Introduction to Business Chapter 7: Marketing Definition of Marketing • Is defined as “the process of planning and executing the concept, pricing, promotion, and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational goals. Key concepts • • • • Value, Benefits and Costs Utility Consumer Goods and Industrial Goods Services and Ideas Value, Benefits and Costs • Value – Refers to the comparison between product’s benefits over its costs • Benefits – What the product can do emotionally and physically for the consumers • Costs – The cost of the buyer’s time and emotional costs of making a purchase decision 4 Types of Utility Organizational Function Responsible Type Description Examples Form Conversion of raw materials and components into finished goods and services J.P. Morgan Chase checking account; Lincoln Navigator; Ramen Noodles (nutrition for students who are hungry, broke, and can’t—or won’t—cook) Production Time Availability of goods and services when consumers want them Digital photographs; LensCrafters eyeglass guarantee; UPS Next Day Air Marketing Place Availability of goods and services at convenient locations Soft-drink machines outside gas stations; on-site day care; banks in grocery stores Marketing Ownership Ability to transfer title to goods or services from marketer to buyer Retail sales (in exchange for currency or credit-card payment) Marketing Consumers Goods and Industrial Goods • Consumer goods – Convenience goods – Shopping goods – Specialty goods • Industrial goods – Expense items – Capital items Convenience Goods • like milk, bread, and occasional groceries which are frequently bought locally, with little consideration of the price charged since purchases are usually on a small scale and convenience is rated more highly than economy Shopping goods • which are relatively rare purchases. More time is usually taken over their selection, and the customer may travel long distances for a particular purchase. Specialty goods • Consumer products that are unique or special enough to persuade the consumer to exert unusual effort to obtain them. Expense items • Materials and services normally consumed within a year by other suppliers of services or producers of goods. • They include goods used directly in production process such as timber, rubber, nuts and bolts, chemical etc. Capital items • Items that are permanent, long-lasting goods and services that are useable for more than one year. • They include: buildings (office, warehouse, factories), fixed equipment (computer servers, stove and ovens), and accessory equipment (tractors, cranes). Services and Ideas • The characteristics of services marketing are: – Intangibility - once a service is performed there is nothing to take home – Inconsistency - every employee has different abilities, you will not always get the same person performing the service every time – Inseparability - distinguishing between the service and the server – Inventory - having enough stock to meet demand • E.g. airlines, insurance, investment and financial planning, health clinics, public accountants, consultancy, leisure and tourism The Marketing Environment • Elements of the Marketing Mix within an Environmental Framework Macro environment Political and Legal Environment The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. You must consider issues such as: 1.How stable is the political environment? 2.Will government policy influence laws that regulate or tax your business? 3.What is the government's position on marketing ethics? 4. What is the government's policy on the economy? 5. Does the government have a view on culture and religion? 6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others? Economic Environment • Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true when planning for international marketing. You need to look at: 1. Interest rates. 2. The level of inflation Employment level per capita. 3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on. Competitive Environment • Marketers understand the limitation of resources available by consumers • Therefore compete for the purchasing power of buyers • Types of competition: – Substitute competition: different products that can fulfill the same needs – Brand competition: similar product that can fulfill the same needs but provided by different producers – International competition: refers to the competition between domestic and imported products. Technological Environment • Technology is vital for competitive advantage, and is a major driver of globalization. Consider the following points: – Does technology allow for products and services to be made more cheaply and to a better standard of quality? – Do the technologies offer consumers and businesses more innovative products and services such as Internet banking, new generation mobile telephones, etc? – How is distribution changed by new technologies e.g. books via the Internet, flight tickets, auctions, etc? – Does technology offer companies a new way to communicate with consumers e.g. banners, Customer Relationship Management (CRM), etc? Social and Cultural Environment • The social and cultural influences on business vary from country to country. It is very important that such factors are considered. Factors include: • What is the dominant religion? – – – – – – What are attitudes to foreign products and services? Does language impact upon the diffusion of products onto markets? How much time do consumers have for leisure? What are the roles of men and women within society? How long are the population living? Are the older generations wealthy? Do the population have a strong/weak opinion on green issues? The Marketing Mix • Refers to four core activities: – Product • The product is the physical product or service offered to the consumer. – Pricing • Pricing decisions should take into account profit margins and the probable pricing response of competitors. • Pricing includes not only the list price, but also discounts, financing, and other options such as leasing. – Place • Place (or placement) decisions are those associated with channels of distribution that serve as the means for getting the product to the target customers. The distribution system performs transactional, logistical, and facilitating functions. – Promotion • Promotion decisions are those related to communicating and selling to potential consumers. Summary of Marketing Mix Product Price Place Promotion Functionality Appearance Quality Packaging Brand Warranty Service/Support List price Discounts Allowances Financing Leasing options Channel members Channel motivation Market coverage Locations Logistics Service levels Advertising Personal selling Public relations Message Media Budget Target Marketing& Market Segmentation • Target Marketing: are groups of people with similar wants, needs and/or buying behaviors • The division of a market into different homogeneous groups of consumers is known as market segmentation. – Geographic segmentation is based on regional variables such as region, climate, population density, and population growth rate. – Demographic segmentation is based on variables such as age, gender, ethnicity, education, occupation, income, and family status. – Psychographic segmentation is based on variables such as values, attitudes, and lifestyle. – Behavioral segmentation is based on variables such as usage rate and patterns, price sensitivity, brand loyalty, and benefits sought. Continue • Product Positioning – Is the process of adapting, adjusting and communicating the nature and features of the product to cater for a specific market segment. • Data Warehousing – Involves the collection, storage and retrieval of large groups of data pertaining to individuals • Data Mining – Involves the processing and use of these consumer data to uncover useful information and plan for new products that will appeal to identified market segments. Consumer Behavior • Consumers usually buy a product because of some influences that encourages them to choose one and not other products: – Psychological: individual’s motivation/perception – Personal: lifestyle, economic status – Social: reference group such as family/ friend/ professional – Cultural : subculture and social class • When individual consumer regularly purchase the same products, they exhibit brand loyalty because they are satisfied with the product. Consumer Buyer Decision Process • The five stages in the Consumer Buyer Decision Process are: – Problem or Need Recognition • Recognize a problem or need to buy a product – Information Seeking • Stage to seek information – Evaluation of Alternatives • Compare competing product and evaluate alternatives available – Purchase Decision • Choose the preferred product and buy them – Post-Purchase Decision • Customer will decide if they make a right choice Consumer behavior & Organizational Marketing • Organizational markets divided into three categories: – Industrial market: includes companies that buy goods either to convert raw materials to semi-finished or finished goods – Reseller market • Marketing intermediaries such as wholesalers and retailers that buy finished products and resell them either without changing/ repacking goods – Government market • Includes federal/ territorial/ states on built/maintain highway/ roads – Institutional market • Non-governmental market such as nursing home, church, private hospitals Product Development & Branding • Key concepts used: – Value – Features – Benefits – Product mix – Product lines Branding and Packaging • • Branding – National brands • Brand-name widely distributed that carry the name of the manufacturer: Honda/ Ford – Licensed brands • Brand-name product that carry the name of the organization: Spiderman/ Harley-Davidson/ David Beckham – Private brands • Private brand-name that a wholesaler has commissioned from a manufacturer e.g. Giordano/ SEED/ Swatch Packaging – Purposes: • In-store advertisement, Display brand name • Protector to reduce risk of damage Developing New Products • New Product Development Process (NPD) – is very essential for business expansion and diversification, long and complex process – Is