Foundations in Business: Chapter 11

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 long-term benefit most businesses seek from marketing is long-term profitability

The ability of goods and services to satisfy consumer wants
Form Utility
Satisfies wants by converting inputs into a finished form. Clearly, the vast majority of products provide some kind of form utility.
—For Example: Jamba Juice blends fruit, frozen yogurt, sherbet, and juice into delicious smoothies, and UGG Australia stretches, treats, and sews sheepskins and wool into comfortable stylish boots.
Time Utility
Satisfies wants by providing goods and services at a convenient time for customers.
—For Example: FedEx offers evening and Saturday residential delivery times, many dry cleaners offer one-hour service, 24 hour fitness is virtually always open, and most fast-food restaurants offer 24-hour drive-through windows.
Place Utility
Satisfies wants by providing goods and services at a convenient place for customers.
—For Example: ATM’s offer banking services in many large supermarkets, Motel 6 offers budget lodging at the bottom of many freeway off ramps, and vending machines refuel tired students on virtually every college campus.
Ownership Utility
Satisfies wants by smoothly transferring ownership of goods and services from seller to buyer. Virtually every product provides some degree of ownership utility.
—Apple, for example, has created a hassle-free purchase process that customers can follow by phone, by computer, and in person. And many car dealerships offer financing options.
People Marketing
Sports, politics, and art dominate this category, but even some business people merit mentioning.
Place Marketing
This category involves drawing people to a particular place. Cities and states use place marketing to attract businesses. But more visibly, cities, states, and nations use place marketing to attract tourists.
“What happens in Vegas, stays in Vegas”
Event Marketing
This category includes marketing–or sponsoring–athletic, cultural, or charitable events. Partnerships between the public and private sectors are increasingly common.
—Examples include the Olympics, the Super Bowl, and NBC’s 2012 benefit telethon concert to benefit the victims of Hurricane Sandy.
Idea Marketing
A whole range of public and private organizations market ideas that are meant to change how people think or act.
—Recycle, don’t drink and drive, buckle your seat belt, support our political party, donate blood, and don’t smoke are all good examples of popular causes.

—Often, idea marketing and event marketing are combined, as we see in the annual Avon Walk for Breast Cancer. The planners actively market the idea of annual mammograms, as they solicit contributions for breast cancer research and participation in the event itself.

Production Era
Marketing didn’t always begin with the customer. In fact, in the early 1900’s, the customer was practically a joke. Henry Ford summed up the prevailing mindset when he said “You can have your Model T in any color you want as long as it’s black.” This attitude made sense from a historical perspective, since consumers didn’t have the overwhelming number of choices that are currently available; most products were purchased as soon as they were produced and distributed to consumers. In this context, the top business priority was to produce large quantities of goods as efficiently as possible.
Selling Era
By the 1920’s, production capacity had increased dramatically. For the first time, supply in many categories exceeded demand, which caused the emergence of hard sell. The selling focus gained momentum in the 1930’s and 1940’s, when the Depression and World War II made consumers even more reluctant to part with their limited money.
Marketing Era
The landscape changed dramatically in the 1950’s. Many factories that had churned out military supplies converted to consumer production, flooding the market with choices in virtually every product category. An era of relative peace and prosperity emerged–as soldiers returned form World War II–marriage and birthrates soared.
To compete for the consumer’s dollar, marketers attempted to provide goods and services that met customer needs better than anything else on the market—> As a result, the *marketing concept* materialized in the 1950’s.
Marketing Concept
The marketing concept is a philosophy that makes customer satisfaction—now and in the future—the central focus of the entire organization.
Companies that embrace this philosophy strive to delight customers, integrating this goal into all business activities.
—This marketing concept holds that delivering unmatched value to customers is the only effective way to achieve long-term profitability.
Relationship Era
The marketing concept has gathered momentum across the economy, leading to the current era, unfolding over the last decade, which zeros in on long-term customer relationships. Acquiring a new customer can cost five times more than keeping an existing customer.
Retaining your current customers—and getting them to spend additional dollars—is clearly cost-effective—> Moreover, satisfied customers can develop into advocates for your business, becoming powerful generators of positive “word-of-mouth”
Customer Relationship Management
[CRM]: The ongoing process of acquiring, maintaining, and growing profitable customer relationships by delivering unmatched value.
—The centerpiece of successful, twenty-first century marketing. CRM works best when marketers combine marketing communication with one-on-one personalization.

