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Chapter 10
Understanding Marketing Processes and Consumer Behavior
Chapter Overview
According to the American Marketing Association, marketing is the process of
planning and executing the conception, pricing, promotion, and distribution of
ideas, goods, and services to create exchanges that satisfy individual and
organizational objectives.
The external marketing environment has a significant influence on marketing
strategy and decision-making. The five key elements of the external environment
are:
 Political-Legal Environment
 Socio-Cultural Environment
 Technological Environment
 Economic Environment
 Competitive Environment
Market segmentation is the process of dividing the market into mutually exclusive
categories of customers using geographic, demographic, or psychographic
variables. In order to increase the effectiveness of marketing, most businesses
focus their efforts on target markets: groups of customers with similar wants and
needs.
Consumer behavior is the study of why people choose to consume products. Key
influences on consumer behavior include personal, psychological, social, and
cultural factors. When making buying decisions, consumers recognize a problem
or need and then collect as much information as they think necessary before
making a purchase. After making a purchase, their post-purchase evaluations
play a critical role in future buying decisions.
Organizational markets fall into three categories: industrial market, reseller
market, and the government/institutional market. Organizational buyers differ
from consumer in that they are more likely to be professionals, specialists, and
experts.
Across every type of market, products are an organization’s reason for being.
Products must include relevant features and benefits to succeed. Consumer
products are designed for direct sale to individual consumers and can be classified
as convenience goods, shopping goods, or specialty goods. Industrial goods are
designed for sale to other firms and can be classified as expense items or capital
items.
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Branding and packaging help to create a product’s identity, with the goal of
generating brand loyalty – consumer preference for a product with a particular
brand name. There are national brands, licensed brands, and private brands.
Chapter Objectives
1. Explain the concept of marketing and describe the five forces that
constitute the external marketing environment.
2. Explain the purpose of a marketing plan and identify the four components
of the marketing mix.
3. Explain market segmentation and show how it is used in target marketing.
4. Describe the key factors that influence the consumer buying process.
5. Discuss the three categories of organizational markets.
6. Explain the definition of a product as a value package.
7. Explain the importance of branding and packaging.
REFERENCE OUTLINE
Opening Case: XBox Spots the Market
I.
What Is Marketing?
A. Providing Value and Satisfaction
1. Value and Benefits
2. Value and Utility
B. Goods, Services, and Ideas
C. Relationship Marketing
D. The Marketing Environment
1. Political and Legal Environment
2. Social and Cultural Environment
3. Technological Environment
4. Economic Environment
5. Competitive Environment
E. Strategy: The Marketing Mix
1. Product
2. Pricing
3. Place
4. Promotion
a. Advertising
b. Personal Selling
c. Sales Promotion
d. Public Relations
II.
Target Marketing and Market Segmentation
A. Identifying Market Segments
1. Geographic Variables
2. Demographic Variables
3. Psychographic Variables
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III.
Understanding Consumer Behavior
A. Influences on Consumer Behavior
B. The Consumer Buying Process
C. Data Warehousing and Data Mining
1. The Use of Data Mining
IV.
Organizational Marketing and Buying Behavior
A. Organizational Markets
1. Industrial Market
2. Reseller Market
3. Government and Institutional Market
B. Organizational Buying Behavior
1. Differences in Buyers
2. Differences in the Buyer-Seller Relationship
V.
What Is a Product?
A. The Value Package
B. Classifying Goods and Services
1. Classifying Consumer Products
a. Convenience Goods
b. Shopping Goods
c. Specialty Goods
2. Classifying Industrial Products
a. Expense Items
b. Capital Items
C. The Product Mix—Product Lines
VI.
Developing New Products
A. The New-Product Development Process
B. Product Mortality Rates
C. Speed to Market
D. The Product Life Cycle—Stages in the Product Life Cycle
VII.
Identifying Products
A. Branding Products
1. E-Business Branding
2. Types of Brand Names
a. National Brands
b. Licensed Brands
c. Private Brands
B. Packaging Products
VIII.
The International Marketing Mix
A. International Products
B. International Pricing
C. International Distribution
D. International Promotion
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IX.