necessary to ensure the continuous existence and survival of the organization • Product Mortality (survival) Rates – Lot of ideas to create one successful product • Product Introduction – Speed to Market – Introducing a product ahead of competitors will more likely to survive Developing New Products • Product Life Cycle • BCG Matrix Product Life Cycle and BCG Product Price Determination • Following are the key issues related to Pricing: – Pricing for Business Objectives • Profit maximization objective refers to the marketers attempt to set prices to sell the number of units that will generate the highest possible profits. – E-Business Objective • Marketing and promotion via internet allow business to set at lower price – Market Share Objective • Set low prices for new products to secure a high level market share • Price setting tools • Pricing strategies Distribution Mix 1. Channel Intermediaries - Wholesalers • They break down 'bulk' into smaller packages for resale by a retailer. • They buy from producers and resell to retailers. They take ownership or 'title' to goods whereas agents do not. • They provide storage facilities. For example, cheese manufacturers seldom wait for their product to mature. They sell on to a wholesaler that will store it and eventually resell to a retailer. • Wholesalers offer reduce the physical contact cost between the producer and consumer e.g. customer service costs, or sales force costs. • A wholesaler will often take on the some of the marketing responsibilities. Many produce their own brochures and use their own telesales operations. Distribution Mix 2. Channel Intermediaries - Agents • Agents are mainly used in international markets. • An agent will typically secure an order for a producer and will take a commission. They do not tend to take title to the goods. This means that capital is not tied up in goods. However, a 'stockist agent' will hold consignment stock (i.e. will store the stock, but the title will remain with the producer. This approach is used where goods need to get into a market soon after the order is placed e.g. foodstuffs). • Agents can be very expensive to train. They are difficult to keep control of due to the physical distances involved. They are difficult to motivate. Distribution Mix 3. Channel Intermediaries - Retailers • Retailers will have a much stronger personal relationship with the consumer. • The retailer will hold several other brands and products. A consumer will expect to be exposed to many products. • Retailers will often offer credit to the customer e.g. electrical wholesalers, or travel agents. • Products and services are promoted and merchandised by the retailer. • The retailer will give the final selling price to the product. • Retailers often have a strong 'brand' themselves e.g. Ross and Wall-Mart in the USA, and Alisuper, Modelo, and Jumbo in Portugal. Distribution Mix 4. Channel Intermediaries - Internet • The Internet has a geographically disperse market. • The main benefit of the Internet is that niche products reach a wider audience e.g. Scottish Salmon direct from an Inverness fishery. • There are low barriers low barriers to entry as set up costs are low. • Use e-commerce technology (for payment, shopping software, etc) • There is a paradigm shift in commerce and consumption which benefits distribution via the Internet Promotion- Communication Mix • The Promotion Mix: – Personal Selling – Sales Promotion – Public Relations (PR). – Advertising. – Sponsorship. Personal Selling • Personal Selling – is an effective way to manage personal customer relationships. The sales person acts on behalf of the organization. They tend to be well trained in the approaches and techniques of personal selling. Sales Promotion • Sales promotion tend to be thought of as being all promotions apart from advertising, personal selling, and public relations. For example the Buy One Get One Free. • Others include – couponing, – introductory offers (such as buy digital TV and get free installation) Public Relations (PR) • Public Relations is defined as 'the deliberate, planned and sustained effort to establish and maintain mutual understanding between an organization and its publics' • It is relatively cheap, but certainly not cheap. • Successful strategies tend to be long-term and plan for all eventualities. • All airlines exploit PR; just watch what happens when there is a disaster. Advertising • Advertising is a 'paid for' communication. It is used to develop attitudes, create awareness, and transmit information in order to gain a response from the target market. • Advertising 'media' such as – newspapers (local, national, free, trade), – magazines and journals, – television (local, national, terrestrial, satellite) cinema, – outdoor advertising (such as posters, bus sides). Sponsorship. • Sponsorship is where an organization pays to be associated with a particular event, cause or image. • Companies will sponsor sports events such as the Olympics or Formula One. • The attributes of the event are then associated with the sponsoring organization.