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					                                         CHAPTER 1

                    MARKETING: CONNECTING WITH CUSTOMERS

CHAPTER OVERVIEW

Marketing is 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. The purpose of marketing, also known as the marketing concept, is to
identify the needs and wants of customers within markets and create customer value in ways
that will ensure the long-run success of the organization.

The marketing strategy process has four steps. Opportunity analysis provides information
about the marketing environment and specific company elements. Targeting occurs when select
groups of customers with identifiable characteristics are selected for attention. Positioning is
used to determine what image or impression the marketer wants customers within a target
segment to posses regarding the organization or its products. By blending the marketing mix—
product, price, promotion, and place—marketing decisions are made to support the positioning
strategy. These decisions can be blended into a vast array of combinations, each producing
different results.

Marketing has progressed through three eras—the production era, sales era, and customer
marketing era. As the names suggest, the production era focused on ways to efficiently mass-
produce new products while the sales era focused on getting people to buy products. The
customer marketing era moved management’s attention toward satisfying customer needs and
wants.

The five key forces that are influencing marketing as we enter the 21st century include
relationships, technology, ethics, diversity, and global orientation. These supporting themes of
the book were carefully selected to describe how marketers make lasting connections with
customers.

You are intimately involved in marketing, as a marketer, as a member of a target market, as a
customer, and as a citizen. So marketing pertains to you personally, and you begin your study
of the subject having already experienced many of its facets.


CHAPTER OBJECTIVES

1. Understand the concept of marketing, including its definition, purpose, and role in creating
   exchanges.

2. Learn what is involved in making marketing decisions, including examples of product,
   price, promotion, and place decisions to create a marketing mix.

3. Contrast the periods of marketing evolution, from the early history through the eras of
   production, sales, and customer marketing, leading up to today.



                                               1
4. Understand the five key forces that are dramatically influencing how organizations will
   connect with customers in the 21st century.

5. Determine how marketing pertains to you.




                                              2
CHAPTER OUTLINE

I.   THE CONCEPT OF MARKETING: CONNECTING WITH CUSTOMERS

     A.   Definition of Marketing–




          1.     The process of planning and executing–



          2.     Product, price, promotion, and place–

                 Marketing mix




          3.     Markets for goods, services, and ideas–

                 Market


                 a.       Consumer markets–



                 b.       Business-to-business markets–



                 c.       Nonprofit markets–



                 d.       Internal markets–



          4.     Create exchanges that satisfy individual and organizational objectives–

                 Exchange


                 a.       Form, place, time, and ownership–



                                              3
                   Form utility


                   Place utility


                   Time utility


                   Ownership utility


     5.    Organizational objectives–



B.   The Marketing Concept: The Purpose of Marketing–




     1.    Understand the needs and wants of consumers–

           Consumer orientation


           Needs


           Wants


     2.    Create customer value through satisfaction and quality–

           Customer satisfaction


           Quality


           Value


     3.    More effectively and efficiently than competitors–




                                    4
II.    THE MARKETING STRATEGY PROCESS

       A.    Situation Analysis–



       B.    Targeting–

             Target Market


       C.    Positioning–


       D.    Marketing Mix Decisions–


             1.     Product strategy–



             2.     Place strategy–



             3.     Promotion strategy–



             4.     Price strategy–




III.   THE EVOLUTION OF MARKETING

       Mass Marketing–


       A.    The Production Era–



       B.    The Sales Era–


             Seller’s Market



                                          5
           Buyer’s Market


      C.   The Customer Marketing Era–

           Customer-Driven Organizations




IV.   CONNECTING WITH CUSTOMERS IN THE 21ST CENTURY

      A.   Connecting through Relationships–

           Relationship Marketing

           Strategic Alliances


      B.   Connecting through Technology–

           Product Technology


           Process Technology


           Mass Customization


           The Internet


           Marketspace


      C.   Connecting Globally–



      D.   Connecting with Diversity–

           Ethnic Background


           Ethnicity



                                           6
     E.   Connecting Ethically–

          1.     Ethics


          2.     Social responsibility



V.   MARKETING: YOUR INVOLVEMENT




                                         7
KEY TERMS

Buyer’s market                                    Mass customization
Consumer orientation                              Mass marketing
Customer-driven organizations                     Needs
Effectiveness                                     Ownership utility
Efficiency                                        Place utility
Ethics                                            Process technology
Ethnic background                                 Product technology
Ethnicity                                         Product orientation
Exchange                                          Relationship marketing
Form utility                                      Sales orientation
Internet                                          Seller’s market
Market                                            Societal marketing concept
Marketing                                         Strategic alliances
Marketing concept                                 Target market
Marketing ethics                                  Time utility
Marketing mix                                     Wants
Marketspace


1.                  The four controllable variables—product, price, promotion, and place
                    (distribution)—that are combined to appeal to the company’s target
                    markets.

2.                  An electronic space where business occurs.

3.                  Deals with the cost and time involved in carrying out activities.

4.                  Extends the marketing concept to include satisfying the customer as well
                    as the consumer.

5.                  Usually determined by birth and related to three elements: nationality,
                    race, and religion.

6.                  Makes goods and services conveniently available.

7.                  Refers to the amount of identification an individual feels with a
                    particular ethnic group.

8.                  Occurs when customizing a product for a specific customer is built into a
                    process.

9.                  A process in which two or more parties provide something of value to
                    the other.

10.                 Occurs when knowledge and materials are converted into finished goods
                    and services.


                                             8
11.   Consists of all of the individuals and organizations with the desire or
      potential to have the desire and the ability to acquire a particular good or
      service.
12.   Holds that the purpose of marketing is to identify the needs and wants of
      customers within markets and satisfy them in ways that ensure long-run
      success of the organization.

13.   Makes goods and services available when they are wanted.

14.   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.

15.   Occurs when abundance of product lets the buyer control the market.

16.   Doing things that directly or indirectly make a difference to consumers. It
      means doing the right things.

17.   Organizations that implement the marketing concept by creating
      processes so all parts of the organization can contribute the maximum
      amount possible toward satisfying customer wants.

18.   Technology which spawns the development of new goods and services.

19.   An organizational philosophy that focuses on satisfying consumer needs
      and wants.

20.   The mass production, mass distribution, and mass promotion of a
      product to all buyers.

21.   Fundamental requirements which are the ultimate goals of behavior.

22.   Occurs when scarcity of products lets the seller control the market.

23.   A global network of computers which enables the transmission of data
      through the use of a personal computer.

24.   Standards or values that govern professional conduct.

25.   Technology used to make goods and services.

26.   A specific form of consumption desired to satisfy need.

27.   Historical period that emphasized new products and the efficiency of
      production.




                                9
28.                 The development and maintenance of successful relational exchanges. It
                    involves interactive, ongoing, two-way connections among customers,
                    organizations, suppliers, and other parties for mutual benefit.

29.                 Historical period that emphasized that consumers must be convinced to
                    buy.

30.                 Makes it possible to transfer the title of goods and services from one
                    party to another.

31.                 Occur when two or more organizations form a partnership for a new
                    venture.

32.                 A group of potential customers with similar characteristics that the
                    company is trying to satisfy better than the competition.

33.                 Deal specifically with how moral standards are applied to marketing
                    decisions, behaviors, and institutions.


MULTIPLE CHOICE

1.    Which of the following would be the best description of marketing?

      a.     Promoting your product
      b.     Creating a desire for ideas, goods, and services
      c.     Planning and executing the conception, pricing, promotion, and distribution of
             products to create exchanges that satisfy individual and organizational
             objectives
      d.     Motivating people to buy your product
      e.     The movement of products from manufacturers to consumers

2.    Which of the following is not a step in the marketing strategy process?

      a.     Opportunity analysis
      b.     Targeting
      c.     Manufacturing
      d.     Positioning
      e.     Blending the marketing mix

3.    Marketing has progressed through three eras—what are they?

      a.     Historical, contemporary, and future
      b.     Marketing research, marketing forecasting, and marketing planning
      c.     Industrial, consumer, and societal
      d.     Production, sales, and customer marketing
      e.     None of the above



                                             10
4.   The marketing mix is made up of four controllable variables, including product, price,
     place, and what other variable?

     a.     Promotion
     b.     Designing
     c.     Planning
     d.     Satisfaction measurement
     e.     Quality

5.   A market consists of all of the following elements except

     a.    individuals or organizations.
     b.    goods, services, or ideas.
     c.    entities with the potential to have a desire.
     d.    entities with the potential to have the ability to acquire.
     e.    All of the above are characteristics of a market.
6.   Which of the following is not a market classification used in the book?

     a.     Japanese markets
     b.     Consumer markets
     c.     Business-to-business markets
     d.     Nonprofit markets
     e.     Internal markets

7.   An exchange is a process in which two or more parties provide something of value to
     one another. Another word for value is utility. Which of the following (contains a word
     that) is not a type of utility?

     a.     Form and place
     b.     Quality and place
     c.     Place and time
     d.     Time and ownership
     e.     Ownership and form

8.   Which of the following is not the concept of marketing or the purpose of marketing?

     a.     Understand the needs and wants of customers.
     b.     Create customer value through satisfaction quality.
     c.     Be more effective and efficient than competitors.
     d.     Create the highest quality goods and services.
     e.     All of the above are part of the marketing concept.

9.   The major message about connecting through relationships is

     a.     that relationships are always contractual.
     b.     that the best relationship is one-sided where one partner comes out ahead of the
            other one.
     c.     that relationship marketing attempts to create successful relational exchanges.
     d.     that relationships are always strategic alliances.


                                            11
      e.     none of the above.

10.   Trudy Yan is using mass customization as a strategy for her business which involves
      selling uniforms for workers of local construction companies. Which of the following
      would be consistent with mass customization?

      a.     Developing or using a technology so that the product line of apparel could be
             customized for each construction company
      b.     Making totally unique apparel for each customer
      c.     Assembling apparel for many different types of suppliers and reselling them to
             construction companies
      d.     Manufacturing or creating one product that has mass appeal
      e.     None of the above

11.   Which of the following is a key benefit of a globally-oriented organization?

      a.     Bigger is always better.
      b.     They consult more customers with different needs.
      c.     Global companies are always more efficient.
      d.     You don’t have to worry as much about economic demand shifts.
      e.     Companies that connect globally generally have a better understanding of
             diversity and competition.
12.   Coca-Cola is very interested in understanding ethnicity. Consequently, it will focus
      primarily on which of the following?

      a.     Nationality
      b.     Race
      c.     Amount of identification an individual feels with a particular ethnic group
      d.     Statistics on nationality, race, and religion
      e.     None of the above

13.   Excellent marketers connect ethically. They make important decisions about standards
      of conduct. Ford Motor Company professes to have high ethical standards. From this,
      we can infer that it

      a.     believes it always know what is right.
      b.     evaluates how moral standards are applied to marketing decisions.
      c.     takes ethical disputes to a court of law.
      d.     applies American standards to all parts of the globe.
      e.     really believes that the customer is always right.

14.   A situation in which the demand for products outstrips the supply is called

      a.     a seller’s market.
      b.     a buyer’s market.
      c.     an overdemanded market.
      d.     a lucky market.
      e.     all of the above.



                                             12
15.   Organizations that operate effectively and efficiently are likely to behave in which of the
      following manners?

      a.     Always being lower priced than the competition
      b.     Being fastest in getting products to market
      c.     Engaged in the right activities without wasting a lot of resources
      d.     Maximizing sales
      e.     None of the above


ANSWERS: CHAPTER OUTLINE

I.    THE CONCEPT OF MARKETING: CONNECTING WITH CUSTOMERS

      A.     Definition of Marketing–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.

             1.      The process of planning and executing–Marketing is an ongoing process.
                     It is interested in the enduring, systematic management of change.

             2.      Product, price, promotion, and place–The marketing mix is made up of
                     four controllable variables (product, price, promotion, and place) that are
                     combined to appeal to a company’s target markets.

             3.      Markets for goods, services, and ideas–A market consists of all the
                     organizations and individuals with the potential to have the desire and
                     ability to acquire a particular good, service, or idea.

                     a.     Consumer markets–When organizations sell to individuals or
                            households that buy, consume, and dispose of products.

                     b.     Business-to-business markets–When a business purchases goods
                            or services to produce other goods, to support daily operations, or
                            resell at a profit.

                     c.     Nonprofit markets–When an organization does not try to make a
                            profit but instead attempts to influence others to support its cause
                            by using its service or by making a contribution.

                     d.     Internal markets–When managers of one functional unit market
                            their capabilities to other units within their own organization.

             4.      Create exchanges that satisfy individual and organizational objectives–
                     An exchange is a process in which two or more parties provide
                     something of value to one another.



                                              13
                  a.     Form, place, time, and ownership–Form utility occurs when
                         knowledge and materials are converted into finished goods and
                         services. Place utility makes goods and services conveniently
                         available. Time utility makes goods and services available when
                         they are wanted. Ownership utility makes it possible to transfer
                         the title of goods and services from one party to another.

           5.     Organizational objectives–All organizations have long-term objectives.
                  Many organizations focus on financial measures such as profit, margins,
                  and return on investment to evaluate performance.

      B.   The Marketing Concept: The Purpose of Marketing–To understand the needs
           and wants of consumers and create customer value through satisfaction and
           quality more effectively and efficiently than competitors.

           1.     Understand the needs and wants of consumers–Marketers use a
                  consumer orientation, an organizational philosophy that focuses on
                  satisfying consumer needs and wants. Needs are fundamental
                  requirements—the ultimate goals of behavior. A want is the specific form
                  of consumption desired to satisfy a need.

           2.     Create customer value through satisfaction and quality–Customer
                  satisfaction is a customer’s overall rating of his/her experience with a
                  company and its products. Quality describes the degree of excellence of a
                  company’s products or services. Value refers to the amount of money a
                  consumer will pay for quality in a good or service.

           3.     More effectively and efficiently than competitors–Marketers measure
                  success by the way their customers judge them, especially relative to
                  competitors.


II.   THE MARKETING STRATEGY PROCESS

      A.   Situation Analysis–Includes all the marketing activities required to understand
           the global marketing environment, customer needs and wants, and the
           competition.

      B.   Targeting–A target market is a group of potential customers with similar
           characteristics that the company tries to satisfy better than the competition.

      C.   Positioning–The process of creating an image, reputation, or perception of the
           company or its goods and/or services in the consumer’s mind.

      D.   Marketing Mix Decisions–The decisions required to address customers with one
           marketing mix.




                                          14
             1.     Product strategy–Product decisions include which products to develop,
                    how to manage current products, and which products to phase out.

             2.     Place strategy–Place decisions are made to provide products where and
                    when they are needed, in the proper quantities, with the greatest appeal,
                    and at the lowest possible cost.

             3.     Promotion strategy–Involves coordinating advertising, sales promotion,
                    personal selling, and public relations to get consistent messages to all
                    types of customers.

             4.     Price strategy–The objective is to set prices to reflect the value received by
                    customers and achieve the volume and profit required by the
                    organization.


III.   THE EVOLUTION OF MARKETING

       Mass Marketing–The mass production, mass distribution, and mass promotion of a
       product to all buyers.

       A.    The Production Era–The production orientation emphasized new products and
             the efficiency of production.

       B.    The Sales Era–The sales orientation emphasized that consumers must be
             convinced to buy. A seller’s market occurs when scarcity of products lets the
             seller control the market. A buyer’s market occurs when abundance of a product
             lets the buyer control the market.

       C.    The Customer Marketing Era–Customer-driven organizations implement the
             marketing concept by ensuring that all parts of the organization can contribute
             the maximum possible toward satisfying customer wants.


IV.    CONNECTING WITH CUSTOMERS IN THE 21ST CENTURY

       A.    Connecting through Relationships–Relationship marketing is the development
             and maintenance of successful relational exchanges. Strategic alliances occur
             when two or more organizations form a partnership for a new venture.
       B.    Connecting through Technology–Product technology refers to technology which
             spawns the development of new goods and services. Process technology is the
             technology used to make goods and services. Mass customization occurs when
             customizing a product for a specific customer is built into a process. The Internet
             is a global network of computers which enables the transmission of data through
             the use of a personal computer. Marketspace is an electronic space where
             business occurs.




                                              15
      C.    Connecting Globally–Compared to domestic firms, global companies have an
            increased customer reach and a better understanding of diversity and
            competition.

      D.    Connecting with Diversity–It is imperative to understand and respect diversity
            among customers. A person’s ethnic background is usually determined by birth
            and related to three elements: nationality, race, and religion. Ethnicity refers to
            the amount of identification an individual feels with a particular ethnic group.

      E.    Connecting Ethically–Marketers must make important decisions about the
            standards of conduct for an organization.

            1.     Ethics–The values or standards that govern professional conduct.
                   Marketing ethics refers specifically to how moral standards are applied to
                   marketing decisions, behaviors, and institutions.

            2.     Social responsibility–The societal marketing concept seeks to balance
                   customer satisfaction against corporate profits and the well-being of the
                   larger society.


V.    MARKETING: YOUR INVOLVEMENT

      You are intimately involved in marketing, as a marketer, as a member of a target
      market, as a customer, and as a citizen.


ANSWERS: KEY TERMS

1.  Marketing mix                                18.     Product technology
2.  Marketspace                                  19.     Consumer orientation
3.  Efficiency                                   20.     Mass marketing
4.  Societal marketing concept                   21.     Needs
5.  Ethnic background                            22.     Seller’s market
6.  Place utility                                23.     Internet
7.  Ethnicity                                    24.     Ethics
8.  Mass customization                           25.     Process technology
9.  Exchange                                     26.     Wants
10. Form utility                                 27.     Production orientation
11. Market                                       28.     Relationship marketing
12. Marketing concept                            29.     Sales orientation
13. Time utility                                 30.     Ownership utility
14. Marketing                                    31.     Strategic alliances
15. Buyer’s market                               32.     Target market
16. Effectiveness                                33.     Marketing ethics
17. Customer-driven organizations
ANSWERS: MULTIPLE CHOICE



                                            16
1.   c        9.    c
2.   c        10.   a
3.   d        11.   e
4.   a        12.   c
5.   e        13.   b
6.   a        14.   a
7.   b        15.   c
8.   d




         17
                                          CHAPTER 2

                       CUSTOMER SATISFACTION AND LOYALTY:
                          BUILDING VALUE WITH QUALITY


CHAPTER OVERVIEW

Satisfied, loyal customers generate profits because they are responsible for a large percentage of
sales and are less costly to develop than new customers. They also influence others to buy
products. Customer satisfaction is a key to competitive advantage. In addition, satisfied, loyal
customers will pay more and are less concerned about price and price increases.

Customers form impressions about how well companies perform in relation to expectations. If
performance falls short, then customers become dissatisfied. When customers are delighted,
their expectations are likely to increase.

Relationship marketing is emphasized today because customer needs and wants often can best
be addressed through relationships. The personal connection produces loyalty. Relationships
are built on empathy, trust, and commitment.

Diverse customers have different expectations. Creating satisfaction requires paying close
attention to various tastes and preferences. The variations in customer tastes and preferences
are particularly challenging for large companies that want to gain high satisfaction scores. They
still need to address each specific segment if they are to achieve high ratings.

Customer-delivered value is the customer’s perceived gain from a purchase—the difference
between what is obtained in products or services versus the price, time, energy, and personal
costs involved in the purchase. The value chain describes the steps necessary to create
customer-delivered value. The objective is to be as competitive as possible in customer-
delivered value. Quality is important in this regard.

Quality can be assessed objectively and subjectively. Objective assessments indicate whether
the product performs as designed. Subjective assessments indicate whether the product
behaves according to what customers want. Businesses must be careful not to focus only on
static quality. The quality of change—dynamic quality—is also important. Both build value.


CHAPTER OBJECTIVES

1. Understand why customer satisfaction and loyalty are the focus of marketing in winning
   organizations.

2. Learn how consumer expectations influence satisfaction.

3. See why connecting with customers through relationships achieves outstanding satisfaction
   and loyalty.



                                               18
4. Understand the ideas that help organizations market quality goods and services.

5. Define quality, and describe how it is obtained.


CHAPTER OUTLINE

I.     THE CONCEPT OF CUSTOMER SATISFACTION AND LOYALTY: BUILDING VALUE
       WITH QUALITY


II.    CONNECTING     THROUGH                RELATIONSHIPS:        BUILDING      CUSTOMER
       SATISFACTION AND LOYALTY

       A.     Why Satisfaction and Loyalty Are Important–


              Customer Satisfaction


              Customer Loyalty


              1.      Profit generation–


                      Cost structure


              2.      Competitive advantage–


              3.      Satisfaction ratings influence potential customers–

                      Satisfaction ratings


              4.      Price premiums–


       B.     Customer Expectations–


              Customer Defections




                                               19
       C.   Satisfaction, Loyalty, and Complaining Behavior–



       D.   Connecting through Relationships to Build Satisfaction and Loyalty–



            1.     The personal basis of relationships–


                   a.     Empathy–



                   b.     Trust–



                   c.     Commitment–



            2.     Reward loyal customers–



       E.   Diversity and Satisfaction–



       F.   Global Satisfaction–



III.   CONNECTING THROUGH TECHNOLOGY: CUSTOMER VALUE FROM QUALITY

       A.   Customer Value–


            Customer-Delivered Value


            Added Value


       B.   The Value Chain–



                                           20
C.   Quality–


     1.    Assessments of quality–

           Objective assessments of quality


           Subjective assessments of quality


     2.    Static and dynamic quality–

           Static quality


           Dynamic quality


     3.    Total quality management–



           a.     Continuous improvement–


           b.     Reduced cycle time–


           c.     Analysis of process problems–


                  ISO 9000


           d.     Quality function deployment–



     4.    Benchmarking–


           Best practices


     5.    Quality awards–



                                     21
                  a.     The Deming Prize–


                         Statistical quality control


                  b.     The Malcolm Baldrige National Quality Award–



IV.   HOW TO DELIVER CUSTOMER VALUE AND QUALITY

      A.   Ethical Behavior–



      B.   Employee and Customer Involvement–




                                           22
       C.      Feedback and Satisfaction Measurement–


               Customer Satisfaction Measurement Program



KEY TERMS

Added value                                        ISO 9000
Benchmarking                                       Lifetime value of a customer
Best practices                                     Malcolm Baldrige National Quality Award
Continuous improvement                             Objective assessment of quality
Cost structure                                     Quality function deployment
Customer defections                                Quality
Customer-delivered value                           Reduced cycle time
Customer expectations                              Satisfaction ratings
Customer loyalty                                   Static quality
Customer satisfaction                              Statistical quality control
Customer       satisfaction   measurement          Subjective assessment of quality
   program                                         Total quality management
Customer value                                     Value
Dynamic quality                                    Value chain


1.                    An ongoing survey of customers (and competitors’ customers) for the
                      purpose of obtaining continuous estimates of satisfaction.

2.                    The degree of excellence of a company’s products or services.

3.                    The enhancement process used by an organization to find the best ways
                      of satisfying its customers.

4.                    Ratings provided by testing agencies that compare purchase satisfaction
                      with specified brands or with how well products perform.

5.                    All the activities that companies undertake to deliver more value to the
                      ultimate consumer.

6.                    The competencies of industry leaders that other organizations use as
                      benchmarks.

7.                    The percentage of customers who switch to another brand or supplier.

8.                    Inclusive set of standards established by the International Standards
                      Organization (ISO) to ensure that quality requirements are met.




                                              23
9.    When a company offers something of value to differentiate itself from
      competitors.

10.   The degree to which a product does what consumers would like it to do.

11.   A customer’s positive, neutral, or negative feeling about the value that as
      received as a result of using a particular organization’s offering in
      specific use situations.

12.   The result of a change that makes an existing standard obsolete.

13.   The amount of profit a company expects to obtain over the course of the
      relationship.

14.   The systematic evaluation of practices of excellent organizations to learn
      new and better ways to serve customers.

15.   The amount of money a consumer will pay for quality in a good or
      service.

16.   A program widely acknowledged for having raised quality awareness
      and practice among U.S. businesses.

17.   The degree to which a product does what it is supposed to do.

18.   The perception customers have of what they receive from owning and
      using a product over and above the cost of acquiring it.

19.   Consumers’ beliefs about the performance of a product based on prior
      experience and communications.

20.   A TQM activity which helps a company move more rapidly from product
      inception to final delivery of the product to the marketplace.

21.   A process that builds customer wants and desires into the final product
      offering.

22.   The perceived difference between what the customer pays and what the
      customer gains from a transaction.

23.   The result when individuals or organizations perfect an accepted
      practice.

24.   The amount of money required to produce a specific amount of sales.

25.   The use of statistics to isolate and quantify production line problems that
      may cause product defects.



                               24
26.   An organizational philosophy which helps companies produce goods
      and services that deliver value to satisfy customers.

27.   How often, when selecting from a product class, a customer purchases a
      particular brand.




                             25
MULTIPLE CHOICE

1.   Quality Dairy sells ice cream and yogurt. It is interested in being able to generate a
     substantial profit for its owners. Which group of customers is the most important focal
     point?

     a.     Brand new customers
     b.     Loyal customers
     c.     Satisfied customers
     d.     Dissatisfied customers
     e.     Owners of the business

2.   Organizations that are interested in gaining or sustaining competitive advantage
     generally need to have a high level of ________.

     a.     customer advocacy
     b.     customer satisfaction
     c.     creditory pricing
     d.     accounts receivable
     e.     commodity products

3.   Ron Johnson, Marketing Manager for Scorpio Incorporated, is pleased that his
     company’s products received extremely high customer satisfaction ratings. Which of the
     following can he expect to be the results of high customer satisfaction scores?

     a.     Customers will never switch.
     b.     Scorpio will have the highest market share in the industry.
     c.     His customers will be less concerned about the purchase price.
     d.     Competitors will have lower satisfaction ratings.
     e.     None of the above

4.   Manny Rodriguez, Sales Manager for a division of Rockwell International, is going to
     talk to his sales organization about connecting with customers through relationships to
     build satisfaction and loyalty. Which of the following items should he mention?

     a.     Commitment
     b.     Empathy
     c.     Trust
     d.     All of the above
     e.     None of the above

5.   Johnson Controls wants to add value for its customers. They should offer which of the
     following?

     a.     An option at a higher price
     b.     A stripped-down version at a lower price
     c.     An add-on to their product but at no charge
     d.     Something of value that differentiates themselves from competitors


                                           26
e.   None of the above




                         27
6.    General Motors uses the concept of the value chain in its marketing planning activities.
      Consequently, we would expect it to

      a.     focus on all of the activities the organization undertakes such as product and
             service development and delivery to the customer.
      b.     eliminate a lot of the interworkings of the organization from consideration.
      c.     look at its own activities but not the activities of suppliers.
      d.     focus on the activities of suppliers to General Motors and ways of delivering
             products to customers but not on elements internal to its own organization.
      e.     do none of the above.

7.    Organizations that are interested in total quality should focus on which of the
      following?

      a.     Perfecting an accepted practice
      b.     Making changes which make the existing practice obsolete
      c.     Both A and B above
      d.     Constant experimentation
      e.     None of the above

8.    Which of the following is part of total quality management?

      a.     Continuous improvement
      b.     Reduce cycle time
      c.     Analysis of process problems
      d.     Quality function deployment
      e.     All of the above

9.    Which of the following is correct with regard to benchmarking?

      a.     Benchmarking is the evaluation of practices of excellent organizations within
             your own industry.
      b.     Benchmarking is the evaluation of practices of excellent organizations outside
             your industry.
      c.     Benchmarking is a systematic evaluation of practices of excellent organizations
             inside and outside your industry.
      d.     Benchmarking involves progressing against historical standards in order to
             make future advances.
      e.     None of the above

10.   CBS Incorporated Divisions have sought the Deming Prize and the Malcolm Baldrige
      Award. They are seeking

      a.     customer satisfaction awards.
      b.     customer loyalty awards.
      c.     market share awards.
      d.     quality awards.
      e.     academic awards.


                                             28
29
11.   Organizations which possess quality that does not meet customer expectations should

      a.     fix the problem as quickly as possible.
      b.     charge less for the product.
      c.     avoid dealing with the customer.
      d.     change their manufacturing processes.
      e.     determine whether they have violated any laws.

12.   Companies that are interested in improving their business performance should

      a.     involve the entire organization and its customers in efforts to improve.
      b.     make it a responsibility of marketing but not other departments.
      c.     bring in an outside consulting agency.
      d.     complete a corporate-wide audit.
      e.     do none of the above.

13.   The goal of reduced cycle time is

      a.     to manufacture products more rapidly.
      b.     to reduce the amount of time a product is on the shelf.
      c.     to reduce the amount of time it takes for a customer to return a product.
      d.     to move more quickly from product inception to product delivery in the
             marketplace.
      e.     to have less waste due to customer returns.

14.   ACME Corporation has stressed product quality more than any other aspect of its
      business strategy. We can conclude that

      a.     ACME is a leader in its industry.
      b.     quality is important, but it is just one of the variables ACME needs to concern
             itself with in building a strategy.
      c.     quality is probably less important if ACME does not have strong competitors.
      d.     quality is not nearly as important as pricing.
      e.     none of the above are true.

15.   Which of the following is a key element of the societal marketing concept?

      a.     Competitors
      b.     Global industries
      c.     Citizens
      d.     Legal constraints
      e.     Profit maximization


ANSWERS: CHAPTER OUTLINE

I.    THE CONCEPT OF CUSTOMER SATISFACTION AND LOYALTY: BUILDING VALUE
      WITH QUALITY


                                             30
II.   CONNECTING THROUGH RELATIONSHIPS: BUILDING CUSTOMER
      SATISFACTION AND LOYALTY

      A.   Why Satisfaction and Loyalty Are Important–Few firms can achieve acceptable
           volume or profit without a strong base of loyal customers. Customer satisfaction
           is a customer’s positive, neutral, or negative feeling about the value that was
           received as a result of using a particular organization’s offering in specific use
           situations. Customer loyalty refers to how often, when selecting from a product
           class, a customer purchases a particular brand.

           1.     Profit generation–Satisfied, loyal customers generate sales. A cost
                  structure is the amount of money required to produce a specific amount
                  of sales.

           2.     Competitive advantage–Customer satisfaction is a key to competitive
                  advantage.

           3.     Satisfaction ratings influence potential customers–Satisfaction ratings
                  provide a way for customers to compare brands and also enable testing
                  agencies to determine how well products perform.

           4.     Price premiums–Satisfied customers tend to be less concerned about
                  purchase price.

      B.   Customer Expectations–Consumers’ beliefs about the performance of a product
           based on prior experience and communications. Customer defections are the
           percentage of customers who switch to another brand or supplier.

      C.   Satisfaction, Loyalty, and Complaining Behavior–Loyal customers are not
           always satisfied, and satisfied customers are not always loyal. Companies
           committed to customer satisfaction will deal with any complaints they receive in
           a way that still leads to overall satisfaction.

      D.   Connecting through Relationships to Build Satisfaction and Loyalty–Needs and
           wants are often best addressed by establishing relationships.

           1.     The personal basis of relationships–A relationship reflects the connection
                  between two or more parties.

                  a.     Empathy–The ability to understand the perspective of another
                         person or organization. It means putting yourself in someone
                         else’s shoes and seeing the world as that person sees it.

                  b.     Trust–Being able to rely on another party to perform as promised
                         and in the way you expect.



                                           31
                   c.     Commitment–The degree to which empathy and trust make a
                          difference. Going beyond what is promised to make sure the
                          customer is better off because of the relationship.

            2.     Reward loyal customers–Companies must be willing to provide superior
                   value for their best customers. Often, building relationships may require
                   specific incentives or rewards.

       E.   Diversity and satisfaction–Companies must address individual wants and needs
            of people by acknowledging their unique differences. If an organization expects
            impressive satisfaction scores, then it must understand all forms of diversity
            better than even its smallest competitors.

       F.   Global satisfaction–The success of global companies is highly dependent on
            customer satisfaction.


III.   CONNECTING THROUGH TECHNOLOGY: CUSTOMER VALUE FROM QUALITY

       A.   Customer Value–What customers perceive they gain from owning and using a
            product over and above the cost of acquiring it. Customer-delivered value is the
            difference between customer value and customer costs, or the customer’s
            perceived gain from the purchase. Added value occurs when a company offers
            something of value that differentiates it from competitors. It provides a
            uniqueness that allows consumers to distinguish one company from another.

       B.   The Value Chain–All the activities that organizations undertake, such as product
            and service development, and delivery to the customer.

       C.   Quality–The degree of excellence of a company’s products and services.

            1.     Assessments of quality–Objective assessments of quality indicate to what
                   degree the product does consistently what it is supposed to do. Subjective
                   assessments of quality indicate to what degree the product does what
                   customers want.

            2.     Static and dynamic quality–Static quality results when an accepted
                   practice is perfected. Dynamic quality results when a major change
                   makes the existing standard obsolete.

            3.     Total quality management–An organizational philosophy that helps
                   companies produce products and services that deliver value to satisfy
                   customers. It involves assessing consumer needs and developing
                   products or services that meet those needs.

                   a.     Continuous improvement–Occurs as the organization strives to
                          find better ways of satisfying customers.



                                           32
                  b.     Reduced cycle time–A TQM activity intended to help the
                         company move more quickly from product inception to product
                         delivery in the marketplace.

                  c.     Analysis of process problems–The activities that produce
                         products and services. The International Standards Organization
                         (ISO) has an inclusive set of standards, called ISO 9000, to
                         determine whether quality requirements are met.

                  d.     Quality function deployment–Used during the product or service
                         design process to make sure that customer desires are built into
                         the final offering. The three most common concerns of QFD are to
                         make the product or service faster, better, and cheaper.

           4.     Benchmarking–The systematic evaluation of the practices of excellent
                  organizations to learn new and better ways of serving customers. Best
                  practices are the selected competencies for which leaders are known.

           5.     Quality awards–Awards given to companies that demonstrate the most
                  outstanding quality initiatives.

                  a.     The Deming Prize–Created to honor Deming’s philosophy of
                         statistical quality control, which involves using statistics to isolate
                         and quantify production line problems that may cause defects.

                  b.     The Malcolm Baldrige National Quality Award–An award named
                         for the late Malcolm Baldrige, who was an advocate for quality
                         and a former Secretary of Commerce. It is widely acknowledged
                         as having raised quality awareness and practice among U.S.
                         companies.


IV.   HOW TO DELIVER CUSTOMER VALUE AND QUALITY

      A.   Ethical Behavior–Many organizations that promise satisfaction and quality think
           they should provide a remedy to customers when quality does not meet
           expectations. Fixing the problem is ethically correct and a good business
           practice.

      B.   Employee and Customer Involvement–Strong companies involve the entire
           organization and its customers in efforts to improve performance.

      C.   Feedback and Satisfaction Measurement–Since customers’ expectations and
           desires constantly change, it is absolutely critical that satisfaction be measured
           continuously. A customer satisfaction measurement program is an ongoing
           survey of customers (and competitors’ customers) for the purpose of obtaining
           continuous estimates of satisfaction.



                                           33
ANSWERS: KEY TERMS

1.    Customer satisfaction measurement        15.   Value
      program                                  16.   Malcolm Baldrige National Quality
2.    Quality                                        Award
3.    Continuous improvement                   17.   Objective assessment of quality
4.    Satisfaction ratings                     18.   Customer value
5.    Value chain                              19.   Customer expectations
6.    Best practices                           20.   Reduced cycle time
7.    Customer defections                      21.   Quality function deployment
8.    ISO 9000                                 22.   Customer-delivered value
9.    Added value                              23.   Static quality
10.   Subjective assessment of quality         24.   Cost structure
11.   Customer satisfaction                    25.   Statistical quality control
12.   Dynamic quality                          26.   Total quality management
13.   Lifetime value of a customer             27.   Customer loyalty
14.   Benchmarking




                                          34
ANSWERS: MULTIPLE CHOICE

1.   b                          9.    c
2.   b                          10.   d
3.   c                          11.   a
4.   d                          12.   a
5.   d                          13.   c
6.   a                          14.   b
7.   c                          15.   c
8.   e




                           35
                                          CHAPTER 3

         THE MARKETING ENVIRONMENT AND ITS GLOBAL DIMENSIONS

CHAPTER OVERVIEW

The marketing environment is comprised of all factors that affect a business. The factors are
divided into two groups—the microenvironment and the global macroenvironment. The
microenvironment includes factors that marketers interact with regularly. Consequently, the
microenvironment influences and is influenced by marketing.

Stakeholders are important parts of the microenvironment which directly participate in
accomplishing the organization’s goals. They include owners, employees, suppliers,
intermediaries, and action groups. Stakeholders participate with the organization in order to
accomplish their own goals; consequently, marketers must take the stakeholders’ desires into
consideration when making decisions. Marketers must address stakeholders’ desires because
stakeholders support marketers in order to attain their goals. And, in turn, marketers are
dependent on stakeholders to accomplish their objectives.

An understanding of industry competition provides an integrated picture about the major
forces that determine competitive intensity. Competition involves single competitors and
groups of company types that compete. All of the aspects of industry competition need to be
understood in order to build appropriate marketing strategies.

The global macroenvironment is being influenced by many forces. The technological
environment provides knowledge and tools that companies can acquire to produce better
products. Economic factors are also important. Changes in income and spending power and
other factors help them understand which countries have the ability to purchase. Global
demographics are also changing. Shifts in population density and dispersion are important as
are educational and age shifts. It is important to grasp the cultural diversity environment,
especially since it is difficult to put yourself in someone else’s perspective. Finally, the
legal/regulatory environment is complex. Laws must be interpreted and followed. They help
promote competition, influence business size, protect customers, and protect the environment.

Marketers often face ethical dilemmas. Marketing decisions fall into one of four categories: legal
and ethical, illegal and ethical, legal and unethical, or illegal and unethical.


CHAPTER OBJECTIVES:

1. Describe the marketing environment and the use of environmental scanning.

2. Understand how the roles that stakeholders play influence the accomplishment of
   marketing objectives. Know why marketing must address stakeholder desires when making
   decisions.

3. Be able to integrate an understanding of industry competition into environmental analysis.



                                               36
4. Synthesize aspects of the global macroenvironment, including technological, economic,
   demographic, cultural, and legal/regulatory elements in order to be in step with long-term
   trends.

5.   Recognize the importance of ethics and guides to ethical behavior.




                                               37
CHAPTER OUTLINE

I.    THE CONCEPT OF THE MARKETING ENVIRONMENT

      The Marketing Environment


      Environmental Scanning



II.   THE MICROENVIRONMENT

      The Micro-Environment


      A.    Relationships with Stakeholders–


            Stakeholders


            1.     Owners and employees–



            2.     Suppliers and intermediaries–

                   Suppliers


                   Intermediaries


            3.     Action groups–



      B.    Industry Competition–


            1.     Rivalry among existing firms–



            2.     Potential competitors–




                                            38
            3.    Substitutes–


            4.    Understanding the bargaining power of buyers and suppliers–




III.   THE GLOBAL MACROENVIRONMENT




       A.   Technology–



       B.   Economic–


            1.    Income and spending behavior–

                  Disposable income


                  Discretionary income


            2.    Spending power and wealth dispersion–

                  Spending power


                  Gross domestic product


            3.    Trading blocs–


                  a.      North America–




                                           39
            b.     Pacific Rim–



            c.     Europe–



            d.     General Agreement on Tariffs and Trade (GATT) and the World
                   Trade Organization (WTO)–




     4.     Natural resources–



C.   Demographics–


     1.     Population–


     2.     Density–


     3.     Urbanization–


            Metropolitan statistical area


            Consolidated metropolitan statistical area


     4.     Age structure–



D.   Cultural Diversity–


     Self-Reference Criterion


     1.     Time is relative–



                                     40
              2.        Size and space–


              3.        Negotiations and agreements are subject to interpretation–



       E.     Legal/Regulatory–



              1.        U.S. laws promoting competition–



              2.        U.S. laws affecting company size–


                        Cartel

              3.        U.S. laws protecting consumers–



              4.        U.S. laws protecting the environment–



       F.     Ethics–



KEY TERMS

Action group                                         Intermediaries
Age cohort                                           Legal/regulatory environment
Cartel                                               Marketing environment
Consolidated metropolitan statistical area           Metropolitan statistical area (MSA)
   (CMSA)                                            Microenvironment
Cultural environment                                 Population density
Demographic environment                              Self-Reference criterion
Discretionary income                                 Spending power
Disposable income                                    Stakeholders
Economic environment                                 Suppliers
Environmental scanning                               Technological environment
Global macroenvironment                              Urbanization
Gross domestic product (GDP)


                                                41
1.    Consists of large external influencers considered vital to long-term
      decisions but not directly affected by the company itself.

2.    A stand-alone population center, unlinked to other cities, that has more
      than 50,000 people.

3.    The learned values, beliefs, language, symbols, and patterns of behavior
      shared by people in a society and passed on from generation to
      generation.

4.    Stakeholders who provide a company with necessary services, raw
      materials, and components.

5.    The amount of money consumers have left after paying taxes and
      purchasing necessities.

6.    Groups who can be affected by the firm’s actions.

7.    The income consumers have left after paying taxes.

8.    The financial resources (such as money) available to consumers,
      businesses, and countries.

9.    The shift from rural to urban areas.

10.   Collecting and analyzing information about the marketing environment
      in order to detect important changes or trends that can affect a company’s
      strategy.

11.   The total value of all goods and services produced by a country in a
      single year.

12.   The statistics used to describe a population.

13.   Move products from the manufacturer to the final user.

14.   A group of people close in age who have been shaped by their
      generation’s experience with the media, peers, events, and society at
      large.

15.   (1) International, federal, state, and local regulations and laws; (2)
      agencies that interpret and administer regulations; and (3) the court
      system.

16.   The sum of all the factors that affect a business.




                                42
17.                  The forces close to the company that influence how it connects with
                     customers.

18.                  The unconscious reliance on one’s own socialization.

19.                  A group of businesses or nations that work together to control the price
                     and production of a particular product.

20.                  The ability of the population to purchase goods and services.

21.                  A number of people who support some cause in the interest of consumers
                     or environmental safety.

22.                  Two or more overlapping urban communities with a combined
                     population of at least one million.

