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1. Principles of Marketing
Chapter One

2. MARKETING: CREATING AND CAPTURING CUSTOMER VALUE
Chapter overview
• In broader sense, marketing is applied in every
aspect of life regarding the activities performed
by individuals and groups; profit oriented, and
non-profit organizations.
1. Introduction
The term marketing can be defined from different
perspectives. Many people think it means the
same as personal selling. Others think marketing
is the same as personal selling and advertising.

3. 1.2. Definitions of Marketing
• Broadly defined, marketing is a social and
managerial process by which individuals and
organizations obtain what they need and want
through creating and exchanging values with
others. In narrower business context marketing
involves building profitable, value laden exchange
relationship with customer.
• Hence we define marketing as a process by
which companies creating value for customers
and build strong relationship in order to
capturing value from customers in return. Now
we will discuss the marketing process in detail.

4. 1.2 Definition …
 Needs, wants, and demands
Needs: The most basic concept underlying marketing is that of
human needs. Human needs are states of felt deprivation.
They include basic physical needs for food, clothing, warmth,
and safety; social needs for belonging and affection; and
individual needs for knowledge and self-expression. These
needs were not created by marketers; they are a basic part of
the human make up.

5. Con’t…
• Irrespective of what we are, where we live we all human
being have the different types of need. e.g. an American and
African have the need for food, clothing, affection and so on
irrespective of what they are and where they live.
Wants are the form human needs take as they are shaped by
culture and individual personality. An American needs food
but wants Big Mac, French fries, and a soft drink, however a
typically hungry person in Ethiopian will want enjera, to
satisfy his need for food. Wants are shaped by one’s society
and are described in terms of objects that will satisfy needs.
• Demands- When backed by buying power, wants become
demands. Given their wants and resources, people demand
products with benefits that add up to the most value and
satisfaction.

6. Con’t….
 Marketing Offers-Products, Services, and Experiences
• Companies address needs by putting forth a value
proposition, a set of benefits that they promise to consumers
to satisfy their needs.
• The value proposition is fulfilled through a marketing offer-
some combination of products, services, information, or
experiences offered to a market to satisfy a need or want.
• In addition to tangible products, marketing offers include
services, activities or benefits offered for sale that are
essentially intangible which cannot be stored for later use
and do not result in the ownership of anything.
Examples include banking, airline, hotel, tax preparation, and
home repair services. More broadly, marketing offers also
include other entities, such as persons, places, organizations,
information, and ideas.

7. Con’t…
• Many sellers make the mistake of paying more attention to the
specific products they offer than to the benefits and experiences
produced by these products.
 Value and Satisfaction: Consumers usually face a broad array of
products and services that might satisfy a given need. How do they
choose among these many marketing offers? Consumers make
choices based on their perceptions of the value and satisfaction
that various products and services deliver.
 Customer values: refers to the difference between the values the
customer gains from owning and using a product and the costs of
obtaining the product. Customer form expectations about the value
of various marketing offers and buy accordingly. How do buyers
form their expectations? Customer expectations are based on past
buying experiences, the opinions of friends, and marketer and
competitor information and promises.

8. Con’t…
• Customer satisfaction with a purchase depends on how well
the product’s performance lives up to the customer’s buy
again and tell others about their good experiences.
Dissatisfied customers often switch to competitors and
disparage the product to others.
Value = Benefit = Functional benefits + emotional benefits
Costs Monetary costs + time costs + energy
costs + psychic costs
Based on this equation, the marketer can increase the value of
the customer offering by (1) raising benefits, (2) reducing
costs, (3) raising benefits and reducing costs, (4) raising
benefits by more than the raise in costs, or (5) lowering
benefits by less than the reduction in costs.

9. Con’t…
• Marketers must be careful to set the right level of
expectations.
• If they set expectations too low, they may satisfy those who
buy but fail to attract enough buyers.
• If they raise expectations too high, buyers will be
disappointed. Customer value and customer satisfaction are
key building blocks for developing and managing customer
relationships.
• Customer satisfaction is also highly linked with product
quality. In narrower sense quality can be defined as product
freedom from defect.
• However in a broader sense quality is product ability to satisfy
customer needs and wants.

10. Con’t…
 Exchanges and relationships
• Marketing occurs when people decide to satisfy needs and
wants through exchange, exchange is the act of obtaining a
desired object form someone by offering something in return.
• Whereas exchange is the core concept of marketing, a
transaction, in turn, is marketing’s unit of measurement.
• A transaction consists of a ride of values between two parties:
one party gives X to another party and gets Y in return.
For exchange potential to exist, five conditions must be satisfied:
1. There are at least two parties.
2. Each party has something that might be of value to the other
party.

11. Con’t…
3. Each party is capable of communication and delivery.
4. Each party is free to accept or reject the exchange offer.
5. Each party believes it is appropriate or desirable to deal with
the other party.
 Markets: The concepts of exchange and relationships lead to
the concept of market. A market is the set of actual and
potential buyers of a product.

12. Con’t…
1.3. Marketing Management/ Demand management
Marketing, more than any other business function, deals with
customers. Building customer relationships based on
customer value and satisfaction is at the very heart of modern
marketing. Although we will soon explore more detailed
definitions of marketing, perhaps the simplest definition is
this one: marketing is managing profitable customer
relationships.

13. Con’t…
1. Negative demand- is a state of demand where consumers
dislike the product and may even pay a price to avoid it.
 The marketing task, in such market situation, is to analyze why
the market dislikes the product and then try to change the
attitude of customers. The marketing task for this type of
state of demand is called conversional marketing.

14. Con’t…
2. Nonexistent demand–is a state of demand where consumers
may be unaware or uninterested in the product. For example,
some years ago in our country Ethiopia farmers were not
accustomed to use fertilizers and other important inputs as
they did not know the potential benefit. Nor were they
interested in a new farming method. Hence, the demand for
such products was insignificant. But, after a long time effort
by the concerned bodies, now a days, they are becoming
aware of the benefits of these things and thus, are demanding
more of these products than they did before.
The marketing task must be to find ways to connect the
benefits of the product with the person's natural needs and
interests. This kind of marketing is called simulative marketing
as it involve stimulating customers to buy the product.

15. Con’t…
3. Latent demand - Consumers may share a strong need that
cannot be satisfied by an existing product.
 For example, before sonny company introduced walkman
radios and tape recorders, there were no companies offering
such a product even if major part of customers were
clamouring about that want.
 Before the emergence of mobile phone technology, major
part of the world customers in the industry felt the need of
the product and waited so long until it came in to being.
 There is a strong latent demand for harmless cigarettes,
safer neighbourhoods, and more fuel-efficient cars.
 The marketing task is to identify and measure the size of the
potential market, examine the profitability of the market and
then develop effective products that would satisfy the
demand and this strategy is called developmental marketing
as it is directed to developing a new product that can satisfy
the unfulfilled needs of customers.

16. Con’t…
4. Declining demand - Every organization, sooner or later, faces
declining demand for one or more of its products and private
colleges have seen their applicants fall.
 The marketer must analyze the causes of market decline and
determine whether demand can be re-stimulated by finding
new target markets, changing the products features, or
developing more effective communication.
 The marketing task is to reverse the declining demand
through creative remarking strategy of the product.
5. Irregular demand - Consumer purchases vary on a seasonal,
monthly, weekly, daily, or even hourly basis causing problems
of idle or overworked capacity e.g . In cinema halls much of
the seats are idle during week days and may be insufficient
during weekends.

17. Con’t…
• Museums are under visited on weekdays and overcrowded on
weekends. The marketing task for this type of state of demand is
synchro-marketing which calls to find ways to alter the pattern of
demand through flexible pricing, promotion, and other incentives.
6. Full demand - Consumers are adequately buying all products
put into the marketplace.
 Organizations face full demand when they are pleased with
their volume of business.
 The marketing task is to maintain the current level of demand
in the face of changing consumer preferences and increasing
competition.
 The organization must maintain or improve its quality and
continually measure consumer satisfaction to make sure it is
doing a good job through a marketing task -called
maintenance marketing.

18. Con’t…
7. Overfull demand – Some organizations face a demand level
that is higher than they can or want to handle. The marketing
task, called demarketing, requires finding ways to reduce the
demand temporarily or permanently.
8. Unwholesome demand - Consumers may be attracted to
products that have undesirable social consequences. A typical
example could be cigarette producers. The marketing task for
this type of state of demand is counter marketing.

19. 1.4.Marketing Management Orientations/Philosophies
• We describe marketing management as carrying out tasks to
build profitable relationships with target consumers. What
philosophy should guide these marketing efforts? What
weight should be given to the organization, customers, and
society? There are five alternative concepts used which
organizations conduct their marketing activities: the
production, product, selling marketing, and societal marketing
concepts.
1. The production Concept
The production concept holds that consumers will favor
products that are available and highly affordable. Therefore,
management should focus on improving production and
distribution efficiency. This concept is one of the oldest
orientations that guide sellers.

20. Con’t…
 The production concept is still a useful philosophy in two
types of situations. The first occurs when the demand for
a product exceeds the supply.
 Here, management should look for ways to increase
production. The second situation occurs when the
product’s cost is too high and improved productivity is
needed to bring it down.
 Although useful in some situation, the production
concept can lead to marketing myopia; companies
adopting this orientation run a major risk of focusing too
narrowly on their own operations and losing sight of the
real objective-satisfying customers’ needs.

