Midterm Review-Chapter & Lecture Summary

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University of Guelph
Marketing and Consumer Studies
MCS 1000
Cindy Clarke

MCS 1000 Course Notes Chapter 1- Creating Customer Relationships and Value through Marketing Basic Marketing • Marketing is the activity for creating, communicating, delivering and exchanging offering that benefit its customers, the organization, its stakeholder and society at large. ◦ every year thousands of new products fail in the marketplace and slide into oblivion ▪ >50% of businesses fail within a 5 year launch • To serve both buyers and sellers marketing seeks to : 1. discover the needs and wants of prospective customers and 2. satisfy them ◦ the key to achieving these two objectives is the idea of exchange, which is the trade of things vale between buyer and seller so that each is better off after the trade • Marketing affects everyone and every industry • Understanding the market should make you a better consumer, enabling you to be a more informed citizen and help in career planning Diverse Factors Influencing MarketingActivities • Although an organization’s marketing activity focuses on assessing and satisfying consumer needs, countless other people, groups and forces interact to shape the nature of its activities. ◦ The Organization Itself: whose mission and objectives determine what business it is in and what goals it seeks ▪ Management: responsible for establishing these goals, works closely with a network of other departments (shareholders, partnerships, suppliers) and employee's to help provide the customer- satisfying products required for the organization to survive and prosper • Affected by society, in turn influence society ▪ The organization must strike a balance among the sometimes differing interests of these individuals and groups. • ex. it is not possible to simultaneously provide the lowest-priced and highest- quality products to customers and pay the highest price to suppliers, the highest wages to employees and the maximum dividends to shareholders What is Needed for Marketing to Occur? • At least four factors are required: 1. Two or more parties (individuals or organizations) with unsatisfied needs ▪ suppose you’ve developed an unmet need, a desire for information about late-breaking celebrity news but you don’t know that People magazine exists. 2. Adesire and ability on their part to be satisfied ▪ both you and the bookstore owner want to meet these unsatisfied needs 3. Away for the parties to communicate ▪ the marketing transaction of buying “people” will never occur unless you know the product exists and its location. When you receive a free sample in the mail or see the magazine display, the communication barrier between you (the buyer) and the bookstore (the seller) in overcome. 4. Something to exchange ▪ money for magazine Discovering Customer Needs • The first objective in marketing is discovering the needs of prospective customers. ◦ They may not know what they want/ need because they don’t know it exists The Challenge: Meeting Consumer Needs with New Products • New- product experts generally estimate that up to 94% of the more than 40,000 new consumable products (food, beverage, health, beauty) don’t succeed in the long run ◦ Robert M McMath made two key suggestions: 1. focus on what the customer benefit is 2. learn from the past • Marketing tries to satisfy both consumer needs and wants ◦ a need occurs when a person feels deprived of basic necessities ◦ a want is a need that is a shaped by a persons knowledge, culture and personality • Aprincipal activity of a firm's marketing department is to scrutinize its consumers to understand what they need and want and the forces that shape those needs and wants What a Market is • Potential consumers make up a market ◦ People with both the desire and ability to buy a specific offering. ▪ Both are necessary • All markets ultimately are people. ◦ Even when we say a firm bough a Xerox copier, we mean one or several people in the firm decided to buy it. Satisfying Consumer Needs • Target Market: ◦ one or more specific groups of potential consumers toward which an organization directs its marketing program Controllable Marketing Mix Factors (4 P's) • Once target market is selected, marketing manager must develop a complete marketing program to reach consumers by using a combination of four tools: 1. Product: a good, service, or idea to satisfy the consumer's needs 2. Price: what is exchanged for the product 3. Promotion: a means of communication between the seller and buyer 4. Place: a means of getting the product to the consumer • helps design an effective customer value proposition ◦ ex. Wall-mart: “everyday low prices” • Environmental Forces are uncontrollable and can affect the market The Marketing Program: How Customer Relationships are Built • An organizations marketing program connects it with its customers • Firms focus on “customer value” ◦ gain loyal customers by providing unique value is the essence of successful marketing ◦ the unique combination of benefits received by targeted buys that includes quality, convenience, on time delivery and both before sale and after sale service at a specific price • Firms cannot succeed by being all things to all people ◦ instead must find ways to build long term customer relationships to provide unique value ▪ best price, best product, best service Relationship Marketing • the hallmark of developing and maintaining effective customer relationships • links the organization to its individual customers, employees, suppliers and other partners for their mutual long term benefit ◦ requires a person, ongoing relationship between organization and its individual customers that beings before the sale and continues after the sale Marketing Program • a plan that integrates the marketing mix to provide a good, service of idea to prospective buyers • consumer needs trigger product concepts that are translated into actual products that stimulate further discovery of consumer needs How Marketing Became So Important (Evolution, Ethics and Depth): Evolution of the Market Orientation: • Production Era (until 1920s): ◦ Goods were scarce and buyers were willing to accept virtually any goods that were available and make do with them • Sales Era (1920s-60s) ◦ Manufacturers found they could produce more goods that buyers could consume. ◦ Competition grew ▪ firms hired more salespeople to find new buyers • The Marketing Concept Era: ◦ the idea that an organization should: 1. strive to satisfy the needs of consumers 2. while also trying to achieve the organizations goals • Market Organization focuses its efforts on: 1. continuously collecting information about customers needs 2. sharing this information across departments 3. using it to create customer value • Customer Relationship Management (CRM) ◦ the process of identifying prospective buyers, understanding them intimately and developing favorable long term perceptions of the organization and its offerings so that buyers will choose them in the marketplace ▪ requires involvement and commitment ▪ customer experience ▪ the disconnect between what companies think they are providing versus what customers say they are receiving shows how important customer experience is Ethics and Social Responsibility: Balancing the Interests of Different Groups • Social Responsibility: ◦ the idea that organizations are accountable to a larger society ◦ the well being of society at large should also be recognized in an organizations marketing decisions ◦ Societal Marketing Concept: ▪ the view that organizations should satisfy the needs of consumers in a way that provides for society's well being ▪ directly related to Macromarketing: • the study of the aggregate flow of a nation's goods and services to benefit society The Breadth and Depth of Marketing • Who markets? Every organization • What is marketed? Goods, services and ideas • Who buys and uses what is marketed? Both individuals and organizations. ◦ Ultimate consumers: people who use the goods are services purchased for a household ◦ Organizational Buyers: manufacturers, wholesalers, retailers and government agencies that buy goods and services for their own use or for resale • Who Benefits? ◦ In our free- enterprise society three groups benefit from effective marketing? 