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=$$===MARKETING CONCEPTS=====$$

=$$===MARKETING CONCEPTS=====$$

Discuss =$$===MARKETING CONCEPTS=====$$ within the Marketing Management ( RM , IM ) forums, part of the Resolve Your Query - Get Help and discuss Projects category; Lesson – 12 Lesson overview and learning objectives: In last Lesson we discussed the marketing information system. Today’s Lesson Outlines ...

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Re: =$$===MARKETING CONCEPTS=====$$ - February 27th, 2007

Lesson – 12
Lesson overview and learning objectives:
In last Lesson we discussed the marketing information system. Today’s Lesson Outlines the
marketing research process, including defining the problem and research objectives and developing
the research plan. We will also discuss the key issues of planning primary data collection,
implementing the research plan and interpreting and reporting the findings.
So our today’s topics are:
A. THE MARKETING RESEARCH PROCESS:
a. Marketing Research an Introduction:
Every marketer needs marketing research, and most large companies have their own marketing
research departments. Marketing research involves a four-step process. The first step consists of
the manager and researcher carefully defining the problem and setting the research objectives. The
objective may be exploratory, descriptive, or causal. The second step consists of developing the
research plan for collecting data from primary and secondary sources. Primary data collection calls
for choosing a research approach (observation, survey, experiment); choosing a contact method
(mail, telephone, personal); designing a sampling plan (whom to survey, how many to survey, and
how to choose them); and developing research instruments (questionnaire, mechanical). The third
step consists of implementing the marketing research plan by collecting, processing, and analyzing
the information. The fourth step consists of interpreting and reporting the findings. Further
information analysis helps marketing managers to apply the information and provides advanced
statistical procedures and models to develop more rigorous findings from the information.
Some marketers face special marketing research considerations, such as conducting research in
small-business, non-profit, or international situations. Marketing research can be conducted
effectively by small organizations with small budgets. International marketing researchers follow
the same steps as domestic researchers but often face more challenging problems. All
organizations need to understand the major public policy and ethics issues surrounding marketing
research.
b. Uses & Application of Research in Marketing:
Decision-making is crucial process in all types of the organization. This decision-making requires
then information that is collected and acquired through the marketing research process this
information can be regarding customers companies or competitor or the other environmental
factors. Major uses of the marketing research in the organizations are as following:
�� Measurement of market potential.
�� Analysis of market share.
�� Determination of market characteristics
�� Sales analysis.
�� Product testing.
�� Forecasting.
�� Studies of business trends
�� Studies of competitors' products.
c. THE MARKETING RESEARCH PROCESS
Before researcher can
provide managers with
information, they must
know what kind of
problem the manager
wishes to solve. Marketing
research process has
following steps:
1. Defining the
problem and
research objectives
2. Developing the
research plan,
3. Implementing the
research plan, and
4. Interpreting and
reporting the
findings.
Now we will discuss these steps in detail:
Step 1 Defining the Problem and Research Objectives
The marketing manager and the researcher must work closely together to define the problem
carefully and agree on the research objectives. Marketing managers must know enough about
marketing research to help in the planning and to interpret research results. Defining the problem
and research objectives is often the hardest step in the process. After the problem has been defined
carefully, the manager and researcher must set the research objectives. The three general types of
objectives are:
1). Exploratory research where the objective is to gather preliminary information that
will help to better define problems and suggest hypotheses for their solution.
2). Descriptive research is where the intent is to describe things such as the market
potential for a product or the demographics and attitudes of customers who buy the product.
3). Casual research is research to test hypotheses about cause-and-effect relationships.
The statement of the problem and research objectives will guide the entire research process. It is
always best to put the problem and research objectives statements in writing so agreement can be
reached and everyone knows the direction of the research effort.
Step 2 Developing the Research Plan
In developing the research plan, the attempt is to determine the information needed (outline
sources of secondary data), develop a plan for gathering it efficiently, and presenting the plan to
marketing management. The plan spells out specific research approaches, contact methods,
sampling plans, and instruments that researchers will use to gather new data. The firm should
know what data already exists before the process of collecting new data begins. The steps that
should be followed are. Developing the research plan involves all of the following:
1. Determining Specific Information Needs
2. Gathering Secondary Information
3. Planning Primary Data Collection
1. Problem Definition and the
Research Objectives
1. Problem Definition and the
Research Objectives
2. Developing the Research Plan 2. Developing the Research Plan
3. Implementation 3. Implementation
4. Interpretation and Reporting
of Findings
4. Interpretation and Reporting
of Findings
1). Determine specific information needs. In this step research objectives are translated
into specific information needs. For example, determine the demographic, economic, and lifestyle
characteristics of a target audience.
2). Gathering secondary information.
a). Secondary data is information that already exists somewhere, having been
collected for another purpose. Sources of secondary data include both internal and external
sources. Companies can buy secondary data reports from outside suppliers (i.e., commercial data
sources).
Information can be obtained by using commercial online databases. Examples include
CompuServe, Dialog, and Lexis-Nexus. Many of these sources are free. Advantages of secondary
data include:
1. It can usually be obtained more quickly and at a lower cost than primary data.
2. Sometimes data can be provided that an individual company could not collect on its own.
Some problems with collecting secondary data include:
1. The needed information might not exist.
2. Even if the data is found, it might not be useable.
3. The researcher must evaluate secondary information to make certain it is relevant,
accurate, current, and impartial. Secondary data is a good starting point; however, the company will
often have to collect primary data.
b). Primary data is information collected for the specific purpose at hand.
Planning Primary Data Collection. A plan for primary data collection calls for a number of
decisions on research approaches, contact methods, sampling plans, and research instruments.
Research Approaches:
a). Research approaches can be listed as:
1. Observational research where information is gained by observing relevant
people, actions, and situations. However, some things such as feelings,
attitudes, motives, and private behavior cannot be observed. Mechanical
observation can be obtained through single source data systems. This is
where electronic monitoring systems link consumers’ exposure to television
advertising and promotion (measured using television meters) with what they
buy in stores (measured using store checkout scanners). Observational
research can be used to obtain information that people are unwilling or
unable to provide.
2. Survey research is the gathering of primary data by asking people questions
about their knowledge, attitudes, preferences, and buying behavior. Survey research is best suited
for gathering descriptive information. Survey research is the most widely used form of primary
data collection The major advantage of this approach is flexibility while the disadvantages include
the respondent being unwilling to respond, giving inaccurate answers, or unwilling to spend the
time to answer.
3. Experimental research involves the gathering of primary data by selecting
matched groups of subjects, giving them different treatments, controlling related factors, and
checking for differences in-group responses. This form of research tries to explain cause-andeffect
relationships. Observation and surveys may be used to collect information in experimental
research. This form is best used for causal information.
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Re: =$$===MARKETING CONCEPTS=====$$ - February 27th, 2007

Lesson – 13
Lesson overview and learning objectives:
In last Lesson we discussed the marketing research process first two steps were discussed in that
Lesson today we will continue the same topic and will be discussing the remaining steps of the
marketing research process. Second topic of today’s Lesson is an introduction to the consumer
behavior.
So our today’s topics are:
A. THE MARKETING RESEARCH PROCESS (Continued)
B. CONSUMER MARKET
Contact Methods:
Contact methods are used to obtain the information Contact methods can be listed as:
1. Mail questionnaires--used to collect large amounts of information at a low cost.
2. Telephone interviewing--good method for collecting information quickly.
3. Personal interviewing (which can be either individual or group interviewing).
A form of personal interviewing is “focus group interviewing”.
Focus-group interviewing consists of inviting six to ten people to gather for a few hours with a
trained interviewer to talk about a product, service, or organization. The interviewer “focuses”
the group discussion on important issues.
4. Online (Internet) marketing research can consist of Internet surveys or online focus groups.
Many experts predict that online research will soon be the primary tool of marketing researchers.
5. Computer interviewing is a new method being used in the technology age. Consumers read
questions from a computer screen and respond.
Sampling plans are used to outline how samples will be constructed and used.
1. A sample is a segment of the population selected for marketing research to represent the
population as a whole.
2. Marketing researchers usually draw conclusions about large groups of consumers by
studying a small sample of the total consumer population.
3. Designing a sample calls for three decisions:
a. Who is to be surveyed (what sampling unit)?
b. How many people should be surveyed (what sample size)?
c. How should the sample be chosen (what sampling procedure)?
4. Kinds of samples include:
a. Probability samples--each population member has a known chance of being
included in the sample, and researchers can calculate confidence limits for sampling
error.
b. Nonprobability samples--sampling error cannot be measured.
Research Instruments:
In collecting primary data, marketing researchers have a choice of two main research
instruments—the questionnaire and mechanical devices. The questionnaire is by far the most
common instrument, whether administered in person, by phone, or online. Questionnaires are very
flexible—there are many ways to ask questions. However, they must be developed carefully and
tested before they can be used on a large scale. A carelessly prepared questionnaire usually contains
several errors.
In preparing a questionnaire, the marketing researcher must first decide what questions to ask.
Questionnaires frequently leave out questions that should be answered and include questions that
cannot be answered, will not be answered, or need not be answered. Each question should be
checked to see that it contributes to the research objectives.
The form of each question can influence the response. Marketing researchers distinguish between
closed-end questions and open-end questions. Closed-end questions include all the possible
answers, and subjects make choices among them. Examples include multiple-choice questions and
scale questions. Open-end questions allow respondents to answer in their own words. Open-end
questions often reveal more than closed-end questions because respondents are not limited in their
answers. Open-end questions are especially useful in exploratory research, when the researcher is
trying to find out what people think but not measuring how many people think in a certain way.
Closed-end questions, on the other hand, provide answers that are easier to interpret and tabulate.