21. Con’t…
2. The Product Concept
 The product concept holds that consumers will favor
products that offer the most in quality, performance, and
innovative features. Thus, an organization should devote
energy to making continuous product improvements.
 The product concept also can lead to marketing myopia.
For instance, railroad management once thought that
users wanted trains rather than transportation and
overlooked the growing challenge of airlines, buses,
trucks, and automobiles.
3. The Selling Concept
 Many companies follow the selling concept, which holds that
consumers will not buy enough of the firm’s products unless it
undertakes a large-scale selling and promotion effort.

22. Con’t…
 The concept is typical practiced with unsought goods-those
that buyers do not normally think of buying such as insurance
or blood donations. These industries must be good at tracking
down prospects and selling them on product benefits.
 Most firms practice the selling concept when they face
overcapacity. Their aim is to sell what they make rather that
make what the market wants. Such marketing carries high
risks.
 It focuses on creating sales transactions rather than on
building long-term, profitable customer relationships. It
assumes that customers who are coaxed into buying the
product will like it.
 Or, if they don’t like it they will possibly forget their
disappointment and buy it again later.

23. Con’t…
 These are usually poor assumptions. Most studies show that
dissatisfied customers do not buy again. Worse yet, whereas
the average satisfied customer tells three others about good
experiences, the average dissatisfied customer tells ten others
about his or her bad experiences.
4. The Marketing Concept
 The marketing concept holds that achieving organizational
goals depends on knowing the needs and wants of target
markets and delivering the desired satisfactions than those
competitors do. Under the marketing concept, customer focus
and value are the paths to sales and profits.
 The marketing concept starts with a well-defined market,
focuses on customer needs, and integrates all the marketing
activities that affect customers. It turn, it yields profits by
creating long-term customer relationships based on customer
value and satisfaction. Many successful and well-known
companies have adopted the marketing concept.

24. Con’t…
 In contrast, many companies claim to practice the marketing
concept but do not. Implementing the marketing concept
often means more than simply responding to customer’s
stated desires and obvious needs.
 Customer-driven companies research current customers
deeply to learn about their desires, gather new product and
service ideas, and test proposed product improvements.
 Such customer-driven marketing usually works well when a
clear need exists and when customers know what they want.
 The marketing concept rests on four pillars: target market,
customer needs, integrated marketing, and profitability.

25. Con’t…
5. The Societal Marketing Concept
 The societal marketing concept questions whether the pure
marketing concept overlooks possible conflicts between
consumer short-run wants and consumer long-run welfare.
 Is a firm that satisfies the immediate needs and wants of
target markets always doing what’s best for its consumers in
the long run?
 The societal marketing concept holds that marketing strategy
should deliver value to customers in a way that maintains or
improves both the consumer’s and society’s well-being.
 It calls for sustainable marketing, socially and environmentally
responsible marketing that meets the present needs of
consumers and businesses while also preserving or enhancing
the ability of future generations to meet their needs.
 Consider today’s bottled water industry. You may view bottled
water companies as offering a convenient, tasty, and healthy
product.

26. Con’t…
 Its packaging suggests “green” images of pristine lakes and
snow-capped mountains. Yet making, filling, and shipping
billions of plastic bottles generates huge amounts of carbon
dioxide emissions that contribute substantially to global
warming.
 Further, the plastic bottles pose a substantial recycling and
solid waste disposal problem.
 Thus, in satisfying short-term consumer wants, the bottled
water industry may be causing environmental problems that
run against society’s long-run interests.

27. Con’t…

28. Chapter Two
Scanning the Marketing Environment

29. Scanning the Marketing Environment
 Successful companies take an outside-inside view of their
business. They recognize that the marketing environment is
constantly spinning new opportunities and threats and
understand the importance of continuously monitoring and
adapting to that environment.
 Firm’s marketing environment consists of the actors and
forces external to the marketing management function of the
firm that interrupt marketing management’s ability to develop
and maintain successful transactions with its target
customers.
 We can divide the external environment of a firm as
microenvironment and macro environment

30. 2.1. Company’s Micro Environment
 Company’s micro environment involves the forces close to the
company that affect its ability to serve its customers – the company,
market channel firms, customer markets, competitors and publics.
I. The Company. In designing marketing plans, marketing
management should take other company groups, such as top
management, finance, research and development (R& D),
purchasing, manufacturing and accounting, into consideration. All
these interrelated groups form the internal environment.
 Top management sets the company's mission, objectives, broad
strategies and policies. Marketing managers must make decisions
consistent with the plans made by top management, and marketing
plans must be approved by top management before they can be
implemented. Marketing managers must also work closely with
other company departments.

31. Con’t…
 Finance is concerned with finding and using funds to carry out
the marketing plan.
 The R & D department focuses on the problems of designing
safe and attractive products.
 Purchasing worries about getting supplies and materials,
whereas manufacturing is responsible for producing the
desired quality and quantity of products.
 Accounting has to measure revenues and costs to help
marketing know how well it is achieving its objectives.
Therefore, all of these departments have an impact on the
marketing department's plans and actions. Under the
marketing concept, all of these functions must 'think
customer' and they should work together to provide superior
customer value and satisfaction.

32. Con’t…
II. Suppliers
 Suppliers are business firms and individuals who provide
resources needed by the company and its competitors to
produce the particular goods and services.
 Developments in the “supplier” environment can have a
substantial effect on the company’s marketing operation.
 Marketing managers need to watch price trends of their key
inputs. Many companies prefer to buy from multiple sources
to avoid overdependence on any one supplier who might raise
prices arbitrarily or limit supply.
 Company purchasing agents try to build long- term
relationships with key suppliers.
 Purchasing agents find that they have to “market” their
company to suppliers in order to obtain favourable
consideration, especially in times of shortages.

33. Con’t…
III. Marketing Intermediaries
 Marketing intermediaries are firms that aid the company in
promoting, selling, and distributing its goods to the final
buyers. They include middlemen, physical distribution firms,
marketing service agencies, and financial intermediaries.
 Middlemen: Middlemen are business firms that help the
company find customers and/or close sales with them. They
fall into two types, agent middlemen and merchant
middlemen.
 Agent middlemen-such as agents, brokers, and
manufacturers’ representatives-find customers and /or
negotiate contracts but do not take title to merchandise.
 Merchant middlemen-such as wholesaler, retailers, and other
resellers-buy, take title to, and resell merchandise.

34. Con’t…
 Specifically, middlemen create place utility by stocking
merchandise where customers are located.
 They create time utility by staying open long hours so that
customer can shop at their convenience.
 They create quantity utility by collecting in one point other
goods that consumers may seek on the same shopping trip.
 They create possession utility by transferring the merchandise
to the consumer in an easy transaction format, namely for a
simple payment of cash without the need for any billing.
 Physical distribution firms: Physical distribution firms assist
the company in stocking and moving goods from their original
locations to their destinations.
 Warehousing firms store and protect goods before they move
to the next destination.

35. Con’t…
 Every company has to decide how much storage space to
build for itself and how much to rent from warehousing firms.
 Transportation firms consist of railroads, truckers, airlines,
barges, and other freight handling companies that move
goods from one location to another.
 Every company has to decide on the most cost-effective
modes of shipment, balancing such considerations as cost,
delivery, speed, and safety.
 Marketing Service Agencies: marketing research firms,
advertising agencies, media firms, and marketing consulting
firms- assist the company in targeting and promoting its
products to the right markets. The company faces a “make or
buy” decision with respect to these services.

36. Con’t…
• Some large companies such as Du Pont and Quaker Oats-
operate their own in-house advertising agencies and
marketing research departments. But most companies
contract for the services of outside agencies. When a firm
decides to buy outside services, it must carefully choose
whom to hire, since the agencies vary in their creativity,
quality, service, and price.
• The company has to review periodically their performance
and must consider replacing those that no longer perform at
the expected level.
 Financial Intermediaries: Financial intermediaries include
banks, credit companies, insurance companies, and other
companies that help fiancé and/or insure risk associated with
the buying and selling of goods.

37. Con’t…
• Most firms and customers depend on financial intermediaries to
finance their transactions. The company’s marketing performance
can be seriously affected by rising credit costs and/or limited credit.
For this reason the company has to develop strong relationships
with outside financial institutions.
IV. Customers: A company links itself to suppliers and middlemen in
order to efficiently supply product and services to its target market.
Its target market can be one (or more) of the following five types of
customer markets:
• Consumer markets. Individuals and households that buy goods and
services for personal consumption.
• Industrial markets. Organizations that buy goods and services
needed for producing other products and services for the purpose
of making profits and/or achieving other objectives.
• Reseller markets. Organization that buys goods and service in order
to resell them at a profit.