23.                  The total body of knowledge available for development, manufacturing,
                     and marketing of products and/or services.

24.                  The concentration of people within some unit of measure, such as per
                     square mile or per square kilometer.


MULTIPLE CHOICE

1.    Jim Gillette is a consultant who works for many organizations. He collects and analyzes
      information trying to identify factors that are likely to facilitate or inhibit accomplish-
      ment of companies’ marketing plans. His activities could be grouped under

      a.    environmental scanning.
      b.    market economics analysis.
      c.    marketing planning.
      d.    competitive studies.
      e.    strategy audit.
2.    Which of the following would not be considered a stakeholder?

      a.     Owners
      b.     Employees
      c.     Suppliers
      d.     Action Groups
      e.     Competitors

3.    Organizations should in some way benefit all stakeholders. However, in our economic
      system, one group should always benefit. That group would be

      a.     suppliers.
      b.     intermediaries.
      c.     action groups.
      d.     government.
      e.     owners.


                                              43
4.   General Motors, Ford, and Chrysler have thousands of suppliers and intermediaries.
     Suppliers and intermediaries

     a.     are required by law.
     b.     are useful primarily in international markets.
     c.     extend the organization’s ability to reach customers at home and abroad.
     d.     do most of the market analysis.
     e.     are none of the above.

5.   There are many action groups such as the Consumer Federation of America. Marketers’
     best response to an action group is to

     a.     ignore them.
     b.     become members of the major groups.
     c.     fight them.
     d.     form meaningful relationships with them.
     e.     join with other companies to oppose them.

6.   Angela Cooper, a market analyst for a fast food restaurant chain, is completing an
     industry structure analysis. Most likely she is looking at

     a.     the bargaining power of buyers and suppliers.
     b.     any good or service that can be substituted for her company’s products.
     c.     organizations that may enter the industry with similar products.
     d.     strategies among existing firms in the industry.
     e.     all of the above.

7.   Developing industry competition analysis, it is important to look at

     a.     individual companies and company groups.
     b.     each individual company only, but in depth.
     c.     primarily competitors’ products.
     d.     suppliers, but not buying groups.
     e.     none of the above.




                                            44
8.    The macroenvironment consists of several factors. Which of the following is not part of
      the macroenvironment?

      a.     Income and spending behavior
      b.     Stockholders
      c.     Trading blocks
      d.     Demographics
      e.     Cultural diversity

9.    What are the three major trading blocks in the world?

      a.     Latin America, Europe, Pacific Rim
      b.     Pacific Rim, Middle East, North America
      c.     Europe, Pacific Rim, North America
      d.     Latin American, Asia, Europe
      e.     North America, Asia, Russia

10.   Sam Forest is developing a marketing strategy for the Pacific Rim. Which of the
      following countries is he most likely looking at?

      a.     Japan, China, Russia
      b.     Japan, South Korea, Singapore, Taiwan, Hong Kong
      c.     Malaysia, Australia, Russia
      d.     United States, Australia, China
      e.     Argentina, Australia, United States

11.   Which of the following is a major challenge marketers face with regard to natural
      resources?

      a.     Balancing the extraction of natural resources with efforts for preservation of the
             environment
      b.     Finding ways to more inexpensively extract resources
      c.     Creating the appropriate price or value in world markets for resources that are
             extracted
      d.     Identifying the world supply of natural resources
      e.     Integrating a natural resources strategy with corporate waste management
             strategies

12.   Children’s World Learning Centers uses demographics to describe key aspects of their
      market. Which of the following is not a demographic variable?

      a.     Population
      b.     Age
      c.     Income
      d.     Education
      e.     Spending for daycare




                                             45
13.   Cultural diversity is an important part of the macroenvironment. It consists of learned
      values, common beliefs, common language, common symbols, and behaviors shared by
      people and passed on from generation to generation. In analyzing culture, marketers
      must be careful not to rely unconsciously on their own values. When they do this, it is
      called

      a.     introspection.
      b.     self-reference criterion.
      c.     reactance.
      d.     relational blindness.
      e.     psychological centralism.

14.   In understanding the legal/regulatory environment, it is possible to group laws into
      which of the following categories?

      a.     Laws promoting competition
      b.     Laws affecting company size
      c.     Laws protecting consumers
      d.     Laws protecting the environment
      e.     All of the above

15.   Which of the following would be considered a legal and unethical act?

      a.     Selling untested and potentially dangerous pharmaceutical products in countries
             that do not ban their use
      b.     Selling contraband drugs in the United States
      c.     Selling aspirins at a high price
      d.     Testing pharmaceuticals with prison inmates
      e.     All of the above


ANSWERS: CHAPTER OUTLINE:

I.    THE CONCEPT OF THE MARKETING ENVIRONMENT

      The marketing environment is the sum of all factors that affect a business.
      Environmental scanning collects and analyzes information in order to detect any trends
      that may affect a company’s strategy.

II.   THE MICROENVIRONMENT

      The microenvironment is made up of the forces close to the company that influence how
      it connects with customers.

      A.     Relationships with Stakeholders–Marketers form interactive, ongoing, two-way
             relationships with stakeholders so they will be a positive influence on the
             organization. Any group or individual, other than competitors, who can
             influence or be influenced by an organization’s actions is a stakeholder including


                                             46
              customers, owners, employees, suppliers, intermediaries, action groups, and
              many others.

              1.     Owners and employees–An organization operates for the benefit of its
                     owners, who establish its objectives. Employees help create and deliver
                     value to the end-consumer.
              2.     Suppliers and intermediaries–Suppliers are stakeholders who provide a
                     company with necessary services, raw materials, and components.
                     Intermediaries help organizations by moving products from the
                     manufacturer to the end-user. They dramatically extend the ability of
                     marketers to reach customers at home and abroad.

              3.     Action groups–Stakeholders that support some cause in the interest of
                     consumers or environmental safety. They act as ―watchdogs,‖ making
                     sure companies keep the interests of people and the environment in
                     balance with those of profit.

       B.     Industry Competition–Competition involves companies of differing sizes and
              types. It may be individual companies or the industry as a whole.

              1.     Rivalry among existing firms–Marketers need a thorough understanding
                     of each major competitor, including how each competes against your
                     company and every other in the industry.

              2.     Potential competitors–At any time, a company may enter an industry
                     with similar products.

              3.     Substitutes–Any good or service that performs the same function or
                     provides the same benefit as an existing one.

              4.     Understanding the bargaining power of buyers and suppliers–Marketers
                     must ask which group—buyers or suppliers—has the most power in an
                     industry. Buyers are more demanding when there are several competing
                     suppliers. Suppliers tend to be more powerful when buyers are plentiful.


III.   THE GLOBAL MACROENVIRONMENT

       The global macroenvironment consists of large external influencers considered vital to
       long-term decisions but not directly influenced by the company itself.

       A.     Technology–The technological environment is the total body of knowledge
              available for use in developing, manufacturing, and marketing products.

       B.     Economic–The economic environment refers to financial and natural resources
              that are available to consumers, businesses, and countries.




                                             47
     1.    Income and spending behavior–Disposable income is the money
           consumers have left, and many marketers prefer to use this as the
           measure of consumer wealth. Discretionary income is the amount of
           money consumers have left after paying taxes and purchasing necessities.

     2.    Spending power and wealth dispersion–Spending power is the ability of
           people to purchase goods and services. Gross domestic product is the
           total market value of all final goods and services produced for
           consumption during a given period by a particular country.

     3.    Trading blocs–The world has three major trading blocs—Europe, Pacific
           Rim, and North America—which compete for the mastery of
           international markets.
           a.     North America–In November 1993, the United States, Canada,
                  and Mexico entered into the North American Free Trade
                  Agreement (NAFTA). This created the largest single market in the
                  world.

           b.     Pacific Rim–The PAC Rim is named for the ocean it borders. It is
                  comprised of Japan and the four ―dragons‖—South Korea,
                  Singapore, Taiwan, and Hong Kong. Soon Thailand, Malaysia,
                  and Indonesia could be included.

           c.     Europe–The European Union (EU) members include Austria,
                  Belgium, Denmark, Finland, France, Germany, Great Britain,
                  Greece, Italy, Ireland, Luxembourg, the Netherlands, Portugal,
                  Spain, and Sweden. The objective of the EU is to restructure
                  Europe economically so that it can better compete against the
                  United States, Japan, and other developed nations.

           d.     General Agreement on Tariffs and Trade (GATT) and the World
                  Trade Organization (WTO)–GATT, formed under the United
                  Nations, has successfully negotiated significant reductions in
                  trade restrictions and import duties that countries would
                  otherwise impose in their own self interest. The WTO, which
                  absorbed GATT in 1995, deals with a broad range of issues
                  including pollution, tariffs, trade agreements, and trade disputes.

     4.    Natural resources–Marketers in quest of extracting natural resources
           must balance these efforts against preservation of the environment.

C.   Demographics–The demographic environment consists of the data that describe
     a population in terms of age, education, health, and so forth.

     1.    Population–Marketers evaluate population growth, immigration, and
           other factors for opportunity indications.




                                   48
     2.     Density–Population density refers to the number of people within a
            standard measurement unit, such as a mile.

     3.     Urbanization–The population shift from rural areas to cities. A
            metropolitan statistical area is a stand-alone population center, not linked
            to other cities, with more than 50,000 people. A consolidated
            metropolitan statistical area is two or more overlapping urban
            communities with a combined population of at least one million.
     4.     Age structure–An age cohort is a group of people close in age who have
            been shaped by their generation’s experience with the media, peers,
            events, and the larger society.

D.   Cultural Diversity–The cultural environment consists of the learned values,
     beliefs, language, symbols, and behaviors shared by people in a society and
     passed on from one generation to the next. When marketers rely unconsciously
     on their own values when trying to understand another culture, this is called
     self-reference criterion.

     1.     Time is relative–It is extremely important to consider a culture’s
            perception of time, which communicates several subtle points.
     2.     Size and space–Size has different meanings in various countries. The
            distance between people during conversations also can be culturally
            related.

     3.     Negotiations and agreements are subject to interpretation–Business
            agreements may have different meanings in different parts of the world.

E.   Legal/Regulatory–The legal/regulatory environment is comprised of: inter-
     national, federal, state, and local regulations and laws; agencies that interpret
     and administer them; and the court system.

     1.     U.S. laws promoting competition–Laws with the premise that fair
            competition allows more companies to serve the market, which in turn
            keeps prices down and provides a greater number of choices to
            customers.

     2.     U.S. laws affecting company Size–The U.S. approach to competition has
            tended to restrict company size and power. Some countries promote
            monopoly. A cartel is a group of businesses or nations working together
            to control the price and output of a particular product.

     3.     U.S. laws protecting consumers–Consumers are not solely responsible for
            assessing the quality of a product, its safety, and the honesty of the
            marketer’s claim.

     4.     U.S. laws protecting the environment–The National Environmental
            Policy Act was enacted by Congress in 1968 to direct environmental
            protection activities. The Environmental Protection Agency (EPA) was


                                     49
                    formed the following year so that one agency would be responsible for
                    enforcing all federal environmental regulation.

      F.     Ethics–Marketing decisions fall into one of four categories—legal and ethical,
             illegal and ethical, legal and unethical, or illegal and unethical.


ANSWERS: KEY TERMS

1.    Global macroenvironment                    14.   Age cohort
2.    Metropolitan statistical area (MSA)        15.   Legal/regulatory environment
3.    Cultural environment                       16.   Marketing environment
4.    Suppliers                                  17.   Microenvironment
5.    Discretionary income                       18.   Self-reference criterion
6.    Stakeholders                               19.   Cartel
7.    Disposable income                          20.   Spending power
8.    Economic environment                       21.   Action group
9.    Urbanization                               22.   Consolidated             metropolitan
10.   Environmental scanning                           statistical area (CMSA)
11.   Gross domestic product (GDP)               23.   Technological environment
12.   Demographic environment                    24.   Population density
13.   Intermediaries




                                            50
ANSWERS: MULTIPLE CHOICE

1.   a                          9.    c
2.   e                          10.   b
3.   e                          11.   a
4.   c                          12.   e
5.   d                          13.   b
6.   e                          14.   e
7.   a                          15.   a
8.   b




                           51
                                          CHAPTER 4

                  THE STRATEGIC MARKETING PLANNING PROCESS:
                            DOMESTIC AND GLOBAL

CHAPTER OVERVIEW

Strategic marketing proceeds from a company’s vision, to the strategic marketing plan, to the
marketing mix plans. It describes what the organization is trying to accomplish in the broadest
sense. The strategic marketing plan describes the company’s goals and states how the company
will achieve them. Specialists in each component of the marketing mix prepare a plan for that
area.

The vision statement expresses the company’s core values, business definition, strategic
direction, and strategic infrastructure. Core values reflect the company’s beliefs about the types
of behavior acceptable from employees and the company as a whole as well as its relationship
to customers, employees, and society in general. A business definition describes the
contributions a company seeks to make to customers and society. Strategic direction is the
desired leadership position of an organization as well as the measures used to chart progress
toward reaching that goal. A company’s strategic infrastructure consists of both strategic
business units and core competencies.

The strategic marketing plan describes how to accomplish the vision for a particular part of the
business. It has four components: objectives, situation analysis, target marketing, and
positioning.

Plans for each part of the marketing mix are usually developed by specialists in the respective
areas. Often a separate plan is created for product, place, promotion, and price, but sometimes
these plans are not combined. To determine whether the strategic marketing plan is
accomplishing the intended objectives, a marketing control process is needed.

Organizations enter and cultivate global markets through exporting (importing); foreign
licensing and franchising; overseas marketing and manufacturing; and joint ventures and
strategic alliances.


CHAPTER OBJECTIVES

1. Understand how the strategic marketing planning hierarchy fits together to provide a
   complete planning system.

2. Describe the four elements of an organization’s vision that provide guidance for all actions.

3. Integrate components of the strategic marketing plan with the vision.

4. Understand why elements of the marketing mix must be integrated, and outline the steps of
   the marketing control process.



                                               52
5. Identify the four major ways that organizations enter and cultivate global markets.




                                              53
CHAPTER OUTLINE

I.    THE CONCEPT OF THE STRATEGIC MARKETING PLANNING PROCESS




II.   THE ORGANIZATION VISION




      A.   Core Values: The Ethical Foundation–



      B.   Business Definition (Mission)–


           Marketing Myopia


      C.   Strategic Direction (Intent)–


      D.   Strategic Infrastructure–


           1.     Strategic business units–



                  Portfolio-planning tools


                  a.      Assessing SBUs: The growth-share matrix–



                  b.      Assessing SBUs: The attractiveness-strength matrix–



           2.     Core competencies–



                                              54
                   a.     Base technologies–


                   b.     Process technologies–

                   c.     Product technologies–



                   d.     People systems–


                   e.     Information systems–



III.   THE STRATEGIC MARKETING PLAN

       A.   Relationships Form a Planning Team–

            Cross-Functional Planning Team



       B.   What Is Strategy?–


            Strategic Window


            Low-Cost Strategy


            Differentiation Strategy


            Sustainable Competitive Advantage


       C.   Components of the Strategic Marketing Plan–


            1.     Objectives–




                                            55
2.   Situation analysis–


     SWOT analysis


3.   Target marketing–


4.   Positioning–




                           56
IV.   MARKETING MIX PLANS AND THE MARKETING CONTROL PROCESS

      A.   Product Plans–


      B.   Place Plans–


      C.   Promotion Plans–


      D.   Pricing Plans–


      E.   The Marketing Control Process–


           Control Review Meeting



V.    CONNECTING GLOBALLY: ENTERING GLOBAL MARKETS

      A.   Geographic Scope–


           1.     International scope–


           2.     Regional scope–


           3.     Multinational scope–


           4.     Global scope–


      B.   Strategies for Foreign Market Entry–


           1.     Exporting and importing–



           2.     Foreign licensing and franchising–




                                          57
             3.     Overseas marketing and manufacturing–



             4.     Joint ventures and strategic alliances–




KEY TERMS

Business definition                               Low-cost strategy
Core competencies                                 Marketing myopia
Core values                                       Portfolio planning tools
Cross-functional planning team                    Strategic business unit
Differentiation strategy                          Strategic direction
Direct exporting                                  Strategic infrastructure
Exporting                                         Strategic marketing plan
Exporting intermediaries                          Strategic window
Foreign licensing                                 Strategy
Franchising                                       Sustainable competitive advantage
Geographic scope                                  SWOT
Importing                                         Tactics
Importing intermediaries                          Trading companies
Indirect exporting                                Vision


1.                  Sale of products abroad through intermediaries located in the domestic
                    market.

2.                  Measure the contribution each SBU makes to the overall performance of
                    the company.

3.                  Delivering customer value in a way that is unique from competitors.
                    Works through effectiveness.

4.                  Sending products to a foreign country for sale.

5.                  The desired leadership position of an organization as well as the
                    measures used to chart progress toward reaching that position.

6.                  Large intermediaries that facilitate the movement of goods in and out of
                    countries.

7.                  The extent of a company’s international activities



                                             58
8.    Receiving products from a foreign country.

9.    The document describing the company’s objectives and how to achieve
      them in light of competitive activities.

10.   The objective is to be the low-cost leader which allows the company to
      have higher margins than competitors and pass some savings on to
      customers through lower prices. Works through efficiency.
11.   Also called the company mission, describes the contributions the
      business makes to customers and society.

12.   A focus on company products rather than on how these benefit
      consumers.

13.   Assigns the rights to a patent, trademark, or manufacturing process to a
      foreign company for a fee, often called a royalty.

14.   A part of the firm that can be managed separately for marketing
      purposes; it may be a division, a product or product line, a distinct group
      of customers, or a unique technology.

15.   The desired image of the company in the minds of employees.

16.   The time during which market needs and the competencies of the firm fit
      together to create a significant opportunity.

17.   Domestic or foreign firms that assist with exporting activity.

18.   Short-term actions and reactions to specific market conditions through
      which companies pursue their strategy.

19.   Employees from several areas responsible for developing the company’s
      strategic marketing plan.

20.   The development and/or deployment of resources with the intent of
      accomplishing goals and objectives in a competitive arena.

21.   Firms set up to help guide importing actions

22.   Sale of products abroad through the company’s own offices or
      intermediaries located in a foreign market.

23.   The cost position or superior value in a product that competitors cannot
      easily duplicate or surpass.

24.   A set of statements describing the type of behavior expected of the
      company and its employees.



                               59
25.   An analysis to determine how well the company’s skills and resources
      match the predicted market opportunities.

26.   The unique resources a company develops and employs to create
      superior customer value; the fundamental building blocks of
             competitive advantage.

27.   A special type of licensing arrangement whereby the marketer provides
      not only the product, technology, process, and/or trademark, but also the
      entire marketing program.

28.   The corporate configuration that best focuses the company on either its
      distinctive or its core competencies; provides the firm with the products
      and talents necessary to satisfy customer needs.




                              60
MULTIPLE CHOICE

1.   Which ways can marketing be described?

     a.     As process, as action, as values
     b.     As philosophy, as strategy, as tactics
     c.     As planning, as programming, as documented
     d.     As understanding, as mystery, as future
     e.     As knowing, as doing, as being

2.   Why is important for an organization to have a vision?

     a.     It gives specific timetables and strategies for meeting objectives.
     b.     It forecasts the future.
     c.     It provides a mystical orientation for the group.
     d.     It helps people in the organization understand a consistent direction despite
            dynamic competitive environments.
     e.     It increases profit for all cases.

3.   Mobil Oil Company has articulated a set of core values. These would outline

     a.     fundamental contributions the organization provides to customers.
     b.     the amount of profit Mobil expects.
     c.     the ethics and social responsibility that define behaviors expected from the
            company’s employees.
     d.     the desired leadership of the organization.
     e.     the resources the company will develop within a five-year time frame.

4.   An organization’s strategic infrastructure is comprised of which of the following
     elements?

     a.     Marketing plan and a finance plan
     b.     All of the functional plans
     c.     Strategic business units and core competencies
     d.     Employees and customers
     e.     Products and SBUs

5.   Ralph Fitzgivens is a manager of a strategic business unit. He is responsible for

     a.     developing advertising plans.
     b.     helping sales plans.
     c.     creating manufacturing plans.
     d.     managing a part of the firm for marketing purposes.
     e.     developing a part of the product line.

6.   Which of the following is a core competency?

     a.     Based technology


                                             61
b.   Product technology
c.   Process technology
d.   Information systems
e.   All of the above




                           62
7.    UPS has a core competency in peoples’ systems. We can conclude that UPS

      a.     has outstanding systems that provide a connection between itself and its
             customers.
      b.     has the best human resource system.
      c.     does an outstanding job of motivating people.
      d.     does not use a union.
      e.     has excellent training systems to teach people marketing.

8.    Marketing plans should be completed by

      a.     the marketing department.
      b.     the cross-functional planning team.
      c.     marketing research and top management.
      d.     an outside consulting firm.
      e.     people with marketing in their title.

9.    Which of the following is not a part of strategy?

      a.     Development and deployment of resources
      b.     The intent of accomplishing goals
      c.     Competitive actions
      d.     Cost accounting
      e.     None of the above

10.   What is the objective of a low-cost strategy?

      a.     To undercut competitors’ prices.
      b.     To save money on commodities.
      c.     To have higher margins than competitors and pass savings onto customers.
      d.     To have lower margins and lower turnover rates.
      e.     None of the above.

11.   Which of the following is classified as a differentiation strategy?

      a.     Best Buy sells for less than the competition.
      b.     Dell Computer introduces a new way of selling and servicing computers for
             customers.
      c.     Glidden Paints sells three product lines at three different price points.
      d.     All of the above
      e.     None of the above

12.   SWOT stands for

      a.     strategy, win, operation, timing.
      b.     situation, willingness, operation, technology.
      c.     strengths, weaknesses, opportunities, threats.
      d.     storm, winter, outer, theory.


                                               63
e.   standard, without, orderly, technical.




                                     64
13.   Which of the following is not an aspect of the marketing mix?

      a.     Place
      b.     Pricing
      c.     Promotion
      d.     Planning
      e.     Product

14.   Which categories can a company’s international activities can be divided into?

      a.     International, regional, multinational, global
      b.     Global, universal, specific
      c.     Domestic, international, universal
      d.     Home country and international
      e.     Developed, developing, subsistence

15.   Brunswick has several agreements that permit foreign companies to produce and
      distribute its products. These are called

      a.     exporting.
      b.     import substitution.
      c.     overseas extension marketing.
      d.     foreign licensing.
      e.     joint ventures.


ANSWERS: CHAPTER OUTLINE

I.    THE CONCEPT OF THE STRATEGIC MARKETING PLANNING PROCESS

      Marketing can be described as philosophy, as strategy, and as tactics. The strategic
      marketing plan is a document outlining the decisions executives have made about how
      the vision will be accomplished.


II.   THE ORGANIZATION VISION

      The vision helps everyone maintain consistent direction despite volatile market
      environments. The corporate vision provides a common understanding of what the
      organization is trying to accomplish in the broadest sense.

      A.     Core Values: The Ethical Foundation–Core values describe the type of behavior
             expected from a company’s employees. They are the articulation of ethics and
             social responsibility.

      B.     Business Definition (Mission)–The fundamental contributions the organization
             provides to customers. Marketing myopia occurs when executives focus on their
             company’s current products and services rather than on benefits to customers.


                                              65
       C.   Strategic Direction (Intent)–The desired leadership position of an organization
            and the measures used to chart progress toward reaching this position. It
            addresses the competitiveness of the organization and often sets specific growth,
            profit share, or scope goals relative to the competition and market opportunities.
       D.   Strategic Infrastructure–The resources a company needs to fulfill its corporate
            vision.

            1.     Strategic business units–Part of the firm that can be managed separately
                   for marketing purposes; it may be a division within the company, a
                   separate product or product line, a distinct group of customers, or a
                   unique technology. Portfolio-planning tools measure the contribution
                   each SBU makes to the overall performance of the company.

                   a.     Assessing SBUs: The growth-share matrix–Uses market growth as
                          a measure of opportunity and the company’s market share as the
                          measure of resource strength.

                   b.     Assessing SBUs: The attractiveness-strength matrix–A tool used to
                          indicate competitive behavior and market characteristics based on
                          a number of measures.

            2.     Core competencies–The unique resources a company develops and
                   employs to create superior customer value. They are the fundamental
                   building blocks of competitive advantage.

                   a.     Base technologies–The research and development skills of
                          companies which can be applied to an endless array of product
                          areas.

                   b.     Process technologies–Allow the firm to produce quality products
                          in the most effective and flexible manner possible.

                   c.     Product technologies–Support the company’s ability to produce
                          new goods and services.

                   d.     People systems–The procedures that provide the human
                          connection between companies and customers.

                   e.     Information systems–Information-processing technologies give
                          companies the longer-term flexibility required for sustained
                          leadership.


III.   THE STRATEGIC MARKETING PLAN




                                            66
A.   Relationships Form a Planning Team–A cross-functional planning team works
     together with a total understanding of the market and the organization’s
     capabilities to develop a strategic marketing plan.

B.   What Is Strategy?–A strategy is the development and/or deployment of
     resources with the intent of accomplishing goals and objectives in competitive
     arenas. A strategic window describes the moment when requirements of the
     market and competencies of the firm fit together to create a significant
     opportunity. A low-cost strategy allows the company to have higher margins
     than competitors and pass some savings on to consumers through lower prices.
     A differentiation strategy involves delivering customer value in a way that is




                                   67
           unique from competitors. Sustainable competitive advantage is the cost position
           or superior value in a product that competitors cannot easily duplicate or
           surpass.

      C.   Components of the Strategic Marketing Plan–The planning team has to address
           several areas. Objectives, situation analysis, target markets, positioning, and
           integration of the marketing mix.

           1.     Objectives–Companies usually set objectives in terms of desired profit,
                  market share, or total sales. Objectives always provide a time frame and
                  must be verifiable.

           2.     Situation analysis–The examination of all marketing activities required to
                  understand the marketing environment, customer needs and wants, and
                  the competition. The situation analysis predicts market conditions for the
                  period that the strategic marketing plan is in effect. A SWOT analysis
                  helps determine how well the company’s skills and resources match the
                  predicted market opportunities.

           3.     Target marketing–The process of selecting which market segments the
                  firm will try to satisfy better than its competitors.

           4.     Positioning–Creating a perception in the minds of consumers about the
                  company and/or its products relative to competitors.


IV.   MARKETING MIX PLANS AND THE MARKETING CONTROL PROCESS

      A.   Product Plans–Marketers must help determine which products or product lines
           to develop and which ones to drop.

      B.   Place Plans–Getting the right product, in the right condition, to the right
           customer, at the right time, for the minimum cost.

      C.   Promotion Plans–Provide information about a company’s product or service in
           an effort to encourage purchase.

      D.   Pricing Plans–The objective is to set prices to reflect the value received by
           customers and achieve the volume and profit required by the organization.

      E.   The Marketing Control Process–Provides feedback on how well the strategy is
           working. In a control review meeting, members of the planning team assemble
           to see whether objectives are being met.


V.    CONNECTING GLOBALLY: ENTERING GLOBAL MARKETS




                                          68
      A.     Geographic Scope–The extent of a company’s international activities. It is
             divided into four categories: international, regional, multinational, and global.

             1.     International scope–Operating in one or a few foreign markets.

             2.     Regional scope–Operating within countries in close proximity.

             3.     Multinational scope–Heavy involvement in a few countries located in
                    various regions.

             4.     Global scope–Operating in nearly all world markets.

      B.     Strategies for Foreign Market Entry–There are several different approaches for
             entering and developing markets: export-import, foreign licensing and
             franchising, overseas marketing and manufacturing, and joint ventures and
             strategic alliances.

             1.     Exporting and importing–Sending products abroad for resale (exporting)
                    or purchasing products from foreign companies for resale, usually as part
                    of another product, within the home market (importing).

             2.     Foreign licensing and franchising–Agreements that permit foreign
                    companies to produce and distribute merchandise, often using
                    trademarks and/or selected merchandising and customer delivery
                    approaches.

             3.     Overseas marketing and manufacturing–A marketing infrastructure
                    and/or manufacturing facilities abroad.

             4.     Joint ventures and strategic alliances–The shared ownership of
                    operations by two or more local and foreign companies (joint venture) or
                    the pooling of resources by two or more companies for the purpose of
                    competing as one entity (strategic alliance).


ANSWERS: KEY TERMS

1.    Indirect exporting                          12.    Marketing myopia
2.    Portfolio-planning tools                    13.    Foreign licensing
3.    Differentiation strategy                    14.    Strategic business unit (SBU)
4.    Exporting                                   15.    Vision
5.    Strategic direction                         16.    Strategic window
6.    Trading companies                           17.    Exporting intermediaries
7.    Geographic scope                            18.    Tactics
8.    Importing                                   19.    Cross-functional planning team
9.    Strategic marketing plan                    20.    Strategy
10.   Low-cost strategy                           21.    Importing intermediaries
11.   Business definition                         22.    Direct exporting


                                             69
23.   Sustainable competitive advantage        26.   Core competencies
24.   Core values                              27.   Franchising
25.   SWOT                                     28.   Strategic infrastructure




                                          70
ANSWERS: MULTIPLE CHOICE

1.   b                          9.    d
2.   d                          10.   c
3.   c                          11.   b
4.   c                          12.   c
5.   d                          13.   d
6.   e                          14.   a
7.   a                          15.   d
8.   b




                           71
                                          CHAPTER 5

                      MARKETING INFORMATION AND RESEARCH

CHAPTER OVERVIEW

MIS are used to systematically collect and analyze data to support decision making. An MIS
often includes a marketing decision support system (MDSS), which puts information in
convenient form for executives to use. Marketing research is conducted to address a particular
opportunity, problem, or issue. Marketing information is used in planning, marketing mix
decisions, and performance monitoring.

Data must be translated into information before it is useful for decision making. External data
come from outside the firm, and internal data originate inside the firm. Primary data are
collected for the first time to specifically address a current issue. Secondary data already exist
and can be accessed immediately by a broad range of users. Once data are assembled, they
must be analyzed through data sorting, the use of statistics, and models.

The marketing research process starts with the problem definition which focuses on the needs
of decision makers to ensure that the research will be useful. The research design then is based
on what decisions need what information, the data and data sources, and how the data will be
collected and analyzed. Next, exploratory research helps investigators better understand issues
by defining problems, searching for possible explanations, and creating hypotheses.
Exploratory research techniques include focus groups, depth interviews, projective techniques,
observation, and case analysis. Quantitative research yields information to help decision
makers select the best course of action. It often involves using the scientific method. The last
steps are to interpret and report findings.

Both internal and external marketing research is being dramatically influenced by technology.
Research in global markets is complicated because secondary data may be scarce. Surveys must
be carefully translated, and data collection is often difficult. Still, global research is becoming
more and more important.

There are many ethical issues surrounding marketing research. One problem is that it
sometimes can reflect the biases of marketers. The scientific method can eliminate bias. A
number of groups exist to prevent the manipulation of marketing research. They are interested
in accuracy and want to protect consumers.

CHAPTER OBJECTIVES

1. Understand the roles that marketing information systems (MIS) and research play in
   marketing decision making.

2. Recognize how data are transformed into information to be used in a variety of marketing
   decisions.

3. Understand the types of research and the steps of a typical marketing research process.



                                                72
4. Overview widely used marketing research techniques.

5. Explore how marketing information is being influenced by technology and is obtained
   globally.

6. Understand that ethical issues surround the use and dissemination of research.
CHAPTER OUTLINE

I.     THE CONCEPT OF MARKETING INFORMATION SYSTEMS AND MARKETING
       RESEARCH

       Marketing Information Systems (MIS)



       Marketing Research




II.    MARKETING INFORMATION SYSTEMS AND DATA

       Marketing Decision Support System (MDSS)



       Transaction-Based Information System (TBIS)




       A.     Turning Data into Information–


              1.     Types of data–

                     External data


                     Internal data


                     Primary data


                     Secondary data




                                               73
            2.    Data analysis–



            3.    Information and decision making–


                  a.     Marketing planning–


                  b.     Marketing mix decisions–

                         i.        Product decisions–



                         ii.       Place decisions–



                         iii.      Promotion decisions–



                         iv.       Pricing decisions–



                  c.     Monitoring performance–




III.   THE MARKETING RESEARCH PROCESS

       A.   Defining the Problem–


       B.   Research Design–


       C.   Exploratory Research–


            1.    Exploratory research data collection




                                            74
            a.     Focus groups–



            b.     Depth interviews–



            c.     Projective techniques–



            d.     Observation–



            e.     Case analysis–


D.   Quantitative Research–


     Scientific Method


     Hypothesis


     1.     Quantitative research data collection–

            Experiments


            Causal research


            Surveys


                   Likert scales


                   Bipolar adjective scales


            a.     Administering surveys–




                                    75
                   i.     Personal interviews–



                   ii.    Mall intercepts–



                   iii.   Telephone surveys–



                   iv.    Mail surveys–



     2.     Sampling–




E.   Interpreting and Reporting Survey Results–




                                   76
      F.     Who Does Marketing Research?–

             1.        In-company research–




             2.        External research–




IV.   TECHNOLOGY’S EFFECT ON MARKETING RESEARCH




V.    GLOBAL MARKETING RESEARCH




VI.   ETHICS IN MARKETING RESEARCH AND INFORMATION USE




KEY TERMS

Case analysis                                      Hypothesis
Causal research                                    Internal data
Convenience samples                                Judgment samples
Data                                               Likert scales
Database                                           Marketing decision support system
Depth interview                                    Marketing information systems
Experiment                                         Marketing intelligence
Exploratory research                               Marketing research
External data                                      Nonprobability samples
Focus group                                        Observation



                                              77
Pilot study                                        Sample
Population (universe)                              Sampling frame
Primary data                                       Scientific method
Probability sample                                 Secondary data
Projective techniques                              Simple random sampling
Quantitative research                              Stratified random sampling
Research design                                    Transaction-based information system
1.                    Researchers try to prove a   cause-and-effect relationship between two
                      phenomena.

2.                   The chance of selecting a given individual from the sampling frame or
                     population can be calculated.

3.                   Facts or statistics obtained from outside or inside the company.

4.                   Information that already has been collected.

5.                   A test under controlled conditions in order to confirm a marketing
                     hypothesis.

6.                   The in-depth study of a few examples.

7.                   An interview usually involving eight to twelve people that provides
                     exploratory insights into a problem.

8.                   The formal assembly and analysis of information about specific issues
                     surrounding the marketing of goods and services.

9.                   Each member of the study population has an equal and known chance of
                     being chosen.

10.                  Data obtained within the company.

11.                  Selections made by the researchers or interviewers based on their belief
                     that those chosen represent a majority of the study population.

12.                  A measurement of the intensity of agreement with a particular statement.

13.                  A two-way communication bridge between the people who collect and
                     analyze information and the executives who use it.

14.                  Data obtained outside the company.

15.                  A list of people in the universe who potentially could be contacted.

16.                  A collection of data that can be retrieved by a computer.

17.                  A computerized system used to collect and analyze marketing data.


                                              78
18.               All the individuals or organizations relevant to the marketing research
                  project.

19.               Each member of a selected subgroup of the population has an equal
                  chance of selection.

20.               Captures, distills, and disseminates data to executives on a continuous
                  basis.

21.               A tentative assumption about a particular event or issue.

22.               The researcher does not know the likelihood of selecting a particular
                  respondent from the sampling frame.
23.               Researchers simply watch the participants they are studying.

24.               A systematic way to gather, analyze, and interpret data in order to
                  confirm or disconfirm a prior conception.

25.               A relatively unstructured conversation that allows the researcher to
                  probe deeply into a consumer’s thoughts.

26.               A small-scale project that allows the researcher to refine and test the
                  approaches that eventually will be used.

27.               Computerized link between a firm and its customers and/or distributors
                  and suppliers.

28.               Information collected for the first time.

29.               Classification of a problem and ways to address it.

30.               Enable respondents to project their thoughts onto a third party or object
                  or through some type of contrived situation.

31.               Information to help decision makers select the best course of action and
                  estimate the probable results.

32.               An outline of what will be gathered, what scores will be used, and how
                  the data will be collected and analyzed.

33.               People who happen to come along, such as shoppers in a store at a given
                  time, whoever answers the doorbell, or travelers passing through an
                  airport.

34.               The group participating in a research project.


MULTIPLE CHOICE


                                            79
1.   Which of the following is not part of a marketing information system?

     a.     Marketing data
     b.     Computer systems
     c.     Marketing plan
     d.     Notes for analyzing data
     e.     Decision models

2.   A specialized type of MIS is a transaction-based information system (TBIS). This would

     a.     create a computerized link between the firm and suppliers of marketing research
            information.
     b.     connect the marketing group directly with the accounting group.
     c.     provide a computerized link between the firm and its customers, distributors,
            and suppliers.
     d.     connect marketing with customer billing data.
     e.     provide distribution management with marketing information.
3.   What is the difference between data and information?

     a.     Data is uninterpreted, and information is in a form useful for decision making.
     b.     Data is at one point in time, and information is over time.
     c.     Data and information are the same.
     d.     Data is totally objective, and information is totally subjective.
     e.     Data is used for decisions, and information is too subjective for decisions.

4.   Which of the following areas of the marketing mix is little or no use for marketing
     information?

     a.     Product decisions
     b.     Place decisions
     c.     Promotion decisions
     d.     Pricing decisions
     e.     None of the above

5.   Marketing information is particularly useful for which of the following?

     a.     Marketing decisions
     b.     Marketing planning
     c.     Monitoring performance
     d.     All of the above
     e.     None of the above

6.   Which of the following is not part of the marketing research process?

     a.     Defining the problem
     b.     Creating a research design
     c.     Conducting exploratory and quantitative research
     d.     Interpreting and reporting results


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     e.     All of the above are parts of the marketing research process

7.   Which of the following is a major reason for conducting quantitative research?

     a.     It helps select the best course of action.
     b.     It is the first step in clarifying the problem.
     c.     It is used to generate hypothesis about underlying causes of problems or
            opportunities.
     d.     It provides in-depth understanding of customer opinions and desires.
     e.     All of the above

8.   Eli Lilly has designed a marketing research project involving six groups of positions.
     Each group is comprised of approximately eight positions of the same type. Eli Lilly is
     conducting what type of research?

     a.     Quantitative research
     b.     Exploratory research
     c.     Definition research
     d.     Focus research
     e.     None of the above




                                            81
9.    Which of the following is not an exploratory research technique?

      a.     Telephone survey
      b.     Projective techniques
      c.     Observation
      d.     Case Analysis
      e.     Depth interviews

10.   Which of the following has the advantage of having a relatively low cost and relatively
      high and rapid response rate?

      a.     Personal interviews
      b.     Focus groups
      c.     Mail surveys
      d.     Telephone surveys
      e.     Test markets

11.   Which of the following is correct with regard to sampling?

      a.     In a probability sample, there is always an equal chance of selecting a given
             individual.
      b.     In a probability sample, some people in the universe have no chance of being
             selected.
      c.     In a probability sample, the chance of selecting a given individual is known.
      d.     Probability samples can also be convenience samples.
      e.     None of the above is correct.

12.   Shelly Rosenberg works for a large Fortune 500 company in its marketing research
      department. She gets involved in some aspect of research for many of the company’s
      products. Which of the following is a plausible description of her activities?

      a.     She is responsible for marketing planning and global strategy development.
      b.     She designs and directs research that may be conducted by her own staff or
             outside agencies.
      c.     She designs advertising campaigns.
      d.     She does research and development (R&D).
      e.     She is the top marketing executive in the organization.

13.   Which of the following is an example of secondary data?

      a.     Data that has been collected only after the first stages of the marketing research
             project have been completed
      b.     Data collected for the second time on the same sample of subjects
      c.     Data that was already available from some source prior to the beginning of the
             research project
      d.     Data that is used to back up or support primary data
      e.     Data that comes from respondents who talk about others rather than themselves




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14.   Which of the following could be considered unethical marketing research practices?

      a.     Conducting research designed only to support previous beliefs
      b.     Attempting to sell respondents products when they believe they are being
             recruited for a marketing research project
      c.     Putting conclusions in a report that cannot be substantiated by the research
             information
      d.     Not debriefing subjects who have been manipulated in a marketing research
             project
      e.     All of the above

15.   Which of the following is/are correct with regard to marketing information systems?

      a.     Marketing research is often a part of the MIS.
      b.     An MIS should be designed with a decision maker’s needs in mind.
      c.     Timely information in a usable form is keyed to a successful MIS.
      d.     An excellent MIS can be a competitive advantage.
      e.     All of the above


ANSWERS: CHAPTER OUTLINE

I.    THE CONCEPT OF MARKETING INFORMATION SYSTEMS AND MARKETING
      RESEARCH

      Marketing Information Systems (MIS) are computerized systems that collect and
      organize marketing data on a timely basis to provide information for decision making.
      Marketing research is the formal assembly and analysis of data about specific issues
      surrounding the marketing strategy.


II.   MARKETING INFORMATION SYSTEMS AND DATA

      A marketing decision support system (MDSS) allows decision makers to access raw data
      from an MIS and manipulate it into a useful form. A specialized type of MIS is a
      transaction-based information system (TBIS), which is a computerized link between a
      firm and its customers and/or distributors and suppliers. These systems provide data
      on customer preferences, loyalty, sales trends, and an array of marketing issues.

      A.     Turning Data into Information–Data must be interpreted to assist upper-level
             managers and executives in making quick, informed decisions.

             1.     Types of data–External data come from outside the company. Internal
                    data are found within the company. Primary data are gathered for the
                    first time for a particular issue being addressed. Secondary data are those
                    that already have been collected.




                                             83
            2.     Data analysis–Transforms material into usable form, so insights can be
                   developed. It usually involves data sorting, statistics, and/or models.

            3.     Information and decision making–Good information helps executives
                   make key marketing decisions.

                   a.     Marketing planning–Marketing information is required for the
                          situation analysis, segmentation, targeting, and positioning.

                   b.     Marketing mix decisions–Marketing information aids each of the
                          marketing mix decisions

                          i.     Product decisions–Marketing information on new
                                 products is essential. It also helps identify opportunities
                                 for new products.

