Principles of marketing 15th Edition

Principles of Marketing
By
Philip Kotler & Gary Armstrong
Slide prepared by Mahir Mahtab Haque
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Contents
• Marketing: Creating and capturing customer value - 3
• Company and marketing strategy: partnering to build customer relationships -12
• Analyzing the marketing environment -25
• Managing marketing information to gain customer insights - 33
• Consumer markets and consumer buyer behavior - 49
• Business markets and business buyer behavior - 61
• Customer-driven marketing strategy: Creating value for target customers - 71
• Products, services and brands: Building customer value - 83
• New-product development and product life-cycle strategies - 101
• Pricing: Understanding and capturing customer value - 108
• Pricing strategies: Additional considerations - 117
• Marketing channels: Delivering customer value - 126
• Retailing and wholesaling - 139
• Communicating customer value: Integrated marketing communications strategy - 148
• Creating competitive advantage - 164
• The Global marketplace - 177
• Sustainable marketing: Social responsibility and ethics - 189
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Marketing: Creating & Capturing
Customer Value
Chapter 1
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What is Marketing?
• Marketing is managing profitable customer relationships.
• Goals of marketing:
- Attract new customers by promising them superior value
- Retain and grow current customers by delivering satisfaction
• Marketing can be defined as the process by which companies create
value for customers and build strong customer relationships in order
to capture value from customers in return.
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Marketing Process (Step 1)
• Understanding the marketplace and customer needs (5 core customer and marketplace concepts):
- Needs, wants and demands: Human needs are states of felt deprivation; wants are the form of human needs
as they are shaped by culture and individual personality; demands are wants when they are backed by
buying power.
- Market offerings: A combination of products, services, information, experiences, persons, places,
organizations and ideas that fulfills the consumers’ needs and wants. (Marketing myopia is the mistake of
paying more attention to the specific products a company offers than to the benefits and experiences
produced by these products.)
- Customer value and satisfaction: Customers form expectations about the value and satisfaction that various
market offerings will deliver and buy accordingly. Hence, marketers must be careful to set the right level of
expectations.
- Exchanges and relationships: Marketing consists of actions taken to create, maintain and grow desirable
exchange relationships with target audiences involving market offerings. Companies want to build strong
relationships by consistently delivering superior customer value.
- Markets: This is the set of actual and potential buyers of a product/service. These buyers share a particular
need or want that can be satisfied through exchange relationships.
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• Designing a customer-driven marketing strategy: (Marketing management is the art and science of choosing target markets and
building profitable relationships with them.) To design a winning strategy, marketing managers must answer 3 questions:
- What’s our target market?
- What’s our value proposition?
- What philosophy should guide this strategy?
• Selecting customers to serve: The company must first decide whom it will serve; this is done by dividing the market into segments
of customers (market segmentation) and then selecting which segments it will go after (target marketing).
• Choosing a value proposition: The company must also decide how it will serve its targeted customers, i.e., how it will differentiate
and position itself in the marketplace. (A brand’s value proposition is the set of benefits/values it promises to deliver to consumers
to satisfy their needs.)
• Marketing management orientations:
- Production concept: Consumers will favor products that are available and highly affordable; therefore, the organization should
focus on improving production and distribution efficiency.
- Product concept: Consumers will favor products that offer the most in quality, performance and innovative features; therefore, the
organization should focus on making continuous product improvements.
- Selling concept: Consumers will not buy the firm’s products unless it undertakes a large-scale selling and promotion effort.
- Marketing concept: Achieving organizational goals depends on knowing the needs and wants of target markets and delivering the
desired satisfactions better than the competition. (Customer-driven marketing is understanding the customer needs even better
than customers and creating products and services that meet both existing needs and latent needs, now and in the future.)
- Societal marketing concept: Marketing strategy should deliver to customers in a way that maintains/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.
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• Preparing an integrated marketing plan and program: The marketing
program builds customer relationships by transforming the marketing
strategy into action. It consists of the firm’s marketing mix (4Ps of
marketing), which are a set of marketing tools the firm uses to implement
its marketing strategy:
- Product: a need-satisfying market offering
- Price: how it will charge for this offering
- Place: how it will make the offering available to target consumers
- Promotion: how it will communicate the merits of its offering to target
consumers
• The firm must blend these 4Ps into a comprehensive integrated marketing
program that communicates and delivers intended value to chosen
customers.
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• Building customer relationships:
- Customer relationship management (CRM) is the overall process of building and maintaining profitable customer relationships by delivering superior
customer value and satisfaction.
- Customer-perceived value: This is the customer’s evaluation of the difference between all the benefits and all the costs of a market offering relative
to those of competing offers.
- Customer satisfaction: This depends on the product’s perceived performance relative to the buyer’s expectations. Studies show higher levels of
customer satisfaction leads to greater customer loyalty which in turn results in better company performance.
 Performance < expectations (customer is dissatisfied)
 Performance = expectations (customer is satisfied)
 Performance > expectations (customer is delighted)
- Customer relationships:
 A company with many low-margin customers may seek to develop basic relationships with them.
 In markets with few customers and high margins, sellers want to create full partnerships with key customers.
- Customer marketing tools:
 Frequency marketing programs that reward customers who buy frequently or in large amounts.
 Club marketing programs offer members special benefits and create member opportunities.
- Customer-managed relationships: Marketing relationships in which customers, empowered by today’s new digital technologies, interact with
companies and with each other to shape their relationships with brands.
- Consumer-generated marketing: Brand exchanges created by consumers themselves – both invited and uninvited – by which consumers are playing
an increasing role in shaping their own brand experiences and those of other consumers.
- Partner relationship management: Working closely with partners (suppliers, channel partners, etc.) in other company departments and outside the
company to jointly bring greater value to customers.
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• Capturing value from customers in the form of sales, market share and
profits:
- Customer lifetime value (CLV): The value of the entire stream of purchases
a customer makes over a lifetime of patronage.
- Share of customer: The portion of the customer’s purchasing that a
company gets in its product categories. To increase share of customer,
firms can offer greater variety to current customers or create programs to
cross-sell and up-sell to market more products and services to existing
customers.
- Customer equity: The total combined customer lifetime values of all the
company’s customers. The more loyal the firm’s profitable customers, the
higher its customer equity. Customer equity may be a greater measure of a
firm’s performance than current sales or market share, whereas sales and
market share reflect the past, customer equity suggests the future.
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Customer relationship groups
• Strangers show low potential profitability and little projected loyalty. There is
little fit between company’s offerings and their needs. (Don’t invest anything in
them.)
• Butterflies are potentially profitable but not loyal. There is a good fit between the
company’s offerings and their needs. (Enjoy them for the time being by creating
satisfying and profitable transactions and capturing as much of their business as
possible.)
• True friends are both profitable and loyal. There is a strong fit between their
needs and the company’s offerings. (Make continuous relationship investments
to delight, nurture, retain and grow them.)
• Barnacles are highly loyal but not very profitable. There is a limited fit between
their needs and the company’s offerings. (Improve their profitability by selling
them more, raising their fees or reducing services to them; otherwise, don’t
invest!)
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Changing marketing landscape
• Changing economic environment:
- Great recession caused many consumers to rethink their spending priorities and cut back on their buying.
- Challenge is to balance the brand’s values proposition with the current times while also enhancing its long-term equity.
- In uncertain economic times, the goal is to build market share and strengthen customer relationships at the expense of competitors who cut back.
• Digital age:
- Advent of the Internet
- Online marketing (click-and-mortar companies)
• Growth of not-for-profit-marketing:
- Organizations include colleges, hospitals, museums, zoos, orchestras, churches and government.
- They raise funds through power-house marketing (public service announcements, TV, social media, checkout counters of major retailers).
• Rapid globalization:
- Companies are not just selling more of their locally produced goods in international markets; they are also sourcing more supplies and components
abroad.
- Rise of global marketing
• Sustainable marketing:
- As the worldwide consumerism and environmentalism movements mature, today’s marketers are being called on to develop sustainable marketing
practices.
- Corporate ethics and social responsibility have become hot topics for almost every business, as today’s customers expect companies to deliver value
in a socially and environmentally responsible way.
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Company & Marketing Strategy:
Partnering to build customer
relationships
Chapter 2
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Strategic Planning
• Strategic planning: The process of developing and maintaining a
strategic fit between the organization’s goals and capabilities and its
changing marketing opportunities.
• Steps in strategic planning:
- Defining the company mission
- Setting company objectives and goals
- Designing the business portfolio
- Planning marketing and other functional strategies
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Step 1: Defining a market-oriented mission
• A mission statement is a statement of the organization’s purpose – what it wants to accomplish in the larger
environment.
• Mission statements:
- Need to be market-oriented and be defined in terms of satisfying basic customer needs.
- Should be meaningful and specific yet motivating.
- Should emphasize company’s strengths and tell forcefully how it intends to win in the marketplace.
- Should focus on customers and customer experience the company seeks to create.
• Examples:
- Facebook: We connect people around the world and help them share important moments in their lives.
- Home Depot: We empower consumers to achieve the homes of their dreams.
- NASA: We reach for new heights and reveal the unknown so that what we do and learn will benefit all
humankind.
- Walmart: We deliver low prices every day and give ordinary folks the chance to buy the same things as rich
people. “Save Money. Live Better.”
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Step 2: Setting company objectives and goals
• Build profitable relationships with customers.
• Improve profits by increasing sales or reducing costs.
• Increase sales by improving company’s share of domestic and
international markets.
• Increase market share by broadening product lines, increasing
product availability and promotion in existing markets and expand
into new markets.
• Increase promotion through advertising and public relations efforts.
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Step 3: Designing the business portfolio
• Business portfolio is the collection of businesses and products that
make up the company. The best business portfolio is the one that fits
the company’s strengths and weaknesses to opportunities in the
environment.
• Business portfolio planning (2 steps):
- Company must first analyze its current business portfolio and
determine which businesses should receive more, less or no
investment.
- Next, it must shape the future portfolio by developing strategies for
growth and downsizing.
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Step 3: Designing the business portfolio (cont.)
• Analyzing the current business portfolio:
- The first step is to identify its key businesses that
make up the company, called strategic business units
(SBUs). An SBU can be a company division, a product
line within a division, a product/brand.
- Next, the company assesses the attractiveness of its
various SBUs and decides how much support each
deserves.
- A standard portfolio analysis instrument is the BCG
Growth-Share Matrix, which evaluates SBUs on 2
important dimensions: market growth rate and
relative market share.
• BCG Growth-Share Matrix (4 types of SBUs):
- Stars: High growth, high share businesses/products. Often in need of high investments
to fund their rapid growth. However, once their growth slows down, they convert to
cash cows.
- Cash Cows: Low growth, high share businesses/products. Do not need much
investment to hold their market share. However, the income generated from these
SBUs are used to pay off bills and support other SBUs that need investment.
- Question Marks: High growth, low share businesses/products. They require lot of cash
to hold their share in the market. Management often have to devote more time into
Question Marks to decide whether they should be removed or converted into Stars.
- Dogs: Low growth, low share businesses/products. They may generate enough cash to
maintain themselves but do not promise to be large sources of cash.
Star
Cash Cow
Question
Mark
Dog
Relative Market Share
Market Growth Rate
High
Low
Low
High
• 4 strategies for each SBU:
- Invest more in the SBU to build its share
- Invest just enough to hold the SBU’s share at the current level
- Harvest the SBU (milking short-term cash flow regardless of long-term effect)
- Divest SBU by selling it/phasing it out and using the resources elsewhere
