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BOOK FOUR AN INTRODUCTION TO MARKETING IN BUSINESS Session Three Understanding customers and consumption AIMS & OBJECTIVES OF SESSION THREE Outline the different types of buyer behavior; Explain the complex buying decision process; Discuss the differences between consumer and business buying behavior; Compare the rational approach to understanding customers and a social and cultural understanding of consumption Describe three main aspects of cultural and social functions of consumption THE RATIONAL APPROACH TO UNDERSTANDING CUSTOMERS There are two types of marketing 1. Consumer marketing 2. Business-to-business marketing CONSUMER BUYING BEHAVIOR According to Belk (1995), a rational approach has been most influential in marketing. It assumes that consumers tend to make rational choices about the products and services they buy and use. This approach is concerned with understanding how individual consumers evaluate and choose products, so that marketers can tailor their offerings more effectively to consumer needs and expectations. CONSUMER BUYING BEHAVIOR (CONT’D) Figure 3.1 Model of Consumer Behavior by Kotler (2001) Marketing Stimuli Product Price Place Promotion Other Stimuli Economic Technological Political Cultural Buyer’s Black box Buyer Characteristics Buyer’s responses Buyer Decision process Product Choice Brand Choice Dealer Choice Purchase Timing Purchase Amount CONSUMER BUYING BEHAVIOR (CONT’D) The figure represents a simple model of consumer behavior, depicting influences on consumer buying behavior, buyer decision processes and buyer responses. The model does not go into detail on what goes inside the buyer’s mind- it treats this as a ‘black box’; something which is known to exist but the internal workings of which are unknown. The model assumes that there are two main types of external influence on consumers: 1) Market stimuli (market offerings of different businesses) 2) Elements of the business environment as stated in the STEEP model TYPES OF CONSUMER BUYING BEHAVIOR 1) 2) 3) 4) There are four types of consumer buying behavior: Complex buying behavior Dissonance- reducing buying behavior Habitual buying behavior Variety-seeking buying behavior TYPES OF CONSUMER BUYING BEHAVIOR High Involvement Significant Difference between brands Few Differences between brands Complex Buying Behavior Dissonance Reducing Buying Behaviour Low Involvement Variety- Seeking Buying Behavior Habitual Buying Behaviour TYPES OF CONSUMER BUYING BEHAVIOR Type of Consumer Buying Behavior Description Complex Buying Behavior It is characterized by high consumer involvement and significant differences between brands. It happens when a purchase is expensive, risky or purchased infrequently or when consumers use the product to express themselves (e.g. cars, houses, etc.) Dissonance-Reducing Buying Behavior Consumers here are highly involved in the purchase but have difficulties determining the differences between brands. Dissonance can result from a purchase if consumers worry afterwards that they may have made the wrong choice(e.g. financial services such as insurance) Habitual Buying Behavior It is the most common type of buying behavior and it happens when consumers are not very involved in the purchase perhaps because the item is bought very frequently and/or does not cost much money and when they perceive few significant differences between brands (e.g. household detergents, soap, etc.) Variety Seeking Behavior It happens when consumers perceive significant differences between brands but are not involved in the purchase.(e.g. icecream, biscuit, etc.) THE BUYER DECISION PROCESS Stages in the Buying Decision Process by Kotler 2001 Stage One: Need Recognition Stage Two: Information Search : a) Personal Sources: Family, friends, neighbors; b) Commercial Sources: Advertising, salespeople, the Internet, packaging, displays c) Public Sources: Mass media, consumer -rating organizations. d) Experiential Sources: handling, examining, using the product Stage Three: Evaluation of Alternatives Stage Four: Purchase Decisions Stage Five: Post Purchase Behavior: complain, not to buy again, tell friends about problems. BUSINESS BUYING BEHAVIOR When thinking about marketing, people often think first of consumer marketing, but actually business-to-business markets is much larger than that of consumer markets. The most important differences between the consumer market and the business market is: (1) The market structure and demand There are fewer buying businesses than there are consumers, but each business is likely to buy much larger quantities of a product than a single consumer would. (2) The nature of the buying unit - Business-to-business marketers tend to rely on personal selling directly to customers. (3) Types of buying behaviour - New task: something a business buys for the first time. - Straight re-buys: A simple repeat order for something that the business buys regularly. - Modified re-buy: The business buys something it has bought before but wants some modifications to the new purchase. SOCIAL AND CULTURAL ASPECTS OF CONSUMPTION Points to Consider Explanation Consumer Society Consumer society is characterized by the fact that a large portion of the population has access to a wide variety of consumer goods. Consumer society has only been made possible by industrialization which has facilitated the mass production of large numbers of consumer goods. Some concern is evident regarding the materialism of consumer culture and the damage done to the natural