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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 condi tions 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 otherThe 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.
Initiatorthe one that initiates the decision process. This may be a commercial source
such as a Wendys ad.
Influencerthe 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 theform 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 abetter 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 organizations 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 e-
waste and organic food products are examples of concerns of some segments of society.
What is the dif ference 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 Chevys. We needshelter (Motel 6) while traveling but we want to stay at the Four Seasons.
What is relati onship 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 i s ethi cal behavior?
Ethics is an important input into making decisions. Several theories exist that explainethical behavior. These include the golden rule (treat others and you would like to be
treated, Kants 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 tomorrows newspaper).
What is quali ty?
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 qualityPerformance, 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 involvesassociations 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 consumers 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 utili ty?
Utility is the somethingin 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 abilityto use something).
What is positi oning?
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 products location.
What i s a dif ferential 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 marketers 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 i s 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 matri x?
The product/growth matrix is a planning tool that presents alternative strategies that
the organization may implement.
Present Market ProductMarkets Penetration Development
New Market Diversification
Development
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 planni ng concepts/operations?
Planning involves making a sequence set of decisions. For example, a strategic plant
involves the following steps.
1. Where are we? Situation analysis2. Where do we want to go? Mission/objectives3. How do we get there? Strategies/tactics and budgeting4. 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 dif ference 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 planni ng?
Situation analysis
Set marketing objectives
Determine position & differential advantageSelect target markets & measure market demand
Design a marketing mix
Budget and Implement the marketing mix
Determine if objectives have been achieved
Marketing Opportuni ty 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. Benchmark performance standards to assess effectiveness of marketingplans
2. Customer satisfaction research3. Marketing Cost Analysiscost efficiency of the marketing plan
(accounting traces results of account/market costs and MIS generates
usable information for marketing decision-makers)
4. Sales Analysis5. Marketing Audita systematic, critical and impartial review of the
marketing effort including the marketing mix and the marketing
environments.
What is an I ntegrated Marketing Plan?
The integrated marketing plan requires a clear statement of organizational mission
organizations commitment to a type of business and place in the market; long-term
competitive advantagesCan 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 Ef for t
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.
Cri ticisms of M arketing
Marketing activities have faced their share of criticism. Marketing has been criticized asexploitation (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 forchanges 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 Envir onments
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 conditionsunemployment rate, interest rates, inflation. Economic
conditions may impact an organization in a radical way. For example, it is
difficult to sell cars if credit isnt available. Some products are somewhatrecession 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 micro-
level 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 pricedropped 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 inretailing has a profound impact on manufacturers that are trying to reach their
target markets.
I nternal 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 eff ort
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 doesnt contract for a specific amount of product to be produced. Marketingin
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 cultur al 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 thefailure 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 relativelyfree 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) andinfrastructure (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 dif ferent markets?
The three markets are the consumer market, the government market and the business-
to-business market. The buying process is the same in each market but the marketingmix 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 thesignificance 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
I nvolvement
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 theamount 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.
I nf luences 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 Groupsa 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. Insome 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 actualizationself 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 involvesreceiving,
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 consumers 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 byothers)
Attitudes are predispositions to respond to an object in the same way.
Beliefs (evaluation of beliefs) = attitudes
Aact= biei
Attitudes are learned
Attitudes are based on an object
Attitudes have direction and intensity
Situational inf luences that in fl uence 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 Emotional
Economy of purchase Pride of appearance
Durability Fear
Ease of Repair Safety
Availability Desire to create
Economy of use 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 Who buys?
Objectives of purchase Why do they buy?
Occasions of purchase When do they buy?
Outlets of purchase Where do they buy?
Operations of purchase How do they buy? (What is the process
used to make a purchase)
Objects of purchase What do they buy?
Do consumers buy featur es or benefi ts?
Consumers buy benefits, not features of a product. Benefits are directly tied to the coreneed or want that is being satisfied.
