice. For example, consumers with credit cards purchase more than those with cash or debit cards.

Motivation is the energizing force that stimulates behavior to satisfy a need. Because consumer needs are the focus of the marketing concept, marketers try to arouse these needs. An individual's needs are boundless. People possess physiological needs for basics such as water, shelter, and food. They also have learned needs, including self-esteem, achievement, and affection. Psychologists point out that these needs may be hierarchical; that is, once physiological needs are met, people seek to satisfy their learned needs.

While motivation is the energizing force that makes consumer behavior purposeful, a consumer's personality guides and directs behavior. Personality refers to a person's consistent behaviors or responses to recurring situations. Although many personality theories exist, most identify key traits—enduring characteristics within a person or in his or her relationships with others. Such traits include assertiveness, extroversion, compliance, dominance, and aggression, among others. These traits are inherited or formed at an early age and change little over the years.

These personality characteristics are often revealed in a person's self-concept, which is the way people see themselves and the way they believe others see them. Marketers recognize that people have an actual self-concept and an ideal self-concept. -The actual self refers to how people actually see themselves. -The ideal self describes how people would like to see themselves. These two self-images are reflected in the products and brands a person buys, including automobiles, home appliances and furnishings, magazines, consumer electronics, clothing, grooming and leisure products, and frequently, the stores in which a person shops.

The process by which an individual selects, organizes, and interprets information to create a meaningful picture of the world.

Because the average consumer operates in a complex environment, the human brain attempts to organize and interpret information with a process called selective perception, a filtering of exposure, comprehension, and retention.

Selective exposure occurs when people pay attention to messages that are consistent with their attitudes and beliefs and ignore messages that are inconsistent. Selective exposure often occurs in the postpurchase stage of the consumer decision process, when consumers read advertisements for the brand they just bought. It also occurs when a need exists

Selective comprehension involves interpreting information so that it is consistent with your attitudes and beliefs. A marketer's failure to understand this can have disastrous results.

Selective retention means that consumers do not remember all the information they see, read, or hear, even minutes after exposure to it. This affects the internal and external information search stage of the purchase decision process.

Subliminal perception means that you see or hear messages without being aware of them. The presence and effect of subliminal perception on behavior is a hotly debated issue, with more popular appeal than scientific support. Indeed, evidence suggests that such messages have limited effects on behavior.

Perception plays a major role in the perceived risk in purchasing a product or service. Perceived risk represents the anxiety felt because the consumer cannot anticipate the outcomes of a purchase but believes there may be negative consequences.

Recognizing the importance of perceived risk, companies develop strategies to reduce the consumer's perceived risk and encourage purchases. These strategies and examples of firms using them include the following: -Obtaining seals of approval: The Good Housekeeping seal for Fresh Step cat litter. -Securing endorsements from influential people: Endorsements for Promise soft spread from 9 out of 10 cardiologists. -Providing free trials of the product: Samples of Mary Kay's Velocity fragrance. -Giving extensive usage instructions: Clairol hair coloring. -Providing warranties and guarantees: Kia Motors's 10-year, 100,000-mile warranty.

Learning refers to those behaviors that result from (1) repeated experience (2) reasoning

Behavioral learning is the process of developing automatic responses to a situation built up through repeated exposure to it. Four variables are central to how consumers learn from repeated experience: drive, cue, response, and reinforcement. -A drive is a need that moves an individual to action. Drives, such as hunger, might be represented by motives. -A cue is a stimulus or symbol perceived by consumers. -A response is the action taken by a consumer to satisfy the drive. -Reinforcement is the reward. Being hungry (drive), a consumer sees a cue (a billboard), takes action (buys a sandwich), and receives a reward (it tastes great!).

Marketers use two concepts from behavioral learning theory. -Stimulus generalization occurs when a response elicited by one stimulus (cue) is generalized to another stimulus. -Stimulus discrimination refers to a person's ability to perceive differences in stimuli.

Consumers also learn through thinking, reasoning, and mental problem solving without direct experience. This type of learning, called cognitive learning, involves making connections between two or more ideas or simply observing the outcomes of others' behaviors and adjusting your own accordingly.

Favorable attitude toward and consistent purchase of a single brand over time. Brand loyalty results from the positive reinforcement of previous actions.