(Amazon is a champion player at CRM, greeting customers by name, recommending specific products, and providing streamlined checkout)

Clearly, information is an integral part of this process.. —> you can’t simply do CRM without collecting, managing, and applying the right data at the right time for the right person

Limited Relationships
The scope of your relationships will depend not just on the data you gather but also on your industry.

Colgate-Palmolive, for example, can’t forge a close personal bond with every person who buys a bar of Irish Spring soap. However, the company does invite customers to call its toll-free line with questions or comments, and it maintains a vibrant website with music, an e-newsletter, special offers, and an invitation to contact the company. You can bet that the company actively gathers data and pursues a connection with customers who initiate contact.

Full Partnerships
If you have a high-ticket product and a smaller customer base, you’re much more likely to pursue a full partnership with each of your key clients.

Colgate-Palmolive, for instance, has dedicated to customer service teams working with key accounts such as Walmart and Costco. With a full partnership, the marketer gathers and leverages extensive information about each customer and often includes the customer in key aspects of the product development process.

A customer perception that a product has a better relationship than its competitors between the cost and the benefits.
—By this definition, low cost does not always mean high value. In fact, a recent survey suggests that loyal customers are often willing to pay more for their products rather than switch to lower-cost competitors.

(Apple provides a clear example)

Customer Satisfaction
When customers perceive that a good or service delivers value above and beyond their expectations.

Can be tricky—>less savvy marketers frequently fall into one of the two traps:
—The first trap is over promising. Even if you deliver more value than anyone else, your customers will be disappointed if your product falls short of overly high expectations.
—The second trap is under promising. If you don’t set expectations high enough, too few customers will be willing to try your product. Result will be a tiny base of highly satisfied customers, which isn’t enough to sustain a business.

Customer Loyalty
This is the payoff for delivering value and generating satisfaction.
When customers buy a product from the same supplier again and again—sometimes paying even more for it than they would for a competitive product.
-They forgive your mistakes
-They provide valuable feedback
-They may require less service
-They refer their friends
Moreover, studying your loyal customers can give you a competitive edge for acquiring new ones, since people with a similar profile would likely be a great fit for your products.
Marketing Plan
A formal document that defines marketing objectives and the specific strategies for achieving those objectives.
Can answer the question: Who is your target audience, and how will you reach them?

—The first step in panning your marketing strategy should be to determine where to target your efforts. Who are those people who are most likely to buy your products? The first step is *marketing segmentation*

Marketing Segmentation
Dividing your marketing/potential customers into groups of people , or segments, that are similar to one another and different from everyone else. One or more of these segments will be your target market.
—Once you’ve identified your target market, your next step is to determine how you can best use marketing tools to reach them.
—And finally, you need to anticipate and respond to changes in the external environment.

This section will define target market, explain market segmentation, introduce the marketing mix, and review the key factors in the marketing environment—>Taken together, these elements will shape an effective marketing strategy.
—The marketer creates the marketing mix but responds to the marketing environment with a single-minded focus on the target market.

Target Market
The group of people who are most likely to buy a particular product—> This is where you should concentrate your marketing efforts.

