Marketing: Real People, Real Decisions Chapter 1 What Is Marketing?

Marketers Come from different backgrounds and work in a variety of locations, from consumer good companies to non-profit organizations to financial institutions to advertising and public relations agencies. A marketers decision always affects and is affected by a firms operation. Marketing An organizational function and a set of processes for creating, communicating and delivering value to customers, and for managing customer relationships (CRM) in ways that benefit the organization and its stakeholders. Marketing Evolution: Until 1930: The Production Era The emphasis was on producing as many as possible. Think of Ford T. There was enough demand, so the key issue was to increase supply. 1920-1964: The Selling Era The emphasis was on moving products from warehouses to the customers. Producers did everything they could to sell their goods. Like saying that the product was only available for a short amount of time. 1957-1998: The Consumer Era The emphasis was on adopting products to consumers needs. Total Quality Management (TQM) was introduced. Which was improving product quality by involving all employees in the quality management. From 1988: The New Era The emphasis is now on making money and acting ethically. The concept of customer relationship management (CRM) was developed, which involves tracking consumers preferences and behaviors to tailor the value proposition to each individuals unique wants and needs.

Adding value Creating a benefit a customer receives from buying a product or service. Marketing is all about communicating these benefits to the customer. Imagine Value Imagining value is fundamental to marketing because it creates better ways of spending marketing money. The important thing is to generate ideas on three levels: 1) Strategic marketing investment: putting money where it will have maximum impact 2) Value proposition: deliver value to customers by delivering the right product at the right price. 3) Marketing mix: multitude of activities that encourage customers to buy more products, more often, for more money.

Predict Value You need to predict how ideas will generate value, before choosing to use these ideas. There are three main approaches of predictive modeling: 1) Extrapolations from the past: a good choice when a new idea is similar to something youve already done. Then you can check data from the past and consider the effectiveness. 2) Simulations of the future: used when the new idea is significantly different from existing ideas. Numerous techniques are available, like test marketing and surveying the intentions of customer. When executed skillfully, these methods have an excellent potential. 3) Analogies and scenarios: consider best-case and worst-case scenarios to provide a powerful forecast. Demonstrate value Think of this as detective work. First, find out how and why marketing money is being used. Try to dig into the logic behind numbers in spending figures. Second, find out how customers respond to marketing activities. Compare responses between different marketing activities. Third, investigate patterns of revenues and profits. Finally, gather data from outside your own firm. Check for external factors that (might) have influenced your revenue and profit patterns. Lifetime value of a customer A prediction of how much profit a company expects to make from a particular customer, including each and every purchase he or she will make from them now and in the future. Value Chain: Inbound Logistics: materials to make the product Operations: converting the materials to the final product Outbound Logistics: shipping out the final product Marketing and Sales: where marketing comes into play Service: servicing the product/customer (like technical helpdesks, forums, etc.)

Making and delivering value as a whole

Making marketing value decisions Understanding consumers' value needs Creating the value proposition Communicating the value proposition Delivering the value proposition

Marketing mix Product: This aspect includes the design and packaging of a good, as well as the satisfaction to consumers needs Price: The amount the consumer must exchange to receive the offering. It reflects the customer assigned value for the product. Place: The place or channel of distribution gets the product to the customer. Promotion: Organizations efforts to persuade customers to buy the product.

Marketing: Real People, Real Decisions Chapter 2 Strategy and Environment

Business planning An ongoing process of making decisions that guide the firm both in short term and for the long haul. Business plan Plan that includes the decisions that guide the entire organization or its business units. Marketing plan A document that describes the marketing environment, outlines the marketing objectives and strategies, and identifies how the strategies imbedded in the plan will be implemented and controlled. Three levels of business planning: 1) Strategic planning 2) Functional planning (called marketing planning) 3) Operational planning Strategic business units (SBUs) Individual units representing different areas of business within the firm that are each different enough to have their own mission, business objectives, resources, managers and competitors. Strategic planning: Planning done by top-level corporate management. Strategic planning is the managerial decision process that matches the firms resources and capabilities to its market opportunities for long-term growth. Step 1: Define the mission Answers to questions like: what business are we in? What customers should we serve? Become part of a mission statement a formal document that describes the organizations overall purpose and what it hopes to achieve in terms of its customers, products and resources. Step 2: Evaluate the Internal and External Environment This process is also referred to as situation analysis, environmental analysis or business review. A firm does this, so it can identify opportunities and threats.

