1 Marketing: Developing RelationshipsPart 5 Chapter 11 Marketing: Developing Relationships We begin part 5 of your textbook, Marketing: Developing Relationships, with chapter 11, Customer-Driven Marketing. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

2 CHAPTER 11 CHAPTER 12 Customer-Driven MarketingDimensions of Marketing Strategy CHAPTER 13 Digital Marketing and Social Networking In chapter 11, we take a look at customer-driven marketing. In this chapter, we focus on the basic principles of marketing. First we define and examine the nature of marketing. Then we look at how marketers develop marketing strategies to satisfy the needs and wants of their customers. Next we discuss buying behavior and how marketers use research to determine what consumers want to buy and why. Finally, we explore the impact of the environment on marketing activities. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

3 Learning Objectives LO 11-1 Define marketing and describe the exchange process. LO 11-2 Specify the functions of marketing. LO 11-3 Explain the marketing concept and its implications for developing marketing strategies. LO 11-4 Examine the development of a marketing strategy, including market segmentation and marketing mix. LO 11-5 Investigate how marketers conduct marketing research and study buying behavior. LO 11-6 Summarize the environmental forces that influence marketing decisions. LO 11-7 Assess a company’s marketing plans, and propose a solution for resolving its problem. After reading this chapter, you will be able to: Define marketing, and describe the exchange process. Specify the functions of marketing. Explain the marketing concept and its implications for developing marketing strategies. Examine the development of a marketing strategy, including market segmentation and marketing mix. Investigate how marketers conduct marketing research and study buying behavior. Summarize the environmental forces that influence marketing decisions. Assess a company’s marketing plans, and propose a solution for resolving its problem. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

4 Nature of Marketing Marketing is a group of activities designed to expedite transactions by creating, distributing, pricing, and promoting goods, services, and ideas Create value by allowing individuals and organizations to obtain what they need and want Other functional areas of the business (operations, finance, and all areas of management) must be coordinated with marketing decisions Marketing is not . . . Manipulating consumers to get them to buy products they do not want Just selling and advertising We define marketing as a group of activities designed to expedite transactions by creating, distributing, pricing, and promoting goods, services and ideas. The goal of marketing is to create value by allowing individuals and organizations to obtain what they need and want. Other functional areas of the business (operations, finance, and all areas of management) must be coordinated with marketing decisions. Businesses cannot achieve their objectives unless they provide something that customers value. It is important to understand what marketing is and what it is not. Marketing is NOT manipulating customers nor is it simply selling and advertising. What marketing IS represents a process to satisfy consumers. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

5 The Exchange RelationshipExchange is the act of giving up one thing (money, credit, labor, goods) in return for something else (goods, services, or ideas) Each participant must be willing to give up “something of value” to receive the “something” held by the other The tangible product itself may not be as important as the image or the benefits associated with the product Capability gained from using a product Image evoked by it Brand name Marketing is focused on creating exchanges that satisfy consumer needs, wants, and desires. This exchange relationship is defined as the act of giving up one thing, for example money, credit, labor, or goods, in return or exchange for something else. That something else could include goods, services, or ideas. Thus businesses create exchanges with customers and create exchanges with each other. When you think of marketing products, you may think of tangible things—cars, MP3 players, or books, for example. What most consumers want, however, is a way to get a job done, solve a problem, or gain some enjoyment. You may purchase a Hoover vacuum cleaner not because you want a vacuum cleaner but because you want clean carpets. Therefore, the tangible product itself may not be as important as the image or the benefits associated with the product. This intangible “something of value” may be capability gained from using a product or the image evoked by it, or even the brand name. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

6 The Exchange Process: Giving Up One Thing in Return for AnotherFor an exchange to occur, certain conditions are required. As indicated by the arrows in the figure on this slide, buyers and sellers must be able to communicate about the “something of value” available to each. An exchange does not necessarily take place just because buyers and sellers have something of value to exchange. Each participant must be willing to give up his or her respective “something of value” to receive the “something” held by the other. Remember, exchange relationships are not restricted to manufactured goods, but extend to all segments of business and organizations including goods, services, and ideas. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

7 Digital Communication with CustomersCompanies find that communicating with customers through digital media sites can enhance customer relationships and create value for their brands Companies find that communicating with customers through digital media sites can enhance customer relationships and create value for their brands. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

8 Functions of MarketingBuying Selling Transporting Storing Grading Financing Marketing Research Risk Taking Marketing focuses on a complex set of activities that must be performed to accomplish objectives and generate exchanges: Buying: A marketer must understand buyers’ needs and desires to determine what products to make available. Selling: Marketers usually view selling as a persuasive activity that is accomplished through promotion (advertising, personal selling, sales promotion, publicity, and packaging). Transporting: Transporting is the process of moving products from the seller to the buyer. Marketers focus on transportation costs and services. Storing: Like transporting, storing is part of the physical distribution of products and includes warehousing goods. Grading: Grading refers to standardizing products by dividing them into subgroups and displaying and labeling them so that consumers clearly understand their nature and quality. Financing: For many products, especially large items such as automobiles, refrigerators, and new homes, the marketer arranges credit to expedite the purchase. Marketing Research: By gathering information regularly, marketers can detect new trends and changes in consumer tastes. Risk Taking: Risk is the chance of loss associated with marketing decisions. The implication of risk is that most marketing decisions result in either success or failure. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