1. Consumers who buy: marketing creates utility, the benefits or customer value received by users of the product. Four kinds of utility: a) place utility: having the offering available where consumers need it b) time utility: having it available when needed c) possession utility: the value of making an item easy to purchase through the provision of credit cards or financial arrangements d) form utility: the production of the good or service 2. Organizations that sell 3. Society as a whole: enhances competition, which both improves the quality of products and services and lowers their prices Chapter 2- Developing Successful Marketing and Organizational Strategies: Ben and Jerrys Mission: • Underlying the mission: is the determination to seek new and creative ways of addressing all 3 parts (social mission, product mission and economic mission), while holding a deep respect for individuals inside and outside the company, and for the communities of which they are a part Kinds of Organizations • An organization is a legal entity that consists of people who share a common mission. • This motivates them to develop Offerings: ◦ products services ideas that create value business both the organization and its customers by satisfying their needs and wants • Today organizations can be divided into business firms and nonprofit organizations ◦ Business firm is a privately owned organization • Profit: the money left after a business firm's total expenses are subtracted from its total revenues and is the reward for the risk it undertakes in marketing its offerings. • Organizations the develop similar offerings create an industry, such as the computer industry or automobile industry ◦ Most successful organizations have deep understanding of the industry which they belong to What is Strategy? • An organization has limited human, financial, technological and other resources available to produce and market its offerings, it cant be all things to all people. • Every organization must develop strategies to help focus and direct its efforts to accomplish its goals • Strategy: an organizations long term course of action designed to deliver a unique customer experience while achieving its goals ◦ all organizations set a strategic direction, marketing helps both set this direction and move the organization there Structure of Today's Organizations • Large organizations are extremely complex and usually consist of three organizational levels whose strategies are linked to marketing. • Corporate Level: ◦ top management (usually meaning the board of directors and senior management officers) directs overall strategy for the entire organization. “Top management” usually means ◦ The CEO or president is the highest ranking officer in the organization and is usually a member of its board of directors ▪ many companies have changed it to CMO (chief marketing officer) • Strategic Business Unit Level: ◦ a subsidiary division or unit of an organization that markets a set of related offering to a clearly defined group of customers ▪ managers set a more specific strategic direction for their businesses to exploit value creating opportunities • Functional Level: ◦ each strategic business unit has a functional level, where groups of specialists actually create value for the organization ◦ the term department generally refers to these specialized functions such as marketing and finance ◦ Akey role of the marketing department is to look outward, keeping the organization focused on creating value both for it and for customers ▪ by listening to customers, developing and producing offerings and implementing marketing program activities ◦ When developing marketing programs for new offering or for improving existing ones, an organizations senior management may from Cross Functional Teams : ▪ these consist of a small number of people from different departments who are mutually accountable to accomplish a task or a common set of performance goals Organizational Foundation (Why) • Successful visionary organizations use this foundation to guide and inspire their employee's through three elements: core values, mission and organizational culture • Core Values: ◦ The fundamental, passionate and enduring principles that guide its conduct over time ▪ a firms founders or senior management develop these core values ◦ They capture the firm's heart and soul and serve to inspire and motivate its stakeholders ▪ Stakeholders (employee's, shareholders, suppliers, board of directors, customers, etc) ◦ They are timeless and should not change due to short term financial, operational or marketing concerns ◦ Guide the organizations conduct ◦ Must be supported by top management and employee's • Mission (vision) : ◦ By understanding its core values, an organization can take steps to define its mission ◦ Astatement of the organizations function in society that often identifies its customers, markets, products and technologies. ▪ EX. “To contribute to human welfare by application of biomedical engineering in the research, design, manufacture, and sale of instruments or appliances that alleviate pain, restore health and extend life” ▪ EX. American Red Cross: “To provide relief to victims of disaster and help prevent, prepare for, and respond to emergencies ◦ Similar inspiration and focus appear in the mission statements of both business firms and nonprofit organizations ◦ Each statement exhibits the qualities of a good mission: a clear, challenging and compelling picture of an envisioned future ◦ Recently, many organizations have added a social element to their mission statements to reflect an ideal that is morally right and worthwhile • Organizational Culture: ◦ The set of values, ideas, attitudes and norms of behaving that is learned and shared among the members of an organization Organizational Direction (What) • The organizations foundation enables it to set a direction in terms of 1. Abusiness: • The clear, broad, underlying industry or market sector of an organizations offering • To help define its business, an organization looks at the set of organizations that sell similar offerings, those that are in direct competition with each other. • Business Model: the strategies an organization developed to provide value to the customers it serves ◦ Technological innovation is often the trigger for this business model to change 2. Its goals: • Statements of an accomplishment of a task to be achieved, often by a specific time. ◦ eg. Profit, quality, sales, customer satisfaction Organizational Strategies (How): • 2 strategies: ◦ Variation by Level: ▪ Moving down an organization involves creating increasingly specific, detailed strategies and plans. • At corporate level, top managers may struggle with writing a meaningful mission statement, while at the functional level the issue is whether Joan orAdam makes the sales call tomorrow. ◦ Variation by Offering: ▪ product, service, idea Tracking Strategic Performance with Marketing Dashboards • Amarketing dashboard is the visual computer display of the essential information related to achieving a marketing objective. • Each display in a marketing dashboard shows a marketing metric: ◦ a measure of the quantitative value or trend of a marketing activity or result ◦ selectively chosen for display • Data visualization: ◦ presents information about an organizations marketing metics graphically so manufactures can quickly: ▪ 1. Spot the Deviation from plans ▪ 2. Take CorrectiveActions • Most organizations tie the marketing metrics they track in their marketing dashboards to the quantitative objectives established in their marketing plan: ◦ the road map for the marketing activities of an organization for a specified future time period Setting Strategic Directions: • To set a strategic direction, an organization needs to answer two difficult questions: Where are we now? and Where do we want to go? • Asking an organization where it is at the present time involves identifying its competencies, customers and competitors ◦ Competencies: organizations special capabilities, skills, technologies and resources that distinguish it from other organizations and provide customer value ▪ exploiting these competencies can lead to success by providing a competitive advantage Growth Strategies • Knowing where the organization is at the present time enables managers to set a direction for the firm and allocate resources to move in that direction with the aid of two techniques: 1. Business PortfolioAnalysis: ◦ a technique that managers use to quantify performance measures and growth targets to analyze their firms strategic business units as though they were a collection of separate investments ◦ the purpose of this tool is to determine the appeal of each SBU or offering and then determine the amount of cash each should receive ◦ More than 75% of US firms have used this analytical tool ◦ The primary strength of business portfolio analysis lies in forcing a firm o place each of its SBUs in the growth-share matrix, which in turn suggests which SBUs will be cash producers and cash users in the future ▪ hard to get needed information ▪ hard to incorporate competitive date into business portfolio analysis 2. DiversificationAnalysis: ◦ a technique that helps a firm search for growth opportunities from among current and new markets as well as current and new products ◦ Market Penetration: a marketing strategy to increase sales of current products in current markets ▪ increase sales by either selling more, or selling the same amount at a higher price ◦ Market Development: a marketing strategy to sell current products to new markets ◦ Product Development: a marketing strategy of selling new products to current markets ◦ Diversification: marketing strategy of developing new products and selling them in new markets The Strategic Marketing Process: • After an organization assesses where it is and where it wants to go, other questions emerge: 1. How we allocate our resources to get where we want to go? 2. How do we convert out plans into actions? 