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CHAPTER ONE
FUNDAMENTALS OF MARKETING
1.1.Chapter objectives
1.2.Introduction
1.3.Definitions Marketing
1.4.Core Concepts of Marketing
1.4.1
Needs, Wants and Demands
1.4.2
Products (Goods) Service(s) and Idea(s)
1.4.3
Value, Cost, and Satisfactions
1.4.4
Exchange and Transaction
1.4.5
Relationship and Network
1.4.6
Market
1.4.7
Marketers and Prospect
1.5.Importance of Marketing
1.6.Marketing Philosophies
1.6.1
Production Concept
1.6.2
Product Concept
1.6.3
Selling Concept
1.6.4
Marketing Concept
1.6.5
Societal Concept
1.6.6
CRM concept
1.7.Difference between Marketing and Selling
1.8.Summary
1.9.Review Questions
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1.1. Chapter Objectives
At the end of this chapter, you will be able to discuss the concept of :

marketing

marketing and selling

marketing philosophies
1.2. Introduction
Dear Student! Business firms and non-profit organizations involved in marketing. A product
marketed includes goods, services, ideas, people, organization & places. Marketing activities
are targeted at market consisting of products, buyers, individuals or groups that affect the
success of an organization.
Generally, marketing consists of all activities designed to create or facilitate an exchange
intended to satisfy human needs.
The concept of market is very crucial in marketing. The American marketing Association
defines a market as “The aggregate demand of the potential buyers for a product or services
“. Philip Kotler defines “A market as an area of potential exchanges” Thus a market is a
group of buyers and sellers interested in negotiating the terms of purchase/sale for goods or
services. The negotiation work may be conducted face-to-face at a certain place (market) or it
may be done through other means of communication (telephone, letter, media, other
marketing intermediaries (brokers and agents).
1.3. Definition Of Marketing
Marketing has been defined in various ways. Some of the definitions are :
o Marketing is a social and managerial process by which an individual or group
obtain what they need and want through creating, offering and exchanging of
product of values with others (Philip Kotler)
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o Marketing is the total business activity designed to plan, price, promote and
distribute want satisfying products to target market to achieve organizational goal
(William J.Stanton)
o Marketing is the creation and delivery of standard of living to society (Paul. Mazor)
o American Marketing Association Definition
The process of planning and executing the conception, pricing, promotion, and
distribution of ideas, goods, and services to create exchanges that satisfy individual
and organizational objectives.
o American Heritage Dictionary's Definition of Marketing
The commercial functions involved in transferring goods from producer to
consumer.
o Merriam Webster's Marketing Definition
1. Is the process or technique of promoting, selling, and distributing a product or
service
2: An aggregate of functions involved in moving goods from producer to consumer
i)
Marketing Definition from MSN Encarta Dictionary
the business activity of presenting products or services to potential customers in
such a way as to make them eager to buy. Marketing includes such matters as
the pricing and packaging of the product and the creation of demand by
advertising and sales campaigns.
1.4. REASONS FOR STUDYING MARKETING.
There are several good reasons for studying marketing. First of all, marketing issues are
important in all areas of the organization—customers are the reasons why businesses exist!
In fact, marketing efforts (including such services as promotion and distribution) often
account for more than half of the price of a product. As an added benefit, studying marketing
often helps us become more savvy consumers. We will learn, for instance, that the per unit
price of a bigger package is frequently higher than that of a smaller one, and that more
expensive products are frequently not better in quality.
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Criteria that must be met for marketing to occur
Several criteria must be met for marketing to occur:

There must be two parties, each with unsatisfied needs or wants. This want, of course,
could be money for the seller.

Each must have something to offer. Marketing involves voluntary “exchange”
relationships where both sides must be willing parties. Thus, a consumer who buys a
soft drink in a vending machine for 60¢ must value the soft drink, available at that
time and place, more than the money. Conversely, the vendor must value the money
more. (It is interesting to note that money is, strictly speaking, not necessary for this
exchange to take place. It is possible, albeit a bit cumbersome, to exchange two ducks
for a pair of shoes.)

The parties must be able to communicate. This could be through a display in a store,
an infomercial, or a posting on eBay.
Discussion Point
Why do Scholars have different definition on marketing?
Marketing management is the process of planning and executing, the conception, pricing,
promoting and distributing of ideas, goods and services to create an exchange that satisfy
individual or group objectives (American marketing Association).
The above definitions of marketing resets on the following core concepts: needs, wants and
demands; products (Goods, Services, experience, organization and Idea), value, cost and
satisfaction: exchange and transaction; Relationship and Networks; market; and marketers
and prospects.
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1.5. Core Concepts Of Marketing
1.5.1 Needs, Wants and Demand
Marketing starts with human needs and wants. People need food, air, clothing, and shelter to
survive. Beyond this, people have strong desire for recreation, education and other services.
They have strong preference for particular version and brands of a basic goods and services.
It is important to distinguish among needs, wants and demand.
Need: - Human Need is a state of deprivation of some basic satisfaction. People require food,
clothing, shelter, safety and belonging and esteem.
Maslow studied exemplary people such as Albert Einstein, Jane Addams, Eleanor Roosevelt,
and Frederick Douglass rather than mentally ill or neurotic people, writing that "the study of
crippled, stunted, immature, and unhealthy specimens can yield only a cripple psychology
and a cripple philosophy." Maslow also studied the healthiest one percent of the college
student population. This subjectivity troubled even Maslow himself. In his book, "The
Farther Reaches of Human Nature", Maslow writes, "By ordinary standards of laboratory
research...this simply was not research at all. My generalizations grew out of my selection of
certain kinds of people. Obviously, other judges are needed."
According to Abraham Maslow human needs are classified to the following five hierarchies.
Individuals must resolve each hierarchy before they pass to the next higher hierarchy.
1. Physiological Needs: - Physiological needs arise out of physical imbalances and includes:
needs for basic necessities like: Food, Shelter, Clothing.
2. After the person is satisfied with his primary needs, then he will pass to psychological
(secondary needs). Psychological needs arise out of psychological imbalances.
These
include:
Safety and security needs
o security and safety in the working environment.
o protection
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o comfort and peace
o calm and safe living environment
o personal security from crime
o financial security
o health and well-being
o safety net against accidents/illness and the adverse impacts
Love/Belonging/Social needs
After physiological and safety needs are fulfilled, the third layer of human needs is social.
This psychological aspect of Maslow's hierarchy involves emotionally-based relationships in
general, such as:
o getting acceptance by others
o feeling of belongingness
o membership in group
o love and affection
o friendship
o sexual intimacy
o having a supportive and communicative Family
Esteem needs
o recognition and prestige
o confidence and leadership
o competence and success
o strength and intelligence
Self-actualization needs
According to Maslow, the tendencies of self-actualizing people are as follows:
 Awareness

efficient perception of reality

freshness of appreciation

peak experiences

ethical awareness
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 Honesty

philosophical sense of humor

social interest

deep interpersonal relationships

democratic character structure
 Freedom

need for solitude

autonomous, independent

creativity, originality

spontaneous
 Trust

problem centered

acceptance of self, others, nature

resistance to enculturation - identity with humanity
Maslow writes the following of self-actualizing people:

They embrace the facts and realities of the world (including themselves) rather than
denying or avoiding them.

They are spontaneous in their ideas and actions.

They are creative.

They are interested in solving problems; this often includes the problems of others.
Solving these problems is often a key focus in their lives.

They feel closeness to other people, and generally appreciate life.

They have a system of morality that is fully internalized and independent of external
authority.

They have discernment and are able to view all things in an objective manner
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Therefore, the marketers’ duty is to identify the unfulfilled needs of their product buyers and
gear their efforts to all activities fulfilling them.
Wants: - Wants are desires for specific satisfiers of needs. Human wants are continually
shaped and reshaped by social forces, individual personalities and institutions including
churches, schools, families and business organizations.
Eg. An Ethiopian needs food and wants Injera. An American needs food and wants a
Hamburger.
Demands: - Demands are wants for specific products that are backed by ability and
willingness to buy them. Wants become demand when supported by purchasing power. Many
people want a Mercedes: only a few are able and willing to buy. Companies must therefore
measure not only how many people want their product but, more importantly how many
would actually be willing and able to buy it.
1.5.2 Products (Goods, Services and Ideas)
People satisfy their needs and wants with products. A product is anything that can be offered
to satisfy a need or want. Occasionally we will use other terms for product, such as offering
or solution. Generally products are classified into tangible and intangible:
Tangible products (Goods) are products, which can be seen, touched, smelt, felt etc.
Intangible products (services) are products which can not be seen, touched, smelt, felt etc.
1.5.3 Value, Cost, and Satisfaction
How do consumers choose among the many products that might satisfy a given needs and
wants? Tolosa needs to travel 10 km to work each day ; he could use a number of products
to satisfy this need : Taxi , Bicycle, and Automobile. These alternatives constitute his
product choice set. Assume Tolosa would like to satisfy several additional needs in traveling
to work: namely speed, safety, ease, and economy. Each product has a different capacity to
satisfy his needs set. A bicycle is slower, is less safety, and requires more effort than car, but
a bicycle is more economical. Somewhat Tolosa has to decide which product will deliver the
most total satisfaction.
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The guiding concepts here are value and satisfaction. Value is the consumer’s estimate of the
products overall capacity to satisfy his or her needs. Suppose Tolosa is primarily interested in
the speed and ease of getting to work. If he were offered any of these products at no cost, he
would choose the Automobile. But since each product involves a cost, he will not necessarily
choose the car, which costs substantially more than a bicycle or a taxi. Tolosa should give up
other things (called opportunity cost) to obtain the car. Therefore he will consider the
product’s value and price before making choice. He will choose the product that produces the
most value per birr.
According to DeRose, value is “the satisfaction of customer requirement at the lowest cost of
acquisition, ownership and use.
Cost is the amount of money that is going to be expended or already incurred to acquire a
product.
Satisfaction is a person’s feeling of pressure or disappointment resulting from comparing a
product’s perceived performance or outcome) in relation to his or her expectations..
1.5.4 Exchange and transactions
People can obtain products in one of four ways. The first way is self-production. People can
be relieving hunger through hunting, fishing or fruit gathering. In this case, there is no market
and no marketing. The second way is coercion (applying forces). Hungry people can wrest or
steal food from others. The third way is begging. Hungry people can approach others and beg
for food.
Marketing emerges when people decided to satisfy needs and wants through exchange.
Exchange is the act of obtaining a desired product from someone by offering something in
return. For exchange potential to exist, the following conditions must be satisfied:
1. there are at least two parties
2. each party has something that might be of value to the other party
3. each party is capable of communication and delivery
4. each party is free to accept or reject the exchange offer
5. each party believes it is appropriate or desirable to deal with the other party.
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Whether exchange actually take place is depends upon whether the two parties can agree on
terms of exchange that will leave them better off (or at least not wore off) than they were
before the exchange. Exchange is frequently described as a value creating process because it
normally leaves both parties better off.
Transaction: - is the trade of values between two or more parties. Two parties
We must able to say A gave X to B and received Y in return; Bekele gave 1400 birr to
kebede and obtained A television set. This is classic monetary transaction. Transaction
however, doesn’t require money as one of the traded values.
A transaction involves several dimensions, at least two things of values, agreed upon
conditions, a time of agreement, and a place of agreement. Usually a legal system arises to
support and enforce compliance on the part of contract, people would approach transactions
with save distrust, and everyone will lose.
A transaction is different from a transfer. In transfer, A gives X to B but does not receive
anything in return. Gifts, subsidies, and charitable contributions are all transfers.
1.5.5 Relationship and networks
So far I have explained the nature of transaction marketing .Transaction marketing is a part
of a larger idea called relationship marketing. Relationship marketing is the practice of
building long term satisfying relations with key parties-customers, suppliers, distributors- in
order to retain their long term preferences and business. Smart marketers try to build up long
term, trusting, win-win relationship with valued customers, distributors, dealers and
suppliers. They accomplish this by promising and delivering high quality, good service, and
fair prices to the other parties over time.
Relationship marketing results in strong economic, technical and social ties among the
parties.
The ultimate outcome of relationship marketing is the building of a unique company asset
called a marketing network. A marketing network consists of the company and all of its
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supporting stockholders: customers, employees, supplies, distributors, retailers, and agencies,
university scientists, and others with whom it has built mutually profitable business
relationships. The operating principle is simple: Build a good network of relationship with
key stakeholders, and profit will follow.
1.5.6 Markets
The concept of exchange leads to the concept of a market.
A market consists of all the potential customers sharing a particular need or want who might
be willing and able to engage in exchange to satisfy their need or want.
Thus the size of the market depends on the number of people who exhibit the need or want,
have resources that interest others, and are willing and able to offer these resources in
exchange for what they want.
Traditionally, a ‘’market’’ was the place where buyers and sellers gathered to exchange their
goods. The seller and the buyer are connected by four Flows. The seller sends goods and
services and communications (ads, direct mail and so forth) to the market; in return they
receive money and information (attitudes, sales data, and so forth). The inner loop shows
exchange of money for goods and services; the outer loop shows the exchange of
information.
In the diagram below the inner loop shows an exchange of money for goods and services; the
outer loop shows an exchange of information.
Communication
Industry
Industry
(a
collection of
(a collection
seller)
Sellers
Goods/Services
of
Money
Market
Market
(collection
a collection
of buyers)
of
buyers
Information
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All modern economies are abounding in markets. Essentially, manufactures go to resource
markets (raw-material markets, labor markets, money marketers and so on), buy resources
and turn them into goods and services and sell the finished products to intermediaries, who
sell them to consumers. Consumers sell their labor, for which they receive money with,
which they pay for the goods and services they buy. The government uses tax revenues to
buy goods from resources, manufacturer and intermediary markets and uses these goods and
services to provide public services. Each nation’s economy and the whole world economy
consist of complex interacting sets of markets that are linked through exchange process.
1.5.7 Marketers and Prospect
The concept of market brings us full circle to the concept of marketing. Marketing means
working units markets to actualize potential exchange for the purpose of satisfying human
needs and wants.
When one party is more actively seeking an exchange than the other party, we call the first
party a marketer and the second party a prospect. A marketer is someone who is seeking one
or more prospects who might engage in an exchange of values. A prospect is someone whom
the marketer identified as potentially willing and able to engage in an exchange of values.
The marketer can be a seller or a buyer. Suppose several people want to buy a house that has
just become available. Each prospective buyer will try to market himself or herself to the
seller. These buyers are actually doing the marketing. In the event that both parties actively
seek and exchange, both are marketers and the situations is one the reciprocal marketing.
In the normal situation, the marketer is a company serving a market in the face of
competitors. The company and the competitors send their respective products and messages
directly and /or through marketing intermediaries to end users. Their relative effectiveness is
influenced by their respective suppliers as well as major environmental forces (demographic,
economic, physical, technological, political /legal, social/cultural).
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1.6. USES OF MARKETING
Marketing is an important social activity that offers benefits to all the parties concerned. As
such importance of marketing can be summarized as follows.
a) As a producer and businessman we usually make such marketing related decisions
such as finding out who are our customers? What are their need and want and what
good and service to offer and at what price.
b) As a consumer we make such marketing related decision where to shop, which
salesperson to contact, what price to pay, what to buy.
c) As an employee we are concerned with the employment opportunity that can be
created by marketing activities.
d) To the society, marketing contributes to the economic growth of the society through
making profit and make people at a better off.
e) Marketing creates utility such as:
1. Form Utility
Form utility is associated primarily with production- the physical or chemical changes that
makes a product more valuable. When limber is made into furniture, form utility is created.
This is production, not marketing. However, marketing research may aid in decision making
regarding product design, color, quantities produced, or some other aspect of a product. All
of these things contribute to the product form utility.
2. Place Utility
Place utility exists when a product is readily accessible to potential customers. So physically
moving the products to a store near the customers add to its value.
3. Time Utility
Time utility means having a product available when you want it. Having a product available
when we want it is very convenient but it means that the retailer must anticipate our desires
and maintain an inventory. Thus, there are costs involved in providing time utility..
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4. Possession Utility
Possession utility is created when a customer buys the product-that is, ownership is
transferred to the buyer.
Thus, for a person to consume and enjoy the product, a transaction must take place. This
occurs when you exchange your money for a product.
1.7. The Marketing Philosophies
Clearly, marketing activities should be carried out under a well-thought out philosophy of
efficient, effective and socially responsible marketing. There are five competing concepts
under which organizations can choose to conduct their marketing activities:
The production concepts: the product concept; the selling/sales concept; the marketing
concept and the societal marketing concept.
1.7.1 The production concept
The production concept is one of the oldest concepts in business.
 The production concept holds that consumers will favor products that are widely
available and low in cost. Managers of production-oriented organization concentrate on
achieving high production efficiency and wide distribution.
The assumption that consumers are primarily interested in product availability and low price
holds in at least two situations. The first is where the demand for a product exceeds supply,
as in many developing countries. Here consumers are more interested in obtaining the
product that in its fine points, and supplies will concentrate on finding ways to increase
production.
The second situation is where the product’s cost is high and has to decrease to expand the
market. Some service organizations also operate on the production concept. Many medical
and dental practices are organized on assembly line
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1.7.2 The product concept
Other businesses are guided by the product concept.
 The product concept holds that consumers will favor those products that offer the most
quality, performance or innovative features. Managers in product oriented organization
focus their energy on making superior products and improving them over time.
Under the concept, mangers assume that buyers admire well-made products and can appraise
product quality and performance. However these managers are sometimes caught up in love
affair with their product and do not realize that the market may be less” turned on”.
Marketing manager becomes a victim of the” better mousetrap” fallacy, believing that a
better mousetrap will lead people to beat a path to its door.
Product-oriented companies often design their products with little or no customer input. They
trust that their engineers will know how to design or improve the product. They trust that
their engineers will know how to design or improve the product.
1.7.3. The Selling concept
The selling concept (or sales concept) is another common approach
 The selling concept holds that consumers, if left alone, will ordinarily not buy enough of
the organization product. The organization must therefore undertake an aggressive selling
and promotion effort.
This concept assumes that consumers typically show buying inertia or resistance and must be
coaxed into buying. It also assumes that the company has made available a whole battery of
effective selling and promotion tools to stimulate more buying.
The selling concept is practiced more aggressively with unsought goods, those goods that
buyers normally do not think of buying, such as insurance, encyclopedia, and funeral plots.
These industries have perfected various sales techniques to locate prospects and hard-sell
them on their on their product’s benefits.
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Most firms practice the selling concept when they have over capacity. Their aim is to sell
what they make rather than make what the market wants. In modern industrial economies,
productive capacity has been built up to the point where most markets are buyers market (i.e.
buyers are dominant) and seller have to scramble hard for customers. Prospects are
bombarded with television, commercials, new papers, posters, ads, mails and sales call. At
every turn, some one is trying to sell some thing. As a result, the public often identifies
marketing with hard selling and advertising.
Therefore, people are surprised whet they are told that the most important part of marketing
is not selling; selling is only the tip of marketing iceberg.
1.7.4 The marketing concept
The marketing concept is a business philosophy that challenges the three concepts we just
discussed. Its central tents crystallized in the mid 1950s.
 The marketing concept holds that the key to achieving organizational goals consists of
being more effective than competitors in integrating marketing activities toward
determining and satisfying the needs and wants of target markets.
The marketing concept has been expressed in many colorful ways:
“Meeting needs profitably
“Find wants and fill them
“Love the customers, not the product.
”Have it your way.” (Burger King)
“You are the boss.”(United Airlines)
“Partners for profit.”(Milliken company)
Professor Theodore Levitt of Harvard drew a perspective contrast between the selling
and the marketing concept.
Selling focuses on the needs of the sellers; marketing on the need of the buyers. Selling is pre
occupied with the seller’s need to convert his into cash; marketing with idea of satisfying the
needs of customers by means of the product and the whole cluster of things associated with
creating, delivering and finally consuming it.
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The marketing concept rests on four pillars: target market, customer needs, integrated
marketing, and profitability. The selling concept takes an inside –out side perspectives The
marketing concept takes an outside –in perspective. It starts with a well defined market,
focuses on customers needs, integrates all the activities that will affect customers, and
produces profit by satisfying consumers. A brief discussion of the following concept is as
indicated below.
1. Target market:
No company can operate in every market and satisfy every market and every need. Nor can it
always do a good job in this one broad market: even Microsoft cannot offer the best solution
for every information processing need. Companies do best when they define their target
market(s) carefully and prepare a tailored marketing program and effort.
2. Customer Needs
A company can define its target market but fail to fully understand the customers’ needs.
Although marketing is about meeting needs profitably, understanding customer needs and
wants is not always a simple task. Some customers have needs of which they are not fully
conscious. Or they can not articulate these needs. Or they use words that requires some
interpretation.. What does it mean when the customer asks for an” inexpensive car”
Consider the customer who says he wants an “inexpensive” car. The marker must probe
further we can distinguish among five types of needs.
1. Stated Needs (the customer wants an inexpensive car)
2. Real Needs (the customers wants a car whose operating costs, not its initial price is, low)
3. Unstated Needs (the customer expects goods service from dealer)
4. Delight Needs (the customer buys the car and receives a complimentary)
5. Secret Needs (the customer wants to be seen by friends as a value oriented consumer)
Customer oriented thinking requires the company to define customer needs from the
customer’s point of view..
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In general, a company can respond to customers request by giving customers what they want,
or what they need, or what they really need. The key to professional marketing is to
understand their customer real needs and meet them better than any other competitor can.
If your customers are highly satisfied they will:

stays loyal longer

buys more as the company introduces new products and upgrades existing producers.

