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RSM250 Final Exam Notes

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Department
Rotman Commerce
Course
RSM250H1
Professor
Min Zhao
Semester
Fall

Description
RSM250 – Marketing Exam Notes CHAPTER 1 Marketing is managing profitable customer relationships  2-fold goal: attract new customers by promising superior value and to keep and grow current customers by delivering satisfaction  Must take care of customer , market share, and profits will follow  Satisfying customer needs in a socially responsible and ethical manner  Peter Tucker ‘ aim of marketing is to make selling unnecessary’ o Selling and advertising only part of marketing mix Marketing Mix = a set of tools used to satisfy customer needs and build lasting customer relationships Marketing Process Diagram Understand Construct a Build Capture the market Design a marketing profiatble value from place & customer- program that relationships customersto driven customer market delivers and create create profts needs and strategy superior customer & customer wants value delight equity Create value for customers & Capture value from customers in return build customer relationships -Needs -Who will we -Price -CRM -Customer -Wants serve? -Product -Are we creating lifetime value -Demands -How will we -Place - value? -Share of be different? Promotion -Are our customers customers -Customer Core Customer & Marketplace Concepts satisfied? equity 1. Customer Needs, Wants & Demands  Needs = states of felt deprivation  Wants = form human needs take as shaped by culture and individual personality  Demands = human wants that are back by buying power 2. Market Offering = some combination of products, services, info, entities, places, organizations, ideas or experience offered to a market to satisfy a need or want  Marketing Myopia = mistake of paying more attention to the specific products a company offers than to the benefits and experience produced by these products o Forget that product is only a tool to solve a consumer problem 3. Customer Value and Satisfaction  Customers from expectation about the value and satisfaction that various marketing offerings will deliver and buy accordingly  Satisfied customer  tell other and buy again  Dissatisfied customer  switch to competitors  Must set the right expectations as value & customer satisfaction is key building block for developing & managing relationships 4. Exchanges & Relationships  Exchange = the act of obtaining a desired object from someone by offering something in return (this is the ‘response’ marketers are looking for with their target audience) 1 | P a g e  Goals: retain customers (maintain desirable exchange relationships), grow business, attract new customers 5. Markets  Market = set of all actual and potential buyers of a product or service  Managing markets to bring profitable relationships  Seller search for buyers  identify needs  design good  set price  promote  store & deliver  Core marketing activities: consumer research, product development, communication, distribution, pricing, service Marketing System Company Suppliers Marketing Consumers Intermediaries Competitors Major Environmental Forces Designing a Customer Driven Marketing Strategy  Market management = as the art and science of choosing target markets and building profitable relationships with them => customer management and demand management o Aims to find, attract, keep and grow target customers by creating, delivering, and communication superior customer value  Must answer 2 questions: what customers will we serve? How can we serve these customers best? Selecting Customers to Serve  Use market segmentation, then selecting a target market  Some companies like electricity companies actually want to reduce the demand not increase it Choosing a Value Proposition  Value proposition = is the set of benefits or values it promises to deliver to consumers to satisfy their needs, these differentiate one brand from another Market Management Orientations  Design strategies that will build profitable relationships  5 alternative concepts under which organizations design and carry out marketing strategies 1. The Production Concept = idea that consumers will favour products that are available and highly affordable and that the organization should therefore focus on improving production and distribution efficiency (oldest orientation that guides sellers)  Ex. Lenovo dominates Chinese market with low labour costs, high production efficiency, mass distribution  Risk: focusing too narrowly on operations lose sign of real objectives -> satisfy customer need & build customer relationships 2. The Product Concept = idea that consumers will favour products that offer the most quality, performance, and features that the organization should therefore devote its energy to making continuous product improvement  Risk: lead to marketing myopia, building a better product for a problem is not always the ‘best’ solution to that problem (ex. Mouse trap) 2 | P a g e 3. The Selling Concept = idea that consumers will not buy enough of the firm’s products unless it undertakes a large-scale selling and promotions effort  For un-sought goods (things they don’t really think of, ex giving blood)  Risk: aggressive selling focuses on creating sales transactions rather than building profitable relationships  Often selling what company makes rather than creating what consumers want  Assumes customers will eventually buy it 4. The Marketing Concept = marketing management philosophy that achieving organizational goals depends on knowing the needs and wants of target market and delivering the desired satisfactions better than competitors do  Uses concept that customer focus and value are the paths to sales and profits. Customer centered “sense and respond”  Find right product of customer (not right customer for product)  Works well when clear need exists and customers know what they want Selling Concept Vs. Marketing Concept Profits Starting Factor Focus Existing Means Selling & Ends through Point Products promoting sales volume Profits Starting Market Focus Consumer Means Intergrated Ends through Poing needs marketing Cusotmer Statisfaction 5. The Societal Marketing Concept = idea that a