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CHAPTER 15: UNDERSTANDING MARKETING PROCESSES AND CONSUMER BEHAVIOUR WHAT IS MARKETING?

Marketing: planning and executing the development, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy both buyers and sellers objectives As consumers, we are the essential ingredients in the marketing process our needs and wants are the forces that drive marketing Marketing Concept: the idea that the whole firm is directed toward serving present and potential customers at a profit Means that a firm must get to know what customers really want and follow closely the changes in tastes that occur The various department of the firm must operate as a system to achieve customer satisfaction Providing Value and Satisfaction: Desire for stuff = unwanted; limited financial resources force most of us to be selective Consumers buy products that offer the best value when it comes to meeting their needs and wants 1. Value and Benefits Value: relative comparison of a products benefits vs. its costs Benefits of high-value products are much greater than its costs Benefits include not only the functions of the product but also the emotional satisfaction associated with owning, experiencing or possessing it Every product has costs, including sales price, the expenditure of the buyers time, and emotional costs of making a purchase decision VALUE = BENEFITS / COSTS Marketing strategies focus on increasing value for customers Marketing resources are deployed to add value to products to satisfy consumers needs and wants Satisfying customers might mean developing an entirely new product that performs better than existing products (provides greater benefit), keeping a store open extra hours during busy season (adding the benefit of greater shopping convenience), offering price reductions (benefit of lower cost), and from informational promotion that explains how a product can be used in new ways

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Value and Utility Products provide consumers with utility the ability of a product to satisfy a human want or need Marketing strives to provide four kinds of utility: Time Utility: makes products available when consumers want them (Christmas stuff) Place Utility: makes products available where customers can conveniently purchase them Ownership Utility: by conveniently transferring product ownership from store to customer Form Utility: by making products available in the first place (raw materials to finished good) Marketing plays a role in all four areas determining the timing, place, terms of sale, and product features that provide utility and add value for customers Goods, Services, and Ideas: Consumer Goods: products purchased by individuals for their personal use Firms that sell consumer goods are engaged in consumer marketing Marketing is also important for industrial goods products purchased by companies to use directly or indirectly to produce other products Firms that sell products to other manufacturers are engaged in industrial marketing Marketing is also relevant for services intangible products, such as time, expertise, or an activity that can be purchased Marketers also promote ideas (i.e. TV ads) 1. Relationship Marketing Emphasize lasting long-term relationships with customers and suppliers Strong relationships including stronger economic and social ties can result in greater long-term satisfaction and customer loyalty (i.e. Rogers package deal discounts) The Marketing Environment: Marketing plans, decisions, and strategies are strongly influenced by powerful outside forces Any marketing program must recognize the outside factors that compose a companys external environment outside factors that influence marketing programs by posing opportunities or threats = political and legal, social and cultural, technological, economic and competitive 1. Political and Legal Environment

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Marketing managers try to maintain favourable political/legal environments in several ways Use advertising campaigns for public awareness, lobby and contribute to political candidates, etc These activities sometimes result in favourable laws and regulations Social and Cultural Environment Changing social values force companies to develop and promote new products for both individual consumers and industrial consumers Technological Environment New technologies affect marketing in several ways They create new goods and services (which makes some existing products obsolete and changes our views and lifestyles) and they often stimulate new goods and services not directly related to new technology itself (cell phones facilitate business conversation and free up time for leisure) Economic Environment Economic conditions determine spending patterns by consumers, businesses, and governments Thus, they influence marketers plans for product offerings, pricing, and promotional strategies Marketers are concerned with inflation, interest rates, recession, and recovery

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Competitive Environment In this environment, marketers must convince buyers that they should purchase their products rather than another sellers Each marketing program seeks to make its product the most attractive By studying the competition, marketers determine how best to position their own products for three specific types of competition: Substitute products: a product that is dissimilar from those of competitors but that can fulfill the same need Brand competition: competitive marketing that appeals to consumer perceptions of similar products International competition: competitive marketing of domestic against foreign products Startegy: The Marketing Mix As a business activity, marketing requires management Marketing Managers: managers responsible for planning and implementing all the marketing-mix activities that result in the transfer of goods or services to customers Marketing Plan: a detailed strategy for gearing the marketing mix to meet consumer needs and wants Marketing begins when a company identifies a consumer need and develops a product to meet it In planning and implementing strategies, marketing managers develop the four basic components of the marketing mix the combination of product, pricing, promotion, and distribution strategies used in marketing a product four Ps; product, price, promotion, and place Importance of these four elements varies, depending on the product being sold 1. 2. 3. Product Marketing begins with a product a good, service, or idea that satisfies buyers needs and demands Conceiving and developing new products is a constant challenge for marketers, who must always consider the factor of change changing technology, changing consumer wants and needs, and changing economic conditions Mass customization allow marketers to provide products that satisfy specific needs of consumers Product Differentiation: the creation of a product or product image that differs enough from existing products to attract consumers Price Refers not only to the actual amount of money that consumers must pay for a product but also to the total value of things that consumers are willing to give up in return for having the product or service Price must support a variety of costs operating, administrative, research, and marketing costs but they cant be higher than competitors products Low- and high-price strategies can be effective in different situations Low prices generally lead to large sales volume High prices usually limit market size but increase profit High prices may also attract customers by implying that the product is of high quality Place (Distribution)

