Download Your watching the chapter 13 lecture for the course

Your watching the chapter 13 lecture for the course “Introduction to Business” at De Anza College. My name is Byron Lilly.
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This is Lance Fried. He was not a marketer, but what he did was classic
marketing. One day, he was watching surfers near his home in Del Mar,
California. He thought they might enjoy having a submersible MP3 player to
wear while surfing. That idea bounced around in his head for a little while,
and then one day a friend dropped an ipod into a cooler filled with ice and
water, and it shorted out. It was ruined. Then Lance began working on a
waterproof MP3 player in earnest. Soon he had built a PROTOTYPE. You
will find the word prototype defined on page 403 of your textbook, in chapter
13. His next problem was to figure out how to DISTRIBUTE his new product.
Most inventors dream of landing a big retail account, such as WalMart,
Target, Best Buy, Circuit City, or CostCo. But Lance decided to go a
DIFFERENT direction. He worried that his product would not get the
personal attention that he felt it needed at such large stores. Furthermore, it
would be hard to ramp up production fast enough to satisfy the demands of
such larger stores. At smaller surfing shops on the other hand, it would be a
big deal. It could be a bigger fish selling in a smaller pond, and would be
likely to be featured near the cash register and cause more customer interest
and therefore better market penetration. He took his new MP3 player to a
trade show and placed a number of his products at the bottom of a fish tank,
with the earphone cords snaking up out of the tank so his customers could
try them on and listen to the player while it was underwater. This was a very
effective demonstration of his product’s benefits, and several smaller retailers
placed orders on the spot, at the trade show. Then Surfer magazine placed
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his new player at the top of its “Christmas wish list,” and the rest is
history.
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Here’s the rest of Lance Fried’s story from the 8th edition of your textbook. I have included it so that you can read it at your leisure. Let me know if you have any questions about it.
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Here’s his product. This is a great illustration of what marketing is. It’s seeing a need that could be filled with a commercial product, and then MAKING, pricing, and distributing that product to consumers. I’ve placed a link to his company’s website in the “Other Interesting Links to Explore” section of the course website if you’re interested.
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(Read slide) This is a Ford model T assembly plant in 1924. During the PRODUCTION ERA, which lasted roughly from 1607 to 1920, the company that could stay ahead of the competition in terms of producing in mass volumes at very low costs would be the company that would win in the marketplace. So a slogan that perhaps captures the SPIRIT of the production era is: “He who produces the most, wins.” Because he who PRODUCES the most is able to LOWER HIS COST BELOW that of his competitors, and then is able to dominate the market because of his lower cost structure.
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Beginning in about the early 1920s, everyone began adopting the assembly‐line manufacturing techniques that had been pioneered by the Ford Motor Company in the 1910s. Suddenly, more than one company in each industry could PRODUCE products at very low costs. This caused companies to SWITCH their focus from MANUFACTURING to SELLING. Companies tried to out‐compete each other by having more persuasive advertising or a better trained and more persuasive sales force to convince consumers to buy their brand. This ushered in the selling era, according to your book.
A slogan that perhaps captures the spirit of the selling era is: “He who hires the most persuasive advertising and sales force, wins.”
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According to your book, the third era in the evolution of marketing started in the 1950s, but didn’t really get kicking until the 1980s. But I think we need to take these date ranges with a grain of salt. Marketing DID change to the marketing concept in the twentieth century, but it didn’t hit every industry in the same year, and I would place the start of the cutover in the auto industry closer to 1925 than 1950.
The marketing concept has three parts:
A customer orientation, which means that the company’s marketing department needs to look at ALL the customer’s interactions with the company from the CUSTOMER’S point of view in order to spot opportunities to make the customer’s experience better in some way. Prior to the advent of the marketing concept era, companies had a tendency to focus just on the sales transaction and the customer’s first few weeks of using the product. Then they would immediately switch their attention to the NEXT customer and the NEXT SALE. Adherents of the marketing concept said this may have worked in the past, but to be successful going forward, a company needs to look at the entire lifecycle of its relationship with the customer.
The second component of the marketing concept is “a service orientation.” By this time, just about every major competitor in each industry had high quality products, good selection, good design, and good prices. If a company wanted to distinguish itself from the competition and obtain an additional share of the market, this was most often achieved by enhancing the quality of the SERVICES delivered to the customer before, during, and after the sale. Do your sales people do the best possible job of ASSESSING the customer’s needs and MATCHING the customer to the right product? If the product breaks, it is easy for the customer to return it or get it repaired? These SERVICES became the most likely ways that a company could DISTINGUISH ITSELF from the competition.
The third component of the marketing concept is “a profit orientation.” This was added simply to REMIND everyone in the company that our goal is not to better please the customer to be NICE. Our GOAL is to find COST‐EFFECTIVE ways of better pleasing our customers than our COMPETITION has found, so that we can INCREASE OUR PROFITS. Not EVERY idea for making the customer more satisfied should be embraced. Profit is the ultimate metric for deciding which ideas to embrace and which to reject.
A slogan that perhaps captures the spirit of the marketing concept era is: “He who satisfies his customer more effectively than his competitor, wins.” 7
According to your textbook, the customer relationship era began in the 1990s and continues to the present day. And if the number of new books or new software programs that purport to explain or support customer relationship management is any indication, then they are absolutely right. But I don’t see as clear a dividing line between the marketing concept era and the customer relationship era as I do between the other eras of marketing. The marketing concept era already said “he who understands and pleases his customer best will win.” I think all the CUSTOMER RELATIONSHIP ERA does to that is extend it a little bit by saying “let’s invest in technology so we can do an even better job of understanding, interacting with, and therefore pleasing and retaining our individual customers.” Perhaps what the book is suggesting is that the marketing concept era was characterized by trying to understand your customers in aggregate. Breaking your market down into ever‐smaller segments and trying to figure out how you could best cost‐
effectively please these different groups of customers. Perhaps what distinguishes the customer relationship era is an attempt to continue to segment the market until what you’re looking at is basically an attempt to customize your marketing messages and customer interactions on an individual customer basis.
