Chapter 5: Understanding Marketing Processes and Consumer Behaviour
What is Marketing?
Marketing: planning and executing the development, pricing, promotion and
distribution of ideas, goods and services to create exchanges that satisfy both
buyers and seller’s objectives.
Marketing concept: the idea that the whole firm is directed toward serving present
and potential customers at a profit.
Providing Value and Satisfaction
Value: relative comparison of a product’s benefit versus its costs. The benefits of a
high value product are much higher than its costs.
Benefits: include not only the functions of the product, but also the emotional
satisfactions associated with owning, experiencing or possessing it.
Utility: ability of a product to satisfy a human need or want.
- Value = Benefits / Costs
- Every product has costs, including sales price, the expenditure of the buyer’s time,
and the emotional costs of making a purchase decision.
- The satisfied buyer perceives the benefits derived from the purchase to be greater
than its costs.
- Marketing strategies focus on increasing value for customers.
- Marketing resources are deployed to add value to products to satisfy customer’s
needs and wants.
Value and Utility:
- When a company turns out ornaments in time for Christmas, it creates time utility;
it makes products available when consumers want them.
- When a department store opens its annual Christmas department, it creates place
utility: it makes products available where customers can conveniently purchase
- When the store sells ornaments, it provides ownership utility by conveniently
transferring ownership from store to customer.
- By making products available in the first place – by turning raw materials into
finished ornaments – the ornament creates form utility. Goods, Services and Ideas:
Consumer goods: products purchased by individuals for their own personal use.
Industrial goods: products purchased by companies to use directly or indirectly to
produce other products.
Services: intangible products, such as time, expertise or an activity that can be
Relationship marketing: a type of marketing that emphasizes lasting relationships
with customers and suppliers. An example can be seen in banks offering economic
incentives to encourage longer-lasting relationships.
The Marketing Environment
External environment: outside factors that influence marketing programs by posing
opportunities or threats.
Characteristics of Political and Legal Environments:
- Political activities, both foreign and domestic, have profound effects on business.
- An example can be seen in the legislation of the use of cell phones in cars and the
legislation on pollution, which can determine the destinies of entire industries.
- Marketing managers therefore try to maintain favourable political/legal
environments in several ways such as advertising campaigns for public awareness
on issues, and lobbying and contributing to political candidates.
Characteristics of Social and Cultural Environments:
- Changing social values forced companies to develop and promote new products for
both individual consumers and industrial customers.
Characteristics of Technological Environments:
- New technologies affect marketing in many ways.
- They create new goods and services.
- They also render some existing products obsolete (audio cassettes replaced by
CDs), and also change consumer values and lifestyles
- They also stimulate new goods and services not directly related to the new
Characteristics of Economic Environments:
- Economic conditions determine spending patterns by consumers, businesses and
governments, thus influencing every marketer’s plans for product offerings, pricing
and promotional strategies.
- Among the more significant economic variables, marketers are concerned with
inflation, interest rates, recessions and recovery. - In other words, they must control the general business cycle, which typically
features a pattern of transition from periods of prosperity to recession to recovery
(return to recovery).
- Not surprisingly, consumer spending increases as “consumer confidence” in
economic conditions grows during periods of prosperity.
- Conversely it decreases during low-growth periods when unemployment rises and
purchasing power declines.
Characteristics of Competitive Environments:
- In a competitive environment, marketers must convince buyers that they should
purchase their products rather than those of some other seller.
- There are three types of competitions:
Substitute products: a product that is dissimilar from those of competitors but that
can fulfill the same need.
Brand competition: competitive marketing that appeal to consumer perception of
International competition: competitive marketing of domestic products against
Strategy: The Marketing Mix
Marketing managers: managers responsible for planning and implementing all the
marketing-mix activities that result in the transfer of goods and services to
Marketing plan: a detailed strategy for gearing the marketing mix to meet
consumer needs and wants.
Marketing mix: the combination of products, price, place and promotion strategies
used in marketing a product.
The Four P’s (Product, Price, Place and Promotion)
- A product is a good, service or an idea designed to fill a consumer need or want.
- Conceiving and developing new products is a constant challenge for marketers,
who must always consider the factor of change (changes in technology, consumer
wants and needs, and economic conditions)
- Mass customization allows markets to provide products that satisfy very specific
needs of customers.
- Product differentiation is the creation of a feature or image that makes a product
differ enough from existing product to attract consumers.
- Price refers not only to the actual amount of money that consumers must pay for a
product or service, but also to the total value of things that consumers are willing to
give up in return for being able to have the benefits of the product or service, such
as withdrawal of money from a savings account in order to pay for the product. - From the seller’s perspective, determining the best price at which to sell a product
is often a balancing act.
- On one hand, prices must support a variety of costs – operating, administrative,
research and marketing costs.
- On the other hand, prices cannot be so high that consumers turn to products offered
- Successful pricing means finding a profitable middle ground between these two
- Place refers to distribution, which is defined as part of the marketing mix concerned
with getting products from the producer to the buyer, including physical
transportation and choice of sales outlets.
- Other examples also include warehouse and inventory control, as well as decisions
regarding transportation options.
- Firms must also make decisions about the channels through which they distribute
- Promotion refe