marketing 101 - the basic concepts

8/13/2019 Marketing 101 - The Basic Concepts

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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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marketing 101 - the basic concepts

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