An attitude is a "learned predisposition to respond to an object or class of objects in a consistently favorable or unfavorable way." Attitudes are shaped by our values and beliefs, which are learned.

Beliefs are a consumer's subjective perception of how a product or brand performs on different attributes. Beliefs are based on personal experience, advertising, and discussions with other people. Beliefs about product attributes are important because, along with personal values, they create the favorable or unfavorable attitude the consumer has toward certain products, services, and brands.

Marketers use three approaches to try to change consumer attitudes toward products and brands, as shown in the following examples. -Changing beliefs about the extent to which a brand has certain attributes. To allay mothers' concerns about ingredients in its mayonnaise, Hellmann's successfully communicated the product's high Omega 3 content, which is essential to human health. -Changing the perceived importance of attributes. Pepsi-Cola made freshness an important product attribute when it stamped freshness dates on its cans. Before doing so, few consumers considered cola freshness an issue. After Pepsi spent about $25 million on advertising and promotion, a consumer survey found that 61 percent of cola drinkers believed freshness dating was an important attribute. -Adding new attributes to the product. Colgate-Palmolive included a new antibacterial ingredient, tricloson, in its Colgate Total Toothpaste and spent $100 million marketing the brand. The result? Colgate Total Toothpaste is now a billion-dollar-plus global brand.

Lifestyle is a mode of living that is identified by how people spend their time and resources, what they consider important in their environment, and what they think of themselves and the world around them. The analysis of consumer lifestyles, called psychographics, provides insights into consumer needs and wants. Lifestyle analysis has proven useful in segmenting and targeting consumers for new and existing products and services

Psychographics, the practice of combining psychology, lifestyle, and demographics, is often used to uncover consumer motivations for buying and using products and services. A prominent psychographic system is VALS from Strategic Business Insights (SBI). The VALS system identifies eight consumer segments based on (1) their primary motivation for buying and having certain products and services and (2) their resources

The VALS system seeks to explain why and how consumers make purchase decisions. -Ideals-motivated groups. Consumers motivated by ideals are guided by knowledge and principle. Thinkers are mature, reflective, and well-educated people who value order, knowledge, and responsibility. They are practical consumers and deliberate information-seekers who value durability and functionality in products over styling and newness. Believers, with fewer resources, are conservative, conventional people with concrete beliefs based on traditional, established codes: family, religion, community, and the nation. They choose familiar products and brands, favor American-made products, and are generally brand loyal. -Achievement-motivated groups. Consumers motivated by achievement look for products and services that demonstrate success to their peers or to a peer group they aspire to. Achievers have a busy, goal-directed lifestyle and a deep commitment to career and family. Image is important to them. They favor established, prestige products and services and are interested in time-saving devices given their hectic schedules. Strivers are trendy, fun-loving, and less self-confident than Achievers. They also have lower levels of education and household income. Money defines success for them. They favor stylish products and are as impulsive as their financial circumstances permit. -Self-expression-motivated groups. Consumers motivated by self-expression desire social or physical activity, variety, and risk. Experiencers are young, enthusiastic, and impulsive consumers who become excited about new possibilities but are equally quick to cool. They savor the new, the offbeat, and the risky. Their energy finds an outlet in exercise, sports, outdoor recreation, and social activities. Much of their income is spent on fashion items, entertainment, and socializing and particularly on looking good and having the latest things. Makers, with fewer resources, express themselves and experience the world by working on it—raising children or fixing a car. They are practical people who have constructive skills, value self-sufficiency, and are unimpressed by material possessions except those with a practical or functional purpose. -High- and low-resource groups. Two segments stand apart. Innovators are successful, sophisticated, take-charge people with high self-esteem and abundant resources of all kinds. Image is important to them, not as evidence of power or status, but as an expression of cultivated tastes, independence, and character. They are receptive to new ideas and technologies. Their lives are characterized by variety. Survivors, with the least resources of any segment, focus on meeting basic needs (safety and security) rather than fulfilling desires. They represent a modest market for most products and services and are loyal to favorite brands, especially if they can be purchased at a discount.

Sociocultural influences, which evolve from a consumer's formal and informal relationships with other people, also exert a significant impact on consumer behavior. These involve personal influence, reference groups, family influence, social class, culture, and subculture.

