INTRODUCTION TO
BUSINESS
University of Management and Technology
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PART 3
UNDERSTANDING PRINCIPLES
OF MARKETING
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Chapter 10:
Understanding Marketing
Processes and Consumer
Behavior
Griffin, R. W. & Ebert, R. J.
Business (7th ed.)
© 2004 Prentice Hall.
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Learning Objectives
Upon successful completion, the student will be able to:
Define What Is Marketing?
Describe The Target Marketing and Market Segmentation
Define Marketing Research
Understanding Consumer Behavior
Understand The Organizational Marketing and Buying Behavior
Define International Marketing Mix
Describe Small Business and the Marketing Mix
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What Is Marketing?
You have been the target of marketing since you were a child.
You probably have become accustomed to many of the common
marketing techniques
Advertisements and testimonials,
Product displays placed in strategic locations,
Discounts and coupons,
Rebates and giveaways, and of course,
New and Improved!
These are sales techniques that represent a small fraction of what
marketing is.
Marketing requires considerable effort in research, development,
planning and implementation to develop a new product, set its
price, get it to consumers, and convince them to buy it.
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What Is Marketing?
Marketing, as defined by the American Marketing
Association, is planning and executing the conception,
pricing, promotion, and distribution of ideas, goods, and
services to create exchanges that satisfy individual and
organizational objectives.
However, in laymen’s terms, marketing is quite simply finding
a need and filling it.
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Providing Value and Satisfaction
What attracts buyers to one product instead of another?
While our desires for the many goods and services available to
us may be unbounded, limited financial resources force most of
us to be selective.
Accordingly, consumers buy products that offer the best value
when it comes to meeting their needs and wants.
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Values, Benefits, and Satisfaction
Value is the relative comparison of a products benefits
versus its costs.
The benefits of a high-value product are much greater than its
costs.
Benefits include the functions of the product and the
emotional satisfactions associated with owning, experiencing
or possessing it.
The satisfied buyer perceives the benefits derived from the
purchase to be greater than its costs:
Benefits
Value 
Costs
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Providing Value and Satisfaction
The marketing strategies of leading firms focus on increasing
value for customers.
Marketing resources are deployed to add value to products
in order to satisfy customer’s needs and wants.
Satisfying customers may mean developing an entirely new
product that performs better (provides greater benefits) than
existing product.
Or it may entail keeping a store open extra hours during
busy season (adding the benefit of greater shopping
convenience).
Some firms simply offer price reductions (the benefits of
lower prices).
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Providing Value and Satisfaction
Utility is the value to the customer that is added by the
marketer. In other words, utility is the ability of a product to
satisfy a human want or need.
There are four types of utility:
Time utility is making the product available when the customer
wants it.
Place utility is making the product available where consumers
want it.
Ownership utility is the customer value created when someone
takes ownership of a product. Marketers create ownership
utility by facilitating the transaction.
Form utility refers to the characteristics of the product such as
its shape, size, color, function, and style.
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Goods, Services and Ideas
The influence of marketing permeates everyday life, applying
to goods, services, and ideas.
Marketing applies to tangible and intangible goods and
includes:
Consumer Goods—products purchased by consumers for
personal use.
Industrial Goods—products purchased by companies to
produce other products.
Services—intangible products, such as time, expertise, or an
activity, that can be purchased.
Ideas—intangibles such as the merit of giving to the Salvation
Army vs. the Red Cross.
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Goods, Services and Ideas
Marketing is a difficult concept.
One concrete and relevant example is the marketing efforts
of the U.S. government.
After the September 11th terrorist attacks, the United States
swore-in a new Undersecretary of State for Public Diplomacy
and Public Affairs.
Her mission was to use her advertising background to craft and
market a message to “sell” the U.S. response to terrorism, and
our country’s core beliefs and values.
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Relationship Marketing
Relationship Marketing emphasizes lasting relationships with
customers and suppliers.
Purchase incentives and customer loyalty programs are
some of the ways in which firms try to promote these
relationships.
Commercial banks, for example, offer economic incentives to
encourage longer-lasting relationships.