talks favorably about the company and its products

pays less attention to competing brands and advertising and is less sensitive to price

offers product ideas to the company

costs less to serve than new customers because transactions are frequently made.
Integrated marketing: When all the company’s departments’ work together to serve the
customer’s interest, the result is integrated marketing. Unfortunately, not all employees are
trained and motivated to work for the customer. An engineer complained that the sales
people were “always protecting the customer and not thinking of the company’s interest!”
Integrated marketing takes place on two levels: First the various marketing functions-sales
force, advertising, product management, marketing research, and so on- must work together.
Too often the sales force is made at the product managers for setting “too high a price” or
“too high a volume target”, or the advertising director and a brand manager cannot agree on
advertising campaign. All these marketing functions must be coordinated from the
customer’s point of view. Second, marketing must be well coordinated with other
departments. Marketing does not work where it is merely a department; it works only when
all employees appreciate their impact on customers satisfaction. To foster team work among
all departments, the company carries out internal marketing and external marketing. Internal
marketing is the task of successfully hiring, training and motivating able employees who
wants to serve the customers well.
4. Profitability
The ultimate purpose of the marketing concept is to help organizations achieve their goals. In
the case of private firms, the major goal is profit. In the case of non-profit and public
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organizations, it is surviving and attracting enough funds to perform their work. In for-profit
organizations, the key is not to aim for profits as such but to achieve them as the by-product
of doing the job well. A company makes money by satisfying customer needs better than its
competitors do.
1.7.5 The societal marketing concept
In recent years, some have questioned whether the marketing concept is an appropriate
philosophy in an age of environmental deterioration, resource shortages, explosive
population growth, world hunger and poverty, and neglected social services. The marketing
concept
sidesteps
the
potential
conflicts
among
consumer
want,
customer
interests, and long run societal welfare. The societal marketing concept holds that the
organization should determine the needs, wants and interests of target markets. It should then
deliver the desired satisfactions more effectively and efficiently than competitors in a way
that maintains or improves the consumers and the society’s well-being.
 The societal marketing concept holds that the organization’s task is to determine the
needs, want, and interests of target markets and to deliver the desired satisfactions more
effectively and efficiently than competitors in a way that preserves or enhances the
consumers and the society’s well being.
The societal marketing concepts call upon marketers to builds social and ethical
considerations in to their marketing practices. They must balance and judge the often
conflicting criteria of company profit , consumer want satisfaction and public interest.
1.7.6. CRM Concept
Customer Relationship Management, or CRM, is an essential part of modern Marketing
management.
1. What is Customer Relationship Management, or CRM? Customer Relationship
Management concerns the relationship between the organization and its customers.
Customers are the lifeblood of any organization be it a global corporation with thousands of
employees and a multi-billion turnover, or a sole trader with a handful of regular customers.
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Customer Relationship Management is the same in principle for these two examples - it is the
scope of CRM which can vary drastically. CRM focuses on the relationship
Successful organizations use three steps to build customer relationships:

determine mutually satisfying goals between organization and customers

establish and maintain customer rapport

produce positive feelings in the organization and the customers
2. Why do organizations undertake CRM?
CRM is a new concept to many organizations. If it's new to you, here's why most forwardthinking organizations devote lot of energy and resources to the set up and management of a
CRM capability.
 How CRM impacts on the organization
CRM can have a major impact on an organization through:

shifting the focus from product to customer

streamlining the offer to what the customer requires, not want the organization can
make

highlighting competencies required for an effective CRM process
 Why does the organization need CRM?
The ultimate purpose of CRM, like any organizational initiative, is to increase profit. In the
case of CRM this is achieved mainly by providing a better service to your customers than
your competitors. CRM not only improves the service to customers though; a good CRM
capability will also reduce costs, wastage, and complaints (although you may see some
increase initially, simply because you hear about things that without CRM would have stayed
hidden). Effective CRM also reduces staff stress, because attrition - a major cause of stress reduces as services and relationships improve. CRM enables instant market research as well:
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opening the lines of communications with your customers gives you direct constant market
reaction to your products, services and performance, far better than any market survey. Good
CRM also helps you grow your business: customers stay with you longer; customer churn
rates reduce; referrals to new customers increase from increasing numbers of satisfied
customers; demand reduces on fire-fighting and trouble-shooting staff, and overall the
organization's service flows and teams work more efficiently and more happily.
3. Customers' expectations
If an organization cannot at least meet its customers' expectations it will struggle.
Ideally a business organization should exceed its customers' expectations, thereby
maximizing the satisfaction of its customers, and also the credibility of its goods and services
in the eyes of its customers.
Customers normally become delighted when a supplier under-promises and over-delivers. To
over-promise and under-deliver is a recipe for customers to become very dissatisfied.
Rule No 1 - You cannot assume that you know what a customer's expectations are ... You
must ask.
Rule No 2 - Customer expectations will constantly change so they must be determined on an
on-going basis.
The expectations of different customers for the same product or service will vary according
to:

social and demographic factors

economic situation

educational standards

competitor products

experience
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Therefore, given all these variable factors, it is no surprise that one size certainly does not fit
all.
Ask your customers what is important to them. Find out why your customers do business
with you. There are a wide variety of relationship drivers. For example:

quality

price

product

location

customer service
When you ask you might discover some factors that you'd perhaps never even considered, for
example:

health and safety support

systems compatibility

contract structure

distribution flexibility

technical support

troubleshooting and problem-solving, to name just a few
What service features will keep your customers loyal to you? Find out.
4. CRM as a process
CRM can be regarded as a process, which has:

identifiable inputs

identifiable components

identifiable characteristics, which define CRM for your organization and customer
base

capacity for improvement and evolution over time
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5..Managing customers
Why manage customers? Customers are the usual source of income for an organization. (If
not then they will certainly leverage your income, as in the case of readers of a free
publication which is funded by advertising. As such there are two types of customers: the
readers and the advertisers).
Customers are also an exceptional source of information - information which is vital to
enable a business to succeed; ie., giving customers what they want.
Managing customers entails:

knowing what customers want and need - which enables you to focus your production
and service efforts

knowing which products or customers have most growth potential - which enables
you to focus on developing highest potential

knowing which products or customers are most or least profitable - which enables
you to focus on maximizing profit

knowing which customers will be advocates and supporters - which enables you to
provide references, case studies, and to safely test new products and services
6. Achieving good CRM
Achieving effective Customer Relationship Management requires many organizations to
adopt a new perspective. Consider the following:

traditional customer service is something you 'do to' the customer

modern Customer Relationship Management is 'done with' the customer
The second statement is emphasizes the big differences between conventional traditional
customer service, and the modern progressive CRM approach.
Your relationships with customers should be ongoing, cooperative, and built for the long
term.
Organizations that have many transitory relationships with customers consequently have to
spend a lot of money on finding new customers.
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The cost of keeping existing customers is a tiny fraction of the cost of acquiring new
customers.
7. Pareto’s Law ('The Pareto Principle')
Pareto's Law is commonly known as the 80:20 rule. Typically in any organization:

20% of customers account for 80% of your turnover

20% of customers account for 80% of your profits

20% of customers account for 80% of your service and supply problems
It is important to know is which customers fit into which category and then to manage them
accordingly.
Highly satisfied customers who perceive a high value in your products and services
commonly make excellent advocates for your organization - nurture these customers and give
the special treatment.
Dissatisfied customers who perceive a low value in your products and services are potential
saboteurs. These customers could have little or no loyalty and may actively 'engage' against
your organization. Therefore you should seek to rebuild relationships and trust, and a new
basis for a future relationship, or manage the separation with dignity, professionalism and
integrity.
8. Focus on building relationships
The essential CRM focus of any organization should be on developing core competencies,
and an overall strategy of building customer relationships. In this way, all efforts in the
organization can be aligned to:

customers and the culture of exceeding of customer expectation

understanding and managing the people impact on the culture of the organization

customers being recognized and treated as partners

the value of relationship-building being valued

service being seen as a value-adding activity
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
reward and recognition being based on customer focus i.e., 'going the extra mile'

evidence of corporate support for service activity
9. Characteristics of excellent CRM
The following characteristics are associated with delivery of excellent CRM:

reliability

responsiveness

accessibility

safety

courtesy

consideration

communication

recognizing the customer

competence
10. People and CRM
As with any other business process your people have a huge impact on the success of the
CRM process.
Successful and effective Customer Relationship Management people tend to display the
following key characteristics:

positive attitude

people orientation

organizational skills

analytical skills

customer focus (natural empathy)

understanding of the link between CRM and profitability
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11. Benefits of effective CRM
There are significant business benefits which accrue from an effective, integrated Customer
Relationship Management approach. These include:
1. reduced costs, because the right things are being done (ie., effective and efficient
operation)
2. increased customer satisfaction, because they are getting exactly what they want (ie.,
exceeding expectations)
3. ensuring that the focus of the organization is external
4. growth in numbers of customers
5. maximization of opportunities (eg., increased services, referrals, etc.)
6. increased access to a source of market and competitor information
7. highlighting poor operational processes
8. long term profitability and sustainability
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1.8. Summary

Any Business firm be it large or small, profit or non-profit engage in marketing.

Marketing activities are targeted at markets.

The foundation of marketing is exchange, in which one party provides to another
party something of value is return for something else of value. In a broad sense,
marketing consists of all activities designed to generate or facilitate an exchange
intended to satisfy human needs.

Marketing is the total system of business activities designed to plan, price, promote,
and distribute want satisfying products to target markets to achieve organizational
objectives.

Marketing activities have undergone a series of successive stages. The evolution
starts with a production orientation, then product orientation, sales orientation,
marketing orientation, societal orientation, m and finally the customer Relationship
Management stage.
The main difference between marketing and selling is that is selling the emphasis is on the
product; in marketing the emphasis is an customer’s wants.
1.9. Review Questions
1. Define marketing and the core marketing concepts?
________________________________________________________________________
________________________________________________________________________
2. Identify and explain briefly the marketing philosophies?
________________________________________________________________________
________________________________________________________________________
3. Define the Customer relationship management concept.
________________________________________________________________________
________________________________________________________________________
4. Discuss the importance of marketing?
________________________________________________________________________
________________________________________________________________________
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CHAPTER TWO
THE MARKETING ENVIRONMENT
2.1. Chapter objectives
2.2. Introduction
2.3. The meaning of marketing environment
2.4. The Company's Micro-environment
2.4.1. The Company
2.4.2. Suppliers
2.4.3. Physical Distribution Firms
2.4.4. Marketing Intermediaries
2.4.5. Customers
2.4.6. Competitors
2.4.7. Publics
2.5. The Company's Macro environment
2.5.1. Demographic Environment
2.5.2. Economic Forces
2.5.3. Physical Environment
2.5.4. Technological Forces
2.5.5. Social – Cultural Forces
2.6. Summary
2.7. Review Questions
2.1. Chapter Objectives
At the end of this chapter, you will be able to:
-
Explain the concept of marketing environment and its elements define the company's
micro-environment and identify the major micro-environment forces.
-
Define the company's macro-environment and identify the possible macroenvironment forces.
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2.2. Introduction
Dear Student! This unit deals with the marketing environment in which the business
organizations operates and its impact on their operation.
The marketing environment that influences the operations of business activities includes
Micro and the Macro environment. We will discuss each of them one by one. First we will
discuss the Micro environment and then we will discus about the Macro environment with its
elements
Next we put the micro-environment into a large context: the macro-environment of larger
2.3. The Meaning Of Marketing Environment
Any company’s marketing environment consists of the actors and forces outside marketing
that affect marketing management's ability to develop and maintain successful transactions
and relationships with its target markets. The marketing environment offers both
opportunities and threats to companies and, thus Companies must use their marketing
research and intelligence systems to watch the changing environment and adapt their
marketing strategies to environmental trends and developments.
The marketing environment consists of a microenvironment and a macro-environment. The
micro-environment consists of forces close to the company that affect its ability to serve its
customers – the company, suppliers, marketing channel firms, customer markets, competitors
and publics. The macro-environment consists of the larger societal forces that affect the
whole micro-environment – demographic, economic, natural, technological, political and
cultural forces. We look first at the company's micro-environment and then at its macroenvironment.
2.4. The Company's Micro-Environment
Marketing management's job is to create attractive offers for target markets. However,
marketing managers cannot simply focus on the target market's needs. Their success also will
be affected by actors in the company's micro-environment – other company departments,
suppliers, marketing intermediaries, customers, competitors, and various publics.
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2.4.1 The Company
In designing marketing plans, marketing management takes other company groups into
account – groups such as top management, finance, research and development, purchasing,
manufacturing, and accounting. All these interrelated groups form the internal environment.
Top management sets the company's mission, objectives, brand strategies and policies.
Marketing managers must take decisions with in the plans made by top management and
marketing plans must be approved by to management before they can be implemented.
Marketing managers also must work closely with other company departments. Finance is
concerned with finding and using funds to carry out the marketing plan. The Research and
Development department focuses on the problems of designing safe and attractive products.
Purchasing worries about getting supplies and materials, where as manufacturing is
responsible for producing the desired quality and quantity of products.
2.4.2 Suppliers
Suppliers are firms and individuals that provide the resources needed by the company to
produce its goods and services. Supplier developments can seriously affect marketing.
Marketing managers must watch supply availability. Supply shortages or delays, labor
strikes, and other events can cost sales in the short run and damage customer good will in the
long run. Marketing managers also monitor the price trends of their key inputs.
2.4.3 Physical distribution firms
They help the company to stock and move goods from their points of origin to their points of
origin to their destinations. Working with warehouse and transportation firms, a company
must determine the best ways to store and ship goods, balancing factors such as cost,
delivery, speed and safety. Marketing services agencies are the marketing research firms,
advertising agencies, media firms and marketing consulting firms that help the company
target and promote its products to the right markets. When the company decides to use one of
these agencies, it must choose carefully because these firms vary in creativity, quality,
service and price. Financial intermediaries include banks, credit companies, insurance
companies and other businesses that help finance transactions or insure against the risks
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associated with the buying and selling of goods. Most firms and customers depend on
financial intermediaries to finance their transactions.
Like suppliers, marketing intermediaries form an important component of the company's
overall value delivery system. In its quest to create satisfying customer relationships, the
company must do more than just optimize its own performance. It must partner effectively
with marketing intermediaries to optimize the performance of the entire system.
Thus today's marketers recognize the importance of working with their intermediaries as
partners rather than simply as channels through which they sell their products. For example,
Coca Cola recently signed a 10 year deal with Wendy's that will make Coke the exclusive
soft drink provider to the fast-food chain, picking up more than 700 Wendy's franchises that
were previously served by Pepsi. In the deal, Coca Cola promised Wendy's much more that
just its soft drinks. It pledged the powerful marketing support that comes along with an
exclusive partnership with Coke.
2.4.4 Marketing Intermediaries
They are firms that help the company to promote, sell and distribute its goods to final buyers.
They include middlemen, physical distribution firms, marketing services agencies and
financial intermediaries. Middlemen are distribution channel firms that help the company
find customers or make sales to them. These include wholesalers and retailers who buy and
resell merchandise (they are often called resellers). Selecting and working with middlemen is
not easy. No longer do manufacturers have many small, independent middlemen from which
to choose, they now face large and growing middlemen organizations. These organizations
frequently have enough power to dictate terms or even shut the manufacturer out of large
markets.
2.4.5 Customers
The company needs to study its customer markets closely. The figure below shows five types
of customer markets. Consumer markets consists of individuals and households that buy
goods and services for personal consumption. Business markets buy goods and services for
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further processing or for use in their production process, whereas reseller markets are made
up of government agencies that buy goods and services to others who need them. Finally,
international markets consist of these buyers in other countries, including consumers,
producers, resellers, and governments. Each market type has special characteristics that call
for careful study by the seller.
2.4.6 Competitors
The marketing concept states that to be successful, a company must provide greater customer
value and satisfaction that its competitors do. Thus, marketers must do more than simply
adapt to the needs of target consumers. They also must gain strategic advantage by
positioning their offerings strongly against competitors' offerings in the minds of consumers.
No single competitive marketing strategy is best for all companies. Each firm should
consider its own size and industry position compared to those of its competitors. Large firms
with dominant positions in an industry can use certain strategies that smaller firms cannot
afford. But being large is not enough. There are winning strategies for large firms, but there
are also losing ones. Small firms can develop strategies that give them better rates of return
than large firms enjoy.
2.4.7 Publics
The company's marketing environment also includes various publics. A public is any group
that has an actual or potential interest in or impact on an organization's ability to achieve its
objectives.
A company can prepare marketing plans for these major publics as well as for its customer
markets. Suppose wants a specific response from a particular public, such as goodwill,
favorable word of mouth, or donations of time or money. The company would have to design
an offer to this public that is attractive enough to produce the desired response.
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6.5. The Company's Macro Environment
The macro-environment e.g. Political (and legal) forces, Economic forces, Socio-cultural
forces, and Technological forces. These are known as PEST factors.
Political Factors.
You must consider issues such as:
1.How stable is the political environment?
2.Will government policy influence laws that regulate or tax your business?
3.What is the government's position on marketing ethics?
4. What is the government's policy on the economy?
5. Does the government have a view on culture and religion?
6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or
others?
Economic Factors.
Sociocultural Factors.
The social and cultural influences on business vary from country to country. It is very
important that such factors are considered. Factors include:
1.What is the dominant religion?
2.What are attitudes to foreign products and services?
3.Does language impact upon the diffusion of products onto markets?
4.How much time do consumers have for leisure?
5.What are the roles of men and women within society?
The company and all of other actors operate in a large macro environment of forces that
shape opportunities and pose threats to the company. The figure below shows that the six
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major forces in the company's macro-environment. In the remaining sections of this unit, we
examine these forces and show how they affect marketing plans.
Physical forces
Technological
Forces
Economic Forces
Political Forces
Demographic
Forces
Cultural Forces
Company
Major Forces in the company's macro-environment
2.5.1 Demographic Environment
Demography is the study of human population in terms of size, density, location, age, gender,
race, occupation and other statistics. The demographic environment is of major interest to
marketers because it involves, people, and people make up markets.
2.5.2 Economic Forces
Marketers need to consider the state of a trading economy in the short and long-terms. The
Economic Environment consists of factors that affect consumer purchasing power and
spending patterns. Nations vary greatly in their levels and distribution of income. Some
countries have subsistence economies – they consume most of their own agricultural and
industrial output. These countries offer few market opportunities. At the other extreme are
industrial economies, which constitute rich markets for many different kinds of goods. This
is especially true when planning for international marketing. You need to look at: Interest
rates. level of inflation, employment level ,per capita, change in the income level, change in
consumer spending pattern and so on. Hence companies should watch these variables by
using economic forecasting.
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2.5.3 Physical Environment
The natural environment involves the natural resources that are needed as inputs by
marketers or that are affected by marketing activities. Environmental concerns have grown
steadily during the past three decades. In many cities around the world, air and water
pollution have reached dangerous levels. World concern continues to mount about the
depletion of the earth's ozone layer and the resulting "greenhouse effect", a dangerous
warming of the Earth. And many environmentalists fear that we soon will be buried in our
town trash.
Marketers should be aware of several trends in the natural environment. The first involves
growing shortages of raw materials. Air and water may seem to be infinite resources, but
some groups see long-run dangers. Air pollution chokes many of the world's large cities and
water shortages are already a big problem in some parts of the world. Renewable resources,
such as forests and food, also have to be used wisely. Nonrenewable resources, such as oil,
coal, and various minerals, pose a serious problem. Firms making products that require these
scarce resources face large cost increases, even if the materials do remain available.
A second environmental trend is increased pollution. Industry will almost always damage the
quality of the natural environment. Consider the disposal of chemical and nuclear wastes, the
dangerous mercury levels in the ocean, the quantity of chemical pollutants in the soil and
food supply; and the littering of the environment with non-biodegradable bottles, plastics,
and other packaging materials.
A third trend is increased government intervention in natural resource management. The
governments of different countries vary in their concern and efforts to promote a clean
environment. Some like the German government vigorously pursue environmental quality.
Others, especially many poorer nations, do little about pollution, largely because they lack
the needed funds or political will. Even the richer nations lack the vast funds and political
accord needed to mount a worldwide environmental effort. The general hope is that
companies around the world will accept more social responsibility and that less expensive
devices can be found to control and reduce pollution.
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Concern for the natural environment has spawned the so-called green movement. Today,
enlightened companies go beyond what government regulations dictate. They are developing
environmentally sustainable strategies and practices in an effort to create a world economy
that the planet can support indefinitely. They are responding to consumer demands with
ecologically safer products, recyclable or biodegradable packaging, better pollution controls,
and more energy-efficient operations. Some organizations run a pollution prevention pays
program that has led to a substantial reduction in pollution and costs. Others use a special
software package to choose the least harmful materials, cut hazardous waste, reduce energy
use, and improve product recycling in its operations. Still others eliminated polystyrene
cartons and now use smaller, recyclable paper wrappings and napkins.
2.5.4 Technological forces
1. Does technology allow for products and services to be made more cheaply and to a better
standard of quality?
2. Do the technologies offer consumers and businesses more innovative products and
services such as Internet banking, new generation mobile telephones, etc?
3. How is distribution changed by new technologies e.g. books via the Internet, flight tickets,
auctions, etc?
4. Does technology offer companies a new way to communicate with consumers e.g.
bankers, Customer Relationship Management (CRM), etc?
Technology is vital for competitive advantage, and is a major driver of globalization. The
technological environment perhaps the most dramatic forces now shaping our destiny.
Technology has released such wonders as antibiotics, organ transplants, notebook, computers
and the Internet. It also has released such horrors as nuclear missiles, chemical weapons and
assault rifles. It has released such mixed blessings as the automobile, television and credit
cards. Out attitude towards technology depends on weather we are more impressed with its
wonders or its blunders. The technological environment changes rapidly.
New technologies create new markets and opportunities. However, every new technology
replaces an older technology. Transistors hurt the vacuum-tube industry, Xerography hurt the
carbon paper business, the auto hurt the railroads and compact disks hurt phonograph
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records. When old industries fought or ignored new technologies, their business declined.
Thus, marketers should watch the technological environment closely. Companies that don't
keep up with technological change soon will find their products outdated. They will miss
new product and market opportunities.
New technology creates major long-run-consequences that are not always foreseeable. The
contraceptive pill, for example, led to smaller families, more working wives, and larger
discretionary incomes-resulting in higher expenditures on vacation travel, durable goods, and
luxury items.
2.5.5 Political - legal forces
The political arena has a huge influence upon the regulation of businesses, and the spending
power of consumers and other businesses. This environment is composed of laws,
government agencies, and pressure groups that influence and limit various organizations and
individuals. For example, mandatory recycling laws have given the recycling industry a
major boost and spurred the creation of dozens of new companies making new products from
recycled materials.
Legislation regulating business: business organizations’ legislation has three main purposes:
to protect companies from unfair competition, to protect consumers from unfair business
practices, and to protect the interests of society from illegal and immoral business practices
and behaviors. A major purpose of business legislation and enforcement is to charge
businesses with the social costs created by their products or production processes. Legislation
affecting businesses has steadily increased over the years. Several countries has been active
in establishing a new framework of laws covering competitive behavior, product standards,
product reliability and commercial transactions. And other countries are passing laws to
promote and regulate an open market economy. Still others have many laws on their books
covering such issues as competition, product safety and liability, fair trade and credit
practices, and packaging and labeling.
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Marketers must have knowledge of the major laws protecting competition, consumers, and
society.
Growth of Special - Interest Groups: Political action committees lobby government officials
and pressure business executives to pay more attention to consumer rights, women's rights,
senior citizen rights, minority rights, etc. Many companies have established public affairs
departments to deal with these groups and issues. An important force affecting business is the
consumerist movement – an organized movement of citizens and government to strengthen
the rights and powers of buyers in relation to sellers. Consumerists have advocated and won
the right to know the true interest cost of a loan, the cost per standard unit of competing
brands (unit pricing), the basic ingredients in a product, the nutritional quality of food, the
freshness of products, and the true benefits of a product. In response to consumerism, several
companies have established consumer affairs departments to help formulate policies and
respond to consumer complaints.
Clearly, new laws and growing numbers of pressure groups have put more restraints on
marketers. Marketers have to clear their plans with the company's legal, public relations,
public affairs and consumer – affairs departments.
2.5.6. Social – cultural forces
The society in which he people grow up shapes their beliefs, values and norms. People
absorb, almost unconsciously, a worldview that defines their relationship to themselves, to
others, to organizations, to society, to nature, and to the universe.