Internal environment: All the controllable elements inside a firm that influence how well the firm operates. External environment: Elements outside the firm that may affect it either positively or negatively. The global marketing environment can be analyzed by making a PESTLE analysis: The Political environment Refers to local, state, national and global political control. Political and Legal environment are narrowly linked. Things like political constraints on trade can affect a firms profit. For example, when two countries go at war, the business environment changes dramatically. Also, in some situations, the government decides to take over business operations (this is called nationalization). The Economic and Competitive environment A countrys economic health is vital to the success of marketing plans. Some indicators of economic health are gross domestic product (GDP) and gross national product (GNP), but also inflation rate, unemployment rate and population. The level of economic development is also very important. You can imagine, that selling iPads in a less developed country (LDC) is less effective than in a developed country. In order to exactly analyze an economic environment, marketers must also see through which period of the business cycle a country is going through. Analyzing competition is also called competitive intelligence (CI). Successful CI implies that a firm learns about a competitors new products, its manufacturing, or the management styles of its executives. We divide competition in two environments: Competition in Micro-economic environment The product alternatives from which members of a target market may choose; - At broad level: understanding all the alternatives that consumers consider for their discretionary/disposable income. - Product competition: competitors offering a different product to satisfy the same consumers needs and wants. - Brand competition: competitors offering similar goods or services fighting for a share of the consumers wallet. Competition in Macro-economic environment Here, marketers should understand the overall structure of their industry, which can be four different structures describing differing amounts of competition; - Monopoly: when one seller controls a market. Example: old-days postal service. - Oligopoly: small number of sellers, each holding substantial market share in a market consisting of many buyers. Example: airline industry. - Monopolistic competition: many sellers who offer a slightly different product, who compete for buyers in a market, each having a small share of the market. Example: shoe industry. - Perfect competition: many small sellers each offering the same good or service. No single firm has a significant impact on quality, price or supply. Example: perfect competition is rare, but agricultural market where individual farmers offer the same product come the closest.

The Socio-Cultural environment Refers to the characteristics of the society. - Demographics: statistics that measure observable aspects of a population, such as size, age, gender, ethnic group, income, education, occupation and family structure. - Values: beliefs about right and wrong ways to live. Individualist cultures, such as Great Britain and the Netherlands, tend to attach more importance to personal goals - Norms and customs: a norm is a specific rule dictating what is right or wrong. A custom is a norm handed down from the past that controls basic behaviors, such as division of labor in a household. Mores are customs with a strong moral overtone. They often involve a taboo. Conventions are norms regarding the conduct of everyday life. Like the correct way to wear ones clothes. - Language: an obvious problem if you want to break into foreign markets. - Ethnocentrism: the tendency to prefer products or people of ones own culture over those from other countries. An obvious example: French prefer their own cuisine over foreign recipes. The technological environment Technological developments affect marketing activities. Free phone numbers, easy computer access and of course the web enable people to buy anything they want. Changes in technology can also dramatically transform an industry. Innovation plays a big role here. The Legal environment Refers to laws and regulations that affect business. Regulatory constraints on trade affect a companys approach in global environment. For example: food might taste different, because of different legal restrictions on preservatives and color additives. The Environmental environment This may sound weird, but environmental issues strongly influence a companys behavior. Think of pollution limits on carbon dioxide. SWOT-analysis: Enables a firm to develop strategies that make use of what the firm does best. - Strengths - Weaknesses - Opportunities - Threats Step 3: Set Organizational or SBU Objectives After constructing a mission statement, an organization sets objectives. These objectives need to be SMART; - Specific: not to broadly - Measurable: so you can tell you met your objective or not. To ensure this, they often state objectives in numerical terms (like percentages). - Attainable: you must be able to obtain their goal because unrealistic objectives can create frustration for their employees and other stakeholders. - Relevant: objectives may relate to revenue, productivity, profitability etc. - Time bound: set a time bound, like: increase sales by 10 per cent over a one-year period.