Customers who purchased more of the bank’s products (for
example, making deposits into checking accounts, savings
accounts, or taking out loans) accumulate credits toward free or
reduced-price services, such as free traveler’s checks or
television sets.
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The Marketing Environment
The powerful forces of the external marketing environment
heavily influence marketing programs by posing
opportunities and threats.
Political and legal environment: From taxes to regulations to
laws, the political and legal environment has a profound
impact on marketing. This is especially true for certain
industries, such as telecommunications, automobiles, and
tobacco.
Social and cultural environment: Trends in this arena,
present enormous opportunities for companies that are both
farsighted and flexible. Issues and changes include
increasing diversity in the U.S., more single-parent families,
a rapidly growing senior population, etc.
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The Marketing Environment
Technological environment: New technologies create new
goods and services, but also make some existing products
obsolete (e.g., the growing dominance of DVDs).
In recent years, the emergence of the Internet has had the
greatest impact on marketing.
Economic environment: Inflation, interest rates, recession,
and recovery-both in the U.S. and abroad have a dramatic
influence on every element of the marketing mix.
Competitive environment: Creating a competitive advantage
is a fundamental goal of marketing that can only be
accomplished by carefully and continually monitoring every
element of the competitive environment.
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The Marketing Environment
The figures is
illustrating every
marketing program
must recognize the
factors in a company’s
external environment.
The External
Marketing
Environment
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The Marketing Environment
The competitive environment drives many marketing
decisions.
By studying the competition, marketers determine how best
to position their own products.
Knowing the alternatives available to your customers, who
your competitors are and what they offer is as vital to
success as watching for the next big food or fashion craze or
technological innovation.
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Competitive Environment
There are three specific types of competition:
Substitute product competition: Products that are dissimilar
from those of competitors, but can fulfill the same need
TVs and computer games are very different from one another, but
both fulfill the need for entertainment.
Brand competition: Occurs between similar products
Zest bar soap vs. Irish Spring bar soap
International competition: Matches the products of domestic
marketers against those of foreign competitors
Neutrogena vs. L'Oreal skin
Heineken vs. Budweiser).
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Strategy: The Marketing Mix
A company’s marketing managers are responsible for
planning and implementing all the activities that result in the
transfer of goods or services to its customer and, in return,
the transfer of cash to the company.
These activities culminate in the marketing plan—a detailed
strategy for focusing marketing efforts on consumer needs
and wants.
Therefore, marketing strategy begins when a company
identifies a consumer need and develops a product to meet
it.
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Strategy: The Marketing Mix
In planning and implementing strategies, marketing
managers develop the four basic components (often called
the “Four P’s”) of the marketing mix.
In this section, we describe each of those components:
Product
Pricing
Place
Promotion
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Strategy: The Marketing Mix
Product
The product is the good, service, or idea that is to be marketed
to fill consumer wants and needs.
Improving existing products and developing new products are
among the marketer's most important tasks.
Product differentiation is important.
Even commodity products seek to build differentiation
100% Pure Angus Beef
Differentiation results in creation of a product or product image
that differs enough from existing products to attract consumers.
Differentiation is a source of competitive advantage.
Combinations of physical goods and services can be sources
of differentiation.
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Strategy: The Marketing Mix
Pricing
Selecting the most appropriate price at which to sell a product
is as much art as science.
Lower prices generally lead to higher sales volume, while higher
prices generally lead to higher profits per unit.
Market-based pricing is wide-spread strategy, but suffers from the
logical fallacy that the market somehow knows what your profit is
worth (remember the value equation).
Cost-based pricing suffers from the fallacy that all firms have the
same cost basis.
Whatever the strategy of pricing may be, the prices must
support a variety of costs, including operations, administration,
and research costs, and marketing costs.
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Strategy: The Marketing Mix
Place
Place was chosen as a P, but it really is meant to indicate the
channel of distribution.
Place strategy seeks to determine the most effective and
efficient way to get products from producers to consumers.
Distribution also involves choosing which channels of
distribution are most appropriate.
Typical channel decisions are:
Direct to consumer
To retailers, who sell direct to consumers
To wholesalers who take large lots and break them into smaller
lots for sale to retailers.
Brokering, where a person matches your product to a retailer’s or
wholesaler’s needs and arrangements the transfer without ever
taking ownership of the goods.