3. How do our results compare with out plans, do deviations require new plans? • To answer these questions an organization uses the strategic marketing process, whereby an organization allocates its marketing mix resources to reach its target markets. • This process is divided into three phases: planning, implementation and evaluation • Step 1: Situation SWOTAnalysis ◦ taking stock of where the firm or product has been recently, where it is now and where it is headed in terms of the organizations marketing plans and the external forces and trends affecting it ▪ Identify trends in the organizations industry ▪ analyze the organizations competitors ▪ asses the organization itself ▪ research the organizations present and prospective customers • Build on a strength • Correct a weakness • Exploit and opportunity • Avoid a disaster- laden threat • Step 2: Market Product Focus and Goal Setting ◦ Determining what products will be directed toward which customers is essential for developing an effecting marketing program ▪ this decision is often based on market segmentation, which involves aggregating prospective buyers into groups or segments that 1. have common needs and 2. will respond similarly to a marketing action • Set marketing and product goals • Select target markets • Find points of difference ◦ the characteristics of a product that make it superior to competitive substitutes • Position the product ◦ Step 2 is the foundation for 3 • Step 3: Marketing Program ◦ Activities in step 2 tell the marketing manager which customers to target and which customers need the firms product offerings can satisfy ▪ Product strategies ▪ Price strategies ▪ Promotion strategies Place strategies Executing the Marketing Program • Effective execution requires attention to detail for both: ◦ Marketing strategies: ▪ the means by which a marketing goal is to be achieved, usually characterized by a specified target market and a marketing program to reach it ◦ Marketing tactics: ▪ detailed day to day operational decisions essential to the overall success of marketing strategies The Evaluation Phase of the Strategic Marketing Process: • The evaluation phase of the strategic marketing process seeks to keep the marketing program moving in the direction set for it. • Accomplishing this requires the marketing manager to: ◦ 1. Compare the results of the marketing program with the goals in the written plans to identify deviations ◦ 2. Act on these deviations- correcting negative deviations and exploiting positive ones • Planning gap: the difference between the projection of the path to reach a new goal (line BD) an the progention of the path of the result of a plan already in place (line BC) ◦ the ultimate purpose to the marketing program is to “fill in” this planning gap LOOK UP BPU TRENDS Chapter 3- Scanning the Marketing Environment Environmental Scanning • The process of continually acquiring information on events occurring outside the organization to identify and interpret potential trends • Changes in the marketing environment are a source of opportunities and threats to be managed • Environmental trends typically arise from five sources: social, economic, technological, competitive and regulatory forces, these forces affect the marketing activities of a firm in numerous ways. An Environmental Scan of Today's Marketplace • Afirm conducting an environmental scan of the marketplace might uncover key trends for each of the five environmental forces. • Social forces of the environment include the demographic characteristics of the population and its values. Changes in these forces can have a dramatic impact on marketing strategy Demographics: • Describing a population according to selected characteristics such as age, gender, ethnicity, income and occupation. • “Population explosion” ◦ Mostly in developing countries ofAfrica,Asia and LatinAmerica • For marketers, global trends such as these have many implications. • Relative size of countries such as India and China will mean they represent huge markets for many product categories • Elderly populations in developing countries are likely to save less and spend their funds on health care, travel and other retirement related products and services • Economic progress in developing countries will lead to growth in entrepreneurship,, new markets for infrastructure related to manufacturing, communication and distribution, and the growth of exports The US Population: • Studies of the demographic characteristics of the US population suggest several important trends, the population is becoming larger, older and more diverse • Current US population is 308 million if current trends in life expectancy, birth rates and immigration continue, by 2030 the US population will exceed 373 million people. ◦ This growth suggests that niche markets based on age, life stage, family structure, geographic location and ethnicity will become increasingly important ◦ The size of most “minority” groups will double Generational Cohorts • Baby boomers, born between 1946 and 1964 are retiring at a rate of 10,000 every 24 hours and they will all be older than 65 by 2030 • Companies that target boomers will need to respond to their interests in health, fitness, retirement housing, financial planning, and physical appearance. ◦ More elderly based products will be on the market while baby boomers are old • The baby boom cohort is followed by Generation X which includes the 15% of the population born between 1965 and 1976. ◦ This period was also known as the baby bust, because the number of children born each year was declining. ◦ This generation of consumers who are self- reliant, supportive of racial and ethnic diversity and better educated than any previous generation ◦ As baby boomer move toward retirement, Generation X is becoming a dominant force in many markets ▪ Generation Y 1977-1994 • Because the members of each generation are distinctive in their attitudes and consumer behaviour, marketers have been studying the many groups or cohorts that make up the marketplace and have developed generational marketing programs for them TheAmerican Household: • 75% used to be married households now only 50% • 21% married with children ◦ 10% working fathers and stay at home mothers • Business are adjusting to the changes because they have implications for purchases related to weddings, homes, baby and child products and many other industries • Blended family: one divorcee finds another and remarries Population Shifts: • Amajor regional shift in the US population toward Southern and Western states is under way. ◦ Texas gained more people than any other state (500,000) • Populations are also shifting within states. ◦ Fluctuates between rural areas, suburbs (exurbs) and urban areas (cities) ◦ Currently people are gravitating toward cities • To assist marketers in gathering data on the population, the Census Bureau has developed a classification system to describe the varying locations of the population. The system consists of two types of statistical areas: ◦ Ametropolitan statistical area: ▪ has at least one urbanized area of 50,000 or more people and adjacent territory that has a high degree of social and economic integration ◦ Amicropolitan statistical area:integration ▪ has at least one urban cluster of at least 10,000 but less than 50,000 people and adjacent territory that has a high degree of social and economic integration ◦ If a metropolitan statistical area contains a population of 2.5 million or more, it may be subdivided into smaller areas called metropolitan divisions. ◦ Adjacent metropolitan statistical areas and micropolitan statistical areas may be grouped into combined statistical areas Racial and Ethnic Diversity: • Anotable trend is the changing racial and ethnic composition of the US population. • Approximately 1/3 US residents belongs to an ethnic group • To adapt to this new marketplace, many companies are developing multicultural marketing programs which are combinations of the marketing mix that reflect the unique attitudes, ancestry, communication preferences and lifestyles of different races • Racial and ethnic groups tend to be concentrated in geographic regions Culture: • Asecond social force, Culture, incorporates the set of values, ideas and attitude that are learned and shared among the members of the group • Because many of the elements of culture influence consumer buying patterns, monitoring national and global cultural trends is important for marketing • Cross-cultural analysis needed for global marketing is discussed later Roles of Men and Women • One of the most notable changes in the US in the past 30 years has been in the attitudes and roles of men and women in the marketplace. ◦ Occurred with the help of lifestyle choices, sport organizations and the internet ◦ If growth continues the buying patterns of men and women will eventually be very similar • As a result Generation Y represents the first generation of women who have no collective memory of the dramatic changes we have undergone • Many companies direct their marketing towards a gender ◦ Hugo Boss, UGG... Changing Values: • Culture also includes values that may differ over time and between countries. • During the 1970 a list of values in the US included achievement, work, efficiency and material comfort • Today, commonly held values include personal control, continuous change, equality, individualism, self help, competition, future orientation and action • These values are useful in understanding most current behaviors of US consumers. • Today US consumers have become cautious buyers ◦ Value consciousness: the concern for obtaining the best quality, features and performance of a product or service for a given price Economic Forces: • The second component of the environmental scan • It pertains to the income, expenditures and resources that affect the cost of running a business and household. Macroeconomic Conditions: • Of particular concern at the macroeconomic level is the performance of the economy based on indicators such as GDP (gross domestic product), unemployment and price changes (inflation and deflation) • In an inflationary economy, the cost to produce and buy products and services escalates s prices rise ◦ If prices rise faster than consumer incomes, the number of items consumers