Step 4: Establish the Business Portfolio A business portfolio is the range of different businesses that a large firm operates. Portfolio analysis is a tool management uses to assess the potential of a firms business portfolio. The Boston Consulting Group (BCG) developed a popular model: the BCG growth-matrix share matrix. Stars: SBUs whose products have a dominant market share in high-growth markets. Cash Cows: SBUs whose products have a dominant market share in a low-growth market. Question Marks: SBUs whose products have a low market share in high-growth markets. Dogs: SBUs nobody wants.

Step 5: Develop Growth Strategies Marketers use the product-market growth matrix to analyze different growth strategies. Existing products: Market penetration strategy: Seek to increase sales of existing products to existing markets. Market development strategy: Introduce existing products to new markets. New products: Product development strategy: Create growth by selling new products in existing markets. Diversification strategy: Emphasize both new products and new markets to achieve growth.

Existing markets:

New markets:

Marketing planning Planning done by top functional-level management such as the firms marketing director. Step 1: Perform a Situation Analysis To do this, managers build on the companys SWOT analysis by searching out information about the environment that specifically affects the marketing plan. Step 2: Set Marketing Objectives These are different from business objectives in this way: business objectives guide the entire firms operations, while marketing objectives state what the marketing function must accomplish. Step 3: Develop Marketing Strategies Usually this means deciding which markets to target and actually developing the marketing mix strategies to support how the product is positioned in the market. Step 4: Implement and Control the Marketing Plan The degree to which marketers are meeting their marketing objectives is called control. This contains three steps: 1) Measuring actual performance 2) Comparing this performance to the established marketing objectives or strategies 3) Making adjustments to the objectives or strategies on the basis of this analysis

Return on marketing investment (ROMI) How an investment in marketing affects the firms success. This concept heightens the importance of identifying and tracking appropriate marketing metrics. Operational Planning: Day-to-day execution of marketing plans. This task falls to the first-line supervisors, such as sales managers. Operational plans generally cover a shorter period of time. Making the decision to go global: The decision model for entering foreign markets is on p.83. The decision process is influenced by the global environment. Some important factors are: Market conditions: a company decides to go global because domestic demand is declining while demand in foreign markets is growing. Competitive advantage: in a global marketplace the competition is even greater because there are more players involved. Trading blocks at the borders: Global Trade Agreements (GATT) reduced the problems with protectionism (countries that refuse foreign products). GATT is now known as World Trade Organization (WTO). They tackle protection of copyright and patent rights issues. Protected trade: Quotas are limitations on the amount of a product allowed to enter or leave a country. An embargo is an extreme quota that prohibits specified foreign goods completely. Governments also use tariffs: taxes on imported goods.

Choosing a Market-Entry Strategy

Domestic Strategy

Exporting Strategy

Contractual Agreements

Strategic Alliances

Direct Investment

Licensing Franchising

Low

Level of Commitment, Risk and Control

High

Domestic Strategy Operate in another country, in exactly the same way you are acting on domestic level. Exporting Here, the firm must decide whether it will attempt to sell its products on its own, or rely on intermediaries to represent it in the target country. Contractual Agreements In a licensing agreement, a firm gives another firm the right to produce and market its product in a specific country or region. Franchising is a form of licensing that gives the franchisee the right to adapt an entire way of doing business in the host country. Example: McDonald shops in India have vegetarian burgers.