company’s marketing decisions should consider consumers’ wants, the company’s requirements, consumers’ long-run interests, and society’s long-run interests  Concept: marketing strategy should deliver value to customers in a way that maintains or improves both the consumer’s and society’s well-being  Ex. Water bottles satisfy short-term consumer needs but bad for long-term  Need to balance 3 considerations: company profits, consumer wants, society interest Customer Relationships  3 marketing steps (understanding marketplace and customer needs, designing a customer- driven marketing strategy, constructing marketing programs) lead to  building profitable customer relationships Customer Relationship Management (CRM) = overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction  Deals with aspects of acquiring, keeping, growing customers  Building blocks: 1) Customer value o Customer-Perceived Value = customer’s evaluation of the difference between all the benefits and all the costs of a market offering relative to those of competing offers 3 | P a g e 2) Customer Satisfaction = extent to which a product’s perceived performance matches a buyer’s expectations o Customer-centered seeks to deliver high customer satisfaction relative to competitors, but does not seek to maximize customer satisfaction o Balance of price and customer value Customer Relationship Levels & Tools  Low margin companies form basic relationships (uses brand-building, advertising, sales promotion, websites  High margin companies want to create full partnerships with key customers  Frequency marketing programs  reward customer who buy frequently or in large amounts  Club marketing programs  offer members special benefits and create communities  Past used mass marketing now use deeper and more direct lasting relationships  Selective relationship management  targeting fewer, more profitable customers  Once identify profitable customer can create attractive offers and special handling to earn the loyalty  2 way customer relationship  Deep nature of customer relationships due to rapidly changing communication environment  “becoming part of the conversation between consumers”  New communication tools create relationships building opportunities for marketers but also challenges  gives consumers greater power and control  Companies can no longer rely on marketing by ‘intrusion’, must practise marketing by ‘attraction’ o creating market offering and messages that involve customer not interrupt them  Consumer-generated marketing = marketing messages, ads, and other brand exchanges created by consumers themselves –both invited and uninvited Partner Relationship Management = working closely with partners in other company departments and outside the company to jointly bring greater value to customers  Old thinking  marketing done by marketing, sales, customer-support people  Today  every functional area can interact with customers, “every employee must be customer-focused” o Companies linking all departments in the cause of creating customer value  Through supply chain management, companies strengthen their connection with partners all along the supply chain  Success at building customer relationships also rests on how well entire supply chain performs against competitors’ supply chain Capturing Value from Customers  Aim of customer relationship management is to create not just customer satisfaction but customer delight  Realize that losing a customer means losing more than a single sale, losing entire stream of purchases from that customer  Customer lifetime value = value of the entire stream of purchases that a customer would make over a lifetime of patronage Growing Share of Customers  Share of customers = portion of the customer’s purchasing that a company gets in its product categories o ex. Restaurants want share of stomach, car companies want share of garage  increase ‘share of customer’ by offer greater variety, or cross-sell, up-sell 4 | P a g e Building Customer Equity  companies want not only to create profitable customers, but to “own” them for life, earn a greater share of their purchases, and capture their customer lifetime value  Customer equity = total combined customer lifetime values of all the company’s customers, reflects the future o more loyal customer  higher firm’s customer equity  view customers as asset that need to managed and maximised  company can classify customers according to their potential profitability and manage its relationships with them accordingly  “Stranger”  shows low potential profitability and little projected loyalty, there is little fit between the company’s offering and their needs. The relationship management strategy for these customers is simple, “don’t invest anything in them”  “Butterflies”  potentially profitable but not loyal, good fit between company offering and their needs. Like butterflies enjoy themselves then gone, effort to convert butterflies to loyal customers is unsuccessful. Enjoy butterflies while they are here and set promotions to attract them  “True Friends”  profitable and loyal, strong fit, firm should make continuous relationship investments the nurture, retain, and growth. Want to convert them from true friends into ‘true believers’  “Barnacles”  highly loyal but not very profitable, limited fit between their needs and the company’s offerings, create drag  Different types of customers require different relationship management strategies.  