38. Con’t…
• Government markets. Government agencies that buy goods
and services in order to produce public services, or transfer
these goods and services to others who need them.
• International markets. Buyers found abroad, including foreign
consumers, producers, resellers, and governments.
V. Competitors: An organization rarely stands alone in its effort
to serve a given customer market. Its efforts to build an
efficient marketing system to serve the market are matched
by similar efforts on the part of others. The competitive
environment consists not only of other companies but also of
more basic things. The best way for a company to grasp its
competition is to take the viewpoint of buyer. A basic
observation about the task of competing effectively can be
stated as follows:

39. Con’t…
• A company must keep four basic dimensions in mind, which
can be called the four Cs of market positioning. It must
consider the nature of the customers, channels, competition,
and its own characteristics as a company. Successful
marketing is a matter of achieving an effective alignment of
the company with customer, channels, and competitors.
VI. Publics. A pubic is any group that has an actual or potential
interest or impact on an organization’s ability to achieve its
objectives. Seven publics include:
1. Financial publics. Influence the company's ability to obtain
funds. Include banks, investment houses and stockholders.
2. Media publics. Are those that carry news, features and
editorial opinion? They include newspapers, magazines and
radio and television stations.

40. Con’t…
3. Government public. Marketers must often consult the
company's lawyers on issues of product safety, truth-in-
advertising and other matters.
4. Citizen action publics. A company's marketing decisions may
be questioned by consumer organizations, environmental
groups, minority groups and other pressure groups. Its public
relations department can help it stay in touch with consumer
and citizen groups.
5. Local publics. Every company has local publics, such as
neighbourhood residents and community organizations. Large
companies usually appoint a community-relations officer to
deal with the community, attend meetings, answer questions
and contribute to worthwhile causes.

41. Con’t…
6. General public. A company needs to be concerned about the
general public's attitude towards its products and activities.
The public's image of the company affects its buying. Thus,
many large corporations invest huge sums of money to
promote and build a healthy corporate image.
7. Internal publics. A company's internal publics include its
workers, managers, volunteers and the board of directors.
Large companies use newsletters and other means to inform
and motivate their internal publics. When employees feel
good about their company, this positive attitude spills over to
their external publics.

42. 2.2. The Company's Macro Environment
The macro environment consists of the larger societal forces
that affect all of the actors in the company’s micro
environment. These include the demographic, economic,
physical (natural), technological, legal and socio-cultural and
political forces.
I. Demographic Environment
Demography is the study of human populations in terms of
size, density, location, age, gender, race, occupation and other
statistics.
The demographic environment is of considerable interest to
marketers because it involves people, and people make up
market.
 Population Size and Growth Trends - In any geographic
market, population size and growth trends can be used to
gauge its broad potential for a wide range of goods and
services.

43. Con’t…
 Population growth trends are important because they can
offer marketers an indications of demand for certain goods
and services. For instance, a 'baby boom' would suggest
growing demand for infant foods, nursery appliances,
maternity services, baby clothing, toys and so forth, in the
short to medium term, with rising demand for family-size
accommodation, larger cars, schools and educational services
over the longer term.
 Differences in population growth patterns between country
markets may also suggest different international marketing
opportunities for firms.
 Changing Age Structure of a Population- The aging
population structure reflects two influences.

44. Con’t…
 First, there is a long-term slowdown in birth rate, so there are
fewer young people to pull the population's average age
down.
 Secondly, as longevity increases more elderly people. For
instance, in Germany, the balance of people over 65 years of
age to persons of working age (or the dependency ratio) is
expected to exceed 1:1 by 2031.
 At one extreme is Mexico, a country with a very young
population and rapid population growth. At the other extreme
is Japan, a country with one of the world's oldest populations.
Milk, diapers, school supplies, and toys would be important
products in Mexico. Japan's population would consume many
more adult products.

45. Con’t…
 A population can be subdivided into six age groups: preschool,
school-age children, teens, young adults age 25 to 40, middle-
aged adults age 40 to 65, and older adults age 65 and up. For
marketers, the most populous age groups shape the
marketing environment.
 Household Patterns/Family Structure- The "traditional
household" consists of a husband, wife, and children (and
sometimes grandparents).
 Yet, in the United States today, one out of eight households is
"diverse" or "non traditional," and includes single live-alones,
adult live-together of one or both sexes, single-parent
families, childless married couples, and etc.
 Rising Number of Educated People- The rising number of
educated people will increase the demand for quality
products, books, magazines and travel.

46. Con’t…
 Growing Ethnic and Racial Diversity- Countries also vary in
ethnic and racial makeup. At one extreme is Japan, where
almost everyone is Japanese; at the other is the United States,
where people come from virtually all nations. According to
the 2000 census, the U.S. population of 276.2 million was 72
percent white. African Americans constituted 13 percent.
 Ethnic groups have certain specific wants and buying habits.
Several food, clothing, and furniture companies have directed
their products and promotions to one or more of these
groups.
 Charles Schwab is one of the leading financial services firms
serving Asian Americans with a carefully targeted marketing
program.

47. II. Natural Environment
 The natural environment involves the natural resources that are
needed as inputs by marketers or that are affected by marketing
activities.
 Marketers should be aware of four trends in the natural
environment: shortages of raw materials, increased cost of energy,
increased pollution, and government intervention in natural
resource management.
 Shortages of Raw Materials- Air and water may seem to be infinite
resources, but some groups see long-run dangers.
 Water shortage is already a big problem in some parts of the world.
Renewable resources, such as forests and food, also have to be
used wisely.
 Companies in the forestry business are required to reforest
timberlands in order to protect the soil and to ensure enough wood
supplies to meet future demand.
 Food supply can be a critical problem because more and more of
our limited farmable land is being developed for urban areas.

48. Con’t…
 Non-renewable resources, such as oil, coal and various
minerals, pose a serious problem.
 Firms making products that require these increasingly scarce
resources face large cost increases, even if the materials do
remain available.
 They may not find it easy to pass these costs on to the
consumer. However, firms engaged in research and
development and in exploration can help by developing new
sources and materials.
 Increased Cost of Energy- One non-renewable resource - oil -
has created the most serious problem for future economic
growth. The large industrial economies of the world depend
heavily on oil.
 Increased Pollution- Industry has been largely blamed for
damaging the quality of the natural environment.

49. Con’t…
 The 'green' movement draws attention to industry's 'dirty
work': the disposal of chemical and nuclear wastes, the
dangerous mercury levels in the ocean, the quantity of
chemical pollutants in the soil and food supply, and the
littering of the environment with non-biodegradable bottles,
plastics and other packaging materials.
 Many companies, especially those at the 'grubbier' ends of
manufacturing, often complain about the cost of fulfilling
their obligations to 'clean up' regulations or to produce new
greener technologies.
 On the other hand, more alert managers have adapted quickly
to rising public environmental concerns, which have created
marketing opportunities for firms.

50. Con’t…
 Many firms are responding to public environmental concerns
with more ecologically sensitive goods, recyclable or
biodegradable packaging, improved pollution controls and
more energy-efficient operations.
Government Intervention in Natural Resource Management
 In most countries, industry has been pressured rather than
persuaded to 'go green'.
 Environmental legislation has toughened up in recent years
and businesses can expect this to continue in the foreseeable
future.
 Recession in leading world economies over the early 1990s,
however, forced governments to look at the potential of
voluntary agreements with industry. The idea is to help
industry meet environmental standards cost-effectively.

51. III. Technological Environment
 The technological environment is perhaps the most dramatic
force now shaping our destiny.
 Technology has released such wonders as penicillin, organ
trans-plants and notebook computers. Every new technology
replaces an older technology.
 When old industries fought or ignored new technologies, their
businesses declined. New technologies create new markets
and opportunities.
 The marketer should watch the following trends in
technology: fast pace of technological change, high R&D
budgets, increased regulation, and concentration on minor
improvements.
 Fast Pace of Technological Change- Technology life cycles are
getting shorter. The first-generation modern mechanical
typewriter dominated the market for 25 years.

52. Con’t…
 Subsequent generations had shorter lives - 15 years for
electromechanical models, 7 years for electronic versions and
5 years for first-generation microprocessor-based ones.
 Firms must track technological trends and determine whether
or not these changes will affect their products' continued
ability to fulfil customers' needs.
 Businesses must diligently monitor their technological
environment to avoid missing new product and market
opportunities.
 Varying R&D Budgets: Technology and innovations require
heavy investments in research and development.
 Concentration on Minor Improvements. As a result of the
high cost of developing and introducing new technologies,
many companies are tinkering - making minor product
improvements - instead of gambling on substantial
innovations.

53. Con’t…
 The high costs and risks of commercialization failure make
firms take this cautious approach to their R & D investment.
 Most companies are content to put their money into copying
competitors' products, making minor feature and style
improvements, or offering simple extensions of current
brands.
 Thus much research is in danger of being defensive rather
than offensive
 Increased Regulation. As products become more complex,
people need to know that they are safe. Thus, government
agencies investigate and ban potentially unsafe products.
Marketers should be aware of these regulations when seeking
and developing new products.

54. Con’t…
 Marketers need to understand the changing technological
environment and the ways that new technologies can serve
customer and human needs.
 They need to work closely with R & D people to encourage
more market-oriented research.
 They must also be alert to the possible negative aspects of
any innovation that might harm users or arouse opposition.
IV. Economic Environment:
 Markets require purchasing power as well as people. The
available purchasing power in an economy depends on
current income, prices, savings, debt, and credit availability.
 Marketers must pay careful attention to trends affecting
purchasing power because they can have a strong impact on
business, especially for companies whose products are geared
to high-income and price-sensitive consumers.