environment. Hedonistic Consumption Many people enjoy the act of shopping itself. Buying products and services allows customers to show off their style and taste to others. Consumption & Identity This is a second aspect of consumption and is concerned in the way in which consumption can become a means to help people communicate their psychological identity, tastes and preferences, and economic and social status Consumption as Communication Many consumption activities take place in social settings, most frequently the family but also within circles of friends, work groups and others. Consumption becomes a kind of language through which people show their status and tastes. ETHICAL ISSUES IN CUSTOMER RELATIONS Businesses have the responsibility to keep the justified interests of their customers in mind, even where there are no specific laws. BOOK FOUR AN INTRODUCTION TO MARKETING IN BUSINESS Session Four The marketing mix AIMS & OBJECTIVES OF SESSION FOUR Explain the concept and the elements of the marketing mix; Contrast different types of products, including physical goods and services; Explain the key features of the product life cycle and new product development; Contrast different approaches to pricing and explain n some typical methods of pricing for strategic effect; Explain distribution channels and who their members are; Explain the different elements of marketing communications and how they are commonly used; Consider some common ethical issues related to elements of the marketing mix; Explain why services marketing is different from goods marketing and the marketing mix for services. WHY ARE WE STUDYING THE MARKETING MIX? Marketing mix is more than just a set of techniques employed by marketing managers. However, these techniques are important in that marketers must try to design an offering which will appeal to customers. This offering is the marketing mix. ELEMENTS OF THE MARKETING MIX The marketing mix includes the following elements: 1. 2. 3. 4. Product Pricing Distribution (Place) Marketing Communications (Promotion) PRODUCTS Products can be described as a ‘bundle of benefits’. This means that it is not usually the actual product itself which is important to customers but what it will do for them (e.g. a mobile phone is a means of staying in touch with others). PRODUCTS (CONT’D) There are three levels of product benefits: The Three Levels of product by Kotler 2001 Core Benefit Level One: The core benefit is the main benefit of the product. Level Two: The actual product has product features and characteristics in addition to the core benefit. For example, packaging, features, styling, quality, brand name. Level Three: Augmented product benefits may include after sales services, installation, delivery and credit, and warranty Actual Product Augmented Product PRODUCTS (CONT’D) – THE PRODUCT LIFE CYCLE Products go through a life cycle. This means that they are launched at some point and after a time of growth and maturity they eventually decline and become obsolete. The product life cycle has the following five phases: 1. 2. 3. 4. 5. Product development, Introduction, Growth, Maturity and Eventual decline Products (cont’d) – the product life cycle 23 PRODUCTS (CONT’D) – THE PRODUCT LIFE CYCLE After a new product has been developed and is first introduced to the market, sales may grow slowly initially as not many people know about the product. As the product becomes better known, sales may grow rapidly until they tend to level off during the maturity phase, when many potential target customers have already bought it and more competitors introduce similar products. Eventually, the sales of many products decline as most customers already have them and new substitute products are introduced. PRODUCTS (CONT’D) – NEW PRODUCT DEVELOPMENT The concept of the product life cycle suggests that most products will eventually decline. This is a strong reason why businesses constantly want to develop new products. Crawford (1991) proposed a model of the new product development process. This model includes a number of steps in the following sequence: Step One: New Product Planning Step Two: Idea Generation Step Three: Idea Screening & Evaluation Step Four: Technical Development Step Five: Market Appraisal Step Six: Launch PRODUCTS (CONT’D) – NEW PRODUCT DEVELOPMENT 1) New product planning: a business looks at the current products, how well they are performing, and where the marketing environment poses threats to existing products and opportunities for new products. 2) Idea generation: specific ideas for new products are generated and collected, perhaps through group discussion techniques such as brainstorming. 3) Idea screening and evaluation: the ideas generated in the previous step are examined for their feasibility and marketability. 4) Technical development: the technical aspects of the product are investigated and a prototype is developed. 5) Market appraisal: Market research is carried out to assess whether the product would be successful in the market. 6) Launch: the product is produced and offered in the market PRICING The difference between getting the price right and getting it wrong can be the difference between being successful and going out of business. PRICING (CONT’D)– APPROACHES TO PRICING 1. 2. 