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Introductory Marketing Concepts
What is marketing?
Marketing is an integral part of every organization. Marketing helps facilitate profitable,
mutually beneficial, voluntary exchanges between and organization and its customers.
Marketing allows organizations to operate effectively by meeting the needs of their
customers. Marketing also allows organizations to use its resources efficiently to meet
its long- and short-term objectives.
What conditions must exist for an exchange to occur?
Voluntary participation by all parties
Two or more parties involved
Each party must have something of value to exchange
Parties must communicate with each other
The exchange must be profitable
Who is the customer?
The process of identifying who to target as the customer in an exchange as easy as it
may seem. The “real” customer may take on one or all of the following roles that exist
in an exchange.
Initiator – the one that initiates the decision process. This may be a commercial source
such as a Wendy’s ad.
Influencer – the one that provides information to be used in a decision. For example, a
travel agent may provide information on alternative destinations.
Decider- the one that makes the decision. The decision may be made by more than one
person. For example, a two-person dyad may make a decision to purchase a house.
Buyer- the one that actually makes the purchase.
User- the one that uses the ‘product’
Where can marketing be applied?
All exchange situations - private, public, business-to-business, not for profit, may benefit
from a well executed marketing plan. Churches are using marketing research in the
form of secret worshipers (instead of shoppers) to determine what needs to target.
Green cemeteries are using the concepts of pricing to grow their business. The Internal
Revenue Service engages in public relations during tax season to minimize the number
of errors that individuals make in preparing their taxes.
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Evolution of marketing
Marketing within an industry or organization evolves over time. Three stages of
marketing evolution have been identified. These stages are the Production-orientation,
Sales-orientation, and Marketing-orientation. During the Production-orientation stage
the focus of marketing is on engineering a better product. Think of this as “building a
better mousetrap and people will beat a path to your door.” Blueray disk players are
relatively new and models are available with only a few features. Over time, newer
models will be launched with more features as manufacturers focus on meeting more
needs of the customer. The Sales-orientation is characterized by a realization that
organizations must “sell” their product to a customer to generate a profit. The focus on
selling is on persuading the customer that the organization’s product is what the
customer needs. The Marketing-orientation focuses on identifying unsatisfied customer
needs first, and then building a product to meet the unsatisfied needs at an acceptable
level of profit. An organization that adopts the marketing-orientation utilizes the full
marketing toolbox.
What is the marketing concept?
The marketing concept is a coordinated customer-orientation to achieve organizational
performance objectives. Performance objectives include cost control to maintain
financial margins, achieving a set market share, and weathering an economic downturn.
The marketing concept stresses the importance of using marketing tools to determine
customer needs, and then design a marketing plan to satisfy these needs.
What is the societal marketing concept?
The societal marketing concept is a coordinated customer-orientation to achieve
organizational performance objectives while considering concerns that exist in society.
The societal marketing concept includes the broader issue of social responsibility and
sustainability. “Going Green” or green marketing (carbon footprint), recycling of ewaste and organic food products are examples of concerns of some segments of society.
What is the difference between a need and a want?
A need is a necessity. For example, we all have a need for food, drink and shelter. A
want is a luxury. For example, we need food but we want to eat at Chevy’s. We need
shelter (Motel 6) while traveling but we want to stay at the Four Seasons.
What is relationship marketing?
Relationship marketing involves a personal, long-term bond with customers so that
exchanges are more like a partnership than a transaction. Relationship marketing
means an organization wants to have a customer for life. A frequent purchase program
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(for example Hilton Reward Points, Safeway Card pricing, Southwest Airlines frequent
flyer program) is an example of relationship marketing.
What is ethical behavior?
Ethics is an important input into making decisions. Several theories exist that explain
ethical behavior. These include the golden rule (treat others and you would like to be
treated, Kant’s Imperative (greatest good for the greatest number of people), relativism
(make a decision based on the unique facts at hand), and the Banner Headline (what
would the people that are closest to you think about a decision that you made if it was
published as the headline in tomorrow’s newspaper).
What is quality?
Quality means different things to different people. For example, quality may be defined
by how long a product lasts. It may defined by a brand name. There are four
dimensions that help define quality – Performance, Time saving, Perceived quality, and
Durability. More than one of these dimensions may contribute to defining quality but
one dimension will dominate the other dimensions.
What is value?
Value means different things to different people. The value of a product involves
associations that a consumer has with perceptions of the product and its price. For
example, one person may assign a higher “value” if a restaurant provides a large
amount of food whereas another person may assign a higher “value” if less food is
served but it tastes better. Value can change depending on the consumer’s mood and
situation. For example, on a hot summer day you may “value” paying more for a 30
minute guarantee of auto service if your car breaks down on the freeway than if the
weather is cooler.
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What is utility?
Utility is the “something” in the product that satisfies needs is utility. Marketing helps
create utility. There are three types of utility - Time utility (when something is
available), Place utility (where something is available), and Possession utility (the ability
to use something).
What is positioning?
Product positioning is the product's image in relationship to direct competitors’
products. Many attributes may be used to “position” a product including the price of
the product, product design, and the product’s location.
What is a differential advantage?
Any feature of an organization or brand perceived by customers to be desirable and
different from those of the competition. Differential advantages must be sustainable
(not easily copied) and last a long time.
What is a target market?
A target market is a group of consumers or organizations which a firm directs its
marketing program. Members of a target market have similar needs or wants.
What is the marketing mix?
The marketing mix is the marketer’s toolbox that is used to position a product or
organization in the mind of the target market with the intent to satisfy the need or want
of the target market at an acceptable level of profit. The marketing mix is composed of
product, place, price, and promotion. Each of these marketing mix elements will be
explored in more detail later in the course.
What is a SBU?
A SBU is a unit of analysis involved in planning. A SBU in marketing typically is a major
market or a product.
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What is the product/market growth matrix?
The product/growth matrix is a planning tool that presents alternative strategies that
the organization may implement.