55. Con’t…
 Income Distribution- Nations vary greatly in level and
distribution of income and industrial structure. There are four
types of industrial structures: subsistence economies (few
opportunities for marketers);raw-material-exporting
economies like Zaire (copper) and Saudi Arabia (oil), with
good markets for equipment, tools, supplies, and luxury
goods for the rich, industrializing economies, like India,
Egypt, and the Philippines, where a new rich class and a
growing middle class demand new types of goods; and
industrial economies, which are rich markets for all sorts of
goods.
• Savings, Debt, and Credit Availability- Consumer
expenditures are affected by savings, debt, and credit
availability.

56. Con’t…
• Outsourcing and Free Trade - An economic issue of increasing
importance is the migration of manufacturers and service jobs
offshore. Outsourcing is seen as a competitive necessity by
many firms, but as a cause of unemployment by many
domestic workers.
V. Social-Cultural Environment
 The cultural environment is made up of institutions and other
forces that affect society’s basic values, perceptions,
preferences and behaviours.
 People grow up in a particular society that shapes their basic
beliefs and values. They absorb a world-view that defines
their relationships with others.

57. Con’t…
 Persistence of Cultural Values- People in a given society hold
many beliefs and values. Their core beliefs and values have a
high degree of persistence. For example, most of us believe in
working, getting married, giving to charity and being honest.
 These beliefs shape more specific attitudes and behaviours
found in everyday life.
 Core beliefs and values are passed on from parents to
children and are reinforced by schools, religious groups,
business and government.
 Secondary beliefs and values are more open to change.
Believing in marriage is a core belief; believing that people
should get married early in life is a secondary belief.
 Marketers have some chance of changing secondary values,
but little chance of changing core values.

58. Cont’t…
VI. Political Environment
 The political environment consists of laws, government
agencies and pressure groups that influence and limit various
organizations and individuals in a given society.
 Legislations and Regulating Business- Even the most liberal
advocates of free-market economies agree that the system
works best with at least some regulation.
 Well-conceived regulation can encourage competition and
ensure fair markets for goods and services.
 Thus, governments develop public policy to guide commerce
- sets of laws and regulations that limit business for the good
of society as a whole.
 Almost every marketing activity is subject to a wide range of
laws and regulations.

59. Con’t…
 Growth of Public Interest Groups- Hundreds of consumer
interest groups, private and governmental, operate at all
levels - regional, national, state/county and local levels.
 Other groups that marketers need to consider are those
seeking to protect the environment and to advance the rights
of various groups such as women, children, ethnic minorities,
senior citizens and the handicapped.
 Increased Emphasis on Ethics and Socially Responsible
Actions. Written regulations cannot possibly cover all
potential marketing abuses, and existing laws are often
difficult to enforce. However, beyond written laws and
regulations, business is also governed by social codes and
rules of professional ethics.

60. Chapter Three
Analyzing Consumer and Business Markets and Buyer Behavior

61. Con’t…
• The aim of buyer behavior model is to take the complex
interrelated variables involved in purchase decisions and to
simplify them to be of use to the marketer. Buyer behavior
models have two basic functions:
 They describe the parameters and characteristics affecting the
purchase of certain types of goods and services.
 They allow predictions to be made of the likely outcomes of
specific marketing strategies

62. 3.1. Analyzing Consumer Markets and Consumer Buyer
Behavior
 Consumer buying behavior- refers to the buying behavior of
final consumers - individuals and households that buy goods
and services for personal consumption. All of these final
consumers combined make up the consumer market.
3.1.1. Models of Consumer Behavior
The central question for marketers is how do consumers
respond to various marketing stimuli that the company
might use. The company that really understands how
consumers will respond to different product features,
prices and advertising appeals has a great advantage
over its competitors.

63. Con’t…
 Therefore, companies and academics have researched heavily
the relationship between marketing stimuli and consumer
response. Their starting point is the stimulus -response model
of buyer behavior.
 Marketing stimuli consist of the four Ps: product, price, place
and promotion. Other stimuli include significant forces and
events in the buyer's environment: economic, technological,
political and cultural.
 All these stimuli enter the buyer's black box, where they are
turned into a set of observable buyer responses : product
choice, brand choice, dealer choice, purchase timing and
purchase amount.

64. 3.1.2. Characteristics Affecting Consumer Behavior
 Consumer purchases are influenced strongly by cultural,
social, personal and psychological characteristics. For the
most part, marketers cannot control such factors, but they
must consider them. Paragraphs that follow describe these
factors.
I. Cultural Factors
 Cultural factors exert the broadest and deepest influence on
consumer behavior. The marketer needs to understand the
role played by the buyer's culture, subculture and social class.
 Culture -culture is the most basic cause of a person's wants
and behavior. Human behavior is largely learned.

65. Con’t…
Example: a child growing up in the United States is exposed to
these broad cultural values: achievement and success,
activity, efficiency and practicality, progress, material comfort,
individualism, freedom, external comfort, humanitarianism,
and youthfulness. Marketers are always trying to spot cultural
shifts in order to imagine new products that might be wanted.
 Subculture- each culture contains smaller subcultures or
groups of people with shared value systems based on
common life experiences and situations.
 Subcultures include nationalities, religions, racial groups and
geographic regions.
 Many subcultures make up important market segments and
marketers often design products and marketing programmes
tailored to their needs.

66. Con’t…
 Social Class- almost every society has some form of social
class structure. Social classes are society's relatively
permanent and ordered divisions whose members share
similar values, interests and behaviors.
 Social class is not determined by a single factor, such as
income, but is measured as a combination of occupation,
income, education, wealth and other variables. Individuals
can move from one social class to another—up or down—
during their lifetime.
 Because social classes often show distinct product and brand
preferences, some marketers focus their efforts on one social
class.

67. II. Social Factors
 A consumer's behavior is also influenced by social factors,
such as the consumer's small groups, family, and social roles
and status.
 Because these social factors can strongly affect consumer
responses, companies must consider them when designing
their marketing strategies.
 Reference Groups – reference groups consist of all of the
groups that have a direct (face-to-face) or indirect influence
on a person’s attitudes.
 Groups that have a direct influence and to which a person
belongs are called membership groups.
 Some membership groups are primary groups with whom
there is regular but informal interaction - such as family,
friends, neighbors and fellow workers

68. Con’t…
 Some are secondary groups, which are more formal and have
less regular interaction. These include organizations like
religious groups, professional associations and trade unions.
 Reference groups expose people to new behaviors and
lifestyles, influence attitudes and self-concept, and create
pressures for conformity that may affect product and brand
choices.
 People are also influenced by groups to which they do not
belong. For example, aspirational groups are those the person
hopes to join; as when a teenage football player hopes to play
some day for Manchester United.
 Dissociative groups are those whose values or behavior an
individual rejects.

69. Con’t…
 Although marketers try to identify target customers’ reference
groups, the level of reference-group influence varies among
products and brands.
 Manufacturers of products and brands with strong group
influence must reach and influence the opinion leaders in
these reference groups.
 An opinion leader is the person in informal product-related
communications who offers advice or information about a
product.
 Marketers try to reach opinion leaders by identifying
demographic and psychographic characteristics associated
with opinion leadership, identifying the preferred media of
opinion leaders, and directing messages at the opinion
leaders.

70. Con’t…
 Family- family members can strongly influence buyer
behavior. We can distinguish between two families in the
buyer's life.
 The buyer's parents make up the family of orientation.
Parents provide a person with an orientation towards
religion, politics and economies, and a sense of personal
ambition, self-worth and love.
 Even if the buyer no longer interacts very much with his
or her parents, the latter can still significantly influence
the buyer's behavior.
 In countries where parents continue to live with their
children, their influence can be crucial.
 Husband-wife involvement varies widely by product
category and by stage in the buying process.

71. Con’t…
 Buying roles change with evolving consumer lifestyles. Almost
everywhere in the world, the wife is traditionally the main
purchasing agent for the family, especially in the areas of
food, household products and clothing.
 Roles and Status- a person belongs to many groups - family,
clubs, and organizations.
 The person's position in each group can be defined in terms of
both role and status. Each role carries a status reflecting the
general esteem given to it by society.
 People often choose products that show their status in
society. For example, the role of brand manager has more
status in some societies than the role of daughter.
 As a brand manager, you will buy the kind of clothing that
reflects your role and status.

72. III. Personal Factors
 A buyer's decisions are also influenced by personal
characteristics such as the buyer's age and life-cycle stage,
occupation, economic situation, lifestyle, and personality and
self-concept.
 Age and Life-Cycle Stage- people change the goods and
services they buy over their lifetimes.
 Tastes in food, clothes, furniture and recreation are often age
related. Hence smart marketers are attentive to the influence
of age.
 Buying is also shaped by the family life cycle - the stages
through which families might pass as they mature over time.
 Occupation- a person's occupation affects the goods and
services bought. Blue-collar workers tend to buy more work
clothes, whereas white-collar workers buy more suits and ties.

73. Con’t…
 Marketers try to identify the occupational groups that have an
above average interest in their products and services.
 Economic Circumstances- a person's economic situation will
affect product choice.
 Marketers of income sensitive goods closely watch trends in
personal income, savings and interest rates.
 If economic indicators point to a recession, marketers can take
steps to redesign, reposition and reprice their products.
 Lifestyle-people coming from the same subculture, social
class and occupation may have quite different lifestyles.
 Lifestyle is a person's pattern of living as expressed in his or
her activities, interests and opinions.
 Lifestyle captures something more than the person's social
class or personality. It profiles a person's whole pattern of
acting and interacting in the world.