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Step 3: Designing the business portfolio (cont.)
• Developing strategies for growth and downsizing:
- Beyond evaluating current businesses, designing the business portfolio involves finding
businesses and products the company should consider in the future. The company’s
objective must be to manage profitable growth.
- Marketing has the main responsibility for achieving profitable growth for the company.
Marketing needs to identify, evaluate and select market opportunities and establish
strategies for capturing them. A useful device for identifying growth opportunities is the
product/market expansion grid (Ansoff Matrix).
- Strategies:
 Market penetration: Company growth by increasing sales of current products to current
market segments without changing the product.
 Market development: Company growth by identifying and developing new market segments
for current company products.
 Product development: Company growth by offering modified or new products to current
market segments.
 Diversification: Company growth through starting up or acquiring businesses outside the
company’s current products and markets.
- Reasons for downsizing business portfolios:
 The firm may have grown too fast or entered areas where it lacks experience.
 Market environment may change, making some products or markets less profitable.
 Some products or business units simply age and die.
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Step 4: Planning Marketing: Partnering to Build
Customer Relationships
• Value chain: The series of internal departments that carry out value-
creating activities to design, produce, market, deliver and support a
firm’s products. The firm’s success depends not only on how well
each department performs its work but also on how well the various
departments coordinate their activities.
• More companies today are partnering with other members of the
supply chain – suppliers, distributors and customers – to improve the
performance of the customer value delivery network.
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Customer-driven marketing strategy
• Each company must divide up the total market, choose the best segments and design strategies
for profitably serving chosen segments. This process involves market segmentation, market
targeting, differentiation and positioning.
- Market segmentation: The process of dividing a market into distinct groups of buyers who have
different needs, characteristics/behaviors and who might require separate products or marketing
programs. (A market segment consists of consumers who respond in a similar way to a given set
of marketing efforts.)
- Market targeting: This involves evaluating each market segment’s attractiveness and selecting
one or more segments to enter. A company should target segments in which it can profitably
generate the greatest customer value and sustain it over time.
- Market differentiation and positioning: Positioning is arranging for a product to occupy a clear,
distinctive and desirable place relative to competing products in the minds of target consumers.
In positioning a brand, a company first identifies possible customer value differences that provide
competitive advantages on which to build the position. Thus, effective positioning begins with
differentiation, i.e., differentiating the company's market offering to create superior customer
value. Once the company has chosen a desired position, it must take strong steps to deliver and
communicate that position to target consumers. The company’s entire marketing program should
support the chosen positioning strategy.
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Developing an integrated marketing mix
• Marketing mix: Set of tactical tools – product, price, place and promotion –
that the firm blends to produce the response it wants in the target market.
- Product: A combination of goods/services the company offers to the target
market.
- Price: The amount of money customers must pay to obtain the product.
- Place: Includes the company activities that make the product available to
target consumers.
- Promotion: Refers to activities that communicate the merits of the product
and persuade target customers to buy it.
• An effective marketing program blends the marketing mix into an
integrated marketing program designed to achieve the company's
marketing objectives by delivering value to consumers.
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Managing the marketing effort
• Marketing analysis: Managing the marketing function begins with a complete analysis of the
company’s situation. The marketer should conduct a SWOT analysis by which it evaluates the
company’s overall strengths, weaknesses, opportunities and threats.
• Market planning: This involves choosing marketing strategies that will help the company attain its
overall strategic objectives. A detailed marketing plan comprises of the following:
- Executive summary
- Current marketing situation
- Threats and opportunities analysis
- Objectives and issues
- Marketing strategy
- Action programs
- Budgets
- Controls
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Managing the marketing effort (cont.)
• Marketing implementation: This is the process that turns marketing plans
into marketing actions to accomplish strategic marketing objectives.
• Marketing control: Measuring and evaluating the results of marketing
strategies and plans and taking corrective action to ensure that the
objectives are achieved. 4 steps in marketing control:
- Management first sets specific marketing goals.
- Then measures its performance in the marketplace and evaluates the
causes of any differences between expected and actual performance
- Finally, management takes corrective action to close the gaps between
goals and performance.
- This may require changing the action programs or even changing the goals.
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Measuring and managing marketing ROI
• Marketing ROI is the net return from a marketing investment divided by
costs of the marketing investment. It measures the profits generated by
investment in marketing activities.
• Marketing ROI can be difficult to measure. A company can assess the
marketing ROI in terms of standard marketing performance measures,
such as brand awareness, sales or market share.
• However, beyond standard performance measures, marketers are using
customer-centered measures of marketing impact, such as customer
acquisition, customer retention, customer lifetime value and customer
equity. These measures capture not only current marketing performance
but also future performance resulting from stronger customer
relationships.
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Analyzing the marketing
environment
Chapter 3
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Marketing environment
• A company’s marketing environment consists of actors and forces
outside marketing that affect marketing management’s ability to build
and maintain successful relationships with target customers.
• The marketing environment consists of:
- Microenvironment: Consists of actors close to the company that
affect its ability to serve its customers – the company, suppliers,
marketing intermediaries, customer markets, competitors and
publics.
- Macroenvironment: Consists of the larger societal forces that affect
the microenvironment – demographic, economic, natural,
technological, political and cultural forces.
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Microenvironment
• Company: Marketing management must take into consideration the internal environment – top
management, finance, R & D, purchasing, operations and accounting – when designing marketing plans.
• Suppliers: They provide the resources needed by the company to produce its goods and services; hence,
supply-related problems – supply availability and costs – can seriously undermine company sales and
damage customer satisfaction. Most marketers today treat their suppliers as partners in creating and
delivering customer value.
• Marketing intermediaries: They help the company promote, sell and distribute its products to final buyers.
They include resellers, physical distribution firms, marketing services agencies and financial intermediaries.
Marketers must partner effectively with marketing intermediaries to optimize the performance of the entire
system.
- Resellers are distribution channel firms (wholesalers, retailers) that help the company find customers or
make sales to them by buying and reselling the merchandise.
- Physical distribution firms help the company stock and move goods from their points of origin to their
destinations.
- Marketing services agencies are the marketing research firms, advertising agencies, media firms and
marketing consulting firms that help the company target and promote its products to the right markets.
- Financial intermediaries include banks, credit companies, insurance companies, etc. that help finance
transactions or insure against the risks associated with the buying and selling of goods.
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Microenvironment (cont.)
• Competitors: Each firm should consider its own size and industry position compared to those of its competitors when developing
their competitive marketing strategy.
• Publics: It is any group that has an actual or potential interest in or impact on an organizations’ ability to achieve its objectives.
There are 7 types of publics:
- Financial publics (banks, investment analysts, stockholders) influences the company’s ability to obtain funds.
- Media publics (newspapers, magazines, TV stations, blogs, etc.) carry news, features and editorial opinion.
- Government publics (company lawyers) are consulted by marketers regarding issues of product safety, truth in advertising, etc.
- Citizen-action publics (consumer organizations, environmental groups, minority groups, etc.) usually question the company’s
marketing decisions.
- Local publics (neighborhood residents, community organizations)
- General public: A company needs to be concerned about the general public’s attitude toward its products and activities. The
public’s image of the company affects its buying.
- Internal publics (workers, managers, volunteers, board of directors) are informed and motivated through company newsletters.
• Customers: The company might target any or all 5 types of customer markets:
- Consumer markets (individuals, households) buy goods and services for personal consumption.
- Business markets buy goods and services for further processing or use in their production process.
- Reseller markets buy goods and services to resell at a profit.
- Government markets consist of government agencies that buy goods and services to produce public services or transfer the goods
and services to others who need them.
- International markets consist of the above buyers in other countries.
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Macroenvironment
• Demographic environment:
- Demography: It is the study of human populations in terms of size, density, location, age, gender, race, occupation, etc.
- Changing age structure of the population:
 Baby boomers: People born between 1946 to 1964 following the end of WWII.
 Generation X: People born between 1965 to 1976 following the baby boom.
 Millennials/ Generation Y: People born between 1977 to 2000.
- Changing family: More people are divorcing or separating, choosing not to marry, marrying later or marrying without intending to
have children. Marketers must increasingly consider the special needs of nontraditional households because they are now growing
more rapidly than traditional households. Each group has distinctive needs and buying habits. In addition, number of working
women has also increased greatly.
- Geographic shifts in population: An increasing number of people are working from home with the help of electronic conveniences
such as PCs, smartphones, Internet access, etc.
- Better educated, more white-collar, more professional population: The rising number of educated professionals will affect not just
what people buy but also how they buy.
- Increasing diversity: Diversity goes beyond ethnic heritage – the LGBT community has increasingly emerged in the public eye along
with people with disabilities. Hence, marketers must continue to diversify their marketing programs to take advantage of
opportunities in fast-growing segments.
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Macroenvironment (cont.)
• Economic environment:
- It consists of economic factors that affect consumer purchasing power and spending patterns.
- Changes in consumer spending:
 Consumers are buying less and looking for greater value in the things that they buy (value marketing).
- Income distribution:
 Changes in major economic variables such as income, cost of living, interest rates and savings and borrowing patterns have a large
impact on the marketplace.
• Natural environment:
- This involves the physical environment and the natural resources that are needed as inputs by marketers or that are affected by
marketing activities.
- Environment trends:
 Growing shortages of raw materials
 Increased pollution
 Increased government intervention in natural resource management
- More and more companies are recognizing the link between a healthy ecology and a healthy economy. They are learning that
environmentally responsible actions can also be good business.
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• Technological environment:
- These are forces that create new technologies creating new product and market opportunities.
- Many firms are using radio-frequency identification (RFID) technology to track products through various points in the distribution
channel.
• Political and social environment:
- It consists of laws, government agencies and pressure groups that influence or limit various organizations and individuals in a given
society.
- Governments develop public policy to guide commerce – sets of laws and regulations that limit business for the good of society as
a whole. Laws usually cover issues such as competition, fair trade practices, environmental protection, product safety, truth in
advertising, consumer privacy, packaging and labeling, pricing, etc.
- Business legislation has been enacted for the following reasons:
 Protect companies from each other – from unfair competition.
 Protect consumers from unfair business practices – making shoddy products, invade privacy, mislead consumers in their
advertising, etc.
 Protect the interests of the society against unrestrained business behavior.
- Increased emphasis on ethics and socially responsible actions due to the recent boom in Internet marketing – online privacy
issues.
- Cause-related marketing: To exercise social responsibility and build more positive images, many companies are now linking
themselves to worthwhile causes. However, it is controversial, in that companies using cause-related marketing might find
themselves walking a fine line between increased sales and an improved image and facing charges of exploitation.
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• Cultural environment:
- It consist of institutions and other forces that affect a society’s basic
values, perceptions, preferences and behaviors.
- Core beliefs and values are passed on from parents to children and
are reinforced by schools, churches, business and government.
- Secondary beliefs and values are more open to change.
- Marketers have some chance of changing secondary values but little
chance of changing core values.
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Managing marketing information
to gain customer insights
Chapter 4
33

