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CHAPTER 1

MARKETING: CONNECTING WITH CUSTOMERS

CHAPTER OVERVIEW

Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives. The purpose of marketing, also known as the marketing concept, is to identify the needs and wants of customers within markets and create customer value in ways that will ensure the long-run success of the organization.

The marketing strategy process has four steps. Opportunity analysis provides information about the marketing environment and specific company elements. Targeting occurs when select groups of customers with identifiable characteristics are selected for attention. Positioning is used to determine what image or impression the marketer wants customers within a target segment to posses regarding the organization or its products. By blending the marketing mix—product, price, promotion, and place—marketing decisions are made to support the positioning strategy. These decisions can be blended into a vast array of combinations, each producing different results.

Marketing has progressed through three eras—the production era, sales era, and customer marketing era. As the names suggest, the production era focused on ways to efficiently mass-produce new products while the sales era focused on getting people to buy products. The customer marketing era moved management’s attention toward satisfying customer needs and wants.

The five key forces that are influencing marketing as we enter the 21st century include relationships, technology, ethics, diversity, and global orientation. These supporting themes of the book were carefully selected to describe how marketers make lasting connections with customers.

You are intimately involved in marketing, as a marketer, as a member of a target market, as a customer, and as a citizen. So marketing pertains to you personally, and you begin your study of the subject having already experienced many of its facets.

CHAPTER OBJECTIVES

1. Understand the concept of marketing, including its definition, purpose, and role in creating exchanges.

2. Learn what is involved in making marketing decisions, including examples of product, price, promotion, and place decisions to create a marketing mix.

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3. Contrast the periods of marketing evolution, from the early history through the eras of production, sales, and customer marketing, leading up to today.

4. Understand the five key forces that are dramatically influencing how organizations will connect with customers in the 21st century.

5. Determine how marketing pertains to you.

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CHAPTER OUTLINE

I. THE CONCEPT OF MARKETING: CONNECTING WITH CUSTOMERS

A. Definition of Marketing–

1. The process of planning and executing–

2. Product, price, promotion, and place–

Marketing mix

3. Markets for goods, services, and ideas–

Market

a. Consumer markets–

b. Business-to-business markets–

c. Nonprofit markets–

d. Internal markets–

4. Create exchanges that satisfy individual and organizational objectives–

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Exchange

a. Form, place, time, and ownership–

Form utility

Place utility

Time utility

Ownership utility

5. Organizational objectives–

B. The Marketing Concept: The Purpose of Marketing–

1. Understand the needs and wants of consumers–

Consumer orientation

Needs

Wants

2. Create customer value through satisfaction and quality–

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Customer satisfaction

Quality

Value

3. More effectively and efficiently than competitors–

II. THE MARKETING STRATEGY PROCESS

A. Situation Analysis–

B. Targeting–

Target Market

C. Positioning–

D. Marketing Mix Decisions–

1. Product strategy–

2. Place strategy–

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3. Promotion strategy–

4. Price strategy–

III. THE EVOLUTION OF MARKETING

Mass Marketing–

A. The Production Era–

B. The Sales Era–

Seller’s Market

Buyer’s Market

C. The Customer Marketing Era–

Customer-Driven Organizations

IV. CONNECTING WITH CUSTOMERS IN THE 21ST CENTURY

A. Connecting through Relationships–

Relationship Marketing

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Strategic Alliances

B. Connecting through Technology–

Product Technology

Process Technology

Mass Customization

The Internet

Marketspace

C. Connecting Globally–

D. Connecting with Diversity–

Ethnic Background

Ethnicity

E. Connecting Ethically–

1. Ethics

2. Social responsibility

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V. MARKETING: YOUR INVOLVEMENT

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KEY TERMS

Buyer’s marketConsumer orientationCustomer-driven organizationsEffectivenessEfficiencyEthicsEthnic backgroundEthnicityExchangeForm utilityInternet MarketMarketingMarketing conceptMarketing ethicsMarketing mixMarketspace

Mass customizationMass marketingNeedsOwnership utilityPlace utilityProcess technologyProduct technologyProduct orientationRelationship marketingSales orientationSeller’s marketSocietal marketing conceptStrategic alliancesTarget marketTime utility Wants

1. The four controllable variables—product, price, promotion, and place (distribution)—that are combined to appeal to the company’s target markets.

2. An electronic space where business occurs.

3. Deals with the cost and time involved in carrying out activities.

4. Extends the marketing concept to include satisfying the customer as well as the consumer.

5. Usually determined by birth and related to three elements: nationality, race, and religion.

6. Makes goods and services conveniently available.

7. Refers to the amount of identification an individual feels with a particular ethnic group.

8. Occurs when customizing a product for a specific customer is built into a process.

9. A process in which two or more parties provide something of value to the other.

10. Occurs when knowledge and materials are converted into finished goods and services.

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11. Consists of all of the individuals and organizations with the desire or potential to have the desire and the ability to acquire a particular good or service.

12. Holds that the purpose of marketing is to identify the needs and wants of customers within markets and satisfy them in ways that ensure long-run success of the organization.

13. Makes goods and services available when they are wanted.

14. The process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives.

15. Occurs when abundance of product lets the buyer control the market.

16. Doing things that directly or indirectly make a difference to consumers. It means doing the right things.

17. Organizations that implement the marketing concept by creating processes so all parts of the organization can contribute the maximum amount possible toward satisfying customer wants.

18. Technology which spawns the development of new goods and services.

19. An organizational philosophy that focuses on satisfying consumer needs and wants.

20. The mass production, mass distribution, and mass promotion of a product to all buyers.

21. Fundamental requirements which are the ultimate goals of behavior.

22. Occurs when scarcity of products lets the seller control the market.

23. A global network of computers which enables the transmission of data through the use of a personal computer.

24. Standards or values that govern professional conduct.

25. Technology used to make goods and services.

26. A specific form of consumption desired to satisfy need.

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27. Historical period that emphasized new products and the efficiency of production.

28. The development and maintenance of successful relational exchanges. It involves interactive, ongoing, two-way connections among customers, organizations, suppliers, and other parties for mutual benefit.

29. Historical period that emphasized that consumers must be convinced to buy.

30. Makes it possible to transfer the title of goods and services from one party to another.

31. Occur when two or more organizations form a partnership for a new venture.

32. A group of potential customers with similar characteristics that the company is trying to satisfy better than the competition.

33. Deal specifically with how moral standards are applied to marketing decisions, behaviors, and institutions.

MULTIPLE CHOICE

1. Which of the following would be the best description of marketing?

a. Promoting your productb. Creating a desire for ideas, goods, and servicesc. Planning and executing the conception, pricing, promotion, and

distribution of products to create exchanges that satisfy individual and organizational objectives

d. Motivating people to buy your producte. The movement of products from manufacturers to consumers

2. Which of the following is not a step in the marketing strategy process?

a. Opportunity analysisb. Targetingc. Manufacturing d. Positioninge. Blending the marketing mix

3. Marketing has progressed through three eras—what are they?

a. Historical, contemporary, and future b. Marketing research, marketing forecasting, and marketing planningc. Industrial, consumer, and societald. Production, sales, and customer marketing

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e. None of the above

4. The marketing mix is made up of four controllable variables, including product, price, place, and what other variable?

a. Promotionb. Designingc. Planningd. Satisfaction measuremente. Quality

5. A market consists of all of the following elements except

a. individuals or organizations.b. goods, services, or ideas.c. entities with the potential to have a desire.d. entities with the potential to have the ability to acquire. e. All of the above are characteristics of a market.

6. Which of the following is not a market classification used in the book?

a. Japanese markets b. Consumer marketsc. Business-to-business marketsd. Nonprofit marketse. Internal markets

7. An exchange is a process in which two or more parties provide something of value to one another. Another word for value is utility. Which of the following (contains a word that) is not a type of utility?

a. Form and placeb. Quality and place c. Place and timed. Time and ownershipe. Ownership and form

8. Which of the following is not the concept of marketing or the purpose of marketing?

a. Understand the needs and wants of customers.b. Create customer value through satisfaction quality.c. Be more effective and efficient than competitors.d. Create the highest quality goods and services. e. All of the above are part of the marketing concept.

9. The major message about connecting through relationships is

a. that relationships are always contractual.b. that the best relationship is one-sided where one partner comes out

ahead of the other one.

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c. that relationship marketing attempts to create successful relational exchanges.

d. that relationships are always strategic alliances.e. none of the above.

10. Trudy Yan is using mass customization as a strategy for her business which involves selling uniforms for workers of local construction companies. Which of the following would be consistent with mass customization?

a. Developing or using a technology so that the product line of apparel could be customized for each construction company

b. Making totally unique apparel for each customerc. Assembling apparel for many different types of suppliers and reselling

them to construction companiesd. Manufacturing or creating one product that has mass appeale. None of the above

11. Which of the following is a key benefit of a globally-oriented organization?

a. Bigger is always better.b. They consult more customers with different needs.c. Global companies are always more efficient.d. You don’t have to worry as much about economic demand shifts.e. Companies that connect globally generally have a better

understanding of diversity and competition. 12. Coca-Cola is very interested in understanding ethnicity. Consequently, it

will focus primarily on which of the following?

a. Nationalityb. Racec. Amount of identification an individual feels with a particular ethnic

group d. Statistics on nationality, race, and religione. None of the above

13. Excellent marketers connect ethically. They make important decisions about standards of conduct. Ford Motor Company professes to have high ethical standards. From this, we can infer that it

a. believes it always know what is right.b. evaluates how moral standards are applied to marketing decisions. c. takes ethical disputes to a court of law.d. applies American standards to all parts of the globe.e. really believes that the customer is always right.

14. A situation in which the demand for products outstrips the supply is called

a. a seller’s market.b. a buyer’s market.c. an overdemanded market.

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d. a lucky market.e. all of the above.

15. Organizations that operate effectively and efficiently are likely to behave in which of the following manners?

a. Always being lower priced than the competitionb. Being fastest in getting products to marketc. Engaged in the right activities without wasting a lot of resourcesd. Maximizing salese. None of the above

ANSWERS: CHAPTER OUTLINE

I. THE CONCEPT OF MARKETING: CONNECTING WITH CUSTOMERS

A. Definition of Marketing–The process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives.

1. The process of planning and executing–Marketing is an ongoing process. It is interested in the enduring, systematic management of change.

2. Product, price, promotion, and place–The marketing mix is made up of four controllable variables (product, price, promotion, and place) that are combined to appeal to a company’s target markets.

3. Markets for goods, services, and ideas–A market consists of all the organizations and individuals with the potential to have the desire and ability to acquire a particular good, service, or idea.

a. Consumer markets–When organizations sell to individuals or households that buy, consume, and dispose of products.

b. Business-to-business markets–When a business purchases goods or services to produce other goods, to support daily operations, or resell at a profit.

c. Nonprofit markets–When an organization does not try to make a profit but instead attempts to influence others to support its cause by using its service or by making a contribution.

d. Internal markets–When managers of one functional unit market their capabilities to other units within their own

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organization.

4. Create exchanges that satisfy individual and organizational objectives–An exchange is a process in which two or more parties provide something of value to one another.

a. Form, place, time, and ownership–Form utility occurs when knowledge and materials are converted into finished goods and services. Place utility makes goods and services conveniently available. Time utility makes goods and services available when they are wanted. Ownership utility makes it possible to transfer the title of goods and services from one party to another.

5. Organizational objectives–All organizations have long-term objectives. Many organizations focus on financial measures such as profit, margins, and return on investment to evaluate performance.

B. The Marketing Concept: The Purpose of Marketing–To understand the needs and wants of consumers and create customer value through satisfaction and quality more effectively and efficiently than competitors.

1. Understand the needs and wants of consumers–Marketers use a consumer orientation, an organizational philosophy that focuses on satisfying consumer needs and wants. Needs are fundamental requirements—the ultimate goals of behavior. A want is the specific form of consumption desired to satisfy a need.

2. Create customer value through satisfaction and quality–Customer satisfaction is a customer’s overall rating of his/her experience with a company and its products. Quality describes the degree of excellence of a company’s products or services. Value refers to the amount of money a consumer will pay for quality in a good or service.

3. More effectively and efficiently than competitors–Marketers measure success by the way their customers judge them, especially relative to competitors.

II. THE MARKETING STRATEGY PROCESS

A. Situation Analysis–Includes all the marketing activities required to understand the global marketing environment, customer needs and wants, and the competition.

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B. Targeting–A target market is a group of potential customers with similar characteristics that the company tries to satisfy better than the competition.

C. Positioning–The process of creating an image, reputation, or perception of the company or its goods and/or services in the consumer’s mind.

D. Marketing Mix Decisions–The decisions required to address customers with one marketing mix.

1. Product strategy–Product decisions include which products to develop, how to manage current products, and which products to phase out.

2. Place strategy–Place decisions are made to provide products where and when they are needed, in the proper quantities, with the greatest appeal, and at the lowest possible cost.

3. Promotion strategy–Involves coordinating advertising, sales promotion, personal selling, and public relations to get consistent messages to all types of customers.

4. Price strategy–The objective is to set prices to reflect the value received by customers and achieve the volume and profit required by the organization.

III. THE EVOLUTION OF MARKETING

Mass Marketing–The mass production, mass distribution, and mass promotion of a product to all buyers.

A. The Production Era–The production orientation emphasized new products and the efficiency of production.

B. The Sales Era–The sales orientation emphasized that consumers must be convinced to buy. A seller’s market occurs when scarcity of products lets the seller control the market. A buyer’s market occurs when abundance of a product lets the buyer control the market.

C. The Customer Marketing Era–Customer-driven organizations implement the marketing concept by ensuring that all parts of the organization can contribute the maximum possible toward satisfying customer wants.

IV. CONNECTING WITH CUSTOMERS IN THE 21ST CENTURY

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A. Connecting through Relationships–Relationship marketing is the development and maintenance of successful relational exchanges. Strategic alliances occur when two or more organizations form a partnership for a new venture.

B. Connecting through Technology–Product technology refers to technology which spawns the development of new goods and services. Process technology is the technology used to make goods and services. Mass customization occurs when customizing a product for a specific customer is built into a process. The Internet is a global network of computers which enables the transmission of data through the use of a personal computer. Marketspace is an electronic space where business occurs.

C. Connecting Globally–Compared to domestic firms, global companies have an increased customer reach and a better understanding of diversity and competition.

D. Connecting with Diversity–It is imperative to understand and respect diversity among customers. A person’s ethnic background is usually determined by birth and related to three elements: nationality, race, and religion. Ethnicity refers to the amount of identification an individual feels with a particular ethnic group.

E. Connecting Ethically–Marketers must make important decisions about the standards of conduct for an organization.

1. Ethics–The values or standards that govern professional conduct. Marketing ethics refers specifically to how moral standards are applied to marketing decisions, behaviors, and institutions.

2. Social responsibility–The societal marketing concept seeks to balance customer satisfaction against corporate profits and the well-being of the larger society.

V. MARKETING: YOUR INVOLVEMENT

You are intimately involved in marketing, as a marketer, as a member of a target market, as a customer, and as a citizen.

ANSWERS: KEY TERMS

1. Marketing mix2. Marketspace3. Efficiency4. Societal marketing concept5. Ethnic background6. Place utility

7. Ethnicity8. Mass customization9. Exchange10.Form utility11.Market12.Marketing concept

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13.Time utility14.Marketing15.Buyer’s market16.Effectiveness17.Customer-driven organizations18.Product technology19.Consumer orientation20.Mass marketing21.Needs22.Seller’s market23.Internet

24.Ethics25.Process technology26.Wants27.Production orientation28.Relationship marketing29.Sales orientation30.Ownership utility31.Strategic alliances32.Target market33.Marketing ethics

ANSWERS: MULTIPLE CHOICE

1. c2. c3. d4. a5. e6. a7. b8. d

9. c10.a11.e12.c13.b14.a15.c

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CHAPTER 2

CUSTOMER SATISFACTION AND LOYALTY:BUILDING VALUE WITH QUALITY

CHAPTER OVERVIEW

Satisfied, loyal customers generate profits because they are responsible for a large percentage of sales and are less costly to develop than new customers. They also influence others to buy products. Customer satisfaction is a key to competitive advantage. In addition, satisfied, loyal customers will pay more and are less concerned about price and price increases.

Customers form impressions about how well companies perform in relation to expectations. If performance falls short, then customers become dissatisfied. When customers are delighted, their expectations are likely to increase.

Relationship marketing is emphasized today because customer needs and wants often can best be addressed through relationships. The personal connection produces loyalty. Relationships are built on empathy, trust, and commitment.

Diverse customers have different expectations. Creating satisfaction requires paying close attention to various tastes and preferences. The variations in customer tastes and preferences are particularly challenging for large companies that want to gain high satisfaction scores. They still need to address each specific segment if they are to achieve high ratings.

Customer-delivered value is the customer’s perceived gain from a purchase—the difference between what is obtained in products or services versus the price, time, energy, and personal costs involved in the purchase. The value chain describes the steps necessary to create customer-delivered value. The objective is to be as competitive as possible in customer-delivered value. Quality is important in this regard.

Quality can be assessed objectively and subjectively. Objective assessments indicate whether the product performs as designed. Subjective assessments indicate whether the product behaves according to what customers want. Businesses must be careful not to focus only on static quality. The quality of change—dynamic quality—is also important. Both build value.

CHAPTER OBJECTIVES

1. Understand why customer satisfaction and loyalty are the focus of marketing in winning organizations.

2. Learn how consumer expectations influence satisfaction.

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3. See why connecting with customers through relationships achieves outstanding satisfaction and loyalty.

4. Understand the ideas that help organizations market quality goods and services.

5. Define quality, and describe how it is obtained.

CHAPTER OUTLINE

I. THE CONCEPT OF CUSTOMER SATISFACTION AND LOYALTY: BUILDING VALUE WITH QUALITY

II. CONNECTING THROUGH RELATIONSHIPS: BUILDING CUSTOMER SATISFACTION AND LOYALTY

A. Why Satisfaction and Loyalty Are Important–

Customer Satisfaction

Customer Loyalty

1. Profit generation–

Cost structure

2. Competitive advantage–

3. Satisfaction ratings influence potential customers–

Satisfaction ratings

4. Price premiums–

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B. Customer Expectations–

Customer Defections

C. Satisfaction, Loyalty, and Complaining Behavior–

D. Connecting through Relationships to Build Satisfaction and Loyalty–

1. The personal basis of relationships–

a. Empathy–

b. Trust–

c. Commitment–

2. Reward loyal customers–

E. Diversity and Satisfaction–

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F. Global Satisfaction–

III. CONNECTING THROUGH TECHNOLOGY: CUSTOMER VALUE FROM QUALITY

A. Customer Value–

Customer-Delivered Value

Added Value

B. The Value Chain–

C. Quality–

1. Assessments of quality–

Objective assessments of quality

Subjective assessments of quality

2. Static and dynamic quality–

Static quality

Dynamic quality

3. Total quality management–

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a. Continuous improvement–

b. Reduced cycle time–

c. Analysis of process problems–

ISO 9000

d. Quality function deployment–

4. Benchmarking–

Best practices

5. Quality awards–

a. The Deming Prize–

Statistical quality control

b. The Malcolm Baldrige National Quality Award–

IV. HOW TO DELIVER CUSTOMER VALUE AND QUALITY

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A. Ethical Behavior–

B. Employee and Customer Involvement–

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C. Feedback and Satisfaction Measurement–

Customer Satisfaction Measurement Program

KEY TERMS

Added valueBenchmarkingBest practicesContinuous improvementCost structureCustomer defectionsCustomer-delivered valueCustomer expectationsCustomer loyaltyCustomer satisfactionCustomer satisfaction measurement

programCustomer valueDynamic qualityISO 9000

Lifetime value of a customerMalcolm Baldrige National Quality AwardObjective assessment of qualityQuality function deploymentQualityReduced cycle timeSatisfaction ratingsStatic qualityStatistical quality controlSubjective assessment of qualityTotal quality managementValue Value chain

1. An ongoing survey of customers (and competitors’ customers) for the purpose of obtaining continuous estimates of satisfaction.

2. The degree of excellence of a company’s products or services.

3. The enhancement process used by an organization to find the best ways of satisfying its customers.

4. Ratings provided by testing agencies that compare purchase satisfaction with specified brands or with how well products perform.

5. All the activities that companies undertake to deliver more value to the ultimate consumer.

6. The competencies of industry leaders that other organizations use as benchmarks.

7. The percentage of customers who switch to another brand or supplier.

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8. Inclusive set of standards established by the International Standards Organization (ISO) to ensure that quality requirements are met.

9. When a company offers something of value to differentiate itself from competitors.

10. The degree to which a product does what consumers would like it to do.

11. A customer’s positive, neutral, or negative feeling about the value that as received as a result of using a particular organization’s offering in specific use situations.

12. The result of a change that makes an existing standard obsolete.

13. The amount of profit a company expects to obtain over the course of the relationship.

14. The systematic evaluation of practices of excellent organizations to learn new and better ways to serve customers.

15. The amount of money a consumer will pay for quality in a good or service.

16. A program widely acknowledged for having raised quality awareness and practice among U.S. businesses.

17. The degree to which a product does what it is supposed to do.

18. The perception customers have of what they receive from owning and using a product over and above the cost of acquiring it.

19. Consumers’ beliefs about the performance of a product based on prior experience and communications.

20. A TQM activity which helps a company move more rapidly from product inception to final delivery of the product to the marketplace.

21. A process that builds customer wants and desires into the final product offering.

22. The perceived difference between what the customer pays and what the customer gains from a transaction.

23. The result when individuals or organizations perfect an accepted practice.

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24. The amount of money required to produce a specific amount of sales.

25. The use of statistics to isolate and quantify production line problems that may cause product defects.

26. An organizational philosophy which helps companies produce goods and services that deliver value to satisfy customers.

27. How often, when selecting from a product class, a customer purchases a particular brand.

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MULTIPLE CHOICE

1. Quality Dairy sells ice cream and yogurt. It is interested in being able to generate a substantial profit for its owners. Which group of customers is the

most important focal point?

a. Brand new customersb. Loyal customers c. Satisfied customersd. Dissatisfied customerse. Owners of the business

2. Organizations that are interested in gaining or sustaining competitive advantage generally need to have a high level of ________.

a. customer advocacyb. customer satisfaction c. creditory pricingd. accounts receivablee. commodity products

3. Ron Johnson, Marketing Manager for Scorpio Incorporated, is pleased that his company’s products received extremely high customer satisfaction ratings. Which of the following can he expect to be the results of high customer satisfaction scores?

a. Customers will never switch.b. Scorpio will have the highest market share in the industry.c. His customers will be less concerned about the purchase price.d. Competitors will have lower satisfaction ratings.e. None of the above

4. Manny Rodriguez, Sales Manager for a division of Rockwell International, is going to talk to his sales organization about connecting with customers through relationships to build satisfaction and loyalty. Which of the following items should he mention?

a. Commitmentb. Empathyc. Trustd. All of the abovee. None of the above

5. Johnson Controls wants to add value for its customers. They should offer which of the following?

a. An option at a higher priceb. A stripped-down version at a lower pricec. An add-on to their product but at no charged. Something of value that differentiates themselves from competitors

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6. General Motors uses the concept of the value chain in its marketing planning activities. Consequently, we would expect it to

a. focus on all of the activities the organization undertakes such as product and service development and delivery to the customer.

b. eliminate a lot of the interworkings of the organization from consideration.

c. look at its own activities but not the activities of suppliers.d. focus on the activities of suppliers to General Motors and ways of

delivering products to customers but not on elements internal to its own organization.

e. do none of the above.

7. Organizations that are interested in total quality should focus on which of the following?

a. Perfecting an accepted practiceb. Making changes which make the existing practice obsoletec. Both A and B above d. Constant experimentatione. None of the above

8. Which of the following is part of total quality management?

a. Continuous improvementb. Reduce cycle timec. Analysis of process problemsd. Quality function deploymente. All of the above

9. Which of the following is correct with regard to benchmarking?

a. Benchmarking is the evaluation of practices of excellent organizations within your own industry.

b. Benchmarking is the evaluation of practices of excellent organizations outside your industry.

c. Benchmarking is a systematic evaluation of practices of excellent organizations inside and outside your industry.

d. Benchmarking involves progressing against historical standards in order to make future advances.


10. CBS Incorporated Divisions have sought the Deming Prize and the Malcolm Baldrige Award. They are seeking

a. customer satisfaction awards.b. customer loyalty awards.c. market share awards.d. quality awards.e. academic awards.

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11. Organizations which possess quality that does not meet customer expectations should

a. fix the problem as quickly as possible.b. charge less for the product.c. avoid dealing with the customer.d. change their manufacturing processes.e. determine whether they have violated any laws.

12. Companies that are interested in improving their business performance should

a. involve the entire organization and its customers in efforts to improve.

b. make it a responsibility of marketing but not other departments.c. bring in an outside consulting agency.d. complete a corporate-wide audit.e. do none of the above.

13. The goal of reduced cycle time is

a. to manufacture products more rapidly. b. to reduce the amount of time a product is on the shelf.c. to reduce the amount of time it takes for a customer to return a

product.d. to move more quickly from product inception to product delivery in

the marketplace.e. to have less waste due to customer returns.

14. ACME Corporation has stressed product quality more than any other aspect of its business strategy. We can conclude that

a. ACME is a leader in its industry.b. quality is important, but it is just one of the variables ACME needs to

concern itself with in building a strategy.c. quality is probably less important if ACME does not have strong

competitors.d. quality is not nearly as important as pricing.e. none of the above are true.

15. Which of the following is a key element of the societal marketing concept?

a. Competitorsb. Global industriesc. Citizensd. Legal constraintse. Profit maximization


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I. THE CONCEPT OF CUSTOMER SATISFACTION AND LOYALTY: BUILDING VALUE WITH QUALITY

II. CONNECTING THROUGH RELATIONSHIPS: BUILDING CUSTOMER SATISFACTION AND LOYALTY

A. Why Satisfaction and Loyalty Are Important–Few firms can achieve acceptable volume or profit without a strong base of loyal customers. Customer satisfaction is a customer’s positive, neutral, or negative feeling about the value that was received as a result of using a particular organization’s offering in specific use situations. Customer loyalty refers to how often, when selecting from a product class, a customer purchases a particular brand.

1. Profit generation–Satisfied, loyal customers generate sales. A cost structure is the amount of money required to produce a specific amount of sales.

2. Competitive advantage–Customer satisfaction is a key to competitive advantage.

3. Satisfaction ratings influence potential customers–Satisfaction ratings provide a way for customers to compare brands and also enable testing agencies to determine how well products perform.

4. Price premiums–Satisfied customers tend to be less concerned about purchase price.

B. Customer Expectations–Consumers’ beliefs about the performance of a product based on prior experience and communications. Customer defections are the percentage of customers who switch to another brand or supplier.

C. Satisfaction, Loyalty, and Complaining Behavior–Loyal customers are not always satisfied, and satisfied customers are not always loyal. Companies committed to customer satisfaction will deal with any complaints they receive in a way that still leads to overall satisfaction.

D. Connecting through Relationships to Build Satisfaction and Loyalty–Needs and wants are often best addressed by establishing relationships.

1. The personal basis of relationships–A relationship reflects the connection between two or more parties.

a. Empathy–The ability to understand the perspective of another person or organization. It means putting

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yourself in someone else’s shoes and seeing the world as that person sees it.

b. Trust–Being able to rely on another party to perform as promised and in the way you expect.

c. Commitment–The degree to which empathy and trust make a difference. Going beyond what is promised to make sure the customer is better off because of the relationship.

2. Reward loyal customers–Companies must be willing to provide superior value for their best customers. Often, building relationships may require specific incentives or rewards.

E. Diversity and satisfaction–Companies must address individual wants and needs of people by acknowledging their unique differences. If an organization expects impressive satisfaction scores, then it must understand all forms of diversity better than even its smallest competitors.

F. Global satisfaction–The success of global companies is highly dependent on customer satisfaction.

III. CONNECTING THROUGH TECHNOLOGY: CUSTOMER VALUE FROM QUALITY

A. Customer Value–What customers perceive they gain from owning and using a product over and above the cost of acquiring it. Customer-delivered value is the difference between customer value and customer costs, or the customer’s perceived gain from the purchase. Added value occurs when a company offers something of value that differentiates it from competitors. It provides a uniqueness that allows consumers to distinguish one company from another.

B. The Value Chain–All the activities that organizations undertake, such as product and service development, and delivery to the customer.

C. Quality–The degree of excellence of a company’s products and services.

1. Assessments of quality–Objective assessments of quality indicate to what degree the product does consistently what it is supposed to do. Subjective assessments of quality indicate to what degree the product does what customers want.

2. Static and dynamic quality–Static quality results when an accepted practice is perfected. Dynamic quality results when a major change makes the existing standard obsolete.

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3. Total quality management–An organizational philosophy that helps companies produce products and services that deliver value to satisfy customers. It involves assessing consumer needs and developing products or services that meet those needs.

a. Continuous improvement–Occurs as the organization strives to find better ways of satisfying customers.

b. Reduced cycle time–A TQM activity intended to help the company move more quickly from product inception to product delivery in the marketplace.

c. Analysis of process problems–The activities that produce products and services. The International Standards Organization (ISO) has an inclusive set of standards, called ISO 9000, to determine whether quality requirements are met.

d. Quality function deployment–Used during the product or service design process to make sure that customer desires are built into the final offering. The three most common concerns of QFD are to make the product or service faster, better, and cheaper.

4. Benchmarking–The systematic evaluation of the practices of excellent organizations to learn new and better ways of serving customers. Best practices are the selected competencies for which leaders are known.

5. Quality awards–Awards given to companies that demonstrate the most outstanding quality initiatives.

a. The Deming Prize–Created to honor Deming’s philosophy of statistical quality control, which involves using statistics to isolate and quantify production line problems that may cause defects.

b. The Malcolm Baldrige National Quality Award–An award named for the late Malcolm Baldrige, who was an advocate for quality and a former Secretary of Commerce. It is widely acknowledged as having raised quality awareness and practice among U.S. companies.

IV. HOW TO DELIVER CUSTOMER VALUE AND QUALITY

A. Ethical Behavior–Many organizations that promise satisfaction and quality think they should provide a remedy to customers when quality

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does not meet expectations. Fixing the problem is ethically correct and a good business practice.

B. Employee and Customer Involvement–Strong companies involve the entire organization and its customers in efforts to improve performance.

C. Feedback and Satisfaction Measurement–Since customers’ expectations and desires constantly change, it is absolutely critical that satisfaction be measured continuously. A customer satisfaction measurement program is an ongoing survey of customers (and competitors’ customers) for the purpose of obtaining continuous estimates of satisfaction.

ANSWERS: KEY TERMS

1. Customer satisfaction measurement program

2. Quality3. Continuous improvement4. Satisfaction ratings5. Value chain6. Best practices7. Customer defections8. ISO 90009. Added value10.Subjective assessment of quality11.Customer satisfaction12.Dynamic quality13.Lifetime value of a customer14.Benchmarking

15.Value16.Malcolm Baldrige National Quality

Award17.Objective assessment of quality18.Customer value19.Customer expectations20.Reduced cycle time21.Quality function deployment22.Customer-delivered value23.Static quality24.Cost structure25.Statistical quality control26.Total quality management27.Customer loyalty

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1. b2. b3. c4. d5. d6. a7. c8. e

9. c10.d11.a12.a13.c14.b15.c

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CHAPTER 3

THE MARKETING ENVIRONMENT AND ITS GLOBAL DIMENSIONS

CHAPTER OVERVIEW

The marketing environment is comprised of all factors that affect a business. The factors are divided into two groups—the microenvironment and the global macroenvironment. The microenvironment includes factors that marketers interact with regularly. Consequently, the microenvironment influences and is influenced by marketing.

Stakeholders are important parts of the microenvironment which directly participate in accomplishing the organization’s goals. They include owners, employees, suppliers, intermediaries, and action groups. Stakeholders participate with the organization in order to accomplish their own goals; consequently, marketers must take the stakeholders’ desires into consideration when making decisions. Marketers must address stakeholders’ desires because stakeholders support marketers in order to attain their goals. And, in turn, marketers are dependent on stakeholders to accomplish their objectives.

An understanding of industry competition provides an integrated picture about the major forces that determine competitive intensity. Competition involves single competitors and groups of company types that compete. All of the aspects of industry competition need to be understood in order to build appropriate marketing strategies.

The global macroenvironment is being influenced by many forces. The technological environment provides knowledge and tools that companies can acquire to produce better products. Economic factors are also important. Changes in income and spending power and other factors help them understand which countries have the ability to purchase. Global demographics are also changing. Shifts in population density and dispersion are important as are educational and age shifts. It is important to grasp the cultural diversity environment, especially since it is difficult to put yourself in someone else’s perspective. Finally, the legal/regulatory environment is complex. Laws must be interpreted and followed. They help promote competition, influence business size, protect customers, and protect the environment.

Marketers often face ethical dilemmas. Marketing decisions fall into one of four categories: legal and ethical, illegal and ethical, legal and unethical, or illegal and unethical.

CHAPTER OBJECTIVES:

1. Describe the marketing environment and the use of environmental scanning.

2. Understand how the roles that stakeholders play influence the accomplishment of marketing objectives. Know why marketing must address stakeholder

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desires when making decisions.

3. Be able to integrate an understanding of industry competition into environmental analysis.

4. Synthesize aspects of the global macroenvironment, including technological, economic, demographic, cultural, and legal/regulatory elements in order to be in step with long-term trends.

5. Recognize the importance of ethics and guides to ethical behavior.

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CHAPTER OUTLINE

I. THE CONCEPT OF THE MARKETING ENVIRONMENT

The Marketing Environment

Environmental Scanning

II. THE MICROENVIRONMENT

The Micro-Environment

A. Relationships with Stakeholders–

Stakeholders

1. Owners and employees–

2. Suppliers and intermediaries–

Suppliers

Intermediaries

3. Action groups–

B. Industry Competition–

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1. Rivalry among existing firms–

2. Potential competitors–

3. Substitutes–

4. Understanding the bargaining power of buyers and suppliers–

III. THE GLOBAL MACROENVIRONMENT

A. Technology–

B. Economic–

1. Income and spending behavior–

Disposable income

Discretionary income

2. Spending power and wealth dispersion–

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Spending power

Gross domestic product

3. Trading blocs–

a. North America–

b. Pacific Rim–

c. Europe–

d. General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO)–

4. Natural resources–

C. Demographics–

1. Population–

2. Density–

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3. Urbanization–

Metropolitan statistical area

Consolidated metropolitan statistical area

4. Age structure–

D. Cultural Diversity–

Self-Reference Criterion

1. Time is relative–

2. Size and space–

3. Negotiations and agreements are subject to interpretation–

E. Legal/Regulatory–

1. U.S. laws promoting competition–

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2. U.S. laws affecting company size–

Cartel

3. U.S. laws protecting consumers–

4. U.S. laws protecting the environment–

F. Ethics–

KEY TERMS

Action groupAge cohortCartelConsolidated metropolitan statistical

area (CMSA)Cultural environmentDemographic environmentDiscretionary incomeDisposable incomeEconomic environmentEnvironmental scanningGlobal macroenvironmentGross domestic product (GDP)

IntermediariesLegal/regulatory environmentMarketing environmentMetropolitan statistical area (MSA)MicroenvironmentPopulation densitySelf-Reference criterionSpending powerStakeholders SuppliersTechnological environmentUrbanization

1. Consists of large external influencers considered vital to long-term decisions but not directly affected by the company itself.

2. A stand-alone population center, unlinked to other cities, that has more than 50,000 people.

3. The learned values, beliefs, language, symbols, and patterns of behavior shared by people in a society and passed on from generation to generation.

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4. S takeholders who provide a company with necessary services, raw materials, and components.

5. The amount of money consumers have left after paying taxes and purchasing necessities.

6. Groups who can be affected by the firm’s actions.

7. The income consumers have left after paying taxes.

8. The financial resources (such as money) available to consumers, businesses, and countries.

9. The shift from rural to urban areas.

10. Collecting and analyzing information about the marketing environment in order to detect important changes or trends that can affect a company’s strategy.

11. The total value of all goods and services produced by a country in a single year.

12. The statistics used to describe a population.

13. Move products from the manufacturer to the final user.

14. A group of people close in age who have been shaped by their generation’s experience with the media, peers, events, and society at large.

15. (1) International, federal, state, and local regulations and laws; (2) agencies that interpret and administer regulations; and (3) the court system.

16. The sum of all the factors that affect a business.

17. The forces close to the company that influence how it connects with customers.

18. The unconscious reliance on one’s own socialization.

19. A group of businesses or nations that work together to control the price and production of a particular product.

20. The ability of the population to purchase goods and services.

21. A number of people who support some cause in the interest of consumers or environmental safety.

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22. Two or more overlapping urban communities with a combined population of at least one million.