Goal is to build the right relationships with the right customers Customer Segmentation: Capturing Value Chapter 2 – Company and Marketing Strategy Partnering to Build Customer Relationships Company Strategic Planning: Defining Marketing’s Role  Strategic Planning = the process of developing and maintaining a strategic fit between the organization’s goals and capabilities and its changing marketing opportunities  Strategic plans involves adapting the firm to take advantage of opportunities in its constantly changing environment  Planning occurs at the business-unit, product and market levels  It supports company strategic planning with more detailed plans for specific marketing opportunities (blue  corporate level, orange  business unit, product, and market level) Steps in Strategic Planning Setting company Planning Defining the objectives and Designing the other functional company Mission goals business portfolio strategies 5 | P a g e 1. Defining a Market-Orientated Mission o Mission statement = statement of the organization’s purpose – what it wants to accomplish in the larger environment  Should be market orientated an defined in terms of satisfying basic customer needs  Should emphasize the company’s strengths in the marketplace  Statement should make employees feel that that their work is significant and that it contributes to people’s lives 2. Setting Company Objective & Goals o Turn mission into detailed supporting objectives for each level of management o Each broad marketing strategy must then be defined in greater detail o Firm’s mission is translated into set of objective for the current period 3. Designing the Business Portfolio o Business portfolio = collection of businesses and products that make up the company  Business portfolio is one that best fits the company’s strengths and weakness to opportunities in the environment  Involves 2 steps: 1) company analyze its current business portfolio and decide which should receive less/more/none. 2) shape the future portfolio by developing strategies for growth and downsizing o Portfolio analysis = the process by which management evaluates the products and business that make up the company  then decide whether to add/less/none resources  Identify which key business that makes up the company’s “Strategic Business Unit (SBU)” o Boston Consulting Group Approach, classifies Strategic Business Unit Classification all SBU according to the: o Growth-share Matrix = portfolio-planning method that evaluates a company’s strategic business units in terms of its market growth rate and relative o Market share. SBUs are classified as stars, cash cows, question marks or dogs o “Stars”  high-growth, high-share business products, often need heave investments to finance rapid growth. Eventually the growth will slow down and they will turn into cash cows o “Cash Cows”  low growth, high-share businesses or products, established and success SBUs need less investments to hold their market share. They produce a lot of cash that the company uses to pay bills or investments o “Question Marks”  low-share business units in high-growth markets. They require a lot of cash to hold their share, let alone increase it. Decide if want to build to star or should be phased out 6 | P a g e o “Dogs”  low growth, low-share business and products. May generate enough cash to maintain themselves but do not promise large sources of cash o Problems with matrix approaches: difficult, time consuming, costly to implement, difficult to define SBUs and measure market share growth, focus on classifying current business but nothing about the future planning Designing Strategies for Growth and Downsizing  Find business/product the company should consider in the future  Marketing needs to identify, evaluate and select market opportunities, set strategies for them  Product/market expansion grid = a portfolio-planning tool for identifying company growth opportunities through market penetration, market development, product development, or diversification o Market Penetration = a strategy for company growth by increasing sales of current products to current market segments without changing the product  Ex. Tims  mass outlets, increased awareness/brand, idea of coffee in morning, increased convenience o Market Development = a strategy for company growth by identifying and developing new market segments for current company products  Review new demographic markets o Product Development = a strategy for company by offering modified or new products to current market segments o Diversification = a strategy for company growth through starting up or acquiring businesses outside the company’s current products and markets  Downsizing = reducing the business portfolio by eliminating products of business units that are not profitable or that no longer fit the company’s overall strategy Product Market Expansion Grid Market Strategy and the Marketing Mix  Marketing Strategy = marketing logic by which the business unit hopes to create customer value and achieve profitable customer relationships Managing Market Strategies and the Marketing Mix (p.51)  Market Segmentation  market targeting  differentiation  positioning  Designs an integrated marketing mix – product, price, place, promotion Customer-Driven Marketing Strategy  Must be customer centred  Must win customer from competitors, then keep and draw them by delivering greater value  Must first fully understand the needs and wants of consumers  Market Segmentation = dividing a market into distinct groups of buyers who have different needs, characteristics, or behaviours and who might require separate products or marketing programs o Market segment = a group of consumers who respond in a similar way to a given set of marketing efforts  Market Targeting = the process of evaluation each market segment’s attractiveness and selecting one or more segments to enter 7 | P a g e o Market niches = one or a few special segments o Most companies enter new markets by serving a single segment then add more  Market Differentiation and positioning o A product’s position is the place the product occupies relative to competitor’s products in consumers’ minds o Positioning = arranging for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers o Differentiation = actually differentiating the market offering to create superior customer value Developing an Integrated Marketing Mix  Marketing mix = is the set of controllable, tactical marketing tools – product, price, place, promotion – that the firm blends to produce the responses it wants in the target market o “product”  good or service combination the company offers to the target market o “price”  amount of money customers must pay to obtain the product o “place”  includes company activities that make the product available to target consumers o “promotion”  means activities that communicate the merits of the product and persuade target consumers to buy it  Integrated Marketing Program = is a comprehensive plan that communicates and delivers the intended value chosen to customers  Main concern is that 4 p’s