74. Con’t…
 Successful marketers search for relationships between their
products and lifestyle groups. For example, a computer
manufacturer might find that most computer buyers are
achievement-oriented.
 The marketer may then aim its brand more clearly at the
achiever lifestyle.
 Personality and Self-Concept- each person's distinct
personality influences his or her buying behavior.
 Personality refers to the unique psychological characteristics
that lead to relatively consistent and lasting responses to
one's own environment.
 Personality is usually described in terms of traits such as self-
confidence, dominance, sociability, autonomy, defensiveness,
adaptability and aggressiveness.

75. Con’t…
 Personality can be useful in analyzing consumer behavior or
certain product or brand choices.
 Self-concept (or self-image) is related to personality.
Marketers often try to develop brand images that match the
target market’s self-image.
 Yet it is possible that a person’s actual self-concept (how s/he
views him/herself) differs from his/ her ideal self-concept
(how she would like to view him/ herself) and from his/her
others-self- concept (how s/he thinks others see him/ her).
IV. Psychological Factors
• A person's buying choices are further influenced by four
important psychological factors: motivation, perception,
learning, and beliefs and attitudes.

76. Con’t…
 Motivation-a need becomes a motive when it is aroused to a
sufficient level of intensity.
 A motive (or drive) is a need that is sufficiently pressing to
direct the person to seek satisfaction.
 Perception- a motivated person is ready to act. How the
person acts is influenced by his or her perception of the
situation.
 Two people with the same motivation and in the same
situation may act quite differently because they perceive the
situation differently.
 Thus, perception is the process by which people select,
organize and interpret information to form a meaningful
picture of the world.
 Perception depends not only on physical stimuli, but also on
the stimuli’s relation to the surrounding field and on
conditions within the individual.

77. Con’t…
 The key word is individual. Individuals can have different
perceptions of the same object because of three perceptual
processes: selective attention, selective distortion, and
selective retention.
• Selective attention- people are exposed to many daily stimuli
such as ads; most of these stimuli are screened out—a
process called selective attention. The end result is that
marketers have to work hard to attract consumers’ attention.
• Selective distortion- even noticed stimuli do not always come
across the way that marketers intend. Selective distortion is
the tendency to twist information into personal meanings and
interpret information in a way that fits our preconceptions.
Unfortunately, marketers can do little about selective
distortion.

78. Con’t…
• Selective retention- people forget much that they learn but
tend to retain information that supports their attitudes and
beliefs. Because of selective retention, we are likely to
remember good points mentioned about a product we like
and forget good points mentioned about competing products.
Selective retention explains why marketers use drama and
repetition in messages to target audiences.
 Learning-when people act, they learn. Learning describes
changes in an individual’s behavior arising from experience.
 Most human behavior is learned. Theorists believe that
learning is produced through the interplay of drives, stimuli,
cues, responses, and reinforcement.
 Beliefs and Attitudes-through doing and learning, people
acquire their beliefs and attitudes.

79. Con’t…
 These, in turn, influence their buying behavior. A belief is a
descriptive thought that a person has about something.
 Marketers are interested in the beliefs that people formulate
about specific products and services, because these beliefs
make up product and brand images that affect buying
behavior.
 People have attitudes regarding religion, politics, clothes,
music, food and almost everything else.
 An attitude describes a person's relatively consistent
evaluations, feelings and tendencies towards an object or
idea.
 Attitudes put people into a frame of mind of liking or disliking
things, of moving towards or away from them.

80. 3.1.3. Types of Buying Decisions Behavior
• Consumer decision making varies with the type of buying
decision. Consumer buying behavior differs greatly for a tube
of toothpaste, a tennis racket, an expensive camera and a new
car. More complex decisions usually involve more buying
participants and more buyer participation.
There are four types of buying decision behavior:
1. Complex Buying Behavior- is a consumer buying behavior in
situations characterized by high consumer involvement in a
purchase and significant perceived differences among brands.
 Consumers may be highly involved when the product is
expensive, risky, purchased infrequently and highly self-
expressive.
 Here buyers will pass through a learning process, first
developing beliefs about the product, then attitudes, and
then make a thoughtful purchase choice.

81. Con’t…
 Marketers need to help buyers learn about a product –class
attributes and their relative and about what the company’s
brand offers on the important attributes.
 They need to differentiate their brand’s features, perhaps by
describing the brand’s beliefs.
2. Dissonance–Reducing Buying Behavior -is a consumer buying
behavior in situations characterized by high involvement but
few perceived differences among brands.
 The products may be expensive, infrequent, or risky purchase,
but there is little differences among brands.
 In this case, because perceived brand differences are not
large, buyers may shop around to learn what is available, but
buy relatively quickly.
 They may respond primarily to a good price or to purchase
convenience.

82. Con’t…
 After the purchase, consumers might experience post
purchase dissonance (after-sale –discomfort) when they
notice certain disadvantage of the purchased product brand
or hear favorable things about brands not purchased.
 To counter such dissonance, the marketer’s after sale
communication should provide evidence and support to help
consumers feel good about the brand choices.
3. Habitual Buying Behavior-is a consumer buying behavior in
situations characterized by low consumer involvement and
few significant perceived brand differences.
 Consumers appear to have low involvement with most low
cost, frequently purchased products. Here marketers usually
use price and sales promotions to stimulate product trial.

83. Con’t…
4. Variety –Seeking Buying Behavior:-is a consumer buying
behavior in situations characterized by low consumer
involvement but significant perceived brand differences.
 In this case, consumers often look for a lot of brand switching.
Here brand switching occurs for the sake of variety rather
than because of dissatisfaction.
 The marketing strategy may differ for such product categories
for the market leader and minor brands.
3.1.4. The Buyer Decision Process
• We will examine the stages that buyers pass through to reach
a buying decision.
• We will use the model in the figure, which shows the
consumer as passing through five stages: need recognition,
information search, evaluation of alternatives, purchase
decision and postpurchase behavior.

84. Con’t…
• Clearly, the buying process starts long before actual purchase
and continues long after.
• This encourages the marketer to focus on the entire buying
process rather than just the purchase decision.
• This model implies that consumers pass through all five stages
with every purchase. However, in more routine purchases,
consumers often skip or reverse some of these stages.
I. Need Recognition
• The buying process starts with need recognition - the buyer
recognizing a problem or need.
• The buyer senses a difference between his or her actual state
and some desired state.
• The need can be triggered by internal stimuli when one of the
person's normal needs - hunger, thirst, etc - rises to a level
high enough to become a drive.

85. Con’t…
• From previous experience, the person has learned how to
cope with this drive and is motivated towards objects that he
or she knows will satisfy it.
• A need can also be triggered by external stimuli. You pass a
bakery and the smell of freshly baked bread stimulates your
hunger; you admire a neighbor’s new car; or you watch a
television commercial.
• At this stage, the marketer needs to determine the factors
and situations that usually trigger consumer need recognition.
II. Information Search
• The consumer can obtain information about a product he/she
needs from any of several sources:
 Personal sources: family, friends, neighbors, acquaintances.
 Commercial sources: advertising, salespeople, dealers,
packaging, displays.

86. Con’t…
 Public sources: mass media, consumer-rating organizations.
 Experiential sources: handling, examining, using the product.
III. Evaluation of Alternatives
• The stage of the buyer decision process in which the
consumer uses information to evaluate alternative brands in
the choice set.
• The marketer needs to know about alternative evaluation -
that is, how the consumer processes information to arrive at
brand choices.
• Unfortunately, consumers do not use a simple and single
evaluation process in all buying situations. Instead, several
evaluation processes are at work.
IV. Purchase Decision
• This is the stage of the buyer decision process in which the
consumer actually buys the product.

87. Con’t…
• In the evaluation stage, the consumer ranks brands and forms
purchase intentions.
• Generally, the consumer's purchase decision will be to buy the most
preferred brand.
• A consumer takes certain actions to reduce risk, such as avoiding
purchase decisions, gathering more information and looking for
national brand names and products with warranties.
• The marketer must understand the factors that provoke feelings of
risk in consumers and must provide information and support that
will reduce the perceived risk.
V. Postpurchase Behavior
• This is the stage of the buyer decision process in which
consumers take further action after purchase based on their
satisfaction or dissatisfaction.

88. Con’t…
• The marketer's job does not end when the product is bought.
After purchasing the product, the consumer will be satisfied
or dissatisfied and will engage in postpurchase behavior of
interest to the marketer.
• The decision is either to continue if satisfied or stop if
dissatisfied.
3.2. Analyzing Business Market and Business Buyer Behavior
• The business market consists of all the organizations that buy
goods and services to use in the production of other products
and services that are sold, rented or supplied to others.
• It also includes retailing and wholesaling firms that acquire
goods for the purpose of reselling or renting them to others at
a profit.

89. 3.2.1. Characteristics of Business Market
• In some ways, business markets are similar to consumer
markets.
• Both involve people who assume buying roles and make
purchase decisions to satisfy needs.
• However, business markets differ in many ways from
consumer markets.
• The main differences are in market structure and demand, the
nature of the buying unit, and the types of decision and the
decision process involved.
• Now let us see areas of differences between consumer and
business markets.
a)Market Structure and Demand
• The business marketer normally deals with far fewer but far
larger buyers than the consumer marketer does.