23. The total body of knowledge available for development, manufacturing, and marketing of products and/or services.

24. The concentration of people within some unit of measure, such as per square mile or per square kilometer.

MULTIPLE CHOICE

1. Jim Gillette is a consultant who works for many organizations. He collects and analyzes information trying to identify factors that are likely to facilitate or inhibit accomplish-ment of companies’ marketing plans. His activities could be grouped under

a. environmental scanning.b. market economics analysis.c. marketing planning.d. competitive studies.e. strategy audit.

2. Which of the following would not be considered a stakeholder?

a. Ownersb. Employeesc. Suppliersd. Action Groupse. Competitors

3. Organizations should in some way benefit all stakeholders. However, in our economic system, one group should always benefit. That group would be

a. suppliers.b. intermediaries.c. action groups.d. government.e. owners.

4. General Motors, Ford, and Chrysler have thousands of suppliers and intermediaries. Suppliers and intermediaries

a. are required by law.b. are useful primarily in international markets.c. extend the organization’s ability to reach customers at home and

abroad.d. do most of the market analysis.e. are none of the above.

5. There are many action groups such as the Consumer Federation of America. Marketers’ best response to an action group is to

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a. ignore them.b. become members of the major groups.c. fight them.d. form meaningful relationships with them.e. join with other companies to oppose them.

6. Angela Cooper, a market analyst for a fast food restaurant chain, is completing an industry structure analysis. Most likely she is looking at

a. the bargaining power of buyers and suppliers.b. any good or service that can be substituted for her company’s

products. c. organizations that may enter the industry with similar products.d. strategies among existing firms in the industry.e. all of the above.

7. Developing industry competition analysis, it is important to look at

a. individual companies and company groups.b. each individual company only, but in depth.c. primarily competitors’ products.d. suppliers, but not buying groups.e. none of the above.

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8. The macroenvironment consists of several factors. Which of the following is not part of the macroenvironment?

a. Income and spending behaviorb. Stockholdersc. Trading blocksd. Demographicse. Cultural diversity

9. What are the three major trading blocks in the world?

a. Latin America, Europe, Pacific Rimb. Pacific Rim, Middle East, North Americac. Europe, Pacific Rim, North Americad. Latin American, Asia, Europee. North America, Asia, Russia

10. Sam Forest is developing a marketing strategy for the Pacific Rim. Which of the following countries is he most likely looking at?

a. Japan, China, Russiab. Japan, South Korea, Singapore, Taiwan, Hong Kongc. Malaysia, Australia, Russiad. United States, Australia, Chinae. Argentina, Australia, United States

11. Which of the following is a major challenge marketers face with regard to natural resources?

a. Balancing the extraction of natural resources with efforts for preservation of the environment

b. Finding ways to more inexpensively extract resourcesc. Creating the appropriate price or value in world markets for

resources that are extractedd. Identifying the world supply of natural resourcese. Integrating a natural resources strategy with corporate waste

management strategies

12. Children’s World Learning Centers uses demographics to describe key aspects of their market. Which of the following is not a demographic variable?

a. Populationb. Agec. Incomed. Educatione. Spending for daycare

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13. Cultural diversity is an important part of the macroenvironment. It consists of learned values, common beliefs, common language, common symbols, and behaviors shared by people and passed on from generation to generation. In analyzing culture, marketers must be careful not to rely unconsciously on their own values. When they do this, it is called

a. introspection.b. self-reference criterion.c. reactance.d. relational blindness.e. psychological centralism.

14. In understanding the legal/regulatory environment, it is possible to group laws into which of the following categories?

a. Laws promoting competitionb. Laws affecting company sizec. Laws protecting consumersd. Laws protecting the environmente. All of the above

15. Which of the following would be considered a legal and unethical act?

a. Selling untested and potentially dangerous pharmaceutical products in countries that do not ban their use

b. Selling contraband drugs in the United Statesc. Selling aspirins at a high priced. Testing pharmaceuticals with prison inmatese. All of the above

ANSWERS: CHAPTER OUTLINE:

I. THE CONCEPT OF THE MARKETING ENVIRONMENT

The marketing environment is the sum of all factors that affect a business. Environmental scanning collects and analyzes information in order to detect any trends that may affect a company’s strategy.

II. THE MICROENVIRONMENT

The microenvironment is made up of the forces close to the company that influence how it connects with customers.

A. Relationships with Stakeholders–Marketers form interactive, ongoing, two-way relationships with stakeholders so they will be a positive influence on the organization. Any group or individual, other than competitors, who can influence or be influenced by an organization’s actions is a stakeholder including customers, owners, employees, suppliers, intermediaries, action groups, and many others.

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1. Owners and employees–An organization operates for the benefit of its owners, who establish its objectives. Employees help create and deliver value to the end-consumer.

2. Suppliers and intermediaries–Suppliers are stakeholders who provide a company with necessary services, raw materials, and components. Intermediaries help organizations by moving products from the manufacturer to the end-user. They dramatically extend the ability of marketers to reach customers at home and abroad.

3. Action groups–Stakeholders that support some cause in the interest of consumers or environmental safety. They act as “watchdogs,” making sure companies keep the interests of people and the environment in balance with those of profit.

B. Industry Competition–Competition involves companies of differing sizes and types. It may be individual companies or the industry as a whole.

1. Rivalry among existing firms–Marketers need a thorough understanding of each major competitor, including how each competes against your company and every other in the industry.

2. Potential competitors–At any time, a company may enter an industry with similar products.

3. Substitutes–Any good or service that performs the same function or provides the same benefit as an existing one.

4. Understanding the bargaining power of buyers and suppliers–Marketers must ask which group—buyers or suppliers—has the most power in an industry. Buyers are more demanding when there are several competing suppliers. Suppliers tend to be more powerful when buyers are plentiful.

III. THE GLOBAL MACROENVIRONMENT

The global macroenvironment consists of large external influencers considered vital to long-term decisions but not directly influenced by the company itself.

A. Technology–The technological environment is the total body of knowledge available for use in developing, manufacturing, and marketing products.

B. Economic–The economic environment refers to financial and natural resources that are available to consumers, businesses, and countries.

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1. Income and spending behavior–Disposable income is the money consumers have left, and many marketers prefer to use this as the measure of consumer wealth. Discretionary income is the amount of money consumers have left after paying taxes and purchasing necessities.

2. Spending power and wealth dispersion–Spending power is the ability of people to purchase goods and services. Gross domestic product is the total market value of all final goods and services produced for consumption during a given period by a particular country.

3. Trading blocs–The world has three major trading blocs—Europe, Pacific Rim, and North America—which compete for the mastery of international markets.a. North America–In November 1993, the United States,

Canada, and Mexico entered into the North American Free Trade Agreement (NAFTA). This created the largest single market in the world.

b. Pacific Rim–The PAC Rim is named for the ocean it borders. It is comprised of Japan and the four “dragons”—South Korea, Singapore, Taiwan, and Hong Kong. Soon Thailand, Malaysia, and Indonesia could be included.

c. Europe–The European Union (EU) members include Austria, Belgium, Denmark, Finland, France, Germany, Great Britain, Greece, Italy, Ireland, Luxembourg, the Netherlands, Portugal, Spain, and Sweden. The objective of the EU is to restructure Europe economically so that it can better compete against the United States, Japan, and other developed nations.

d. General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO)–GATT, formed under the United Nations, has successfully negotiated significant reductions in trade restrictions and import duties that countries would otherwise impose in their own self interest. The WTO, which absorbed GATT in 1995, deals with a broad range of issues including pollution, tariffs, trade agreements, and trade disputes.

4. Natural resources–Marketers in quest of extracting natural resources must balance these efforts against preservation of the environment.

C. Demographics–The demographic environment consists of the data that describe a population in terms of age, education, health, and so

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forth.

1. Population–Marketers evaluate population growth, immigration, and other factors for opportunity indications.

2. Density–Population density refers to the number of people within a standard measurement unit, such as a mile.

3. Urbanization–The population shift from rural areas to cities. A metropolitan statistical area is a stand-alone population center, not linked to other cities, with more than 50,000 people. A consolidated metropolitan statistical area is two or more overlapping urban communities with a combined population of at least one million.

4. Age structure–An age cohort is a group of people close in age who have been shaped by their generation’s experience with the media, peers, events, and the larger society.

D. Cultural Diversity–The cultural environment consists of the learned values, beliefs, language, symbols, and behaviors shared by people in a society and passed on from one generation to the next. When marketers rely unconsciously on their own values when trying to understand another culture, this is called self-reference criterion.

1. Time is relative–It is extremely important to consider a culture’s perception of time, which communicates several subtle points.

2. Size and space–Size has different meanings in various countries. The distance between people during conversations also can be culturally related.

3. Negotiations and agreements are subject to interpretation–Business agreements may have different meanings in different parts of the world.

E. Legal/Regulatory–The legal/regulatory environment is comprised of: inter-national, federal, state, and local regulations and laws; agencies that interpret and administer them; and the court system.

1. U.S. laws promoting competition–Laws with the premise that fair competition allows more companies to serve the market, which in turn keeps prices down and provides a greater number of choices to customers.

2. U.S. laws affecting company Size–The U.S. approach to competition has tended to restrict company size and power. Some countries promote monopoly. A cartel is a group of businesses or nations working together to control the price and output of a particular product.

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3. U.S. laws protecting consumers–Consumers are not solely responsible for assessing the quality of a product, its safety, and the honesty of the marketer’s claim.

4. U.S. laws protecting the environment–The National Environmental Policy Act was enacted by Congress in 1968 to direct environmental protection activities. The Environmental Protection Agency (EPA) was formed the following year so that one agency would be responsible for enforcing all federal environmental regulation.

F. Ethics–Marketing decisions fall into one of four categories—legal and ethical, illegal and ethical, legal and unethical, or illegal and unethical.

ANSWERS: KEY TERMS

1. Global macroenvironment2. Metropolitan statistical area

(MSA)3. Cultural environment4. Suppliers5. Discretionary income6. Stakeholders7. Disposable income8. Economic environment9. Urbanization10.Environmental scanning11.Gross domestic product (GDP)12.Demographic environment

13.Intermediaries14.Age cohort 15.Legal/regulatory environment16.Marketing environment17.Microenvironment18.Self-reference criterion19.Cartel20.Spending power21.Action group22.Consolidated metropolitan

statistical area (CMSA)23.Technological environment24.Population density

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1. a2. e3. e4. c5. d6. e7. a8. b

9. c10.b11.a12.e13.b14.e15.a

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CHAPTER 4

THE STRATEGIC MARKETING PLANNING PROCESS:DOMESTIC AND GLOBAL

CHAPTER OVERVIEW

Strategic marketing proceeds from a company’s vision, to the strategic marketing plan, to the marketing mix plans. It describes what the organization is trying to accomplish in the broadest sense. The strategic marketing plan describes the company’s goals and states how the company will achieve them. Specialists in each component of the marketing mix prepare a plan for that area.

The vision statement expresses the company’s core values, business definition, strategic direction, and strategic infrastructure. Core values reflect the company’s beliefs about the types of behavior acceptable from employees and the company as a whole as well as its relationship to customers, employees, and society in general. A business definition describes the contributions a company seeks to make to customers and society. Strategic direction is the desired leadership position of an organization as well as the measures used to chart progress toward reaching that goal. A company’s strategic infrastructure consists of both strategic business units and core competencies.

The strategic marketing plan describes how to accomplish the vision for a particular part of the business. It has four components: objectives, situation analysis, target marketing, and positioning.

Plans for each part of the marketing mix are usually developed by specialists in the respective areas. Often a separate plan is created for product, place, promotion, and price, but sometimes these plans are not combined. To determine whether the strategic marketing plan is accomplishing the intended objectives, a marketing control process is needed.

Organizations enter and cultivate global markets through exporting (importing); foreign licensing and franchising; overseas marketing and manufacturing; and joint ventures and strategic alliances.

CHAPTER OBJECTIVES

1. Understand how the strategic marketing planning hierarchy fits together to provide a complete planning system.

2. Describe the four elements of an organization’s vision that provide guidance for all actions.

3. Integrate components of the strategic marketing plan with the vision.

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4. Understand why elements of the marketing mix must be integrated, and outline the steps of the marketing control process.

5. Identify the four major ways that organizations enter and cultivate global markets.

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CHAPTER OUTLINE

I. THE CONCEPT OF THE STRATEGIC MARKETING PLANNING PROCESS

II. THE ORGANIZATION VISION

A. Core Values: The Ethical Foundation–

B. Business Definition (Mission)–

Marketing Myopia

C. Strategic Direction (Intent)–

D. Strategic Infrastructure–

1. Strategic business units–

Portfolio-planning tools

a. Assessing SBUs: The growth-share matrix–

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b. Assessing SBUs: The attractiveness-strength matrix–

2. Core competencies–

a. Base technologies–

b. Process technologies–

c. Product technologies–

d. People systems–

e. Information systems–

III. THE STRATEGIC MARKETING PLAN

A. Relationships Form a Planning Team–

Cross-Functional Planning Team

B. What Is Strategy?–

Strategic Window

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Low-Cost Strategy

Differentiation Strategy

Sustainable Competitive Advantage

C. Components of the Strategic Marketing Plan–

1. Objectives–

2. Situation analysis–

SWOT analysis

3. Target marketing–

4. Positioning–

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IV. MARKETING MIX PLANS AND THE MARKETING CONTROL PROCESS

A. Product Plans–

B. Place Plans–

C. Promotion Plans–

D. Pricing Plans–

E. The Marketing Control Process–

Control Review Meeting

V. CONNECTING GLOBALLY: ENTERING GLOBAL MARKETS

A. Geographic Scope–

1. International scope–

2. Regional scope–

3. Multinational scope–

4. Global scope–

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B. Strategies for Foreign Market Entry–

1. Exporting and importing–

2. Foreign licensing and franchising–

3. Overseas marketing and manufacturing–

4. Joint ventures and strategic alliances–

KEY TERMS

Business definitionCore competenciesCore valuesCross-functional planning teamDifferentiation strategyDirect exportingExportingExporting intermediariesForeign licensingFranchisingGeographic scopeImportingImporting intermediariesIndirect exporting

Low-cost strategyMarketing myopiaPortfolio planning toolsStrategic business unitStrategic directionStrategic infrastructureStrategic marketing planStrategic windowStrategySustainable competitive advantageSWOTTacticsTrading companiesVision

1. Sale of products abroad through intermediaries located in the domestic market.

2. Measure the contribution each SBU makes to the overall performance of the company.

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3. Delivering customer value in a way that is unique from competitors. Works through effectiveness.

4. Sending products to a foreign country for sale.

5. The desired leadership position of an organization as well as the measures used to chart progress toward reaching that position.

6. Large intermediaries that facilitate the movement of goods in and out of countries.

7. The extent of a company’s international activities

8. Receiving products from a foreign country.

9. The document describing the company’s objectives and how to achieve them in light of competitive activities.

10. The objective is to be the low-cost leader which allows the company to have higher margins than competitors and pass some savings on to customers through lower prices. Works through efficiency.

11. Also called the company mission, describes the contributions the business makes to customers and society.

12. A focus on company products rather than on how these benefit consumers.

13. Assigns the rights to a patent, trademark, or manufacturing process to a foreign company for a fee, often called a royalty.

14. A part of the firm that can be managed separately for marketing purposes; it may be a division, a product or product line, a distinct group of customers, or a unique technology.

15. The desired image of the company in the minds of employees.

16. The time during which market needs and the competencies of the firm fit together to create a significant opportunity.

17. Domestic or foreign firms that assist with exporting activity.

18. Short-term actions and reactions to specific market conditions through which companies pursue their strategy.

19. Employees from several areas responsible for developing the company’s strategic marketing plan.

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20. The development and/or deployment of resources with the intent of accomplishing goals and objectives in a competitive arena.

21. Firms set up to help guide importing actions

22. Sale of products abroad through the company’s own offices or intermediaries located in a foreign market.

23. The cost position or superior value in a product that competitors cannot easily duplicate or surpass.

24. A set of statements describing the type of behavior expected of the company and its employees.

25. An analysis to determine how well the company’s skills and resources match the predicted market opportunities.

26. The unique resources a company develops and employs to create superior customer value; the fundamental building blocks of competitive advantage.

27. A special type of licensing arrangement whereby the marketer provides not only the product, technology, process, and/or trademark, but also the entire marketing program.

28. The corporate configuration that best focuses the company on either its distinctive or its core competencies; provides the firm with the products and talents necessary to satisfy customer needs.

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MULTIPLE CHOICE

1. Which ways can marketing be described?

a. As process, as action, as valuesb. As philosophy, as strategy, as tacticsc. As planning, as programming, as documentedd. As understanding, as mystery, as futuree. As knowing, as doing, as being

2. Why is important for an organization to have a vision?

a. It gives specific timetables and strategies for meeting objectives.b. It forecasts the future.c. It provides a mystical orientation for the group.d. It helps people in the organization understand a consistent direction

despite dynamic competitive environments.e. It increases profit for all cases.

3. Mobil Oil Company has articulated a set of core values. These would outline

a. fundamental contributions the organization provides to customers. b. the amount of profit Mobil expects.c. the ethics and social responsibility that define behaviors expected

from the company’s employees.d. the desired leadership of the organization. e. the resources the company will develop within a five-year time frame.

4. An organization’s strategic infrastructure is comprised of which of the following elements?

a. Marketing plan and a finance planb. All of the functional plansc. Strategic business units and core competenciesd. Employees and customerse. Products and SBUs

5. Ralph Fitzgivens is a manager of a strategic business unit. He is responsible for

a. developing advertising plans.b. helping sales plans.c. creating manufacturing plans.d. managing a part of the firm for marketing purposes.e. developing a part of the product line.

6. Which of the following is a core competency?

a. Based technologyb. Product technology

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c. Process technologyd. Information systemse. All of the above

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7. UPS has a core competency in peoples’ systems. We can conclude that UPS

a. has outstanding systems that provide a connection between itself and its customers.

b. has the best human resource system.c. does an outstanding job of motivating people.d. does not use a union.e. has excellent training systems to teach people marketing.

8. Marketing plans should be completed by

a. the marketing department.b. the cross-functional planning team.c. marketing research and top management.d. an outside consulting firm.e. people with marketing in their title.

9. Which of the following is not a part of strategy?

a. Development and deployment of resourcesb. The intent of accomplishing goalsc. Competitive actionsd. Cost accountinge. None of the above

10. What is the objective of a low-cost strategy?

a. To undercut competitors’ prices.b. To save money on commodities.c. To have higher margins than competitors and pass savings onto

customers.d. To have lower margins and lower turnover rates.e. None of the above.

11. Which of the following is classified as a differentiation strategy?

a. Best Buy sells for less than the competition.b. Dell Computer introduces a new way of selling and servicing

computers for customers.c. Glidden Paints sells three product lines at three different price points.d. All of the abovee. None of the above

12. SWOT stands for

a. strategy, win, operation, timing.b. situation, willingness, operation, technology.c. strengths, weaknesses, opportunities, threats.d. storm, winter, outer, theory.e. standard, without, orderly, technical.

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13. Which of the following is not an aspect of the marketing mix?

a. Placeb. Pricingc. Promotiond. Planninge. Product

14. Which categories can a company’s international activities can be divided into?

a. International, regional, multinational, globalb. Global, universal, specificc. Domestic, international, universald. Home country and internationale. Developed, developing, subsistence

15. Brunswick has several agreements that permit foreign companies to produce and distribute its products. These are called

a. exporting.b. import substitution.c. overseas extension marketing.d. foreign licensing.e. joint ventures.


I. THE CONCEPT OF THE STRATEGIC MARKETING PLANNING PROCESS

Marketing can be described as philosophy, as strategy, and as tactics. The strategic marketing plan is a document outlining the decisions executives have made about how the vision will be accomplished.

II. THE ORGANIZATION VISION

The vision helps everyone maintain consistent direction despite volatile market environments. The corporate vision provides a common understanding of what the organization is trying to accomplish in the broadest sense.

A. Core Values: The Ethical Foundation–Core values describe the type of behavior expected from a company’s employees. They are the articulation of ethics and social responsibility.

B. Business Definition (Mission)–The fundamental contributions the organization provides to customers. Marketing myopia occurs when

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executives focus on their company’s current products and services rather than on benefits to customers.

C. Strategic Direction (Intent)–The desired leadership position of an organization and the measures used to chart progress toward reaching this position. It addresses the competitiveness of the organization and often sets specific growth, profit share, or scope goals relative to the competition and market opportunities.

D. Strategic Infrastructure–The resources a company needs to fulfill its corporate vision.

1. Strategic business units–Part of the firm that can be managed separately for marketing purposes; it may be a division within the company, a separate product or product line, a distinct group of customers, or a unique technology. Portfolio-planning tools measure the contribution each SBU makes to the overall performance of the company.

a. Assessing SBUs: The growth-share matrix–Uses market growth as a measure of opportunity and the company’s market share as the measure of resource strength.

b. Assessing SBUs: The attractiveness-strength matrix–A tool used to indicate competitive behavior and market characteristics based on a number of measures.

2. Core competencies–The unique resources a company develops and employs to create superior customer value. They are the fundamental building blocks of competitive advantage.

a. Base technologies–The research and development skills of companies which can be applied to an endless array of product areas.

b. Process technologies–Allow the firm to produce quality products in the most effective and flexible manner possible.

c. Product technologies–Support the company’s ability to produce new goods and services.

d. People systems–The procedures that provide the human connection between companies and customers.

e. Information systems–Information-processing technologies give companies the longer-term flexibility required for sustained leadership.

III. THE STRATEGIC MARKETING PLAN

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A. Relationships Form a Planning Team–A cross-functional planning team works together with a total understanding of the market and the organization’s capabilities to develop a strategic marketing plan.

B. What Is Strategy?–A strategy is the development and/or deployment of resources with the intent of accomplishing goals and objectives in competitive arenas. A strategic window describes the moment when requirements of the market and competencies of the firm fit together to create a significant opportunity. A low-cost strategy allows the company to have higher margins than competitors and pass some savings on to consumers through lower prices. A differentiation strategy involves delivering customer value in a way that is

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unique from competitors. Sustainable competitive advantage is the cost position or superior value in a product that competitors cannot easily duplicate or surpass.

C. Components of the Strategic Marketing Plan–The planning team has to address several areas. Objectives, situation analysis, target markets, positioning, and integration of the marketing mix.

1. Objectives–Companies usually set objectives in terms of desired profit, market share, or total sales. Objectives always provide a time frame and must be verifiable.

2. Situation analysis–The examination of all marketing activities required to understand the marketing environment, customer needs and wants, and the competition. The situation analysis predicts market conditions for the period that the strategic marketing plan is in effect. A SWOT analysis helps determine how well the company’s skills and resources match the predicted market opportunities.

3. Target marketing–The process of selecting which market segments the firm will try to satisfy better than its competitors.

4. Positioning–Creating a perception in the minds of consumers about the company and/or its products relative to competitors.

IV. MARKETING MIX PLANS AND THE MARKETING CONTROL PROCESS

A. Product Plans–Marketers must help determine which products or product lines to develop and which ones to drop.

B. Place Plans–Getting the right product, in the right condition, to the right customer, at the right time, for the minimum cost.

C. Promotion Plans–Provide information about a company’s product or service in an effort to encourage purchase.

D. Pricing Plans–The objective is to set prices to reflect the value received by customers and achieve the volume and profit required by the organization.

E. The Marketing Control Process–Provides feedback on how well the strategy is working. In a control review meeting, members of the planning team assemble to see whether objectives are being met.

V. CONNECTING GLOBALLY: ENTERING GLOBAL MARKETS

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A. Geographic Scope–The extent of a company’s international activities. It is divided into four categories: international, regional, multinational, and global.

1. International scope–Operating in one or a few foreign markets.

2. Regional scope–Operating within countries in close proximity.

3. Multinational scope–Heavy involvement in a few countries located in various regions.

4. Global scope–Operating in nearly all world markets.

B. Strategies for Foreign Market Entry–There are several different approaches for entering and developing markets: export-import, foreign licensing and franchising, overseas marketing and manufacturing, and joint ventures and strategic alliances.

1. Exporting and importing–Sending products abroad for resale (exporting) or purchasing products from foreign companies for resale, usually as part of another product, within the home market (importing).

2. Foreign licensing and franchising–Agreements that permit foreign companies to produce and distribute merchandise, often using trademarks and/or selected merchandising and customer delivery approaches.

3. Overseas marketing and manufacturing–A marketing infrastructure and/or manufacturing facilities abroad.

4. Joint ventures and strategic alliances–The shared ownership of operations by two or more local and foreign companies (joint venture) or the pooling of resources by two or more companies for the purpose of competing as one entity (strategic alliance).

ANSWERS: KEY TERMS

1. Indirect exporting 2. Portfolio-planning tools3. Differentiation strategy4. Exporting5. Strategic direction6. Trading companies 7. Geographic scope8. Importing9. Strategic marketing plan10.Low-cost strategy11.Business definition

12.Marketing myopia13.Foreign licensing14.Strategic business unit (SBU)15.Vision16.Strategic window17.Exporting intermediaries18.Tactics19.Cross-functional planning team20.Strategy21.Importing intermediaries22.Direct exporting

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23.Sustainable competitive advantage24.Core values25.SWOT

26.Core competencies27.Franchising28.Strategic infrastructure

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1. b2. d3. c4. c5. d6. e7. a8. b

9. d10.c11.b12.c13.d14.a15.d

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CHAPTER 5

MARKETING INFORMATION AND RESEARCH

CHAPTER OVERVIEW

MIS are used to systematically collect and analyze data to support decision making. An MIS often includes a marketing decision support system (MDSS), which puts information in convenient form for executives to use. Marketing research is conducted to address a particular opportunity, problem, or issue. Marketing information is used in planning, marketing mix decisions, and performance monitoring.

Data must be translated into information before it is useful for decision making. External data come from outside the firm, and internal data originate inside the firm. Primary data are collected for the first time to specifically address a current issue. Secondary data already exist and can be accessed immediately by a broad range of users. Once data are assembled, they must be analyzed through data sorting, the use of statistics, and models.

The marketing research process starts with the problem definition which focuses on the needs of decision makers to ensure that the research will be useful. The research design then is based on what decisions need what information, the data and data sources, and how the data will be collected and analyzed. Next, exploratory research helps investigators better understand issues by defining problems, searching for possible explanations, and creating hypotheses. Exploratory research techniques include focus groups, depth interviews, projective techniques, observation, and case analysis. Quantitative research yields information to help decision makers select the best course of action. It often involves using the scientific method. The last steps are to interpret and report findings.

Both internal and external marketing research is being dramatically influenced by technology. Research in global markets is complicated because secondary data may be scarce. Surveys must be carefully translated, and data collection is often difficult. Still, global research is becoming more and more important.

There are many ethical issues surrounding marketing research. One problem is that it sometimes can reflect the biases of marketers. The scientific method can eliminate bias. A number of groups exist to prevent the manipulation of marketing research. They are interested in accuracy and want to protect consumers.

CHAPTER OBJECTIVES

1. Understand the roles that marketing information systems (MIS) and research play in marketing decision making.

2. Recognize how data are transformed into information to be used in a variety of marketing decisions.

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3. Understand the types of research and the steps of a typical marketing research process.

4. Overview widely used marketing research techniques.

5. Explore how marketing information is being influenced by technology and is obtained globally.

6. Understand that ethical issues surround the use and dissemination of research.CHAPTER OUTLINE

I. THE CONCEPT OF MARKETING INFORMATION SYSTEMS AND MARKETING RESEARCH

Marketing Information Systems (MIS)

Marketing Research

II. MARKETING INFORMATION SYSTEMS AND DATA

Marketing Decision Support System (MDSS)

Transaction-Based Information System (TBIS)

A. Turning Data into Information–

1. Types of data–

External data

Internal data

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Primary data

Secondary data

2. Data analysis–

3. Information and decision making–

a. Marketing planning–

b. Marketing mix decisions– i. Product decisions–

ii. Place decisions–

iii. Promotion decisions–

iv. Pricing decisions–

c. Monitoring performance–

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III. THE MARKETING RESEARCH PROCESS

A. Defining the Problem–

B. Research Design–

C. Exploratory Research–

1. Exploratory research data collection

a. Focus groups–

b. Depth interviews–

c. Projective techniques–

d. Observation–

e. Case analysis–

D. Quantitative Research–

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Scientific Method

Hypothesis

1. Quantitative research data collection–

Experiments

Causal research

Surveys

Likert scales

Bipolar adjective scales

a. Administering surveys–

i. Personal interviews–

ii. Mall intercepts–

iii. Telephone surveys–

iv. Mail surveys–

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2. Sampling–

E. Interpreting and Reporting Survey Results–

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F. Who Does Marketing Research?–

1. In-company research–

2. External research–

IV. TECHNOLOGY’S EFFECT ON MARKETING RESEARCH

V. GLOBAL MARKETING RESEARCH

VI. ETHICS IN MARKETING RESEARCH AND INFORMATION USE

KEY TERMS

Case analysisCausal researchConvenience samplesDataDatabaseDepth interviewExperimentExploratory research

External dataFocus groupHypothesisInternal dataJudgment samplesLikert scalesMarketing decision support systemMarketing information systems

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Marketing intelligenceMarketing researchNonprobability samplesObservationPilot studyPopulation (universe)Primary dataProbability sampleProjective techniques

Quantitative researchResearch designSampleSampling frameScientific methodSecondary dataSimple random samplingStratified random samplingTransaction-based information system

1. Researchers try to prove a cause-and-effect relationship between two phenomena.

2. The chance of selecting a given individual from the sampling frame or population can be calculated.

3. Facts or statistics obtained from outside or inside the company.

4. Information that already has been collected.

5. A test under controlled conditions in order to confirm a marketing hypothesis.

6. The in-depth study of a few examples.

7. An interview usually involving eight to twelve people that provides exploratory insights into a problem.

8. The formal assembly and analysis of information about specific issues surrounding the marketing of goods and services.

9. Each member of the study population has an equal and known chance of being chosen.

10. Data obtained within the company.

11. Selections made by the researchers or interviewers based on their belief that those chosen represent a majority of the study population.

12. A measurement of the intensity of agreement with a particular statement.

13. A two-way communication bridge between the people who collect and analyze information and the executives who use it.

14. Data obtained outside the company.

15. A list of people in the universe who potentially could be contacted.

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16. A collection of data that can be retrieved by a computer.

17. A computerized system used to collect and analyze marketing data.

18. All the individuals or organizations relevant to the marketing research project.

19. Each member of a selected subgroup of the population has an equal chance of selection.

20. Captures, distills, and disseminates data to executives on a continuous basis.

21. A tentative assumption about a particular event or issue.

22. The researcher does not know the likelihood of selecting a particular respondent from the sampling frame.

23. Researchers simply watch the participants they are studying.

24. A systematic way to gather, analyze, and interpret data in order to confirm or disconfirm a prior conception.

25. A relatively unstructured conversation that allows the researcher to probe deeply into a consumer’s thoughts.

26. A small-scale project that allows the researcher to refine and test the approaches that eventually will be used.

27. Computerized link between a firm and its customers and/or distributors and suppliers.

28. Information collected for the first time.

29. Classification of a problem and ways to address it.

30. Enable respondents to project their thoughts onto a third party or object or through some type of contrived situation.

31. Information to help decision makers select the best course of action and estimate the probable results.

32. An outline of what will be gathered, what scores will be used, and how the data will be collected and analyzed.

33. People who happen to come along, such as shoppers in a store at a given time, whoever answers the doorbell, or travelers passing through an airport.

34. The group participating in a research project.

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MULTIPLE CHOICE

1. Which of the following is not part of a marketing information system?

a. Marketing datab. Computer systemsc. Marketing pland. Notes for analyzing datae. Decision models

2. A specialized type of MIS is a transaction-based information system (TBIS). This would

a. create a computerized link between the firm and suppliers of marketing research information.

b. connect the marketing group directly with the accounting group.c. provide a computerized link between the firm and its customers,

distributors, and suppliers.d. connect marketing with customer billing data.e. provide distribution management with marketing information.

3. What is the difference between data and information?

a. Data is uninterpreted, and information is in a form useful for decision making.

b. Data is at one point in time, and information is over time.c. Data and information are the same.d. Data is totally objective, and information is totally subjective.e. Data is used for decisions, and information is too subjective for

decisions.

4. Which of the following areas of the marketing mix is little or no use for marketing information?

a. Product decisionsb. Place decisionsc. Promotion decisionsd. Pricing decisionse. None of the above

5. Marketing information is particularly useful for which of the following?

a. Marketing decisionsb. Marketing planningc. Monitoring performanced. All of the abovee. None of the above

6. Which of the following is not part of the marketing research process?

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a. Defining the problemb. Creating a research designc. Conducting exploratory and quantitative researchd. Interpreting and reporting resultse. All of the above are parts of the marketing research process

7. Which of the following is a major reason for conducting quantitative research?

a. It helps select the best course of action.b. It is the first step in clarifying the problem.c. It is used to generate hypothesis about underlying causes of problems

or opportunities.d. It provides in-depth understanding of customer opinions and desires.e. All of the above

8. Eli Lilly has designed a marketing research project involving six groups of positions. Each group is comprised of approximately eight positions of the same type. Eli Lilly is conducting what type of research?

a. Quantitative researchb. Exploratory researchc. Definition researchd. Focus researche. None of the above

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9. Which of the following is not an exploratory research technique?

a. Telephone surveyb. Projective techniquesc. Observationd. Case Analysise. Depth interviews

10. Which of the following has the advantage of having a relatively low cost and relatively high and rapid response rate?

a. Personal interviewsb. Focus groupsc. Mail surveysd. Telephone surveyse. Test markets

11. Which of the following is correct with regard to sampling?

a. In a probability sample, there is always an equal chance of selecting a given individual.

b. In a probability sample, some people in the universe have no chance of being selected.

c. In a probability sample, the chance of selecting a given individual is known.

d. Probability samples can also be convenience samples.e. None of the above is correct.

12. Shelly Rosenberg works for a large Fortune 500 company in its marketing research department. She gets involved in some aspect of research for many of the company’s products. Which of the following is a plausible description of her activities?

a. She is responsible for marketing planning and global strategy development.

b. She designs and directs research that may be conducted by her own staff or outside agencies.

c. She designs advertising campaigns.d. She does research and development (R&D).e. She is the top marketing executive in the organization.

13. Which of the following is an example of secondary data?

a. Data that has been collected only after the first stages of the marketing research project have been completed

b. Data collected for the second time on the same sample of subjectsc. Data that was already available from some source prior to the

beginning of the research projectd. Data that is used to back up or support primary datae. Data that comes from respondents who talk about others rather than

themselves

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14. Which of the following could be considered unethical marketing research practices?

a. Conducting research designed only to support previous beliefsb. Attempting to sell respondents products when they believe they are

being recruited for a marketing research projectc. Putting conclusions in a report that cannot be substantiated by the

research informationd. Not debriefing subjects who have been manipulated in a marketing

research projecte. All of the above

15. Which of the following is/are correct with regard to marketing information systems?

a. Marketing research is often a part of the MIS.b. An MIS should be designed with a decision maker’s needs in mind.c. Timely information in a usable form is keyed to a successful MIS.d. An excellent MIS can be a competitive advantage.e. All of the above


I. THE CONCEPT OF MARKETING INFORMATION SYSTEMS AND MARKETING RESEARCH

Marketing Information Systems (MIS) are computerized systems that collect and organize marketing data on a timely basis to provide information for decision making. Marketing research is the formal assembly and analysis of data about specific issues surrounding the marketing strategy.

II. MARKETING INFORMATION SYSTEMS AND DATA

A marketing decision support system (MDSS) allows decision makers to access raw data from an MIS and manipulate it into a useful form. A specialized type of MIS is a transaction-based information system (TBIS), which is a computerized link between a firm and its customers and/or distributors and suppliers. These systems provide data on customer preferences, loyalty, sales trends, and an array of marketing issues.

A. Turning Data into Information–Data must be interpreted to assist upper-level managers and executives in making quick, informed decisions.

1. Types of data–External data come from outside the company. Internal data are found within the company. Primary data are gathered for the first time for a particular issue being

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addressed. Secondary data are those that already have been collected.

2. Data analysis–Transforms material into usable form, so insights can be developed. It usually involves data sorting, statistics, and/or models.