takes the seller’s point of view not buyers  4 C’s customer solution, customer cost, convenience, communication  Customers see themselves as buying value or solutions to their problems Chapter 5 – Managing Market Information to Gain Customer Insights Other Marketing Information Considerations  Customer Insights = Fresh understanding of customers and the marketplace derived from marketing information that becomes the basis for creating customer value and relationships  Use marketing information to develop important customer insights from which the company can create more value for its customers  Must be careful not to become customer controlled, rather understand the core and give them what they need  Marketing Information System (MIS) = people and procedures for assessing information needs, developing the needed information and helping decisions markers to use the information to generate and validate actionable customer and market insights (p.142) Assessing Marketing Information Needs  Designing information system need to consider internal and external  Cost of obtaining, analyzing, storing, and delivering info can be costly  Must decide whether the value of the insights gained from additional info is worth the costs of providing it Developing Marketing Information  Internal Databases = way to info obtain, electronic collections of consumer and market information obtained from data sources within the company’s network o May be incomplete or wrong, data ages quickly, too much info o Often buying service from other companies  Marketing Intelligence = way to obtain info, the systematic collection and analysis of publicly available information about consumers, competitions and developments in the marketing environment (internal) 8 | P a g e o Goal is to improve strategic decision making by understanding the consumer environment, assessing and tracking competitions o Actively monitor competitor’s activities, collect info online, collect info within the company o Now taking steps to protect own info  Market Research = way to obtain info, systematic design, collection, analysis and reporting of data relevant to a specific marketing situation facing an organization (external) Marketing Research Process 1) Defining the problem and Research Objectives o Exploratory Research = marketing research to gather preliminary information that will help define problems and suggest hypotheses o Descriptive Research = marketing research to better describe marketing problems, situations, or markets, such as the market potential for a product or the demographics and attitudes of consumers o Casual Research = marketing research to test hypotheses about cause-and-effect relationships o Research problems and objective defined 2) Developing the Research Plan o Must determine the exact info needed, develop a plan for gathering it efficiently, and present plan to management o Plan outlines sources of existing data,, approaches, contact methods, sampling plans o Secondary Data = information that already exists somewhere, having been collected for another purpose o Primary Data = information collected for the specific purpose at hand 3) Gathering Secondary Data o Company’s internal database provides a good starting point o Can purchase secondary data reports from outside suppliers o Commercial Online Databases = computerized collections of information available from online commercial sources or via the internet o Secondary data can usually be obtained more quickly and at o a lower cost that primary data  Can sometimes be data a company cannot collect on its own (either not directly available or too expensive)  Problems: needed inform may not exist, or obtain all of it o Primary data must be relevant, accurate, current, and unbiased  Research Approaches, Contact Methods, Sampling Plan, Research Instruments 9 | P a g e Research Observational Research = involves gathering primary data by observing relevant Approaches people, actions, and situations  Can obtain info that people are unwilling or unable to provide  Ethnographic Research = a form of observational research that involves sending trained observers to watch and interact with consumers in their “natural habitat” Survey Research = gathering primary data by asking people questions about their knowledge, attitudes, preferences, and buying behaviour  Gathers descriptive information  Advantage = flexibility  Problems = unable to answer, don’t know answer, answer when don’t know, refuse to answer, no time Experimental Research = gathering primary data by selecting matched groups of subjects, fiving them different treatments, controlling other factors and checking for difference sin group responses  Explains the cause-and-effect relationships Contact Mail Methods  Mail  low cost, lots info, may get more honest answers, not flexible, usually take long time, return rate is low, hard to control sample Telephone  Telephone  one of best methods, quick, some flexibility, higher respond rates, higher costs, interview bias, Personal Interview  Personal Interview  individual/group style, flexible, explain difficult questions, explore issues, cost 4 times telephone, good for gaining fresh new insight  disadvantage – small samples, cost high, hard to generalize results)  Focus groups interview = personal interviewing that involves inviting 6-10ppl to gather for a few hrs with a trained interviewer to talk about a product, service, or organization Online  Online Marketing Research = collecting primary data online through internet surveys, online focus groups, web-based experiments, or tracking consumers’ online behaviours  Create online surveys with incentives  Cheap, fast results, easy to complete, reaches hard to reach groups, less intrusive, collect both qualitative and quantitative, lacks real-world dynamics of more personal approaches  Online focus groups = gathering a small group of people online with a trained moderator to chat about a product, service, or organization and gain qualitative insights about consumer attitudes and behaviours Sampling Plan Sample Unit/Size/Procedure  Sample = a segment of the population selected for marketing research to represent the population as a whole  3 decisions: Who is surveyed? What sample size? How should people be chosen? 