90. Con’t…
• Business markets are also more geographically concentrated.
For example, most of Ethiopian business buyers are
concentrated in Addis Ababa and other relatively big towns.
• Further, business demand is derived demand - it ultimately
derives from the demand for consumer goods. Mercedes buys
steel because consumers buy cars. If consumer demand for
cars drops, so will the demand for steel and all the other
products used to make cars. Therefore, business marketers
sometimes promote their products directly to final consumers
to increase business demand.
• Many business markets have inelastic demand: that is, total
demand for many business products is not affected much by
price changes, especially in the short run. A drop in the price
of leather will not cause shoe manufacturers to buy much
more leather unless it results in lower shoe prices, which, in
turn, will increase consumer demand for shoes.

91. Con’t…
• Finally, business markets have more fluctuating demand. The
demand for many business goods and services tends to
change more — and more quickly -than the demand for
consumer goods and services does.
• Sometimes a rise of only 10 percent in consumer demand can
cause as much as a 200 percent rise in business demand
during the next period.
b)Nature of the Buying Unit
• Compared with consumer purchases, a business purchase
usually involves more buyers and a more professional
purchasing effort.
• Often, business buying is done by trained purchasing agents,
who spend their working lives learning how to buy well.

92. Con’t…
• The more complex the purchase, the more likely that several
people will participate in the decision making process.
• Buying committees made up of technical experts and top
management are common in the buying of primary goods.
• Therefore, business marketers must have well-trained
salespeople to deal with well-trained buyers.
c)Type of Decision and the Decision Process
• Business buyers usually face more complex buying decisions
than do consumer buyers do.
• Purchases often involve large sums of money, complex
technical and economic considerations, and interactions
among many people at many levels of the buyer's
organization.
• Because the purchases are more complex, business buyers
may take longer to make their decisions.

93. Con’t…
• The business buying process tends to be more formalized than
the consumer buying process.
• Large business purchases usually call for detailed product
specifications, written purchase orders, careful supplier
searches and formal approval.
• Finally, in the business buying process, buyer and seller are
often much more dependent on each other.
• Consumer marketers are usually at a distance from their
customers.
• In contrast, business marketers may work closely with their
customers during all stages of the buying process – from
helping customers define problems, to finding solutions, to
supporting after-sales operations.

94. 3.2.2. Main Types of Business Buying Situations
• The business buyer faces many decisions in making a
purchase.
• The number of decisions depends on the buying situation:
complexity of the problem being solved, newness of the
buying requirement, and number of people involved, and
time required.
I. Straight Rebuy- in a straight rebuy, the buyer reorders
something without any modifications. It is usually handled
on a routine basis by the purchasing department. Based on
past buying satisfaction, the buyer simply chooses from the
various suppliers on its list.
II. Modified Rebuy- in a modified rebuy, the buyer wants to
modify product specifications, prices, terms or suppliers. The
modified rebuy usually involves more decision participants
than the straight rebuy.

95. Con’t…
III. New Task-a company buying a product or service for the first
time faces a new task situation. In such cases, the greater the
cost or risk, the larger will be the number of decision
participants and the greater their efforts to collect
information. The new-task situation is the marketer's greatest
opportunity and challenge.
3.2.3. The Buying Center
• The buying center includes all members of the organization
who play any of seven roles in the purchase decision process.
1. Initiators- those who request that something be purchased.
They may be users or others in the organization.
2. Users- those who will use the product or service. In many
cases, the users initiate the buying proposal and help define
the product requirements.

96. Con’t…
3. Influencers- people who influence the buying decision. They often
help define specifications and also provide information for
evaluating alternatives. Technical personnel are particularly
important influencers.
4. Deciders- people who decide on product requirements or on
suppliers.
5. Approvers- people who authorize the proposed actions of deciders
or buyers.
6. Buyers- people who have formal authority to select the supplier and
arrange the purchase terms. Buyers may help shape product
specifications, but they play their major role in selecting vendors
and negotiating. In more complex purchases, the buyers might
include high-level managers.
7. Gatekeepers- people who have the power to prevent sellers or
information from reaching members of the buying center. For
example, purchasing agents, receptionists, and telephone operators
may prevent salespersons from contacting users or deciders.

97. 3.2.4. The Process of Organizational Buying
• At this point we are ready to describe the general stages in
the business buying decision process.
1. Problem Recognition
• The buying process begins when someone in the company
recognizes a problem or need that can be met by acquiring a
good or service.
• The recognition can be triggered by internal or external
stimuli. Internally, some common events lead to problem
recognition.
• The company decides to develop a new product and needs
new equipment and materials.
• A machine breaks down and requires new parts. Purchased
material turns out to be unsatisfactory, and the company
searches for another supplier. A purchasing manager senses
an opportunity to obtain lower prices or better quality.

98. Con’t…
• Externally the buyer may get new ideas at a trade show, see an ad,
or receive a call from a sales representative who offers a better
product or a lower price. Business marketers can stimulate problem
recognition by direct mail, telemarketing, and calling on prospects.
2. General Need Description and Product Specification
• Next, the buyer determines the needed item's general
characteristics and required quantity. For standard items, this is
simple. For complex items, the buyer will work with others—
engineers, users—to define characteristics like reliability, durability,
or price.
3. Supplier Search
• The buyer next tries to identify the most appropriate suppliers
through trade directories, contacts with other companies,
trade advertisements, and trade shows. Business marketers
also put products, prices, and other information on the
Internet.

99. Con’t…
4. Proposal Solicitation
• The buyer invites qualified suppliers to submit proposals. If
the item is complex or expensive, the buyer will require a
detailed written proposal from each qualified supplier. After
evaluating the proposals, the buyer will invite a few suppliers
to make formal presentations.
5. Supplier Selection
• Before selecting a supplier, the buying center will specify
desired supplier attributes and indicate their relative
importance. Business marketers need to do a better job of
understanding how business buyers arrive at their
evaluations. The choice and importance of different attributes
varies with the type of buying situation.
• Delivery reliability, price, and supplier reputation are
important for routine-order products.

100. Con’t…
• For procedural-problem products, such as a copying machine,
the three most important attributes are technical service,
supplier flexibility, and product reliability.
6. Order-Routine Specification
• After selecting suppliers, the buyer negotiates the final order,
listing the technical specifications, the quantity needed, the
expected time of delivery, return policies, warranties, and so
on.
7. Performance Review
• The buyer periodically reviews the performance of the chosen
supplier(s).
• The performance review may lead the buyer to continue,
modify, or end a supplier relationship.

101. Chapter Four
4. Market Segmentation, Targeting and Positioning

102. 4.1. Market Segmentation
• Markets consist of buyers, and buyers differ in one or more ways.
They may differ in their wants, resources, locations, buying
attitudes and buying practices.
• Through market segmentation, companies divide large,
heterogeneous markets into smaller segments that can be reached
more efficiently with products and services that match their unique
needs.
Levels of Market Segmentation
• Companies can practice no segmentation (mass marketing),
complete segmentation (micromarketing) or something in between
(segment marketing or niche marketing).
1. Mass Marketing
• In the past major consumer-product companies held fast to mass
marketing - mass-producing, mass distributing and mass
promoting about the same product in about the same way to all
consumers.

103. Con’t…
• The traditional argument for mass marketing is that it creates
the largest potential market, which leads to the lowest costs,
which in turn can translate into either lower prices or higher
margins.
• However, many factors now make mass marketing more
difficult because it is very hard to create a single product or
program that appeals to all of these diverse groups.
2. Segment Marketing
• A company that practices segment marketing recognizes that
buyers differ in their needs, perceptions and buying
behaviors.
• Segment marketing offers several benefits over mass
marketing. The company can market more efficiently,
targeting its products or services, channels and
communication programmes towards only consumers that it
can serve best.

104. Con’t…
3. Niche Marketing
• Niche marketing focuses on subgroups within these segments.
A niche is a more narrowly defined group, usually identified
by dividing a segment into subsegments or by defining a
group with a distinctive set of traits who may seek a special
combination of benefits.
• Whereas segments are fairly large and normally attract
several competitors, niches are smaller and normally attract
only one or a few competitors.
• Niching offers smaller companies an opportunity to compete
by focusing their limited resources on serving niches that may
be unimportant to or overlooked by larger competitors.

105. Con’t…
4. Micro Marketing
• Segment and niche marketers tailor their offers and marketing
programmes to meet the needs of various market segments.
At the same time, however, they do not customize their offers
to each individual customer.
• Micromarketing is the practice of tailoring products and
marketing programmes to suit the tastes of specific
individuals and locations. Micromarketing includes local
marketing and individual marketing.
 Local Marketing- Local marketing involves tailoring brands
and promotions to the needs and wants of local customer
groups - cities, neighborhoods and even specific stores.
Some Drawbacks of Local Marketing
• It can drive up manufacturing and marketing costs by reducing
economies of scale.

106. Con’t…
• It can also create logistical problems as companies try to meet
the varied requirements of different regional and local
markets.
• Moreover, a brand's overall image may be diluted if the
product and message vary in different localities.
Some Advantages of Local Marketing
• Local marketing helps a company to market more effectively
in the face of pronounced regional and local differences in
community demographies and lifestyles.
• It also meets the needs of the company's 'first-line customers'
- retailers — who prefer more fine-tuned product assortments
for their neighborhoods.
 Individual Marketing-In the extreme, micromarketing
becomes individual marketing tailoring products and
marketing programmes to the needs and preferences of
individual customers. Individual marketing has also been
labelled 'markets-of-one marketing', 'customized marketing'
and 'one-to-one marketing'.