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Strategy: The Marketing Mix
Promotion
These are all of the activities a firm undertakes to communicate
and promote its products to the target market.
Promotion is clearly the most visible element of the marketing
mix.
Four promotional tools:
Advertising
Personal Selling
Sales Promotions
Public Relations
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Target Marketing and Market
Segmentation
XP
Marketers have long known that products cannot be all
things to all people.
Marketers think in terms of target markets—groups of people
with similar wants and needs.
Target marketing requires market segmentation—dividing a
market into categories of customer types or segments.
Once segments are identified, companies may adopt a
variety of strategies to exploit them individually.
Many firms market products to more than one segment
simultaneously.
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Identifying Market Segments
Members of a market segment share common traits that
affect their purchasing decisions.
Four of the most important characteristics:
geographic
demographic
psychographic
behavioral variable
Market segments should not be confused with geographical
location, demographics, psychographics or values alone.
In aggregate these characteristics help reinforce and refine
market segmentation.
But the ultimate driving force is customer demands:
needs backed by purchasing power.
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Identifying Market Segments
Geographic segmentation divides markets into certain areas
such as regions, cities, counties, or neighborhoods to
customize and sell products that meet the needs of specific
markets.
For example, consider a plan to market down-filled parkas in
rural Minnesota.
Demand will be high and price competition intense.
Local newspaper ads may be effective.
The best retail location may be one that is easily reached from
several small towns.
Although the marketability of some products is
geographically sensitive, others enjoy nearly universal
acceptance.
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Identifying Market Segments
Demographics use statistical analysis to subdivide the
population according to characteristics such as age, gender,
income, race, occupation, and ethnic group.
For example:
Several general consumption characteristics can be attributed
to certain age groups (18-25, 26-35, 36-45, and so on).
A marketer can thus divide markets into age groups.
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Common Demographic Variables
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Identifying Market Segments
Psychographics is the analysis of people by psychological
makeup.
It includes activities, interests, opinions, and lifestyles (e.g.
fashion-consciousness, thrill-seeking).
For example, Burberry www.burberry.com, has repositioned
itself as a global luxury brand, like Gucci www.gucci.com and
Louis Vuitton www.vuitton.com.
Burberry had been a British “institution” in rain gear since 1856.
The repositioning strategy resulted in a 31% sales increase, by
attracting a different type of customer: the top-of-the-line,
fashion-conscious individual who shops at such stores as
Neiman Marcus and Bergdorf Goodman.
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Identifying Market Segments
Behavioral segmentation divides markets according to customers’
knowledge of, attitudes toward, use of, or response to products.
For example, a women’s shoemaker might identify three segments:
athletic, casual, and dress shoes.
Each segment is looking for different benefits in a shoe.
Buyers of athletic shoe may not care about appearance but may care
a great deal about arch support and traction.
Buyers of casual shoes will want it to look good and feel comfortable.
Buyers of dress shoes require specific colors and style and may even
accept some discomfort for the sake of fashion.
Consumers who always buy one brand are classified as hard-core
loyalists, whereas switchers buy various brands.
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Identifying Market Segments
It is common to combine variables to refine segment
definitions.
For example, a common type of segmentation is
geodemographics.
Geodemographics divides markets into distinct
neighborhoods by combining geographic and demographic
data.
Claritas Corporation has divided the U.S. into 40 neighborhood
types, such as “Blue Blood Estates” and “Old Yankee Rows”.
They use postal codes and census data to define markets in
terms of their geographic area and buying characteristics,
especially disposable income.
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Identifying Market Segments
Selecting the appropriate target markets or target segments to
focus on is not an easy task.
Some criteria that are helpful are: size of segment, competition in
the segment, sales and profit potential, compatibility with company
resources and strengths, costs, growth potential, and risks.
Remember that the largest segment does not always offer the most
potential.
Competitors may have control of large segments.
Breaking into a well-defended market is not easy.
Establishing a defensible niche can play a crucial role.
A defensible niche is built by targeting a small segment with no or
limited current competition, but with high growth potential and the
ability to purchase the product at a price that earns a profit.