A well-chosen target market embodies the following characteristics:
*Size*: There must be enough people in your target group to support a business
*Profitability*: The people must be willing and able to spend more than the cost of producing and marketing your product
*Accessibility*: Your target must be reachable through channels that your business can afford
*Limited Competition*: Look for markets with limited competition; a crowded market is much tougher to crack

Consumer Marketers (B2C)
Direct their efforts to people who are buying products for personal consumption (granola bars, toothpaste, and clothing)
Business Marketers (B2B)
Direct their efforts to customers who are buying products to use either directly or indirectly to produce other products (lumber, insulation, and robots)
Consumer Market Segmentation
Choosing the best target market (or markets) for your product begins with dividing your market into segments, or groups of people who have similar characteristics. But people can be similar in a number of different ways, so, not surprisingly, marketers have several options for segmenting potential customers:
Demographic Segmentation (B2C)
Dividing the market into smaller groups based on measurable characteristics about people, such as age, income, ethnicity, and gender.
Demographics are a vital starting point for most marketers. Chapstick, for instance, targets young women with the Shimmer version of its lip balm, and Chevy Camaro targets young men with money.

Sometimes the demographic makeup of a given market is tough to discern; African American artists, for instance, create the bulk of rap music, yet Caucasian suburban males form the bulk of the rap music market.

Geographic Segmentation (B2C)
Dividing the market into smaller groups based on where consumers live. This process can incorporate countries, cities, or population density as key factors.

—For instance, Ford Expedition does not concentrate on European markets, where tiny, winding streets and nonexistent parking are common in many cities. Cosmetic surgeons tend to market their services more heavily in urban rather than rural areas. And finding the perfect surfboard is easy in Hawaii but more challenging in South Dakota

Psychographic (B2C)
Dividing the market into smaller groups based on consumer attitudes, interests, values, and lifestyles.

—Toyota Prius, for instance, targets consumers who care about protecting the environment. A number of companies have found a highly profitable niche providing upscale wilderness experiences for people who seek all the pleasure with none of the pain. Both magazine racks and the Internet are filled with products geared toward pschographic segments, including adventure travel sites, Adventure, shoe-selling mega site, and business and financial powerhouse

NOTE: Marketers typically use psychographics to complement other segmentation approaches rather than to provide the core definition

Behavioral Segmentation (B2C)
Dividing the market based on how people behave towards various products. This category includes both the benefits that consumers seek from products and how consumers use the products.

—The Neutrogena Corporation, for example, built a hair care business by targeting consumers who wanted an occasional break from their favorite shampoo. Countless products such as Miller Lite actively target the low-carbohydrate consumer.
—But perhaps the most common type of behavioral segmentation is based on usage patterns—>Fast-food restaurants, for instance, actively target heavy users (who, ironically, tend to be slender): young men in their 20’s and 30’s. This group consumes about 17% of their total calories from fast food, compared to 12% for adults in general.

Understanding the usage patterns of your customer base gives you the option of either focusing on your core users or trying to pull light users into your core market.