Small Business and the Marketing Mix
A. Small-Business Products
B. Small-Business Pricing
C. Small-Business Distribution
D. Small-Business Promotion
LECTURE OUTLINE
I.
What Is Marketing? (Use PowerPoint 10.3.)
Marketing is the process of planning and implementing the
conception, pricing, promotion, and distribution of ideas, goods, and
services to create exchanges that satisfy individual and organizational
objectives.
A. Providing Value and Satisfaction
Limited financial resources force most of us to be selective in our
goods and services purchases.
1. Value and Benefits. Value compares a product’s
benefits with its costs; benefits include the product’s
functions and emotional satisfactions associated with
owning, experiencing, or possessing it.
2. Value and Utility. Products provide utility, which is the
product’s ability to satisfy a human want or need.
B. Goods, Services, and Ideas (Use PowerPoint 10.4.)
Consumer goods are products that consumers purchase for final
consumption; firms that sell these goods are engaged in consumer
marketing. Industrial goods are products that are purchased by
companies to be used in further production of goods; firms that sell
products to other businesses are engaged in industrial marketing.
C. Relationship Marketing
Relationship marketing focuses on long-lasting relationships
between customers and suppliers.
D. The Marketing Environment (Use PowerPoint 10.5, 10.6.)
Marketing decisions are affected by various influences in the
external environment.
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1. Political and Legal Environment. Political activities
may result in favorable laws and regulations that may
open new international business opportunities.
2. Social and Cultural Environment. Elements from this
segment of the external environment include changing
demographics, values and religion, buying behaviors,
preferences, and activities as well as many other factors.
3. Technological Environment. Technological change
happens so quickly in some industries that existing
products become obsolete very quickly, while newproduct introductions replace them.
4. Economic Environment. Economic conditions affect
many facets of marketing, including consumer spending
patterns and marketers’ plans for product offerings,
pricing, and promotional strategies.
5. Competitive Environment. All marketers compete for
the purchasing power of consumers. This sometimes
occurs through product differentiation and consumer
segmentation. Substitute products are dissimilar from
those of competitors but can fulfill the same need; brand
competition occurs between similar products;
international competition matches domestic products
against foreign products.
E. Strategy: The Marketing Mix (Use PowerPoint 10.7, 10.8.)
The marketing mix consists of the “four Ps” of marketing:
product, pricing, place, and promotion.
1. Product. The product is a good, service, or idea
designed to fill a consumer need. Meeting consumer
needs often requires that marketers change existing
products. Product differentiation is the development of
a product or the creation of a product image that differs
from existing products to attract consumers.
2. Pricing. Pricing must be set to support a variety of costs,
yet prices cannot be so high that consumers turn to
competing products.
3. Place. Distribution activities are concerned with getting
the product from the producer to the consumer.
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4. Promotion. Promotion refers to techniques of
communicating information about products. Promotion
includes a combination of personal selling and/or nonpersonal selling, including advertising, sales promotion,
and public relations.
a. Advertising. Advertising is any paid form of nonpersonal communication that persuades or informs
consumers.
b. Personal Selling. Personal selling involves faceto-face, person-to-person sales.
c. Sales Promotions. These include any premiums,
coupons, contests, games, etc.
d. Public Relations. Public Relations includes all
efforts directed at goodwill-building.
Notes:
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II.
Target Marketing and Market Segmentation (Use PowerPoint
10.9.)
Target markets are groups of people with similar wants and needs
and/or similar buying behaviors. Market segmentation divides a
market into categories of consumer types, based on geographic,
demographic, and psychographic variables.
A. Identifying Market Segments (Use PowerPoint 10.10.)
Members of a market segment must share common traits that will
affect their purchasing decisions.
1. Geographic Variables. Consumers in certain
geographic regions exhibit characteristics and buying
patterns that are typical of those regions.
2. Demographic Variables. Demographic variables
describe populations, including such traits as age,
income, gender, ethnic background, marital status, race,
religion, and social class.
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3. Psychographic Variables. Psychographic variables
include life styles, opinions, interests, and attitudes.
Notes:
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III.