can buy decreases. ▪ This is evident when we look at the cost of college education • Periods of declining economic activity are referred to as recessions ◦ During recessions, businesses decrease production, unemployment rises and many consumers have less money to spend ◦ The 2007-2009 recession has been the longest in history • Consumer expectations about the economy are an important element of environmental scanning ◦ Consumer spending, which accounts for 2/3 of US economic activity is affected by expectations of the future ◦ Consumer expectations surveys are closely monitored by many companies, particularly manufacturers and retailers of cars, furniture and major appliances Consumer Income: • Aconsumers ability to buy is related to income, which consists of gross, disposable and discretionary components • Gross Income: ◦ The total amount of money made in one year by a person, household or family unit ▪ When gross income is adjusted for inflation, income of the typical US household is stable • Disposable Income: ◦ The money a consumer has left after paying taxes to use for necessities such as food, housing, clothing and transportation ▪ If taxes rise faster than income, less is disposable ▪ During a recessionary period, spending, debt and use of credit all decline • the recent downturn has led many consumers to switch from premium brands to lower priced brands • Discretionary Income: ◦ The money that remains after paying for taxes and necessities ◦ Used for luxury items such as a cruise ◦ Can be increased by reducing saving Technological forces: • Refers to inventions or innovations from applied science or engineering research • Each new wave of technological innovation can replace existing products and companies Technology of Tomorrow: • Technological change is the result of research so it is difficult to predict • Social networks will become social platforms that provide functionality, community and identity well beyond the value provided by traditional corporate websites • “Natural user interfaces” will utilize gesture, touch and voice to change the way we interact with control computers and complicated machines • Green technologies such as Smart Grid infrastructure, online energy management and consumer- generated energy will gain widespread acceptance amongAmerican consumers • biotechnology will be used to develop genetically modified crops to create enough food for a growing world population Technology's Impact on Customer Value: • Advances in technology have important effects on marketing. • The cost of technology is plummeting, causing the customer value assessment of technology based products to focus on other dimension such as quality, service and relationships • Technology also provides value through the development of new products. • Can change existing products and the way they are produced Electronic Business Technologies: • The tranformative power of technology can be best seen by the rapid growth of the marketspace, and information and communication based electronic exchange environment mostly occupied by sophisticated computer and telecommunication technologies and digitize offerings • Any activity that uses some form of electronic communication in the inventory, exchange, advertisement, distribution and payment of goods and services is often called electronic commerce • Network technologies are now used for everything from filing expense reports, to monitoring daily sales, to sharing information with employee's, to communicating instantly with suppliers ◦ Intranet: used to communicate within the company ◦ Extranets: used to communicate outside the company Competitive Forces: • Refers to the alternative firms that could provide a product to satisfy a specific markets needs • Each company must consider its present and potential competitors in designing its marketing strategy Alternative Forms of Competition: • Pure competition: ◦ there are many sellers and they each have a similar product • Monopolistic Competition: ◦ many sellers compete with substitutable products within a price range • Oligopoly: ◦ a common industry structure, occurs when a few companies control the majority of industry sales (Fido ,Telus, Rogers, Bell) • Pure monopoly: ◦ occurs when only one firm sells the product ▪ usually common with water, electricity and cable services Components of Competition: • Entry: ◦ a firm must assess the likelihood of new entrants ◦ additional producers increase industry capacity and tend to lower prices ◦ must consider possible barriers to entry and implement them as a means of making it more difficult for other companies to enter the market • Power of Buyers and Suppliers: ◦ Powerful buyers exist when they are few in number, there are low switching costs or the product represents a significant share of the buyers total costs. ▪ Leads the buyer to exert significant pressure for price competition ▪ Asupplier gains power when the product is critical to the buyer and when it has built up the switching costs • Existing competitors and Substitutes: ◦ Competitive pressures among existing firms depend on the rate of industry growth. ◦ In slow growth settings, competition is more heater for any possible gains in the market share ◦ High fixed costs also create competitive pressures for firms to fill production capacity ▪ ex. airlines make you pay to cancel, and flights are cheaper when bought in advance Small Business as Competitors: • make up the majority of the competitive landscape for most businesses • Research has shown a strong correlation between national economic growth and the level of new small business activity in previous years Regulatory Forces: • Consists of restrictions, state and federal laws place on business with regard to the conduct of its activities • exists to protect companies as well as consumers • Many of the regulations from the federal and state levels is the result of an active political process and has been passed to ensure competition and fair business practices • For consumers, the focus of legislation is to protect them from unfair trade practices Protecting Competition: • Permits the consumer to determine which competitor will succeed and which will fail ◦ ex. government forced farmers into using fixed railroad shipping prices with eliminated contracts, combination or conspiracies in restraint trade • Robinson PatmanAct: makes it unlawful to discriminate in prices charged to different purchasers of the same product, where the effect may be substantially lessen competition or help to create a monopoly Product Related Legislation: • Various federal laws in existence specifically address the product component of the marketing mix. • Some are aimed at protecting the company, some at protecting the consumer, and at least one protecting both • Pattens prevent people from marketing a company/individuals product • Copyright law has the same idea • Many of these laws came about because of Consumerism: ◦ a grassroots movement started in the 1960s to increase the influence, power and rights of consumers in dealing with institutions ◦ this movement continues and is reflected in growing consumer demands for ecologically safe products and ethical and socially responsible business practices • One of the most recent changes in trademark law is the US supreme courts ruling that companies may obtain trademarks for colors associated with their products. Price Related Legislation: • the pricing component of the marketing mix is the focus of regulation from two perspectives: ◦ price fixing ▪ courts see price fixing illegal but it is not ◦ price discounting ▪ legal Distribution Related Legislation: • The government has four concerns with regard to distribution: ◦ Exclusive dealing: ▪ an arrangement a manufacturer makes with a reseller to handle only its products and not those of competitors ▪ Is illegal only when it substantially lessens competition ◦ Requirement contracts: ▪ require a buyer to purchase all or part of its needs for a products from one seller for a period of time ▪ not always illegal, court has discretion ◦ Exclusive Territorial Distributorships: ▪ a manufacturer grants a distributor the sole right to sell a product in a specific geographical area. ▪ Courts have found few violations in this area ◦ TyingArrangement: ▪ a seller requires the purchaser of one product to also buy another item in the line • these contacts may be illegal when the seller has such economic power in the tying product that the seller can restrain trade in the tied product Advertising and Promotion Related Legislation: • Corrective advertisement: ◦ after a company is issued a cease and desist order for misleading/unfair advertisement then will most likely be forces to do corrective advertisement to correct previous ads Control through Self Regulation: • an industry attempts to police itself • Two problems with this: ◦ non compliance by members and enforcement ◦ if attempts at self regulation are too strong, they may violate the Robinson PatmanAct. Chapter 8 : The Role of Marketing Research What is Marketing Research • the process of defining a marketing problem and opportunity systematically collecting and analyzing information, and recommending actions.Although imperfect, marketers conduct marketing research to reduce the risk of and thereby improve marketing decisions The Challenges in Doing Good Marketing Research • Whatever the marketing issue involved, whether discovering consumer tastes or setting the right price, good marketing research is challenging ◦ Will customers buy the brand they say they will? ◦ Will people give honest answers? ◦ Etc. Five Step Marketing ResearchApproach • Adecision is a conscious choice from among two or more alternatives. • The systematic marketing research approach used to collect information to improve marketing decision and actions • Step 1- Define the Problem: ◦ Set the Research Objectives: ▪ specific, measurable goals the decision maker seeks to achieve in conducting the marketing research ▪ Three main types of marketing research: 1. Exploratory research: provides ideas about a relatively vague problem 2. Descriptive research: generally involves trying to find the frequency that something occurs o the extent of a relationship between two factors 3. Casual research: the most sophisticated, tries to determine the extent to which the change in one factor changes another one • Identify Possible MarketingActions: ◦ Effective decision makers develop specific measures of success, which are criteria or standards used in evaluating proposed solutions to the problem. Different research outcomes, based on the measure of success lead to different marketing actions. ◦ Marketing • Step 2- Develop the Research Plan: ◦ Specify Constraints: ▪ constrains are the restrictions placed on potential solutions to a problem. • eg. limitations to money, and time ◦ Identify Data Needed for MarketingActions ▪ the study must focus on collecting data that will help managers make a clear choice between two designs ◦ Determine How to Collect Data ▪ Two key elements in deciding how to collect the data are: • Concepts: ideas about the product or service • Methods: approaches that can be used to collect data to solve all or part of a problem ◦ Special methods vital to marketing are: ▪ sampling: selecting a group of distributors, customers or prospects and asking questions ▪ and statistical interference: generalize the results from the sample to much larger groups of distributors, customers, or prospects to help decide on marketing actions • Step 3- Collect Relevant Information: ◦ Marketing Outcome data: the results of the marketing efforts ◦ Advantages and Disadvantages of Secondary Data: ▪ obtain secondary data, then primary ▪ Two important advantages of secondary data are: • 1. the time savings because the data has already been collected and published • 2. the low cost, such as free or inexpensive Census reports. ▪ Disadvantages: • may be out of date • the definitions or categories might not be quite right for a researchers project ◦ Primary data: ▪ observational data: how people actual behave measured by mechanical, personal or neuromarketing methods ▪ Mechanical Methods: • The people meter is a box that: ◦ is attached to TV sets, DBRS, cable boxes.... ◦ has a remote that operates the meter when a viewer begins and finishes watching TV ◦ stores and then transmits the information each night to Nielsen Media research to track who is actually watching, and how much ◦ can track internet use as well ▪ Personal Methods: • Mystery shopper, checks on the quality and pricing of products and the integrity of customer service. • Ethnographic research: a specialized observational approach in which trained observers seek to discover subtle behavioral and emotional reactions as consumers encounter products in their “neutral use environment” ▪ Personal observations is both useful and flexible but it can be costly and unreliable when different observers report different conclusions when watching the same event ▪ Neuromarketing Methods: • using brain scanning to analyze the buying processes of individuals ▪ Asking People: 1. Idea generation methods and 2. idea evaluation methods ▪ give us questionnaire data • Open ended question: allows respondents to express opinions, ideas or behaviors in their own words without being forced to choose among alternatives • Close ended question: require respondents to select one or more response options from a set of predetermined choices ◦ dichotomous question: yes or no ◦ a fixed alternative question with three or more choices uses a scale ▪ semantic differential scale • Mall Intercept Interviews: personal interviews of consumers visiting shopping centers • Other Sources: ◦ Social Media: the marketing research must reflect the more direct connections of advertisers with present and prospective buyers, the speed and sheer volume of customer feedback data and the new marketing metrics and measures of success of social media promotions ◦ Panels and Experiments: a panel is a sample of consumers or stores from which researchers take a series of measurements ◦ Information technology: operating computer networks that can store and process data into a data warehouse ◦ Data mining: the extraction of hidden predictive information from large databases to find statistical links between consumer purchasing patterns and marketing actions. Step 4: Develop findings: • Analyze the data • Present the findings: ◦ findings should be clear and understandable from the way the data are presented Step 5- Take MarketingActions • MakeAction Recommendations • Implement theAction Recommendations • Evaluate the Results ◦ Evaluating the decision itself ◦ Evaluating the decision process used Sales Forecasting Techniques • forecasting or estimating potential sales is often a key goal in a marketing research study. • Good sales forecasting are important for a firm as it schedules production. • Sales forecast: the total sales of a product that a firm expects to sell during a specified time period under specified environmental conditions and its own marketing efforts ◦ Three main sales forecasting techniques are often used ▪ 1. Judgments of the decision maker ▪ 2. surveys of knowledgeable groups: • survey of buyers intentions forecast • sales force survey forecast ◦ asking the firms salesperson to estimate sales during a coming period ▪ 3. statistical methods: trend extrapolation Chapter 5: Understanding Consumer Behavior • 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. Purchase Decision Process • Five Stages: 1. Problem Recognition: Perceiving a Need • perceiving a difference between a persons ideal and actual situations big enough to trigger a decision. • In marketing, advertisements of salespeople can activate a consumers decision process by showing the shortcomings of a competing (or currently owned) product. 2. Information Search: Seeking value • after recognizing a problem, a consumer begins to search for information • first they may scan their memory for previous experiences with products or brands, this is called internal search, for frequently bought products this may be enough • external search is needed when the past experience or knowledge is insufficient 1. Personal Sources • relatives, friends 2. Public Sources • product rating programs, consumer reports, government agencies and TV “consumer programs” 3. Marketer Dominated Sources • sellers, advertisement, display 3. Alternative Evaluation :Assessing Value • Evaluative Criteria: represents 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 • Consideration Set: ◦ the group of brands that you would consider from among all the brands 4. Purchase Decision: Buying Value • Two choices remain: 1. Who to buy from 2. When to buy 5. Post purchase behaviour • After buying a product the consumer compares it with his or her expectations and is either satisfied or dissatisfied. Consumer Involvement and Problem Solving Variations • Sometimes consumers don’t engage in the five stage purchase decision process. Instead skipping one or more stages depending on the level of involvement. ◦ High involvement purchase occasions typically ave at least one of three characteristics 1. expensive 2. can have serious personal consequences 3. could reflect on ones social image • Low involvement purchases such as toothpaste and soap barley involve most of us, but audio and automobiles are very involving Problem Solving • Extended ◦ each stage is used and considerable time is spent to search for external information. ◦ Exists in high involvement purchase situations • Limited ◦ seek some information or rely on a friends to help them evaluate alternatives ◦ eg. a toaster, what restaurant to eat at for lunch • Routine ◦ spend little effort seeing external information and evaluating alternatives ◦ eg. salt, milk Involvement and Marketing Strategy • 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 places on: 1. Maintaining product quality 2. Avoiding stock out situations so that buyers don’t substitute a competing brand 3. Psychologicalertisin messages that reBehavior consumers knowledge or assure buyers they made the right choice Situational Influences: 1. The purchase task • the reason for engaging in the decision 2. Social surroundings • including the people your with when purchasing 3. Physical surroundings • decor, music and crowding in retail stores may alter how purchase decisions are made 4. Temporal Effects • time of day, or amount of time available will influence where consumers have breakfast/ lunch and what they order 5. Antecedent states • consumers mood, amount of cash in hand ◦ eg. consumers with credit cards purchase more than those with cash/ debit Physchological Influences on Consumer Behavior Motivation and Personality ◦ Motivation: the energizing force that stimulates behaviour to satisfy a need ▪ Physiological needs (water, food, oxygen, shelter) → Safety Needs (security) → Social Needs (friendship, belonging, love) → Personal Needs (status, respect) Self Actualization Needs (self fulfillment) ◦ Personality: a persons consistent behaviors or responses to recurring