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Marketing Research
Marketing Research is the process of gathering data about
marketing issues and transforming that raw data into
meaningful information that can improve decisions and
reduce risks.
Market research can help with nearly every phase of
marketing from setting goals for market share to developing
new products to monitoring the program’s effectiveness.
Marketing research also includes monitoring the competition,
tracking industry trends, and measuring customer
satisfaction.
Marketing research can occur at any point in the value chain.
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Marketing Research
The relationship of
marketing research to
the overall marketing
process is shown in the
figure.
Ultimately, its role is to
increase the firm’s
competitiveness by
clarifying the
interactions among a
firm’s stakeholders
(including consumers),
marketing variables,
environmental factors,
and marketing
decisions.
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Market Research and
the Marketing
Process
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The Research Process
Market research can occur at almost any point in a product’s
life cycle.
Typically, it is used most heavily early in the life cycle to help
develop new products or define ways to alter existing
products to gain new sales.
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The Research Process
These are the five steps in performing research:
Study the current situation. What is the need and what is
being done to meet it?
Select a research method. There are many methods.
Marketers must consider the cost-effectiveness of different
options.
Collect data. There are two types of research data.
Primary data are developed through new research
Secondary data are already available from previous research
Analyze the data. Data are of no use until organized into
information.
Report findings. This report should sum up the methods and
findings. It should identify alternative solutions and, where
appropriate, make recommendations for action.
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Research Methods
There are four basic methods of market research:
1. Observation
Involves simply watching and recording consumer behavior.
While it may be the oldest form of market research, it has been
brought up to date with such tools as electronic scanners that
allow managers to see what is selling without having to check
shelves or inventory.
2. Survey
This technique uses a questionnaire that is either mailed to
individuals or used as the basis of interviews.
Surveys can be expensive and vary widely in accuracy; finding
representative groups of respondents can be challenging.
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Research Methods
3. Focus Group
This technique uses a small group of people who are gathered
together to review a product and discuss it in depth.
Focus groups can address complex issues and can help stimulate
creative solutions.
The small number of participants (usually from 6 to 15) means a
single group may not represent the larger market well.
Conducting large numbers of focus groups is very expensive.
Focus groups are often used as a first step, leading to some other
form of research.
4. Experimentation
This is a formal technique that allows researcheers to compare the
responses of people under different circumstances.
Experimentation is very expensive, but it can supply answers to
questions that surveys and focus groups cannot.
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Data Warehousing and Data
Mining
XP
Database marketing is the process of recording and
analyzing information about the interactions with customers.
Two components include Data Warehousing and Data
Mining.
Data warehousing is the process of collecting, storing, and
retrieving data in electronic files.
Data Mining uses electronic technologies for searching, sifting
through, and reorganizing date in order to collect marketing
information and target products in the marketplace
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Data Warehousing and Data
Mining
XP
The underlying principle of database marketing is that all
customers share certain common needs and characteristics,
but each has his or her own twist.
If you develop composites of target customers, you can
customize messages to them and deepen their loyalty.
Database marketing allows companies to monitor changes in
customer purchase patterns.
Companies can monitor repeat purchase patterns to gauge the
success of new product launches and to reward repeat buyers.
The biggest benefit of databases is that they can be used in
strategic marketing planning and decision-making.
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Data Warehousing and Data
Mining
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Ask yourself if the marketer’s right to develop and use databases
outweighs the customers’ right to privacy.
YES
Marketers have the right to inform people about their products.
Freedom of speech is guaranteed by the Constitution.
The Census is public information.
Telemarketing and mail marketing create jobs.
Customers called by telemarketers can always say “No” or sign the
“Do not Call” registry.
NO
Individuals have the right to privacy.
Buying and selling databases has become big business and the
consumer is a victim.
Using a credit card for a purchase should not make private information
available to marketers.
Telemarketing is an invasion of privacy and harasses homeowners.
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Understanding Consumer
Behavior
XP
Understanding Consumer Behavior
Marketers study consumer buying behavior to learn what
makes individuals buy one product instead of another.
Consumer markets consist of individuals or households that
purchase goods and services for personal use.
Issues to be considered are the differences between
organizational and consumer markets, the buyer’s decision
process, and the factors that affect that decision process.
