Chapter 10 Marketing 10-1 Marketing Basics After finishing this section, you will be able to: Define important marketing concepts Identify the steps in a marketing strategy Describe the consumer decision-making process Understand Marketing Marketing- organizational function and a set of processes for creating, communicating, and delivering value to customers and managing customer relationships in ways that benefit the organization and its stakeholders A complex but key part of every business Marketing Activities As a consumer, you are exposed to marketing activities all the time. You see or hear advertisements for products and services. You see the brand names on packages of food and clothes You read descriptions on a company’s Web site You interact with salespeople at a retail store There are less obvious but equally important marketing activities: Storing products in warehouses and distribution centers Moving the products to places where they will be used or sold Establishing and accepting credit Arranging means of online payment Not all marketing is aimed toward final consumers Businesses market products and services to other businesses More time and money is spend in business-to- business marketing than business to consumers Marketing Businesses All businesses must complete some marketing activities even if it is not its focus. Many businesses are directly involved in marketing. Marketing businesses include: Advertising agencies Market research firms Transportation companies such as: Trucking Railroad Air freight Shipping and delivery companies- provide express pickup and delivery of documents and packages Financial service companies- issue and manage credit cards and grant loans to businesses Wholesalers and retailers- store, distribute, and sell products Marketing Functions Marketing activities can be categorized into seven functions, each of which take place every time a product or service is developed and sold. Product and service management- designing, developing, maintaining, improving, and acquiring products and services that meet consumer needs Other businesses are involved in product/service management when they obtain products for resale Services are created and provided by the employees of a service business Distribution- involves determining the best ways for customers to locate, obtain, and use the products and services of an organization Careful shipping, handling, and storing of products are needed for effective distribution Selling- communicating directly with potential customers to determine and satisfy their needs Can be face-to-face, over the phone, or videoconferencing with a customer Marketing-information management- obtaining, managing, and using market information to improve business decision- making and the performance of marketing activities Includes market research and the creation of databases with information about products, customers, and competitors Financial analysis- budgeting for marketing activities, obtaining needed funds, and providing financial assistance to customers Customers must have the resources to pay for their purchase Businesses must receive timely payments to continue to operate Pricing- setting and communicating the value of products and services Customers must easily be able to identify the price or they will move on to another product Consumers want to know they are getting a fair value for their money Promotion- communicating information about products and services to potential customers Advertising is done through tv, newspapers, magazines, radio, direct mail, and the Internet Other methods include; contests, product displays, and sponsorships Checkpoint>> Why is it important for businesses to consider/complete each of the seven marketing functions? MARKETING STRATEGY Marketing activities often cost 50% or more of the selling price of a product. In order for a company to make a profit, marketing must be carefully planned. Marketing Planning Marketing strategy- company plan that identifies how it will use marketing to achieve its goals Developing a marketing strategy is a two step process: Step 1 Target market- a specific group of consumers who have similar wants and needs Many companies try to promote their products to a wide group of consumers with similar wants and needs. Focusing on a target market makes it easier for companies to develop products and services that specific consumers want. Step 2 Marketing mix- blending of four marketing elements –product, distribution, price, and promotion A successful marketing mix satisfies the wants and needs of the target market and provides profit for the company. Develop a Successful Marketing Strategy To increase the chances of developing a product or service that meets customer needs and can be sold at a profit, companies adopt a marketing orientation. Marketing orientation- considers needs of customers when developing marketing mix Business people don’t assume they know what customers want. They use research to study customers and their needs. Results of the research used to plan marketing mix to meet customer needs Checkpoint>> Why are both steps in developing a marketing strategy important to the success of businesses? UNDERSTAND CUSTOMERS Effective marketing begins with customers Many new businesses fail because owners have an idea for a product but fail to consider customers and their needs. If customers do not see a need for a product or think they have better choices the product won’t succeed Businesses can develop products for two types of consumers: Final consumers- people who buy products and services for their own use Business consumers- people, companies, and organizations that buy products for the operation of a business for incorporation into other products and services, or for resale to their customers Consumer Decision Making Consumer decision-making process- specific sequence of steps consumers follow to make a purchase Both the steps and the sequence of decisions are the same for all consumers. The length of time taken to complete the process and the information used to complete each step might be quite different from one consumer to the next. Steps in the Consumer Decision-Making Process 1. recognize a need 2. gather information 3. select and evaluate alternatives 