A consumer's purchases are often influenced by the views, opinions, or behaviors of others. Two aspects of personal influence are very important to marketing: opinion leadership and word-of-mouth activity.

Individuals who exert direct or indirect social influence over others are called opinion leaders. Opinion leaders are considered to be knowledgeable about or users of particular products and services, so their opinions influence others' choices. Opinion leadership is widespread in the purchase of cars and trucks, entertainment, clothing and accessories, club membership, consumer electronics, vacation locations, food, and financial investments.

The influencing of people during conversations is called word of mouth. Word of mouth is the most powerful and authentic information source for consumers because it typically involves friends viewed as trustworthy. According to a recent study, 67 percent of U.S. consumer product sales are directly based on word-of-mouth activity among friends, family, and colleagues. The power of personal influence has prompted firms to promote positive and retard negative word of mouth. For instance, "teaser" advertising campaigns are run in advance of new-product introductions to stimulate conversations. Other techniques such as advertising slogans, music, and humor also heighten positive word of mouth. The power of word of mouth is magnified by the Internet through online forums, blogs, social media, and websites. In fact, companies use special software to monitor online messages and find out what consumers are saying about their products, services, and brands. They have found that 30 percent of people spreading negative information have never owned or used the product, service, or brand!

Reference groups are people to whom an individual looks as a basis for self-appraisal or as a source of personal standards. Reference groups affect consumer purchases because they influence the information, attitudes, and aspiration levels that help set a consumer's standards. For example, one of the first questions one asks others when planning to attend a social occasion is, "What are you going to wear?" Reference groups influence the purchase of luxury products but not necessities—reference groups exert a strong influence on the brand chosen when its use or consumption is highly visible to others.

Consumers have many reference groups, but three groups have clear marketing implications. -A membership group is one to which a person actually belongs, including fraternities and sororities, social clubs, and the family. Such groups are easily identifiable and are targeted by firms selling insurance, insignia products, and charter vacations. -An aspiration group is one that a person wishes to be a member of or wishes to be identified with, such as a professional society. Firms frequently rely on spokespeople or settings associated with their target market's aspiration group in their advertising. -A dissociative group is one that a person wishes to maintain a distance from because of differences in values or behaviors.

Family influences on consumer behavior result from three sources: consumer socialization, passage through the family life cycle, and decision making within the family or household.

The process by which people acquire the skills, knowledge, and attitudes necessary to function as consumers is called consumer socialization. Children learn how to purchase (1) by interacting with adults in purchase situations (2) through their own purchasing and product usage experiences

Consumers act and purchase differently as they go through life. The family life cycle concept describes the distinct phases that a family progresses through from formation to retirement, each phase bringing with it identifiable purchasing behaviors. Today, the traditional family—married couple with children younger than 18 years—constitutes just 21 percent of all U.S. households. The remaining 78 percent of U.S. households include single parents; unmarried couples; divorced, never-married, or widowed individuals; and older married couples whose children no longer live at home. -Young singles' buying preferences are for nondurable items, including prepared foods, clothing, personal care products, and entertainment. They represent a target market for recreational travel, automobile, and consumer electronics firms. -Young married couples without children are typically more affluent than young singles because usually both spouses are employed. These couples exhibit preferences for furniture, housewares, and gift items for each other. Young marrieds with children are driven by the needs of their children. They make up a sizable market for life insurance, various children's products, and home furnishings. -Single parents with children are the least financially secure of households with children. Their buying preferences are often affected by a limited economic status and tend toward convenience foods, child care services, and personal care items. -Middle-aged married couples with children are typically better off financially than their younger counterparts. They are a significant market for leisure products and home improvement items. Middle-aged couples without children typically have a large amount of discretionary income. These couples buy better home furnishings, status automobiles, and financial services. -Persons in the last two phases—older married and older unmarried—make up a sizable market for prescription drugs, medical services, vacation trips, and gifts for younger relatives.