Marketing information and customer insights
• Customer insights: Fresh understanding of customers and the marketplace derived from marketing information
that become the basis for creating customer value and relationships.
• Customer insights groups collect customer and market information from a wide variety of sources, ranging from
traditional marketing research to mingling with and observing consumers to monitoring consumer online
conversations about the company and its products. Then they use this information to develop important customer
insights from which the company can create more value for its customers. Thus, companies must design effective
marketing information systems that give managers the right information in the right form at the right time and help
them to use this information to create customer value and stronger customer relationships.
• Marketing information systems (MIS): People and procedures dedicated to assessing information needs,
developing the needed information and helping decision makers to use the information to generate and validate
actionable customer and market insights.
• MIS process:
- MIS begins and ends with information users – marketing managers, internal and external partners, and others who
need marketing information.
- First, it interacts with these information users to assess information needs.
- Next, it interacts with the marketing environment to develop needed information through internal company
databases, marketing intelligence activities and marketing research.
- Finally, the MIS helps users to analyze and use the information to develop customer insights, make marketing
decisions and manage customer relationships.
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Step 1: Assessing marketing information needs
• A good MIS balances the information that users would like to have
against what they really need and what is feasible to offer.
• The MIS must monitor the marketing environment to provide decision
makers with information they should have to better understand
customers and make key marketing decisions.
• Finally, costs of obtaining, analyzing, storing and delivering
information can quickly mount. Hence, the company must decide
whether the value of insights gained from additional information is
worth the costs of providing it, and both value and cost are often
hard to assess.
35

Step 2: Developing marketing information
• Marketers can obtain the needed information from internal data, marketing intelligence and marketing research.
• Internal data:
- Internal databases are electronic collections of consumer and market information obtained from data sources within the company
network. Such as:
 Marketing department provides information on customer characteristics, sales transactions, website visits, etc.
 Customer service department keeps records of customer satisfaction or service problems.
 Accounting department provides detailed records of sales, costs and cashflows.
 Operations report on production, shipments and inventories.
 Sales force reports on reseller reactions and competitor activities.
 Marketing channel partners provide data on point-of-sale transactions.
- Issues with internal database:
 It may be incomplete or in the wrong form for making marketing decisions.
 Data needs to be updated on a regular basis.
 For maintaining data, highly sophisticated equipment and techniques are required.
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(cont.)
• Competitive marketing intelligence:
- This is the systematic collection and analysis of publicly available
information about consumers, competitors and developments in the
marketplace.
- Marketing intelligence techniques range from observing consumers
firsthand to quizzing the company’s own employees, benchmarking
competitors’ products, researching the Internet, and monitoring
Internet buzz.
- The growing use of marketing intelligence also raises ethical issues.
Some intelligence gathering techniques may involve questionable
ethics.
37

