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MGT301 - Principles of Marketing - Lecture Handout 44

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Learning objectives:

After reading this handout you will be able to learn the following areas.



Marketing involves having the right product available in the right place at the right time and making sure that the customer is aware of the product.

Marketing is part of all of our lives and touches us in some way every day. To be successful each company that deals with customers on a daily basis must not only be customer-driven, but customer-obsessed. The best way to achieve this objective is to develop a sound marketing function within the organization. Marketing is defined as “a social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging
products and value with others.” Marketing is a key factor in business success. The marketing function not only deals with the production and distribution of products and services, but it also is concerned with the ethical and social responsibility functions found in the domestic and global environment. Marketers must also be aware of customer value and customer satisfaction and make these concepts a central part of the firm’s strategic plan. Marketing must also be aware of and respond to change. Four of the greatest changes that have had an impact on the way companies bring value to their customers are the explosive growth of the computer, the Internet, telecommunications, and information technology. Marketing and its core concepts, the exchange relationship, the major philosophies of marketing thought and practice, customer relationship management

What is Marketing?

  1. Creating customer value and satisfaction are at the very heart of modern marketing thinking and practice.
  2. A very simple definition of marketing is managing profitable customer relationships.
    • The twofold goal of marketing is to attract new customers by promising superior value and to keep and grow current customers by delivering satisfaction.
    • Sound marketing is critical to the success of every organization.
  3. You already know a lot about marketing—it’s all around you.

D. Simple Marketing System

  1. Producer/ seller
  2. Consumer
  3. Communication
  4. Product/ service
  5. Money
  6. Feedback

Participants in a simple marketing system:

  1. Producer/ seller
  2. Consumer
  3. Communication
  4. Product/ service
  5. Money
  6. Feedback

Simple Marketing System

E. Core Marketing Concepts

  1. Needs, wants, and demands
  2. Products and Services
  3. Value, satisfaction, and quality
  4. Exchange, transactions, and relationships
  5. Markets

Core Marketing Concepts

1. Needs, wants, and demands Needs:

Human needs are the most basic concept underlying marketing. A human need is a state of felt deprivation.

  1. Humans have many complex needs.
    • Basic, physical needs for food, clothing, warmth, and safety.
    • Social needs for belonging and affection.
    • Individual needs for knowledge and self-expression.
  2. These needs are part of the basic human makeup.

Demands: Another concept in marketing is human wants. A human want is the form that a human need takes as shaped by culture and individual personality.

Demands: are human wants that are backed by buying power.

Consumers view products as bundles of benefits and choose products that give them the best bundle for their money. Outstanding marketing companies go to great lengths to learn about and understand their customer’s needs, wants, and demands.

2. Products and Services

Marketing Offers—Products, Services, and Experiences

Companies address needs by putting forth a value proposition, a set of benefits that they promise to consumers to satisfy their needs.

  1. The value proposition is fulfilled through a marketing offer—some combination of products, services, information, or experiences offered to a market to satisfy a need or want.
  2. The concept of product is not limited to physical objects and can include experiences, persons, places, organizations, information, and ideas.
  3. Be careful of paying attention to the product and not the benefit being satisfied.
  4. “Marketing myopia” is caused by shortsightedness or losing sight of underlying customer needs by only focusing on existing wants.
  5. Smart marketers create brand meaning and brand experiences for consumers.

3. Value, satisfaction

Customer value: is the difference between the values that the customer gains from owning and using a product and the costs of obtaining the product. Customers form expectations about the value of various marketing offers and buy accordingly.
Customer satisfaction: depends on a product’s perceived performance in delivering value relative to a buyer’s expectations. Customer satisfaction is a key influence on future buying behavior.

  1. Marketers must be careful to set the right level of expectations.
  2. Customer value and customer satisfaction are key building blocks for developing and managing customer relationships.

4. Exchange, transactions, and relationships

Marketing occurs when people decide to satisfy needs and wants through exchange. Exchange is the act of obtaining a desired object from someone by offering something in return. Whereas exchange is a core concept of marketing, a transaction (a trade of values between two parties) is marketing’s unit of measurement. Most involve money, a response, and action. Marketing consists of actions taken to build and maintain desirable exchange relationships with target audiences involving a product, service, idea, or other object.

5. Markets

The concepts of exchange and relationships lead to the concept of a market. A market is the set of actual and potential buyers of a product.