Strategic Alliances Joint venture: two or more firms create a new entity to allow the partners to pool their resources for common goals. Direct Investment Buying a business outright in the host country. Born-Global Firms Companies that try to sell their product all over the world from the moment they are created. Standardization: a standard marketing mix for all countries Localization: a customized marketing mix for each country

Marketing: Real People, Real Decisions Chapter 4 Consumer Behavior

Consumer behavior The process individuals or groups go through to select, purchase, use and dispose of goods, services, ideas or experiences to satisfy their needs and desires. Steps in the Consumer Decision Process When consumers make very important decisions, they engage in extended problem solving. When they make habitual decisions, consumers make little or no conscious effort. The two factors that dictate the type of decision-making are: Involvement: importance of the consequences of the purchase Perceived risk: if we think the product is risky in some way Extended Problem Solving High High Careful processing of information Cognitive learning Provide information via advertising, salespeople, websites Habitual Decision Making Low Low Respond to environmental cues Behavioral learning Provide environmental cues at point of purchase

Level of involvement Perceived risk Information processing Learning model Needed marketing actions

Step 1: Problem Recognition Occurs whenever a consumer sees a significant difference between their current state of affairs and some desired or ideal state. Marketing strategy: encourage consumers to see that existing state does not equal desired state, for example by creating a TV commercials of owning a new car. Step 2: Information Search The consumer checks its memory and surveys the environment to see what options there are. Marketing strategy: Provide information when and where consumers are likely to search, for example GoogleAd

Step 3: Evaluation of Alternatives The consumer evaluates his options and compares them to evaluative criteria. Marketing strategy: emphasize the dimensions on which their product excels. Step 4: Product Choice Consumers often rely on decision guidelines (heuristics) when making the actual decision. The most common heuristic is brand loyalty, but also price=quality. Marketing strategy: Understand choice heuristics and provide communication that encourages brand decision. Step 5: Post-Purchase Evaluation Results in evaluating your level of satisfaction, which depends on fulfilling expectations. Marketing strategy: Encourage accurate consumer expectations. Internal Influences on Consumers Decisions Perception: the process by which people select, organize and interpret information from the outside world. Exposure (capability of being registered by a persons sensory receptors) is very important for marketers. But some people also believe that subliminal advertising influences people. That are hidden messages in advertisements (like in the lecture). Motivation: the internal state that drives us to satisfy needs. Abraham Maslow developed a hierarchy of needs; Higher-Level Needs

Selfactualisation: Self-fulfillment, enriching experiences

Ego needs: Prestige, status, accomplishments Belongingness: Love, friendship, acceptance Safety: Security, shelter, protection Physiological: Water, sleep, food
Lower-Level Needs Learning: a change in behavior caused by information or experience. a) Behavioral Learning: learning takes place as the result of connections that form between events that we perceive. The first type of behavioral learning is classical conditioning, which is transferring one stimuli to another, for example: an ad shows a product in a breathtaking

environment; the marketer hopes that you transfer you positive feeling you get from the environment, to the product. This theory was developed by Ivan Pavlov. Another form of behavioral learning is operant conditioning, which occurs when people learn that their actions result in rewards or punishments. Stimulus generalization is the process where peoples good feelings about the current product will transfer to a new one. b) Cognitive Learning: sees people as problem solvers who do more than passively react to associations between stimuli. It occurs when consumers make a connection between ideas or by observing things in their environment. Observational learning is watching other people and see what happens to them as a result. Attitudes: an attitude is someones lasting evaluation of a person, object or issue. A persons attitude has three components: a) Affect: the feeling component, overall emotional response a person has to a product. b) Cognition: the knowing component, beliefs or knowledge one has about a product. c) Behavior: the doing component, involves ones intention to do something. Personality: set of unique psychological characteristics that influence the way a person responds to situations in the environment. The following personality traits are relevant to marketing strategies: a) Innovativeness: whether you like to try new things b) Materialism: whether you want to own a product c) Self-confidence: whether you think you make a good decision choosing this product d) Sociability: whether you enjoy social interaction e) Need for cognition: when you want a product to obtain information Age Group: obvious that age group influences your decision Family Life Cycle: you are not going to buy kids toys when your kids are moving out of house Lifestyle: also determines how people choose to spend their time and money