3. Information and decision making–Good information helps executives make key marketing decisions.

a. Marketing planning–Marketing information is required for the situation analysis, segmentation, targeting, and positioning.

b. Marketing mix decisions–Marketing information aids each of the marketing mix decisions

i. Product decisions–Marketing information on new products is essential. It also helps identify opportunities for new products.

ii. Place decisions–Marketing information helps determine the appropriate distribution channel, either directly to consumers or through intermediaries, such as wholesalers and retailers.

iii. Promotion decisions–Marketing information is necessary to help determine the budget and the proper combination of advertising, personal selling, or other promotion approaches. It also provides valuable feedback.

iv. Pricing decisions–Marketing information is collected regarding regional pricing, price ads, effectiveness of cash discounts and rebates, and the likelihood of buyers switching from one brand to another.

c. Monitoring performance–Helps managers make sure that plans and programs are moving ahead on target. Information is used to track progress, identify unsuspected obstacles, and make corrections to accomplish objective.

III. THE MARKETING RESEARCH PROCESS

A. Defining the Problem–The marketing researcher and key decision makers should work together to specify the problem.

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B. Research Design–An outline of what data will be gathered, which sources will be used, and how the data will be collected and analyzed.

C. Exploratory Research–Clarifies the problem and searches for ways to address it.

1. Exploratory research data collection

a. Focus groups–Usually involves eight to twelve people whose opinions provide qualitative insights into a problem.

b. Depth interviews–Relatively unstructured conversations that allow researchers to probe into a consumer’s thought processes. Often they are used to investigate the mechanisms of purchase decisions.

c. Projective techniques–Enable respondents to project their thoughts onto a third party, or through some type of contrived situation.

d. Observation–A technique whereby the participants are simply watched.

e. Case analysis–The in-depth study of a few examples. This technique is particularly appropriate for complex buying and competitive situations.

D. Quantitative Research–Selects the best course of action and forecasts the probable results. The scientific method is a systematic way to gather, analyze, and interpret data in order to confirm or disconfirm a prior conception. A hypothesis is a tentative assumption about a particular event or issue.

1. Quantitative research data collection–Two of the most common methods for collecting quantitative data are experiments and surveys. Experiments usually take place either where the marketing problem occurs or in a laboratory setting. Causal research attempts to find a cause-and-effect relationship between two events. Likert scales allow the intensity of feelings to be expressed and tend to provide information about a person’s attitude toward something. Bipolar adjective scales allow respondents to choose along a range between two extremes.

a. Administering surveys–

i. Personal interviews–Require face-to-face two-way communication between the interviewer and the respondent.

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ii. Mall intercepts–Occur at a shopping mall, and the interviewer chooses the respondents on some objective basis.

iii. Telephone surveys–Using a bank of telephones, marketers can contact a large number of people at approximately the same time.

iv Mail surveys–A questionnaire sent directly to the respondent’s home or place of business.

2. Sampling–A sampling frame is a list of people in the universe who potentially could be contacted. A sample is the group of people who are asked to participate in the research. In a probability sample, the chance of selecting a given individual can be calculated. When using nonprobablity samples, the researcher does not know the likelihood of selecting a particular respondent.

E. Interpreting and Reporting Survey Results–Once research is completed, the results must be reported to decision maker(s).

F. Who Does Marketing Research?–

1. In-company research–Three out of four large companies have a formal in-house marketing research department. Most are headed by experienced personnel who report to top executives. The research staff usually includes project directors, analysts, and specialists.

2. External research–Companies often hire out marketing research. Outside agencies include consulting companies, full-service research firms, and syndicated data companies.

IV. TECHNOLOGY’S EFFECT ON MARKETING RESEARCH

Technology has made it easier for marketers to connect with an increasing number of information sources. Advances in 3-D modeling, the Internet, etc. have provided fast and cost-effective ways to conduct marketing research.

V. GLOBAL MARKETING RESEARCH

Global marketing research is very challenging. It is not easy to locate secondary data in foreign countries, it is difficult to obtain exact translations, and it can be hard to find participants. Nevertheless, global marketing research is becoming more and more prevalent as companies expand their scope of operations.

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VI. ETHICS IN MARKETING RESEARCH AND INFORMATION USE

Marketing research can sometimes reflect the biases of marketers. The scientific method can help eliminate this problem. Representatives from industry, individual companies, academia, and the government help to regulate the content of information and to defend consumers from distorted messages.

ANSWERS: KEY TERMS

1. Causal research2. Probability sample3. Data4. Secondary data5. Experiment6. Case analysis7. Focus group8. Marketing research9. Simple random sampling10.Internal data11.Judgment samples12.Likert scales13.Marketing decision support system

(MDSS)14.External data15.Sampling frame16.Database17.Marketing information systems

(MIS)

18.Population (universe)19.Stratified random sampling20.Marketing intelligence21.Hypothesis22.Nonprobability samples23.Observation24.Scientific method25.Depth interview26.Pilot study27.Transaction-based information

system (TBIS)28.Primary data29.Exploratory research30.Projective techniques31.Quantitative research32.Research design33.Convenience samples34.Sample

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1. c2. c3. a4. e5. d6. e7. a8. b

9. a10.d11.c12.b13.c14.e15.e

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CHAPTER 6

MARKET SEGMENTATION, TARGETING, AND POSITIONING

CHAPTER OVERVIEW

Mass marketing is a single marketing strategy designed to appeal to all potential customers. This strategy does not generally work well because customers with differing characteristics have different needs and wants. Product differentiation is a strategy that alters products to stress their uniqueness from those of competitors. It recognizes that customers have differing needs and wants, but it doesn’t start with an understanding of them. Target marketing focuses on select groups of customers so marketers can more clearly understand their specific needs and wants and adjust accordingly.

Market segmentation separates potential customers into several groups with similar characteristics. Typical segmentation variables are geographic and demographic factors, diversity, psychographic and behavioristic factors, benefits, and usage rates. Customers within a segment should have similar needs, wants, and preferences; they should have similar media habits and shopping and buying patterns; the group should be large enough to justify attention; and data about individuals in each segment should be available.

Segments are selected as target markets based on such factors as their size and growth potential, competition, cost and efficiency, leadership qualities, and compatibility with the organization.

Undifferentiated marketing treats all customers alike and is similar to mass marketing. Differentiated marketing involves serving several segments but adjusting the marketing mix for each. Concentrated marketing focuses on one segment or only a few.

Positioning creates in the mind of consumers an image, reputation, or perception of the company and/or its products relative to competitors. It helps customers understand what is unique about a company and its products. For business products, a commodity, differentiated, or specialty positioning strategy can be used. Products are often positioned by benefit, by price and quality, by the time of use or application, by user or spokesperson, by a direct comparison, by product class, or by country of origin.

CHAPTER OBJECTIVES

1. Understand the advantages of target marketing and how it differs from mass marketing and product differentiation.

2. Describe how to do market segmentation and select target markets.

3. Explore three basic target marketing strategies: undifferentiated, differentiated, and concentrated marketing.

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4. Know how to do positioning, and describe several approaches marketers use to create valuable, lasting images of their products.

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CHAPTER OUTLINE

I. THE CONCEPT OF SEGMENTATION, TARGETING, AND POSITIONING

Segmentation

Target Marketing

Positioning

II. MARKET SEGMENTATION

A. Mass Marketing–

B. Product Differentiation–

C. Segmenting Markets–

Segmentation Variable

1. Geographic segmentation–

Geodemography

Zip code segmentation

2. Demographic segmentation–

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a. Segmentation by gender–

b. Segmentation by family life cycle–

c. Segmentation by age–

3. Segmentation based on diversity–

4. Psychographic and lifestyle segmentation–

Lifestyle

Psychographics

5. Behavioristic segmentation–

a. Segmentation by usage rates–

b. Readiness–

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c. Ability and experience–

d. Loyalty–

e. Media and shopping habits–

6. Segmentation by benefit–

7. Two common segmenting methods–

Take-down segmentation method

Build-up segmentation method

III. TARGET MARKETING

A. Selecting Target Segments–

1. Size and growth–

2. Competitive factors–

3. Cost and efficiency factors–

4. Segment leadership qualities–

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5. Compatibility with the company’s vision, objectives, and resources–

B. Finding New Markets to Target–

C. Target Marketing Strategies–

1. Undifferentiated marketing–

2. Differentiated marketing–

Decentralized decision making

Centralized decision making

3. Concentrated marketing–

4. Niche and micro marketing–

Niche

Micro marketing

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5. Mass customization–

D. Ethical Dimensions of Targeting–

E. Global Targeting–

IV. POSITIONING STRATEGIES

Positioning

Product Positioning

A. The Positioning Map–

B. Positioning Business Products–

C. Steps for Positioning–

1.

2.

3.

4.

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5.

6.

D. Bases for Positioning–

1. Positioning by benefit–

2. Positioning by price/quality–

3. Positioning by time of use or application–

4. Positioning by product user or spokesperson–

5. Positioning by direct comparison–

6. Positioning by product class or category–

7. Positioning by country of origin–

E. Repositioning–

KEY TERMS

Build-up segmentation methodCentralized decision makingConcentrated marketingDecentralized decision making

De-ethnicizationDemographic segmentationDifferentiated marketingGeodemography

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Heterogeneous groupHomogeneous groupMarket segmentMarket segment profileMass marketingMicro marketing NichePositioningPositioning map

Product differentiationProduct positionPsychographicsSegmentationSegmentation variableTake-down segmentation variableTarget marketingUndifferentiated marketingZip code segmentation

1. Division of a market into homogeneous groups with similar needs, wants, values, and buying behavior.

2. The organization’s marketing mix strategy is focused on one or only a few of many possible segments.

3. A company develops only one or a few products designed to appeal to a large proportion of all customers.

4. Starts with a set of variables and assigns all consumers to one of them.

5. A product heavily associated with one ethnic group is targeted at other segments.

6. A strategy that views all potential customers as though they were the same.

7. How a company wants to be perceived by customers within each target market.

8. Each of several segments is served with a marketing mix strategy matched specifically to its desires and expectations.

9. The segments on which a company decides to focus its energy and resources.

10. Combines geographic information with demographics to identify segments with common consumption patterns.

11. Buyers with diverse characteristics.

12. A homogeneous group with similar needs, wants, values, and buying behavior.

13. Starts with a single potential customer’s characteristics and adds a segment for each new characteristic found in other customers.

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14. Information about a market segment and the amount of opportunity it represents.

15. Dividing the market according to such characteristics as gender, family life cycle, household type, and income.

16. Marketing to an individual customer.

17. Buyers with similar characteristics.

18. A very small segment that most companies ignore because they fail to see any opportunity.

19. A diagram of how consumers in a segment perceive brands based on specific elements they consider important.

20. A small group of executives make all the major decisions for the whole company.

21. A marketing strategy with which companies attempt to make their products appear unique relative to the competition.

22. Numerous groups, each dedicated to a specific segment, make decisions about their segment.

23. Marketing approaches and tools used to identify lifestyles based on measures of consumers’ values, activities, interests, opinions, demographics, and other factors.

24. Any distinguishing market factor that can vary, such as gender, age, or income.

25. Division of a market into specific geographic locations based on the demographic make-up of the zip code area.

26. The way consumers categorize a brand based on important attributes.

MULTIPLE CHOICE

1. Plymouth General Corporation has decided to use a mass marketing strategy to identify a market for its product which it believes might be of use to a large percentage of the population. Which of the following is probably correct regarding its strategy?

a. It is probably inefficient and wasteful.b. It will probably not work well because unique customer needs and

wants will not be addressed.c. It ignores many parts of the marketing mix.d. All of the above

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2. Williams Auto Products produces after-market components for automobiles. It has chosen a product differentiation strategy. Which of the following conclusions can we make?

a. Its products will be better than its competitors.b. Its strategy recognizes that customers may have differing needs and

wants but doesn’t start with an understanding of them.c. It will have to prove that its product is better in order to beat

competitors.d. This is a market-oriented strategy.e. None of the above

3. Which of the following is a major advantage of market segmentation?

a. It allows a company to be all things to all people.b. It allows marketers to do a better job of understanding differing

needs and wants of different groups of customers.c. It is less efficient but more long-term focused than not segmenting

markets.d. It allows marketers to do less market analysis.e. All of the above

4. Kodak uses market segmentation as a first step in developing marketing plans within China. Based on this, we would expect it to

a. identify the average characteristics of all buyers to profile the market.b. produce low-priced film to appeal to as many buyers as possible.c. divide the market into homogeneous subgroups of consumers with

similar describing characteristics.d. do all of the above.e. do none of the above.

5. Abernathy and Associates uses geodemography as part of its segmentation procedure. We would expect it to use which of the following types of characteristics?

a. Geographic informationb. Data on consumer expendituresc. Demographicsd. All of the abovee. None of the above

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6. Which of the following is a segmentation approach?

a. Demographic segmentationb. Diversity segmentationc. Psychographic segmentationd. Behavioristic segmentatione. All of the above

7. Which of the following is most correct regarding ethnic segments?

a. They are not homogeneousb. They are homogeneousc. Ethnicization occurs when a product which is associated with a

nonethnic group is adjusted for the benefit of an ethnic segment.

d. Ethnic groups are almost always homogeneous and cannot be subsegmented.

e. All of the above

8. Which of the following is correct regarding psychographic or lifestyle segmentation?

a. Psychographics are based on deviant behavior.b. They include geographic, demographic, behavioral, and psychological

variables.c. Since psychographics are unmeasurable, they are totally useless.d. Lifestyle segmentation is more expensive than any other type of

segmentation.e. Activities, interests, and opinions are not used in lifestyle

segmentation.

9. Which of the following are variables that could be used in behavioristic segmentation?

a. Readinessb. Usagec. Loyaltyd. Ability and experience with a producte. All of the above

10. Which of the following factors are useful in selecting a target market segment?

a. Size and growthb. Competitive factorsc. Cost and efficiency factorsd. Compatibility with a company’s vision, objectives, and resources.e. All of the above

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11. Ralph Emerson Corporation has decided to use a differentiated marketing strategy. Which of the following would we expect?

a. That it would treat all customers the same.b. It would focus the organization’s marketing mix on one or two

possible segments.c. It would use mass customization.d. That it would select several segments and match several marketing

mix elements to appeal to the desires and expectations of customers within that segment.

e. That it would focus only on niches.

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12. Which of the following is correct with regard to positioning?

a. Positioning should typically occur after market segmentation and targeting takes place.

b. Positioning is a process of creating in the minds of consumers an image, reputation, or perception.

c. Positioning helps focus the marketing mix.d. Positioning is a key aspect of marketing strategy development.e. All of the above

13. Which of the following is an attempt to position a product?

a. Opening a geographic marketb. When Nike uses Michael Jordan and Tiger Woods as spokespersonsc. Dividing the market into homogeneous subsetsd. Reducing internal marketing costse. All of the above

14. Which of the following is a basis for positioning?

a. By time of user applicationb. By direct comparisonc. By country of origind. All of the abovee. None of the above

15. Which of the following is an example of repositioning?

a. When Wal-Mart lowers its prices to be competitive with Kmartb. When Johnson Controls adds another market segment to its list of

target marketsc. When Reebok develops an advertising campaign to alter the

impressions and minds of consumers about its product lined. When direct comparisons are made with a competitore. None of the above


I. THE CONCEPT OF SEGMENTATION, TARGETING, AND POSITIONING

Through segmentation, the market can be divided into several groups of people with similar characteristics. Target marketing involves selecting certain segments for emphasis. Positioning means creating an image, reputation, or perception in the minds of consumers about the organization or its products relative to the competition.

II. MARKET SEGMENTATION

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A. Mass Marketing–A single strategy designed to appeal to all customers.

B. Product Differentiation–Makes a product appear unique relative to others, whether produced by the same company or the competition.

C. Segmenting Markets–The total market is heterogeneous, meaning it has many types of buyers. Market segmentation divides the total market into homogeneous subgroups, or clusters with similar characteristics. A segmentation variable is any descriptive characteristic that helps separate all potential purchasers into groups.

1. Geographic segmentation–A common way to analyze a market is by geography. Geodemography combines geographic information with data on consumer expenditures and demographics to identify segments with common consumption patterns. Zip code segmentation divides the market according to the demographic make-up of the zip code area.

2. Demographic segmentation–Demographics like gender, family life cycle, household type, and income are used in this type of segmentation.

a. Segmentation by gender–The buying behavior of men and women is unique.

b. Segmentation by family life cycle–Families pass through stages, from young single adults, to marriage, to childbearing, to later life. These family stages are excellent segmentation categories.

c. Segmentation by age–Generational similarities and age cohorts can be segmentation categories.

3. Segmentation based on diversity–Ethnic segments are not homogeneous. De-ethnicization occurs when a product heavily associated with one ethnic group is targeted at other segments.

4. Psychographic and lifestyle segmentation–Links geographic and demo-graphic descriptors with a consumer’s behavioral and psychological decisions. Lifestyle is a person’s distinctive mode of living. Psychographics are marketing approaches and tools used to identify lifestyles based on measures of consumer values, activities, interests, opinions, demographics, and other factors.

5. Behavioristic segmentation–Categorizes consumers based on people’s awareness, product and media uses, and actions.

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a. Segmentation by usage rates–Most marketers divide the market into heavy, moderate, and light use and then look for char-acteristics that may explain why some people consume vastly greater amounts.

b. Readiness–Potential users go through a series of stages that describe their readiness to purchase. These stretch all the way from being unaware of a product, through trial, leading up to loyalty.

c. Ability and experience–The performance of products is deter-mined by the ability and experience of the user.

d. Loyalty–Loyalty can be categorized by switchers, moderate, and highly loyal.

e. Media and shopping habits–A broad range of media and shopping habits can be used to categorize shoppers.

6. Segmentation by benefit–Divides the market into homogeneous groups based on the attributes consumers seek from a particular product class.

7. Two common segmenting methods–Take-down segmentation starts with all consumers and seeks meaningful variables for subdividing the entire market. The build-up segmentation method starts with a single potential customer and adds others with similar characteristics.

III. TARGET MARKETING

A. Selecting Target Segments–The market segment profile compiles information about a market segment and the amount of opportunity it represents.

1. Size and growth–Market segments vary considerably by size and growth rate.

2. Competitive factors–Marketers must be aware not only of who is currently serving the segment but also of who is likely to do so in the future.

3. Cost and efficiency factors–It is more efficient to target some segments than others.

4. Segment leadership qualities–Some segments set the trend for adopting new ideas and products.

5. Compatibility with the company’s vision, objectives, and resources–To a significant degree, target segments reflect the

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qualities and character of the company itself.

B. Finding New Markets to Target–A major innovation occurs when companies discover new market segments.

C. Target Marketing Strategies–A targeting strategy defines the number of markets and the relative amount of resources allocated to each.

1. Undifferentiated marketing–Treats all customers the same. Companies look for desires that are common to most potential customers and then try to design products that appeal to everyone.

2. Differentiated marketing–Serves each segment with marketing mix elements matched specifically to its desires and expectations. It requires decentralized decision making, which permits numerous groups, each dedicated to a specific segment to make the decisions for their particular segment. Centralized decision making involves a small group of executives who make all the major decisions for the whole company.

3. Concentrated marketing–Focusing the organization’s marketing mix on one or two of the many possible segments.

4. Niche and micro marketing–A niche is a very small market that most companies ignore because they do not perceive adequate opportunity. Micro marketing involves marketing to one customer.

5. Mass customization–Serves one or several markets while efficiently responding to the needs and desires of individual consumers.

D. Ethical Dimensions of Targeting–Marketers must make ethical considerations before targeting ethnic segments.

E. Global Targeting–Marketers target various global segments by accommodating cultural differences.

IV. POSITIONING STRATEGIES

Positioning is the process of creating in the mind of consumers an image, reputation, or perception of the company and/or its products relative to competitors. Product position refers to the characteristic that consumers associate with a brand.

A. The Positioning Map–A diagram of how consumers in a segment perceive specific brand elements they find important. The ideal position is the one most preferred by each customer.

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B. Positioning Business Products–In addition to the same positioning dimensions used by consumers, business customers look at three other product classifications: commodity, differentiated, and specialty.

C. Steps for Positioning–

1. Identify the attributes or characteristics used by buyers in a segment to understand brands.

2. Diagram the most important dimensions on a grid (map).

3. Locate the brand relative to others based on how it is perceived by buyers.

4. Identify the ideal position for buyers in the segment.

5. Determine the fundamental way to position the product.

6. Develop the marketing mix that supports the positioning strategy selected.

D. Bases for Positioning–

1. Positioning by benefit–Attributes can be used to describe the appeal of a product.

2. Positioning by price/quality–Price can be used to signal higher quality or to attract consumers with lower prices than competitors.

3. Positioning by time of use or application–Marketers frequently position products on the basis of how they are used or applied.

4. Positioning by product user or spokesperson–In the mind of some people, products take on meanings associated strongly with the spokesperson.

5. Positioning by direct comparison–Nearly all consumers form impressions about a brand by comparing it to another.

6. Positioning by product class or category–When positioning a product, it is important to understand how consumers categorize products.

7. Positioning by country of origin–A company’s image can be affected by the mental association people make with its country of origin.

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E. Repositioning–Altering impressions in the minds of consumers and creating new ones.

ANSWERS: KEY TERMS

1. Segmentation2. Concentrated marketing3. Mass marketing4. Take-down segmentation

method5. De-ethnicization6. Undifferentiated marketing7. Positioning8. Differentiated marketing9. Target marketing10. Geodemography11. Heterogeneous group12. Market segment13. Build-up segmentation method

14. Market segment profile15. Demographic segmentation16. Micro marketing17. Homogeneous group18. Niche19. Positioning map20. Centralized decision making21. Product differentiation22. Decentralized decision making23. Psychographics24. Segmentation variable25. Zip code segmentation26. Product position


1. d2. b3. b4. c5. d6. e7. a8. b

9. e10.e11.d12.e13.b14.d15.d

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CHAPTER 7

CONNECTING WITH CUSTOMERS:UNDERSTANDING CONSUMER BEHAVIOR

CHAPTER OVERVIEW

Consumer behavior is the actions and decision processes of individuals and organizations in discovering, evaluating, acquiring, consuming, and disposing of products. Consumers behave differently in low- and high-involvement purchasing situations. When involvement is high, they use an elaborate five-step decision process, and their attitudes are learned actively. When involvement is low, they make choices without much effort, and learning is passive.

The five important psychological factors influencing consumer behavior are: motivation, perception, learning, attitudes, and information processing. Motivation is an internal force that directs behavior toward the fulfillment of needs. Perception is the process of recognizing, selecting, organizing, and interpreting stimuli in order to make sense of the world around us. Learning is any change in behavioral tendencies due to previous encounters. Attitudes consist of cognitive, affective, and behavioral components. Information processing involves three steps: input, processing, and output.

Several different types of social factors influence consumer behavior. The most important to marketers are culture, subculture, social class, reference groups, and family. Subcultures are groups that display homogeneous values and behaviors that diverge from the surrounding culture. Social class is a relatively stable division into groups based on such factors as education, income, and occupation. Reference groups provide norms and values which become the perspectives that influence a consumer’s behavior. Families have a profound influence on consumer behavior. Purchases conceived and carried out by one family member with little input from others are called autonomous decisions. Purchases involving several family members are called joint decisions.

CHAPTER OBJECTIVES

1. Appreciate the importance of involvement in the decisions consumers make.

2. Evaluate the effect on consumer behavior of such psychological factors as motivation, perception, learning, attitudes, and information processing.

3. Explain how such social factors as culture, subculture, social class, reference groups, and family help explain consumer behavior.

CHAPTER OUTLINE

I. THE CONCEPT OF CONSUMER BEHAVIOR

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II. CONSUMER INVOLVEMENT AND DECISION MAKING

A. Involvement–

Low-Involvement Purchases

High-Involvement Purchases

Passive Learning

Active Learning

B. Consumer Decision Making–

1. Problem recognition–

2. Information search–

3. Alternatives evaluation–

4. Purchase decision–

5. Purchase–

6. Purchase evaluation–

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III. PSYCHOLOGICAL FACTORS INFLUENCING CONSUMERS

A. Motivation–

1. Maslow’s Hierarchy of Needs–

2. Motivational conflict–

Approach-approach

Avoidance-avoidance

Approach-avoidance

B. Perception–

1. Selective exposure–

2. Selective attention–

3. Selective comprehension–

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4. Selective retention–

5. Subliminal perception–

C. Learning–

1. Classical conditioning–

Generalization

Discrimination

2. Operant conditioning–

D. Attitudes–

E. Information Processing–

1. Encoding–

2. Memory–

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IV. SOCIETAL AND SOCIAL DIVERSITY INFLUENCES CONSUMERS

A. Culture–

B. Subculture Diversity–

1. Hispanic consumers–

2. Asian consumers–

3. African American consumers–

C. Social Class–

1. Global social class dimensions–

D. Reference Groups–

Associative Reference Groups

Disassociative Reference Groups

E. The Family–

1. Family decision making–

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Autonomous decisions

Joint decisions

2. Family purchasing roles–

The initiator

The influencer

The decision maker

The purchaser

The user

3. Family life cycle–

a. Young singles–

b. New couples–

c. Full nesters–

d. Working empty nesters–

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e. Retired empty nesters–

f. Sole survivors–

F. How Technology Relates to Consumer Behavior–

G. The Ethics of Influencing Consumer Behavior–

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KEY TERMS

Active learningAlternatives evaluationApproach-approach conflictApproach-avoidance conflictAssociative reference groupsAttitudeAvoidance-avoidance conflictClassical conditioningConsumer behaviorCultureDisassociative reference groupsDiscriminationGeneralizationHigh-involvement purchaseInformation processingInformation searchLearning

Low-involvement purchaseMotivationOperant conditioningPassive learningPerceptionProblem recognitionPsychological needsPurchasePurchase decisionPurchase evaluationReference groupsSelective attentionSelective comprehensionSelective exposureSelective retentionSocial classSubculture

1. A financial commitment to acquire a product.

2. Groups with which people want to identify.

3. A subset of people with shared values within a culture.

4. Thinking through a situation by recalling information from stored memory or obtaining it from other sources.

5. After two stimuli are presented together repeatedly, people learn to respond to one in the same way as the other.

6. Motivational conflict that occurs when a consumer desires an alternative that has certain negative qualities.

7. Occurs when a consumer becomes aware of an unfulfilled need or desire.

8. The tendency to seek out or avoid information sources.

9. Groups with which people do not want to identify.

10. The process of recognizing, selecting, organizing, and interpreting stimuli in order to make sense of the world around us.

11. When consumers make different responses to different stimuli.

12. A complex buying decision made after extensive thought.

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13. Use of decision rules that attempt to determine which product would be most likely to satisfy goals.

14. The process of determining satisfaction or dissatisfaction with a buying choice.

15. A relatively stable division of society based on education, income, and occupation.

16. Motivational conflict that occurs when a consumer desires two objectives but cannot have both.

17. The mental system humans use to take in, sort, and act on what they learn.

18. Any change in consumer behavior caused by experience.

19. The tendency to remember some and forget other information.

20. Motivational conflict that occurs when consumers must choose between two undesirable alternatives.

21. Little energy is devoted to thinking about or elaborating on information.

22. A routine buying decision.

23. The use of reinforcement or punishment to shape behavior.

24. Needs that arise in the socialization process.

25. Substantial energy is devoted to thinking about and elaborating on information.

26. An internal force that directs behavior toward the fulfillment of needs.

27. The learned values, beliefs, language, symbols, and patterns of behavior shared by people in a society and passed on from generation to generation.

28. The buying choice after carefully weighing the alternatives.

29. A set of people whose norms and values influence a consumer’s behavior.

30. The actions and decision processes of individuals and households in discovering, evaluating, acquiring, consuming, and disposing of products.

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31. The tendency to heed information that supports current views and behaviors.

32. A mental and neural state of readiness, organized through experience, that exerts a directive or dynamic influence upon the individual’s response to all objects and situations encountered.

33. The tendency to interpret products and messages according to current beliefs.

34. Consumers make the same response to different stimuli.

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MULTIPLE CHOICE

1. Which of the following is included within the subject of consumer behavior?

a. Actions and decision processes of individualsb. Actions and decision processes of organizationsc. Discovering of productsd. Closing of productse. All of the above

2. Johnson is attempting to market a low-involvement consumer product. Which of the following would we expect?

a. That consumers will make choices without a lot of effortb. That consumers are likely to use only 4 of a 5-step decision processc. That consumer learning will be actived. That consumers are buying the product for a friende. All of the above

3. Which of the following are important factors that influence consumer behavior?

a. Attitudesb. Perceptionc. Information processingd. All of the abovee. None of the above

4. Which of the following is not a psychological factor that influences consumer behavior?

a. Motivationb. Learningc. Reference groupsd. Information processinge. Perception

5. Which of the following is not a social factor that influences consumer behavior?

a. Familyb. Social classc. Subcultured. Perceptione. Culture

6. Which of the following is true regarding low-involvement learning?

a. Passive learning occurs.b. Consumers do not actively seek information.

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c. Consumers are likely to learn simply by being around products or messages.

d. Little energy is expended.e. All of the above are true.

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7. Which of the following is most typical of high-involvement purchases?

a. They involve extensive and complex processes.b. They occur in more intelligent people.c. Low-priced items usually fall in this category.d. Consumers who get the best deals usually use only high-involvement

decision processes.e. All of the above are typical.

8. Which of the following is a good example of avoidance-avoidance conflict?

a. The consumer has to choose between purchasing a new sweater or a new pair of slacks for a special occasion.

b. The consumer must stay away from good tasting high calorie content foods or spend hours working out under undesirable conditions.

c. The consumer must spend money to join a fitness club or make payments on a new automobile.

d. The consumer must choose only one of two equally desirable brands.e. None of the above are good examples.

9. Which of the following is most correct regarding perception?

a. Most information available to consumers is screened out.b. People have a tendency to take in information that is related to

current behaviors and views.c. Consumers do not objectively interpret information.d. All of the above are correct.e. None of the above are correct.

10. Which of the following types of learning is most likely to involve reinforcement or punishment?

a. Classical conditioningb. Subliminal learningc. Perceptual learningd. Relational learninge. Operant condition or reinforcement learning

11. Rebecca Barnstorm really likes the “Got Milk?” commercials because of many of the spokespersons that are used. These spokespersons represent what aspect of consumer behavior?

a. Subculturesb. Familyc. Social classd. Perceptione. Reference group members

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12. Williams Hardware has identified segments of customers based on similarities and income and occupation. They are segmenting using what dimension of consumer behavior?

a. Reference groupb. Familyc. Subcultured. Culturee. Social class

13. Which of the following is most correct with regard to family decision making?

a. Different family members have different purchasing roles depending on the type of product being consumed within the family.

b. Family life cycle does not affect family purchasing.c. Since retired couples have lived together for long periods of time,

both members are likely to share the same purchase role.d. Family has less influence on purchasing than the social class.e. All of the above are correct.

14. Which of the following could be considered an unethical way of influencing consumer behavior?

a. Attempting to use psychological principles to develop advertisementsb. Attempting to influence attitudes that are firmly heldc. Misusing statistics to create fear that gains attention to one’s

productsd. Using children in advertisementse. All of the above

15. Which of the following is not part of the family life cycle?

a. New couplesb. Newbornc. Retired empty nestersd. Sole survivorse. Young singles


I. THE CONCEPT OF CONSUMER BEHAVIOR

II. CONSUMER INVOLVEMENT AND DECISION MAKING

Involvement and decision-making processes are closely related. Knowledge about them provides insight into how and why consumers behave as they do.

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A. Involvement–Low-involvement purchases involve routine decisions. High-involvement purchases involve extensive and complex decisions. Involvement also influences the relationship between evaluation and behaviors. Passive learning occurs when consumers do not actively search for information about low-involvement products. Active learning occurs when substantial energy is devoted to thinking about and elaborating on information.

B. Consumer Decision Making–

1. Problem recognition–Occurs when a customer becomes aware of an un-fulfilled desire.

2. Information search–Consists of thinking through the situation, calling up experiences stored in memory, and seeking information from others.

3. Alternatives evaluation–Based on decision rules about which product or service is most likely to satisfy goals.

4. Purchase decision–The buying choice after carefully weighing the alter-natives.

5. Purchase–A financial commitment to make an acquisition.

6. Purchase evaluation–The process of determining satisfaction or dis-satisfaction after the buying choice.

III. PSYCHOLOGICAL FACTORS INFLUENCING CONSUMERS

A. Motivation–An internal force that directs behavior toward the fulfillment of needs. Psychological needs are those that arise in the socialization process.

1. Maslow’s Hierarchy of Needs–According to Maslow, five basic needs underlie most human goals. At the base of the pyramid are physiological needs essential for survival. On the next level is safety, which includes basic security and freedom from physical abuse. On the third level of the pyramid is the need for love and belonging. The fourth level is the need for esteem, which comes from prestige, status, and self-respect. The final level is the need for self-actualization.

2. Motivational conflict–People are motivated to attain some ends and avoid others. Approach-approach conflict occurs when a consumer desires two objectives but cannot have both. Avoidance-avoidance conflict results when a choice must be made between two undesirable alternatives. Approach-

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avoidance conflict occurs when a consumer desires an alternative that has positive and negative qualities.

B. Perception–The process of recognizing, selecting, organizing, and interpreting these stimuli in order to make sense of the world around us.

1. Selective exposure–The consumer’s ability to seek out or avoid information.

2. Selective attention–The tendency of consumers to heed information that supports current views.

3. Selective comprehension–Consumers’ tendency to interpret messages based on their biases.

4. Selective retention–Consumers remember some messages and forget others.

5. Subliminal perception–A theory that it is possible to bypass the conscious perception and market to consumers’ subconscious.

C. Learning–Any change in consumers’ behavioral tendencies caused by experience.

1. Classical conditioning–People can learn to respond to one stimulus in the same way as another if the two stimuli are presented together. Generalization occurs when people make the same response to different stimuli. Discrimination occurs when consumers make different responses to different stimuli.

2. Operant conditioning–The use of reinforcement or punishment to dis-courage others.

D. Attitudes–Structured sets of beliefs that reflect the consumer’s knowledge and feelings about specific products.

E. Information Processing–Brings together many psychological concepts to describe how consumers use data to arrive at choices.

1. Encoding–The process of converting information into knowledge.

2. Memory–The brain function that stores and recalls encoded information. Short-term memory interprets what is sent from sensory memory. In long-term memory, a vast amount of information may be held for years or even indefinitely.

IV. SOCIETAL AND SOCIAL DIVERSITY INFLUENCES CONSUMERS

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A. Culture–The learned values, beliefs, language, symbols, and patterns of behavior shared by people in a society and passed on from generation to generation.

B. Subculture Diversity–Subculture is a group of people with shared values within a culture.

1. Hispanic consumers–A booming subculture which is growing rapidly due to births and immigration.

2. Asian consumers–A market segment which is highly educated, affluent, and geographically concentrated. The number of Asian-Americans has doubled in the past 20 years.

3. African-American consumers–African-Americans represent about 12% of the U.S. population and have an annual buying power of approximately $270 billion.

C. Social Class–A relatively homogeneous grouping of people based on similarities in income and occupation.

1. Global social class dimensions–Marketers study global social class dimensions in order to understand consumer profiles, habits, interests, and purchasing behavior.

D. Reference Groups–People whose norms and values influence a consumer’s behavior. Consumers depend on them for product information, purchase comparisons, and rules about correct or incorrect buying behavior. Associative reference groups are those to which people want to belong. Disassociative reference groups are those to which people do not want to belong.

E. The Family–Marketers generally look at three important aspects of family: How do families make decisions as a group? What roles can various members play in a purchase decision? How does family purchase behavior change over time?

1. Family decision making–Autonomous decisions are made when a purchase is conceived and carried out by one member of the family with little influence from the others. Joint decisions are made when two or more family members are involved.

2. Family purchasing roles–The initiator is the person who first suggests that a particular product be purchased. The influencer is the person who provides valuable input to the decision-making process. The decision maker is the person who makes the final buying decision. The purchaser is the person who physically goes out and makes the purchase. The user is the person who uses the product.

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3. Family life cycle–As families age, they progress through a series of predictable stages.

a. Young singles–This group is in the process of setting up their first household.

b. New couples–Young married people without children generally try to build an economic foundation for later responsibilities.

c. Full nesters–A household with children.

d. Working empty nesters–This category consists of three types of consumers: middle-aged singles, married couples with no children, and married couples with grown children who have left home.

e. Retired empty nesters–Consumers at this stage of the family life cycle are economically and socially diverse.

f. Sole survivors–Men and women whose spouse has died as well as older single people who never married.

F. How Technology Relates to Consumer Behavior–Many marketers use the Internet as a tool to study consumer behavior.

G. The Ethics of Influencing Consumer Behavior–Using sexual themes and shock tactics to influence consumers can have ethical implications.