Researchers should also use care in the wording and ordering of questions. They should use
simple, direct, unbiased wording. Questions should be arranged in a logical order. The first
question should create interest if possible, and difficult or personal questions should be asked last
so that respondents do not become defensive.
Although questionnaires are the most common research instrument, mechanical instruments also
are used. We discussed two mechanical instruments, people meters and supermarket scanners,
earlier in the chapter. Another group of mechanical devices measures subjects' physical responses.
Step 3 Implementing the Research Plan
The researcher next puts the marketing research plan into action. This involves collecting,
processing, and analyzing the information. Data collection can be carried out by the company's
marketing research staff or by outside firms. The company keeps more control over the collection
process and data quality by using its own staff. However, outside firms that specialize in data
collection often can do the job more quickly and at a lower cost.
The data collection phase of the marketing research process is generally the most expensive and
the most subject to error. The researcher should watch fieldwork closely to make sure that the plan
is implemented correctly and to guard against problems with contacting respondents, with
respondents who refuse to cooperate or who give biased or dishonest answers, and with
interviewers who make mistakes or take shortcuts.
Step 4 Interpreting and Reporting the Findings
The final step in the marketing research process is interpreting and reporting the findings. The
researchers should keep from overwhelming managers with numbers and fancy statistical
techniques. Researchers should present important findings that are useful in the major decisions
faced by management. Interpretation should not be left only to researchers. Marketing managers
will also have important insights into the problems. Interpretation is an important phase of the
marketing process. The best research is meaningless if the manager blindly accepts wrong
interpretations from the researcher.
The researcher must now interpret the findings, draw conclusions, and report them to
management. The researcher should not try to overwhelm managers with numbers and fancy
statistical techniques. Rather, the researcher should present important findings that are useful in
the major decisions faced by management.
However, interpretation should not be left only to the researchers. They are often experts in
research design and statistics, but the marketing manager knows more about the problem and the
decisions that must be made. In many cases, findings can be interpreted in different ways, and
discussions between researchers and managers will help point to the best interpretations. The
manager will also want to check that the research project was carried out properly and that all the
necessary analysis was completed. Or, after seeing the findings, the manager may have additional
questions that can be answered through further sifting of the data. Finally, the manager is the one
who ultimately must decide what action the research suggests. The researchers may even make the
data directly available to marketing managers so that they can perform new analyses and test new
relationships on their own.
Interpretation is an important phase of the marketing process. The best research is meaningless if
the manager blindly accepts faulty interpretations from the researcher. Similarly, managers may be
biased—they might tend to accept research results that show what they expected and to reject
those that they did not expect or hope for. Thus, managers and researchers must work together
closely when interpreting research results, and both must share responsibility for the research
process and resulting decisions
A. Consumer Market:
a. Defining Consumer Market:
All individuals and households who buy or acquire goods and services for personal consumption
are termed as consumers. Markets have to be understood before marketing strategies can be
developed. People using consumer markets buy goods and services for personal consumption.
Consumers vary tremendously in age, income, education, tastes, and other factors. Consumer behavior
is influenced by the buyer's characteristics and by the buyer's decision process. Buyer characteristics
include four major factors: cultural, social, personal, and psychological.
All individuals and
households who buy or
acquire goods and
services for personal
consumption
Consumer Markets:
Consumer Buying Behavior refers to the buying
behavior of final consumers—individuals and
households who buy goods and services for
personal consumption.
The world consumer market consists of more than 6 billion people. At present growth rates, the
world population will reach almost 8 billion people by 2025
Consumers around the world vary tremendously in age, income, education level, and tastes. They
also buy an incredible variety of goods and services. How these diverse consumers connect with
each other and with other elements of the world around them impacts their choices among various
products, services, and companies. Here we examine the fascinating array of factors that affect
consumer behavior.
b. Why to Study Consumer Behavior:
Basic objective of the studying consumer behavior is that the firm needs to know who buys their
product? How they buy? When and where they buy? Why they buy? How they respond to
marketing stimuli. Because they study consumer behavior (CB) what Consumer Behavior is about?
How, why, where and when consumers make purchase decisions? Considers who influences the
decisions? What is Consumer Behavior about? All these are important questions, which are to be
known to the companies so that they can design, and implement marketing strategies to satisfy the
customers. Consumers determine the sales and profits of a firm by their purchase decisions, thus
the economic viability of the firm. In late 1990, US consumers were spending enough dollar bills to
stretch from the Earth to the Sun and back, with enough left over for over 600 lines to the moon!
Along with these questions companies should also be knowing some other factors like what is
Disposable income and what is Discretionary income what is the stage of family life cycle stage
because these all these factors influence the consumer behaviors which are very important to the
marketers.
c. Consumer Behavior
Consumer behavior is the process through which the ultimate buyer makes purchase decisions.
This can be defined as the processes involved when individuals or groups select, purchase, use, or
dispose of products, services, ideas, or experiences to satisfy needs and desires (Solomon, 1996).
Those actions directly involved in obtaining, consuming and disposing of products and services,
including the decision processes that precede and follow those actions (Engel et al. 1995).
Consumer behavior examines mental and emotional processes in addition to the physical activities
as by (Wilkie 1990).
d. Marketing Applications:
Consumer behaviors plays important role in almost all types of decisions to be made in marketing.
For the reason being that all functions performed in marketing revolve around the customers and
consumers. Like:
Positioning: Arranging for a product to occupy a clear, distinctive, and desirable place relative to
competing products in the minds of target consumers.
Some firms find it easy to choose their positioning strategy. For example, a firm well known for
quality in certain segments will go for this position in a new segment if there are enough buyers
seeking quality. But in many cases, two or more firms will go after the same position. Then, each
will have to find other ways to set itself apart. Each firm must differentiate its offer by building a
unique bundle of benefits that appeals to a substantial group within the segment.
The positioning task consists of three steps: identifying a set of possible competitive advantages
upon which to build a position, choosing the right competitive advantages, and selecting an overall
positioning strategy. The company must then effectively communicate and deliver the chosen
position to the market.
Segmentation: Dividing a market into distinct groups of buyers on the basis of needs,
characteristics, or behavior who might require separate products or marketing mixes. Market
segmentation reveals the firm's market segment opportunities. The firm now has to evaluate the
various segments and decide how many and which ones to target. We now look at how companies
evaluate and select target segments. The company also needs to examine major structural factors
that affect long-run segment attractiveness. For example, a segment is less attractive if it already
contains many strong and aggressive competitors. The existence of many actual or potential substitute
products may limit prices and the profits that can be earned in a segment. The relative power of buyers
also affects segment attractiveness. Buyers with strong bargaining power relative to sellers will try
to force prices down, demand more services, and set competitors against one another—all at the
expense of seller profitability. Finally, a segment may be less attractive if it contains powerful suppliers
who can control prices or reduce the quality or quantity of ordered goods and services.
Product development: A strategy for company growth by offering modified or new products to
current market segments. Developing the product concept into a physical product in order to
ensure that the product idea can be turned into a workable product.
Product development—offering modified or new products to current markets.
Market development: A strategy for company growth by identifying and developing new market
segments for current company products.
International marketing
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Re: =$$===MARKETING CONCEPTS=====$$ - February 27th, 2007

Lesson – 14
Lesson overview and learning objectives:
In last Lesson we discussed the Consumer Markets and consumer behavior and its importance and
applications for the marketing process. Today we will be continuing the same topic and will discuss
the Consumer buying model. Some factors that can influence the consumer decision regarding
purchases will also be discussed in today’s Lesson.
So our today’s topic is:
CONSUMER BUYING BEHAVIOR:
A. Model of consumer behavior
Consumers make many buying decisions every day. Most large companies research consumer
buying decisions in great detail to answer questions about what consumers buy, where they buy,
how and how much they buy, when they buy, and why they buy. Marketers can study actual
consumer purchases to find out what they buy, where, and how much. But learning about the whys
of consumer buying behavior is not so easy—the answers are often locked deep within the
consumer's head.
The central question for marketers is: How do consumers respond to various marketing efforts the
company might use? The company that really understands how consumers will respond to
different product features, prices, and advertising appeals has a great advantage over its
competitors. The starting point is the stimulus-response model of buyer behavior shown in Figure
. This figure shows that marketing and other stimuli enter the consumer's "black box" and produce
certain responses. Marketers must figure out what is in the buyer's black box.3
Model of consumer behavior
Marketing stimuli consist of the four Ps: product, price, place, and promotion. Other stimuli
include major forces and events in the buyer's environment: economic, technological, political, and
cultural. All these inputs enter the buyer's black box, where they are turned into a set of observable
buyer responses: product choice, brand choice, dealer choice, purchase timing, and purchase
amount.
The marketer wants to understand how the stimuli are changed into responses inside the
consumer's black box, which has two parts. First, the buyer's characteristics influence how he or
she perceives and reacts to the stimuli. Second, the buyer's decision process itself affects the
buyer's behavior. This chapter looks first at buyer characteristics as they affect buying behavior,
and then discusses the buyer decision process.
Consumer purchases are influenced strongly by cultural, social, personal, and psychological
characteristics, as shown in Figure For the most part, marketers cannot control such factors, but
they must take them into account.
B. Factors influencing consumer behavior
Markets have to be understood
before marketing strategies can be
developed. People using consumer
markets buy
goods and
services for
personal consumption.
Consumers vary tremendously in age,
income, education, tastes, and other factors.
Consumer behavior is influenced by the buyer's characteristics and by the buyer's decision process.
Buyer characteristics include four major factors: cultural, social, personal, and psychological. We
can say that following factors can influence the Buying decision of the buyer:
a. Cultural
b. Social
c. Personal
d. Psychological
a. Cultural Factors
Cultural factors exert the broadest and deepest influence on consumer behavior. The marketer
needs to understand the role played by the buyer's culture, subculture, and social class.