(cont.)
• Marketing research:
- It is the systematic design, collection, analysis and reporting of data
relevant to a specific marketing situation facing an organization.
- It gives marketers insights into customer motivations, purchase behavior
and satisfaction. It can help them to assess market potential and market
share or measure the effectiveness of pricing, product, distribution and
promotional activities.
- Marketing research process has 4 steps:
 Defining the problem and research objectives
 Developing the research plan for collecting information
 Implementing the research plan – collecting and analyzing the data
 Interpreting and reporting the findings
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Defining the problem and research objectives
• After the problem has been identified carefully, the manager and the
researcher must set the research objectives. A marketing research project
might have one of three types of objectives:
- Exploratory research is used to gather preliminary information that will
help define the problem and suggest hypotheses.
- Descriptive research describes things such as the market potential for a
product or the demographics and attitudes of consumers who buy the
product.
- Causal research tests hypotheses about cause-and-effect relationships.
• Managers usually start with exploratory research followed with descriptive
or causal research.
• The statement of the problem and research objectives guides the entire
research process.
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Developing the research plan for collecting
information
• The research plan outlines sources of existing data and spells out the specific research approaches, contact
methods, sampling plans and instruments researchers will use to gather new data.
• The research plan should be presented in a written proposal. A written proposal is especially important
when the research project is large and complex or when an outside firm carries it out. The proposal should
cover the management problems addressed, the research objectives, the information to be obtained, and
how the results will help management’s decision making along with the estimated research costs.
• To meet the manager’s information needs, the research plan can call for gathering secondary data, primary
data or both.
- Secondary data consist of information that already exists somewhere, having been collected for another
purpose. However, secondary data needs to be carefully evaluated to ensure its relevancy, accuracy, recency
and impartiality. Common examples: company internal database, buying secondary data from outside
suppliers, commercial online database, commercial websites, government agency, business publications,
news medium and Internet search engines.
- Primary data consist of information collected for the specific purpose at hand. Primary data is collected
through various research approaches, contact methods, sampling plan and research instruments.
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Primary data collection
• Research approaches:
- Observational research: Gathering primary data by observing relevant people, actions and situations. In addition,
marketers not only observe what consumers do but also observe what consumers are saying on blogs, social networks and
websites. This research can generate fresh customer and market insights that people are unwilling or unable to provide – it
provides a window into the customers’ unconscious actions and unexpressed needs and feelings. However, some
observations can be difficult to interpret and long-term behavior is difficult to observe; hence, other data collection
methods along with observational research need to be used.
 A wide range of companies now use ethnographic research – a form of observational research that involves sending
trained observers (anthropologists, psychologists, company researchers, managers) to watch and interact with consumers
in their natural environments.
 Many companies now conduct Netnography research – observing consumers in a natural context on the Internet.
Observing people as they interact on and move about the Internet can provide useful insights into both online and offline
buying motives and behavior.
- Survey research: Gathers primary data by asking people questions about their knowledge, attitudes, preferences and
buying behavior. Although it is a very flexible method, limitations include respondents not answering truthfully,
respondents being very unwilling to answer or they have difficulty remembering certain things.
- Experimental research: Gathers primary data by selecting matched groups of subjects, giving them different treatments,
controlling related factors and checking for differences in group responses. It tries to explain cause-and-effect
relationships.
41

• Contact methods:
Mail Telephone Personal
interview
Online
Flexibility Poor Good Excellent Good
Quantity of data that
can be collected
Good Fair Excellent Good
Control of interviewer
effects
Excellent Fair Poor Fair
Control of sample Fair Excellent Good Excellent
Speed of data
collection
Poor Excellent Good Excellent
Response rate Poor Poor Good Good
Cost Good Fair Poor Excellent 42

• Sampling plan:
- Marketing researchers usually draw conclusions about large groups of consumers by studying a small sample of the total consumer population.
- A sample is a segment of the population selected for marketing research to represent the population as a whole.
- Designing the sample requires 3 decisions:
 Who is to be studied?/What sampling unit?
 How many people should be included? What sample size?
 How should the people in the sample be chosen? What sampling procedure?
- Types of probability samples:
 Simple random sample: Every member of the population has a known and equal chance of selection.
 Stratified random sample: The population is divided into mutually exclusive groups and random samples are drawn from each group.
 Cluster (area) sample: The population is divided into mutually exclusive groups and the researcher draws a sample of the groups to interview.
- Types of non-probability samples:
 Convenience sample: The researcher selects the easiest population members from which to obtain information.
 Judgement sample: The researcher uses his/her judgement to select population members who are good prospects for accurate information.
 Quota sample: The researcher finds and interviews a prescribed number of people in each of several categories.
- These varied ways of drawing samples have different costs and time limitations as well as different accuracy and statistical properties. Which method
is best depends on the needs of the research project.
43

• Research instruments:
- Questionnaires: Open-end questions are especially useful in exploratory research, when the researcher is
trying to find out what people think but is not measuring how many people think in a certain way. Closed-
end questions provide answers that are easier to interpret and tabulate. Researchers should also use care in
the wording and ordering of the questions – questions should be arranged logically.
- Mechanical instruments: These are used to monitor consumer behavior by:
 Attaching people meters to TV sets, cable boxes, satellite systems in selected homes to record who watches
which programs.
 Using checkout scanners to record shoppers’ purchases.
 Measuring subjects’ physical responses to marketing offerings: viewer engagement via physiological
measures of skin temperature, heart rate and facial and eye movements.
 Neuromarketing: Measuring brain activity to learn how consumers feel and respond. Marketing scientists
have learned that tracking brain electrical activity and blood flow can provide companies with insights into
what turns consumers on and off regarding their brands and marketing. Although this technique can
measure consumer involvement and emotional responses, such brain responses can be difficult to interpret.
Thus, neuromarketing is usually used in combination with other research approaches to gain a more
complete picture of what goes on inside consumers’ heads.
44

Implementing the research plan – collecting
and analyzing the data
• The researcher next puts the marketing research plan into action. This
involves collecting, processing and analyzing information.
- Data collection can be carried out by the company’s marketing
research staff/outside firms.
- Researchers must also process and analyze the collected data to
isolate important information and insight. They need to check data
for accuracy and completeness and code it for analysis. The
researchers then tabulate the results and compute, statistical
measures.
45

Interpreting and reporting the findings
• The market researcher must now interpret the findings, draw conclusions
and report them to management. The researcher should present important
findings and insights that are useful in the major decisions faced by
management.
• Managers should not also be biased – they should not readily accept
research results that show what they expected and reject those that they
did not expect or hope for.
• Findings can be interpreted in different ways and discussions between
researchers and managers will help point to the best interpretations. Thus,
managers and researchers must work closely together when interpreting
research results and both must share responsibility for the research
process and resulting decisions.
46

Step 3: Analyzing and using marketing
information
• Customer relationship management:
- Companies capture information at every possible customer touch point including customer purchases,
sales force contacts, service and support calls, online site visits, satisfaction surveys, credit and
payment interactions, market research studies.
- Companies are now turning to customer relationship management (CRM) to manage detailed
information about individual customers and carefully manage customer touch points to maximize
customer loyalty. CRM consists of sophisticated software and analytical tools that integrate customer
information from all sources, analyze it in depth, and apply the results to build stronger customer
relationships. CRM analysts develop data warehouses and use sophisticated data mining techniques to
unearth the riches hidden in customer data.
• Distributing and using marketing information:
- Firms use company intranet and internal CRM systems to facilitate easy access to research and
intelligence information, customer contact information, reports, shared work documents, etc.
- Extranets enable companies to allow key customers and value-network members to access account,
product and other data on demand. Suppliers, customers and resellers may access a company’s
extranet to update their accounts, arrange purchases and check orders against inventories to improve
customer service.
47

Public policy and ethics in marketing research
• Intrusions on consumer privacy:
- Companies face the challenge of unearthing valuable but potentially sensitive consumer
data while also maintain consumer trust. Simultaneously, consumers wrestle with the
trade-offs between personalization and privacy.
- The best approach is for researchers to ask only for the information they need, use it
responsibly to provide customer value and avoid sharing information without the
customer’s permission.
• Misuse of research findings:
- Research studies can be powerful persuasion tools; companies often use study results as
claims in their advertising and promotion. However, many research studies appear to
have been designed just to produce the intended effect. Few advertisers openly rig their
research designs or blatantly misrepresent the findings.
- Each company must accept responsibility for policing the conduct and reporting of its
own marketing research to protect consumers’ best interests and its own.
48

Consumer markets and consumer
buyer behavior
Chapter 5
49

Model of consumer behavior
• Consumer buyer behavior: The buying behavior of final consumers –
individuals and households that buy goods and services for personal
consumption. All these final consumers combine to make up the
consumer market.
The environment
• Marketing stimuli: Product,
price, place, promotion
• Other: Economic, technological,
social, cultural
Buyer’s black box
• Buyer’s
characteristics
• Buyer’s decision
process
Buyer responses
• Buying attitudes and preferences
• Purchase behavior: what the buyer
buys, when, where and how much
• Brand and company relationship
behavior
All these inputs (marketing stimuli) enter the buyer’s black box, where they are turned into a set of buyer
responses – the buyer’s brand and company relationship behavior and what he/she buys, when, where and
how much. Marketers want to understand how these stimuli are changed into responses inside the consumer’s
black box, which has 2 parts: (1) buyer’s characteristics influence how he/she perceives and reacts to the
stimuli and (2) buyer’s decision process itself affects his/her behavior. 50

Characteristics affecting consumer behavior:
Cultural factors
• Marketers need to understand the role played by the buyer’s culture, subculture and social class.
• Culture: This is the most basic cause of a person’s wants and behaviors. Marketers are always
trying to spot cultural shifts so as to discover new products that might be wanted.
• Subculture: Each culture contains smaller subcultures which are 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 programs
tailored to their needs. (Cross-cultural marketing: The practice of including ethnic themes and
cross-cultural perspectives within their mainstream marketing.)
• Social class: These are society’s relatively permanent and ordered divisions whose members
share similar values, interests and behaviors. Social class is determined by a combination of
factors such as income, occupation, wealth, education, etc. Marketers are interested in social
class because people within a given social class tend to exhibit similar buying behavior. Social
classes show distinct product and brand preferences in areas such as clothing, home furnishings,
travel and leisure activity, financial services and automobiles.
51