10 | P a g e  Probability Sample = each population member has a known chance of being included in the sample, can calculate confidence limits for sampling error - Simple Random Sample = every member of population has known and equal chance of selection - Stratified Random Sample = population is divided into mutually exclusive groups (such as age groups), and random samples are drawn from each group - Cluster (area) Samples = population is divided into mutually exclusive groups (such as blocks), and the researcher draws a sample of the groups to interview  Non Probability Sample - Convenience Sample = researcher selects the easiest population members from which to obtain information - Judgement Sample = researcher uses his or her judgement to select population members who are good prospects for accurate information - Quota Sample = researcher finds and interviews a prescribed number of people in each of several category Research Questionnaire Instruments  Done by phone, in person, online  Flexible – many ways to ask questions  Closed ended which includes all answers (better for quantitative data)  Open ended with no answers useful for exploratory research (finding out what)  Caution in numbering and wording of question Mechanical Instruments  Monitor consumer behaviour  Ex. Checkout scanners o Implementing the research plan, process, analyze date to identify findings 4) Interpreting and reporting the Findings o Should present important findings and insights that are useful in the major decisions faced by management o Best research means little if the manager blindly accepts faulty interpretations from the researcher o Researcher and management must work together when interpreting research so both have responsibility for resulting decision Test Marketing = the stage of new-product development in which the product and marketing program are tested in realistic marketing settings  Product concept  product test  test marketing  Lets company test the product and the 3 other P’s  Disadvantage: takes time may allow competitors to gain advantage, costly o Standard Test Markets  Most commonly used  Finds small number of representative test cities, conducts a full marketing campaigns, uses store audits/surveys to gauge performance, used to predict national sales and profits, fine-tune marketing, fix product  Disadvantage costly, competition can disturb findings 11 | P a g e o Controlled Test Markets  Keep controlled panels of stores that have agreed to carry new products for a fee  Controlled marketing systems track individual consumer behaviour for new products from the television set to the check-out counter  Advantage: Creates more accurate sales forecasts, Allows companies to evaluate their specific marketing efforts, Generally costs less than standard test markets, retail distribution is “forced” which allows quicker results  Disadvantage: allow competition to see product o Simulated Test Markets  Show ads to consumers, gives them money, invites them to real/lab store, tell them to buy or keep money, ask reason for purchase, weeks later call back to find out about actual product attitudes, usage, satisfaction, repurchase  Advantage: Cost less, overcome disadvantage of other 2 test, keep new product under wraps, more for ‘pretest’ of product  Disadvantage: possible not accurate for sales b/c small sample size Chapter 6 – Consumer Markets & Consumer Buyer Behaviour 4 Psychological Factors: 1. Motivation  Motive (drive) = a need that is sufficiently pressing to direct the person to seek satisfaction for the need  Sigmund Freud  people are largely unconscious about the real psychological forces shaping their behaviour (people grow up repressing stuff and these create urges that slip) o A person’s buying decisions are affected by subconscious motives that even the buyer may not fully understand  Motivation research probes consumer’s hidden, subconscious motivators which are qualitative researching  Abraham Maslow  sought to explain why people are driven by particular needs at particular times o Human needs are arranged in a hierarchy o Psychological needs  Safety needs  Social needs  Esteem needs  Self- actualization needs 2. Perception = process by which people select, organize, and interpret information to form a meaningful picture of the world  3 perceptual processes: o Selective Attention = tendency for people to screen out most of the information to which they are exposed  marketers must work especially hard to attract the consumer’s attention o Selective Distortion = describes the tendency of people to interpret information in a way that twill support what they already believe  marketers must try to understand the mindsets of consumers and how these will affect interpretations of advertising and sales o Selective Retention = consumers are likely to remember good points made about a brand they favour and forget good points about competing brands  marketers must work hard to get their messages through  Subliminal Advertising = advertising in a way people don’t notice or consciously see 3. Learning = changes in an individual’s behaviour arising from experience 12 | P a g e  Learning occurs through interplay of: (ex. Pg. 196) o Drives – strong internal stimulus that calls for action o Stimulus object o Cues - minor stimuli that determine when, where, and how the person responds o Responses o Reinforcement 4. Beliefs & Attitudes  Beliefs = descriptive thought that a person holds about something  Attitudes = a person’s consistently favourable or unfavourable evaluations, feelings, and tendencies toward an object or idea Types of Buying Decisions Behaviour Complex Buying behaviour = consumers buying behaviour in situation characterized by high consumer involvement in a purchase and significant perceived difference among brands  Highly involved  product expensive, risky, purchased infrequently, high self expressive  Marketers of high involvement products must understand the info-gathering and evaluation behaviour 4 Types of Buying Behaviour Dissonance-reducing Buying Behaviours = consumer buying behaviour in situation characterized by high involvement but few perceived difference among brands  Respond well to good price or convenience b/c product brand all similar  After purchase may