Fundamentals of Marketing, Customers, and Strategic Marketing Planning
Marketing in a Changing World
Planning → New Product → Execution
Pricing → Distribution → Advertising
Marketing involves much more than a fancy display of merchandise, a clever commercial, or a special contest. In fact, a lot of planning and execution are needed to develop a new product, set its price, get it into stores, and convince people to buy it.
What is Marketing?
The American Marketing Association (AMA) defines marketing as planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives.
With respect to products, marketing involves all decisions related to determining a product’s characteristics, price, production specifications, market-entry date, distribution, promotion, and sales. With respect to customers, marketing involves understanding customers’ needs and their buying behavior, creating consumer awareness, providing customer service—which is everything a company does to satisfy its customers—and maintaining relationships with customers long after the sales transaction is complete.
Core Marketing Concepts
Needs, Wants, and Demands → Products and Services → Value, Quality and Satisfaction → Exchange, Transaction and Relationships → Markets
The core marketing concepts are as follows: needs, wants, demands, products, services, value, satisfactions, quality, exchanges, transactions, relationships, and markets. Each concept builds on the one before it.
Types of Marketing
Most people, of course, think of marketing in connection with selling tangible goods for a profit (the term product refers to any “bundle of value” that can be exchanged in a marketing transaction). But marketing applies to services, nonprofit organizations, people, places, and causes too.
Place marketing describes efforts to market geographical areas ranging from neighborhoods to entire countries. Cause-related marketing promotes a cause or a social issue—such as physical fitness, cancer awareness, recycling, or highway safety.
Of course, marketing serves other functions besides promoting products, places, and causes. As the AMA definition suggests, marketing serves two important functions: It helps people satisfy their needs and wants, and it encourages exchanges and transactions.
A need represents a difference between your actual state and an ideal state. If you are hungry, you need food in order to return to a non-hungry state. Your wants are based on your needs but are more specific. Producers do not create needs, but they do shape your wants by exposing you to alternatives.
The exchange process is the act of obtaining a desired object ( a product) or service from someone by offering something in return (money). When the exchange actually occurs, it takes the form of a transaction.
The Four Utilities
To encourage the exchange process, marketers enhance the appeal of their products and services by adding utility, something of value to customers.
When organizations change raw materials into finished goods, they are creating form utility desired by consumers. In other cases, marketers try to make their products available when and where customers want to buy them, creating time utility and place utility. The final form of utility is possession utility—the satisfaction that buyers get when they actually possess a product, both legally and physically.
Some companies believe that offering a good product or service is the key to marketing success. Others focus on selling the products they make, regardless of how consumer needs may be changing. Still others focus on doing whatever they can do to satisfy customers’ changing needs and wants; they recognize the value of customer loyalty and they strive to maintain long-term relationships with their customers. Here’s a closer look at these fundamental marketing concepts.
Companies whose marketing is based on a product concept believe that consumers will favor products that offer the most in quality, performance, and innovative features.
Companies practicing the selling concept believe that consumers will buy whatever they sell.
Companies that practice a marketing concept determine the needs and wants of target markets and deliver products and services that meet consumer needs and wants more conveniently and efficiently than competitors do.
Some organizations take the marketing concept to a higher level. They practice relationship marketing by building and maintaining long-term satisfying relationships with key parties—customers, suppliers, distributors—in order to retain their long-term business.
Internet Benefits to Buyers
The Internet provides buyers with options they never had before—countless brands to choose from, searchable databases, personal attention, shipping and delivery options, built-to-order merchandise, instant access to information, and more. In short, the Internet:
Enables customers to shop or conduct other transactions 24 hours a day, every day, from almost any location.
Allows customers to research a product online before purchasing it in a physical store.
Provides customers with more choices; they can select from any vendors and from more products and price levels.
Internet Benefits to Buyers
Allows for quick delivery of digitized products and information.
Allows customers to interact with other customers and exchange ideas as well as compare experiences.
Facilitates competition—which can keep prices in line.
Internet Benefits to Sellers
The Internet is a powerful tool for learning about and building relationships with customers. Companies are using the Internet to obtain information about customers, answer customers' questions, test their reaction to new products, sell products, obtain customer feedback, and better understand who their customers are and what they want. The Internet also brings the outside world closer and allows businesses to reach out and establish relationships with customers beyond their borders and market to the world. Finally, companies are using the Internet and e-commerce to generate new revenue, cut costs, enhance communication, and find information.
Understanding Today’s Customers
Today’s customers are sophisticated, price sensitive, and demanding. They live time-compressed lifestyles and have little patience for manufacturers, wholesalers, and retailers who do not understand them or will not adapt business practices to meet their needs. They expect products and services to be delivered faster and more conveniently. This is especially true of Internet shoppers, who have high expectations, such as service around the clock. They are less-patient and more demanding than in-store shoppers because they’ve been sold on the idea that the Internet will improve their daily lives. They want to be treated as individuals, and they want immediate answers to their questions.