I. Culture
Culture is the most basic cause of a person's wants and behavior. Human behavior is largely
learned. Growing up in a society, a child learns basic values, perceptions, wants, and behaviors
from the family and other important institutions. A person normally learns or is exposed to the
following values: achievement and success, activity and involvement, efficiency and practicality,
progress, material comfort, individualism, freedom, humanitarianism, youthfulness, and fitness and
health.
Every group or society has a culture, and cultural influences on buying behavior may vary greatly
from country to country. Failure to adjust to these differences can result in ineffective marketing or
embarrassing mistakes. For example, business representatives of a U.S. community trying to
market itself in Taiwan found this out the hard way. Seeking more foreign trade, they arrived in
Taiwan bearing gifts of green baseball caps. It turned out that the trip was scheduled a month
before Taiwan elections, and that green was the color of the political opposition party. Worse yet,
the visitors learned after the fact that according to Taiwan culture, a man wears green to signify
that his wife has been unfaithful. The head of the community delegation later noted, "I don't know
whatever happened to those green hats, but the trip gave us an understanding of the extreme
Principles of Marketing – MGT301 VU
© Copyright Virtual University of Pakistan 64
differences in our cultures." International marketers must understand the culture in each
international market and adapt their marketing strategies accordingly.
II. Subculture
Each culture contains smaller subcultures or groups of people with shared value systems based on
common life experiences and situations. Subcultures include nationalities, religions, racial groups,
and geographic regions. Many subcultures make up important market segments, and marketers
often design products and marketing programs tailored to their needs. Here are examples of four
such important subculture groups.
III. Social Class
Almost every society has some form of social class structure. Social Classes are society's relatively
permanent and ordered divisions whose members share similar values, interests, and behaviors.
Social class is not determined by a single factor, such as income, but is measured as a combination
of occupation, income, education, wealth, and other variables. In some social systems, members of
different classes are reared for certain roles and cannot change their social positions. Marketers are
interested in social class because people within a given social class tend to exhibit similar buying
behavior.
Social classes show distinct product and brand preferences in areas such as clothing, home
furnishings, leisure activity, and automobiles.
b. Social Factors
A consumer's behavior also is influenced by social factors, such as the consumer's small groups,
family, and social roles and status.
I. Groups
Many small groups influence a person’s behavior. Groups that have a direct influence and to which
a person belongs are called membership groups. In contrast, reference groups serve as direct (faceto-
face) or indirect points of comparison or reference in forming a person's attitudes or behavior.
Reference groups to which they do not belong often influence people. Marketers try to identify
the reference groups of their target markets. Reference groups expose a person to new behaviors
and lifestyles, influence the person's attitudes and self-concept, and create pressures to conform
that may affect the person's product and brand choices.
The importance of group influence varies across products and brands. It tends to be strongest
when the product is visible to others whom the buyer respects. Manufacturers of products and
brands subjected to strong group influence must figure out how to reach opinion leaders—people
within a reference group who, because of special skills, knowledge, personality, or other
characteristics, exert influence on others.
Many marketers try to identify opinion leaders for their products and direct marketing efforts
toward them. In other cases, advertisements can simulate opinion leadership, thereby reducing the
need for consumers to seek advice from others.
The importance of group influence varies across products and brands. It tends to be strongest
when the product is visible to others whom the buyer respects. Purchases of products that are
bought and used privately are not much affected by group influences because neither the product
nor the brand will be noticed by others.
II. Family
Family members can strongly influence buyer behavior. The family is the most important
consumer buying organization in society, and it has been researched extensively. Marketers are
interested in the roles and influence of the husband, wife, and children on the purchase of different
products and services.
Husband-wife involvement varies widely by product category and by stage in the buying process.
Buying roles change with evolving consumer lifestyles.
Such changes suggest that marketers who've typically sold their products to only women or only
men are now courting the opposite sex. For example, with research revealing that women now
account for nearly half of all hardware store purchases, home improvement retailers such as
Depot and Builders Square have turned what once were intimidating warehouses into femalefriendly
retail outlets. The new Builders Square II outlets feature decorator design centers at the
front of the store. To attract more women, Builders Square runs ads targeting women in Home,
House Beautiful, Woman's Day, and Better Homes and Gardens. Home Depot even offers bridal
registries.
Similarly, after research indicated that women now make up 34 percent of the luxury car market,
Cadillac has started paying more attention to this important segment. Male car designers at Cadillac
are going about their work with paper clips on their fingers to simulate what it feels like to operate
buttons, knobs, and other interior features with longer fingernails. The Cadillac Catera features an
air-conditioned glove box to preserve such items as lipstick and film. Under the hood, yellow
markings highlight where fluid fills go.
Children may also have a strong influence on family buying decisions. For example, it ran ads to
woo these "back-seat consumers" in Sports Illustrated for Kids, which attracts mostly 8- to 14-
year-old boys. "We're kidding ourselves when we think kids aren't aware of brands," says Venture's
brand manager, adding that even she was surprised at how often parents told her that kids played a
tie-breaking role in deciding which car to buy.
In the case of expensive products and services, husbands and wives often make joint decisions.
III. Roles and Status
A person belongs to many groups—family, clubs, organizations. The person's position in each
group can be defined in terms of both role and status. A role consists of the activities people are
expected to perform according to the persons around them.
Principles of Marketing – MGT301 VU
© Copyright Virtual University of Pakistan 66
Lesson – 15
Lesson overview and learning objectives:
In last Lesson we discussed the Consumer Buying behavior its model and characteristics that can
influence the decision for buying process. Today we will be continuing the same topic and will
discuss the remaining factors that influence the buying process and decision of consumers.
So our today’s topic is:
CONSUMER BUYING BEHAVIOR (CONTINUED):
c Personal Factors
A buyer's decisions also are influenced by personal characteristics such as the buyer's age and lifecycle
stage, occupation, economic situation, lifestyle, and personality and self-concept.
I. Age and Life-Cycle Stage
People change the goods and services they buy over their lifetimes. Tastes in food, clothes,
furniture, and recreation are often age related. Buying is also shaped by the stage of the family life
cycle—the stages through which families might pass as they mature over time. Marketers often
define their target markets in terms of life-cycle stage and develop appropriate products and
marketing plans for each stage. Traditional family life-cycle stages include young singles and
married couples with children.
II. Occupation
A person's occupation affects the goods and services bought. Blue-collar workers tend to buy
more rugged work clothes, whereas white-collar workers buy more business suits. Marketers try to
identify the occupational groups that have an above-average interest in their products and services.
A company can even specialize in making products needed by a given occupational group. Thus,
computer software companies will design different products for brand managers, accountants,
engineers, lawyers, and doctors.
III. Economic Situation
A person's economic situation will affect product choice. Marketers of income-sensitive goods
watch trends in personal income, savings, and interest rates. If economic indicators point to a
recession, marketers can take steps to redesign, reposition, and reprice their products closely.
IV. Lifestyle
People coming from the same subculture, social class, and occupation may have quite different
lifestyles. Life style is a person's pattern of living as expressed in his or her psychographics. It
involves measuring consumers' major AIO dimensions—activities (work, hobbies, shopping, sports,
social events), interests (food, fashion, family, recreation), and opinions (about themselves, social
issues, business, products). Lifestyle captures something more than the person's social class or
personality. It profiles a person's whole pattern of acting and interacting in the world.
Several research firms have developed lifestyle classifications. It divides consumers into eight
groups based on two major dimensions: self-orientation and resources. Self-orientation groups
include principle-oriented consumers who buy based on their views of the world; status-oriented buyers
who base their purchases on the actions and opinions of others; and action-oriented buyers who are
driven by their desire for activity, variety, and risk taking. Consumers within each orientation are
further classified into those with abundant resources and those with minimal resources, depending on
whether they have high or low levels of income, education, health, self-confidence, energy, and
other factors. Consumers with either very high or very low levels of resources are classified
without regard to their self-orientations (actualizers, strugglers). Actualizers are people with so
many resources that they can indulge in any or all self-orientations. In contrast, strugglers are
people with too few resources to be included in any consumer orientation.
V. Personality and Self-Concept
Each person's distinct personality influences his or her buying behavior. Personality refers to the
unique psychological characteristics that lead to relatively consistent and lasting responses to one's
own environment. Personality is usually described in terms of traits such as self-confidence,
dominance, sociability, autonomy, defensiveness, adaptability, and aggressiveness. Personality can
be useful in analyzing consumer behavior for certain product or brand choices. For example,
coffee marketers have discovered that heavy coffee drinkers tend to be high on sociability. Thus,
to attract customers, Starbucks and other coffeehouses create environments in which people can
relax and socialize over a cup of steaming coffee.
Many marketers use a concept related to personality—a person's self-concept (also called self-image).
The basic self-concept premise is that people's possessions contribute to and reflect their identities;
that is, "we are what we have." Thus, in order to understand consumer behavior, the marketer
must first understand the relationship between consumer self-concept and possessions. For
example, the founder and chief executive of Barnes & Noble, the nation's leading bookseller, notes
that people buy books to support their self-images:
d Psychological Factors
A person's buying choices are further influenced by four major psychological factors: motivation,
perception, learning, and beliefs and attitudes.
I. Motivation
A person has many needs at any given time. Some are biological, arising from states of tension such
as hunger, thirst, or discomfort. Others are psychological, arising from the need for recognition,
esteem, or belonging. Most of these needs will not be strong enough to motivate the person to act
at a given point in time. A need becomes a motive when it is aroused to a sufficient level of
intensity. A motive (or drive) is a need that is sufficiently pressing to direct the person to seek
satisfaction. Psychologists have developed theories of human motivation. Two of the most
popular—the theories of Sigmund Freud and Abraham Maslow—have quite different meanings
for consumer analysis and marketing.