Present
Market
Penetration
Product
Development
New
Market
Development
Diversification
Markets
Present
New
Products
What is strategic planning?
Strategic planning occurs when managers match an organization's resources with its
market opportunities over the long-run (3 to 5 years).
What is a strategic window?
A strategic window is a limited amount of time that a firm's resources coincide with a
particular market opportunity. It is difficult to predict when a strategic window will
open. Judgment is a key to knowing if a window opens and if an organization might take
advantage of it.
What are key planning concepts/operations?
Planning involves making a sequence set of decisions. For example, a strategic plant
involves the following steps.
1.
2.
3.
4.
Where are we? Situation analysis
Where do we want to go? Mission/objectives
How do we get there? Strategies/tactics and budgeting
How do we know whether we got to where we want to go? Assessment or
evaluation
When it comes to planning remember - KISS - keep it simple stupid
What is the difference between a strategy and a tactic?
A strategy is a broad plan of action.
A tactic is the way a strategy is implemented.
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What is the process of strategic marketing planning?
Situation analysis
Set marketing objectives
Determine position & differential advantage
Select target markets & measure market demand
Design a marketing mix
Budget and Implement the marketing mix
Determine if objectives have been achieved
Marketing Opportunity Analysis
A marketing opportunity analysis is a process that analyzes the effectiveness and
efficiency of the marketing plan and identifies opportunities that may be explored. It
involves several components.
1.
2.
3.
4.
5.
Benchmark performance standards to assess effectiveness of marketing
plans
Customer satisfaction research
Marketing Cost Analysis – cost efficiency of the marketing plan
(accounting traces results of account/market costs and MIS generates
usable information for marketing decision-makers)
Sales Analysis
Marketing Audit – a systematic, critical and impartial review of the
marketing effort including the marketing mix and the marketing
environments.
What is an Integrated Marketing Plan?
The integrated marketing plan requires a clear statement of organizational mission –
organization’s commitment to a type of business and place in the market; long-term
competitive advantages – Can be at the company, product or marketing level but must
be defendable over time; and defined target markets. Its benefits include compatible
long-, moderate-, and short-term subplans; coordination among SBUs; coordination of
the marketing mix; and stability over time.
Organizing the Marketing Effort
Marketing within an organization may be organized in several ways. It may be
organized by function (marketing, finance, accounting, operations), geography
(Northeast, Southwest, Midwest), product (Diet Coke, Coca Cola Classic, Sprite), or
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product/market (Diet Coke in Europe; Sprite in Asia). Each method of organizing the
marketing effort has its advantages and disadvantages.
Criticisms of Marketing
Marketing activities have faced their share of criticism. Marketing has been criticized as
exploitation (low wages paid in third world counties to assemble Nike shoes), promoting
inefficiency (do we really need all of those electronic gizmos?), stimulating
unwholesome demand (gambling on the state lottery or drinking more beer), and
planned obsolesce (a laptop should last more than three years).
Consumerism
Consumerism is activism expressed by consumers. For example, there have been new
calls for consumer protection in the U.S. regarding lead paint used on toys imported
from China, food and drug recalls, and subprime mortgage lending.
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The Marketing Environment
The business environments must be considered before writing a strategic marketing
plan. The environments may be classified as the External Environment (alternatively the
macroenvironment) or the Internal Environment (alternatively the microenvironment).
Management must establish a system that continually monitors these environments for
changes that need to be included in future planning. One method of monitoring is
environmental scanning.
Environmental Scanning
Environmental scanning is the process that an organization uses to gather information
on external environment. Environmental scanning analyzes the external environment
for trends that may impact the strategic marketing plan. Management must forecast
the impact on whatever trends exist in the external environment and modify the
strategic plan accordingly.
External Environments
Demographics - Baby Boomers (One person in the U.S. turns 50 every 7 seconds),
Generation X, Echo Boomers, Tweens. All of these potentially impact the
marketing plan of an organization. For example, the need for health care will
increase in the next few decades as baby boomers enter their 60s, 70s, and 80s.
Economic conditions – unemployment rate, interest rates, inflation. Economic
conditions may impact an organization in a radical way. For example, it is
difficult to sell cars if credit isn’t available. Some products are somewhat
recession proof. For example, beer consumption has increased during past
recessions.
Social & Cultural forces - green marketing, gender roles, health and fitness,
Investment clubs for women. Social and cultural forces change at a slower speed
than some of the other environments. A marketing plan my change at a microlevel rather than a macro-level. For example, supermarkets in areas of a city
where there is more culturally diverse may stock food items preferred by their
cliental. Shifts in taste preferences in China, India and Europe have led to a
surge in the sales of Scotch. Home Depot has launched a Spanish version of its
web site to reach Hispanics who shop online and prefer Spanish.
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Political Legal forces - Antitrust, Product Liability, Trademarks, Patents,
Contracts. Political forces may shift quickly and have a significant impact on a
marketing plan. For example, in 2007 the U.S. Supreme Court made a decision in
a price fixing case that allows manufacturers to enforce a suggested retail price.
This decision overrode almost 100 years of enforcement against manufacturers
fixing the retail price for their products. The FDA recently called on Coca-Cola to
revise the label of Diet Coke Plus that contains vitamins and minerals because it
is an inappropriate nutritional claim.
Technology - Chrysler plastic car, Blue ray versus HD players, IPods. Technology
is constantly changing what products consumers want, the packaging of
products, and the promotion of products. For example, advertising dollars are
being shifted from network TV to social networking sites on the internet in an
effort to specifically target a smaller but very significant consumer market. HP
launched a touch screen laptop to increase demand for its products.
Market - needs to be satisfied, money to spend willingness to spend. Shifts in
the tastes and preferences of the market may be quick or slow depending on the
industry. For example, the demand for public transportation increased in the
spring of 2008 as the price of gas increased to over $4.50 per gallon. As the price
dropped to below $2 a gallon more people went back to commuting to work in
their car.