Social factors
• A consumers’ behavior is also influenced by social factors such as the consumer’s small groups, family and social roles and status.
• Groups and social networks: Many small groups influence a person’s behavior.
- Groups that have a direct influence and to which a person belongs are called membership groups.
- Reference groups expose a person to new behaviors and lifestyles, influence the person’s attitudes and self-concept and create
pressures to conform that may affect the person’s product and brand choices. People are often influenced by reference groups to
which they do not belong.
- Word-of-mouth influence can have a powerful impact on consumer buying behavior. The personal words and recommendations of
trusted friends, associates and other consumers tend to be more credible than those coming from commercial sources
(ads/salespeople).
- Marketers of brands subjected to strong group influence must figure out how to reach opinion leaders (influential/leading
adopters) – people within a reference group who due to their special skills, knowledge, personality, etc. exert social influence on
others.
- Buzz marketing involves enlisting or even creating opinion leaders to serve as brand ambassadors who spread the good word
about a company’s products.
- Online social networks are online communities where people socialize or exchange information and opinions. Social networking
media range from blogs and message boards to social networking sites and virtual worlds. Marketers are working to harness the
power of these new social networks and other word-of-Web opportunities to promote their products and build closer customer
relationships. However, care must be taken as results are difficult to measure and control since the users control the content.
52

Social factors (cont.)
• Family: Marketers are interested in the roles and influence of the husband,
wife and children on the purchase of different products and services.
• Roles and status: A person belongs to many groups – family, clubs,
organizations, online communities. The person’s position in each group can
be defined in terms of both role and status.
- A role consists of the activities people are expected to perform according
to the people around them.
- Each role carries a status reflecting the general esteem given to it by
society.
- People usually choose products appropriate to their roles and status.
53

Personal factors
• A buyer’s decisions also are influenced by personal characteristics such as age, life-cycle stage, occupation, economic situation,
lifestyle and personality and self-concept.
• Age and life-cycle stage: Life-stage changes usually result from demographics and life-changing events – marriage, having children,
purchasing a home, divorce, children going to college, changes in personal income, moving out of the house, retirement, etc.
Marketers often define their target markets in terms of life-cycle stage and develop appropriate products and marketing plans for
each stage.
• Occupation: Marketers try to identify the occupational groups that have an above-average interest in their products and services.
A company can even specialize in making products needed by a given occupational group.
• Economic situation: A person’s economic situation will affect his/her store and product choices. Marketers watch trends in
personal income, savings and interest rates.
• Lifestyle: This is a person’s pattern of living as expressed in his/her psychographics. It involves measuring consumers’ major AIO
dimensions – activities (work, hobbies, shopping, sports, social events), interests (food, fashion, family, recreation) and opinions
(about themselves, social issues, business products). The lifestyle concept can help marketers understand changing consumer
values and how they affect buyer behavior. Marketers look for lifestyle segments with needs that can be served through special
products or marketing approaches.
• Personality and self-concept: Each person’s distinct personality influences his/her buying behavior. Personality is usually described
in terms of traits such as self-confidence, dominance, sociability, autonomy, defensiveness, adaptability and aggressiveness.
Personality can be useful in analyzing consumer behavior for certain product/brand choices. Self-concept (self-image) states that
people’s possessions contribute to and reflect their identities; hence to understand consumer behavior, marketers must first
understand the relationship between consumer self-concept and possessions.
54

Psychological factors
• A person’s buying choices are further influenced by 4 major psychological factors such as motivation, perception, learning and beliefs and attitudes.
• Motivation: A motive is a need that is sufficiently pressing to direct the person to seek satisfaction of the need. Abraham Maslow created the
hierarchy of needs: physiological needs, safety needs, social needs, esteem needs and self-actualization needs. He stated the once each important
need is satisfied, the next most important need will come into play.
• Perception: This is the process by which people select, organize and interpret information to form a meaningful picture of the world. People can form
different perceptions of the same stimulus due to 3 perceptual processes:
- Selective attention: The tendency for people to screen out most of the information to which they are exposed.
- Selective distortion: The tendency of people to interpret information in a way that will support what they already believe. People tend to forget much
of what they learn – they only retain information that supports their attitudes and beliefs.
- Selective retention: Consumers likely to remember good points made about a brand they favor and forget good points made about competing brands.
• Learning: Changes in an individual’s behavior arising from experience. Learning occurs through the interplay of drives, stimuli, cues, responses and
reinforcement.
- A drive is a strong internal stimulus that calls for action. A drive becomes a motive when it is directed toward a particular stimulus object. Example: A
person’s drive for self-actualization might motivate him/her to look into buying a camera.
- Cues are minor stimuli that determine when, where and how the person responds. Example: The person might spot several camera brands in a shop
window, hear of a special sale price or discuss camera with a friend. These are all cues that might influence a consumer’s response to his/her interest
in buying the product.
- Suppose the consumer buys a Nikon camera. If the experience is rewarding, the consumer will probably use the camera more and more, and his/her
response will be reinforced. This increases the probability of him/her buying a Nikon product the next time they go for shopping.
• Beliefs and attitudes: Marketers are interested in the beliefs that people formulate about specific products and services because these beliefs make
up the product and brand images that affect buying behavior. Moreover, people have attitudes regarding religion, politics, clothes, music, food and
attitudes are difficult to change. A person’s attitudes fit into a pattern; changing one attitude may require difficult adjustments in many others.
Therefore, a company should usually try to fit its products into existing attitudes rather than attempt to change attitudes.
55

Types of buying decision behavior
• Complex buying behavior: This behavior is undertaken when consumers are highly involved in a purchase and perceive significant differences among
brands.
- Consumers may be highly involved when the product is expensive, risky, purchased infrequently and highly self-expressive.
- Here, the buyer will pass through a learning process, first developing beliefs about the product, then attitudes and then making a thoughtful purchase
choice.
• Dissonance-reducing buying behavior: This behavior occurs when consumers are highly involved with an expensive, infrequent or risky purchase but
see little difference among brands.
- When perceived brand differences are not significant, buyers may shop around to learn what is available but buy relatively quickly. They may respond
primarily to a good price/purchase convenience.
- After the purchase, consumers might experience postpurchase dissonance/discomfort, when they notice certain disadvantages of their purchased
brand or hear favorable things about the brand not purchased.
- Usually, to counter this dissonance, the marketer’s after-sales communications should provide evidence and support to help consumers feel good
about their brand choices.
• Habitual buying behavior: This behavior occurs under conditions of low-consumer involvement and little significant brand difference.
- Consumers appear to have low involvement with most low-cost, frequently purchased products.
- The buying process involves brand beliefs formed by passive learning, followed by purchase behavior which may/may not be followed by evaluation.
- Marketers use price and sales promotions to promote buying. Alternatively, they can add product features or enhancements to differentiate their
brands from the rest of the pack and raise involvement.
• Variety-seeking buying behavior: This behavior is undertaken in situations characterized by low consumer involvement but significant perceived
brand differences. In such cases, consumers often do a lot of brand switching – usually for the sake of variety rather than because of dissatisfaction.
- Market leading brands will try to encourage habitual buying behavior by dominating shelf space, keeping shelves fully stocked and running frequent
reminder advertising.
- Challenger firms will encourage variety seeking by offering lower prices, special deals, coupons, free samples and advertising that presents reasons for
trying something new. 56

Buyer decision process
• Need recognition: The buyer recognizes a problem/need, which can be triggered by internal/external stimuli. The marketer should research
consumers to find out what kinds of needs/problems arise, what brought them about and how they led the consumer to this particular product.
• Information search: Consumers can obtain information from a wide variety of sources; however, the relative influence of these information sources
varies within the product and buyer. Traditionally, consumers have received the most information about a product from commercial sources, but the
most effective sources tend to be personal. A company must design its marketing mix to make prospects aware of and knowledgeable about its brand
– it should carefully identify consumers’ sources of information and the importance of each sources.
- Personal sources: family, friends, neighbors, acquaintances
- Commercial sources: advertising, salespeople, dealer websites, packaging, displays
- Public sources: mass media, consumer rating organizations, online searches, peer reviews
- Experiential sources: handling, examining, using the product
• Evaluation of alternatives: This is how consumers process information to choose among alternative brands. The consumers ranks the brands and
forms purchase intentions. Hence, marketers should study buyers to find out how they actually evaluate brand alternatives. If marketers know what
evaluative processes go on, they can take steps to influence the buyer’s decision.
• Purchase decision: Generally, the consumers’ purchase decision will be to buy the most preferred brand, but 2 factors can come between the
purchase intention and the purchase decision.
- Attitudes of others
- Unexpected situational factors
• Postpurchase behavior: After the purchase, the consumer will either be satisfied/dissatisfied and will engage in postpurchase behavior of interest to
the marketer. In most cases, there is cognitive dissonance. Thus, marketers must ensure that their customers are satisfied, as satisfied customers
make repeated purchases, talk favorably to others about the product, pay less attention to competing brands and advertising and buy other products
from the company. Therefore, a company should measure customer satisfaction regularly to learn how well it is doing and how it can improve.
57

