Marketing Management

M A R K E T I N G MANAGEMENT

2011 Fall

- Part I -

Assoc. Prof. Dr. Şebnem Burnaz

Understanding Marketing Concept and Marketing Management

”The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself.” Peter Drucker

Overview

What is marketing? Why is marketing important? What is the scope of marketing? What are some fundamental

marketing concepts? What are the tasks necessary for

successful marketing management?

What is Marketing?

All of the above, plus much more!

Selling?

Advertising?

Making products available in stores?

“Identifying and meeting human and

social needs”

“Meeting needs profitably”

“Generating customer value at a profit”

“Managing profitable customer relationships by delivering superior value to customers”

Marketing…is about…

What is Marketing? No single correct definition or approach Common subject matters:

The ability to satisfy customers, The identification of favorable marketing

opportunities, The need to create an edge over competitors, The capacity to make profits to enable a

viable future for the organization, The use of resources to maximize a business’

market position, The aim to increase market share mainly in

target markets…

What is Marketing?

Build profitable relationshi

ps and create

customer delight

Build profitable relationshi

ps and create

customer delight

Capture value from customers to create profits and customer quality

Create value for customers and build customer

relationships

Capture value from customers in return

Design a customer-

driven marketing strategy

Design a customer-

driven marketing strategy

Construct a marketing program

that delivers superior

Construct a marketing program

that delivers superior

Understand the

marketplace and

customer needs&wan

Understand the

marketplace and

customer needs&wan

Marketing as a Process

What Is Marketing?

Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders

The ________ is the United States’ 24th largest advertiser with an annual budget of more than $1 billion.1. Procter & Gamble Company2. Boeing Company3. U.S. Government4.Levi Strauss & Co.

Core Concepts of Marketing

Needs, wants, and demands

Productsand services

Value and satisfaction

Exchange, and relationships

Markets

Marketing offers: including products, services and experiences

Value and satisfaction Exchange and

relationships Markets

Need State of felt deprivation Basic human

requirements e.g. needs food

Wants Needs directed to

specific objects The form of needs as

shaped by culture and the individual

e.g. wants a BigMac Demands

Wants which are backed by buying power

Marketing offers: products, services, experiences…

Marketing offering Combination of

products, services, information or experiences offered to a market that satisfy a need or want.

Offer may include services, activities, people, places, information or ideas.

Marketing myopia is focusing only on existing offers and losing sight of underlying consumer needs.

Market offerings are not limited to physical products: UNCF markets the

idea that “A mind is terrible thing to waste”.

ProductsAnything that can be Offered to a Market to Satisfy a Need or Want

EventsEvents PlacesPlaces PersonsPersons

ExperiencesExperiences InformationInformationPropertiesProperties

Core Concepts of MarketingWhat is Marketed?

ServicesActivities or Benefits Offered for Sale That Are EssentiallyIntangible and Don’t Result in the Ownership of Anything

OrganizationsOrganizations IdeasIdeas

Value Customers form

expectations regarding value

Value: the customer’s estimate of

the product’s overall capacity to satisfy his or her needs.

the satisfaction of customer requirements at the lowest possible cost

ğ Satisfaction

Value - Satisfaction

Customer benefitsAnything desired by the

customer that is received in an exchange

Customer costsAnything a customer gives

up in an exchange for benefits

Monetary price of the benefit

Search costs (time and effort) to locate the product

Risks associated with the exchange

Customer satisfactionThe feeling that a product has met or exceeded the customer’s expectations

What is the benefit of a satisfied customer to the company?

Exchange The act of obtaining a

desired object from someone by offering something in return

The response may be more than simply buying or trading products and services

One exchange is not the goal, relationships with several exchanges are the goal

Relationships are built through delivering value and satisfaction Marketing network ğ

consists of the company and all its supporting stakeholders

Relationship Marketing

Relationship marketing aims to build mutually satisfying long-term relationships with key constituents in order to earn and retain their businesses.

Managing Relationships: Customers

Customer Relationship Management (CRM)

Using information about customers to create marketing strategies that develop and sustain desirable customer relationships

Identifying buying-behavior patterns of customers

Using behavioral information to focus on the most profitable customers

Managing Customer Relationships

Relationship Building BlocksCustomer perceived

value• The difference

between total customer value and total customer cost

Customer satisfaction

• The extent to which a product’s perceived performance matches a buyer’s expectations

• AIM ğ to increase CLV (consumer lifetime value)!

• to gain a greater proportion of an existing customer’s purchases over a long period

Market Set of actual and

potential buyers of a product

These buyers share a particular need or want that can be satisfied through exchange relshps

Marketing means managing markets to bring about profitable customer relshps

A Simple Marketing System

Marketing defined as...

Process by which individuals and groups obtain what they need and want through creating and exchanging products and value with others.

Simply put: Marketing ğ the delivery of

customer satisfaction at a profit.

“Good marketing is no accident, but a result of careful planning and execution…But marketing excellence is rare and difficult to achieve. Marketing is both an ‘art’ and a ‘science’ –there is constant tension between the formulated side of marketing and the creative side ”

More Definitions of Marketing (cont.)

From the societal perspective; some marketers describe marketing as the creation and delivery of a standart of living.

From the managerial perspective; marketing (management) is the process of planning and executing the conception, pricing, promotion and distribution of goods and services to create exchanges that satisfy individual and organizational goals.

What Is Marketing Management?

Marketing management is the art and science of choosing target markets and building profitable relationships by getting, keeping, and growing customers through creating, delivering, and communicating

superior customer value

This definition must include answers to 2 questions:

What customers will we serve? How can we best serve these customers?

Marketing Management

Marketing management involves ğ managing demand ğ involves managing customer relationships Marketers aim to influence the level, timing

and composition of demand to meet organizational goals.

Marketing management is concerned not only with finding and increasing demand, but also with changing or even reducing it in

some cases

Marketing management: Customer management & Demand

management

ğ Choosing a Value Proposition

The value proposition is the set of benefits or values a company promises to deliver to customers to satisfy their needs

Marketing Management

Production ConceptProduction Concept

Product ConceptProduct Concept

Selling ConceptSelling Concept

Marketing ConceptMarketing Concept

Consumers prefer products that are widely available and inexpensive

Consumers favor products that offer the most quality, performance,

or innovative features

Consumers will buy products only ifthe company aggressively

promotes/sells these products

Focuses on needs/ wants of target markets & delivering value

better than competitors

Company Orientations towards the Marketplace

Focuses on delivering the desired satisfaction more effectively and efficiently than

competitors in a way that preserves or enhances the well-being of both consumer

and society

Societal MarketingConcept

Marketing Concept

Achieving organizational goals depends on knowing the needs and wants of the target markets and delivering the desired satisfactions better than competitors do

4 pillars of modern marketing :1. Target market2. Customer needs3. Integrated marketing4. Profitability through customer

satisfaction

Market Integratedmarketing

Profits throughcustomer

satisfactionCustomer

(b) The marketing concept

Factory Existingproducts

Selling andpromotion

Profits throughsales volume

Startingpoint Focus Means Ends

(a) The selling concept

Marketing and Sales Concepts Contrasted

Marketing Concept

1) Target market ğ homogenous group of customers to whom the company wishes to appeal

2) Customer needs Consumers may not be fully conscious of their

needs / it may not be easy to articulate these needs OR they may use words that require some interpretation

Customer-oriented thinking ğ to define customer needs from the customer’s point of view

Sales revenue ğ New customers + Repeat customers

“Customer Retention” vs. “Customer Attraction” Customer value and customer satisfaction ğ

building blocks of customer relationship management

Marketing Concept

3) Integrated Marketing ğ Various marketing functions must work together for customer satisfaction (coordination of marketing mix elements: 4Ps)

Marketing Mix ğ controllable variables the company puts together to satisfy its target market(s). Product

Place (Distribution)

Promotion

Pricing

Goods, services, or ideas that satisfy customer needs

The ready, convenient, and timely availability of products

Decisions and actions that establish pricing objectives and policies and set product prices

Activities that inform customers about the organization and its products

Marketing Concept - The 4 Ps

Marketing Concept - The 4 Ps ğ The 4 Cs

MarketingMix

Product

PricePromotion

CustomerSolution

CustomerCost Communication

Convenience

Marketing Concept

Integrated Marketing ğ Marketing must be well coordinated with other departments in the company;

all departments have to work together to satisfy customers’ needs and wants

“Marketing is too important to be left to the marketing department.”