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Suppliers- vendors that supply everything from raw materials to office supplies
to component parts. Price increases and the ability to deliver supplies when
needed are important considerations for an organization trying to maintain their
margins.
Intermediaries- retailers, wholesalers, transportation firms. The shakeout in
retailing has a profound impact on manufacturers that are trying to reach their
target markets.
Internal Environment
The internal environment includes all of the functions of an organization; Marketing,
Finance, Human Resources, Information Technology, Accounting, Operations, and
Legal. Something that impacts one of these will have some impact on marketing. For
example, if an organization is unable to secure financing to purchase inventory to serve
the needs of their target market.
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Global Marketing
Organization of global marketing effort
There are many ways to organize the global marketing effort. Exporting (products
produced in the U.S. and shipped to another country) is the easiest to organize, start,
and end. It is the least risky in terms of resources that are expended. Contract
manufacturing involves contracting with a manufacturer to produce a product in a
foreign country and the U.S. marketer retaining the right to market the product in the
foreign country. Contract manufacturing involves a little more risk because the U.S.
marketer must pay for the product that is produced but not be able to sell. Licensing is
similar to contract manufacturing but the U.S. organization that owns the brand being
licensed doesn’t contract for a specific amount of product to be produced. Marketing in
the foreign country is generally retained by the owner of the brand. For example,
Mattel is remaking the Barbie brand to market the doll in China. International sales of
the Barbie doll are already twice the sales in the U.S. The makeover is designed to
appeal to children and adults in China. Direct investment (complete ownership) - joint
venture involves the greatest investment and risk. The U.S. organizations “partners”
with a foreign organization to produce, distribute and/or market a product in a foreign
country. Each partner invests a certain amount of capital, technology, or valued skills
into the venture. A limitation of a joint venture is that conflict may arise over
responsibility, management, or resources even though there is a contract.
Social and cultural forces
Just as in the U.S. market a marketer must be aware of different social customs,
education levels and literacy rates, and language differences. A classic example is the
failure of General Motors’ attempt to market the Chevy Nova in Latin America. “Nova”
translated into “stalled car.” Sometimes marketers use pictures instead of words to
communicate how to use a product. However, not everyone in the world reads left to
right as Americans do.
Economies
Different countries have different kinds of economies. Some countries have relatively
free markets. These economies are called “market driven.” Other countries tightly
control their economy. These economies are called a “command economy.” Countries
also differ in their level of economic development (banking and legal system) and
infrastructure (roads, bridges, ports, airports).
Political
Global marketing is heavily influence by the political environment in various countries.
One area involves trade barriers - tariffs, import quota, local content law. Trade
agreements - GATT 120 countries 40% decrease in tariffs, NAFTA, European Union,
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WTO (World Trade Organization), are treaties designed to encourage free trade
between countries.
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Understanding Consumer Market Behavior
What are the different markets?
The three markets are the consumer market, the government market and the businessto-business market. The buying process is the same in each market but the marketing
mix differs in each market.
What is the buying process?
The buying process consists of five stages. These stages are present in each purchase.
However, the customer may spend more or less time in each stage depending on the
significance of the purchase, the frequency of the purchase, level of satisfaction with
previous purchases, mood, involvement, perceived risk, and motivation for a purchase.
Various models will present how they impact the buying process. The purchase process
includes:
Need recognition
Identification of alternatives
Evaluation of alternatives
Decision
Postpurchase behavior - cognitive dissonance
Involvement
Level of involvement affects consumer decision-making. The more the consumer is
involved in the process, the longer the purchase process. Involvement is the amount of
time and effort the consumer puts into the purchase process. Factors that influence the
amount of involvement include experience, interest, perceived risk, social visibility, and
situation.
Low involvement is a characteristic of impulse buying. The buyer moves through
the buying process quickly.
High involvement is a characteristic of a shopping or specialty purchase. The
buyer moves through the buying process more slowly.
Influences of buying behavior
A number of models have been advanced to explain “why consumers buy what they
buy.”
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Social Influences
Culture - set of symbols and artifacts created by society and handed
down from generation to generation as determinants of behavior.
Tattoos are generally accepted today whereas they were not generally
accepted 20-30 years ago.
In some cases culture is subdivided into smaller groups. For example, the
Hispanic market may be subdivided into groups from South America,
Central America, Cuba, Philippines and Mexico.
Social class are groups of consumers that they belong to or aspire to
belong to.
Upper class 2% - executives, Fortune 400
Upper middle class 12% - professional
Lower middle class 32% - small business owners, teachers
Upper lower class 38% - blue collar
Lower lower class 16% - unskilled
Reference Groups –a small group that develops its own standards of
behavior (clothes, shampoo). Aspiration reference groups are influenced
by opinion leaders. You may be a member of a club and that is your
reference group. Marketers are now targeting MySpace and Facebook
social networking sites to reach reference groups.
Families and households structure influences the buying process. In
some cases a dyad may make a purchase. Consider the purchase of a
house by a family of four on the buying process and the buying roles
(initiator, influencer, decider, user, buyer). Families and households are
categorized as the Family Life Cycle.
Family Life Cycle
Bachelor (male or female)
Newly married
Full nest I (children < 10)
Full nest II (children 10-13)
Full nest III (children 14-22)
Empty nest
Sole Survivor I (remaining spouse is active)
Sole Survivor II (remaining spouse is inactive)
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Psychological models
A number of psychological models have been suggested to explain “why
consumer buy what they buy”.
Motivation - motive is a need sufficiently stimulated to move to action
(satisfaction). Maslow's hierarchy of needs is an example of a motivation
model.
Self actualization – self fulfillment
Esteem
Belonging and love - social
Safety
Physiological
Perception is another psychological model that marketers use to explain
“why consumers buy what they buy.” Perception involves receiving,
organizing and assigning meaning to information gathered by the five
senses. Perception begins with attending to information. There are
three levels of attention.
Selective attention - Selective distortion - Selective retention
Learning is another psychological model of consumer behavior. It is the
most basic model and we use it every day.