People’s Views of themselves: people vary in the relative emphasis they place on
self-gratification. People bought products, brands and services as a means of selfexpression. Today, in contrast people are adapting more conservative behaviors and
ambitions. They have witnessed harder times and cannot rely on continuous
employment and rising real income. They are more cautious in their spending
pattern and more value-driven in their purchases.

People’s Views of others: some observers have pointed to a countermovement from
a "me society" to a "we society". People are concerned about the homeless, crime
victims, and other social problems. They would like to live in a more human
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society. At the same time people are seeking out their "own kind" and avoiding
strangers. People hunger for serious and long-lasting relationships with a few
others. These trends portend a growing market for social support products and
services that promote direct relationships between human beings, such as health
clubs, cruises, and religious activity. They also suggest a growing market for "social
surrogates," things that allow people who are alone to feel that they are not such as
television, home video games, and computer.

People’s Views of Organizations: people vary in their attitudes toward
corporations, government agencies, trade unions and other organizations. Most
people are willing to work for these organizations, although they may be critical of
particular ones. But there has been an overall decline in organizational loyalty. The
massive wave of company downsizing has bred cynicism and distrust. Many people
today see work not as a source of satisfaction but as a required chore to earn money
to enjoy their non-work hours.
This outlook has several marketing implications. Companies need to find new ways to
win back consumer and employee confidence. They need to make sure that they are
good corporate citizens and that their consumer messages are honest. More companies
are turning to social audits and public relations to improve their image with publics.
 Views of Society: people vary in their attitudes toward their society. Some defend it
(preservers), some run it (markers), some take what they can from it (takers), some
want to change it (changers), some are looking for something deeper (seekers), and
some want to leave it (escapers). Often consumption patterns reflect social attitude.
Makers tend to be high achievers who eat, dress, and live well. Changers usually live
more frugally, driving smaller cars and wearing simpler clothes. Escapers and seekers
are a major market for movies, music, surfing and camping.
 Views of Nature: people vary in their attitude toward nature. Some feel subjugated by
it, others feel harmony with it and still others seek mastery over it. A long-term trend
has been humankind's growing mastery of nature through technology. More recently,
however, people have awakened to nature's fragility and finite resources. They
recognize that nature can be destroyed by human activities.
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Love of nature is leading to more camping, hiking, boating and fishing. Business has
responded with hiking boots, tenting equipments, and other gear. Tour operators are
packing more tours to wilderness areas. Marketing communicators are using more
scenic backgrounds in advertising. Food producers have found growing marketers for
"natural" products, such as, natural cereal, natural ice-cream, and health foods.
 View of the universe: people vary in their beliefs about the origin of the universe and
their place in it. Most Westerns are monotheistic, although religious conviction and
practice have been waning through the years. Church attendance has fallen steadily,
with the exception of certain evangelical movements that reach out to bring people back
into an interest in Eastern religious, mysticism, the occult, and the human potential
movement.
As people lose their religious orientation, they seek self-fulfillment and immediate
gratification. At the same time, every trend seems to breed a countertrend, as indicated by a
worldwide rise in religious fundamentalism. Here are some other cultural characteristics of
interest to marketers: the persistence of core cultural values, the existence of subcultures, and
shifts of values through time.
High persistence of core cultural values: the people living in a particular society hold many
core benefits and values that tend to persist. Most Westerns for instance still believe in work,
in getting married, in giving to charity, and in being honest. Core beliefs and values are
passed on from parents to children and are reinforced by major social institutions – schools,
churches, business, and government. Secondary beliefs and values are more open to change.
Believing in the institution of marriage is a core belief; believing that people ought to get
married early is a secondary belief. Thus, family planning marketers could make some
headway arguing that people should get married later rather than that they shouldn't get
married at all. Marketers have some chance of changing secondary values but little chance of
changing core values.
Existence of subcultures: each society contains subcultures, groups with shared values
emerging from their special life experiences or circumstances. Star Trek Fans, Blank
Muslims, and Hell's Angels all represent subcultures whose members share common beliefs,
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preferences, and behaviors. To the extent that sub cultural groups exhibit different wants and
consumption behavior, marketers can choose particular subcultures as target markets.
Marketers sometimes reap unexpected rewards in targeting subcultures. For instance,
marketers have always loved teenagers because they are society's trendsetters in fashion,
music, entertainment, ideas, and attitudes. Marketers also know that if they attract someone
as a teen, there is a good chance they will keep the person as a customer in the years ahead.
Shifts of secondary cultural values through time: although core values are fairly persistent,
cultural swings do take place. The advent in the 1960s of hippies, the Beatles, Elvis Presley,
and other cultural phenomena had a major impact on young people's hairstyles, clothing,
sexual norms, and life goals. Today's young people are influenced by new heroes and fads:
Michael Jordan, Ronaldo, Michel Jackson Haile Gebreselassie and the like.
Marketers have a keen interest in spotting cultural shifts that might bring new marketing
opportunities or threats. And now several firms are offering social-cultural forecasts.
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3.6. Summary
Successful companies realize that the marketing environment presents a never-ending series
of opportunities and threats. The major responsibility for identifying significant changes in
the macro environment falls to a company's marketers. More than any other group in the
company, marketing managers must be the trend truckers and opportunity seekers.
Many opportunities are found by identifying trends (directions or sequences of events that
have some momentum and durability) and mega trends (major socials, economic, political,
and technological changes that have long-lasting influence).
Within the rapidly changing global picture, marketers must monitor six major environmental
forces: demographic, economic, natural, technological, political – legal, and social-cultural.
In the demographic environment, marketers must be aware of worldwide population growth;
changing mixes of age, ethnic composition, and educational levels; the rise of non-traditional
families; large geographic shifts in population; and the move to micro marketing and away
from mass marketing.
In the economic arena, marketers need to focus on income distribution and levels of savings,
debt, and credit availability. In the natural environment marketers need to be aware of raw
materials shortages, increased energy costs and pollution levels, and the changing role of
governments in environmental protection.
In the technological arena, marketers should take account of the accelerating pace of
technological change, opportunities for innovation, varying Research and Development
budgets, and the increased governmental regulation brought about by technological change.
In the political – legal environment, marketers must work with in the many laws regulating
business practices and with various special-interest groups.
In the social – cultural arena, marketers must understand people's views of themselves,
others, organizations, society, nature, and the universe. They must market products that
correspond to society's core and secondary values, and address the needs of different
subcultures within a society.
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3.7. Review Questions
1. Define the term marketing environment.
________________________________________________________________________
________________________________________________________________________
2. Explain the company's microenvironment and discuss how it influences the business
activities.
________________________________________________________________________
________________________________________________________________________
3. Identify the possible actors in the microenvironment and discuss their impact in the
organization.
________________________________________________________________________
_______________________________________________________________________
4. Explain what does a macro-environment and indicate its influence in the organization.
________________________________________________________________________
________________________________________________________________________
5. How do you relate the micro-environment with the macro-environment forces?
________________________________________________________________________
________________________________________________________________________
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CHAPTER THREE
STRATEGIC MARKETING PLANNING
3.1. Chapter Objectives
At the end of this chapter you must be able to:



explain what strategic marketing planning
discuss the different planning processes
explain the different strategy formulations.
3.2. Introduction
Companies should look forward and develop long – term strategies to meet the changing
situations in their industries. There is no best strategy for all companies.
Marketing provides information and other inputs to prepare the strategic plan. In turn,
strategic planning defines marketing’s role in the organization. Using the strategic plan,
marketing works with other departments in the organization to achieve overall strategic goals
and objectives.
Company’s annual and long-range plans deal with current business and how to keep them
going, the strategic plan involves adapting the firm to take advantage of opportunities in its
constantly changing environment.
We define strategic planning as the process of developing and maintaining a strategic fit
between the organizations goals and capabilities and its changing marketing opportunities.
Strategic planning set the stages for the rest of the planning in the firm. It relies on
developing a clear company mission supporting objectives, around business portfolio, and
coordinated functional strategies. At the corporate level, the company first determines, its
overall purpose and mission. This mission then is turned into detailed supporting objectives
that guide the whole company. Next, head quarter decides what portfolio of businesses and
products is best for the company and how much support to give each one. In turn, each
business and product unit must develop detailed marketing and other departmental plans that
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support the company wide plan. Thus, marketing planning occurs at the Prices –unit, product,
and market levels. It supports company strategic planning with more detailed planning for
specific marketing opportunities.
3.3. Meaning Of Strategic Planning
Strategic planning is the process of developing and analyzing the organization's mission,
overall goals, general strategies, and allocating resources.
A strategy is a course of action created to achieve a long-term goal. The time length for
strategies is arbitrary, but is probably two, three, or perhaps as many as five years. It is
generally determined by how far in the future the organization is committing its resources.
Strategic planning produces fundamental decisions and actions that shape and guide what an
organization is, what it does, and why it does it. It requires broad-scale information
gathering, an exploration of alternatives, and an emphasis on the future implications of
present decisions. Top level managers engage chiefly in strategic planning or long range
planning. They answer such questions as "What is the purpose of this organization?" "What
does this organization have to do in the future to remain competitive?" Top level managers
clarify the mission of the organization and set its goals. The output needed by top
management for long range planning is summary reports about finances, operations, and the
external environment.
Marketing plans are vital to marketing success. They help to focus the mind of companies
and marketing teams on the process of marketing i.e. what is going to be achieved and how
we intend to do it. There are many approaches to marketing plans. Marketing Teacher has
focused upon the key stages of the plan. It is contained under the popular acronym AOSTC.
o Analysis.
o Objectives.
o Strategies
o Tactics.
o controls.
There are several stages involved in Marketing plan analysis:
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Stage One - Situation Analysis (and Marketing Audit).
o Marketing environment.
o Laws and regulations.
o Politics.
o The current state of technology.
o Economic conditions.
o Socio-cultural aspects.
o Demand trends.
o Media availability.
o Stakeholder interests.
o Marketing plans and campaigns of competitors.
o Internal factors such as your own experience and resource availability.
o Also see tools for internal/external audit:
o SWOT.
o PEST.
o Porter's Five Forces.
o Marketing Environment.
Stage Two - Set marketing objectives.
SMART objectives.
o Specific - Be precise about what you are going to achieve.
o Measurable - Quantify you objectives.
o Achievable - Are you attempting too much?
o Realistic - Do you have the resource to make the objective happen (men, money,
machines, materials, minutes)?
o Timed - State when you will achieve the objective (within a month? By February
2010?).
If you don't make your objective SMART, it will be too vague and will not be realized.
Remember that the rest of the plan hinges on the objective. If it is not correct, the plan may
fail.
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Stage Three - Describe your target market
Which segment? How will we target the segment? How should we position within the
segment?
o Why this segment and not a different one? (This will focus the mind).
o Define the segment in terms of demographics and lifestyle. Show how you intend to
'position' your product or service within that segment. Use other tools to assist in
strategic marketing decisions such as Boston Matrix , Ansoff's Matrix , Bowmans
Strategy Clock, Porter's Competitive Strategies, etc.
Stage Four - Marketing Tactics.
o Convert the strategy into the marketing mix (also known as the 4Ps). These are your
marketing tactics.
o Price Will you cost plus, skim, match the competition or penetrate the market?
o Place Will you market direct, use agents or distributors, etc?
o Product Sold individually, as part of a bundle, in bulk, etc?
o Promotion which media will you use? e.g sponsorship, radio advertising, sales force,
point-of-sale, etc? Think of the mix elements as the ingredients of a 'cake mix'. You
have eggs, milk, butter, and flour. However, if you alter the amount of each
ingredient, you will influence the type of cake that you finish with.
Stage Five - Marketing Controls.
o Remember that there is no planning without control. Control is vital.
o Start-up costs.
o Monthly budgets.
o Sales figure.
o Market share data.
o Consider the cycle of control.
o Finally, write a short summary (or synopsis) which is placed at the front of the plan.
This will help others to get acquainted with the plan without having to spend time
reading it all. Place all supporting information into an appendix at the back of the
plan.
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Strategic marketing planning is the managerial process of developing and maintaining a
viable fit between the organization’s objectives, sill, and resources and its changing market
opportunities. The aim of strategic planning is to shape and reshape the company’s
businesses and products so that they yield target profits and growth.
3.4. Key Planning Concepts
By preparing statements of mission, policy, strategy, and goals, headquarters establishes the
framework within which the divisions and business units prepare their plans. Some
corporations give their business units a lot of freedom to set their own sales and profit goals
and strategies. Others set goals for their business units but let them develop their own
strategies. Still others set the goals and participate in developing individual business unit
strategies.
All corporate headquarters undertake four planning activities:
1. defining the corporate mission
2. establishing strategic business units
3. assigning resources to each strategic business unit
4. assessing growth opportunities
3.4.1. Mission
An organization exists to accomplish something: to make cars, lend money, provide a night's
lodging, and so on. Its specific mission or purpose is usually clear when the business starts.
Over time the mission may change, to take advantage of new opportunities or respond to new
market conditions. Amazon.com changed its mission from being the world's largest online
bookstore to aspiring to become the world's largest online store. eBay changed its mission
from running online auctions for collectors to running online auctions covering all kinds of
goods.
To define its mission, a company should address Peter Drucker's classic questions:
o What is our business?
o Who is the customer?
o What is of value to the customer?
o What will our business be?
o What should our business be?
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These simple-sounding questions are among the most difficult a company will ever have to
answer. Successful companies continuously raise these questions and answer them
thoughtfully and thoroughly. A company must redefine its mission if that mission has lost
credibility or no longer defines an optimal course for growth.
Organizations develop mission statements to share with managers, employees, and (in many
cases) customers. A clear, thoughtful mission statement provides employees with a shared
sense of purpose, direction, and opportunity. The statement guides geographically dispersed
employees to work independently and yet collectively toward realizing the organization's
goals.
Mission statements are at their best when they reflect a vision, an almost "impossible dream"
that provides a direction for the company for the next 10 to 20 years. Sony's former
president, Akio Morita, wanted everyone to have access to "personal portable sound," so his
company created the Walkman and portable CD player. Fred Smith wanted to deliver mail
anywhere in the United States before 10:30 A.M. the next day, so he created FedEx.
Good mission statements have three major characteristics. First, they focus on a limited
number of goals. The statement, "We want to produce the highest-quality products, offer the
most service, achieve the widest distribution, and sell at the lowest prices" claims too much.
Second. Mission statements stress the company's major policies and values.
3.4.2. Objectives and goals
Objectives specify future conditions that a manger hopes to achieve. The following are the
characteristics of sound objectives.
a. Priority of objectives -This implies that a given time, accomplishing one objective is
more important than accomplishing others. Priority of objectives also reflects the relative
important of certain objectives regardless of time.
b. Hierarchy of objectives - Objectives are arranged in hierarchy from overall company
wide objectives to individual objectives.
c. Organizational objectives should be stated in writing -Objectives should be specific and
communicated clearly to all so that all members of the organization are aware of what is
expected from them. This eliminates ambiguity and confusion.
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d. Objectives should be specific and measurable - General objectives are difficult to
interpret and measure.
e. Objectives should be realistic and attainable - Over optimistic but unrealistic objectives
serve as moral deflators and hence are ineffective.
f. Ambitious, but realistic
g. Consistent with one another
h. Quantitatively Measurable wherever necessary
i. Tied to a particular period.
There are two objective setting approaches.
1. A Cascade Approach from Top to Lower Organizational Units.
o The objective setting processes begin at the top with a clear and concise statement
of central purpose of the organization.
o Long – range organizational goals are formulated for this statement.
o The long-range goals lead to the establishment of more short-range performance
objectives for the organization.
o Derivative objectives are then developed for each major division or department.
o Objectives are then established for the various sub units in each major division.
o The process continues down through the organizational hierarchy.
3.4.3. Strategies
Goals indicate what a business unit wants to achieve; strategy is a game plan for getting
there. Every business must design a strategy for achieving its goals, consisting of a marketing
strategy, and a compatible technology strategy and sourcing strategy.
PORTER'S GENERIC STRATEGIES. Michael Porter has proposed three generic strategies
that provide a good starting point for strategic thinking: overall cost leadership,
differentiation, and focus.
o Overall cost leadership. The business works hard to achieve the lowest production
and distribution costs so that it can price lower than its competitors and win a large
market share. Firms pursuing this strategy must be good at engineering, purchasing,
manufacturing, and physical distribution. They need less skill in marketing. The
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problem with this strategy is that other firms will usually compete with still lower
costs and hurt the firm that rested its whole future on cost.
o Differentiation. The business concentrates on achieving superior performance in an
important customer benefit area valued by a large part of the market. The firm
cultivates those strengths that will contribute to the intended differentiation. Thus the
firm seeking quality leadership, for example, must make products with the best
components, put them together expertly, inspect them carefully, and effectively
communicate their quality.
o Focus. The business focuses on one or more narrow market segments. The firm gets
to know these segments intimately and pursues either cost leadership or
differentiation within the target segment.
The online air travel industry provides a good example of these three strategies: Travelocity
is pursuing a differentiation strategy by offering the most comprehensive range of services to
the traveler. Lowest fare is pursuing a lowest-cost strategy; and Last Minute is pursuing a
niche strategy in focusing on travelers who have the flexibility to travel on very short notice.
According to Porter, firms pursuing the same strategy directed to the same target market
constitute a strategic group. The firm that carries out that strategy best will make the most
profits. Firms that do not pursue a clear strategy and try to be good on all strategic
dimensions do the worst. International Harvester went out of the farm equipment business
because it did not stand out in its industry as lowest in cost, highest in perceived value, or
best in serving some market segment. Porter drew a distinction between operational
effectiveness and strategy.
Many companies believe they can win by performing the same activities more effectively
than their competitors; but competitors can quickly copy the operationally effective company
using benchmarking and other tools, thus diminishing the advantage of operational
effectiveness. Porter defines strategy as "the creation of a unique and valuable position
involving a different set of activities." A company can claim that it has a strategy when it
"performs different activities from rivals or performs similar activities in different ways.
Companies such as IKEA, Southwest Airlines, Dell Computer, Saturn, and Home Depot run
their businesses much differently from their competitors; and these competitors would find it
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hard to copy and synchronize all the different activities that a strategically differentiated
company carries out.
3.4.4. Tactic
A tactic is a means by which a strategy is implemented. A tactic is a more specific detailed
course of action plan than is a strategy.
Also, tactics generally cover shorter time periods than strategies.
i.e. strategy
o Direct our promotion in male ages 25 – 40
Tactics
o Advertise in magazines read by this group of people
o Advertise on television program watched by this group.
To be effective, a tactic must coincide with and support the strategy with which it is related.
3.5. STRATEGIC PLANNING PROCESS
3.5.1. Business mission
Each business unit needs to define its specific mission in this the broader company mission
eg. 1. We provide various types of safe and cost effective energy
2. We offer comfort, fashion, and durability in wearing appear
Business
Mission
External
Go a l
Strategy
Program
Implementa
environment
Formulation
Formation
Formulation
-tion
(Opportunity &
ITnhterernaat)l
Feedback &
enavniraolnym
sisent
Control
(Strength &
weakness)
analysis
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3.5.2. External environment analysis (opportunity and threat
analysis)
A business unit has to monitor key microenvironment forces (demographic-economic.
natural, technological, political-legal, and social-cultural) and significant microenvironment
actors (customers, competitors, suppliers, distributors, dealers) that affect its ability to earn
profits. The business unit should set up a marketing intelligence system to track trends and
important developments. For each trend or development, management needs to identify the
association opportunities and threats.
a. Opportunities
A major purpose of environmental scanning is to discern new opportunities. In many ways,
good marketing is the art of finding, developing, and profiting from opportunities. A
marketing opportunity is an area of buyer need and interest in which there is a high
probability that a company can preferably satisfy that need.
There are three main sources of market opportunities. The first is to supply something that is
in short supply. This requires little marketing talent, as the need is fairly obvious. The second
is to supply an existing product or service in a new or superior way. There are several ways
to uncover possible product or service improvements: by asking consumers for their
suggestions (problem detection method); by asking consumers to imagine an ideal version of
the product or service (ideal method); and by asking consumers to chart their steps in
acquiring, using, and disposing of a product (consumption chain method). The third source
often leads to a totally new product or service.
Opportunities can take many forms, and marketers have to be good at spotting them.
Consider the following:
A company may benefit from converging industry trends and introduce hybrid products or
services that are new to the market. Example: At least five major cell phone manufacturers
released phones with digital photo capabilities.
A company may make a buying process more convenient or efficient. Example: Consumers
can now use the Internet to find more books than ever and search for the lowest price with a
few clicks.
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A company can meet the need for more information and advice. Example: Guru.com
facilitates finding professional experts in a wide range of fields. A company can customize a
product or service that was formerly offered only in a standard form. Example: P&G's
Reflect.com Web site is capable of producing a customized skin care or hair care product to
meet a customer's need.
A company can introduce a new capability. Example: Consumers can now create and edit
digital "Movies" with the new iMac and upload them to an Apple Web server to share with
friends around the world. A company may be able to deliver a product or a service faster.
Example: FedEx discovered a way to deliver mail and packages much more quickly than the
U.S. Post Office.
A company may be able to offer a product at a much lower price. Example: Pharmaceutical
firms have created generic versions of brand-name drugs. To evaluate opportunities,
companies can use Market opportunity Analysis (MOA) to determine the attractiveness and
probability of success:
1. Can the benefits involved in the opportunity be articulated convincingly to a defined
target market(s)?
2. Can the target market(s) be located and reached with cost-effective media and trade
channels?
3. Does the company possess or have access to the critical capabilities and resources needed
to deliver the customer benefits?
4. Can the company deliver the benefits better than any actual or potential competitors?
5. Will the financial rate of return meet or exceed the company's required threshold for
investment?
b. Threats
Some developments in the external environment represent threats. An environmental threat is
a challenge posed by an unfavorable trend or development that would lead, in the absence of
defensive marketing action, to lower sales or profit. Threats should be classified according to
seriousness and probability of occurrence.
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Once management has identified the major threats and opportunities facing a specific
business unit; it can characterize that business's overall attractiveness.
3.5.3. Internal environment analysis (Strength/Weakness)
It is one thing to find attractive opportunities and another to be able to take advantage of
them. Each business needs to evaluate its internal strengths and weaknesses. It can do so by
using a form like the one shown in "Marketing Memo: Checklist for Performing
Strengths/Weaknesses Analysis.”
Clearly, the business does not have to correct all its weaknesses, nor should it gloat about all
its strengths. The big question is whether the business should limit itself to those
opportunities where it possesses the required strengths or whether it should consider
opportunities that mean it might have to acquire or develop certain strengths. For example,
managers at Texas Instruments (TI) were split between those who wanted TI to stick to
industrial electronics (where it has dear strength) and those who wanted the company to
continue introducing consumer products (where it lacks some required marketing strengths).
Sometimes a business does poorly not because its people lack the required strengths, but
because they do not work together as a team. In one major electronics company, the engineers look down on the salespeople as "engineers who couldn't make it," and the salespeople
look down on the service people as "salespeople who couldn't make it." It is therefore critical
to assess interdepartmental working relationships as part of the internal environmental audit,
Honeywell does exactly this.
3.5.4 Goal formulation
The overall evaluation of a company’s strength, weakness, opportunities and threat is called
SWOT analysis. Once the company has performed its SWOT analysis, it can proceed to
develop specific goals for the planning period. These stages of the business strategic planning
process are called goal formulation.
There are certain principles of objectives
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Objectives must be:
1. Hierarchically arranged
2. Should be stated quantitatively
3. It should be ambitious but realistic
4. It must be consistent etc.
Other important trade off includes short-term profit verses, long-term growth, deep
penetration of existing market versus developing new markets, profit goals versus non-profit
goals and high growth versus low risk. Each choice is this set of goals trade off calls for a
different marketing strategy.
3.5.5 Strategies Formulation
The company’s plans for its existing business allow it to protect total sales and profits. Often
projected sales and profits are less than what corporate management wants them to be.
Goals indicate what a business unit wants to achieve. Strategy is a game plan for getting
there. Every business must tailor a strategy for achieving its goals, consisting of a marketing
strategy and compatible technology strategy and sourcing strategy. Although many types of
marketing strategies are available, we are going to present you the Michael porter strategy
model, the Ansoft’s product market expansion grid, and Boston consulting group.
1. Michael Porter. (Generic Strategies Model) Michael Porter, a Harvard business professor,
advises firms to assess two factors; scope of target market and differential advantage and
chose an appropriate strategy.
Porter’s Generic model recommends three alternatives for consideration
1. Overall cost leadership
A company or an SBU, typically large, seeks to satisfy a broad market by producing a
standard product at a low cost and then under pricing competitors.
2. Differentiation: An organization creates a distinctive, perhaps even a unique, product through its unsurpassed
quality, innovative design, or some other feature and, as a result, can change a higher than
average price. This strategy may pressure either a broad or narrow target
3. Focus
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A firm or an SBU concentrates on part of a market and tries to satisfy it with either a very
low priced or highly distinctive product. The target market
ordinarily is set apart by some factor such as geography or specialized needs.
High
Focus
Cost leadership
Profitability
Differentiation
No differentiation
No cost leadership
No Focus
Low
Narrow
broad
Scope of target market
Ansoff’s Matrix (Product/Market Expansion Grid)
Professor Ansoff has suggested that the firm while setting a strategy must consider the
product and market. That is, the company first considers whether it could gain more market
share with its current product in their current market (market penetration strategy). Next it
considers whether it can find or develop new markets for its current products (market
development strategy). Then it considers whether it can develop new products of potential
interest to its current market (product development strategy). Later it will also review
opportunities to develop new products for new market (diversification strategy).
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Product market expansion grid
Anisoff Matrix
Product
Current
Market Current
New
Market penetration
Product development
strategy
strategy
Market development
Diversification strategy
strategy
New
The four product-market strategies in detail are as follows: 1. Market Penetration
A company tries to sell more of its present markets. Supporting tactics might include greatest
spending on advertising or personal selling. Or a company tries to become a single source of
supply by offering preferential treatment to customers who will concentrate all their
purchases with it
2. Market development
A firm continues to sell its present product but to a new market.
3. Product development
This strategy calls for a company to develop new product to sell to its existing markets.
4. Diversification
A company develops new product to sell to new markets. This strategy is risky because it
doesn’t rely on either the company’s successful products or its positions in established
markets.
As market conditions change overtime, a company may shift product-market growth
strategies. For example, when its present market is fully saturated, a company may have no
choice other than to pursue new markets.
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Boston Consulting Group Model
The Boston consulting Group (BCG) is a leading management consulting firm, developed
and popularized the growth share matrix.
20%
Stars
Question mark
18%
4
16%
14%
1
2
5
3
12%
10%
8%
6%
Cash cows
Dogs
4%
2%
0
10
X
4X
2X
1.5
X
1X
0.5
X
0.4
X
0.3
X
0.2
X
0.1
X
7
6
Relative Market Share8
The eight circles represent the current sizes and positions of eight business units in a
hypothetical company. The dollar volume size of each business is proportional to the circles
area. Thus, the two largest businesses are 5 and 6. The location of each business unit
indicates its market growth rate and relative market share.
Specifically, the market growth rate on the vertical axis indicates annual growth rate of the
market in which the business operates. In the above illustration it ranges from 0% to 20%,
although a larger range could be shown. A market growth rate above 10% is considered high.
Relative market share, which is measured on the horizontal axis, refers to the SBU’s market
share, relative to that of its larger competitor. It saves as a measure of the company’s strength
in the relevant market. A relative market share of 0.1 means that the company’s sales volume
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is only 10% of the leaders sales volume a relative share of 10 means that the company’s SBU
is the leader and has 10 times the sales of the next strongest competitor in that market.
Relative market share is divided into high and low share using a 1.0 as a dividing line.
The growth-share matrix is divided into four cells, each indicating a different type of
business
1. Question mark
Question marks are businesses that operate in high-growth markets but have low relative
market shares. Most businesses start of as a question marks as the company tries to enter a
high-growth market in which there is already a market leader. A plants, requirement, and
personnel to keep up with the fast-growing market and because it wants to overtake the
leader.
2. Stars: - If the question-mark business is successful it becomes a star is the market leader in
a high-growth market. A star does not necessarily produce a positive cash flow for the
company. The company must spend substantial funds to keep up with the high market growth
and fights of competitor's attacks.
3. Cash Cows: - When a market’s annual growth rate falls to less than 10% the star becomes
a cash cow if it still has the largest relative market share. A cash cow produces a lot of cash
for the company. The company does not have to finance a lot of capacity expansion because
the market growth rate has a slowed down. And since the business is the market leader, it
enjoys economies of scale and higher profit margin.
4. Dogs: - Dogs are business that have make market share in low-growth markets. They
typically generate low profits or losses, although they may generate some cash. The company
should consider whether it is holding on to these dog business for good resource (Such as
unexpected tern around in the market growth rate or a new chance at market leadership) or
for sentimental reasons. Dogs often consume more management time than they are worth and
need to be phased down or out.
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After plotting its various businesses in the growth share matrix, a company must determine
whether its portfolio is healthy. An unbalanced portfolio would have too many dogs or
question marks and/or too few stars and cash cows.
The company next task is to determine what objective, strategy, and budget to assign to each
SBU.
Four stages can be passed:
1. Build: - Here the objective is to increase the SBU’s market share, even forgoing short
term earnings to achieve this objective if necessary. Building is appropriate for question
marks whose market share must grow if they are to become stars.
2. Hold: - Here the objective is to increase the SBU’s market share. This strategy is
appropriate for strong cash cows if they are to continue yielding a large positive cash
flow.
3. Harvest: - Here the objective is to increase the SBU’s short-term cash flow regardless of
long term effect. Harvesting involves a decision to eventually withdraw from a business
by implementing a program of continuous cost retirement. The company plans to cash in
on its “Crop to milk its business”. Harvesting generally involves eliminating R&D is
expenditures, not replacing the physical plant as it wears out, not replacing sales people,
reducing advertising expenditures, and so on.
The hope is to reduce costs at a faster rate than any potential drop in sales, thus resulting
in an increase in the company’s positive cash flow.
This strategy is appropriate for weak cash cows whose future is dim and from which
more cash flow is needed. Harvesting can also be used with question marks and dogs.
The company carrying at a harvesting strategy faces prickly social and ethical questions
over how much information to share with various stockholders.
4. Divest: - Here the objective is to sell or liquidate the business because resources can be
better used elsewhere. This strategy is appropriate for dogs and question marks that are
acting as a drag on the company’s profits.
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Companies must carefully decide whether harvesting or divesting is a better strategy for a
weak business. Harvesting reduces the business future value and therefore the price at which
it could later be sold if divested. An early decision to divest, in contrast, is likely to produce
fairly good bids if the business is in relatively good shape and of more value to another firm.
3.5.6 Program formulation
Once the business but has developed its principal strategies, it must work out detailed
supporting programs.
Thus, if the business has decided to attain technological leadership, it must plan programs to
strengthen its R&D department, gather technological intelligence develop leading edge
products, train the technical sales force, develop ads, to communicate its technological
leadership and so on.
3.5.7 Implementation
A clear strategy and a well thought out supporting program may be useless if the firm fails to
implement them carefully. Indeed, strategy is only one of seven elements, according to Mac
Kinsey consulting firm, that the best-managed companies exhibit.
The Mac Kinsey framework for business success includes –Strategy, structure, and systems
are considered the hardware of success. The next four –style, staff, skills and shared values
are the software’s.
The first soft elements, style means that company employees share a common way of
thinking and behaving.
The second staff means that a company has hired able people, trained they well, and assigned
them to the right jobs.
The third skill means that the employees have the skills needed to carry out the company
strategy.
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The fourth shared values, means that the employees share the same guiding values. When
these soft elements are present, companies are usually more successful at strategy
implementation.
3.5.8 Feed Back and Control
As it implements its strategy, the firm needs to track the results and monitor new
development in the internal and external environments. The enrolment will eventually
change. And when it does, the company will need to preview and revise its implementation
programs, strategies, or even objectives.
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3.6. Summary
Marketing provides information and other inputs to prepare the strategic plan. We define
strategic planning as the process of developing and maintaining a strategic fit between the
organizations goals and capabilities and its changing marketing opportunities.
Strategic planning is the process of developing and analyzing the organization's mission,
overall goals, general strategies, and allocating resources.
Strategic planning produces fundamental decisions and actions that shape and guide what an
organization is, what it does, and why it does it. It requires broad-scale information
gathering, an exploration of alternatives, and an emphasis on the future implications of
present decisions.
Marketing Teacher has focused upon the key stages of the plan. It is contained under the
popular acronym AOSTC.
o Analysis.
o Objectives.
o Strategies
o Tactics.
o controls.
Each business unit needs to define its specific mission in this the broader company mission
eg. 1. We provide various types of safe and cost effective energy
2. We offer comfort, fashion, and durability in wearing appear
Objectives must be:
5. Hierarchically arranged
6. Should be stated quantitatively
7. It should be ambitious but realistic
8. It must be consistent etc.
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3.7. Review Questions
1. Discuss the strategic planning process?
_________________________________________________________________________
________________________________________________________________________
2. Discuss the AnSoff product/market expansion grid?
________________________________________________________________________
________________________________________________________________________
3. Discuss the porters generic strategic model.
________________________________________________________________________
________________________________________________________________________
4. What is a strategic marketing planning? Discuss the strategies proposed by anSoff and
Porter.
________________________________________________________________________
________________________________________________________________________
5. Discuss the concept of mission, objectives strategies and tactics.
________________________________________________________________________
________________________________________________________________________
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CHAPTER FOUR
MARKET SEGMENTATION, TARGETING AND
POSITIONING
4.1. Chapter objective
4.2. Introduction
4.3. Meaning of Market Segmentation
4.4. Levels of Market Segmentation
4.4.1. Segment Marketing
4.4.2. Niche Marketing
4.4.3. Local Marketing
4.4.4. Individual Marketing
4.5. Basis of segmenting business markets
4.6. Market Segmentation Procedure
4.6.1. Survey Stage
4.6.2. Analysis Stage
4.6.3. Profiling Stage
4.7. segmenting consumer markets
4.7.1. Geographic
4.7.2. Demographic
4.7.3. Behavioral
4.7.4. Psychographics
4.8. Market Targeting
4.8.1. Meaning of Market Targeting
4.8.2. Single Segment Strategy
4.8.3. Multiple Segment Strategy
4.9.
Market Positioning
4.10. Tools for Competitive Differentiation
4.10.1. Product Differentiation
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4.10.2. Service Differentiation
4.10.3. Personal Differentiation
4.10.4. Channel Differentiation
4.10.5. Image Differentiation
4.10.6. Identity Versus Image
4.11. Developing a Positioning Strategy
4.12. Summary
4.13. Review Questions
4.1. Chapter Objectives
This chapter focuses on market segmentation, targeting and positioning. At the end of this
chapter, therefore, you would be able to:

define market segmentation, target marketing and positioning;

identify market segmentation variables;

identify the constitutes of market segmentation, including its benefits and use;

understand target marketing strategies;

The different types of positioning strategy.
4.2. Introduction
A company cannot serve all customers in a broad market. The customers are too numerous
and diverse in their buying requirements. The company needs to identify the market
segments that it can serve more efficiently.
Many companies are embracing target marketing. Here sellers distinguish the major market
segments, target one or more of these segments, and develop products and marketing
programs tailored to each.
Target marketing requires marketers to take three major steps: 1. Identify and profile distinct group of buyers who might require separate products or
marketing mixes. (Market Segmentation)
2. Select one or more market segments to enter (Market Targeting)
3. Establish and communicate the products key distinctive benefits in the market
(Market Positioning)
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4.3. Meaning Of Market Segmentation
Market segment is a group of individuals or organizations within a market that share one or
more common characteristics. Market segmentation is the process of dividing the total
market into several homogeneous groups. It is a market where any group can be selected as
target market that can be reached with a distinct marketing mix.
There are four commonly used bases for segmenting consumers' markets:
1.Geographicsegmentation
Geographic segmentation is dividing of an groups on the basis of population location.
It considers: Region Urban, Suburban, Rural, Market density, Climate, Terrain (land,
topography), City size, Country size, State size overall market into homogeneous.
2.Demographic segmentation
Demographic segmentation is dividing an overall market into homogeneous groups based
upon population characteristics such as age, sex and income level.
This method uses variables:
Age, Gender, Race, Ethnicity, Income, Education, Occupation, Family size,
Family life cycle, Religion, Social class
3. Psycho graphic segmentation
Psycho graphic segmentation utilizes behavioral profiles developed from analyses of the
activities, opinions, interest and lifestyles of consumers.
This method uses variables:
o Personality
o Attributes
o Motives
o Lifestyles
4. Behavioral Segmentation
Behavioral segmentation focuses on product usage rates. This focuses on such attributes as
product usage rates and the benefits derived from the product.
This method uses variables:
o Volume usage
o End use
o Benefits
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o Expectations
o Brand loyalty
o Price sensitivity
4.4. Levels Of Market Segmentation
The starting point for discussing segmentation is mass marketing. In mass marketing" seller
engages in the mass production, mass distribution, and mass promotion of one product for all
buyers. Henry Ford epitomized this strategy when he offered the Model- T Ford., one color,
black. The argument for mass marketing is that it creates the largest potential market, which
leads to the lowest costs, which in turn can lead to lower prices or higher margins. However,
many critics point to the increasing splintering of the market, which makes mass marketing
more difficult. The proliferation of advertising media and distribution channels is making
difficult and increasingly expensive to reach a mass audience. Some claim that mass
marketing is dying. Most companies are turning to micro marketing at one of four levels:
segments, niches, local areas, and individuals.
4.4.1. Segment marketing
A market segment consists of a group of customers who share a similar set of needs and
wants. Thus we distinguish between car buyers who are primarily seeking low-cost basic
transportation, those seeking a luxurious driving experience. and those seeking driving;
thrills and performance. We must be careful not to confuse a segment and a sector. A can
company might say that it will target young, middle-income car buyers. The problem is that
young, middle- income car buyers will differ about what they want in a car. Some will want a
low-cost car and others will want an expensive car. Young, middle-income car buyers are a
sector, not a segment.
The marketer does not create the segments; the marketer's task is to identify the segments and
decide which one(s) to target. Segment marketing offers key benefits over mass marketing.
The company can presumably better design, price, disclose and deliver the product or service
to satisfy the target market. The company also can fine-tune the marketing program and
activities to better reflect competitors' marketing.
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4.4.2. Niche marketing
An alternative to being a follower in a large market is to be a leader in a small market or
niche. Smaller firms normally avoid competing with largest firms by targeting small markets
of little or no interest to the larger. Thus, firms with low shares of the total market can be
highly profitable through smart niching. Clifford and Cavanagh identified over two dozen
highly successful midsized companies and studied thei success factors. They found that
virtually all these companies were nichers. A.T. crossed niched itself in the high price writing
instruments markets with its famous gold and silver items. Such companies tend to offer high
value’ charge a premium price. Achieve loan manufacturing costs’ and shape a strong
corporate culture and vision. Alberto Culver compny is a classic example of a midsized
company the at has successful used market’ nicher strategies. Nichers have three tasks:
creating niches, expanding niches, and protecting niches. Niching carries a major risk in that
the market nich might dry up or be attacked. The company is then stack with highly
specialized resource that may not have high value alternative uses. The key idea nichmanship
is specialization. The following specialist rules are open to nichers: end user specialist; the
firm specializes in serving one type of end use customer. For eg. A value added reseller(var)
customizes the computer hardware and software for specific customer segments and earns a
price premium in the process.
o Vertical-level specialist: the firm specializes at some vertical level of the productiondistributions value chin. A copper firm may concentrate on producing raw coppercopper components or finished copper products.
o Customer- size specialist: the firm concentrates on selling to small – medium-sized,
or large customers. Many nichers specialized in serving small customers who are
neglected by the majors.
o Specific- customer specialist: the firm limits its selling to one or a few customers;
many firms sell their entire output to a selling company, such as sears or General
Motors.
o Geographic specialist: the firm sells only in a certain locality – region, or area of the
world.
o Product or product-line specialist: the firm carries or produces only product line or
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product. A firm may produce only lenses for Microscopes. A retailer may carry only
ties.
o Product -feature specialist: the firm specializes in producing a certain type of product
or product feature: rent-a-wreck- for eg. Is a California car- rental agency that rents
only beat-up “cars”.
o Job shop specialist: the firm customizes its products for individual customers.
o Quality price specialist: the firm operates at the low or high quality ends of the
market. Hewlelett Packard specializes in the high quality: high prices end of the hand
calculator market.
o Service specialist: the firm offers one or more services not available from other firms.
An eg would be a bank that takes load requests over the phone and hand delivers the
money to the customer.
o The channel specialist: The firm specializes in serving only one channel of
distribution. For eg. A soft drink company decides to make a very large sized soft
drink available only at Gas stations. Because niches can weaken the firm must
continually create new ones. The firm should stick to its niching. But not necessarily
to its niche. i.e why multiply niching is preferable to single niching. By developing
strength in tow or more niches the company increases its chances for survival. Firms
entering a market should aim at a niche initially rather than the whole market.
4.4.3. Local marketing
Target marketing is leading to marketing programs tailored to the needs and wants of local
customer groups (trading areas, neighborhoods, even individual stores). Citibank provides
different mixes of banking services in its branches, depending on neighborhood demographics. Kraft helps supermarket chains identify the cheese assortment and shelf position
that will optimize cheese sales in low-, middle-, and high-income stores, and in different
ethnic neighborhoods.
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Local marketing reflects a growing trend called grassroots marketing. Marketing activities
concentrate on getting as close and personally relevant to individual customers as possible.
Much of Nike's initial success has been attributed to the ability to engage target consumers
through grassroots marketing such as sponsorship of local school teams, expert-conducted
clinics, and provision of shoes, clothing, and equipment.
A large part of local, grassroots marketing is experiential marketing, which promotes a
product or service not just by communicating its features and benefits, but by also connecting
it with unique and interesting experiences. One marketing commentator describes experiential marketing this way: "The idea is not to sell something, but to demonstrate how a
brand can enrich a customer's life. Marketing Insight: Experiential Marketing" describes the
concept of Customer Experience Management.
Holiday Inn Hotels and Resorts is trying to recharge its faded brand image through experiential marketing aimed not only at creating new customer experiences, but also at getting
customers to kindle nostalgia for their own childhood experiences with the brand:
4.4.4. Individual Marketing
The ultimate level of segmentation leads to “Segments of One” customized marketing, ‘or’
one-to-one marketing. For countries, consumers were served as individuals: The tailor made
the suit and the cobbler designed shoes for the individual. Much business-to business
marketing today is customized, in that a manufacture's will customize the offer, logistics,
communications, and financial terms for each major accounts. New technologies computers,
databases, robotic production, e-mail, and fax-permit companies to return to customized
marketing, or what is called “Mass customization”.
Mass customization is the ability to prepare on a mass basis individually designed products
and communications to meet each customer’s requirements.
Today customers are taking more individual initiative in determining what and how to try.
They log on to the internet; look up information and evaluators of product or services offers;
dialog with suppliers, users, and product critics; and make up their own minds about the best
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offers. Marketers will still influence the process but in new ways. They will need to set up
toll-free phone numbers and e-mail addresses to enable buyers to reach them with questions,
suggestions, and complaints. They will involve customers more in the product-specification
process. They will sponsor an internet home page that provides full information about the
company’s products, guarantees, and locations.
4.5. Basis Of Segmenting Business Markets
Business markets can be segmented with some of the same variables used in consume~
market segmentation, such as geography, benefits sought, and usage rate, but business
marketers also use other variables. Bonoma and Shapiro proposed segmenting the business
market with the variables in the following table. The demographic variables are the most,
important, followed by the operating variables-down to the personal characteristics of the
buyers.
Demographic
1. Industry: Which industries should we serve?
2. Company size: What size companies should we serve?
3. Location: What geographical areas should we serve?
Operating Variables
4. Technology: What customer technologies should we focus on?
5. User or nonuser status: Should we serve heavy users, medium users, light users, or
nonusers? 6. Customer capabilities: Should we serve customers needing many or few
services?
Purchasing Approaches
7. Purchasing-function organization: Should we serve companies with highly centralized or
decentralized purchasing organizations?
8. Power structure: Should we serve companies that are engineering dominated, financially
dominated, and so on?
9. Nature of existing relationships: Should we serve companies with which we have strong
relationships or simply go after the most desirable companies?
10. General purchase policies: Should we serve companies that prefer leasing? Service
contracts? Systems purchases? Sealed bidding?
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11. Purchasing criteria: Should we serve companies that are seeking quality? Service? Price?
Situational Factors
12. Urgency: Should we serve companies that need quick and sudden delivery or service?
13. Specific application: Should we focus on certain applications of our product rather than
all applications?
14. Size of order: Should we focus on large or small orders? Personal Characteristics
15. Buyer-seller similarity: Should we serve companies whose people and values are similar
to ours?
16. Attitudes toward risk: Should we serve risk-taking or risk-avoiding customers?
17. Loyalty: Should we serve companies that show high loyalty to their suppliers?
The table lists major questions that business marketers should ask in determining which,
segments and customers to serve. A rubber-tire company should first decide which individual
tries it wants to serve. It can sell tires to manufacturers of automobiles, trucks, farm tractors,
forklift trucks, or aircraft. Within a chosen target industry, a company can further segment by
company size. The company might set up separate operations for selling to large and small
customers. Consider how Dell is organized.
Small businesses, in particular, have become a Holy Grail for business marketers. 50 In the
United States, small businesses are now responsible for 50 percent of the gross national
product, according to the U.S. Small Business Administration, and this segment is growing at
11 percent annually, three percentage points higher than the growth of large companies. Here
are two examples of companies focusing on small businesses.
4.6. Market Segmentation Procedure
The three steps procedure for identifying market segments: survey. Analysis and profiling.
4.6.1. Step One: survey stage
The researcher conducts exploratory interviews and focus groups to gain insight into
consumer motivations, attitudes, and behavior. Then the researcher prepares a questionnaire
and collects data on attributes and their importance ratings; brand awareness and brand
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ratings; product usage patterns, attitudes toward the product category; and demographics,
geographic, psychographics, and media graphics of the respondents.
4.6.2. Step Two: analysis stage
The researches applies factor analysis to the data to remove highly correlated variables, then
applies cluster analysis to create a specified number of maximally different segments.
4.6.3. Step Three: - profiling stage
Each cluster profiled in terms of its distinguishing attitudes, behavior, demographics,
psychographics, and media patterns. Each segment is given a name based on its
Dominant Characteristic
Market segmentation must be redone periodically because market segments change. At one
time the personal computer industry segmented its products purely on speed and power, thus
appealing to the broad swathes, high and users and low end users, but missing out on the
prosperous middle. Later PC marketers recognized an emerging “SOHO” market, named for
“Small office and home office. Mail-order companies such as Dell and Gateway appealed to
this market’s requirement for high performance coupled with low price and user-friendliness.
Shortly thereafter PC makers began to see SOHO as comprised of smaller segments.
One way to discover new segments is to investigate the hierarchy of attempts that consumers
examine in choosing a brand. This process is called partitioning. Years ago, most car buyers
first decided on the manufacturer and then on one of its car divisions (brand dominant
hierarchy). A buyer might four general motorcars and with in this set, Pontiac. Today, many
buyers decide first on the nation from which they want to buy a car (nation-dominant
hierarchy)
Buyers may first decide they want to buy a Japans car, then Toyota, and then the corolla
model of Toyota. Companies must monitor potential shifts in the consumer’s hierarchy of
attributes and adjust to changing priorities.
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The hierarchy of attributes can several customer segments. Buyers who first decide on price
are price dominant; those who first decide on the type of car (eg. Sports, passengers, station
wagons) are type dominant; these who first decide on the car brand are brand dominant. Each
segment may have distinct demographics, psychographics, and media graphics.
4.7. Segmenting Consumer Markets
Two broad groups of variables are used to segment consumer markets. Some researchers try
to form segments by looking at descriptive characteristics: geographic, demographic, and
psychographic. Then they examine whether these customer segments exhibit different needs
or product responses. The customer market may be divided into further segments using the
following characteristics.
4.7.1 Geographic segmentation
Geographic segmentation calls for dividing the market into different geographical units such
as regions, countries, cities, and towns where people live and work –is usually used. The
reason for this is simply that consumers wants and products usage often are related to one or
more of these subcategories. Geographic characteristics are also measurable and accessible –
two of the conditions for effective segmentations. i.e. Many firms market this products in a
limited number of geographic regions, or they may market nationally but prepare a separate
marketing mix for each region.
The regional distribution of population is important to marketers because people within a
given region generally tend to share the same value, attitude and style preference. However,
significant differences do exist among regions because of differences, in climate, social
customs, and other factors.
4.7.2. Demographic segmentation
In demographic segmentation, the market is divided into groups on the basis of variable such
as age, family size, family lifecycle, gender, income, occupation, education, religion, race,
generation, nationality, social class. Demographic variables are the most popular bases for
distinguishing customer groups. One reason so that consumer wants, preferences and usage
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rates are often associated with demographic variables. Another is that demographic variables
are easier to measure.
Even when the target market is described in non-demographic term (say, a personality types),
the link lack to demographic characteristic is needed in order to estimate the size of the target
market and the media that should be used to reach it efficiently. Here is how certain
demographic variables have been used to segment markets.
1. Age and lifecycle stage
Consumer’s wants and abilities change with age. Photo companies are now applying age and
lifecycle segmentation to the film market. With film sales down, photo companies are
working hark to exploit promising niche markets: moms, kids, and older people.
Nevertheless, age and lifecycle can be tricky variables. For example, the Ford motor
company designed its Mustang automobile to appeal to young people who wanted an
inexpensive sport car. But ford found that the car was being purchased by all age groups, It
then realized that its target market was not chronologically young but the psychologically
young.
2. Gender
Gender segmentation has long been applied in clothing, hairstyling, cosmetics, and
magazines. Occasionally other marketers notice an opportunity for Gender segmentation.
Consider the cigarette market, where brands like Virginia slings have been introduced
accompanied by appropriate flavor, packaging, and advertising cues to reinforce a female
image.
The automobile industry is beginning to recognize Gender segmentation. With more women
car owners, some manufacturers are designing certain futures to appeal to women, although
stopping short of advertising the cars as women’s cars.
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3. Income
Income segmentation is a long-standing practice in such product and service categories as
automobiles, boats, clothing, cosmetics, and travel. However, income does not always predict
the best customs for a given product. Blue-collar workers among the first purchasers of color
television sets. It was cheaper for they to buy these sets. It was cheaper for them to buy these
sets than to go to movies and restaurants.
4. Social Class
Social class has a strong influence on preference in case, clothing, house furnishing, leisure
activities, reading habits, and retailers. Many companies design products and services for
specific social classes.
4.7.3 Behavioral segmentation
In behavioral segmentation, buyers are divided into groups on the basis of their knowledge of
attitude toward use of or response to a product. Some marketers regularly attempt to segment
their markets on the basis of product related behavior –they utilize behavioral segmentation.
In this section we briefly consider two of these the benefit desired from a product, and the
rate at which the consumer uses the product.
1. Benefits desired
Many companies credited with drawing attentions to the notion of benefit segmentation when
they described a hypothetical division of their product market based on the benefits desired.
Two things determine the effectiveness of benefits segmentation. First, the specific benefits
consumers are seeking must be identified. This typically involves several research steps,
beginning with the identification of all possible benefits related to a particular product or
behavior through brainstorming, observing consumers, and listing to focus groups.
The second task, once the separate benefits are known, is to describe the demographic and
psychographics characteristics of the people seeking each benefit.
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2. Usage Rate
Another basis for market segmentation is the rate at which people use or consume a product.
A frequently used categorization of usage rate is nonusers, light users, medium users, and
heavy users. Normally a company is most interested in the heavy users of its products.
Sometimes a marketer will select as a target market the nonuser or light user, intending to
woo these customers into higher usage. Or light users may constitute an attractive niche for a
seller simply because they are being ignored by firms that are targeting heavy users. Once the
characteristics of these light users have been identified, management can go to them directly
with our introductory low price after. Or a seven might get consumers to increase their usage
rate by: i) Describing new uses for a product
ii) Suggesting new times or places of use
iii) Offering multiple unit packaging
3. Loyal Status
Consumers have varying degree of loyalty to specific brands, stores, and others entities.
Buyers can be divided into four groups according to brand loyal status: 1. Hard-core loyal: - Consumers who buy one brand all the time
2. Split loyal: - Consumers who are loyal to two or three brands.
3. Shifting loyal: - Consumers who shift from one brand to another
4. Suit hers: - Consumers who show no loyalty to any brand.
4. Buyers Readiness Stage
A market consists of people in different states of readiness to buy a product. Some are
unaware of the product, some are aware, some are informed, some are interested, some desire
the product, and some intend to buy. The relative numbers make a big difference in designing
the marketing program.
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5. Attitude
Five attitude groups can be found in market enthusiastic, positive, indifferent, negative, and
hostile. To the extent that attitudes are correlated with demographic descriptors.
4.7.4 Psychographics segmentation
Psychographics is the science of using psychology and demographics to better understand
consumers. In psychographics segmentation, buyers are divided into different groups on the
bases of lifestyle or personality and values. People with the same demographic group can
exhibit very different psychographics profiles.
Lifestyle: - People exhibit many more lifestyle than are suggested by the seven social
classes. The goods they consume express their lifestyle.
Companies making cosmetics, alcoholic beverages and furniture are always seeking
opportunities in lifestyle segmentation. But lifestyle segmentation does not always work.
Personality: - Marketers have used personality variable to segments. They endow their
products with brand personalities that correspond to consumer’s personalities. In the late
1950, Fords and Chevrolets were promoted as having different personalities. Ford buyers