A slogan that perhaps captures the spirit of the customer relationship era is “He who holds onto his existing customers and wins new customers most effectively, wins.”
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The marketing MIX is a very important topic in marketing. It is also known as the “four Ps of
marketing.” The 4 Ps of marketing are product, place, price, and promotion. Product means “what
attributes does this product have? What can it DO for a customer, and how nicely is it STYLED?”
Place means “where can the customer buy this product?” In other words, the word place implies the
entire distribution strategy for the product. Is it available at WalMart stores? Is it sold only at small
surf shops? That’s the distribution strategy. Price means are you going to set the price on this
product relatively high, relatively low, or in between? Promotion means how are you going to
PROMOTE this product? Are you going to use newspaper advertisements? Television
advertisements? Are you going to have a professional sales force that sells the product? All those
decisions are part of the promotion strategy.
Each company has to decide, for each product it manufactures and sells, how much EMPHASIS it is
going to place on each of these four ELEMENTS of the marketing mix. In other words, how much
value or SERVICE are they going to PROVIDE THE CUSTOMER through each of these four
elements? For example, a company that makes laptops might have a high end product that has
relatively limited distribution, a high price, and is promoted primarily through their sales force. That is,
they don’t use much advertising for that product, and what little they do is in magazines read by rich
people such as in-flight magazines, CEO magazine, and magazines like that. So they’re providing an
extremely high feature and function laptop and they are tailoring the distribution strategy, price, and
promotion strategy TO that product. But the same company may also have a LOW END laptop that it
makes available at WalMart, Target, and a lot of other places, that it prices very low, and that it
promotes through television advertising or on the shopping channel, something like that. So again,
that product is DIFFERENT in the product dimension and therefore its distribution strategy, price, and
promotion strategy are different also. That’s called “varying the marketing mix for each of your
products.” Companies do that all the time.
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This is figure 13.3 on page 352 of your text. This shows you more or less chronologically the steps you have to go through to successfully market a product. Notice that it starts all the way back with “finding opportunities, conducting research” by which they mean market research, “identifying a target market, and designing a product to meet the identified need based on the research you did.” Companies are always on the lookout for the next big product. So their marketing departments need to be constantly asking the question “what do our customers want that they don’t already have that we could sell them?” And that’s more or less what these first 4 boxes are about.
Once a company comes up with an initial design for a product, most companies will spend some time market testing that design, and refining it based on the results of that market testing. That’s what the blue “do product testing” box is supposed to mean. It means market testing – it doesn’t mean technical testing of the product, it means testing the popularity and characteristics of the product among users. I’ll talk a little more about the blue “Do product testing” box on the next two slides.
Somewhere along in there the company has to develop a name for the product, design a package, and set a price. These things can also be market tested, so the timing of the dark blue box and the medium blue box is more or less at the same time, in my opinion, in most cases. As the product design and the name and price of the product are getting close to being finalized, that’s generally when a company will develop the DISTRIBUTION strategy for the product and the PROMOTION strategy for the product. It is NOT the case that you need to complete your distribution strategy before you begin your promotion strategy. In other words, the arrows in this diagram do NOT mean what the arrows in a PERT chart always mean. The use of arrows in this chart is simply supposed to be SUGGESTIVE of the flow of time and show the approximate location of each of these steps in relation to one another. Somewhere in there you have to launch the product, meaning being to manufacture the product and ship it to your customers, which will most likely be either wholesalers or retailers, and THEN you can work on continuously building your RELATIONSHIP with those customers. You have to HAVE customers before you can build a RELATIONSHIP with customers. There is no separate box in this diagram for “launch product,” but there probably should be and it should probably be the second‐to‐last box.
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Let’s take a closer look at the blue “Do product testing” box from the Marketing Process slide we just looked at. Test marketing is defined in your textbook as the process of testing products among potential users, but some test marketing doesn’t use the actual product –
it uses an artist’s rendering of the product and/or a description of the product, then asks consumers questions about whether they would buy that product and if so at what price. Test marketing takes two main forms: concept testing and prototypes.
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Concept testing is developing an accurate description of your product (and/or using an artist’s conception drawing of what the product might look like) and then asking people whether that product would appeal to them.
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For example, this concept board was used to test the potential appeal for the Magnum Gold gold‐colored ice cream bar prior to its launch. Would people find a golden‐colored ice cream bar appealing or icky? You don’t have to actually make one to find out. All you have to do is give them this mock‐up and then ask them whether it would appeal to them. You’ll probably get a pretty accurate response, and at less expense than it would take you to actually make prototypes of the bars.
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For example, a Swiss toy company developed a flying cap toy they call the flypcap. It’s sort of like a mini‐frisbee. Here are some of their prototypes. The final design they went with is shown in gold color in the foreground.
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A Brand Name is A word, letter, or a group of words or letters that differentiates one seller’s goods and services from those of competitor’s. Do you understand what we mean by differentiates? We mean it makes it easy to tell this seller’s goods from another’s. It makes it possible for a consumer to see at a glance that this is the one they saw in the ad, or that their friend told them about. Companies invest in their brands in two ways: One, through advertising and other forms of promotion; and two, by designing and building their products with high levels of quality. If a company makes it easy for the consumer to identify its products and the shelf AND builds products that satisfy customer wants and needs, it will have a bright future. But branding carries a risk. If a company makes it easy for the consumer to identify its products on the shelf but sells products that are frustrating for consumers to use, then the brand logo and other identifying features will make it easy for the consumer to avoid that company’s goods. That’s why brand name merchandise is usually higher quality than non‐name‐brand merchandise: because it’s a double‐edged sword. Branding plus high quality product equals increasing sales and profits. Branding plus low quality product equals rapidly declining sales and product death.
Many years ago, I bought a Philips DVD player at a Blockbuster store. They had a stack of them there and I was in line to rent a movie already and I kind of needed another DVD player for one of my kids’ bedrooms. So I grabbed one off the stack and bought it along with my movie rental. When you pressed the eject button on this DVD player, it took about 22 seconds for it to open the DVD tray. Over time, I found that lag very frustrating. As a result, I have not bought a Philips‐
branded product of any kind since. So branding, which always achieves differentiation, is a double‐
edged sword. If companies brand their products, they better be darn sure they build high levels of quality and customer satisfaction into those products.