                          ii.    Place decisions–Marketing information helps determine
                                 the appropriate distribution channel, either directly to
                                 consumers or through intermediaries, such as wholesalers
                                 and retailers.

                          iii.   Promotion decisions–Marketing information is necessary
                                 to help determine the budget and the proper combination
                                 of advertising, personal selling, or other promotion
                                 approaches. It also provides valuable feedback.

                          iv.    Pricing decisions–Marketing information is collected
                                 regarding regional pricing, price ads, effectiveness of cash
                                 discounts and rebates, and the likelihood of buyers
                                 switching from one brand to another.

                   c.     Monitoring performance–Helps managers make sure that plans
                          and programs are moving ahead on target. Information is used to
                          track progress, identify unsuspected obstacles, and make
                          corrections to accomplish objective.


III.   THE MARKETING RESEARCH PROCESS

       A.   Defining the Problem–The marketing researcher and key decision makers should
            work together to specify the problem.

       B.   Research Design–An outline of what data will be gathered, which sources will be
            used, and how the data will be collected and analyzed.

       C.   Exploratory Research–Clarifies the problem and searches for ways to address it.

            1.     Exploratory research data collection


                                           84
            a.     Focus groups–Usually involves eight to twelve people whose
                   opinions provide qualitative insights into a problem.
            b.     Depth interviews–Relatively unstructured conversations that
                   allow researchers to probe into a consumer’s thought processes.
                   Often they are used to investigate the mechanisms of purchase
                   decisions.

            c.     Projective techniques–Enable respondents to project their
                   thoughts onto a third party, or through some type of contrived
                   situation.

            d.     Observation–A technique whereby the participants are simply
                   watched.

            e.     Case analysis–The in-depth study of a few examples. This
                   technique is particularly appropriate for complex buying and
                   competitive situations.

D.   Quantitative Research–Selects the best course of action and forecasts the
     probable results. The scientific method is a systematic way to gather, analyze,
     and interpret data in order to confirm or disconfirm a prior conception. A
     hypothesis is a tentative assumption about a particular event or issue.

     1.     Quantitative research data collection–Two of the most common methods
            for collecting quantitative data are experiments and surveys. Experiments
            usually take place either where the marketing problem occurs or in a
            laboratory setting. Causal research attempts to find a cause-and-effect
            relationship between two events. Likert scales allow the intensity of
            feelings to be expressed and tend to provide information about a person’s
            attitude toward something. Bipolar adjective scales allow respondents to
            choose along a range between two extremes.

            a.     Administering surveys–

                   i.     Personal    interviews–Require     face-to-face    two-way
                          communication between the          interviewer    and the
                          respondent.

                   ii.    Mall intercepts–Occur at a shopping mall, and the
                          interviewer chooses the respondents on some objective
                          basis.

                   iii.   Telephone surveys–Using a bank of telephones, marketers
                          can contact a large number of people at approximately the
                          same time.




                                    85
                            iv      Mail surveys–A questionnaire sent directly to the
                                    respondent’s home or place of business.

             2.      Sampling–A sampling frame is a list of people in the universe who
                     potentially could be contacted. A sample is the group of people who are
                     asked to participate in the research. In a probability sample, the chance of
                     selecting a given individual can be calculated. When using nonprobablity
                     samples, the researcher does not know the likelihood of selecting a
                     particular respondent.

      E.     Interpreting and Reporting Survey Results–Once research is completed, the
             results must be reported to decision maker(s).

      F.     Who Does Marketing Research?–

             1.      In-company research–Three out of four large companies have a formal in-
                     house marketing research department. Most are headed by experienced
                     personnel who report to top executives. The research staff usually
                     includes project directors, analysts, and specialists.
             2.      External research–Companies often hire out marketing research. Outside
                     agencies include consulting companies, full-service research firms, and
                     syndicated data companies.


IV.   TECHNOLOGY’S EFFECT ON MARKETING RESEARCH

      Technology has made it easier for marketers to connect with an increasing number of
      information sources. Advances in 3-D modeling, the Internet, etc. have provided fast
      and cost-effective ways to conduct marketing research.


V.    GLOBAL MARKETING RESEARCH

      Global marketing research is very challenging. It is not easy to locate secondary data in
      foreign countries, it is difficult to obtain exact translations, and it can be hard to find
      participants. Nevertheless, global marketing research is becoming more and more
      prevalent as companies expand their scope of operations.


VI.   ETHICS IN MARKETING RESEARCH AND INFORMATION USE

      Marketing research can sometimes reflect the biases of marketers. The scientific method
      can help eliminate this problem. Representatives from industry, individual companies,
      academia, and the government help to regulate the content of information and to
      defend consumers from distorted messages.


ANSWERS: KEY TERMS


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1.    Causal research                          18.   Population (universe)
2.    Probability sample                       19.   Stratified random sampling
3.    Data                                     20.   Marketing intelligence
4.    Secondary data                           21.   Hypothesis
5.    Experiment                               22.   Nonprobability samples
6.    Case analysis                            23.   Observation
7.    Focus group                              24.   Scientific method
8.    Marketing research                       25.   Depth interview
9.    Simple random sampling                   26.   Pilot study
10.   Internal data                            27.   Transaction-based information
11.   Judgment samples                               system (TBIS)
12.   Likert scales                            28.   Primary data
13.   Marketing decision support system        29.   Exploratory research
      (MDSS)                                   30.   Projective techniques
14.   External data                            31.   Quantitative research
15.   Sampling frame                           32.   Research design
16.   Database                                 33.   Convenience samples
17.   Marketing information systems            34.   Sample
      (MIS)




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ANSWERS: MULTIPLE CHOICE

1.   c                          9.    a
2.   c                          10.   d
3.   a                          11.   c
4.   e                          12.   b
5.   d                          13.   c
6.   e                          14.   e
7.   a                          15.   e
8.   b




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                                         CHAPTER 6

             MARKET SEGMENTATION, TARGETING, AND POSITIONING

CHAPTER OVERVIEW

Mass marketing is a single marketing strategy designed to appeal to all potential customers.
This strategy does not generally work well because customers with differing characteristics
have different needs and wants. Product differentiation is a strategy that alters products to
stress their uniqueness from those of competitors. It recognizes that customers have differing
needs and wants, but it doesn’t start with an understanding of them. Target marketing focuses
on select groups of customers so marketers can more clearly understand their specific needs
and wants and adjust accordingly.

Market segmentation separates potential customers into several groups with similar
characteristics. Typical segmentation variables are geographic and demographic factors,
diversity, psychographic and behavioristic factors, benefits, and usage rates. Customers within
a segment should have similar needs, wants, and preferences; they should have similar media
habits and shopping and buying patterns; the group should be large enough to justify attention;
and data about individuals in each segment should be available.

Segments are selected as target markets based on such factors as their size and growth
potential, competition, cost and efficiency, leadership qualities, and compatibility with the
organization.

Undifferentiated marketing treats all customers alike and is similar to mass marketing.
Differentiated marketing involves serving several segments but adjusting the marketing mix for
each. Concentrated marketing focuses on one segment or only a few.

Positioning creates in the mind of consumers an image, reputation, or perception of the
company and/or its products relative to competitors. It helps customers understand what is
unique about a company and its products. For business products, a commodity, differentiated,
or specialty positioning strategy can be used. Products are often positioned by benefit, by price
and quality, by the time of use or application, by user or spokesperson, by a direct comparison,
by product class, or by country of origin.


CHAPTER OBJECTIVES

1. Understand the advantages of target marketing and how it differs from mass marketing
   and product differentiation.

2. Describe how to do market segmentation and select target markets.

3. Explore three basic target marketing strategies: undifferentiated, differentiated, and
   concentrated marketing.




                                               89
4. Know how to do positioning, and describe several approaches marketers use to create
   valuable, lasting images of their products.




                                          90
CHAPTER OUTLINE

I.    THE CONCEPT OF SEGMENTATION, TARGETING, AND POSITIONING

      Segmentation


      Target Marketing


      Positioning



II.   MARKET SEGMENTATION

      A.     Mass Marketing–


      B.     Product Differentiation–


      C.     Segmenting Markets–



             Segmentation Variable


             1.      Geographic segmentation–


                     Geodemography


                     Zip code segmentation


             2.      Demographic segmentation–


                     a.    Segmentation by gender–



                     b.    Segmentation by family life cycle–




                                             91
     c.     Segmentation by age–



3.   Segmentation based on diversity–




4.   Psychographic and lifestyle segmentation–



     Lifestyle

     Psychographics



5.   Behavioristic segmentation–


     a.     Segmentation by usage rates–




     b.     Readiness–


     c.     Ability and experience–


     d.     Loyalty–


     e.     Media and shopping habits–


6.   Segmentation by benefit–


7.   Two common segmenting methods–

     Take-down segmentation method




                            92
                   Build-up segmentation method




III.   TARGET MARKETING

       A.   Selecting Target Segments–



            1.     Size and growth–


            2.     Competitive factors–


            3.     Cost and efficiency factors–


            4.     Segment leadership qualities–


            5.     Compatibility with the company’s vision, objectives, and resources–




       B.   Finding New Markets to Target–


       C.   Target Marketing Strategies–


            1.     Undifferentiated marketing–



            2.     Differentiated marketing–



                   Decentralized decision making


                   Centralized decision making



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             3.     Concentrated marketing–



             4.     Niche and micro marketing–

                    Niche


                    Micro marketing


             5.     Mass customization–


      D.     Ethical Dimensions of Targeting–



      E.     Global Targeting–




IV.   POSITIONING STRATEGIES

      Positioning


      Product Positioning


      A.     The Positioning Map–



      B.     Positioning Business Products–



      C.     Steps for Positioning–

             1.


             2.




                                              94
             3.


             4.


             5.


             6.


      D.     Bases for Positioning–

             1.     Positioning by benefit–


             2.     Positioning by price/quality–



             3.     Positioning by time of use or application–

             4.     Positioning by product user or spokesperson–



             5.     Positioning by direct comparison–


             6.     Positioning by product class or category–


             7.     Positioning by country of origin–


      E.     Repositioning–



KEY TERMS

Build-up segmentation method                       Differentiated marketing
Centralized decision making                        Geodemography
Concentrated marketing                             Heterogeneous group
Decentralized decision making                      Homogeneous group
De-ethnicization                                   Market segment
Demographic segmentation                           Market segment profile



                                              95
Mass marketing                                      Psychographics
Micro marketing                                     Segmentation
Niche                                               Segmentation variable
Positioning                                         Take-down segmentation variable
Positioning map                                     Target marketing
Product differentiation                             Undifferentiated marketing
Product position                                    Zip code segmentation


1.                    Division of a market into homogeneous groups with similar needs,
                      wants, values, and buying behavior.

2.                    The organization’s marketing mix strategy is focused on one or only a
                      few of many possible segments.

3.                    A company develops only one or a few products designed to appeal to a
                      large proportion of all customers.

4.                    Starts with a set of variables and assigns all consumers to one of them.

5.                    A product heavily associated with one ethnic group is targeted at other
                      segments.

6.                    A strategy that views all potential customers as though they were the
                      same.

7.                    How a company wants to be perceived by customers within each target
                      market.

8.                    Each of several segments is served with a marketing mix strategy
                      matched specifically to its desires and expectations.

9.                    The segments on which a company decides to focus its energy and
                      resources.

10.                   Combines geographic information with demographics to identify
                      segments with common consumption patterns.

11.                   Buyers with diverse characteristics.

12.                   A homogeneous group with similar needs, wants, values, and buying
                      behavior.

13.                   Starts with a single potential customer’s characteristics and adds a
                      segment for each new characteristic found in other customers.

14.                   Information about a market segment and the amount of opportunity it
                      represents.


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15.                 Dividing the market according to such characteristics as gender, family
                    life cycle, household type, and income.

16.                 Marketing to an individual customer.

17.                 Buyers with similar characteristics.

18.                 A very small segment that most companies ignore because they fail to see
                    any opportunity.

19.                 A diagram of how consumers in a segment perceive brands based on
                    specific elements they consider important.

20.                 A small group of executives make all the major decisions for the whole
                    company.

21.                 A marketing strategy with which companies attempt to make their
                    products appear unique relative to the competition.

22.                 Numerous groups, each dedicated to a specific segment, make decisions
                    about their segment.

23.                 Marketing approaches and tools used to identify lifestyles based on
                    measures of consumers’ values, activities, interests, opinions,
                    demographics, and other factors.

24.                 Any distinguishing market factor that can vary, such as gender, age, or
                    income.

25.                 Division of a market into specific geographic locations based on the
                    demographic make-up of the zip code area.

26.                 The way consumers categorize a brand based on important attributes.

MULTIPLE CHOICE

1.    Plymouth General Corporation has decided to use a mass marketing strategy to identify
      a market for its product which it believes might be of use to a large percentage of the
      population. Which of the following is probably correct regarding its strategy?

      a.     It is probably inefficient and wasteful.
      b.     It will probably not work well because unique customer needs and wants will
             not be addressed.
      c.     It ignores many parts of the marketing mix.
      d.     All of the above
      e.     None of the above



                                             97
2.   Williams Auto Products produces after-market components for automobiles. It has
     chosen a product differentiation strategy. Which of the following conclusions can we
     make?

     a.     Its products will be better than its competitors.
     b.     Its strategy recognizes that customers may have differing needs and wants but
            doesn’t start with an understanding of them.
     c.     It will have to prove that its product is better in order to beat competitors.
     d.     This is a market-oriented strategy.
     e.     None of the above

3.   Which of the following is a major advantage of market segmentation?

     a.     It allows a company to be all things to all people.
     b.     It allows marketers to do a better job of understanding differing needs and
            wants of different groups of customers.
     c.     It is less efficient but more long-term focused than not segmenting markets.
     d.     It allows marketers to do less market analysis.
     e.     All of the above

4.   Kodak uses market segmentation as a first step in developing marketing plans within
     China. Based on this, we would expect it to

     a.     identify the average characteristics of all buyers to profile the market.
     b.     produce low-priced film to appeal to as many buyers as possible.
     c.     divide the market into homogeneous subgroups of consumers with similar
            describing characteristics.
     d.     do all of the above.
     e.     do none of the above.

5.   Abernathy and Associates uses geodemography as part of its segmentation procedure.
     We would expect it to use which of the following types of characteristics?

     a.     Geographic information
     b.     Data on consumer expenditures
     c.     Demographics
     d.     All of the above
     e.     None of the above




                                            98
6.    Which of the following is a segmentation approach?

      a.     Demographic segmentation
      b.     Diversity segmentation
      c.     Psychographic segmentation
      d.     Behavioristic segmentation
      e.     All of the above

7.    Which of the following is most correct regarding ethnic segments?

      a.     They are not homogeneous
      b.     They are homogeneous
      c.     Ethnicization occurs when a product which is associated with a nonethnic group
             is adjusted for the benefit of an ethnic segment.
      d.     Ethnic groups are almost always homogeneous and cannot be subsegmented.
      e.     All of the above

8.    Which of the following is correct regarding psychographic or lifestyle segmentation?

      a.     Psychographics are based on deviant behavior.
      b.     They include geographic, demographic, behavioral, and psychological variables.
      c.     Since psychographics are unmeasurable, they are totally useless.
      d.     Lifestyle segmentation is more expensive than any other type of segmentation.
      e.     Activities, interests, and opinions are not used in lifestyle segmentation.

9.    Which of the following are variables that could be used in behavioristic segmentation?

      a.     Readiness
      b.     Usage
      c.     Loyalty
      d.     Ability and experience with a product
      e.     All of the above

10.   Which of the following factors are useful in selecting a target market segment?

      a.     Size and growth
      b.     Competitive factors
      c.     Cost and efficiency factors
      d.     Compatibility with a company’s vision, objectives, and resources.
      e.     All of the above

11.   Ralph Emerson Corporation has decided to use a differentiated marketing strategy.
      Which of the following would we expect?

      a.     That it would treat all customers the same.
      b.     It would focus the organization’s marketing mix on one or two possible
             segments.
      c.     It would use mass customization.


                                             99
d.   That it would select several segments and match several marketing mix elements
     to appeal to the desires and expectations of customers within that segment.
e.   That it would focus only on niches.




                                   100
12.   Which of the following is correct with regard to positioning?

      a.     Positioning should typically occur after market segmentation and targeting takes
             place.
      b.     Positioning is a process of creating in the minds of consumers an image,
             reputation, or perception.
      c.     Positioning helps focus the marketing mix.
      d.     Positioning is a key aspect of marketing strategy development.
      e.     All of the above

13.   Which of the following is an attempt to position a product?

      a.     Opening a geographic market
      b.     When Nike uses Michael Jordan and Tiger Woods as spokespersons
      c.     Dividing the market into homogeneous subsets
      d.     Reducing internal marketing costs
      e.     All of the above

14.   Which of the following is a basis for positioning?

      a.     By time of user application
      b.     By direct comparison
      c.     By country of origin
      d.     All of the above
      e.     None of the above

15.   Which of the following is an example of repositioning?

      a.     When Wal-Mart lowers its prices to be competitive with Kmart
      b.     When Johnson Controls adds another market segment to its list of target markets
      c.     When Reebok develops an advertising campaign to alter the impressions and
             minds of consumers about its product line
      d.     When direct comparisons are made with a competitor
      e.     None of the above


ANSWERS: CHAPTER OUTLINE

I.    THE CONCEPT OF SEGMENTATION, TARGETING, AND POSITIONING

      Through segmentation, the market can be divided into several groups of people with
      similar characteristics. Target marketing involves selecting certain segments for
      emphasis. Positioning means creating an image, reputation, or perception in the minds
      of consumers about the organization or its products relative to the competition.


II.   MARKET SEGMENTATION




                                             101
A.   Mass Marketing–A single strategy designed to appeal to all customers.

B.   Product Differentiation–Makes a product appear unique relative to others,
     whether produced by the same company or the competition.

C.   Segmenting Markets–The total market is heterogeneous, meaning it has many
     types of buyers. Market segmentation divides the total market into
     homogeneous subgroups, or clusters with similar characteristics. A segmentation
     variable is any descriptive characteristic that helps separate all potential
     purchasers into groups.

     1.     Geographic segmentation–A common way to analyze a market is by
            geography. Geodemography combines geographic information with data
            on consumer expenditures and demographics to identify segments with
            common consumption patterns. Zip code segmentation divides the
            market according to the demographic make-up of the zip code area.

     2.     Demographic segmentation–Demographics like gender, family life cycle,
            household type, and income are used in this type of segmentation.

            a.     Segmentation by gender–The buying behavior of men and women
                   is unique.

            b.     Segmentation by family life cycle–Families pass through stages,
                   from young single adults, to marriage, to childbearing, to later
                   life. These family stages are excellent segmentation categories.

            c.     Segmentation by age–Generational similarities and age cohorts
                   can be segmentation categories.

     3.     Segmentation based on diversity–Ethnic segments are not homogeneous.
            De-ethnicization occurs when a product heavily associated with one
            ethnic group is targeted at other segments.

     4.     Psychographic and lifestyle segmentation–Links geographic and demo-
            graphic descriptors with a consumer’s behavioral and psychological
            decisions. Lifestyle is a person’s distinctive mode of living.
            Psychographics are marketing approaches and tools used to identify
            lifestyles based on measures of consumer values, activities, interests,
            opinions, demographics, and other factors.

     5.     Behavioristic segmentation–Categorizes consumers based on people’s
            awareness, product and media uses, and actions.

            a.     Segmentation by usage rates–Most marketers divide the market
                   into heavy, moderate, and light use and then look for char-
                   acteristics that may explain why some people consume vastly
                   greater amounts.


                                   102
                  b.     Readiness–Potential users go through a series of stages that
                         describe their readiness to purchase. These stretch all the way
                         from being unaware of a product, through trial, leading up to
                         loyalty.

                  c.     Ability and experience–The performance of products is deter-
                         mined by the ability and experience of the user.

                  d.     Loyalty–Loyalty can be categorized by switchers, moderate, and
                         highly loyal.
                  e.     Media and shopping habits–A broad range of media and
                         shopping habits can be used to categorize shoppers.

            6.    Segmentation by benefit–Divides the market into homogeneous groups
                  based on the attributes consumers seek from a particular product class.

            7.    Two common segmenting methods–Take-down segmentation starts with
                  all consumers and seeks meaningful variables for subdividing the entire
                  market. The build-up segmentation method starts with a single potential
                  customer and adds others with similar characteristics.


III.   TARGET MARKETING

       A.   Selecting Target Segments–The market segment profile compiles information
            about a market segment and the amount of opportunity it represents.

            1.    Size and growth–Market segments vary considerably by size and growth
                  rate.

            2.    Competitive factors–Marketers must be aware not only of who is
                  currently serving the segment but also of who is likely to do so in the
                  future.

            3.    Cost and efficiency factors–It is more efficient to target some segments
                  than others.

            4.    Segment leadership qualities–Some segments set the trend for adopting
                  new ideas and products.

            5.    Compatibility with the company’s vision, objectives, and resources–To a
                  significant degree, target segments reflect the qualities and character of
                  the company itself.

       B.   Finding New Markets to Target–A major innovation occurs when companies
            discover new market segments.



                                          103
      C.     Target Marketing Strategies–A targeting strategy defines the number of markets
             and the relative amount of resources allocated to each.

             1.     Undifferentiated marketing–Treats all customers the same. Companies
                    look for desires that are common to most potential customers and then
                    try to design products that appeal to everyone.

             2.     Differentiated marketing–Serves each segment with marketing mix
                    elements matched specifically to its desires and expectations. It requires
                    decentralized decision making, which permits numerous groups, each
                    dedicated to a specific segment to make the decisions for their particular
                    segment. Centralized decision making involves a small group of
                    executives who make all the major decisions for the whole company.

             3.     Concentrated marketing–Focusing the organization’s marketing mix on
                    one or two of the many possible segments.

             4.     Niche and micro marketing–A niche is a very small market that most
                    companies ignore because they do not perceive adequate opportunity.
                    Micro marketing involves marketing to one customer.

             5.     Mass customization–Serves one or several markets while efficiently
                    responding to the needs and desires of individual consumers.

      D.     Ethical Dimensions of Targeting–Marketers must make ethical considerations
             before targeting ethnic segments.

      E.     Global Targeting–Marketers target various global segments by accommodating
             cultural differences.


IV.   POSITIONING STRATEGIES

      Positioning is the process of creating in the mind of consumers an image, reputation, or
      perception of the company and/or its products relative to competitors. Product position
      refers to the characteristic that consumers associate with a brand.

      A.     The Positioning Map–A diagram of how consumers in a segment perceive
             specific brand elements they find important. The ideal position is the one most
             preferred by each customer.

      B.     Positioning Business Products–In addition to the same positioning dimensions
             used by consumers, business customers look at three other product
             classifications: commodity, differentiated, and specialty.

      C.     Steps for Positioning–




                                            104
           1.     Identify the attributes or characteristics used by buyers in a segment to
                  understand brands.

           2.     Diagram the most important dimensions on a grid (map).

           3.     Locate the brand relative to others based on how it is perceived by
                  buyers.

           4.     Identify the ideal position for buyers in the segment.

           5.     Determine the fundamental way to position the product.

           6.     Develop the marketing mix that supports the positioning strategy
                  selected.

     D.    Bases for Positioning–

           1.     Positioning by benefit–Attributes can be used to describe the appeal of a
                  product.

           2.     Positioning by price/quality–Price can be used to signal higher quality or
                  to attract consumers with lower prices than competitors.

           3.     Positioning by time of use or application–Marketers frequently position
                  products on the basis of how they are used or applied.

           4.     Positioning by product user or spokesperson–In the mind of some
                  people, products take on meanings associated strongly with the
                  spokesperson.

           5.     Positioning by direct comparison–Nearly all consumers form impressions
                  about a brand by comparing it to another.

           6.     Positioning by product class or category–When positioning a product, it
                  is important to understand how consumers categorize products.

           7.     Positioning by country of origin–A company’s image can be affected by
                  the mental association people make with its country of origin.

     E.    Repositioning–Altering impressions in the minds of consumers and creating new
           ones.


ANSWERS: KEY TERMS

1.   Segmentation                               4.     Take-down segmentation method
2.   Concentrated marketing                     5.     De-ethnicization
3.   Mass marketing                             6.     Undifferentiated marketing


                                          105
7.    Positioning                          17.   Homogeneous group
8.    Differentiated marketing             18.   Niche
9.    Target marketing                     19.   Positioning map
10.   Geodemography                        20.   Centralized decision making
11.   Heterogeneous group                  21.   Product differentiation
12.   Market segment                       22.   Decentralized decision making
13.   Build-up segmentation method         23.   Psychographics
14.   Market segment profile               24.   Segmentation variable
15.   Demographic segmentation             25.   Zip code segmentation
16.   Micro marketing                      26.   Product position


ANSWERS: MULTIPLE CHOICE

1.    d                                    9.    e
2.    b                                    10.   e
3.    b                                    11.   d
4.    c                                    12.   e
5.    d                                    13.   b
6.    e                                    14.   d
7.    a                                    15.   d
8.    b




                                     106
CHAPTER 7

CONNECTING WITH CUSTOMERS:
UNDERSTANDING CONSUMER BEHAVIOR

CHAPTER OVERVIEW

Consumer behavior is the actions and decision processes of individuals and organizations in
discovering, evaluating, acquiring, consuming, and disposing of products. Consumers behave
differently in low- and high-involvement purchasing situations. When involvement is high,
they use an elaborate five-step decision process, and their attitudes are learned actively. When
involvement is low, they make choices without much effort, and learning is passive.

The five important psychological factors influencing consumer behavior are: motivation,
perception, learning, attitudes, and information processing. Motivation is an internal force that
directs behavior toward the fulfillment of needs. Perception is the process of recognizing,
selecting, organizing, and interpreting stimuli in order to make sense of the world around us.
Learning is any change in behavioral tendencies due to previous encounters. Attitudes consist
of cognitive, affective, and behavioral components. Information processing involves three steps:
input, processing, and output.

Several different types of social factors influence consumer behavior. The most important to
marketers are culture, subculture, social class, reference groups, and family. Subcultures are
groups that display homogeneous values and behaviors that diverge from the surrounding
culture. Social class is a relatively stable division into groups based on such factors as
education, income, and occupation. Reference groups provide norms and values which become
the perspectives that influence a consumer’s behavior. Families have a profound influence on
consumer behavior. Purchases conceived and carried out by one family member with little
input from others are called autonomous decisions. Purchases involving several family
members are called joint decisions.


CHAPTER OBJECTIVES

1. Appreciate the importance of involvement in the decisions consumers make.

2. Evaluate the effect on consumer behavior of such psychological factors as motivation,
   perception, learning, attitudes, and information processing.

3. Explain how such social factors as culture, subculture, social class, reference groups, and
   family help explain consumer behavior.


CHAPTER OUTLINE

I.     THE CONCEPT OF CONSUMER BEHAVIOR




                                              107
II.    CONSUMER INVOLVEMENT AND DECISION MAKING




       A.   Involvement–

            Low-Involvement Purchases


            High-Involvement Purchases


            Passive Learning


            Active Learning


       B.   Consumer Decision Making–

            1.    Problem recognition–


            2.    Information search–


            3.    Alternatives evaluation–


            4.    Purchase decision–


            5.    Purchase–


            6.    Purchase evaluation–



III.   PSYCHOLOGICAL FACTORS INFLUENCING CONSUMERS

       A.   Motivation–




                                         108
     1.    Maslow’s Hierarchy of Needs–




     2.    Motivational conflict–


           Approach-approach


           Avoidance-avoidance


           Approach-avoidance


B.   Perception–


     1.    Selective exposure–


     2.    Selective attention–


     3.    Selective comprehension–


     4.    Selective retention–


     5.    Subliminal perception–


C.   Learning–


     1.    Classical conditioning–


           Generalization




                                     109
           Discrimination


     2.    Operant conditioning–


D.   Attitudes–


E.   Information Processing–


     1.    Encoding–


     2.    Memory–




                                   110
IV.   SOCIETAL AND SOCIAL DIVERSITY INFLUENCES CONSUMERS

      A.   Culture–



      B.   Subculture Diversity–


           1.     Hispanic consumers–


           2.     Asian consumers–


           3.     African American consumers–


      C.   Social Class–


           1.     Global social class dimensions–


      D.   Reference Groups–


           Associative Reference Groups


           Disassociative Reference Groups


      E.   The Family–



           1.     Family decision making–

                  Autonomous decisions


                  Joint decisions


           2.     Family purchasing roles–




                                          111
           The initiator


           The influencer


           The decision maker


           The purchaser


           The user


     3.    Family life cycle–


           a.     Young singles–



           b.     New couples–


           c.     Full nesters–


           d.     Working empty nesters–



           e.     Retired empty nesters–


           f.     Sole survivors–


F.   How Technology Relates to Consumer Behavior–



G.   The Ethics of Influencing Consumer Behavior–




                                    112
KEY TERMS

Active learning                                    Low-involvement purchase
Alternatives evaluation                            Motivation
Approach-approach conflict                         Operant conditioning
Approach-avoidance conflict                        Passive learning
Associative reference groups                       Perception
Attitude                                           Problem recognition
Avoidance-avoidance conflict                       Psychological needs
Classical conditioning                             Purchase
Consumer behavior                                  Purchase decision
Culture                                            Purchase evaluation
Disassociative reference groups                    Reference groups
Discrimination                                     Selective attention
Generalization                                     Selective comprehension
High-involvement purchase                          Selective exposure
Information processing                             Selective retention
Information search                                 Social class
Learning                                           Subculture

1.                   A financial commitment to acquire a product.

2.                   Groups with which people want to identify.

3.                   A subset of people with shared values within a culture.

4.                   Thinking through a situation by recalling information from stored
                     memory or obtaining it from other sources.

5.                   After two stimuli are presented together repeatedly, people learn to
                     respond to one in the same way as the other.

6.                   Motivational conflict that occurs when a consumer desires an alternative
                     that has certain negative qualities.

7.                   Occurs when a consumer becomes aware of an unfulfilled need or desire.

8.                   The tendency to seek out or avoid information sources.

9.                   Groups with which people do not want to identify.

10.                  The process of recognizing, selecting, organizing, and interpreting
                     stimuli in order to make sense of the world around us.

11.                  When consumers make different responses to different stimuli.

12.                  A complex buying decision made after extensive thought.



                                             113
13.   Use of decision rules that attempt to determine which product would be
      most likely to satisfy goals.

14.   The process of determining satisfaction or dissatisfaction with a buying
      choice.

15.   A relatively stable division of society based on education, income, and
      occupation.

16.   Motivational conflict that occurs when a consumer desires two objectives
      but cannot have both.

17.   The mental system humans use to take in, sort, and act on what they
      learn.

18.   Any change in consumer behavior caused by experience.

19.   The tendency to remember some and forget other information.

20.   Motivational conflict that occurs when consumers must choose between
      two undesirable alternatives.

21.   Little energy is devoted to thinking about or elaborating on information.

22.   A routine buying decision.

23.   The use of reinforcement or punishment to shape behavior.

24.   Needs that arise in the socialization process.

25.   Substantial energy is devoted to thinking about and elaborating on
      information.

26.   An internal force that directs behavior toward the fulfillment of needs.

27.   The learned values, beliefs, language, symbols, and patterns of behavior
      shared by people in a society and passed on from generation to
      generation.

28.   The buying choice after carefully weighing the alternatives.

29.   A set of people whose norms and values influence a consumer’s
      behavior.

30.   The actions and decision processes of individuals and households in
      discovering, evaluating, acquiring, consuming, and disposing of
      products.



                               114
31.   The tendency to heed information that supports current views and
      behaviors.

32.   A mental and neural state of readiness, organized through experience,
      that exerts a directive or dynamic influence upon the individual’s
      response to all objects and situations encountered.

33.   The tendency to interpret products and messages according to current
      beliefs.

34.   Consumers make the same response to different stimuli.




                             115
MULTIPLE CHOICE

1.   Which of the following is included within the subject of consumer behavior?

     a.     Actions and decision processes of individuals
     b.     Actions and decision processes of organizations
     c.     Discovering of products
     d.     Closing of products
     e.     All of the above

2.   Johnson is attempting to market a low-involvement consumer product. Which of the
     following would we expect?

     a.     That consumers will make choices without a lot of effort
     b.     That consumers are likely to use only 4 of a 5-step decision process
     c.     That consumer learning will be active
     d.     That consumers are buying the product for a friend
     e.     All of the above

3.   Which of the following are important factors that influence consumer behavior?

     a.     Attitudes
     b.     Perception
     c.     Information processing
     d.     All of the above
     e.     None of the above

4.   Which of the following is not a psychological factor that influences consumer behavior?

     a.     Motivation
     b.     Learning
     c.     Reference groups
     d.     Information processing
     e.     Perception

5.   Which of the following is not a social factor that influences consumer behavior?

     a.     Family
     b.     Social class
     c.     Subculture
     d.     Perception
     e.     Culture

6.   Which of the following is true regarding low-involvement learning?

     a.     Passive learning occurs.
     b.     Consumers do not actively seek information.
     c.     Consumers are likely to learn simply by being around products or messages.


                                            116
d.   Little energy is expended.
e.   All of the above are true.




                                  117
7.    Which of the following is most typical of high-involvement purchases?

      a.     They involve extensive and complex processes.
      b.     They occur in more intelligent people.
      c.     Low-priced items usually fall in this category.
      d.     Consumers who get the best deals usually use only high-involvement decision
             processes.
      e.     All of the above are typical.

8.    Which of the following is a good example of avoidance-avoidance conflict?

      a.     The consumer has to choose between purchasing a new sweater or a new pair of
             slacks for a special occasion.
      b.     The consumer must stay away from good tasting high calorie content foods or
             spend hours working out under undesirable conditions.
      c.     The consumer must spend money to join a fitness club or make payments on a
             new automobile.
      d.     The consumer must choose only one of two equally desirable brands.
      e.     None of the above are good examples.

9.    Which of the following is most correct regarding perception?

      a.     Most information available to consumers is screened out.
      b.     People have a tendency to take in information that is related to current behaviors
             and views.
      c.     Consumers do not objectively interpret information.
      d.     All of the above are correct.
      e.     None of the above are correct.

10.   Which of the following types of learning is most likely to involve reinforcement or
      punishment?

      a.     Classical conditioning
      b.     Subliminal learning
      c.     Perceptual learning
      d.     Relational learning
      e.     Operant condition or reinforcement learning

11.   Rebecca Barnstorm really likes the ―Got Milk?‖ commercials because of many of the
      spokespersons that are used. These spokespersons represent what aspect of consumer
      behavior?

      a.     Subcultures
      b.     Family
      c.     Social class
      d.     Perception
      e.     Reference group members



                                            118
12.   Williams Hardware has identified segments of customers based on similarities and
      income and occupation. They are segmenting using what dimension of consumer
      behavior?

      a.     Reference group
      b.     Family
      c.     Subculture
      d.     Culture
      e.     Social class

13.   Which of the following is most correct with regard to family decision making?

      a.     Different family members have different purchasing roles depending on the type
             of product being consumed within the family.
      b.     Family life cycle does not affect family purchasing.
      c.     Since retired couples have lived together for long periods of time, both members
             are likely to share the same purchase role.
      d.     Family has less influence on purchasing than the social class.
      e.     All of the above are correct.

14.   Which of the following could be considered an unethical way of influencing consumer
      behavior?

      a.     Attempting to use psychological principles to develop advertisements
      b.     Attempting to influence attitudes that are firmly held
      c.     Misusing statistics to create fear that gains attention to one’s products
      d.     Using children in advertisements
      e.     All of the above

15.   Which of the following is not part of the family life cycle?

      a.     New couples
      b.     Newborn
      c.     Retired empty nesters
      d.     Sole survivors
      e.     Young singles


ANSWERS: CHAPTER OUTLINE

I.    THE CONCEPT OF CONSUMER BEHAVIOR


II.   CONSUMER INVOLVEMENT AND DECISION MAKING

      Involvement and decision-making processes are closely related. Knowledge about them
      provides insight into how and why consumers behave as they do.



                                              119
       A.   Involvement–Low-involvement purchases involve routine decisions. High-
            involvement purchases involve extensive and complex decisions. Involvement
            also influences the relationship between evaluation and behaviors. Passive
            learning occurs when consumers do not actively search for information about
            low-involvement products. Active learning occurs when substantial energy is
            devoted to thinking about and elaborating on information.
       B.   Consumer Decision Making–

            1.     Problem recognition–Occurs when a customer becomes aware of an un-
                   fulfilled desire.

            2.     Information search–Consists of thinking through the situation, calling up
                   experiences stored in memory, and seeking information from others.

            3.     Alternatives evaluation–Based on decision rules about which product or
                   service is most likely to satisfy goals.

            4.     Purchase decision–The buying choice after carefully weighing the alter-
                   natives.

            5.     Purchase–A financial commitment to make an acquisition.

            6.     Purchase evaluation–The process of determining satisfaction or dis-
                   satisfaction after the buying choice.


III.   PSYCHOLOGICAL FACTORS INFLUENCING CONSUMERS

       A.   Motivation–An internal force that directs behavior toward the fulfillment of
            needs. Psychological needs are those that arise in the socialization process.

            1.     Maslow’s Hierarchy of Needs–According to Maslow, five basic needs
                   underlie most human goals. At the base of the pyramid are physiological
                   needs essential for survival. On the next level is safety, which includes
                   basic security and freedom from physical abuse. On the third level of the
                   pyramid is the need for love and belonging. The fourth level is the need
                   for esteem, which comes from prestige, status, and self-respect. The final
                   level is the need for self-actualization.

            2.     Motivational conflict–People are motivated to attain some ends and
                   avoid others. Approach-approach conflict occurs when a consumer
                   desires two objectives but cannot have both. Avoidance-avoidance
                   conflict results when a choice must be made between two undesirable
                   alternatives. Approach-avoidance conflict occurs when a consumer
                   desires an alternative that has positive and negative qualities.

       B.   Perception–The process of recognizing, selecting, organizing, and interpreting
            these stimuli in order to make sense of the world around us.


                                           120
           1.     Selective exposure–The consumer’s ability to seek out or avoid
                  information.

           2.     Selective attention–The tendency of consumers to heed information that
                  supports current views.

           3.     Selective comprehension–Consumers’ tendency to interpret messages
                  based on their biases.

           4.     Selective retention–Consumers remember some messages and forget
                  others.
           5.     Subliminal perception–A theory that it is possible to bypass the conscious
                  perception and market to consumers’ subconscious.

      C.   Learning–Any change in consumers’ behavioral tendencies caused by
           experience.

           1.     Classical conditioning–People can learn to respond to one stimulus in the
                  same way as another if the two stimuli are presented together.
                  Generalization occurs when people make the same response to different
                  stimuli. Discrimination occurs when consumers make different responses
                  to different stimuli.

           2.     Operant conditioning–The use of reinforcement or punishment to dis-
                  courage others.

      D.   Attitudes–Structured sets of beliefs that reflect the consumer’s knowledge and
           feelings about specific products.

      E.   Information Processing–Brings together many psychological concepts to describe
           how consumers use data to arrive at choices.

           1.     Encoding–The process of converting information into knowledge.

           2.     Memory–The brain function that stores and recalls encoded information.
                  Short-term memory interprets what is sent from sensory memory. In
                  long-term memory, a vast amount of information may be held for years
                  or even indefinitely.


IV.   SOCIETAL AND SOCIAL DIVERSITY INFLUENCES CONSUMERS

      A.   Culture–The learned values, beliefs, language, symbols, and patterns of behavior
           shared by people in a society and passed on from generation to generation.

      B.   Subculture Diversity–Subculture is a group of people with shared values within
           a culture.


                                          121
     1.     Hispanic consumers–A booming subculture which is growing rapidly
            due to births and immigration.

     2.     Asian consumers–A market segment which is highly educated, affluent,
            and geographically concentrated. The number of Asian-Americans has
            doubled in the past 20 years.

     3.     African-American consumers–African-Americans represent about 12% of
            the U.S. population and have an annual buying power of approximately
            $270 billion.

C.   Social Class–A relatively homogeneous grouping of people based on similarities
     in income and occupation.

     1.     Global social class dimensions–Marketers study global social class
            dimensions in order to understand consumer profiles, habits, interests,
            and purchasing behavior.

D.   Reference Groups–People whose norms and values influence a consumer’s
     behavior. Consumers depend on them for product information, purchase
     comparisons, and rules about correct or incorrect buying behavior. Associative
     reference groups are those to which people want to belong. Disassociative
     reference groups are those to which people do not want to belong.

E.   The Family–Marketers generally look at three important aspects of family: How
     do families make decisions as a group? What roles can various members play in
     a purchase decision? How does family purchase behavior change over time?

     1.     Family decision making–Autonomous decisions are made when a
            purchase is conceived and carried out by one member of the family with
            little influence from the others. Joint decisions are made when two or
            more family members are involved.

     2.     Family purchasing roles–The initiator is the person who first suggests
            that a particular product be purchased. The influencer is the person who
            provides valuable input to the decision-making process. The decision
            maker is the person who makes the final buying decision. The purchaser
            is the person who physically goes out and makes the purchase. The user
            is the person who uses the product.

     3.     Family life cycle–As families age, they progress through a series of
            predictable stages.

            a.     Young singles–This group is in the process of setting up their first
                   household.




                                    122
           b.     New couples–Young married people without children generally
                  try to build an economic foundation for later responsibilities.

           c.     Full nesters–A household with children.

           d.     Working empty nesters–This category consists of three types of
                  consumers: middle-aged singles, married couples with no
                  children, and married couples with grown children who have left
                  home.

           e.     Retired empty nesters–Consumers at this stage of the family life
                  cycle are economically and socially diverse.

           f.     Sole survivors–Men and women whose spouse has died as well as
                  older single people who never married.

F.   How Technology Relates to Consumer Behavior–Many marketers use the
     Internet as a tool to study consumer behavior.

G.   The Ethics of Influencing Consumer Behavior–Using sexual themes and shock
     tactics to influence consumers can have ethical implications.