Understanding Consumer Behavior (Use PowerPoint 10.11.)
Consumer behavior focuses on “why people buy.”
A. Influences on Consumer Behavior
Influences on consumer behavior can include psychological,
personal, social, and/or cultural elements. When consumers
exhibit brand loyalty, they regularly purchase products because
they are satisfied with the products’ performance or benefits.
B. The Consumer Buying Process (Use PowerPoint 10.12.)
Various models have been constructed to help marketers
understand how consumers come to purchase products; marketers
eventually use this information to develop marketing plans. A
typical model includes: (a) problem/need recognition, when the
consumer recognizes a problem or need; (b) information seeking,
in which consumer seek information from personal sources,
marketing sources, public sources, and experience; (c) evaluation
of alternatives; (d) purchase decision, based on rational motives
which involve the logical evaluation of product attributes, and/or
emotional motives, which involve non-objective factors and lead to
irrational decisions; and (e) post-purchase evaluations, in which
consumers are satisfied, dissatisfied, or dissonant.
C. Data Warehousing and Data Mining
The collection, storage, and retrieval of large groups of data
pertaining to individuals is data warehousing. Data mining
involves the processing and use of consumer data.
Notes:
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IV.
Organizational Marketing and Buying Behavior
Organizational markets and buying behaviors are quite different from
consumer markets and consumer behaviors.
A. Organizational Markets (Use PowerPoint 10.13.)
Organizational markets fall into three categories: industrial,
reseller, and government/institutional markets.
1. Industrial Market. The industrial market includes
businesses that buy goods that are either converted into
other products or goods that are used up during
production.
2. Reseller Market. The reseller market consists of
marketing intermediaries, such as wholesalers and
retailers that buy products and resell them.
3. Government/Institutional Market. In addition to
federal and state governments, the institutional market
consists of non-government organizations, such as
hospitals, churches, and museums that also comprise a
substantial market for goods and services.
B. Organizational Buying Behavior (Use PowerPoint 10.14.)
Demand for industrial products is stimulated by differences in
buyers and buyer-seller relationships.
1. Differences in Buyers. Organizational buyers are
professional, specialized, and expert.
2. Differences in the Buyer-Seller Relationship.
Industrial buying situations often involve frequent,
enduring buyer-seller relationships.
Notes:
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V.
What Is a Product?
In order to develop the marketing mix and plan their strategies
effectively, marketers must consider what consumers buy when they
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purchase products; marketers must begin by understanding product
features and benefits.
A. The Value Package
Product features are the tangible and intangible qualities that are
built into products; product benefits include what products can do
emotionally or physically for consumers.
B. Classifying Goods and Services (Use PowerPoint 10.15.)
Goods and services may be classified according to their
prospective buyers; buyers may be classified as buyers of
consumer products or buyers of industrial products.
1. Classifying Consumer Products.
a. Convenience Goods. These goods are consumed
rapidly and regularly; they are relatively
inexpensive and are purchased frequently.
b. Shopping Goods. These goods are more expensive
and purchased less frequently; consumers often
compare brands and evaluate alternatives.
c. Specialty Goods. These goods are purchased
infrequently and are expensive; consumers are very
specific about what they want and will accept no
substitutes.
2. Classifying Industrial Products.
a. Expense Items. These are materials and services
consumed within one year by other suppliers of
services or producers of goods.
b. Capital Items. These items are permanent, longlasting goods and services that have expected lives
of more than one year.
C. The Product Mix (Use PowerPoint 10.16.)
The product mix is the total assortment of all goods and/or
services that a marketer makes available for sale. The product mix
consists of a number of product lines, which are groups of similar
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products intended for specific purpose for a similar group of
buyers.
Notes:
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VI.
Developing New Products (Use PowerPoint 10.17.)
To expand or diversify to survive, marketers must develop and
successfully introduce streams of new products. Competition and
shifting consumer preferences cause marketers to continually monitor
and frequently change their offerings.
A. The New-Product Development Process
Product development is a long, complex process. New products
usually involve carefully planned and sometimes risky
commitments of time and resources.