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ANSWERS: KEY TERMS

1. Purchase2. Associative reference groups3. Subculture4. Information search 5. Classical conditioning6. Approach-avoidance conflict7. Problem recognition8. Selective exposure9. Disassociative reference groups10.Perception11.Discrimination12.High-involvement purchase13.Alternatives evaluation 14.Purchase evaluation15.Social class16.Approach-approach conflict17.Information processing

18.Learning19.Selective retention20.Avoidance-avoidance conflict21.Passive learning22.Low-involvement purchase23.Operant conditioning24.Psychological needs25.Active learning26.Motivation27.Culture28.Purchase decision29.Reference groups30.Consumer behavior31.Selective attention32.Attitude33.Selective comprehension34.Generalization


1. e2. a3. d4. c5. d6. e7. a8. b

9. d10.e11.e12.e13.a14.c15.b

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CHAPTER 8

BUSINESS-TO-BUSINESS MARKETING

CHAPTER OVERVIEW

A large number of companies sell most of their products to other companies which is known as business-to-business marketing. In total volume, it is much larger than consumer marketing. Multiple steps bring the final product to consumers as businesses sell materials and processes to each other along the supply chain. In addition to the government, there are commercial markets, extractor industries, trade industries, institutions, utilities, and transportation and telecommunications companies.

Business markets rely on derived demand to create opportunities for their products. The demand for business goods and services tends to be inelastic, which means that a price change does not greatly affect the types of products. The accelerator principle recognizes that some business goods and services are highly sensitive to changes in consumer demand.

Organizations make purchases to support their production requirements and business needs. Buying decisions of three types: straight rebuy, modified rebuy, and new-task situations. The buyer-seller relationship between businesses develops over time, usually in three sequential phases—courtship, relationship building, and partnership.

Different functional areas may be involved in business purchases, ranging from operational units to a purchasing department. The group of people who make a purchase decision form the buying center. Various buying-center members play different roles: gatekeeper, information seeker, advocate, linking pin, decision maker, and user.

Eight steps may be involved in a purchase, but not every purchase requires all of them. A number of factors influence organizational buying, such as the professional backgrounds of decision makers, information sources, the buying process, and the organization’s size, orientation, and degree of centralization.

CHAPTER OBJECTIVES

1. Describe the types of organizations and products involved in business-to-business marketing, and understand the importance of this market.

2. Understand the link between consumer demand and business-to-business marketing.

3. Describe the organizational buying process.

4. Know how buyer-seller relationships work, including informal and contractual partnerships.

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5. Learn what functions and roles within organizations influence the purchase of a broad range of products.

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CHAPTER OUTLINE

I. THE CONCEPT OF BUSINESS-TO-BUSINESS MARKETING

Business-to-Business Marketing

II. BUSINESS-TO-BUSINESS MARKETS

A. Types of Markets–

1. Commercial market–

2. Extractor industries–

3. Trade industries–

4. Institutions–

5. Utilities–

6. Transportation and telecommunications–

7. Government–

B. Business and Commercial Markets Differ–

C. Segmenting the Business Market–

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1. Company demographics–

2. Geographic scope–

3. Buying approach–

4. Product/technology–

D. The Supply Chain–

E. Business Market Demand–

1. Derived demand–

2. Inelastic demand–

3. Fluctuating demand: the accelerator principle–

F. Business Globalization–

III. ORGANIZATIONAL BUYING

A. Outsourcing: To Make or Buy–

Make-or-Buy Decisions

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Outsourcing

B. Types of Buying Decisions–

Straight Rebuy

Modified Rebuy

New-Task Situation

C. Competitive Bidding–

IV. RELATIONSHIPS BETWEEN BUYERS AND SELLERS

A. The Courtship Phase–

B. The Relationship Phase–

C. The Partnership Phase–

D. Ethics and Business Relationships–

V. FUNCTIONS INVOLVED IN BUSINESS PURCHASES

A. Purchasing Agents–

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B. Functional Managers–

C. The Buying Center–

1. Gatekeepers–

2. Information seekers–

3. Advocates–

4. Linking pins–

5. Users–

6. Decision makers–

VI. THE ORGANIZATIONAL BUYING PROCESS

A. Problem Recognition

B. General-Need Description

C. Product Specifications

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D. Search for Suppliers

E. Proposal Solicitation and Selection

F. Order-Routine Specifications

G. Purchase and Use

H. Performance Review and Feedback

VII. INFLUENCES ON ORGANIZATIONAL BUYING BEHAVIOR

A. Information Sources–

B. Time and Risk Factors–

C. Company Factors–

D. Joint Decisions and Conflict Resolution–

Problem Solving

Persuasion

Bargaining

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Politicking

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KEY TERMS

AdvocatesBusiness-to-business marketingBuying centerCommercial marketDecision makersDerived demandGatekeepersInelastic demandInformation seekersLinking pinsMake-or-Buy DecisionModified rebuy

New-task situationOutsourcingProblem solvingProducersProduct factorsResellersStraight rebuySupply chainTrade industriesUsersUtilities

1. Organizations that acquire finished products and distribute them to others.

2. Companies that buy products to combine them into other products.

3. Organizations and individuals that acquire goods and services to produce other goods and services sold to an end-consumer for profit.

4. Persons within the buying center who establish contact among functional areas formed within the buying organization.

5. The demand for business-to-business products depends ultimately on the demand of end-consumers.

6. Price changes which do not have much influence on demand.

7. Marketing goods and services to other producers of goods and services.

8. The linkage of organizations involved in the creation and delivery of a product.

9. Persons within the buying center who locate data that can be used by themselves or others during the purchasing process.

10. An unfamiliar product is purchased from an unfamiliar supplier.

11. Whether to supply products in-house or purchase them from other businesses.

12. Include time and perceived risk which influence the organizational buying process.

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13. Persons within the buying center who have the authority to make or approve a purchase decision.

14. A routine purchase with which the organization has considerable experience.

15. Persons within the buying center who actually use the product

16. A familiar product is purchased from an unfamiliar supplier, or a new or different product is bought from a familiar supplier.

17. Purchase products and services from other companies.

18. Persons within the buying center who exercise a powerful influence over group decisions, a form of group leadership.

19. A method of conflict resolution whereby all parties agree to put the organization’s goals first.

20. The group of people from the buying organization who make a purchase decision.

21. Companies that purchase a product and sell it in the same form for profit.

22. Persons within the buying center who control the flow of commercial (outside) information into the buying organization. They are responsible for screening all potential sellers and allowing only the most qualified to have access to decision makers.

23. Companies that distribute gas, electricity, and water.

MULTIPLE CHOICE

1. Business markets rely on drive demand to create opportunities for their products. This means that

a. whether all business concerns have increases or decreases in sales in total is dependent on whether other markets—for example, consumer markets—are increasing in size or decreasing in size.

b. the demand for all business products is based on the amount of supply available.

c. demand for industrial products is self-contained.d. demand for all business products can be easily increased by greater

amounts of promotion.e. marketing is more important in business markets than in consumer

markets.

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2. Which of the following is not an example of a business market?

a. Organizations that acquire goods and services which are then used to produce other goods and services

b. Consumers which purchase from businessesc. Public and private institutions that provide health education and

welfare servicesd. Organizations that acquire and distribute finished products to

businessese. Organizations that obtain and process raw materials

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3. Business-to-business markets differ from consumer markets because

a. they have pure buyers.b. they tend to be larger.c. like companies tend to be geographically concentrated.d. they use formalized purchasing approaches.e. more parties may be involved in the purchase decision.

4. ABC Corporation segments industrial buyers based on the degree of centralization and functional environment plus the geographical range of operations. What type of segmentation are they using?

a. Company demographicsb. Hierarchical segmentationc. Psychographicd. Geographic scope and buying approache. Product technology

5. Business markets tend to have an inelastic demand. This means

a. a large change in price will have a major effect on the quantity demanded.

b. buyers very seldom change their demand.c. a change in price has relatively little effect on quantity demanded.d. once demand changes, you can expect it to spring back.e. none of the above.

6. Ralph Frederickson is a member of a buying committee for a division of General Motors. He is working on a make-or-buy decision. This means

a. he must decide why a recent purchase was unsuccessful.b. he must decide whether to purchase products from the outside or

have them made within his own organization.c. he must identify which corporations make products and which

corporations buy products that are likely to supply them to his organization.

d. all of the above.e. none of the above.

7. Beth Arnolds is selling to an organization which is purchasing a product for the first time and is unfamiliar with her organization as a supplier. What type of buying decision would this organization engage in?

a. Elevatedb. Innovative task circumstancec. Modified rebuy situationd. New-task situatione. Complicated buying circumstance

8. Which of the following is not a part of the buying center?

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a. Purchasing coordinatorsb. Gatekeepers c. Information seekersd. Advocatese. Decision makers

9. Which of the following is an element of the eight-stage buying process?

a. Need descriptionb. Product specificationc. Proposal solicitationd. Supplier selectione. All of the above

10. Wing Medical Corporation is in the process of purchasing a component from a supplier that goes into the manufacture of one of the products that it builds. It perceives a high risk in making this purchase. Consequently, we would expect

a. that few people would be involved in the purchasing decision.b. that outside consultants would be used in the purchasing decision.c. that several people would be used in assessing the purchase decision.d. that it would not purchase the product at all.e. none of the above.

11. Providence Manufacturing Company is currently involved in making a decision about the purchase of a new assembly line for its operation. The decision is likely to be joint among several key members of the organization who are using a problem-solving approach. Which of the following would we expect?

a. All members of the buying center are in agreement with regard to the goals of this particular purchase.

b. Buying-center people are likely to try to persuade each other about the best overall purchase.

c. A good deal of politicking is likely to occur.d. People in the buying-center are more likely to bargain than to use

persuasion.e. None of the above

12. When sellers attempt to create relationships with buyers, they are likely to go through which of the following three phases?

a. Courtship, relationship, partnershipb. Introduction, consolidation, reviewc. First, second, thirdd. Screening, consolidation, evaluatione. Buildup, breakdown, consolidation

13. Which of the following is most correct regarding competitive bidding?

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a. It is used by organizations that want to establish long-term relationships.

b. It is used by organizations wishing to get the greatest amount of customer service.

c. It is more likely to be used with unique products than commodity products.

d. It is used by organizations that want to obtain the lower price.e. It is unethical, as it puts undue pressure on sellers.

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14. Which of the following is a type of uncertainty or risk diversion experienced by some buying organizations?

a. Acceptance uncertaintyb. Technical uncertaintyc. Transaction uncertaintyd. Need uncertaintye. All of the above

15. Which of the following factors is/are likely to influence the purchasing process?

a. Size of the organizationb. Orientation of the organizationc. Centralization and decentralizationd. All of the abovee. None of the above


I. THE CONCEPT OF BUSINESS-TO-BUSINESS MARKETING

Business-to-business marketing is the marketing of goods and services to other businesses, governments, and institutions. It includes everything but direct sales to consumers. Globally, it’s the largest market by far.

II. BUSINESS-TO-BUSINESS MARKETS

A. Types of Markets–The business market is divided into seven categories.

1. Commercial market–Organizations that acquire goods and services which are then used to produce other goods and services.

2. Extractor industries–Organizations that obtain and process raw materials.

3. Trade industries–Organizations that acquire or distribute finished products to businesses or to consumers.

4. Institutions–Public and private organizations that provide health, education, and welfare services to consumers.

5. Utilities–Companies that distribute gas, electricity, and water.

6. Transportation and telecommunications–The transportation portion is comprised of companies that provide passenger and

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freight service. Telecommunications companies supply local and long-distance telephone service as well as cable and broadcasting.

7. Government–The subdivisions in the government market category are (1) the government, (2) 50 state governments, and (3) 8,700 local units.

B. Business and Commercial Markets Differ–Business markets differ from consumer markets in the number of buyers, size of purchase, supplier relationships, geographic concentration, purchasing approaches, and buying influences.

C. Segmenting the Business Market–The business market is segmented using the same procedures for the consumer market, but several unique factors provide an excellent way to categorize business consumers.

1. Company demographics–Industry, size, financial stability, place in the distribution channel, and ownership.

2. Geographic scope–The range of operations affects how an organization buys.

3. Buying approach–Degree of centralization, functional involvement, and partnering.

4. Product/technology–Level of technology, configuration purchased, and design orientation.

D. The Supply Chain–Links organizations involved in the creation and delivery of a product.

E. Business Market Demand–

1. Derived demand–The amount of sales for business-to-business products depends ultimately on the demand for products by consumers.

2. Inelastic demand–Products so necessary that a change in price has relatively little effect on the quantity demanded.

3. Fluctuating demand: the accelerator principle–When a small fluctuation in consumer demand has a larger effect on business demand.

F. Business Globalization–The growth of international business has provided companies with a number of business-to-business marketing opportunities overseas.

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III. ORGANIZATIONAL BUYING

A. Outsourcing: To Make or Buy–Make-or-buy decisions occur when companies must decide whether to supply products or services in-house or buy them from other businesses. Outsourcing is the purchase of products from other companies.

B. Types of Buying Decisions–A straight rebuy is a routine purchase with which the organization has had a great deal of experience. A modified rebuy situation involves purchasing a familiar product from an unfamiliar supplier or a new or different product from a familiar supplier. A new-task situation involves purchasing an unfamiliar product from an unfamiliar supplier.

C. Competitive Bidding–Used by organizations that want to obtain the lowest price rather than establish long-term relationships with suppliers.

IV. RELATIONSHIPS BETWEEN BUYERS AND SELLERS

A. The Courtship Phase–During courtship, purchasers express their desires to sellers, who develop proposals designed to satisfy the buyers’ needs.

B. The Relationship Phase–The buyers and sellers work together for the first time, which strengthens the bond between them.

C. The Partnership Phase–Begins after numerous purchases have been completed satisfactorily and long-term agreements are reached.

D. Ethics and Business Relationships–Purchasing agents are often very familiar with the trade secrets, production plans, and technologies of an organization. Misuse of this information has both ethical and legal implications.

V. FUNCTIONS INVOLVED IN BUSINESS PURCHASES

A. Purchasing Agents–Hired to help the organization buy a broad range of products most effectively. They establish and enforce policies and procedures that maintain consistent purchase arrangements with all suppliers.

B. Functional Managers–Hold a position in a specific operational area of the buying organization.

C. The Buying Center–A group of people in the organization who make a purchase decision.

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1. Gatekeepers–Control the flow of commercial information into the buying organization.

2. Information seekers–Locate data that can be used by them or others during the purchasing process.

3. Advocates–Exercise a powerful influence over buying-center decisions. They participate in most group discussions, have high status, and play a leadership role.

4. Linking pins–Contact among the functional areas involved in the buying center is provided by linking pins.

5. Users–Those within the buying center who actually will use the product being purchased.

6. Decision makers–The person(s) with the authority to make or at least approve the buying decision.

VI. THE ORGANIZATIONAL BUYING PROCESS

An organization may go through eight different stages when making a buying decision, but every purchase does not require all of them.

A. Problem recognition occurs when the buying organization realizes that a situation can be improved by acquiring a good or service.

B. A general-need description is developed that identifies the basic characteristics of what is wanted.

C. Product specifications are usually technical and very detailed: precise dimensions, tolerances, quantity, etc.

D. Search for suppliers. New products may require a lengthy search, and straight rebuys may involve a very limited one.

E. During the proposal solicitation and selection stage, the buying organization invites bids and assesses them according to the criteria set forth in the specifications.

F. When a supplier has been selected, the buying organization negotiates the final terms of the agreement, called order-routine specifications.

G. During the purchase and use, the buyer signs a contract, takes the delivery, and begins to evaluate whether the product does the job as anticipated.

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H. In performance review and feedback, the buyer lets the supplier know how well the product meets the needs of the organization.

VII. INFLUENCES ON ORGANIZATIONAL BUYING BEHAVIOR

A. Information Sources–Organizational buying is influenced by the sources of information—salespeople, exhibitions and trade shows, direct mail, press releases, journal advertising, professional and technical conferences, trade news, word of mouth, and others.

B. Time and Risk Factors–Time pressure relates to the speed with which a purchase must be made. Perceived risk refers to what can be lost rather than gained when making a purchase.

C. Company Factors–The organization’s orientation, its size, and its degree of centralization.

D. Joint Decisions and Conflict Resolution–Organizations usually attempt to resolve conflicts through problem solving and persuasion. Problem solving in the buying context occurs when all decision makers agree on the goals of the particular purchase. Persuasion occurs when buying-center members do not agree on purchase goals, and each tries to convince the others that his/her own goals should take precedence. Bargaining occurs when people in the buying center cannot arrive at a solution. Politicking occurs when buying-center members of the organization have strong ego needs.

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ANSWERS: KEY TERMS

1. Trade industries2. Producers3. Commercial market4. Linking pins5. Derived demand6. Inelastic demand7. Business-to-business marketing8. Supply chain9. Information seekers10.New-task situation11.Make-or-buy decision12.Product factors

13.Decision makers14.Straight rebuy15.Users16.Modified rebuy17.Outsourcing18.Advocates19.Problem solving20.Buying center21.Resellers22.Gatekeepers23.Utilities


1. b2. b3. d4. d5. c6. b7. d8. a

9. e10.c11.a12.a13.d14.e15.d

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CHAPTER 9

PRODUCT DECISIONS AND STRATEGIES

CHAPTER OVERVIEW

Each product has three distinguishing aspects: its core, branded, and augmented dimensions. A bundling strategy combines several products into one offering sold together. Five categories are used to classify consumer products. Unsought products are bought on the spur of the moment. Emergency products are bought because of unexpected events, such as an accident or theft. Convenience products are inexpensive and are usually purchased near home. Brand name and wide distribution are very important for these items. Shopping items are selected after comparisons are made. Specialty products have unique characteristics and value.

Business products are divided into capital and operational products, depending on their primary use. Capital products include installations—such as offices and factories—and equipment—such as delivery vans and computers. Operational products either become part of other products (raw and processed materials, components, and subassemblies) or help run the business (accounting and waste removal services or office supplies).

A product line is one item or a number of related products. Companies may have one or more product lines, each with many or few items. The depth and breadth of product line are terms describing whether few or several lines and items are sold. The amount of product standardization is a major factor for global firms.

A brand is distinguished from the product in general or other brands. Brands signify the “personality” of a product. The brand name and trademark can provide immediate recognition and credibility. There are several brand strategies: the generic approach, individual strategy, family brand, manufacturer brand, and private label brands.

Product liability holds marketers responsible for injuries and damages caused by a faulty product. Warranties refer to how products perform when used. Essentially, a product should perform as it was designed. A product recall is instituted by the government or manufacturer to withdraw or modify a product. This occurs when a product is defective, especially if the potential for injury exists.

CHAPTER OBJECTIVES

1. Describe the major dimensions used by marketers to differentiate their products from competitors. Understand bundling and unbundling.

2. Understand consumer and business product classifications based on how and why products are purchased and consumed.

3. Know how organizations make product line decisions that determine what will be sold, including the degree of standardization chosen for global markets.

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4. Recognize that branding and brand strategies are important aspects of building and maintaining a brand name.

5. Know how to create brand equity—the value associated with a product’s name.

6. Discuss the many legal and ethical issues surrounding brand and packaging decisions.

CHAPTER OUTLINE

I. THE CONCEPT OF PRODUCTS

Product

II. DIMENSIONS OF A PRODUCT

A. Core Products–

B. Branded Products–

C. Augmented Products–

III. PRODUCT CLASSIFICATIONS

A. Consumer Product Classifications–

1. Unsought products–

2. Emergency products–

3. Convenience products–

4. Shopping products–

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5. Specialty products–

B. Business Products–

1. Capital products–

2. Production products–

3. Operational products–

IV. PRODUCT-LINE DECISIONS

A. Product-Line Depth and Breadth–

B. Global Products–

V. THE CONCEPT OF BRANDS

Brand

A. Trademarks–

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B. Trademark Piracy–

C. Brand Strategies–

1. Generic brand strategy–

2. Individual brand strategy–

3. Family brand strategy–

4. Manufacturer’s brand strategy–

5. Private brand strategy–

6. Hybrid brand strategy–

VI. BRAND EQUITY: CONNECTING WITH A SUCCESSFUL BRAND

Brand Equity

Brand Awareness

Brand Loyalty

Brand Insistence

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Perceived Quality

Brand Associations

A. Maintaining Brand Value–

B. Developing a Successful Brand Name–

C. Diversity in Brand Marketing–

VII. PACKAGING AND LABELING

VIII. ETHICAL ISSUES SURROUNDING PRODUCT SAFETY AND LIABILITY

Product Liability

A. Product Warranties–

B. Product Recalls–

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KEY TERMS

Augmented productBrandBrand associationsBrand awarenessBranded productBrand equityBrand insistenceBrand loyaltyBreadthBundling strategyCapital productsConvenience productsCore productDepthEmergency productsFamily brand strategyGeneric brand strategyHybrid brand strategy

Individual brand strategyItemJoint marketingLabelsManufacturer’s brandsPackagingPerceived brand qualityPrivate brandProductProduct liabilityProduct lineProduct recallShopping productsSpecialty itemsSuppliesTrademarkUnsought productsWarranties

1. A single brand name covers the entire group of products in the company’s line(s).

2. Purchases generally made only after the consumer has compared several alternatives.

3. The assets linked with the brand name and symbol that add value to the product.

4. Buyers are unwilling to accept substitutes.

5. The number of items in a product line.

6. Products with unique characteristics that provide unusual value to the purchaser.

7. The degree to which a brand consistently produces satisfaction by meeting customer expectations.

8. The number of different lines a company markets.

9. Items that consumers don’t think about frequently and for which they don’t perceive much need.

10. Relatively inexpensive items that consumers purchase frequently and with minimum effort.

11. Consumers choose one brand over others available.

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12. Purchases due to an unexpected event and for which the consumer has an urgent need.

13. No brand name is used.

14. Many products are combined into a single offering.

15. A combination of two or more product strategies.

16. Characteristics enhancing value beyond that of the core and branded product.

17. There is a unique name for each major product or product line.

18. A specific version of a product within a product line.

19. Cooperation between two companies to sell their products, which tend to be complementary.

20. Information printed on a product’s package to inform consumers and help promote the product.

21. Costly items that last a long time but do not become part of any finished product.

22. Implied or written expectations about product performance under use conditions.

23. A product container that (1) protects and identifies the item; (2) communicates messages to consumers; (3) makes the product more convenient to use; (4) facilitates storage; (5) is environmentally friendly; and (6) carries the UPC and protects against misuse.

24. Brands named after the manufacturer.

25. Evoke positive attitudes and feelings in consumers’ minds.

26. The name wholesalers or retailers attach to products they resell for numerous suppliers.

27. Any physical object, service, idea, person, event, place, or organization offered to satisfy consumers’ needs and wants.

28. The physical item or intangible service that the customer receives.

29. The responsibility of marketers and manufacturers for injuries and damages caused by a faulty product.

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30. The core product plus the characteristics that allow the consumer to differentiate it from similar products.

31. Closely related products marketed by the organization.

32. The extent to which consumers recognize the brand and are likely to include it among the set of brands they consider.

33. The withdrawal from the market, by either a manufacturer or the federal government, and repair, replacement, or discontinuation of potentially harmful products.

34. Consumable items used for business operations.

35. A distinctive form or figure that identifies the brand.

36. A distinguishing name and/or symbol to identify and differentiate products from those of competitors.

MULTIPLE CHOICE

1. What are the three distinguishing aspects of a product?

a. Generic, branded, accentuatedb. Core, branded, augmentedc. Place, promotion, priced. Primary, secondary, tracerye. Basic, branded, bundled

2. The Delphi Division of General Motors has decided to use a bundling strategy to market one of its product lines. It is most likely to

a. put products in batches for shipment.b. put together products from several other manufacturers.c. combine several products into one offering sold together.d. use a high and discounted price strategy.e. market parts of a product separately which can be combined into one

overall product.

3. Which of the following could be considered products?

a. Physical objectb. Servicec. Goodd. Ideae. All of the above

4. Gateway Computers pays careful attention to its augmented products. This means that

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a. it carefully selects suppliers.b. it designs its own products.c. it uses outside designers for products.d. it fully warranties every product.e. the marketing strategy encompasses characteristics that provide

value in addition to the core and branded product.

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5. Hartshafter and Marks has a product that requires consumers to make comparisons of alternative brands. What type of product do they have?

a. Shopping productb. Unique productc. Unorthodox productd. Convenience producte. Contemplative product

6. Accounting tends to treat this type of product as an investment because it is likely to last a long time and not be any part of any finished product. This product is called a(n)

a. raw material.b. processed material.c. operational product.d. capital product.e. accountable product.

7. General Electric has several product lines and several products within each product line. Consequently, we would say that it has what type of product mix?

a. Conglomerateb. Deep and broadc. Globald. Combined focuse. None of the above

8. Which of the following is a generic brand?

a. Penicillinb. Novellc. Carrierd. Rockwelle. Ford

9. Which of the following is a consumer product classification?

a. Emergency productsb. Unsought productsc. Shopping productsd. Specialty productse. All of the above

10. Kellogg Company attempts to build brand equity in each of its products. Brand equity is essentially

a. how long it has owned the brand.b. the value of advertising campaigns associated with the brand.

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c. the value of the brand as an asset which can generate long-term cash flow.

d. the perceived quality of the brand.e. the feelings of honesty associated with the owner of the brand.

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11. Which of the following are characteristics of a successful brand name? Brand should

a. be easy to remember.b. be distinct from other brands.c. be positive.d. not have bad connotations for other parts of the world.e. be all of the above.

12. IGA is a retailer in the grocery business. It places its own name on many products. Which strategy is it using?

a. Manufacturer’s brand strategyb. Private brand strategyc. Family brand strategyd. Individual brand strategye. Generic brand strategy

13. Which of the following is not a role of packaging and labeling?

a. To contain and protectb. To purifyc. To communicate messagesd. To make the product more convenient to usee. To facilitate the storage

14. Which of the following is generally the case regarding products?

a. Users are liable for their own actions in the case of injury.b. Neither users nor marketers are liable for injuries or damages caused

by a product.c. Manufacturers and marketers are held accountable for injuries or

damages caused by a faulty product.d. If faulty products are recalled, manufacturers are never held liable.e. Product liability laws do not apply to international trade.

15. A product recall is

a. when consumers remember the product.b. the withdrawal of a product by a manufacturer or the federal

government to prevent harm from occurring to customers.c. products that are discontinued because they become old.d. bringing back a product that has been used in order to test its

durability.e. all of the above.


I. THE CONCEPT OF PRODUCTS

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A product is any physical object, service, idea, person, event, place, or organization that can be offered to satisfy consumers’ needs and wants.

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II. DIMENSIONS OF A PRODUCT

A. Core Products–The physical item or intangible service that the customer receives.

B. Branded Products–The core product plus the characteristics that allow the consumer to differentiate it from similar products.

C. Augmented Products–Have characteristics that enhance value beyond that of the core and branded products.

III. PRODUCT CLASSIFICATIONS

A. Consumer Product Classifications–

1. Unsought products–Items not thought about frequently and not perceived as very necessary.

2. Emergency products–Purchased when an unexpected event takes place and the consumer has an urgent need for a product.

3. Convenience products–Relatively inexpensive items that consumers purchase frequently and with minimum effort.

4. Shopping products–Generally purchased only after the consumer has compared several alternatives.

5. Specialty products–Have unique characteristics that provide unusual value to the purchaser.

B. Business Products–

1. Capital products–Costly items that last a long time but are not part of any finished product.

2. Production products–Raw materials, processed materials, component parts, and subassemblies which become part of other goods.

3. Operational products–Purchased to help run the business.

IV. PRODUCT-LINE DECISIONS

A product line consists of the closely related products marketed by an organization. An item is a specific version of a product within a product line.

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A. Product-Line Depth and Breadth–The depth of a product line refers to the number of items. Product line breadth refers to the number of different lines a company markets.

B. Global Products–Different areas of the world vary greatly in terms of consumer and business purchasing approaches, media exposure, and tastes and

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preferences. In addition, product standards and regulations, measurements and calibration systems, and economic factors—all of which affect products—vary immensely.

V. THE CONCEPT OF BRANDS

A brand is a distinguishing name and/or symbol intended to identify and differentiate products from those offered by competitors.

A. Trademarks–A distinctive form or figure that identifies a brand.

B. Trademark Piracy–A brand name and the trademark symbol or logo are protected by law if they are legally registered. That gives the owner sole right to use them any way he/she chooses.

C. Brand Strategies–

1. Generic brand strategy–Uses no brand name whatsoever.

2. Individual brand strategy–Assigns unique brand names to each major product or product line.

3. Family brand strategy–Uses a single brand name for the entire group of products in a company’s line.

4. Manufacturer’s brand strategy–Brands named after the manufacturer.

5. Private brand strategy–When wholesalers or retailers place their own name on a product.

6. Hybrid brand strategy–A combination of two or more approaches.

VI. BRAND EQUITY: CONNECTING WITH A SUCCESSFUL BRAND

Brand equity is the assets linked with the brand name and symbol that add value to the product or service. Brand awareness is the extent to which consumers recognize the name and are likely to include it among the set of brands they consider. Brand loyalty occurs when consumers select a particular brand over others on a regular basis. Brand insistence means that buyers are not willing to accept substitutes. Perceived quality is the degree to which brands consistently produce satisfaction by meeting customer expectations. Brand associations evoke positive attitudes and feelings in the consumers’ minds.

A. Maintaining Brand Value–To prevent brand names from becoming available for general use, a company must continuously inform the

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public about its exclusive ownership.

B. Developing a Successful Brand Name–Names should be easy to remember, distinctive, positive, and used around the world.

C. Diversity in Brand Marketing–Marketers increase brand equity by meeting the needs of various cultures, nationalities, and age groups.

VII. PACKAGING AND LABELING

The role of packaging and labeling is to contain and protect items, communicate messages to customers, make the product more convenient to use, facilitate product storage, be environmentally friendly, contain product codes, and protect against misuse.

VIII. ETHICAL ISSUES SURROUNDING PRODUCT SAFETY AND LIABILITY

Product liability refers to the fact that marketers and manufacturers are held responsible for injuries and damages caused by a faulty product.

A. Product Warranties–Written or implied expectations about product performance under use conditions.

B. Product Recalls–The withdrawal of a potentially harmful product from the market, by either a manufacturer or the federal government, for its repair, replacement, or discontinuation.

ANSWERS: KEY TERMS

1. Family brand strategy2. Shopping products3. Brand equity4. Brand insistence5. Depth6. Specialty items7. Perceived brand quality8. Breadth9. Unsought products10.Convenience products11.Brand loyalty12.Emergency products13.Generic brand strategy14.Bundling strategy15.Hybrid brand strategy16.Augmented product17.Individual brand strategy18.Item

19.Joint marketing20.Labels21.Capital products22.Warranties23.Packaging24.Manufacturer’s brands25.Brand associations26.Private brand 27.Product28.Core product29.Product liability30.Branded product31.Product line32.Brand awareness33.Product recall 34.Supplies35.Trademark 36.Brand

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1. b2. c3. e4. e5. a6. d7. b8. a

9. e10.c11.e12.b13.b14.c15.b

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CHAPTER 10

PRODUCT INNOVATION AND MANAGEMENT

CHAPTER OVERVIEW

Every organization needs to develop a product mix consistent with its overall strategy. It must match current and new products with current and new segments. This produces four basic options for marketing mix management. A core business focus maintains, expands, or harvests current products in current markets. Product development improves or adds new products for sale to current segments. Market development seeks new market segments for existing products. Organizations can use this framework to help allocate resources to obtain the best overall performance.

Product innovations are of three types: continuous innovations, dynamically continuous innovations, and discontinuous innovations. How rapidly a product is accepted depends on several factors.

The new product development process has seven steps. First, a strategy is outlined by top management. Second, idea generation provides a list of possibilities. Third, idea screening narrows the list to those most compatible with the organization’s need. Fourth, business analysis develops a product concept and financial analysis to assess feasibility and estimate profitability under numerous assumptions. Fifth, prototype product development involves all the steps leading up to and including the creation of a working model. Sixth, test marketing provides a limited trial of the marketing strategy under real or simulated conditions. Seventh, commercialization occurs when the product is formally introduced into the market.

Products can be viewed as moving over a life cycle with several stages. In the introduction phase, sales usually take off slowly despite heavy promotion. During the growth stage, sales increase, and product technology often enters its second generation. At maturity, sales begin to slow and level off. The decline stage is marked by a downward sales trend.

People go through a series of steps in adopting a new product. Individuals can be grouped into five categories that describe the diffusion process: innovators, early adopters, early majority, late majority, and laggards.

CHAPTER OBJECTIVES

1. Provide a framework to evaluate the extent to which existing or new products are marketed to existing or new market segments.

2. Understand how the characteristics of innovation influence the speed with which they are accepted.

3. Know the steps used to develop new products, from the initial idea through commer-cialization.

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4. Show how the product life cycle concept can be used to build and adjust marketing strategies over time.

5. Recognize how innovations are adopted by consumers by being spread from group to group.

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CHAPTER OUTLINE

I. THE CONCEPT OF PRODUCT INNOVATION AND MANAGEMENT

II. PRODUCT INNOVATION AND GROWTH

A. Product Mix Growth Options–

B. Core Business Focus–

C. Market Development–

D. Product Development–

Line Extension

E. Diversification–

F. Types of Product Innovation–

Continuous Innovation

Dynamically Continuous Innovation

Discontinuous Innovation

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III. WHY INNOVATIONS SUCCEED

A. Relative Advantage–

B. Compatibility–

C. Product Complexity–

D. Trialability–

E. Observability–

IV. THE NEW PRODUCT DEVELOPMENT PROCESS

A. New Product Strategy–

B. Idea Generation–

C. Idea Screening–

D. Business Analysis–

Concept Testing

E. Prototype Product Development–

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F. Market Testing–

Test Market

Simulated Product Test

G. Commercialization–

V. ORGANIZATIONAL STRUCTURES AND INNOVATION

Simultaneous New Product Development

Sequential New Product Development

Organizational Structures

1.

2.

3.

4.

5.

A. The Ethics of Product Imitation–

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VI. MANAGING PRODUCTS OVER THE LIFE CYCLE

A. Stage 1: Introduction–

B. Stage 2: Growth–

C. Stage 3: Maturity–

D. Stage 4: Decline–

E. Variations in Product Life Cycles–

F. Extending the Product Life Cycle–

1.

2.

3.

4.

G. The International Product Life Cycle–

VII. ADOPTION AND DIFFUSION

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Adoption Process

Diffusion Process

A. Innovators–

B. Early Adopters–

C. Early Majority–

D. Late Majority Buyers and Laggards–

KEY TERMS

Adoption processBusiness analysisCommercializationConcept testingContinuous innovationDiffusion processDiscontinuous innovationDynamically continuous innovationEarly adoptersEarly majorityIdea generationInnovatorsLaggardsLate majorityLine extensionMarket manager

Market developmentNew product committeeNew product departmentProduct conceptProduct developmentProduct life cycleProduct managerProduct mixProduct screeningSequential new product developmentSimulated product testSimultaneous new product developmentTest marketVenture team

1. Responsible for one or several similar product lines targeted at specific segments.

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2. The more skeptical consumers who purchase products after the early majority.

3. Refining product ideas into written descriptions, pictures, and specifications.

4. People from various functional areas work on different stages of product development.

5. The third group of adopters, more risk-averse in purchase decisions than innovators and early adopters.

6. An entirely new product with new functions.

7. Offering new products to existing market segments.8. When people from all functional areas work together to develop

products.

9. The second group of consumers to purchase new products.

10. Helps identify the likelihood of a product’s success.

11. The gathering of suggestions for new products from a number of sources using a range of formal and informal methods.

12. The first group of consumers to purchase a new product.

13. Experimentation with the marketing strategy in artificial conditions.

14. Consumers who resist new products the longest.

15. Final stage in the new product development process, when the product is introduced into the market.

16. A new product closely related to others in the line.

17. Assesses the attractiveness of the product from a sales, cost, profit, and cash-flow standpoint.

18. Offering existing products to new market segments.

19. A minor alteration in an existing product, such as a new style or model, that can be easily adopted without significant changes in consumer behavior.

20. A group of key functional personnel who are brought together periodically to develop new products.

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21. The steps an individual consumer goes through in making a product choice.

22. All the product lines and products a company offers.

23. The organizational unit responsible for identifying product ideas and preparing them for commercialization.

24. Personnel from various areas of the company who are given release time to work on a specific assignment.

25. The four stages a product goes through: introduction, growth, maturity, and decline.

26. A familiar product with additional features and benefits that require or permit consumers to alter some aspect of their behavior.

27. Oversees one or several products targeted at all market segments.

28. A small geographic area, with characteristics similar to the total market, in which a product is introduced with a complete marketing program.

