Chapter 10 – Marketing
Understand Marketing
ë Marketing is one of the most misunderstood business functions
ë When asked to describe marketing most people say advertising or selling. These are important activities but there many other activities involved as well
ë Marketing: the activity, set of instructions, and process of creating, communicating, delivering and exchanging offerings that have value for customers, clients, partners and society at large.
ë Marketing Activities
o Obvious examples of marketing:
1. As consumers you are exposed to marketing activities all the time
2. You hear and see advertisements for goods and services
3. You see brand names on the foods you eat and the clothes you wear
4. You read product descriptions on websites
5. You interact with the sales people at your favorite stores
6. These are all examples of marketing
o Less Obvious examples of marketing:
1. Storing products in warehouses and distribution centers
2. Moving products to the places where they will be sold or used
3. Establishing and accepting credit and arranging means of online payment
4. Gathering data on consumer needs and using that information to improve products and test new products
o A great deal of marketing is not aimed at consumers
o Businesses market products and services to other businesses
o More time and money is spent in business to business marketing than in marketing products and services to consumers
ë Marketing Businesses
o All businesses including service businesses must do some marketing activities
o Marketing businesses include advertising agencies and marketing research firms
o Marketing activities, marketing businesses and marketing careers are an important part of the U.S Economy
ë Marketing Functions
o Product & Service Management: Designing, developing, maintaining, improving and acquiring products and services that meet consumer needs
o Distribution: best way for customers to locate, obtain, and use products and services of an organization. Careful shipping, handling and storing of products are needed to have effective distribution
o Selling: Communicating directly with potential customers to determine and satisfy their needs. This can be done many ways; face-to-face, telephone, video conferencing, or instant message.
o Marketing Information Management: Obtaining, managing, and using marketing information to improve business decision making and the performance of marketing activities
o Financial Analysis: budgeting for marketing activities, obtaining the necessary funds needed for operations and providing financial assistance to customers so they can purchase the products and services
o Pricing: setting and communicating the value of products and services. Prices must be easily identified. Customers want to know they are getting a fair value for their money. Prices must be low enough for consumers to buy but high enough that the business makes a profit
o Promotion: communicating information about a product and service to potential customers. Advertising and other promotional methods are used to encourage consumers to buy. Advertising appears in many ways; television, radio, magazines, Internet. Other methods include contests, product displays, and sponsorships.
Marketing Strategy
ë Marketing activities often cost 50% or more of a selling price
ë In order to make a profit marketing must be done carefully
ë Done well at a low cost
ë Consumers will go to a competitor if they are not satisfied
ë Marketing Plan
o This aims to satisfy the customer’s needs better than the competitors.
o Marketing Strategy: a company’s plan that identifies how it will use marketing to achieve goals.
o There are 2 steps in developing a sound market strategy:
· Identify the Target Market
· Create a Marketing Mix
o Target Market: a specific group of a consumers who have similar wants and needs
o Marketing Mix: the blend of 4 marketing elements; product, distribution, price and promotion.
o A good marketing mix can satisfy the wants and needs of the target market
ë Developing a Successful Marketing Strategy
o Many businesspeople think they know what consumers want
o If the product doesn’t appeal to consumers the business will be forced to cut the price
o This will lower profits or even losses may be a result
o Marketing orientation is usually adopted to the items can be sold for a profit
o Marketing orientation: considers the needs of the consumers when developing a marketing mix
o With this business don’t have to assume what consumers want, they know based on research into customer needs.
Understanding Consumers
ë Why did you purchase the most recent product or service?
ë You probably had lots of choices to choose from but you chose the one that gave you the most satisfaction for your money
ë Businesses fail because they fail to consider the needs of the consumers. If a consumer doesn’t see the need or if they think they can find a different choice that is better or cost less, the product will not succeed
ë There are 2 types of consumers:
o Final Consumers: people who buy products & services for their own use
o Business Consumers: people, companies and organizations that buy products for the operation of a business, for incorporation into other products & services or for resale to their customers
ë Consumer Decision Making
o The steps and sequence are the same for every consumer
o There are 5 steps to this process
1. Recognize a need
2. Gather information
3. Select/evaluate alternatives
4. Make purchase
5. Determine the effectiveness of the purchase
ë Buying Motives
o Why do you shop at certain stores, or buy specific brand of a product?
o The reasons we do this is called buying motives
o There are 2 types of buying motives
1. Emotional buying motives: purchase based on feelings, beliefs, and attitudes
2. Rational buying motives: guided by facts and logic
**Do assessment questions pg.238 (1-3)
Create and Improve Products
ë Usually a new product isn’t actually new
ë There is usually some type of change to the product to improve it
ë Businesses call the product new to attraction the attention of the customer and encourage them to buy it
ë Totally new products that haven’t been seen by customers are not often introduced
ë Most of the products you see today are minor or major improvements in existing products
ë Scientist and other researchers develop product improvements
ë Marketing Research: finding solutions to problems through carefully designed studies involving consumers
ë Plan Marketing Research
o Many types of research procedures can be used to solve marketing problems
o Each type of research following the scientific problem-solving process
§ Problem-solving process
· Define marketing problem
· Study the situation
· Develop a data collection process
· Gather and analyze data
· Propose a solution
ë Types of Research Studies
o Most common type of marketing research involves surveys
o Surveys: gathers information from people using a planned set of questions
o Surveys are sent to customers by mail, through email, or by phone
o Focus groups are another way to do research
o Focus groups: gather the ideas, experiences and opinions of consumers
o With this research technique a small group of people take part in a group discussion
o A group leader identifies the areas of agreement and disagreement
o Focus groups discuss their experience with a product, react to new ideas or make suggestions for product improvements
o Observation is another research technique
o Observation: collects information by recording the actions of consumers
o A store may study how customers choose a product, study a display case or the path they walk through the store.