Features Benefits
Performance ratings Time saved
Reputation ratings Prestige
Colors Increased sales
Size Greater convenience
Service levels Economy of use
Workmanship Long life
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Understanding Business-to-Business and Government Markets
Types of M arkets
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 thebusiness-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-to-
business market based on primary business. For example, apparel is subdivided into
mens, womens and childrens 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 decisionPostpurchase 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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Characteri stics 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 higherservice 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 water313 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
Cokes 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 organizations decision regarding what market
segment to try to satisfy with a unique marketing mix. It only makes sense to talk aboutone target market for a product.
How to segment a market?
Market segmentation may involve several methods. These methods are:
Demographicgender, age, income level, education level, ethnicity
Geographic - urban, rural, southeast, northeast
Psychographic - personality, lifestyle, attitude
Behavioral - usage rate, usage occasions
Benefits Soughtwell 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 aggregationtreat the market as if no market
segments exist.Concentrated or single segmentsee that the market is composed of several
market segments and select only one to target.
Multisegment or multiple segmentsee 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. Select a market2. Divide market into segments using one of the methods of segmentation3. Profile and analyze segments4. Select target market5. Design marketing mix
Evaluating viabili ty of market segments
The following questions must be answered before a market segment may be considered
viable.
1. Can the segment be identified?2. Can the segment be measured?3. Is the segment large enough to support the marketing effort?4. Can the segment be reached with a marketing mix?
What is product positi oning?
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 andquality. 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 potenti al, sales potential, mar ket share, sales forecast?
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Marketing Research
What is marketing research?
Marketing research involvesdiscrete studies to assist in marketing decisions.
What is marketing intell igence?
Marketing intelligence involves the continuous flow of information into an organization.
What i s 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 sourcesBusiness cards
Product registration cards
Contests
Marketing research process?
The marketing research process involves seven steps.
1. Define objectives2. Situation analysis - helps refine the research problem3. Informal investigation - using available information, "Is a formal study
needed?"
4. Formal studyTypes of Data
Secondary Primary
Cheaper More expensive
Previously collected Must be gathered for the project
May not be in the exact form that isneeded
Focus group
Question accuracy Experiments - test markets
Question timeliness Surveys and observation
5. Gather data6. Analyze data7. Prepare report
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Types of Studies
Type of study Exploratory Descriptive Predictive
Sample Convenience Convenience,
random, systematic
random, cluster,stratified
Random, systematic
random, cluster,
stratified
Type of data Qualitative Qualitative or
Quantitative
Quantitative
Data collection
method
Observation, case
studies, mall
intercept, consumer
panel
Mail, telephone,
personal interview,
web survey, email
Experimentfor
example test
market
Data Collection M ethods
Type of Survey Advantages Disadvantages Recommendation
Mail Frequently usedfor social
research
Low cost (almost75% less than
personal
interviews)
Limits potentialinterviewer bias
May result inbiased sample
based on response
rate
Time! Need towait at least
several weeks for
responses
Low response rate Limited to mostly
closed-ended
questions
Targetpopulation is
highly literate
or is in a group
with specialized
interests
Telephone Reach 96% of allhomes
Computersoftware
streamlines
process
Interviewers canask forclarification on
responses
Very fast
Sales calls oftenpose as research
calls
Typical callingwindow interrupts
respondents
Call screening iscommon
No observation ofinterviewee
Limited mostly toclosed-ended
questions
Generalpopulation
surveys
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Web Very low cost Very fast Able to ask
complex
questions
Anonymity ofresponses for
sensitive topics
Able to ask moreopen-ended
questions
Softwaresimplifies
compilation and
analysis of data
Do not reflectpopulation as a
whole (not
everyone has
Internet service)
Respondentcompletion rates
low for long
surveys
Randomrespondents may
reply
Use whendesired target
population
consists of
Internet users
(business-to-business
research,
employee
attitude
surveys)
Email Similar to mailsurvey
Low cost Fast
Mailing listrequired
Spam filtersprevent reception
of survey
Limited to lengthof questionnaire
and closed-ended
questions
Use whendesired target
population is
connected to
the Internet
Personal
Interview
Frequently usedto gaugeattitudinal
behavior
Excellentresponse rates
Longer interviewsare tolerated
Very expensive
Time consuming May produce non-
representative
sample
Higher chance ofinterviewer bias
Very specifictargetpopulation that
has interest in a
particular
service or
product
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Product Concepts
What i s a product?