Stimulus - response model
Example, power off at airport yet people were queued up
The consumer’s personality can influence the buying process.
Confidence, dominance, friendliness are personality types that can be
used to predict “what a consumer will buy.”
The psychoanalytic model, id (basic desires), ego (rationality), superego
(moral standards), is used in many advertisements. The suggestion that
‘Sex Sells’ is tied to the id.
Perceived risk suggests a purchase decision is a function of a perception
of the amount and type of risk that is associated with a purchase
Types of risk: financial, social, physical, performance, time
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Self concept relates to how the consumer sees him or herself.
Self image (they way that you see yourself)
Ideal self concept (the way you would like to be seen)
Social self concept (the way you are actually seen by
others)
Attitudes are predispositions to respond to an object in the same way.
Beliefs (evaluation of beliefs) = attitudes
Aact = ∑ bi ei
Attitudes are learned
Attitudes are based on an object
Attitudes have direction and intensity
Situational influences that influence purchase behavior
Various situational factors may influence the buying process. These factors include;
Time - when
Physical and social surroundings - where
Terms of purchase - How
Temporary state - moods
Buying motives for purchasing
Buying motives tend to be emotional. Here is a comparison of rational and emotional
motives for making a purchase.
Rational
Economy of purchase
Durability
Ease of Repair
Availability
Economy of use
Emotional
Pride of appearance
Fear
Safety
Desire to create
Desire for security
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Analyzing purchase behavior
One way to analyze the purchase of a product is to use the 6 Os of consumer buying
behavior. These Os are:
Origins of purchase
Objectives of purchase
Occasions of purchase
Outlets of purchase
Operations of purchase
Objects of purchase
Who buys?
Why do they buy?
When do they buy?
Where do they buy?
How do they buy? (What is the process
used to make a purchase)
What do they buy?
Do consumers buy features or benefits?
Consumers buy benefits, not features of a product. Benefits are directly tied to the core
need or want that is being satisfied.
Features
Performance ratings
Reputation ratings
Colors
Size
Service levels
Workmanship
Benefits
Time saved
Prestige
Increased sales
Greater convenience
Economy of use
Long life
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Understanding Business-to-Business and Government Markets
Types of Markets
Business-to-business and government markets are categorized in the following way.
Agriculture market $190 billion
Reseller market 500k wholesalers, 2.7 mil retailers
Government market 86k Fed, State and Local units
Services market
Nonprofit market
International market 40% of earnings from outside the U.S.
What is derived demand?
Demand in the business-to-business and government markets is derived from the end
user (consumer). Derived demand is inelastic.
What is an SIC
The Standard Industrial Classification System is used to categorize the business-tobusiness market based on primary business. For example, apparel is subdivided into
men’s, women’s and children’s apparel.
What are the various buying situations?
Buying situations influence the buying process in the business-to-business and
government markets. Rebuy involves a frequently purchase. A rebuy moves through the
buying process quickly. A modified rebuy involves a search for information and a longer
buying process. A new task is an infrequent purchase and involves a considerable
search for information and evaluation of alternatives before a purchase.
What is the buying process?
Need recognition
Identification of alternatives
Evaluation of alternatives
Purchase decision
Postpurchase behavior
What is the buying center?
The ‘customer’ in the business-to-business and government market is known as the
buying center. The buying center is an individual or a group of people involved in the
decision making process regarding what to purchase.
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Characteristics of purchase
Purchases in the business-to-business and government markets tend to be infrequent,
involve larger order size than consumer market, usually involve a short supply chain and
involve a direct purchase, involve a longer negotiation period, and demand higher
service requirements.
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Market Segmentation
Energy Drink Market
2007 consumption of carbonated soft drinks = 14.7 billion gallons
8.7 billion gallons of bottled water
313 million gallons of energy drinks, 3.5 billion cans or about $10 billion
There are about 250 energy drink brands. Some of these are:
Vegas Fuel targeting brighter moods
Coke’s Enviga targeting weight management
Tab Energy targeting fuel for the fabulous
5 Hour Energy targeting more energy without the crash
Go Girl targeting women
Pro Player targeting poker lovers
Kabbalah targeting spiritualists
Red Bull
Rockstar
Monster
What is market segmentation, market segment, target market?
Market segmentation involves the breaking of a mass market into smaller groups of
buyers with similar needs or wants. A market segment is a group of buyers with similar
needs or wants. A target market is an organization’s decision regarding what market
segment to try to satisfy with a unique marketing mix. It only makes sense to talk about
one target market for a product.
How to segment a market?
Market segmentation may involve several methods. These methods are:
Demographic – gender, age, income level, education level, ethnicity
Geographic - urban, rural, southeast, northeast
Psychographic - personality, lifestyle, attitude
Behavioral - usage rate, usage occasions
Benefits Sought – well being, economy
A viable market segment must be measurable, accessible, have data available, and be a
certain size to be profitable.
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What are the different segmentation strategies?
There are three segmentation strategy that an organization may pursue.
Undifferentiated or market aggregation – treat the market as if no market
segments exist.
Concentrated or single segment – see that the market is composed of several
market segments and select only one to target.
Multisegment or multiple segment – see that the market is composed of several
market segments and select two or more to target each with an unique
marketing mix.
Process of selecting a target market
The process of selecting a target market involves five steps.
1.
2.
3.
4.
5.
Select a market
Divide market into segments using one of the methods of segmentation
Profile and analyze segments
Select target market
Design marketing mix
Evaluating viability of market segments
The following questions must be answered before a market segment may be considered
viable.
1.
2.
3.
4.
Can the segment be identified?
Can the segment be measured?
Is the segment large enough to support the marketing effort?
Can the segment be reached with a marketing mix?
What is product positioning?
Product positioning involves assembling an unique marketing mix that will place a
product in a target market. Perceptual mapping is the process of positioning a product.
Positioning involves developing an image in relation to competitive products.