David Packard, Hewlett-Packard

“Marketing is too important to be left to the marketing department.”

David Packard, Hewlett-Packard

Marketing Concept

4) Profitability through customer satisfaction

To achieve profits as a result of creating superior customer value

Selling – Marketing...

“There will always be need for some selling. But the aim of marketing is to make selling

unnecessary. The aim of marketing is to know and understand the

customer so well that the product or service fits him and sells itself. Ideally, marketing should result in a customer who is ready to buy.”

Peter Drucker

Societal Marketing Concept

Company’s negative effects on society

Conflict between consumer wants and long-term social welfare

The company should make good marketing decisions by considering consumers’ wants, the company’s requirements, consumers’ long-term interests, and society’s long-run interests

Societal Marketing Concept

Company(Profits)

Consumers(Want Satisfaction)

Society(Human Welfare)

Societal Marketing

Concept

Evolution of Marketing Thought

How marketing has become “marketing” as we understand it and apply its practices today?

Evolution of Marketing Thought Production Era (1850s-1920s)

Industrial revolution; mass production Few products and little competition

Sales Era (1920s-1950s) The focus was on personal selling and advertising Sales seen as the major means for increasing profits

Mktg Era (1950s-present) Customer orientation replaced the “hard sell” of the

sales-led era Determination of the needs and wants of customers

before introducing products or services

Relationship Marketing Era: 1990s- Marketing era has recently shifted from being

“transaction-based” ğ to focusing on “relationships” Both attracting and “retaining” customers

Evolution of Marketing Thought: New Era(s) in Marketing (The Millenium)

..from Relationship Marketing to... Network marketing E-marketing Community marketing Buzz marketing Digital marketing Mobile marketing ... ... ...

Holistic Marketing Concept New marketing… A need to think about how to operate and

compete in a new marketing environment Holistic marketing ğ based on the

development, design, and implementation of marketing programs, processes, and activities that recognize their breadth and interdependencies

Premise: “everything matters” with marketing!

Holistic Marketing

The New Four Ps

Processes

People

Programs

Performance

Marketing Management Tasks

Develop market strategies and plans

Capture marketing insights Connect with customers Build strong brands Shape market offerings Deliver value Communicate value Create long-term growth

Shifts in Marketing Management

from marketing does the marketing ğ to… everyone does the marketing

from organizing by product units ğ to… organizing by customer segments

from making everything ğ to… buying more goods and services from outside

from using many suppliers ğ to… working with fewer suppliers in a ‘partnership’

from relying on old market positions ğ to… uncovering new ones

from emphasizing tangible assets ğ to… emphasizing intangible assets

Shifts in Marketing Management

from building brands through advertising ğ to… building brands through integrated communications

from organizing by product units ğ to… organizing by customer segments

from attracting customers through stores and salespeople ğ to...making products available online

from trying to sell everyone ğ to... be the best firm serving well-defined target markets

from focusing on profitable transactions ğ to… focusing on customer lifetime value

from focusing on shareholders ğ to… focusing on stakeholders

Marketing Management Tasks

Developing marketing strategies and plans

Capturing marketing insights

Connecting with customers

Building strong brands

Shaping the market offerings

Delivering value

Communicating value

Creating long-term growth

Strategic Marketing Planning

“The company without a strategy is willing to try anything.”

Michael Porter

Major Questions

How does marketing affect customer value?

How is strategic planning carried out at different levels of the organization?

What is the role of marketing in the overall strategic direction of the company?

What does a marketing plan include?

Phases of Value Creation and Delivery

Choosing the value

Providing the value

Communicating the value

What is the Value Chain?

The value chain is a tool to create more customer value because every firm is a synthesis of primary and support activities performed to design, produce, market, deliver, and support its product.

Core Business Processes

Market-sensing process New-offering realization process Customer acquisition process Customer relationship

management process Fulfillment management process

Characteristics of Core Competencies

A source of competitive advantage Applications in a wide variety of

markets Difficult to imitate

Maximizing Core Competencies

(Re)define the business concept (Re)shaping the business scope (Re)positioning the company’s

brand identity

What is Holistic Marketing?

Holistic marketing sees itself as integrating the value exploration, value creation, and value delivery

activities with the purpose of building long-term, mutually

satisfying relationships and co-prosperity among key

stakeholders.

Questions to Address in Holistic Marketing

What value opportunities are available?

How can we create new value offerings efficiently?

How can we delivery the new offerings efficiently?

Strategic Planning

Strategic Planning ğ Managerial process of developing and maintaining a match between the organization’s resources and the market opportunities.

The aim ğ to shape and reshape company’s businesses and products in order to reach to targeted profits and growth.

The Strategic Planning, Implementation, and Control Processes

Steps in Strategic Planning

Planning, marketing,and other functionalstrategies

Corporate LevelBusiness unit,

product,and market

1) Defining the corporate mission2) Setting objectives and goals3) Designing business portfolio

Determining SBUsAssigning resources to

SBUs4) Assessing growth opportunities

Defining the Corporate Mission

A mission statement ğ a statement of the organization’s purpose -- what it wants to accomplish in the larger environment

A clear mission statement ğ acts as “invisible hand” that guides employees to work toward realizing the organization’s goals

“Mission statement ğ to be guided by a “vision”—an almost “impossible dream” that provides a direction for the company for the next 10 to 20 years

Defining the Corporate Mission

What is our business? Who is the customer? What is the value to the customer? What will our business be? What should our business be?

Good Mission Statements

Focus on a limited number of goals Stress major policies and values Define major competitive spheres Take a long-term view Short, memorable, meaningful

What is our business:Product Orientation vs. Market Orientation

Company Product Market

Disney We run theme parks We create fantasies—a place where dreams come true

Xerox We make copying equipment

We improve office productivity

Columbia Pictures

We make movies We entertain people

Amazon.com We sell books, videos, CDs, toys, consumer electronics and other products online

We make the Internet buying experience fast, easy, and enjoyable— we’re the place where you can find and discover anything you want to buy online

Nike We sell athletic shoes and apparel

We bring inspiration and innovation to every athlete* in the world (*if you have a body, you are an athlete)

Company Goals and Objectives

Mission ğ hierarchy of objectives

Google

“We will provide branded products and services of superior quality and value that improve the lives of the world's consumers, now and for generations to come.

As a result, consumers will reward us with leadership sales, profit, and value creation, allowing our people, our shareholders, and the communities in which we live and work to prosper.”

Identify key businesses (SBUs) that make up the company

Assess the attractiveness of its various SBUs

Decide how much support each SBU deserves

Business Portfolio Analysis

The Boston Consulting Group’s Growth-Share Matrix

20%-18%-16%-14%-12%-10%- 8%- 6%- 4%- 2%- 0

3 ?Question marks

Cash cow

710x 4x 2x 1.5x 1x

Relative Market Share.5x .4x .3x .2x .1x

Question Marks

• High growth, low share • Build into Stars or phase out • Require cash to hold market share

Question Marks

• High growth, low share • Build into Stars or phase out • Require cash to hold market share

• High growth & share• Profit potential • May need heavy investment to grow

Cash Cows

• Low growth, high share• Established, successful SBU’s• Produce cash

Cash Cows

• Low growth, high share• Established, successful SBU’s• Produce cash

• Low growth & share • Low profit potential

Relative Market ShareHigh Low

Boston Consulting Group Approach

Boston Consulting Group Approach and Strategies

After the classification of SBUs ğ determine what role each will play in the future Build ğ to invest more in the SBU in order to

build its share Hold ğ to invest enough just to hold at the

current level Harvest ğto increase the SBU’s short-term

cash flow Divest ğ to sell or to liquidate the business

The SBU Life Cycle

SBUs have a life cycle in general:a) Question marksb) Starsc) Cash cowsd) Dogs

Examine not only the business’ current positions, but also its moving positions.