Buyer decision process for new products
• A new product is a good, service or idea that is perceived by some potential
customers as new.
• Adoption process: Mental process through which an individual passes from first
learning about an innovation to final adoption. It is the decision by an individual
to become a regular user of the product.
• Stages in the adoption process:
- Awareness: Consumer becomes aware of the new product but lacks information
about it.
- Interest: Consumer seeks information about the new product.
- Evaluation: Consumer considers whether trying the new product makes sense.
- Trial: Consumer tries the new product on a small scale to improve his/her
estimate of its value.
- Adoption: Consumer decides to make full and regular use of the new product.
58

5 adopter groups
• Innovators: They are venturesome – they try new ideas at some risk.
• Early adopters: They are opinion leaders in their communities and
adopt new ideas early but carefully.
• Early mainstream: They adopt new ideas before the average person.
• Late mainstream: They are skeptical – they adopt an innovation only
after a majority of people have tried it.
• Lagging adopters: Tradition bound – they are suspicious of change
and adopt the innovation only when it has become something of a
tradition itself.
59

Influence of product characteristics on rate of
adoption
• Relative advantage: The degree to which the innovation appears superior to
existing products.
• Compatibility: The degree to which the innovation fits the values and
experiences of potential consumers.
• Complexity: The degree to which the innovation is difficult to understand or use.
• Divisibility: The degree to which the innovation may be tried on a limited basis.
• Communicability: The degree to which the results of using the innovation can be
observed or described to others.
• Ongoing costs
• Risk and uncertainty
• Social approval
60

Business markets and business
buyer behavior
Chapter 6
61

Business buyer behavior
• This refers to the buying behavior of the organizations that buy the goods
and services for use in the production of other products and services that
are then sold, rented or supplied to others. It also includes the behavior of
retailing and wholesaling, firms that acquire goods to resell or rent them to
others at a profit.
• In the business buying process, business buyers determine which products
and services their organizations need to purchase and then find, evaluate
and choose among alternative suppliers and brands.
• Business-to-business (B2B) marketers must understand business markets
and business buyer behavior in order to build profitable relationships by
creating superior customer value with business customers.
62

Features of business markets
• Market structure and demand:
- Business marketer normally deals with far fewer but far larger buyers than the consumer marketer. In large business markets, a
few buyers often account for most of the purchasing.
- Business demand is derived demand, i.e., it ultimately derives from the demand for consumer goods.
- Many business markets have inelastic and more fluctuating demand, i.e., the total demand for many business products is not
much affected by changes in price, especially in the short run. Moreover, demand for many business goods and services tends to
change more and more quickly than does the demand for consumer goods and services, i.e., a small percentage increase in
consumer demand can cause large increases in business demand.
• Nature of the buying unit:
- A business purchase usually involves more decision participants and a more professional purchasing effort.
- Buying committees composed of technical experts and top management are common in the buying of major goods.
- B2B marketers now face a new breed of higher-level, better trained supply managers. Therefore, companies must have well-
trained marketers and salespeople to deal with these well-trained buyers.
• Types of decisions and the decision process:
- Business buyers usually face more complex buying decisions – often involving large sums of money, complex technical and
economic considerations and interactions among people at many levels of the buyer’s organization.
- The business buying process also tends to be longer and more formalized. Large business purchases usually call for detailed
product specifications, written purchase orders, careful supplier searchers and formal approval. Finally, the buyer and seller are
often much more dependent on each other.
- Supplier development: Systematic development of networks of supplier-partners to ensure an appropriate and dependable supply
of products and materials for use in making products or reselling them to others. 63

Model of business buyer behavior
The environment:
• Marketing stimuli:
product, price, place,
promotion
• Other stimuli:
economic,
technological, political,
cultural, competitive
Buying organization:
• Buying center
• Buying decision
process
Influenced by
interpersonal, individual,
organizational factors
Buyer responses:
• Product or service choice
• Supplier choice
• Order quantities
• Delivery terms and times
• Service terms
• Payment
This model raises 4 important questions:
• What are the major types of buying situations?
• Who are the participants in the business buying process?
• What are the major influences on business buyers?
• What is the business buying process?
64

Types of buying situations
• Straight rebuy: The buyer routinely reorders something without any
modifications.
• Modified rebuy: The buyer wants to modify product specifications,
prices, terms or suppliers.
• New task: The buyer purchases a product/service for the first time.
• Systems selling/solutions selling: Buying a packaged solution to a
problem from a single seller, thus avoiding all the separate decisions
involved in a complex buying situation.
65

Participants in the business buying process
• Buying center: The decision-making unit of a buying organization. It consists of all the individuals and units that play a role in the
business purchase decision-making process. The buying center includes all members of the organization who play any of the five
roles in the purchase decision process:
- Users: Members of the buying organization who will actually use the product/service.
- Influencers: People in an organization’s buying center who affect the buying decision; they often help define specifications and
also provide information for evaluating alternatives.
- Buyers: People in an organization’s buying center who make an actual purchase.
- Deciders: People in an organization’s buying center who have formal or informal power to select or approve the final suppliers.
- Gatekeepers: People in an organization’s buying center who control the flow of information to others.
• The buying center is not a fixed and formally identified unit within the buying organization.
- It is a set of buying roles assumed by different people for different purchases.
- Within the organization, the size and makeup of the buying center will vary for different products and for different buying
situations.
• The buying center concept presents a major marketing challenge. The business marketer must learn who participates in the
decision, each participant’s relative influence and what evaluation criteria each decision participant uses.
66

Major influences on business buyers
• Environmental factors: the economy, supply conditions, technology,
politics/regulation, competition, culture and customs
• Organizational factors: objectives, strategies, structure, systems,
procedures
• Interpersonal factors: influence, expertise, authority, dynamics
• Individual factors: age/education, job position, motives, personality,
preferences, buying style
67

Business buying process
• Problem recognition: Company recognizes a problem or need that can be met by
acquiring a good or a service. Problem recognition can result from internal or externa
stimuli.
• General needs description: A buyer describes the general characteristics and quantity of
a needed item.
• Product specification: Buying organization decides on and specifies the best technical
product characteristics for a needed item.
• Supplier search: Buyer tries to find the best vendors.
• Proposal solicitation: Buyer invites qualified suppliers to submit proposals.
• Supplier selection: Buyer reviews proposals and selects a supplier or suppliers.
• Order-routine specification: Buyer writes the final order with the chosen supplier(s),
listing the technical specifications, quantity needed, expected time of delivery, return
policies and warranties.
• Performance review: Buyer assesses the performance of the supplier and decides to
continue, modify or drop the arrangement. 68

E-procurement: Buying on the internet
• E-procurement: Purchasing through electronic connections between buyers and sellers – usually online. It gives buyers access to
new suppliers; lowers purchasing costs and hastens order processing and delivery. In turn, business marketers can connect with
customers online to share marketing information, sell products and services, provide customer support services and maintain
ongoing customer relationships.
• Companies can do e-procurement in the following ways:
- Conduct reverse auctions, in which they put their purchasing requests online and invite suppliers to bid for the business
- Engage in online trading exchanges, through which companies work collectively to facilitate the trading process
- Setting up own company buying sites
- Create extranet links with key suppliers
• Benefits of e-procurement:
- Cuts transaction costs and results in more efficient purchasing for both buyers and suppliers
- Reduces the time between order and delivery
- Eliminates paperwork associated with traditional requisition and ordering procedures and helps an organization keep better track
of all purchases
• Drawbacks of e-procurement:
- Erode customer-relationships
- Supplier-supplier enmity
- Potential security concerns
69

Institutional and Government markets
• Institutional market consists of schools, hospitals, nursing homes,
prisons and other institutions that provide goods and services to
people in their care. Many institutional markets are characterized by
low budgets and captive patrons.
• Government market – federal, state and local – purchase or rent
goods and services for carrying out the main functions of
government. Government buyers purchase products and services for
defense, education, public welfare, etc. Government buying practices
are highly specialized and specified, with open bidding or negotiated
contracts characterizing most of the buying.
70

Customer-driven marketing
strategy: Creating value for target
customers
Chapter 7
71

4 major steps in designing a customer-driven
marketing strategy
• In the first two steps, the company selects the customers that it will serve:
- Market segmentation: This involves dividing the market into smaller segments of
buyers with distinct needs, characteristics or behaviors that might require
separate marketing strategies or mixes. The company identifies different ways to
segment the market and develops profiles of the resulting market segments.
- Market targeting (targeting): It consists of evaluating each market segment’s
attractiveness and selecting one or more market segments to enter.
• In the final two steps, the company decides on a value proposition – how it will
create value for target customers:
- Differentiation: This involves actually differentiating the firm’s market offering to
create superior customer value.
- Positioning: This consists of arranging for a market offering to occupy a clear,
distinctive and desirable place relative to competing products in the minds of
target consumers.
72