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This is a brand of granola. It’s brand name is BEAR NAKED. The diagonal slashes in the name are supposed to be very fancy Es. Their EXCUSE for naming their company and product this way was that their granola is “barely processed and uses utterly naked ingredients,” but I think what they’ve really done here is they’ve picked a name that has sexual overtones but is not in any way OFFENSIVE to the majority of American CONSUMERS. It’s sort of one or two steps below soft porn in acceptability. That makes it edgy and fun and memorable, but not in any way offensive. Finally, the fact that the word BARE is spelled wrong – is spelled like the famous large omnivorous animal that is found on the California state flag instead of the way a bare naked ingredient should be spelled, makes this name difficult to stop thinking about – at least for a few seconds. Your mind keeps turning the name over and over trying to make sense out of it, because it has many layers of meaning. This is a smart brand name in my opinion. But of course it’s only REALLY a smart brand name if it hits MOST American consumers the way I have just described, and I’ll let YOU be the judge of THAT.
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The brand name of this product is Looza. This is not a good brand name in my opinion, because if you say the word LOSER with a New York or Boston accent, it sounds exactly like this brand name. I don’t think you would want ANY customers to think that your product is a loser. I do not know why this company CHOSE the name Looza, but I suspect that it is because the owners of the company are not intimately familiar with all the dialects of American English. This is not a good brand name in my opinion. We will learn more about branding in chapter 14.
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In chapter 13, your book briefly mentions both pricing and distribution. Both are
considered part of the marketing function, which surprises some people. Some people think pricing of products is done by either the accounting or finance personnel of a company, but it is not. It is done by marketing personnel. Now, in many companies, if the company has a fleet of trucks and drivers that deliver products to customers, those drivers will report to the Vice President of Operations. And the operations function is closely associated with the manufacturing function. But in terms of where it lives in business textbooks, the distribution function is considered part of marketing. We will learn more about pricing in chapter 14. For now, all I will say is that setting the right price for your products is not an exact science. Instead, it requires a certain amount of guesswork or maybe business intuition is a better word on the part of one or more of your chief executives. The other thing I will say is that setting prices depends on a number of factors, including but not limited to how much your competitors are charging for their similar product, how unique or different your product is from that of your competitors, how much it cost you to develop the product, how much it will cost you to make the product, and who your target market is, and possibly even what types of stores you plan to sell your product in. We will talk more about distribution in chapter 15. All I will say for now is that most of the products we buy pass through at least one wholesaler or retailer before we as consumers buy it. Those wholesalers and retailers are called marketing intermediaries or middlemen.
Promotion consists of all the techniques sellers use to inform people about their products and motivate them to purchase those products. So the two key objectives of promotion are to inform and to persuade. To let them know your product exists and what it can do for them, and to persuade them to buy it. Buy sellers we don’t just mean retailers. We also mean wholesalers and manufacturers. Each of them spends money on promotion. Promotional techniques include but are not limited to: advertising, personal selling, public relations, and search‐engine optimization. We will learn more about promotion in chapter 16.
The next section of chapter 13 you will hit after the marketing process section is a 3
page section on marketing research. It is basically the first 3 pages of the section
entitled “Providing Marketers with Information,” which begins at the bottom of page
354.
What is marketing research? Well, I think the best way to understand what it IS is
to look at the kinds of QUESTIONS it is designed to answer. Basically, it’s designed
to answer questions about your current and prospective CUSTOMERS. What are
their needs? How well are those needs being met by your current PRODUCTS? If
you came out with a DIFFERENT product, how many people would BUY it? At what
PRICE? What percent of that market does your company already HAVE? Answers
to these questions will help your company decide whether and what kinds of new
products to come out with. Other marketing research is directed at determining
whether a change in price, distribution strategy, or promotion for your CURRENT
products would help you more closely meet customer needs. So marketing
research helps you continually refine the four P’s of your marketing mix.
There are two main ways to get answers to questions like the ones posed on the preceding slide: and that is by gathering either PRIMARY DATA or SECONDARY DATA about your customers. You may be wondering why I am starting with the SECONDARY DATA first and not the PRIMARY DATA. The answer is that, if you are in marketing, and you CAN answer the questions you need to answer with SECONDARY DATA, you should ALWAYS do that. You need to TRAIN YOUR MIND to think of SECONDARY DATA FIRST, because it is MUCH, MUCH LESS EXPENSIVE to gather than PRIMARY DATA.
Secondary data are data that have already been gathered, either by YOUR company or by ANOTHER company or organization, about your customers. Chances are, that data was NOT GATHERED with the specific questions you currently would like to answer in mind. However, it MIGHT be the case that you can TEASE ANSWERS out of the secondary data to the questions you need to answer. And if that is possible, then it is going to be a much, much less expensive way to answer those questions.
The very best source of secondary marketing data are the federal and state governments. Governments have a LOT OF STATISTICAL INFORMATION about the people and businesses that exist in each geographic area. Some of this information is obtained by door‐to‐door census. Other information is obtained in OTHER WAYS. Increasingly, both the federal government and the state governments are coming to the conclusion that, if they have data that MIGHT BE OF USE to some people in their constituencies, then the right thing to do is to make this data available, free of charge, to the public. Increasingly, this data is available directly from the Internet, with absolutely no cost and no special passwords needed. MANY federal and state government agencies make reams and reams of data available through fancy database‐driven sites with powerful browser‐
based front ends where you can specify your query and pull the data out in a variety of formats, specifying exactly what you want. In fact, there is SO MUCH data available that you could spend a LONG TIME exploring and learning about what is available. Two good sites to start with, though, are the U.S. Census Bureau Data Access Tools, and the Economic Indicators.gov website.
There are also some very good government PRINTED publications. Some of the most USEFUL ones are listed in figure 13.4 on page 407.