Can be Difficult, Time-Consuming, & Costly to ImplementCan be Difficult, Time-Consuming, & Costly to Implement

Difficult to Define SBU’s & Measure Market Share/ GrowthDifficult to Define SBU’s & Measure Market Share/ Growth

Focus on Current Businesses, But Not future PlanningFocus on Current Businesses, But Not future Planning

Can Lead to Unwise Expansion or DiversificationCan Lead to Unwise Expansion or Diversification

Problems With Matrix Approaches

1050Time (years)

The Strategic-Planning Gap

Desiredsales

Integrative growth

Intensive growth

CurrentPortfolio sales

Strategic-planning

Diversification growth

Planning New Business, Downsizing Older Businesses

GROWTH STRATEGIES – 3 alternatives :

1. Intensive Growth 2. Integrative Growth3. Diversification Growth

Growth Strategies: Ansoff’s Product/Market Expansion Grid

4. Diversification2. Marketdevelopment

Newmarkets

1. Marketpenetration

Existingmarkets

Existingproducts

3. Productdevelopment

Newproducts

Downsizing

Some reasons that a company might want to abandon products or markets: The market environment might change (making

some of the company’s product or markets less profitable – e.g. economic recession)

The company may have grown too fast or entered areas where it lacks experience

Some of the company’s products or business units age and die.

Marketing’s Key Role in Strategic Planning

Provide a guiding philosophy Identify attractive opportunities Design effective strategies Build strong value chains Form superior value delivery

networks

The Business Unit Strategic Planning

Business Mission ğ each SBU needs to define its specific mission within the broader company mission

External Environment Analysis ğ to build a MIS to monitor:

Key external macroenvironment forces Significant microenvironment actors Trends and important developments ğ to

identify the associated opportunities and threats

Internal Environment Analysis ğ Each business needs to evaluate its internal strengths and weaknesses periodically

“Checklist for Performing Strengths/Weaknesses Analysis”

Management or an outside consultant ğ reviews the business’s marketing, financial, manufacturing and organizational competencies and rates each factor as strength or weakness

SWOT ANALYSIS

The Business Unit Strategic Planning /

Example of a Checklistı PERFORMANCE IMPORTANCE

Main 2nd Moderate 2nd Main High Medium LowStrength Strength Weakness Weakness

MARKETINGFirm's reputationMarket shareProduct/service qualityPricingDistributionPromotionSales forceR&D / InnovationGeographical location

FINANCEHigh profitabilityLow cost of capitalCash flowFinancial stability

PRODUCTIONScale economiesCapacity of meeting demandTalented productive powerTimely productionTechnical competence

ORGANIZATIONSkillful managersLoyal employeesEntrepreneurship orientationFlexibility degreeRapid adaptation

Marketing Analysis – SWOT Analysis

SWOT Analysis

Market Opportunity Analysis (MOA)

Can the benefits involved in the opportunity be articulated convincingly to a defined target market?

Can the target market be located and reached with cost-effective media and trade channels?

Does the company possess or have access to the critical capabilities and resources needed to deliver the customer benefits?

Market Opportunity Analysis (MOA)

Can the company deliver the benefits better than any actual or potential competitors?

Will the financial rate of return meet or exceed the company’s required threshold for investment?

High Low

Success Probability Opportunities

Opportunity Matrix

1. Company develops a more powerful lighting system

2. Company develops a device for measuring the energy efficiency of any lighting system

3. Company develops a device for measuring illumination level

4. Company develops a software program to teach lighting fundamentals to TV studio personnel

Threat Matrix

1.Competitor develops a superior lighting system

2.Economic depression

3.Higher costs4.Legislation to

reduce number of TV studio licenses

High Low

Probability of Occurrence Threats

Goal Formulation (Goals ğ objectives that are specific with respect to magnitude and time) Turning objectives ğ into measurable goals ğ

facilitates management planning, implementation and control

The Business Unit Strategic Planning: Strategy Formulation

Overall Cost Leadership

Differentiation

FocusMichael Porter

The Marketing Process

Analyzing marketing opportunities

Researching and selecting target markets

Designing marketing strategies Planning marketing programs Organizing, implementing,

controlling the marketing effort

Managing the Marketing Effort

The Marketing Process

Finding opportunities : the company must analyze its market & mktg

environment company strengths &

weaknesses current and possible

mktg actions Avoiding threats Understanding strengths Analyzing weaknesses

• Analysis• Planning• Implementation• Control

Marketing Functions

Marketing planning ğ involves deciding on marketing strategies that will help the company reach its strategic objectives

Marketing Functions

What is a Marketing Plan?

A marketing plan is the central instrument for

directing and coordinating the marketing effort.

It operates at a strategic and tactical level.

Levels of a Marketing Plan

Strategic Target

marketing decisions

Value proposition

Analysis of marketing opportunities

Tactical Product

features Promotion Merchandising Pricing Sales channels Service

Marketing plan

Executive summary

Marketing situation

Threats and

opportunities

Objective and issues

Marketing strategy

Action programs

Budgets Controls

The application of marketing resources to achieve marketing objectives

The process that turns mktg plans into mktg actions to accomplish strategic mktg objectives

Successful implementation depends on how well the company blends its people, organizational structure, decision and reward system, and company culture into a cohesive action plan that supports its strategies

Marketing Functions

Functional organization

Geographic organization

Product management organization

Market or customer management

Marketing Department Organization

Measurement and evaluation of the results of marketing strategies

Checking for differences between goals and performance

Taking of corrective action as needed

Marketing Functions

Measuring Marketing Plan Performance

Sales analysis Market share analysis Marketing expense-to-sales ratio Financial analysis

Return on marketing investment (Marketing ROI) is the net return from a marketing investment divided by the costs of the marketing investment.

provides a measurement of the profits generated by investments in marketing activities.

Marketing Planning

Develop StrategicPlans

Develop

MarketingPlans

Marketing Planning

Develop StrategicPlans

Develop

MarketingPlans

MarketingImplementation

Carry OutThe

MarketingImplementation

Carry OutThe

Marketing Analysis of Company’s SituationMarketing Analysis of Company’s Situation

Control

MeasureResults

EvaluateResults

TakeCorrective

Action

Marketing Environment

The Marketing Environment

Marketing Environment ğthe actors and forces outside marketing that affect marketing management’s ability to develop and maintain successful relationships with its target customers. Microenvironment actors - forces

close to the company that affect its ability to serve its customers.

Macroenvironment forces - larger societal forces that affect all the microenvironment.

Profitable CustomerRelshps.

Product

Place Price

Promotion

Marketing

Planning

Marketing

Control

Analysis

Competitors

MarketingIntermediaries

PublicsSuppliers

Demographic-Economic

Environment

Technological-Natural

Environment

Political-Legal

Environment

Social-Cultural

Environment

The Marketing Environment

The Microenvironment

Competitiors

Publics

Customer Markets

Intermediarie

Company

Internal Environment

The Microenvironment: Company’s Internal Environment

Functional areas inside a company that have an impact on the marketing department’s plans

Top management ğ responsible for setting company’s mission, objectives, broad strategies and policies

Marketing managers; make decisions within the parameters

established by top management must also work closely with other

company departments

The Microenvironment: Suppliers

Firms and individuals providing resources to the company and its competitors to produce goods and services.

Important link in the company’s overall customer “value delivery system” to watch supply availability to monitor price trends of key inputs

The Microenvironment: Intermediaries

Firms that help the company to promote, sell, and distribute its goods to final buyers Resellers Physical distribution firms Marketing service agencies Financial intermediaries

The Microenvironment:Customer Markets

Consumer markets ğ Individuals & households that buy goods & services for personal consumption

Business markets ğ Buy goods & services for further processing in their production process

Resellers markets ğ Buy goods & services in order to resell them at a profit

Government markets ğ Buy goods & services in order to produce public services or transfer them to those that need them

International markets ğ Buyers of all types in foreign countries

The Microenvironment:Competitors

Every company faces a wide range of competitors.

A company must secure a strategic advantage over competitors to be successful in the marketplace.