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Influences on Consumer Behavior
Consumer behavior is essentially the study of why
consumers purchase and consume products.
Four key factors influence consumer behavior:
Psychological: Motivations, perceptions, ability to learn,
attitudes
Personal: Lifestyle, personality, economic status
Social: Family, opinion leaders, reference groups (e.g. friends,
associates)
Cultural: Culture, subculture, social class
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The Consumer Buying Process
One way to look at the psychology of buying is to understand
the decision-making process people go through when
making a purchase.
Deciding what to buy is a problem-solving process.
Sometimes consumers become brand loyal to specific
products based on the satisfaction they have received from
previous purchases.
Nevertheless, consumers decide what to purchase by
gathering information to help them make a choice.
The more complex the problem, the more information they
are likely to seek.
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Consumer Buying Process
Students of
consumer
behavior have
constructed
various models
to help show
how consumers
decide to buy
products.
The figure
presents one
such model.
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The Consumer Buying Process
The steps usually follow this sequence:
1. Problem/Need Recognition:
The consumer buying process begins with recognizing a problem
or need.
Needs often arise when our personal circumstances change,
creating windows of opportunity for marketers (e.g. getting
married, entering the workforce, etc.).
2. Information seeking:
Sources of information can range from personal sources, to
marketing sources, to public sources, to experience.
Depending on the product, information seeking ranges from
superficial (e.g. "Where is the soft drink machine?") to extensive
(e.g. library research).
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The Consumer Buying Process
3. Evaluation of alternatives:
This step is essentially a matching process: How do the attributes
of the products you are considering match with your needs and
wants?
The evaluation process can range from brief to protracted.
4. Purchase decision:
Purchase decisions are typically based on a combination of
rational and emotional motives.
Rational motives are based on logical evaluation of product
attributes (e.g. cost, quality, usefulness).
Emotional motives are based on non-objective factors (e.g. "All
my friends have 4-inch high heel shoes!").
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The Consumer Buying Process
5. Post-purchase evaluation:
This includes everything that happens after the sale.
Most buyers seek come post-purchase confirmation that their
decision was correct.
Marketers can build on this tendency by providing timely
feedback to buyers that informs them they made the correct
decision and helps them avoid disconfirming information or
buyer’s remorse.
 Buyer’s remorse is the common psychological reaction that one has
made the wrong decision and cannot go back. The greater the value
of the purchased item, the greater the feelings of remorse may be.
Marketers also recognize that satisfied customers are likely to
repurchase products they have used and enjoyed, while unhappy
customers are not only unlikely to repurchase.
 Purchasers tend to broadcast negative experiences and keep
positive experiences to themselves, another marketing challenge.
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Organizational Marketing and
Buying Behavior
XP
Organizational Markets can be divided into three main
subgroups:
Industrial/commercial market (companies that buy to produce
their own goods and services such as Toyota);
Reseller market such as wholesalers like Ingram Micro, which
wholesales computers; retailers such as Ann Taylor
Government and Institutional market including Federal, State
and Local governments, hospitals, churches, museums, and
charitable organizations.
Products sold to organizational markets include raw materials and
highly complex manufactured goods such as printing presses,
telecommunications systems, and consulting services.
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Organizational vs. Consumer
Buying Behaviors
XP
Organizations tend to purchase goods and services through
Buyers, who may be:
Professionals: trained in the field of purchasing and
negotiating, and they typically use formal contracts.
Specialists: may purchase only a single line of products (e.g. a
drug store buyer might specialize in personal care products).
Experts: know the products they are buying in depth.
The buyer-seller relationship with organization buyers often
is closer, in part because they develop a long-term
connection that is mutually beneficial.
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The International Marketing Mix
Entering foreign markets, a firm must reconsider-and often
must adjust-each element of the marketing mix:
Products:
Must the products be adapted? Redesigned? Recreated?
Some products can be sold abroad with virtually no changes, while
other products need to be adapted to fit the needs of the foreign
buyer.
Pricing:
Pricing decisions must include all elements considered
domestically,
Also, transportation and delivery costs, and exchange rates.
Finally, foreign markets may not be able to support U.S. prices, so
the contribution margin must be carefully considered, not just the
sales revenue.