4. make a purchase decision 5. determine the effectiveness of the decision Step 1 If the need is urgent, you will try to satisfy it right away. If it is less important, you may put it off or even ignore it. If it is a need that has been satisfied before, you will use previous experience to help make a decision. Step 2 People use information to make decisions. Choose sources that you trust and that provide information you understand. Using this information, you will select very few products that seem to meet your needs. Step 3 Once the choices are narrowed, you will compare them to determine if one appears to be a better choice or a greater value than the others. Step 4 Based on the information you have obtained and the urgency and importance of the need, you will make a decision. The decision is usually to buy the product that is best for you. The decision may also may be not to buy due to no satisfying choices or lack of experience to make a good choice Step 5 If the product was not what you expected, you will likely not purchase the product again. Buying Motives Buying motives- reasons consumers decide what products and services to purchase Emotional buying motives- reasons to purchase based on feelings, beliefs, and attitudes Rational buying motives- guided by facts and logic Checkpoint>> Why is it important to follow all steps in the consumer decision-making process? 10-1 Assessment Complete the 3 assessment questions for section 10-1 located at the end of the packet. 10.2-Develop Effective Products and Services After finishing section two, you will know: Justify the importance of marketing research Identify the components of a product Describe how services differ from products CREATE AND IMPROVE PRODUCTS Often products that are identified as new in advertisements are not new at all. Some type of change has been made in the product that may be a major improvement. The change may also be a minor one that provides little benefit to the customer. The business calls the product new to attract the attention of customers and encourage them to buy. Totally new products that have never been seen before by customers are not often introduced. Most products you use today are major or minor improvements in existing products. Example: A CD or MP3 player uses new technology to store and replay music. New improvements occur through the development of new technology or redesign of current products. Marketing research- finding solutions to problems through carefully designed studies involving consumers Plan Marketing Research Many types of research procedures can be used to solve marketing problems. Each type of research follows the scientific problem solving process: 1. Define the marketing problem 2. Study the situation 3. Develop a data collection procedure 4. Gather and analyze information 5. Propose a solution Secondary research- analyzing existing information gathered for another purpose but used to solve a current problem Primary research- studies carried out to gather information specifically directed at a current problem Types of Research Studies Surveys- gather information from people using a carefully planned set of questions Focus groups- small number of consumers take part in a group discussion Less structured way of gathering ideas, experiences, and opinions Group leader acts to identify areas of agreement and disagreement and to develop new ideas Observations- collect information by recording the actions of consumers rather than asking them questions Experiment- presents two carefully controlled alternatives to subjects in order to determine which is preferred or has better results Checkpoint>> Why is it important to follow all steps in the Marketing Research Study? PRODUCT PLANNING Each part of the marketing mix is important when you decide to buy a product. Parts of a Product Product- everything a business offers to satisfy a customer’s needs Basic product- simplest form of a product Not unique and usually available from several companies. Product features- additions and improvements to the basic product Options- features offered to customers Example: When buying a car, features offered to customers include color, engine size, manual or automatic transmission. Brand name- unique identification for a company’s products Packaging- provides protection and security for the product before it is used May make product storage easier. Example: A new container for ground coffee is created with indentations that allow customers to pick it up easily with one hand. This was changed because some customers struggled with the original container. Package is also a convenient way to provide information to customers that helps them make a purchase decision or explain a product. Guarantee or warranty- if a product breaks or does not meet customer expectations, the company will repair, replace, or provide a refund. Product Planning Procedures New product planning is a costly and time- consuming process There are six steps to new product planning: idea development- generating new product ideas is a creative process idea screening- companies evaluate ideas to determine which have the best chance to be successful strategy development- target market is studied and alternative marketing mixes are developed and tested production and financial planning- the company develops a production procedure and identifies the facilities, equipment, and people that will be needed to produce the product. limited production and test marketing- if a new product idea makes its way through the planning process , a company may produce a limited quantity to test it on the market. full-scale production- if each of the preceding steps is completed successfully, the product will move into full-scale production and marketing. Checkpoint>> What are the components (parts) of a product? SERVICES Services- activities that are consumed at the same time they are produced Intangible- having no physical form Marketers must find a way to describe the service in understandable ways. Effective service marketing is done in much the same way as product marketing; using the two-step marketing strategy: Step 1- identify the target market Step 2- develop a marketing mix that appeals to the market In addition to the service itself, the marketing mix includes distribution, pricing and promotion. Inseparable- consumed at the same time they are produced The person or technology must be available when and where the customer needs it Perishable- the availability of a service must match the demand for that service at a specific time Cannot be stored for later consumption Example: If all seats at a concert are filled, no more people will be able to hear that performance. Heterogeneous- there will be differences in the type and quality of service provided Because people usually provide services at the time they are consumed, there is less control over quality than is possible with products. Checkpoint>> In what ways are services different from products? Assignment Complete the three 10-2 Assessment Questions at the end of your packet. 