No single competitive strategy is best for all companies

The Microenvironment:Publics

Any group that has actual or potential interest in or impact on an organization’s ability to achieve its objectives. Financial publics (banks, stockholders) Media publics (newsp.,magazines, radio&TV) Government publics Citizen-action publics (consumer org.,

environmental groups Local publics General publics Internal publics

The Macroenvironment

Demographic Economic Natural Technological Political-Legal Social-Cultural

Demographic Environment

Worldwide Population GrowthWorldwide Population Growth

Age Structure of the PopulationAge Structure of the Population

Household PatternsHousehold Patterns

Educational GroupsEducational Groups

Geographical Shifts in PopulationGeographical Shifts in Population

Shift from Mass Market to MicromarketsShift from Mass Market to Micromarkets

Ethnic MarketsEthnic Markets

EconomicDevelopment

Changes in IncomeChanges in Income

Changing ConsumerSpending Patterns

KeyEconomic

Concerns forMarketers

KeyEconomic

Concerns forMarketers

Economic Environment

Economic EnvironmentIncome DistributionIncome Distribution

Subsistence economies ğ The vast majority of people engage in simple agriculture, consume most of their output and barter the rest for simple goods and services.

Raw-material-exporting economies ğ are rich in one or more natural resources but poor in other respects. Much of their revenue comes from exporting these resources.

Industrializing economies ğ Manufacturing accounts for 10 to 20% of gross domestic product. Industrialization creates a new rich class and a small but growing middle class, both demanding new types of goods.

Industrial economies ğ are major exporters of manufactured goods and investment funds. They buy manufactured goods from one another & export themto other types of economies in exchange for raw materials & semi-finished goods.

Savings, Debt, & Credit AvailabilitySavings, Debt, & Credit Availability

Natural Environment

Factors Affecting

the Natural

Environment

Shortages of Raw Materials

Increased Pollution

Changing Role of

Governments

Increased Energy Costs

Accelerating Paceof Change

Unlimited Opportunitiesfor Innovation

IncreasedRegulation

Issues in the TechnologicalEnvironment

VaryingR & D Budgets

Technological Environment

LegislationRegulating Business

Includes laws, government agencies, etc. that influence & limit organizations/individuals in a given society

Growth of Special- Interest Groups

Legal Environment

Social/Cultural Environment

People’s View of Organizations

People’s View of Nature

People’s View of Themselves

People’s View of Society

People’s View ofthe Universe

People’s View of Others

Cultural Valuesof a

Society

Cultural Valuesof a

Society

Understanding Markets through

Marketing Information Systems

Marketing is becoming a battle based more on information than on sales power

Major Questions

What are the components of a modern marketing information system?

What are useful internal records? What makes up a marketing

intelligence system? How can companies accurately

measure and forecast demand?

Companies need information about their marketing environment, competition, customer needs

Reasons for the need for real-time market information

Global marketing Buyer needs & wants Price competition vs. nonprice competition

Companies with superior information; choose its markets better develop better offerings execute better marketing planning

Importance of Market InformationImportance of Market Information

The Marketing Information System

A marketing information system (MkIS) consists of people, equipment, and procedures

to gather, sort, analyze, evaluate, and distribute

needed, timely, and accurate info. to marketing decision makers.

The MkIS helps managers to: 1.Assess information needs,2.Develop needed information,3.Distribute information.

The Marketing Information System

Useful questions to determine information needs of marketing managers

What decisions do you regularly make? What information do you need to make

these decisions? What information do you regularly get? What studies do you periodically request? What information would you want that you

are not getting now? What are the four most helpful

improvements that could be made in the present marketing information system?

Internal DataInternal DataComputerized Collection of Information

from Data Sources (i.e. accounting) within the Company.

Computerized Collection of Information from Data Sources (i.e. accounting)

within the Company.

MarketingResearchMarketingResearch

Design, Collection, Analysis, and Reporting of Data about a Specific

Marketing Situation Facing the Organization.

Design, Collection, Analysis, and Reporting of Data about a Specific

Marketing Situation Facing the Organization.

MarketingIntelligenceMarketing

IntelligenceCollection and Analysis of Publicly

Available Information about Competitors and the Marketing Environment

Collection and Analysis of Publicly Available Information about Competitors

and the Marketing Environment

Functions of a MkIS: Developing Information

Information Needed by Managers Can be Obtained From:

Internal Record System

Consists of computerized collections of info. obtained from data sources within the company (internal data);

Includes reports on orders, sales, prices, costs, inventory levels, receivables, payables, etc. “opportunities” and “problems” can be

determined by analyzing these information Can usually be accessed more quickly and

cheaply May be incomplete or data may be in the

wrong form.

Internal Record System

The order-to-payment cycle Sales representatives, dealers, and customers

send orders to the firm The sales department prepares invoices, transmits

copies to various departments, and back-orders out-of-stock items

Shipped items generate shipping and billing documents that go to various departments.

Sales Information Systems Marketing managers need timely and accurate

reports on current sales.

Marketing Intelligence System

A set of procedures and sources used by managers to obtain everyday information about developments in the marketing environment

Competitive info. gathering sources: Company sales representatives Suppliers, resellers, customers (“mystery

shoppers”) Annual reports, speeches, press releases, and

advertisements Business publications, web pages Trade show exhibits Outside companies (e.g. mktg research

company)

Sources of Competitive Information

Independent customer goods and service review forums

Distributor or sales agent feedback sites Combination sites offering customer

reviews and expert opinions Customer complaint sites Public blogs

Steps to Quality Marketing Intelligence

Train sales force to scan for new developments

Motivate channel members to share intelligence

Hire external experts to collect intelligence

Network externally Utilize a customer advisory panel Utilize government data sources Purchase information

Additional Information Forecasting and Demand Measurement

Which market to measure? Potential market Available market Target market Penetrated market

A Vocabulary for Demand Measurement

Market Demand

Market Forecast

Market Potential

Company Demand

Company Sales Forecast

Company Sales Potential

Demand Measurement

Market demand—the total volume for a product that would be bought by a defined customer group in a defined geographical area in a defined time period in a defined marketing environment under a defined marketing program.

Market potential—the limit approached by market demand as industry marketing expenditures approach infinity for a given marketing environment.

Market Demand Functions

Company Demand and Sales Forecast

Company demand—the company’s estimated share of market demand at alternative levels of company marketing effort in a given time period.

Company sales forecast—the expected level of company sales based on a chosen marketing plan and an assumed marketing environment.

Estimating Current Demand

Total market potential—the maximum number of sales that might be available to all of the industry’s firms during a given period, under a given level of industry marketing effort and environmental conditions.

Area market potential—the market potential of a specific location: Market buildup method Multiple-factor method

Estimating Current Demand: Total Market Potential

Calculations Multiple potential

number of buyers by average quantity each purchases times price

Chain-ratio method

Estimating Current Demand: Area Market Potential

Market-Buildup

Estimating Current Demand: Area Market Potential

Multiple-Factor Index

Sales Forecasting Techniques

Time Series Methods Naive

Forecasting Trend Analysis

Linear trends Non-linear

trends Seasonal

adjustments Moving

Averages Exponential

Smoothing

Correlational Methods Simple

regression Multiple

regression Judgemental

Methods Jury of

Executive Opinion

Sales Force Composite

Marketing Research System

Marketing research ğ the systematic design, collection, analysis, and reporting of data and findings relevant to a specific marketing situation facing an organization.

Market research ğ research into a particular market ! just one component of mktg research

Examples of research

• Quantitative Research: Seeks to quantify the data and typically applies some form of statistical analysis. It is based on large number of representative sample Data collection is structured Recommend a final course of action

• Qualitative Research: The main objective is to gain qualitative understanding of the underlying reasons & motives.

It is based on large number of representative sample Sample consists of small number of nonrepresentative

cases. Data collection is unstructured Data analysis is nonstatistical It is possible to develop an initial understanding

Types of research

Types of Marketing Research Firms

Syndicated

Custom

Specialty-line

The Marketing Research Process

Defining the problem and

research objectives

Defining the problem and

research objectives

Developing theresearch plan

Implementingthe research

plan: collecting the data

plan: analyzing the data

Interpreting and reporting the findings

Step 1: Defining the Problem & Research Objectives

Example: ABC Airlines Case ABC Airlines is constantly looking for new

ways to serve the needs of air travelers:

One manager came up with the idea of offering phone service to passengers.

The other managers got excited about this idea and agreed that it should be researched further.

The marketing manager volunteered to do some preliminary research

The marketing manager then asked the company’s research manager to find out how air travelers would respond to this new service.