29. The spread of innovations from one group of consumers to another over time.

30. Identifying products with the strongest potential for success.

MULTIPLE CHOICE

1. Pepsi Cola has recently diversified itself in several product lines that do not focus on the soft drink area. At the same time, it is promoting more to its existing market segments. Which of the following would be considered the strategy it embarked upon?

a. Market developmentb. Product developmentc. Core business focusd. Concentrice. Maturity

2. Company A is currently extending its business into new segments using existing products. Which of the following is the strategy?

a. Business developmentb. Product developmentc. Diversificationd. Market development

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e. Strategy focus

3. Which of the following is a reason why innovation succeeds?

a. Relative advantageb. Compatibilityc. Observabilityd. Trialabilitye. All of the above

4. Micromarketing Logic Corporation has developed a software package that uses the Excel® spreadsheet methodology for a specific retailing inventory application. How would you classify this in a product innovation?

a. Dynamically continuous innovationb. Continuous innovationc. Discontinuous innovationd. Futuristic innovatione. Enhanced innovation

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5. National Furniture Systems has recently designed a new type of removable wall for open office environments. Engineers have indicated that the system has many advantages particularly in being able to put up and reconfigure office spaces rapidly. However, the advantages are apparent only after considerable discussion, and the products are relatively complex to understand and use. We would expect the speed of adoption of the new system to be

a. relatively fast once comparisons can be made with existing systems.b. relatively slow because of relative advantage and compatibility issues.c. about average because advantages of engineered products do not

need to be easily observed.d. relatively fast because setup and takedowns can be tried easily.e. none of the above.

6. Which of the following is not a step in the new product development process?

a. Idea screeningb. Product experimentationc. Idea generationd. Prototype product developmente. Commercialization

7. The Chrysler new product development process involves a totally integrated team and people from many functional areas who work on projects. Which approach to new product development do they use?

a. Simulatedb. Sequentialc. Coordinatedd. Simultaneouslye. None of the above

8. When an organization selects a small geographical region and introduces a new product with an entire marketing mix, we would say that the product is being

a. test marketed.b. experimentally targeted.c. screened.d. diffused.e. commercialized.

9. Maria Nelson is responsible for developing a marketing strategy to introduce a new pharmaceutical product. Which potential buyer category would it be best for her to target?

a. Laggardsb. Late majority

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c. Innovatorsd. Early majoritye. Early adopters

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10. Internationally Exercise Equipment Corporation has a fitness equipment product that possesses the following market characteristics. Sales are relatively low, marketing costs are high, cash flow is negative, and product awareness is relatively low. At which stage of the product life cycle would you categorize this product?

a. Developmentb. Maturityc. Introductiond. Declinee. None of the above

11. Michael Chang oversees a single product line for all market segments. Michael Chang’s title is probably

a. market manager.b. top product executive.c. product manager.d. accounting manager.e. distribution specialist.

12. Nelson Framer is highly valued for his innovativeness and hard work at Star Corpora-tion. He has been given release time to work with a team of other people from the com-pany on a special assignment. He is part of a

a. market committee.b. new product development team.c. task force.d. executive committee.e. hierarchical structure.

13. Part of making a decision to build a product prototype, National Stamping looks at the attractiveness of the product from a sales, cost, profit, and cash-flow standpoint. This begins with a written description, pictures, and specifications of the product. At what stage of the new product development process is it?

a. Idea generationb. Idea screeningc. Market testingd. Commercializatione. Business analysis

14. This product has experienced approximately level sales for a long period of time. In which stage of the product life cycle are you most likely to categorize it?

a. Declineb. Growthc. Maturity

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d. Introductione. Flat

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15. Which of the following are approaches for extending the life cycle of the product?

a. Promoting more varied useb. Encouraging more use per occasionc. Stimulating more frequent used. Selling the product to new segmentse. All of the above


I. THE CONCEPT OF PRODUCT INNOVATION AND MANAGEMENT

II. PRODUCT INNOVATION AND GROWTH

A. Product Mix Growth Options–The product mix is all the product lines and products a company offers. Every business needs to develop a mix consistent with its overall marketing strategy.

B. Core Business Focus–Emphasizes the marketing of existing products to existing market segments.

C. Market Development–Occurs when existing products are offered to new segments. Firms may sell directly to these or use new channels of distribution.

D. Product Development–Occurs when companies make new products for existing market segments. A line extension is an innovation closely related to other products in the line.

E. Diversification–Occurs when new products are introduced into new market segments.

F. Types of Product Innovation–Continuous innovation is a minor change in an existing product, such as a new style or model, that can easily be adopted without significant alterations in consumer behavior. A dynamically continuous innovation is a familiar product with additional features and benefits that require or permit consumers to alter some aspect of their behavior. A discontinuous innovation is an entirely new product with new functions.

III. WHY INNOVATIONS SUCCEED

A. Relative Advantage–The amount of perceived superiority of the new product in comparison to existing ones.

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B. Compatibility–Compatible products fit easily into the consumer’s current thinking or system.

C. Product Complexity–The degree to which a new product is easy to understand and use.

D. Trialability–The ease with which potential users can test a new product at little or no expense.

E. Observability–The product’s benefits can be easily seen by potential buyers.

IV. THE NEW PRODUCT DEVELOPMENT PROCESS

A. New Product Strategy–Leading-edge companies have a strategy for new product development. The business vision is the beginning point, since most company missions require that new technologies and innovative processes be used to create superior customer value.

B. Idea Generation–The use of a range of formal and informal methods to stimulate concepts from a number of sources. Among the possible sources are employees, customers, technology analysis, distributors and suppliers, competitors, R&D, environmental trend analysis, and outside consultants.

C. Idea Screening–Identifies those ideas with the strongest potential for success.

D. Business Analysis–Assesses the attractiveness of a product from a sales, cost, profit, and cash-flow standpoint. Business analysis starts with the product concept, which refines the idea into written descriptions, pictures, and specifications. Concept testing helps identify the facilitators and inhibitors to a product’s success.

E. Prototype Product Development–A prototype refers to one or several working models of the product, usually created by a team of marketing, manufacturing, engineering, and R&D personnel. These models are necessary for market testing.

F. Market Testing–A limited trial of the strategy for the product under real or simulated conditions. A test market is a small geographical area, with characteristics similar to the total market, and where the product is introduced with a complete marketing program. Test marketing allows companies to implement the product strategy on a limited basis under real conditions. A simulated product test is an experiment in artificial conditions.

G. Commercialization–Introduces the product to the market.

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V. ORGANIZATIONAL STRUCTURES AND INNOVATION

Simultaneous new product development occurs when people from a number of functional areas work together. Sequential new product development passes responsibility from one functional area to the next. There are many acceptable organizational structures: product or market managers, new product development, new product committee, venture team, and consulting organizations.

A. The Ethics of Product Imitation–Some argue that since companies make substantial investments in new products, they should be the only ones allowed to market them. Others argue that imitation results in healthy competition.

VI. MANAGING PRODUCTS OVER THE LIFE CYCLE

The product life cycle consist of four stages: introduction, growth, maturity, and decline.

A. Stage 1: Introduction–During the introductory phase of the product life cycle, sales slowly take off and grow. Marketers concentrate on getting customers to be aware of and accept the product class.

B. Stage 2: Growth–During the growth stage, the pace of consumer acceptance and sales quickens. Product technology often enters its second generation. Manufacturing and promotion are adjusted. Leading producers focus on customer service.

C. Stage 3: Maturity–As products mature, sales level off and may remain flat for long periods. Gains in market share for one company come at the expense of another.

D. Stage 4: Decline–In the decline stage, sales of new units diminish. While a good replacement parts market exists for some products, many companies are ready to exit or harvest.

E. Variations in Product Life Cycles–Several kinds of product life cycle are possible. These include high technology products, fads, and styles or fashions.

F. Extending the Product Life Cycle–Firms that resist change sometimes keep products going far beyond their usefulness. But there are times when it is good business to extend the product life cycle. There are four common ways to do this.

1. Selling to new segments

2. Stimulate more frequent use

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3. Encourage more use per occasion

4. Promoting more varied use

G. The International Product Life Cycle–Describes how new, maturing, and standardized products differ globally.

VII. ADOPTION AND DIFFUSION

The adoption process describes how consumers make a product choice. There are five steps: knowledge, persuasion, decision, implementation, and confirmation. The diffusion process describes the spread of innovations from gone group to another over time.

A. Innovators–The first consumers to purchase a new product.

B. Early Adopters–Second group to purchase new products; critical to marketers. They are the key to good word-of-mouth publicity and wider acceptance.

C. Early Majority–Tend to be more risk-averse than innovators and early adopters. They wait to see how something new works for others before purchasing it for themselves.

D. Late Majority Buyers and Laggards–The more skeptical consumers tend to fall into the late majority group. Even more resistant are the laggards, and little, if anything, can be done to convince them to buy a new product.

ANSWERS: KEY TERMS

1. Market manager2. Late majority3. Product concept4. Sequential new product

development5. Early majority6. Discontinuous innovation7. Product development8. Simultaneous new product

development9. Early adopters10.Concept testing11.Idea generation 12.Innovators13.Simulated product test14.Laggards

15.Commercialization16.Line extension17.Business analysis18.Market development19.Continuous innovation20.New product committee21.Adoption process 22.Product mix23.New product department24.Venture team25.Product life cycle26.Dynamically continuous innovation27.Product manager28.Test market29.Diffusion process30.Product screening


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1. c2. d3. e4. a5. b6. b7. d8. a

9. e10.a11.c12.c13.e14.c15.e

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CHAPTER 11

SERVICES AND NONPROFIT MARKETING

CHAPTER OVERVIEW

The service economy is growing at about twice the rate of the sale of goods. There are several global forces creating growth in services: technology, changes in quality of life, government deregulation, competition in professional services, privatization, need for specialization, growth in franchising, and technology.

Services are differentiated from goods on five key dimensions: intangibility, the relationship with the customer, the importance of the service encounter, simultaneous production and consumption, storage and inventory, and quality controls.

Most products contain elements of both goods and services. Consumers tend to evaluate services differently from goods. Services are high in credence and experience attributes, while goods are high in experience and search qualities. Judgments of service quality usually have three parts: the dimensions of service quality, consumer factors, and quality perceptions. The dimensions of service quality involve tangibles, reliability, responsiveness, assurance, and empathy. Customer factors are word of mouth, personal needs, past experience, and external communication. Quality perception is based on the difference between what is expected and what is received.

Service mix development requires an understanding of four elements. First, similar to goods, a service is based on the core, augmented, and branded services similar to the goods offering. Second, when developing new services, marketers must give careful consideration to complexity and divergence. Also, service development should take into account the consumer’s personal behaviors and the atmosphere in which the service will be performed, both of which are important interactive elements. Global adjustments in services are often required because of cultural factors. In addition, it’s important to note that brand equity is equally if not more important for services than for goods.

There are many types of services including person marketing, entertainment and event marketing, place marketing, political marketing, and cause marketing. Nonprofit marketing accounts for about 7% of economic activity in the United States and is growing. It is performed by organizations that are tax-exempt, such as churches, museums, foundations, hospitals, universities, and orchestras.

CHAPTER OBJECTIVES

1. Identify the forces that have produced and will continue to create tremendous growth in the service economy.

2. Understand which characteristics of services must be adjusted for successful marketing.

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3. Know how to develop the service mix.

4. Explore the expanded concept of services.

5. Appreciate the importance of nonprofit marketing and the uniqueness of this important marketing arena.

CHAPTER OUTLINE

I. THE CONCEPT OF SERVICES

II. GLOBAL FORCES CREATING GROWTH IN SERVICES

A. Technology–

B. Quality of Life–

C. Government Deregulation of Services–

D. Competition in Professional Services–

E. Privatization–

F. The Need for Specialization–

G. Growth of Franchising–

III. SERVICE CHARACTERISTICS THAT AFFECT MARKETING STRATEGY

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A. The Contrasts Between Goods and Services–

1. Marketing intangibles–

2. Relationship of provider to customer–

3. The service encounter connection–

4. Simultaneous production and consumption–

5. No storage and inventory–

6. Service quality control–

B. The Service-Goods Continuum–

C. Consumer Evaluation of Services–

Search Attributes

Experience Attributes

Credence Attributes

D. Service Quality–

1. Dimensions of service quality–

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Tangibles

Reliability

Responsiveness

Assurance

Empathy

2. Consumer factors–

Word of mouth

Personal needs

Past experience

External communication

3. Quality perception–

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IV. DEVELOPING THE SERVICE MIX

A. Core, Augmented, and Branded Services–

B. Developing New Services–

1. Functional elements in service development–

Complexity

Divergence

2. Interactive elements in service development–

3. Structuring new services–

V. AN EXPANDED CONCEPT OF MARKETED SERVICES

A. Person Marketing–

B. Entertainment and Event Marketing–

C. Place Marketing–

D. Political Marketing–

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E. Cause Marketing–

F. Internal Marketing–

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VI. THE MARKETING OF NONPROFIT SERVICES

Nonprofit Marketing

A. Types of Nonprofit Service Providers–

B. Need for Revenues in Excess of Costs–

C. Fundraising and Revenue Generation–

D. Providing Positive Social Benefits–

E. Ethical Issues Surrounding Nonprofit Organizations–

KEY TERMS

Cause marketingCore serviceDivergenceEvent marketingFranchiseFunctional elementInteractive elementInternal marketingNonprofit marketing

PerishablePerson marketingPlace marketingPolitical marketingServicesService complexityService credence qualitiesService encounter

1. Promoting an individual’s personality, character, and appeal, which in turn may assist in the promotion of a product.

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2. Product attributes that buyers find almost impossible to evaluate even after purchase and consumption.

3. The amount of routine procedure or standardization involved in providing a service.

4. A contractual agreement whereby an entrepreneur pays a fee in exchange for the franchise name and use of the organization’s marketing plan and agrees to meet operating requirements.

5. The interaction between the consumer and the seller.

6. Value exists for a short time.

7. Promoting an event in order to generate revenues and enhance the reputation of an organization.

8. The number and intricacy of steps involved in producing a service.

9. The personal behaviors and atmosphere of the service environment.

10. Gaining public support and financing in order to change or remedy a situation.

11. Promoting a geographical location in order to appeal to businesses, investors, and/or tourists.

12. The basic benefit delivered.

13. The activities performed by an organization not motivated by profit to influence consumers to support it with a contribution.

14. Promoting an individual or idea motivated by the desire to influence public policy and/or voters.

15. Ideas, tasks, experiences, or activities that can be exchanged for value to satisfy the needs and wants of consumers and businesses.

16. One business unit markets its capabilities to others within the same firm.

17. Whether a service accomplishes what it is supposed to do.

MULTIPLE CHOICE

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1. What is the most fundamental way of categorizing products?

a. Technological and nontechnologicalb. New and oldc. Profitable and unprofitabled. Goods and servicese. Public and private

2. Which of the following are major forces that are creating growth in services?

a. Quality of lifeb. Competition for professional servicesc. Privatizationd. The need for specializatione. All of the above

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3. Kelly Food Services is thinking about expanding into foreign markets. Which of the following global forces is it most likely to experience?

a. Governments turning over to private parties many of the services they traditionally provided for citizens

b. Prevention of sale of food because of possibility of contaminantsc. A greater standardization and more regulation of food productsd. The prevention of vitamin additives to food suppliese. None of the above

4. Which of the following can be said with regard to the contrast between goods and services?

a. Goods are more intangible, while services are more tangible.b. Prior to the sale, service exists primarily as a promise of some

experience, while a good can be seen.c. Goods and services are precisely the same.d. Services occur only after goods break down.e. Services and goods both must be produced prior to consumption.

5. Which of the following is correct with regard to services as opposed to goods?

a. Services are always more expensive.b. Services are always less expensive.c. Since services are perishable, their value may exist for a short period

of time.d. All of the abovee. None of the above

6. Which is correct with regard to the purchases of goods and services?

a. Most purchases are pure services.b. Most purchases are pure goods.c. Most purchases fall somewhere along a continuum between pure

goods and pure services.d. When goods are purchased, they are almost always purchased with a

service.e. When goods and services are purchased, they are generally priced

separately.

7. Which of the following is correct with regard to the concept of service quality?

a. There is no such thing as service quality.b. Service quality is precisely the same as product quality.c. Service quality can be measured in a manner similar to that of

product quality.d. Service quality is strongly related to in a personal aspect of

connections with customers.

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8. Which of the following is not an important dimension of quality perception?

a. Creativityb. Reliabilityc. Responsivenessd. Assurancee. Empathy

9. Which of the following is not a type of attribute or quality that consumers use in the evaluation of services?

a. Frequencyb. Searchc. Experienced. Credencee. All of the above

10. Sue Thompson is in the process of evaluating the performance of Service Master who has just finished cleaning the carpet in her home. She is probably looking at what type of attributes in making this evaluation?

a. Search attributesb. Credence attributesc. Experience attributesd. Current evaluator’s attributese. None of the above

11. One of the difficulties of making assessments regarding health care is that it is low in which type of attributes?

a. Experience attributesb. Search attributesc. Value attributesd. Credence attributese. Significant attributes

12. President Clinton used which of the following type of marketing?

a. Entertainmentb. Eventc. Placed. Politicale. Cause

13. Which of the following is a good example of personal marketing?

a. Nike’s promotion of Michael Jordan and Tiger Woodsb. Oprah Winfrey

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c. Martha Stewartd. All of the abovee. None of the above

14. Arkansas spends a lot of money marketing the advantages of locating in its state. This is marketing.

a. geographyb. businessc. investmentd. placee. political

15. Which of the following is correct with regard to nonprofit services marketing?

a. They do not need all the marketing skills.b. Most organizations need excess revenues over costs.c. Fundraising is not a type of nonprofit marketing.d. Several categories of nonprofit organizations still pay federal income

tax.e. Since nonprofits are not attempting to make money, there are fewer

ethical issues associated with them.


I. THE CONCEPT OF SERVICES

Services are intangible ideas, tasks, experiences, performances, or activities that one party can offer another.

II. GLOBAL FORCES CREATING GROWTH IN SERVICES

A. Technology–Technological advances and the accompanying information revolution are creating vast opportunities in the service sector.

B. Quality of Life–Measured by how people feel and experience life.

C. Government Deregulation of Services–Governments around the world have deregulated services. The resulting competition is lowering the cost while improving the quality of services, so people are consuming more of them.

D. Competition in Professional Services–Professional service providers are turning to marketing as a way to conduct their business

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operations.

E. Privatization–Privatization of government functions is opening up service opportunities.

F. The Need for Specialization–There is a need for outside specialists by companies that want to concentrate resources on their core business.

G. Growth of Franchising–A major trend which tends to focus on service-based products.

III. SERVICE CHARACTERISTICS THAT AFFECT MARKETING STRATEGY

A. The Contrasts between Goods and Services–Services are unique because of their intangibility, the relationship with the consumer, the importance of the service encounter, simultaneous production and consumption, storage and inventory, and quality controls.

1. Marketing intangibles–Prior to sale, services exist primarily as an offer or promise of some experience that will occur in the future.

2. Relationship of provider to customer–Most services are created in the presence of customers or with their personal knowledge of how it was performed. There is an inseparable relationship between the provider and the user.

3. The service encounter connection–The contact between the consumer and the seller. It reinforces the importance of customer relationships in marketing a service.

4. Simultaneous production and consumption–Many services are made and used at the same moment.

5. No storage and inventory–Services are perishable—their value exists for a short time.

6. Service quality control–Unique quality control techniques are necessary for services. Many services cannot be performed again if a mistake is made.

B. The Service-Goods Continuum–Most purchases fall somewhere along a con-tinuum between almost pure goods and almost pure services.

C. Consumer Evaluation of Services–Products have three types of attributes (qualities): search, experience, and credence. Search attributes can be evaluated prior to purchase. Experience attributes can be assessed only during or after consumption. Credence

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attributes are almost impossible to evaluate even after purchase and consumption.

D. Service Quality–Since service quality plays a significant part in the purchase decision for most consumers, it is crucial for marketing success.

1. Dimensions of service quality–Tangibles: services are intangible, but often are associated with physical facilities, equipment, personnel, and promotional materials. Reliability: the ability to perform the promised service dependably and accurately. Responsiveness: the willingness of providers to be helpful and give prompt service. Assurance: the knowledge and courtesy of employees and their ability to convey trust and competence. Empathy: the caring, individualized attention that a firm provides its customers.

2. Consumer factors–Word of mouth: when consumers are seeking a provider, they likely discuss it with friends. Personal needs: deal with the motives that determine the nature and strength of what a consumer wants from a service. Past experience: refers to what consumers have learned through personal interaction with a service provider. External communication: such marketer-dominated sources as personal selling and advertising.

3. Quality perception–To ensure high perceived quality and a loyal customer base, providers need to be accurate and reasonable about what they lead customers to expect. They also need to do a good job in the areas of tangibles, reliability, responsiveness, assurance, and empathy.

IV. DEVELOPING THE SERVICE MIX

A. Core, Augmented, and Branded Services–The core service is the basic benefit. A branded service has name recognition provided by the symbols and cues around it. The augmented service is the package of bundled goods and services that differentiates one provider from another.

B. Developing New Services–The functional element of a service relates to whether it accomplishes what it is intended to do. The interactive element involves the personal behaviors and physical atmosphere of the service environment.

1. Functional elements in service development–Complexity refers to the number and intricacy of steps involved in producing a service. Divergence relates to the amount of routine procedure involved in providing a service.

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2. Interactive elements in service development–The interactive element is often more important than the functional aspect in creating service excellence. Some companies use role playing or atmospherics to create strong customer satisfaction.

3. Structuring new services–Marketers determine where each new service attribute fits on the continuum from low complexity/divergence to high complexity/divergence.

V. AN EXPANDED CONCEPT OF MARKETED SERVICES

A. Person Marketing–Promoting an individual’s character, personality, and appearance, which in turn may be used to promote a service or product.

B. Entertainment and Event Marketing–Entertainment marketing involves the careful planning, from promotion to the precise timing of the introduction, of some form of entertainment. Event marketing is the promotion of an event in order to generate revenues and enhance the reputation of an organization.

C. Place Marketing–Enhances a location in order to appeal to businesses, investors, and tourists.

D. Political Marketing–The promotion of an individual or idea with the aim of influencing public policy and voters.

E. Cause Marketing–Involves gaining public support and financing for a cause in order to bring about a change or a remedy.

F. Internal Marketing–Occurs when one part of an organization markets its capabilities to others within the same firm.

VI. THE MARKETING OF NONPROFIT SERVICES

Nonprofit marketing is performed by an organization that is not motivated by profit and is exempted from paying taxes on any excess revenues over costs.

A. Types of Nonprofit Service Providers–Marketing skills are required by a broad range of service providers, from crime protection to education, health, public safety, and others.

B. Need for Revenues in Excess of Costs–Nonprofits need to generate revenues in excess of costs. This is because money for service and from contributions tends to fluctuate from year to year, money can’t

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be raised if the nonprofit isn’t solvent, and nonprofits hire professionals to help the organization grow.

C. Fundraising and Revenue Generation–Nonprofits raise revenues by acquiring funding from third parties and expanding business operations.

D. Providing Positive Social Benefits–Nonprofits must provide maximum positive social benefits to their constituency. This requires balancing differing objectives and needs.

E. Ethical Issues surrounding Nonprofit Organizations–There is an ethical question as to whether money-making nonprofits should have a tax-exempt status.

ANSWERS: KEY TERMS

1. Person marketing2. Service credence qualities3. Divergence4. Franchise5. Service encounter6. Perishable7. Event marketing8. Service complexity9. Interactive element:

10.Cause marketing11.Place marketing12.Core service13.Nonprofit marketing14.Political marketing15.Services16.Internal marketing17.Functional element

ANSWERS: MULTIPLE CHOICE1.2. 1. d2. e3. a4. b5. c6. c7. d8. a

9. a10. c11. d12. d13. d14. d1. 15.b

2.

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CHAPTER 12

MARKETING CHANNELS, WHOLESALING, AND PHYSICAL DISTRIBUTION

CHAPTER OVERVIEW

Distribution channels are of two fundamental types: direct channels—whereby companies use their own employees and physical assets to serve the market—and indirect channels—whereby companies make use of independent agents to serve markets.

Coordinating relationships within the distribution channel is a challenge. The company must think strategically and develop a management plan. Interdependence, trust, and support will influence the success of coordination. Joint goal-setting and planning, monitoring, the use of influence, conflict resolution, and performance appraisals are steps that need to be taken.

Wholesalers are intermediaries who take title to the products they carry and make the majority of their sales to businesses. Wholesalers purchase large amounts of merchandise from a variety of suppliers and offer it for resale in smaller quantities. A wide range of functions is performed for customers by full-service wholesalers—general-line wholesalers, specialty wholesalers, and rack jobbers. In contrast, limited-service wholesalers perform only some of the traditional channel functions. In this category are cash-and-carry wholesalers, drop shippers, truck jobbers, and mail-order wholesalers. Irrespective of type, wholesalers should buy products only from legitimate sources and sell only to legitimate customers.

Physical distribution is the movement of finished products through channels of distribution to end-customers. Its primary objective is to get the right product to the right customer location at the right time at the lowest total cost. Physical distribution management involves a delicate balance between effective customer service and efficient operations. Order management is concerned with how the company receives, fills, and delivers orders to customers. New technologies have dramatically changed the way orders are transmitted, entered, and filled.

Efficient consumer response programs attempt to eliminate activities that do not add value in distribution channels. Wholesalers and retailers give up some of their buying authority. They send daily information via EDI to their suppliers on stock levels and warehouse shipments. Personnel in the supplier organization then decide what and when to ship.

CHAPTER OBJECTIVES

1. Learn why companies frequently use intermediaries to reach targeted customers.

2. Attain insight into how channel relationships should be managed over time.

3. Appreciate the economic importance of wholesalers.

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4. Know the different types of wholesalers and the distinct roles they play.

5. Understand what physical distribution entails and why it is critical for any business organization.

6. Learn the steps in the order management process.

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CHAPTER OUTLINE

I. THE CONCEPT OF DISTRIBUTION CHANNELS

Distribution Channel

Intermediaries

Brokers

Wholesalers

Retailers

A. Channel Structure–

Direct Channels

Indirect Channels

Channel Levels

1. Multiple channel systems–

2. Reverse channels–

3. Channel dynamics and technology–

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B. Channel Organization and Functions–

Conventional Channel System

Vertical Marketing System (VMS)

1. Administered channel systems–

2. Contractual channel systems–

Retail cooperative

Wholesaler-sponsored voluntary chain

Franchise system

3. Corporate channel system–

4. Channel functions–

5. Distribution intensity–

Intensive distribution

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Selective distribution

Exclusive distribution

II. MANAGING DISTRIBUTION CHANNELS

A. Managing Channel Relationships: A Strategic Approach–

1. Interdependence–

2. Trust–

3. Support–

4. Set goals and develop plans–

5. Monitor intermediary activities–

6. Resolve conflicts–

B. Legal and Ethical Issues in Channel Management–

1. Resale price maintenance–

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2. Differential pricing and support programs–

3. Territorial and customer constraints–

4. Exclusive dealing–

5. Tying arrangements and full-line forcing–

Tying arrangement

Full-line forcing

6. Intermediary termination–

7. Ethics–

III. WHOLESALING

Wholesaling

A. The Importance of Wholesalers–

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Assortment Function

Allocation Function

B. Types of Wholesalers–

Full-Service Wholesalers

Limited-Service Wholesalers

1. Full-service wholesalers–

General-line wholesalers

Specialty wholesalers

Rack jobbers

2. Limited-service wholesalers–

Cash-and-carry wholesalers

Drop shippers

Truck jobbers

Mail-order wholesalers

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3. Wholesaling relationships–

IV. INTEGRATED LOGISTICS AND PHYSICAL DISTRIBUTION

Logistics

Integrated Logistics

A. Physical Distribution–

B. Order Management–

1. Order processing–

2. Warehousing–

Distribution centers

Private warehouses

Public warehouses

3. Materials handling–

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4. Inventory control–

Economic order quantity model

5. Transportation–

a. Trucks–

b. Railroads–

c. Air transport–

d. Water carriers–

e. Pipelines–

f. Intermodal transportation–

6. Efficient customer response (ECR)–

C. Global Physical Distribution–

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KEY TERMS

Administered channel systemAllocationAssortmentBrokersChannel levelsContractual channel systemConventional channel systemCorporate channel systemDirect channelsDistribution centersDistribution channelDistribution intensityEconomic order quantityEfficient customer response (ECR)Electronic data interchange (EDI)Exclusive dealingExclusive distributionFranchise systemFreight forwardersFull-line forcingFull-service wholesalersIndirect channels

Integrated logistics managementIntensive distributionIntermediariesIntermodal transportationInventory controlLimited-service wholesalersLogisticsMultiple channel systemsOrder managementPhysical distributionPrivate warehousesPublic warehousesRetailersRetail cooperativeReverse channelSelective distributionTying arrangementVertical marketing systemsWarehousingWholesalingWholesalersWholesaler-sponsored voluntary chain

1. A company conditions the purchase of a superior product on the purchase of a second product of lower quality.

2. Service companies specializing in the movement of cargo from one point to another, often country to country.

3. Interdependent organizations involved in making a product available for purchase.

4. An alliance of small retailers for wholesaling purposes.

5. The number of distinct units (producers, intermediaries, and customers) in a distribution channel.

6. The storage of inventory in the physical distribution system.

7. Relationships among channel members are formalized in some fashion, often with a written contract.

8. The combination of two or more modes in moving freight.

9. A method of determining the amount of product to be ordered each time.

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10. A company owns and operates organizations at other levels in the channel.

11. Companies use their own employees and physical assets in distributing to markets.

12. Channel members devote effort to coordinating their relationships.

13. The number of locations through which a company sells its product in a given market area.

14. Intercompany computer-to-computer exchange of orders and other business documents in standard formats.

15. A company restricts intermediaries from carrying competitive lines.

16. Distribution that flows from the end-user to the wholesaler and/or producer.

17. A range of merchandise from a variety of sources.

18. Independently owned organizations that act as links between companies and the end-user.

19. When a company requires intermediaries to carry and sell its complete line.

20. Storage facilities owned and operated by businesses that rent space.

21. A wholesaler takes the initiative to unite a group of retailers.

22. Intermediaries who perform a wide range of functions or tasks for their customers.

23. The coordination of all logistical activities in a company.

24. Programs to improve the efficiency of replenishing, delivering, and stocking inventory in the distribution channel, while promoting customer value.

25. Locations where inventory is maintained before being routed to individual sales outlets.

26. Management of stock levels.

27. Efforts to coordinate the actions of channel members are seen as unimportant.

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28. Intermediaries who perform only some of the traditional channel functions, either eliminating others or passing them on to someone else.

29. A formal contract in which the franchiser holds the product trademark and licenses it to franchisees.

30. The movement of raw materials, components, and/or finished products within and between companies.

31. Channel members emphasize coordination of behaviors and programs.

32. How the company receives, fills, and delivers orders to customers.

33. Firms that take title to products for resale to ultimate consumers.

34. The use of more than one channel to access markets for the same product.

35. Firms that take title to products for resale to businesses, consumers, or other wholesalers or distributors.

36. The movement of finished products through channels of distribution to end-customers.

37. A company uses only one sales outlet in each trading area.

38. Firms that do not take title to the goods they handle but actively negotiate the sale of goods for their clients.

39. Storage facilities owned and operated by the company.

40. Companies make use of independent organizations in distributing their products.

41. A company uses several sales outlets per trade area.

42. A company makes its product available through every possible sales outlet in a trade area.

43. Selling goods for resale or business use to other businesses.

44. Purchasing products in large quantities and reselling them in smaller quantities.

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MULTIPLE CHOICE

1. New Form Corporation negotiates the sale of products for their clients; however, they do not purchase products themselves. They are called

a. wholesalers.b. resellers.c. commercial institutions.d. distributors.e. brokers.

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2. Which of the following takes title to products for resale to the ultimate consumer?

a. Brokersb. Industrial distributorsc. Commercial distributorsd. Institutional distributorse. Retailers

3. Dell Computer uses its own employees and physical assets to serve the market. What type of channel does Dell use?

a. Personal channelb. A direct channelc. Corporate channeld. Marketing channele. Independent channel

4. Which of the following is correct with regard to the concept of reverse channel?

a. When the economy has economic hardship, products can be marketed backwards.

b. They are less efficient than other channels.c. Products flow from the end-user to the wholesaler or manufacturer.d. Goods flow in one direction, while information flows in another

direction.e. All of the above are correct.

5. Which of the following is most correct regarding channel strategy?

a. Since channels tend to change slowly, companies do not need to monitor them very often.

b. It is always better to use multiple channel systems, since several channels will reach more customers than one channel.

c. Channels of distribution should be established only after product advertising and pricing decisions have been made.

d. Continuous monitoring of channels is extremely important, even though shifts may require considerable time to make.

e. It is nearly always more expensive and less efficient to use longer channels rather than shorter channels.

6. Vertical marketing systems emphasize the coordination of channels. Which of the following is not a vertical marketing system?

a. Administered channel systemb. Strategic channel systemc. Contractual channel systemd. Corporate channel systeme. None of the above

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7. Which of the following is an intensive distribution strategy?

a. The company uses one outlet in each trading area.b. The company selects a few outlets of a particular type in each area.c. The company uses direct distribution.d. The company uses many outlets of different types in each geographic

area.e. None of the above

8. Why are wholesalers important?

a. They provide product assortment.b. They can buy large quantities to resell in smaller amounts.c. They help smaller organizations that cannot buy directly from

manufacturers.d. All of the abovee. None of the above

9. What is the overriding objective of physical distribution?

a. To provide the greatest variety of products at a reasonable cost within a predetermined time frame

b. To obtain distributors for the company’s productsc. To provide the lowest cost shipping of products from warehouses to

consumersd. To take title to products to reduce the cost of marketinge. To get the right products to the right locations at the right times at

the lowest total cost

10. Which of the following is not a part of the design of the physical distribution system?

a. Warehousingb. Materials handlingc. Discount pricingd. Inventory controle. Transportation

11. What is the fundamental objective of an economic order quantity model?

a. To determine how much to order at various timesb. To know when to add warehousesc. To compare the costs of packaging products in large packages or

small packagesd. The different modes of transportation that will create the most

economically efficient methode. The cost of ordering quantities versus inventory carrying costs with

the objective of minimizing total costs

12. Wal-Mart has an efficient customer response program. This means

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a. that it allows customers to return items with no questions asked.b. that it is located close to customers’ residences.c. that it is a program designed to improve the efficiency of

replenishing, delivering, and stocking inventory while focusing on customer value.

d. none of the above.e. all of the above.

13. Which of the following is not a mode of transportation?

a. Container carsb. Railroadsc. Water carriersd. Pipelinese. Air transport

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14. Which of the following is a significant issue with regard to global physical distribution?

a. Uncertainty associated with greater transportation distances.b. Uncertainty associated with longer lead times.c. Uncertainty associated with customers’ requirements.d. Uncertainty with regard to trade restrictions.e. All of the above

15. Which of the following is a critical aspect of physical distribution?

a. Information systemsb. Time and place studiesc. Comparative allocation modelsd. Bridging techniquese. Ten-year forecasts


I. THE CONCEPT OF DISTRIBUTION CHANNELS

A distribution channel is a set of independent organizations that make a product or service available for purchase by consumers or businesses. Intermediaries are independently owned organizations that act as links between producers and customers. Brokers do not purchase the goods they handle but instead actively negotiate their sale for the client. Wholesalers (also called distributors) take title to products and resell them to retail, industrial, commercial, institutional, professional, or agricultural firms, as well as to other wholesalers. Retailers take title to products for resale to the ultimate customer.

A. Channel Structure–Distribution channels are of two fundamental types. In direct channels, companies use their own employees and physical assets to serve the market. In indirect channels, companies make use of independent agents to serve markets. Distribution channels can be described by the number of channel levels or the number of distinct units (producers, intermediaries, and customers) in a distribution channel.

1. Multiple channel systems–The use of more than one channel to access markets for the same product.

2. Reverse channels–Flows from the end-user to the wholesaler and/or manufacturer.

3. Channel dynamics and technology–Companies must continually evaluate whether their channels need adjustment to deal with changing conditions. Companies must alter their channels as the industry evolves.

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B. Channel Organization and Functions–In a conventional channel system, efforts to coordinate actions are seen as unimportant by channel members. Loosely aligned and relatively autonomous manufacturers, wholesalers, and retailers bargain aggressively with one another over each transaction. In a vertical marketing system (VMS), networks emphasize channel coordination. There are three types of VMSs: administered, contractual, and corporate.

1. Administered channel systems–Members coordinate with others in the channel and facilitate activities.

2. Contractual channel systems–Relationships are formalized, often with a written contract. A retail cooperative unites a group of small retailers into a wholesaling operation to increase buying power. In a wholesaler-sponsored voluntary chain, a wholesaler takes the initiative to unite a group of retailers. In a franchise system, a formal contract ties the franchiser to franchisees. The franchiser holds the product trademark and licenses it to franchisees.