10-3 Price and Distribute Products After finishing this section, you will be able to: Discuss how the selling price of a product is calculated Differentiate between a direct and an indirect channel of distribution VALUE AND PRICE When you decide to purchase a product, how do you determine what to pay? Do you always pay the price that is marked on the product by the seller? Do you compare prices of several businesses to find the lowest price? Do you consider how much money you will have available to spend on other things? Buyers usually want to pay the lowest price possible and sellers what to charge the highest price possible. Pricing Factors Supply and demand A product that has a ready supply will have a lower price than a product with a very limited supply. If demand for a product is high, prices will increase. Products with low levels of demand will have comparatively low prices. Uniqueness When a product has few competitors because it is unique, the price will be higher than similar products. Age When products are first introduced to the market, their prices will be high. As products age, the price gradually decreases. Season Many products are used at a particular time of year Examples: winter apparel, air conditioners, and holiday decorations. These products have high levels of sales for a short time and then almost no sales for the rest of the year. Prices will be highest right before and at the beginning of the season. Prices will be lower during other times of the year. Complexity Highly complex and technical products have higher prices than simple products. Products with many features and options will also cost more. Convenience If a product is easily available and the seller provides a high level of customer service, prices will go up. Customers expect to pay low prices if they shop at a large warehouse store that offers little service. Price a Product Price- money a customer must pay for a product or service The price of a product changes as it moves from producer to consumer. The manufacturer sets a price that is paid by other businesses that will sell the product to the final consumer. The price is set by the business following a formula that identifies the components of the price: Selling Price = Product Costs + Operating Expenses + Profit Selling price- price paid by the customer for the product Product costs- costs to the manufacturer of producing the product or price to businesses to buy the product Operating expenses- all expenses of operating the business associated with the product These can include; salaries, storage and display equipment, facilities, utilities, or taxes. Profit- amount of money available to the business after all costs and expenses have been paid. Gross margin- difference between selling price and the product costs Represents the amount of money on hand to pay for operating expenses and provide a profit. Markup A pricing concept related to gross margin. Markup- amount added to the cost of a product to set the selling price. Markdown Businesses are not always able to sell products at the original price. If customer demand is not as high as projected, the selling season is ending, or if there is a flaw in the product, the business may have to take a markdown. Markdown- reduction from the original selling price Checkpoint>> What is the formula for calculating the selling price of a product? CHANNELS OF DISTRIBUTION Distribution- locations and methods used to make a product of service available to the target market Channel of distribution- the route a product follows and the businesses involved in moving a product from the producer to the final consumer Need for Distribution Channels In complex economies, exchanges of goods are difficult due to several differences existing between producers consumers. Differences in Quantity Businesses produce or sell large amounts of each product to many consumers. Each consumer needs only a very small number of products at a given time. Differences in Assortment Businesses typically specialize in producing a specific type of product while consumers want to purchase a variety of products. Differences in Location It today’s global economy, thousands of miles often separate producers and consumers Businesses may need to distribute their products to customers in many countries. Differences in Timing Businesses gain efficiency by producing large amounts of a product at one time. Some agricultural products can only be produced at a specific time of the year. Consumers may want to buy products at different times than when they are produced. Channels and Channel Members Channel members- businesses that take part in a channel of distribution Direct channel of distribution- products move from the producer straight to the consumer Indirect channel of distribution- includes one or more others businesses between the producer and consumer Channel members may be: transportation companies, sales organization, or financial institution Retailers- final business in an indirect channel of distribution for consumer products Offer a range of products at convenient locations for consumers. Help consumers select the best products Provide financing and delivery services Assist manufacturers by storing, displaying, and advertising products. Checkpoint>> What is the difference between a direct and an indirect channel of distribution? Assignment Complete the two questions at the end of your packet.
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