A third influence in the decision-making process occurs within the family. Two decision-making styles exist: spouse-dominant and joint decision making. -With a joint decision-making style, most decisions are made by both husband and wife. Joint decision making is common for cars, vacations, houses, home appliances and electronics, family finances, and medical care. As a rule, joint decision making increases with the education of the spouses. -Spouse-dominant decisions are those for which either the husband or the wife is mostly responsible. Research indicates that wives tend to have more say when purchasing groceries, children's toys, clothing, and medicines. Husbands tend to be more influential in home and car maintenance purchases.

Roles of individual family members in the purchase process are another element of family decision making. Five roles exist: (1) information gatherer (2) influencer (3) decision maker (4) purchaser (5) user

A more subtle influence on consumer behavior than direct contact with others is the social class to which people belong. Social class may be defined as the relatively permanent, homogeneous divisions in a society into which people sharing similar values, interests, and behavior can be grouped. A person's occupation, source of income (not level of income), and education determine his or her social class. Generally speaking, three major social class categories exist—upper, middle, and lower—with subcategories within each. To some degree, persons within social classes exhibit common values, attitudes, beliefs, lifestyles, and buying behaviors. Compared with the middle classes, people in the lower classes have a more short-term time orientation, think in concrete rather than abstract terms, and see fewer personal opportunities. Members of the upper classes focus on achievements and the future and think in abstract or symbolic terms.

Culture refers to the set of values, ideas, and attitudes that are learned and shared among the members of a group.

Subgroups within the larger, or national, culture with unique values, ideas, and attitudes are referred to as subcultures. Various subcultures exist within the American culture. The three largest racial/ethnic subcultures in the United States are Hispanics, African Americans, and Asian Americans.

Hispanics represent the largest racial/ethnic subculture in the United States in terms of population and spending power. About 50 percent of Hispanics in the United States are immigrants, and the majority are under the age of 25. One-third of Hispanics are younger than 18. Research on Hispanic buying practices has uncovered several consistent patterns: -Hispanics are quality and brand conscious. They are willing to pay a premium price for premium quality and are often brand loyal. -Hispanics prefer buying American-made products, especially those offered by firms that cater to Hispanic needs. Hispanic buying preferences are strongly influenced by family and peers. -Hispanics consider advertising a credible product information source, and U.S. firms spend more than $6 billion annually on advertising to Hispanics. -Convenience is not an important product attribute to Hispanic homemakers with respect to food preparation or consumption, nor is low caffeine in coffee and soft drinks, low fat in dairy products, or low cholesterol in packaged foods.

African Americans have the second-largest spending power of the three racial/ethnic subcultures in the United States. Consumer research on African American buying patterns has focused on similarities and differences with Caucasians. When socioeconomic status differences between African Americans and Caucasians are removed, there are more similarities than points of difference. Differences in buying patterns are greater within the African American subculture, due to levels of socioeconomic status, than between African Americans and Caucasians of similar status. Even though similarities outweigh differences, there are consumption patterns that do differ between African Americans and Caucasians. For example, African Americans spend far more than Caucasians on boy's clothing, rental goods, and audio equipment. Adult African Americans are twice as likely to own a pager and spend twice as much for online services, on a per capita basis, than Caucasians. African American women spend three times more on health and beauty products than Caucasian women. Furthermore, the typical African American family is five years younger than the typical Caucasian family. This factor alone accounts for some of the observed differences in preferences for clothing, music, shelter, cars, and many other products, services, and activities. Finally, it must be emphasized that, historically, African Americans have been deprived of employment and educational opportunities in the United States. Both factors have resulted in income disparities between African Americans and Caucasians, which influence purchase behavior. Recent research indicates that while African Americans are price conscious, they are strongly motivated by quality and choice. They respond more to products such as apparel and cosmetics and advertising that appeal to their African American pride and heritage as well as address their ethnic features and needs regardless of socioeconomic status.

About 70 percent of Asian Americans are immigrants. Most are under the age of 30. The Asian subculture is composed of Chinese, Japanese, Filipinos, Koreans, Asian Indians, people from Southeast Asia, and Pacific Islanders. The diversity of the Asian subculture is so great that generalizations about buying patterns of this group are difficult to make. Consumer research on Asian Americans suggests that individuals and families can be divided into two groups. -Assimilated Asian Americans are conversant in English, highly educated, hold professional and managerial positions, and exhibit buying patterns very much like the typical American consumer. -Nonassimilated Asian Americans are recent immigrants who still cling to their native languages and customs. The diversity of Asian Americans evident in language, customs, and tastes requires marketers to be sensitive to different Asian nationalities.