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Is the part of the marketing mix concerned with getting products from the producer to the buyer, including physical transportation and choice of sales outlets Firms must also make decisions about the channels through which they distribute products

Promotion Refers to techniques for communicating information about products Is the most highly visible component of the marketing mix Most important promotional tools include advertising, personal selling, sales promotions, and public relations The four Ps focus on sellers perspective and provide a certain benefit to buyers Theyre also a mirror image of the buyers four Cs: customer solution (product), customer cost (price), customer convenience (place), and customer communication (promotion) TARGET MARKETING AND MARKET SEGMENTATION The marketing concepts recognition of consumers various needs and wants has let marketing managers to think in terms of target marketing Target Markets: are groups of people with similar wants and needs Market Segmentation: dividing a market into categories according to common customers traits Once companies have identified market segments, they may adopt a variety of product strategies Some firms decide to provide a range of products to the market In contrast, some businesses restrict production to one market segment Segmentation is a strategy for analyzing consumers, not products In marketing, the process of fixing, adapting, and communicating the nature of the product itself is called positioning Identifying Market Segments: By definition, the members of a market segment must share some common traits or behaviours that will affect their purchasing decisions In identifying market segments, researchers look at geographic, demographic, psychographic, and product-use variables 1. 2. 3. Geographic Variables In some cases, where people live affects their buying decisions (rainy places = buy more umbrellas) Geographic Variables: geographic units that may be considered in a segmentation strategy These patterns affect marketing decisions about what products to offer; at what price to sell them, how to promote them, and how to distribute them Marketability of some products is geographically sensitive, but most enjoy universal acceptance Demographic Variables Are characteristics of populations that may be considered in developing a segmentation strategy I.e. age, income, gender, ethnic background, marital status, race, religion, and social class These are objective criteria that cant be altered; marketers must work around or with them Psychographic Variables Are psychological traits that a group has in common, including motives, attitudes, activities, interests, and opinions These are particularly important to marketers because unlike demographics and geographic, they can sometimes be changed by marketing efforts

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Product-Use Variables Refers to the ways in which consumers use a product, the benefits they expect from it, their reasons for purchasing it, and their loyalty to it A products position refers to the important attributes that customers use to assess the product Market Segmentation: A Caution Segmentation must be done carefully group of people may share an age category, income level, or some other segmentation variable, but their spending habits may be quite different Marketers are very interested in a persons system of values because values can have a big influence on an individuals tendency to adopt a new product One study identified three types of consumers; the conservatives, the dynamics, and the hedonists The conservatives are typically those customers who are least likely to adopt new products The hedonist are categorized as innovators and are the most likely to adopt a new product

The dynamics are somewhat less likely to adopt new products, but are often seen as imitators MARKET RESEARCH Is the systematic study of what buyers need and how best to meet those needs Can address any element in the marketing mix Ultimately, its role is to increase the firms competitiveness by understanding the relationship among the firms customers, its marketing variables, and its marketing decisions Market researchers use a variety of methods to obtain, interpret, and use information about customers They determine the kinds of information that are needed for decisions on marketing strategy, goal setting, and target-market selection Might study consumer response to a new product, new price, new promotion, new place, etc Most companies will benefit from market research but they need to do the research themselves The Research Process: Market research can occur at any point in a products existence Most commonly done when a new or altered product is being considered The five steps in performing market research are: Study the current situation Select a research method Collect data secondary data = information already available as a result of previous research by the firm or other agencies; primary data = new research by the firm Analyze the data Prepare a report summary of studys methodology and findings, identify alternative solutions and make recommendations for the appropriate course of action Research Methods: Four basic types of methods used by market researchers are observation, surveys, focus groups, and experimentation 1. 2. 3. Observation Involves viewing or otherwise monitoring consumer buying patterns Relatively low in cost Using video equipment to observe consumer behaviour is called video mining Surveys A technique based on questioning a representative sample of consumers about purchasing attitudes and practices Can be expensive to carry out and may vary widely in their accuracy Focus Groups A technique involving a small group of people brought together and allowed to discuss selected issues in depth A moderator leads the group of about 6-15 people Consumers dont necessarily express their real feelings when participating in focus groups or when filling out surveys

4. Experimentation A technique in which the reactions of similar people are compared under different circumstances Data Warehousing and Data Mining: Almost everything we do leaves a trail of information about you Data Warehousing: process of collecting, sorting, and retrieving data in electronic form 1. The Use of Data Mining Data Mining: application of electronic technologies for searching, sifting, and reorganizing data to collect marketing information and target products in the marketplace After collecting information, marketers use data mining to uncover useful marketing information and to plan for new products that will appeal to target segments in the marketplace UNDERSTANDING CONSUMER BEHAVIOUR Marketing research in its many forms can be of great help to marketing managers in understanding how the common traits of a market segment affect consumers purchasing decisions Consumer Behaviour: the study of the process by which customers come to purchase and consume a product or service Influences on Consumer Behaviour: To understand consumer behaviour, marketers draw heavily on fields of psychology and sociology