                                  123
ANSWERS: KEY TERMS

1.    Purchase                                18.   Learning
2.    Associative reference groups            19.   Selective retention
3.    Subculture                              20.   Avoidance-avoidance conflict
4.    Information search                      21.   Passive learning
5.    Classical conditioning                  22.   Low-involvement purchase
6.    Approach-avoidance conflict             23.   Operant conditioning
7.    Problem recognition                     24.   Psychological needs
8.    Selective exposure                      25.   Active learning
9.    Disassociative reference groups         26.   Motivation
10.   Perception                              27.   Culture
11.   Discrimination                          28.   Purchase decision
12.   High-involvement purchase               29.   Reference groups
13.   Alternatives evaluation                 30.   Consumer behavior
14.   Purchase evaluation                     31.   Selective attention
15.   Social class                            32.   Attitude
16.   Approach-approach conflict              33.   Selective comprehension
17.   Information processing                  34.   Generalization


ANSWERS: MULTIPLE CHOICE

1.    e                                       9.    d
2.    a                                       10.   e
3.    d                                       11.   e
4.    c                                       12.   e
5.    d                                       13.   a
6.    e                                       14.   c
7.    a                                       15.   b
8.    b




                                        124
                                         CHAPTER 8

                          BUSINESS-TO-BUSINESS MARKETING

CHAPTER OVERVIEW

A large number of companies sell most of their products to other companies which is known as
business-to-business marketing. In total volume, it is much larger than consumer marketing.
Multiple steps bring the final product to consumers as businesses sell materials and processes
to each other along the supply chain. In addition to the government, there are commercial
markets, extractor industries, trade industries, institutions, utilities, and transportation and
telecommunications companies.

Business markets rely on derived demand to create opportunities for their products. The
demand for business goods and services tends to be inelastic, which means that a price change
does not greatly affect the types of products. The accelerator principle recognizes that some
business goods and services are highly sensitive to changes in consumer demand.

Organizations make purchases to support their production requirements and business needs.
Buying decisions of three types: straight rebuy, modified rebuy, and new-task situations. The
buyer-seller relationship between businesses develops over time, usually in three sequential
phases—courtship, relationship building, and partnership.

Different functional areas may be involved in business purchases, ranging from operational
units to a purchasing department. The group of people who make a purchase decision form the
buying center. Various buying-center members play different roles: gatekeeper, information
seeker, advocate, linking pin, decision maker, and user.

Eight steps may be involved in a purchase, but not every purchase requires all of them. A
number of factors influence organizational buying, such as the professional backgrounds of
decision makers, information sources, the buying process, and the organization’s size,
orientation, and degree of centralization.


CHAPTER OBJECTIVES

1. Describe the types of organizations and products involved in business-to-business
   marketing, and understand the importance of this market.

2. Understand the link between consumer demand and business-to-business marketing.

3. Describe the organizational buying process.

4. Know how buyer-seller relationships work, including informal and contractual
   partnerships.

5. Learn what functions and roles within organizations influence the purchase of a broad
   range of products.


                                              125
126
CHAPTER OUTLINE

I.    THE CONCEPT OF BUSINESS-TO-BUSINESS MARKETING

      Business-to-Business Marketing



II.   BUSINESS-TO-BUSINESS MARKETS

      A.    Types of Markets–

            1.     Commercial market–


            2.     Extractor industries–


            3.     Trade industries–


            4.     Institutions–


            5.     Utilities–


            6.     Transportation and telecommunications–




            7.     Government–


      B.    Business and Commercial Markets Differ–




      C.    Segmenting the Business Market–

            1.     Company demographics–


            2.     Geographic scope–




                                           127
            3.     Buying approach–


            4.     Product/technology–


       D.   The Supply Chain–


       E.   Business Market Demand–

            1.     Derived demand–



            2.     Inelastic demand–



            3.     Fluctuating demand: the accelerator principle–



       F.   Business Globalization–




III.   ORGANIZATIONAL BUYING

       A.   Outsourcing: To Make or Buy–

            Make-or-Buy Decisions


            Outsourcing


       B.   Types of Buying Decisions–

            Straight Rebuy



            Modified Rebuy




                                           128
           New-Task Situation


      C.   Competitive Bidding–




IV.   RELATIONSHIPS BETWEEN BUYERS AND SELLERS

      A.   The Courtship Phase–


      B.   The Relationship Phase–

      C.   The Partnership Phase–


      D.   Ethics and Business Relationships–




V.    FUNCTIONS INVOLVED IN BUSINESS PURCHASES

      A.   Purchasing Agents–



      B.   Functional Managers–



      C.   The Buying Center–


           1.     Gatekeepers–


           2.     Information seekers–


           3.     Advocates–


           4.     Linking pins–



                                         129
            5.     Users–


            6.     Decision makers–



VI.    THE ORGANIZATIONAL BUYING PROCESS

       A.   Problem Recognition


       B.   General-Need Description


       C.   Product Specifications


       D.   Search for Suppliers


       E.   Proposal Solicitation and Selection


       F.   Order-Routine Specifications


       G.   Purchase and Use


       H.   Performance Review and Feedback



VII.   INFLUENCES ON ORGANIZATIONAL BUYING BEHAVIOR

       A.   Information Sources–



       B.   Time and Risk Factors–



       C.   Company Factors–




                                           130
D.   Joint Decisions and Conflict Resolution–

     Problem Solving


     Persuasion


     Bargaining


     Politicking




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KEY TERMS

Advocates                                        New-task situation
Business-to-business marketing                   Outsourcing
Buying center                                    Problem solving
Commercial market                                Producers
Decision makers                                  Product factors
Derived demand                                   Resellers
Gatekeepers                                      Straight rebuy
Inelastic demand                                 Supply chain
Information seekers                              Trade industries
Linking pins                                     Users
Make-or-Buy Decision                             Utilities
Modified rebuy

1.                  Organizations that acquire finished products and distribute them to
                    others.

2.                  Companies that buy products to combine them into other products.

3.                  Organizations and individuals that acquire goods and services to
                    produce other goods and services sold to an end-consumer for profit.

4.                  Persons within the buying center who establish contact among functional
                    areas formed within the buying organization.

5.                  The demand for business-to-business products depends ultimately on the
                    demand of end-consumers.

6.                  Price changes which do not have much influence on demand.

7.                  Marketing goods and services to other producers of goods and services.

8.                  The linkage of organizations involved in the creation and delivery of a
                    product.

9.                  Persons within the buying center who locate data that can be used by
                    themselves or others during the purchasing process.

10.                 An unfamiliar product is purchased from an unfamiliar supplier.

11.                 Whether to supply products in-house or purchase them from other
                    businesses.

12.                 Include time and perceived risk which influence the organizational
                    buying process.




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13.                 Persons within the buying center who have the authority to make or
                    approve a purchase decision.

14.                 A routine purchase with which the organization has considerable
                    experience.

15.                 Persons within the buying center who actually use the product

16.                 A familiar product is purchased from an unfamiliar supplier, or a new or
                    different product is bought from a familiar supplier.

17.                 Purchase products and services from other companies.

18.                 Persons within the buying center who exercise a powerful influence over
                    group decisions, a form of group leadership.

19.                 A method of conflict resolution whereby all parties agree to put the
                    organization’s goals first.

20.                 The group of people from the buying organization who make a purchase
                    decision.

21.                 Companies that purchase a product and sell it in the same form for profit.

22.                 Persons within the buying center who control the flow of commercial
                    (outside) information into the buying organization. They are responsible
                    for screening all potential sellers and allowing only the most qualified to
                    have access to decision makers.

23.                 Companies that distribute gas, electricity, and water.


MULTIPLE CHOICE

1.    Business markets rely on drive demand to create opportunities for their products. This
      means that

      a.     whether all business concerns have increases or decreases in sales in total is
             dependent on whether other markets—for example, consumer markets—are
             increasing in size or decreasing in size.
      b.     the demand for all business products is based on the amount of supply available.
      c.     demand for industrial products is self-contained.
      d.     demand for all business products can be easily increased by greater amounts of
             promotion.
      e.     marketing is more important in business markets than in consumer markets.

2.    Which of the following is not an example of a business market?



                                            133
a.   Organizations that acquire goods and services which are then used to produce
     other goods and services
b.   Consumers which purchase from businesses
c.   Public and private institutions that provide health education and welfare
     services
d.   Organizations that acquire and distribute finished products to businesses
e.   Organizations that obtain and process raw materials




                                  134
3.   Business-to-business markets differ from consumer markets because

     a.     they have pure buyers.
     b.     they tend to be larger.
     c.     like companies tend to be geographically concentrated.
     d.     they use formalized purchasing approaches.
     e.     more parties may be involved in the purchase decision.

4.   ABC Corporation segments industrial buyers based on the degree of centralization and
     functional environment plus the geographical range of operations. What type of
     segmentation are they using?

     a.     Company demographics
     b.     Hierarchical segmentation
     c.     Psychographic
     d.     Geographic scope and buying approach
     e.     Product technology

5.   Business markets tend to have an inelastic demand. This means

     a.     a large change in price will have a major effect on the quantity demanded.
     b.     buyers very seldom change their demand.
     c.     a change in price has relatively little effect on quantity demanded.
     d.     once demand changes, you can expect it to spring back.
     e.     none of the above.

6.   Ralph Frederickson is a member of a buying committee for a division of General Motors.
     He is working on a make-or-buy decision. This means

     a.     he must decide why a recent purchase was unsuccessful.
     b.     he must decide whether to purchase products from the outside or have them
            made within his own organization.
     c.     he must identify which corporations make products and which corporations buy
            products that are likely to supply them to his organization.
     d.     all of the above.
     e.     none of the above.

7.   Beth Arnolds is selling to an organization which is purchasing a product for the first
     time and is unfamiliar with her organization as a supplier. What type of buying decision
     would this organization engage in?

     a.     Elevated
     b.     Innovative task circumstance
     c.     Modified rebuy situation
     d.     New-task situation
     e.     Complicated buying circumstance

8.   Which of the following is not a part of the buying center?


                                            135
      a.    Purchasing coordinators
      b.    Gatekeepers
      c.    Information seekers
      d.    Advocates
      e.    Decision makers
9.    Which of the following is an element of the eight-stage buying process?

      a.     Need description
      b.     Product specification
      c.     Proposal solicitation
      d.     Supplier selection
      e.     All of the above

10.   Wing Medical Corporation is in the process of purchasing a component from a supplier
      that goes into the manufacture of one of the products that it builds. It perceives a high
      risk in making this purchase. Consequently, we would expect

      a.     that few people would be involved in the purchasing decision.
      b.     that outside consultants would be used in the purchasing decision.
      c.     that several people would be used in assessing the purchase decision.
      d.     that it would not purchase the product at all.
      e.     none of the above.

11.   Providence Manufacturing Company is currently involved in making a decision about
      the purchase of a new assembly line for its operation. The decision is likely to be joint
      among several key members of the organization who are using a problem-solving
      approach. Which of the following would we expect?

      a.     All members of the buying center are in agreement with regard to the goals of
             this particular purchase.
      b.     Buying-center people are likely to try to persuade each other about the best
             overall purchase.
      c.     A good deal of politicking is likely to occur.
      d.     People in the buying-center are more likely to bargain than to use persuasion.
      e.     None of the above

12.   When sellers attempt to create relationships with buyers, they are likely to go through
      which of the following three phases?

      a.     Courtship, relationship, partnership
      b.     Introduction, consolidation, review
      c.     First, second, third
      d.     Screening, consolidation, evaluation
      e.     Buildup, breakdown, consolidation

13.   Which of the following is most correct regarding competitive bidding?



                                             136
a.   It is used by organizations that want to establish long-term relationships.
b.   It is used by organizations wishing to get the greatest amount of customer
     service.
c.   It is more likely to be used with unique products than commodity products.
d.   It is used by organizations that want to obtain the lower price.
e.   It is unethical, as it puts undue pressure on sellers.




                                  137
14.   Which of the following is a type of uncertainty or risk diversion experienced by some
      buying organizations?

      a.     Acceptance uncertainty
      b.     Technical uncertainty
      c.     Transaction uncertainty
      d.     Need uncertainty
      e.     All of the above

15.   Which of the following factors is/are likely to influence the purchasing process?

      a.     Size of the organization
      b.     Orientation of the organization
      c.     Centralization and decentralization
      d.     All of the above
      e.     None of the above


ANSWERS: CHAPTER OUTLINE

I.    THE CONCEPT OF BUSINESS-TO-BUSINESS MARKETING

      Business-to-business marketing is the marketing of goods and services to other
      businesses, governments, and institutions. It includes everything but direct sales to
      consumers. Globally, it’s the largest market by far.


II.   BUSINESS-TO-BUSINESS MARKETS

      A.     Types of Markets–The business market is divided into seven categories.

             1.     Commercial market–Organizations that acquire goods and services
                    which are then used to produce other goods and services.

             2.     Extractor industries–Organizations that obtain and process raw materials.

             3.     Trade industries–Organizations that acquire or distribute finished
                    products to businesses or to consumers.

             4.     Institutions–Public and private organizations that provide health,
                    education, and welfare services to consumers.

             5.     Utilities–Companies that distribute gas, electricity, and water.

             6.     Transportation and telecommunications–The transportation portion is
                    comprised of companies that provide passenger and freight service.
                    Telecommunications companies supply local and long-distance
                    telephone service as well as cable and broadcasting.


                                             138
            7.     Government–The subdivisions in the government market category are (1)
                   the government, (2) 50 state governments, and (3) 8,700 local units.

       B.   Business and Commercial Markets Differ–Business markets differ from
            consumer markets in the number of buyers, size of purchase, supplier
            relationships, geographic concentration, purchasing approaches, and buying
            influences.

       C.   Segmenting the Business Market–The business market is segmented using the
            same procedures for the consumer market, but several unique factors provide an
            excellent way to categorize business consumers.

            1.     Company demographics–Industry, size, financial stability, place in the
                   distribution channel, and ownership.

            2.     Geographic scope–The range of operations affects how an organization
                   buys.

            3.     Buying approach–Degree of centralization, functional involvement, and
                   partnering.

            4.     Product/technology–Level of technology, configuration purchased, and
                   design orientation.

       D.   The Supply Chain–Links organizations involved in the creation and delivery of a
            product.

       E.   Business Market Demand–

            1.     Derived demand–The amount of sales for business-to-business products
                   depends ultimately on the demand for products by consumers.

            2.     Inelastic demand–Products so necessary that a change in price has
                   relatively little effect on the quantity demanded.

            3.     Fluctuating demand: the accelerator principle–When a small fluctuation
                   in consumer demand has a larger effect on business demand.

       F.   Business Globalization–The growth of international business has provided
            companies with a number of business-to-business marketing opportunities
            overseas.


III.   ORGANIZATIONAL BUYING




                                          139
      A.   Outsourcing: To Make or Buy–Make-or-buy decisions occur when companies
           must decide whether to supply products or services in-house or buy them from
           other businesses. Outsourcing is the purchase of products from other companies.

      B.   Types of Buying Decisions–A straight rebuy is a routine purchase with which
           the organization has had a great deal of experience. A modified rebuy situation
           involves purchasing a familiar product from an unfamiliar supplier or a new or
           different product from a familiar supplier. A new-task situation involves
           purchasing an unfamiliar product from an unfamiliar supplier.

      C.   Competitive Bidding–Used by organizations that want to obtain the lowest price
           rather than establish long-term relationships with suppliers.

IV.   RELATIONSHIPS BETWEEN BUYERS AND SELLERS

      A.   The Courtship Phase–During courtship, purchasers express their desires to
           sellers, who develop proposals designed to satisfy the buyers’ needs.

      B.   The Relationship Phase–The buyers and sellers work together for the first time,
           which strengthens the bond between them.

      C.   The Partnership Phase–Begins after numerous purchases have been completed
           satisfactorily and long-term agreements are reached.

      D.   Ethics and Business Relationships–Purchasing agents are often very familiar
           with the trade secrets, production plans, and technologies of an organization.
           Misuse of this information has both ethical and legal implications.


V.    FUNCTIONS INVOLVED IN BUSINESS PURCHASES

      A.   Purchasing Agents–Hired to help the organization buy a broad range of
           products most effectively. They establish and enforce policies and procedures
           that maintain consistent purchase arrangements with all suppliers.

      B.   Functional Managers–Hold a position in a specific operational area of the buying
           organization.

      C.   The Buying Center–A group of people in the organization who make a purchase
           decision.

           1.     Gatekeepers–Control the flow of commercial information into the buying
                  organization.

           2.     Information seekers–Locate data that can be used by them or others
                  during the purchasing process.




                                          140
              3.     Advocates–Exercise a powerful influence over buying-center decisions.
                     They participate in most group discussions, have high status, and play a
                     leadership role.

              4.     Linking pins–Contact among the functional areas involved in the buying
                     center is provided by linking pins.

              5.     Users–Those within the buying center who actually will use the product
                     being purchased.

              6.     Decision makers–The person(s) with the authority to make or at least
                     approve the buying decision.


VI.    THE ORGANIZATIONAL BUYING PROCESS

       An organization may go through eight different stages when making a buying decision,
       but every purchase does not require all of them.

       A.     Problem recognition occurs when the buying organization realizes that a
              situation can be improved by acquiring a good or service.

       B.     A general-need description is developed that identifies the basic characteristics
              of what is wanted.

       C.     Product specifications are usually technical and very detailed: precise
              dimensions, tolerances, quantity, etc.

       D.     Search for suppliers. New products may require a lengthy search, and straight
              rebuys may involve a very limited one.

       E.     During the proposal solicitation and selection stage, the buying organization
              invites bids and assesses them according to the criteria set forth in the
              specifications.

       F.     When a supplier has been selected, the buying organization negotiates the final
              terms of the agreement, called order-routine specifications.

       G.     During the purchase and use, the buyer signs a contract, takes the delivery, and
              begins to evaluate whether the product does the job as anticipated.

       H.     In performance review and feedback, the buyer lets the supplier know how well
              the product meets the needs of the organization.


VII.   INFLUENCES ON ORGANIZATIONAL BUYING BEHAVIOR




                                             141
A.   Information Sources–Organizational buying is influenced by the sources of
     information—salespeople, exhibitions and trade shows, direct mail, press
     releases, journal advertising, professional and technical conferences, trade news,
     word of mouth, and others.

B.   Time and Risk Factors–Time pressure relates to the speed with which a purchase
     must be made. Perceived risk refers to what can be lost rather than gained when
     making a purchase.

C.   Company Factors–The organization’s orientation, its size, and its degree of
     centralization.

D.   Joint Decisions and Conflict Resolution–Organizations usually attempt to resolve
     conflicts through problem solving and persuasion. Problem solving in the
     buying context occurs when all decision makers agree on the goals of the
     particular purchase. Persuasion occurs when buying-center members do not
     agree on purchase goals, and each tries to convince the others that his/her own
     goals should take precedence. Bargaining occurs when people in the buying
     center cannot arrive at a solution. Politicking occurs when buying-center
     members of the organization have strong ego needs.




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ANSWERS: KEY TERMS

1.    Trade industries                       13.   Decision makers
2.    Producers                              14.   Straight rebuy
3.    Commercial market                      15.   Users
4.    Linking pins                           16.   Modified rebuy
5.    Derived demand                         17.   Outsourcing
6.    Inelastic demand                       18.   Advocates
7.    Business-to-business marketing         19.   Problem solving
8.    Supply chain                           20.   Buying center
9.    Information seekers                    21.   Resellers
10.   New-task situation                     22.   Gatekeepers
11.   Make-or-buy decision                   23.   Utilities
12.   Product factors

ANSWERS: MULTIPLE CHOICE

1.    b                                      9.    e
2.    b                                      10.   c
3.    d                                      11.   a
4.    d                                      12.   a
5.    c                                      13.   d
6.    b                                      14.   e
7.    d                                      15.   d
8.    a




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                                         CHAPTER 9

                        PRODUCT DECISIONS AND STRATEGIES


CHAPTER OVERVIEW

Each product has three distinguishing aspects: its core, branded, and augmented dimensions. A
bundling strategy combines several products into one offering sold together. Five categories are
used to classify consumer products. Unsought products are bought on the spur of the moment.
Emergency products are bought because of unexpected events, such as an accident or theft.
Convenience products are inexpensive and are usually purchased near home. Brand name and
wide distribution are very important for these items. Shopping items are selected after
comparisons are made. Specialty products have unique characteristics and value.

Business products are divided into capital and operational products, depending on their
primary use. Capital products include installations—such as offices and factories—and
equipment—such as delivery vans and computers. Operational products either become part of
other products (raw and processed materials, components, and subassemblies) or help run the
business (accounting and waste removal services or office supplies).

A product line is one item or a number of related products. Companies may have one or more
product lines, each with many or few items. The depth and breadth of product line are terms
describing whether few or several lines and items are sold. The amount of product
standardization is a major factor for global firms.

A brand is distinguished from the product in general or other brands. Brands signify the
―personality‖ of a product. The brand name and trademark can provide immediate recognition
and credibility. There are several brand strategies: the generic approach, individual strategy,
family brand, manufacturer brand, and private label brands.

Product liability holds marketers responsible for injuries and damages caused by a faulty
product. Warranties refer to how products perform when used. Essentially, a product should
perform as it was designed. A product recall is instituted by the government or manufacturer to
withdraw or modify a product. This occurs when a product is defective, especially if the
potential for injury exists.

CHAPTER OBJECTIVES

1. Describe the major dimensions used by marketers to differentiate their products from
   competitors. Understand bundling and unbundling.

2. Understand consumer and business product classifications based on how and why
   products are purchased and consumed.

3. Know how organizations make product line decisions that determine what will be sold,
   including the degree of standardization chosen for global markets.



                                              144
4. Recognize that branding and brand strategies are important aspects of building and
   maintaining a brand name.

5. Know how to create brand equity—the value associated with a product’s name.

6. Discuss the many legal and ethical issues surrounding brand and packaging decisions.
CHAPTER OUTLINE

I.     THE CONCEPT OF PRODUCTS

       Product



II.    DIMENSIONS OF A PRODUCT

       A.     Core Products–


       B.     Branded Products–


       C.     Augmented Products–



III.   PRODUCT CLASSIFICATIONS

       A.     Consumer Product Classifications–

              1.     Unsought products–


              2.     Emergency products–


              3.     Convenience products–


              4.     Shopping products–


              5.     Specialty products–


       B.     Business Products–




                                             145
              1.     Capital products–


              2.     Production products–


              3.     Operational products–



IV.   PRODUCT-LINE DECISIONS



      A.      Product-Line Depth and Breadth–




      B.      Global Products–




V.    THE CONCEPT OF BRANDS

      Brand


      A.      Trademarks–


      B.      Trademark Piracy–



      C.      Brand Strategies–

              1.     Generic brand strategy–


              2.     Individual brand strategy–


              3.     Family brand strategy–




                                               146
              4.       Manufacturer’s brand strategy–


              5.       Private brand strategy–


              6.       Hybrid brand strategy–



VI.    BRAND EQUITY: CONNECTING WITH A SUCCESSFUL BRAND

       Brand Equity


       Brand Awareness


       Brand Loyalty


       Brand Insistence


       Perceived Quality


       Brand Associations



       A.     Maintaining Brand Value–


       B.     Developing a Successful Brand Name–


       C.     Diversity in Brand Marketing–



VII.   PACKAGING AND LABELING




                                                 147
VIII.   ETHICAL ISSUES SURROUNDING PRODUCT SAFETY AND LIABILITY

        Product Liability


        A.     Product Warranties–


        B.     Product Recalls–




                                     148
KEY TERMS

Augmented product                                  Individual brand strategy
Brand                                              Item
Brand associations                                 Joint marketing
Brand awareness                                    Labels
Branded product                                    Manufacturer’s brands
Brand equity                                       Packaging
Brand insistence                                   Perceived brand quality
Brand loyalty                                      Private brand
Breadth                                            Product
Bundling strategy                                  Product liability
Capital products                                   Product line
Convenience products                               Product recall
Core product                                       Shopping products
Depth                                              Specialty items
Emergency products                                 Supplies
Family brand strategy                              Trademark
Generic brand strategy                             Unsought products
Hybrid brand strategy                              Warranties

1.                   A single brand name covers the entire group of products in the
                     company’s line(s).

2.                   Purchases generally made only after the consumer has compared several
                     alternatives.

3.                   The assets linked with the brand name and symbol that add value to the
                     product.

4.                   Buyers are unwilling to accept substitutes.

5.                   The number of items in a product line.

6.                   Products with unique characteristics that provide unusual value to the
                     purchaser.

7.                   The degree to which a brand consistently produces satisfaction by
                     meeting customer expectations.

8.                   The number of different lines a company markets.

9.                   Items that consumers don’t think about frequently and for which they
                     don’t perceive much need.

10.                  Relatively inexpensive items that consumers purchase frequently and
                     with minimum effort.



                                             149
11.   Consumers choose one brand over others available.

12.   Purchases due to an unexpected event and for which the consumer has
      an urgent need.

13.   No brand name is used.

14.   Many products are combined into a single offering.

15.   A combination of two or more product strategies.

16.   Characteristics enhancing value beyond that of the core and branded
      product.

17.   There is a unique name for each major product or product line.

18.   A specific version of a product within a product line.

19.   Cooperation between two companies to sell their products, which tend to
      be complementary.

20.   Information printed on a product’s package to inform consumers and
      help promote the product.

21.   Costly items that last a long time but do not become part of any finished
      product.

22.   Implied or written expectations about product performance under use
      conditions.

23.   A product container that (1) protects and identifies the item; (2)
      communicates messages to consumers; (3) makes the product more
      convenient to use; (4) facilitates storage; (5) is environmentally friendly;
      and (6) carries the UPC and protects against misuse.

24.   Brands named after the manufacturer.

25.   Evoke positive attitudes and feelings in consumers’ minds.

26.   The name wholesalers or retailers attach to products they resell for
      numerous suppliers.

27.   Any physical object, service, idea, person, event, place, or organization
      offered to satisfy consumers’ needs and wants.

28.   The physical item or intangible service that the customer receives.




                               150
29.                 The responsibility of marketers and manufacturers for injuries and
                    damages caused by a faulty product.

30.                 The core product plus the characteristics that allow the consumer to
                    differentiate it from similar products.

31.                 Closely related products marketed by the organization.

32.                 The extent to which consumers recognize the brand and are likely to
                    include it among the set of brands they consider.

33.                 The withdrawal from the market, by either a manufacturer or the federal
                    government, and repair, replacement, or discontinuation of potentially
                    harmful products.

34.                 Consumable items used for business operations.

35.                 A distinctive form or figure that identifies the brand.

36.                 A distinguishing name and/or symbol to identify and differentiate
                    products from those of competitors.


MULTIPLE CHOICE

1.    What are the three distinguishing aspects of a product?

      a.     Generic, branded, accentuated
      b.     Core, branded, augmented
      c.     Place, promotion, price
      d.     Primary, secondary, tracery
      e.     Basic, branded, bundled

2.    The Delphi Division of General Motors has decided to use a bundling strategy to market
      one of its product lines. It is most likely to

      a.     put products in batches for shipment.
      b.     put together products from several other manufacturers.
      c.     combine several products into one offering sold together.
      d.     use a high and discounted price strategy.
      e.     market parts of a product separately which can be combined into one overall
             product.

3.    Which of the following could be considered products?

      a.     Physical object
      b.     Service
      c.     Good


                                             151
     d.     Idea
     e.     All of the above

4.   Gateway Computers pays careful attention to its augmented products. This means that

     a.     it carefully selects suppliers.
     b.     it designs its own products.
     c.     it uses outside designers for products.
     d.     it fully warranties every product.
     e.     the marketing strategy encompasses characteristics that provide value in
            addition to the core and branded product.




                                          152
5.    Hartshafter and Marks has a product that requires consumers to make comparisons of
      alternative brands. What type of product do they have?

      a.     Shopping product
      b.     Unique product
      c.     Unorthodox product
      d.     Convenience product
      e.     Contemplative product

6.    Accounting tends to treat this type of product as an investment because it is likely to last
      a long time and not be any part of any finished product. This product is called a(n)

      a.     raw material.
      b.     processed material.
      c.     operational product.
      d.     capital product.
      e.     accountable product.

7.    General Electric has several product lines and several products within each product line.
      Consequently, we would say that it has what type of product mix?

      a.     Conglomerate
      b.     Deep and broad
      c.     Global
      d.     Combined focus
      e.     None of the above

8.    Which of the following is a generic brand?

      a.     Penicillin
      b.     Novell
      c.     Carrier
      d.     Rockwell
      e.     Ford

9.    Which of the following is a consumer product classification?

      a.     Emergency products
      b.     Unsought products
      c.     Shopping products
      d.     Specialty products
      e.     All of the above

10.   Kellogg Company attempts to build brand equity in each of its products. Brand equity is
      essentially

      a.     how long it has owned the brand.
      b.     the value of advertising campaigns associated with the brand.


                                              153
c.   the value of the brand as an asset which can generate long-term cash flow.
d.   the perceived quality of the brand.
e.   the feelings of honesty associated with the owner of the brand.




                                    154
11.   Which of the following are characteristics of a successful brand name? Brand should

      a.     be easy to remember.
      b.     be distinct from other brands.
      c.     be positive.
      d.     not have bad connotations for other parts of the world.
      e.     be all of the above.

12.   IGA is a retailer in the grocery business. It places its own name on many products.
      Which strategy is it using?

      a.     Manufacturer’s brand strategy
      b.     Private brand strategy
      c.     Family brand strategy
      d.     Individual brand strategy
      e.     Generic brand strategy

13.   Which of the following is not a role of packaging and labeling?

      a.     To contain and protect
      b.     To purify
      c.     To communicate messages
      d.     To make the product more convenient to use
      e.     To facilitate the storage

14.   Which of the following is generally the case regarding products?

      a.     Users are liable for their own actions in the case of injury.
      b.     Neither users nor marketers are liable for injuries or damages caused by a
             product.
      c.     Manufacturers and marketers are held accountable for injuries or damages
             caused by a faulty product.
      d.     If faulty products are recalled, manufacturers are never held liable.
      e.     Product liability laws do not apply to international trade.

15.   A product recall is

      a.     when consumers remember the product.
      b.     the withdrawal of a product by a manufacturer or the federal government to
             prevent harm from occurring to customers.
      c.     products that are discontinued because they become old.
      d.     bringing back a product that has been used in order to test its durability.
      e.     all of the above.


ANSWERS: CHAPTER OUTLINE

I.    THE CONCEPT OF PRODUCTS


                                             155
A product is any physical object, service, idea, person, event, place, or organization that
can be offered to satisfy consumers’ needs and wants.




                                       156
II.    DIMENSIONS OF A PRODUCT

       A.     Core Products–The physical item or intangible service that the customer
              receives.

       B.     Branded Products–The core product plus the characteristics that allow the
              consumer to differentiate it from similar products.

       C.     Augmented Products–Have characteristics that enhance value beyond that of the
              core and branded products.


III.   PRODUCT CLASSIFICATIONS

       A.     Consumer Product Classifications–

              1.     Unsought products–Items not thought about frequently and not
                     perceived as very necessary.

              2.     Emergency products–Purchased when an unexpected event takes place
                     and the consumer has an urgent need for a product.

              3.     Convenience products–Relatively inexpensive items that consumers
                     purchase frequently and with minimum effort.

              4.     Shopping products–Generally purchased only after the consumer has
                     compared several alternatives.

              5.     Specialty products–Have unique characteristics that provide unusual
                     value to the purchaser.

       B.     Business Products–

              1.     Capital products–Costly items that last a long time but are not part of any
                     finished product.

              2.     Production products–Raw materials, processed materials, component
                     parts, and subassemblies which become part of other goods.

              3.     Operational products–Purchased to help run the business.


IV.    PRODUCT-LINE DECISIONS

       A product line consists of the closely related products marketed by an organization. An
       item is a specific version of a product within a product line.




                                             157
A.   Product-Line Depth and Breadth–The depth of a product line refers to the
     number of items. Product line breadth refers to the number of different lines a
     company markets.

B.   Global Products–Different areas of the world vary greatly in terms of consumer
     and business purchasing approaches, media exposure, and tastes and




                                   158
             preferences. In addition, product standards and regulations, measurements and
             calibration systems, and economic factors—all of which affect products—vary
             immensely.


V.    THE CONCEPT OF BRANDS

      A brand is a distinguishing name and/or symbol intended to identify and differentiate
      products from those offered by competitors.

      A.     Trademarks–A distinctive form or figure that identifies a brand.

      B.     Trademark Piracy–A brand name and the trademark symbol or logo are
             protected by law if they are legally registered. That gives the owner sole right to
             use them any way he/she chooses.

      C.     Brand Strategies–

             1.     Generic brand strategy–Uses no brand name whatsoever.

             2.     Individual brand strategy–Assigns unique brand names to each major
                    product or product line.

             3.     Family brand strategy–Uses a single brand name for the entire group of
                    products in a company’s line.

             4.     Manufacturer’s brand strategy–Brands named after the manufacturer.

             5.     Private brand strategy–When wholesalers or retailers place their own
                    name on a product.

             6.     Hybrid brand strategy–A combination of two or more approaches.


VI.   BRAND EQUITY: CONNECTING WITH A SUCCESSFUL BRAND

      Brand equity is the assets linked with the brand name and symbol that add value to the
      product or service. Brand awareness is the extent to which consumers recognize the
      name and are likely to include it among the set of brands they consider. Brand loyalty
      occurs when consumers select a particular brand over others on a regular basis. Brand
      insistence means that buyers are not willing to accept substitutes. Perceived quality is
      the degree to which brands consistently produce satisfaction by meeting customer
      expectations. Brand associations evoke positive attitudes and feelings in the consumers’
      minds.

      A.     Maintaining Brand Value–To prevent brand names from becoming available for
             general use, a company must continuously inform the public about its exclusive
             ownership.


                                             159
        B.     Developing a Successful Brand Name–Names should be easy to remember,
               distinctive, positive, and used around the world.

        C.   Diversity in Brand Marketing–Marketers increase brand equity by meeting the
             needs of various cultures, nationalities, and age groups.
VII.    PACKAGING AND LABELING

        The role of packaging and labeling is to contain and protect items, communicate
        messages to customers, make the product more convenient to use, facilitate product
        storage, be environmentally friendly, contain product codes, and protect against misuse.


VIII.   ETHICAL ISSUES SURROUNDING PRODUCT SAFETY AND LIABILITY

        Product liability refers to the fact that marketers and manufacturers are held responsible
        for injuries and damages caused by a faulty product.

        A.     Product Warranties–Written or implied expectations about product performance
               under use conditions.

        B.     Product Recalls–The withdrawal of a potentially harmful product from the
               market, by either a manufacturer or the federal government, for its repair,
               replacement, or discontinuation.


ANSWERS: KEY TERMS

1.      Family brand strategy                        19.    Joint marketing
2.      Shopping products                            20.    Labels
3.      Brand equity                                 21.    Capital products
4.      Brand insistence                             22.    Warranties
5.      Depth                                        23.    Packaging
6.      Specialty items                              24.    Manufacturer’s brands
7.      Perceived brand quality                      25.    Brand associations
8.      Breadth                                      26.    Private brand
9.      Unsought products                            27.    Product
10.     Convenience products                         28.    Core product
11.     Brand loyalty                                29.    Product liability
12.     Emergency products                           30.    Branded product
13.     Generic brand strategy                       31.    Product line
14.     Bundling strategy                            32.    Brand awareness
15.     Hybrid brand strategy                        33.    Product recall
16.     Augmented product                            34.    Supplies
17.     Individual brand strategy                    35.    Trademark
18.     Item                                         36.    Brand




                                               160
ANSWERS: MULTIPLE CHOICE

1.   b                           9.    e
2.   c                           10.   c
3.   e                           11.   e
4.   e                           12.   b
5.   a                           13.   b
6.   d                           14.   c
7.   b                           15.   b
8.   a




                           161
                                         CHAPTER 10

                     PRODUCT INNOVATION AND MANAGEMENT

CHAPTER OVERVIEW

Every organization needs to develop a product mix consistent with its overall strategy. It must
match current and new products with current and new segments. This produces four basic
options for marketing mix management. A core business focus maintains, expands, or harvests
current products in current markets. Product development improves or adds new products for
sale to current segments. Market development seeks new market segments for existing
products. Organizations can use this framework to help allocate resources to obtain the best
overall performance.

Product innovations are of three types: continuous innovations, dynamically continuous
innovations, and discontinuous innovations. How rapidly a product is accepted depends on
several factors.

The new product development process has seven steps. First, a strategy is outlined by top
management. Second, idea generation provides a list of possibilities. Third, idea screening
narrows the list to those most compatible with the organization’s need. Fourth, business
analysis develops a product concept and financial analysis to assess feasibility and estimate
profitability under numerous assumptions. Fifth, prototype product development involves all
the steps leading up to and including the creation of a working model. Sixth, test marketing
provides a limited trial of the marketing strategy under real or simulated conditions. Seventh,
commercialization occurs when the product is formally introduced into the market.

Products can be viewed as moving over a life cycle with several stages. In the introduction
phase, sales usually take off slowly despite heavy promotion. During the growth stage, sales
increase, and product technology often enters its second generation. At maturity, sales begin to
slow and level off. The decline stage is marked by a downward sales trend.

People go through a series of steps in adopting a new product. Individuals can be grouped into
five categories that describe the diffusion process: innovators, early adopters, early majority,
late majority, and laggards.

CHAPTER OBJECTIVES

1. Provide a framework to evaluate the extent to which existing or new products are marketed
   to existing or new market segments.

2. Understand how the characteristics of innovation influence the speed with which they are
   accepted.

3. Know the steps used to develop new products, from the initial idea through commer-
   cialization.




                                              162
4. Show how the product life cycle concept can be used to build and adjust marketing
   strategies over time.

5. Recognize how innovations are adopted by consumers by being spread from group to
   group.




                                        163
CHAPTER OUTLINE

I.     THE CONCEPT OF PRODUCT INNOVATION AND MANAGEMENT


II.    PRODUCT INNOVATION AND GROWTH

       A.   Product Mix Growth Options–



       B.   Core Business Focus–



       C.   Market Development–



       D.   Product Development–


            Line Extension


       E.   Diversification–



       F.   Types of Product Innovation–

            Continuous Innovation


            Dynamically Continuous Innovation


            Discontinuous Innovation



III.   WHY INNOVATIONS SUCCEED

       A.   Relative Advantage–


       B.   Compatibility–



                                           164
      C.   Product Complexity–


      D.   Trialability–

      E.   Observability–



IV.   THE NEW PRODUCT DEVELOPMENT PROCESS

      A.   New Product Strategy–




      B.   Idea Generation–




      C.   Idea Screening–


      D.   Business Analysis–


           Concept Testing


      E.   Prototype Product Development–



      F.   Market Testing–

           Test Market


           Simulated Product Test


      G.   Commercialization–



V.    ORGANIZATIONAL STRUCTURES AND INNOVATION


                                       165
      Simultaneous New Product Development


      Sequential New Product Development


      Organizational Structures

             1.

             2.

             3.

             4.

             5.

      A.     The Ethics of Product Imitation–




VI.   MANAGING PRODUCTS OVER THE LIFE CYCLE

      A.     Stage 1: Introduction–



      B.     Stage 2: Growth–



      C.     Stage 3: Maturity–



      D.     Stage 4: Decline–



      E.     Variations in Product Life Cycles–



      F.     Extending the Product Life Cycle–



                                            166
              1.

              2.

              3.

              4.

       G.     The International Product Life Cycle–




VII.   ADOPTION AND DIFFUSION

       Adoption Process


       Diffusion Process


       A.     Innovators–


       B.     Early Adopters–


       C.     Early Majority–


       D.     Late Majority Buyers and Laggards–




KEY TERMS

Adoption process                                   Innovators
Business analysis                                  Laggards
Commercialization                                  Late majority
Concept testing                                    Line extension
Continuous innovation                              Market manager
Diffusion process                                  Market development
Discontinuous innovation                           New product committee
Dynamically continuous innovation                  New product department
Early adopters                                     Product concept
Early majority                                     Product development
Idea generation                                    Product life cycle


                                            167
Product manager                                  Simulated product test
Product mix                                      Simultaneous new product development
Product screening                                Test market
Sequential new product development               Venture team


1.                 Responsible for one or several similar product lines targeted at specific
                   segments.

2.                 The more skeptical consumers who purchase products after the early
                   majority.

3.                 Refining product ideas into written descriptions, pictures, and specifi-
                   cations.

4.                 People from various functional areas work on different stages of product
                   development.

5.                 The third group of adopters, more risk-averse in purchase decisions than
                   innovators and early adopters.

6.                 An entirely new product with new functions.

7.                 Offering new products to existing market segments.
8.                 When people from all functional areas work together to develop
                   products.

9.                 The second group of consumers to purchase new products.

10.                Helps identify the likelihood of a product’s success.

11.                The gathering of suggestions for new products from a number of sources
                   using a range of formal and informal methods.

12.                The first group of consumers to purchase a new product.

13.                Experimentation with the marketing strategy in artificial conditions.

14.                Consumers who resist new products the longest.

15.                Final stage in the new product development process, when the product is
                   introduced into the market.

16.                A new product closely related to others in the line.

17.                Assesses the attractiveness of the product from a sales, cost, profit, and
                   cash-flow standpoint.



                                           168
18.                  Offering existing products to new market segments.

19.                  A minor alteration in an existing product, such as a new style or model,
                     that can be easily adopted without significant changes in consumer
                     behavior.

20.                  A group of key functional personnel who are brought together
                     periodically to develop new products.

21.                  The steps an individual consumer goes through in making a product
                     choice.

22.                  All the product lines and products a company offers.

23.                  The organizational unit responsible for identifying product ideas and
                     preparing them for commercialization.

24.                  Personnel from various areas of the company who are given release time
                     to work on a specific assignment.

25.                  The four stages a product goes through: introduction, growth, maturity,
                     and decline.

26.                  A familiar product with additional features and benefits that require or
                     permit consumers to alter some aspect of their behavior.