II. Maslow's Theory of Motivation
1.
Physiological Needs
2.
Safety Needs
Physiological Needs
3.
Social Needs
Safety Needs
Physiological Needs
4.
Safety Needs
Social Needs
Physiological Needs
Personal
Needs
Abraham Maslow sought to explain why people are driven by particular needs at particular times.
Why does one person spend much time and energy on personal safety and another on gaining the
esteem of others? Maslow's answer is that human needs are arranged in a hierarchy, from the most
pressing to the least pressing. Maslow's hierarchy of needs is shown in Figure. In order of
importance, they are physiological needs, safety needs, social needs, esteem needs, and self-actualization
needs. A person tries to satisfy the most important need first. When that need is satisfied, it will
stop being a motivator and the person will then try to satisfy the next most important need. For
example, starving people (physiological need) will not take an interest in the latest happenings in
the art world (self-actualization needs), nor in how they are seen or esteemed by others (social or
esteem needs), nor even in whether they are breathing clean air (safety needs). But as each
important need is satisfied, the next most important need will come into play.
III. Perception
A motivated person is ready to act. How the person acts is influenced by his or her own perception
of the situation. All of us learn by the flow of information through our five senses: sight, hearing,
smell, touch, and taste. However, each of us receives, organizes, and interprets this sensory
information in an individual way. Perception is the process by which people select, organize, and
interpret information to form a meaningful picture of the world.
People can form different perceptions of the same stimulus because of three perceptual processes:
selective attention, selective distortion, and selective retention. People are exposed to a great
amount of stimuli every day. For example, the average person may be exposed to more than 1,500
ads in a single day. It is impossible for a person to pay attention to all these stimuli. Selective
attention—the tendency for people to screen out most of the information to which they are
exposed—means that marketers have to work especially hard to attract the consumer's attention.
Even noted stimuli do not always come across in the intended way. Each person fits incoming
information into an existing mind-set. Selective distortion describes the tendency of people to
interpret information in a way that will support what they already believe. Selective distortion
means that marketers must try to understand the mind-sets of consumers and how these will affect
interpretations of advertising and sales information.
IV. Learning
When people act, they learn. Learning describes changes in an individual's behavior arising from
experience. Learning theorists say that most human behavior is learned. Learning occurs through
the interplay of drives, stimuli, cues, responses, and reinforcement.
V. Beliefs and Attitudes
Through doing and learning, people acquire beliefs and attitudes. These, in turn, influence their
buying behavior. A belief is a descriptive thought that a person has about something.
Buying behavior differs greatly for a tube of toothpaste, a tennis racket, an expensive camera, and a
new car. More complex decisions usually involve more buying participants and more buyer
deliberation. Figure shows types of consumer buying behavior based on the degree of buyer
involvement and the degree of differences among brands.
C. Types Buying Behaviors:
• Complex Buying Behavior
Consumers undertake complex buying behavior when they are highly involved in a purchase and
perceive significant differences among brands. Consumers may be highly involved when the
product is expensive, risky, purchased infrequently, and highly self-expressive. Typically, the
consumer has much to learn about the product category. For example, a personal computer buyer
may not know what attributes to consider. Many product features carry no real meaning: a
"Pentium Pro chip," "super VGA resolution," or "megs of RAM."
This buyer will pass through a learning process, first developing beliefs about the product, then
attitudes, and then making a thoughtful purchase choice. Marketers of high-involvement products
must understand the information-gathering and evaluation behavior of high-involvement
consumers. They need to help buyers learn about product-class attributes and their relative
importance, and about what the company's brand offers on the important attributes. Marketers
need to differentiate their brand's features, perhaps by describing the brand's benefits using print
media with long copy. They must motivate store salespeople and the buyer's acquaintances to
influence the final brand choice.
• Dissonance-Reducing Buying Behavior
Dissonance reducing buying behavior occurs when consumers are highly involved with an
expensive, infrequent, or risky purchase, but see little difference among brands. For example,
consumers buying carpeting may face a high-involvement decision because carpeting is expensive
and self-expressive. Yet buyers may consider most carpet brands in a given price range to be the
same. In this case, because perceived brand differences are not large, buyers may shop around to
learn what is available, but buy relatively quickly. They may respond primarily to a good price or to
purchase convenience.
After the purchase, consumers might experience post purchase dissonance (after-sale discomfort) when
they notice certain disadvantages of the purchased carpet brand or hear favorable things about
brands not purchased. To counter such dissonance, the marketer's after-sale communications
should provide evidence and support to help consumers feel good about their brand choices.
• Habitual Buying Behavior
Habitual buying behavior occurs under conditions of low consumer involvement and little
significant brand difference. For example, take salt. Consumers have little involvement in this
product category—they simply go to the store and reach for a brand. If they keep reaching for the
same brand, it is out of habit rather than strong brand loyalty. Consumers appear to have low
involvement with most low-cost, frequently purchased products.
In such cases, consumer behavior does not pass through the usual belief-attitude-behavior
sequence. Consumers do not search extensively for information about the brands, evaluate brand
characteristics, and make weighty decisions about which brands to buy. Instead, they passively
receive information as they watch television or read magazines. Ad repetition creates brand
familiarity rather than brand conviction. Consumers do not form strong attitudes toward a brand; they
select the brand because it is familiar. Because they are not highly involved with the product,
consumers may not evaluate the choice even after purchase. Thus, the buying process involves
brand beliefs formed by passive learning, followed by purchase behavior, which may or may not be
followed by evaluation.
Because buyers are not highly committed to any brands, marketers of low-involvement products
with few brand differences often use price and sales promotions to stimulate product trial. In
advertising for a low-involvement product, ad copy should stress only a few key points. Visual
symbols and imagery are important because they can be remembered easily and associated with the
brand. Ad campaigns should include high repetition of short-duration messages. Television is
usually more effective than print media because it is a low-involvement medium suitable for
passive learning. Advertising planning should be based on classical conditioning theory, in which
buyers learn to identify a certain product by a symbol repeatedly attached to it.
Marketers can try to convert low-involvement products into higher-involvement ones by linking
them to some involving issue. Procter & Gamble does this when it links Crest toothpaste to
avoiding cavities. At best, these strategies can raise consumer involvement from a low to a
moderate level. However, they are not likely to propel the consumer into highly involved buying
behavior.
a. Variety-Seeking Buying Behavior
Consumers undertake variety seeking buying behavior in situations characterized by low consumer
involvement but significant perceived brand differences. In such cases, consumers often do a lot of
brand switching. For example, when buying cookies, a consumer may hold some beliefs, choose a
cookie brand without much evaluation, then evaluate that brand during consumption. But the next
time, the consumer might pick another brand out of boredom or simply to try something different.
Brand switching occurs for the sake of variety rather than because of dissatisfaction.
In such product categories, the marketing strategy may differ for the market leader and minor
brands. The market leader will try to encourage habitual buying behavior by dominating shelf
space, keeping shelves fully stocked, and running frequent reminder advertising. Challenger firms
will encourage variety seeking by offering lower prices, special deals, coupons, free samples, and
advertising that presents reasons for trying something new.
D. Buyer Decision Process
Now that we have looked at the influences that affect buyers, we are ready to look at how
consumers make buying decisions. Figure shows that the buyer decision process consists of five
stages: need recognition, information search, evaluation of alternatives, purchase decision, and post purchase
behavior. Clearly, the buying process starts long before actual purchase and continues long after.
Marketers need to focus on the entire buying process rather than on just the purchase decision.
The figure implies that consumers pass through all five stages with every purchase. But in more
routine purchases, consumers often skip or reverse some of these stages. A woman buying her
regular brand of toothpaste would recognize the need and go right to the purchase decision,
skipping information search and evaluation. However, we use the model in Figure because it
shows all the considerations that arise when a consumer faces a new and complex purchase
situation.
• Need Recognition
The buying process starts with need recognition—the buyer recognizes a problem or need. The
buyer senses a difference between his or her actual state and some desired state. The need can be
triggered by internal stimuli when one of the person's normal needs—hunger, thirst—rises to a level
high enough to become a drive. A need can also be triggered by external stimuli. At this stage, the
marketer should research consumers to find out what kinds of needs or problems arise, what
brought them about, and how they led the consumer to this particular product.
By gathering such information, the marketer can identify the factors that most often trigger interest
in the product and can develop marketing programs that involve these factors.
• Information Search
An aroused consumer may or may not search for more information. If the consumer's drive is
strong and a satisfying product is near at hand, the consumer is likely to buy it then. If not, the
consumer may store the need in memory or undertake an information search related to the need.
At one level, the consumer may simply enter heightened attention. The consumer can obtain
information from any of several sources. These include personal sources (family, friends, neighbors,
acquaintances), commercial sources (advertising, salespeople, dealers, packaging, displays, Web sites),
public sources (mass media, consumer-rating organizations), and experiential sources (handling,
examining, using the product). The relative influence of these information sources varies with the
product and the buyer. Generally, the consumer receives the most information about a product
from commercial sources—those controlled by the marketer. The most effective sources, however,
tend to be personal. Commercial sources normally inform the buyer, but personal sources legitimize
or evaluate products for the buyer.
People often ask others—friends, relatives, acquaintances, professionals—for recommendations
concerning a product or service. Thus, companies have a strong interest in building such word-ofmouth
sources. These sources have two chief advantages. First, they are convincing: Word of mouth
is the only promotion method that is of consumers, by consumers, and for consumers. Having loyal,
satisfied customers that brag about doing business with you is the dream of every business owner.
Not only are satisfied customers repeat buyers, but they are also walking, talking billboards for
your business. Second, the costs are low. Keeping in touch with satisfied customers and turning
them into word-of-mouth advocates costs the business relatively little.