3. Corporate channel system–Refers to company ownership and operation of organizations at other levels in the channel.

4. Channel functions–Channel functions are broken down into four categories: selling, financing, order management, and post-sales service.

5. Distribution intensity–Refers to the number of locations through which a company sells its products in a given market area. Intensive distribution uses many outlets in each geographical area. Selective distribution uses several outlets per area. Exclusive distribution uses only one outlet in each trading area.

II. MANAGING DISTRIBUTION CHANNELS

A. Managing Channel Relationships: A Strategic Approach–

1. Interdependence–Each channel member depends to some degree on other channel members to achieve desired goals.

2. Trust–Confidence in the reliability and integrity of channel members.

3. Support–Common means of support include cooperative advertising, market development funds, incentive programs, and inviting intermediaries to sales conferences.

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4. Set goals and develop plans–Channel management is facilitated when members meet formally to set joint goals and develop plans for the coming year.

5. Monitor intermediary activities–Once the business plan is in place, company sales personnel must keep abreast of the marketing and selling efforts of each intermediary.

6. Resolve conflicts–Some conflict is inevitable. Channel members recognize that some policies will not be changed, but sometimes company sales personnel can help by explaining policies to intermediaries. In other cases, companies recognize they made a mistake and try to correct it.

B. Legal and Ethical Issues in Channel Management–U.S. antitrust laws and other regulations designed to promote competition and consumer welfare affect distribution practices.1. Resale price maintenance–An attempt by companies to compel

channel members to change certain prices.

2. Differential pricing and support programs–A company must give prices and support programs on “proportionally equal terms” to competing channel members unless two conditions are met. First, a price differential is justified if it costs less to serve one channel member versus another. Second, variations are legal if they are required to meet a competitive offer.

3. Territorial and customer constraints–A territorial constraint refers to a company assigning an intermediary a specific geographic area in which to sell its products. That is, the intermediary can sell there but nowhere else.

4. Exclusive dealing–Occurs when a company restricts intermediaries from carrying competitive lines.

5. Tying arrangements and full-line forcing–A tying arrangement refers to a company conditioning the purchase of a superior product on the purchase of a second and less desirable product. Full-line forcing occurs when a company requires intermediaries to carry and sell its complete line.

6. Intermediary termination–In many channel systems, agreements commonly allow either party to terminate the relationship with 30 days’ notice. In franchise systems, contracts are more complex.

7. Ethics–It is illegal for companies to impose certain constraints on channel members.

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III. WHOLESALING

Wholesaling is the activities involved in selling goods for resale or use by retailers and other businesses.

A. The Importance of Wholesalers–Wholesalers are important for product assortment and allocation. Their assortment function is the purchase of merchandise from a variety of suppliers for resale. Their allocation function is the purchase of large quantities to resell in smaller amounts. They are needed because small or medium-sized companies in many industries cannot buy directly from manufacturers.

B. Types of Wholesalers–Full-service wholesalers perform a wide range of tasks for their customers. Limited-service wholesalers provide only some of the traditional channel functions, either eliminating them entirely or passing them to someone else to perform.

1. Full-service wholesalers–General-line wholesalers carry a wide variety of products and provide a full range of services. Specialty wholesalers focus on a narrow range of products, carry them in great depth, and provide extensive services. Rack jobbers, who sell single product lines to retail stores on consignment, set up product displays and keep them stocked with goods.

2. Limited-service wholesalers–Cash-and-carry wholesalers are located near customers and do not extend credit or use an outside sales force. Drop shippers arrange for shipments directly from the manufacturer to the customer. Truck jobbers specialize in the speedy delivery of perishables or semiperishables. Mail-order wholesalers sell though catalogs distributed to retailers and other businesses.

3. Wholesaling relationships–Sometimes relationships with other whole-salers are used to serve customers. Developing strong connections with suppliers is also important to more effective and efficient business operations. The decision to add new suppliers can sometimes alienate current partners.

IV. INTEGRATED LOGISTICS AND PHYSICAL DISTRIBUTION

Logistics is the movement of raw materials, components, and/or finished products within and between companies. Integrated logistics is the coordination of such activities in a company.

A. Physical Distribution–The movement of finished products to customers. The primary objective of physical distribution is to get the

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right products to the right locations at the right times at the lowest total cost.

B. Order Management–How the company receives, fills, and delivers orders to customers. The design of the physical distribution system—including order processing, warehousing, materials handling, inventory control, and transportation functions—determines how well the company manages orders.

1. Order processing–All the activities and paperwork involved in transmitting and entering, screening and prioritizing, and invoicing orders.

2. Warehousing–The storage of inventory in the physical distribution system. Distribution centers are where the bulk of the company’s finished-goods inventory is maintained before being routed to individual warehouses. These are of two types: Private warehouses are owned and operated by the company, and public warehouses rent space to store products.

3. Materials handling–Moving products in a warehouse in the process of filling orders.

4. Inventory control–The management of stock levels. For each product, company management must decide how much inventory will be carried in each distribution center and warehouse. The economic order quantity model is a method for determining how much product to order each time. It compares ordering costs to inventory carrying costs, with the objective of minimizing total costs.

5. Transportation–The movement of goods to channel members and cus-tomer locations.

a. Trucks–Offer door-to-door service and speed.

b. Railroads–Represent the most efficient mode of land transportation for bulky commodities, such as chemicals, coal, grain, iron ore, lumber, sand, and steel.

c. Air transport–Offered by the airlines and cargo service companies. Speed and dependability in meeting schedules are very high.

d. Water Carriers–Include transoceanic ships as well as barge use on inland waterways.

e. Pipelines–Transport natural gas and petroleum by land from production fields to refineries.

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f. Intermodal transportation–The combination of two or more modes in moving freight.

6. Efficient customer response (ECR)–Programs designed to improve the efficiency of replenishing, delivering, and stocking inventory while promoting customer value.

C. Global Physical Distribution–When doing business abroad, there are many challenges in distributing products. Uncertainty increases because of greater transport distances, longer lead times, and complex customs requirements and trade restrictions. The most important factor, from a physical distribution perspective, however, is a country’s infrastructure, which influences how products are stored and transported.

ANSWERS: KEY TERMS

1. Tying arrangement2. Freight forwarders3. Distribution channel4. Retail cooperative5. Channel levels6. Warehousing7. Contractual channel system8. Intermodal transportation9. Economic order quantity10.Corporate channel system11.Direct channels12.Administered channel system13.Distribution intensity14.Electronic data interchange (EDI)15.Exclusive dealing16.Reverse channel17.Assortment18.Intermediaries:19.Full-line forcing20.Public warehouses21.Wholesaler-sponsored voluntary

chain22.Full-service wholesalers

23.Integrated logistics management24.Efficient consumer response (ECR)25.Distribution centers26.Inventory control27.Conventional channel system28.Limited-service wholesalers29.Franchise system30.Logistics31.Vertical marketing systems32.Order management33.Retailers34.Multiple channel systems35.Wholesalers36.Physical distribution37.Exclusive distribution38.Brokers39.Private warehouses40.Indirect channels41.Selective distribution42.Intensive distribution43.Wholesaling44.Allocation

ANSWERS: MULTIPLE CHOICE1.2. 1. e2. e3. b4. c5. d6. b7. d

8. d9. e10. c11. e12. c13. a14. e

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15. a

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CHAPTER 13

RETAILING AND DIRECT MARKETING

CHAPTER OVERVIEW

Retailing is the final stage in the distribution channel for a majority of products sold to consumers. Time, place, possession, and form utilities are provided to consumers by retailers. In addition, retailers may promote the general welfare of society through efforts to recruit a diverse work force. A number of U.S. retailers have been very successful in global markets by understanding important variations in consumer tastes across cultures.

Retailing strategy must cover a variety of issues. Each retailer must decide on the target market(s) and positioning, then adopt a distinct service level and pricing approach. The geographical location of stores is a very important decision. Retailers must make merchandise decisions very carefully, as they influence costs and customer satisfaction. New technologies, such as sophisticated computer systems that allow merchandise to be tailored in individual stores, help improve retailer performance. Furthermore, effectively managing relationships with suppliers—whether manufacturers, wholesalers, or agents—is critical.

Direct marketing is a powerful selling approach, especially when media are used to communicate information on products and prices, and how to place orders. A large number of direct-response media are available. These include paper-based mail, fax mail, e-mail, voice mail, mail-order catalogs, telemarketing, advertisements in print and broadcast media, infomercials, television shopping channels, and the Internet. Each medium has its strengths and weaknesses that must be considered by companies choosing which one or which mix to use.

Direct marketers make a number of decisions when developing a marketing strategy. They must carefully select the target market(s). Strong customer databases must be developed and maintained. In particular, direct marketers can put database marketing to great use. Decisions on target markets go hand in hand with merchandise assortment and pricing. Multiple direct-response media should be used, with great attention paid to the content of messages in each medium. Each medium has unique challenges with regard to message content. Finally, payment methods and delivery options must be decided upon.

CHAPTER OBJECTIVES

1. Appreciate the important role retailers play in our economy and society.

2. Understand strategy issues confronted by retailers when making marketing decisions.

3. Recognize the diverse array of retailers that compete with one another.

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4. Learn what direct marketing entails, its value, and how it differs from mass communication.

5. Be familiar with the different types of direct-response media.

6. Understand the marketing decisions made by direct marketing companies.

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CHAPTER OUTLINE

I. THE CONCEPTS OF RETAILING AND DIRECT MARKETING

II. RETAILING

Retailing

A. The Importance of Retailers–

III. RETAIL STRATEGY

Wheel of Retailing

A. Target Markets and Positioning–

B. Service Level and Pricing–

Discount-Oriented Strategy

Service-Oriented Strategy

C. Merchandise Assortment–

Merchandise Breadth

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Merchandise Depth

Scrambled Merchandising Strategy

D. Store Location–

Shopping Mall or Center

E. Technology–

F. Supplier Relationships–

Markup

Markdown

IV. TYPES OF RETAILERS

A. Limited-Line Retailers–

Specialty Stores

Franchisees

Superstores

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Automated Vending Retailers

B. General Merchandise Retailers–

Department Stores

Convenience Stores

Supermarkets

Warehouse Clubs

Discount Stores

Off-Price Retailers

Catalog Showrooms Variety Stores

Hypermarkets

V. ISSUES IN RETAILING

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A. Diversity and Retailing–

B. Legal and Ethical Issues in Retailing–

C. Global Retailers–

VI. DIRECT MARKETING

Direct Marketing

A. Value to Customers and Marketing–

B. Direct Marketing Databases–

C. Direct Response Media–

1. Direct mail–

2. Catalogs–

3. Telemarketing–

4. Advertisements in print and broadcast media–

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Infomercials

5. Television home shopping channels–

6. The Internet–

D. Ethics in Direct Marketing–

E. The Direct Marketing Plan–

1. Target markets–

2. Database management–

3. Merchandise assortment–

4. Pricing–

5. Media and channels–

6. Message design–

7. Payment methods and delivery–

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KEY TERMS

AtmosphericsAutomated vendingCatalog showroomsChain storesConvenience storesDepartment storesDirect marketingDiscount storesHypermarketsInfomercialsMail-order catalogsMarkdownMarkup

Off-price retailersRetailerRetailingScrambled merchandisingShopping mall (center)Specialty storesSupermarketsSuperstoresTelemarketingVariety storesVisual merchandisingWarehouse clubsWheel of retailing

1. A firm that makes more than half its sales to the end-user.

2. A reduction in the original retail selling price of a product.

3. Discount retailers whose customers shop from catalogs and can view floor samples of items held in stock.

4. The use of machinery by coins or credit cards to dispense goods.

5. A collection of products and price information that is published in paper form.

6. Retailers with merchandise of broad variety and moderate depth and with a relatively high level of customer service.

7. Large, departmentalized, food-oriented retail establishments that sell beverages, canned goods, dairy products, frozen foods, meat, produce, and such nonfood items as health and beauty aids, kitchen utensils, magazines, pharmaceuticals, and toys.

8. Small retailers with moderately low breadth and depth of merchandise.

9. Salespeople call prospective customers over the telephone.

10. Retailers offering a broad variety of merchandise, limited service, and low prices.

11. Retailers offering a variety of low-priced merchandise of low to moderate quality.

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12. A group of retail stores in one location and marketed as a unit to shoppers in a trade area.

13. Amount added to the cost of acquiring a product that determines its retail selling price.

14. A descriptive theory about how retailers emerge, evolve, and sometimes fade away.

15. Sellers of brand-name clothing at low prices.

16. The activities involved in selling products and services directly to end-users for personal or household use.

17. An array of product lines that seem to be unrelated.

18. A group of centrally owned and managed retail stores that handle the same product lines.

19. Retailers offering merchandise in one primary product category in considerable depth.

20. Retailer efforts to make a store’s physical surroundings attractive to target customers (also see visual merchandising).

21. Retailers that focus on a single product category but offer a huge selection and low prices; also called “category killers.”

22. Retailers with large, no-frills stores that carry a revolving array of merchandise at low prices.

23. Giant shopping facilities with a wide selection of food and general merchandise at low prices.

24. Programmatic advertisements of considerable length that resemble documentaries.

25. The use of various communication media to interact directly with customers and generally calling for them to make a direct response.

MULTIPLE CHOICE

1. Which of the following is not a type of retailer?

a. Unspecified retailerb. Limited-linec. General merchandised. Reverse forme. a and c

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2. Which of the following is not a general merchandise retailer?

a. Department storesb. Convenience storesc. Supermarketsd. Discount storese. All of the above

3. What is the defining characteristic of a retailer?

a. It has many employees.b. It always has a store which consumers can walk through.c. It makes a majority of its sales to consumers.d. It does not take ownership of goods.e. It is nonprofit.

4. Which of the following is the best description of the wheel of retailing?

a. It indicates that retailers start as domestic operations, go onto international and then global markets, and then move back into new forms in domestic markets.

b. New retailers locate stores in less costly geographical regions to keep costs down, and then, as time goes on, they add more service and begin to move into more expensive areas and upgrade facilities and raise prices.

c. Retailers go through seasonal periods whereby they have to rotate stocks.

d. There is a vicious circle whereby retailers go from low quality to high quality to low quality again.

e. It is a planning device whereby retailers can adjust to competitive pressures over time.

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5. What is the first step in designing an excellent retail strategy?

a. Identifying the merchandise assortmentb. Determining what price products will bec. Target marketing and positioningd. Evaluatinge. Determining store location

6. Which of the following is an important aspect of a discount-oriented retailing strategy?

a. Provide no serviceb. Have the lowest possible pricesc. Emphasize quality productsd. Keep costs and overhead low to support low price strategye. Emphasize value and ignore price promotions

7. Which of the following is a scrambled merchandising strategy?

a. Carrying product lines that seem to be unrelatedb. Mixing merchandise in aisles to keep shopping interestingc. Putting merchandise in binsd. Limiting an assortment to a few itemse. Moving products around within a single product line

8. What is the major characteristic of a general merchandise retailer?

a. It does not handle brands but handles generic products.b. It carries only one general product line.c. It carries a number of different product categories.d. It always has a way to display merchandise.e. None of the above

9. Which of the following is not a direct-response media?

a. Direct mailb. Billboardsc. The Internetd. Television home shopping channelse. Telemarketing

10. Which of the following is the first step in a direct marketing plan?

a. Database managementb. Pricingc. Media and channelsd. Message designe. Target marketing

11. Which pricing approach is most typical for direct marketing companies?

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a. A medium price with very rapid deliveryb. A low price supported by high overhead technologyc. A high price with little overheadd. A low price facilitated by low overheade. A high price with personal service

12. Two of the major issues related to ethics in direct marketing are

a. being located out of state from the customer.b. consumers right to privacy and confidentiality of personal

information.c. use of market entry and withdrawal.d. international marketing and misrepresentation.e. none of the above.

13. Regarding payment methods for direct marketing,

a. most companies require only check payment.b. companies require cash.c. most companies take only a credit card.d. most companies offer long-term same-as-cash offers.e. many direct marketers offer several payment methods such as check,

money order, or credit card.

14. Which of the following is most correct regarding direct marketing?

a. Direct marketing is a passing fad.b. Direct marketing has reached a maturity stage.c. Direct marketing is growing very rapidly in consumer and business

markets.d. Direct marketing is declining in business markets but growing in

consumer markets.e. None of the above are correct.

15. Why is direct marketing appealing?

a. It offers consumers a convenient way to shop from their homes.b. It offers products that cannot be obtained through any other source.c. There is a greater variety.d. Products are lower priced.e. All of the above are correct.


I. THE CONCEPTS OF RETAILING AND DIRECT MARKETING

II. RETAILING

Retailing refers to selling products directly to consumers for personal and household use. A retailer is a firm that makes the majority of its sales to

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consumers.

A. The Importance of Retailers–Retailers make a broad variety of goods available to consumers in amounts they can afford and effectively handle. They also make it economically feasible for manufacturers of consumer goods to operate.

III. RETAIL STRATEGY

The wheel of retailing is one way to describe how retailers emerge, evolve, and sometimes fade away. According to the theory, new retailers locate their no-frills stores in low-rent areas to keep costs down. Those that succeed start to change. They add more service, move to more expensive real estate, upgrade facilities, and raise prices. This makes them vulnerable to new low-price entrants, and the wheel goes around and around. The wheel can be broken if retailers carefully develop a strategy.

A. Target Markets and Positioning–As a first step, retailers very carefully analyze the general market and decide the segment or segments on which to focus. Retailer positioning is the mental picture consumers have of the retailer and the shopping experience it provides.

B. Service Level and Pricing–A discount-oriented strategy offers products and service of acceptable quality at low prices. The objective is to keep costs and overhead down in order to make prices competitive. A service-oriented strategy emphasizes quality products and value-added functions, with prices to match.

C. Merchandise Assortment–Merchandise breadth (the variety of product lines offered) and merchandise depth (the number of products available within each line) must be determined. A scrambled merchandising strategy means that the product lines carried seem to be unrelated.

D. Store Location–The location decision affects how convenient shopping will be for customers. The target market dictates the choice to some degree. A shopping mall or center is a group of retail stores in one place marketed as a unit to shoppers in a trade area.

E. Technology–Retailers must keep abreast of new technologies and adopt those that promote customer satisfaction at a reasonable cost.

F. Supplier Relationships–Tough bargaining issues can arise between suppliers and retailers, despite the strength of the relationship. Cost and pricing issues are the most common areas of friction. Retailers have a targeted markup, the difference between merchandise cost and the retail price. Goods that do not sell as expected require a markdown, a reduction in the original retail price.

IV. TYPES OF RETAILERS

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Form of ownership distinguishes between small independents (often called mom-and-pop stores) and chain stores, which are a group of centrally owned and managed retail outlets that handle the same product lines.

A. Limited-Line Retailers–Focus on one product category. The four types are: specialty stores, franchises, superstores, and automated vending machines. Specialty stores offer merchandise in one primary market category in considerable depth. Many specialty stores are franchisees, who sign a contractual agreement with a franchiser organization to represent and sell its products in particular retail locations. Superstores focus on a single product category but offer a huge selection and low prices. Automated vending retailers use machinery operated by coin or credit card to dispense goods.

B. General Merchandise Retailers–Carry a number of different product categories. There are seven types: department stores, convenience stores, supermarkets, warehouse clubs, discount stores, variety stores, and hypermarkets. Department stores carry a broad array and moderate depth of merchandise. Convenience stores are small and have moderately low breadth and depth of merchandise. Supermarkets are large, departmentalized, food-oriented retail establishments with moderately high merchandise breadth and depth. Warehouse clubs are large, no-frills stores that carry a revolving array of merchandise at low prices. Discount stores (including off-price retailers which sell name-brand clothing at low prices and catalog showrooms which have only samples on display so that customers must order merchandise from catalogs) offer a broad variety of merchandise, limited service, and low prices. Variety stores offer an array of low-priced merchandise of low to moderate quality. Hypermarkets are giant shopping facilities offering a wide selection of food and general merchandise at low prices.

V. ISSUES IN RETAILING

A. Diversity and Retailing–Because retailers deal directly with customers, most of them realize that staffing and marketing programs must reflect the nature of the population they serve. Recognizing diversity and its implications for business practice is a must for top-performing retailers.

B. Legal and Ethical Issues in Retailing–It is important for retailers to comply with laws applicable to a range of legal and ethical issues. This includes giving kickbacks or charging fees for referring business. Ethical dilemmas often arise over the goods sold by retailers.

C. Global Retailers–A global retailer must focus on targeted customers in each market. In many cases, consumer tastes vary considerably across countries for the same product or service.

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VI. DIRECT MARKETING

Direct Marketing uses various devices to communicate with customers, generally calling for a direct response on their part.

A. Value to Customers and Marketing–Direct marketing offers consumers a convenient way to shop from the comfort of their home or office. It can improve the quality of products offered to customers. It is of value to entrepreneurs as retailers cut back on inventory. It allows small businesses to access markets without the assistance of retailers, wholesalers, or a company sales force.

B. Direct Marketing Databases–All direct marketing companies maintain a database with customer names, addresses, and purchase histories.

C. Direct Response Media–

1. Direct mail–A cover letter, brochure, audio tape, video tape, or computer disk sent to consumers through the mail.

2. Catalogs–Mail-order catalogs assemble product and price information which is published in paper form.

3. Telemarketing–When salespeople call prospective customers over the telephone.

4. Advertisements in print and broadcast media–Print ads in magazines and newspapers are used a great deal in marketing. Along with information on products and prices, toll-free numbers are given. Direct marketers also rely on television and radio spots, usually ranging from 10 to 60 seconds. Infomercials are long advertisements that resemble documentaries.

5. Television home shopping channels–Themed programs telecast 24 hours a day, seven days a week, which offer products to customers who send orders over toll-free lines.

6. The Internet–Most companies are still using a Web site only to communicate information, but the Internet is gaining ground as a medium for electronic commerce.

D. Ethics in Direct Marketing–A number of ethical problems confront the direct marketing industry, such as the right to privacy and the confidentiality of personal information.

E. The Direct Marketing Plan–

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1. Target markets–Every excellent marketing strategy begins with an understanding of the intended audience.

2. Database management–Addresses and preferences must be current, duplicate names must be removed, those with poor credit histories must be flagged, and inactive customers must be noted.

3. Merchandise assortment–Companies need to review and adjust their assortment in light of economic trends, competition, and changes in preferences of the target market.

4. Pricing–Direct marketing companies often follow a low-price strategy, facilitated by their low overhead. In contrast, some companies emphasize merchandise quality and follow a premium-price strategy.

5. Media and channels–Direct marketing companies normally start with one promotion medium. Over time, many branch out to multiple media.

6. Message design–Whatever medium is used, message design and presen-tation are important.

7. Payment methods and delivery–Direct marketing companies serving the consumer market often offer several different payment methods—check, money order, or credit card. In business-to-business markets, customers often have an account with the direct marketer, and a monthly bill is sent.

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ANSWERS: KEY TERMS

1. Retailer2. Markdown3. Catalog showrooms4. Automated vending5. Mail-order catalogs6. Department stores7. Supermarkets8. Convenience stores9. Telemarketing10.Discount stores11.Variety stores12.Shopping mall (center)13.Markup

14.Wheel of retailing15.Off-price retailers16.Retailing17.Scrambled merchandising18.Chain stores19.Specialty stores20.Atmospherics21.Superstores22.Warehouse clubs23.Hypermarkets24.Infomercials25.Direct marketing

1. ANSWERS: MULTIPLE CHOICE 2.1. e2. e3. c4. b5. c6. d7. a8. c

9. b10. e11. d12. b13. e14. c15. a

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CHAPTER 14INTEGRATED MARKETING COMMUNICATIONS

CHAPTER OVERVIEW

Integrated marketing communication (IMC) is the coordination of all information to the market in order to provide consistent, unified messages. Since each aspect of IMC—advertising, sales promotion, personal selling, sponsorships, and public relations—tends to work synergistically, integration is very important. Marketing communication has six objectives. First, it should provide useful information that improves customer decision making and consumption. Second, it creates demand to ensure that products will be consumed in sufficient quantities to justify their development, production, and distribution. Third, it supplies knowledge about the value of products, such as their benefits, features, and functions. Fourth, it helps differentiate products by describing their uniqueness. Fifth, it helps close the sale by moving customers to action. Finally, it is critical in building the all-important relationship with customers and in securing their loyalty.

Traditionally, communication was seen as a one-way process—from seller to buyer with a feedback loop. Today, a two-way process is more realistic. The sender’s characteristics are important determinants of how well messages will be received. Source credibility is determined by expertise, trustworthiness, and attractiveness (or appeal). Encoding requires translating the message into terms that will be easily understood. Message characteristics also play a major role. Marketers need to decide whether a one-sided or two-sided message is better; whether to supply conclusions; the order in which information will be presented; whether to use humor or fear appeals; and whether to use comparative messages. The choice of media—mass, personal, or mixed—also influences communications.

The communication mix has five major components: personal selling, advertising, sales promotion, sponsorship, and public relations. The communication mix is influenced by several factors. First, business-to-business and consumer markets use different mixes. Second, marketers use a push or pull communication strategy. Third, communications must be suited to the product’s stage in the life cycle to have the greatest effectiveness. Finally, marketing communications do not always work directly on consumers.

The IMC plan is an outgrowth of the marketing plan. It has five steps. First, select and understand target markets. Second, determine communication objectives and select the IMC mix. Third, develop the IMC budget in line with the overall strategic marketing plan. Fourth, implement the plan. Fifth, measure communication results and adjust accordingly.

CHAPTER OBJECTIVES

1. Understand the objectives of integrated marketing communications.

2. Learn how the communication process provides the intended information for the market.

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3. Learn about the communication mix, including personal selling, advertising, sales promotion, sponsorships, and public relations.

4. Know the factors that influence the communications mix.

5. Describe the steps in developing an integrated marketing communication plan.

6. Address diversity, ethics, and technology in communications.CHAPTER OUTLINE

I. THE CONCEPT OF INTEGRATED MARKETING COMMUNICATIONS

Communication

Promotion

Integrated Marketing Communication (IMC)

II. OBJECTIVES OF INTEGRATED MARKETING COMMUNICATION

A. Provide Information–

B. Create Demand for Products–

C. Communicate Value–

D. Communicate Product Uniqueness–

E. Close the Sale–

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F. Build Relationships and Loyalty–

III. THE COMMUNICATION PROCESS

A. The Message Sender–

1. Expertise–

2. Trustworthiness–

3. Attractiveness (personal demeanor and appeal)–

B. Presentation Creation—Encoding–

C. Message Characteristics–

1. One-sided and two-sided messages–

One-sided message

Two-sided message

2. Recommendations or conclusions–

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3. Order of presentation–

4. Humor–

5. Fear appeals–

6. Comparative messages–

D. Media–

Personal Media

Mass Media

Mixed Media

E. Interpretation by Receivers—Decoding–

F. Consumer Feedback–

IV. THE COMMUNICATION MIX

A. Personal Selling–

B. Advertising–

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C. Sales Promotion–

D. Public Relations–

E. Sponsorships–

F. Factors Affecting the Communication Mix–

1. Business vs. consumer markets–

2. Pull vs. push strategies–

Pull strategy

Push strategy

3. Product stage in life cycle–

4. Opinion leadership–

One-step communication

Multiple-step communication

V. DEVELOPING THE IMC PLAN

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A. Select and Understand Target Audiences–

B. Determine the Objectives and Select the IMC Mix–

C. Developing the Communication Budget–

1. Determining the overall budget–

Competitive budgeting

Payout plan method

Task method

2. Allocating the budget–

D. Implementation–

E. Measuring IMC Results–

VI. ISSUES IN COMMUNICATION

A. Diversity–

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B. Ethics–

C. Technology That Builds Relationships–

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KEY TERMS

Advertising CommunicationEncodingIntegrated marketing communicationMediaMultiple-step communicationOne-sided messagesOne-step communicationOpinion leaders

Personal sellingPromotionPublic relationsPull strategyPush strategySponsorshipSales promotionTwo-sided messages

1. An attempt to influence the distribution channel, which in turn sells to the user.

2. Translating a message into terms easily understood by the target audience.

3. The process whereby marketers inform, educate, persuade, remind, and reinforce consumers through communication.

4. All audience members are simultaneously exposed to the same marketing message.

5. The channels through which messages are communicated.

6. Arguments favorable to the source.

7. An attempt to influence consumers directly with promotion.

8. Influential members of a target audience who first screen messages sent by marketers.

9. Paid communication through nonpersonal channels.

10. Arguments that are unfavorable as well as favorable to the source.

11. The exchange of money (or some other form of value) in return for a public association with an event.

12. Face-to-face or other individual communication between a buyer and a seller.

13. The coordination of advertising, sales promotion, personal selling, public relations, and sponsorship to reach consumers with a powerful effect in the market.

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14. Unpaid promotion designed to present the firm and its products in a positive light in the buyer’s mind.

15. Opinion leaders filter advertising messages and modify their positive or negative effect on the rest of the group.

16. Activities that support the overall communications effort by one-way contact with customers.

17. The process of sending and receiving messages.

MULTIPLE CHOICE

1. Which of the following is the best description of integrated marketing communication (IMC)?

a. The use of diverse gender, race, and age people in communicationb. Coordination of all market information to provide a unified messagec. The use of more than one media for each advertising campaignd. The development of a single budget for all communications across all

product linese. All of the above

2. Which of the following is a goal of communication?

a. Informb. Educatec. Persuaded. Reminde. All of the above

3. Why is it important to inform consumers?

a. They are likely to buy more products.b. To make purchasing more easyc. To help consumers make informed choices within a reasonable time

framed. To maximize salese. To ensure against fraudulent claims

4. What is the primary way that communication contributes to economic development?

a. It inspires people to earn money to acquire products that improve their well-being.

b. It gets people to buy things they don’t need.c. It provides a lot of jobs.d. All of the abovee. None of the above

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5. Which of the following is not an objective of integrated marketing communication?

a. Communicate valueb. Communicate product uniquenessc. To close a saled. To build relationshipse. All of the above

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6. Which of the following is a marketer’s responsibility with regard to the communication process?

a. Make sure the message is received by the target audience.b. Make sure the message is understood as intended.c. Provide relevant information to help the audience be knowledgeable.d. Make sure the message elicits an appropriate response.e. All of the above

7. Dr. Donald Tongers is considered to be a perfect spokesperson to communicate the benefits of a new type of paint for consumers. Which of the following is not one of the characteristics that he most likely possesses?

a. Expertiseb. Attractivenessc. Wealthinessd. Trustworthinesse. None of the above

8. One of the characteristics of effective spokespersons is that they are attractive. This means

a. that they are good looking.b. that their personal demeanor is pleasant and likable.c. that they dress well.d. that they are considered to be in better physical shape than the

average person.e. none of the above.

9. Regarding message characteristics, when is a one-sided message most appropriate?

a. With highly intelligence audiencesb. When the recipient is opposed to the viewpoint being presentedc. When more than one viewpoint has meritsd. When the recipient is highly educatede. None of the above

10. A message can offer conclusions or leave the task to the receiver. In general, when a message offers conclusions, it would

a. be more easily understood.b. have a stronger likelihood of acceptance.c. have no differential impact.d. be all of the above.e. be none of the above.

11. Which of the following is the first step in developing the communications plan?

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a. Determining communication objectives and selecting the mixb. Selecting and understanding the targeting audiencesc. Developing the budgetd. Measuring resultse. Implementation

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12. What does AIDA stand for in the hierarchy of affects model?

a. Attention, interest, demand, activityb. Action, interest, demand, advancementc. Awareness, initiation, decision, actiond. Affordability, interaction, demand, accountabilitye. Attention, interest, desire, action

13. Which of the following is considered unethical by the American Marketing Association code of ethics?

a. False and misleading advertisingb. High-pressure manipulationc. Misleading sales tacticsd. Deceptive communicationse. All of the above

14. Rockwell International is involved in business-to-business communication. Which form of promotion is most likely to be used most if it is similar to other business-to-business organizations?

a. Advertisingb. Public relationsc. Personal sellingd. Sales promotione. The Internet

15. Which of the following represents the multi-step communication process?

a. Messages are passed from person to person in a chain, often resulting in miscommunication of the sender’s intent.

b. Opinion leaders send messages to companies who in turn use those messages as key parts of their communications research process.

c. Once opinion leaders receive messages, they are filtered before they reach other group members, thereby modifying the effects of the message positively or negatively.

d. Messages are sent from several media at the same time in order to improve the probability that a given audience will hear the message.



I. THE CONCEPT OF INTEGRATED MARKETING COMMUNICATIONS

Communication is the exchange of meaning between or among parties. Promotion is the process whereby marketers inform, educate, persuade, remind, and reinforce consumers through communication. Integrated

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marketing communication (IMC) is the coordination of advertising, sales promotion, personal selling, public relations, and sponsorships to reach consumers with a powerful unified effect.

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II. OBJECTIVES OF INTEGRATED MARKETING COMMUNICATION

A. Provide Information–All communication is designed to provide some form of information. It gives consumers what they need to make informed choices within a reasonable time frame.

B. Create Demand for Products–Communication stimulates people to desire what they do not have and inspires them to earn the money to acquire items that improve their standard of living.

C. Communicate Value–Marketers compete to provide value in keeping with consumers’ willingness to pay. Most communication uses creative messages that help convey benefits.

D. Communicate Product Uniqueness–Marketers attempt to communicate unique-ness in order to differentiate their product from others.

E. Close the Sale–Communication helps close the sale. Marketers want their product to be purchased. Today, consumers are selecting when they want to receive communications, and often that is just prior to purchase.

F. Build Relationships and Loyalty–Once a consumer has tried a particular brand, marketers remind them why they chose it in the first place and reinforce behavior.

III. THE COMMUNICATION PROCESS

Messages move from the sender (marketer) to the receiver (consumer).

A. The Message Sender–As the sender, it is the marketer’s responsibility to make sure the message is received by the target audience, is understood as intended, provides relevant information to help the audience be knowledgeable, and elicits an appropriate response. Spokespersons are generally judged according to their expertise, trustworthiness, and attractiveness.

1. Expertise–Consumers attribute expertise to a spokesperson because they may believe he/she has specialized training, a great deal of experience, or a thorough knowledge.

2. Trustworthiness–People tend to trust messages from “objective” sources.

3. Attractiveness (personal demeanor and appeal)–Attractive, pleasant, likable spokespersons have influence.

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B. Presentation Creation—Encoding–Encoding is the process of translating a message into terms easily understood by the target audience. Marketers must encode messages so they are interpreted appropriately by the people for whom they are intended.

C. Message Characteristics–

1. One-sided and two-sided messages–A one-sided message presents only arguments favorable to the source. A two-sided message recognizes the arguments against its side and provides the message recipient with reasons why the arguments are invalid.

2. Recommendations or conclusions–A message can make recommendations or offer conclusions or leave that task to the receiver. Messages with conclusions are more easily understood, but when the audience draws its own, there is a stronger likelihood of acceptance.

3. Order of presentation–The placement of the key point of a commu-nication affects how the message is interpreted and later recalled by buyers. More is remembered about the beginning and end of a message than its middle.

4. Humor–Viewers like humorous ads because they are novel and enjoyable, but advertisers must be careful not to let humor obscure the message.

5. Fear appeals–Marketers sometimes use fear to gain the attention and interest of their audience.

6. Comparative messages–A host of companies choose to compare their products with those of rivals.

D. Media–The means for transmitting messages from the sender to the receiver. Personal media involve direct contact, such as face-to-face communication or telephone conversations. The mass media include television, radio, magazines, billboards, and brochures. The mixed media approach combines personal and mass communication.

E. Interpretation by Receivers—Decoding–Strong communications begin with an understanding of target audiences. Consumers resist persuasion by refuting arguments, or through distortion. Intelligence and self-esteem also influence susceptibility to persuasion.

F. Consumer Feedback–Listening is an important way to learn what consumers think. Through the consumer, companies determine needs and wants as well as how to structure communication.

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IV. THE COMMUNICATION MIX

A. Personal Selling–Requires person-to-person communication between buyer and seller. Generally, this occurs face to face, although it also may involve the telephone, video conferencing, or interactive computer linkages.

B. Advertising–Paid communication through nonpersonal channels—newspapers, television, radio, magazines, direct mail, billboards, and point-of-sale displays.

C. Sales Promotion–Sales promotion attempts to motivate purchases through a sales message. Possible tools include coupons, contests, and free samples.

D. Public Relations–Publicly designed to present the firm and its products in a positive light.

E. Sponsorships–The exchange of money (or some other form of value) in return for a public association with an event.

F. Factors Affecting the Communication Mix–

1. Business vs. consumer markets–Personal selling is most important in marketing to businesses, while advertising dominates in the consumer products arena.

2. Pull vs. push strategies–A pull strategy attempts to influence consumers directly. A push strategy involves communicating to distribution channel members, who in turn promote to the end-user.