27.                  Oversees one or several products targeted at all market segments.

28.                  A small geographic area, with characteristics similar to the total market,
                     in which a product is introduced with a complete marketing program.
29.                  The spread of innovations from one group of consumers to another over
                     time.

30.                  Identifying products with the strongest potential for success.


MULTIPLE CHOICE

1.    Pepsi Cola has recently diversified itself in several product lines that do not focus on the
      soft drink area. At the same time, it is promoting more to its existing market segments.
      Which of the following would be considered the strategy it embarked upon?

      a.     Market development
      b.     Product development
      c.     Core business focus
      d.     Concentric
      e.     Maturity



                                              169
2.   Company A is currently extending its business into new segments using existing
     products. Which of the following is the strategy?

     a.     Business development
     b.     Product development
     c.     Diversification
     d.     Market development
     e.     Strategy focus

3.   Which of the following is a reason why innovation succeeds?

     a.     Relative advantage
     b.     Compatibility
     c.     Observability
     d.     Trialability
     e.     All of the above

4.   Micromarketing Logic Corporation has developed a software package that uses the
     Excel® spreadsheet methodology for a specific retailing inventory application. How
     would you classify this in a product innovation?

     a.     Dynamically continuous innovation
     b.     Continuous innovation
     c.     Discontinuous innovation
     d.     Futuristic innovation
     e.     Enhanced innovation




                                          170
5.   National Furniture Systems has recently designed a new type of removable wall for
     open office environments. Engineers have indicated that the system has many
     advantages particularly in being able to put up and reconfigure office spaces rapidly.
     However, the advantages are apparent only after considerable discussion, and the
     products are relatively complex to understand and use. We would expect the speed of
     adoption of the new system to be

     a.     relatively fast once comparisons can be made with existing systems.
     b.     relatively slow because of relative advantage and compatibility issues.
     c.     about average because advantages of engineered products do not need to be
            easily observed.
     d.     relatively fast because setup and takedowns can be tried easily.
     e.     none of the above.

6.   Which of the following is not a step in the new product development process?

     a.     Idea screening
     b.     Product experimentation
     c.     Idea generation
     d.     Prototype product development
     e.     Commercialization

7.   The Chrysler new product development process involves a totally integrated team and
     people from many functional areas who work on projects. Which approach to new
     product development do they use?

     a.     Simulated
     b.     Sequential
     c.     Coordinated
     d.     Simultaneously
     e.     None of the above

8.   When an organization selects a small geographical region and introduces a new product
     with an entire marketing mix, we would say that the product is being

     a.     test marketed.
     b.     experimentally targeted.
     c.     screened.
     d.     diffused.
     e.     commercialized.

9.   Maria Nelson is responsible for developing a marketing strategy to introduce a new
     pharmaceutical product. Which potential buyer category would it be best for her to
     target?

     a.     Laggards
     b.     Late majority
     c.     Innovators


                                          171
d.   Early majority
e.   Early adopters




                      172
10.   Internationally Exercise Equipment Corporation has a fitness equipment product that
      possesses the following market characteristics. Sales are relatively low, marketing costs
      are high, cash flow is negative, and product awareness is relatively low. At which stage
      of the product life cycle would you categorize this product?

      a.     Development
      b.     Maturity
      c.     Introduction
      d.     Decline
      e.     None of the above

11.   Michael Chang oversees a single product line for all market segments. Michael Chang’s
      title is probably

      a.     market manager.
      b.     top product executive.
      c.     product manager.
      d.     accounting manager.
      e.     distribution specialist.

12.   Nelson Framer is highly valued for his innovativeness and hard work at Star Corpora-
      tion. He has been given release time to work with a team of other people from the com-
      pany on a special assignment. He is part of a

      a.     market committee.
      b.     new product development team.
      c.     task force.
      d.     executive committee.
      e.     hierarchical structure.

13.   Part of making a decision to build a product prototype, National Stamping looks at the
      attractiveness of the product from a sales, cost, profit, and cash-flow standpoint. This
      begins with a written description, pictures, and specifications of the product. At what
      stage of the new product development process is it?

      a.     Idea generation
      b.     Idea screening
      c.     Market testing
      d.     Commercialization
      e.     Business analysis

14.   This product has experienced approximately level sales for a long period of time. In
      which stage of the product life cycle are you most likely to categorize it?

      a.     Decline
      b.     Growth
      c.     Maturity
      d.     Introduction


                                             173
e.   Flat




            174
15.    Which of the following are approaches for extending the life cycle of the product?

       a.     Promoting more varied use
       b.     Encouraging more use per occasion
       c.     Stimulating more frequent use
       d.     Selling the product to new segments
       e.     All of the above


ANSWERS: CHAPTER OUTLINE

I.     THE CONCEPT OF PRODUCT INNOVATION AND MANAGEMENT


II.    PRODUCT INNOVATION AND GROWTH

       A.     Product Mix Growth Options–The product mix is all the product lines and
              products a company offers. Every business needs to develop a mix consistent
              with its overall marketing strategy.

       B.     Core Business Focus–Emphasizes the marketing of existing products to existing
              market segments.

       C.     Market Development–Occurs when existing products are offered to new seg-
              ments. Firms may sell directly to these or use new channels of distribution.

       D.     Product Development–Occurs when companies make new products for existing
              market segments. A line extension is an innovation closely related to other
              products in the line.

       E.     Diversification–Occurs when new products are introduced into new market
              segments.

       F.     Types of Product Innovation–Continuous innovation is a minor change in an
              existing product, such as a new style or model, that can easily be adopted
              without significant alterations in consumer behavior. A dynamically continuous
              innovation is a familiar product with additional features and benefits that
              require or permit consumers to alter some aspect of their behavior. A
              discontinuous innovation is an entirely new product with new functions.


III.   WHY INNOVATIONS SUCCEED

       A.     Relative Advantage–The amount of perceived superiority of the new product in
              comparison to existing ones.

       B.     Compatibility–Compatible products fit easily into the consumer’s current think-
              ing or system.


                                              175
      C.    Product Complexity–The degree to which a new product is easy to understand
            and use.

      D.    Trialability–The ease with which potential users can test a new product at little
            or no expense.
      E.    Observability–The product’s benefits can be easily seen by potential buyers.


IV.   THE NEW PRODUCT DEVELOPMENT PROCESS

      A.    New Product Strategy–Leading-edge companies have a strategy for new product
            development. The business vision is the beginning point, since most company
            missions require that new technologies and innovative processes be used to
            create superior customer value.

      B.    Idea Generation–The use of a range of formal and informal methods to stimulate
            concepts from a number of sources. Among the possible sources are employees,
            customers, technology analysis, distributors and suppliers, competitors, R&D,
            environmental trend analysis, and outside consultants.

      C.    Idea Screening–Identifies those ideas with the strongest potential for success.

      D.    Business Analysis–Assesses the attractiveness of a product from a sales, cost,
            profit, and cash-flow standpoint. Business analysis starts with the product
            concept, which refines the idea into written descriptions, pictures, and
            specifications. Concept testing helps identify the facilitators and inhibitors to a
            product’s success.

      E.    Prototype Product Development–A prototype refers to one or several working
            models of the product, usually created by a team of marketing, manufacturing,
            engineering, and R&D personnel. These models are necessary for market testing.

      F.    Market Testing–A limited trial of the strategy for the product under real or
            simulated conditions. A test market is a small geographical area, with
            characteristics similar to the total market, and where the product is introduced
            with a complete marketing program. Test marketing allows companies to
            implement the product strategy on a limited basis under real conditions. A
            simulated product test is an experiment in artificial conditions.

      G.    Commercialization–Introduces the product to the market.


V.    ORGANIZATIONAL STRUCTURES AND INNOVATION

      Simultaneous new product development occurs when people from a number of
      functional areas work together. Sequential new product development passes
      responsibility from one functional area to the next. There are many acceptable


                                            176
      organizational structures: product or market managers, new product development, new
      product committee, venture team, and consulting organizations.

      A.     The Ethics of Product Imitation–Some argue that since companies make
             substantial investments in new products, they should be the only ones allowed
             to market them. Others argue that imitation results in healthy competition.


VI.   MANAGING PRODUCTS OVER THE LIFE CYCLE

      The product life cycle consist of four stages: introduction, growth, maturity, and decline.

      A.     Stage 1: Introduction–During the introductory phase of the product life cycle,
             sales slowly take off and grow. Marketers concentrate on getting customers to be
             aware of and accept the product class.

      B.     Stage 2: Growth–During the growth stage, the pace of consumer acceptance and
             sales quickens. Product technology often enters its second generation.
             Manufacturing and promotion are adjusted. Leading producers focus on
             customer service.

      C.     Stage 3: Maturity–As products mature, sales level off and may remain flat for
             long periods. Gains in market share for one company come at the expense of
             another.

      D.     Stage 4: Decline–In the decline stage, sales of new units diminish. While a good
             replacement parts market exists for some products, many companies are ready to
             exit or harvest.

      E.     Variations in Product Life Cycles–Several kinds of product life cycle are possible.
             These include high technology products, fads, and styles or fashions.

      F.     Extending the Product Life Cycle–Firms that resist change sometimes keep
             products going far beyond their usefulness. But there are times when it is good
             business to extend the product life cycle. There are four common ways to do this.

             1.      Selling to new segments

             2.      Stimulate more frequent use

             3.      Encourage more use per occasion

             4.      Promoting more varied use

      G.     The International Product Life Cycle–Describes how new, maturing, and
             standardized products differ globally.




                                              177
VII.   ADOPTION AND DIFFUSION

       The adoption process describes how consumers make a product choice. There are five
       steps: knowledge, persuasion, decision, implementation, and confirmation. The
       diffusion process describes the spread of innovations from gone group to another over
       time.

       A.     Innovators–The first consumers to purchase a new product.

       B.     Early Adopters–Second group to purchase new products; critical to marketers.
              They are the key to good word-of-mouth publicity and wider acceptance.

       C.     Early Majority–Tend to be more risk-averse than innovators and early adopters.
              They wait to see how something new works for others before purchasing it for
              themselves.

       D. Late Majority Buyers and Laggards–The more skeptical consumers tend to fall
          into the late majority group. Even more resistant are the laggards, and little, if
          anything, can be done to convince them to buy a new product.
ANSWERS: KEY TERMS

1.     Market manager                             15.   Commercialization
2.     Late majority                              16.   Line extension
3.     Product concept                            17.   Business analysis
4.     Sequential      new        product         18.   Market development
       development                                19.   Continuous innovation
5.     Early majority                             20.   New product committee
6.     Discontinuous innovation                   21.   Adoption process
7.     Product development                        22.   Product mix
8.     Simultaneous      new      product         23.   New product department
       development                                24.   Venture team
9.     Early adopters                             25.   Product life cycle
10.    Concept testing                            26.   Dynamically continuous innovation
11.    Idea generation                            27.   Product manager
12.    Innovators                                 28.   Test market
13.    Simulated product test                     29.   Diffusion process
14.    Laggards                                   30.   Product screening


ANSWERS: MULTIPLE CHOICE

1.     c                                          8.    a
2.     d                                          9.    e
3.     e                                          10.   a
4.     a                                          11.   c
5.     b                                          12.   c
6.     b                                          13.   e
7.     d                                          14.   c


                                            178
15.   e




          179
                                         CHAPTER 11

                        SERVICES AND NONPROFIT MARKETING

CHAPTER OVERVIEW

The service economy is growing at about twice the rate of the sale of goods. There are several
global forces creating growth in services: technology, changes in quality of life, government
deregulation, competition in professional services, privatization, need for specialization,
growth in franchising, and technology.

Services are differentiated from goods on five key dimensions: intangibility, the relationship
with the customer, the importance of the service encounter, simultaneous production and
consumption, storage and inventory, and quality controls.

Most products contain elements of both goods and services. Consumers tend to evaluate
services differently from goods. Services are high in credence and experience attributes, while
goods are high in experience and search qualities. Judgments of service quality usually have
three parts: the dimensions of service quality, consumer factors, and quality perceptions. The
dimensions of service quality involve tangibles, reliability, responsiveness, assurance, and
empathy. Customer factors are word of mouth, personal needs, past experience, and external
communication. Quality perception is based on the difference between what is expected and
what is received.

Service mix development requires an understanding of four elements. First, similar to goods, a
service is based on the core, augmented, and branded services similar to the goods offering.
Second, when developing new services, marketers must give careful consideration to
complexity and divergence. Also, service development should take into account the consumer’s
personal behaviors and the atmosphere in which the service will be performed, both of which
are important interactive elements. Global adjustments in services are often required because of
cultural factors. In addition, it’s important to note that brand equity is equally if not more
important for services than for goods.

There are many types of services including person marketing, entertainment and event
marketing, place marketing, political marketing, and cause marketing. Nonprofit marketing
accounts for about 7% of economic activity in the United States and is growing. It is performed
by organizations that are tax-exempt, such as churches, museums, foundations, hospitals,
universities, and orchestras.


CHAPTER OBJECTIVES

1. Identify the forces that have produced and will continue to create tremendous growth in the
   service economy.

2. Understand which characteristics of services must be adjusted for successful marketing.

3. Know how to develop the service mix.


                                              180
4. Explore the expanded concept of services.

5. Appreciate the importance of nonprofit marketing and the uniqueness of this important
   marketing arena.

CHAPTER OUTLINE


I.     THE CONCEPT OF SERVICES




II.    GLOBAL FORCES CREATING GROWTH IN SERVICES

       A.     Technology–


       B.     Quality of Life–


       C.     Government Deregulation of Services–


       D.     Competition in Professional Services–


       E.     Privatization–


       F.     The Need for Specialization–


       G.     Growth of Franchising–



III.   SERVICE CHARACTERISTICS THAT AFFECT MARKETING STRATEGY

       A.     The Contrasts Between Goods and Services–




              1.     Marketing intangibles–



                                               181
     2.     Relationship of provider to customer–


     3.     The service encounter connection–


     4.     Simultaneous production and consumption–


     5.     No storage and inventory–

     6.     Service quality control–


B.   The Service-Goods Continuum–


C.   Consumer Evaluation of Services–

     Search Attributes

     Experience Attributes

     Credence Attributes

D.   Service Quality–


     1.     Dimensions of service quality–

            Tangibles


            Reliability


            Responsiveness


            Assurance


            Empathy


     2.     Consumer factors–



                                       182
     Word of mouth


     Personal needs


     Past experience


     External communication


3.   Quality perception–




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IV.   DEVELOPING THE SERVICE MIX

      A.   Core, Augmented, and Branded Services–




      B.   Developing New Services–

           1.     Functional elements in service development–

                  Complexity


                  Divergence


           2.     Interactive elements in service development–



           3.     Structuring new services–




V.    AN EXPANDED CONCEPT OF MARKETED SERVICES

      A.   Person Marketing–



      B.   Entertainment and Event Marketing–



      C.   Place Marketing–



      D.   Political Marketing–



      E.   Cause Marketing–




                                         184
F.   Internal Marketing–




                           185
VI.   THE MARKETING OF NONPROFIT SERVICES

      Nonprofit Marketing



      A.     Types of Nonprofit Service Providers–



      B.     Need for Revenues in Excess of Costs–



      C.     Fundraising and Revenue Generation–



      D.     Providing Positive Social Benefits–



      E.     Ethical Issues Surrounding Nonprofit Organizations–




KEY TERMS

Cause marketing                                    Perishable
Core service                                       Person marketing
Divergence                                         Place marketing
Event marketing                                    Political marketing
Franchise                                          Services
Functional element                                 Service complexity
Interactive element                                Service credence qualities
Internal marketing                                 Service encounter
Nonprofit marketing


1.                    Promoting an individual’s personality, character, and appeal, which in
                      turn may assist in the promotion of a product.

2.                    Product attributes that buyers find almost impossible to evaluate even
                      after purchase and consumption.

3.                    The amount of routine procedure or standardization involved in
                      providing a service.


                                            186
4.                  A contractual agreement whereby an entrepreneur pays a fee in exchange
                    for the franchise name and use of the organization’s marketing plan and
                    agrees to meet operating requirements.

5.                  The interaction between the consumer and the seller.

6.                  Value exists for a short time.

7.                  Promoting an event in order to generate revenues and enhance the
                    reputation of an organization.

8.                  The number and intricacy of steps involved in producing a service.

9.                  The personal behaviors and atmosphere of the service environment.

10.                 Gaining public support and financing in order to change or remedy a
                    situation.

11.                 Promoting a geographical location in order to appeal to businesses,
                    investors, and/or tourists.

12.                 The basic benefit delivered.

13.                 The activities performed by an organization not motivated by profit to
                    influence consumers to support it with a contribution.

14.                 Promoting an individual or idea motivated by the desire to influence
                    public policy and/or voters.

15.                 Ideas, tasks, experiences, or activities that can be exchanged for value to
                    satisfy the needs and wants of consumers and businesses.

16.                 One business unit markets its capabilities to others within the same firm.

17.                 Whether a service accomplishes what it is supposed to do.


MULTIPLE CHOICE

1.    What is the most fundamental way of categorizing products?

      a.     Technological and nontechnological
      b.     New and old
      c.     Profitable and unprofitable
      d.     Goods and services
      e.     Public and private



                                             187
2.   Which of the following are major forces that are creating growth in services?

     a.     Quality of life
     b.     Competition for professional services
     c.     Privatization
     d.     The need for specialization
     e.     All of the above




                                            188
3.   Kelly Food Services is thinking about expanding into foreign markets. Which of the
     following global forces is it most likely to experience?

     a.     Governments turning over to private parties many of the services they
            traditionally provided for citizens
     b.     Prevention of sale of food because of possibility of contaminants
     c.     A greater standardization and more regulation of food products
     d.     The prevention of vitamin additives to food supplies
     e.     None of the above

4.   Which of the following can be said with regard to the contrast between goods and
     services?

     a.     Goods are more intangible, while services are more tangible.
     b.     Prior to the sale, service exists primarily as a promise of some experience, while
            a good can be seen.
     c.     Goods and services are precisely the same.
     d.     Services occur only after goods break down.
     e.     Services and goods both must be produced prior to consumption.

5.   Which of the following is correct with regard to services as opposed to goods?

     a.     Services are always more expensive.
     b.     Services are always less expensive.
     c.     Since services are perishable, their value may exist for a short period of time.
     d.     All of the above
     e.     None of the above

6.   Which is correct with regard to the purchases of goods and services?

     a.     Most purchases are pure services.
     b.     Most purchases are pure goods.
     c.     Most purchases fall somewhere along a continuum between pure goods and
            pure services.
     d.     When goods are purchased, they are almost always purchased with a service.
     e.     When goods and services are purchased, they are generally priced separately.

7.   Which of the following is correct with regard to the concept of service quality?

     a.     There is no such thing as service quality.
     b.     Service quality is precisely the same as product quality.
     c.     Service quality can be measured in a manner similar to that of product quality.
     d.     Service quality is strongly related to in a personal aspect of connections with
            customers.
     e.     None of the above

8.   Which of the following is not an important dimension of quality perception?



                                            189
      a.     Creativity
      b.     Reliability
      c.     Responsiveness
      d.     Assurance
      e.     Empathy

9.    Which of the following is not a type of attribute or quality that consumers use in the
      evaluation of services?

      a.     Frequency
      b.     Search
      c.     Experience
      d.     Credence
      e.     All of the above

10.   Sue Thompson is in the process of evaluating the performance of Service Master who
      has just finished cleaning the carpet in her home. She is probably looking at what type
      of attributes in making this evaluation?

      a.     Search attributes
      b.     Credence attributes
      c.     Experience attributes
      d.     Current evaluator’s attributes
      e.     None of the above

11.   One of the difficulties of making assessments regarding health care is that it is low in
      which type of attributes?

      a.     Experience attributes
      b.     Search attributes
      c.     Value attributes
      d.     Credence attributes
      e.     Significant attributes

12.   President Clinton used which of the following type of marketing?

      a.     Entertainment
      b.     Event
      c.     Place
      d.     Political
      e.     Cause

13.   Which of the following is a good example of personal marketing?

      a.     Nike’s promotion of Michael Jordan and Tiger Woods
      b.     Oprah Winfrey
      c.     Martha Stewart
      d.     All of the above


                                              190
      e.     None of the above

14.   Arkansas spends a lot of money marketing the advantages of locating in its state. This is
                   marketing.

      a.     geography
      b.     business
      c.     investment
      d.     place
      e.     political


15.   Which of the following is correct with regard to nonprofit services marketing?

      a.     They do not need all the marketing skills.
      b.     Most organizations need excess revenues over costs.
      c.     Fundraising is not a type of nonprofit marketing.
      d.     Several categories of nonprofit organizations still pay federal income tax.
      e.     Since nonprofits are not attempting to make money, there are fewer ethical
             issues associated with them.


ANSWERS: CHAPTER OUTLINE


I.    THE CONCEPT OF SERVICES

      Services are intangible ideas, tasks, experiences, performances, or activities that one
      party can offer another.


II.   GLOBAL FORCES CREATING GROWTH IN SERVICES

      A.     Technology–Technological advances and the accompanying information
             revolution are creating vast opportunities in the service sector.

      B.     Quality of Life–Measured by how people feel and experience life.

      C.     Government Deregulation of Services–Governments around the world have
             deregulated services. The resulting competition is lowering the cost while
             improving the quality of services, so people are consuming more of them.

      D.     Competition in Professional Services–Professional service providers are turning
             to marketing as a way to conduct their business operations.

      E.     Privatization–Privatization of government functions is opening up service
             opportunities.



                                             191
       F.   The Need for Specialization–There is a need for outside specialists by companies
            that want to concentrate resources on their core business.

       G.   Growth of Franchising–A major trend which tends to focus on service-based
            products.


III.   SERVICE CHARACTERISTICS THAT AFFECT MARKETING STRATEGY

       A.   The Contrasts between Goods and Services–Services are unique because of their
            intangibility, the relationship with the consumer, the importance of the service
            encounter, simultaneous production and consumption, storage and inventory,
            and quality controls.

            1.     Marketing intangibles–Prior to sale, services exist primarily as an offer or
                   promise of some experience that will occur in the future.

            2.     Relationship of provider to customer–Most services are created in the
                   presence of customers or with their personal knowledge of how it was
                   performed. There is an inseparable relationship between the provider
                   and the user.

            3.     The service encounter connection–The contact between the consumer and
                   the seller. It reinforces the importance of customer relationships in
                   marketing a service.

            4.     Simultaneous production and consumption–Many services are made and
                   used at the same moment.

            5.     No storage and inventory–Services are perishable—their value exists for
                   a short time.

            6.     Service quality control–Unique quality control techniques are necessary
                   for services. Many services cannot be performed again if a mistake is
                   made.

       B.   The Service-Goods Continuum–Most purchases fall somewhere along a con-
            tinuum between almost pure goods and almost pure services.

       C.   Consumer Evaluation of Services–Products have three types of attributes
            (qualities): search, experience, and credence. Search attributes can be evaluated
            prior to purchase. Experience attributes can be assessed only during or after
            consumption. Credence attributes are almost impossible to evaluate even after
            purchase and consumption.

       D.   Service Quality–Since service quality plays a significant part in the purchase
            decision for most consumers, it is crucial for marketing success.



                                           192
           1.     Dimensions of service quality–Tangibles: services are intangible, but
                  often are associated with physical facilities, equipment, personnel, and
                  promotional materials. Reliability: the ability to perform the promised
                  service dependably and accurately. Responsiveness: the willingness of
                  providers to be helpful and give prompt service. Assurance: the
                  knowledge and courtesy of employees and their ability to convey trust
                  and competence. Empathy: the caring, individualized attention that a
                  firm provides its customers.

           2.     Consumer factors–Word of mouth: when consumers are seeking a
                  provider, they likely discuss it with friends. Personal needs: deal with the
                  motives that determine the nature and strength of what a consumer
                  wants from a service. Past experience: refers to what consumers have
                  learned through personal interaction with a service provider. External
                  communication: such marketer-dominated sources as personal selling
                  and advertising.

           3.     Quality perception–To ensure high perceived quality and a loyal
                  customer base, providers need to be accurate and reasonable about what
                  they lead customers to expect. They also need to do a good job in the
                  areas of tangibles, reliability, responsiveness, assurance, and empathy.


IV.   DEVELOPING THE SERVICE MIX

      A.   Core, Augmented, and Branded Services–The core service is the basic benefit. A
           branded service has name recognition provided by the symbols and cues around
           it. The augmented service is the package of bundled goods and services that
           differentiates one provider from another.

      B.   Developing New Services–The functional element of a service relates to whether
           it accomplishes what it is intended to do. The interactive element involves the
           personal behaviors and physical atmosphere of the service environment.

           1.     Functional elements in service development–Complexity refers to the
                  number and intricacy of steps involved in producing a service.
                  Divergence relates to the amount of routine procedure involved in
                  providing a service.

           2.     Interactive elements in service development–The interactive element is
                  often more important than the functional aspect in creating service
                  excellence. Some companies use role playing or atmospherics to create
                  strong customer satisfaction.

           3.     Structuring new services–Marketers determine where each new service
                  attribute fits on the continuum from low complexity/divergence to high
                  complexity/divergence.



                                          193
V.    AN EXPANDED CONCEPT OF MARKETED SERVICES

      A.    Person Marketing–Promoting an individual’s character, personality, and
            appearance, which in turn may be used to promote a service or product.

      B.    Entertainment and Event Marketing–Entertainment marketing involves the
            careful planning, from promotion to the precise timing of the introduction, of
            some form of entertainment. Event marketing is the promotion of an event in
            order to generate revenues and enhance the reputation of an organization.

      C.    Place Marketing–Enhances a location in order to appeal to businesses, investors,
            and tourists.

      D.    Political Marketing–The promotion of an individual or idea with the aim of
            influencing public policy and voters.

      E.    Cause Marketing–Involves gaining public support and financing for a cause in
            order to bring about a change or a remedy.

      F.    Internal Marketing–Occurs when one part of an organization markets its
            capabilities to others within the same firm.


VI.   THE MARKETING OF NONPROFIT SERVICES

      Nonprofit marketing is performed by an organization that is not motivated by profit
      and is exempted from paying taxes on any excess revenues over costs.

      A.    Types of Nonprofit Service Providers–Marketing skills are required by a broad
            range of service providers, from crime protection to education, health, public
            safety, and others.

      B.    Need for Revenues in Excess of Costs–Nonprofits need to generate revenues in
            excess of costs. This is because money for service and from contributions tends to
            fluctuate from year to year, money can’t be raised if the nonprofit isn’t solvent,
            and nonprofits hire professionals to help the organization grow.

      C.    Fundraising and Revenue Generation–Nonprofits raise revenues by acquiring
            funding from third parties and expanding business operations.

      D.    Providing Positive Social Benefits–Nonprofits must provide maximum positive
            social benefits to their constituency. This requires balancing differing objectives
            and needs.

      E.    Ethical Issues surrounding Nonprofit Organizations–There is an ethical question
            as to whether money-making nonprofits should have a tax-exempt status.



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ANSWERS: KEY TERMS

1.   Person marketing                   10.   Cause marketing
2.   Service credence qualities         11.   Place marketing
3.   Divergence                         12.   Core service
4.   Franchise                          13.   Nonprofit marketing
5.   Service encounter                  14.   Political marketing
6.   Perishable                         15.   Services
7.   Event marketing                    16.   Internal marketing
8.   Service complexity                 17.   Functional element
9.   Interactive element:


ANSWERS: MULTIPLE CHOICE

1.   d                                  9.    a
2.   e                                  10.   c
3.   a                                  11.   d
4.   b                                  12.   d
5.   c                                  13.   d
6.   c                                  14.   d
7.   d                                  15.   b
8.   a




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                                         CHAPTER 12

     MARKETING CHANNELS, WHOLESALING, AND PHYSICAL DISTRIBUTION

CHAPTER OVERVIEW

Distribution channels are of two fundamental types: direct channels—whereby companies use
their own employees and physical assets to serve the market—and indirect channels—whereby
companies make use of independent agents to serve markets.

Coordinating relationships within the distribution channel is a challenge. The company must
think strategically and develop a management plan. Interdependence, trust, and support will
influence the success of coordination. Joint goal-setting and planning, monitoring, the use of
influence, conflict resolution, and performance appraisals are steps that need to be taken.

Wholesalers are intermediaries who take title to the products they carry and make the majority
of their sales to businesses. Wholesalers purchase large amounts of merchandise from a variety
of suppliers and offer it for resale in smaller quantities. A wide range of functions is performed
for customers by full-service wholesalers—general-line wholesalers, specialty wholesalers, and
rack jobbers. In contrast, limited-service wholesalers perform only some of the traditional
channel functions. In this category are cash-and-carry wholesalers, drop shippers, truck jobbers,
and mail-order wholesalers. Irrespective of type, wholesalers should buy products only from
legitimate sources and sell only to legitimate customers.

Physical distribution is the movement of finished products through channels of distribution to
end-customers. Its primary objective is to get the right product to the right customer location at
the right time at the lowest total cost. Physical distribution management involves a delicate
balance between effective customer service and efficient operations. Order management is
concerned with how the company receives, fills, and delivers orders to customers. New
technologies have dramatically changed the way orders are transmitted, entered, and filled.

Efficient consumer response programs attempt to eliminate activities that do not add value in
distribution channels. Wholesalers and retailers give up some of their buying authority. They
send daily information via EDI to their suppliers on stock levels and warehouse shipments.
Personnel in the supplier organization then decide what and when to ship.


CHAPTER OBJECTIVES

1. Learn why companies frequently use intermediaries to reach targeted customers.

2. Attain insight into how channel relationships should be managed over time.

3. Appreciate the economic importance of wholesalers.

4. Know the different types of wholesalers and the distinct roles they play.




                                               196
5. Understand what physical distribution entails and why it is critical for any business
   organization.

6. Learn the steps in the order management process.




                                            197
CHAPTER OUTLINE

I.   THE CONCEPT OF DISTRIBUTION CHANNELS

     Distribution Channel


     Intermediaries


     Brokers


     Wholesalers


     Retailers


     A.     Channel Structure–

            Direct Channels


            Indirect Channels


            Channel Levels


            1.        Multiple channel systems–


            2.        Reverse channels–


            3.        Channel dynamics and technology–



     B.     Channel Organization and Functions–

            Conventional Channel System




                                            198
           Vertical Marketing System (VMS)



           1.    Administered channel systems–



           2.    Contractual channel systems–


                 Retail cooperative


                 Wholesaler-sponsored voluntary chain


                 Franchise system


           3.    Corporate channel system–


           4.    Channel functions–



           5.    Distribution intensity–


                 Intensive distribution


                 Selective distribution


                 Exclusive distribution



II.   MANAGING DISTRIBUTION CHANNELS

      A.   Managing Channel Relationships: A Strategic Approach–

           1.    Interdependence–




                                           199
     2.    Trust–


     3.    Support–


     4.    Set goals and develop plans–


     5.    Monitor intermediary activities–



     6.    Resolve conflicts–




B.   Legal and Ethical Issues in Channel Management–



     1.    Resale price maintenance–


     2.    Differential pricing and support programs–




     3.    Territorial and customer constraints–




     4.    Exclusive dealing–


     5.    Tying arrangements and full-line forcing–

           Tying arrangement


           Full-line forcing




                                   200
             6.      Intermediary termination–



             7.      Ethics–




III.   WHOLESALING

       Wholesaling


       A.    The Importance of Wholesalers–


             Assortment Function


             Allocation Function


       B.    Types of Wholesalers–

             Full-Service Wholesalers


             Limited-Service Wholesalers


             1.      Full-service wholesalers–

                     General-line wholesalers


                     Specialty wholesalers


                     Rack jobbers


             2.      Limited-service wholesalers–

                     Cash-and-carry wholesalers




                                             201
                    Drop shippers


                    Truck jobbers


                    Mail-order wholesalers


             3.     Wholesaling relationships–




IV.   INTEGRATED LOGISTICS AND PHYSICAL DISTRIBUTION

      Logistics


      Integrated Logistics


      A.     Physical Distribution–



      B.     Order Management–



             1.     Order processing–


             2.     Warehousing–


                    Distribution centers


                             Private warehouses


                             Public warehouses


             3.     Materials handling–



                                             202
             4.     Inventory control–



                    Economic order quantity model



             5.     Transportation–


                    a.     Trucks–


                    b.     Railroads–


                    c.     Air transport–


                    d.     Water carriers–


                    e.     Pipelines–


                    f.     Intermodal transportation–


             6.     Efficient customer response (ECR)–


      C.     Global Physical Distribution–




KEY TERMS

Administered channel system                        Corporate channel system
Allocation                                         Direct channels
Assortment                                         Distribution centers
Brokers                                            Distribution channel
Channel levels                                     Distribution intensity
Contractual channel system                         Economic order quantity
Conventional channel system                        Efficient customer response (ECR)


                                             203
Electronic data interchange (EDI)                  Multiple channel systems
Exclusive dealing                                  Order management
Exclusive distribution                             Physical distribution
Franchise system                                   Private warehouses
Freight forwarders                                 Public warehouses
Full-line forcing                                  Retailers
Full-service wholesalers                           Retail cooperative
Indirect channels                                  Reverse channel
Integrated logistics management                    Selective distribution
Intensive distribution                             Tying arrangement
Intermediaries                                     Vertical marketing systems
Intermodal transportation                          Warehousing
Inventory control                                  Wholesaling
Limited-service wholesalers                        Wholesalers
Logistics                                          Wholesaler-sponsored voluntary chain


1.                   A company conditions the purchase of a superior product on the pur-
                     chase of a second product of lower quality.

2.                   Service companies specializing in the movement of cargo from one point
                     to another, often country to country.

3.                   Interdependent organizations involved in making a product available for
                     purchase.

4.                   An alliance of small retailers for wholesaling purposes.

5.                   The number of distinct units (producers, intermediaries, and customers)
                     in a distribution channel.

6.                   The storage of inventory in the physical distribution system.

7.                   Relationships among channel members are formalized in some fashion,
                     often with a written contract.

8.                   The combination of two or more modes in moving freight.

9.                   A method of determining the amount of product to be ordered each time.
10.                  A company owns and operates organizations at other levels in the
                     channel.

11.                  Companies use their own employees and physical assets in distributing
                     to markets.

12.                  Channel members devote effort to coordinating their relationships.




                                             204
13.   The number of locations through which a company sells its product in a
      given market area.

14.   Intercompany computer-to-computer exchange of orders and other
      business documents in standard formats.

15.   A company restricts intermediaries from carrying competitive lines.

16.   Distribution that flows from the end-user to the wholesaler and/or
      producer.

17.   A range of merchandise from a variety of sources.

18.   Independently owned organizations that act as links between companies
      and the end-user.

19.   When a company requires intermediaries to carry and sell its complete
      line.

20.   Storage facilities owned and operated by businesses that rent space.

21.   A wholesaler takes the initiative to unite a group of retailers.

22.   Intermediaries who perform a wide range of functions or tasks for their
      customers.

23.   The coordination of all logistical activities in a company.

24.   Programs to improve the efficiency of replenishing, delivering, and
      stocking inventory in the distribution channel, while promoting customer
      value.

25.   Locations where inventory is maintained before being routed to
      individual sales outlets.

26.   Management of stock levels.

27.   Efforts to coordinate the actions of channel members are seen as
      unimportant.

28.   Intermediaries who perform only some of the traditional channel
      functions, either eliminating others or passing them on to someone else.

29.   A formal contract in which the franchiser holds the product trademark
      and licenses it to franchisees.

30.   The movement of raw materials, components, and/or finished products
      within and between companies.


                               205
31.                 Channel members emphasize coordination of behaviors and programs.

32.                 How the company receives, fills, and delivers orders to customers.

33.                 Firms that take title to products for resale to ultimate consumers.

34.                 The use of more than one channel to access markets for the same product.

35.                 Firms that take title to products for resale to businesses, consumers, or
                    other wholesalers or distributors.

36.                 The movement of finished products through channels of distribution to
                    end-customers.

37.                 A company uses only one sales outlet in each trading area.

38.                 Firms that do not take title to the goods they handle but actively
                    negotiate the sale of goods for their clients.

39.                 Storage facilities owned and operated by the company.

40.                 Companies make use of independent organizations in distributing their
                    products.

41.                 A company uses several sales outlets per trade area.

42.                 A company makes its product available through every possible sales
                    outlet in a trade area.

43.                 Selling goods for resale or business use to other businesses.

44.                 Purchasing products in large quantities and reselling them in smaller
                    quantities.


MULTIPLE CHOICE

1.    New Form Corporation negotiates the sale of products for their clients; however, they
      do not purchase products themselves. They are called

      a.     wholesalers.
      b.     resellers.
      c.     commercial institutions.
      d.     distributors.
      e.     brokers.




                                             206
2.   Which of the following takes title to products for resale to the ultimate consumer?

     a.     Brokers
     b.     Industrial distributors
     c.     Commercial distributors
     d.     Institutional distributors
     e.     Retailers

3.   Dell Computer uses its own employees and physical assets to serve the market. What
     type of channel does Dell use?

     a.     Personal channel
     b.     A direct channel
     c.     Corporate channel
     d.     Marketing channel
     e.     Independent channel

4.   Which of the following is correct with regard to the concept of reverse channel?

     a.     When the economy has economic hardship, products can be marketed
            backwards.
     b.     They are less efficient than other channels.
     c.     Products flow from the end-user to the wholesaler or manufacturer.
     d.     Goods flow in one direction, while information flows in another direction.
     e.     All of the above are correct.

5.   Which of the following is most correct regarding channel strategy?

     a.     Since channels tend to change slowly, companies do not need to monitor them
            very often.
     b.     It is always better to use multiple channel systems, since several channels will
            reach more customers than one channel.
     c.     Channels of distribution should be established only after product advertising
            and pricing decisions have been made.
     d.     Continuous monitoring of channels is extremely important, even though shifts
            may require considerable time to make.
     e.     It is nearly always more expensive and less efficient to use longer channels
            rather than shorter channels.

6.   Vertical marketing systems emphasize the coordination of channels. Which of the
     following is not a vertical marketing system?

     a.     Administered channel system
     b.     Strategic channel system
     c.     Contractual channel system
     d.     Corporate channel system
     e.     None of the above

7.   Which of the following is an intensive distribution strategy?



                                            207
      a.    The company uses one outlet in each trading area.
      b.    The company selects a few outlets of a particular type in each area.
      c.    The company uses direct distribution.
      d.    The company uses many outlets of different types in each geographic area.
      e.    None of the above
8.    Why are wholesalers important?

      a.     They provide product assortment.
      b.     They can buy large quantities to resell in smaller amounts.
      c.     They help smaller organizations that cannot buy directly from manufacturers.
      d.     All of the above
      e.     None of the above

9.    What is the overriding objective of physical distribution?

      a.     To provide the greatest variety of products at a reasonable cost within a
             predetermined time frame
      b.     To obtain distributors for the company’s products
      c.     To provide the lowest cost shipping of products from warehouses to consumers
      d.     To take title to products to reduce the cost of marketing
      e.     To get the right products to the right locations at the right times at the lowest
             total cost

10.   Which of the following is not a part of the design of the physical distribution system?

      a.     Warehousing
      b.     Materials handling
      c.     Discount pricing
      d.     Inventory control
      e.     Transportation

11.   What is the fundamental objective of an economic order quantity model?

      a.     To determine how much to order at various times
      b.     To know when to add warehouses
      c.     To compare the costs of packaging products in large packages or small packages
      d.     The different modes of transportation that will create the most economically
             efficient method
      e.     The cost of ordering quantities versus inventory carrying costs with the objective
             of minimizing total costs

12.   Wal-Mart has an efficient customer response program. This means

      a.     that it allows customers to return items with no questions asked.
      b.     that it is located close to customers’ residences.
      c.     that it is a program designed to improve the efficiency of replenishing,
             delivering, and stocking inventory while focusing on customer value.
      d.     none of the above.


                                             208
      e.     all of the above.

13.   Which of the following is not a mode of transportation?

      a.     Container cars
      b.     Railroads
      c.     Water carriers
      d.     Pipelines
      e.     Air transport




                                            209
14.   Which of the following is a significant issue with regard to global physical distribution?

      a.     Uncertainty associated with greater transportation distances.
      b.     Uncertainty associated with longer lead times.
      c.     Uncertainty associated with customers’ requirements.
      d.     Uncertainty with regard to trade restrictions.
      e.     All of the above

15.   Which of the following is a critical aspect of physical distribution?

      a.     Information systems
      b.     Time and place studies
      c.     Comparative allocation models
      d.     Bridging techniques
      e.     Ten-year forecasts


ANSWERS: CHAPTER OUTLINE

I.    THE CONCEPT OF DISTRIBUTION CHANNELS

      A distribution channel is a set of independent organizations that make a product or
      service available for purchase by consumers or businesses. Intermediaries are
      independently owned organizations that act as links between producers and customers.
      Brokers do not purchase the goods they handle but instead actively negotiate their sale
      for the client. Wholesalers (also called distributors) take title to products and resell them
      to retail, industrial, commercial, institutional, professional, or agricultural firms, as well
      as to other wholesalers. Retailers take title to products for resale to the ultimate
      customer.

      A.     Channel Structure–Distribution channels are of two fundamental types. In direct
             channels, companies use their own employees and physical assets to serve the
             market. In indirect channels, companies make use of independent agents to
             serve markets. Distribution channels can be described by the number of channel
             levels or the number of distinct units (producers, intermediaries, and customers)
             in a distribution channel.

             1.      Multiple channel systems–The use of more than one channel to access
                     markets for the same product.

             2.      Reverse channels–Flows from the end-user to the wholesaler and/or
                     manufacturer.

             3.      Channel dynamics and technology–Companies must continually
                     evaluate whether their channels need adjustment to deal with changing
                     conditions. Companies must alter their channels as the industry evolves.




                                               210
      B.   Channel Organization and Functions–In a conventional channel system, efforts
           to coordinate actions are seen as unimportant by channel members. Loosely
           aligned and relatively autonomous manufacturers, wholesalers, and retailers
           bargain aggressively with one another over each transaction. In a vertical
           marketing system (VMS), networks emphasize channel coordination. There are
           three types of VMSs: administered, contractual, and corporate.

           1.    Administered channel systems–Members coordinate with others in the
                 channel and facilitate activities.