As more information is obtained, the consumer's awareness and knowledge of the available brands
and features increases. The information also helped her drop certain brands from consideration. A
company must design its marketing mix to make prospects aware of and knowledgeable about its
brand. It should carefully identify consumers' sources of information and the importance of each
source. Consumers should be asked how they first heard about the brand, what information they
received, and what importance they placed on different information sources.
• Evaluation of Alternatives
We have seen how the consumer uses information to arrive at a set of final brand choices. How
does the consumer choose among the alternative brands? The marketer needs to know about
alternatives evaluation—that is, how the consumer processes information to arrive at brand
choices. Unfortunately, consumers do not use a simple and single evaluation process in all buying
situations. Instead, several evaluation processes are at work.
The consumer arrives at attitudes toward different brands through some evaluation procedure.
How consumers go about evaluating purchase alternatives depends on the individual consumer
and the specific buying situation. In some cases, consumers use careful calculations and logical
thinking. At other times, the same consumers do little or no evaluating; instead they buy on
impulse and rely on intuition. Sometimes consumers make buying decisions on their own;
sometimes they turn to friends, consumer guides, or salespeople for buying advice.
Marketers should study buyers to find out how they actually evaluate brand alternatives. If they
know what evaluative processes go on, marketers can take steps to influence the buyer's decision.
• Purchase Decision
In the evaluation stage, the consumer ranks brands and forms purchase intentions. Generally, the
consumer's purchase decision will be to buy the most preferred brand, but two factors can come
between the purchase intention and the purchase decision. The first factor is the attitudes of others. The
second factor is unexpected situational factors. The consumer may form a purchase intention based on
factors such as expected income, expected price, and expected product benefits. However,
unexpected events may change the purchase intention. Thus, preferences and even purchase
intentions do not always result in actual purchase choice.
• Post purchase Behavior
The marketer's job does not end when the product is bought. After purchasing the product, the
consumer will be satisfied or dissatisfied and will engage in post purchase behavior of interest to
the marketer. What determines whether the buyer is satisfied or dissatisfied with a purchase? The
answer lies in the relationship between the consumer's expectations and the product's perceived
performance. If the product falls short of expectations, the consumer is disappointed; if it meets
expectations, the consumer is satisfied; if it exceeds expectations, the consumer is delighted.
The larger the gap between expectations and performance, the greater the consumer's
dissatisfaction. This suggests that sellers should make product claims that faithfully represent the
product's performance so that buyers are satisfied. Some sellers might even understate
performance levels to boost consumer satisfaction with the product. For example, Boeing's
salespeople tend to be conservative when they estimate the potential benefits of their aircraft. They
almost always underestimate fuel efficiency—they promise a 5 percent savings that turns out to be
8 percent. Customers are delighted with better-than-expected performance; they buy again and tell
other potential customers that Boeing lives up to its promises.
Almost all major purchases result in cognitive dissonance, or discomfort caused by post purchase
conflict. After the purchase, consumers are satisfied with the benefits of the chosen brand and are
glad to avoid the drawbacks of the brands not bought. However, every purchase involves
compromise. Consumers feel uneasy about acquiring the drawbacks of the chosen brand and
about losing the benefits of the brands not purchased. Thus, consumers feel at least some post
purchase dissonance for every purchase.
Why is it so important to satisfy the customer? Such satisfaction is important because a company's
sales come from two basic groups—new customers and retained customers. It usually costs more to
attract new customers than to retain current ones, and the best way to retain current customers is
to keep them satisfied. Customer satisfaction is a key to making lasting connections with
consumers—to keeping and growing consumers and reaping their customer lifetime value.
Satisfied customers buy a product again, talk favorably to others about the product, pay less
attention to competing brands and advertising, and buy other products from the company. Many
marketers go beyond merely meeting the expectations of customers—they aim to delight the
customer. A delighted customer is even more likely to purchase again and to talk favorably about
the product and company.
A dissatisfied consumer responds differently. Whereas, on average, a satisfied customer tells 3
people about a good product experience, a dissatisfied customer gripes to 11 people. In fact, one
study showed that 13 percent of the people who had a problem with an organization complained
about the company to more than 20 people. Clearly, bad word of mouth travels farther and faster
than good word of mouth and can quickly damage consumer attitudes about a company and its
products.
Therefore, a company would be wise to measure customer satisfaction regularly. It cannot simply
rely on dissatisfied customers to volunteer their complaints when they are dissatisfied. Some 96
percent of unhappy customers never tell the company about their problem. Companies should set
up systems that encourage customers to complain. In this way, the company can learn how well it is
doing and how it can improve. The 3M Company claims that over two-thirds of its new-product
ideas come from listening to customer complaints. But listening is not enough—the company also
must respond constructively to the complaints it receives.
• The Buyer Decision Process for New Products
We have looked at the stages buyers go through in trying to satisfy a need. Buyers may pass quickly
or slowly through these stages, and some of the stages may even be reversed. Much depends on
the nature of the buyer, the product, and the buying situation.
We now look at how buyers approach the purchase of new products. A new product is a good,
service, or idea that is perceived by some potential customers as new. It may have been around for
a while, but our interest is in how consumers learn about products for the first time and make
decisions on whether to adopt them. We define the adoption process as "the mental process
through which an individual passes from first learning about an innovation to final adoption, and
adoption as the decision by an individual to become a regular user of the product.
Stages in the Adoption Process
Consumers go through five stages in the process of adopting a new product:
• Awareness: The consumer becomes aware of the new product, but lacks information about
it.
• Interest: The consumer seeks information about the new product.
• Evaluation: The consumer considers whether trying the new product makes sense.
• Trial: The consumer tries the new product on a small scale to improve his or her estimate
of its value.
• Adoption: The consumer decides to make full and regular use of the new product.
This model suggests that the new-product marketer should think about how to help consumers
move through these stages. A manufacturer of large-screen televisions may discover that many
consumers in the interest stage do not move to the trial stage because of uncertainty and the large
investment. If these same consumers were willing to use a large-screen television on a trial basis for
a small fee, the manufacturer should consider offering a trial-use plan with an option to buy.
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Re: =$$===MARKETING CONCEPTS=====$$ - February 27th, 2007

Lesson – 16
Lesson overview and learning objectives:
In last Lesson we discussed the Consumer Buying behavior. Today
We will discuss business buyer behaviour, types of buying situations, participants in the business
buying process, and major influences on business buyers so our today’s topic is:
BUSINESS MARKETS AND BUYING BEHAVIOR
The business market includes firms that buy goods and services in order to produce products and
services to sell to others. It also includes retailing and wholesaling firms that buy goods in order to
resell them at a profit. Because aspects of business-to-business marketing apply to institutional
markets and government markets, we group these together. The business marketer needs to know the
following: Who are the major participants? In what decisions do they exercise influence? What is
their relative degree of influence? What evaluation criteria does each decision participant use? The
business marketer also needs to understand the major environmental, interpersonal, and individual
influences on the buying process.
A. What is a Business Market?
The business market comprises all the organizations that buy goods and services for use in the
production of other products and services that are sold, rented, or supplied to others. It also
includes retailing and wholesaling firms that acquire goods for the purpose of reselling or renting
them to others at a profit. In the business buying process business buyers determine which
products and services their organizations need to purchase, and then find, evaluate, and choose
among alternative suppliers and brands. Companies that sell to other business organizations must
do their best to understand business markets and business buyer behavior.
B. Characteristics of Business Markets
In some ways, business markets are similar to consumer markets. Both involve people who assume
buying roles and make purchase decisions to satisfy needs. However, business markets differ in
many ways from consumer markets. The main differences, are in the market structure and demand,
the nature of the buying unit, and the types of decisions and the decision process involved.
Business markets also have their own characteristics. In some ways, they are similar to consumer
markets, but in other ways they are very different. The main differences include:
1. Market structure and demand.
Business markets typically deal with far fewer but far larger buyers. They are more geographically
concentrated. Business markets have derived demand (business demand that ultimately comes from
or derives from the demand for consumer goods). Many business markets have inelastic demand; that
is, total demand for many business products is not affected much by price changes, especially in
the short run. A drop in the price of leather will not cause shoe manufacturers to buy much more
leather unless it results in lower shoe prices that, in turn, will increase consumer demand for shoes.
Finally, business markets have more fluctuating demand. The demand for many business goods and
services tends to change more—and more quickly—than the demand for consumer goods and
services does. A small percentage increase in consumer demand can cause large increases in
business demand. Sometimes a rise of only 10 percent in consumer demand can cause as much as a
200 percent rise in business demand during the next period.
2. Nature of the Buying Unit:
Compared with consumer purchases, a business purchase usually involves more decision
participants and a more professional purchasing effort. Often, business buying is done by trained
purchasing agents who spend their working lives learning how to make better buying decisions.
Buying committees made up of technical experts and top management are common in the buying
of major goods. Companies are putting their best and brightest people on procurement patrol.
Therefore, business marketers must have well-trained salespeople to deal with well-trained buyers.
3. Types of Decisions and the Decision Process
Business buyers usually face more complex buying decisions than do consumer buyers. Purchases
often involve large sums of money, complex technical and economic considerations, and
interactions among many people at many levels of the buyer's organization. Because the purchases
are more complex, business buyers may take longer to make their decisions. The business buying
process tends to be more formalized than the consumer buying process. Large business purchases
usually call for detailed product specifications, written purchase orders, careful supplier searches,
and formal approval. The buying firm might even prepare policy manuals that detail the purchase
process.
Finally, in the business buying process, buyer and seller are often much more dependent on each
other. Consumer marketers are often at a distance from their customers. In contrast, business
marketers may roll up their sleeves and work closely with their customers during all stages of the
buying process—from helping customers define problems, to finding solutions, to supporting
after-sale operation. They often customize their offerings to individual customer needs. In the
short run, sales go to suppliers who meet buyers' immediate product and service needs.