Positioning may be relative to a competitor, a product class or attribute or a price and
quality. Frequently brands are repositioned to stimulate growth at the end of its life.
Beer products are sometimes repositioned when consumer preferences shift.
What is market potential, sales potential, market share, sales forecast?
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Marketing Research
What is marketing research?
Marketing research involves discrete studies to assist in marketing decisions.
What is marketing intelligence?
Marketing intelligence involves the continuous flow of information into an organization.
What is a customer database?
Why is customer a database important? It helps an organization make efficient
and effective marketing decisions.
Sources of data for databases - Scanners
Commercial sources
Business cards
Product registration cards
Contests
Marketing research process?
The marketing research process involves seven steps.
1. Define objectives
2. Situation analysis - helps refine the research problem
3. Informal investigation - using available information, "Is a formal study
needed?"
4. Formal study
Types of Data
Secondary
Primary
Cheaper
Previously collected
May not be in the exact form that is
needed
Question accuracy
Question timeliness
More expensive
Must be gathered for the project
Focus group
Experiments - test markets
Surveys and observation
5. Gather data
6. Analyze data
7. Prepare report
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Types of Studies
Type of study
Sample
Exploratory
Convenience
Type of data
Qualitative
Data collection
method
Observation, case
studies, mall
intercept, consumer
panel
Descriptive
Convenience,
random, systematic
random, cluster,
stratified
Qualitative or
Quantitative
Mail, telephone,
personal interview,
web survey, email
Predictive
Random, systematic
random, cluster,
stratified
Quantitative
Experiment – for
example test
market
Data Collection Methods
Type of Survey
Mail



Telephone




Advantages
Frequently used
for social
research
Low cost (almost
75% less than
personal
interviews)
Limits potential
interviewer bias
Reach 96% of all
homes
Computer
software
streamlines
process
Interviewers can
ask for
clarification on
responses
Very fast









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Disadvantages
Recommendation
May result in
 Target
biased sample
population is
based on response
highly literate
rate
or is in a group
with specialized
Time! Need to
interests
wait at least
several weeks for
responses
Low response rate
Limited to mostly
closed-ended
questions
Sales calls often
 General
pose as research
population
calls
surveys
Typical calling
window interrupts
respondents
Call screening is
common
No observation of
interviewee
Limited mostly to
closed-ended
questions
Web






Email



Very low cost
Very fast
Able to ask
complex
questions
Anonymity of
responses for
sensitive topics
Able to ask more
open-ended
questions
Software
simplifies
compilation and
analysis of data
Similar to mail
survey
Low cost
Fast






Personal
Interview



Frequently used
to gauge
attitudinal
behavior
Excellent
response rates
Longer interviews
are tolerated




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Do not reflect
population as a
whole (not
everyone has
Internet service)
Respondent
completion rates
low for long
surveys
Random
respondents may
reply

Use when
desired target
population
consists of
Internet users
(business-tobusiness
research,
employee
attitude
surveys)
Mailing list
required
Spam filters
prevent reception
of survey
Limited to length
of questionnaire
and closed-ended
questions
Very expensive
Time consuming
May produce nonrepresentative
sample
Higher chance of
interviewer bias

Use when
desired target
population is
connected to
the Internet

Very specific
target
population that
has interest in a
particular
service or
product
Product Concepts
What is a product?
A product is bundle of benefits that satisfies a human need or want.
Classification of Products
Products are classified in the following ways.
Consumer market
Business-to-business market
Convenience
Raw materials
Shopping
Fabricating materials and parts
Specialty (strong
Brand preference)
Assembled or undergo further processing
Unsought (new product
Consumer is unaware
Or consumer is aware
but doesn't want it
right now.
Installations
Accessory Equipment
Operating supplies
Importance of Product Development
New products are very important to the long-term success of any organization
accounting for 40% of sales and 60% of profits.
Types of New Products
New products are classified as;
Imitative – similar to a product that already exists in the market
Really innovative – significant modification to what exists in the market
Significantly different – new product that does not currently exist in the market
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Product Development Process
The new product process involves the following steps;
Generate New Product Ideas – brainstorming, attribute listing, basic research,
reverse engineering
Screen Ideas – Q sort, concept tests
Business Analysis – project sales, costs and revenue
Prototype Development – develop a prototype of the new product
Market Tests – assemble the marketing mix and test it in the market
Commercialization – Launch the new product regionally, nationally or
internationally
Criteria for New Products
New products must have adequate market demand, meet financial standards and fit
into the organization’s marketing structure.
Adoption process
New products move through a process before they are adopted by the market.
Awareness
Interest
Evaluation
Trial
Adoption
Confirmation
The adoption process is composed of five groups that form a bell-shaped curve.
Innovators 3% Venturesome
Early adopters 13% Respected
Early majority 34% Deliberate
Late majority 34% Skeptical
Laggards 16% Tradition-bound
Factors Affecting Adoption
Several factors influence the rate of that a new product is adopted. These factors
include;
Relative advantage of the new product over what is currently on the market
Compatibility with what the consumers use now
Complexity - difficulty in understanding
Trialability - may be sampled
Observability - demonstrated
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Differences between products and services
Services differ from products in that they are;
Intangible
Perishable
Inseparable
Heterogeneous
Word of mouth critical
Greater customization
Service quality is defined by the customer, not the producer
Marketing mix for service marketing
The marketing mix tries to make the service tangible to the consumer. This is done to
reduce the perceived risk of switching service providers. For example, Super Cuts had
the tagline “nothing grows out slower than a bad haircut” in an attempt to reduce
consumer risk of going to Super Cuts to have their hair cut.
Future challenges in services marketing
The challenge for service providers is to translate a heterogeneous service to a
homogeneous service so as to increase productivity gains.