Studies show that the Asian American subculture as a whole is characterized by hard work, strong family ties, appreciation for education, and median family incomes exceeding those of any other ethnic group. T This subculture is also the most entrepreneurial in the United States, as evidenced by the number of Asian-owned businesses. These qualities led Metropolitan Life Insurance to identify Asian Americans as a target for insurance following the company's success in marketing to Hispanics.

Groupon's success is the result of a simple and effective business model and an insightful understanding of consumer behavior. In the future Groupon's strategies will require continued attention to understanding consumers around the globe. Mossler explains: "Groupon has been heralded as the fastest growing company of all time, and the reason for that is because we have solved this unsolvable problem, which is how do you engage with local customers. The model really works anywhere as long as you adapt for local communities."

Mason started with a website called ThePoint.org, which was designed to organize campaigns, protests, boycotts, and fund raising drives for important social issues. ThePoint was not successful but it provided the concept of making offers that are only carried out if enough people commit to participate in them. With that idea Mason launched Groupon in October 2008 with a two-pizzas-for-the-price-of-one offer at the Motel Bar, located in the same building where ThePoint rented space. The concept quickly grew in Chicago and Groupon expanded into other U.S. cities, and then into other countries. Today Groupon is available in 375 American cities and 40 countries, and its subscriber base has grown from 400 in 2008 to 60 million today. According to Forbes magazine, Groupon is the fastest growing company in history. Part of Groupon's success is the simplicity of its business model—offer subscribers at least one deal in their city each day. The unique aspect of the concept is that a certain number of people need to buy into the offer before the coupon discount is valid. Approximately 95 percent of Groupon offers "tip," or reach the number of buyers required by the merchant. Once the minimum number is met, Groupon and the merchant split the revenue. For example, a yoga studio might offer a $100 membership for $50 if 200 people participate in the offer. Once 200 consumers have indicated interest, the deal "tips" and Groupon and the yoga studio each receive 50 percent of the revenue. Everyone wins. Consumers receive an exceptional value, the merchant obtains new customers without any advertising cost, and Groupon generates revenue for creating value in the marketplace. Many of the deals have generated extraordinary demand. The Joffrey Ballet, for example, sold 2,338 season subscriptions, doubling its subscriber base in one day! Similarly, consumers purchased 445,000 Groupons offering $50 worth of merchandise for $25 at the Gap, and 6,561 tickets to a King Tut exhibit in New York's Times Square for half price at $18 apiece. The most popular offering so far was a $25 ticket for an architectural boat tour in Chicago for $12. Groupon sold 19,822 tickets in eight hours! The company's attention to customer satisfaction ensures success stories like these. "We have a policy called 'The Groupon Promise' that any customer can return a Groupon, no questions asked—even if they used it—if they feel like Groupon has let them down," explains Mason. Groupon's success has attracted many more merchants than it can accommodate. In fact, only about 12 percent of all merchants that contact Groupon are selected to offer a deal. In addition to the deal-of-the-day offerings, Groupon has several other services. -First, it is testing a concept called Groupon Stores which allows merchants to create their own deals and send them out to their own audience. This allows more merchants to participate on a regular basis. -Second, the company has recently introduced a mobile service called Groupon Now. To use the service, consumers log in to the app on their smartphone and select one of two options: "I'm Hungry" or "I'm Bored." The phone then transmits its location to the Groupon servers and displays a list of nearby deals at restaurants or entertainment venues. The Groupon Now offerings represent a combination of Yellow Pages advertising and newspaper coupons for price-conscious consumers. Groupon's growth is evident in some amazing numbers. The company now sends more than 900 deals each day, occupies six floors of the former Montgomery Ward headquarters in Chicago, and employs more than 5,900 people. In addition, Groupon has created a market of consumer deal hunters and an industry of more than 500 competitive deal services. The competitors include LevelUp, Tippr, Bloomspot, Scoutmob, BuyWithMe, Yelp, and OpenTable. In addition, Google Offers, Facebook Deals, Yahoo! Deals, and Amazon's LivingSocial are all recently launched deal services.