Defining the Problem & Research Objectives Example: ABC Airlines Case (cont.)

Research Problem ? “to find out everything about air travelers’ need” – too broad! “to find out if enough passengers aboard a B-747 flying

between East Coast and West Coast would be willing to pay $ 25” to make a phone call so that the company would break even on the cost of offering this service” – too narrow!

Research Problem is finally defined as: “Will offering an in-flight phone service create enough incremental preference and profit for ABC Airlines to justify its cost against other possible investments that the company might make?”

Defining the Problem & Research Objectives Example: ABC Airlines Case (cont.)

Research Objectives: What are the main reasons that airline

passengers might place phone calls while flying?

What kinds of passengers would be the most likely to make phone calls?

How many passengers are likely to make phone calls, given different price levels?

How many extra customers might choose this company because of this new service?

How important will phone service be relative to other factors? (such as flight schedules, food quality, baggage handling, etc.)

Defining the Problem & Research Objectives

ExploratoryResearch

DescriptiveResearch

CausalResearch

• Test cause- and-effect relationships.

• Tests hypotheses about cause- and-effect relationships.

• Test cause- and-effect relationships.

• Tests hypotheses about cause- and-effect relationships.

• Sheds light on problem - suggest solutions or new ideas.

• Gathers preliminary information that will help define the problem

and suggest hypotheses

• Sheds light on problem - suggest solutions or new ideas.

• Gathers preliminary information that will help define the problem

and suggest hypotheses

• Ascertain magnitudes• Describes things as market

potential for a product or the demographics and consumers’

attitudes.

• Ascertain magnitudes• Describes things as market

potential for a product or the demographics and consumers’

attitudes.

Step 2: Developing the Research Plan

Data Sources

ContactMethods

ResearchInstruments

SamplingPlan

Research Approach

Data that were collected for another purpose, and already exist somewhere

(+)Obtained more quikcly / at lower cost

(-)Might not be usable data.

Developing the Research Plan:Data Sources

both must be:

Relevant

Accurate

Current

Impartial

Data gathered for a specific purpose or for a specific research project

A classification of marketing research data

Developing the Research Plan Secondary Data Collection

Internal Sources Company profit-loss statements, balance

sheets, sales figures, sales-call reports, invoices, inventory records, and prior research reports.

Government Publications Statistical Abstract County and City Data Book Industrial Outlook Marketing Information Guide

Periodicals and Books Business Periodicals Index Standard and Poor’s Industry

On-Line Databases (e.g. Lexis-Nexis, Compuserve, Dialog)

Applications of Secondary Data

Demand Estimation Monitoring the environment Segmentation and Targeting

Sources of Secondary Data (examples)

ESOMAR website - www.esomar.org founded in 1948 4,400 members in 100 countries mission : "ESOMAR is the world organisation for enabling

better research into markets, consumers and societies." the aim is to promote the value of market and opinion

research in illuminating real issues and bringing about effective decision-making.

creates and manages a comprehensive programme of industry-specific and thematic conferences, publications and communications

www.arastirmacilar.org in Turkey (TÜAD – Türkiye Araştırmacılar Derneği)

Other useful sources: AMA website – www.marketingpower.com AMS website – www.ams-web.org www.trendwatching.com

Research Approaches

ObservationObservation

Focus GroupFocus Group

SurveySurvey

ExperimentationExperimentation

Ethnographic research

In-depth InterviewIn-depth Interview

Projective techniquesProjective techniques

Developing the Research Plan: Contact Methods

Mail Telephone Personal (arranged or intercept interviews)

Individual or group interviewing CAPI and CATI

On-line (Internet research) the data are not representative of a target

population people in the target market who do not use the

Internet or who don’t want to answer a questionnaire can bias the results.

Pros and Cons of Online Research

Advantages Inexpensive Fast Accuracy of data Versatility

Disadvantages Small samples Skewed samples Technological problems Inconsistencies

Developing the Research Plan: Sampling Plan

Sample -representative segment of the

population How should thesample be

chosen?(Sampl.procedure)

Who is to be surveyed?(Sampling

How many should besurveyed?

(Sample size)

Developing the Research Plan: Research Instruments

Technological devices Galvanometers Tachistoscope Eye cameras Audiometers GPS

Questionnaires What questions to

ask? Form of each

question? Closed-end Open-end Wording? Ordering?

Questionnaire Do’s and Don’ts

Ensure questions are free of bias

Make questions simple

Make questions specific

Avoid jargon Avoid sophisticated

words Avoid ambiguous

Avoid negatives Avoid hypotheticals Avoid words that could

be misheard Use response bands Use mutually

exclusive categories Allow for “other” in

fixed response questions

Additional Information:Question Types - Dichotomous

In arranging this trip, did you contact ABC Airlines?

Yes No

Question Types – Multiple Choice

With whom are you traveling on this trip?

No one

Spouse

Spouse and children

Children only

Business associates/friends/relatives

An organized tour group

Question Types – Likert Scale

Indicate your level of agreement with the following statement: Small airlines generally give better service than large ones.

Strongly disagree

Disagree

Neither agree nor disagree

Strongly agree

Question Types – Semantic Differential

ABC Airlines

Large ………………………………...…….Small

Experienced………………….….Inexperienced

Modern……………………….…..Old-fashioned

Question Types – Importance Scale

Airline food service is _____ to me.

Extremely important

Very important

Somewhat important

Not very important

Not at all important

Question Types – Rating Scale

ABC Airlines’ food service is _____.

Excellent

Very good

Question Types – Intention to Buy Scale

How likely are you to purchase tickets on ABC Airlines if in-flight Internet access were available?

Definitely buy

Probably buy

Not sure

Probably not buy

Definitely not buy

Qualitative Techniques

Word AssociationWord Association

Sentence completionSentence completion

Third person techniqueThird person technique

Brand PersonificationBrand Personification

LadderingLaddering

VisualizationVisualization

Characteristics of Good Marketing Research

Scientific method Research creativity Multiple methods Interdependence Value and cost of information Healthy skepticism Ethical marketing

Analyzing Marketing Information

Information gathered in internal databases and through marketing intelligence and marketing research ğ may require more analysis

Managers may need help in applying the info. to their mktg problems and decisions

Marketing decision support sysytems (MDSS) ğ “coordinated collection of data, systems, tools and techniques with supporting software and hardware, by which an organization gathers and interprets relevant information from business and environment and turns it into a basis for marketing action”

marketing and sales software programs decision models

Interpreting and Reporting Findings

Researcher should present important findings that are useful in the major decisions faced by management.

Step 1. Interpret the Findings

Step 2. Draw Conclusions

Step 3. Report to Management

Appendices--

Marketing metrics are the set of measures that helps marketers

quantify, compare, and interpret marketing performance.

Marketing Metrics

External Awareness Market share Relative price Number of

complaints Customer

satisfaction Distribution Total number of

customers Loyalty

Internal Awareness of goals Commitment to

goals Active support Resource adequacy Staffing levels Desire to learn Willingness to

change Freedom to fail Autonomy

Marketing-Mix Modeling

Marketing-mix models analyze data from a variety of sources, such as retailer scanner data,

company shipment data, pricing, media, and promotion spending

data, to understand more precisely the effects of specific

marketing activities.

Marketing Measurement Pathway

Marketing Dashboard

Example of some Customer-Performance Scorecard Measures

% of new customers to average # % of lost customers to average # % of win-back customers to average # % of customers in various levels of

satisfaction % of customers who would repurchase % of target market members with brand recall % of customers who say brand is most

preferred

Analyzing Consumer Markets and

Buyer Behavior

“The most important ingredient in the success of an organization is a satisfied customer”

Consumer Buying Behavior

The central question for marketers :

“How do consumers respond to various marketing efforts the company might use?”