Nonprofit organizations
Nonprofit organizations basically use the same marketing mix as for profit organizations
with the exception of how to define price. Pricing is equated to volunteer’s ability and
interest in giving time
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Product mix depth, width (breadth), product line
Product mix is the composite all of the products that an organization offers. Product
mix depth refers to the number of products within the product lines. Product mix width
refers to the number of product lines. A product line is a group of products that are
similar in some way such as in their use, production, pricing.
Product Positioning
Product positioning involves developing an image in relation to competitive products.
- Position relative to a competitor
- Position relative to a product class or attribute
- Position relative to a price & quality
Line Extensions
New products introduced in an established product line are called line extensions. Line
extensions are useful in getting the consumer to trade up or trade down.
Product Life Cycle
The product life cycle describes a sales curve and provides general insights into how
marketing decisions change over the life of the product. Product life cycles may be
short in the case of a novelty product (e.g., Pet Rock) or very long (e.g., Ovaltine).
Characteristic
Sales
Introduction
Slow to build
Growth
Peak
Maturity
Level off
Decline
Fall off
Profits
Loss or slight
profit
Few or many
depending on
type of new
product
Peak
Fall
Intense
Intense
One model
Attributes
added to basic
model
Many models
Stable but low
margin
Few
competitors
remain as
resources
directed at new
markets
Best selling
model remains
Competition
Product
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Promotion
High
expenditure to
build
awareness
(advertising)
Distribution
Limited or
intense
depending on
type of new
product
Skimming or
penetration
depending on
type of product
Price
Moderate
expenditure to
attract early
majority
(advertising
and sales
promotion)
Intense
High
expenditure to
stabilize market
share (sales
promotion and
advertising)
Low
expenditure to
maintain
distribution
(trade
promotion)
Intense
Limited as
channels drop
low margin
products
Keep price in
high part of
price range to
maintain
margins and
improve
profitability
Competition
forces price
reductions
Stable price to
generate
acceptable
margins
Brand, brand name, brand mark, trade mark, service mark
A brand is something that distinguishes the product offering of one competitor from the
product offering of another competitor. A brand name is the part of a brand that is
spoken. A brand mark is the part of a brand that is visible and identifiable. A trade mark
or service mark is a brand mark that is given legal protection.
Generic versus branding
Branding decisions include generic versus a brand, private label versus brand, family
versus individual. Generic brands only state what the product is (e.g., Beer, Paper
towels). Private label brands are available only at certain wholesalers or retailers (e.g.,
Raley’s, Safeway, Save Mart all have their own brands). Family brand names use the
same family name that identifies the marketer (e.g., Kellogg’s cereals, Campbell’s
soups). Family brands allow new products to be more readily identified but there is risk
to the family name if the product fails. Individual brand names are viewed by the
consumer as unique offerings without identifying the marketer (e.g., Procter and
Gamble markets Tide, Bold, Cheer, Dash, Ivory Snow). A failure of a new product is not
tied to the marketer’s other products but there is a greater investment required to
establish the new brand. Often an organization that uses a family branding strategy will
use an individual branding strategy if they launch a product in a new industry outside
what the consumer associates the family brand. For example, Campbell’s entered the
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fast food market in the 1970s with the name Herfy’s. Their slogan was “It is much more
than a hamburger store, it’s a Herfy’s.”
Cobranding
Cobranding occurs when two or more brands are used to make a product. Cobrands are
categorized as;
1.
2.
3.
Ingredient – Cereal contains Sunmaid Raisins
Cooperative – Coach Leather and Lexus cars
Complementary – Segrams 7 and 7 Up
Why brand?
Benefits of branding include;
product identification
brand equity
global brand
brand loyalty
What are the characteristics of a good brand name?
A good brand name must be;
1.
Identifiable
2.
Understandable
3.
Memorable
4.
Able to protect
5.
Supported by marketing mix
6.
Supports product positioning
How to deal with product counterfeiting?
Federal law in 1984 allows brand name owners to collect civil damages from
counterfeiters.
Brand Equity
Brand equity is the value a brand adds to the product -- e.g., Oreo cookies in ice cream
Packaging
Packaging performs the following purposes - convenience, protection, acceptance from
the trade, promotion.
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Labeling
There are three types of labels, a brand label, a descriptive label and a grade label.
Labels may have to meet Federal or State requirements regarding contents within a
package. For example, food labels must accurately reflect what is in the product and
can’t make unsubstantiated claims.
Nutritional labeling
Food products must stick to an established method for presenting nutritional
components of the product.
Design and Color - Bring in samples of labels, packages, brand names.
What a Car Says About You
Minivan – nurturing and escape
SUV – adventure
Hummer, or large SUV – power and control; a warrior mentality
Hybrid – character, doing the right thing, fear of judgment
Compact – deficient in rationality and character
Convertible – freedom and independence
Sports car – youthful exuberance, rejuvenation
Four-door sedan – practically and nurturing
Full-size truck – power and control
Four-door truck – independence (women)
Lexus – status and rejuvenation
Mercedes-Benz – status and power
BMW – status and control
Corvette – immortality
Source: The Right Brain People, a self-described consumer psychology consulting
firm.
What Color Means
Silver – elegant, loves futuristic looks, cool
White – fastidious
Vibrant red – sexy, speedy, high-energy and dynamic
Deep blue-red – some of the same qualities as red, but you’re far less obvious
about it
Taupe or light brown – timeless, basic and simple taste
Black – empowered, not easily manipulated, loves elegance, appreciates classics
Neutral gray – sober, corporate, practical, pragmatic
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Dark green – traditional, trustworthy, well balanced
Bright yellow-green – trendy, whimsical, lively
Yellow-gold – intelligent, warm, loves comfort and will pay for it
Sunshine yellow- a sunny disposition, joyful and young at heart
Deep brown – down to earth, no nonsense
Orange – fun loving, talkative, fickle and trendy
Deep purple – creative and individualistic
Source: The Color Answer Book, Leatrice Eiseman
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Place Decisions
Place is known as supply chain management in other business courses. For a long time
place was known as distribution. Hence, you will see all three terms used.