The result is a focus on four major influences on consumer behaviour: psychological, personal, social, and cultural Psychological influences include an individuals motivations, perceptions, ability to learn, and attitudes Personal influences include lifestyle, personality, economic status, and life-cycle stage Social influences include family; opinion leaders (people whose opinions are sought by others); and reference groups such as friends, co-workers, and professional associates Cultural influences include culture (way of living), subculture (smaller groups, such as ethnic groups), and social class (cultural ranking on criteria such as income, background) These factors can have a strong impact on consumers choices, but their effect on actual purchases is sometimes weak or negligible The Consumer Buying Process: Look at Consumer Buying Process diagram 1. 2. 3. 4. Problem/Need Recognition Buying process begins when a consumer becomes aware of a problem or need Need recognition also occurs when you have a chance to change your purchasing habits Information Seeking Having recognized a need, consumers seek information, which is not always extensive searching Before making major purchases, most people seek information from personal sources, marketing sources, public sources, and experience Evaluation of Alternatives Based on product attributes, consumers choose the product which best meets their needs Purchase Decisions Ultimately you make a purchase decision; buy now or at a later date Buy decisions are based on rational and emotional motives Rational Motives: involve a logical evaluation of a products cost, quality, and usefulness Emotional Motives: reasons for purchasing a product that involve non-objective factors such as fear, sociability, imitation of others, and aesthetics

5. Post-Purchase Evaluations Marketing doesnt stop with the sale of a product or service; includes the process of consumption Marketers are very motivated to keep consumers happy so they will make repeat purchases When consumers arent satisfied, they typically complain to friends instead of the company This negative word-of-mouth advertising can be very harmful to a company People can complain about products or services at www.complaints.com Dissatisfied customers can have a very negative impact on a companys marketing effort Word-of-Mouth Marketing (buzz marketing): opinions about the value of products, passed among consumers in informal discussions ORGANIZATIONAL MARKETING AND BUYING BEHAVIOUR Organizational Markets: Organizational or commercial markets fall into three categories: industrial, reseller, and government/institutional markets 1. 2. Industrial Market Is businesses that buy goods to be converted into other products that will be sold to ultimate consumers This market includes farmers, manufacturers, and some retailers Reseller Market Is intermediaries like wholesalers and retailers who buy finished products and resell them Retailers also buy such services as maintenance, housekeeping, and communications

3. Government and Institutional Market Is non-government organizations such as hospitals, churches, and schools Use supplies and equipment, and legal, accounting, and transportation services (like other markets) Organizational Buying Behaviour: In some respects, industrial buying behaviours is very different from consumer buying practices Differences include the buyers purchasing skills and an emphasis on buyer-seller relationships

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Differences in Buyers Organizational buyers are professional, specialized, and expert, unlike most consumers As professionals, organizational buyers are trained in methods for negotiating purchase items As a rule, industrial buyers are company specialists in a line of items Industrial buyers are often experts about the products that they buy

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Differences in the Buyer-Seller Relationship Consumer-seller relationships are often impersonal, short-lived, one-time interactions In contrast, industrial situations often involve frequent and enduring buyer-seller relationships Development of long-term relationships provides each party with access to the technical strengths of the other as well as the security of knowing what future business to expect THE INTERNATIONAL MARKETING MIX Marketing products internationally means mounting a strategy to support global business operations Not an easy task since foreign customers may differ from domestic buyers in language, customs, business practices, and consumer behaviour International Products: Some products can be sold in many different countries with virtually no changes (Coca-Cola), but often only a redesigned or completely different product will meet the needs of foreign buyers International Pricing: When pricing for international markets, marketers must handle all the considerations of domestic pricing while also considering the higher costs of transporting and selling products abroad Some products cost more abroad than in Canada from the added cost of delivery International Promotion: Some standard Canadian promotional techniques do not always succeed in other countries Cultural differences can cause negative reactions to products that are advertised improperly International Distribution: In some countries, delays in starting new distribution networks can be costly Many companies have gained advantages in time-based competition by buying existing firms Other companies contract with foreign firms or individuals to distribute and sell their products abroad SMALL BUSINESS AND THE MARKETING MIX Behind the success of many small firms lies a skilful application of the marketing concept and careful consideration of each element in the marketing mix Small Business Products: Some new products or firms are doomed from at the start due to lack of demand from consumers Enthusiastic entrepreneurs fail to estimate realistic market potential of a new product Other small businesses offer new products before they have a clear picture of their target segments and how to reach them Small Business Pricing: Mostly, small business pricing errors result from a failure to project operating expenses accurately When small businesses set prices by carefully assessing costs, many earn lots of profit Small Business Promotion: Successful small businesses plan for promotional expenses as part of start-up costs Small Business Distribution: Problems in arranging distribution can make or break small businesses Perhaps the most critical aspect of distribution is facility location