C. Business Buyer Behavior
The model in Figure suggests four questions about business buyer behavior: What buying
decisions do business buyers make? Who participates in the buying process? What are the major
influences on buyers? How do business buyers make their buying decisions?
a. A Model of Business Buyer Behavior
At the most basic level, marketers want to know how business buyers will respond to various
marketing stimuli. Figure shows a model of business buyer behavior. In this model, marketing and
other stimuli affect the buying organization and produce certain buyer responses. As with
consumer buying, the
marketing stimuli for
business buying consist
of the four Ps: product,
price, place, and
promotion. Other
stimuli include major
forces in the
environment: economic,
technological, political,
cultural, and
competitive. These
stimuli enter the
organization and are
turned into buyer
responses: product or service choice; supplier choice; order quantities; and delivery, service, and
payment terms. In order to design good marketing mix strategies, the marketer must understand
what happens within the organization to turn stimuli into purchase responses.
Th e B u yin g O rg an ization The B u ying O rg an ization
M ark e tin g an d
O ther S timuli
M arketin g and
O ther S timuli
B uyer’s R esponse B uyer’s R esponse
Produ ct
P rice
P lace
P rom otion
Econom ic
Techn olo gical
Political
C ultural
In te rp e rso n a l
an d In d ividu al
In flu en c e s
Org an izational
Influ en ces
Prod u ct o r S ervice
C h o ice
Sup plier C ho ice
O rd e r Q u an titie s
D eliv e ry T erm s
and T im es
S ervice T erm s
P a ym ent
T he B uying C enter
B u ying D e c is ion
P rocess
Within the organization, buying activity consists of two major parts: the buying center, made up of
all the people involved in the buying decision, and the buying decision process. The model shows
that the buying center and the buying decision process are influenced by internal organizational,
interpersonal, and individual factors as well as by external environmental factors.
b. Major Types of Buying Situations
There are three major types of buying situations. At one extreme is the straight rebuy, which is a
fairly routine decision. At the other extreme is the new task, which may call for thorough research.
In the middle is the modified rebuy, which requires some research.
In a straight rebuy the buyer reorders something without any modifications. It is usually handled
on a routine basis by the purchasing department. Based on past buying satisfaction, the buyer
simply chooses from the various suppliers on its list. "In" suppliers try to maintain product and
service quality.
In a modified rebuy, the buyer wants to modify product specifications, prices, terms, or suppliers.
The modified rebuy usually involves more decision participants than the straight rebuy. The in
suppliers may become nervous and feel pressured to put their best foot forward to protect an
account. Out suppliers may see the modified rebuy situation as an opportunity to make a better
offer and gain new business.
A company buying a product or service for the first time faces a new-task situation. In such cases,
the greater the cost or risk, the larger the number of decision participants and the greater their
efforts to collect information will be. The new-task situation is the marketer's greatest opportunity
and challenge. The marketer not only tries to reach as many key buying influences as possible but
also provides help and information.
The buyer makes the fewest decisions in the straight rebuy and the most in the new-task decision.
In the new-task situation, the buyer must decide on product specifications, suppliers, price limits,
payment terms, order quantities, delivery times, and service terms. The order of these decisions
varies with each situation, and different decision participants influence each choice.
c. Participants in the Business Buying Process
The decision-making unit of a buying organization is called its buying center: all the individuals and
units that participate in the business decision-making process. The buying center includes all
members of the organization who play any of five roles in the purchase decision process.
• Users are members of the organization who will use the product or service. In many cases,
users initiate the buying proposal and help define product specifications.
• Influencers often help define specifications and also provide information for evaluating
alternatives. Technical personnel are particularly important influencers.
• Buyers have formal authority to select the supplier and arrange terms of purchase. Buyers
may help shape product specifications, but their major role is in selecting vendors and
negotiating. In more complex purchases, buyers might include high-level officers
participating in the negotiations.
• Deciders have formal or informal power to select or approve the final suppliers. In
routine buying, the buyers are often the deciders, or at least the approvers.
• Gatekeepers control the flow of information to others. For example, purchasing agents
often have authority to prevent salespersons from seeing users or deciders. Other
gatekeepers include technical personnel and even personal secretaries.
The buying center is not a fixed and formally identified unit within the buying organization. It is a
set of buying roles assumed by different people for different purchases. Within the organization,
the size and makeup of the buying center will vary for different products and for different buying
situations. Business marketers working in global markets may face even greater levels of buying
center influence. The buying center concept presents a major marketing challenge. The business
marketer must learn who participates in the decision, each participant's relative influence, and what
evaluation criteria each decision participant uses. The buying center usually includes some obvious
participants who are involved formally in the buying decision.
d. Major Influences on Business Buyers
Business buyers are subject to many influences when they make their buying decisions. Some
marketers assume that the major influences are economic. They think buyers will favor the supplier
who offers the lowest price or the best product or the most service. They concentrate on offering
strong economic benefits to buyers. However, business buyers actually respond to both economic
and personal factors. Far from being cold, calculating, and impersonal, business buyers are human
and social as well. They react to both reason and emotion.
Today, most business-to-business marketers recognize that emotion plays an important role in
business buying decisions. When suppliers' offers are very similar, business buyers have little basis
for strictly rational choice. Because they can meet organizational goals with any supplier, buyers
can allow personal factors to play a larger role in their decisions. However, when competing
products differ greatly, business buyers are more accountable for their choice and tend to pay more
attention to economic factors. Figure lists various groups of influences on business buyers—
environmental, organizational, interpersonal, and individual.
Major Influences on Business Buyers
• Environmental Factors
Business buyers are influenced heavily by factors in the current and expected economic environment,
such as the level of primary demand, the economic outlook, and the cost of money. As economic
uncertainty rises, business buyers cut back on new investments and attempt to reduce their
inventories.
An increasingly important environmental factor is shortages in key materials. Many companies now
are more willing to buy and hold larger inventories of scarce materials to ensure adequate supply.
Business buyers also are affected by technological, political, and competitive developments in the
environment. Culture and customs can strongly influence business buyer reactions to the
marketer's behavior and strategies, especially in the international marketing environment. The
business marketer must watch these factors, determine how they will affect the buyer, and try to
turn these challenges into opportunities.
• Organizational Factors
Each buying organization has its own objectives, policies, procedures, structure, and systems. The
business marketer must know these organizational factors as thoroughly as possible. Questions such
as these arise: How many people are involved in the buying decision? Who are they? What are their
evaluative criteria? What are the company's policies and limits on its buyers?
Interpersonal Factors
The buying center usually includes many participants who influence each other. The business
marketer often finds it difficult to determine what kinds of interpersonal factors and group dynamics
enter into the buying process. Participants may have influence in the buying decision because they
control rewards and punishments, are well liked, have special expertise, or have a special
relationship with other important participants. Interpersonal factors are often very subtle.
Whenever possible, business marketers must try to understand these factors and design strategies
that take them into account.
Individual Factors
Each participant in the business buying decision process brings in personal motives, perceptions,
and preferences. These individual factors are affected by personal characteristics such as age,
income, education, professional identification, personality, and attitudes toward risk. Also, buyers
have different buying styles. Some may be technical types who make in-depth analyses of
competitive proposals before choosing a supplier. Other buyers may be intuitive negotiators who
are adept at pitting the sellers against one another for the best deal.
D. The Business Buying Process
There are eight stages of the business buying process. Buyers who face a new-task buying situation
usually go through all stages of the buying process. Buyers making modified or straight rebuys may
skip some of the stages. We will examine these steps for the typical new-task buying situation.
a. Problem Recognition
The buying process begins when someone in the company recognizes a problem or need that can
be met by acquiring a specific product or service. Problem recognition can result from internal or
external stimuli. Internally, the company may decide to launch a new product that requires new
production equipment and materials. Or a machine may break down and need new parts. Perhaps
a purchasing manager is unhappy with a current supplier's product quality, service, or prices.
Externally, the buyer may get some new ideas at a trade show, see an ad, or receive a call from a
salesperson who offers a better product or a lower price. In fact, in their advertising, business
marketers often alert customers to potential problems and then show how their products provide
solutions.
b. General Need Description
Having recognized a need, the buyer next prepares a general need description that describes the
characteristics and quantity of the needed item. For standard items, this process presents few
problems. For complex items, however, the buyer may have to work with others—engineers,
users, consultants—to define the item. The team may want to rank the importance of reliability,
durability, price, and other attributes desired in the item. In this phase, the alert business marketer
can help the buyers define their needs and provide information about the value of different
product characteristics.
c. Product Specification
The buying organization next develops the item's technical product specifications, often with the
help of a value analysis engineering team. Value analysis is an approach to cost reduction in which
components are studied carefully to determine if they can be redesigned, standardized, or made by
less costly methods of production. The team decides on the best product characteristics and
specifies them accordingly. Sellers, too, can use value analysis as a tool to help secure a new
account. By showing buyers a better way to make an object, outside sellers can turn straight rebuy
situations into new-task situations that give them a chance to obtain new business.
d. Supplier Search
The buyer now conducts a supplier search to find the best vendors. The buyer can compile a small
list of qualified suppliers by reviewing trade directories, doing a computer search, or phoning other
companies for recommendations. Today, more and more companies are turning to the Internet to
find suppliers. For marketers, this has leveled the playing field—smaller suppliers have the same
advantages as larger ones and can be listed in the same online catalogs for a nominal fee:
The newer the buying task, and the more complex and costly the item, the greater the amount of
time the buyer will spend searching for suppliers. The supplier's task is to get listed in major
directories and build a good reputation in the marketplace. Salespeople should watch for
companies in the process of searching for suppliers and make certain that their firm is considered.
e. Proposal Solicitation
In the proposal solicitation stage of the business buying process, the buyer invites qualified
suppliers to submit proposals. In response, some suppliers will send only a catalog or a
salesperson. However, when the item is complex or expensive, the buyer will usually require
detailed written proposals or formal presentations from each potential supplier.