Model of Buyer Behavior

Marketing and Other Stimuli

MarketingProductPricePlacePromotionOtherEconomicTechnologicalPoliticalCultural

Buyer’s Black Box

Buyer CharacteristicsCulturalSocialPersonalPsychological

Buyer Decision ProcessProblem recognitionInformation searchEvaluationDecisionPostpurchase behavior

Buyer Responses

Product ChoiceBrand ChoiceDealer Choice

Purchase TimingPurchase Amount

Factors Influencing Consumer Behavior

Social

• Referencegroups

• Family

• Rolesand

status

Social

• Referencegroups

• Family

• Rolesand

status

Personal• Age andlife-cycle

• Occupation• Economic

situation• Lifestyle

• Personalityand

self-concept

• Personalityand

self-concept

Psycho-logical

• Motivation• Perception• Learning

• Beliefs andattitudes

Psycho-logical

• Motivation• Perception• Learning

• Beliefs andattitudes

BUYERBUYER

• Culture

• Sub-culture

• Socialclass

• Culture

• Sub-culture

• Socialclass

Cultural

Factors Influencing Consumer Behavior:Cultural

• Culture Forms a person’s wants and

behavior

• Subculture Groups with shared value systems

• Social Class Society’s divisions who share values, interests and behaviors

• Culture

• Subculture

• Social class

• Culture

• Subculture

• Social class

Cultural

• SubcultureGroups with shared value systems

• Culture

• Subculture

• Social class

• Culture

• Subculture

• Social class

Culturale.g. Hispanic subculture in the US

• CultureForms a person’s wants and behavior

• SubcultureGroups with shared value systems

• Social ClassSociety’s divisions who share values, interests and behaviors

• Culture

• Subculture

• Social class

• Culture

• Subculture

• Social class

Cultural

• Social ClassSociety’s divisions who share values,

interests and behaviors

• Culture

• Subculture

• Social class

• Culture

• Subculture

• Social class

Cultural

Measured by a combination of occupation, income, education, wealth, and other variables

Turkey ğ introduced first by PIAR SES analyses (www.arastirmacilar

Factors Influencing Consumer Behavior: Social

• Reference Groups• Membership• Aspirational

• Opinion Leaders• Buzz marketing

• Family• Many influencers• Buyers vs. users

• Roles and Status

Social

• Referencegroups

• Family

• Roles & status

Social

• Referencegroups

• Family

• Roles & status

Factors Influencing Consumer Behavior: Social (cont.)

• Ref. Groups : have a direct or indirect influence on the person’s attitudes or behavior

• Membership Groups ğ groups to which a person belongs • primary groups• secondary groups

• Aspirational Groups ğ groups to which a person would like to belong

Social

• Referencegroups

• Family

• Roles & status

Social

• Referencegroups

• Family

• Roles & status

• Opinion Leader person within a reference group who exert influence on others

• Also called influentials or leading adopters

• offers advice or information about a specific product or product category,

• can be found in all social classes

Social

• Referencegroups

• Family

• Roles & status

Social

• Referencegroups

• Family

• Roles & status

Online Social Networks / online communities where people socialize or exchange information and opinions blogs, social networking

sites (facebook), virtual worlds (second life)

Groups and Social Networks

• The most important consumer-buying organization in the society

• Roles and relative influence of family members in buying decisions • Buying roles vary in different

countries and social classes• Buying roles change with

evolving life-styles• joint decision making • women arising as active buyers• increasing role of children

Social

• Referencegroups

• Family

• Roles & status

Social

• Referencegroups

• Family

• Roles & status

• The person’s position in each group ğ can be defined in terms of both role and status:

• A Role ğ consists of the activities that a person is expected to perform according to the people around him• Each role ğ carries a status

• A Status ğ is the general esteem given a role by society

Social

• Referencegroups

• Family

• Roles & status

Social

• Referencegroups

• Family

• Roles & status

Factors Influencing Consumer Behavior: Personal

• Family Life Cycle ğ stages throughout which families pass as they mature over time

1. bachelor stage2. newly married couples, no children3. full nest 1; youngest child under 64. full nest 2; youngest child 6 or over5. full nest 3; older married couples with

dependent children6. empty nest 1; older married couples

no children with them7. empty nest 1; older married couples

no children at home; retired8. solitary survivor, working9. solitary survivor, retired

• Personalityand

self-concept

• Personalityand

self-concept

Stages in Family Life Cycle

See text for complete table

1. Bachelor stage: Young, single, not living at home

Few financial burdens. Fashion opinion leaders. Recreation oriented. Buy: basic home equipment, furniture, cars, equipment for the mating game; vacations.

2. Newly married couples: Young, no children

Highest purchase rate and highest average purchase of durables: cars, appliances, furniture, vacations.

3. Full nest I: Youngest child under six

Home purchasing at peak. Liquid assets low. Interested in new products, advertised products. Buy: washers, dryers, TV, baby food, chest rubs and cough medicines, vitamins, dolls, wagons, sleds, skates.

4. Full nest II: Youngest child six or over

Financial position better. Less influenced by advertising. Buy larger-size packages, multiple-unit deals. Buy: many foods, cleaning materials, bicycles, music lessons, pianos.

Factors Influencing Consumer Behavior: Personal (cont.)

• Consumption patterns often shaped by:

• occupation & • economic

circumstances:

• spendable income,• savings and assets,• debts,• attitudes towards spending &

saving.

• Personalityand

self-concept

• Personalityand

self-concept

• Consumption patterns often shaped by:

• occupation & • economic

circumstances:

• spendable income,• savings and assets,• debts,• attitudes towards spending &

saving.

• Personalityand

self-concept

• Personalityand

self-concept

• Lifestyle ğ a person’s pattern of living as expressed in his activities, interests and opinions• Psychographics ğ technique of

measuring lifestyles and developing lifestyle classifications

• Major dimensions measured are:• Activities (work, hobbies, social

events, entertainment, shopping, sports,vacation)

• Interests (family, home, job, recreation, fashion, food, media, achievements)

• Opinions (themselves, social issues, politics, business, economics, products, future)

• Personalityand

self-concept

• Personalityand

self-concept

The VALS segmentation system:

An 8-part typology

AIOs and Lifestyle Dimensions

Excerpts from AIO Inventory

Instructions: Please read each statement and place an “x” in the box that best indicates how strongly you “agree” or “disagree” with the statement.

I feel that my life is moving faster and faster, sometimes just too fast.

If I could consider the “pluses” and “minuses,” technology has been good for me.

I find that I have to pull myself away from e-mail.

Given my lifestyle, I have more of a shortage of time than money.

I like the benefits of the Internet, but I often don’t have the time to take advantage of them.

[1] [2] [3] [4][5] [6] [7]

[1] [2] [3][4] [5] [6]

[7][1] [2] [3][4] [5] [6]

[7][1] [2] [3]

[4] [5][6] [7]

Agree Completely

Disagree Completely

• Personality ğ a person’s unique characteristics that lead to relatively consistent and lasting responses to the environment• Brand personality ğ specific mix of

human traits that may be attributable to a particular brand

• Self-concept ğ the self image or general picture that people have of themselves• Person’s actual self-concept ğ how she

views herself• Ideal self-concept ğ how she would like to

view herself• Others’ self-concept ğ how she thinks

others see her

• Personalityand

self-concept

• Personalityand

self-concept

Factors Influencing Consumer Behavior: Psychological

• Freud’s Theory : Psychological forces shaping people’s behavior ğ largely unconscious• A person cannot understand fully

his/her own motivations• Motivation research ğ looks for hidden

and subconscious motivation• in-depth interviews / laddering• projective techniques (i.e. word

association, sentence completion, picture interpretation, role playing)

• Maslow’s Theory : Maslow ordered needs based on how pressing they are to the consumer

Psychological• Motivation

• Perception

• Learning

• Beliefs &attitudes

• Perception

• Learning

Psychological FactorsMotivation A motive is a need that is

sufficiently pressing to direct the person to seek satisfaction

Motivation research is based on Freud. Looks for hidden and subconscious motivation

Maslow ordered needs based on how pressing they are to the consumer

• Research found:• Consumers resist prunes because prunes are

wrinkled looking and remind people of old age.• Men smoke cigars as an adult version of thumb

sucking.• Women prefer vegetable shortening to animal

fats because the latter arouse a sense of guilt over killing animals.

• Women don’t trust cake mixes unless they require adding an egg, because this helps them feel they are giving “birth.”