  1. originally a “market” was a place where buyers and sellers gathered to exchange goods (such as a village square).
  2. Economists use the term to designate a collection of buyers and sellers who transact in a particular product class (as in the grain or housing market).
  3. Marketers see buyers as constituting a market and sellers constituting an industry.
  4. Marketers are keenly interested in markets.

F. Customer Relationship Management

Customer relationship management (CRM) has been defined narrowly as a customer database management activity.
Customer relationship management. “is the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction?”

  1. Today, customer relationship management is seen as the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction.
  2. Traditional marketing practices focused on attracting new customers rather than retaining existing ones. The move today, however, is toward building long-term relationships with customers and other stakeholders.

G. Marketing Philosophies

There are five alternative concepts under which organizations conduct their marketing activities:
the production, product, selling, marketing, and societal marketing concepts.

The Production Concept

The production concept holds that consumers will favor products that are available and highly affordable and that management should, therefore, focus on improving production and distribution efficiency. This is one of the oldest philosophies that guide sellers.
The production concept is useful when:

  1. Demand for a product exceeds the supply.
  2. The product’s cost is too high and improved productivity is needed to bring it down.

The risk with this concept is in focusing too narrowly on company operations. Do not ignore the desires of the market. This concept can lead to “marketing myopia.”

The Product Concept

The product concept states that consumers will favor products that offer the most quality, performance, and features, and that the organization should, therefore, devote its energy to making continuous product improvements.

  1. some manufacturers mistakenly believe that if they “build a better mousetrap,” Consumers will beat a path to their door just for their product.
  2. the product concept can also lead to “marketing myopia,” the failure to see the challenges being presented by other products.

The Selling Concept

Many organizations follow the selling concept. The selling concept is the idea that consumers will not buy enough of the organization’s products unless the organization undertakes a largescale selling and promotion effort.

  1. this concept is typically practiced with unsought goods (those that buyers do not normally think of buying).
  2. to be successful with this concept, the organization must be good at tracking down the interested buyer and selling them on the product benefits.
  3. Industries that use this concept usually have overcapacity. Their aim is to sell what they make rather than make what will sell in the market.
  4. There are not only high risks with this approach but low satisfaction by customers.

The Marketing Concept

The marketing concept holds that achieving organizational goals depends on determining the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitors do.
Under the marketing concept, customer focus and value are paths to sales and profits. The marketing and selling concepts are often confused. The primary differences are:

  1. The selling concept takes an “inside-out” perspective (focuses on existing products and uses heavy promotion and selling efforts).
  2. The marketing concept takes an “outside-in” perspective (focuses on customer needs, values, and satisfactions).

Many companies claim to adopt the marketing concept but really do not unless they commit to market-focused and customer-driven philosophies.

  1. Customer-driven companies research current customers to learn about their desires, gather new product and service ideas, and test proposed product improvements.
  2. Such customer-driven marketing usually works well in a situation of clear need and when customers know what they want.
  3. When customers do not know what they want, marketers can try customer-driving marketing—understanding customer needs even better than customers themselves do, and creating products and services that will meet existing and latent needs now and in the future.

The Societal Marketing Concept

The societal marketing concept holds that the organization should determine the needs, wants, and interests of target markets. It should then deliver the desired satisfactions more effectively and efficiently than competitors in a way that maintains or improves the consumer’s and the society’s well-being.

  1. The societal marketing concept is the newest of the marketing philosophies.
  2. It questions whether the pure marketing concept is adequate given the wide variety of societal problems and ills.
  3. According to the societal marketing concept, the pure marketing concept overlooks possible conflicts between short-run consumer wants and long- run consumer welfare.
  4. The societal concept calls upon marketers to balance three considerations in setting their marketing policies:
    • Company profits.
    • Customer wants.
    • Society’s interests.
  5. It has become good business to consider and think of society’s interests when the organization makes marketing decisions.

H. Boston Consulting Group

Boston Consulting Group

Using the matrix, four types of SBUs can be identified:

  1. Stars are highgrowth, high-share businesses or products (they need heavy investment to finance their rapid growth potential).
  2. Cash Cows are low-growth, highshare businesses or products (they are established, successful, and need less investment to hold share).
  3. Question Marks are low-share business units in high-growth markets (they require a lot of cash to hold their share).
  4. Dogs are low-growth, low-share businesses and products (they may generate enough cash to maintain them, but do not have much future).