3. Product stage in life cycle–Consumers need to be informed and educated about new products, whereas they may need to be persuaded to purchase them during growth and early maturity.

4. Opinion leadership–In one-step communication, all members of the target audience are simultaneously exposed to the same message. In multiple-step communication, opinion leaders filter the message before it reaches other group members, modifying its effect positively or negatively for the rest of the group.

V. DEVELOPING THE IMC PLAN

A. Select and Understand Target Audiences–The overall market needs to be segmented, and each segment should be treated uniquely. For every target audience, communications experts need to understand all aspects of consumer behavior, learning where, how, and why they buy as well as how they obtain and process information.

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B. Determine the Objectives and Select the IMC Mix–As marketers plan their communication objectives, they must keep the objective in mind. The IMC mix will vary considerably, depending on the objective.

C. Developing the Communication Budget–The communication budget falls within expenditures for the entire marketing mix. Consequently, establishing the specific amount for the IMC requires an understanding of the overall marketing strategy, the financial resources available, and the contribution communications is expected to make.

1. Determining the overall budget–It is important to establish the contribution of IMC to volume objectives and determine resulting profits and cash flows. Competitive budgeting involves determining what rivals are spending and setting the budget accordingly. In the payout plan method, the marketer estimates future sales and establishes the budget required to gain initial acceptance and trial of the product. The task method sets specific sales targets or other objectives and then determines what activities and amounts are required to accomplish them.

2. Allocating the budget–In many cases, data are fed into computer simulations that help determine the best allocations. In other cases, the team simply estimates what is required.

D. Implementation–Tends to be done by functional specialists with considerable experience in their field. The first decision is how much to do in-house and how much to outsource. Likewise, companies must decide whether to do their own advertising and sales promotion or hire outsiders.

E. Measuring IMC Results–Performance measures are variables or factors that tell us how well the organization or product is doing. Common measures are market share, sales level, and profitability. Other factors include number of loyal customers, amount of brand recognition, brand image, and knowledge of the product.

VI. ISSUES IN COMMUNICATION

A. Diversity–The vast differences among consumers create opportunities for a wide variety of promotions to meet their needs.

B. Ethics–The American Marketing Association Code of Ethics states that acceptable standards of communications include “avoidance of false and misleading advertising, rejection of high pressure manipulations, or misleading sales tactics, and avoidance of communications that use deception or manipulation.”

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C. Technology That Builds Relationships–In communications, marketers often use technology to reach consumers and establish relationships.

ANSWERS: KEY TERMS

1. Push strategy2. Encoding 3. Promotion4. One-step communication5. Media6. One-sided messages7. Pull strategy8. Opinion leaders9. Advertising

10.Two-sided messages11.Sponsorship12.Personal selling13.Integrated marketing

communication14.Public relations15.Multiple-step communication16.Sales promotion17.Communication


1. b2. e3. c4. a5. e6. e7. c8. b

9. e10. a11. b12. e13. e14. c15. c

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CHAPTER 15

MASS COMMUNICATIONS:ADVERTISING, SALES PROMOTION, AND PUBLIC RELATIONS

CHAPTER OVERVIEW

Mass communication is composed of advertising, sales promotion, and public relations. The history of mass communication coincides with the development of communications technology—particularly print, radio, and television. Today, the Internet is adding an interactive medium. Global mass communication occurs when key elements of messages are standardized across regions and nations. The primary ethical issue in mass communication is deception.

Advertising is highly controllable and works over time to build brand equity. It is cost-effective for reaching large audiences. The objectives are to create awareness, disseminate information, and send reminder messages. Advertising media are readily available, and it’s easy for marketers to find help in creating effective campaigns. But advertising also reaches many people outside the target audience, encounters a high level of avoidance, and can be costly. It also can communicate only brief, one-way messages. There are several different types of advertising: national, retail (local), directory, business-to-business, institutional, direct-response, public service, and political. Generally, there are six steps in developing the advertising plan: set objectives, establish the budget, create the theme and message, select and schedule media, create the ads, and assess effectiveness.

Sales promotion is used to prompt consumers to action, resulting in immediate sales results. It is generally used with other forms of promotion, such as advertising, public relations, or personal selling. There are four types of sales promotion: business-to-business, consumer, trade, and retailer. Depending on the audience, activities may include trade shows, sales contests, advertising allowances, price cuts, free trials, coupons, rebates, and sweepstakes.

Public relations activities are used primarily to influence feelings, opinions, or beliefs about a company or its products. An attempt is made to develop messages that at least have the appearance of objectivity. PR tends to be used in the following ways to support the marketing function: corporate communication, press relations, lobbying, and product publicity. Common PR activities are news conferences and sponsorship of events or activities.

CHAPTER OBJECTIVES

1. Understand the concept of mass communication, including the relative use of advertising, sales promotion, and public relations.

2. Learn how technology, globalization, and ethics are playing major roles in mass communication.

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3. Know the objectives, advantages, and disadvantages of advertising, as well as the sequence of steps in creating an advertising campaign.

4. Understand sales promotion objectives and what types of promotions are used to stimulate sales in business, trade, retailer, and consumer markets.

5. Understand the use of public relations in marketing.CHAPTER OUTLINE

I. THE CONCEPT OF MASS COMMUNICATIONS: ADVERTISING, SALES PROMOTION, AND PUBLIC RELATIONS

Mass Communication

II. MASS COMMUNICATIONS IN THE 21ST CENTURY

A. Technological Perspective–

B. Global Advertising, Sales Promotion, and Public Relations–

C. Ethical Issues in Advertising, Sales Promotion, and Publicity–

Deception

III. ADVERTISING

Advertising

A. The Multiple Purposes and Roles of Advertising–

1. Informative ads–

2. Persuasive ads–

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3. Reminder ads–

4. Reinforcement ads–

B. The Pros and Cons of Advertising–

Advantages:

Disadvantages:

C. Categories of Advertising–

National or Brand Advertising

Retail Advertising

Directory Advertising

Direct-Response Advertising

Business-to-Business Advertising

Institutional Advertising

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Public Service Messages

Political Advertising

D. Advertising Agencies–

IV. THE ADVERTISING PLAN

A. Setting Objectives–

B. Developing the Theme and Message–

Theme

Creative Strategy

Advertising Campaign

1. Reaching the consumer–

Exposure

Stopping power

2. Creativity–

Pulling power

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3. Understanding–

4. Memorable–

C. Media Selection–

1. Newspapers–

Advantages:

Disadvantages:

2. Television–

Advantages:

Disadvantages:

3. Radio–

Advantages:

Disadvantages:

4. Magazines–

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Advantages:

Disadvantages:

5. Outdoor Advertising-

Advantages:

Disadvantages:

6. The Internet–

Advantages:

Disadvantages:

7. Media popularity–

D. The Media Schedule–

1. Target audience–

2. Reach, frequency, and continuity balance–

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Reach

Frequency

Continuity

Overexposure

3. Media timing–

4. Media budget–

E. Creating the Ads–

F. Assessing Advertising Effectiveness–

Unaided Recall

Aided Recall

V. SALES PROMOTION

Sales Promotion

A. Types of Sales Promotion–

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Consumer Promotions

Trade Promotions

Retailer Promotions

B. The Success of Sales Promotion–

C. Creating Customer Relationships and Loyalty through Sales Promotion–

1. Current loyals–

2. Switchers–

3. Price buyers–

4. Nonusers–

D. Business-to-Business Promotions–

Trade Shows

Conventions

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Sales Contests

Specialty Advertising

E. Trade Promotions–

Allowances

Financing Incentives

Sales Contests

F. Retailer Promotions–

Price Cuts

Patronage Awards

G. Consumer Promotions–

1. Coupons–

2. Rebates–

3. Samples–

4. Sweepstakes–

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5. Price and value packs–

6. Point-of-purchase displays–

7. Continuity programs–

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VI. PUBLIC RELATIONS

Public Relations

A. Publicity–

1. Press releases and news conferences–

2. Sponsored events or activities–

3. The Internet–

KEY TERMS

AdvertisingAdvertising agenciesAdvertising campaignAided recallConsumer promotionsContinuityCopy strategyCouponsCross-sellingExposureFinancing incentivesFrequencyInformative advertisingInstitutional advertising

OverexposurePersuasive advertisingPublic relationsPulling powerReachReinforcement advertisingReminder advertisingRetailer promotionsSales contestSales promotionSpecialty advertisingStopping powerTrade promotionsUnaided recall

1. Gifts with the organization’s name that are provided to customers, usually given through the mail or by the sales force.

2. The manufacturer of one brand attempts to sell another brand to the same customers, or the purchase of one product is used to stimulate the selection of another—often unrelated—product

3. Calls attention to specific characteristics of products experienced by the user.

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4. Messages designed to communicate corporate identity and philosophy as opposed to product information.

5. The number of times the audience is reached in a given period, usually per day or per week.

6. Asks the viewer to identify any advertisements they can remember.

7. The length of time the advertising campaign will run in a given medium.

8. Messages that keep the product at the forefront of the consumer’s mind.

9. The process of putting the ad in contact with the customer.

10. Certificates that entitle a consumer to an incentive to buy the product, usually a price reduction or a free sample.

11. Offers from manufacturers to channel members, such as wholesalers and retailers.

12. Offers to finance the retailer’s inventory prior to its sale.

13. Offers designed to pull the product through the retail establishment.

14. Businesses that develop, prepare, and place advertising for sellers seeking to find customers for their products.

15. Messages designed to provide information that consumers can store for later use.

16. Continuing to reach a prospect after a buying decision has been made or to the point that the campaign becomes tedious and actually turns off some potential buyers.

17. Messages designed to change consumers’ attitudes and opinions about products, often listing product attributes, pricing, and other factors that may influence consumer decisions.

18. A short-term incentive via media and nonmedia marketing communi-cations to stimulate trial, increase consumer demand, or improve product availability.

19. The number of consumers in the target audience who can be contacted through a given medium.

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20. The use of publicity and other nonpaid forms of communication to influence feelings, opinions, or beliefs about the company, its products, or the value of the products to the buyer.

21. A series of advertisements with a main theme running through them.

22. Offers to the consumer that are sponsored by retailers.

23. A competition for salespeople and dealers that awards prizes for accomplishing specific goals.

24. Carefully developed words and phrases that describe precisely what the advertiser wishes to communicate.

25. Any paid form of nonpersonal communication about an organization, product, or idea by an identified sponsor.

26. Ability to gain and hold attention.

27. Asks the viewer to identify any advertisements they recall after being given some specific piece of information about the ad.

28. The interest of the consumer is held to the end of the advertising message.

MULTIPLE CHOICE

1. Which of the following is not considered to be a part of mass communications?

a. Advertisingb. Sales promotionc. Personal sellingd. Public relationse. All of the above are mass communications.

2. What major factor has had the greatest impact on the history of mass communications?

a. Increases in population size b. Globalization of businessc. Customer taste in preferencesd. Technological innovatione. Cost of advertising

3. Which of the following would be considered global advertising?

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a. ABC Corporation advertises in more than one country.b. A marketer develops several different advertisements for different

nations.c. A marketing team standardizes key elements of advertising across

national boundaries.d. Advertising budgets are created for each country and then combined

into one big budget.e. None of the above would be.

4. What is a criterion for concluding that advertising, sales promotion, or publicity is unethical because of deception?

a. When a consumer misinterprets informationb. When a false belief is created which interferes with consumers’

ability to make rational choicesc. When claims are exaggeratedd. When consumers do not purchase the highest quality product

because of a competitor’s mass communication strategye. None of the above is a criterion.

5. Which of the following is considered to be an advantage of advertising?

a. The company has control over the content.b. It works over time to build the brand’s equity.c. It is very cost-effective for large audiences.d. It is easy to find professionals to create effective ads.e. All of the above are advantages.

6. This is an independent business that develops, prepares, and places advertising in appropriate media. It is

a. an advertising agency.b. an advertising professional.c. an advertising unit.d. an advertising department.e. none of the above.

7. Which of the following is not a communication medium?

a. Newspaperb. Magazinesc. Copyrightingd. Radioe. Television

8. What is the first step in developing a media schedule?

a. Develop media timing.b. Identify the target audience.c. Set the media budget.d. Determine the region frequency of media.

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e. Identify areas of overexposure.

9. XYZ Corporation wishes to target narrowly defined segments with a prestigious medium that can be saved or passed along from consumer to consumer. They would probably select

a. television.b. radio.c. outdoor ads.d. the Internet.e. magazines.

10. A research organization asks viewers to identify as many soft drink advertisements as he/she can remember. The test is asking for

a. immediate recognition.b. aided recall.c. reinforced recognition.d. unaided recall.e. irrememberance index.

11. What is the fundamental objective of sales promotion?

a. Build awareness.b. Create an image.c. Stimulate trial.d. Provide information.e. Persuade.

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12. When a manufacturer uses promotion directed at wholesalers or retailers, it is engaged in

a. trade promotions.b. retailer promotions.c. consumer promotions.d. business-to-business promotions.e. none of the above.

13. Which of the following is a category mentioned in the text regarding types of buyers?

a. Current loyalsb. Non usersc. Switchersd. All of the abovee. None of the above

14. When a manufacturer owns two or more brands, current loyal customers are excellent candidates for what?

a. Multiple brand promotionb. Brand switchingc. Cross-sellingd. Pooled resource campaigninge. Cooperative advertising

15. Which of the following is the best description of public relations and how it supports the marketing function?

a. It helps with corporate communication to company personnel which promotes better understanding of the organization.

b. Press releases which provide newsworthy information to the public.c. Lobbying which provides communication with legislature and

government officials.d. Product publicity which describes to the public newsworthy

innovations that are new product attribute elements.e. All of the above are descriptions of PR.


I. THE CONCEPT OF MASS COMMUNICATIONS: ADVERTISING, SALES PROMOTION, AND PUBLIC RELATIONS

Mass communication is composed of advertising, sales promotion, and public relations.

II. MASS COMMUNICATIONS IN THE 21ST CENTURY

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A. Technological Perspective–The history of mass communication mirrors a number of technological advances.

B. Global Advertising, Sales Promotion, and Public Relations–Global advertising, sales promotion, or public relations occurs when a marketing team standardizes key elements of these activities across national boundaries.

C. Ethical Issues in Advertising, Sales Promotion, and Publicity–The most serious ethical issue surrounding advertising, sales promotion, and public relations is deception. Deception occurs when a false belief is created or implied and interferes with the ability of consumers to make rational choices.

III. ADVERTISING

Advertising is paid, nonpersonal communication from an identified sponsor using media to persuade or influence an audience.

A. The Multiple Purposes and Roles of Advertising–

1. Informative ads–Designed to provide messages that consumers can store for later use.

2. Persuasive ads–Designed to change consumers’ attitudes and opinions about products as well as create attitudes where none exist.

3. Reminder ads–Keep the product at the forefront of the consumer’s mind.

4. Reinforcement ads–Call attention to specific characteristics of products experienced by the user.

B. The Pros and Cons of Advertising–The advantages of advertising are: company control over the content, presentation, and placement of messages; over time builds brand position and equity; cost-effective for large audiences; serves many communication needs—awareness, information, reminder; available media make it easy to reach most audiences; and it is easy to find professionals to create effective ads. The disadvantages are: reaches many nonusers; high level of audience avoidance; brief one-way messages; can be costly in total.

C. Categories of Advertising–National or brand advertising focuses on brand identity nationwide. Retail (local) advertising focuses attention on nearby outlets where products and services can be purchased. Directory advertising is a listing of businesses, their addresses, phone numbers, and sometimes a brief description in a publication such as the Yellow Pages. Direct-response advertising stimulates sales

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through appeals to consumers by telephone or mail, and the product then is delivered to their home or business. Business-to-business advertising sends messages to a variety of organizations. Institutional advertising is designed to communicate corporate identity and philosophy rather than messages about individual products. Public service messages support such societal issues as the prevention of child abuse or smoking cessation. Political advertising is aimed at influencing voters in favor of individuals or particular ballot issues.

D. Advertising Agencies–Independent businesses that develop, prepare, and place advertising in the appropriate media.

IV. THE ADVERTISING PLAN

A. Setting Objectives–The goals of informing, reminding, and/or reinforcing should be accompanied by specific objectives: increase sales, establish brand position, increase awareness, support the sales force or distributors, maintain awareness, or introduce a new brand.

B. Developing the Theme and Message–The theme is the creative concept, and the art and copy are used to convey the message. Creative strategy is the careful development of visual images and words that convey precisely what the advertiser wishes to communicate. An advertising campaign is a series of different ads with the same creative strategy. To be effective, the theme and message must reach the consumer and must be relative, understandable, and memorable.

1. Reaching the consumer–Exposure is the process of putting the ad in contact with the market. Stopping power is the ability of an ad to gain and hold attention.

2. Creativity–Originality and uniqueness provide some novelty to gain more attention. Pulling power keeps the interest of the consumer to the end of the message.

3. Understanding–It is important that the information selected for communication is clearly understood.

4. Memorable–It is important that ads’ messages are retained for some time.

C. Media Selection–Media are the channels whereby messages are transmitted from the sender to the receiver. Each medium has unique advantages and disadvantages.

1. Newspapers–Advantages: wide exposure for upscale adults; flexible, timely, buyers can save for later reference; high credibility. Disadvantages: few ads are fully read; young adults

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don’t read them; costs are rising; alternate media are becoming more important news sources.

2. Television–Advantages: creative and flexible; cost-efficient; credibility. Disadvantages: message is quickly forgotten; high production cost; difficult to get attention.

3. Radio–Advantages: selective targeting possible; mobile—goes with listeners; low production costs. Disadvantages: no visual content; high frequency is required to reach many people; audience research has traditionally been difficult.

4. Magazines–Advantages: target narrowly defined segments; prestigious sources; long life—can be passed along. Disadvantages: audiences declining; long lead times to develop ads; need to use many different magazines to reach a lot of buyers.

5. Outdoor advertising–Advantages: low cost per exposure; good to supplement other media; with color, lighting, and mechanization gets attention. Disadvantages: can’t communicate much; difficult to measure results.

6. The Internet–Advantages: considerable potential; medium for relationship marketing; customer-driven and dialogue-oriented; increasing number of users. Disadvantages: little research to indicate proven effectiveness; relies on consumers accessing the necessary technologies; revenues still small; difficult to target a specific audience; difficult to measure results.

7. Media popularity–TV accounts for nearly 70%.

D. The Media Schedule–This work involves a number of considerations: target audience analysis; reach, frequency, and continuity balance; media timing; and budgeting.

1. Target audience–Media planning begins by addressing specific market segments. Media scheduling is usually done geographically and demographically.

2. Reach, frequency, and continuity balance–Reach is the number of consumers in the target audience that can be contacted through a given medium. Frequency is the number of times the audience is contacted during a given period, usually over four weeks. Continuity is the length of time the advertising campaign will run in a given medium. Overexposure refers to reaching a prospect either after a purchase decision has been made or so frequently that the campaign actually wastes funds.

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3. Media timing–Products may be seasonal or purchased more frequently on certain days of the week.

4. Media budget–Marketers attempt to maximize the advertising effort within budget constraints, using one medium or a combination of media to achieve the most influence in the market.

E. Creating the Ads–This step in the ad plan involves both science and art. The key is to know the objectives and constraints imposed by the media, scheduling, and budget.

F. Assessing Advertising Effectiveness–Ads can be assessed at two different points: before running the campaign and afterward. Unaided recall asks the viewer to identify any advertisements he/she can recall. Aided recall refers to the content that can be remembered without seeing the particular ad.

V. SALES PROMOTION

Sales promotion is media and nonmedia marketing communication designed to produce a short-term incentive to stimulate trial, increase consumer demand, or improve product availability.

A. Types of Sales Promotion–Consumer promotions are manufacturer incentives offered directly to consumers, largely bypassing the retailer. Trade promotions are provided by manufacturers to distribution channel members. Retailer promotions are directed at the consumer by the retail outlet.

B. The Success of Sales Promotion–Sales promotion has become increasingly successful due to changing consumer lifestyles, better technology, and the changing structure of the retail industry.

C. Creating Customer Relationships and Loyalty through Sales Promotion–There are four main categories of buyers and strategies for marketing to each group.

1. Current loyals–Presently purchasing a company’s brand. Marketers should reinforce existing behavior, cross-sell, or try to increase usage.

2. Switchers–Purchase a number of different brands. Trade promotions aimed at maximizing inventory and store space works well with this group. Sales promotions also work well.

3. Price buyers–Most in this category want low prices, but a few choose only the most expensive brand. They respond well to price promotions.

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4. Nonusers–Do not currently purchase a particular brand. Sales promotions designed to create involvement may stimulate purchase. Cross-selling works to gain trial.

D. Business-to-Business Promotions–The four main types of business-to-business promotional activities are trade shows, conventions, sales contests, and specialty advertising. Trade shows are designed to bring marketers and customers together at a given location for a short period. Conventions are often sponsored by professional groups and give marketers the opportunity to gather ideas for new strategies and stimulate sales. Sales contests for salespeople and dealers offer prizes for accomplishing specific goals. Specialty advertising refers to gifts for customers, usually sent through the mail or handed out by salespeople, with the organization’s name imprinted on it.

E. Trade Promotions–Offered by the manufacturer to wholesalers or retailers. Allowances are funds given to retailers and wholesalers based on the amount of product they buy. Financing incentives help reduce the retailer’s inventory carrying cost. Sales contests or “spiffs” reward a retailer for selling a certain level of a product and are often extended to the salespeople within the retail establishment.

F. Retailer Promotions–Directed specifically at the end-customer and originate within the retailing organization. They seek to encourage customers to purchase a product from a given location. The most common type of retailer promotion is price cuts. They are used to stimulate sales of certain product lines or reduce inventory of older products. Patronage awards are another useful promotion. Generally, a card is punched or stamped each time the consumer shops at the retail outlet. When the card is filled, it can be redeemed for free merchandise.

G. Consumer Promotions–Manufacturers use consumer sales promotions to influence their market share across all retailing outlets.

1. Coupons–Certificates that entitle a consumer to an incentive, usually a price reduction or free sample.

2. Rebates–Refunds given to consumers for the purchase of particular items.

3. Samples–A trial product which is usually distributed via mail, door-to-door, or in stores.

4. Sweepstakes–A contest in which participants’ names are pooled and the winner is drawn randomly.

5. Price and value packs–Cents-off or two-for-one offers.

6. Point-of-purchase displays–Exhibit products at retail locations.

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7. Continuity programs–Reward people for continued and frequent use of a particular product.

VI. PUBLIC RELATIONS

Public relations seeks to make use of publicity and other nonpaid forms of communication to influence feelings, opinions, or beliefs about the company, its goods, or services or about the value of the product to the buyer. It supports the marketing function through corporate communication, press relations, lobbying, and product publicity.

A. Publicity–What is communicated about an organization in the public news media.

1. Press releases and news conferences–A press release is a statement written by company personnel and distributed to various media for publication at their discretion. It includes information about the organization or product that marketers believe will be of interest to the public.

2. Sponsored events or activities–Sponsored events or activities are often used for local promotion. This gets the company name in the public while contributing to the community.

3. The Internet–The Internet has spawned a new group of PR companies, some which have helped companies to minimize negative publicity. Other companies use the Internet for chat sessions, which serve as a form of positive publicity.

ANSWERS: KEY TERMS

1. Specialty advertising2. Cross-selling3. Reinforcement advertising4. Institutional advertising5. Frequency6. Unaided recall7. Continuity8. Reminder advertising9. Exposure10.Coupons11.Trade promotions12.Financing incentives13.Consumer promotions14.Advertising agencies

15.Informative advertising16.Overexposure17.Persuasive advertising18.Sales promotion19.Reach 20.Public relations21.Advertising campaign22.Retailer promotions23.Sales contest24.Copy strategy25.Advertising26.Stopping power27.Aided recall28.Pulling power


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1. c2. d3. c4. b5. e6. a7. c8. b

9. e10. d11. c12. a13. d14. c15. e

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CHAPTER 16

PERSONAL SELLING AND SALES FORCE MANAGEMENT

CHAPTER OVERVIEW

Personal selling techniques have moved through three distinct modes: the traditional persuasive approach, consultative selling, and, relationship selling. Most professional salespeople view themselves as the marketing manager of a territory. As such, they are responsible for implementing the company’s marketing strategy within the territory.

Sales force management is the marketing function involved with planning, implementing, and adjusting sales force activities. First, sales managers work with others in their company to organize the sales force, including its structure, size, and type. Second, they develop diverse sales teams through recruiting, selecting, and training. Third, they prepare forecasts and budgets. Fourth, they implement actions by establishing quotas, assessing performance, determining compensation, and supervising, coaching, and motivating the sales force. Finally, they evaluate sales activities and make any necessary changes.

The seven steps in personal selling are: planning, prospecting, organizing information and developing a call plan, approaching a prospect, presenting a case and building relationships, managing objections and closing, and service. Strong salespeople are goal-oriented, empathetic, have applications knowledge, and are ethical and trustworthy.

Once the sales structure is determined, the sales organization is developed. Strong attention must be paid to diversity when recruiting, selecting, and training salespeople. Recruitment seeks a pool of exceptional candidates and often takes place on college campuses. Selection is a choice process for the company and candidates alike, as both seek a good match. Training involves educating salespeople about company policies and procedures; product and customer application knowledge; relationship selling skills; territory and account planning; and diversity.

Implementing sales actions involves several steps. Quotas establish the sales volume, profit, and activities expected from each salesperson. Motivation depends on a positive organizational climate in which employees feel rewarded for the effort they make. Sales force compensations are designed to support the development of loyal salespeople, who in turn help create loyal customers. Organizations must be flexible in order to maintain competitive advantage. This requires an assessment of individual salespeople and each part of the sales organization.

CHAPTER OBJECTIVES

1. Understand how selling evolved to a focus on relationships and what elements are involved in building them.

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2. Know the responsibilities of salespeople and sales managers.

3. Identify and understand the steps in personal selling.

4. Learn the characteristics of strong salespeople.

5. Understand how to develop a diverse sales organization.

6. Explore how to implement sales actions, from setting quotas and compensating salespeople to evaluating and adjusting plans.

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CHAPTER OUTLINE

I. THE CONCEPT OF PERSONAL SELLING

II. TYPES OF SALES PERSONNEL AND SELLING SITUATIONS

Direct Sales

Missionary Sales

A. Executive and Team Selling–

B. Field Selling–

C. Over-the-Counter Selling–

D. Inside Sales–

E. Global Sales–

III. RELATIONSHIP AND OTHER SELLING APPROACHES

A. The Traditional Sales Approach–

B. The Consultative Sales Approach–

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C. Relationship Selling–

1. The customer as an asset–

2. Understanding the customer’s business strategy–

3. Partnering–

D. Account Strategy Development (Strategic Selling)–

Account Management

IV. THE RESPONSIBILITIES OF A SALESPERSON

Sales Territory

A. Implement the Marketing Strategy–

B. Communicate Company Policy–

C. Provide Feedback–

D. Make Ethical Decisions–

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V. THE STEPS IN PERSONAL SELLING

A. Planning–

Sales Planning

Account Plans

Territory Planning

B. Prospecting–

Leads

Prospects

Qualifying

Qualified Prospect

Cold Call

The Center of Influence Method

Referrals Networking

Telemarketing

C. Organizing Information and Developing a Call Plan–

Preapproach

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Routing Schedule

D. Approach–

E. Making the Case and Building Relationships–

Sales Presentation

Empathy

F. Managing Objections and Closing the Sale–

G. Service–

Follow-up

VI. CHARACTERISTICS OF STRONG SALESPEOPLE

VII. THE CONCEPT OF SALES FORCE MANAGEMENT

Sales Force Management

Sales Managers

VIII. ORGANIZING THE SALES FORCE

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A. Sales Manager Types–

B. Sales Force Structures–

IX. DEVELOPING THE SALES TEAM

A. Diversity in the Sales Force–

B. Recruitment–

C. Selecting–

D. Training–

X. SALES FORECASTING AND BUDGETING

A. Sales Forecasting–

Environmental Forecast

Industry Forecast

Company Sales Forecast

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B. Sales Force Budgets–

Cost-Based Budgeting

XI. IMPLEMENTING SALES ACTIONS

A. Quotas–

Sales Volume Quotas

Sales Profit Quotas

Activity Quotas

B. Compensation–

Salary

Commission

Bonus

C. Supervision and Coaching–

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D. Motivation–

E. Ethical Issues in Motivation and Compensation–

XII. OVERSEEING SALES FORCE ACTIVITIES

Evaluation and Control

XIII. SALES FORCE AUTOMATION

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KEY TERMS

Activity quotasApproachBonusCenter of influence ClosingCold callingCommissionCompany sales forecastConsultative sellingDirect salesEmpathyEnvironmental forecastExpert opinionFollow-upIndustry forecastLeadsMissionary salesNegotiationNetworkingPreapproach

PresentationProspectProspectingQualified prospectQualifyingQuotasReferralRelationship sellingRoutingSalarySales force managementSales managersSales profit quotasSales structureSales territorySales volume quotasTeam sellingTelemarketingTerritory planningTraditional sales approach

1. Telephone calls to the leads provided by marketing services.

2. The salesperson’s first formal contact with the potential customer.

3. The people responsible for the leadership and management of salespeople in order to accomplish the sales objectives established in the marketing plan.

4. An opinion leader who can be quickly qualified as a potential customer because of his/her standing in the community.

5. The salesperson listens to the customer to identify needs and then describes how the product will fulfill them.

6. The organization of the reporting relationship between sales managers and salespeople.

7. An amount paid in direct proportion to the accomplishment of specific objectives.

8. A prediction of unit or dollar sales for a given period, in total or broken down by product, segments, or other categories, and based on the marketing strategy that will be put in place.

9. Sales personnel work closely with customers to help solve problems.

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10. Forging bonds between buyer and seller to gain loyalty and mutual satisfaction.

11. An estimate of the economic, political, and social factors likely to affect the level of spending for the types of products or services being forecast.

12. Establish profitability objectives for customers, products, and market segments.

13. After-sales service to ensure customer satisfaction in order to obtain repeat business.

14. Unit or dollar objectives, usually set by market segment, product or service line, and average volume per customer.

15. An estimate of the amount and type of competitive activity that is likely to occur in an industry.

16. First contact with a lead whose interest is unknown.

17. All those who may have need of a company’s product.

18. Indirect selling through people who do not obtain orders but influence the buying decision of others.

19. A percentage of salary or a fee paid in addition to other compensation for meeting long-term or unique goals.

20. Contacts with friends, relatives, and associates to obtain leads.

21. The geographic area or large accounts for which the salesperson has responsibility.

22. The point at which the salesperson obtains the order from the customer.

23. Preparation by the salesperson for the initial meeting with a prospect.

24. A potential buyer interested in the seller’s product and with the attributes of a good customer.

25. The judgment of an expert panel or individuals about the likelihood that selected strategies will result in certain levels of sales.

26. Quantitative objectives used to direct sales force activity and evaluate performance.

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27. A lead provided by a prospect.

28. An emphasis on persuasive techniques to get consumers to buy a company’s products.

29. A travel schedule for calling on prospects.

30. The fixed amount of compensation paid regardless of performance.

31. Interaction with a consumer or company in order to make a sale.

32. The marketing function involved with planning, implementing, and adjusting sales force activities.

33. Seeking potential customers within the company’s target markets.

34. Action objectives that encourage salespeople to engage in certain tasks, such as prospecting calls, service calls, sales calls, demonstrations, and new accounts visited.

35. People from most parts of the organization, including top executives, work together to create a relationship with the buying organization.

36. Two or more parties discuss or arrange a transaction.

37. Identifying potential customers, their sales potential, and the frequency with which they will be contacted about various products.

38. The salesperson knows precisely how prospects feel and communicates that understanding.

39. Examining prospects to identify those with the authority and ability to buy the product.

40. A potential customer interested in the seller’s product.

MULTIPLE CHOICE

1. Which of the following is correct with regard to personal selling?

a. It is one of the most prevalent and highest paid occupations in the United States.

b. For every person employed in advertising, there are more than 30 jobs in sales.

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c. Nearly 10% of the work force is somehow involved in personal selling.

d. It is one of the fastest growing occupationse. All of the above are correct.

2. Ralph Johnson is head of a team that sells computer systems to large companies. He is in what type of sales?

a. Field salesb. Over-the-counterc. Insided. Globale. Executive selling

3. Which of the following best describes the technical salesperson?

a. They meet with people who influence the sale of a company’s products.

b. They meet face to face with customers to sell very technically-oriented products.

c. They work inside the seller’s company to support less technical people on the outside.

d. They sell intangible products.e. None of the above

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4. Allison Samuels is responsible for selling clothing in one of the top men’s clothing stores. This would be considered

a. over-the-counter selling.b. technical selling.c. consumer selling.d. action selling.e. inside sales.

5. Which of the following is a characteristic of traditional sales?

a. Focus on understanding your productb. The customer is considered a prospect.c. Salesperson works on persuasiond. The salesperson attempts to obtain sales volume.e. All of the above are.

6. Which of the following is the salesperson’s focus with regard to consultative selling?

a. Persuasionb. Partneringc. Problem solvingd. Increasing sales volumee. None of the above

7. What is the major objective of relationship selling?

a. Getting the greatest amount of salesb. Understanding customers’ problemsc. Profit through customer loyalty and satisfactiond. Developing can sell presentationse. None of the above

8. What is a key responsibility of a salesperson?

a. To be the marketing manager of a territoryb. Implement the marketing strategyc. To communicate company policyd. To provide feedback to the companye. All of the above

9. Fred Jacobs sells cleaning products to hospitals. His management is concerned because he engages in overselling. He is probably

a. selling more than the company can deliver.b. supplying a much more expensive and profitable product than the

product that probably suits the needs and budget of the hospitals.

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c. selling more than other people in the country thereby causing internal problems.

d. selling more than the customer needs.e. charging higher prices than the company wishes to have charged.

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10. Naomi West has been accused of puffery in her sales presentation. This means that she

a. is trying to deceive potential customers.b. is giving incorrect information that customers do not recognize.c. is speaking very loudly.d. is saying things that are so outrageous that customers recognize it as

such.e. is underemphasizing critical parts of the sales relationship.

11. How much time does a typical salesperson spend face to face with customers?

a. Over 80%b. Over 70%c. Over 50%d. Over 40%e. Approximately 30%

12. Susie Grimes is preparing for an initial meeting with a prospect. She is learning all she can about the person and the person’s organization. We would say that she is in which phase of this selling process?

a. Preapproachb. Marketing researchc. Qualifyingd. Post-evaluatione. None of the above

13. Which of the following are characteristics of successful salespeople?

a. Goal-oriented directionb. Empathyc. Applications knowledged. Trustworthinesse. All of the above

14. Sharon Anderson is a sales manager. Which of the following activities is she least likely to do?

a. Organize the sales force.b. Develop a sales call plan.c. Recruit, select, and train.d. Coache. Prepare sales forecasts and budgets.

15. Which of the following is correct with regard to the diversity training for sales personnel?

a. Only nonminorities need diversity training.

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b. It is more necessary for large companies than small companies.c. All salespeople should be provided with diversity training.d. Only people who have known problems in this area need training.e. None of the above

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I. THE CONCEPT OF PERSONAL SELLING

Any time one party attempts to motivate the behavior of another party through personal contact, some form of selling takes place. Personal selling is one of the most prevalent and highest paid occupations in the United States.

II. TYPES OF SALES PERSONNEL AND SELLING SITUATIONS

Direct sales occur when a salesperson interacts with a consumer or company in order to make a sale. Missionary sales are made by people who do not take orders but influence purchase by recommending or specifying a product to others.

A. Executive and Team Selling–Team selling involves people from most parts of the organization, including top executives, who work together to create relationships with the buying organization.

B. Field Selling–Occurs at a consumer’s residence or at a customer’s place of business. Field representatives spend most of their time away from their company and near customers.

C. Over-the-Counter Selling–Occurs at a retail outlet.

D. Inside Sales–Involve one-to-one contact with the customer via the telephone.

E. Global Sales–Personal selling in global markets.

III. RELATIONSHIP AND OTHER SELLING APPROACHES

A. The Traditional Sales Approach–Focuses on persuading consumers to buy a company’s products, thereby raising sales volume.

B. The Consultative Sales Approach–Working closely with customers to help solve their problems.

C. Relationship Selling–Attempts to forge bonds between buyers and sellers in an effort to gain loyalty and mutual satisfaction.

1. The customer as an asset–Long-term contracts and repeat sales produce predictable sources of revenue. The worth of many businesses can be calculated by the size of the customer base.

2. Understanding the customer’s business strategy–By understanding the customer’s business, salespeople are most

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likely to communicate in meaningful ways with the potential buyer.

3. Partnering–Some partnerships are contractual, established through long-term agreements. Some are noncontractual, that is, the buyer and seller enter into an implied agreement to do business together over time.