experience ‘post purchase dissonance’ which is after sale discomfort  Marketer’s after-sale communications should provide evidence and support to help customers feel good about the choice Habitual Buying Behaviours = consumer buying behaviour in situations characterized by low consumer involvement and few significant perceived brand differences  Stay with same brand out of habit rather than strong brand loyalty  Ad repetition creates brand familiarity rather than brand conviction  Use: price discount or promotion to simulate product trial Variety-Seeking Buying Behaviour = consumer buying behaviour in situations characterized by low consumer involvement but significant perceived brand differences  Lots of brand switching for sake of variety rather than dissatisfaction Buyer Decision Process 1. Need Recognition = consumer recognizes a problem or need o Need can be triggered by internal or external stimuli 2. Information Search = the stage of the buyer decision process in which the consumer is aroused to search for more information, the consumer may simply have heightened attention or may for into an active information search 13 | P a g e o Consumer attain info from: personal sources, commercial sources, public sources, experiential sources o Commercials inform buyer but personal sources legitimize or evaluate products 3. Evaluation Alternatives = consumer uses information to evaluate alternative brands in the choice set o Find out how customers evaluate the competition 4. Purchase Decision = buyer’s decision about which brand to purchase o Customer ranks brands and forms purchase intentions o 2 factors come between purchase intention and decision: attitudes of others & unexpected situational forces 5. Postpurchase Behaviour = consumers take further action after purchase based on their satisfaction or dissatisfaction o Relationship between consumer’s expectations and product’s perceived performance o Cognitive dissonance = buyer discomfort caused by postpurchase conflict (usually all major purchases) o Set up a system that encourages customers to complain, helps company improve The Buyer Decision Process for New Products  New product = is a good, service, or idea that is perceived by some potential customer as new  Adoption Process = mental process through which an individual passes form first hearing about an innovation to final adoption Stages in Adoption Process  Awareness: consumer becomes aware of the new product but lacks information  Interest: consumer seeks info  Evaluation: considers whether trying new product makes sense  Trial: tries new product on small scale to improve his/her estimate of its value  Adoption: consumer decides to make full and regular use of new product Individual Differences in Innovativeness  Innovators: venturesome, try new ideas at some risk  Early Adopters: guided by respect – they are opinion leaders in their communities and adopt new ideas early but carefully  Early Majority: deliberate – although they are rarely leaders, they adopt ideas before avg person  Late Majority: sceptical – adopt an innovation only after a majority of people have tried it  Laggards: tradition bound – suspicions of changes and adopt innovation only when it becomes something of tradition itself Influence of Product Characteristics on Rate of Adoption  Relative Advantage: degree to which the innovation appears superior to existing products, better advantages increase rate  Compatibility: degree to which the innovation fits the values and experiences of potential consumers, higher compatibility increase rate 14 | P a g e  Complexity: the degree to which the innovation is difficult to understand or use, more complex the slower the rate  Divisibility: degree to which the innovation may be tried on a limited basis, price determines the rate  Communicability: degree to which the results of using the innovation can be observed or described to others  Other: initial & ongoing costs, risk and uncertainty, social approval Chapter 8 Customer-Driven Marketing Strategy: Creating Value for Target Customers Market Segmentation  Geographic Segmentation = dividing a market into different geographical units such as nations, regions, provinces, countries, cites or neighbourhoods o Very important especially for Quebec o Ex. World region, country, region, city, density, climate  Demographic Segmentation = dividing the market into groups based on variables such as age, gender, family size, family life cycle, income, occupation, education, religion race, generation, and nationality o Age and Life-cycle Stage = dividing market into different ages and life cycle market for them differently o Gender Segmentation = dividing market based on gender o Income = dividing market into income groups o Ex. Age, gender, family size, family-life cycle, income, occupation, education, religion, ethnic origin, generation  Psychographic Segmentation = divining a market into different groups based on social class, lifestyle, or personality characteristics o Looks at lifestyles and personality variables  Behavioural Segmentation = dividing a market into group based on consumer knowledge, attitudes, uses, or responses to a product o Occasion segmentation = dividing market into groups according to occasions when buyers get the idea to buy, actually make their purchases, or use the purchased item o Benefits segmentation = dividing the market into groups according to the different benefits that consumers seek from the product o User Status = markets can be segmented into nonusers, ex-users, potential uses, first- time users, regular users o Usage Rate = segmented into light, med, heavy product users o Loyalty Status = by customer loyalty to brands, stores, companies  Using Multiple Segmentation Bases o Uses multiple in an effort to identify smaller, better-defined target groups Requirements for Effective Segmentation  Measurable  segments can be measured  Accessible  segments can effectively reached and served  Substantial  segments are large or profitable enough to serve  Differentiable  segments are conceptually distinguishable and respond to 4P’s  Actionable  effective programs designed for attracting and serving the segments Market Targeting Evaluation Market Segments  3 factors: segment size and