Factors Influencing Consumer Behavior: Psychological(cont)

Maslow’s Hierarchy of Needs

• Perception ğ process by which people select, organize and interpret information to form a meaningful picture of the world

1.Selective attention ğ tendency of people to eliminate most of the information to which they are exposed

2.Selective distortion ğ to interpret information in a way that will support what they already believe

3.Selective retention ğ to retain only part of the information to which they are exposed

• Perception

• Learning

• Perception

• Learning

• Learning ğ changes in a person’s behavior, arising from experience

• Learning occurs through the interplay of: drives, stimuli, cues, responses and reinforcement

• A drive: strong internal stimulus that calls for action

• Cues: minor stimuli that determine when, where and how the person responds

• If the experience is rewarding ğ the response will be positively reinforced

• Perception

• Learning

• Perception

• Learning

• Through doing and learning ğ people acquire beliefs and attitudes ğ have influence on buying behavior

• A Belief ğ descriptive thought that a person holds about something

• An Attitude ğ a person’s consistently favorable or unfavorable evaluations, feelings and tendencies toward an object or idea

• Perception

• Learning

• Perception

• Learning

• Through doing and learning ğ people acquire beliefs and attitudes ğ have influence on buying behavior

• A Belief ğ descriptive thought that a person holds about something

• An Attitude ğ a person’s consistently favorable or unfavorable evaluations, feelings and tendencies toward an object or idea

• Perception

• Learning

• Perception

• Learning

The Buying Decision Process

• Marketers have to identify:

• Who makes the buying decision• The types of buying decisions• The steps in the buying process

Buying Roles – Who makes the buying decision

• Initiator ğ who first gives the idea of buying the product or service

• Influencer ğ whose view or advice influences the decision

• Decider ğ who decide on any component of buying decision

• Buyer ğ who makes the actual purchase

• User ğ who uses the product or sevice purchased

HighInvolvement

Significantdifferences

betweenbrands

Fewdifferences

betweenbrands

LowInvolvement

Types of Buying Behavior

ComplexBuying

Behavior

Variety-SeekingBehavior

Dissonance-Reducing Buying

Behavior

HabitualBuying

Behavior

Stages of the Buying Decision Process

PostpurchaseBehavior

PurchaseDecision

InformationSearch

Problem Recognition

Evaluationof Alternatives

The Buyer Decision ProcessStage 1. Problem Recognition

State where the buyer’s needs are fulfilled and the buyer is satisfied.

Needs Arising from: Internal Stimuli (hunger) or External Stimuli (friends)

recognizes

a problem or

a need

• Family, friends, neighbors• Most effective source of information• Advertising, salespeople• Receives most information from these sources

• Mass Media• Consumer-rating groups

• Handling the product• Examining the product• Using the product

Personal Sources Personal Sources

Commercial SourcesCommercial Sources

Public SourcesPublic Sources

Experiential SourcesExperiential Sources

The Buyer Decision ProcessStage 2. Information Search

The Buyer Decision Process

Successive Sets Involved in Customer Decision Making

Consumer May Use Careful Calculations & Logical ThinkingConsumer May Use Careful

Calculations & Logical Thinking

Consumers May Buy on Impulse and Rely on Intuition

Consumers May Make Buying Decisionson Their Own.

Consumers May Make Buying DecisionsOnly After Consulting Others.

Marketers must study buyers to find out how they evaluate brand alternatives

The Buyer Decision ProcessStage 3. Evaluation of Alternatives

Consumer Evaluation Process

• The consumer is trying to satisfy a need• The consumer is looking for certain benefits from

the product solution• The consumer sees each product as a “bundle of

attributes”• The attributes of interest to buyers vary by product

• Consumers differ as to which product attributes they see as most relevant and the importance they attach to each attribute

Consumer Evaluation Process (cont.)

• The consumer develops “a set of brand beliefs” about where each brand stands on each attribute (see table, next page)

• The set of beliefs about a brand make up “brand image”

• The consumer arrives at attitudes (judgments /preferences) toward different brands through an attribute evaluation procedure.

Example: A Consumer’s Brand Beliefs about Computers

Attribute

Computer

Memory Capacity

Graphics Capability

Size and Weight

A 10 8 6 4

B 8 9 8 3

C 6 8 10 5

D 4 3 7 8

Computer A: 0.4(10)+0.3(8)+0.2(6)+0.1(4) = 8.0

Choice will be made based on the “highest perceived value”

Consumer Evaluation Process (cont.)

• Strategies designed to influence buyer decisions:

• Redesign the product – real positioning• Alter beliefs about the brand – psychological

positioning• Alter beliefs about competitors’ brands – competitive

positioning• Alter the importance weights• Call attention to neglected attributes• Shift the buyer’s ideas

The Buyer Decision ProcessStage 4. Purchase Decision

The Buyer Decision ProcessStage 5. Postpurchase Behavior

Satisfied Customer!

Consumer’s Expectations of Product’s Performance ---

Product’s Perceived Performance.

Dissatisfied Customer

Buyer Decision Process for New Products

New Products Good, service or idea that is perceived

by customers as new. Stages in the Adoption Process

Marketers should help consumers move through these stages.

Awareness: Consumer is aware of

product, but lacks information.

Awareness: Consumer is aware of

product, but lacks information.

Interest: Consumer seeks Information about new product.

Evaluation: Consumer considerstrying new product.

Trial: Consumer tries new product on a small scale.

Adoption: Consumer decides to make regular

use of product.

Stages in the Adoption Process

Individual Differences in Innovativeness:

Consumers can be classified into five adopter categories, each of which behaves differently toward new products

Adopter CategoriesP

Time of AdoptionEarly Late

Early Adopters

Early Majority

34% 34%

Laggards

Late Majority

Product Characteristics influencing the adoption rate:

Relative Advantage ğ Is the innovation superior to existing products?

Compatibility ğ Does the innovation fit the values and experience of the target market?

Complexity ğ Is the innovation difficult to understand or use?

Divisibility ğ Can the innovation be used on a trial basis?

Communicability ğ Can results be easily observed or described to others?

International Consumer Behavior

Values, attitudes and behaviors differ greatly in other countries.

Physical differences exist which require changes in the marketing mix.

Customs vary from country to country. Marketers must decide the degree to which

they will adapt their marketing efforts.

Analyzing Business Markets and Business

Buyer Behavior

Many businesses are wisely turning their suppliers and distributors into “valued partners”.

Business Markets

Business Market ğ all the organizations that buy goods and services to use in the production of other products and services that are sold/rented or supplied to others. Business buying ğ decision making process by

which business buyers establish the need for purchased products and services and identify, evaluate and choose among alternative brands and suppliers

Contain fewer, but larger buyers

Customers are more geographically concentrated

Buyer demand is derived from final consumer demand

Demand is often more inelastic

Characteristics of Business Markets

Marketing Structure and Demand

Business buying

involves a more

professional purchasing

effort.

Business purchases

involve more buyers

Nature of the Buying Unit and the Decision Process

In business buying,

multiple sales calls

are required.

Business buyers

usually face more

complex buying

decisions.

Business buying

process is more

formalized.

Types of Decisions and the Decision Process

In business buying,

buyers and sellers work

more closely together.

Model of Business Buyer Behavior

The Environment

MarketingStimuli:• Product• Price• Place• Promotion

Other Stimuli:• Economic• Technological• Political• Cultural• Competitive

The Buying Organization

The buying center

Buying decision process

(Interpersonal and individual influences)

(Organizational Influences)

Buyer Responses

Product or service choice

Supplier Choice

Order Quantities

Delivery terms and times

Service terms

Payment

New Task BuyingNew Task Buying

ing Modified RebuyModified Rebuy

Major Types of Buying Situations

Straight RebuyStraight Rebuy

UnexpectedSituational

Factors

UnexpectedSituational

Factors

Participants in the Business Buying Process

Decision making unit of

a buying organization

is called

Buying Center

Influencers

Initiators

Deciders

BuyersGatekeepers

Roles Include

Approvers

Major Influences on Business Buying Behavior

Problem Recognition

General Need DescriptionGeneral Need Description

Product Specification-Product value analysis-

Supplier SearchSupplier Search

Proposal SolicitationProposal Solicitation

Supplier Selection*Supplier Selection*

Order Routine SpecificationOrder Routine Specification

Performance ReviewPerformance Review

Stages of Business Buying Process

*Example -- Supplier Analysis

R a t i n g S c a l e

Attributes ImportanceWeights

Poor(1)

Fair(2)

Good(3)

Excellent(4)

Price .30 x

Supplier reputation

Product reliability .30 x

Service reliability .10 x

Supplier flexibility .10 x

Total score: .30(4) + .20(3) + .30(4) + .10(2) + .10(3) = 3.5

Buygrid Framework Major Stages (Buyphases) of Business Buying Process in Relation to Major Buying Situations (Buyclasses)

Buyclasses

New Modified Straight

Task Rebuy Rebuy

1. Problem recognition

Yes Maybe No

2. General need description

Yes Maybe No

3. Product specification

Yes Yes Yes

Buyphases

4. Supplier search Yes Maybe No

5. Proposal solicitation

Yes Maybe No

6. Supplier selection Yes Maybe No

7. Order-routine specification

Yes Maybe No

8. Performance review

Yes Yes Yes

Dealing with Competition

Poor firms ignore their competitors; Average firms copy their competitors;

Winning firms lead their competitors.