If you try to do marketing research on the Internet, you will find a lot of ads and “teaser” articles from marketing research firms. These companies do a wide variety of surveys, panels, studies, and articles of and about various aspects of customers needs and marketing trends, and then sell the data they have gathered in the form of reports. They vary in price from $250 to as much as $5,000. Many companies have subscriptions and get all the reports in a particular industry for a year at a time. Some of the best‐known marketing research companies are ACNielsen and Forrester Research.
Primary data are any data gathered by the company itself to understand a specific need of their customer or the customer’s reaction to a specific product. This is generally more expensive. Telephone surveys, mail surveys, in‐store surveys, online surveys, and focus groups are the most common methods, but some companies actually pay people to watch people looking at products on the shelf, or put hidden cameras in the ceiling and watch to see if the customer reads the label, how long they stand in the aisle deciding, et cetera.
A focus group is a small group of people who meet under the direction of a discussion leader to communicate their opinions about an organization, its products, or other given issues. Members of the company sit behind a one‐way mirror and watch the discussion. Your book has a picture of a focus group in progress at the bottom of page 406, and I will show you this picture and talk just a LITTLE bit more about focus groups on the next slide.
Many of the marketing research companies that will sell you SECONDARY marketing data will also do PRIMARY research for you, if you want. This is a picture of a FOCUS GROUP in progress. The people in the foreground are looking through a ONE‐WAY MIRROR at the group shown in the BACKGROUND of the picture. The group in the BACKGROUND knows or suspects they’re being watched, because there is a large mirror on one of the walls of the room, and at least some of them suspect it is a one‐
way mirror. My wife got to sit in the foreground in a room like this on SEVERAL occasions when she was a MARKETING MANAGER at SUN MICROSYSTEMS. Sun Microsystems was always interested in knowing what CHIEF INFORMATION OFFICERS and DIRECTORS OF INFORMATION TECHNOLOGY were thinking about their current and future computer systems. So they would INVITE a number of such officers and directors to a FOCUS GROUP held at a MARKETING RESEARCH FIRM on the Peninsula, up in San Mateo. They would PAY THE PARTICIPANTS about $350 each to attend the 2 hour meeting. But the main reason these officers and directors came was not for the $350. The main reason they came is that they believed they could learn something USEFUL by hearing what OTHER chief information officers and directors of information technology were thinking about THEIR current and future computer systems. If they were buying BEA software, then they might go back to their offices and look into BEA software.
A focus group panel is directed by a MODERATOR who usually works for the MARKETING RESEARCH FIRM at whose facilities the meeting takes place. That moderator has been given a list of open‐ended questions to pose to the panel participants. The list has been prepared by the CLIENT; for example, Sun Microsystems. The CLIENT sends employees to sit in the FOREGROUND seats, where they can watch the questions and the answers and take notes in secrecy without being seen. The client also generally videotapes the focus group so that marketing employees who were not able to observe the focus group in person can watch the videotape afterward.
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Environmental scanning is the process of keeping abreast of trends and changes
in the environment in which your company operates that could effect either its
health or its optimum marketing strategy. Some people who work in marketing
really like their job, in part because they get PAID to spend part of their time reading
trade magazines that tell them about sociocultural, competitive, and technological
developments in their industry. The company that can respond quickest to new
threats or opportunities developing in any of these spaces will pull ahead of its
competitors.
The outer ring in this picture is the marketing environment. This is what marketers
scan when they do environmental scanning. It consists of five sub-environments:
The sociocultural environment, the competitive environment, the economic
environment, the global environment and the technological environment. What
marketers are looking for when they do environmental scanning are developments
in any of the sub-environments that their company might be able to take advantage
of or might need to make a change in response to.
For example, the movie “Chef” by Jon Favreau was released to theaters on May 9, 2014. The story revolves around Cubanos sandwiches and how delicious they can be if prepared properly. Jon Favreau plays a gourmet chef who makes a delicious Cubano that is fabulously popular and takes him from a guy who is poor and a failure to a guy who is rich, famous, and happy.
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Less than a month after the film was released, the Togos sandwich chain launched a new sandwich: the Cuban – prepared exactly like the sandwich in the movie Chef. Coincidence? I think not. If you can take advantage of a change in the external environment more quickly or nimbly than your competitors, you can make money. That’s what environmental scanning is all about. You’re trying to beat your competitors off the starting line by spotting the trend or opportunity first.
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The types of marketing strategies and marketing mixes that are effective when selling into the consumer market are often ineffective for selling into the business‐to‐business market, and the same is usually true of trying to use strategies that work in B2B to sell to consumers. It is a consumer market sale if the product or service purchased is for the personal use of the buyer, and if he or she is paying with their own money. It is a business to business sale if the product or service is being paid for buy a company and is going to be used in a workplace. This means that personal computer makers such as Dell sell BOTH into the CONSUMER market and the BUSINESS TO BUSINESS market. In other words, you can’t simply divide all PRODUCTS into two piles and say that some of those are consumer products and others are business products, because many products are sold into both markets. The way the products are marketed into those two markets, though, will in most cases be very different.
In the consumer market, the consumer is usually only buying one unit. Most products sold in the consumer market represent a very small fraction of the consumer’s income. Consequently, emotional appeals or appeals to the buyer’s SUBCONSCIOUS will often be effective. People don’t want to allocate too much MINDSHARE to their purchase decisions. They therefore allow themselves to be influenced by emotional appeals. If they buy the product and don’t like it, they can often return it. Or, if it’s cheap enough, they can throw it away and just not buy it again. The purchase decision is a relatively low stakes decision for them.
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As the book says in the second paragraph on page 360, a cup of yogurt may or may not be properly classified as a consumer good, depending who’s buying it and for what purpose. If it’s a single cup of yogurt being purchased at a grocery store by a consumer, then yes it is correct to classify it as a consumer good. But if it’s part of a case containing 71 other cups and is being purchased by Google’s cafeteria, then it’s a B2B sale.