I. Product/Market Expansion Grid

Market Expansion Grid

Companies should always be looking to the future. One useful device for identifying growth opportunities for the future is the product/market expansion grid. The product/market expansion grid is a portfolioplanning tool for identifying company growth opportunities through:

  1. Market Penetration—making more sales to present customers without changing products in any way (example,
    adding more stores).
  2. Market Development—a strategy for company growth by identifying a developing new markets for current company products (example, demographic and geographical markets).
  3. Product Development—a strategy for company growth by offering modified or new products to current markets.
  4. Diversification—a strategy for company growth by starting up or acquiring businesses outside the company’s current products and markets.

J. Marketing Process

Once the strategic plan has defined the company’s overall mission and objectives, Marketing plays a role in carrying out these objectives. The marketing process is the process of analyzing market opportunities, selecting target markets, developing the marketing mix, and managing the marketing effort. Target customers stand at the center of the marketing process. The goal is to make strong and profitable connections with these customers.

K. Marketing Environment

In order to correctly identify opportunities and monitor threats, the company must begin with a thorough understanding of the marketing environment in which the firm operates. The marketing environment consists of all the actors and forces outside marketing that affect the marketing management’s ability to develop and maintain successful relationships with its target customers. Though these factors and forces may vary depending on the specific company and industrial group, they can generally be divided into broad micro-environmental and macro-environmental components. For most companies, the micro-environmental components are: the company, suppliers, marketing channel firms (intermediaries), customer markets, competitors, and publics. The macro-environmental components are thought to be: demographic, economic, natural, technological, political, and cultural forces. The wise marketing manager knows that he or she cannot always affect environmental forces. Smart managers can take a proactive, rather than reactive, approach to the marketing environment.
As a company’s marketing management collects and processes data on these environments, it must be ever vigilant in its efforts to apply what it learns to developing opportunities and dealing with threats. Studies have shown that excellent companies not only have a keen sense of customer but an appreciation of the environmental forces swirling around them. By constantly looking at the dynamic changes that are occurring in the aforementioned environments, companies are better prepared to adapt to change, prepare long-range strategy, meet the needs of today’s and tomorrow’s customers, and compete with the intense competition present in the global marketplace.

L. Marketing Information System and Marketing Research

In carrying out their marketing responsibilities, marketing managers need a great deal of information. “Information is power” is a legitimate statement. Despite the importance and growing supply of information, managers often lack enough information of the right kind or have too much of the wrong kind to make the critical decisions necessary to be successful in our highly competitive global marketplace. Most marketing managers don’t need more information, they need better information. To overcome these problems, many companies are taking steps to improve their marketing information systems. A commitment to an information system is not just a technological commitment but a corporate culture commitment as well.
A well-designed marketing information system (MIS) first assesses information needs. The MIS next develops needed information (generally from internal company data, marketing intelligence activities, marketing research, and information analysis procedures and sources). Finally, the MIS distributes information to managers in the right form at the right time to help them make better marketing decisions. Once the system is in place and functioning, decision-making becomes easier and better. Few firms with efficient information systems fail in the marketplace.
Marketing research, which is one of the components of an information system, involves collecting information relevant to a specific marketing problem facing the company. The marketing research process consists of four steps: defining the problem and research objectives, developing the research plan, implementing the research plan, and interpreting and reporting the findings. In addition to traditional sources of information that can now be used for marketing research, online databases and Internet data sources are becoming more important to the marketing research process.

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

  1. Every marketer needs research.
  2. Marketing research can be done by an internal department or it can be done by an outside firm. The marketing research process consists of four steps: defining the problem and research objectives, developing the research plan, implementing the research plan, and interpreting and reporting the findings.

Step 1—Problem Definition and the Research Objectives
Step 2— Developing the Research Plan
Step 3 — Implementation
Step 4— Interpretation and Reporting of Findings

M. Consumer Buying Behavior

Markets (and those which they serve) have to be understood before marketing strategies can be developed. The consumer market buys goods and services for personal consumption. With respect to the individuals in the consumer market, the behavior of the consumer is influenced by the buyer’s decision process. Buyer characteristics include four major factors: cultural, social, personal, and psychological. Each of these factors is explored in detail. Relationships are drawn between the factors (and factor subparts) and the consumption purchases made by consumers. Because many of these factors are deep and long lasting in their effect, the marketing manager should pay special attention to acquiring information about them with respect to the organization’s target markets. Decisions vary based on the degree of buyer involvement and the degree of differences among brands. For new products, special situations affect the consumer choice decision. It has been found that consumers respond at different rates (depending on consumer and product characteristics), gain knowledge about the products in different ways, and become aware of “newness” with varying rates of consideration. Factors that speed the rate of adoption of new products are covered and explained. Understanding consumer behavior is difficult enough for companies marketing within the borders of a single country. The problem is compounded when a firm attempts to market in the global environment.