9 Creating Value with MarketingValue is a customer’s subjective assessment of benefits relative to costs in determining the worth of a product Customer Value = Customer Benefits - Customer Costs Benefits – Anything a buyer receives in an exchange Costs – Anything a buyer gives up to obtain product’s benefits Monetary costs and time and effort expended to procure the product Value is an important element of managing long-term customer relationships and implementing the marking concept. We view value as a customer’s subjective assessment of benefits relative to costs in determining the worth of a product (customer value 5 customer benefits 2 customer costs). Customer benefits include anything a buyer receives in an exchange. Customers judge which type of accommodation offers them the best value according to the benefits they desire and their willingness and ability to pay for the costs associated with the benefits. Customer costs include anything a buyer must give up to obtain the benefits the product provides. The most obvious cost is the monetary price of the product, but nonmonetary costs can be equally important in a customer’s determination of value. Two nonmonetary costs are the time and effort customers expend to find and purchase desired products. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

10 Customer Benefits Customer benefits include anything a buyer receives in an exchange Hotels and Motels Hampton Inn offers minimum services necessary to maintain a quality, efficient, low-price overnight accommodation Ritz-Carlton provides every imaginable service and strives to ensure that all service is of the highest quality Customers judge which type of accommodation offers them the best value Customer benefits include anything a buyer receives in an exchange. Hotels and motels, for example, basically provide a room with a bed and bathroom, but each firm provides a different level of service, amenities, and atmosphere to satisfy its guests. Hampton Inn offers the minimum services necessary to maintain a quality, efficient, low-price overnight accommodation. In contrast, the Ritz-Carlton provides every imaginable service a guest might desire and strives to ensure that all service is of the highest quality. Customers judge which type of accommodation offers them the best value according to the benefits they desire and their willingness and ability to pay for the costs associated with the benefits. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

11 The Marketing Concept (1 of 2)The idea that an organization should try to satisfy customers’ needs through coordinated activities that also allow it to achieve its own goals Business must find out what consumers desire and then develop the good, service, or idea that fulfills their needs or wants Business must then get the product to the customer Business must continually alter, adapt, and develop products to keep pace with changing consumer needs and wants A basic philosophy that guides all marketing activities is the marketing concept, the idea that an organization should try to satisfy customers’ needs through coordinated activities that also allow it to achieve its own goals. According to the marketing concept, a business must find out what consumers desire and then develop the good, service, or idea that fulfills their needs or wants. The business must then get the product to the customer. In addition, the business must continually alter, adapt, and develop products to keep pace with changing consumer needs and wants. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

12 The Marketing Concept (2 of 2)Determining customer need is difficult because no one fully understands what motivates people to buy things Although customer satisfaction is the goal of the marketing concept, a business must also achieve its own objectives To implement marketing concept, a firm must have good information about what consumers want and adopt a consumer orientation Coordinate its efforts throughout the entire organization; to avoid products the customers do not want or need All in the firm who interact with customers are selling ideas, benefits, philosophies, and experiences—not just goods and services Trying to determine customers’ true needs is increasingly difficult because no one fully understands what motivates people to buy things. Although customer satisfaction is the goal of the marketing concept, a business must also achieve its own objectives, such as boosting productivity, reducing costs, or achieving a percentage of a specific market. If it does not, it will not survive. To implement the marketing concept, a firm must have good information about what consumers want, adopt a consumer orientation, and coordinate its efforts throughout the entire organization; otherwise, it may be awash with goods, services, and ideas that consumers do not want or need. Everyone in the organization who interacts with customers—all customer-contact employees—must know what customers want. They are selling ideas, benefits, philosophies, and experiences—not just goods and services. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

13 Trader Joe’s Trader Joe’s, which sells many different lines of organic and natural food products, is often thought to have better deals than some of its competitors The grocery chain attempts to meet consumer demands for high-quality food at reasonable prices Trader Joe’s, which sells many different lines of organic and natural food products, is often thought to have better deals than some of its competitors. The grocery chain attempts to meet consumer demands for high-quality food at reasonable prices. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

14 Evolution of the Marketing ConceptOur society and economic system have changed over time, and marketing has become more important as markets have become more competitive Production orientation 19th century Manufacturing efficiency Sales orientation Early 20th century Supply exceeds demand; a need to “sell” products grew The marketing concept has developed over time. During the second half of the nineteenth century, the Industrial Revolution was well under way in the US. This phase of development represents the production orientation with its focus on manufacturing goods with increasing efficiencies. In the early twentieth century, a sales orientation emerged due to increasing manufactured goods that created a surplus. For the first time, goods had to be marketed or sold to consumers as there were abundant options available to them. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