107. Segmenting Consumer Markets
• There is no single way to segment a market. A marketer has to
try different segmentation variables.
• The major variables used in segmenting consumer markets
include: geographic, demographic, psychographic and
behavioral variables.
A. Geographic Segmentation
 Geographic segmentation calls for dividing the market into
different geographical units, such as nations, states, regions,
counties, cities or neighborhoods.
 A company may decide to operate in one or a few
geographical areas, or to operate in all areas but pay attention
to geographical differences in needs and wants.

108. Segmenting Consumer Markets…
B. Demographic Segmentation
• Demographic segmentation consists of dividing the market into
groups based on variables such as age, gender, family size, family
life cycle, income, occupation, education, religion, race and
nationality.
• Demographic factors are the most popular bases for segmenting
customer groups. One reason is that consumer needs, wants and
usage rates often vary closely with demographic variables.
• Another is that demographic variables are easier to measure than
most other types of variable.
• Even when market segments are first defined using other bases -
such as personality or behavior - their demographics need knowing
to assess the size of the target market and to reach it efficiently.

109. Segmenting Consumer Markets
C. Psychographic Segmentation
 Psychographic segmentation divides buyers into groups based
on social class, lifestyle or personality characteristics. People
in the same demographic group can have very different
psychographic make-ups.
D. Behavioral Segmentation
 Behavioral segmentation divides buyers into groups based on
their knowledge, attitudes, uses or responses to a product.
 Many marketers believe that behavior variables are the best
starting point for building market segments.
 Behavior variables for segmenting a market include the
following: occasions, benefits sought, user status, usage rate,
loyalty status

110. Segmenting Consumer Markets…
Occasions
 Buyers can be grouped according to occasions when they get
the idea to buy, make their purchase or use the purchased
item. Occasion segmentation can help firms build up product
usage.
 For example, most people drink orange juice at breakfast, but
orange growers have promoted drinking orange juice as a cool
and refreshing drink at other times of the day.
Benefits sought- A powerful form of segmentation is to group
buyers according to the different benefits that they seek from
the product.
User status-Some markets are segmented into non-users, ex-
users, potential users, first-time users and regular users of a
product. Potential users and regular users may require
different kinds of marketing appeal.

111. Segmenting Consumer Markets…
Usage rate-Some markets are also segmented into light,
medium and heavy-user groups. Heavy users are often a small
percentage of the market, but account for a high percentage
of total buying.
Loyalty status-Many firms are now trying to segment their
markets by loyalty, and are using loyalty schemes to do it.
• They assume that some consumers are completely loyal - they
buy one brand all the time.
• Others are somewhat loyal - they are loyal to two or three
brands of a given product, or favor one brand while
sometimes buying others.
• Still other buyers show no loyalty to any brand. They either
want something different each time they buy or always buy a
brand on sale.

112. Requirements for Effective Segmentation
• Clearly, there are many ways to segment a market, but not all
segmentations are effective. To be useful, market segments
must have the following characteristics: measurability,
accessibility, substantiality, and actionability.
I. Measurability- The size, buying power and profiles of the
segments need measuring. Certain segmentation variables are
difficult to measure. For example, there arc 30 million left-
handed people in Europe – almost equaling the entire
population of Canada - yet few firms target them.
II. Accessibility-Can market segments be effectively reached and
served?
III. Substantiality-The market segments should be large or
profitable enough to serve. A segment should be the largest
possible homogeneous group worth pursuing with a tailored
marketing programme.

113. Requirements for Effective Segmentation
IV. Actionability-Effective programmes need to attract and serve
the segments.
4.2. Market Targeting
 Marketing segmentation reveals the firm's market-segment
opportunities. The firm now has to evaluate the various
segments and decide how many and which ones to target. At
this point, we will look at how companies evaluate and select
target segments.
Evaluating Market Segments
In evaluating different market segments, a firm must look at
two dimensions: segment attractiveness and company fit.
 Segment Attractiveness
 The company must first collect and analyze data on current
sales value, projected sales-growth rates and expected profit
margins for the various segments.

114. Segment Attractiveness…
 Segments with the right size and growth characteristics are
interesting. A segment might have desirable size and growth
and still not be attractive from a profitability point of view.
 The company must examine several significant structural
factors that affect long-run segment attractiveness.
 For example, the company should assess current and
potential competitors. A segment is less attractive if it already
contains many strong and aggressive competitors.
 Marketers also should consider the threat of substitute
products. A segment is less attractive if actual or potential
substitutes for the product already exist. Substitutes limit the
potential prices and profits from segments.
 The relative power of buyers also affects segment
attractiveness.

115. Segment Attractiveness …
 If the buyers in a segment possess strong or increasing
bargaining power relative to sellers, they will try to force
prices down, demand more quality or services, and set
competitors against one another. All these actions will reduce
the sellers' profitability.
 Finally, segment attractiveness depends on the relative power
of suppliers. A segment is less attractive if the suppliers of raw
materials, equipment, labor and services in the segment are
powerful enough to raise prices or reduce the quality or
quantity of ordered goods and services. Suppliers tend to be
powerful when they are large and concentrated, when few
substitutes exist, or when the supplied product is an
important input.

116. Business Strength/Company Fit
 Even if a segment has the right size and growth and is structurally
attractive, the company must consider its objectives and resources
for that segment.
 It is best to discard some attractive segments quickly because they
do not match with the company's long-run objectives. Although
such segments might be tempting in themselves, they might divert
the company's attention and energies away from its main goals.
 They might be a poor choice from an environmental, political or
social-responsibility viewpoint.
Selecting Market Segments
 When a segment fits the company's strengths, the company must
then decide whether it has the skills and resources needed to
succeed in that segment.
 Each segment has certain success requirements.

117. Selecting Market Segments
 If the company lacks and cannot readily obtain the strengths
needed to compete successfully in a segment, it should not
enter the segment.
 The company should enter segments only where it can offer
superior value and gain advantages over competitors.
Segment Strategy
 After evaluating different segments, the company must now
decide which and how many segments to serve. This is the
problem of target-market selection.
 The firm can adopt one of three market-coverage strategies:
undifferentiated marketing differentiated marketing and
concentrated marketing.

118. Segment Strategy
Undifferentiated Marketing
 Using an undifferentiated marketing strategy, a firm might
decide to ignore market segment differences and go after the
whole market with one offer.
 This can be because there are weak segment differences or
through the belief that the product's appeal transcends
segments.
 The offer will focus on what is common in the needs of
consumers rather than on what is different.
 The company designs a product and a marketing program that
appeal to the largest number of buyers. It relies on quality,
mass distribution and mass advertising to give the product a
superior image in people's minds.

119. Segment Strategy
 Undifferentiated marketing provides cost economies. The
narrow product line keeps down production, inventory and
transportation costs.
 The undifferentiated advertising program keeps down
advertising costs. The absence of segment marketing research
and planning lowers the costs of market research and product
management.
 Most modern marketers, however, have strong doubts about
this strategy. Difficulties arise in developing a product or
brand that will satisfy all consumers.
 Recognition of this problem has led to firms addressing
smaller market segments. Another problem is erosion of the
mass market as competitors develop new appeals or
segments.

120. Segment Strategy…
Differentiated Marketing
 Using a differentiated marketing strategy, a firm decides to
target several market segments and designs separate offers
for each.
 Differentiated marketing typically creates more total sales
than does undifferentiated marketing.
Concentrated Marketing
 A third market-coverage strategy, concentrated marketing, is
especially appealing when company resources are limited.
Instead of going after a small share of a large market, the firm
goes after a large share of one or a few submarkets.
 Concentrated marketing is an excellent way for small new
businesses to get a foothold against larger competitors.

121. Segment Strategy…
 Through concentrated marketing, a firm can achieve a strong
market position in the segments (or niches) it serves because
of its greater knowledge of the segments and its special
reputation.
 It also enjoys many operating economies because of
specialization in production, distribution and promotion. A
firm can earn a high rate of return on its investment from
well-chosen segments.
 At the same time, concentrated marketing involves higher
than normal risks.
Choosing a Market Coverage Strategy
 Many factors need considering when choosing a market-
coverage strategy. The best strategy depends on company
resources.

122. Choosing a Market Coverage Strategy…
 Concentrated marketing makes sense for a firm with limited
resources.
 The best strategy also depends on the degree of product
variability.
 Undifferentiated marketing is suitable for uniform products
such as grapefruit or steel.
 Products that can vary in design, such as cameras and cars,
require differentiation or concentration.
 Consider the product's stage in the life cycle. When a firm
introduces a new product, it is practical to launch only one
version and undifferentiated marketing or concentrated
marketing therefore makes the most sense.

123. Choosing a Market Coverage Strategy
 In the mature stage of the product life cycle, however,
differentiated marketing begins to make more sense. Another
factor is market variability.
 Undifferentiated marketing is appropriate when buyers have
the same tastes, buy the same amounts and react in the same
way to marketing efforts.
 Finally, competitors' marketing strategies are important.
When competitors use segmentation, undifferentiated
marketing can be suicidal.
 Conversely, when competitors use undifferentiated marketing,
a firm can gain by using differentiated or concentrated
marketing.