Today’s customers are also more informed. Armed with facts, prices, data, product reviews, advice, how-to guides, and databases, today’s customers make buying decisions as if they had an army of intelligent helpers running to all the stores around the world to find the best products and prices.
The Importance of Customer Satisfaction
Getting them costs more than keeping them.
Long-term customers boost profits.
Satisfied customers tell their friends.
Customers pay more for good service.
Unhappy customers spread the word.
Companies strive to satisfy their customers and keep them coming back for several reasons:
Acquiring a new customer can cost up to five times as much as keeping an existing one.
Long-term customers buy more, take less of a company's time, bring in new customers, and are less price sensitive.
Satisfied customers are the best advertisement for a product.
Firms perceived to offer superior customer service find that they can charge as much as 10 percent more than their competitors.
Research shows that dissatisfied customers may tell as many as 20 other people about their bad experiences.
Beyond Customer Satisfaction
Satisfying the customer is no longer the ultimate business virtue. Companies today are looking for more and better ways of cementing customer loyalty to boost market share, profitability, and shareholder value.
Learning About Customers - Customer Satisfaction
In the interest section of your message, highlight your product’s key selling point. Ask what the competition has to offer, what most distinguishes your product, and what most concerns potential buyers. The answers to these questions will help you select the central selling point, the single point around which to build your sales message. Build interest by highlighting this point, and make it stand out through typography, design, or high-impact writing.
Organizational versus Consumer Buyers
The organizational market is made up of three main subgroups: the industrial/commercial market (companies that buy goods and services to produce their own goods and services, such as Toyota), the reseller market (wholesalers such as Ingram Micro, which wholesales computers, and retailers such as Ann Taylor, which sells women's clothing), and the government market (federal, state, and local agencies such as the state of Texas and the city of Dallas).
Organizations buy raw materials (grain, steel, fabric) and highly technical and complex products (printing presses, management consultation, buildings). They also buy many of the same products that consumers do—such as food, paper products, cleaning supplies, and landscaping services—but they generally purchase larger quantities and use a more complex buying process. By contrast, the consumer market consists of individuals or households that purchase goods and services for personal use. In most cases, consumers purchase smaller quantities of items and use a decision-making process that we will discuss next.
The Buyer’s Decision-Making Process
Suppose you want to buy a car. Like most buyers, you go through a decision process that begins with identifying a problem, which in this case is the need for a car. Your next step is to look for a solution to your problem. Possibilities occur to you on the basis of your experience (perhaps you recently drove a certain make or model) and on your exposure to marketing messages. If none of the obvious solutions seems satisfying, you gather additional information. The more complex the problem, the more information you are likely to seek.
Once you have all the information in hand, you are ready to make a choice. You may select one of the alternatives, such as a new Chevy Blazer or a used Ford Explorer. You might even postpone the decision or decide against making any purchase at all, depending on the magnitude of your desire, the outside pressure to buy, and your financial resources. If you decide to buy, you will evaluate the wisdom of your choice. If the item you bought is satisfying, you might buy the same product again under similar circumstances, thus developing a loyalty to the brand. If it is not satisfying, you will probably not repeat the purchase.
If the purchase was a major one, you will sometimes suffer from cognitive dissonance, commonly known as buyer’s remorse. You will think about all the alternatives you rejected and wonder whether one of them might have been a better choice.
Factors That Influence the Buyer’s Decision
Throughout the buying process, various factors may influence a buyer’s purchase decision. An awareness of the following factors and consumer preferences enables companies to appeal to the group most likely to respond to its products and services:
Culture. The cultures and subcultures that people belong to shape their values, attitudes, and beliefs and influence the way they respond to the world.
Social class. In addition to being members of a particular culture, people also belong to a certain social class. In general, members of various classes pursue different activities, buy different goods, shop in different places, and react to different media.
Reference groups. A reference group consists of people who have a good deal in common. Individuals use the opinions of the appropriate group as a benchmark when they buy certain types of goods or services.
Self-image. The tendency to believe that “you are what you buy” is especially prevalent among young people. Marketers capitalize on people’s need to express their identity through their purchases by emphasizing the image value of goods and services.
Situational factors. These factors include events or circumstances that can influence buying patterns. Such factors might include having a coupon, being in a hurry, celebrating a holiday, being in a bad mood, and so on.