Market segmentation
• Buyers in any market differ in their wants, resources, locations, buying attitudes and buying
practices. Through segmentation, companies divide large heterogeneous markets into smaller
segments that can be reached more efficiently and effectively with products and services that
match their unique needs. Marketers rarely limit their segmentation analysis to only one or a few
variables. Rather, they use multiple segmentation bases in an effort to identify smaller, better-
defined target groups. One of the leading segmentation systems is the Nielsen PRIZM system.
• Segmenting consumer markets:
- Geographic segmentation: Dividing the market into different geographical units, such as nations,
states, regions, counties, cities or even neighborhoods. A company may decide to operate in one
or few geographical areas or operate in all areas but pay attention to geographical differences in
needs and wants. Many companies today are localizing their products, ads, promotion and sales
efforts to fit the needs of individual regions, cities and neighborhoods.
- Demographic segmentation: Dividing the market into segments based on variables such as age,
life-cycle stage, gender, income, occupation, education, religion, ethnicity and generation.
Demographic factors are the most popular bases for segmenting customer groups.
- Psychographic segmentation: Dividing the market into different segments based on social class,
lifestyle or personality characteristics.
- Behavioral segmentation: Dividing the market into segments based on consumer knowledge,
attitudes, uses or responses to a product.
73

Market segmentation (cont.)
• Segmenting business markets: Business buyers can be segmented geographically, demographically
(industry, company, size) or by benefits sought, user status, usage rate and loyalty status. Additional
variables include customer operating characteristics, purchasing approaches, situational factors and
personal characteristics.
• Segmenting international markets: Companies can segment international markets using one or a
combination of several variables:
- They can segment by geographic location – grouping countries by regions such as Western Europe,
Pacific Rim, Middle East or Africa. Geographic segmentation assumes that nations close to one another
will have many common traits and behaviors.
- World markets can also be segmented based on economic factors. Countries might be grouped by
population income levels or by their overall level of economic development. A country’s economic
structure shapes its population’s product and service needs and therefore, the marketing opportunities
it offers.
- Countries can also be segmented by political and legal factors such as the type and stability of
government, receptivity to foreign firms, monetary regulations and amount of bureaucracy.
- Cultural factors can also be used for grouping markets according to common languages, religions,
values and attitudes, customs and behavioral patterns.
- With the use of intermarket segmentation/cross-market segmentation, marketers form segments of
consumers who have similar needs and buying behaviors even though they are located in different
countries.
74

Market segmentation (cont.)
• Requirements for effective segmentation:
- Measurable: The size, purchasing power and profiles of the segments can
be measured.
- Accessible: The market segments can be effectively reached and served.
- Substantial: The market segments are large or profitable enough to serve.
- Differentiable: The segments are conceptually distinguishable and respond
differently to different marketing mix elements and programs.
- Actionable: Effective programs can be designed for attracting and serving
the segments.
75

Market targeting
• Evaluating market segments: In evaluating different market segments, a firm must look at 3 factors:
- Segment size and growth: A company wants to select segments that have the right size and growth characteristics.
- Segment structural attractiveness: Company also needs to examine major structural factors that affect long-run segment
attractiveness. Eg: segments with too many strong competitors or low entry barriers; existence of many substitute
products which may limit profitability; bargaining power of buyers stronger relative to seller which may limit profitability;
powerful suppliers controlling prices/reducing quality or quantity of ordered goods and services.
- Company objectives and resources: Even if a segment has the right size and growth and is structurally attractive, the
company must consider its own objectives and resources.
• Selecting target market segments: The company must decide which and how many segments it will target. Market
targeting can be carried out at several different levels as follows:
- Undifferentiated marketing: Also known as mass marketing strategy, the firm decides to target the whole market with
one offer disregarding market segment differences.
- Differentiated marketing: Also known as segmented marketing strategy, the firm decides to target several market
segments and designs separate offers for each.
- Concentrated marketing: Also known as niche marketing strategy, the firm goes after a large share of one or a few smaller
segments or niches rather than going after a small share of a large market.
- Micromarketing: This is the practice of tailoring products and marketing programs to suit the tastes of specific individuals
and locations. Micromarketing includes local marketing (involves tailoring brands and promotions to the needs and wants
of local customers groups such as cities, neighborhoods, even specific stores) and individual marketing/one-to-one
marketing/mass customization (tailoring products and marketing programs to the needs and preferences of individual
customers). 76

Market targeting
• Choosing a targeting strategy: Companies need to consider many factors when choosing a market-targeting
strategy:
- Company resources: when resources are limited, go for concentrated marketing.
- Product variability: undifferentiated marketing works best for uniform products whereas
differentiation/concentration marketing works best when products vary in design.
- Product life-cycle stages: when a firm introduces a new product, it may be practical to launch only one
version (undifferentiated/concentrated marketing will be more appropriate in this case) but during maturity
stage, a differentiated strategy will be more appropriate.
- Market variability: if buyers have same tastes, buy the same amounts and react the same way to marketing
efforts, then go for undifferentiated marketing.
- Competitors’ marketing strategies: when the competition uses differentiation/concentration marketing,
undifferentiated marketing can be suicidal. On the other hand, when the competition uses undifferentiated
marketing, a firm can gain an advantage by using differentiated/concentrated marketing.
• Socially responsible target marketing: In target marketing, the issue is not really WHO is targeted but rather
HOW and for WHAT. Controversies arise when marketers attempt to profit at the expense of targeted
segments – when they unfairly target vulnerable segments or target them with questionable products or
tactics. Socially responsible marketing calls for segmentation and targeting that serve not just the interests of
the company but also the interests of those targeted.
77

Differentiation and Positioning
• Consumers, in order to simplify their buying process, they organize products, services
and companies into categories and position them in their minds. A product’s position is
the complex set of perceptions, impressions and feelings that consumers have for the
product compared with competing products. Therefore, marketers must plan positions
that will give their products the greatest advantage in selected target markets, and they
must design marketing mixes to create these planned positions.
• Positioning maps: In planning their differentiation and positioning strategies, marketers
often prepare these maps which consumer perceptions of their brands versus competing
products on some important buying dimensions.
• 3 steps involved in differentiation and positioning:
- Identifying a set of differentiating competitive advantages on which to build a position
- Choosing the right competitive advantages
- Selecting an overall positioning strategy
78

Identifying a set of differentiating competitive
advantages on which to build a position
• Product differentiation: brands can differentiate on features, performance,
style and design.
• Service differentiation: speedy, convenient and careful delivery; high
quality customer care.
• Channel differentiation: competitive advantage can be gained by
designing the channel’s coverage, expertise and performance.
• People differentiation: hiring and training better people than the
competition.
• Image differentiation: a company or brand image should convey a
product’s distinctive benefits and positioning; the chosen symbols or
characters or other image elements must be communicated through
advertising that conveys the company’s or brand’s personality.
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Choosing the right competitive advantages
• How many differences to promote:
- Some argue that a company should develop a unique selling point (USP) for each brand and stick to it – each
brand should pick an attribute and tout itself as the number one brand on that attribute as buyers tend to
remember number one more easily.
- Others think companies should position themselves on more than one differentiator. This may be necessary
if two or more firms are claiming to be the best on that same attribute.
• Which differences to promote: A difference is worth establishing to the extent that it satisfies the following
criteria:
- Important: the difference delivers a highly valued benefit to target buyers
- Distinctive: competitors cannot offer this difference
- Superior: the difference is superior to the other ways that customers might obtain the same benefit
- Communicable: the difference is communicable and visible to buyers
- Preemptive: competitors cannot easily copy the difference
- Affordable: buyer can afford to pay for the difference
- Profitable: the company can introduce the difference profitably
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Selecting an overall positioning strategy
• The full positioning of a brand is called the brand’s value proposition – the full mix of benefits on which a
brand is differentiated and positioned. Each brand must adopt a positioning strategy designed to serve the
needs and wants of its target markets.
• Possible value propositions:
- More for more: This positioning involves providing the most upscale product/service and charging a higher
price to cover the higher costs. This market offering not only offers high quality, it also gives prestige to the
buyer. Eg: Four Seasons hotels, Rolex watches, Mercedes automobiles, etc.
- More for the same: Companies can attack a competitor’s more-for-more positioning by introducing a brand
offering comparable quality at a lower price. Eg: Toyota’s Lexus versus Mercedes and BMW.
- Same for less: Companies offer many of the same brands as department stores and specialty stores but at
deep discounts based on superior purchasing power and lower-cost operations. Eg: Walmart, Best Buy,
Amazon.com, etc.
- Less for much less: This involves meeting consumers’ lower performance or equality requirements at a much
lower price. Eg: Holiday Inn, Costco, etc.
- More for less: The winning value proposition would be to offer more for less, especially in the short run.
However, in the long run, it becomes difficult to offer more as it becomes costly, and companies may
eventually lose out to more focused competitors.
81