15 The Market OrientationAn approach requiring organizations to gather information about customer needs, share the information throughout the firm, and use the information to help build long-term relationships with customers Today some people still inaccurately equate marketing with a sales orientation Began in the 1950s and continues today New technologies are helping firms to improve communication and learn what customers want By the 1950s, some businesspeople began to recognize that even efficient production and extensive promotion did not guarantee sales. These businesses, and many others since, found that they must first determine what customers want and then produce it, rather than making the products first and then trying to persuade customers that they need them. As more organizations realized the importance of satisfying customers’ needs, U.S. businesses entered the marketing era, one of market orientation. A market orientation requires organizations to gather information about customer needs, share that information throughout the entire firm, and use it to help build long-term relationships with customers. Top executives, marketing managers, nonmarketing managers (those in production, finance, human resources, and so on), and customers all become mutually dependent and cooperate in developing and carrying out a market orientation. Nonmarketing managers must communicate with marketing managers to share information important to understanding the customer. Many companies are turning to technologies associated with customer relationship management to help build relationships and boost business with existing customers. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

16 Meeting Consumers NeedsTrying to assess what customers want is further complicated by the rate at which trends, fashions, and tastes can change More efficient & less expensive for the firm to retain existing customers Nissan Leaf meets needs of consumers who care about environment and wish to improve environmental footprint with an electric vehicle Trying to assess what customers want, which is difficult to begin with, is further complicated by the rate at which trends, fashions, and tastes can change. Businesses today want to satisfy customers and build meaningful long-term relationships with them. It is more efficient and less expensive for the company to retain existing customers and even increase the amount of business each customer provides the organization than to find new customers. The Nissan Leaf meets the needs of consumers who care about the environment and wish to improve their environmental footprint by driving an electric vehicle. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

17 Developing a Marketing StrategyA plan of action for developing, pricing distributing, and promoting products that meet the needs of specific customers Has two major components: Selecting a target market Developing an appropriate marketing mix To implement the marketing concept and customer relationship management, a business needs to develop and maintain a marketing strategy, a plan of action for developing, pricing, distributing, and promoting products that meet the needs of specific customers. This definition has two major components: selecting a target market and developing an appropriate marketing mix to satisfy that target market. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

18 Business to Business (B2B) MarketsDepending on the type of business you work for, other businesses can be your customer Businesses buy products to resell, use in the production of other products, or for use in operations While the marketing concepts are the same for both businesses and consumers, there are complexities to the business market that need to be considered Customer populations in the business market are smaller than in the consumer market, products tend to be highly technical as does the buyer, and how the product affects the rest of the businesses marketing channel are all important characteristics of the business market Businesses also tend to buy in larger quantities than consumers and long-term relationships are seen as necessary Depending on the type of business you work for, other businesses can be your customer. Businesses buy products to resell, use in the production of other products, or for use in operations. While the marketing concepts are the same for both businesses and consumers, there are complexities to the business market that need to be considered. Customer populations in the business market are smaller than in the consumer market, products tend to be highly technical as does the buyer, and how the product affects the rest of the businesses marketing channel are all important characteristics of the business market. Businesses also tend to buy in larger quantities than consumers and long-term relationships are seen as necessary. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

19 Selecting a Target MarketA group of people who have a need, purchasing power, and the desire and authority to spend money on goods, services, and ideas Target Market A specific group of consumers on whose needs and wants a company focuses its marketing efforts Total-Market Approach An approach whereby a firm tries to appeal to everyone and assumes all buyers have similar needs A market is a group of people who have a need, purchasing power, and the desire and authority to spend money on goods, services, and ideas. A target market is a more specific group of consumers on whose needs and wants a company focuses its marketing efforts. Some firms use a total-market approach, in which they try to appeal to everyone and assume that all buyers have similar needs and wants. Sellers of salt, sugar, and many agricultural products use a total-market approach because everyone is a potential consumer of these products. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

20 Market Segmentation and Market SegmentA strategy whereby a firm divides the total market into groups of people who have relatively similar product needs Market Segment A collection of individuals, groups, or organizations who share one or more characteristics and thus have relatively similar product needs and desires Women are largest market segment, 51% of U.S. population Marketers focusing on the growing Hispanic population Most firms, though, use market segmentation and divide the total market into groups of people. A market segment is a collection of individuals, groups, or organizations who share one or more characteristics and thus have relatively similar product needs and desires. Women are the largest market segment, with 51 percent of the U.S. population. At the household level, segmentation can identify each woman’s social attributes, culture, and stages in life to determine preferences and needs. Another market segment on which many marketers are focusing is the growing Hispanic population. One of the challenges for marketers in the future will be to effectively address an increasingly racially diverse United States. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