Business Market Segmentation
(B2B): B2B marketers typically follow a similar process in segmenting their markets, but they use slightly different categories:
Geographic Segmentation (B2B)
Refers to dividing the market based on the concentration of customers.
Many industries tend to be highly clustered in certain areas, such as technology in California, and auto suppliers in the “auto corridor” that stretches south from Michigan to Tennessee.
—Geographic segmentation, of course, is especially common on an international basis, where variables such as language, culture, income, and regulatory differences can play crucial roles.
Customer-Based Segmentation (B2B)
Dividing the market based on the characteristics of customers. This approach includes a range of possibilities—>Some B2B marketers segment based on customer size. Others segment based on customer type.
—Johnson & Johnson, for example, has a group of salespeople dedicated exclusively to retail accounts such as Target and Publix, while other salespeople focus solely on motivating doctors to recommend their products.
—Other potential B2B markets include institutions–schools and hospitals, for instance, are key segments for Heinz Ketchup– and the government.
Product-Use-Based Segmentation (B2B)
Dividing the market based on how customers will use the product. Small and mid-sized companies find this strategy especially helpful in narrowing their target markets.
Possibilities include: the ability to support certain software packages or production systems, or the desire to serve certain customer groups, such as long-distance truckers or restaurants that deliver food.
The Marketing Mix
Once you’ve defined your target market, your next challenge is to develop compelling strategies for product, price, distribution, and promotion. The blending of these elements becomes your marketing mix.
Production Strategy
Your product involves far more than simply a tangible good or a specific service. Product strategy decisions range from brand name, to product image, to package design, to customer service, to guarantees, to new product development, and more.
—Designing the best product clearly begins with understanding the needs of your target market—
Pricing Strategy
Pricing is a challenging area of the marketing mix. To deliver customer value, your prices must be fair, relative to the benefits of your product.
—Other factors include competition, regulation, and public opinion. Your product category plays a critical role as well—>A low-cost desk, for instance, might be appealing, but who would want discount-priced knee surgery?
Distribution Strategy
The goal is to deliver your product to the right people, in the right time, in the right place. The key decisions include shipping, warehousing, and selling outlets (the Web versus network marketing versus brick-and-mortar stores)
—The implications of these decisions for product image and customer satisfaction can be significant—
Promotion Strategy
Promotion includes all of the ways that marketers communicate about their products. The list of possibilities is long and growing, especially as the Internet continues to evolve at breakneck speed.

—Key elements today include advertising, personal selling, sales promotion, public relations, word-of-mouth, and product placement. Successful promotional strategies typically evolve in response to both customer needs and competition. A number of innovative companies are even inviting their customers to participate in creating their advertisement through venues such as YouTube—

Love, passion, warmth, food, excitement, action, danger, need to stop
Power, trustworthiness, calm, success, seriousness, boredom
Money, nature, health, healing, decay, illness
Playfulness, affordability, youth, fun, low quality, cheap
Royalty, luxury, dignity, spirituality, nightmares, craziness
Sophistication, elegance, seriousness, sexuality, mystery, evil
The Marketing Environment
While marketers actively influence the elements of the marketing mix, they must anticipate and respond to the elements of the external environment, which they typically cannot control.
The key elements of the external environment include the following components:
Environmental Scanning
A key tool; the goal is simply to continually collect information from sources that range from informal networks, to industry newsletters, to the general press, to customers, to suppliers, to the competition, among others.
—The process of continually collecting information form the external marketing environment—
The dynamic competitive environment probably affects marketers on a day-to-day basis more than any other element. Understanding the competitive environment often begins with analysis of *market share, or the percentage of the marketplace that each firm controls*

—To avoid ambushes, and to uncover new opportunities, you must continually monitor how both dominant and emerging competitors handle each element of their marketing mix. And don’t forget indirect competitors, who meet the same consumer needs as you but with a completely different product (Altoids vs. Scope)—

The only certainty in the economic environment is change, but the timing of expansions and contractions is virtually impossible to predict.

—Your goal as a marketer is to identify and respond to changes as soon as possible, keeping in mind that a sharp eye sees opportunity even in economic downturns. For instance, affordable luxuries and do-it-yourself enterprises can thrive during recessions—

This element covers a vast array of factors, including lifestyle, customs, language, attitudes, interests, and population shifts. Trends can change rapidly, with a dramatic impact on marketing decisions.
—Anticipating and responding to trends can be especially important industries such as entertainment, fashion, and technology—
Changes in technology can be very visible to consumers (the introduction o the iPhone)
However, technology often affects marketers in ways that are less directly visible.
—For example, technology allows mass customization of Levi’s blue jeans at a reasonable price and facilitates just-in-time inventory management for countless companies that see the results in their bottom lines—
This area includes laws, regulation, and political climate. Most of the U.S. laws and regulations are clear (those declaring dry countries in certain states), but others are complex and evolving (qualifications for certain tax breaks).
—Political climate includes changing levels of governmental support for various business categories. Clearly, the political/legal issues affect heavily regulated sectors (telecommunications and pharmaceuticals) more than others—
Consumer Behavior
Description of how people act when they are buying, using, and discarding goods and services for their own personal consumption. Consumer behavior also explores the reasons behind people’s actions.
Elements that Influence the Consumer Decision-Making Process
Cultural Influence
Culture: The values, attitudes, and customs shared by members of a society