A product is bundle of benefits that satisfies a human need or want.
Classif ication 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 Assembled or undergo further processing
Brand preference)
Unsought (new product Installations
Consumer is unaware
Or consumer is aware Accessory Equipment
but doesn't want it
right now. 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;
Imitativesimilar to a product that already exists in the market
Really innovativesignificant modification to what exists in the market
Significantly differentnew 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 Ideasbrainstorming, attribute listing, basic research,
reverse engineeringScreen IdeasQ sort, concept tests
Business Analysisproject sales, costs and revenue
Prototype Developmentdevelop a prototype of the new product
Market Testsassemble the marketing mix and test it in the market
CommercializationLaunch the new product regionally, nationally or
internationally
Cri teri a for New Products
New products must have adequate market demand, meet financial standards and fit
into the organizations marketing structure.
Adopti on 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 Af fecting 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 marketCompatibility with what the consumers use now
Complexity - difficulty in understanding
Trialability - may be sampled
Observability - demonstrated
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Di f ferences between products and services
Services differ from products in that they are;
Intangible
PerishableInseparable
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 hadthe 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 chall enges in services marketing
The challenge for service providers is to translate a heterogeneous service to a
homogeneous service so as to increase productivity gains.
Nonprofi t 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 volunteers ability and
interest in giving time
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Product mix depth, width (breadth), product li ne
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 widthrefers 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 Positi oning
Product positioning involvesdeveloping 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
L ine 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 Li fe 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 Introduction Growth Maturity Decline
Sales Slow to build Peak Level off Fall off
Profits Loss or slight
profit
Peak Fall Stable but low
margin
Competition Few or many
depending on
type of new
product
Intense Intense Few
competitors
remain as
resources
directed at new
marketsProduct One model Attributes
added to basic
model
Many models Best selling
model remains
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Promotion High
expenditure to
build
awareness
(advertising)
Moderate
expenditure to
attract early
majority
(advertising
and salespromotion)
High
expenditure to
stabilize market
share (sales
promotion and
advertising)
Low
expenditure to
maintain
distribution
(trade
promotion)
Distribution Limited or
intense
depending on
type of new
product
Intense Intense Limited as
channels drop
low margin
products
Price Skimming or
penetration
depending on
type of product
Keep price in
high part of
price range to
maintainmargins 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.,
Raleys, Safeway, Save Mart all have their own brands). Family brand names use the
same family name that identifies the marketer (e.g., Kelloggs cereals, Campbells
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 marketers 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, Campbells enteredthe
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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
cant make unsubstantiated claims.
Nutri tional l abeli ng
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
Minivannurturing and escape
SUVadventure
Hummer, or large SUVpower and control; a warrior mentality
Hybridcharacter, doing the right thing, fear of judgment
Compactdeficient in rationality and character
Convertiblefreedom and independence
Sports caryouthful exuberance, rejuvenation
Four-door sedanpractically and nurturing
Full-size truckpower and control
Four-door truckindependence (women)
Lexusstatus and rejuvenationMercedes-Benzstatus and power
BMWstatus and control
Corvetteimmortality
Source: The Right Brain People, a self-described consumer psychology consulting
firm.
What Color Means
Silverelegant, loves futuristic looks, cool
Whitefastidious
Vibrant redsexy, speedy, high-energy and dynamic
Deep blue-redsome of the same qualities as red, but youre far less obvious
about it
Taupe or light browntimeless, basic and simple taste
Blackempowered, not easily manipulated, loves elegance, appreciates classics
Neutral graysober, corporate, practical, pragmatic
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Dark greentraditional, trustworthy, well balanced
Bright yellow-greentrendy, whimsical, lively
Yellow-goldintelligent, warm, loves comfort and will pay for it
Sunshine yellow- a sunny disposition, joyful and young at heart
Deep browndown to earth, no nonsense
Orangefun loving, talkative, fickle and trendyDeep purplecreative 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.