Psychographics Process which makes groups of people according to psychological and behavioral similarities, by describing their activities, interests and opinions (known as AIOs). By making these groups a marketer can examine the results for different segments. Situational Influences on Consumers Decisions Physical Environment: physical factors like hunger, weather, In-store displays etc. Time: how much time something will take you also influences your decision.

Social Influences on Consumers Decisions Culture: a societys personality, which has rituals and values. Subculture: a group coexisting with other groups in a larger culture. Social Class: overall rank of people in a society. People within the same class have the same interests and make the same decisions. Group Membership: go along with the crowd. A reference group is a group you want to please or imitate. Conformity is at work when a person changes as a reaction to group pressure. And opinion leaders are the people that influence others product decisions. Gender Roles: societys expectations regarding your gender

Marketing: Real People, Real Decisions Chapter 5 Business-to-Business Marketing

Business-to-business markets Business or organizational customers that buy goods and services for purposes other than personal consumption. Business customers are usually few in number, may be geographically concentrated and often purchase higher-priced products in larger quantities. Unique characteristics of business markets: Large buyers: in business markets, products have to meet requirements of everyone involved. Not just ones individual needs. Number of customers: there are fewer businesses than individual consumers, this means that business marketing strategies can be quite different from consumer marketing strategies. Size of Purchases: organizations usually buy and use more, therefore they can influence both the price and quantity. Geographic Concentration: business customers are often located in a small geographic area.

Business Demand: Derived Demand: demand for the purchase of an airplane, comes from the demand for air travel and holidays. Inelastic Demand: price usually doesnt make a difference in demand. Fluctuating Demand: small changes in consumer demand can create large in/decreases in business demand. Joint Demand: when two or more goods are necessary to create a product. If one of these goods decreases in demand, then the company will buy less of the other good.

Types of Business-to-Business Markets Producers: they purchase product for the production of other goods and services that they in turn sell to make profit. Resellers: they buy finished goods for the purpose of reselling, renting or leasing to other businesses to make profit. Organizations: like governments and not-for-profit institutions; they buy products for organizational use.

The Business Buying Situation The business buy class identifies the degree and effort required to make a business buying decision. Straight Re-Buy: routine purchase of items a business-to-business customer regularly needs. Modified Re-Buy: occurs when a firms wants to shop around for suppliers with better prices, quality or delivery-time. New-Task Buy: a first-time purchase, where uncertainty and risk play a role.

Roles in the Business Buying Centre 1) 2) 3) 4) 5) 6) The Initiator: begins the buying process by recognizing the firms needs. The User: the member of the buying center who actually needs the product. The Gatekeeper: the one who controls the flow of information to other members. The Influencer: affects the buying decision by dispensing advice or sharing expertise. The Decider: the member who makes the final decision. The buyer: the member who is responsible for executing the purchase.

The Business Buying Decision Process 1) Problem Recognition: a. Purchase requisition or request made b. Buying center formed if needed 2) Information Search: a. Product specifications developed b. Potential suppliers identified c. Proposals and quotations obtained 3) Evaluation of Options: a. Proposals evaluated b. Samples obtained and evaluated 4) Product and Supplier Selection a. Purchase order issued 5) Post-Purchase Evaluation a. Users surveyed b. Performance documented Single sourcing: when a buyer and seller work quite closely together. Multiple sourcing: buying a product from several different suppliers. Outsourcing: when firms obtain outside suppliers to provide goods or services that might otherwise be supplied in-house.