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Target marketing is defined on page 361 of your textbook as “Marketing directed toward those groups, called market segments, an organization decides it can serve profitably.” A company can’t do that unless they picked which segments to serve. It’s only target marketing if you’ve decided not to serve some market segments. That’s why my definition ‐ a business strategy that focuses all of a firm's marketing efforts towards just one or a few segments of a larger market – is also a correct definition of target marketing. They’re both correct.
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On page 166 in chapter 6, your textbook defines “a market” as (A set of) People with unsatisfied wants and needs who have both the resources and the willingness to buy. Market segmentation is defined on page 360 as “The process of dividing the total market into groups whose members have similar characteristics.”
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Companies use market segmentation to make their marketing efforts more effective in the following way: They divide their market in such a way that everyone in each group has something in common, then they form a hypothesis about how customizing their marketing mix in some specific way might help them appeal more effectively to one of the resulting market segments, then they customize their marketing mix in that way and see if it works. If it does, they keep doing it. If it doesn’t, they try something else.
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There are many ways to divide the consumer market. Companies need to find the market segmentation methods that work best for them.
Your book goes through five ways to segment the consumer market on page 362. Here are the first three: Geographic segmentation is dividing the market by cities, counties, states, or regions. Demographic segmentation is Dividing the market by age, income, education, and other demographic variables. Other demographic variables useful to marketers include gender, religion, race, and occupation. Psychographic segmentation is dividing the market by the group’s values, attitudes, and interests.
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Restaurant chains and retail stores both use geographic segmentation a lot. For example, McDonald's offers seasonal seafood meals, including lobster and crab, in its stores in New England, but nowhere else in the country. This decision is driven by the fact that: 1) consumers in those areas like lobster and crab more; and 2) it’s cheaper and fresher in those areas only. Retail clothing stores stock and promote winter gear such as coats, hats, and gloves for more months per year in some states and regions than in others. They also stock and promote beachwear such as swimsuits and rash guards year‐round in many Southern coastal cities but only seasonally in most of the rest of the country. Remember: Deciding what to stock in each store is part of the distribution function, which is in turn part of the marketing function. This is geographic segmentation because some part of the marketing mix has been made different in different geographic regions.
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The answer is that demographic variables are the variables that national governments have been collecting about their populations since 1719 or so. Demography is defined as the study of human populations. A few demographic studies were done by private researchers in the late 1600s, but then national governments got into the act beginning in about 1719, and since then, most demographic data collection has been done by national governments. Whatever variables they found of interest are now classed as “demographic variables.”
The first systematic population census on the European continent was taken in 1719 in Prussia, a country that roughly corresponds to today's northern Germany and western Poland. The first U.S. Census was conducted in 1790. The United Kingdom and France both started their regular population census programs in 1801. Canada started in 1871. India started in 1872. These are just a few representative countries so you have a rough idea when all this began to be done on a regular basis.
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Lots and lots of companies use demographic segmentation. Clothing manufacturers design, display, distribute and advertise clothing for women differently than clothing for men. Clothing manufacturers also design, display, distribute, advertise and price clothing for children differently than clothing for adults. Car manufacturers offer some car models for the income‐constrained and other models for wealthier consumers. If you customize any of the four elements of your marketing mix in response to what you have learned by segmenting your market in one of these ways and learning a bit more about the people in each of the segments, then you have used demographic segmentation to make your marketing efforts more effective.
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Psychographic segmentation can be done either in a standardized way or in a custom way. One of the most famous standardized psychographic segmentation frameworks is called the Values, Attitudes, and Lifestyles Survey, or VALS. It is maintained by a company called Strategic Business Insights. If you go on their website you can find out your VALS type by completing their survey. It’s pretty interesting.
The VALS systems divides Americans into 8 groups: Innovators, Thinkers, Achievers, Experiencers, Believers, Strivers, Makers, and Survivors. 40
The other way to do psychographic segmentation is by building a custom framework that segments the consumers in the market for YOUR product according to some combination of their values, attitudes, interests, or lifestyles. Porsche of America did this in 1993. In the late ‘80s and early ‘90s, Porsche was not doing well against its main competitor, BMW. BMW was grabbing the lion’s share of the market growth in the luxury sports car market. So Porsche of America hired a marketing research firm started and staffed not by marketing MBA’s but by anthropology PhD’s. What this marketing research firm told them is, look: all the other marketing research firms are staffed by marketing MBAs. They look at the consumer a particular way. But we think differently. We can go deeper and obtain unique insight into how your customers think because we were trained differently: we were trained as anthropologists.
So they hired them. And they studied people who were in the market for a Porsche or a BMW or a similarly priced sports car. And they came up with a custom, five segment psychographic segmentation system for these people and these people only. Twenty‐seven percent of the people in the market for a car like this were what they called “Top Guns.” These were driven, ambitious people who care about power over others and control over people and things. They also want and expect to be noticed in their car. They want it to be ostentatious. They want it to scream “Look at me! I’m powerful, I’m successful, and I’m in full control of my life and my career.”
The second largest group in this custom scheme which they just completely made up they called “Elitists.” This was old money: men who fathers were rich and THEIR fathers before THEM. They don’t care about being noticed. To them, a car is just a car. They’ll buy it if it’s a good deal. They’ll buy it if it’s fun to drive and looks awesome. But they don’t care who notices them in it.
The third largest group was the “Proud Patrons.” This was new money: the first‐generation rich. Self‐made men who pulled themselves up by their bootstraps. They are proud of what they have accomplished, but they aren’t particularly trying to get anyone to notice them in the car. Instead, this car is a reward they’re thinking about giving themselves for working hard. They will be inwardly proud of having earned it. And if someone else comments on how impressive it is that they have made their fortune from their own initiative and hard work that will make them feel good. They like that. A car is not a tool to control or intimidate others: it’s a reward for having worked my ass off and made a success of myself entirely on my own initiative.
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The last 2 categories are less important because Porsche found out they only made up 26% of their market, but I will discuss them briefly. Category 4 was the Bon Vivants. These are cosmopolitan jet setters and thrill seekers. They want a car to be exciting: a sensual, thrilling, even dangerous experience. It’s all about the inward experience for them. They would probably be most persuaded to buy a Porsche by seeing it in a James Bond movie.