B. Product Mortality Rates
Estimates indicate that it takes 50 new product ideas to generate
one product that reaches the marketplace; only a few of the
survivors become successful.
C. Speed to Market
The more quickly a product enters the marketplace, the more likely
it is to survive. Introducing new products ahead of competitors
allows companies to become market leaders.
D. The Product Life Cycle
Every product passes through a series of stages during its limited
profit-producing life.
1. Stages in the Product Life Cycle. The product life cycle
is a natural process in which products are born, grow,
mature, decline, and die. The stages include:
introduction, which begins when the product enters the
marketplace; growth, when sales and profits climb;
maturity, when sales growth begins to slow; and decline,
when sales and profits continue to fall.
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Notes:
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VII.
Identifying Products
Branding and packaging are two tools that allow consumers to identify
products in the marketplace.
A. Branding Products (Use PowerPoint 10.18.)
Brand names are symbols for characterizing products and
distinguishing them from one another; branding is the process of
using symbols to communicate the features and qualities of
products.
1. E-Business Branding. Reliability and innovation are the
keys to global brand recognition; costs are often
prohibitive.
2. Types of Brand Names.
a. National Brands. These are brand-name products
produced by, widely distributed by, and carrying the
name of a manufacturer.
b. Licensed Brands. These are brand-name products
that carry the name of an organization or individual.
c. Private Brands. These are brand-name products
that a wholesaler or retailer has commissioned from
a manufacturer.
B. Packaging Products (Use PowerPoint 10.19.)
A product’s package serves several purposes; the package can
serve as an in-store advertisement, a display for the brand name, an
identifier of product features and benefits, and can reduce the risk
of damage and increase the difficulty of stealing.
Notes:
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VIII. The International Marketing Mix (Use PowerPoint 10.20.)
Foreign consumers differ from domestic buyers in language, customs,
business practices, and consumer behavior. Marketing products
internationally means mounting a strategy to support global business
operations.
A. International Products
Some products can be marketed internationally without
modifications, whereas, some products need to be modified to fit
the needs of a local market.
B. International Pricing
Many factors that affect domestic pricing also affect international
pricing; additional factors affecting global market pricing are the
costs of transportation and selling abroad.
C. International Distribution
Distribution networks in other countries may be costly. Many
domestic marketers hire foreign agents to assist with selling,
advertising, and providing information about local markets.
D. International Promotion
Many American promotional tactics do not succeed in other
countries. Marketers must consider differences in language and
culture when promoting products abroad.
Notes:
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IX.
Small Business and the Marketing Mix (Use PowerPoint 10.21.)
Far more small businesses fail than succeed. The successful small
businesses have learned skillful application of the marketing mix and
careful consideration of each element in the marketing mix.
A. Small-Business Products
Understanding the target market and the targeted group’s wants is
critical.
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B. Small-Business Pricing
Profits are often determined by accurately assessing costs from the
start.
C. Small-Business Distribution
The most critical aspect of distribution for small businesses is
facility location.
D. Small-Business Promotion
Understanding promotional costs, as well as benefits of chosen
promotional tools, may be the most critical steps involved.
Notes:
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Answers to Questions and Exercises
Questions for Review
1. What are the key similarities and differences between consumer
buying behavior and organizational buying behavior?
Both deal with the way people purchase and consume products. However,
organizational buyers are professional, specialized, and expert, relying less
on product image. Buyer-seller relationships tend to be longer lasting.
2. Why and how is market segmentation used in target marketing?
Market segmentation is a method of breaking consumers into mutually
exclusive groups based on similar characteristics that are likely to affect
consumption. By identifying and targeting segments that are most likely
to purchase its products, an organization can tailor its marketing efforts in
terms of product features and benefits, pricing, packaging, promotion, and
distribution.
3. How are data mining and data warehousing useful in finding new
information for marketing to consumers?
These processes involve the collection and storage of vast amounts of
consumer information, including demographic, psychographic, and
geographic information. That information can, in turn, be used to
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determine where future needs and wants of consumers may fall. In
addition, storage of such data may allow a researcher to monitor trends in
behavioral changes among a specific market niche.
4. What are the various classifications of consumer and industrial
products? Give an example of a good and a service for each category
other than those in the text.