situations ▪ compliance, dominance, extroversion, aggression ▪ Self Concept: the way people see themselves and the way they believe others see them Perception ◦ the process by which an individual selects, organizes and interprets information to create a meaningful picture of the world ◦ Selective Perception: ▪ the human brains attempt to organize and interpret information ◦ Selective Exposure: ▪ people pay attention to messages that are consistent with their attitudes and beliefs and ignore messages that are inconsistent ▪ often occurs in Post purchase phase ◦ Selective Comprehension ▪ interpreting information so that it is consistent with your attitudes and beliefs ◦ Selective Retention : ▪ consumers do not remember all the information they see, read or even hear even minutes after exposure to it affecting the internal and external information search stage ◦ Subliminal Perception: ▪ you see or hear messages without being aware of them. • Perceived Risk ◦ represents the anxiety felt because the consumer cannot anticipate the outcomes of a purchase but believes there may be negative consequences ◦ affects a consumers information search, because the greater the perceived risk, the more extensive the external search stage is likely to be ◦ recognizing the importance of perceived risk, companies develop strategies to reduce the consumers perceived risk and encourage purchases ▪ Obtaining seals of approval ▪ Securing endorsements from influential people ▪ Proving free trials of the product ▪ Giving extensive usage information ▪ Providing warranties and guarantees Learning: ◦ refers to those behaviors that result from : 1. repeated experience 2. reasoning • Behavioral Learning: ◦ the process of developing automatic responses to a situation built up through repeated exposure to it ◦ Drive: a need that moves an individual to action ◦ Cue: a stimulus or symbol perceived by consumer ◦ Response: the action taken by a consumer to satisfy the drive ◦ Reinforcement: the reward ▪ Being hungry (drive), a consumer sees a billboard (cue), buys (action) the sandwich (reward) ◦ Marketers use two concepts from behavioral learning theory: 1. Stimulus Generalization: occurs when a response elicited by one stimulus (cue) is generalized into another stimulus. 2. Stimulus Discrimination: refers to a persons ability to perceive differences in stimulus • Cognitive Learning: ◦ involved making connections between two or more ideas or simply observing the outcomes of other behaviors and adjusting your own accordingly ◦ firms also influence this type of learning through repetition in advertisement • Brand Loyalty ◦ results from the positive reinforcement of previous actions Values, Beliefs and Attitudes: • Attitude: is a learned predisposition to response to an object or class of objects in a consistently favorable or unfavorable way ◦ shaped by values and beliefs which are learned • Beliefs: a consumers subjective perception of how a product or brand performs on different attributes. ◦ Based on personal experience, advertisement and discussion. • Attitude Change: ◦ marketers use three approaches to try to change consumer attitudes toward products and brands: 1. Changing beliefs about the extent to which a brand has certain attributes 2. Changing the perceived importance of attitudes 3. Adding new attitudes to the product Consumer Lifestyle • 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 lifestyle called psychographics, provides insights into consumer needs and wants ◦ often used to uncover consumer motivations for buying and using products and services ◦ Ideals Motivated Groups: ▪ consumers motivated by ideals are guided by knowledge and principles ▪ 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, favorAmerican- made products and are generally brand loyal ◦ Achievement Motivated Groups ▪ consumers motivated by achievement look for products are 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 that are time saving for their hectic schedules ▪ Strivers: are trendy, fun loving and less self confident than achievers. 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: young, enthusiastic and impulsive consumer who become very excited about new possibilities but are equally quick to cool. They savor new and risky. Their energy finds an outlet in excersize, sports, social and outdoor activities. Much of their income is spent of fashion items, entertainment and socializing ▪ Makers: with fewer resources, express themselves and experience the world by working on it. They are practical people who have constructive skills, value self sufficiency and are unimpressed by material possessions expect 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 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 on Consumer Behavior Personal Influence: • Opinion Leadership: ◦ individuals who exert direct or indirect social influences over others are called opinion leaders. ◦ They are considered to be knowledgeable about or users of particular products and services, so their opinions influence others choices. ▪ Celebrities ◦ Widespread in the purchase of cars, entertainment, clothing, etc. • Word of MouthActivity ◦ the influence of people during conversation ◦ the most powerful and authentic information source for consumers because it typically involves friends viewed as trustworthy. ◦ 67% of US consumer product sales are directly based on word of mouth activity among friends, family and colleagues. ◦ The power of word of mouth is magnified by the Internet though online forums, blogs and social media. Reference Groups: • 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. • 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: ◦ AMembership Group : one to which a person actually belongs, including frats, social clubs and the family, these groups are easily indefinable and are targeted by firms seeking insurance, insignia products and charter vacations. ◦ AnAspiration Group: one that a person wishes to be a member of or wishes to identified with, such as a professional society. Firms frequently rely on spokespeople or settings associated with their target markets aspiration group in their advertisement ◦ ADissociative Group: one that a person wishes to maintain a distance from because of difference in values or behaviors Family Influence • Consumer Socialization: • the process by which people acquire the skills, knowledge and attitudes necessary to function as consumers • Children learn how to purchase: 1. By interacting with adults in purchase situations 2. Through their own purchasing and product usage experience • Family Life Cycle: ◦ Consumers act and purchase differently as they go through life. • Family Decision Making: ◦ Spouse Dominant ▪ Wives have more of a say when purchasing groceries, baby clothing and toys, medicine ▪ Husbands tend to have more influence for in home and car maintenance purchases. ◦ Joint decision making ▪ decisions made by both partners in relationship ▪ cars, vacations, houses and home appliances and electronics are more likely to be joint decisions ◦ Five family roles exist: 1. Information gatherer 2. Influencer 3. Decision maker 4. Purchaser 5. User Social Class: • the relatively permanent, homogenous division in a society into which people sharing similar values, interests and behavior can be group. • Apersons occupation, source of income (not level of income) and education determines social class • Three major social class categories exist: 1. Upper 2. Middle 3. Lower • Companies use social class as a basis for identifying and reaching particularly good prospects for their products and services. Culture and Subculture: • 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 cultural unique values, ideas and attitudes are referred to as subcultures. ◦ Three largest in US are: Hispanics,AfricanAmerican andAsianAmericans. ◦ Each group exhibits sophisticated social and cultural behaviour that affect buying patterns which provides the basis for multicultural marketing programs • Hispanic Buying Patterns: ◦ represent the largest racial/ ethnic subculture in the US is terms on population and spending power. 50% are immigrants. ◦ Research on Hispanic buying practices has uncovered several consistent patterns: 1. Hispanics are quality and brand conscious. They are willing to pay a premium price from a premium quality and are often brand loyal 2. Hispanics prefer buyingAmerican- made products especially those offered by firms that cater to Hispanic needs. 