And the last category was the Fantasists. For them, a car represents a form of escape from something. Maybe it’s a failed marriage, maybe it’s a failure as a parent, maybe it’s incredible pressure at work. A fast car is something to distract them. They may even feel guilty about owning the car.
When the marketing consulting firm they hired presented this system to them, Porsche of America was astounded. If this was true, then it was definitely actionable. So here’s what they did: First, they revamped their U.S. television and billboard advertising program. They built three different sets of TV ads and billboards, each designed to have maximum appeal for one of the three largest segments. Then they built a selling system around this new understanding of their customers. Porsche salesmen were trained to ask a series of seemingly inoccuous questions of their sales prospect as they were showing them the cars. These questions were cleverly designed to tell the salesperson whether they were talking with a Top Gun, an Elitist, a Proud Patron, a Bon Vivant, or a Fantasist. Once the salesmen had made this determination, they had a list of statements they would try to make. Things like “Wow! You look really good in this car! This color really pops for you! You look amazing!” or “I think you’ve earned this reward, don’t you?” or “Your co‐workers are going to be really jealous when they see you in this.” Each statement was designed to appeal to the most closely‐held desires and wishes of their kind of buyer.
How much do you think Porsche of America’s sales went up the year they rolled out this program? Any guesses? Oh, before you tell me, let me mention that their sales had grown between one and two percent per year from 1988 to 1993. They rolled out the program in 1994. How much do you think their sales went up that year?
Forty‐eight percent. Their sales went up 48% the year they rolled out this new program.
So in my opinion, forming a CUSTOM psychographic segmentation system specifically designed to bucket the people who are in the market for YOUR PRODUCT into groups that will respond similarly to similar marketing messages is a lot more powerful, when its done right, than trying to use a standard system such as VALS. It’s also more expensive and difficult of course.
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Benefit Segmentation is Dividing the market according to the primary product benefits the customer is seeking. Volume Segmentation, also known as usage segmentation, is dividing the market into heavy users, moderate users, and light users, and then offering different prices, products, or benefits to people in the different groups.
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Here’s an example of benefit segmentation: Toothpaste. All toothpastes offer 3 benefits: cavity prevention, breath freshening, and tooth whitening; but the packaging and advertising for some toothpastes emphasizes the first benefit, and for other toothpastes emphasizes the other two. For example, this package of Colgate says right on it: Maximum Cavity Protection. Meanwhile, Close‐Up toothpaste, while it actually offers the same three benefits as Colgate, has often been advertised with special attention to it’s breath freshening and tooth whitening benefits only. Because after all, those are the two benefits that will make you more kissable, right?
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Here’s an example of volume segmentation: Rental cars, airlines, and hotels have for many years offered special perks to their high volume users only. For example, if you’re an executive club member in an AIRLINE’s program, you get to board first and you get to stand in a special line that’s shorter when you check in your luggage. Some airports even have special WAITING ROOMS that only executive club members can use. They swipe their card at the door and it unlocks the door. Rental car companies offer shorter lines and upgrades to more expensive vehicles to their heavy users. Hotels offer points that can be used for free hotel stays to their heavy users; and other benefits, such as concierge services and upgrades to better rooms.
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Your textbook defines Niche Marketing as identifying small but profitable market segments and designing or finding products to meet the needs of those segments. Some electronic parts wholesalers located here in the South Bay Area have based their entire business strategy on a niche marketing strategy. They will specialize in sourcing the electronic components that just a few of the manufacturers located here in the valley need. That’ll never become a giant market, so they’re never going to become a giant company, but they’re hoping that they can be successful in that market because it is a relatively small market which means that a lot of larger companies are ignoring that market.
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Your book defines one‐to‐one marketing as “Developing a unique mix of goods and services for each customer,” but I wish they hadn’t. I actually liked their definition a few years ago better. It used to be “offering a customized mix of product, price, place, and promotion to each customer.” That’s a lot broader, and better matches what’s happening in the real world in my opinion. Your book’s example of one‐to‐one marketing is travel agencies. Pretty much every customer gets a slightly different product from a travel agent. The product is customized for each person to meet their exact needs. I think that’s a fine example. I just don’t know why we shouldn’t also consider it one‐to‐one marketing if the company customizes the price, place, or promotion for each customer.
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A perfect example is what AMAZON.COM does. You DO KNOW that when you log on to Amazon.com, it keeps track of the things you have looked at and the things you have bought, and paints your screen differently based on that information, don’t you? It’s true! Here is what the splash screen looks like when I log on to Amazon.com. Do you see where it says “Hello BYRON” right here? That’s not the important part. That’s just a clue telling us it’s accessing its database records of what I’ve bought and looked at while it’s painting this screen. The important part is what it shows down below here. Let me show you. (Show them in real time and say a few words about the products that are displayed there.)
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They also have an even more customized page they will deliver if you click here where it says “BYRON’s Amazon.com.” Their basic splash screen has some customization but this
one has even more. This deserves to be called one‐to‐one marketing in my opinion. This is customizing the promotional element of the marketing mix, and it deserves to be called one‐to‐one marketing. That’s why my definition of one‐to‐one marketing differs from your book’s.
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Mass marketing is old‐school. Relationship marketing is the hot new thing. Your book defines mass marketing as developing products and promotions to please large groups of people. This means both the product strategy and the advertising strategy will be a one‐
size‐fits‐all strategy. The company will either offer just one uniform product for everyone, or will keep product variety to an absolute minimum. And the advertising and promotional strategy will also be a single strategy addressed to the market as a whole. There will be no market segmentation whatsoever. The (enter) model‐T is the classic example of a product that was mass‐marketed. Henry Ford once said “Ford customers can buy a model T in any color they want, as long as its black.” Keeping the product variety low kept his costs down, and that’s what Ford believed he should focus on, so that every family could afford one. Some modern products are mass‐marketed, but it’s getting harder and harder to find good examples. (Enter) Alkaline batteries are pretty good. There’s very low product variety: you’ve got your double‐A’s, your triple‐A’s, your C‐cells, your D‐cells, and your 9‐volts; and ad campaigns for batteries are often used around the world with little if any customization other than translating the language. Energizer used the same ad campaign in over 60 countries. And (enter) eggs are a pretty good example. There are 4 sizes – extra large, jumbo, large and medium ‐ and there’s brown and white, and that’s about it. And the egg advisory council ran an ad campaign for eggs that was a single appeal addressed to all markets. But when you take a CLOSER look at the egg market, the example breaks down a little bit, because actually, if you look hard enough, you can find organic eggs and free‐
range eggs, so there still is some customization of the product to appeal to different market segments.