Competitive Forces 5 Forces Determining Attractiveness of a Market/Market Segment

Threat of:1. intense segment

rivalry

2. new entrants

3. substitute products

4. buyers’ growing bargaining power

5. suppliers’ growing bargaining power

Threat of New Entrants

New entrants mean downward pressure on prices and reduced profitability

Barriers to entry determines the extent of threat of new industry entrants

Barriers to Entry

Economies of Scale Decline in per-unit product costs as the absolute

volume of production per period increases

Product differentiation The extent of a product’s perceived uniqueness

Capital requirements Required investment for manufacturing, R&D,

advertising, field sales and service, etc.

Switching costs Costs related to making a change in suppliers or

products

Barriers to Entry (cont.) Distribution channels

Are there current distribution channels available with capacity

Government policy Are there regulations in place that restrict

competitive entry?

Cost advantages Access to raw materials, large pool of low-cost labor,

favorable locations, and government subsidies

Competitor response How will the market react in anticipation of increased

competition within a given market

Threat of Substitute Products

Availability of substitute products places limits on the prices market leaders can charge

High prices induce buyers to switch to the substitute

Bargaining Power of Buyers

Buyers seek to pay the lowest possible price

Buyers have leverage over suppliers when They purchase in large quantities (enhances

supplier dependence on buyer) Suppliers’ products are commodities Product represents significant portion of buyer’s

costs Buyer is willing and able to achieve backward

integration

Bargaining Power of Buyers (cont.)

“We do not quibble or argue with anyone’s right to sing what they

want, to print what they want, and say what they want.

But we reserve the right to sell what we want.”

Wal-Mart’s response to the accusation of using its financial power to dictate what is appropriate music and art

Bargaining Power of Suppliers

When suppliers have leverage, they can raise prices high enough to affect the profitability of their customers

Leverage accrues when; Suppliers are large and few in number Supplier’s products are critical inputs, are highly

differentiated, or carry switching costs Few substitutes exist Suppliers are willing and able to sell product

themselves

Rivalry among Competitors

Refers to all actions taken by firms in the industry to improve their positions and gain advantage over each other

Price competition Advertising battles Product positioning Differentiation

Identifying Competitors

Company’s actual and potential competitors

A company is more likely to be hurt by emerging competitors or new technologies

“Competitor myopia” ğ a focus on current competitors rather than latent ones

Competition from both “industry” and “marketing” point of views

Identifying Competitors: Industry Concept of Competition

An Industry ğ group of firms that offer a product or class of products that are close substitutes for each other

Industries are classified according to: Number of sellers - Degree of differentiaiton, Presence or absence of entry, mobility, and

exit barriers, Cost Structure, Degree of Vertical Integration, Degree of Globalization

Industry Concept of Competition (cont.)

Types of industry structure:

Pure monopoly ğ only one firm provides a product in a certain area or country

Oligopoly ğ a small number of large firms produce products that range from highly differentiated to standardized pure oligopoly -- the same commodity

Monopolistic competition ğ many competitors able to differentiate their offers

Pure competition ğ offering the same product (no basis for differentiation; prices will be similar)

Industry Concept of Competition (cont.)

Major entry barriers: high capital requirements economies of scale, patents and licensing

requirements, scarce locations, raw materials, or

distributors

Major exit barriers: legal or moral obligations to

customers/employees, government restrictions, emotional barriers

Identifying Competitors: Market Concept of Competition

The industry approach ğ looking at companies making the same product

The market approach ğ looking at companies that satisfy the same customer need gives the opportunity to define a broader

set of actual and potential competitors & enables the company to make long run strategic planning

The key to identify competitors ğ to link industry and market concepts of competition

Market Concept of CompetitionCompetitor Map – Eastman Kodak

Analyzing Competitors

CompetitorActions

Objectives

Strengths &Weaknesses

ReactionPatterns

Strategies

LowHigh

Vertical Integration

Analyzing Competitors:Strategic Groups in a Major Appliance Industry

Group A• Narrow line• Lower mfg. cost• Very high service• High price

Group D• Broad line• Medium mfg. cost• Low service• Low price

Group C• Moderate line• Medium mfg. cost• Medium service• Medium price

Group B• Full line• Low mfg. cost• Good service• Medium price

Analyzing Competitors:Competitor’s Expansion Plans

Analyzing Competitors:Strenghts & Weaknesses

Collecting information on each competitor’s business: data on sales, mkt share, profit margin, ROI, new investments, capacity utilization, etc.

By using the info. gathered ğ the company will decide whom to attack in the marketplace

Analyzing Competitors

3 variables to monitor when analyzing competitors:

Market share ğ competitor’s share of the target market

Mind share ğ the percentage of customers who named the competitor in responding to the statement “Name the first company that comes to mind in this industry.”

Heart share ğ the percentage of customers who named the competitor in responding to the statement “Name the first company from which you would prefer to buy the product.”

Designing Competitive Intelligence System

1. Setting Up the System2. Collecting the Data

Salesforce, marketing channels, suppliers, MR firms, trade assoc.

Observing competitors Published data Online services

3. Evaluating and Analyzing the Data4. Disseminating Information and

Responding

Selecting Competitors Major Steps in Customer Value Analysis

Identify the major attributes customers value Assess the quantitative importance of the

different attributes Assess the company’s and competitors’

performance on the different customer values against their rated importance

Examine how customers rate the company’s performance against a specific major competitor on an attribute-by-attribute basis

Monitor customer values over time

Designing Competitive Strategies: Hypothetical Market Structure & Strategies

Marketleader

Marketchallenger

Marketfollower

Expand MarketDefend Market Share

Expand Market Share

Attack leaderStatus quo

Imitate

Marketnicher

Specialize

1. Expanding the Total Market New Users

Market-penetration strategy New-market segment strategy Geographical-expansion strategy

New Uses More Usage

2. Defending Market Share

3. Expanding Market Share

Market-Leader Strategies

Market-Leader Strategies:Defense Strategies

Market-Leader Strategies:Expanding Market Share

Market-Challenger Strategies

Defining the Strategic Objective and Opponent(s) It can attack the market leader It can attack firms of its own size that are not

doing the job and are underfinanced It can attack small local and regional firms

Choosing a General Attack Strategy

Market-Challenger Strategies: Attack Strategies

Specific Attack Strategies

Price-discount Lower price goods Prestige goods Product proliferation Product innovation Improved services Distribution innovation Manufacturing cost reduction Intensive advertising promotion

Market-Follower Strategies

Product imitation Product imitation vs. product innovation

4 broad strategies: Counterfeiter Cloner Imitator Adapter

Market-Nicher Strategies

End-user specialist Value-added reseller

Vertical-level specialist Customer-size specialist Specific-customer specialist Geographic specialist

Product or product-line specialist

Product-feature specialist Job-shop specialist Quality-price specialist Service specialist Channel specialist

Nicher Specialist Roles:

Balance to be “market-driven”!

CompetitionCustomer

+ Fighter orientation+ Constant Alert+ Exploit weaknesses- Too Reactive

+ Identify opp.+ Long-run profit+ Emerging needs & groups

Marketing Management

older married

newly married

belief descriptive

marketing

persons consistently

abc airlines

make phone

expanding

Business

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