growth, segment structural attractiveness, and company objectives and resources 15 | P a g e Selecting Target Market Segments  Target Market = set of buyers sharing common needs or characteristics that the company decides to serve Micromarketing Undifferentiated Differentiated Concentrated (local or (mass) Marketing (segmented) (niche) Marketing individual Marketing marketing) Targeting Broadly Targeting Narrowly  Undifferentiated Marketing =Marketing coverage strategy in which a firm decides to ignore market segments difference and go after the whole market with one offer o Mass marketing strategy focuses on common needs of consumer rather than differences  Differentiated Marketing = a market coverage strategy in which a firm decides to target several market segments and designs separate offers for each o By offering product and marketing variation to segments, companies hopes for higher sales and a stronger position with each market segment  Concentrated Marketing = a market coverage strategy in which a firm goes after a large share of one or a few segments or niche o It can market more efficiently by fine-tuning its products, prices, and program to the needs of carefully defined segment o Market more efficiently targeting its products or services, channels, and communications programs toward only consumers that it can serve best and most profitably o Concentrated marketing can be highly profitable but involves high risks  Micromarketing = the practice of tailoring products and marketing programs to the needs and wants of specific individuals and local customer groups – includes local marketing and individual marketing o Local Marketing = tailoring brands and promotions to the needs and wants of local customers groups – cities, neighbourhoods, and even specific stores  Disadvantage: drive up manufacturing & marketing costs, lots of logistic problems, overall image of company may be diluted o Individual Marketing = tailoring products and marketing programs to the needs and preferences of individual customers – also labelled “mass customization” and “markets- of one marketing” and “one to one marketing” Choosing a Target Strategy  Best strategy depends on company resources, product variability, product life cycle, market variability  Limited resources  concentrated marketing makes most sense  Uniform products  undifferentiated marketing  Products with varying design  differentiation or concentration  New product & only version  undifferentiated or concentrated  Mature stage  differentiated marketing  Buyers have same taste, buy same amount, react same way -> undifferentiated marketing  Competitors use concentrated or differentiated using undifferentiated is suicidal 16 | P a g e Socially Responsible Target Marketing  Smart targeting is efficient and effective by focusing on segments that they can best satisfy and most profitability  Target market sometimes generate controversy and concern, biggest issues usually involve the targeting of vulnerable or disadvantaged customers with controversial or harmful products  Ex. Advertising to children both a product for them (toy) or not (adult pills)  In target marketing, the issue is not really who is targeted but rather how and for what Differentiation & Positioning  Company must decided on value proposition – how it will create differentiated value for targeted segments and what position it wants to occupy  Product position = the way the product is defined by consumers on important attributes – the place the product occupies in consumers’ minds relative to competing products Position Maps = which show consume perceptions of their brands versus competing products on important buying decisions Choosing a Differentiation and Positioning Strategy 3 steps to differentiation and positioning: 1) Identifying Possible Value Differences & Competition Advantages o Competitive Advantage = and advantage over competitors gained by offering greater customer value, either through lower prices or buy providing more benefits that justify higher prices o Can differentiate along the lines of: product, services, channels, people, image o Product differ  features, performance, style, design o Service differ  speedy, convenient, customer care, or careful delivery o Channel differ  design their channel’s coverage, expertise, performance o People Differ  hiring and training people o Image differ  broad image should convey the product’s distinctive benefits and positioning 2) Choosing the Right Competitive Advantage o Decide how many differences to promote and which ones o Develop a unique selling proposition (USP) for each brand and stick to it o A difference is worth establishing to the extent that it satisfies the following criteria:  Important: the difference delivers a highly valued benefit to target buyers  Distinctive: competitors do not offer the differences, or the company can offer it in a more distinctive way  Superior: the difference is superior to other ways that customers might obtain the same benefit  Communicable: the difference is communicable and visible to buyers  Pre-emptive: competitors cannot easily copy the differences  Affordable: buyers can afford to pay for the differences  Profitable: the company can introduce the difference profitability 3) Selecting and Overall Positioning Strategy o Value Proposition = the full positioning of a brand – the full mix of benefits upon which it is positioned o More for Mores = involves providing the most upscale product or services and charging a higher prices to cover the higher costs  Customers sometimes surprised/delighted when new competitor enters with unusually high-priced brand 17 | P a g e  Luxury goods sell well during good times but may be risk during economic downturns o More for the Same = brand offering comparable quality but at a lower price (ex. Lexus and Toyota) o The Same for less = offering same quality for less pries, creates “category killers” b/c get deeper discounts o Less for Much less = offer less and therefore cost less, few people need, want, or can afford “the very best” in everything, involves meeting consumers’ lower performance of quality requirements at a much lower costs o More for Less = very difficult to sustain such best-of-both position, offering more costs more so