           2.    Contractual channel systems–Relationships are formalized, often with a
                 written contract. A retail cooperative unites a group of small retailers into
                 a wholesaling operation to increase buying power. In a wholesaler-
                 sponsored voluntary chain, a wholesaler takes the initiative to unite a
                 group of retailers. In a franchise system, a formal contract ties the
                 franchiser to franchisees. The franchiser holds the product trademark and
                 licenses it to franchisees.

           3.    Corporate channel system–Refers to company ownership and operation
                 of organizations at other levels in the channel.

           4.    Channel functions–Channel functions are broken down into four
                 categories: selling, financing, order management, and post-sales service.

           5.    Distribution intensity–Refers to the number of locations through which a
                 company sells its products in a given market area. Intensive distribution
                 uses many outlets in each geographical area. Selective distribution uses
                 several outlets per area. Exclusive distribution uses only one outlet in
                 each trading area.


II.   MANAGING DISTRIBUTION CHANNELS

      A.   Managing Channel Relationships: A Strategic Approach–

           1.    Interdependence–Each channel member depends to some degree on
                 other channel members to achieve desired goals.

           2.    Trust–Confidence in the reliability and integrity of channel members.

           3.    Support–Common means of support include cooperative advertising,
                 market development funds, incentive programs, and inviting inter-
                 mediaries to sales conferences.

           4.    Set goals and develop plans–Channel management is facilitated when
                 members meet formally to set joint goals and develop plans for the
                 coming year.



                                          211
              5.      Monitor intermediary activities–Once the business plan is in place,
                      company sales personnel must keep abreast of the marketing and selling
                      efforts of each intermediary.

              6.      Resolve conflicts–Some conflict is inevitable. Channel members recognize
                      that some policies will not be changed, but sometimes company sales
                      personnel can help by explaining policies to intermediaries. In other
                      cases, companies recognize they made a mistake and try to correct it.

       B.     Legal and Ethical Issues in Channel Management–U.S. antitrust laws and other
              regulations designed to promote competition and consumer welfare affect
              distribution practices.
              1.      Resale price maintenance–An attempt by companies to compel channel
                      members to change certain prices.

              2.      Differential pricing and support programs–A company must give prices
                      and support programs on ―proportionally equal terms‖ to competing
                      channel members unless two conditions are met. First, a price differential
                      is justified if it costs less to serve one channel member versus another.
                      Second, variations are legal if they are required to meet a competitive
                      offer.

              3.      Territorial and customer constraints–A territorial constraint refers to a
                      company assigning an intermediary a specific geographic area in which
                      to sell its products. That is, the intermediary can sell there but nowhere
                      else.

              4.      Exclusive dealing–Occurs when a company restricts intermediaries from
                      carrying competitive lines.

              5.      Tying arrangements and full-line forcing–A tying arrangement refers to a
                      company conditioning the purchase of a superior product on the
                      purchase of a second and less desirable product. Full-line forcing occurs
                      when a company requires intermediaries to carry and sell its complete
                      line.

              6.      Intermediary termination–In many channel systems, agreements com-
                      monly allow either party to terminate the relationship with 30 days’
                      notice. In franchise systems, contracts are more complex.

              7.      Ethics–It is illegal for companies to impose certain constraints on channel
                      members.


III.   WHOLESALING

       Wholesaling is the activities involved in selling goods for resale or use by retailers and
       other businesses.


                                              212
      A.     The Importance of Wholesalers–Wholesalers are important for product
             assortment and allocation. Their assortment function is the purchase of
             merchandise from a variety of suppliers for resale. Their allocation function is
             the purchase of large quantities to resell in smaller amounts. They are needed
             because small or medium-sized companies in many industries cannot buy
             directly from manufacturers.

      B.     Types of Wholesalers–Full-service wholesalers perform a wide range of tasks for
             their customers. Limited-service wholesalers provide only some of the
             traditional channel functions, either eliminating them entirely or passing them to
             someone else to perform.

             1.     Full-service wholesalers–General-line wholesalers carry a wide variety of
                    products and provide a full range of services. Specialty wholesalers focus
                    on a narrow range of products, carry them in great depth, and provide
                    extensive services. Rack jobbers, who sell single product lines to retail
                    stores on consignment, set up product displays and keep them stocked
                    with goods.

             2.     Limited-service wholesalers–Cash-and-carry wholesalers are located near
                    customers and do not extend credit or use an outside sales force. Drop
                    shippers arrange for shipments directly from the manufacturer to the
                    customer. Truck jobbers specialize in the speedy delivery of perishables
                    or semiperishables. Mail-order wholesalers sell though catalogs
                    distributed to retailers and other businesses.

             3.     Wholesaling relationships–Sometimes relationships with other whole-
                    salers are used to serve customers. Developing strong connections with
                    suppliers is also important to more effective and efficient business
                    operations. The decision to add new suppliers can sometimes alienate
                    current partners.


IV.   INTEGRATED LOGISTICS AND PHYSICAL DISTRIBUTION

      Logistics is the movement of raw materials, components, and/or finished products
      within and between companies. Integrated logistics is the coordination of such activities
      in a company.

      A.     Physical Distribution–The movement of finished products to customers. The
             primary objective of physical distribution is to get the right products to the right
             locations at the right times at the lowest total cost.

      B.     Order Management–How the company receives, fills, and delivers orders to
             customers. The design of the physical distribution system—including order
             processing, warehousing, materials handling, inventory control, and
             transportation functions—determines how well the company manages orders.


                                             213
1.   Order processing–All the activities and paperwork involved in
     transmitting and entering, screening and prioritizing, and invoicing
     orders.

2.   Warehousing–The storage of inventory in the physical distribution
     system. Distribution centers are where the bulk of the company’s
     finished-goods inventory is maintained before being routed to individual
     warehouses. These are of two types: Private warehouses are owned and
     operated by the company, and public warehouses rent space to store
     products.

3.   Materials handling–Moving products in a warehouse in the process of
     filling orders.

4.   Inventory control–The management of stock levels. For each product,
     company management must decide how much inventory will be carried
     in each distribution center and warehouse. The economic order quantity
     model is a method for determining how much product to order each
     time. It compares ordering costs to inventory carrying costs, with the
     objective of minimizing total costs.

5.   Transportation–The movement of goods to channel members and cus-
     tomer locations.

     a.     Trucks–Offer door-to-door service and speed.

     b.     Railroads–Represent the most efficient mode of land
            transportation for bulky commodities, such as chemicals, coal,
            grain, iron ore, lumber, sand, and steel.

     c.     Air transport–Offered by the airlines and cargo service
            companies. Speed and dependability in meeting schedules are
            very high.

     d.     Water Carriers–Include transoceanic ships as well as barge use on
            inland waterways.

     e.     Pipelines–Transport natural gas and petroleum by land from
            production fields to refineries.

     f.     Intermodal transportation–The combination of two or more
            modes in moving freight.

6.   Efficient customer response (ECR)–Programs designed to improve the
     efficiency of replenishing, delivering, and stocking inventory while
     promoting customer value.



                            214
      C.     Global Physical Distribution–When doing business abroad, there are many
             challenges in distributing products. Uncertainty increases because of greater
             transport distances, longer lead times, and complex customs requirements and
             trade restrictions. The most important factor, from a physical distribution
             perspective, however, is a country’s infrastructure, which influences how
             products are stored and transported.


ANSWERS: KEY TERMS

1.  Tying arrangement                           23.    Integrated logistics management
2.  Freight forwarders                          24.    Efficient consumer response (ECR)
3.  Distribution channel                        25.    Distribution centers
4.  Retail cooperative                          26.    Inventory control
5.  Channel levels                              27.    Conventional channel system
6.  Warehousing                                 28.    Limited-service wholesalers
7.  Contractual channel system                  29.    Franchise system
8.  Intermodal transportation                   30.    Logistics
9.  Economic order quantity                     31.    Vertical marketing systems
10. Corporate channel system                    32.    Order management
11. Direct channels                             33.    Retailers
12. Administered channel system                 34.    Multiple channel systems
13. Distribution intensity                      35.    Wholesalers
14. Electronic data interchange (EDI)           36.    Physical distribution
15. Exclusive dealing                           37.    Exclusive distribution
16. Reverse channel                             38.    Brokers
17. Assortment                                  39.    Private warehouses
18. Intermediaries:                             40.    Indirect channels
19. Full-line forcing                           41.    Selective distribution
20. Public warehouses                           42.    Intensive distribution
21. Wholesaler-sponsored voluntary              43.    Wholesaling
    chain                                       44.    Allocation
22. Full-service wholesalers
ANSWERS: MULTIPLE CHOICE

1.    e                                         9.     e
2.    e                                         10.    c
3.    b                                         11.    e
4.    c                                         12.    c
5.    d                                         13.    a
6.    b                                         14.    e
7.    d                                         15.    a
8.    d




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                                         CHAPTER 13

                         RETAILING AND DIRECT MARKETING

CHAPTER OVERVIEW

Retailing is the final stage in the distribution channel for a majority of products sold to
consumers. Time, place, possession, and form utilities are provided to consumers by retailers.
In addition, retailers may promote the general welfare of society through efforts to recruit a
diverse work force. A number of U.S. retailers have been very successful in global markets by
understanding important variations in consumer tastes across cultures.

Retailing strategy must cover a variety of issues. Each retailer must decide on the target
market(s) and positioning, then adopt a distinct service level and pricing approach. The
geographical location of stores is a very important decision. Retailers must make merchandise
decisions very carefully, as they influence costs and customer satisfaction. New technologies,
such as sophisticated computer systems that allow merchandise to be tailored in individual
stores, help improve retailer performance. Furthermore, effectively managing relationships
with suppliers—whether manufacturers, wholesalers, or agents—is critical.

Direct marketing is a powerful selling approach, especially when media are used to
communicate information on products and prices, and how to place orders. A large number of
direct-response media are available. These include paper-based mail, fax mail, e-mail, voice
mail, mail-order catalogs, telemarketing, advertisements in print and broadcast media,
infomercials, television shopping channels, and the Internet. Each medium has its strengths
and weaknesses that must be considered by companies choosing which one or which mix to
use.

Direct marketers make a number of decisions when developing a marketing strategy. They
must carefully select the target market(s). Strong customer databases must be developed and
maintained. In particular, direct marketers can put database marketing to great use. Decisions
on target markets go hand in hand with merchandise assortment and pricing. Multiple direct-
response media should be used, with great attention paid to the content of messages in each
medium. Each medium has unique challenges with regard to message content. Finally,
payment methods and delivery options must be decided upon.


CHAPTER OBJECTIVES

1. Appreciate the important role retailers play in our economy and society.

2. Understand strategy issues confronted by retailers when making marketing decisions.

3. Recognize the diverse array of retailers that compete with one another.

4. Learn what direct marketing entails, its value, and how it differs from mass communication.

5. Be familiar with the different types of direct-response media.


                                              216
6. Understand the marketing decisions made by direct marketing companies.




                                           217
CHAPTER OUTLINE

I.     THE CONCEPTS OF RETAILING AND DIRECT MARKETING


II.    RETAILING

       Retailing


       A.     The Importance of Retailers–




III.   RETAIL STRATEGY

       Wheel of Retailing




       A.     Target Markets and Positioning–




       B.     Service Level and Pricing–

              Discount-Oriented Strategy



              Service-Oriented Strategy



       C.     Merchandise Assortment–

              Merchandise Breadth


              Merchandise Depth


              Scrambled Merchandising Strategy




                                             218
      D.   Store Location–


           Shopping Mall or Center


      E.   Technology–


      F.   Supplier Relationships–



           Markup


           Markdown



IV.   TYPES OF RETAILERS

      A.   Limited-Line Retailers–


           Specialty Stores


           Franchisees


           Superstores


           Automated Vending Retailers


      B.   General Merchandise Retailers–


           Department Stores


           Convenience Stores


           Supermarkets



                                         219
            Warehouse Clubs


            Discount Stores


                   Off-Price Retailers


                   Catalog Showrooms

            Variety Stores


            Hypermarkets



V.    ISSUES IN RETAILING

      A.    Diversity and Retailing–



      B.    Legal and Ethical Issues in Retailing–



      C.    Global Retailers–




VI.   DIRECT MARKETING

      Direct Marketing


      A.    Value to Customers and Marketing–




      B.    Direct Marketing Databases–


      C.    Direct Response Media–


                                            220
     1.     Direct mail–


     2.     Catalogs–


     3.     Telemarketing–


     4.     Advertisements in print and broadcast media–



            Infomercials

     5.     Television home shopping channels–


     6.     The Internet–


D.   Ethics in Direct Marketing–


E.   The Direct Marketing Plan–

     1.     Target markets–


     2.     Database management–



     3.     Merchandise assortment–



     4.     Pricing–



     5.     Media and channels–




                                   221
             6.       Message design–



             7.       Payment methods and delivery–



KEY TERMS

Atmospherics                                         Off-price retailers
Automated vending                                    Retailer
Catalog showrooms                                    Retailing
Chain stores                                         Scrambled merchandising
Convenience stores                                   Shopping mall (center)
Department stores                                    Specialty stores
Direct marketing                                     Supermarkets
Discount stores                                      Superstores
Hypermarkets                                         Telemarketing
Infomercials                                         Variety stores
Mail-order catalogs                                  Visual merchandising
Markdown                                             Warehouse clubs
Markup                                               Wheel of retailing

1.                    A firm that makes more than half its sales to the end-user.

2.                    A reduction in the original retail selling price of a product.

3.                    Discount retailers whose customers shop from catalogs and can view
                      floor samples of items held in stock.

4.                    The use of machinery by coins or credit cards to dispense goods.

5.                    A collection of products and price information that is published in paper
                      form.

6.                    Retailers with merchandise of broad variety and moderate depth and
                      with a relatively high level of customer service.

7.                    Large, departmentalized, food-oriented retail establishments that sell
                      beverages, canned goods, dairy products, frozen foods, meat, produce,
                      and such nonfood items as health and beauty aids, kitchen utensils,
                      magazines, pharmaceuticals, and toys.

8.                    Small retailers with moderately low breadth and depth of merchandise.

9.                    Salespeople call prospective customers over the telephone.



                                               222
10.                  Retailers offering a broad variety of merchandise, limited service, and
                     low prices.

11.                  Retailers offering a variety of low-priced merchandise of low to moderate
                     quality.

12.                  A group of retail stores in one location and marketed as a unit to
                     shoppers in a trade area.

13.                  Amount added to the cost of acquiring a product that determines its
                     retail selling price.

14.                  A descriptive theory about how retailers emerge, evolve, and sometimes
                     fade away.

15.                  Sellers of brand-name clothing at low prices.

16.                  The activities involved in selling products and services directly to end-
                     users for personal or household use.

17.                  An array of product lines that seem to be unrelated.

18.                  A group of centrally owned and managed retail stores that handle the
                     same product lines.

19.                  Retailers offering merchandise in one primary product category in
                     considerable depth.

20.                  Retailer efforts to make a store’s physical surroundings attractive to
                     target customers (also see visual merchandising).
21.                  Retailers that focus on a single product category but offer a huge
                     selection and low prices; also called ―category killers.‖

22.                  Retailers with large, no-frills stores that carry a revolving array of
                     merchandise at low prices.

23.                  Giant shopping facilities with a wide selection of food and general
                     merchandise at low prices.
24.                  Programmatic advertisements of considerable length that resemble
                     documentaries.

25.                  The use of various communication media to interact directly with
                     customers and generally calling for them to make a direct response.


MULTIPLE CHOICE

1.    Which of the following is not a type of retailer?


                                              223
     a.     Unspecified retailer
     b.     Limited-line
     c.     General merchandise
     d.     Reverse form
     e.     a and c

2.   Which of the following is not a general merchandise retailer?

     a.     Department stores
     b.     Convenience stores
     c.     Supermarkets
     d.     Discount stores
     e.     All of the above

3.   What is the defining characteristic of a retailer?

     a.     It has many employees.
     b.     It always has a store which consumers can walk through.
     c.     It makes a majority of its sales to consumers.
     d.     It does not take ownership of goods.
     e.     It is nonprofit.

4.   Which of the following is the best description of the wheel of retailing?

     a.     It indicates that retailers start as domestic operations, go onto international and
            then global markets, and then move back into new forms in domestic markets.
     b.     New retailers locate stores in less costly geographical regions to keep costs
            down, and then, as time goes on, they add more service and begin to move into
            more expensive areas and upgrade facilities and raise prices.
     c.     Retailers go through seasonal periods whereby they have to rotate stocks.
     d.     There is a vicious circle whereby retailers go from low quality to high quality to
            low quality again.
     e.     It is a planning device whereby retailers can adjust to competitive pressures over
            time.




                                              224
5.    What is the first step in designing an excellent retail strategy?

      a.     Identifying the merchandise assortment
      b.     Determining what price products will be
      c.     Target marketing and positioning
      d.     Evaluating
      e.     Determining store location

6.    Which of the following is an important aspect of a discount-oriented retailing strategy?

      a.     Provide no service
      b.     Have the lowest possible prices
      c.     Emphasize quality products
      d.     Keep costs and overhead low to support low price strategy
      e.     Emphasize value and ignore price promotions

7.    Which of the following is a scrambled merchandising strategy?

      a.     Carrying product lines that seem to be unrelated
      b.     Mixing merchandise in aisles to keep shopping interesting
      c.     Putting merchandise in bins
      d.     Limiting an assortment to a few items
      e.     Moving products around within a single product line

8.    What is the major characteristic of a general merchandise retailer?

      a.     It does not handle brands but handles generic products.
      b.     It carries only one general product line.
      c.     It carries a number of different product categories.
      d.     It always has a way to display merchandise.
      e.     None of the above

9.    Which of the following is not a direct-response media?

      a.     Direct mail
      b.     Billboards
      c.     The Internet
      d.     Television home shopping channels
      e.     Telemarketing

10.   Which of the following is the first step in a direct marketing plan?

      a.     Database management
      b.     Pricing
      c.     Media and channels
      d.     Message design
      e.     Target marketing

11.   Which pricing approach is most typical for direct marketing companies?



                                               225
      a.     A medium price with very rapid delivery
      b.     A low price supported by high overhead technology
      c.     A high price with little overhead
      d.     A low price facilitated by low overhead
      e.     A high price with personal service
12.   Two of the major issues related to ethics in direct marketing are

      a.     being located out of state from the customer.
      b.     consumers right to privacy and confidentiality of personal information.
      c.     use of market entry and withdrawal.
      d.     international marketing and misrepresentation.
      e.     none of the above.

13.   Regarding payment methods for direct marketing,

      a.     most companies require only check payment.
      b.     companies require cash.
      c.     most companies take only a credit card.
      d.     most companies offer long-term same-as-cash offers.
      e.     many direct marketers offer several payment methods such as check, money
             order, or credit card.

14.   Which of the following is most correct regarding direct marketing?

      a.     Direct marketing is a passing fad.
      b.     Direct marketing has reached a maturity stage.
      c.     Direct marketing is growing very rapidly in consumer and business markets.
      d.     Direct marketing is declining in business markets but growing in consumer
             markets.
      e.     None of the above are correct.

15.   Why is direct marketing appealing?

      a.     It offers consumers a convenient way to shop from their homes.
      b.     It offers products that cannot be obtained through any other source.
      c.     There is a greater variety.
      d.     Products are lower priced.
      e.     All of the above are correct.


ANSWERS: CHAPTER OUTLINE

I.    THE CONCEPTS OF RETAILING AND DIRECT MARKETING


II.   RETAILING

      Retailing refers to selling products directly to consumers for personal and household
      use. A retailer is a firm that makes the majority of its sales to consumers.



                                             226
       A.     The Importance of Retailers–Retailers make a broad variety of goods available to
              consumers in amounts they can afford and effectively handle. They also make it
              economically feasible for manufacturers of consumer goods to operate.

III.   RETAIL STRATEGY

       The wheel of retailing is one way to describe how retailers emerge, evolve, and
       sometimes fade away. According to the theory, new retailers locate their no-frills stores
       in low-rent areas to keep costs down. Those that succeed start to change. They add more
       service, move to more expensive real estate, upgrade facilities, and raise prices. This
       makes them vulnerable to new low-price entrants, and the wheel goes around and
       around. The wheel can be broken if retailers carefully develop a strategy.

       A.     Target Markets and Positioning–As a first step, retailers very carefully analyze
              the general market and decide the segment or segments on which to focus.
              Retailer positioning is the mental picture consumers have of the retailer and the
              shopping experience it provides.
       B.     Service Level and Pricing–A discount-oriented strategy offers products and
              service of acceptable quality at low prices. The objective is to keep costs and
              overhead down in order to make prices competitive. A service-oriented strategy
              emphasizes quality products and value-added functions, with prices to match.

       C.     Merchandise Assortment–Merchandise breadth (the variety of product lines
              offered) and merchandise depth (the number of products available within each
              line) must be determined. A scrambled merchandising strategy means that the
              product lines carried seem to be unrelated.

       D.     Store Location–The location decision affects how convenient shopping will be
              for customers. The target market dictates the choice to some degree. A shopping
              mall or center is a group of retail stores in one place marketed as a unit to
              shoppers in a trade area.

       E.     Technology–Retailers must keep abreast of new technologies and adopt those
              that promote customer satisfaction at a reasonable cost.

       F.     Supplier Relationships–Tough bargaining issues can arise between suppliers and
              retailers, despite the strength of the relationship. Cost and pricing issues are the
              most common areas of friction. Retailers have a targeted markup, the difference
              between merchandise cost and the retail price. Goods that do not sell as expected
              require a markdown, a reduction in the original retail price.


IV.    TYPES OF RETAILERS

       Form of ownership distinguishes between small independents (often called mom-and-
       pop stores) and chain stores, which are a group of centrally owned and managed retail
       outlets that handle the same product lines.


                                              227
      A.     Limited-Line Retailers–Focus on one product category. The four types are:
             specialty stores, franchises, superstores, and automated vending machines.
             Specialty stores offer merchandise in one primary market category in
             considerable depth. Many specialty stores are franchisees, who sign a
             contractual agreement with a franchiser organization to represent and sell its
             products in particular retail locations. Superstores focus on a single product
             category but offer a huge selection and low prices. Automated vending retailers
             use machinery operated by coin or credit card to dispense goods.

      B.     General Merchandise Retailers–Carry a number of different product categories.
             There are seven types: department stores, convenience stores, supermarkets,
             warehouse clubs, discount stores, variety stores, and hypermarkets. Department
             stores carry a broad array and moderate depth of merchandise. Convenience
             stores are small and have moderately low breadth and depth of merchandise.
             Supermarkets are large, departmentalized, food-oriented retail establishments
             with moderately high merchandise breadth and depth. Warehouse clubs are
             large, no-frills stores that carry a revolving array of merchandise at low prices.
             Discount stores (including off-price retailers which sell name-brand clothing at
             low prices and catalog showrooms which have only samples on display so that
             customers must order merchandise from catalogs) offer a broad variety of
             merchandise, limited service, and low prices. Variety stores offer an array of
             low-priced merchandise of low to moderate quality. Hypermarkets are giant
             shopping facilities offering a wide selection of food and general merchandise at
             low prices.

V.    ISSUES IN RETAILING

      A.     Diversity and Retailing–Because retailers deal directly with customers, most of
             them realize that staffing and marketing programs must reflect the nature of the
             population they serve. Recognizing diversity and its implications for business
             practice is a must for top-performing retailers.

      B.     Legal and Ethical Issues in Retailing–It is important for retailers to comply with
             laws applicable to a range of legal and ethical issues. This includes giving
             kickbacks or charging fees for referring business. Ethical dilemmas often arise
             over the goods sold by retailers.

      C.     Global Retailers–A global retailer must focus on targeted customers in each
             market. In many cases, consumer tastes vary considerably across countries for
             the same product or service.

VI.   DIRECT MARKETING

      Direct Marketing uses various devices to communicate with customers, generally calling
      for a direct response on their part.




                                            228
A.   Value to Customers and Marketing–Direct marketing offers consumers a
     convenient way to shop from the comfort of their home or office. It can improve
     the quality of products offered to customers. It is of value to entrepreneurs as
     retailers cut back on inventory. It allows small businesses to access markets
     without the assistance of retailers, wholesalers, or a company sales force.

B.   Direct Marketing Databases–All direct marketing companies maintain a
     database with customer names, addresses, and purchase histories.

C.   Direct Response Media–

     1.     Direct mail–A cover letter, brochure, audio tape, video tape, or computer
            disk sent to consumers through the mail.

     2.     Catalogs–Mail-order catalogs assemble product and price information
            which is published in paper form.

     3.     Telemarketing–When salespeople call prospective customers over the
            telephone.

     4.     Advertisements in print and broadcast media–Print ads in magazines
            and newspapers are used a great deal in marketing. Along with
            information on products and prices, toll-free numbers are given. Direct
            marketers also rely on television and radio spots, usually ranging from 10
            to 60 seconds. Infomercials are long advertisements that resemble
            documentaries.

     5.     Television home shopping channels–Themed programs telecast 24 hours
            a day, seven days a week, which offer products to customers who send
            orders over toll-free lines.

     6.     The Internet–Most companies are still using a Web site only to
            communicate information, but the Internet is gaining ground as a
            medium for electronic commerce.

D.   Ethics in Direct Marketing–A number of ethical problems confront the direct
     marketing industry, such as the right to privacy and the confidentiality of
     personal information.

E.   The Direct Marketing Plan–

     1.     Target markets–Every excellent marketing strategy begins with an
            understanding of the intended audience.

     2.     Database management–Addresses and preferences must be current,
            duplicate names must be removed, those with poor credit histories must
            be flagged, and inactive customers must be noted.



                                    229
3.   Merchandise assortment–Companies need to review and adjust their
     assortment in light of economic trends, competition, and changes in
     preferences of the target market.

4.   Pricing–Direct marketing companies often follow a low-price strategy,
     facilitated by their low overhead. In contrast, some companies emphasize
     merchandise quality and follow a premium-price strategy.

5.   Media and channels–Direct marketing companies normally start with one
     promotion medium. Over time, many branch out to multiple media.

6.   Message design–Whatever medium is used, message design and presen-
     tation are important.

7.   Payment methods and delivery–Direct marketing companies serving the
     consumer market often offer several different payment methods—check,
     money order, or credit card. In business-to-business markets, customers
     often have an account with the direct marketer, and a monthly bill is sent.




                             230
ANSWERS: KEY TERMS

1.    Retailer                       14.   Wheel of retailing
2.    Markdown                       15.   Off-price retailers
3.    Catalog showrooms              16.   Retailing
4.    Automated vending              17.   Scrambled merchandising
5.    Mail-order catalogs            18.   Chain stores
6.    Department stores              19.   Specialty stores
7.    Supermarkets                   20.   Atmospherics
8.    Convenience stores             21.   Superstores
9.    Telemarketing                  22.   Warehouse clubs
10.   Discount stores                23.   Hypermarkets
11.   Variety stores                 24.   Infomercials
12.   Shopping mall (center)         25.   Direct marketing
13.   Markup


ANSWERS: MULTIPLE CHOICE

1.    e                              9.    b
2.    e                              10.   e
3.    c                              11.   d
4.    b                              12.   b
5.    c                              13.   e
6.    d                              14.   c
7.    a                              15.   a
8.    c




                               231
                                        CHAPTER 14
                    INTEGRATED MARKETING COMMUNICATIONS

CHAPTER OVERVIEW

Integrated marketing communication (IMC) is the coordination of all information to the market
in order to provide consistent, unified messages. Since each aspect of IMC—advertising, sales
promotion, personal selling, sponsorships, and public relations—tends to work synergistically,
integration is very important. Marketing communication has six objectives. First, it should
provide useful information that improves customer decision making and consumption. Second,
it creates demand to ensure that products will be consumed in sufficient quantities to justify
their development, production, and distribution. Third, it supplies knowledge about the value
of products, such as their benefits, features, and functions. Fourth, it helps differentiate
products by describing their uniqueness. Fifth, it helps close the sale by moving customers to
action. Finally, it is critical in building the all-important relationship with customers and in
securing their loyalty.

Traditionally, communication was seen as a one-way process—from seller to buyer with a
feedback loop. Today, a two-way process is more realistic. The sender’s characteristics are
important determinants of how well messages will be received. Source credibility is determined
by expertise, trustworthiness, and attractiveness (or appeal). Encoding requires translating the
message into terms that will be easily understood. Message characteristics also play a major
role. Marketers need to decide whether a one-sided or two-sided message is better; whether to
supply conclusions; the order in which information will be presented; whether to use humor or
fear appeals; and whether to use comparative messages. The choice of media—mass, personal,
or mixed—also influences communications.

The communication mix has five major components: personal selling, advertising, sales
promotion, sponsorship, and public relations. The communication mix is influenced by several
factors. First, business-to-business and consumer markets use different mixes. Second,
marketers use a push or pull communication strategy. Third, communications must be suited to
the product’s stage in the life cycle to have the greatest effectiveness. Finally, marketing
communications do not always work directly on consumers.

The IMC plan is an outgrowth of the marketing plan. It has five steps. First, select and
understand target markets. Second, determine communication objectives and select the IMC
mix. Third, develop the IMC budget in line with the overall strategic marketing plan. Fourth,
implement the plan. Fifth, measure communication results and adjust accordingly.


CHAPTER OBJECTIVES

1. Understand the objectives of integrated marketing communications.

2. Learn how the communication process provides the intended information for the market.

3. Learn about the communication mix, including personal selling, advertising, sales
   promotion, sponsorships, and public relations.



                                              232
4. Know the factors that influence the communications mix.

5. Describe the steps in developing an integrated marketing communication plan.

6. Address diversity, ethics, and technology in communications.
CHAPTER OUTLINE

I.     THE CONCEPT OF INTEGRATED MARKETING COMMUNICATIONS

       Communication


       Promotion


       Integrated Marketing Communication (IMC)




II.    OBJECTIVES OF INTEGRATED MARKETING COMMUNICATION

       A.     Provide Information–



       B.     Create Demand for Products–



       C.     Communicate Value–



       D.     Communicate Product Uniqueness–



       E.     Close the Sale–



       F.     Build Relationships and Loyalty–




III.   THE COMMUNICATION PROCESS


                                            233
A.   The Message Sender–



     1.     Expertise–


     2.     Trustworthiness–


     3.     Attractiveness (personal demeanor and appeal)–


B.   Presentation Creation—Encoding–



C.   Message Characteristics–

     1.     One-sided and two-sided messages–

            One-sided message


            Two-sided message


     2.     Recommendations or conclusions–



     3.     Order of presentation–



     4.     Humor–



     5.     Fear appeals–


     6.     Comparative messages–


D.   Media–



                                     234
           Personal Media


           Mass Media


           Mixed Media


      E.   Interpretation by Receivers—Decoding–



      F.   Consumer Feedback–



IV.   THE COMMUNICATION MIX

      A.   Personal Selling–



      B.   Advertising–



      C.   Sales Promotion–



      D.   Public Relations–


      E.   Sponsorships–


      F.   Factors Affecting the Communication Mix–

           1.     Business vs. consumer markets–



           2.     Pull vs. push strategies–

                  Pull strategy




                                          235
                 Push strategy


          3.     Product stage in life cycle–



          4.     Opinion leadership–

                 One-step communication


                 Multiple-step communication



V.   DEVELOPING THE IMC PLAN

     A.   Select and Understand Target Audiences–



     B.   Determine the Objectives and Select the IMC Mix–



     C.   Developing the Communication Budget–



          1.     Determining the overall budget–

                 Competitive budgeting


                 Payout plan method


                 Task method


          2.     Allocating the budget–



     D.   Implementation–




                                          236
      E.   Measuring IMC Results–




VI.   ISSUES IN COMMUNICATION

      A.   Diversity–



      B.   Ethics–



      C.   Technology That Builds Relationships–




                                        237
KEY TERMS

Advertising                                       Personal selling
Communication                                     Promotion
Encoding                                          Public relations
Integrated marketing communication                Pull strategy
Media                                             Push strategy
Multiple-step communication                       Sponsorship
One-sided messages                                Sales promotion
One-step communication                            Two-sided messages
Opinion leaders


1.                  An attempt to influence the distribution channel, which in turn sells to
                    the user.

2.                  Translating a message into terms easily understood by the target
                    audience.

3.                  The process whereby marketers inform, educate, persuade, remind, and
                    reinforce consumers through communication.

4.                  All audience members are simultaneously exposed to the same marketing
                    message.

5.                  The channels through which messages are communicated.

6.                  Arguments favorable to the source.

7.                  An attempt to influence consumers directly with promotion.

8.                  Influential members of a target audience who first screen messages sent
                    by marketers.

9.                  Paid communication through nonpersonal channels.

10.                 Arguments that are unfavorable as well as favorable to the source.

11.                 The exchange of money (or some other form of value) in return for a
                    public association with an event.

12.                 Face-to-face or other individual communication between a buyer and a
                    seller.

13.                 The coordination of advertising, sales promotion, personal selling, public
                    relations, and sponsorship to reach consumers with a powerful effect in
                    the market.



                                            238
14.                 Unpaid promotion designed to present the firm and its products in a
                    positive light in the buyer’s mind.

15.                 Opinion leaders filter advertising messages and modify their positive or
                    negative effect on the rest of the group.

16.                 Activities that support the overall communications effort by one-way
                    contact with customers.

17.                 The process of sending and receiving messages.


MULTIPLE CHOICE

1.    Which of the following is the best description of integrated marketing communication
      (IMC)?

      a.     The use of diverse gender, race, and age people in communication
      b.     Coordination of all market information to provide a unified message
      c.     The use of more than one media for each advertising campaign
      d.     The development of a single budget for all communications across all product
             lines
      e.     All of the above

2.    Which of the following is a goal of communication?

      a.     Inform
      b.     Educate
      c.     Persuade
      d.     Remind
      e.     All of the above

3.    Why is it important to inform consumers?

      a.     They are likely to buy more products.
      b.     To make purchasing more easy
      c.     To help consumers make informed choices within a reasonable time frame
      d.     To maximize sales
      e.     To ensure against fraudulent claims

4.    What is the primary way that communication contributes to economic development?

      a.     It inspires people to earn money to acquire products that improve their well-
             being.
      b.     It gets people to buy things they don’t need.
      c.     It provides a lot of jobs.
      d.     All of the above
      e.     None of the above


                                           239
5.   Which of the following is not an objective of integrated marketing communication?

     a.     Communicate value
     b.     Communicate product uniqueness
     c.     To close a sale
     d.     To build relationships
     e.     All of the above




                                          240
6.    Which of the following is a marketer’s responsibility with regard to the communication
      process?

      a.     Make sure the message is received by the target audience.
      b.     Make sure the message is understood as intended.
      c.     Provide relevant information to help the audience be knowledgeable.
      d.     Make sure the message elicits an appropriate response.
      e.     All of the above

7.    Dr. Donald Tongers is considered to be a perfect spokesperson to communicate the
      benefits of a new type of paint for consumers. Which of the following is not one of the
      characteristics that he most likely possesses?

      a.     Expertise
      b.     Attractiveness
      c.     Wealthiness
      d.     Trustworthiness
      e.     None of the above

8.    One of the characteristics of effective spokespersons is that they are attractive. This
      means

      a.     that they are good looking.
      b.     that their personal demeanor is pleasant and likable.
      c.     that they dress well.
      d.     that they are considered to be in better physical shape than the average person.
      e.     none of the above.

9.    Regarding message characteristics, when is a one-sided message most appropriate?

      a.     With highly intelligence audiences
      b.     When the recipient is opposed to the viewpoint being presented
      c.     When more than one viewpoint has merits
      d.     When the recipient is highly educated
      e.     None of the above

10.   A message can offer conclusions or leave the task to the receiver. In general, when a
      message offers conclusions, it would

      a.     be more easily understood.
      b.     have a stronger likelihood of acceptance.
      c.     have no differential impact.
      d.     be all of the above.
      e.     be none of the above.

11.   Which of the following is the first step in developing the communications plan?

      a.     Determining communication objectives and selecting the mix


                                            241
b.   Selecting and understanding the targeting audiences
c.   Developing the budget
d.   Measuring results
e.   Implementation




                                   242
12.   What does AIDA stand for in the hierarchy of affects model?

      a.     Attention, interest, demand, activity
      b.     Action, interest, demand, advancement
      c.     Awareness, initiation, decision, action
      d.     Affordability, interaction, demand, accountability
      e.     Attention, interest, desire, action

13.   Which of the following is considered unethical by the American Marketing Association
      code of ethics?

      a.     False and misleading advertising
      b.     High-pressure manipulation
      c.     Misleading sales tactics
      d.     Deceptive communications
      e.     All of the above

14.   Rockwell International is involved in business-to-business communication. Which form
      of promotion is most likely to be used most if it is similar to other business-to-business
      organizations?

      a.     Advertising
      b.     Public relations
      c.     Personal selling
      d.     Sales promotion
      e.     The Internet

15.   Which of the following represents the multi-step communication process?

      a.     Messages are passed from person to person in a chain, often resulting in
             miscommunication of the sender’s intent.
      b.     Opinion leaders send messages to companies who in turn use those messages as
             key parts of their communications research process.
      c.     Once opinion leaders receive messages, they are filtered before they reach other
             group members, thereby modifying the effects of the message positively or
             negatively.
      d.     Messages are sent from several media at the same time in order to improve the
             probability that a given audience will hear the message.
      e.     None of the above


ANSWERS: CHAPTER OUTLINE

I.    THE CONCEPT OF INTEGRATED MARKETING COMMUNICATIONS

      Communication is the exchange of meaning between or among parties. Promotion is the
      process whereby marketers inform, educate, persuade, remind, and reinforce consumers
      through communication. Integrated marketing communication (IMC) is the


                                             243
coordination of advertising, sales promotion, personal selling, public relations, and
sponsorships to reach consumers with a powerful unified effect.




                                     244
II.    OBJECTIVES OF INTEGRATED MARKETING COMMUNICATION

       A.     Provide Information–All communication is designed to provide some form of
              information. It gives consumers what they need to make informed choices
              within a reasonable time frame.

       B.     Create Demand for Products–Communication stimulates people to desire what
              they do not have and inspires them to earn the money to acquire items that
              improve their standard of living.

       C.     Communicate Value–Marketers compete to provide value in keeping with
              consumers’ willingness to pay. Most communication uses creative messages that
              help convey benefits.

       D.     Communicate Product Uniqueness–Marketers attempt to communicate unique-
              ness in order to differentiate their product from others.

       E.     Close the Sale–Communication helps close the sale. Marketers want their
              product to be purchased. Today, consumers are selecting when they want to
              receive communications, and often that is just prior to purchase.

       F.     Build Relationships and Loyalty–Once a consumer has tried a particular brand,
              marketers remind them why they chose it in the first place and reinforce
              behavior.


III.   THE COMMUNICATION PROCESS

       Messages move from the sender (marketer) to the receiver (consumer).

       A.     The Message Sender–As the sender, it is the marketer’s responsibility to make
              sure the message is received by the target audience, is understood as intended,
              provides relevant information to help the audience be knowledgeable, and elicits
              an appropriate response. Spokespersons are generally judged according to their
              expertise, trustworthiness, and attractiveness.

              1.     Expertise–Consumers attribute expertise to a spokesperson because they
                     may believe he/she has specialized training, a great deal of experience,
                     or a thorough knowledge.

              2.     Trustworthiness–People tend to trust messages from ―objective‖ sources.

              3.     Attractiveness (personal demeanor and appeal)–Attractive, pleasant,
                     likable spokespersons have influence.

       B.     Presentation Creation—Encoding–Encoding is the process of translating a
              message into terms easily understood by the target audience. Marketers must



                                             245
           encode messages so they are interpreted appropriately by the people for whom
           they are intended.

      C.   Message Characteristics–

           1.     One-sided and two-sided messages–A one-sided message presents only
                  arguments favorable to the source. A two-sided message recognizes the
                  arguments against its side and provides the message recipient with
                  reasons why the arguments are invalid.

           2.     Recommendations      or     conclusions–A        message      can     make
                  recommendations or offer conclusions or leave that task to the receiver.
                  Messages with conclusions are more easily understood, but when the
                  audience draws its own, there is a stronger likelihood of acceptance.

           3.     Order of presentation–The placement of the key point of a commu-
                  nication affects how the message is interpreted and later recalled by
                  buyers. More is remembered about the beginning and end of a message
                  than its middle.

           4.     Humor–Viewers like humorous ads because they are novel and
                  enjoyable, but advertisers must be careful not to let humor obscure the
                  message.

           5.     Fear appeals–Marketers sometimes use fear to gain the attention and
                  interest of their audience.

           6.     Comparative messages–A host of companies choose to compare their
                  products with those of rivals.

      D.   Media–The means for transmitting messages from the sender to the receiver.
           Personal media involve direct contact, such as face-to-face communication or
           telephone conversations. The mass media include television, radio, magazines,
           billboards, and brochures. The mixed media approach combines personal and
           mass communication.

      E.   Interpretation by Receivers—Decoding–Strong communications begin with an
           understanding of target audiences. Consumers resist persuasion by refuting
           arguments, or through distortion. Intelligence and self-esteem also influence
           susceptibility to persuasion.

      F.   Consumer Feedback–Listening is an important way to learn what consumers
           think. Through the consumer, companies determine needs and wants as well as
           how to structure communication.


IV.   THE COMMUNICATION MIX



                                          246
     A.   Personal Selling–Requires person-to-person communication between buyer and
          seller. Generally, this occurs face to face, although it also may involve the
          telephone, video conferencing, or interactive computer linkages.

     B.   Advertising–Paid communication through nonpersonal channels—newspapers,
          television, radio, magazines, direct mail, billboards, and point-of-sale displays.

     C.   Sales Promotion–Sales promotion attempts to motivate purchases through a
          sales message. Possible tools include coupons, contests, and free samples.

     D.   Public Relations–Publicly designed to present the firm and its products in a
          positive light.

     E.   Sponsorships–The exchange of money (or some other form of value) in return for
          a public association with an event.

     F.   Factors Affecting the Communication Mix–

          1.     Business vs. consumer markets–Personal selling is most important in
                 marketing to businesses, while advertising dominates in the consumer
                 products arena.