3. Hispanic buying preferences are strongly referred influence by family and peers 4. Hispanics consider advertising a credible product information source and US has spend more than $6 billion annually on advertising to Hispanics 5. Convince is not an important product attitude to Hispanic homemakers with respect to food preparation or consumption, nor is low caffeine in coffee and soft drinks, low fat in dairy products. • Despite some consistent buying patterns, marketing to Hispanics has been proven to be a challenge for two reasons. ◦ First, the Hispanic subculture is diverse ◦ Cultural differences among these nationalities often affect product preference • AfricanAmerican Buying Patterns ◦ More similarities than differences from Caucasians ◦ They spend more on boys clothing, rental good and audio equipment. ◦ Women spend three times more on health and beauty products. ◦ The typicalAfrican American family is 5 years younger than the typical Caucasian family. ▪ This factor alone accounts for some of the observed differences in preferences for clothing, music, shelter, cares. ◦ It must be emphasized that, historicallyAfricanAmericans have been deprived of employment and educational opportunities in the US. ▪ Both factors have resulted in income disparities betweenAfricanAmericans and Caucasians which influence purchase behaviour • Asian American Buying Patterns: ◦ Consumer research on AsianAmericans suggests that individuals and families can be divided into two groups: 1. Assimilated AsianAmericans: are conversant in English, highly educated, hold professional and managerial positions and exhibit buying patterns very much like the typicalAmerican consumer 2. Nonassimilater AsianAmericans: are recent immigrants who still cling to their native languages and customs • Studies show that theAsianAmerican 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/ • This subculture is also the most entrepreneurial in the US Chapter 6: Understanding Organizations as Customers: • Business Marketing: ◦ the marketing of goods and services to companies, governments or non profit organizations for use in the creation of goods and services that they can produce and market to others. • Organizational Buyers: ◦ those manufactures, wholesalers, retailers and government agencies that buy goods and services for their own use or for resale ◦ they are divided into three markets: 1. Industrial • reprocess a product or service they buy before selling it again to the next buyer. • Companies that primarily sell physical goods represent 25% of all the industrial firms 2. Reseller ◦ wholesalers and retailers that buy physical products and resell them again without any reprocessing. 3. Government ◦ the federal state and local agencies that buy goods and services for the constituents they serve. • Global Organizational Markets: ◦ internations trade statistics indicate that the largest exporting industries in the US focus on organizational buyers, not ultimate consumers. ◦ The majority of world trade involves exchange relationships that span the globe. Measuring Domestic and Global Industrial, Reseller and Government Markets: • this task has been made easier with the NorthAmerican Industry Classification System by providing common industry definitions for Canada, Mexico and the US which makes it easier to measure economic activity in the three member countries. • The NAICS replaced the Standard Industrial Classification system. • The NAICS groups economic activity to permit studies of market share demand for goods and services, import competition in domestic markets and similar studies. • Asix- digit coding system is used. • The NAICS permits a firm to find the NAICS codes of its present customers and then obtain NAICS coded lists for similar firms. • It is possible to monitor NASICS categories to determine the growth in various sectors and industries to identify promising marketing opportunities. Characteristics of Organizational Buying: • Market Characteristics: ◦ consumer demand for products and services is affected by their price and availability and by consumers personal tastes and discretionary income. ◦ Derived demand: ▪ the demand for industrial products and services is driven by or derived from, demand for consumer products and services. ◦ Few customers exist, and their purchase orders are large • Organizational Buying Objectives: ◦ Organizations buy products and services for one main reason: to help them achieve their objectives. ◦ Many companies today have broadened their buying objectives to include an emphasis on buying from minority, and women-owned supplies and vendors. ◦ Successful business marketers recognize that understanding buying objectives is a necessary first step in marketing to organizations Organizational Buying Criteria: • the objective attributes of the suppliers products and series and the capabilities of the supplier itself • the most common used criteria are 1. Price 2. Ability to meet the quality specifications required for the item 3. Ability to meet delivery schedules 4. Technical capability 5. Warranties and claim policies in the event of poor performance 6. Past performance on previous contracts 7. Production facilities and capacity • Suppliers that meet or exceed these criteria create customer value • Organizational buyers who purchase products and services in the global marketplace often supplement their buying criteria with supplier ISO 9000 which refers to standards for registration and certification of a manufacturer's quality management and assurance system based on an on side audit of practices and procedures. • Many organizational buyers today are transforming their buying criteria into specific requirements that are communicated to prospective suppliers • Supplier Development ◦ involves the deliberate effort by inventors and buyers to build relationship that shape suppliers products, services and capabilities to fit a buyers needs and those of its customers. • Just in time (JIT) ◦ an inventory system that reduces the inventory of production parts to those to be used within hours or days, on time delivery is becoming an even more important buying criterion and in some instances, a requirement. Buyer- Seller Relationships and Supply Partnerships • another difference between organizational and consumer buying behaviour lies in the nature of the relationship between organizational buyers and suppliers. ◦ Organizational buying is more likely to involve complex negotiations concerning delivery schedules, price, technical specifications, warranties and claim policies. • Reciprocal arrangements also exist: ◦ industrial buying practice in which two organizations agree to purchase each others products and services. • Buyer- seller relationship can evolve into supply partnerships: ◦ when a buyer and its supplier adopt mutually beneficial objectives, policies and procedures for the purpose of lowering the cost or increasing the value of products and services delivered to the ultimate consumer. The Buying Center:ACross Functional Group • for routine purchases with a small dollar value, a single buyer or purchasing manager often makes the purchase decision alone. • However, when several people in the organization participate in the buying process, the groups called a buying center ◦ they share common goals, risks and knowledge important to a purchase decision. ◦ Can be called buying committee ◦ Four questions provide guidance in understanding the buying center in these organizations 1. Which individuals are in the buying center? 2. What is the relative influence of each member? 3. What are the buying criteria of each member? 4. How does each member of the group perceive our firm, our products, service and salespeople? People in the Buying Center: • the composition of the buying center in a given organization depends on the specific item bought • a buyer or purchasing manager is almost always a member of the buying center. Roles in the Buying Center: • Researchers have identified five specific roles that an individual in a buying center can play: ◦ Users: people in the organization who actually use the product or service ◦ Influences: affect the buying decision, usually by helping define the specifications for what is bought ◦ Buyers: formal authority and responsibility to select the supplier and negotiate the terms of the contract. ◦ Deciders: have the formal or informal power to select or approve the supplier that receives the contract. ◦ Gatekeepers: control the flow of information in the buying center. Buying Situations and the Buying Center: • the number of people in the buying center largely depends on the specific buying situation these are called buy classes: ◦ New Buy: ▪ The organization is a first time buyer of the product or service. ▪ Involves greater potential risk in the purchase, so the buying center is enlargers to include all those who have a stake in the new buy ◦ Straight Rebuy: ▪ The buyer or purchasing manager reorders an existing product or service from the list of acceptable suppliers, probably without even checking with users or influences from the engineering, production or quality control departments ◦ Modified Rebuy: ▪ the users, influencers or deciders in the buying center want to change the product specifications, price, delivery schedule or supplier Charting the Organizational Buying Process • Organizational Buying Behavior: ◦ is the decision making process that organizations use to establish the need for products and services and identify, evaluate and choose among alternative brands and suppliers. Stages in the Organizational Buying Process: • Problem Recognition ◦ make- buy decision: an evaluation of whether components and assemblies will be purchased from outside suppliers or built by the company itself • Information Search ◦ Value analysis • Alternative Evaluation ◦ Bidders list: a list of firms believed to be qualified to supply a given item • Purchase Decisions • Post Purchase Behavior • Firms selling to organizations must 1. Understand the organizations needs 2. Get on the right bidders list 3. Find the right people in the buying center 4. Provide value to organizational buyers Online Buying in Organizational Markets: • Online buying in organizational markets is prominent for three major reasons: 1. Organizational buyers depend heavily on timely supplier information that describes product availability, technical specifications, application uses, price and delivery schedules. This information can be conveyed quickly via Internet. 2. This technology has been shown to substantially reduce buyer order processing costs. 