Business marketers must be skilled in researching, writing, and presenting proposals in response to
buyer proposal solicitations. Proposals should be marketing documents, not just technical
documents. Presentations should inspire confidence and should make the marketer's company
stand out from the competition.
f. Supplier Selection
The members of the buying center now review the proposals and select a supplier or suppliers.
During supplier selection, the buying center often will draw up a list of the desired supplier
attributes and their relative importance. In one survey, purchasing executives listed the following
attributes as most important in influencing the relationship between supplier and customer: quality
products and services, on-time delivery, ethical corporate behavior, honest communication, and
competitive prices. Other important factors include repair and servicing capabilities, technical aid
and advice, geographic location, performance history, and reputation. The members of the buying
center will rate suppliers against these attributes and identify the best suppliers.
As part of the buyer selection process, buying centers must decide how many suppliers to use. In
the past, many companies preferred a large supplier base to ensure adequate supplies and to obtain
price concessions. These companies would insist on annual negotiations for contract renewal and
would often shift the amount of business they gave to each supplier from year to year.
Increasingly, however, companies are reducing the number of suppliers. There is even a trend
toward single sourcing, using one supplier. With single sourcing there is only one supplier to
handle and it is easier to control newsprint inventories. Using one source not only can translate
into more consistent product performance, but it also allows press rooms to configure themselves
for one particular kind of newsprint rather than changing presses for papers with different
attributes.
Many companies, however, are still reluctant to use single sourcing. They fear that they may
become too dependent on the single supplier or that the single-source supplier may become too
comfortable in the relationship and lose its competitive edge. Some marketers have developed
programs that address these concerns.
g. Order-Routine Specification
The buyer now prepares an order-routine specification. It includes the final order with the chosen
supplier or suppliers and lists items such as technical specifications, quantity needed, expected time
of delivery, return policies, and warranties. In the case of maintenance, repair, and operating items.
h. Performance Review
In this stage, the buyer reviews supplier performance. The buyer may contact users and ask them
to rate their satisfaction. The performance review may lead the buyer to continue, modify, or drop
the arrangement. The seller's job is to monitor the same factors used by the buyer to make sure
that the seller is giving the expected satisfaction.
We have described the stages that typically would occur in a new-task buying situation. The eightstage
model provides a simple view of the business buying decision process. The actual process is
usually much more complex. In the modified rebuy or straight rebuy situation, some of these
stages would be compressed or bypassed. Each organization buys in its own way, and each buying
situation has unique requirements. Different buying center participants may be involved at
different stages of the process. Although certain buying process steps usually do occur, buyers do
not always follow them in the same order, and they may add other steps. Often, buyers will repeat
certain stages of the process.
E. Institutional and Government Markets
So far, our discussion of organizational buying has focused largely on the buying behavior of
business buyers. Much of this discussion also applies to the buying practices of institutional and
government organizations. However, these two nonbusiness markets have additional
characteristics and needs. In this final section, we address the special features of institutional and
government markets.
a. Institutional Markets
The institutional market consists of schools, hospitals, nursing homes, prisons, and other
institutions that provide goods and services to people in their care. Institutions differ from one
another in their sponsors and in their objectives. Many institutional markets are characterized by
low budgets and captive patrons. For example, hospital patients have little choice but to eat
whatever food the hospital supplies. A hospital-purchasing agent has to decide on the quality of
food to buy for patients. Because the food is provided as a part of a total service package, the
buying objective is not profit. Nor is strict cost minimization the goal—patients receiving poorquality
food will complain to others and damage the hospital's reputation. Thus, the hospitalpurchasing
agent must search for institutional-food vendors whose quality meets or exceeds a
certain minimum standard and whose prices are low. Many marketers set up separate divisions to
meet the special characteristics and needs of institutional buyers.
b. Government Markets
The government market offers large opportunities for many companies, both big and small. In
most countries, government organizations are major buyers of goods and services. Government
buying and business buying are similar in many ways. But there are also differences that must be
understood by companies that wish to sell products and services to governments. To succeed in
the government market, sellers must locate key decision makers, identify the factors that affect
buyer behavior, and understand the buying decision process.
Government organizations typically require suppliers to submit bids, and normally they award the
contract to the lowest bidder. In some cases, the government unit will make allowance for the
supplier's superior quality or reputation for completing contracts on time. Many companies that
sell to the government have not been marketing oriented for a number of reasons. Total
government spending is determined by elected officials rather than by any marketing effort to
develop this market. Government buying has emphasized price, making suppliers invest their
effort in technology to bring costs down. When the product's characteristics are specified carefully,
product differentiation is not a marketing factor. Nor do advertising or personal selling matter
much in winning bids on an open-bid basis.
Key Terms
Business Markets: The business market includes firms that buy goods and services in order to
produce products and services to sell to others.
Straight Re-buy the buyer reorders something without any modifications.
Modified Re-buy the buyer wants to modify product specifications, prices, terms, or
suppliers.
New Task Buying A company buying a product or service.
Users are members of the organization who will use the product or service. In many cases, users
initiate the buying proposal and help define product specifications.
Influencers Often help define specifications and also provide information for evaluating
alternatives. Technical personnel are particularly important influencers.
Buyers have formal authority to select the supplier and arrange terms of purchase.
Deciders have formal or informal power to select or approve the final suppliers.
Gatekeepers control the flow of information to others.
Lesson – 17
Lesson overview and learning objectives:
The Lesson emphasizes the key steps in: market segmentation; market targeting, and market
positioning. Market segmentation provides a method to divide or segment the market into narrow
segments (using a variety of different meaningful variables. Today we will be discussing the major
variables that can be used to segment the consumer markets.
MARKET SEGMENTATION
A. Market Segmentation:
Markets consist of buyers, and buyers differ in one or more ways. They may differ in their wants,
resources, locations, buying attitudes, and buying practices. Through market segmentation,
companies divide large, heterogeneous markets into smaller segments that can be reached more
efficiently and effectively with products and services that match their unique needs. Companies
today recognize that they cannot appeal to all buyers in the marketplace, or at least not to all buyers
in the same way. Buyers are too numerous, too widely scattered, and too varied in their needs and
buying practices. Moreover, the companies themselves vary widely in their abilities to serve
different segments of the market. Rather than trying to compete in an entire market, sometimes
against superior competitors, each company must identify the parts of the market that it can serve
best and most profitably.
Thus, most companies are more selective about the customers with whom they wish to connect.
Most have moved away from mass marketing and toward market segmentation and targeting—
identifying market segments, selecting one or more of them, and developing products and
marketing programs tailored to each. Instead of scattering their marketing efforts firms are
focusing on the buyers who have greater interest in the values they create best.
B. Steps in Target Marketing:
Figure shows the three major steps in target marketing. The first is market segmentation—
dividing a market into smaller groups of buyers with distinct needs, characteristics, or behaviors
who might require separate products or marketing mixes. The company identifies different ways to
segment the market and develops profiles of the resulting market segments. The second step is
market targeting—evaluating each market segment's attractiveness and selecting one or more of
the market segments to enter. The third step is market positioning—setting the competitive
positioning for the product and creating a detailed marketing mix. We discuss each of these steps
in turn.
C. Levels of Market Segmentation
Because buyers have unique needs and wants, each buyer is potentially a separate market. Ideally,
then, a seller might design a separate
marketing program for each buyer.
However, although some companies
attempt to serve buyers individually, many
others face larger numbers of smaller buyers
and do not find complete segmentation
worthwhile. Instead, they look for broader
classes of buyers who differ in their product
needs or buying responses. Thus, market
segmentation can be carried out at several
different levels. Figure shows that
companies can practice no segmentation
(mass marketing), complete segmentation
Market Segmentation
1. Identify bases for
segmenting the market
2. Develop segment profiles
Market Targeting
3. Develop measure of
segment attractiveness
4. Select target segments
Market positioning
5. Develop positioning for
target segments
6. Develop a marketing
mix for each segment
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(micromarketing), or something in between (segment marketing or niche marketing).
Levels of marketing segmentation
a) Mass Marketing
Companies have not always practiced target marketing. In fact, for most of the 1900s, major
consumer products companies held fast to mass marketing—mass producing, mass distributing,
and mass promoting about the same product in about the same way to all consumers. Henry Ford
epitomized this marketing strategy when he offered the Model T Ford to all buyers; they could
have the car” in any color as long as it is black." Similarly, Coca-Cola at one time produced only
one drink for the whole market, hoping it would appeal to everyone.
The traditional argument for mass marketing is that it creates the largest potential market, which
leads to the lowest costs, which in turn can
translate into either lower prices or higher
margins. However, many factors now make
mass marketing more difficult. The
proliferation of distribution channels and
advertising media has also made it difficult
to practice "one-size-fits-all" marketing.
b) Segment Marketing
A company that practices segment
marketing isolates broad segments that make
up a market and adapts its offers to more
closely match the needs of one or more
segments. Thus, Marriott markets to a variety of segments—business travelers, families, and
others—with packages adapted to their varying needs. Segment marketing offers several benefits
over mass marketing. The company can market more efficiently, targeting its products or services,
channels, and communications programs toward only consumers that it can serve best and most
profitably. The company can also market more effectively by fine-tuning its products, prices, and
programs to the needs of carefully defined segments. The company may face fewer competitors if
fewer competitors are focusing on this market segment.
c) Niche Marketing
Market segments are normally large, identifiable groups within a market—for example, luxury car
buyers, performance car buyers, utility car buyers, and economy car buyers. Niche marketing
focuses on subgroups within these segments. A niche is a more narrowly defined group, usually
identified by dividing a segment into sub segments or by defining a group with a distinctive set of
traits who may seek a special combination of benefits. Whereas segments are fairly large and
normally attract several competitors, niches are smaller and normally attract only one or a few
competitors. Niche marketers presumably understand their niches' needs so well that their
customers willingly pay a price premium.