21 Target Market StrategiesMarketing managers may define a target market as a relatively small number of people within a larger market, or they may define it as the total market The figure on this slide displays different target market strategies. Marketing managers may define a target market as a relatively small number of people within a larger market, or they may define it as the total market. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

22 Market Segmentation ApproachesConcentration Approach A market segmentation approach whereby a company develops one marketing strategy for a single market segment Porsche directs all its marketing efforts toward high-income individuals who want to own high-performance vehicles Multisegment Approach A market segmentation approach whereby the marketer aims its efforts at two or more segments, developing a marketing strategy for each Raleigh bicycles has designed separate marketing strategies for racers, tourers, commuters, and children In the concentration approach, a company develops one marketing strategy for a single market segment. The concentration approach allows a firm to specialize, focusing all its efforts on the one market segment. Porsche, for example, directs all its marketing efforts toward high-income individuals who want to own high-performance vehicles. A firm can generate a large sales volume by penetrating a single market segment deeply. The concentration approach may be especially effective when a firm can identify and develop products for a segment ignored by other companies in the industry. In the multisegment approach, the marketer aims its marketing efforts at two or more segments, developing a marketing strategy for each. Many firms use a multisegment approach that includes different advertising messages for different segments. Many other firms also attempt to use a multisegment approach to market segmentation, such as the manufacturer of Raleigh bicycles, which has designed separate marketing strategies for racers, tourers, commuters, and children. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

23 Niche Marketing A narrow market segment focus when efforts are on one small, well-defined group that has a unique, specific set of needs Niche segments are usually very small compared to the total market for the product Many airlines cater to first-class flyers, who comprise only 10% of international air travelers To meet the needs of these elite customers, airlines include special perks and spacious seats Niche marketing is a narrow market segment focus when efforts are on one small, well-defined group that has a unique, specific set of needs. Niche segments are usually very small compared to the total market for the products. Many airlines cater to first-class flyers, who comprise only 10 percent of international air travelers. To meet the needs of these elite customers, airlines include special perks along with the spacious seats. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

24 Successful Approach to Market SegmentationConsumers’ needs for the product must be heterogeneous The segments must be identifiable and divisible The total market must be divided in a way that allows estimated sales potential, cost, and profits of the segments to be compared At least one segment must have enough profit potential to justify developing and maintaining a special marketing strategy The firm must be able to reach the chosen market segment with a particular market strategy For a firm to successfully use a concentration or multisegment approach to market segmentation, several requirements must be met: 1. Consumers’ needs for the product must be heterogeneous. 2. The segments must be identifiable and divisible. 3. The total market must be divided in a way that allows estimated sales potential, cost, and profits of the segments to be compared. 4. At least one segment must have enough profit potential to justify developing and maintaining a special marketing strategy. 5. The firm must be able to reach the chosen market segment with a particular market strategy. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

25 Basis for Segmenting MarketsCompanies segment markets on the basis of several variables: Demographic Geographic Psychographic Behavioristic Companies segment markets on the basis of several variables: 1. Demographic—age, sex, race, ethnicity, income, education, occupation, family size, religion, social class. These characteristics are often closely related to customers’ product needs and purchasing behavior, and they can be readily measured. For example, deodorants are often segmented by sex: Secret and Soft n’ Dri for women; Old Spice and Mennen for men. 2. Geographic—climate, terrain, natural resources, population density, subcultural values. These influence consumers’ needs and product usage. Climate, for example, influences consumers’ purchases of clothing, automobiles, heating and air conditioning equipment, and leisure activity equipment. 3. Psychographic—personality characteristics, motives, lifestyles. Soft-drink marketers provide their products in several types of packaging, including two-liter bottles and cases of cans, to satisfy different lifestyles and motives. 4. Behavioristic—some characteristic of the consumer’s behavior toward the product. These characteristics commonly involve some aspect of product use. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

26 The Marketing Mix The four marketing activities—product, price, promotion, and distribution—that the firm can control to achieve specific goals within a dynamic marketing environment The buyer or the target market is the central focus of all marketing activities The second step in developing a marketing strategy is to create and maintain a satisfying marketing mix. The marketing mix refers to four marketing activities—product, price, distribution, and promotion—that the firm can control to achieve specific goals within a dynamic marketing environment. The buyer or the target market is the central focus of all marketing activities. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

27 The Marketing Mix: Product, Price, Distribution, and PromotionAs you can see from this slide, the marketing environment consists of the exchange with the customer based on the customer’s needs. It consists of the product, price, promotion, and distribution of the good, service, or idea. We will examine each of these in turn in the next few slides. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