were identified as independent, impulsive, muscular, alert to change and self-confident.
Values: - Some marketers segment by core values, the belief system that underlie consumer
attitudes and behavior. Core values go much deeper than behavior or attitude, and determine
at a basic level, people’s choices and desires over the long term. Marketers that segment by
values behave that by appealing to people’s inner selves it is possible to influence this outer
selves their purchase behavior.
4.8. Market Targeting
4.8.1 Meaning of market targeting
Once a firm has identified its market segmentation opportunity, it has to decide how many
and which ones to target. Markets are increasingly combining several variables in an effort to
identify smaller, better defined target groups. Thus may not only identify a group of wealthy
retired adults, but within the group distinguish several segments depending on current
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income, assets, savings, and risk preferences. This has led some market researches to
advocate a needs-based market segmentation approach. The seven step approach includes:
1. needs based segmentation
2. segment identification
3. segment attractiveness
4. segment profitability
5. segment positioning
6. segment “acid test”
7. marketing mix strategy
4.8.2 Single segment strategy
Through concentrated marketing, the firm gains a strong knowledge of the markets needs and
achieves a strong market’s presence. A single-segment (or concentration) strategy involves
selecting one segment from within the total market as the target market. One marketing mix
is developed to reach this single segment. A company may want to concentrate on a single
market segment rather than to take on the competitors in the broaden market.
A single-segment strategy enables a seller to penetrate one market in depth to acquire a
repetition as a specialist or an expect in this limited market. A company can imitate a singlesegment strategy with limited resources. And as long as the single segment remains a small
market, large competitors are likely to leave it alone. However, if the small market should
show signs of becoming a large market, big boys jump in.
The risk and limitation of a simple-segment strategy is that the seller has all its eggs in one
basket. If the market potential of that single segment declines, the seller can suffer
considerably. Also a seller with a strong name and reputation in one segment may find it very
different to expand in to another segment.
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4.8.3 Multiple-segment strategy
The best way to manage multiple segments is to appoint segments managers with sufficient
authority and responsibility for the building the segments business. Under a multiple-segment
strategy two or more difficult groups of potential customer one identified as target markets.
A separate marketing mix is developed to reach segment.
In a multiple-segment strategy, a seller frequently will develop a different version of the
basic product for each segment. However, market segmentation can also be accomplished
with no change in the product, but rather with separate distribution channels or promotional
appeals, each tailored to a given market segment.
Multiple segments can provide benefits to an organization, but the strategy has some
drawbacks with respect to costs and market coverage. In the first place, marketing to multiple
segments can be expensive in both the production and marketing of products. And a
multiple-segments strategy increases marketing expenses in several ways. Total inventory
costs go up, because adequate inventories of each style, color, and the like must be
maintained. Advertising costs go up, because different ads may be required for each market
segments. Distribution costs are likely to increase as efforts are made to make products
available to various segments. Finally, general administrative expenses go up when
management must plan and implement several different marketing programs.
4.9.
Market Positioning
All marketing strategy is built on STP- segmentation, Targeting, and positioning. A company
discovers different needs and groups in the market place, targets those needs and groups that
it can satisfy in a superior way, and then positions its offering so that the target market
recognizes the company’s distinctive offering and image.
If a company does an excellent market positioning, then it can work out the rest of its
marketing planning and differentiation from its positioning its strategy. Positioning is defined
as the act of designing the company’s offering and image to copy a distinctive place in the
mind of the target market.
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4.10.
Developing A Positioning Strategy
Companies use several tactics to differentiate their products and brands. Even is the case of
commodity products, the company must see its task as that of converting an undifferentiated
product into a differentiated offering. But one all brands differences are meaningful or
worthwhile. Not every difference is a differentiator. Each difference has the potential to
create company costs as well as customer benefits. Therefore the company must carefully
selects the way in which it will distinguish itself from competitors. A difference is worth
establishing to the extent that it satisfies the following criteria.
Important: The difference delivers a highly valued benefit to a sufficient number of buyers.
Distractive: The difference either is not offered by others or is offered in a more distinctive
way by the company.
Superior: The difference is superior to other ways of obtaining the same benefits.
Communicable: The difference is communicable and visible to buyers.
Preemptive: The difference cannot be easily copied by competitors.
Affordable: The buyers can afford to pay for the difference
Profitable: The company will find it profitable to introduce the difference
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4.11. Summary
Many marketers advocate promoting only one product benefit, thus creating a unique selling
preposition as they position their product. People tend to remember “number one”. But
double benefit positions and triple positioning can also be successful as long as marketers
take steps to ensure that they do not under position, over positions or create confused or
doubtful positioning.
A market consists of people or organization with wants, money to spend and the willingness
to spend it. However, with in most markets the buyers needs are not identical. Therefore, a
single marketing program for the entire market is unlikely to be successful.
Market segmentation is dividing the total market based on homogeneity, which need a
separate or unique marketing mix. Market segmentation enables a company to make more
efficient use of its marketing resources.
The four major bases that may be used for further segmenting the consumer market are
1) Demographic – the distribution of population
2) Demographic – the vital statistics of the population, such as income, age, and gender;
3) Psychographics – personality traits and lifestyles, and
4) Behavioral – benefits desired and product usage rates.
Normally, in either of the consumer or business market, a seller will use a combination of
two or more segmentation bases.
The three alternative strategies for selecting a target market are: market aggregation, single
segment, and multiple segments. Market aggregation involves using one marketing mix to
reach a mass, undifferentiated market.
With a single segment strategy, a company still uses only one marketing mix, but it is
directed at only one segment of the total market. A multiple segment strategy entails
selecting two or more segments and developing a separate marketing mix to reach each
segment.
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4.12. Review Questions
1. What is market segmentation?
________________________________________________________________________
________________________________________________________________________
2. What is market positioning? Identify four patterns of positioning?
________________________________________________________________________
________________________________________________________________________
3. What is market targeting? Discuss the pattern of target market selections?
_________________________________________________________________________
_________________________________________________________________________
4. Discuss the pattern of market segmentation?
_________________________________________________________________________
_________________________________________________________________________
5. What is niche marketing?
_________________________________________________________________________
_________________________________________________________________________
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CHAPTER FIVE
ANALYZING CONSUMER MARKETS & BUYERS
BEHAVIOR
5.1. Chapter objectives
5.2. Introduction
5.3. Meaning of Consumer Buying Behavior
5.3.1. Who Makes Up The Market
5.3.2. Why Do Customers Buy Product
5.4. What Are The Types of Individual Purchasing Decision Making Process?
5.4.1. Routine Purchasing Decision
5.4.2. Limited Problem Solving Buying Decision
5.4.3. Extended Problem Solving Buying Decision
5.5. The Buyer Decision Processes
5.5.1. Need Recognition
5.5.2. Information Search
5.5.3. Evaluation of Alternatives
5.5.4. Purchase Decisions
5.5.5. Post Purchase Behavior
5.6. Major Factors Influencing Consumers Buying Behavior
5.6.1. Cultural Factors
5.6.2. Social Factors
5.6.3. Personal Factors
5.6.4. Psychological Factors
5.7. Summary
5.8. Review Questions
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5.1. Chapter Objectives
This chapter is mainly concerned with the analysis of consumer market and buyers behavior.
By the time you complete this chapter you will be able to:
o Meaning of Consumer Buying Behavior
o What Are The Types of Individual Purchasing Decision Making Process?
o The Buyer Decision Processes
o Major Factors Influencing Consumers Buying Behavior
5.2. Introduction
Dear student! Consumer buying behavior refers to the buying behavior of final consumer,
individuals and households who buy goods and services for personal consumption. It is all of
these final consumers that make up the consumer market.
Consumers around the world vary tremendously in age, income, educational level, and tastes.
Therefore, marketers need to satisfy consumer needs. And in order to do this, they need to
understand the consumers or buyers behavior. If customers are satisfied: they will buy more
of a companies products, they advocate or talk favorably about the companies and company's
product, they may advice the company for improvement, they give little attention to other
companies and their goods, and they may buy new products of the company.
Consumers or buyers behavior involves the activities of people engaged when selecting,
purchasing and using products, so as to satisfy the need and desire.
Managers in an organization spend a great deal of time thinking about customers. They want
to know who their customers are, what they think and how they feel, and why customers buy
their product rather than competitors' owners themselves do not know exactly what motivates
their buying. But management needs to put top priority on understanding customers and what
makes them tick.
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5.3. Major Factors Influencing Consumers Buying Behavior
Markets must fully understand both the theory and reality of consumer behavior. A consumer
buying behavior is influenced by culture, social, and personal factors. Cultural factors exert
the broadest and deepest influence. Consumer purchases are influenced strongly by culture,
social groups, personal and psychological characteristics. For the most part marketers cannot
control such factors, but they must take them into account.
5.3.1. Cultural factors
Cultural factors exert the broadest and deepest influence on consumer behavior. The
marketer needs to understand the role played by the buyer's culture, sub-culture and social
class.
It is the most basic cause of a person's wants and behavior. Human behavior is largely
learned. Growing up in a society, a child learns basic values, perceptions wants and
behaviors from the family and other important institutions. Failure to adjust to these
differences can result in ineffective marketing or embarrassing mistakes. Hence marketers
are always trying to spot cultural shifts in order to imagine new products that might be
wanted.
Each culture contains smaller sub-cultures, or groups of people with shared value systems
based on common life experiences and situations. Subcultures include nationalities religions,
racial groups, and geographic regions. Many subcultures make up important market
segments, and marketers often design products and marketing programs tailored to their
needs.
Almost every society has some form of social class structure. Social classes are society's
relatively permanent and ordered divisions whose members share similar values, interests,
and behaviors.
Social classes have several characteristics. Social class is not determined by a single factor,
such as income, but is measured as a combination of occupation income, education, wealth
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and other variables. In some social systems, members of different classes are reared for
certain roles and can't change their social position.
Social classes should distinct product and brand preferences in areas such as clothing, home
furnishings, leisure activity and automobiles.
5.3.2 Social factors
In addition to cultural factors, a consumer’s behavior is influenced by such social factors as
reference groups, family, and social roles and statuses. A consumer behavior also is
influenced by social factors, such as consumer's small groups, family and social roles and
status. Because these social factors can strongly affect consumer responses, companies must
take them in to account when designing their marketing strategies.
Groups which have a direct influence and to which a person belongs are called membership
groups. Some are primary groups with whom there is regular but informal interaction such as
family, friends, neighbors and co-workers. Some are secondary groups, which are more
formal and have less regular interaction. These include organizations like religious groups,
professional associations and trade unions.
Reference groups are groups that serve as direct (face to face) or indirect points of
comparison or reference in forming a person’s attitudes or behavior. People often are
influenced by reference groups to which they don't belong. For example, an inspirational
group is one to which the individual wishes to be a member of or whishes to be identified
with such as a professional society.
They influence the person's attitudes and self-concept because he/she wants to "fit in". They
also create pressures to conform that may affect the person's product and brand choices.
Manufacturers of products and brands subject to strong group influence must figure out how
to reach the opinion leaders in the relevant reference groups. Opinion leaders are people with
in a reference group who, because of special skills knowledge, personality or other
characteristics, exert influence on others. Opinion leaders are found in all strata of society
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and one person may be an opinion leader in certain product areas and an opinion follower in
others. Marketers try to identify the personal characteristics of opinion leaders for their
products, determine what media they use, and direct messages at them.
Family members can strongly influence buyer behavior. We can distinguish between two
families in the buyer's life. The buyer's parents make up the family of orientation. Parents
provide a person with an orientation toward religion, politics, and economics and a sense of
personal ambition, self-worth, and love. Even if the buyer no longer interacts very much with
parents, they can still significantly influence the buyer's behavior. In countries where parents
continue to live with their children their influence can be crucial.
The families of procreation – the buyer's spouse and children have a more direct influence on
everyday buying behavior. This family is the most important consumer buying organization
in society, and it has been researched extensively. Marketers are interested in the roles and
relative influence of the husband, wife and children on the purchase of a large variety of
products and services.
Roles and Status
A person belongs to many groups – family, clubs, and organizations. The person's position
in each group can be defined in terms of both role and status. For instance, a person plays the
role of a child with his/her parents. In his/her family, he/she plays the role of marketing
manager. A role consists of the activities people are expected to perform according to the
persons around them. Each of a person's roles will influence some of his/her buying
behavior.
Personal Factors
A buyer's decisions also are influenced by personal characteristics such as the buyer's age
and life-cycle stage, occupation, economic situation, lifestyles, and personality and selfconcept.
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Age and Stage in the Lifecycle
People buy different goods and services. Buying is also shaped by the stage of the family life
cycle – the stages through which families might pass as they mature overtime. Marketers
often define their target markets in terms of life cycle stage and develop appropriate products
and marketing plans for each stage.
Occupation and economic circumstances
A person's occupation affects the goods and services bought. Blue-collar workers tend to
buy more work clothes, where as white –collar workers buy more suits and ties. Marketers
try to identify the occupational groups that have an above – average interest in their products
and services. A company can even specialize in making products needed by a give
occupational group. A person's economic situation will affect product choice. A person can
consider buying an expensive product (brand) if he/she has enough spendable income,
savings, or borrowing power. Marketers of income sensitive goods closely watch trends in
personal income, savings and interest rates. If economic indicators point to a recession,
marketers can take steps to redesign, reposition, and re-price their products.
5.3.4. Psychological factors
The starting point for understanding consumer behavior is the stimulus-response. Marketing
and environmental stimuli enter the consumer's consciousness. A set of psychological
processes combine with certain consumer characteristics result in decision processes and
purchase decisions. The marketer's task is to understand what happens in the consumer's
consciousness between the arrival of the outside market stimuli and the ultimate purchase
decisions. Four key psychological processes-motivation perception, learning, and memoryfundamentally influence consumer responses to various marketing stimuli.
Motivation: Freud, Maslow, Herzberg
A person has many needs at any given time. Some needs are biogenic; they arise from
philological states of tension such as hunger, thirst, or discomfort. Other needs are
psychogenic they arise from psychological states of tension such as the need for recognition,
esteem, (belonging. A need becomes a motive when it is aroused to a sufficient level of
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intensity. Three of the best-known theories of human motivation-those of Sigmund Freud,
Abraham Maslow, and Frederick Herzberg-carry quite different implications for consumer,
analysis and marketing strategy.
To uncover deeper motives triggered by a product. They use various projective techno (such
as word association, sentence completion, picture interpretation, and role playing. Many of
these techniques were pioneered by Ernest Ditcher, a Viennese psychologist who settled in
America. Motivation researchers often collect "in-depth interviews" with a few dozen
consumers behavior are largely unconscious, and that a person cannot fully understand his or
her own, motivations. When a person examines specific brands, he or she will react not only
to their stated capabilities, but also to other, less conscious cues. Shape, size, weight,
material, color, J and brand name can all trigger certain associations and emotions. A
technique called, laddering can be used to trace a person's motivations from the stated
instrumental ones to the more terminal ones. Then the marketer can decide at what level to
develop the message and appeal.
5.3.5 Who makes up the market?
The market can be broadly categorized into two major groups, for the study of buyers
behavior. These are:
1. consumer or individual or final or ultimate users or buyers
2. organizational or business or industrial buyers.
o Consumer or individual buyers are those groups that purchase products (goods &
services) for their own personal or household use consumption purpose.
o Organizational buyers are those groups of buyers that purchase products (goods &
services) for use in making other products, for resale, or for day-to-day operation
purpose. These include government institutions, manufacturing companies,
resellers (wholesalers, retailers) and so on. Each of these market groups has
specific behaviors that must be studied by marketers.
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5.3.6. Why do customers buy products?
There are so many reasons why customers purchase products. But learning about why of
customers buying behavior is not so easy- the answers are often located deep within the
consumer's head. However, we can at least site some of the possible reasons for purchasing
like:
o to solve specific problems
o to prevent a problem from occurring
o for symbolic purpose: emotional and psychological satisfaction
o out of a habit
o because of persuasion
o because of coercion.
5.4. What are the Types of Individual Purchasing Decision Making
Process?
Sometimes consumers do not engage in the five steps purchase decision process. Instead,
they skip or minimize one or more steps depending on the level of involvement, the personal,
social, and economic significance of the purchase to the consumer. High-involvement
purchase occasions typically have at least one of the three characteristics.
The item to be purchased;
(1) is expensive
(2) can have serious personal consequences or
(3) could reflect on one's social image.
For these occasions, consumers engage in extensive information search, consider many
product attributes and brands, form attitudes and participate in word -of-mouth
communication. Low involvement purchases, such as toothpaste and soap, barely involve
most of us, whereas stereo systems and automobiles are very involving. Researchers have
identified three general variations in the consumer purchase process based on consumer
involvement and product knowledge.
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5.4.1 Routine problem solving
For products such as toothpastes and milk consumers recognize a problem, make a decision
and spend little effort seeking external information and evaluating alternatives. The purchase
process for such item is virtually a habit and typifies low-involvement decision-making.
Routine problem solving is typically the case of low priced, frequently purchased products. It
is estimated that about 50 percent of all purchase occasions are of this kind.
Routine type of decision making have the following characteristics:
o level of information about the market is very high
o price knowledge and experience is very high
o frequency of purchase is very high
o perceived risk is very low or none
o e.g. Purchasing a pen
5.4.2 Limited problem solving buying decision
In such kind of purchase decision, consumers typically seek some information or rely on a
friend to help them evaluate alternatives. In general, several brands might be evaluated using
a moderate number of different attributes. You might use limited problem solving a toaster, a
restaurant for dinner, and other purchase situations in which you have little time or effort to
spend. Limited problem solving accounts for about 38 percent of purchase occasions.
Limited buying decision making has the following characteristics:
-
level of information about the market is intermediate or moderate
-
price knowledge and experience is moderate
-
frequency of purchase is average
-
perceived risk is also moderate.
Example of such buying decision includes purchasing furniture and cloths.
5.4.3 Extended problem solving buying decision
In extended problem solving, each of the five stages of the consumer purchase decision
process is used in the purchase, including considerable time and effort on external
information search and in identifying and evaluating alternatives. Extended problem solving
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exists in high-involvement purchase situations for items such as CD Players, VCRs and
investments in stocks and bonds. Firms marketing these products put significant effort into
informing and educating these customers. About 12 percent of purchases fall into this
category.
The following are some of the characteristics of problem solving buying decision:
o level of information about the market is none or very little
o Price knowledge and experience is almost none or very little
o Frequency of purchase is very little and,
o Perceived risk is very high.
o Example for such kind of purchase decision includes buying a house, a car and any
other similar nature.