          2.     Pull vs. push strategies–A pull strategy attempts to influence consumers
                 directly. A push strategy involves communicating to distribution channel
                 members, who in turn promote to the end-user.

          3.     Product stage in life cycle–Consumers need to be informed and educated
                 about new products, whereas they may need to be persuaded to purchase
                 them during growth and early maturity.

          4.     Opinion leadership–In one-step communication, all members of the
                 target audience are simultaneously exposed to the same message. In
                 multiple-step communication, opinion leaders filter the message before it
                 reaches other group members, modifying its effect positively or
                 negatively for the rest of the group.


V.   DEVELOPING THE IMC PLAN

     A.   Select and Understand Target Audiences–The overall market needs to be
          segmented, and each segment should be treated uniquely. For every target
          audience, communications experts need to understand all aspects of consumer
          behavior, learning where, how, and why they buy as well as how they obtain
          and process information.

     B.   Determine the Objectives and Select the IMC Mix–As marketers plan their
          communication objectives, they must keep the objective in mind. The IMC mix
          will vary considerably, depending on the objective.


                                         247
      C.   Developing the Communication Budget–The communication budget falls within
           expenditures for the entire marketing mix. Consequently, establishing the
           specific amount for the IMC requires an understanding of the overall marketing
           strategy, the financial resources available, and the contribution communications
           is expected to make.

           1.     Determining the overall budget–It is important to establish the
                  contribution of IMC to volume objectives and determine resulting profits
                  and cash flows. Competitive budgeting involves determining what rivals
                  are spending and setting the budget accordingly. In the payout plan
                  method, the marketer estimates future sales and establishes the budget
                  required to gain initial acceptance and trial of the product. The task
                  method sets specific sales targets or other objectives and then determines
                  what activities and amounts are required to accomplish them.

           2.     Allocating the budget–In many cases, data are fed into computer
                  simulations that help determine the best allocations. In other cases, the
                  team simply estimates what is required.
      D.   Implementation–Tends to be done by functional specialists with considerable
           experience in their field. The first decision is how much to do in-house and how
           much to outsource. Likewise, companies must decide whether to do their own
           advertising and sales promotion or hire outsiders.

      E.   Measuring IMC Results–Performance measures are variables or factors that tell
           us how well the organization or product is doing. Common measures are market
           share, sales level, and profitability. Other factors include number of loyal
           customers, amount of brand recognition, brand image, and knowledge of the
           product.


VI.   ISSUES IN COMMUNICATION

      A.   Diversity–The vast differences among consumers create opportunities for a wide
           variety of promotions to meet their needs.

      B.   Ethics–The American Marketing Association Code of Ethics states that
           acceptable standards of communications include ―avoidance of false and
           misleading advertising, rejection of high pressure manipulations, or misleading
           sales tactics, and avoidance of communications that use deception or
           manipulation.‖

      C.   Technology That Builds Relationships–In communications, marketers often use
           technology to reach consumers and establish relationships.


ANSWERS: KEY TERMS



                                          248
1.   Push strategy                  10.   Two-sided messages
2.   Encoding                       11.   Sponsorship
3.   Promotion                      12.   Personal selling
4.   One-step communication         13.   Integrated              marketing
5.   Media                                communication
6.   One-sided messages             14.   Public relations
7.   Pull strategy                  15.   Multiple-step communication
8.   Opinion leaders                16.   Sales promotion
9.   Advertising                    17.   Communication


ANSWERS: MULTIPLE CHOICE

1.   b                              9.    e
2.   e                              10.   a
3.   c                              11.   b
4.   a                              12.   e
5.   e                              13.   e
6.   e                              14.   c
7.   c                              15.   c
8.   b




                              249
                                         CHAPTER 15

                          MASS COMMUNICATIONS:
            ADVERTISING, SALES PROMOTION, AND PUBLIC RELATIONS

CHAPTER OVERVIEW

Mass communication is composed of advertising, sales promotion, and public relations. The
history of mass communication coincides with the development of communications
technology—particularly print, radio, and television. Today, the Internet is adding an
interactive medium. Global mass communication occurs when key elements of messages are
standardized across regions and nations. The primary ethical issue in mass communication is
deception.

Advertising is highly controllable and works over time to build brand equity. It is cost-effective
for reaching large audiences. The objectives are to create awareness, disseminate information,
and send reminder messages. Advertising media are readily available, and it’s easy for
marketers to find help in creating effective campaigns. But advertising also reaches many
people outside the target audience, encounters a high level of avoidance, and can be costly. It
also can communicate only brief, one-way messages. There are several different types of
advertising: national, retail (local), directory, business-to-business, institutional, direct-
response, public service, and political. Generally, there are six steps in developing the
advertising plan: set objectives, establish the budget, create the theme and message, select and
schedule media, create the ads, and assess effectiveness.

Sales promotion is used to prompt consumers to action, resulting in immediate sales results. It
is generally used with other forms of promotion, such as advertising, public relations, or
personal selling. There are four types of sales promotion: business-to-business, consumer, trade,
and retailer. Depending on the audience, activities may include trade shows, sales contests,
advertising allowances, price cuts, free trials, coupons, rebates, and sweepstakes.

Public relations activities are used primarily to influence feelings, opinions, or beliefs about a
company or its products. An attempt is made to develop messages that at least have the
appearance of objectivity. PR tends to be used in the following ways to support the marketing
function: corporate communication, press relations, lobbying, and product publicity. Common
PR activities are news conferences and sponsorship of events or activities.

CHAPTER OBJECTIVES

1. Understand the concept of mass communication, including the relative use of advertising,
   sales promotion, and public relations.

2. Learn how technology, globalization, and ethics are playing major roles in mass communi-
   cation.

3. Know the objectives, advantages, and disadvantages of advertising, as well as the sequence
   of steps in creating an advertising campaign.


                                               250
4. Understand sales promotion objectives and what types of promotions are used to stimulate
   sales in business, trade, retailer, and consumer markets.

5. Understand the use of public relations in marketing.
CHAPTER OUTLINE

I.     THE CONCEPT OF MASS COMMUNICATIONS:
       ADVERTISING, SALES PROMOTION, AND PUBLIC RELATIONS

       Mass Communication



II.    MASS COMMUNICATIONS IN THE 21ST CENTURY

       A.     Technological Perspective–


       B.     Global Advertising, Sales Promotion, and Public Relations–



       C.     Ethical Issues in Advertising, Sales Promotion, and Publicity–

              Deception



III.   ADVERTISING

       Advertising


       A.     The Multiple Purposes and Roles of Advertising–

              1.     Informative ads–


              2.     Persuasive ads–


              3.     Reminder ads–


              4.     Reinforcement ads–




                                             251
      B.   The Pros and Cons of Advertising–

           Advantages:




           Disadvantages:



      C.   Categories of Advertising–

           National or Brand Advertising


           Retail Advertising


           Directory Advertising


           Direct-Response Advertising



           Business-to-Business Advertising


           Institutional Advertising


           Public Service Messages


           Political Advertising


      D.   Advertising Agencies–



IV.   THE ADVERTISING PLAN

      A.   Setting Objectives–




                                           252
B.   Developing the Theme and Message–

     Theme


     Creative Strategy


     Advertising Campaign


     1.      Reaching the consumer–

             Exposure


             Stopping power

     2.      Creativity–


             Pulling power


     3.      Understanding–


     4.      Memorable–


C.   Media Selection–


     1.      Newspapers–

             Advantages:



             Disadvantages:



     2.      Television–

             Advantages:




                                  253
     Disadvantages:



3.   Radio–

     Advantages:



     Disadvantages:



4.   Magazines–

     Advantages:



     Disadvantages:


5.   Outdoor Advertising-

     Advantages:



     Disadvantages:



6.   The Internet–

     Advantages:



     Disadvantages:



7.   Media popularity–




                            254
     D.    The Media Schedule–


           1.     Target audience–



           2.     Reach, frequency, and continuity balance–

                  Reach


                  Frequency


                  Continuity


                  Overexposure


           3.     Media timing–


           4.     Media budget–



     E.    Creating the Ads–


     F.    Assessing Advertising Effectiveness–


           Unaided Recall


           Aided Recall



V.   SALES PROMOTION

     Sales Promotion


     A.    Types of Sales Promotion–



                                         255
     Consumer Promotions


     Trade Promotions


     Retailer Promotions


B.   The Success of Sales Promotion–



C.   Creating Customer Relationships and Loyalty through Sales Promotion–

     1.     Current loyals–



     2.     Switchers–



     3.     Price buyers–



     4.     Nonusers–



D.   Business-to-Business Promotions–

     Trade Shows


     Conventions


     Sales Contests


     Specialty Advertising


E.   Trade Promotions–




                                   256
     Allowances


     Financing Incentives


     Sales Contests


F.   Retailer Promotions–

     Price Cuts


     Patronage Awards


G.   Consumer Promotions–

     1.     Coupons–


     2.     Rebates–


     3.     Samples–


     4.     Sweepstakes–


     5.     Price and value packs–


     6.     Point-of-purchase displays–


     7.     Continuity programs–




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VI.    PUBLIC RELATIONS

       Public Relations


       A.      Publicity–


               1.     Press releases and news conferences–


               2.     Sponsored events or activities–


               3.     The Internet–



KEY TERMS

Advertising                                         Overexposure
Advertising agencies                                Persuasive advertising
Advertising campaign                                Public relations
Aided recall                                        Pulling power
Consumer promotions                                 Reach
Continuity                                          Reinforcement advertising
Copy strategy                                       Reminder advertising
Coupons                                             Retailer promotions
Cross-selling                                       Sales contest
Exposure                                            Sales promotion
Financing incentives                                Specialty advertising
Frequency                                           Stopping power
Informative advertising                             Trade promotions
Institutional advertising                           Unaided recall


1.                    Gifts with the organization’s name that are provided to customers,
                      usually given through the mail or by the sales force.

2.                    The manufacturer of one brand attempts to sell another brand to the
                      same customers, or the purchase of one product is used to stimulate the
                      selection of another—often unrelated—product

3.                    Calls attention to specific characteristics of products experienced by the
                      user.

4.                    Messages designed to communicate corporate identity and philosophy as
                      opposed to product information.


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5.    The number of times the audience is reached in a given period, usually
      per day or per week.

6.    Asks the viewer to identify any advertisements they can remember.

7.    The length of time the advertising campaign will run in a given medium.

8.    Messages that keep the product at the forefront of the consumer’s mind.

9.    The process of putting the ad in contact with the customer.

10.   Certificates that entitle a consumer to an incentive to buy the product,
      usually a price reduction or a free sample.

11.   Offers from manufacturers to channel members, such as wholesalers and
      retailers.

12.   Offers to finance the retailer’s inventory prior to its sale.

13.   Offers designed to pull the product through the retail establishment.

14.   Businesses that develop, prepare, and place advertising for sellers
      seeking to find customers for their products.

15.   Messages designed to provide information that consumers can store for
      later use.

16.   Continuing to reach a prospect after a buying decision has been made or
      to the point that the campaign becomes tedious and actually turns off
      some potential buyers.

17.   Messages designed to change consumers’ attitudes and opinions about
      products, often listing product attributes, pricing, and other factors that
      may influence consumer decisions.

18.   A short-term incentive via media and nonmedia marketing communi-
      cations to stimulate trial, increase consumer demand, or improve product
      availability.

19.   The number of consumers in the target audience who can be contacted
      through a given medium.

20.   The use of publicity and other nonpaid forms of communication to
      influence feelings, opinions, or beliefs about the company, its products,
      or the value of the products to the buyer.

21.   A series of advertisements with a main theme running through them.


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22.                 Offers to the consumer that are sponsored by retailers.

23.                 A competition for salespeople and dealers that awards prizes for
                    accomplishing specific goals.

24.                 Carefully developed words and phrases that describe precisely what the
                    advertiser wishes to communicate.

25.                 Any paid form of nonpersonal communication about an organization,
                    product, or idea by an identified sponsor.

26.                 Ability to gain and hold attention.

27.                 Asks the viewer to identify any advertisements they recall after being
                    given some specific piece of information about the ad.

28.                 The interest of the consumer is held to the end of the advertising
                    message.


MULTIPLE CHOICE

1.    Which of the following is not considered to be a part of mass communications?

      a.     Advertising
      b.     Sales promotion
      c.     Personal selling
      d.     Public relations
      e.     All of the above are mass communications.

2.    What major factor has had the greatest impact on the history of mass communications?

      a.     Increases in population size
      b.     Globalization of business
      c.     Customer taste in preferences
      d.     Technological innovation
      e.     Cost of advertising

3.    Which of the following would be considered global advertising?

      a.     ABC Corporation advertises in more than one country.
      b.     A marketer develops several different advertisements for different nations.
      c.     A marketing team standardizes key elements of advertising across national
             boundaries.
      d.     Advertising budgets are created for each country and then combined into one
             big budget.
      e.     None of the above would be.


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4.   What is a criterion for concluding that advertising, sales promotion, or publicity is
     unethical because of deception?

     a.     When a consumer misinterprets information
     b.     When a false belief is created which interferes with consumers’ ability to make
            rational choices
     c.     When claims are exaggerated
     d.     When consumers do not purchase the highest quality product because of a
            competitor’s mass communication strategy
     e.     None of the above is a criterion.

5.   Which of the following is considered to be an advantage of advertising?

     a.     The company has control over the content.
     b.     It works over time to build the brand’s equity.
     c.     It is very cost-effective for large audiences.
     d.     It is easy to find professionals to create effective ads.
     e.     All of the above are advantages.
6.   This is an independent business that develops, prepares, and places advertising in
     appropriate media. It is

     a.     an advertising agency.
     b.     an advertising professional.
     c.     an advertising unit.
     d.     an advertising department.
     e.     none of the above.

7.   Which of the following is not a communication medium?

     a.     Newspaper
     b.     Magazines
     c.     Copyrighting
     d.     Radio
     e.     Television

8.   What is the first step in developing a media schedule?

     a.     Develop media timing.
     b.     Identify the target audience.
     c.     Set the media budget.
     d.     Determine the region frequency of media.
     e.     Identify areas of overexposure.

9.   XYZ Corporation wishes to target narrowly defined segments with a prestigious
     medium that can be saved or passed along from consumer to consumer. They would
     probably select



                                           261
      a.     television.
      b.     radio.
      c.     outdoor ads.
      d.     the Internet.
      e.     magazines.

10.   A research organization asks viewers to identify as many soft drink advertisements as
      he/she can remember. The test is asking for

      a.     immediate recognition.
      b.     aided recall.
      c.     reinforced recognition.
      d.     unaided recall.
      e.     irrememberance index.

11.   What is the fundamental objective of sales promotion?

      a.     Build awareness.
      b.     Create an image.
      c.     Stimulate trial.
      d.     Provide information.
      e.     Persuade.




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12.   When a manufacturer uses promotion directed at wholesalers or retailers, it is engaged
in

      a.     trade promotions.
      b.     retailer promotions.
      c.     consumer promotions.
      d.     business-to-business promotions.
      e.     none of the above.

13.   Which of the following is a category mentioned in the text regarding types of buyers?

      a.     Current loyals
      b.     Non users
      c.     Switchers
      d.     All of the above
      e.     None of the above

14.   When a manufacturer owns two or more brands, current loyal customers are excellent
      candidates for what?

      a.     Multiple brand promotion
      b.     Brand switching
      c.     Cross-selling
      d.     Pooled resource campaigning
      e.     Cooperative advertising

15.   Which of the following is the best description of public relations and how it supports
      the marketing function?

      a.     It helps with corporate communication to company personnel which promotes
             better understanding of the organization.
      b.     Press releases which provide newsworthy information to the public.
      c.     Lobbying which provides communication with legislature and government
             officials.
      d.     Product publicity which describes to the public newsworthy innovations that are
             new product attribute elements.
      e.     All of the above are descriptions of PR.

ANSWERS: CHAPTER OUTLINE

I.    THE CONCEPT OF MASS COMMUNICATIONS:
      ADVERTISING, SALES PROMOTION, AND PUBLIC RELATIONS

      Mass communication is composed of advertising, sales promotion, and public relations.


II.   MASS COMMUNICATIONS IN THE 21ST CENTURY



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       A.    Technological Perspective–The history of mass communication mirrors a
             number of technological advances.

       B.    Global Advertising, Sales Promotion, and Public Relations–Global advertising,
             sales promotion, or public relations occurs when a marketing team standardizes
             key elements of these activities across national boundaries.

       C.    Ethical Issues in Advertising, Sales Promotion, and Publicity–The most serious
             ethical issue surrounding advertising, sales promotion, and public relations is
             deception. Deception occurs when a false belief is created or implied and
             interferes with the ability of consumers to make rational choices.


III.   ADVERTISING

       Advertising is paid, nonpersonal communication from an identified sponsor using
       media to persuade or influence an audience.

       A.    The Multiple Purposes and Roles of Advertising–

             1.     Informative ads–Designed to provide messages that consumers can store
                    for later use.

             2.     Persuasive ads–Designed to change consumers’ attitudes and opinions
                    about products as well as create attitudes where none exist.

             3.     Reminder ads–Keep the product at the forefront of the consumer’s mind.

             4.     Reinforcement ads–Call attention to specific characteristics of products
                    experienced by the user.

       B.    The Pros and Cons of Advertising–The advantages of advertising are: company
             control over the content, presentation, and placement of messages; over time
             builds brand position and equity; cost-effective for large audiences; serves many
             communication needs—awareness, information, reminder; available media
             make it easy to reach most audiences; and it is easy to find professionals to create
             effective ads. The disadvantages are: reaches many nonusers; high level of
             audience avoidance; brief one-way messages; can be costly in total.

       C.    Categories of Advertising–National or brand advertising focuses on brand
             identity nationwide. Retail (local) advertising focuses attention on nearby outlets
             where products and services can be purchased. Directory advertising is a listing
             of businesses, their addresses, phone numbers, and sometimes a brief
             description in a publication such as the Yellow Pages. Direct-response
             advertising stimulates sales through appeals to consumers by telephone or mail,
             and the product then is delivered to their home or business. Business-to-business
             advertising sends messages to a variety of organizations. Institutional
             advertising is designed to communicate corporate identity and philosophy


                                             264
           rather than messages about individual products. Public service messages
           support such societal issues as the prevention of child abuse or smoking
           cessation. Political advertising is aimed at influencing voters in favor of
           individuals or particular ballot issues.

      D.   Advertising Agencies–Independent businesses that develop, prepare, and place
           advertising in the appropriate media.


IV.   THE ADVERTISING PLAN

      A.   Setting Objectives–The goals of informing, reminding, and/or reinforcing should
           be accompanied by specific objectives: increase sales, establish brand position,
           increase awareness, support the sales force or distributors, maintain awareness,
           or introduce a new brand.

      B.   Developing the Theme and Message–The theme is the creative concept, and the
           art and copy are used to convey the message. Creative strategy is the careful
           development of visual images and words that convey precisely what the
           advertiser wishes to communicate. An advertising campaign is a series of
           different ads with the same creative strategy. To be effective, the theme and
           message must reach the consumer and must be relative, understandable, and
           memorable.

           1.     Reaching the consumer–Exposure is the process of putting the ad in
                  contact with the market. Stopping power is the ability of an ad to gain
                  and hold attention.

           2.     Creativity–Originality and uniqueness provide some novelty to gain
                  more attention. Pulling power keeps the interest of the consumer to the
                  end of the message.

           3.     Understanding–It is important that the information selected for
                  communication is clearly understood.

           4.     Memorable–It is important that ads’ messages are retained for some time.

      C.   Media Selection–Media are the channels whereby messages are transmitted from
           the sender to the receiver. Each medium has unique advantages and
           disadvantages.

           1.     Newspapers–Advantages: wide exposure for upscale adults; flexible,
                  timely, buyers can save for later reference; high credibility.
                  Disadvantages: few ads are fully read; young adults don’t read them;
                  costs are rising; alternate media are becoming more important news
                  sources.




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     2.     Television–Advantages: creative and flexible; cost-efficient; credibility.
            Disadvantages: message is quickly forgotten; high production cost;
            difficult to get attention.

     3.     Radio–Advantages: selective targeting possible; mobile—goes with
            listeners; low production costs. Disadvantages: no visual content; high
            frequency is required to reach many people; audience research has
            traditionally been difficult.

     4.     Magazines–Advantages: target narrowly defined segments; prestigious
            sources; long life—can be passed along. Disadvantages: audiences
            declining; long lead times to develop ads; need to use many different
            magazines to reach a lot of buyers.

     5.     Outdoor advertising–Advantages: low cost per exposure; good to
            supplement other media; with color, lighting, and mechanization gets
            attention. Disadvantages: can’t communicate much; difficult to measure
            results.

     6.     The Internet–Advantages: considerable              potential; medium for
            relationship marketing; customer-driven              and dialogue-oriented;
            increasing number of users. Disadvantages:         little research to indicate
            proven effectiveness; relies on consumers           accessing the necessary
            technologies; revenues still small; difficult to   target a specific audience;
            difficult to measure results.

     7.     Media popularity–TV accounts for nearly 70%.

D.   The Media Schedule–This work involves a number of considerations: target
     audience analysis; reach, frequency, and continuity balance; media timing; and
     budgeting.

     1.     Target audience–Media planning begins by addressing specific market
            segments. Media scheduling is usually done geographically and
            demographically.

     2.     Reach, frequency, and continuity balance–Reach is the number of
            consumers in the target audience that can be contacted through a given
            medium. Frequency is the number of times the audience is contacted
            during a given period, usually over four weeks. Continuity is the length
            of time the advertising campaign will run in a given medium.
            Overexposure refers to reaching a prospect either after a purchase
            decision has been made or so frequently that the campaign actually
            wastes funds.

     3.     Media timing–Products may be seasonal or purchased more frequently
            on certain days of the week.



                                     266
            4.     Media budget–Marketers attempt to maximize the advertising effort
                   within budget constraints, using one medium or a combination of media
                   to achieve the most influence in the market.

     E.     Creating the Ads–This step in the ad plan involves both science and art. The key
            is to know the objectives and constraints imposed by the media, scheduling, and
            budget.

     F.     Assessing Advertising Effectiveness–Ads can be assessed at two different points:
            before running the campaign and afterward. Unaided recall asks the viewer to
            identify any advertisements he/she can recall. Aided recall refers to the content
            that can be remembered without seeing the particular ad.


V.   SALES PROMOTION

     Sales promotion is media and nonmedia marketing communication designed to produce
     a short-term incentive to stimulate trial, increase consumer demand, or improve product
     availability.

     A.     Types of Sales Promotion–Consumer promotions are manufacturer incentives
            offered directly to consumers, largely bypassing the retailer. Trade promotions
            are provided by manufacturers to distribution channel members. Retailer
            promotions are directed at the consumer by the retail outlet.
     B.     The Success of Sales Promotion–Sales promotion has become increasingly
            successful due to changing consumer lifestyles, better technology, and the
            changing structure of the retail industry.
     C.     Creating Customer Relationships and Loyalty through Sales Promotion–There
            are four main categories of buyers and strategies for marketing to each group.

            1.     Current loyals–Presently purchasing a company’s brand. Marketers
                   should reinforce existing behavior, cross-sell, or try to increase usage.

            2.     Switchers–Purchase a number of different brands. Trade promotions
                   aimed at maximizing inventory and store space works well with this
                   group. Sales promotions also work well.

            3.     Price buyers–Most in this category want low prices, but a few choose
                   only the most expensive brand. They respond well to price promotions.

            4.     Nonusers–Do not currently purchase a particular brand. Sales
                   promotions designed to create involvement may stimulate purchase.
                   Cross-selling works to gain trial.

     D.     Business-to-Business Promotions–The four main types of business-to-business
            promotional activities are trade shows, conventions, sales contests, and specialty
            advertising. Trade shows are designed to bring marketers and customers
            together at a given location for a short period. Conventions are often sponsored


                                           267
             by professional groups and give marketers the opportunity to gather ideas for
             new strategies and stimulate sales. Sales contests for salespeople and dealers
             offer prizes for accomplishing specific goals. Specialty advertising refers to gifts
             for customers, usually sent through the mail or handed out by salespeople, with
             the organization’s name imprinted on it.

      E.     Trade Promotions–Offered by the manufacturer to wholesalers or retailers.
             Allowances are funds given to retailers and wholesalers based on the amount of
             product they buy. Financing incentives help reduce the retailer’s inventory
             carrying cost. Sales contests or ―spiffs‖ reward a retailer for selling a certain level
             of a product and are often extended to the salespeople within the retail
             establishment.

      F.     Retailer Promotions–Directed specifically at the end-customer and originate
             within the retailing organization. They seek to encourage customers to purchase
             a product from a given location. The most common type of retailer promotion is
             price cuts. They are used to stimulate sales of certain product lines or reduce
             inventory of older products. Patronage awards are another useful promotion.
             Generally, a card is punched or stamped each time the consumer shops at the
             retail outlet. When the card is filled, it can be redeemed for free merchandise.

      G.     Consumer Promotions–Manufacturers use consumer sales promotions to
             influence their market share across all retailing outlets.

             1.     Coupons–Certificates that entitle a consumer to an incentive, usually a
                    price reduction or free sample.

             2.     Rebates–Refunds given to consumers for the purchase of particular items.

             3.     Samples–A trial product which is usually distributed via mail, door-to-
                    door, or in stores.

             4.     Sweepstakes–A contest in which participants’ names are pooled and the
                    winner is drawn randomly.

             5.     Price and value packs–Cents-off or two-for-one offers.

             6.     Point-of-purchase displays–Exhibit products at retail locations.

             7.     Continuity programs–Reward people for continued and frequent use of a
                    particular product.


VI.   PUBLIC RELATIONS

      Public relations seeks to make use of publicity and other nonpaid forms of
      communication to influence feelings, opinions, or beliefs about the company, its goods,
      or services or about the value of the product to the buyer. It supports the marketing


                                              268
      function through corporate communication, press relations, lobbying, and product
      publicity.

      A.    Publicity–What is communicated about an organization in the public news
            media.

            1.     Press releases and news conferences–A press release is a statement
                   written by company personnel and distributed to various media for
                   publication at their discretion. It includes information about the
                   organization or product that marketers believe will be of interest to the
                   public.

            2.     Sponsored events or activities–Sponsored events or activities are often
                   used for local promotion. This gets the company name in the public while
                   contributing to the community.

            3.     The Internet–The Internet has spawned a new group of PR companies,
                   some which have helped companies to minimize negative publicity.
                   Other companies use the Internet for chat sessions, which serve as a form
                   of positive publicity.


ANSWERS: KEY TERMS

1.  Specialty advertising                       15.    Informative advertising
2.  Cross-selling                               16.    Overexposure
3.  Reinforcement advertising                   17.    Persuasive advertising
4.  Institutional advertising                   18.    Sales promotion
5.  Frequency                                   19.    Reach
6.  Unaided recall                              20.    Public relations
7.  Continuity                                  21.    Advertising campaign
8.  Reminder advertising                        22.    Retailer promotions
9.  Exposure                                    23.    Sales contest
10. Coupons                                     24.    Copy strategy
11. Trade promotions                            25.    Advertising
12. Financing incentives                        26.    Stopping power
13. Consumer promotions                         27.    Aided recall
14. Advertising agencies                        28.    Pulling power
ANSWERS: MULTIPLE CHOICE

1.    c                                         9.     e
2.    d                                         10.    d
3.    c                                         11.    c
4.    b                                         12.    a
5.    e                                         13.    d
6.    a                                         14.    c
7.    c                                         15.    e
8.    b


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270
                                        CHAPTER 16

               PERSONAL SELLING AND SALES FORCE MANAGEMENT

CHAPTER OVERVIEW

Personal selling techniques have moved through three distinct modes: the traditional
persuasive approach, consultative selling, and, relationship selling. Most professional
salespeople view themselves as the marketing manager of a territory. As such, they are
responsible for implementing the company’s marketing strategy within the territory.

Sales force management is the marketing function involved with planning, implementing, and
adjusting sales force activities. First, sales managers work with others in their company to
organize the sales force, including its structure, size, and type. Second, they develop diverse
sales teams through recruiting, selecting, and training. Third, they prepare forecasts and
budgets. Fourth, they implement actions by establishing quotas, assessing performance,
determining compensation, and supervising, coaching, and motivating the sales force. Finally,
they evaluate sales activities and make any necessary changes.

The seven steps in personal selling are: planning, prospecting, organizing information and
developing a call plan, approaching a prospect, presenting a case and building relationships,
managing objections and closing, and service. Strong salespeople are goal-oriented, empathetic,
have applications knowledge, and are ethical and trustworthy.

Once the sales structure is determined, the sales organization is developed. Strong attention
must be paid to diversity when recruiting, selecting, and training salespeople. Recruitment
seeks a pool of exceptional candidates and often takes place on college campuses. Selection is a
choice process for the company and candidates alike, as both seek a good match. Training
involves educating salespeople about company policies and procedures; product and customer
application knowledge; relationship selling skills; territory and account planning; and
diversity.

Implementing sales actions involves several steps. Quotas establish the sales volume, profit,
and activities expected from each salesperson. Motivation depends on a positive organizational
climate in which employees feel rewarded for the effort they make. Sales force compensations
are designed to support the development of loyal salespeople, who in turn help create loyal
customers. Organizations must be flexible in order to maintain competitive advantage. This
requires an assessment of individual salespeople and each part of the sales organization.

CHAPTER OBJECTIVES

1. Understand how selling evolved to a focus on relationships and what elements are involved
   in building them.

2. Know the responsibilities of salespeople and sales managers.

3. Identify and understand the steps in personal selling.



                                              271
4. Learn the characteristics of strong salespeople.

5. Understand how to develop a diverse sales organization.

6. Explore how to implement sales actions, from setting quotas and compensating salespeople
   to evaluating and adjusting plans.




                                               272
CHAPTER OUTLINE

I.     THE CONCEPT OF PERSONAL SELLING




II.    TYPES OF SALES PERSONNEL AND SELLING SITUATIONS

       Direct Sales


       Missionary Sales


       A.     Executive and Team Selling–


       B.     Field Selling–


       C.     Over-the-Counter Selling–


       D.     Inside Sales–


       E.     Global Sales–



III.   RELATIONSHIP AND OTHER SELLING APPROACHES

       A.     The Traditional Sales Approach–


       B.     The Consultative Sales Approach–


       C.     Relationship Selling–


              1.      The customer as an asset–




                                             273
             2.         Understanding the customer’s business strategy–



             3.         Partnering–


      D.     Account Strategy Development (Strategic Selling)–


             Account Management




IV.   THE RESPONSIBILITIES OF A SALESPERSON

      Sales Territory


      A.     Implement the Marketing Strategy–


      B.     Communicate Company Policy–


      C.     Provide Feedback–


      D.     Make Ethical Decisions–



V.    THE STEPS IN PERSONAL SELLING

      A.     Planning–

             Sales Planning


             Account Plans


             Territory Planning


      B.     Prospecting–



                                               274
     Leads

     Prospects

     Qualifying

     Qualified Prospect

     Cold Call

     The Center of Influence Method

     Referrals
     Networking

     Telemarketing

C.   Organizing Information and Developing a Call Plan–

     Preapproach


     Routing Schedule


D.   Approach–


E.   Making the Case and Building Relationships–

     Sales Presentation


     Empathy


F.   Managing Objections and Closing the Sale–



G.   Service–


     Follow-up




                                  275
VI.     CHARACTERISTICS OF STRONG SALESPEOPLE


VII.    THE CONCEPT OF SALES FORCE MANAGEMENT

        Sales Force Management


        Sales Managers



VIII.   ORGANIZING THE SALES FORCE

        A.    Sales Manager Types–



        B.    Sales Force Structures–




IX.     DEVELOPING THE SALES TEAM

        A.    Diversity in the Sales Force–



        B.    Recruitment–



        C.    Selecting–



        D.    Training–




X.      SALES FORECASTING AND BUDGETING

        A.    Sales Forecasting–

              Environmental Forecast



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           Industry Forecast


           Company Sales Forecast


      B.   Sales Force Budgets–



           Cost-Based Budgeting



XI.   IMPLEMENTING SALES ACTIONS

      A.   Quotas–


           Sales Volume Quotas


           Sales Profit Quotas


           Activity Quotas


      B.   Compensation–


           Salary


           Commission


           Bonus


      C.   Supervision and Coaching–




                                       277
        D.    Motivation–



        E.    Ethical Issues in Motivation and Compensation–




XII.    OVERSEEING SALES FORCE ACTIVITIES

        Evaluation and Control




XIII.   SALES FORCE AUTOMATION




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KEY TERMS

Activity quotas                                   Presentation
Approach                                          Prospect
Bonus                                             Prospecting
Center of influence                               Qualified prospect
Closing                                           Qualifying
Cold calling                                      Quotas
Commission                                        Referral
Company sales forecast                            Relationship selling
Consultative selling                              Routing
Direct sales                                      Salary
Empathy                                           Sales force management
Environmental forecast                            Sales managers
Expert opinion                                    Sales profit quotas
Follow-up                                         Sales structure
Industry forecast                                 Sales territory
Leads                                             Sales volume quotas
Missionary sales                                  Team selling
Negotiation                                       Telemarketing
Networking                                        Territory planning
Preapproach                                       Traditional sales approach

1.                  Telephone calls to the leads provided by marketing services.

2.                  The salesperson’s first formal contact with the potential customer.

3.                  The people responsible for the leadership and management of
                    salespeople in order to accomplish the sales objectives established in the
                    marketing plan.

4.                  An opinion leader who can be quickly qualified as a potential customer
                    because of his/her standing in the community.

5.                  The salesperson listens to the customer to identify needs and then
                    describes how the product will fulfill them.

6.                  The organization of the reporting relationship between sales managers
                    and salespeople.

7.                  An amount paid in direct proportion to the accomplishment of specific
                    objectives.

8.                  A prediction of unit or dollar sales for a given period, in total or broken
                    down by product, segments, or other categories, and based on the
                    marketing strategy that will be put in place.

9.                  Sales personnel work closely with customers to help solve problems.


                                            279
10.   Forging bonds between buyer and seller to gain loyalty and mutual
      satisfaction.

11.   An estimate of the economic, political, and social factors likely to affect
      the level of spending for the types of products or services being forecast.
12.   Establish profitability objectives for customers, products, and market
      segments.

13.   After-sales service to ensure customer satisfaction in order to obtain
      repeat business.

14.   Unit or dollar objectives, usually set by market segment, product or
      service line, and average volume per customer.

15.   An estimate of the amount and type of competitive activity that is likely
      to occur in an industry.

16.   First contact with a lead whose interest is unknown.

17.   All those who may have need of a company’s product.

18.   Indirect selling through people who do not obtain orders but influence
      the buying decision of others.

19.   A percentage of salary or a fee paid in addition to other compensation for
      meeting long-term or unique goals.

20.   Contacts with friends, relatives, and associates to obtain leads.

21.   The geographic area or large accounts for which the salesperson has
      responsibility.

22.   The point at which the salesperson obtains the order from the customer.

23.   Preparation by the salesperson for the initial meeting with a prospect.

24.   A potential buyer interested in the seller’s product and with the
      attributes of a good customer.

25.   The judgment of an expert panel or individuals about the likelihood that
      selected strategies will result in certain levels of sales.

26.   Quantitative objectives used to direct sales force activity and evaluate
      performance.

27.   A lead provided by a prospect.



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28.                 An emphasis on persuasive techniques to get consumers to buy a
                    company’s products.

29.                 A travel schedule for calling on prospects.

30.                 The fixed amount of compensation paid regardless of performance.

31.                 Interaction with a consumer or company in order to make a sale.

32.                 The marketing function involved with planning, implementing, and
                    adjusting sales force activities.

33.                 Seeking potential customers within the company’s target markets.

34.                 Action objectives that encourage salespeople to engage in certain tasks,
                    such as prospecting calls, service calls, sales calls, demonstrations, and
                    new accounts visited.

35.                 People from most parts of the organization, including top executives,
                    work together to create a relationship with the buying organization.

36.                 Two or more parties discuss or arrange a transaction.

37.                 Identifying potential customers, their sales potential, and the frequency
                    with which they will be contacted about various products.

38.                 The salesperson knows precisely how prospects feel and communicates
                    that understanding.

39.                 Examining prospects to identify those with the authority and ability to
                    buy the product.

40.                 A potential customer interested in the seller’s product.


MULTIPLE CHOICE

1.    Which of the following is correct with regard to personal selling?

      a.     It is one of the most prevalent and highest paid occupations in the United States.
      b.     For every person employed in advertising, there are more than 30 jobs in sales.
      c.     Nearly 10% of the work force is somehow involved in personal selling.
      d.     It is one of the fastest growing occupations
      e.     All of the above are correct.

2.    Ralph Johnson is head of a team that sells computer systems to large companies. He is in
      what type of sales?



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     a.     Field sales
     b.     Over-the-counter
     c.     Inside
     d.     Global
     e.     Executive selling

3.   Which of the following best describes the technical salesperson?

     a.     They meet with people who influence the sale of a company’s products.
     b.     They meet face to face with customers to sell very technically-oriented products.
     c.     They work inside the seller’s company to support less technical people on the
            outside.
     d.     They sell intangible products.
     e.     None of the above




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4.   Allison Samuels is responsible for selling clothing in one of the top men’s clothing
     stores. This would be considered

     a.     over-the-counter selling.
     b.     technical selling.
     c.     consumer selling.
     d.     action selling.
     e.     inside sales.

5.   Which of the following is a characteristic of traditional sales?

     a.     Focus on understanding your product
     b.     The customer is considered a prospect.
     c.     Salesperson works on persuasion
     d.     The salesperson attempts to obtain sales volume.
     e.     All of the above are.

6.   Which of the following is the salesperson’s focus with regard to consultative selling?

     a.     Persuasion
     b.     Partnering
     c.     Problem solving
     d.     Increasing sales volume
     e.     None of the above

7.   What is the major objective of relationship selling?

     a.     Getting the greatest amount of sales
     b.     Understanding customers’ problems
     c.     Profit through customer loyalty and satisfaction
     d.     Developing can sell presentations
     e.     None of the above

8.   What is a key responsibility of a salesperson?

     a.     To be the marketing manager of a territory
     b.     Implement the marketing strategy
     c.     To communicate company policy
     d.     To provide feedback to the company
     e.     All of the above

9.   Fred Jacobs sells cleaning products to hospitals. His management is concerned because
     he engages in overselling. He is probably

     a.     selling more than the company can deliver.
     b.     supplying a much more expensive and profitable product than the product that
            probably suits the needs and budget of the hospitals.
     c.     selling more than other people in the country thereby causing internal problems.


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d.   selling more than the customer needs.
e.   charging higher prices than the company wishes to have charged.




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10.   Naomi West has been accused of puffery in her sales presentation. This means that she

      a.     is trying to deceive potential customers.
      b.     is giving incorrect information that customers do not recognize.
      c.     is speaking very loudly.
      d.     is saying things that are so outrageous that customers recognize it as such.
      e.     is underemphasizing critical parts of the sales relationship.

11.   How much time does a typical salesperson spend face to face with customers?

      a.     Over 80%
      b.     Over 70%
      c.     Over 50%
      d.     Over 40%
      e.     Approximately 30%

12.   Susie Grimes is preparing for an initial meeting with a prospect. She is learning all she
      can about the person and the person’s organization. We would say that she is in which
      phase of this selling process?

      a.     Preapproach
      b.     Marketing research
      c.     Qualifying
      d.     Post-evaluation
      e.     None of the above

13.   Which of the following are characteristics of successful salespeople?

      a.     Goal-oriented direction
      b.     Empathy
      c.     Applications knowledge
      d.     Trustworthiness
      e.     All of the above

14.   Sharon Anderson is a sales manager. Which of the following activities is she least likely
      to do?

      a.     Organize the sales force.
      b.     Develop a sales call plan.
      c.     Recruit, select, and train.
      d.     Coach
      e.     Prepare sales forecasts and budgets.

15.   Which of the following is correct with regard to the diversity training for sales
      personnel?

      a.     Only nonminorities need diversity training.
      b.     It is more necessary for large companies than small companies.


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c.   All salespeople should be provided with diversity training.
d.   Only people who have known problems in this area need training.
e.   None of the above




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ANSWERS: CHAPTER OUTLINE

I.     THE CONCEPT OF PERSONAL SELLING

       Any time one party attempts to motivate the behavior of another party through
       personal contact, some form of selling takes place. Personal selling is one of the most
       prevalent and highest paid occupations in the United States.


II.    TYPES OF SALES PERSONNEL AND SELLING SITUATIONS

       Direct sales occur when a salesperson interacts with a consumer or company in order to
       make a sale. Missionary sales are made by people who do not take orders but influence
       purchase by recommending or specifying a product to others.

       A.     Executive and Team Selling–Team selling involves people from most parts of the
              organization, including top executives, who work together to create
              relationships with the buying organization.

       B.     Field Selling–Occurs at a consumer’s residence or at a customer’s place of
              business. Field representatives spend most of their time away from their
              company and near customers.

       C.     Over-the-Counter Selling–Occurs at a retail outlet.

       D.     Inside Sales–Involve one-to-one contact with the customer via the telephone.

       E.     Global Sales–Personal selling in global markets.


III.   RELATIONSHIP AND OTHER SELLING APPROACHES

       A.     The Traditional Sales Approach–Focuses on persuading consumers to buy a
              company’s products, thereby raising sales volume.

       B.     The Consultative Sales Approach–Working closely with customers to help solve
              their problems.

       C.     Relationship Selling–Attempts to forge bonds between buyers and sellers in an
              effort to gain loyalty and mutual satisfaction.

              1.     The customer as an asset–Long-term contracts and repeat sales produce
                     predictable sources of revenue. The worth of many businesses can be
                     calculated by the size of the customer base.

              2.     Understanding the customer’s business strategy–By understanding the
                     customer’s business, salespeople are most likely to communicate in
                     meaningful ways with the potential buyer.


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             3.      Partnering–Some partnerships are contractual, established through long-
                     term agreements. Some are noncontractual, that is, the buyer and seller
                     enter into an implied agreement to do business together over time.