Set product goals
Develop new products
Plan marketing programs
Analyze product usage patterns
Track competition and trends
Measure customer satisfaction
Many companies obtain information about customers’ changing needs by engaging in marketing research—the process of gathering and analyzing information about customers, markets, and related marketing issues. Companies rely on research when they set product goals, develop new products, and plan future marketing programs. They also use research to monitor a program’s effectiveness by analyzing the number of consumers using a product or purchasing it more than once. In addition, they use marketing research to keep an eye on the competition, track industry trends, and measure customer satisfaction.
Marketing Research Methods
Surveys and Questionnaires
Popular marketing research tools include personal observations, customer surveys and questionnaires, experiments, telephone or personal interviews, studies of small samples of the consumer population, and focused interviews of 6 to 10 people (called focus groups). Each tool has advantages and limitations.
Part of the problem with surveys is that they are administered in artificial settings that do not accurately represent the marketplace. Moreover, surveys generally measure the level of service that the company currently provides instead of identifying ways to propel a company beyond its current state of service. Furthermore, if not carefully worded and administered, surveys can be misleading, as well as poor predictors of future buying behavior. Additionally, marketing research can suggest, in a narrow way, what people might prefer or dislike today, but it is seldom a good predictor of what will excite consumers in the future. Finally, marketing research is not a substitute for good judgment. When used inappropriately, research can be the source of expensive mistakes.
Another way to learn about customer preferences is to gather and analyze all kinds of customer-related data. Database marketing is the process of recording and analyzing customer interactions, preferences, and buying behavior for the purpose of contacting and transacting with customers. The underlying principle of database marketing is simple: All customers share the same common needs and characteristics but each customer has his or her own twist. By analyzing data collected on each customer’s key attributes, companies can determine which customers to target, which to avoid, and how to customize marketing offers for the best response.
One-to-one marketing involves individualizing a firm’s marketing efforts for a single customer to accommodate the specific customer’s needs. The four steps to implementing an effective one-to-one marketing program are as follows: (1) identifying your customers, (2) differentiating among them, (3) interacting with them, and (4) customizing your products and services to suit the needs of individual customers.
Planning Marketing Strategies
By now you can see why successful marketing rarely happens without carefully analyzing and understanding your customers. Once you have learned about your customers, you’re ready to begin planning your marketing strategies. Strategic marketing planning is a process that involves three steps: (1) examining your current marketing situation, (2) assessing your opportunities and setting your objectives, and (3) developing a marketing strategy to reach those objectives.
Examine the Current Marketing Situation
Examine Strengths and Weaknesses
Analyze External Environment
Examining your current marketing situation includes reviewing your past performance (how well each product is doing in each market where you sell it), evaluating your competition, examining your internal strengths and weaknesses, and analyzing the external environment.
Assess Opportunities and Set Objectives
. Successful companies are always on the lookout for new marketing opportunities, which can be classified into four options: selling more of your existing products in current markets (market penetration), creating new products for your current markets (new product development), selling your existing products in new markets (geographic expansion), and creating new products for new markets (diversification). These four options are listed in order of increasing risk; trying new products in unfamiliar markets is usually the riskiest choice of all.
Develop the Marketing Strategy
Segments and Niches
Using your current marketing situation and your objectives as your guide, you’re ready to move to the third step. This is where you develop your marketing strategy, which consists of dividing your market into segments and niches, choosing your target markets and the position you’d like to establish in those markets, and then developing a marketing mix to help you get there.
Most companies subdivide the market by identifying market segments, or homogeneous groups within a market that are significantly different from each other. This process is called market segmentation; its objective is to group customers with similar characteristics, behavior, and needs.
When you segment a market using demographics, the statistical analysis of population, you subdivide your customers according to characteristics such as age, gender, income, race, occupation, and ethnic group.
When differences in buying behavior are influenced by where people live, it makes sense to use geographic segmentation.
Psychographic analysis focuses on why people behave the way they do by examining such issues as brand preferences, media preferences, reading habits, values, and self-concept.
Dividing markets into distinct neighborhoods by combining geographical and demographic data is the goal of geodemographics.
Markets can also be segmented according to customers’ knowledge of, attitude toward, use of, or response to products or product characteristics. This approach is known as behavioral segmentation.
An increasingly popular way to segment e-commerce customers is by Internet usage patterns.
Target Market Strategies
Once you have segmented your market, the next step is to find appropriate target segments or target markets to focus your efforts on. There are three popular strategies for reaching target market.
Companies that practice undifferentiated marketing (or mass marketing) ignore differences among buyers and offer only one product or product line to satisfy the entire market. This strategy, which concludes that all buyers have similar needs that can be served with the same standardized product, was more popular in the past then it is today.
By contrast, companies that manufacture or sell a variety of products to several target customer groups practice differentiated marketing. This is a popular approach, but it requires substantial resources to tailor products, prices, promotional efforts, and distribution arrangements for each customer group.