5.5. The Buyer Decision Processes
These basic psychological processes play an important role in understanding how consumers
usually make their buying decisions. Marketers must understand every facet of consumers
behavior. Table 6.2 provides a list of some key consumer behavior questions in terms of who,
what, when, where, how, and why." Smart companies try to fully understand the consumers’
buying decision process-all their experiences in learning, choosing, using, and disposing of a
product.
Marketing scholars have developed a "stage model" of the buying decision process. The
consumer passes through five stages: problem recognition, information search, relation of
alternatives, purchase decision, and post purchase behavior. Clearly, the buying process starts
long before the actual purchase and has consequences long afterward.
But consumers do not always pass through all five stages in buying a product. They may skip
or reverse some stages. A woman buying her regular brand of toothpaste goes directly from
the for toothpaste to the purchase decision, skipping information search and evaluation.
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Problem recognition
With an internal stimulus, one of neither the person's nor needs-hunger, thirst, sex-rises to a
threshold level and becomes a drive; or a need can aroused by an external stimulus. A
believer in "retail theater," Krispy Kreme lights a neon "HOT NOW" sign to get atttentionand purchase interest-each time a new batch of doughnuts is baked. Marketers need to
identify the circumstances that trigger a particular need by gathering information from a
number of consumers. They can then develop marketing strategies that trigger consumer
interest. This is particularly important with discretionary purchases such as (luxury goods,
vacation packages, and entertainment options. Consumer motivation may need to be
increased so that a potential purchase is even given serious consideration. An aroused
consumer will be inclined to search for more information. We can distinguish between two
levels of arousal. The milder search state is called heightened attention. At this level a person
simply becomes more receptive to information about a product.
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5.6. Summary
Culture is the most basic determinant of a person's wants and behavior. It includes the basic
values, perceptions preferences and behaviors that a person learns from family and other key
institutions. Marketers try to track cultural shifts that might suggest new ways to serve
consumers. Sub-cultures are "Cultures within Cultures" that have distinct values and
lifestyles. Social classes are subcultures whose members have similar social prestige based
on occupation, income, education, wealth and other variables. People with different culture,
sub-cultural, and social class characteristics have different product and brand preferences.
Marketers may want to focus their marketing programs on the special needs of certain
groups.
The buyer's age, life-cycle stage, occupation economic circumstances, lifestyle, personality
and other personal characteristics influence his/her buying decisions. Young customers have
different needs and wants from older consumers.
Finally, consumer-buying behavior is influenced by four major psychological factorsmotivation, perception, learning and attitudes. Each of these factors provides a different
perspective for understanding the workings of the buyer's black box.
A person's buying behavior is the result of the complex interplay of all these cultural, social
personal and psychological factors. Although many of these factors cannot be controlled by
marketers, they are useful in identifying and understanding the consumers that marketers are
trying to influence.
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5.7. Review Questions
1. Explain the term consumer market and buyers behavior.
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
2. Discuss the model of buyer behavior.
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
3. Identify and briefly discuss the different types of individual buying decisions.
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
4. Which step of the consumer buying process is critical in the most complex type of
decision making.
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
5. What is the impact of cultural factors on the consumers buying behavior.
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
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CHAPTER SIX
ANALYZING BUSINESS MARKETS & BUSINESS BUYING
BEHAVIOR
6.1 Chapter objectives
6.2 Introduction
6.3 Meaning of Organizational Buying Behavior
6.4 The Business Market Versus the Consumer Market
6.5 Buying Situations
6.5.1
Straight Rebuy
6.5.2
Modified Rebuy
6.5.3
New Task Buying
6.6 Systems Buying And Selling
6.7 Participants in the Business Buying Process
6.8 The Buying Center
6.9 Major Influences in Business Markets
6.9.1
Environmental Factors
6.9.2
Organizational Factors
6.9.3
Interpersonal Factors
6.9.4
Individual Factors
6.10 Summary
6.11 Review Questions
6.1. Chapter Objectives
This chapter is concerned with the analyzing business markets & business buying behavior.
So by the time you complete this chapter you would be able to explain some concepts related
to the business markets and business buying behavior, including:
o meaning of organizational buying behavior
o the business market versus the consumer market
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o buying situations
o participants in the business buying process
o systems buying and selling
o the buying center
o major influences in business markets
o the purchasing / procurement process
o institutional and government Markets
6.2. Introduction
Business organizations do not only sell. They also buy vast quantities of raw materials,
manufactured components, plant and equipment, supplies and business services. There are
large numbers of buying organizations in Ethiopia. Sellers need to understand these
organizations' needs, resources, policies and buying procedures.
6.3. Meaning Of Organizational Buying Behavior
Webster and Wind defined organizational buying as follows: Organizational buying is the
decision making process by which formal organizations establish the need for purchased
products and services and identify, evaluate and choose among alternative brands and
supplies.
Although no two companies buy in the same way, the seller hopes to identify clusters of
business firms that buy in similar ways to permit marketing strategy targeting.
6.4.
The Business Market Versus The Consumer Market
The business market consists of all the organizations that acquire goods and services used in
the production of other products or services that are sold, rented or supplied to others. The
major industries making up the business market are agricultural, forestry and fisheries,
mining, manufacturing, construction, transportation, communication, public utilities,
banking, finance and insurance distribution and services.
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More birr and items are involved in sales to business buyers than to consumers. Consider the
process of producing and selling a simple pair of shoes. Hide dealers must sell hides to
tanners, who sell leather to shoe manufactures, who sell shoes to wholesalers, who sell shoes
to retailers, who finally sell them to consumers. Each party in the supply chain also has to
buy many other goods and services.
Business markets have several characteristics that contrast sharply with consumer markets.
o Fewer buyers: the business marketer normally deals with far fewer buyers than the
consumer marketer does. For example Addis Tyre Share Company sales largely
depends on getting an order from very few and large government transportation
companies like 'Anbessa' City Bus service and Walya intercity bus service enterprise.
o Large buyers: a few large buyers do most of the purchasing in such industries as
aircraft engines and defense weapons.
o Class supplier - Customer relationship: because of the smaller customer base and the
importance and power of the larger customers, suppliers are frequently expected to
customize their offerings to individual business customer needs. Sometimes the
buyers require the sellers to change their practices and performance. Nowadays in
modern business, relationships between customers and suppliers have been changing
from downright adversarial to close and chummy. (Good Friendship).
Geographically concentrated buyers: a very large group of business buyers in Ethiopia are
concentrated in major cities: Addis Ababa, Nazareth, Asela, Dire Dawa, Nekemt, and Jimma.
The geographical concentration of producers helps to reduce selling costs. At the same time,
business marketers need to monitor regional shifts of certain industries.
Inelastic demand: the total demand for many business goods and services is inelastic that is,
not much affected by price changes. Shoe manufacturers are not going to buy much more
leather if price of leather falls. Nor are they going to buy much less leather if the price rises
unless they can find satisfactory substitutes. Demand is especially inelastic in the short run
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because producers cannot make quick changes in production methods. Demand is also
inelastic for business goods that represent a small percentage of the item's total cost.
Fluctuating demand: the demand for business goods and services tends to be more volatile
than the demand for consumer goods and services. A given percentage increase in consumer
demand can lead to a much larger percentage increase in the demand for plant and equipment
necessary to produce the additional output. Researches indicate that sometimes a rise of
about 10 percent in consumer demand can cause as much as a 20 percent rise in business
demand for products in the next period.
Professional Purchasing: business goods are purchased by trained purchasing agents, who
must follow the organization's purchasing policies, constraints, and requirements. many of
the buying instruments – for example – requests for quotations, proposals and purchase
contracts – are not typically found in consumer buying.
Several buying influence: more people typically influence business-buying decisions. Buying
committees consisting of technical experts and even senior management are common in the
purchase of major goods. Business marketers have to send well-trained sales –
representatives and often sales teams to deal with the well – trained buyers.
Multiple sales calls: because more people are involved in the selling process it takes multiple
sales calls to win most business orders and the sales cycle can take years. A study showed
that it takes more than four calls to close an average industrial sale. In the case of capital
equipment sales for large projects, it may take multiple attempts to fund a project, and the
sales cycle-between quoting a job and delivering the product – is often measured in a number
of days.
Leasing: many industrial buyers lease instead of buy heavy equipment like machinery and
trucks. The lessee gains a number of advantages: conserving capital, getting the latest
product, receiving better service and gaining some tax advantages. The lessor often ends up
with a larger net income and the chance to sell customers who could not afford outright
purchase.
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6.5. Buying Situations
The business buyer faces many decisions in making a purchase. The number of decisions
depends on the type of buying situation. Robinson and others distinguish three types of
buying situations: the straight re-buy, modified re-buy, and new task.
6.5.1 Straight re-buy
The straight re-buy is a buying situation in which the purchasing department re-orders on a
routing basis (e.g. office supplies, bulk chemicals). The buyer chooses from suppliers on an
"approved list". These suppliers make an effort to maintain product and service quality. They
often propose automatic reordering systems so that the purchasing agent will save reordering
time. The out-suppliers attempt to offer something new or to exploit dissatisfaction with a
current supplier. Out-suppliers try to get a small order and then enlarge their purchase share
over time.
6.5.2 Modified re-buy
The modified re-buy is a situation in which the buyer wants to modify product specifications,
prices, delivery requirements or other related items. The modified re-buy usually involves
additional decision participant on both sides. The in-suppliers become nervous and have to
protect the account. The out-suppliers see an opportunity to propose a better offer to gain
some business.
6.5.3 New task buying
It is a buying situation in which a purchaser buys a product or service for the first time
(example could be office building, new security system). The greater the risk or the cost, the
larger the number of decision participants and the greater their information gathering and
therefore the longer the time to decision completion.
New-task buying passes through several stages; awareness, interest, evaluation, trial and
adoption. Communication tools effectiveness varies at each stage; sales people have their
greatest impact at the interest stage; and technical sources are the most important during the
evaluation stage.
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The business buyer makes the fewest decisions in the straight re-buy situation and the most
in the new task situation. In the modified re-buy, the buyer has to determine product
specification, price limits, delivery terms and times, service terms, payment terms, order
quantities, acceptable suppliers and the selected suppliers. Different decision participants
influence each decision and the order varies in which these decisions are made. The new task
situation is the marketers greatest opportunity and challenge the marketer tries to reach as
many key buying influencers as possible and provide helpful information and assistance.
Because of the complicated selling involved in the new task, many companies use a
missionary sales force consisting of their best sales people.
6.6. System Buying And Selling
Many business buyers prefer to buy a total solution to their problem from one seller called
systems buying, this practice originated with government purchases of major weapons and
communication systems. The government would solicit bids from prime contractors, who
would assemble the package or system. The contractor who was awarded the contract would
be responsible for bidding out and assembling the system's subcomponents from second-tier
contractors. The prime contractor would thus provide a "tunkey solution", so called because
the buyer simply had to turn one key to get the job done.
Sellers have increasingly recognized that buyers like to purchase in this way, and many have
adopted systems selling as a marketing tool. System selling can take different forms. For
example, many auto parts manufacturers now sell whole systems, such as the seating system,
the baking system, or the door system. A variant on systems selling is systems contracting,
where a single supply source provides the buyer with his/her entire requirement of
maintenance, repair, and operating supplies. The customer benefits from reduced costs
because the seller maintains the inventory. Savings also result from reduced time spent on
supplier selection and from price-protection over the term of the contract. The seller benefits
from lower operating costs because of a steady demand an reduced paperwork.
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6.7. Participants In The Business Buying Process
Who does the buying of thousands of birr worth of goods and services needed by business
organizations? Purchasing agents are influential in straight re-buy and modified re-buy
situations, whereas other department personnel are more influential in new-buy situations.
Engineering personnel usually have major influence in selecting product components and
purchasing agents dominate in selecting suppliers.
6.8. The Buying Center
Webster and Wind call the decision-making unit of a buying organization the buying center.
The buying center is composed of all those individuals and groups who participate in the
purchasing decision making process, who share some common goals and the risks arising
from the decisions. The buying center includes all members of the organization who play any
of seven roles in the purchase decision process.
o Initiators: those who request that something be purchased the may be users or
others in the organization.
o Users: those who will use the product or service. In many cases the users initiate
the buying proposal and help define the product requirements.
o Deciders: people who decide on product requirements or on suppliers.
o Approvers: people who authorize the proposed actions of deciders or buyers.
o Buyers: people who have formal authority to select the supplier and arrange the
purchase terms. Buyers may help shape product specifications, but they play their
major role in selecting vendors and negotiating. In more complex purchases, the
buyer might include high level managers participating in the negotiations.
o Gate keepers: people who have the power to prevent sellers or information from
reaching members of the buying center. For example, purchasing agents,
receptionists, and telephone operators may prevent sales persons from contacting
users or deciders.
The average number of people involved in a buying decision ranges from about three (for
services and items used in day-to-day operations) to almost five (for such high-ticket
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purchases as construction work and machinery). There is also a trend toward team based
buying.
To target their efforts properly, business marketers have to figure out: who are the major
decision participants? What decisions do they influence? What their level of influence? What
evaluation criteria do they use?
When a buying center includes many participants, the business marketer will not have the
time or resources to reach all of them. Small sellers concentrate on reaching the key buying
influencers. Large sellers go for multilevel in-depth selling to reach as many participants as
possible. Their salespeople virtually live with their high volume customers. Companies will
have to rely more heavily on their communications programme to reach hidden buying
influences and keep their current customers sold.
6.9. Major Influences In Business Markets
Business buyers respond to many influences when they make their decisions. When
suppliers' offerings are similar, business buyers can satisfy the purchasing requirements with
any supplier, and they place more weight in the personal treatment they receive. Where
supplier offerings differ substantially, business buyers are more accountable for their choices
and pay more attention to economic factors.
Business buyers respond to four main influences, environmental, organizational,
interpersonal and individual factors.
6.9.1 Environmental factors
Business buyers pay close attention to current and expected economic factors, such as the
level of production investment, consumer spending and the interest rate. In a recession,
business buyers reduce their investment in plant equipment and inventories. Business
marketers can do little to stimulate total demand in this environment. They can only fight
harder to increase or maintain their share of demand.
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Companies that fear a shortage of key materials are willing to buy and hold large inventories.
They will sign long-term contracts with suppliers to ensure a steady flow of materials.
Business buyers actively monitor technological, political regulatory and competitive
developments. For example, environmental concerns cause changes in business buyer
behavior. A printing firm might favor paper suppliers that carry a wide selection of recycled
papers or ink vendors who use environmentally safe ink.
6.9.2 Organizational factors
Every organization has specific purchasing objectives, policies, procedures, organizational
structures and systems. Business marketers need to be aware of the following organizational
trends in the purchasing area.
Purchasing department upgrading: purchasing departments in the past occupied in a low
position in the management hierarchy, in spite of managing often more than half of the
company’s costs. A typical firm spends about 60 percent of its net sales on purchased goods
and services. However, recent competitive pressures have led many companies to upgrade
their purchasing departments and elevate their administrators to vice presidential level.
Cross – functional roles: in recent survey, most purchasing professionals described their job
as less clerical, more strategic, technical, team oriented and involving more responsibility
than before. Purchasing is doing more cross functional work than it did in the past.
Centralized purchasing: in multidivisional companies, most purchasing is carried out by
separate divisions because of their differing needs. Some companies, however have started to
recentralize their purchasing. Headquarters identifies materials purchased by several
divisions and buys them centrally, thereby gaining more purchasing clout.
The individual divisions can buy from another source if they can get better deal, but in
general centralized purchasing produces substantial savings. For the business marketer, this
development means dealing with fewer and higher – level buyers. The company uses a
national account sales group to deal with large corporate buyers.
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Decentralized purchasing of small – ticket items: at the same time, companies are
decentralizing some purchasing operations by empowering employees to purchase small –
ticket items. This has come about through different systems such as credit – card systems
Internet purchasing: - though is not developed well in Ethiopia in more advanced nations
by the millennium, business to business buying on the web is increasing tremendously. The
move to internet purchasing has far – reached implications of suppliers and will, no doubt,
change the shape of purchasing for years to come.
Long – Term Contracts: Business buyers are increasingly initiation or accepting long-term
contracts with reliable suppliers, that are close to their plants and provide high quality items.
Purchasing – Performance Evaluation and Buyers’ Professional Development:
Many
companies have set up incentive systems to reward purchasing mangers for good buying
performance, in much the same way that sales personnel receive bonuses for good selling
performance. These systems are leading purchasing mangers to increase their pressure on
sellers for the best terms
Lean Production: Many manufacturers have moved toward a new way of manufacturing
called lean production, which enables them to produce a greater variety of high quality
products at lower cost, in less time, using less labor. Among the elements of this new system
are just – in – time (JIT) production, strict quality control, frequent and reliable delivery from
suppliers, suppliers locating closer to major customer, computerized purchasing systems,
stable production schedules made available to suppliers, and single sourcing with early
supplier involvement.
6.9.3 Interpersonal factors
Buying centers usually include several participants with differing interests, authority, status,
empathy and persuasiveness. The business marketer is not likely to k\now what kind of group
dynamics take place during the buying decision process, although what ever information he
or she can discover about personalities and interpersonal factors would be useful.
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6.9.4 Individual factors
Each buyer carries personal motivations, perceptions and preferences as influenced by the
buyer’s age, income, education, job position, personality, attitudes towards risk, and culture.
Buyers definitely exhibit different buying styles. There are “keep – it – simple” buyers, “own
– experts” buyers, “want – the – best” buyers, and “want – everything – done” buyers. Some
younger, highly educated buyers are computer experts who conduct rigorous analyses of
competitive proposals before choosing a supplier. Other buyers are “toughies” from the old
school and pit the competing sellers against one another.
6.10. Summary
There are large numbers of buying organizations in Ethiopia. Sellers need to understand these
organizations' needs, resources, policies and buying procedures.
Derived demand: the demand for business goods is ultimately derived from the demand for
consumer goods. For this reason, the business marketer must closely monitor the buying
patterns of ultimate consumers.
The modified re-buy is a situation in which the buyer wants to modify product specifications,
prices, delivery requirements or other related items. The modified re-buy usually involves
additional decision participant on both sides. The in-suppliers become nervous and have to
protect the account. The out-suppliers see an opportunity to propose a better offer to gain
some business.
Centralized purchasing: in multidivisional companies, most purchasing is carried out by
separate divisions because of their differing needs. Some companies however have started to
recentralize their purchasing. Headquarters identifies materials purchased by several
divisions and buys them centrally, thereby gaining more purchasing clout.
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6.11. Review Questions