3. Business marketers have found that Internet technology can reduce marketing costs, particularly sales and advertising expense, and broaden their potential customer base for many types of products and services Emarketplace: Virtual Organizational Markets: • a significant development in organizational buying has been the creation of online trading communities called emarketplaces. • Can be independent trading communities or private exchanges. ◦ Independent emarketplaces at as a neutral third party and provide and Internet technology trading platform and centralized market that enable exchanges between buyers and sellers ◦ They charge a fee for their service and exist in settings that have one or more of the following feature: ▪ thousands of geographically dispersed buyers and sellers ▪ volatile prices caused by demand and supply fluctuations ▪ time sensitivity dye to perishable offerings and hanging technologies ▪ easily comparably offerings between a variety of sellers ◦ Large companies tend to favor private exchanges that link them with their network of qualifies suppliers and customers. ▪ Private exchanges focus on streamlining a company’s purchase transactions with its suppliers and customers. ▪ Like independent emarketplaces, they provide a technology trading platform and central market for buyer- seller interactions. ▪ They are not a neutral third party, instead represent the interests of their owners. OnlineAuctions in Organizational Markets: • TraditionalAuction ◦ a seller puts an item up for sale and would- be buyers are invited to bid in competition with each other. ◦ As more would be buyers become involved there service upward pressure on bid prices because bidding is sequential. • ReverseAuction ◦ a buyer communicated a need for a product or service and would be suppliers are invited to bid in competition with each other ◦ as more would be suppliers become involved, there is a downward pressure on bid prices for the buyers business Chapter 9: Market Segmentation, Targeting, and Positioning Key terms: Market segmentation: involves aggregating prospective buyers into groups that; 1- Have common needs 2- Respond similarly to a marketing action Market Segments: the relatively homogenous groups of prospective buyers that result from the market segmentation process Product differentiation: involves a firm using different marketing mix activites to help consumers perceive the product as different and better than competing products Marketing product grid: a framework to relate the market segments of potential buyers to products offered or potential marketing actions Usage rate: the quantity consumed or store visits during a specific period 80/20 rule; the concept that suggests 80% of a firm’s sales come from 20% of its customers Product Positioning: refers to the place a product occupies in consumers’minds on important attributes relative to competitive products Product repositioning: changing the place a product occupies in a consumer’s mind relative to competitive products Perceptual map: a means of displaying or graphing in 2D the location of products or brands in the minds of consumers Steps in Segmenting and Targeting Markets: 1. Group potential buyers into segments 2. Group products to be sold into categories 3. Develop a market-product grid and estimate size of markets 4. Select target markets 5. Take marketing actions to reach target markets Segmentation: • Stresses the importance of grouping people/organizations based on similar needs and wants • Market different products to high income and low income families • When expenses are greater than the potential benefits, a firm should NOT segment • Segmentation Strategies: o One product in multiple market segments  Magazines/books o Multiple prodcuts in multiple segments  Cars, SUVs, trucks o Only one segment (mass customization) • Trade-off: Synergies vs. Cannibalization o Organizational synergies: the increased customer value achieved through performing organizational functions such as marketing or manufacturing efficiently o Cannibalization: new products stealing customers/sales from older products  To avoid this companies inact a “Tiffany/Walmart” strategy • Variations of the same product offered to high end segments and low end segments o Example: Bannana Republic Jeans vs. Old Navy Jeans • Criteria for Segmentation: o Simplicity and cost effectiveness of assigning potential buyers to segments o Potential for increased profit o Similarity of needs of potential buyers within a segment o Difference of needs of potential buyers within a segment o Potential marketing action to reach a segment • Ways to segment: 1. Geographic segmentation 2. Demographic segmentation (gender, race, age) 3. Psychograpic segmentation (personality, lifestyle) 4. Behavioural segmentation (observable attitudes or actions) • Geographic segmentation is the most used form and psychographic is the least used • Specific Examples of each on page 148 Selecting Target Markets: • Criteria used: o Market size o Expected growth o Competitive position o Cost of reaching the segment o Compatibility with the organization’s objectives and resources Positioning the Product: • Head-to-head: involves competing directly with competitors on similar product attributes in the same target market • Differentiation positioning: involves seeking a less-competitive, smaller market niche in which to locate a brand • Using perceptual maps: 1. Identify the important attributes for a product or brand class 2. Discover how target customers rate competing products or brands with respect to these attributes 3. Discover where the company’s product/brand is on these attributes in the minds of potential customers 4. Reposition the company’s product or brand in the minds of potential customers Chapter 10: Developing New Products and Services ALook at Goods, Services and Ideas What are products and services? • Aproduct is a good, service or idea consisting of a bundle of tangible and intangible attributes that satisfies a consumers needs and is received in exchange for money or some else of value • Agood: has tangible attributes that a consumer's five senses can perceive. May also have intangible attributes consisting of its delivery or warranties and embody more abstract concepts, such as becoming healther or wealthier. Goods can also be divided into durable and nondurable goods. ◦ Durable goods usually last over many uses, such as cars, appliances and cell phones. (more likely to do personal selling) ◦ Non durable goods consumed in one or few uses such as food, and fuel. (relies heavily on consumer advertisement) • Services: intangible activities or benefits that an organization provides to satisfy consumers needs in exchange for money or something else of value. 40% of the US domestic gros product. • Idea: a thought that leads to a product or action Classifying Products • Consumer Products: products purchased by the ultimate consumer • Business Products: products organizations buy that assist in providing other products for resale ◦ some products can be considered both (apple computers) Business Products: • sales are often the result of derived demand: sales of business products frequently result (or are derived) from the sale of consumer products ◦ eg. as the demand for Ford cars (a consumer product) increases, the company may increase its demand for paint spraying equiment (a business product) • may be classified as components or support products ◦ eg. installations, accessory equipment, supplies, industrial services. Product Items, Product Lines and Product Mixes • Product Item: a specific product that has a unique brand, size or price. ◦ eg. Ultra Downy softener comes in several sizes, each size is a seperate SKU, which is a unique identfication number that defines an item for ordering or inventory purposes • Product Line: a group of product or service items that are closely related because they satisfy a class of needs, are used together, are sold to the same customer group, are distributed through the same outlets or fall within a given range. ◦ Nike's products line inclues shoes and clothing, each product line has its own marketing strategy. • Product Mix: offered by many firms and consists of all the product lines offered by an organization. How Marketing Dashboards Can Improve New Product Performance: • shows how marketers measure actual market performance versus the goals set in new product planning. New Products and Why they Succeed or Fail What is a new product? • Newness Compared with exisiting products: ◦ if a product is functionally different from exisiting products it can be defined as new • Newness from the consumers perspective: ◦ a second way to define new products is in terms of their effects on consumption ◦ Continuous innovation: consumers dont need to learn new behaviour: ▪ Toothpaste manufacturers can add new attributes or features like “whitens teeth” or “removes plaque” when they introduce a new or improved product. But the exrta features of the toothpaste do not require buyers to learn new tooth brushing skills ◦ Dynamically Continuous Innovation: consumers need to make minor changes in behavior ▪ Ketchups new squeeze bottle vs the classic glass. ◦ Discontinuous Innovation: consumers need to totally change behvaiour towards product ▪ new wireless router • Newness in Legal Terms: a product within six months of entering regular distribution ◦ the difficulty with this is what is defined as “regular” distribution • Newness from an Organization's Percpective: successful or
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