it’s hard to keep on the ‘for less’ Developing a position Statement  Position Statement = a statement that summarizes company or brand positioning – it takes this form: to (target segment and need) our (brand) is (concept) that (point of difference) Communicating and Delivering the Chosen Position  Marketing mix efforts support positioning strategy  Must first deliver that position, then must maintain position, adapt to changes Chapter 9 Products, Services, and Brands – Building Customer Value What is a Product Product = anything that can be offered to a market for attention, acquisition, use that might satisfy a want or need (both intangible and tangible) Services = any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything Product & Service Decisions  Product is a key element in the overall market offering  Market-mix planning begins with building an offer that brings value to target customers which becomes the basis upon which the company builds profitable customer relationships  Now companies differentiating not just product/service but managing customer experience with their brands Levels of Product and Services  Need to think about products and services on three levels, where each level adds more customer value  Basic level: Core Customer  addresses the question “what is the buyer really buying”  when designing products, marketers must first define the core, problem-solving benefits or service that consumers seek  Second level: Actual Product  turn core benefit into an actual product o Develops: brand name, quality level, features, design, features Levels of “Product”  Final level: Augmented Product  offering additional consumer services and benefits o Develops: deliver & credit, installation, warranty, after-sale service  Thus  first identify core customer value that customers seek, design the actual product, and augment it to create customer value and satisfying experience 18 | P a g e Product & Service Classification  Either consumer products or industrial products  Industrial Products = purchased for further processing or for use in conducting a business o Classified by purpose: Material & Parts, Capital, Raw Materials  Consumer Products = products/service bought by final consumers for personal consumption  Consumer products further split to: o Convenience Products = product that customers usually buy frequently, immediately, and with a minimum of comparison and buying effort  Products are low priced, widespread, readily available  Ex. Food o Shopping Products = product that the customer, in the process of selection and purchase, usually compares on such bases as suitability, quality, price, and style  Products more expensive then convenience, selective distribution  Ex. Detergent, chocolate o Specialty Products = product with unique characteristics of brand identification for which a significance group ob buyers is willing to make a special purchase effort  High price, exclusive distribution  Ex. Luxury Cars o Unsought Products = product that the consumer either does not know about of knows about but does not normally think of buying  Uses aggressive advertising and personal selling  Ex. Encyclopedia Britannica  Business Products = product bought by individuals and organizations for further processing or for use in conducting business o Materials & Parts = include raw materials and manufactured material and parts  Raw materials: consist of farm products (wheat, cotton, live stock, fruit), natural products (fish, crude, iron, ore)  Manufactured material and parts: component materials (iron yarn, cement, wires), component parts (small motors, tired, castings) o Capital Items = that aid in buyer’s production or operations, including installations and accessory equipment  Installations: buildings, fixed equipment  Accessory Equipment: portable factory equipment and tools, office equipment (shorter life than installation and simply aid in production process) o Supplies & Services  Supplies: Operation Supplies (lubes, coal, paper, pencil), repair & maintenance items (paint, nails, brooms)  Are convenience product of business field b/c purchased with min effort or comparison  Service: maintenance and repair services and business advisory services  Usually supplied under contract Marketing Considerations for Consumer Products Marketing Type of Consumer Products Considerations Convenience Shopping Speciality Unsought Customer -Frequent purchase, -Less frequent -Strong brand -Little Product Buying little planning, littlpurchase, much preference and awareness or Behaviours comparison or planning and loyalty, special knowledge (or, 19 | P a g e shopping effort, low shopping effort, purchase effort, if even aware, customer comparison of little comparison of little or even involvement brands on price, brands, low price negative quality, style sensitivity interest) Price -Low price -Higher price -High Price -Varies Distribution -widespread -Selective -Exclusive -Varies distribution, distribution in fewer distribution in only convenient locations outlets one or a few outlets per market area Promotion -mass promotion by -Advertising and -More carefully -Aggressive the producer personal selling by targeted promotion advertising and both producer and by both producer personal selling reseller and reseller by producer and resellers Examples -toothpaste, -major appliance, -Luxury goods, such -Life insurance, magazines, laundry televisions, furniture, as Rolex watches of blood detergent clothing fine crystal donations Product & Service Decisions  Markets make product & service decisions at 3 levels: 1. Individual Product & Service Decisions Individual Product & Service Decisions  Product & Service Attributes i. Product Quality = characteristic of a product or service that bear on its ability to satisfy stated or implied customer needs  Marketer’s major position tool  Has direct impact on performance of product/service thus closely linked to value & satisfaction  Narrowly defined as ‘freedom from defects’  Total Quality Management (TQM) = an approach in which all the company’s people are involved in constantly improving the quality of products, services, and business process  “return on quality” approach, viewing quality as a
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