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Your book’s definition of relationship marketing is “A marketing strategy with the goal of keeping individual customers over time by offering them products that exactly meet their requirements.” I basically have the same problem with this definition that I have with their definition of one‐to‐one marketing. Instead of just limiting customization to the PRODUCT, I think it should be defined to include customization of any elements of the marketing mix: product, place, price, and/or promotion.
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To some people, when they hear “Customer-relationship Management” they
immediately think of the leading types of customer relationship management
software. To them, customer relationship management means implementing and
using one of these software systems, and nothing else. Salesforce.com is the
leading vendor of such systems, followed by SAP, Oracle, and Microsoft.
Customer-centric Relationship Management, or CCRM, is a new term some people are using to propose a new style of customer relationship management that would focus on customer preferences and how to please the customer rather than focusing on how the company can obtain leverage over the customer by collecting data about him or her, which is what many companies using CRM software do today. Some companies have used CRM software and online data collection to spam the customer, cluttering up the customer’s inbox to an offensive degree simply because the cost to the company of doing so was low and it did generate incremental sales. CCRM would go back to CRM’s roots, engaging customers in individual, interactive relationships with the goal of being a more useful to the customer and making their life better. I think when your textbook went to press, its authors were hopeful that ALL customer relationship management would be of this customer‐centric type, but that didn’t happen. Now some people have made up this new term: Customer‐centric Relationship Management, to try to propose that companies go back to making it about creating value for the customer. One of the hottest topics in marketing today in my opinion is Customer Journey Mapping. That and big data. Customer Journey Mapping is a process of figuring out the steps or phases the typical customer goes through as they inch closer and closer to deciding to buy your product, and then 52
developing “just right” marketing materials to help the customer move to the next waypoint along their journey. My wife’s company, Juniper Networks, just went through a huge project to do exactly this. I think they identified something like 220 different marketing pieces they needed to develop for their website to help the various kinds of customers they sell to get “unstuck” from a particular step in their journey and continue their journey toward deciding to buy a Juniper Networks system or piece of equipment. Customer Journey Mapping is to marketing, sales, and promotion what market segmentation was to market development. It’s the next step in the evolution of marketing.
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What do you think the correct answer is to this simple question about relationship marketing? True or False?
Firms adopting a relationship marketing strategy often establish a database of information about each customer.
(Enter) Well that’s true! Because as I mentioned on the preceding slide, to many people, CRM and relationship marketing and CRM software are synonymous – they’re all one in the same thing. And all CRM software has a database containing information about each of your customers at its heart.
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You will find this 5‐step consumer decision‐making model on page 364 of your textbook, in figure 13.7. You will find a description of these steps on page 363. The first step in the Consumer decision‐making process, according to this model, is problem recognition. Suppose you decide that it’s time for you to get a new smart phone. The one you have is slow, the battery life’s not great, you don’t like the camera anymore, and your friends all seem to have NEW ones with better cameras and other features you want. Your PROBLEM is that the cellphone you have isn’t meeting your needs. You do not find its performance or features satisfactory anymore. STEP TWO is INFORMATION SEARCH. Once you realize you have a problem, and not before, you start NOTICING the smartphone ads you see on billboards, on television, in online ads, and elsewhere. You start READING those ads instead of glancing away without reading them. You ask your friends if you can see their phone for a second. You ask them what they LIKE about it. You’re in INFORMATION GATHERING mode. You’re trying to get a sense of what’s OUT there, what’s possible, how much it costs, et cetera. The THIRD step is ALTERNATIVE evaluation. During this phase, you begin to make some decisions about WHAT’S IMPORTANT TO YOU and WHAT’S NOT SO IMPORTANT TO YOU. For example, you decide you can’t pay A PENNY OVER $350 for your new phone. You’d RATHER be BELOW $275, but you’d pay $325 ‐ $350 if you had to. Secondly, you decide it has to be an iphone because your current phone is an iphone and you don’t want to have to learn how to use Android. This is just hypothetical. I’m tryin’ to tell a story here. The book calls step 3 “alternative evaluation,” but I think a better name would be “development of decision criteria.” You are gradually starting to refine what I call your decision‐making algorithm: the set of rules unique to you that you will use to decide which
phone to buy. STEP 4 is the PURCHASE DECISION ITSELF. The consumer PLUNKS DOWN his or her hard‐earned money and BUYS one of the candidate products. So we’re done, right? Why is there a fifth step? Why does the company CARE about the consumer’s post‐purchase evaluation of the product? (Pause.)
The ANSWER is that for most transactions, the customer still has the option to RETURN the PRODUCT, and of course the company doesn’t want them to DO that.
It turns out that all consumers experience some degree of COGNITIVE DISSONANCE immediately after making a PURCHASE DECISION and a COMMITMENT. Cognitive dissonance is a term in psychology that refers to any of a variety of situations in which the subject has two conflicting thoughts in their head at the same time, and these thoughts are clashing against each other and it’s making the subject feel icky. The particular kind of cognitive dissonance we’re interested in here is called “buyer’s remorse.” Buyer’s remorse is that icky feeling you have right after you make an important purchase decision that MAYBE you were too HASTY. MAYBE you didn’t consider the features and functions of all the models CAREFULLY enough. MAYBE you made a mistake. Some people get stronger buyer’s remorse than other people, even when they spend the same dollar amount. In general though, the more you spend and the closer the alternatives were, the stronger the cognitive dissonance will be. Now JUST BECAUSE the consumer is experiencing cognitive DISSONANCE doesn’t NECESSARILY mean that they made the wrong decision. Cognitive dissonance is just a FEELING that you MIGHT have made the wrong decision.