1. Explain business markets and business buying behavior.
_______________________________________________________________________
_______________________________________________________________________
2. Compare and contrast business market with consumer markets.
______________________________________________________________________
______________________________________________________________________
3. Identify and discuss the different organizational buying situations.
______________________________________________________________________
______________________________________________________________________
4. Define the buying center and identify the participants in the business buying process.
________________________________________________________________________
________________________________________________________________________
5. How does the organizational forces influence the business markets.
_______________________________________________________________________
_______________________________________________________________________
6. Briefly explain the stages in the organizational procurement process.
______________________________________________________________________
______________________________________________________________________
7. Relate the concept of business marketers with institutional and government markets.
________________________________________________________________________
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CHAPTER SEVEN
MARKETING INFORMATION SYSTEM (MIS)
7.1 Chapter objectives
7.2 Introduction
7.3 Meaning and Definitions
7.4 Components of Marketing Information System
7.4.1
Internal Records
7.4.2
Marketing Intelligence
7.4.3
Analyzing the Microenvironment
7.5 Marketing Research
7.6 Summary
7.7 Review Questions
7.1.
Chapter Objectives
This chapter is concerned with the marketing information system (MIS). By terh time you
complete this chapter you would be able to explain the:
o Meaning and Definitions
o Components of Marketing Information System
o Marketing Decision Support System
o Marketing Research
o Research Instrument
7.2.
Introduction
Dear Students! The major responsibility for identifying significant marketplace changes falls
to the company's marketers. More than any other group in the company, they must be the
trend trackers and opportunity seekers. Although every manager in an organization needs to
observe the outside environment, marketers have two advantages: They have disciplined
methods for collecting information and they also spend more time interacting with customers
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and observing competition. Some firms have developed marketing information systems that
provide management with rich detail about buyer wants, preferences, and behavior.
7.3.
Meaning And Definitions
Every firm must organize the flow of information to its marketing managers. Companies are
studying their manager’s information’s needs and designing marketing information system to
meet these needs.
What is a marketing information system?
__________________________________________________________________________
A marketing information system consists of people, equipment and procedure to gather sort,
analyze, evaluate and distribute needed timely and accurate information to marketing
decision makers.
The marketing managers to carryout their analysis, planning, implementation, and control
responsibilities, they need information about development in the marketing environment.
The role of the information system is to assess the manager’s information needs, develop the
needed information, and distribute the information is a timely fashion to the marketing
managers.
The needed information is developed through internal company records, marketing
intelligence activities, marketing research, and marketing decision support analysis.
7.4.
Components Of Marketing Information System
Marketers have extensive information about how consumption patterns vary across countries.
On a per capita basis within Western Europe, for example, the Swiss consume the most
chocolate, the Greeks eat the most cheese, the Irish drink the most tea, and the Austrians
smoke the most cigarettes. Nevertheless, many business firms are not sophisticated about
gathering information. Many do not have a marketing research department. Others have a
department that limits its work to routine forecasting, sales analysis, and occasional surveys.
Many managers complain about not knowing where critical information is located in the
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company; getting too much information that they cannot use and too little that they really
need; getting important information too late; and doubting the information's accuracy.
Companies with superior information enjoy a competitive advantage. The company can
choose its markets better develop better offerings, and execute better marketing planning.
1 . What decisions do you regularly make?
_______________________________________________________________________
_______________________________________________________________________
2. What information do you need to make these decisions?
________________________________________________________________________
________________________________________________________________________
3 What information do you regularly get?
_________________________________________________________________________
_________________________________________________________________________
4. What special studies do you periodically request?
_______________________________________________________________________
_______________________________________________________________________
5. What information would you want that you are not getting now?
_______________________________________________________________________
________________________________________________________________________
6. What information would you want daily? Weekly? Monthly? Yearly?
_______________________________________________________________________
_______________________________________________________________________
7. What magazines and trade reports would you like to see on a regular basis?
________________________________________________________________________
________________________________________________________________________
8. What topics would you like to be kept informed of?
________________________________________________________________________
________________________________________________________________________
9. What data analysis programs would you want?
________________________________________________________________________
________________________________________________________________________
10. What are the four most helpful improvements that could be made in the present
marketing information system?
______________________________________________________________________
______________________________________________________________________
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Every firm must organize and distribute a continuous flow of information to its marketing
managers. Companies study their managers' information needs and design marketing
information systems (MIS) to meet these needs. A marketing information system (MIS)
consists of people, equipment, and procedures to gather, sort, analyze, evaluate, and distribute needed, timely, and accurate information to marketing decision makers. A marketing
information system is developed from internal company records, marketing intelligence
activities, and marketing research.
The company's marketing information system should be a cross between what managers
thinks they need, what managers really need, and what is economically feasible. An internal
MIS committee can interview a cross section of marketing managers to discover their information needs.
7.4.1. Internal records and marketing intelligence
Marketing managers rely on internal reports on orders, sales, prices, costs, inventory levels,
receivables, payables, and so on. By analyzing this information, they can spot important
opportunities and problems.
The heart of the internal records system is the order-to-payment cycle. Sales representatives,
dealers, and customers send orders to the firm. The sales department prepares invoices and
transmits copies to various departments. Out-of-stock items are back ordered. Shipped items
are accompanied by shipping and billing documents that are sent to various departments.
Today's companies need to perform these steps quickly and accurately. Customers favor
firms that can promise timely delivery. Customers and sales representatives fax or e-mail
their orders. Computerized warehouses quickly fill these orders. The billing department
sends out invoices as quickly as possible. An increasing number of companies are using the
Internet and extranets to improve the speed, accuracy, and efficiency of the order-to payment
cycle.
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Companies must carefully interpret the sales data so as not to get the wrong signals. Michael
Dell gave this illustration: "If you have three yellow Mustangs sitting on a dealer's lot and a
customer wants a red one, the salesman may be really good at figuring out how to sell the
yellow Mustang. So the yellow Mustang gets sold, and a signal gets sent back to the factory
that, hey, people want yellow Mustangs.
Technological gadgets are revolutionizing sales information systems and allowing representatives to have up-to-the-second information. In visiting one of the 10,000 golf shops
around the country, sales reps for Taylor Made used to spend up to two hours counting golf
clubs in stock before filling new orders by hand. Since the company gave its reps handheld
devices with bar-code readers and Internet connections, the reps now simply point their
handhelds at the bar codes and automatically tally inventory. By using the two hours they
save to focus on boosting sales to retail customers, sales reps improved productivity by 20
percent.
Databases, Data Warehousing, and Data Mining
Today companies organize their information in databases-customer databases, product
databases, and salesperson databases-and then combine data from the different databases. For
example, the customer database will contain every customer's name, address, past
transactions, and even demographics and psychographics (activities, interests, and opinions)
in some instances. Instead of a company sending a mass "carpet bombing" mailing of a new
offer to every customer in its database, it will score the different customers according to
purchase regency, frequency, and monetary value. It will send the offer only to the highest
scoring customers. Besides saving on mailing expenses, this will often achieve a double-digit
response rate.
Companies warehouse these data and make them easily accessible to decision makers.
Furthermore, by hiring analysts skilled in sophisticated statistical methods, they can "mine"
the data and garner fresh insights into neglected customer segments, recent customer trends,
and other useful information. The customer information can be cross-tabbed with product
and salesperson information to yield still deeper insights,) To manage all the different
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databases efficiently and effectively, more firms are using business integration software.
Using its own in-house technology, for example, Wells Fargo has developed the ability to
track and analyze every bank transaction made by its 10 million retail customers-whether at
ATMs, bank branches, or online.
7.4.2. The marketing intelligence system
The internal records system supplies results data, but the marketing intelligence system
supplies happenings data. A marketing intelligence system is a set of procedures and sources
managers use to obtain everyday information about developments in the marketing
environment. Marketing managers collect marketing intelligence by reading books,
newspapers, and trade publications; talking to customers, suppliers, and distributors; and
meeting with other company managers.
A company can take several steps to improve the quality of its marketing intelligence. A
company can train and motivate the sales force to spot and report new developments.
7.4.3. Analyzing the microenvironment
Successful companies recognize and respond profitably to unmet needs and trends companies
could make a fortune if they could solve any of these problems: a cure for cancer; chemical
cures for mental diseases; desalinization of seawater; nonfattening, tasty nutrition food;
practical electric cars; and affordable housing.
Enterprising individuals and companies manage to create new solutions to unmet needs.
FedEx was created to meet the need for next -day mail delivery. Dockers was created to meet
the needs of baby boomers who could no longer really wear-or fit into!-their jeans and
wanted a physically and psychologically comfortable pair of pants. Amazon was created to
offer more choice and information for books and other products. We can draw distinctions
among fads, trends, and mega trends. A fad is "unpredictable, short-lived, and without social.
economic, and political significance." A company can cash on a fad such as Beanie Babies,
Furies, and Tickle Me Elmo dolls, but this is more a matter of luck and good timing than
anything else. A trend is a direction or sequence of events that has some momentum and
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durability. Trends are more predictable and durable than fads. A trend reveals the shape of
the future and provides many opportunities. For example, the percentage of people who value
physical fitness and well-being has risen steadily over the years, especially in the under-30
group, the young women and upscale group, and people living in the West. Marketers of
health foods and exercise equipment cater to this trend with appropriate products and
communications. Megatrends have been described as "large social, economic, political and
technological changes [that] are slow to form, and once in place, they influence us for some
time between seven and ten years, or longer."17 See "Marketing Insight: Ten Megatrends
Shaping the Consumer Landscape" for a look into the forces in play during the next decade
or so. Trends and mega trends merit close attention. A new product or marketing program is
likely to be more successful if it is in line with strong trends rather than opposed to them, but
detecting a new market opportunity does not guarantee success, even if it is technically feasible. For example, today some companies sell portable "electronic books"; but there may not
be a sufficient number of people interested in reading a book on a computer screen or willing
to pay the required price. This is why market research is necessary to determine an
opportunity's profit potential.
To help marketers spot cultural shifts that might bring new opportunities or threats, several
firms offer social-cultural forecasts.
7.5.
Marketing Research
Effective marketing research involves the six steps described as follows:
Step 1: Define the Problem, the Decision Alternatives, and the Research Objectives
Marketing management must be careful not to define the problem too broadly or too narrowly for the marketing researcher. A marketing manager who instructs the marketing
researcher to "Find out everything you can about first-class air travelers' needs," will collect a
lot of unnecessary information. One who says, "Find out if enough passengers aboard a
flying direct between Chicago and Tokyo would be willing to pay $25 for an Internet
connection so that American Airlines would break even in one year on the cost of offering
this service," is taking too narrow a view of the problem.
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In discussing the problem, American's managers discover another issue. If the new service
were successful, how fast could other airlines copy it? Airline marketing research is replete
with examples of new services that have been so quickly copied by competitors that no
airline has gained a sustainable competitive advantage. How important is it to be first and
how long could the lead be sustained?
The marketing manager and marketing researcher agreed to define the problem as follows:
"Will offering an in-flight Internet service create enough incremental preference and profit
for American Airlines to justify its cost against other possible investments American might
make?" To help in designing the research, management should first spell out the decisions it
might face and then work backward. Suppose management spells out these decisions: (1)
Should American offer an Internet connection? (2) If so, should the service be offered to
first-class only, or include business class, and possibly economy class? (3) What price(s)
should be charged? (4) On what types of planes and lengths of trips should it be offered?
Now management and marketing researchers are ready to set specific research objectives:
(1) What types of first-class passengers would respond most to using an in-flight Internet
service? (2) How many first-class passengers are likely to use the Internet service at different
price levels? (3) How many extra first-class passengers might choose American because of
this new service? (4) How much long-term goodwill will this service add to American
Airlines' image? (5) How important is Internet service to first-class passengers relative to
providing other services such as a power plug, or enhanced entertainment?
Not all research projects can be this specific. Some research is exploratory-its goal is to shed
light on the real nature of the problem and to suggest possible solutions or new ideas.
Some research is descriptive-it seeks to ascertain certain magnitudes, such as how many firstclass passengers would purchase in-flight Internet service at $25. Some research is causal-its
purpose is to test a cause-and-effect relationship
Step 2: Develop the Research Plan
The second stage of marketing research calls for developing the most efficient plan for gathering the needed information. The marketing manager needs to know the cost of the research
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plan before approving it. Suppose the company made a prior estimate that launching the inflight Internet service would yield a long-term profit of $50,000. The manager believes that
doing the research would lead to an improved pricing and promotional plan and a long-term
profit of $90,000. In this case, the manager should be willing to spend up to $40,000 on this
research. If the research would cost more than $40,000, it is not worth doing? Designing a
research plan calls for decisions on the data researches, research instruments, sampling plan,
and contact methods
DATA SOURCES The researcher can gather secondary data, primary data, or both.
Secondary data are data that were collected for another purpose and already exist somewhere.
Primary data are data freshly gathered for a specific purpose or for a specific research
project.
Researchers usually start their investigation by examining some of the rich variety of
secondary data to see whether the problem can be partly or wholly solved without collecting
costly primary data. Secondary data provide a starting point and offer the advantages of low
cost and ready availability. When the needed data do not exist or are dated, inaccurate,
incomplete, or unreliable, the researcher will have to collect primary data. Most marketing
research projects involve some primary-data collection. The normal proculture is to interview
some people individually or in groups, to get a sense of how people feel about the topic in question, and then
develop a formal research instrument, debug it, and carry it into the field.
Research Approaches
Primary data can be collected in five main ways: through observation, focus groups, surveys,
behavioral data, and experiments.
0bservation: Fresh data can be gathered by observing the relevant actors and settings a
Consumers can be unobtrusively observed as they shop or as they consume products. Ogilvy
& Mather's Discovery Group creates documentary-style videos by sending researchers into
consumers' homes with handheld video cameras. Hours of footage are edited to a 30-minute
"highlight reel" which the group uses to analyze consumer behavior. Other researchers equip
consumers with pagers and instruct them to write down what they are doing whenever
prompted, or hold more informal interview sessions at a cafe or bar. The American Airlines
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researchers might meander around first-class lounges to hear how travelers talk about the
different carriers and their features. They can fly on competitors' planes to observe in-flight
service.
Focus Group Research. A focus group is a gathering of six to ten people who are carefully
selected based on certain demographic, psychographic, or other considerations and brought
together to discuss at length various topics of interest. Participants are normally paid a small
sum for attending. A professional research moderator provides questions and probes based on
a discussion guide or agenda prepared by the responsible marketing managers to ensure that
the right material gets covered. Moderators attempt to track down potentially useful insights
as they try to discern the real motivations of consumer~ and why they are saying and doing
certain things. The sessions are -typically recorded in some fashion, and marketing managers
often remain behind two-way mirrors in the next room. In the American Airlines research,
the moderator might start with a broad question, such as, "How do you feel about first-class
air travel?"
Survey research. Companies undertake researches to learn about people's knowledge,
beliefs, preferences, and satisfaction, and to measure these magnitudes in the general
population. A company such as American Airlines might prepare its own survey instrument
to gather the information it needs, or it might add questions to an omnibus survey that carries
the questions of several companies, at a much lower cost. It can also put the questions to an
ongoing consumer panel run by itself or another company. It may do a mall intercept study
by having researchers approach people in a shopping mall and ask them questions.
Behavioral Data. Customers leave traces of their purchasing behavior in store scanning
data, catalog purchases, and customer databases. Much can be learned by analyzing these
data. Customers' actual purchases reflect preferences and often are more reliable than
statements they offer to market researchers. People may report preferences for popular
brands, and yet the data show them actually buying other brands.
7.6. Summary
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In carrying out their marketing responsibilities marketing managers need a great deal of
information. Despite the growing supply of information, managers often lack enough
information of the right kind or have too much of the wrong kind. To overcome these
problems, many companies are taking steps to improve their marketing information system.
A well-designed marketing information system begins and ends with the user. The MIS first
assess information needs by interviewing marketing mangers and surveying their decision
environment to determine what information is desired, needed, and feasible to often.
The MIS next develops information and helps mangers to use it more effectively. Internal
records provide information on sales, costs, inventories, cash flows, and accounts receivables
and payables.
The marketing intelligence system supplies marketing executives with everyday information
about developments in the external marketing environments.
Marketing research involves collecting information relevant to a specific marketing problem
facing the company.
Marketing research involves a four-step process. The first step consists of the manager and
researcher carefully defining the problem and setting the research objectives. The objectives
may be exploratory, descriptive or casual. The second step consists of developing the
research plan for collecting data from primary and secondary sources. Primary data
collecting calls for choosing a research approach (observation, focus group, survey and
experiment). Choosing a contact method (mail, telephone, personal), designing a sampling
plan (whom to survey, how many to survey, and how to choose them). And developing a
research instruments.
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7.7.
Review Questions
1. Discuss in detail the components of marketing information system?
________________________________________________________________________
________________________________________________________________________
2. Discuss the methods used to gather primary data?
________________________________________________________________________
________________________________________________________________________
3. Enumerate the sources of secondary data?
________________________________________________________________________
________________________________________________________________________
4. Discuss the contact methods used to gather information?
________________________________________________________________________
________________________________________________________________________
5. Define the term marketing research? Discuss the process involved?
________________________________________________________________________
________________________________________________________________________
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