Subculture: A smaller division of the broader culture

Social Class: Societal position driven largely by income and occupation

Social Influence
Family: A powerful force in consumption choices

Friends: Another powerful force, especially for high-profile purchases

Reference Groups: Groups that give consumers a point of comparison

Personal Influence
Demographics: Measurable characteristics such as age, gender, or income

Personality: The mix of traits that determines who you are

Motivation: Pressing needs that tend to generate action

Attitudes: Lasting evaluations of (or feelings about) objects or ideas

Perceptions: How people select, organize, and interpret information

Learning: Changes in behavior based on experience

Consumer Decision Process
1. *Need Recognition*: your best friend suddenly notices that she is the only person she knows who still wears high-rise blue jeans to class…problem alert!

2. *Information Search*: horrified, your friend not only checks out your style but also notices what the cool girls on campus are wearing.

3. *Evaluation of Alternatives*: your friend compares the prices and styles of the various brands of blue jeans that she identifies.

4. *Purchase Decision*: after a number of conversations, your friend finally decides to buy True Religion jeans for $215.

5. *Postpurchase Behavior*: three days later, she begins to kick herself for spending so much money on jeans because she can no longer afford her daily Starbucks habit

Business Buyer Behavior
Describes how people act when they are buying products to use either directly or indirectly to produce other products.
(chemicals, copy paper, computer servers)

-Typically have purchasing training and apply rational criteria to their decision-making process
-Usually buy according to purchase specifications and objective standards, with a minimum of personal judgement or whim
-Often, business buyers are integrating input from a number of internal sources, based on a relatively formal process
-Finally, business buyers tend to seek (and often secure) highly customized goods, services, and prices

Marketing Research
The process of gathering, interpreting, and applying information to uncover marketing opportunities and challenges, and to make better marketing decisions.

—The goal, of course, is better marketing decisions: more value for consumers and more profits for business that deliver—

Companies use Marketing Research to:
1. Identify external opportunities and threats (from social trends to competition)

2. Monitor and predict customer behavior

3. Evaluate and improve each area of the marketing mix

Secondary Data
Existing Data that marketers gather or purchase for a research project.
-Tends to be lower cost
-May not meet your specific needs
-Frequently outdated
-Available to your competitors
Examples: U.S. census, The Wall Street Journal, Time Magazine, your product sales history
Primary Data
New Data that marketers compile for a specific research project.
-Tends to be more expensive
-Customized to meet your needs
-Fresh, new data
-Proprietary: no one else has it
Examples: your own surveys, focus groups, customer comments, mall interviews
There are two basic categories of primary research
Observation and Survey
Observation Research
Marketing research that does not require the researcher to interact with the research subject. Can be both cheap and amazingly effective. But the biggest downside is that it doesn’t yield any information on consumer motivation.

—The key advantage of watching versus asking is that what people actually do often differs from what they say—

-Scanner data from retail sales
-Traffic counters to determine where to place billboards
-Garbage analysis to measure recycling compliance

Survey Research
Marketing research that requires the researcher to interact with the research subject.

—The key advantage is that you can secure information about what people are thinking and feeling, beyond what you can observe—
—The key downside is that many people aren’t honest or accurate about their experiences, opinions, and motivations, which can make survey research quite misleading.

-Telephone and online questionnaires
-Door-to-door interviews
-Mall-intercept interviews
-Focus Groups
-Mail-in questionnaires

Green Marketing
The development and promotion of products with ecological benefits.
Mass Customization
Creation of products tailored for individual consumers on a mass basis.

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