When company resources are limited, concentrated marketing may be the best marketing strategy. You acknowledge that different market segments exist and you choose to target just one. The strategy can be risky, however, since you’ve staked your company’s fortune on just one segment.
Positioning the Product
Even though consumers position products with or without the help of marketers, marketers do not want to leave their product’s position to chance. Instead, they choose positions that will give their products the greatest advantage in selected target markets.
They can position their products on specific product features or attributes (such as size, ease of use, style, performance, quality, durability, or design), on the services that accompany the product (such as convenient delivery, lifetime customer support, or installation methods), on the product’s image (such as reliability or sophistication), on price (such as low cost or premium), on category leadership (such as the leading online bookseller), and so forth.
Developing the Marketing Mix
After you’ve segmented your market, selected your target market, and positioned your product, your next task is to develop a marketing mix. A firm’s marketing mix (often called the four Ps) consists of product, price, place (or distribution), and promotion. When positioning products for target markets, you need to consider the four marketing-mix elements plus the external environment: that is, competition, economics, nature, politics, regulation, technology, society, competition, ethics, and social responsibility.
The most basic marketing-mix element is product, which covers the product itself plus brand name, design, packaging, services, quality, and warranty. From a marketing standpoint, a product is anything offered for the purpose of satisfying a want or a need in a marketing exchange.
Price, the amount of money customers pay for the product (including any discounts) is the second major component of a firm’s marketing mix.
Place (which is commonly referred to as distribution) is the third marketing-mix element. It covers the organized network of firms that move goods and services from the producer to the consumer. This network is also know as marketing channels or distribution channels.
Promotion, the fourth marketing-mix element, includes all the activities the firm undertakes to communicate and promote its products to the target market.
Behavioral segmentation - categorization of customers according to their relationship with products or response to product characteristics
Cause-related marketing - identification and marketing of a social issue, cause, or idea to selected target markets
Cognitive dissonance - anxiety following a purchase that prompts buyers to seek reassurance about the purchase; commonly known as buyer's remorse
Consumer buying behavior - behavior exhibited by consumers as they consider and purchase various products
Customer service - efforts a company makes to satisfy its customers to help them realize the greatest possible value from the products they are purchasing
Database marketing - process of building, maintaining and using customer databases for the purpose of contacting customers and transacting business
Demographics - study on statistical characteristics of a population
Distribution channels - systems for moving goods and services from producers to customers; also known as marketing channels
Environment - when positioning products for target markets, you need to consider the four marketing-mix elements plus the external environment.
Exchange process - act of obtaining a desired object from another party by offering something of value in return
Form utility - consumer value created by converting raw materials and other inputs into finished goods and services
Geodemographics - method of combining geographical data with demographic data to develop profiles of neighborhood segments
Geographic segmentation - categorization of customers according to their geographical location
Market - people or businesses that need or want a product and have the money to buy it
Market segmentation - division of total market into smaller, relatively homogeneous groups
Market share - a firm's portion of the total sales in a market
Marketing - process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create and maintain relationships that satisfy individual and organizational objectives
Marketing concept - approach to marketing that stresses customer needs and wants, seeks long-term profitability, and integrates marketing with other functional units within the organization
Marketing mix - the four key elements of marketing strategy: product, price, place (distribution), and promotion
Marketing research - the collection and analysis of information for making marketing decisions
Marketing strategy - overall plan for marketing a product
Need - difference between a person's actual state and his or her ideal state; provides the basic motivation to make a purchase
Organizational market - consumers who buy goods or services for resale or for use in conducting their own operations
Organizational market - consumers who buy goods or services for resale or for use in conducting their own operations
Place marketing - marketing efforts to attract people and organizations to a particular geographical area
Place utility - consumer value added by making a product available in a convenient location
Positioning - using promotion, product, distribution, and price to differentiate a good or service from those of competitors in the mind of the prospective buyer
Possession utility - consumer value created when someone takes ownership of a product
Price - the amount of money charged for a product or service
Product - good or service used as the basis of commerce
Promotion - wide variety of persuasive techniques used by companies to communicate with their target markets and the general public
Psychographics - classification of customers on the basis of their psychological makeup
Relationship marketing - a focus on developing and maintaining long-term relationships with customers, suppliers, and distributors for mutual benefit
Selling concept - approach to marketing in which firms emphasize selling what they make rather than making what consumers want
Strategic marketing planning - the process of determining an organization's primary marketing objectives and then adopting courses of action and allocating resources to achieve those objectives
Target markets - specific customer groups or segments to whom a company wants to sell a particular product
Time utility - consumer value added by making a product available at a convenient time
Transaction - exchange between parties
Utility - power of a good or service to satisfy a human need
Wants - things that are desirable in light of a person's experiences, culture, and personality
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