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The International Marketing Mix
Distribution:
Gaining a distribution foothold is often expensive and timeconsuming.
Purchasing local businesses or forming joint ventures can help in
this regard.
Promotion:
Elements of promotional messages should be matched to the
customs and values of each country. ‘
Many standard U.S. promotional devices do not succeed in other
countries.
Marketers must consider differences in language and culture when
promoting products abroad.
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Small Business and the
Marketing Mix
XP
Small businesses also face special considerations in terms of the
marketing mix:
Products:
Some new products and firms are doomed at the start because few
consumers want or need what they have to offer.
A thorough understanding of what customers want has paid off for
many small firms. Is there really a consumer need? How can the
products be tailored to better meet the need?
Pricing:
Small business owners must accurately forecast operation expenses.
Do prices cover all of the costs of running the business?
Haphazard pricing that is often little more than guesswork can sink
even a firm with a good product.
Cash flow problems ruin most small businesses.
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MGT100
Small Business and the
Marketing Mix
XP
Distribution:
Perhaps the most important distribution issue for small businesses is
location, which can help attract and retain customers.
Problems in arranging distribution/location can make or break a small
business.
Luck counts!
Promotion:
Promotional expenses should be considered a necessity.
Many small businesses are ignorant when it comes to the methods
and costs of promotion.
Successful small businesses plan for promotional expenses as part of
start-up costs.
Targeted promotion (e.g. through trade associations) can be very costeffective. Mass-market promotion is too expensive for small
businesses to even consider.
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Summary
The American Marketing Association defines marketing as
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.
Marketing plays an important role in society by helping
people satisfy their needs and wants and by helping
organizations decide what to produce.
Value compares a product’s benefits with its costs.
Consumers seek products that offer value.
Utility is the value to the customer that is added by the
marketer. There are four types of utility: time, place, ownership,
and form utility.
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Summary
The external environment consists of the outsides forces that
influence marketing strategy and decision making.
The political/legal environment includes laws and
regulations, both domestic and foreign, that may define or
constrain business activities.
The social/cultural environment is the context within which
people’s values, beliefs, and ideas affect marketing
decisions.
The technological environment includes the technological
developments that affect existing and new products.
The economic environment consists of the conditions, such
as inflation, recession, and interest rates, that influence both
consumer and organizational spending patterns.
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Summary
Market segmentation is the process of dividing markets into
categories of customers.
Businesses have learned that marketing is more successful
when it is aimed toward specific target markets groups of
consumers with similar wants and needs.
Markets may be segmented by geographic, demographic,
psychographic, or product use variables.
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Summary
Market research is the study of what buyers need and of the
best ways to meet those needs.
This process entails studying the firm’s customers,
evaluating possible changes in the marketing mix, and
helping marketing managers make better decisions about
marketing programs.
The marketing research process involves the selection of a
research method, the collection of data, the analysis of data,
and the preparation of a report that may include
recommendations for action.
The four most common research methods are observation,
surveys, focus groups, and experimentation.
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Summary
A number of personal and psychological considerations,
along with various social and cultural influences, affect
consumer behavior.
When making buying decisions, consumers first determine
or respond to a problem or need and then collect as much
information as they think necessary before making a
purchase.
Post-purchase evaluations are also important to marketers
because they influence future buying patterns.
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Summary
The industrial market includes firms that buy goods falling
into one of two categories: Goods to be converted into other
products and goods that are used up during production.
Farmers and manufacturers are members of the industrial
market, Members of the reseller market (mostly wholesalers)
are intermediaries who buy and resell finished goods.
Besides governments and agencies at all levels, the
government and institutional market includes such
nongovernment organizations as hospitals, museums, and
charities.
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Summary
There are four main differences between consumer and
organizational buying behavior.
First, the nature of demand is different; in organizational
markets it is often derived (resulting from related consumer
demand) or inelastic (largely unaffected by price changes).
Second, organizational buyers are typically professionals,
specialists, or experts.
Third, organizational buyers develop product specifications,
evaluate alternatives more thoroughly, and make more
systematic postpurchase evaluations.
Finally, they often develop enduring buyer-seller relationships.
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