28 Product Good – A physical entity you can touch (a car, computer, or adopted kitten) Service – The application of human and mechanical efforts to people or objects to provide intangible benefits to customers (Air travel, dry cleaning, or haircuts) Idea – Can be a concept, philosophy, image, or issue (attorney advise or political parties) A complex mix of tangible and intangible attributes that provide satisfaction and benefits A product—whether a good, a service, an idea, or some combination—is a complex mix of tangible and intangible attributes that provide satisfaction and benefits. A good is a physical entity you can touch. A Porsche Cayenne, a Hewlett-Packard printer, and a kitten available for adoption at an animal shelter are examples of goods. A service is the application of human and mechanical efforts to people or objects to provide intangible benefits to customers. Air travel, dry cleaning, haircuts, banking, insurance, medical care, and day care are examples of services. Ideas include concepts, philosophies, images, and issues. For instance, an attorney, for a fee, may advise you about what rights you have in the event that the IRS decides to audit your tax return. Other marketers of ideas include political parties, churches, and schools. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

29 Price A value placed on an object exchanged between a buyer and a seller The buyer usually exchanges purchasing power—income, credit, wealth—for the satisfaction of utility associated with a product Key element of the marketing mix because it relates directly to the generation of revenue and profits Can be changed quickly to stimulate demand or respond to competitors’ actions Almost anything can be assessed by a price, a value placed on an object exchanged between a buyer and a seller. Although the seller usually establishes the price, it may be negotiated between buyer and seller. The buyer usually exchanges purchasing power—income, credit, wealth—for the satisfaction or utility associated with a product. Marketers view price as much more than a way of assessing value, however. It is a key element of the marketing mix because it relates directly to the generation of revenue and profits. Prices can also be changed quickly to stimulate demand or respond to competitors’ actions. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

30 Distribution Making products available to customers in the quantities desired Sometimes referred to as “place” because it helps to remember the marketing mix as the “4 Ps” Product, price, place, and promotion Intermediaries—usually wholesalers and retailers— perform many of the activities required to move products efficiently from producers to consumers or industrial buyers Transporting, warehousing, materials handling, inventory control, packaging, and communication Distribution (sometimes referred to as “place” because it helps to remember the marketing mix as the “4 Ps”) is making products available to customers in the quantities desired. Intermediaries, usually wholesalers and retailers, perform many of the activities required to move products efficiently from producers to consumers or industrial buyers. These activities involve transporting, warehousing, materials handling, and inventory control, as well as packaging and communication. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

31 Promotion A persuasive form of communication that attempts to expedite a marketing exchange by influencing individuals, groups, and organizations to accept goods, services, and ideas Includes advertising, personal selling, publicity, and sales promotion Digital advertising on websites and social media sites are growing Promotion is a persuasive form of communication that attempts to expedite a marketing exchange by influencing individuals, groups, and organizations to accept goods, services, and ideas. Promotion includes advertising, personal selling, publicity, and sales promotion. The aim of promotion is to communicate directly or indirectly with individuals, groups, and organizations to facilitate exchanges. Most major companies have set up websites on the Internet to promote themselves and their products. While traditional advertising media such as television, radio, newspapers, and magazines remain important, digital advertising on websites and social media sites is growing. Not only can digital advertising be less expensive. Additionally, social media sites offer advertising opportunities for both large and small companies. Firms can create a Facebook page and post corporate updates for free. To appeal to smaller businesses, Facebook has begun offering deals such as a certain amount in free advertising credits. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

32 Expeditionary MarketingA strategy both small and large companies use to find untapped markets In the case of a startup, goal is to find emerging markets where there is little competition, design a product for that market, and establish themselves as a leader For more established businesses, the goal is to find new areas for growth in markets that are small but growing Internal and external research is done to find markets that are complementary to the skills of the company and the needs of the market, as is extensive planning for new products or services Expeditionary marketing is a strategy that both small and large companies use to find untapped markets. In the case of a startup, the goal is to find emerging markets where there is little competition, design a product for that market, and establish themselves as a leader. For more established businesses, both large and small, the goal of expeditionary marketing is to find new areas for growth in markets that are small but growing. Internal and external research is done to find markets that are complementary to the skills of the company and the needs of the market, as is extensive planning for new products or services. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

33 Marketing Research A systematic, objective process of getting information about potential customers to guide marketing decisions Guides marketing decisions May include data on age, income, ethnicity, educational level, etc. of the target market and how frequently they purchase the product Vital because the marketing concept cannot be implemented without information about customers Before marketers can develop a marketing mix, they must collect in-depth, up-to-date information about customer needs. Marketing research is a systematic, objective process of getting information about potential customers to guide marketing decisions. Such information might include data about the age, income, ethnicity, gender, and educational level of people in the target market, their preferences for product features, their attitudes toward competitors’ products, and the frequency with which they use the product. Marketing research is vital because the marketing concept cannot be implemented without information about customers. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