3. There are three main approaches to setting prices: Cost-based pricing Customer-based pricing Competition-based pricing PRICING (CONT’D)– APPROACHES TO PRICING 1)Cost-based pricing: It is the least customer-oriented pricing method and thus is not compatible with the marketing orientation. It is still used by many companies as costs are relatively easy to work out and more straightforward than customer-based pricing. It works by adding up all the costs of manufacturing and selling a product and then adding a fixed profit percentage. PRICING (CONT’D)– APPROACHES TO PRICING 2)Customer-based pricing It is more in-line with a marketing orientation as it starts with the customer’s willingness to pay. It does not necessarily mean offering the product at the lowest possible price, but at a price that the customer considers good value taking into account quality and other product features. PRICING (CONT’D)– APPROACHES TO PRICING 3) Competition-based pricing It involves comparing the prices of all competing products and then setting the price of one's own product. This maybe lower than the competition if the business is competing on price. It may also be more expensive than the competition if the business is competing on quality, style and some other product features and wants to express the superiority of its products through the price. PRICING (CONT’D)– PRICING FOR STRATEGIC EFFECT Product line pricing: refers to the setting of prices within linked product groups. Sometimes sales of one product are directly linked to sales of another product. Thus, it may be possible to sell one product cheaply in order to encourage more purchases of another product and hence achieve a higher sales volume. Psychological pricing: involves setting prices in such a way that they capture or encourage particular psychological effects in consumers. PRICING (CONT’D)– ETHICAL ISSUES IN PRICING Unethical pricing practice: arises from the power difference between producers and consumers. Predatory pricing DISTRIBUTION (PLACE) It is the third element in the marketing mix is the distribution channel (relating to the place where the product is sold). Distribution channels are the channels by which products are made available to their final customers. At one level this relates to the physical transportation and storage of goods. They also transfer ownership of the goods , offer advice to customers and provide after-sale services. DISTRIBUTION (CONT’D)- MEMBERS OF THE DISTRIBUTION CHANNEL Some distribution channels are very short, they have few members whereas others are long and have many members Distribution Channels Channel 1: From Manufacturer to Consumer Channel 2: From Manufacturer to Retailer to Consumer Channel 3: From Manufacturer to Wholesaler to Retailer to Consumer Channel 4: From Manufacturer to Other Intermediary to wholesaler to retailer to consumer. DISTRIBUTION (CONT’D)- MEMBERS OF THE DISTRIBUTION CHANNEL Wholesalers are businesses that buy products from producers and sell them onto retailers. They perform a number of actions in the distribution channel, such as storage, transportation, information gathering and some promotional activities. Retailers are businesses that buy from producers or wholesalers and sell onto consumers. Successful retailing depends on: The convenient location of a store The right kind of goods offered in the right quantities The right level of service for the type of good and outlet The image of the store The atmosphere of the shop. MARKETING COMMUNICATIONS Marketing Communications is not a straightforward, one way process from marketers to potential customers. Both the sender and the receiver of that message are actively involved. Marketers often follow the so-called AIDA approach, which suggests that good marketing communication should go through the sequence of stimulating ‘awareness’, ‘interest’, ‘desire’ and ‘action’ on the part of consumers. The promotional mix consists of : Advertising Sales Promotion Personal Selling Public Relations MARKETING COMMUNICATIONS (CONT’D) Advertising It is impersonal and communicates with a large number of people through a paid media channel. 1. Pioneering advertising is used in the early stages of the product life cycle, when businesses want to achieve consumer awareness and interest. 2. Competitive advertising happens at a later stage in the product life cycle when it is necessary for businesses to distinguish their product from that offered by their competitors. 3. Reminder or reinforcement advertising: designed to operate after consumers have already purchased the product to reassure them of the product’s benefits and that they made the right purchase decision. 4. Advertising attempting to improve the general image of the organization MARKETING COMMUNICATIONS (CONT’D) Sales promotions Refers to the specific element of the promotional mix which tries to create a temporary increase in sales by offering customers an incentive to buy the product. sales promotion come in different forms: 1. Money Based Promotion: Easy to implement, very common, cash-back, immediate price reductions at point of sale, coupons. 2. Product Based Promotion: less likely to cheapen product image: X% extra free, buy one get one free, free samples. 