Structure of Place Decisions
Place Objectives
Channels
Retailing
Wholesaling
Agents/brokers
Power
Conflict
Direct/indirect
Physical Distribution/Logistics
Transportation
Order processing
Warehousing
Pallets
What is a channel of distribution?
All organizations involved in the movement of products and services to the final
customer defines a channel of distribution. Channels of distribution involve long-term
relationships and may be presented in the following chart.
Physical Flow/Support Flow
C
R
W
M
Insurance, financing, marketing research
Why are middlemen important?
Middlemen perform many useful functions. These include;
Reduce transaction costs
Break bulk
Bring buyer and seller together
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Merchant wholesalers - take title to products
Agent wholesalers and brokers- don't take title to products, bring buyer
and seller together.
Factor
Merchant
Wholesalers
Agents/Brokers
Nature of product
Standard
Nonstandard, custom
Technicality of
product
Complex
Simple
Product’s gross
margin
High
Low
Frequency of
ordering
Frequent
Infrequent
Time between order
and receipt of
shipment
Shorter lead time
Longer lead time
Number of customers
Many
Few
Concentration of
customers
Dispersed
Concentrated
Factors in choosing a channel of distribution
Many factors influence the selection of a channel of distribution. These include;
Perishabililty of product
Service level required
Number of customers
Geographic concentration
Order size
Degree of channel control
What is a vertical marketing system?
39
A vertical marketing system is an attempt to achieve a direct channel. This may be
accomplished with an administered vertical marketing system where the channel
captain uses power to secure cooperation from other channel members. The
contractual vertical marketing system uses contracts or franchises to exert control over
another business in the channel. A corporate vertical marketing system involves
ownership of two or more levels within a channel. For example, Wal Mart owns its
retail stores and its own distribution centers.
Factors to consider in selecting intensity of distribution
The distribution of products is categorized in the following ways.
Intensive distribution - convenience goods
Selective distribution - shopping goods
Exclusive distribution - dealership or distributorship
How does channel conflict equate to doing business
Horizontal conflict = competition
Main source is scrambled merchandising
Vertical conflict = channel inefficiencies
Manufactuer using the Internet to sell direct to the consumer
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Power is used to solve vertical conflict
Coercive power
Economic power
Referent power
Legitimate power
Expert power
Legal considerations
Non price restraints are used by manufacturers gain control over another business in
the channel of distribution.
Interbrand vs. intrabrand competition
Legality of exclusive dealing is decided by the rule of reason
Legality of territorial restraints is decided by the rule of reason
Legality of tying arrangements are per se illegal (one product vs. two)
Legality of refusals to deal is decided by the rule of reason
Distribution of Services
Services use a direct channel unless it involves a franchise arrangement.
What is retailing?
Where do you take your dog to get a new tail!
2.7 mil stores in the U.S.
$2.2 trillion
Operating costs are roughly 2.5 more than wholesaling
Types of Retailers
Dept store
Discount
Limited-line
Specialty
Off-price
Category killer
Supermarket
Convenience store
Warehouse store
Breadth and depth of product mix
Broad, deep
Broad, shallow
Narrow, deep
Very narrow, deep
Narrow, deep
Narrow, very deep
Broad, deep
Narrow, shallow
very broad, very shallow
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Scrambled merchandising
Stores that stock nontraditional products. Food products located in Home Depot or
hardware products sold in supermarkets.
Nonstore retailing
$200-250 billion 10% of all retailing
Telemarketing - $50 billion
Automatic vending - $25 billion (Coke’s idea to price vending relative to outside
temperature)
Direct marketing - $150 billion (direct mail, catalog, online)
What is wholesaling?
Resale, use in producing other goods or services, operating an organization
$3.2 trillion in 1992
Category
Merchant wholesalers - full service, truck jobbers, drop shippers (don't handle
the product)
Agent wholesalers - mfg reps, brokers (represent sellers)
Manufacturer's sales facility
Physical Distribution
$1 saved in supermarket sales for supermarkets = $100 in sales
The uses of physical distribution include;
Improve customer service
Reduce distribution costs
Create time and place utilities
Stabilize prices
Control shipping costs
Where to establish distribution centers?
Hub and wheel
Types of warehouses - private (no seasonality, special handling and storage
requirements), public (variable cost)
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Materials handling
Containerization
Standard pallets
Inventory control
JIT
Market response system - purchase by final consumer activates process to
produce and replace
EOQ (carrying costs, order processing costs)
Order processing issues
Database
Insure correct delivery address
VF computers in Penny's and Walmart link their computers to order
replacements
Transportation
Freight forwarders
Ship less than a carload combined into a full shipment
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Promotion Concepts
What is the promotional mix?
The promotion mix includes the following;
Personal selling - direct presentation of the product to the customer
Advertising - impersonal communication, paid
Sales promotion - demand stimulating supplements advertising and personal selling
Public relations - no specific sales message (newsletters, annual reports)
Publicity - nonpaid, news stories about products
Integrated marketing communication is all of the elements of the promotional mix
What is the communication process?
What is the purpose of promotion?
Promotion informs, persuades and reminds the consumer of information that the
marketer transmits.
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What factors influence selection of promotional mix?
 Target market
1.
Readiness to buy - Hierarchy of Effects Model (AIDA)
2.
Type of customer
3.
Concentration of the market
4.
Geographic scope of market
 Nature of product
1.
Presale/postsale service, unit value (low=low risk)
 Stage of Product Life Cycle
45
What is the difference between a push and pull strategy?
These are known as cost-push or demand-pull. A push means the majority of the
promotional budget is aimed at the next business in the channel of distribution.
Essentially, the marketer ‘pushes’ the product through the channel. A pull means the
majority of the promotional budget is aimed at the end-user. If the end-user is
stimulated to purchase, the purchase will ‘pull’ the product through the channel.
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Methods of Budgeting promotion
There are four ways to establish a promotional budget.