124. 4.3. Positioning
What is Market Positioning?
 A product's position is the way the product is defined by
consumers on important attributes - the place the product
occupies in consumers' minds relative to competing products.
 A firm's competitive advantage and its product's position can
be quite different. A competitive advantage is the strength of
a company, while a product's position is a prospect's
perception of a product.
 A competitive advantage, like low costs or high quality, could
influence a product's position, but in many cases, it is not
central to it.
 Consumers are overloaded with information about products
and services.

125. What is Market Positioning?
 They cannot re-evaluate products every time they make a
buying decision.
 To simplify buying decision-making, consumers organize
products into categories that is, they 'position' products,
services and companies in their minds.
 A product's position is the complex set of perceptions,
impressions and feelings that consumers hold for the product
compared with competing products.
 Consumers position products with or without the help of
marketers.
 However, marketers do not want to leave their products'
positions to chance. They plan positions that will give their
products the greatest advantage in selected target markets,
and they design marketing mixes to create these planned
positions.

126. What is Market Positioning?
 Positioning starts with a product, a piece of merchandise, a service,
a company, an institution or even a person.
 However, positioning is not about what you do to a product.
Positioning is what you do to the mind of the prospect. That is, you
position products in the mind of the prospect.
Differentiation Strategies
 Brands can be differentiated on the basis of many variables. Among
the other dimensions a company can use to differentiate its market
offering are personnel, channel, and image.
 Benefit positioning: The product is positioned as the leader in a
certain benefit.
 Use or application Positioning: Positioning the product as best for
some use or application. Japanese Deer Park can position itself for
the tourist who has only an hour to catch some quick
entertainment.

127. Differentiation Strategies…
 Personnel Differentiation /User positioning: Companies can gain a
strong competitive advantage through having better-trained
people. Positioning the product as best for some user group. Magic
Mountain can advertise itself as best for “thrill seekers.”
 Competitor positioning: The product claims to be better in some
way than a named competitor. For example, Lion Country Safari can
advertise having a greater variety of animals than Japanese Deer
Park.
 Product category positioning: brands can be differentiated on the
basis of a number of different product or service dimensions:
product form, features, performance, conformance, durability,
reliability, repairability, style, and design, as well as such service
dimensions as ordering ease, delivery, installation, customer
training, customer consulting, and maintenance and repair.

128. Differentiation Strategies…
 Besides these specific concerns, one more general positioning
for brands is as "best quality. A high price usually signals
premium quality. Quality image is also affected by packaging,
distribution, advertising, and promotion.
Channel Differentiation
 Companies can achieve competitive advantage through the
way they design their distribution channels' coverage,
expertise, and performance.
 Its dealers are found in more locations than competitors'
dealers, and they are typically better trained and perform
more reliably.
Image Differentiation
 Buyers respond differently to company and brand images.
Identity and image need to be distinguished.

129. Image Differentiation…
 Identity is the way a company aims to identify or position
itself or its product. Image is the way the public perceives the
company or its products.
 An effective identity does three things: It establishes the
product's character and value proposition. It conveys this
character in a distinctive way.
 It delivers emotional power beyond a mental image. For the
identity to work, it must be conveyed through every available
communication vehicle and brand contact. It should be
diffused in ads, annual reports, brochures, catalogues,
packaging, company stationery, and business cards.
 A difference is worth establishing to the extent that it satisfies
the following criteria:

130. A difference is worth establishing to the extent that it satisfies
the following criteria:
➤Important: The difference delivers a highly valued benefit
to a sufficient number of buyers.
➤Distinctive: The difference is delivered in a distinctive
way.
➤Superior: The difference is superior to other ways of
obtaining the benefit.
➤Pre-emptive: The difference cannot be copied easily by
competitors.
➤Affordable: The buyer can afford to pay for the
difference.
➤Profitable: The Company will find it profitable to
introduce the difference.

131. Chapter Five
Marketing Mix Strategies

132. 5.1 Product Strategies
What is a product?
• Many people think a product is a tangible offering, but it can
be more than that. Broadly, a product is anything that can be
offered to a market for attention, acquisition, use, or
consumption that might satisfy a want or need. It includes
physical goods, services, experiences, events, persons, places,
properties, organizations, information, and ideas.
5.1.1 Levels of Product and Services
• Product planners need to think about products and services
on three levels. Each level adds more customer value.
1. Core customer value, which addresses the question: What is
the buyer really buying? A hotel guest is buying rest and
sleep,

133. Con’t…
2. Actual product. Which includes; product and service features,
design, a quality level, a brand name, and packaging. It is the
product that delivers the core customer value.
3. Augmented product, which is created around the core benefit
and actual product by offering additional consumer services
and benefits.
 Consumers see products as complex bundles of benefits that
satisfy their needs.
 When developing products, marketers first must identify the
core customer value that consumers seek from the product.
 They must then design the actual product and find ways to
augment it in order to create this customer value and the
most satisfying customer experience.

134. 5.2.1 Product Classifications
 Products can be classified on the basis of: durability
(tangibility), and use (consumer or industrial). Each product
type has an appropriate marketing-mix strategy.
Classification of products on the basis of durability and
tangibility
• Products can be classified into three groups, according to
durability and tangibility:
1. Nondurable goods are tangible goods consumed in one
or a few uses, like beer and soap. they are consumed
quickly and purchased frequently,
Strategy:
– Make them available in many locations,
– Charge only a small markup, and
– Advertise heavily to induce trial and build preference.

135. Con’t…
2. Durable goods are tangible & give many uses: e.g. refrigerators.
Durable products normally require more personal selling and
service, command a higher margin, and require more seller
guarantees.
3. Services are intangible, inseparable, variable, and perishable
products. As a result, they normally require more quality control,
supplier credibility, and adaptability. Examples include dental
services and repairs.
Classification of products on the basis of use
• Products can be classified in to two – consumer products and
industrial products.
• Consumer products are products and services bought by final
consumers for personal consumption. The goods consumers
buy can be classified on the basis of shopping habits. These
are: convenience, shopping, and specialty and unsought
goods.

136. Con’t…
A. Convenience goods are those the customer usually purchases
frequently, immediately, and with a minimum of effort.
Examples include: tobacco products, soaps, and newspapers.
B. Shopping Goods are goods that the customer, in the process
of purchase compares on: suitability, quality, price, and style.
For example; furniture, clothing, major appliances, hotel and
airlines services. The seller of shopping goods carries a wide
assortment to satisfy individual tastes and must have well-
trained salespeople to inform and advise customers.
C. Specialty goods: have unique characteristics or brand
identification for which a sufficient number of buyers are
willing to make a special purchasing effort.
For example: Cars, Jewelry, & Suits. A Mercedes is a specialty
good because buyers will travel far to buy one. Specialty
goods do not involve comparisons.

137. Con’t…
D. Unsought products are consumer products that the consumer
either does not know about or knows about but does not
normally think of buying.
Industrial products: are those purchased for further processing
or for use in conducting a business.
• The three groups of industrial products and services are:
 Materials and parts include raw materials and manufactured
materials and parts.
 Capital items are industrial products that aid in the buyer’s
production or operations, including installations and
accessory equipment.
 Supplies and services include maintenance, repair and
operating supplies and business services.

138. 5.1.3 PRODUCT DECISIONS
i) Individual Product and Service Decisions
a) Product and Service Attributes
Developing a product or service involves defining the benefits
that it will offer. These benefits are communicated and
delivered by product attributes such as quality, features, and
style and design.
• Product Quality is creating customer value and satisfaction.
Total quality management (TQM) is an approach in which all
the company’s people are involved in constantly improving
the quality of products, services, and business processes.
 Product quality has two dimensions: level and consistency.
The quality level means performance quality or the ability of a
product to perform its functions.
 Quality conformance means quality consistency, freedom
from defects, and consistency in delivering a targeted level of
performance.

139. Con’t…
• Product Features are a competitive tool for differentiating the
company’s product from competitors’ products.
 The company should periodically survey buyers who have
used the product and ask these questions: How do you like
the product? Which specific features of the product do you
like most? Which features could we add to improve the
product?
• Product Style and Design is another way to add customer
value.
Style describes the appearance of a product. Design
contributes to a product’s usefulness as well as to its looks.
b) Branding
A brand is a name, term, sign, symbol, or design, or a
combination of these, that identifies the maker or seller of a
product or service.

140. Con’t…
Branding helps buyers in many ways.
• Brand names help consumers identify products that might
benefit them.
• Brands say something about product quality and consistency.
Branding gives the seller several advantages.
• The brand name becomes the basis on which a whole story
can be built about a product.
• The brand name and trademark provide legal protection for
unique product features.
• The brand name helps the seller to segment markets.
c) Packaging
• Packaging involves designing and producing the container or
wrapper for a product.

141. Con’t…
d) Labeling
• Labels range from simple tags attached to products to complex
graphics that are part of the packaging. Labels perform several
functions.
• The label identifies the product or brand.
• The label describes several things about the product.
• The label promotes the brand. Labeling also raises concerns. As a
result, several federal and state laws regulate labeling.
Labeling has been affected in recent times by:
• Unit pricing (stating the price per unit of standard measure)
• Open dating (stating the expected shelf life of the product)
• Nutritional labeling (stating the nutritional values in the
product)