D. Account Strategy Development (Strategic Selling)–Account management is the activities of a salesperson or sales team to support the relationship with a customer in order to gain sales volume.

IV. THE RESPONSIBILITIES OF A SALESPERSON

A sales territory is all potential customers for whom the salesperson has responsibility.

A. Implement the Marketing Strategy–The primary responsibility of salespeople is to carry out the company’s strategic marketing plan.

B. Communicate Company Policy–As agents of their organization, salespersons are responsible for communicating company policies to customers. A policy is a guide or set of rules the company uses in conducting business.

C. Provide Feedback–Salespeople provide their company with information about customers, competitors, and market conditions.

D. Make Ethical Decisions–Salespeople must exhibit excellent ethical judgment in use of their time, with performance objectives, overselling, and communication.

V. THE STEPS IN PERSONAL SELLING

A. Planning–Sales planning translates the company’s marketing strategy into territory plans and account plans. Account plans establish sales goals and objectives for each major customer, such as the sales volume and profitability to be obtained. Territory planning determines the pool of customers, their sales potential, and the frequency with which they will be contacted about various products.

B. Prospecting–Involves seeking out new customers within the company’s target markets. Leads are the names of all those who might have a need for the product, a large pool that must be narrowed down to the most likely buyers. Prospects are potential customers who have an interest in the product. Qualifying is the process of determining which prospects have the authority and ability

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to buy a product. A qualified prospect is a potential buyer interested in the product and likely to be a reliable customer. A cold call is contact with the lead for the first time. A variation of cold calling is the center-of-influence method, which identifies leads by contacting opinion leaders. Referrals are the names of leads provided by a qualified prospect. Networking involves contacting friends, relatives, and associates to obtain leads. Telemarketing uses phone calls to contact lists of leads provided by marketing services and various directories.

C. Organizing Information and Developing a Call Plan–Preapproach refers to preparing for the initial meeting by learning about the prospect. The routing schedule identifies which prospects will be called on and when.

D. Approach–The approach is the first formal contact with the customer. The objective is to secure a meeting and gain customer interest.

E. Making the Case and Building Relationships–The sales presentation is a two-way process: The salesperson listens in order to identify customer needs and then describes how the product will fulfill them. Empathy occurs when salespeople know precisely how prospects feel.

F. Managing Objections and Closing the Sale–One of the most important sales skills is the ability to overcome a buyer’s objections. Closing means getting the first order.

G. Service–Salespeople make sure products are delivered on schedule and operate to the buyer’s liking. Follow-up occurs when a salesperson ensures after-sale satisfaction in order to obtain repeat business.

VI. CHARACTERISTICS OF STRONG SALESPEOPLE

Strong salespeople must be goal-directed, empathetic, have applications knowledge, and be ethical.

VII. THE CONCEPT OF SALES FORCE MANAGEMENT

Sales force management is the marketing function involved with planning, implementing, and adjusting sales force activities. Sales managers are responsible for the leadership and management of salespeople in order to accomplish the sales objectives established in the marketing plan.

VIII. ORGANIZING THE SALES FORCE

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A. Sales Manager Types–The sales manager position can be executive, mid-level, or first-line, depending on responsibilities and scope of operations.

B. Sales Force Structures–A sales structure is the organization of the reporting relationship between sales managers and salespeople. Sales organizations can be structured by geography, product (division), market segment, or individual account.

IX. DEVELOPING THE SALES TEAM

A. Diversity in the Sales Force–Managers must take care to develop a sales force that represents various groups. This enhances the ability of the organization to be sensitive to the needs of individual customers, thereby improving its relationship-building capacity.

B. Recruitment–Effective recruitment attracts a qualified pool of candidates to fill the sales positions.

C. Selecting–Sales managers must demonstrate sound judgment in selecting from a broad range of talents, and they also need to sell top candidates on opportunities within their organization.

D. Training–Most sales executives believe training is critical for developing individual and team skills. Training programs are usually conducted regarding company policies and procedures, product and customer applications knowledge, sales skills, and territory and account planning.

X. SALES FORECASTING AND BUDGETING

A. Sales Forecasting–The environmental forecast examines the economic, political, and social factors likely to affect the level of spending for a product. An industry forecast estimates the amount of overall demand expected based on such factors as the industry business condition, amount of spending, number of new products, and communications budgets anticipated for competitors. The company sales forecast is based on the overall marketing strategy. It forecasts unit sales and must be in line with marketing, financial, and operations plans.

B. Sales Force Budgets–One of the most important tasks for the sales manager is to create and administer the sales budget. The first method establishes the sales budget as a percentage of the historical sales level. A second way is by comparison to a competitor’s budget. Cost-based budgeting looks at the tasks salespeople must perform in order to accomplish objectives.

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XI. IMPLEMENTING SALES ACTIONS

A. Quotas–Quantitative performance standards used to direct sales force activity. Sales volume quotas establish unit or dollar objectives. Sales profit quotas establish profitability objectives for customers, products, and market segments. Activity quotas encourage salespeople to engage in certain tasks, such as prospecting calls, service calls, sales calls, demonstrations, and new accounts visited.

B. Compensation–A well-designed compensation plan should be geared toward the needs of both the company and the sales force. A salary is a fixed amount paid regardless of specific performance. A commission is an amount paid in direct proportion to the accomplishment of specific short-term objectives. A bonus is a percentage of salary or fee paid in addition to other compensation for meeting long-term or unique goals.

C. Supervision and Coaching–Face-to-face interactions between the sales manager and a salesperson. Good managers communicate well, help salespeople determine appropriate sales actions, and provide guidance to keep the sales force operating according to the company’s philosophies, policies, and marketing plans.

D. Motivation–Good sales managers provide a positive organizational climate as well as financial and career incentives.

E. Ethical Issues in Motivation and Compensation–If sales managers push too hard in the wrong ways, then salespeople may be pressured to compromise ethical standards. Questionable practices include family pressure, peer pressure, and termination.

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XII. OVERSEEING SALES FORCE ACTIVITIES

Evaluation and control are the final steps in the management process. Most evaluation programs involve looking at efforts and results, assessing the company’s influence in supporting performance, identifying problems and opportunities, and taking corrective action.

XIII. SALES FORCE AUTOMATION

Sales force automation is the use of technology to improve personal selling and sales management effectiveness.

ANSWERS: KEY TERMS

1. Telemarketing2. Approach3. Sales managers4. Center of influence5. Presentation6. Sales structure7. Commission8. Company sales forecast9. Consultative selling10.Relationship selling11.Environmental forecast12.Sales profit quotas13.Follow-up14.Sales volume quotas15.Industry forecast16.Cold calling17.Leads18.Missionary sales19.Bonus20.Networking

21.Sales territory22.Closing23.Preapproach24.Qualified prospect25.Expert opinion26.Quotas27.Referral28.Traditional sales approach29.Routing30.Salary31.Direct sales32.Sales force management33.Prospecting34.Activity quotas35.Team selling36.Negotiation37.Territory planning38.Empathy39.Qualifying40.Prospect


1. e2. e3. b4. a5. e6. c7. c8. e

9. b10. d11. e12. a13. e14. b15. c

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CHAPTER 17

PRICING APPROACHES

CHAPTER OVERVIEW

Pricing is an important element of the marketing mix. Price decisions are made along with product, promotion, and logistics decisions. Pricing is influenced by profit, volume, competitive, and customer relationship objectives. Consequently, pricing is important for nearly all aspects of the business. The demand curve helps us understand how price influences the amount of a product customers buy. The supply curve tells how much product firms will provide at various prices. By analyzing the supply and demand curves, it is possible to get some idea of future prices in an industry.

Both legal and ethical factors affect price. Laws restrict both vertical and horizontal price fixing by U.S. firms. It also is illegal for manufacturers to sell to different parties at different prices, although some forms of price discrimination are acceptable. To control unfair price competition, many states regulate pricing minimums and the use of loss leaders. The Federal Trade Commission sets permissible standards for price advertising. International firms must sell at a high enough price to avoid violating antidumping laws. Finally, unit-pricing regulations help consumers make comparisons. To be ethical, prices should reflect a fair exchange of value, and marketers must be careful not to misrepresent the terms of an exchange. This requires clear communication of both price and value.

The four basic industry structures are perfect competition, monopoly, oligopoly, and monopolistic competition. Each has unique pricing arrangements. Firms tend to engage in price competition and product differentiation strategies to greater or lesser degrees depending on market circumstances.

Pricing decisions must consider variable and fixed costs, marginal costs, and incremental costs. The latter are the most important. Cost-oriented methods, such as cost-plus pricing and rate-of-return pricing, have serious drawbacks because they tend to ignore the consumer and competitors.

Market, cost, and financial factors unique to global business must be considered in pricing. Market factors include local demand, competitive conditions, tastes and preferences, the availability of substitutes, and gray marketing. Important cost factors are distance, tariffs, and red tape. Major financial considerations are inflation, exchange rates, and price controls. Risk is another influence on international pricing.

CHAPTER OBJECTIVES

1. Describe how pricing works with the other parts of the marketing mix.

2. Learn how economic factors such as demand and supply influence prices.

3. Understand the legal and ethical constraints on pricing decisions.

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4. Use industry structure concepts to understand how competitors in different types of industries price.

5. Use competitive factors surrounding industry structure concepts to understand how pricing works in different types of industries.

6. Recognize the conditions that make international pricing complex.CHAPTER OUTLINE

I. THE CONCEPT OF PRICING

Price

A. Price as Part of the Marketing Mix–

1. Price objectives–

2. Profit objectives–

3. Volume (sales) objectives–

4. Competitive objectives–

5. Relationship (customer) objectives–

B. Major Factors Influencing Price–

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II. ECONOMIC FACTORS

A. The Demand Curve–

Demand

The Demand Curve

1. Demand sensitivity by market segment–

2. Cross-elasticity–

B. The Supply Curve–

III. LEGAL AND ETHICAL INFLUENCES ON PRICING

A. Legal Factors–

1. Price fixing–

Vertical price fixing

Horizontal price fixing

2. Price discrimination–

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3. Minimum prices–

Predatory pricing

Loss leaders

4. Price advertising–

Bait and switch

5. Dumping–

Predatory dumping

6. Unit pricing–

B. Ethical Issues–

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IV. COMPETITIVE FACTORS INFLUENCING PRICE

A. Industry Structure–

Industry Analysis

Perfect Competition

Monopoly

Oligopolistic Industry

Monopolistic Competition

B. Differentiation and Price Competition–

Differentiation

Price Competition

V. COST FACTORS THAT INFLUENCE PRICE

A. Types of Costs–

1. Fixed and variable costs–

Fixed costs

Variable costs

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2. Marginal cost–

Marginal revenue

3. Incremental costs–

B. Cost-Oriented Pricing–

1. Cost-plus pricing–

2. Rate-of-return pricing–

Break-even point

VI. INTERNATIONAL PRICING

A. Global Market Factors–

Gray Marketing

B. Global Cost Factors–

Transfer Prices

C. Global Financial Factors–

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Exchange Rate

Inflation

KEY TERMS

Bait and switchCross-price elasticity of demandDifferentiationDemand curveDumpingExchange rateFixed costGray marketingHorizontal price fixingIncremental costsIrrelevant costsLoss leadersMarginal costsMarginal revenueMonopolistic competition

MonopolyOligopolyPerfect competitionPredatory dumpingPredatory pricingPricePrice competitionPrice discriminationPrice elasticityPrice fixingSupply curveTransfer priceVariable costVertical price fixing

1. Costs which are unaffected by the pricing strategy.

2. Product attributes are stressed.3. Price adjustments to gain more customers or to establish a

dominant position in the market.

4. Costs that change depending on volume.

5. Price cuts by large firms to eliminate small local competitors.

6. The industry structure in which firms compete for customers by differentiating their products and by creating unique offerings to the market.

7. Pricing below cost to drive local firms out of business.

8. Agreements among manufacturers and/or channel members to set prices at the retail level.

9. A product is sold in a foreign country at a price lower than in the producing country and lower than its actual cost of production.

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10. The income from selling one additional unit of output.

11. Cost that does not vary with changes in volume produced.

12. A manufacturer or other channel member charges different prices to different retailers in the same marketplace.

13. How much one currency is worth relative to another.

14. Costs which go up or down based on volume.

15. A manufacturer or distributor attempts to control the final selling price at the retail level.

16. Items priced below cost to attract customers.

17. Expenditures incurred in producing one additional unit of output.

18. The response in quantity of one product to changes in the price of another product.

19. The amounts companies charge their foreign affiliates for products.

20. The industry structure in which one organization makes a product with no close substitutes.

21. The industry structure in which no single firm has control over prices.

22. The amount producers are willing to provide at each price as shown in relation to quantity demanded.

23. The exchange value of a good or service in the marketplace.

24. The amount of product customers need and their willingness and ability to pay as shown in relation to quantity supplied.

25. The extent to which changes in price affect the number of units sold.

26. Sellers advertise items at extremely low prices and then inform the customer that the items are out of stock, offer different items, or attempt to sell the customer more expensive substitutes.

27. The industry structure in which a small number of firms compete for the same customers.

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28. When products made in a foreign country are imported back to the company’s home market without approval.

29. One party attempts to control what another party will charge in the market.

MULTIPLE CHOICE

1. Which of the following is an objective that influences pricing?

a. Volumeb. Competitive aspectsc. Customer relationshipd. Profite. All of the above

2. Art Schuler, marketing research analyst for Thompson Sailboats, is looking at data that describes the extent to which changes in price affect the number of units sold. He is looking at

a. a demand curve.b. a supply curve.c. competitive data.d. insensitive curve.e. none of the above.

3. Rebecca Randolph is looking at the sale of orange juice bars when different prices are charged for yogurt cones. She is looking at

a. interproduct sensitivity.b. circumstantial data.c. government data.d. interprice elasticity.e. cross-elasticity.

4. Which of the following is the key information provided by a supply curve?

a. The amount a company can produce in a given period of timeb. How rapidly all companies can adjust their supply of items due to

changes in customer demandc. The number of units produced by foreign suppliers in domestic

marketsd. The number of units producers are willing to produce based on the

price of itemse. All of the above

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5. Frederickson’s Electric Motors’ exporters have decided to use a dumping strategy to sell to Latin America. We can conclude that

a. it is probably almost out of business.b. it has a lot of competition from Latin American firms in this country.c. it is probably breaking laws in the United States and in Latin

America.d. it is using an inefficient distribution method.e. it is a market leader using an appropriate strategy.

6. Anderson Consulting is developing computer systems for two different clients who are in two different industries. The projects are almost identical; however, Anderson charges the first company considerably more than the second company. Regarding legality, what conclusion can we draw?

a. Since Anderson’s clients do not compete against each other, this is perfectly legal pricing.

b. This is illegal because companies need to charge the same prices for like products whether they are goods or services.

c. This is illegal because there is no evidence that Anderson is meeting the threat from its own competitors in differentially pricing for two separate clients.

d. Since Anderson is a consulting company, the Justice Department does not care how it prices its products.

e. This is legal only if Anderson can prove that its computer systems will differentially benefit the two clients.

7. Acme Corporation sells roofing. It has decided to use a bait-and-switch pricing tactic. We can conclude that

a. Acme is very sophisticated at marketing.b. Acme is using the same strategy used by most successful automobile

companies.c. Acme is violating a Federal Trade Commission guideline.d. Acme is underestimating the intelligence of its buyers.e. Acme does not use a sales force.

8. Which of the following is generally correct regarding the laws and pricing?

a. Pricing laws usually maximize company margins.b. Pricing regulations are usually designed to allow prices to fluctuate

based on other market forces.c. Pricing laws usually allow the government to set prices when the

efficiency of market forces are in question.d. Pricing laws usually favor manufacturers over retailers or consumers.e. Pricing regulations are designed to be fair for large companies but

not for small organizations.

9. The toy industry has many firms competing for the same customers. These firms generally differentiate their products. The industry most closely

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resembles

a. conglomerate competition.b. monopoly.c. pure competition.d. oligopoly.e. monopolistic competition.

10. Which of the following is correct with regard to a differentiation strategy?

a. Product attributes are stressed.b. Marketers try to demonstrate value.c. Marketers tend to avoid price reductions.d. All of the above are correct.e. None of the above are correct.

11. Which of the following are relevant costs for pricing decisions?

a. Costs that always stay the sameb. Costs that go up due to inflationc. Costs associated with standard overheadd. Incremental costs that go up or down based on volumee. All of the above

12. Which of the following is a major reason why cost-plus pricing does not work well?

a. It ignores the company’s own costs.b. It ignores the customer.c. Traditional accounting methods cannot be used.d. It is illegal in government markets.e. None of the above

13. Which of the following is a major factor in international pricing?

a. Demand can vary dramatically due to demographic, geographic, and political conditions.

b. Competitive differences may influence international pricing.c. Costs may vary considerably in international markets.d. Financial factors such as currency may influence pricing.e. All of the above are factors.

14. Kodak has considerable problems with gray marketing. This means

a. that it has a fuzzy picture of many global markets.b. that pricing in foreign markets is never black and white.c. that products manufactured in foreign markets might be sold back

into the U.S. market without Kodak’s approval.d. that there are many substitute products for Kodak products.e. none of the above.

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15. Eden Corporation executives are currently looking at its transfer pricing policies. It is probably looking at

a. the cost of transportation associated with its products.b. how much it charges foreign affiliates for its products.c. the cost of documents associated with its products.d. insurance costs.e. all of the above.

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I. THE CONCEPT OF PRICING

Pricing plays a critical role in the allocation of resources in free market economies. Price is the exchange value of a good or service in the marketplace.

A. Price as Part of the Marketing Mix–

1. Price objectives–Businesses need to charge enough to make a profit, which satisfies owners (shareholders) and creates the financial resources needed to grow. Prices directly influence the quantity sold. Price can also prevent competitors from taking your customers. Proper pricing can also help build customer relationships.

2. Profit objectives–Revenue minus cost equals profit. Profit maximization is often stated as the goal of pricing.

3. Volume (sales) objectives–Firms must price in such a way that production is maintained at a stable or growing level.

4. Competitive objectives–Volume translates into market share, which creates market power. Aside from gaining share, pricing also can help the organization maintain its market position.

5. Relationship (customer) objectives–Prices can be created with customer loyalty in mind. The objective is to create sufficient value over time to develop repeat business.

B. Major Factors Influencing Price–Pricing according to value concepts requires a grasp of several elements: economic, legal and ethical, competitive, costs, and global.

II. ECONOMIC FACTORS

A. The Demand Curve–Demand is determined by the amount of product customers need, plus their willingness and ability to buy. The demand curve describes the price elasticity of a given product. Price elasticity is the extent to which changes in what is charged affect the number of units sold.

1. Demand sensitivity by market segment–Differences in market segments explain some of the variations in demand.

2. Cross-elasticity–Cross-price elasticity of demand reflects the response in quantity of one product to changes in the price of another product.

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B. The Supply Curve–Price has an important influence on the willingness to produce. When price is higher, producers are willing to supply more; when profit margins are low, companies are likely to produce less. The supply curve reveals the amount that producers are willing to provide at each price.

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III. LEGAL AND ETHICAL INFLUENCES ON PRICING

A. Legal Factors–Both federal and state laws affect pricing decisions. Most regulations are designed to allow prices to fluctuate freely so that market forces can work. Regulations fall into six major categories:

1. Price fixing–Occurs when one party attempts to control what another party will charge in the market. Vertical price fixing is an attempt by a manufacturer or distributor to control the final selling price at the retail level. Horizontal price fixing is an agreement among manufacturers and other channel members to set prices at the retail level.

2. Price discrimination–Occurs when a manufacturer or other channel member charges different prices to retailers competing in the same marketplace.

3. Minimum prices–Laws against minimum prices prevent retailers from selling merchandise for less than the cost of the product plus a reasonable profit. Predatory pricing occurs when large firms cut prices on products in order to eliminate small local competitors. Loss leaders are items priced below cost to attract customers.

4. Price advertising–The Federal Trade Commission has set up permissible standards for price advertising. The guidelines prohibit marketers from communicating price deceptively. Bait and switch occurs when the seller advertises items at extremely low prices and then informs the customer that these are out of stock, offers different items, or attempts to sell the customer more expensive substitutes.

5. Dumping–Occurs when a product is sold in a foreign country at a price lower than in the producing country and lower than its actual cost of production. Predatory dumping is pricing designed to drive local firms out of the market.

6. Unit pricing–Unit-pricing legislation requires that certain types of retail outlets, especially food stores, display price per unit of measure as well as total price.

B. Ethical Issues–Although laws protect customers against unscrupulous pricing, there are still questionable ways of using price to increase demand.

IV. COMPETITIVE FACTORS INFLUENCING PRICE

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A. Industry Structure–Industry analysis examines such aspects as the number of firms, whether products are differentiated, and the freedom of firms to enter and exit. Perfect competition refers to an industry in which each firm has little if any control over prices. A monopoly is an industry structure in which one organization makes a product with no close substitutes. An oligopolistic industry has a smaller number of companies competing for the same customers. Monopolistic competition is an industry structure in which many firms compete for the same customers by differentiating their products.

B. Differentiation and Price Competition–Differentiation occurs when product attributes are stressed. Marketers try to demonstrate value and avoid any price reductions. Price competition adjusts prices to gain more customers or to establish a dominant position in the market.

V. COST FACTORS THAT INFLUENCE PRICE

A. Types of Costs–

1. Fixed and variable costs–Fixed costs do not change in the short run. These are expenditures for items such as production facilities, equipment, and salaries. Variable costs change depending on how much is produced or sold.

2. Marginal cost–Expenditures incurred in producing one additional unit of output. Marginal revenue is the income from one more unit of product sold, usually the product price.

3. Incremental costs–Relevant costs for pricing decisions are incremental costs; that is, they go up or down based on volume.

B. Cost-Oriented Pricing–

1. Cost-plus pricing–Adds an amount to the product cost, called a mark-up, which is designed to yield a profit. A percentage mark-up can be added directly, or additional calculations can be made to determine what percentage rate of return the seller will receive.

2. Rate-of-return pricing–A variation of cost-plus pricing which is based on the break-even point. The method determines how many units must be sold at a particular price in order to cover fixed costs plus a profit on the investment made. The break-even point is the amount sold at a given price on which the business neither makes nor loses money.

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VI. INTERNATIONAL PRICING

A. Global Market Factors–Local demand can vary dramatically due to demographic, geographic, and political conditions. Subtle competitive differences can influence demand, even in fairly similar economic environments. Tastes, preferences, and the availability of substitute products also vary widely. Gray marketing occurs when products made in a foreign country are imported back to the company’s home market without approval.

B. Global Cost Factors–In calculating the costs of doing business internationally, transportation and insurance costs escalate, as do tariffs and red tape. Risks also increase, so prices must cover potential adverse circumstances. Transfer prices are the amounts that companies charge their foreign affiliates for products.

C. Global Financial Factors–The exchange rate is how much one currency is worth relative to another. Inflation is the tendency of a currency to be worth less over time.

ANSWERS: KEY TERMS

1. Irrelevant costs2. Differentiation3. Price competition4. Variable cost5. Predatory pricing6. Monopolistic competition7. Predatory dumping8. Horizontal price fixing9. Dumping10.Marginal revenue11.Fixed cost12.Price discrimination13.Exchange rate14.Incremental costs15.Vertical price fixing

16.Loss leaders17.Marginal costs18.Cross-price elasticity of demand19.Transfer price20.Monopoly21.Perfect competition22.Supply curve23.Price24.Demand curve25.Price elasticity26.Bait and switch27.Oligopoly28.Gray marketing29.Price fixing


1. e2. a3. e4. d5. c6. a7. b8. b

9. e10. d11. d12. b13. e14. c15. b

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CHAPTER 18

PRICING STRATEGY

CHAPTER OVERVIEW

Pricing strategies are complex and must balance the needs of both the customer and the firm. Value-based pricing, which includes the concepts of value in use and value in exchange, is an increasingly popular strategy. Since customers seek differing types of value, and competitors have a broad range of choices in how to price, other strategies are viable as well. In devising a pricing strategy, it is important to identify a customer value proposition that matches the capabilities of the organization. The three types of capabilities are product leadership, operational competence, and customer intimacy.

Pricing strategies may focus on customers, competitors, or global factors. Customer-pricing requires an understanding of reference prices, price awareness, price/quality association, odd-even perceptions, limited offers, and target pricing. Competitor-oriented pricing considers leader-follower scenarios, going rates, discounting, and competitive bids. Some companies engage in price wars that can seriously affect industry and company profits. On a global scale, pricing may include countertrading or barter. Fund transfer and exchange rates also affect international pricing.

Implementing a price strategy requires setting and communicating prices. One of six approaches can be used to set prices, ranging from skimming to penetration pricing. Product-line pricing complicates matters. Options are product array, bundled, optional product, and captive product pricing. When prices are communicated, various components may be specified or only the overall price, and various reductions may be offered. Price communication must be done carefully to avoid unethical practices, such as false impressions about price or unfair discrimination.

CHAPTER OBJECTIVES

1. Understand why an appropriate customer value proposition is a useful guide to pricing strategy.

2. Know the factors to consider when using customer- and competitor-oriented pricing methods.

3. Learn how pricing strategy is implemented by setting prices and communicating them to the market.

CHAPTER OUTLINE

I. THE CONCEPT OF PRICE STRATEGY

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II. VALUE AS THE BASIS FOR PRICING

Value-Based Pricing

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A. Sources of Value–

Value in Use

Value in Exchange

B. Customer Value in Pricing–

1. Price and customer value strategies–

2. Customer value proposition–

3. Product leadership–

4. Operational excellence–

5. Customer intimacy–

III. CUSTOMER, COMPETITOR, AND GLOBAL PRICING

A. Customer-Oriented Pricing–

1. Reference prices–

Acceptable price range

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2. Price awareness-

3. Price/quality association and product categorizations–

4. Odd-even price perceptions–

5. Limited offers–

6. Target pricing–

B. Competitor-Oriented Pricing–

1. Leader-follower pricing–

2. Going-rate pricing–

3. Discount or premium pricing–

4. Competitive bids–

C. Price Wars–

D. Diversity: Pricing to Attract Senior Citizens–

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E. Global Pricing–

IV. IMPLEMENTING THE PRICING STRATEGY

A. Setting Prices–

1. Skimming and penetration pricing–

Skimming

Penetration pricing

2. Sliding down the demand curve–

3. The price umbrella–

4. Everyday low prices–

5. Promotional pricing–

B. Product-Line Pricing–

1. Product array pricing–

2. Bundled pricing–

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3. Optional product pricing–

4. Captive product pricing–

C. Communicating Price–

1. Price components–

2. Price quoting–

List price

Market price

3. Price reductions–

D. Ethics–

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KEY TERMS

Acceptable price rangeCountertradeEveryday low pricesGoing rateList priceMarket pricePenetration pricingPrice skimmingPrice umbrella leadership

Price warsPromotional pricingReference priceSlide down the demand curveTarget pricingValue-based pricingValue in exchangeValue in use

1. Prices that, on average, are consistently lower than those of competitors’.

2. A strategy that reflects value not just cost.

3. Use price to reach a particular market segment.

4. The price at which a product is referenced to consumers.

5. One or two companies price in such a way that others follow at a lower level.

6. When no competitors have power over others, prices evolve over time to a similar level.

7. A strategy that appeals to a maximum number of buyers by charging low prices.

8. A subjective consumer estimate of the benefits of a particular product.

9. Set a high price when a product is introduced and then lower it significantly as competitors enter the market.

10. Cuts by one company spur similar reductions by competitors, resulting in price-slashing battles that can adversely affect profitability.

11. The actual price buyers are expected to pay for a product.

12. Price discounts are used to get attention and encourage immediate purchase.

13. The amount consumers expect to pay.

14. A government mandate that products cannot be paid for with cash.

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15. An objective statement of worth based on the competitive marketplace.

16. All prices around the reference price that consumers believe reflect good value.

17. A strategy designed to obtain a very high price from relatively few consumers, who have the resources and desire to buy irrespective of price.

MULTIPLE CHOICE

1. What is the key reason for using value-based pricing?

a. The price reflects the value to the customer, not simply the seller’s cost.

b. It is much easier to do.c. The government requires it.d. High-cost manufacturers will do as well as low-cost manufacturers.e. All of the above are reasons to use it.

2. Allison Moreford is willing to pay extra because the product specifically suits her unique needs. She is primarily looking at

a. value in exchange.b. value in use.c. hierarchical value.d. optional use situations.e. all of the above.

3. Mobil Oil Company prices gasoline according to a competitive marketplace. It is primarily looking at

a. value in exchange.b. dynamic pricing.c. static pricing.d. performance pricing.e. value in use.

4. Which of the following is correct regarding value-based pricing?

a. Prices send powerful messages to the marketplace.b. Prices should reflect what customers value.c. Prices should reflect what the company delivers.d. Prices should produce value for buyers and sellers.e. All of the above are correct.

5. Which of the following is a key aspect of a customer intimacy strategy?

a. Customers want to be totally independent from their suppliers.

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b. Loyal customers almost always buy the lowest priced products.c. Companies that understand their customers can eliminate non-value-

added activities, thereby saving customers costs. d. Customer intimacy is too expensive as a key pricing strategy.e. None of the above is a key aspect.

6. Which of the following represents what consumers believe reflects a good value?

a. The lowest priceb. Internationally priced productsc. The reference price and acceptable prices around it.d. Unit pricinge. Even prices

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7.Which of the following is correct with regard to customer-oriented pricing?

a. Business customers tend to be more price-aware then consumers.b. When little information is available, buyers often assume a

relationship between price and quality.c. Products with odd prices are perceived as lower quality than products

with even prices.d. All of the above are correct. e. None of the above are correct.

8. Which of the following is the consumer’s price reference point?

a. The best possible priceb. What consumers expect to payc. What competitors charged. The price of the product with the best qualitye. The price negotiated with a salesperson

9. Odd prices tend to be perceived differently than even prices in which way?

a. They are seen as being on higher quality productsb. They are seen as being primarily on outdated products.c. They tend to be seen as being on cheaper and on lower quality

products.d. They have no meaning other than the objective price.e. They are used to communicate high quality

10. When no single competitor has an advantage over others, what type of pricing tends to evolve?

a. Leader followerb. Discountc. Premiumd. Going-rate pricinge. Competitive bidding

11. Which of the following is a significant aspect of global pricing?

a. Down-under pricingb. Marginal cost pricingc. Fixed-cost pricingd. Government mandate that products cannot be paid for with cashe. Tough pricing

12. DuPont has decided to use a price umbrella strategy. In this case,

a. it uses a price so that one product provides all of the profit for other products in the line that are priced at a lower rate.

b. it prices so that competitors in the same product category can still make money.

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c. it prices so low that “it rains” on the competition.d. this is a form of promotional pricing.e. none of the above are true.

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13. Which of the following is a pricing consideration?

a. Price each product within a line to reflect differences that can be perceived by customers.

b. Consider using bundled pricing to give a single price for an entire offering.

c. Use optional pricing to sell the base product with optional prices for add-ons.

d. Use captive pricing when customers must purchase additional items, such as blades for razors, from the same company.

e. All of the above are pricing considerations.

14. Which of the following is a good rule of thumb to follow regarding ethics in pricing?

a. Prices should always maximize individual unit margins.b. All pricing strategies should be used to keep competitors at bay.c. Prices should reflect the value perceived and received by customers.d. Prices should always be the lowest possible.e. Prices should never be used to generate maximum demand.

15. Wal-Mart attempts to have prices that on average are consistently lower than those of competitors. Their pricing strategy would be called

a. promotional pricing.b. sliding down the demand curve.c. everyday low prices.d. price leadership.e. all of the above.


I. THE CONCEPT OF PRICE STRATEGY

II. VALUE AS THE BASIS FOR PRICING

Value-based pricing recognizes that price reflects value, not simply costs.

A. Sources of Value–Generally, there are two sources of value. Value in use is the customer’s subjective estimate of the benefits of a particular product. Value in exchange is the objective statement of worth based on the competitive marketplace.

B. Customer Value in Pricing–Because prices send powerful messages, it is important that they reflect the customer value that the company delivers.

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1. Price and customer value strategies–The strategy selected depends on the company’s target market and the number of buyers who desire to purchase at each value/price position.

2. Customer value proposition–Customers want the best products, price, and solution. Organizations have to be excellent in one area and good enough in the other two to deliver what buyers want.

3. Product leadership–This strategy builds customer value by differentiating the product.

4. Operational excellence–Operational competencies can translate into low costs for manufacturing.

5. Customer intimacy–By carefully targeting a few accounts and working closely with them to identify and serve their specific needs, companies can eliminate services that customers do not really want, thereby saving cost.

III. CUSTOMER, COMPETITOR, AND GLOBAL PRICING

A. Customer-Oriented Pricing–Among the most important influences on customers are reference prices, price awareness, the association between price and quality, the perception of odd-even prices, and limited offers.

1. Reference prices–The reference price is what consumers expect to pay. The acceptable range is all the prices around the reference point that consumers believe reflect a good value.

2. Price awareness-Business-to-business customers tend to be very price conscious while consumers tend to be less aware of actual prices.

3. Price/quality association and product categorizations–When buyers have little information about a product, they often assume a relationship between its price and quality.

4. Odd-even price perceptions–Prices that end in odd numbers tend to be perceived differently from even-numbered prices. Consumers have learned that discounters tend to use prices ending in a 9, 7, or 5.

5. Limited offers–Often used by marketers to encourage customers to buy types or quantities of products they had not planned to purchase.

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6. Target pricing–Uses price to reach a particular market segment.

B. Competitor-Oriented Pricing–

1. Leader-follower pricing–Tends to occur in oligopolistic industries whose products have relatively inelastic derived demand. Price leaders show a willingness to defend their position when price becomes an issue.

2. Going-rate pricing–The going-rate price evolves over time to a similar level rate when no competitors have power over others.

3. Discount or premium pricing–Positions the company relative to competitors based solely on price.

4. Competitive bids–Sealed bids are opened at a certain time, and the low price is usually the winner. An alternative is for buyers to look at bids as they are received and perhaps give feedback to sellers indicating they are too high.

C. Price Wars–When price cuts by one company spur similar reductions by competitors, resulting in price-slashing battles.

D. Diversity: Pricing to Attract Senior Citizens–Many marketers target senior citizens with price discounts.

E. Global Pricing–Global pricing is complicated by many factors. One is countertrade, a government mandate that products cannot be paid for with cash. Another is international pricing, since payment is seldom direct and generally a bank must be involved. Exchange fluctuations also influence global pricing.

IV. IMPLEMENTING THE PRICING STRATEGY

A. Setting Prices–

1. Skimming and penetration pricing–Skimming is designed to obtain a very high price from relatively few customers with the resources and desire to buy irrespective of price. Penetration pricing seeks the maximum number of buyers by charging a low price.

2. Sliding down the demand curve–Descending from higher to lower prices.

3. The price umbrella–The leader prices high enough so that competitors can make fair profits at that level or even lower, especially if their costs are relatively low.

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4. Everyday low prices–Prices which, on average, are consistently lower than those of competitors.

5. Promotional pricing–A price discount to gain attention and encourage immediate purchase.

B. Product-Line Pricing–

1. Product array pricing–Pricing often plays a major role in precisely which product is bought. If price differences cause confusion, then consumers may become dissatisfied. Companies must price each product so that it reflects the differences for the customer in selecting different value.

2. Bundled pricing–The bundled approach gives a single price for the entire offering, while unbundling is often used when components or parts of a product are sold.

3. Optional product pricing–Many products are sold as a base unit with optional add-ons.

4. Captive product pricing–Occurs when customers must purchase additional items from the same company, such as blades for a Gillette razor.

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C. Communicating Price–

1. Price components–Whether the buyer or seller pays for “extras” can make a substantial difference in price.

2. Price quoting–How prices are communicated to buyers. The list price set by the manufacturer usually provides the reference point by which consumers judge the fairness of the market price. The market price is the actual amount buyers are expected to pay for the product.

3. Price reductions–Discounts are often given for cash payment, for purchasing large quantities, or for loyalty.

D. Ethics–When marketers develop a pricing strategy, it should reflect the value perceived and received. Abuses can occur through manipulation of the consumer’s reference price, quoting overcharged or misleading prices, or using discriminatory pricing practices.

ANSWERS: KEY TERMS

1. Everyday low prices2. Value-based pricing3. Target pricing4. List price5. Price umbrella leadership6. Going rate7. Penetration pricing8. Value in use9. Slide down the demand curve

10.Price wars11.Market price12.Promotional pricing13.Reference price14.Countertrade15.Value in exchange16.Acceptable price range17.Price skimming


1. a2. b3. a4. e5. c6. c7. d8. b

9. c10. d11. d12. b13. e14. c15. c

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