Consumer Products
Convenience goods and services – candy, ATM services
Shopping goods and services – clothing, car repair
Specialty goods and services – houses, interior design
Industrial Products
Expense items – inventory, repair bills
Capital items – computer servers, long-term maintenance contracts
Questions for Analysis
5. Select an everyday product. Show how different versions of your
product are aimed toward different market segments. Explain how
the marketing mix differs for each segment.
Answers will vary, but students should focus on product and package
characteristics, price levels, promotional tools, and distribution options.
They should also discuss demographics and psychographics of the target
market and the way they influence marketing mix decisions.
6. Select a second everyday product and describe the consumer buying
process that typically goes into its purchase.
Answers will vary but should include need recognition, search for
information, evaluation of information, purchase decision, and postpurchase evaluation.
7. If you were starting your own small business, which of the forces in
the external marketing environment would you believe to have the
greatest potential impact on your success?
Answers will vary.
8. How would you expect the branding and packaging of convenience,
shopping, and specialty goods to differ? Why? Give examples to
illustrate your answers.
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Convenience goods, such as candy bars, should have very prominent
branding and packaging elements in order to spur impulse purchases.
Shopping goods, such as computers and clothing, should be branded and
packaged to clearly communicate their unique features and benefits since
shoppers engage in comparisons. Specialty goods, such as high-end
cosmetics in top department stores, should be branded and packaged in a
way that reinforces their mystique.
Application Exercises
9. Interview the marketing manager of a local business. Identify the
degree to which this person’s job is focused toward each element in
the marketing mix.
Answers will vary, but students should address how the person’s job
relates to product, price, promotion, and place, and how the person
monitors decisions in each area to determine when change is necessary.
10. Select a product made by a foreign company and sold in the United
States. What is the product’s target market? What is the basis on
which the target market is segmented? Do you think that this basis is
appropriate? How might another approach, if any, be beneficial?
Why?
Answers will vary based on the nature of the product and the business.
Answers to Exercising Your Ethics
1. Given the factors involved in the consumer buying process, how
would you characterize the particular ethical issues in this situation?
The key ethical issues are integrity and communication. Matthew has
invested enormous effort in information collecting and evaluating
alternatives, expecting that once he had made the purchase decision the
dealer would come through on its end of the bargain. One possibility is
that the sales representative and the sales manager simply had not
communicated, but this becomes an ethical issue when the sales
representative has the responsibility to establish contracts without the
authority to deliver results.
2. From an ethical standpoint, what are the obligations of the sales
representative and the sales manager regarding the pricing of the
product in this situation?
Since the contract has been signed, the minimal obligation of the car
company is to offer the 2002 model at the 2001 price.
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3. If you were responsible for maintaining good customer relations at the
dealership, how would you handle this matter?
Answers will vary.
Answers to Building Your Business Skills
1. Which location did you choose? Describe the market segmentation
factors that influenced your decision.
Answers will vary, but students should have specific information for each
of the market segmentation factors.
2. Identify the two most important variables that you believe will have
the greatest impact on the dealership’s success. Why are these factors
so important?
Answers will vary.
3. Which factors were least important? Why?
Answers will vary.
4. When equipment manufacturers advertise residential H/AC products,
they often show them in different climate situations. Which market
segments are these ads targeting? Describe these segments in terms of
demographic and psychographic characteristics.
These ads are likely targeted to middle-to-higher income owners of older
homes who need to replace heating or air conditioning systems or are
willing to pay for upgraded equipment for greater comfort. They may also
target affluent buyers who are building a home.
Classroom Activities
1. Break the class into small groups and assign each group a specific
industry. Have each group discuss the marketing strategies that they
believe important to the effective marketing of products in that industry.
2. Divide the class into three-member groups. Ask each group to bring three
similar products (or packages of those products) to class. Examples might
include breakfast cereals, soft drinks, or laundry detergent. Ask each
group to analyze the target market for each of their three products. Then,
based on who they have identified as the target market for each product,
ask each group to discuss each element of the marketing mix – explaining
how the marketing mix was “built” for each product.
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