34 Marketing Information SystemsA framework for accessing information about customers from sources both inside and outside the organization Inside the organization Continuous flow of information on prices, sales, and expenses Outside the organization Data available through public and private reports, census statistics, digital media sources, etc. A marketing information system is a framework for accessing information about customers from sources both inside and outside the organization. Inside the organization, there is a continuous flow of information about prices, sales, and expenses. Outside the organization, data are readily available through private or public reports and census statistics, as well as from many other sources. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

35 Types of Data Primary Data Secondary DataObserved, recorded, or collected directly from respondents “Mystery shoppers”, surveys, and focus groups Passive observation of consumer behavior and open-ended questions techniques Secondary Data Compiled inside or outside an organization for some purpose other than changing the current situation Compiled by the U.S. Census Bureau and other government agencies, databases created by marketing research firms, as well as sales and other internal reports Two types of data are usually available to decision makers. Primary data are observed, recorded, or collected directly from respondents. Primary data must be gathered by researchers who develop a method to observe phenomena or research respondents. Many companies use “mystery shoppers” to visit their retail establishments and report on whether the stores were adhering to the companies’ standards of service. These undercover customers document their observations of store appearance, employee effectiveness, and customer treatment. Mystery shoppers provide valuable information that helps companies improve their organizations and refine their marketing strategies. Some methods for marketing research use passive observation of consumer behavior and open-ended questioning techniques. Called ethnographic or observational research, the approach can help marketers determine what consumers really think about their products and how different ethnic or demographic groups react to them. Secondary data are compiled inside or outside the organization for some purpose other than changing the current situation. Marketers typically use information compiled by the U.S. census bureau and other government agencies, databases created by marketing research firms, as well as sales and other internal reports, to gain information about customers. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

36 Online Marketing ResearchNew information technologies are changing how businesses learn about consumers and market their products Digital media and online social networks Opportunity to reach new markets via the Internet Online surveys are becoming an important part of marketing research Virtual testing – Interactive multimedia research that combines sight, sound, and animation to improve testing of products and their features The marketing of products and collecting of data about buying behavior— information on what people actually buy and how they buy it—represents marketing research of the future. New information technologies are changing the way businesses learn about their customers and market their products. Interactive multimedia research, or virtual testing, combines sight, sound, and animation to facilitate the testing of concepts as well as packaging and design features for consumer products. The evolving development of telecommunications and computer technologies is allowing marketing researchers quick and easy access to a growing number of online services and a vast database of potential respondents. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

37 Buying Behavior The decision processes and actions of people who purchase and use products Marketers analyze buying behavior because a firm’s marketing strategy should be guided by an understanding of buyers Both psychological and social variables are important to an understanding of buying behavior Carrying out the marketing concept is impossible unless marketers know what, where, when, and how consumers buy; conducting marketing research into the factors that influence buying behavior helps marketers develop effective marketing strategies. Buying behavior refers to the decision processes and actions of people who purchase and use products. It includes the behavior of both consumers purchasing products for personal or household use as well as organizations buying products for business use. Marketers analyze buying behavior because a firm’s marketing strategy should be guided by an understanding of buyers. Both psychological and social variables are important to an understanding of buying behavior. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

38 Psychological Variables of Buying BehaviorPerception The process by which a person selects, organizes, and interprets information received from his or her senses Motivation Inner drive that directs a person’s behavior toward goals Learning Changes in a person’s behavior based on information and experience Attitude Knowledge and positive or negative feelings about something Personality Organization of distinguishing character traits, attitudes, or habits Psychological factors include the following: Perception is the process by which a person selects, organizes, and interprets information received from his or her senses, as when experiencing an advertisement or touching a product to better understand it. Motivation is an inner drive that directs a person’s behavior toward goals. A customer’s behavior is influenced by a set of motives rather than by a single motive. A buyer of a tablet computer, for example, may be motivated by ease of use, ability to communicate with the office, and price. Learning brings about changes in a person’s behavior based on information and experience. For instance, a smartphone app that provides digital news or magazine content could eliminate the need for print copies. If a person’s actions result in a reward, he or she is likely to behave the same way in similar situations. If a person’s actions bring about a negative result, however—such as feeling ill after eating at a certain restaurant—he or she will probably not repeat that action. Attitude is knowledge and positive or negative feelings about something. For example, a person who feels strongly about protecting the environment may refuse to buy products that harm the earth and its inhabitants. Personality refers to the organization of an individual’s distinguishing character traits, attitudes, or habits. Although market research on the relationship between personality and buying behavior has been inconclusive, some marketers believe that the type of car or clothing a person buys reflects his or her personality. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