Developing a positioning statement &
Communicating and Delivering the Chosen Position
• Company and brand positioning should be summed up in a positioning
statement. Eg: “To busy multitaskers who need help remembering things,
Evernote is a digital content management application that makes it easy to
capture and remember moments and ideas from your everyday life using
your computer, phone, tablet and the web.”
• Format for positioning statement: To (target segment and need) our
(brand) is (concept) that (point of difference).
• Once the company has fixed its position, it must take strong steps to deliver
and communicate the desired position to its target consumers. All the
company’s marketing mix efforts must support the positioning strategy. It
must also closely monitor and adapt the position over time to match
changes in consumer needs and competitors’ strategies. Furthermore, a
product’s position should evolve gradually as it adapts to the ever-changing
marketing environment.
82

Products, Services and Brands:
Building Customer Value
Chapter 8
83

Product
• Product is anything that can be offered to a market for attention, acquisition, use or consumption
that might satisfy a want or need. Products include more than just tangible objects. Broadly
defined, products also include services, events, persons, places, organizations, ideas or a
combination of these.
• Services are a form of product that consists of activities, benefits or satisfactions offered for sale
that are essentially intangible and do not result in the ownership of anything. Eg: banking, hotel,
airline travel, retail, wireless communication, etc.
• Products are a key element in the overall market offering. Marketing mix planning begins with
building an offering that brings value to target customers. This offering becomes the basis on
which the company builds profitable customer relationships.
• A company’s marketing offering often includes both tangible goods and services. At one end, the
market offering may consist of a pure tangible good (soap, toothpaste, salt) and at the other end,
are pure services for which the market offer consists primarily of a service. Eg: doctor’s exam,
financial services, etc.
• To differentiate their offers, beyond simply making products and delivering services, they are
creating and managing customer experiences with their brands or company. Companies that
market experiences realize that customers are really buying much more than just products and
services. They are buying what those offers will do for them.
84

Levels of product and services
• Product planners need to think about products and services on 3 levels.
Each level adds more customer value.
- Core customer value: This is the most basic level which addresses the
question ‘What is the buyer really buying?’. When designing products,
marketers must first define the core, problem-solving benefits or services
that consumers seek.
- Actual product: Product planners need to develop product and service
features, a design, a quality level, a brand name and packaging.
- Augmented product: Product planners must build an augmented product
around the core benefit and actual product by offering additional
consumer services and benefits. Eg: delivery and credit, product support,
aftersales service, warranty, etc.
85

Product and service classifications
• Products and service fall into 2 broad classes based on types of consumers that use them: Consumer products and Industrial
products
• Consumer products are products and services bought by final consumers for personal consumption. There are 4 types of
consumer products:
- Convenience products are consumer products and services that customer usually buy frequently, immediately and with minimal
comparison and buying effort. Eg: laundry detergent, candy, magazines, fast food, etc. Convenience products are usually low
priced, and marketers place them in many locations to make them readily available.
- Shopping products are less frequently purchased consumer products and services that customer compare carefully on suitability,
quality, price and style. When buying shopping products and services, consumers spend much time and effort in gathering
information and making comparisons. Eg: clothing, furniture, used cards, major appliances, etc. Shopping product marketers
usually distribute their products through fewer outlets but provide deeper sales support.
- Specialty products are consumer products and services with unique characteristics or brand identification for which a significant
group of buyers is willing to make a special purchase effort. Eg: specific car brands, designer clothes, gourmet foods, etc. Buyers
normally do not compare specialty products; rather they invest only the time needed to reach dealers carrying the wanted
products.
- Unsought products are consumer products that the consumer either does not know about or knows about but does not normally
consider buying. Eg: life insurance, blood donations, etc. By their very nature, unsought products require a lot of advertising,
personal selling and other marketing efforts.
• Industrial products are those products purchased for further processing or for use in conducting a business. There are 3 groups of
industrial products:
- Materials and parts include raw materials as well as manufactured materials and parts. These products are sold directly to
industrial users. Price and service are the major marketing factors; branding and advertising tend to be less important.
- Capital items aid the buyer’s production or operations, including installations and accessory equipment.
- Suppliers and services consist of operating supplies, repair and maintenance items, business advisory services, etc.
86

Organizations, persons, places and ideas
• Organization marketing consists of activities undertaken to create, maintain or
change the attitudes and behavior of target consumers toward an organization.
• Person marketing consists of activities undertaken to create, maintain or change
attitudes or behavior toward particular people. People ranging from presidents,
entertainers, sports figures, professionals, etc.
• Place marketing involves activities undertaken to create, maintain or change
attitudes or behavior toward particular places. Cities, states, regions and even
entire nations compete to attract tourists, new residents, conventions and
company offices and factories.
• Social marketing (ideas) can be defined as the use of commercial marketing
concepts and tools in programs designed to influence individuals’ behavior to
improve their well-being and that of society. Social advertising campaigns involve
issues ranging from healthcare, education, environmental sustainability to human
rights and personal safety.
87

Product and service decisions
Marketers make product and service decisions at 3 levels:
- Individual product decisions
- Product line decisions
- Product mix decisions
88

Individual product and service decisions
• Product and service attributes:
- Product quality has 2 dimensions: performance quality (the product’s ability to perform its functions) and conformance quality
(freedom from defects and consistency in delivering a targeted level of performance).
- Product features: How can a company identify new features and decide which ones to add to its product? It should periodically
survey buyers who have used the product and ask questions like ‘Which specific features of the product do you like the most?’,
‘Which features could we add to improve the product?’. The answers to these questions provide the company with a list of feature
ideas. The company can then assess each feature’s value to customers versus its cost to the company. Features that customers
value highly in relations to costs should be added.
- Product style and design: Style simply describes the appearance of a product. Design contributes to a product’s usefulness as well
as its looks. Design begins with observing customers, deeply understanding their needs and shaping their product use experience.
• Branding: 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. Consumers view brand as an important part of a product and branding can add value to a consumer’s purchase.
Customers attach meanings to brand and develop brand relationships. As a result, brand have meaning well beyond a product’s
physical attributes.
• Packaging: This involves designing and producing the container or wrapper for a product. Packaging has become an important
marketing tool – increased competition and clutter on retail store shelves means that packages must now perform many sales
tasks, i.e., from attracting buyers to communicating brand positioning to closing the sale.
• Labeling: Labels range from simple tags attached to products to complex graphics that are part of the packaging. They perform
several functions from identifying the product or brand to describing several things about the product – who made it, where it
was made, when it was made, its contents, how it is to be used to helping promote the brand, supporting its positioning and
connecting with customers.
• Product support services: These are an important part of the customer’s overall brand experience. The first step in designing
support services is to survey customers periodically to assess the value of current services and obtain ideas for new ones. Once the
company has assessed the quality of various support services, it can take steps to fix problems and add new services that will both
delight customers and yield profits to the company.
89

Product line decisions
• A product line is a group of products that are closely related because they function in a similar manner, are
sold to the same customer groups, are marketed through the same types of outlets or fall within given price
ranges. Eg: Nike produces several lines of athletic shoes and apparel.
• The major product line decision involves product line length – the number of items in the product line.
- The line is too short if the manager can increase profits by adding items
- The line is too long if the manager can increase profits by dropping items
- Managers need to analyze their product lines periodically to assess each item’s sales and profits and
understand how each item contributes to the line’s overall performance
• A company can expand its product line in 2 ways:
- Product line filling involves adding more items within present range of the line. Reasons for product line
filling includes reaching for extra profits, satisfying dealers, using excess capacity, being the leading full-line
company and plugging holes to keep out the competition. However, if line filling is overdone, it results in
cannibalization and customer confusion.
- Product line stretching occurs when a company lengthens its product line beyond its current range. The
company can stretch its line downward, upward or both ways. A company may stretch downward to plug a
market hole that otherwise would attract new competition or respond to a competitor’s attack, or it may
add low-end products because it finds faster growth taking place in low-end segments. Companies can also
stretch their product lines upward to add prestige to their current products or they may be attracted by a
faster growth rate or higher margins at the higher end.
90

Product mix decisions
• An organization with several product lines has a product mix. A product mix or product portfolio
consists of all the product lines and items that a particular seller offers for sale. Eg: Campbell Soup
Company’s product mix consists of three major product lines: healthy beverages, baked snacks
and simple meals.
• A company’s product mix has 4 important dimensions:
- Product mix width refers to the number of different product lines the company carries.
- Product mix length refers to the total number of items a company carries within its product lines.
- Product mix depth refers to the number of versions offered for each product in the line.
- Product mix consistency refers to how closely related the various product lines are in end use,
production requirements, distribution channels, etc.
• These product mix dimensions provide the handles for defining the company’s product strategy.
The company can increase its business in 4 ways:
- It can add new product lines, widening its product mix
- It lengthen its existing product lines to become a more full-line company
- It can add more versions of each product and thus deepen its product mix
- It can pursue more product line consistency or less depending on whether it wants to have a
strong reputation in a single field or in several fields
91

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