3. Gift, Prize and Merchandise based Promotion: Gifts in return for proof of purchase, competitions or sweepstakes. MARKETING COMMUNICATIONS (CONT’D) Personal Selling A sales person talks personally to a potential customer, finds out about their needs and explains the benefits of the product. It is a powerful marketing communication tool. However, it tends to be th most expensive. MARKETING COMMUNICATIONS (CONT’D) • Public relations (PR): (PR) is about creating a good image for the business in the minds of its stakeholders. It involves creating and placing favorable news stories. PR operates with word-of-mouth, press and TV news stories, and personal recommendations. • Good public relations can be more effective than advertising as it is free and thus saves on the promotional budget. • It is more credible in the eyes of consumers . MARKETING COMMUNICATIONS (CONT’D)-ETHICAL ISSUES IN MARKETING COMMUNICATIONS Marketers should not deceive consumers or make misleading claims about any aspects of the marketing mix. Criticism of contemporary marketing communications are that they are often very intrusive and that consumers find it difficult to avoid them. (e.g. pop-up advertisements) On a broader societal scale, marketing communications have been criticized for creating artificial wants and reinforcing materialistic values. MARKETING SERVICES 1) 2) 3) 4) Differences between physical products and services: Services are intangible, Services are produced and consumed ate the same time, The quality of services varies depending on the persons providing them, They can’t be produced in advance and stored for later sale or use. Thus, the marketing mix for services is extended by further elements: people, processes, and physical evidence. Session Five Addressing Societal and Environmental Concerns in Marketing AIMS & OBJECTIVES OF SESSION FIVE Define the societal marketing concept and outline how it is used to address common social and ethical concerns with marketing practice; Introduce Explore the notion of ‘green’ marketing; the extent to which ‘green’ marketing practice addresses environmental concerns with marketing. THE SOCIETAL MARKETING CONCEPT The Societal Marketing Concept: It is an extension of the marketing orientation. A business should work out what the needs, wants, and expectations of its target customers and markets are. It should then satisfy these needs, wants, and expectations better and more efficiently than competing businesses in a way that maintains or improves the consumer’s and society’s wellbeing. THE SOCIETAL MARKETING CONCEPT (CONT’D) Why do wee need a societal marketing concept According to Kotler (2001), a pure marketing orientation may overlook the fact that what consumers want in the short term is not the same as what is good for them in the long term. There is also a conflict between what individual consumers desire and what is good either for society or for the environment. Businesses should think of the products they offer in two dimensions: (1) The immediate satisfaction they provided to consumers; (2) The long- term consumer welfare they provided. THE SOCIETAL MARKETING CONCEPT (CONT’D) Immediate Satisfaction Low Long- run Consumer welfare High High Salutary Products Desirable Products Deficient Products Pleasing Products Low • Salutary Products: They pose no moral problem but may be difficult to market if consumers derive no immediate satisfaction from them. • Desirable Products: They are desirable for the individual consumer, desirable from a long term societal perspective and desirable for the business, which should be able to sell these well and with a good conscience. • Deficient Products are low in both immediate consumer satisfaction and long run consumer welfare. They will not be successful for businesses, as there will be no market for them. •Pleasing Products are high in immediate satisfaction and low in long run consumer welfare. Thus, businesses should not market them. CRITICISM OF THE SOCIETAL MARKETING CONCEPT 1) It has not made much difference in practice 2) It was not a good basis on which one might make marketing practice and theory more socially responsible. The reasons for this are: a) b) c) There was not enough explicit moral responsibility in the societal marketing concept, It was difficult to establish who should define what the interests of the consumer and the wider society were There was too much emphasis on good or bad products, with not enough consideration of how and by whom these products were being used. PRACTICES TO MAKE MARKETING MORE SOCIALLY RESPONSIBLE Two main practices: 1. Cause-related marketing campaigns: Consumers make purchase then, as a result, the company makes a donation to the cause. 1. Advocacy marketing- a company promotes a social cause such as healthy eating. GREEN MARKETING Examples of Environmental Problems Caused by Businesses: (1) Inadequate solid waste disposal capacity (2) Air pollution (3) Declining fish populations (4) Topsoil erosion (5) Ozone depletion (6) Marine and fresh water pollution (7) Toxic waste accumulation (8) Species extinction and reduction of biodiversity (9) Wetlands destruction (10) Climate modifications Marketing practice has been criticised for promoting excessive consumption and materialism and thus over-exploitation of natural resources for the production and use of consumer products. GREEN MARKETING (CONT’D)-DRIVING FORCES FOR SUSTAINABLE MARKETING PRACTICES Green marketing has been proposed as a solution to the environmental issues connected with marketing. There is a rising consumer awareness of and concern about environmental issues. Consumers demand more environmentally responsible products and production processes. Marketers should aim for more sustainable marketing practices: Driving forces for sustainable marketing practices (1)Public opinion and changing societal values (2)Green consumer demand and the opportunities of a growing market for environmentally friendly goods and technologies. (3)Internal and competitive pressures (4)Legislation (5)Green investment funds (6)Interest from media and pressure groups (7)The cost to business from environmental disasters.