39 Social Variables of Buying BehaviorSocial Roles A set of expectations for individuals based on some position they occupy Reference Groups Groups with whom buyers identify and whose values or attitudes they adopt Social Classes A ranking of people into higher or lower positions of respect Culture The integrated, accepted pattern of human behavior, including thought, speech, beliefs, actions, and artifacts Social factors include social roles, which are a set of expectations for individuals based on some position they occupy. A person may have many roles: mother, wife, student, executive. Each of these roles can influence buying behavior. Other social factors include reference groups, social classes, and culture: Reference groups include families, professional groups, civic organizations, and other groups with whom buyers identify and whose values or attitudes they adopt. A person may use a reference group as a point of comparison or a source of information. Social classes are determined by ranking people into higher or lower positions of respect. Criteria vary from one society to another. People within a particular social class may develop common patterns of behavior. Culture is the integrated, accepted pattern of human behavior, including thought, speech, beliefs, actions, and artifacts. Culture determines what people wear and eat and where they live and travel. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

40 Understanding Buying BehaviorTrying to understand consumers is the best way to satisfy them Tools and techniques for analyzing consumers are not exact McDonald’s decided to focus on Millennials because they are the most profitable Millennials spend $247 billion annually on restaurants Renovated restaurants to look more modern Added more customized menu options Improved the nutritional value of some of its products What is the key to understanding buying behavior? The best way is to try to understand consumers, what they value and the best way to satisfy them. There are no magic bullets or special tools to answer this question. McDonald’s, which has traditionally emphasized children, decided to focus more on Millennials because they are the most profitable. Millennials spend $247 billion annually on restaurants. To target Millennials, McDonald’s has made changes to emphasize trends among Millennials. For example, it renovated its restaurants to look more modern, added more customized menu options, and improved the nutritional value of some of its products. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

41 The Marketing EnvironmentExternal forces directly or indirectly influence the development of marketing strategies: Political, legal, and regulatory forces Social forces Competitive and economic forces Technological forces Marketing requires creativity and consumer focus because environmental forces can change quickly and dramatically A number of external forces directly or indirectly influence the development of marketing strategies; the following political, legal, regulatory, social, competitive, economic, and technological forces comprise the marketing environment. Political, legal, and regulatory forces—laws and regulators’ interpretation of laws, law enforcement and regulatory activities, regulatory bodies, legislators and legislation, and political actions of interest groups. Social forces—the public’s opinions and attitudes toward issues such as living standards, ethics, the environment, lifestyles, and quality of life. Competitive and economic forces—competitive relationships such as those in the technology industry, unemployment, purchasing power, and general economic conditions (prosperity, recession, depression, recovery, product shortages, and inflation). Technological forces—computers and other technological advances that improve distribution, promotion, and new-product development. Marketing requires creativity and consumer focus because environmental forces can change quickly and dramatically. Changes can arise from social concerns and economic forces such as price increases, product shortages, and altering levels of demand for commodities. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

42 Environmental ConcernsClimate change, global warming, and the impact of carbon emissions on our environment are causing businesses to rethink marketing strategies Governments have stricter laws on greenhouse gas emissions By 2025 vehicles must be able to reach 54.5 miles per gallon General Motors and others are investigating ways to make cars more fuel-efficient without significantly raising price These laws are introducing opportunities for new products Concern over the environment are encouraging automobile companies to produce electric cars Recently, climate change, global warming, and the impact of carbon emissions on our environment have become social concerns and are causing businesses to rethink marketing strategies. These environmental issues have persuaded governments to institute stricter limits on greenhouse gas emissions. For instance, in the United States the government has mandated that by 2025 vehicles must be able to reach 54.5 miles per gallon. This is causing automobile companies like General Motors to investigate ways to make their cars more fuel-efficient without significantly raising the price. At the same time, these laws are also introducing opportunities for new products. Concerns over the environment are encouraging automobile companies to begin releasing electric vehicles, such as the Chevrolet Volt and the Nissan Leaf. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

43 The Marketing Mix and the Marketing EnvironmentAlthough the forces in the marketing environment are sometimes called uncontrollables, they are not totally so. A marketing manager can influence some environmental variables. For example, businesses can lobby legislators to dissuade them from passing unfavorable legislation. The figure, displayed in this slide, shows the variables in the marketing environment that affect the marketing mix and the buyer. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

44 Importance of Marketing to Business and SocietyMarketing is a necessary function to reaching consumers, establishing relationships, and driving sales Marketing is essential in communicating the value of products and services Nonprofits, government institutions, and even people must market themselves to spread awareness and achieve desired outcomes All organizations must reach their target markets, communicate their offerings, and establish high-quality services As this chapter has shown, marketing is a necessary function to reaching consumers, establishing relationships, and driving sales. While some critics might view marketing as a way to change what consumers want, marketing is essential in communicating the value of products and services. It is not just for-profit businesses that engage in marketing activities. Nonprofits, government institutions, and even people must market themselves to spread awareness and achieve desired outcomes. All organizations must reach their target markets, communicate their offerings, and establish high-quality services. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