Structur e of Place Decisions
Place Objectives
Channels Physical Distribution/Logistics
Retailing Transportation
Wholesaling Order processing
Agents/brokers Warehousing
Power Pallets
Conflict
Direct/indirect
What is a channel of distri bution?
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
MerchantWholesalers Agents/Brokers
Nature of product Standard Nonstandard, customTechnicality ofproduct Complex Simple
Products grossmargin High Low
Frequency ofordering Frequent Infrequent
Time between orderand receipt ofshipment
Shorter lead time Longer lead time
Number of customers Many Few
Concentration ofcustomers 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?
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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 itsretail stores and its own distribution centers.
Factors to consider in selecting intensity of distr ibution
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 conf li ct 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 powerExpert 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
Distr ibution of Services
Services use a direct channel unless it involves a franchise arrangement.
What is retail ing?
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
Breadth and depth of product mix
Dept store Broad, deep
Discount Broad, shallow
Limited-line Narrow, deepSpecialty Very narrow, deep
Off-price Narrow, deep
Category killer Narrow, very deep
Supermarket Broad, deep
Convenience store Narrow, shallow
Warehouse store 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 retail ing
$200-250 billion 10% of all retailing
Telemarketing - $50 billion
Automatic vending - $25 billion (Cokes idea to price vending relative to outside
temperature)
Direct marketing - $150 billion (direct mail, catalog, online)
What i s 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 Distri bution
$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 establ ish distri bution centers?
Hub and wheel
Types of warehouses - private (no seasonality, special handling and storage
requirements), public (variable cost)
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Materi als handling
Containerization
Standard pallets
I nventory 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 orderreplacements
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 i s the purpose of promotion?
Promotion informs, persuades and reminds the consumer of information that the
marketer transmits.
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What factors in fl uence selection of promotional mix?
Target market1. Readiness to buy - Hierarchy of Effects Model (AIDA)
2. Type of customer3. Concentration of the market4. Geographic scope of market Nature of product1. Presale/postsale service, unit value (low=low risk) Stage of Product Life Cycle
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What is the dif ference 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 parityobjective/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 - doesnt close sale, builds goodwill, perform
promotional activities
Creative order getter - commission sales project oriented
What is systems sell ing?
Systems selling is a total package of goods and services that are purchased.
What is relati onship sell ing?
Relationship selling involves build long-term relationship with a customer. Relationship
selling is usually used in a personal selling context.
What is the sel l ing process?
Prospecting
PreapproachPresentation - AIDA
Post sale services
What are the characteri stics of advertising?
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What are the types of adverti sing?
Consumer, business-to-business
Product, institutional (an organizations position on an issue)
Social (Drug free America campaign)
Primary demand - introductory period (pioneer advertising) [Primary demand is demandfor 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
Adverti sing 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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Characteri stics of vari ous 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
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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 characteri stics of Sales Promotion?
What is the purpose of PR?
Less than 1% of for profit organizations promotion budget
Large part of nonprofit organizations promotion budget
Viewed as a more creditable message compared to advertising
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Difficult to control
What are the characteri stics of PR?
How do you evaluate PR?
Difficult to evaluate
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Pricing Concepts
What i s pri ce?
Price is the amount of money and/or other items with utility to acquire a product.
Importance of Pri ce
Price is the only variable that generates revenue. In the economy, price
determines the allocation of goods and services.
What are pri cing objectives?
Profit-oriented Sales-oriented
Target return Increase sales volume
Maximize profits Maintain or increase market shareStabilize prices
Meet the competition
Factors that I nf luence 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 Pri ce
Cost method
(1 + markup %) cost = price
Retail method
Cost
= price
(1 - markup %)
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Seasonal
Promotional Allowance
Robinson-Patman Act
Geographic Pri cing
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
F lexible pri cing strategy
Flexible pricing allowdifferent customers to pay different prices. Flexible pricing is
normally used in bargaining situations.
Price lin ing
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 doesnt 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 pri cing
H igh/low pri cing - everyday low prices on some products and higher prices on other
products
Resale pr ice maintenance and suggested list pr ice
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