Consumer Black Box

Consumer Black Box

  1. Consumers make many buying decisions every day.
  2. A model of consumer behavior helps managers answer questions about what consumers buy, where they buy,how and how much they buy, when they buy, and why they buy.
    • Learning about the what, where, when, and how much is fairly easy.
    • Learning about the “why” is much more difficult.
  3. The central question is: How do consumers respond to various marketing efforts the company might use.
  4. The stimulus-response model of buyer behavior shows that marketing (made up of the four P’s—product, price, place, and promotion) and other stimuli (such as the economic, technological, political, and cultural environments) center on the consumer’s “black box” and produce certain responses.
  5. Marketers must figure out what is “in” the consumer’s “black box.”
  6. The “black box” has two parts.
    • The buyer’s characteristics influence how he or she perceive and react to stimuli.
    • The buyer’s decision process itself affects the buyer’s behavior.

N. Market Segmentation

Market Segmentation: “Dividing a market into distinct groups with distinct needs, characteristics, or behavior who might require separate products or marketing mixes”. Market segmentation provides a method to divide or segment the market into narrow segments (using a variety of different meaningful variables—these variables or bases are discussed at length in the chapter) that can be better reached with the resources of the marketer. Market targeting examines each of the designated segment’s attractiveness and chooses one or more that match the marketing desires and objectives of the organization. Various coverage strategies are explained and detailed.
The concept of market positioning arranges for a product to occupy a clear, distinctive, and desirable place relative to competition. Various methods for achieving significant differentiation are explained and illustrated. The above three steps aid the marketer in effectively arranging the company’s marketing mix so that the likelihood of consumer response and competitive advantage is maximized by the organization.

Segmentation Variables

  • Geographical segmentation
  • Demographic segmentation
  • Psychographic segmentation
  • Behavioral segmentation

Requirements for Effective Segmentation

Requirements for Effective Segmentation

Product & services

Product is a complex concept that must be carefully defined. As the first of the four marketing mix variables, it is often where strategic planning begins. Product strategy calls for making coordinated decisions on individual products, product lines, and the product mix. Products and services can be thought of as occupying three levels: the core product, the actual product, and the augmented product. Consumer products are usually classified according to how consumers buy them (convenience, shopping, specialty, or unsought products). Industrial goods are classified according to whether materials and parts, capital items, and supplies and services are produced. The primary difference between industrial and consumer goods is the purpose for which the product is bought.

In addition to tangible products and services, in recent years marketers have broadened the concept of a product to include other “marketable entities”—namely, organizations, persons, places, and ideas. Whether an organization is classed as profit or nonprofit, marketing has a role to play in the entity. Political candidates and sports figures are perhaps the best examples of how important marketing is to person marketing. With the growth of tourism marketing, many states, nations, and attractions have learned how to market themselves effectively. Lastly, idea marketing (primarily social marketing issues) has gained in popularity in the latter part of this century. Those that study trends in marketing believe that all of the above areas will continue to grow and expand in the years ahead.

Companies have to develop strategies for the items in their product lines. They must decide on product attributes, branding, packaging, labeling, and product support services. Each of these areas is explained so that the individual product decision is seen as a sequence of planned events. Most companies produce a product line rather than a single product. Product line and product mix decisions are critical to the success of the product in a competitive environment. The product mix describes the set of product lines and items offered to customers by a particular seller. Product lines must be managed carefully. One way to do this is to examine how to stretch and fill lines. The product mix is described by its width, length, depth, and consistency. Each of these tools helps the planner to properly view the product so it can achieve competitive superiority and better product strategy.

The twenty-first century may well indeed be the century of the brand. There has been renewed interest in the concept of brand equity (the positive differential effect that knowing the brand name has on customer response to the product or service). Solid brands counter cynical consumers. Managing brand is an art that must be mastered by the successful marketer. This art is increasingly difficult and complicated with the emergence of strong global brands and increasing
competition for consumer dollars. In reality, a brand’s position will not take hold fully unless everyone in the company lives the brand.

Services (although many times mentioned in the same breath as product) are different from products. Because the United States has become a service economy, it is very important that the marketer understand the strategies associated with the delivery of services. The characteristics of services (intangibility, inseparability, variability, and perish-ability) are examined and detailed. The ability to differentiate and produce high quality services is a must for the services marketer. Today, successful companies focus on the creation of service-profit chains. To make these chains work, a company may have to undertake internal and interactive marketing. Service productivity is as important as manufacturing productivity.

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