Marketing: Real People, Real Decisions Chapter 6 Segmentation, Targeting, Positioning and CRM
Market fragmentation When peoples diverse interests and backgrounds divide them into numerous different groups with distinct needs and wants. Instead of selling something to everyone, marketers select a target marketing strategy: Divide the total market into different segments and develop products to meet the needs of those segments. Target-marketing is a three-step process: 1) Segmentation: Identify and describe market segments. Segmentation variables are dimensions that divide the total market in homogeneous groups. a. Segmenting consumer markets:

i. Segmenting by Demographics: demographics are measurable characteristics such as gender and age. ii. Segmenting by Psychographics: segment consumers in terms of shared activities, interests and opinions. iii. Segmenting by Behavior: slices consumers on the basis of how they act towards, feel about or use a product. b. Segmenting business-to-business markets: This can be done on basis of organizational demographics or production technology. 2) Targeting: Evaluate segments and decide which to go after. a. Evaluating market segments: a viable target segment should satisfy the following requirements: i. The group has to be homogenous and easy to distinguish from other groups. ii. The group has to be measureable. iii. The group has to be large enough to be profitable. iv. Marketing communications should be able to reach the group. v. The marketer should adequately serve the groups needs. b. Developing segment profiles: it is useful to create a profile of each segment/group to really understand their members needs and to look for opportunities. A segment profile is really a description of the typical customer in that segment. c. Choosing a targeting strategy: how should the segment be marketed? i. Undifferentiated Marketing: appealing a broad spectrum of people Advantage: cheap Disadvantage: the large segment might have different needs ii. Differentiated Marketing: develop one or more products for each of several customer groups with different product needs. Advantage: you can target a bigger group successfully Disadvantage: costs a lot of effort and money iii. Concentrated Marketing: focus your efforts on a single segment. Advantage: easily done, also by small firms who dont have the resources to be all things to all people. Disadvantage: there is just a small target group, so few opportunities iv. Custom Marketing: customize your product to the unique needs of each individual or firm. Advantage: you build CRM, the customer is (almost) always pleased Disadvantage: costs a lot of effort, money and research 3) Positioning: Design a good or service to meet a segments needs and develop a marketing mix that will create a competitive advantage in the minds of the selected target market. a. Developing a positioning strategy: depends on the marketers abilities to identify and select an appropriate market segment. There are four steps marketers follow to develop a positioning strategy: i. Analyze competitors positions: marketers must understand the current state of the market. ii. Offer a good or service with competitive advantage: why is your product better than your competitions?

iii. Match elements of the marketing mix to the selected segment: the good or service must deliver benefits that the segment values. It must add value and satisfy customers needs. iv. Evaluate the target markets responses and modify strategies if needed: after a while, a firm may find that it needs to change their strategy, because the environment changes. b. Bringing a product to life: the brand personality Positioning strategy often tries to create a brand personality for a good or service, to create a cooperative image for the brand. Asking consumers what characteristics are important can help marketers construct a perceptual map: a vivid way to construct a picture of where product or brands are located in consumers minds. Customer relationship management By practicing CRM, managers can increase long-term success and profits, because CRM aims to identify profitable customers and find effective ways to develop relationships with them, so that business is nurtured and expanded upon over the long term. Four steps in One-to-One marketing 1) Identify customers and get to know them in as much detail as possible. 2) Differentiate among these customers in terms of both their needs and their value to the company. 3) Interact with customers and find ways to improve cost efficiency and the effectiveness of the interaction. 4) Customize some aspect of the products to each customer CRM is actually a new perspective on an old problem, that is, the most important aspect of CRM is that it presents a new way of looking at how to compete in the marketplace. Characteristics of CRM: Share of a customer: a company focuses on increasing the share of the customer, because thats easier than increasing the share of a market. Lifetime value of the customer: profit generated by a single customer in his lifetime. Customer equity: financial value of customer relationships throughout the lifetime of the relationships. Focus on high-value customers: of course it is most profitable, when a company targets those customers who have a high value.