45 Solve the Dilemma (1 of 3) Will It Go?Ventura Motors makes midsized and luxury automobiles in the United States Success of two-seat sports cars like the Mazda RX-8 started company evaluating market for two-seat sports cars priced midway between moderate & luxury market Research found significant demand Venture needed to act fast to take advantage of this market opportunity Designed, engineered, & produced in just over 2 years Higher than anticipated costs Price set at $32,000 for two-seat car Olympus This Solve the Dilemma is taken from Chapter 11, page 353: Ventura Motors makes midsized and luxury automobiles in the United States. Best selling models include its basic four-door sedans (priced from $20,000 to $25,000) and two-door and four-door luxury automobiles (priced from $40,000 to $55,000). The success of two-seat sports cars like the Mazda RX-8 started the company evaluating the market for a two-seat sports car priced midway between the moderate and luxury market. Research found that there was indeed significant demand and that Ventura needed to act quickly to take advantage of this market opportunity. Ventura took the platform of the car from a popular model in its moderate line, borrowing the internal design from its luxury line. The car was designed, engineered, and produced in just over two years, but the coordination needed to bring the design together resulted in higher than anticipated costs. The price for this two-seat car, the Olympus, was set at $32,000. Dealers were anxious to take delivery on the car, and salespeople were well trained on techniques to sell this new model. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

46 Solve the Dilemma (2 of 3) Will It Go?However . . . Initial sales have been slow, and company executives are surprised and concerned Olympus was introduced quickly, made available at all Venture dealers, priced midway between luxury and moderate models, & advertised heavily However, initial sales have been slow, and company executives are surprised and concerned. The Olympus was introduced relatively quickly, made available at all Ventura dealers, priced midway between luxury and moderate models, and advertised heavily since its introduction. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

47 Solve the Dilemma (3 of 3) Will It Go?Discussion Questions What do you think were the main concerns with the Olympus two-door sports coupe? Is there a market for a two-seat, $32,000 sports car when the RX-8 sells for significantly less? Evaluate the role of the marketing mix in the Olympus introduction. What are some of the marketing strategies auto manufacturers use to stimulate sales of certain makes of automobiles? Discussion Questions 1. What do you think were the main concerns with the Olympus two-door sports coupe? Is there a market for a two-seat, $32,000 sports car when the RX-8 sells for significantly less? 2. Evaluate the role of the marketing mix in the Olympus introduction. 3. What are some of the marketing strategies auto manufacturers use to stimulate sales of certain makes of automobiles? © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

48 Discussion What is the marketing concept? Why is it so important?List the variables in the marketing mix. How is each used in a marketing strategy? Why are marketing research and information systems important to an organization’s planning and development of strategy? Briefly describe the factors that influence buying behavior. How does understanding buying behavior help marketers? What is the marketing concept? Why is it so important? The marketing concept states that an organization should try to satisfy customers’ needs through coordinated activities that also allow it to achieve its own goals. Adoption of the marketing concept is important because it provides the organization with a philosophy of meeting customers’ needs without sacrificing the long run needs of the organization. List the variables in the marketing mix. How is each used in a marketing strategy? The marketing mix involves four variables: product, promotion, price, and distribution. The product is a complex mix of tangible and intangible attributes that provide satisfaction and benefits. Price represents the value placed on an object in an exchange; it quantifies value and is the basis of most market exchanges. Distribution makes products available in the quantities desired to as many customers as possible while holding total inventory, transportation, and storage costs as low as possible. Promotion is a persuasive form of communication that attempts to facilitate a marketing exchange by influencing individuals, groups, or organizations to accept an organization’s products. Why are marketing research and information systems important to an organization’s planning and development of strategy? Marketing research is a systematic and objective effort to obtain information about potential customers in order to guide marketing decisions. A marketing information system establishes a framework for accessing information about customers from sources both inside and outside of the organization. Marketing research and information systems are important to an organization’s planning and developing strategy. They make possible a systematic approach to decision making in marketing. Briefly describe the factors that influence buying behavior. How does understanding buying behavior help marketers? Psychological and social variables play a part in buyer behavior. The psychological variables include these factors: (1) perception—the process by which a person selects, organizes, and interprets information received from his or her senses in order to understand it; (2) motivation—an internal force that directs an individual’s behavior to achieve a goal; (3) learning—a change in a person’s behavior caused by information and experience; (4) attitude—knowledge and positive or negative feelings about something; and (5) personality—the organization of an individual’s distinguishing character traits, attitudes, and habits. Social variables of buyer behavior include the following four factors: (1) social roles—the set of expectations for individuals based on some position they occupy; (2) reference groups—groups with whom individuals identify and whose values or attitudes the individuals adopt; (3) social classes—determined by ranking people into higher or lower positions of respect; and (4) culture—the integrated, accepted pattern of human behavior that includes thought, speech, beliefs, actions, and artifacts. Marketers analyze buying behavior because a firm’s marketing strategy should be guided by an understanding of what, where, when, and how consumers buy. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.