% of sales
available funds
competitive parity
objective/task
Regulation of Promotion
There are many regulations that influence how a product may be promoted. These
include;
FTC - misleading advertising
Robinson-Patman - promotional allowances
Lanham Act - 1988 Trademark Improvement Act
What are the Characteristics of Personal Selling?
Types of salespeople?
Inside order taker - retail sales
Outside order taker - Pillsbury
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Missionary salesperson - doesn’t close sale, builds goodwill, perform
promotional activities
Creative order getter - commission sales project oriented
What is systems selling?
Systems selling is a total package of goods and services that are purchased.
What is relationship selling?
Relationship selling involves build long-term relationship with a customer. Relationship
selling is usually used in a personal selling context.
What is the selling process?
Prospecting
Preapproach
Presentation - AIDA
Post sale services
What are the characteristics of advertising?
48
What are the types of advertising?
Consumer, business-to-business
Product, institutional (an organization’s position on an issue)
Social (Drug free America campaign)
Primary demand - introductory period (pioneer advertising) [Primary demand is demand
for a product category, e.g., milk. See Suzie Orman ‘Got Milk’ ad]
Selective demand - comparative advertising [Selective demand is demand for a specific
brand of a product category, e.g., Horizon milk]
What is cooperative advertising?
Vertical coop advertising, advertising allowance
Advertising Objectives




Build awareness
Reminder to use
Change attitudes about use of a product
Change perceptions of importance of brand attributes
Common Advertising Appeals
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Characteristics of various media
Newspapers
Print
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Radio







Low cost
Immediacy of message
Short notice okay
No seasonal audience change
Highly portable
Short-term advertiser commitments
Entertainment carryover
Television
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Outdoor
Internet
52
How to evaluate ads?
Direct tests - recognition, aided recall, unaided recall
CPM = cost of an ad x 1,000/circulation
Reach (percentage of target audience that could be exposed to the ad)
Frequency (average number of times a member of the target audience is exposed to the
ad)
Gross Rating Points = reach x frequency
What is the purpose of sales promotion?
Short-term sales results
Techniques
 Sampling
 Couponing
 Sponsorship and event marketing
 Trade shows
 Product placements
Possible objectives
 Inquiries (free gifts, mail-in coupon for information, catalog offers, exhibits)
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





Trial (coupons, free samples, contests, premiums, demonstrations)
Inventory building (return allowances, slotting allowances)
Promotional support (reusable display cases, sales contests, merchandise
allowances)
Repurchase (on-pack coupons, mail-in rebates)
Traffic building (special sales, weekly sales, entertainment events, retailer
coupons)
Increase rate of purchase (multipacks, special price on twos)
Evaluation methods
 Redemption rates
 Acquisition rates
 Displacement rates
 Conversion rates
 Stock-up rates
What are the characteristics of Sales Promotion?
What is the purpose of PR?
Less than 1% of for profit organization’s promotion budget
Large part of nonprofit organization’s promotion budget
Viewed as a more creditable message compared to advertising
54
Difficult to control
What are the characteristics of PR?
How do you evaluate PR?
Difficult to evaluate
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Pricing Concepts
What is price?
Price is the amount of money and/or other items with utility to acquire a product.
Importance of Price
Price is the only variable that generates revenue. In the economy, price
determines the allocation of goods and services.
What are pricing objectives?
Profit-oriented
Sales-oriented
Target return
Maximize profits
Increase sales volume
Maintain or increase market share
Stabilize prices
Meet the competition
Factors that Influence Price
Several factors influence the setting of a price (demand, cost and competition).
Estimate demand
Determine competition reaction
Look at the marketing mix
Product positioning
Distribution
Promotion
Cost of the product
Don't worry about average fixed cost curve, average variable cost,
average total cost, marginal cost curve.
Computing Price
Cost method
(1 + markup %) cost = price
Retail method
Cost
= price
(1 - markup %)
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Breakeven Analysis
Total Fixed Costs
BEP =
Contribution margin (sp-vc)
Example of Pricing Through a Channel of Distribution
Retail price = $40
Retail margin = 20%
Wholesaler margin = 50%
Manufacturer margin = 50%
What is the maximum cost for the manufacturer to produce?
Price Thresholds
Price thresholds establish a range of prices that consumers will not purchase below or
above.
Keystone Pricing
Not used as often as it once was. Doubling the cost paid for merchandise was once the
rule of pricing products, but very few products these days allow a retailer to keystone
the product price.
Pricing Strategies
Price competition versus non price competition - shift demand curve
Value pricing - ratio of benefits to its price and related costs
Market entry strategies
Market skimming – set the price at the higher end of the threshold to recoup
investment quicker.
Market penetration – set the price at the lower end of the threshold to gain
market share.
Discounts
Marketers use a variety of discounts as part of their pricing decisions.
Quantity - cumulative, noncumulative
Trade
Cash
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Seasonal
Promotional Allowance
Robinson-Patman Act
Geographic Pricing
Geographic pricing is how marketers charge for feight.
Uniformed delivered pricing - postage stamp pricing
FOB factory pricing - seller doesn't pay freight costs
Zone delivered pricing - uniformed delivered pricing for each zone
Freight-absorption pricing - absorb some or all freight costs
One price strategy - charge same price to all buyers
Flexible pricing strategy
Flexible pricing allow different customers to pay different prices. Flexible pricing is
normally used in bargaining situations.
Price lining
Establishing a limited number of prices at which a business will sell related products
Odd pricing
Psychological pricing is used to impart value. Prices are often set to end in 5 or 9
because the consumer doesn’t round up the price. For example, the consumer will read
$14.95 as $14 because we read from left to right and subconsciously will stop after the
first few digits.
Leader pricing
Marketers will set leader items where price is cut in order to gain traffic and sell other
products at full price/
Everyday low pricing
High/low pricing - everyday low prices on some products and higher prices on other
products
Resale price maintenance and suggested list price
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