One way a company can help a consumer get OVER the feeling of cognitive dissonance without returning the product – which they don’t want you to do – is to continue to market to you even after you make the purchase decision. That’s why we as marketers care about the customer’s postpurchase evaluation –
because we may want to develop special marketing materials designed to help make the customer’s cognitive dissonance go away.
Have you ever bought a car? Almost every CAR dealer these days will give you a letter along with all your sales paperwork; and if they’re doing their job right, they will try to make sure that it ends up on the top of the stack of all your sales documents, and that letter will go something like this:
“Dear Customer, CONGRATULATIONS on your decision to purchase your new Toyota Prius Hybrid automobile. You have joined MILLIONS of intelligent, discriminating car‐buyers in selecting one of the best‐engineered cars on the market…” et cetera et cetera. Sound familiar? Perhaps you have RECEIVED a letter like this some time. These letters are DESIGNED TO MAKE YOUR COGNITIVE DISSONANCE GO AWAY so that you DON’T RETURN THE PRODUCT! They are promotional documents developed by marketers to achieve this marketing objective.
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In Figure 13.7 on page 364 of your textbook, surrounding the five step decision‐making model, you will find these BOXES representing the DIFFERENT KINDS OF INFLUENCES that can affect the consumer’s decision. In the upper left corner is the effect of your own product’s marketing mix: product, price, place, and promotion. By showing these four elements of the marketing mix as one of the factors that influence the customer, all we are saying is that the features and appearance of the product itself, the price the customer is being offered, the way the customer is treated by the salesman at the dealership or other point‐of‐sale, and the advertising you used to attract the customer to this product have had some influence on the customer. Well I hope so! Otherwise, why did we spend so much money on those things?
Let’s look at the box labeled “Psychological influences.” Here we have “perception, attitudes, learning, and motivation.” What this box is really trying to tell you is that SOME PEOPLE TRAINED AS PSYCHOLOGISTS make a career for themselves in MARKETING! Psychologists learn things about human PERCEPTION, about how people form their ATTITUDES about products and what it takes to CHANGE those attitudes, about how people LEARN, and about what MOTIVATES people that can HELP a company more effectively market its products. Marketing‐oriented companies like Procter and Gamble like to hire a few psychologists, anthropologists, and sociologists into their marketing divisions to complement the skills and knowledge of the many marketing MBA holders they hire. The idea is, you can never have too much insight into what makes consumers tick when you are developing your marketing programs. The more you know about what makes people tick, the better.
Remember the study that Porsche of America commissioned in 1992? That marketing research firm they hired to come up with the 5‐way psychographic segmentation scheme for them? It was started and staffed by anthropologists. NOT psychologists, NOT marketing majors – anthropologists! Take a look at the sociocultural box: reference groups, family, social class, culture, subculture. These are things that SOCIAL ANTHROPOLOGISTS and SOCIOLOGISTS study. ANTHROPOLOGY, sociology, and PSYCHOLOGY each bring something to the party. Marketing‐driven companies like Procter and Gamble like to put together STRONG INTERDISCIPLINARY TEAMS that can come up with BREAK‐THROUGH WAYS of understanding consumer behavior. All of these specialties working effectively TOGETHER is more POWERFUL than any ONE of these specialties working alone.
The last box and the only box I haven’t talked about is the “situational influences” box. Situational influences are temporary environmental factors that form the context within which a consumer activity occurs at a particular time and place. The major categories are: type of purchase, social surroundings, physical surroundings, and previous experience. For example, if you’re buying something for yourself, you might make a DIFFERENT purchase decision than if you’re buying it as a GIFT for SOMEONE ELSE. That’s what the “type of purchase” bullet is referring to. Social surroundings refers to any other persons who might be present during the decision‐making process, and if so what effect will they have on the consumer’s behavior? For example, you are in a store looking at personal hygiene products. An attractive classmate of the opposite gender sees you and stops to chat. Would this encounter affect what brand you choose? Would you delay the purchase? Or take this example: A woman is walking through the mall and something in the lingerie store looks interesting to her. Would she stop to further investigate if she was with her best friend? If she was with her mother? That’s the social surroundings of the consumer.
Physical surroundings refers to the concrete physical and spatial aspects of the environment in which a consumer is contemplating a purchase.
Marketers have control over some of these, such as music, aroma, lighting, noise or lack thereof, and the level of crowding or lack thereof in the store. These situational factors also affect the consumer’s decision and marketers need to be aware of these effects and try to control them as much as their budget will allow to produce a favorable outcome, in other words, to produce a sale.
When a company is selling its products and services to BUSINESSES on the other hand, the total NUMBER of customers the company services tends to be much SMALLER and the SIZE of each customer’s purchases tends to be much LARGER. This makes each purchase decision a much higher stakes proposition, both for the CUSTOMER and the SELLING COMPANY. Each customer is important. “Scatter gun” approaches to marketing, such as advertising, become less effective and CUSTOMIZED approaches, such as having a top‐
notch sales force, become MORE important. Also, the customer tends to be “turned off” by emotional appeals. If a purchasing agent doesn’t buy the absolute rationally best product for his company, he could get fired. Consequently, the salesman needs to focus on the RATIONAL BENEFITS of the product. The kinds of ads that work great in selling jeans, perfume, laundry detergent and other consumer goods are strictly off‐limits in the business‐to‐business marketing arena. Finally, because customers in the business‐to‐
business marketplace tend to be concentrated in major urban centers, the company that sells INTO this market does not need an extensive set of distribution partners. On the contrary, many major companies in the business‐to‐business market, such as Intel, Cisco, Sun Microsystems, and Oracle, rely entirely upon direct sales from their company to their end user customer. Virtually no distribution through wholesalers or retailers occurs for the products of these companies.
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