      D.     Account Strategy Development (Strategic Selling)–Account management is the
             activities of a salesperson or sales team to support the relationship with a
             customer in order to gain sales volume.


IV.   THE RESPONSIBILITIES OF A SALESPERSON

      A sales territory is all potential customers for whom the salesperson has responsibility.

      A.     Implement the Marketing Strategy–The primary responsibility of salespeople is
             to carry out the company’s strategic marketing plan.

      B.     Communicate Company Policy–As agents of their organization, salespersons are
             responsible for communicating company policies to customers. A policy is a
             guide or set of rules the company uses in conducting business.

      C.     Provide Feedback–Salespeople provide their company with information about
             customers, competitors, and market conditions.

      D.     Make Ethical Decisions–Salespeople must exhibit excellent ethical judgment in
             use of their time, with performance objectives, overselling, and communication.


V.    THE STEPS IN PERSONAL SELLING

      A.     Planning–Sales planning translates the company’s marketing strategy into
             territory plans and account plans. Account plans establish sales goals and
             objectives for each major customer, such as the sales volume and profitability to
             be obtained. Territory planning determines the pool of customers, their sales
             potential, and the frequency with which they will be contacted about various
             products.

      B.     Prospecting–Involves seeking out new customers within the company’s target
             markets. Leads are the names of all those who might have a need for the
             product, a large pool that must be narrowed down to the most likely buyers.
             Prospects are potential customers who have an interest in the product.
             Qualifying is the process of determining which prospects have the authority and
             ability to buy a product. A qualified prospect is a potential buyer interested in
             the product and likely to be a reliable customer. A cold call is contact with the
             lead for the first time. A variation of cold calling is the center-of-influence
             method, which identifies leads by contacting opinion leaders. Referrals are the
             names of leads provided by a qualified prospect. Networking involves
             contacting friends, relatives, and associates to obtain leads. Telemarketing uses


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               phone calls to contact lists of leads provided by marketing services and various
               directories.

        C.     Organizing Information and Developing a Call Plan–Preapproach refers to
               preparing for the initial meeting by learning about the prospect. The routing
               schedule identifies which prospects will be called on and when.

        D.     Approach–The approach is the first formal contact with the customer. The
               objective is to secure a meeting and gain customer interest.

        E.     Making the Case and Building Relationships–The sales presentation is a two-
               way process: The salesperson listens in order to identify customer needs and
               then describes how the product will fulfill them. Empathy occurs when
               salespeople know precisely how prospects feel.

        F.     Managing Objections and Closing the Sale–One of the most important sales skills
               is the ability to overcome a buyer’s objections. Closing means getting the first
               order.

        G.     Service–Salespeople make sure products are delivered on schedule and operate
               to the buyer’s liking. Follow-up occurs when a salesperson ensures after-sale
               satisfaction in order to obtain repeat business.


VI.     CHARACTERISTICS OF STRONG SALESPEOPLE

        Strong salespeople must be goal-directed, empathetic, have applications knowledge,
        and be ethical.


VII.    THE CONCEPT OF SALES FORCE MANAGEMENT

        Sales force management is the marketing function involved with planning,
        implementing, and adjusting sales force activities. Sales managers are responsible for
        the leadership and management of salespeople in order to accomplish the sales
        objectives established in the marketing plan.


VIII.   ORGANIZING THE SALES FORCE

        A.     Sales Manager Types–The sales manager position can be executive, mid-level, or
               first-line, depending on responsibilities and scope of operations.

        B.     Sales Force Structures–A sales structure is the organization of the reporting
               relationship between sales managers and salespeople. Sales organizations can be
               structured by geography, product (division), market segment, or individual
               account.



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IX.   DEVELOPING THE SALES TEAM

      A.   Diversity in the Sales Force–Managers must take care to develop a sales force
           that represents various groups. This enhances the ability of the organization to
           be sensitive to the needs of individual customers, thereby improving its
           relationship-building capacity.

      B.   Recruitment–Effective recruitment attracts a qualified pool of candidates to fill
           the sales positions.

      C.   Selecting–Sales managers must demonstrate sound judgment in selecting from a
           broad range of talents, and they also need to sell top candidates on opportunities
           within their organization.

      D.   Training–Most sales executives believe training is critical for developing
           individual and team skills. Training programs are usually conducted regarding
           company policies and procedures, product and customer applications
           knowledge, sales skills, and territory and account planning.


X.    SALES FORECASTING AND BUDGETING

      A.   Sales Forecasting–The environmental forecast examines the economic, political,
           and social factors likely to affect the level of spending for a product. An industry
           forecast estimates the amount of overall demand expected based on such factors
           as the industry business condition, amount of spending, number of new
           products, and communications budgets anticipated for competitors. The
           company sales forecast is based on the overall marketing strategy. It forecasts
           unit sales and must be in line with marketing, financial, and operations plans.

      B.   Sales Force Budgets–One of the most important tasks for the sales manager is to
           create and administer the sales budget. The first method establishes the sales
           budget as a percentage of the historical sales level. A second way is by
           comparison to a competitor’s budget. Cost-based budgeting looks at the tasks
           salespeople must perform in order to accomplish objectives.


XI.   IMPLEMENTING SALES ACTIONS

      A.   Quotas–Quantitative performance standards used to direct sales force activity.
           Sales volume quotas establish unit or dollar objectives. Sales profit quotas
           establish profitability objectives for customers, products, and market segments.
           Activity quotas encourage salespeople to engage in certain tasks, such as
           prospecting calls, service calls, sales calls, demonstrations, and new accounts
           visited.




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B.   Compensation–A well-designed compensation plan should be geared toward
     the needs of both the company and the sales force. A salary is a fixed amount
     paid regardless of specific performance. A commission is an amount paid in
     direct proportion to the accomplishment of specific short-term objectives. A
     bonus is a percentage of salary or fee paid in addition to other compensation for
     meeting long-term or unique goals.

C.   Supervision and Coaching–Face-to-face interactions between the sales manager
     and a salesperson. Good managers communicate well, help salespeople
     determine appropriate sales actions, and provide guidance to keep the sales
     force operating according to the company’s philosophies, policies, and
     marketing plans.

D.   Motivation–Good sales managers provide a positive organizational climate as
     well as financial and career incentives.

E.   Ethical Issues in Motivation and Compensation–If sales managers push too hard
     in the wrong ways, then salespeople may be pressured to compromise ethical
     standards. Questionable practices include family pressure, peer pressure, and
     termination.




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XII.    OVERSEEING SALES FORCE ACTIVITIES

        Evaluation and control are the final steps in the management process. Most evaluation
        programs involve looking at efforts and results, assessing the company’s influence in
        supporting performance, identifying problems and opportunities, and taking corrective
        action.


XIII.   SALES FORCE AUTOMATION

        Sales force automation is the use of technology to improve personal selling and sales
        management effectiveness.


ANSWERS: KEY TERMS

1.      Telemarketing                              21.   Sales territory
2.      Approach                                   22.   Closing
3.      Sales managers                             23.   Preapproach
4.      Center of influence                        24.   Qualified prospect
5.      Presentation                               25.   Expert opinion
6.      Sales structure                            26.   Quotas
7.      Commission                                 27.   Referral
8.      Company sales forecast                     28.   Traditional sales approach
9.      Consultative selling                       29.   Routing
10.     Relationship selling                       30.   Salary
11.     Environmental forecast                     31.   Direct sales
12.     Sales profit quotas                        32.   Sales force management
13.     Follow-up                                  33.   Prospecting
14.     Sales volume quotas                        34.   Activity quotas
15.     Industry forecast                          35.   Team selling
16.     Cold calling                               36.   Negotiation
17.     Leads                                      37.   Territory planning
18.     Missionary sales                           38.   Empathy
19.     Bonus                                      39.   Qualifying
20.     Networking                                 40.   Prospect


ANSWERS: MULTIPLE CHOICE

1.      e                                          9.    b
2.      e                                          10.   d
3.      b                                          11.   e
4.      a                                          12.   a
5.      e                                          13.   e
6.      c                                          14.   b
7.      c                                          15.   c
8.      e


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                                           CHAPTER 17

                                    PRICING APPROACHES

CHAPTER OVERVIEW

Pricing is an important element of the marketing mix. Price decisions are made along with
product, promotion, and logistics decisions. Pricing is influenced by profit, volume,
competitive, and customer relationship objectives. Consequently, pricing is important for
nearly all aspects of the business. The demand curve helps us understand how price influences
the amount of a product customers buy. The supply curve tells how much product firms will
provide at various prices. By analyzing the supply and demand curves, it is possible to get
some idea of future prices in an industry.

Both legal and ethical factors affect price. Laws restrict both vertical and horizontal price fixing
by U.S. firms. It also is illegal for manufacturers to sell to different parties at different prices,
although some forms of price discrimination are acceptable. To control unfair price
competition, many states regulate pricing minimums and the use of loss leaders. The Federal
Trade Commission sets permissible standards for price advertising. International firms must
sell at a high enough price to avoid violating antidumping laws. Finally, unit-pricing
regulations help consumers make comparisons. To be ethical, prices should reflect a fair
exchange of value, and marketers must be careful not to misrepresent the terms of an exchange.
This requires clear communication of both price and value.

The four basic industry structures are perfect competition, monopoly, oligopoly, and
monopolistic competition. Each has unique pricing arrangements. Firms tend to engage in price
competition and product differentiation strategies to greater or lesser degrees depending on
market circumstances.

Pricing decisions must consider variable and fixed costs, marginal costs, and incremental costs.
The latter are the most important. Cost-oriented methods, such as cost-plus pricing and rate-of-
return pricing, have serious drawbacks because they tend to ignore the consumer and
competitors.

Market, cost, and financial factors unique to global business must be considered in pricing.
Market factors include local demand, competitive conditions, tastes and preferences, the
availability of substitutes, and gray marketing. Important cost factors are distance, tariffs, and
red tape. Major financial considerations are inflation, exchange rates, and price controls. Risk is
another influence on international pricing.

CHAPTER OBJECTIVES

1. Describe how pricing works with the other parts of the marketing mix.

2. Learn how economic factors such as demand and supply influence prices.

3. Understand the legal and ethical constraints on pricing decisions.

4. Use industry structure concepts to understand how competitors in different types of
   industries price.


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5. Use competitive factors surrounding industry structure concepts to understand how pricing
   works in different types of industries.

6. Recognize the conditions that make international pricing complex.
CHAPTER OUTLINE

I.     THE CONCEPT OF PRICING



       Price


       A.      Price as Part of the Marketing Mix–

               1.     Price objectives–




               2.     Profit objectives–



               3.     Volume (sales) objectives–



               4.     Competitive objectives–



               5.     Relationship (customer) objectives–



       B.      Major Factors Influencing Price–




II.    ECONOMIC FACTORS

       A.      The Demand Curve–

               Demand



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            The Demand Curve


            1.     Demand sensitivity by market segment–


            2.     Cross-elasticity–


       B.   The Supply Curve–




III.   LEGAL AND ETHICAL INFLUENCES ON PRICING

       A.   Legal Factors–


            1.     Price fixing–


                   Vertical price fixing


                   Horizontal price fixing


            2.     Price discrimination–



            3.     Minimum prices–


                   Predatory pricing


                   Loss leaders


            4.     Price advertising–


                   Bait and switch




                                             295
     5.     Dumping–


            Predatory dumping


     6.     Unit pricing–


B.   Ethical Issues–




                                296
IV.   COMPETITIVE FACTORS INFLUENCING PRICE

      A.   Industry Structure–

           Industry Analysis


           Perfect Competition


           Monopoly


           Oligopolistic Industry


           Monopolistic Competition


      B.   Differentiation and Price Competition–

           Differentiation


           Price Competition



V.    COST FACTORS THAT INFLUENCE PRICE

      A.   Types of Costs–

           1.     Fixed and variable costs–

                  Fixed costs


                  Variable costs


           2.     Marginal cost–


                  Marginal revenue


           3.     Incremental costs–



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       B.     Cost-Oriented Pricing–

              1.     Cost-plus pricing–


              2.     Rate-of-return pricing–



                     Break-even point



VI.    INTERNATIONAL PRICING

       A.     Global Market Factors–



              Gray Marketing


       B.     Global Cost Factors–



              Transfer Prices


       C.     Global Financial Factors–

              Exchange Rate


              Inflation



KEY TERMS

Bait and switch                                      Horizontal price fixing
Cross-price elasticity of demand                     Incremental costs
Differentiation                                      Irrelevant costs
Demand curve                                         Loss leaders
Dumping                                              Marginal costs
Exchange rate                                        Marginal revenue
Fixed cost                                           Monopolistic competition
Gray marketing                                       Monopoly


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Oligopoly                                             Price elasticity
Perfect competition                                   Price fixing
Predatory dumping                                     Supply curve
Predatory pricing                                     Transfer price
Price                                                 Variable cost
Price competition                                     Vertical price fixing
Price discrimination


1.                     Costs which are unaffected by the pricing strategy.

2.                     Product attributes are stressed.
3.                     Price adjustments to gain more customers or to establish a dominant
                       position in the market.

4.                     Costs that change depending on volume.

5.                     Price cuts by large firms to eliminate small local competitors.

6.                     The industry structure in which firms compete for customers by
                       differentiating their products and by creating unique offerings to the
                       market.

7.                     Pricing below cost to drive local firms out of business.

8.                     Agreements among manufacturers and/or channel members to set
                             prices at the retail level.

9.                     A product is sold in a foreign country at a price lower than in the
                       producing country and lower than its actual cost of production.

10.                    The income from selling one additional unit of output.

11.                    Cost that does not vary with changes in volume produced.

12.                    A manufacturer or other channel member charges different prices to
                       different retailers in the same marketplace.

13.                    How much one currency is worth relative to another.

14.                    Costs which go up or down based on volume.

15.                    A manufacturer or distributor attempts to control the final selling price at
                       the retail level.

16.                    Items priced below cost to attract customers.

17.                    Expenditures incurred in producing one additional unit of output.



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18.                  The response in quantity of one product to changes in the price of
                     another product.

19.                  The amounts companies charge their foreign affiliates for products.

20.                  The industry structure in which one organization makes a product with
                     no close substitutes.

21.                  The industry structure in which no single firm has control over prices.

22.                  The amount producers are willing to provide at each price as shown in
                     relation to quantity demanded.

23.                  The exchange value of a good or service in the marketplace.

24.                  The amount of product customers need and their willingness and ability
                     to pay as shown in relation to quantity supplied.
25.                  The extent to which changes in price affect the number of units sold.

26.                  Sellers advertise items at extremely low prices and then inform the
                     customer that the items are out of stock, offer different items, or attempt
                     to sell the customer more expensive substitutes.

27.                  The industry structure in which a small number of firms compete for the
                     same customers.

28.                  When products made in a foreign country are imported back to the
                     company’s home market without approval.

29.                  One party attempts to control what another party will charge in the
                     market.


MULTIPLE CHOICE

1.    Which of the following is an objective that influences pricing?

      a.     Volume
      b.     Competitive aspects
      c.     Customer relationship
      d.     Profit
      e.     All of the above

2.    Art Schuler, marketing research analyst for Thompson Sailboats, is looking at data that
      describes the extent to which changes in price affect the number of units sold. He is
      looking at

      a.     a demand curve.



                                             300
     b.     a supply curve.
     c.     competitive data.
     d.     insensitive curve.
     e.     none of the above.

3.   Rebecca Randolph is looking at the sale of orange juice bars when different prices are
     charged for yogurt cones. She is looking at

     a.     interproduct sensitivity.
     b.     circumstantial data.
     c.     government data.
     d.     interprice elasticity.
     e.     cross-elasticity.

4.   Which of the following is the key information provided by a supply curve?

     a.     The amount a company can produce in a given period of time
     b.     How rapidly all companies can adjust their supply of items due to changes in
            customer demand
     c.     The number of units produced by foreign suppliers in domestic markets
     d.     The number of units producers are willing to produce based on the price of
            items
     e.     All of the above




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5.   Frederickson’s Electric Motors’ exporters have decided to use a dumping strategy to sell
     to Latin America. We can conclude that

     a.     it is probably almost out of business.
     b.     it has a lot of competition from Latin American firms in this country.
     c.     it is probably breaking laws in the United States and in Latin America.
     d.     it is using an inefficient distribution method.
     e.     it is a market leader using an appropriate strategy.

6.   Anderson Consulting is developing computer systems for two different clients who are
     in two different industries. The projects are almost identical; however, Anderson
     charges the first company considerably more than the second company. Regarding
     legality, what conclusion can we draw?

     a.     Since Anderson’s clients do not compete against each other, this is perfectly legal
            pricing.
     b.     This is illegal because companies need to charge the same prices for like
            products whether they are goods or services.
     c.     This is illegal because there is no evidence that Anderson is meeting the threat
            from its own competitors in differentially pricing for two separate clients.
     d.     Since Anderson is a consulting company, the Justice Department does not care
            how it prices its products.
     e.     This is legal only if Anderson can prove that its computer systems will
            differentially benefit the two clients.

7.   Acme Corporation sells roofing. It has decided to use a bait-and-switch pricing tactic.
     We can conclude that

     a.     Acme is very sophisticated at marketing.
     b.     Acme is using the same strategy used by most successful automobile companies.
     c.     Acme is violating a Federal Trade Commission guideline.
     d.     Acme is underestimating the intelligence of its buyers.
     e.     Acme does not use a sales force.

8.   Which of the following is generally correct regarding the laws and pricing?

     a.     Pricing laws usually maximize company margins.
     b.     Pricing regulations are usually designed to allow prices to fluctuate based on
            other market forces.
     c.     Pricing laws usually allow the government to set prices when the efficiency of
            market forces are in question.
     d.     Pricing laws usually favor manufacturers over retailers or consumers.
     e.     Pricing regulations are designed to be fair for large companies but not for small
            organizations.

9.   The toy industry has many firms competing for the same customers. These firms
     generally differentiate their products. The industry most closely resembles



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      a.     conglomerate competition.
      b.     monopoly.
      c.     pure competition.
      d.     oligopoly.
      e.     monopolistic competition.

10.   Which of the following is correct with regard to a differentiation strategy?

      a.     Product attributes are stressed.
      b.     Marketers try to demonstrate value.
      c.     Marketers tend to avoid price reductions.
      d.     All of the above are correct.
      e.     None of the above are correct.

11.   Which of the following are relevant costs for pricing decisions?

      a.     Costs that always stay the same
      b.     Costs that go up due to inflation
      c.     Costs associated with standard overhead
      d.     Incremental costs that go up or down based on volume
      e.     All of the above

12.   Which of the following is a major reason why cost-plus pricing does not work well?

      a.     It ignores the company’s own costs.
      b.     It ignores the customer.
      c.     Traditional accounting methods cannot be used.
      d.     It is illegal in government markets.
      e.     None of the above

13.   Which of the following is a major factor in international pricing?

      a.     Demand can vary dramatically due to demographic, geographic, and political
             conditions.
      b.     Competitive differences may influence international pricing.
      c.     Costs may vary considerably in international markets.
      d.     Financial factors such as currency may influence pricing.
      e.     All of the above are factors.

14.   Kodak has considerable problems with gray marketing. This means

      a.     that it has a fuzzy picture of many global markets.
      b.     that pricing in foreign markets is never black and white.
      c.     that products manufactured in foreign markets might be sold back into the U.S.
             market without Kodak’s approval.
      d.     that there are many substitute products for Kodak products.
      e.     none of the above.



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15.   Eden Corporation executives are currently looking at its transfer pricing policies. It is
      probably looking at

      a.     the cost of transportation associated with its products.
      b.     how much it charges foreign affiliates for its products.
      c.     the cost of documents associated with its products.
      d.     insurance costs.
      e.     all of the above.




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ANSWERS: CHAPTER OUTLINE

I.    THE CONCEPT OF PRICING

      Pricing plays a critical role in the allocation of resources in free market economies. Price
      is the exchange value of a good or service in the marketplace.

      A.     Price as Part of the Marketing Mix–

             1.      Price objectives–Businesses need to charge enough to make a profit,
                     which satisfies owners (shareholders) and creates the financial resources
                     needed to grow. Prices directly influence the quantity sold. Price can also
                     prevent competitors from taking your customers. Proper pricing can also
                     help build customer relationships.

             2.      Profit objectives–Revenue minus cost equals profit. Profit maximization
                     is often stated as the goal of pricing.

             3.      Volume (sales) objectives–Firms must price in such a way that
                     production is maintained at a stable or growing level.

             4.      Competitive objectives–Volume translates into market share, which
                     creates market power. Aside from gaining share, pricing also can help the
                     organization maintain its market position.

             5.      Relationship (customer) objectives–Prices can be created with customer
                     loyalty in mind. The objective is to create sufficient value over time to
                     develop repeat business.

      B.     Major Factors Influencing Price–Pricing according to value concepts requires a
             grasp of several elements: economic, legal and ethical, competitive, costs, and
             global.


II.   ECONOMIC FACTORS

      A.     The Demand Curve–Demand is determined by the amount of product customers
             need, plus their willingness and ability to buy. The demand curve describes the
             price elasticity of a given product. Price elasticity is the extent to which changes
             in what is charged affect the number of units sold.

             1.      Demand sensitivity by market segment–Differences in market segments
                     explain some of the variations in demand.

             2.      Cross-elasticity–Cross-price elasticity of demand reflects the response in
                     quantity of one product to changes in the price of another product.




                                              305
B.   The Supply Curve–Price has an important influence on the willingness to
     produce. When price is higher, producers are willing to supply more; when
     profit margins are low, companies are likely to produce less. The supply curve
     reveals the amount that producers are willing to provide at each price.




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III.   LEGAL AND ETHICAL INFLUENCES ON PRICING

       A.   Legal Factors–Both federal and state laws affect pricing decisions. Most
            regulations are designed to allow prices to fluctuate freely so that market forces
            can work. Regulations fall into six major categories:

            1.     Price fixing–Occurs when one party attempts to control what another
                   party will charge in the market. Vertical price fixing is an attempt by a
                   manufacturer or distributor to control the final selling price at the retail
                   level. Horizontal price fixing is an agreement among manufacturers and
                   other channel members to set prices at the retail level.

            2.     Price discrimination–Occurs when a manufacturer or other channel
                   member charges different prices to retailers competing in the same
                   marketplace.

            3.     Minimum prices–Laws against minimum prices prevent retailers from
                   selling merchandise for less than the cost of the product plus a reasonable
                   profit. Predatory pricing occurs when large firms cut prices on products
                   in order to eliminate small local competitors. Loss leaders are items
                   priced below cost to attract customers.

            4.     Price advertising–The Federal Trade Commission has set up permissible
                   standards for price advertising. The guidelines prohibit marketers from
                   communicating price deceptively. Bait and switch occurs when the seller
                   advertises items at extremely low prices and then informs the customer
                   that these are out of stock, offers different items, or attempts to sell the
                   customer more expensive substitutes.

            5.     Dumping–Occurs when a product is sold in a foreign country at a price
                   lower than in the producing country and lower than its actual cost of
                   production. Predatory dumping is pricing designed to drive local firms
                   out of the market.

            6.     Unit pricing–Unit-pricing legislation requires that certain types of retail
                   outlets, especially food stores, display price per unit of measure as well as
                   total price.

       B.   Ethical Issues–Although laws protect customers against unscrupulous pricing,
            there are still questionable ways of using price to increase demand.


IV.    COMPETITIVE FACTORS INFLUENCING PRICE

       A.   Industry Structure–Industry analysis examines such aspects as the number of
            firms, whether products are differentiated, and the freedom of firms to enter and
            exit. Perfect competition refers to an industry in which each firm has little if any
            control over prices. A monopoly is an industry structure in which one


                                            307
           organization makes a product with no close substitutes. An oligopolistic
           industry has a smaller number of companies competing for the same customers.
           Monopolistic competition is an industry structure in which many firms compete
           for the same customers by differentiating their products.

      B.   Differentiation and Price Competition–Differentiation occurs when product
           attributes are stressed. Marketers try to demonstrate value and avoid any price
           reductions. Price competition adjusts prices to gain more customers or to
           establish a dominant position in the market.


V.    COST FACTORS THAT INFLUENCE PRICE

      A.   Types of Costs–

           1.     Fixed and variable costs–Fixed costs do not change in the short run.
                  These are expenditures for items such as production facilities, equipment,
                  and salaries. Variable costs change depending on how much is produced
                  or sold.

           2.     Marginal cost–Expenditures incurred in producing one additional unit of
                  output. Marginal revenue is the income from one more unit of product
                  sold, usually the product price.

           3.     Incremental costs–Relevant costs for pricing decisions are incremental
                  costs; that is, they go up or down based on volume.

      B.   Cost-Oriented Pricing–

           1.     Cost-plus pricing–Adds an amount to the product cost, called a mark-up,
                  which is designed to yield a profit. A percentage mark-up can be added
                  directly, or additional calculations can be made to determine what
                  percentage rate of return the seller will receive.

           2.     Rate-of-return pricing–A variation of cost-plus pricing which is based on
                  the break-even point. The method determines how many units must be
                  sold at a particular price in order to cover fixed costs plus a profit on the
                  investment made. The break-even point is the amount sold at a given
                  price on which the business neither makes nor loses money.


VI.   INTERNATIONAL PRICING

      A.   Global Market Factors–Local demand can vary dramatically due to
           demographic, geographic, and political conditions. Subtle competitive
           differences can influence demand, even in fairly similar economic environments.
           Tastes, preferences, and the availability of substitute products also vary widely.



                                           308
            Gray marketing occurs when products made in a foreign country are imported
            back to the company’s home market without approval.

      B.    Global Cost Factors–In calculating the costs of doing business internationally,
            transportation and insurance costs escalate, as do tariffs and red tape. Risks also
            increase, so prices must cover potential adverse circumstances. Transfer prices
            are the amounts that companies charge their foreign affiliates for products.

      C.    Global Financial Factors–The exchange rate is how much one currency is worth
            relative to another. Inflation is the tendency of a currency to be worth less over
            time.

ANSWERS: KEY TERMS

1.    Irrelevant costs                            16.    Loss leaders
2.    Differentiation                             17.    Marginal costs
3.    Price competition                           18.    Cross-price elasticity of demand
4.    Variable cost                               19.    Transfer price
5.    Predatory pricing                           20.    Monopoly
6.    Monopolistic competition                    21.    Perfect competition
7.    Predatory dumping                           22.    Supply curve
8.    Horizontal price fixing                     23.    Price
9.    Dumping                                     24.    Demand curve
10.   Marginal revenue                            25.    Price elasticity
11.   Fixed cost                                  26.    Bait and switch
12.   Price discrimination                        27.    Oligopoly
13.   Exchange rate                               28.    Gray marketing
14.   Incremental costs                           29.    Price fixing
15.   Vertical price fixing


ANSWERS: MULTIPLE CHOICE

1.    e                                           9.     e
2.    a                                           10.    d
3.    e                                           11.    d
4.    d                                           12.    b
5.    c                                           13.    e
6.    a                                           14.    c
7.    b                                           15.    b
8.    b




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                                         CHAPTER 18

                                    PRICING STRATEGY

CHAPTER OVERVIEW

Pricing strategies are complex and must balance the needs of both the customer and the firm.
Value-based pricing, which includes the concepts of value in use and value in exchange, is an
increasingly popular strategy. Since customers seek differing types of value, and competitors
have a broad range of choices in how to price, other strategies are viable as well. In devising a
pricing strategy, it is important to identify a customer value proposition that matches the
capabilities of the organization. The three types of capabilities are product leadership,
operational competence, and customer intimacy.

Pricing strategies may focus on customers, competitors, or global factors. Customer-pricing
requires an understanding of reference prices, price awareness, price/quality association, odd-
even perceptions, limited offers, and target pricing. Competitor-oriented pricing considers
leader-follower scenarios, going rates, discounting, and competitive bids. Some companies
engage in price wars that can seriously affect industry and company profits. On a global scale,
pricing may include countertrading or barter. Fund transfer and exchange rates also affect
international pricing.

Implementing a price strategy requires setting and communicating prices. One of six
approaches can be used to set prices, ranging from skimming to penetration pricing. Product-
line pricing complicates matters. Options are product array, bundled, optional product, and
captive product pricing. When prices are communicated, various components may be specified
or only the overall price, and various reductions may be offered. Price communication must be
done carefully to avoid unethical practices, such as false impressions about price or unfair
discrimination.


CHAPTER OBJECTIVES

1. Understand why an appropriate customer value proposition is a useful guide to pricing
   strategy.

2. Know the factors to consider when using customer- and competitor-oriented pricing
   methods.

3. Learn how pricing strategy is implemented by setting prices and communicating them to
   the market.


CHAPTER OUTLINE

I.     THE CONCEPT OF PRICE STRATEGY




                                              310
II.   VALUE AS THE BASIS FOR PRICING

      Value-Based Pricing




                                       311
       A.   Sources of Value–

            Value in Use


            Value in Exchange


       B.   Customer Value in Pricing–

            1.     Price and customer value strategies–



            2.     Customer value proposition–



            3.     Product leadership–



            4.     Operational excellence–



            5.     Customer intimacy–




III.   CUSTOMER, COMPETITOR, AND GLOBAL PRICING

       A.   Customer-Oriented Pricing–

            1.     Reference prices–


                   Acceptable price range


            2.     Price awareness-


            3.     Price/quality association and product categorizations–




                                             312
           4.     Odd-even price perceptions–



           5.     Limited offers–



           6.     Target pricing–


      B.   Competitor-Oriented Pricing–

           1.     Leader-follower pricing–



           2.     Going-rate pricing–


           3.     Discount or premium pricing–


           4.     Competitive bids–



      C.   Price Wars–


      D.   Diversity: Pricing to Attract Senior Citizens–



      E.   Global Pricing–




IV.   IMPLEMENTING THE PRICING STRATEGY

      A.   Setting Prices–

           1.     Skimming and penetration pricing–

                  Skimming




                                           313
            Penetration pricing

     2.     Sliding down the demand curve–


     3.     The price umbrella–


     4.     Everyday low prices–

     5.     Promotional pricing–


B.   Product-Line Pricing–

     1.     Product array pricing–



     2.     Bundled pricing–



     3.     Optional product pricing–


     4.     Captive product pricing–


C.   Communicating Price–

     1.     Price components–


     2.     Price quoting–


            List price


            Market price


     3.     Price reductions–




                                     314
D.   Ethics–




               315
KEY TERMS

Acceptable price range                              Price wars
Countertrade                                        Promotional pricing
Everyday low prices                                 Reference price
Going rate                                          Slide down the demand curve
List price                                          Target pricing
Market price                                        Value-based pricing
Penetration pricing                                 Value in exchange
Price skimming                                      Value in use
Price umbrella leadership


1.                   Prices that, on average, are consistently lower than those of competitors’.

2.                   A strategy that reflects value not just cost.

3.                   Use price to reach a particular market segment.

4.                   The price at which a product is referenced to consumers.

5.                   One or two companies price in such a way that others follow at a lower
                     level.

6.                   When no competitors have power over others, prices evolve over time to
                     a similar level.

7.                   A strategy that appeals to a maximum number of buyers by charging low
                     prices.

8.                   A subjective consumer estimate of the benefits of a particular product.

9.                   Set a high price when a product is introduced and then lower it
                     significantly as competitors enter the market.

10.                  Cuts by one company spur similar reductions by competitors, resulting in
                     price-slashing battles that can adversely affect profitability.

11.                  The actual price buyers are expected to pay for a product.

12.                  Price discounts are used to get attention and encourage immediate
                     purchase.

13.                  The amount consumers expect to pay.

14.                  A government mandate that products cannot be paid for with cash.

15.                  An objective statement of worth based on the competitive marketplace.


                                              316
16.                 All prices around the reference price that consumers believe reflect good
                    value.

17.                 A strategy designed to obtain a very high price from relatively few
                    consumers, who have the resources and desire to buy irrespective of
                    price.
MULTIPLE CHOICE

1.    What is the key reason for using value-based pricing?

      a.     The price reflects the value to the customer, not simply the seller’s cost.
      b.     It is much easier to do.
      c.     The government requires it.
      d.     High-cost manufacturers will do as well as low-cost manufacturers.
      e.     All of the above are reasons to use it.

2.    Allison Moreford is willing to pay extra because the product specifically suits her
      unique needs. She is primarily looking at

      a.     value in exchange.
      b.     value in use.
      c.     hierarchical value.
      d.     optional use situations.
      e.     all of the above.

3.    Mobil Oil Company prices gasoline according to a competitive marketplace. It is
      primarily looking at

      a.     value in exchange.
      b.     dynamic pricing.
      c.     static pricing.
      d.     performance pricing.
      e.     value in use.

4.    Which of the following is correct regarding value-based pricing?

      a.     Prices send powerful messages to the marketplace.
      b.     Prices should reflect what customers value.
      c.     Prices should reflect what the company delivers.
      d.     Prices should produce value for buyers and sellers.
      e.     All of the above are correct.

5.    Which of the following is a key aspect of a customer intimacy strategy?

      a.     Customers want to be totally independent from their suppliers.
      b.     Loyal customers almost always buy the lowest priced products.



                                              317
     c.     Companies that understand their customers can eliminate non-value-added
            activities, thereby saving customers costs.
     d.     Customer intimacy is too expensive as a key pricing strategy.
     e.     None of the above is a key aspect.

6.   Which of the following represents what consumers believe reflects a good value?

     a.     The lowest price
     b.     Internationally priced products
     c.     The reference price and acceptable prices around it.
     d.     Unit pricing
     e.     Even prices




                                           318
7.    Which of the following is correct with regard to customer-oriented pricing?

      a.      Business customers tend to be more price-aware then consumers.
      b.      When little information is available, buyers often assume a relationship between
              price and quality.
      c.      Products with odd prices are perceived as lower quality than products with even
              prices.
      d.      All of the above are correct.
      e.      None of the above are correct.

8.    Which of the following is the consumer’s price reference point?

      a.      The best possible price
      b.      What consumers expect to pay
      c.      What competitors charge
      d.      The price of the product with the best quality
      e.      The price negotiated with a salesperson

9.    Odd prices tend to be perceived differently than even prices in which way?

      a.      They are seen as being on higher quality products
      b.      They are seen as being primarily on outdated products.
      c.      They tend to be seen as being on cheaper and on lower quality products.
      d.      They have no meaning other than the objective price.
      e.      They are used to communicate high quality

10.   When no single competitor has an advantage over others, what type of pricing tends to
      evolve?

      a.      Leader follower
      b.      Discount
      c.      Premium
      d.      Going-rate pricing
      e.      Competitive bidding

11.   Which of the following is a significant aspect of global pricing?

      a.      Down-under pricing
      b.      Marginal cost pricing
      c.      Fixed-cost pricing
      d.      Government mandate that products cannot be paid for with cash
      e.      Tough pricing

12.   DuPont has decided to use a price umbrella strategy. In this case,

      a.      it uses a price so that one product provides all of the profit for other products in
              the line that are priced at a lower rate.
      b.      it prices so that competitors in the same product category can still make money.


                                              319
c.   it prices so low that ―it rains‖ on the competition.
d.   this is a form of promotional pricing.
e.   none of the above are true.




                                      320
13.   Which of the following is a pricing consideration?

      a.     Price each product within a line to reflect differences that can be perceived by
             customers.
      b.     Consider using bundled pricing to give a single price for an entire offering.
      c.     Use optional pricing to sell the base product with optional prices for add-ons.
      d.     Use captive pricing when customers must purchase additional items, such as
             blades for razors, from the same company.
      e.     All of the above are pricing considerations.

14.   Which of the following is a good rule of thumb to follow regarding ethics in pricing?

      a.     Prices should always maximize individual unit margins.
      b.     All pricing strategies should be used to keep competitors at bay.
      c.     Prices should reflect the value perceived and received by customers.
      d.     Prices should always be the lowest possible.
      e.     Prices should never be used to generate maximum demand.

15.   Wal-Mart attempts to have prices that on average are consistently lower than those of
      competitors. Their pricing strategy would be called

      a.     promotional pricing.
      b.     sliding down the demand curve.
      c.     everyday low prices.
      d.     price leadership.
      e.     all of the above.


ANSWERS: CHAPTER OUTLINE

I.    THE CONCEPT OF PRICE STRATEGY


II.   VALUE AS THE BASIS FOR PRICING

      Value-based pricing recognizes that price reflects value, not simply costs.

      A.     Sources of Value–Generally, there are two sources of value. Value in use is the
             customer’s subjective estimate of the benefits of a particular product. Value in
             exchange is the objective statement of worth based on the competitive
             marketplace.

      B.     Customer Value in Pricing–Because prices send powerful messages, it is
             important that they reflect the customer value that the company delivers.

             1.      Price and customer value strategies–The strategy selected depends on the
                     company’s target market and the number of buyers who desire to
                     purchase at each value/price position.


                                             321
            2.     Customer value proposition–Customers want the best products, price,
                   and solution. Organizations have to be excellent in one area and good
                   enough in the other two to deliver what buyers want.

            3.     Product leadership–This        strategy   builds   customer   value    by
                   differentiating the product.

            4.     Operational excellence–Operational competencies can translate into low
                   costs for manufacturing.

            5.     Customer intimacy–By carefully targeting a few accounts and working
                   closely with them to identify and serve their specific needs, companies
                   can eliminate services that customers do not really want, thereby saving
                   cost.


III.   CUSTOMER, COMPETITOR, AND GLOBAL PRICING

       A.   Customer-Oriented Pricing–Among the most important influences on customers
            are reference prices, price awareness, the association between price and quality,
            the perception of odd-even prices, and limited offers.

            1.     Reference prices–The reference price is what consumers expect to pay.
                   The acceptable range is all the prices around the reference point that
                   consumers believe reflect a good value.

            2.     Price awareness-Business-to-business customers tend to be very price
                   conscious while consumers tend to be less aware of actual prices.

            3.     Price/quality association and product categorizations–When buyers have
                   little information about a product, they often assume a relationship
                   between its price and quality.

            4.     Odd-even price perceptions–Prices that end in odd numbers tend to be
                   perceived differently from even-numbered prices. Consumers have
                   learned that discounters tend to use prices ending in a 9, 7, or 5.

            5.     Limited offers–Often used by marketers to encourage customers to buy
                   types or quantities of products they had not planned to purchase.

            6.     Target pricing–Uses price to reach a particular market segment.

       B.   Competitor-Oriented Pricing–

            1.     Leader-follower pricing–Tends to occur in oligopolistic industries whose
                   products have relatively inelastic derived demand. Price leaders show a
                   willingness to defend their position when price becomes an issue.


                                           322
           2.     Going-rate pricing–The going-rate price evolves over time to a similar
                  level rate when no competitors have power over others.

           3.     Discount or premium pricing–Positions the company relative to
                  competitors based solely on price.

           4.    Competitive bids–Sealed bids are opened at a certain time, and the low
                 price is usually the winner. An alternative is for buyers to look at bids as
                 they are received and perhaps give feedback to sellers indicating they are
                 too high.
      C.   Price Wars–When price cuts by one company spur similar reductions by
           competitors, resulting in price-slashing battles.

      D.   Diversity: Pricing to Attract Senior Citizens–Many marketers target senior
           citizens with price discounts.

      E.   Global Pricing–Global pricing is complicated by many factors. One is
           countertrade, a government mandate that products cannot be paid for with cash.
           Another is international pricing, since payment is seldom direct and generally a
           bank must be involved. Exchange fluctuations also influence global pricing.


IV.   IMPLEMENTING THE PRICING STRATEGY

      A.   Setting Prices–

           1.     Skimming and penetration pricing–Skimming is designed to obtain a
                  very high price from relatively few customers with the resources and
                  desire to buy irrespective of price. Penetration pricing seeks the
                  maximum number of buyers by charging a low price.

           2.     Sliding down the demand curve–Descending from higher to lower prices.

           3.     The price umbrella–The leader prices high enough so that competitors
                  can make fair profits at that level or even lower, especially if their costs
                  are relatively low.

           4.     Everyday low prices–Prices which, on average, are consistently lower
                  than those of competitors.

           5.     Promotional pricing–A price discount to gain attention and encourage
                  immediate purchase.

      B.   Product-Line Pricing–

           1.     Product array pricing–Pricing often plays a major role in precisely which
                  product is bought. If price differences cause confusion, then consumers


                                          323
     may become dissatisfied. Companies must price each product so that it
     reflects the differences for the customer in selecting different value.

2.   Bundled pricing–The bundled approach gives a single price for the entire
     offering, while unbundling is often used when components or parts of a
     product are sold.

3.   Optional product pricing–Many products are sold as a base unit with
     optional add-ons.

4.   Captive product pricing–Occurs when customers must purchase
     additional items from the same company, such as blades for a Gillette
     razor.




                            324
     C.    Communicating Price–

           1.     Price components–Whether the buyer or seller pays for ―extras‖ can
                  make a substantial difference in price.

           2.     Price quoting–How prices are communicated to buyers. The list price set
                  by the manufacturer usually provides the reference point by which
                  consumers judge the fairness of the market price. The market price is the
                  actual amount buyers are expected to pay for the product.

           3.     Price reductions–Discounts are often given for cash payment, for
                  purchasing large quantities, or for loyalty.

     D.    Ethics–When marketers develop a pricing strategy, it should reflect the value
           perceived and received. Abuses can occur through manipulation of the
           consumer’s reference price, quoting overcharged or misleading prices, or using
           discriminatory pricing practices.


ANSWERS: KEY TERMS

1.   Everyday low prices                       10.    Price wars
2.   Value-based pricing                       11.    Market price
3.   Target pricing                            12.    Promotional pricing
4.   List price                                13.    Reference price
5.   Price umbrella leadership                 14.    Countertrade
6.   Going rate                                15.    Value in exchange
7.   Penetration pricing                       16.    Acceptable price range
8.   Value in use                              17.    Price skimming
9.   Slide down the demand curve


ANSWERS: MULTIPLE CHOICE

1.   a                                         9.     c
2.   b                                         10.    d
3.   a                                         11.    d
4.   e                                         12.    b
5.   c                                         13.    e
6.   c                                         14.    c
7.   d                                         15.    c
8.   b




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