o The final way of marketing research is through experiments
o Experiments: presents two controlled alternatives, in order to determine which is preferred or has the best results
Product Planning
ë The product must be available through effective distribution and have an affordable and fair price
ë You must be aware of the product through promotion and know how it will meet your needs better than other choices
ë Parts of a Product
o Product: everything a business offers to satisfy a customer’s needs
o When buying certain products you want them to have options
§ Use example of cell phone and a car
o A brand name provides the unique identification for a company’s product
o Packaging also sells a product, if it is convenient and secure it will help making the buying decision easier
o Businesses build customer confidence through guarantees or warranties
o This just means if something goes wrong with the product it will be repaired, replaced or refunded
ë Product Planning
o This is a costly and time consuming process
o It is not unusual to spend several millions and years developing a new product
o The planning process has multiple stages:
· Idea development-comes from multiple places; scientist, employees, surveys and focus groups
· Idea screening-to see if there is demand for the new product. Do other companies offer a similar product? Can it produced at a reasonable cost and is it legal and safe?
· Strategy development-develop a marketing strategy and the target market
· Production and Financial Planning-what it is going to take to produce this product; people, facilities and equipment
· Limited Production and Test Marketing-produce a little to see if the demand is there and the product will sell before they make a large investment
· Full-Scale production-produce in mass quantities
Services
ë Services are harder to market than products
ë Services are intangible and more difficult to determine if it will meet your needs
ë Services are inseparable meaning they consumed when they are produced. The person or technology must be available when and where the customer needs it
ë Services are also perishable meaning the availability of the service must match the demand at that time
ë Services are heterogeneous meaning there will be differences in the type and quality of the service provided
**Do assessment question pg.243 (1-3)
Value and Price
ë How do you determine what to pay for a product?
ë Do you compare prices?
ë Do you consider how much money will be available to spend?
ë Are you concerned if the seller is making a profit?
ë Buyers want to buy at the lowest price and sellers want to sell at the highest price. Finding the best price for a product is a marketing challenge
ë Pricing Factors
o There are 6 factors that influence the price
1. Supply & Demand-high demand=high price, low demand=low price
2. Uniqueness-this will cause the price to be higher
3. Age-products when first introduced are high in price and as they age the price will go down
4. Season-Prices will be high just before and at the beginning of the season and then lower at the other times of the year
5. Complexity-highly complex and technical product have higher prices. Also products with many feature and options also command a higher price
6. Convenience-Customers expect to pay lower prices if they shop the large warehouse store. They will pay a little more at a store that is more conveniently located
ë Price of a Product
o Price: the money a customer must pay for a product or service
o The price of a product changes as it moves from producer to consumer
o The price is set by using this formula:
· Product costs+operating expenses+profit=selling price
§ Product costs-the costs to the manufacturer to produce the product
§ Operating expenses-salaries, storage, display equipment, utilities, taxes and many others
§ Profit-the amount of money available after all the costs and expense have been paid
o Markup: the amount added to the cost of product to set the selling price
o Markup is stated as a percentage of the product’s cost
o If a product cost $15 and has 100% markup, the markup is $15 and the selling price is $30
o Markdown: is a reduction from the original selling price
o Markdowns occur when the customer demand is not as high as projected, if the selling season is coming to an end or if there is a flaw in the product
o Small markdowns result in most of the remaining product being sold and still making a profit
o The remaining product will have to be sold at a larger markdown until it is sold
Channels of Distribution
ë Depending on where you get your products from will determine how difficult or time consuming it will be to get them to your door
ë Distribution: the locations and methods used to make a product or service available to a target market
ë Channel of distribution: the route and businesses involved in moving a product from producer to consumer
ë Need for Distribution Channels
o In the earliest economic exchanges people often bartered to exchange goods and services
o A bushel of apples may be traded for a yard of fabric
o This distribution system was simple
o However, in a complex economy, exchanges are more difficult due to several differences between producers and consumers
o Distribution channels move product efficiently from where they are produced to where they are sold
o Distribution channels store product from the time they are produced until the customers want to by them
ë Channels and Channel Members
o Channel Members: the businesses that take part in the channel of distribution
o All marketing functions and activities are performed by channel members or consumers
o 2 types of channels
§ Direct Channel-products go from producer straight to consumer
§ Indirect Channel-includes one or more businesses between producer and consumer
o Retailing are an important part of the distribution channels for consumer products
o Retailer: the final business organization in an indirect distribution channel
o Retailers offer a convenient location for consumers and offer financing, repairs, and customer service
o Retailers also help by storing, displaying and advertising the products
**Do assessment questions pg.248 (1-2)
Communication and Promotion
ë You are bombarded daily with promotions