Segmentation
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d) Micro marketing
Segment and niche marketers tailor their offers and marketing programs to meet the needs of
various market segments. At the same time, however, they do not customize their offers to each
individual customer. Thus, segment marketing and niche marketing fall between the extremes of
mass marketing and micro marketing. Micro marketing is the practice of tailoring products and
marketing programs to suit the tastes of specific individuals and locations. Micro marketing
includes local marketing (Local marketing involves tailoring brands and promotions to the needs
and wants of local customer groups—cities, neighborhoods, and even specific stores. Citibank
provides different mixes of banking services in its branches depending on neighborhood
demographics) and individual marketing (tailoring products and marketing programs to the needs
and preferences of individual customers).
D. Segmenting Consumer Markets
There is no single way to segment a market. A marketer has to try different segmentation variables,
alone and in combination, to find the best way to view the market structure. The major variables
that might be used in segmenting are major geographic, demographic, psychographics, and
behavioral variables.
a) Geographic Segmentation
Geographic segmentation calls for dividing the market into different geographical units such as
nations, regions, states, counties, cities, or neighborhoods. A company may decide to operate in
one or a few geographical areas, or to operate in all areas but pay attention to geographical
differences in needs and wants. It is common to localize products, advertising, promotions, and
sales efforts to fit the needs of geographical areas (regions, cities, and even neighborhoods).
b) Demographic Segmentation
Demographic segmentation divides the market into groups based on variables such as age, gender,
family size, family life cycle, income, occupation, education, religion, race, and nationality.
Demographic factors are the most popular bases for segmenting customer groups. One reason is
that consumer needs, wants, and usage rates often vary closely with demographic variables.
Another is that demographic variables are easier to measure than most other types of variables.
Even when market segments are first defined using other bases, such as benefits sought or
behavior, their demographic characteristics must be known in order to assess the size of the target
market and to reach it efficiently. Demographic variables are easier to measure than most other
types of variables.
I. Age and Life-Cycle Stage
Age and life cycle segmentation consists of offering different products or using different marketing
approaches for different age and life-cycle groups. Marketers must guard against stereotypes when
using this form of segmentation. While certain age and life cycle groups do behave similarly, age is
often a poor predictor of a person’s life cycle, health, work or family status, needs, and buying
power. Consumer needs and wants change with age. Some companies use age and life cycle
segmentation, offering different products or using different marketing approaches for different age
and life-cycle groups.
II. Gender segmentation
calls for dividing a market into different groups based on sex. This segmentation form has long
been used for clothing, cosmetics, toiletries, and magazines. New opportunities in this area are
emerging such as automobiles, deodorants, and financial services. There is an increased emphasis
on marketing and advertising to women. Specialized Web sites are becoming very popular with this
group.
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III. Income segmentation
It consists of dividing a market into different income groups. Marketers for automobiles, boats,
clothing, cosmetics, financial services, and travel have long used this form of segmentation. Using
this form, marketers must remember that they do not always have to target the affluent. Other
income groups are also viable and profitable market segments.
c) Psychographics segmentation
It calls for dividing a market into different groups
based on social class, lifestyle, or personality characteristics. People in the same demographic class
can exhibit very different psychographics characteristics. As previously seen in, lifestyle also
affects people’s interest in various goods, and the goods they buy express those lifestyles. This
method of segmentation is gaining in popularity. Personality variables can also be used to
segment markets. Marketers will give their products personalities that correspond to consumer
personalities.
d) Behavioral segmentation
It involves dividing a market into groups based on consumer knowledge, attitudes, uses, or
responses to a product. Many marketers believe that behavior variables are the best starting point
for building market segments. Occasion segmentation consists of dividing the market into groups
according to occasions when buyers get the idea to buy, actually make their purchase, or use the
purchased item. Benefit segmentation involves dividing the market into groups according to the
different benefits the consumers seek from the product. Companies can use benefit segmentation
to clarify the benefit segment to which they are appealing, its characteristics, and the major
competing brands. They can also search for new benefits and establish brands that deliver them.
User status can also be used to divide the market. Segments of nonusers, ex-users, potential
users, first-time users, and regular users of a product are potential ways to segment. Usage rates
are another way that marketers segment markets. These categories might be light, medium, and
heavy user groups. Loyalty status can also be used to segment markets. Consumers can be loyal
to brands, stores, and companies. Consumers can be completely loyal, somewhat loyal, or not loyal
at all. An amazing amount of information can be uncovered by studying loyalty patterns.
Today there is a trend toward targeting multiple segments. Very often, companies begin their
marketing with one targeted segment, and then expand into other segments. This often boosts a
company’s competitive advantage and knowledge of the customer base. One of the most
promising developments in multivariable segmentation is “geodemographic” segmentation based
upon both geographic and demographic variables.
KEY TERMS
Market segmentation dividing a market into smaller groups
Market targeting evaluating each market segment's attractiveness and selecting one or
more of the market segments to enter
Market positioning setting the competitive positioning for the product
Geographic segmentation dividing the market into different geographical units
Demographic segmentation divides the market into groups based on variables such as age,
gender, family size, family life cycle, income, occupation, education,
religion, race, and nationality.
Behavioral segmentation involves dividing a market into groups based on consumer
knowledge, attitudes, uses, or responses to a product.
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Lesson – 18
Lesson overview and learning objectives:
In last Lesson we studied the segmentation to day we will continue the same topic and market
targeting, and market positioning
MARKET SEGMENTATION (CONTINUED)
A. Segmenting Business Markets
Consumer and business marketers use many of the same variables to segment their markets.
Business buyers can be segmented geographically or by benefits sought, user status, usage rate, or
loyalty status. Additional variables unique to this market would be business customer demographics
(industry, company size), operating characteristics, purchasing approaches, situational
factors, and personal characteristics. By going after segments instead of the whole market,
companies have a much better chance to deliver value to consumers and to receive maximum
rewards for close attention to customer needs. Within a chosen industry, a company can further
segment by customer size or geographic location. Many marketers believe that buying behavior
and benefits provide the best basis for segmenting business markets.
Segmenting International Markets Companies can segment international markets using one or
more of a combination of variables. The chief factors that can be used are: Geographic location.
Economic factors. Political and legal factors. Cultural factors. Many companies use an
approach called intermarket segmentation. In this approach, companies form segments of consumers
who have similar needs and buying behavior even though they are located in different countries.
For example, the world’s teens have a lot in common.
B. Requirements for Effective Segmentation
There are many ways to segment, but not all segmentations are effective. To be useful, market
segments must have certain characteristics. Among the most significant of these are:
1) Measurability is the degree to which the size, purchasing power, and profiles of a
market segment can be measured.
2) Accessibility refers to the degree to which a market segment can be reached and served.
3) Substantiality refers to the degree to which a market segment is sufficiently large or
profitable.
4) Differentiation refers to the degree to which a market segment can conceptually be
distinguished and has the ability to respond differently to different marketing
mix elements and programs.
5) Action ability is the degree to which effective programs can be designed for attracting
and serving a given market segment.
C. Market Targeting
Market segmentation reveals the firm's market segment opportunities. The firm now has to
evaluate the various segments and decide how many and which ones to target. We now look at
how companies evaluate and select target segments.
a) Evaluating Market Segments
In evaluating different market segments, a firm must look at three factors: segment size and
growth, segment structural attractiveness, and company objectives and resources. The company
must first collect and analyze data on current segment sales, growth rates, and expected
profitability for various segments. It will be interested in segments that have the right size and
growth characteristics. But "right size and growth" is a relative matter. The largest, fastest-growing
segments are not always the most attractive ones for every company. Smaller companies may lack
the skills and resources needed to serve the larger segments or may find these segments too
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competitive. Such companies may select segments that are smaller and less attractive, in an
absolute sense, but that are potentially more profitable for them.
The company also needs to examine major structural factors that affect long-run segment
attractiveness. For example, a segment is less attractive if it already contains many strong and
aggressive competitors. The existence of many actual or potential substitute products may limit prices
and the profits that can be earned in a segment. The relative power of buyers also affects segment
attractiveness. Buyers with strong bargaining power relative to sellers will try to force prices down,
demand more services, and set competitors against one another—all at the expense of seller
profitability. Finally, a segment may be less attractive if it contains powerful suppliers who can control
prices or reduce the quality or quantity of ordered goods and services.
Even if a segment has the right size and growth and is structurally attractive, the company must
consider its own objectives and resources in relation to that segment. Some attractive segments
could be dismissed quickly because they do not mesh with the company's long-run objectives.
Even if a segment fits the company's objectives, the company must consider whether it possesses
the skills and resources it needs to succeed in that segment. If the company lacks the strengths
needed to compete successfully in a segment and cannot readily obtain them, it should not enter
the segment. Even if the company possesses the required strengths, it needs to employ skills and
resources superior to those of the competition in order to really win in a market segment. The
company should enter only segments in which it can offer superior value and gain advantages over
competitors.
a) Undifferentiated Marketing
Using an undifferentiated marketing (or mass-marketing) strategy, a firm might decide to ignore
market segment differences and go to the whole market with one offer. This mass-marketing
strategy focuses on what is common in the needs of consumers rather than on what is different. The
company designs a product and a marketing program that will appeal to the largest number of
buyers. It relies on mass distribution and mass advertising, and it aims to give the product a
superior image in people's minds. As noted earlier in the chapter, most modern marketers have
strong doubts about this strategy. Difficulties arise in developing a product or brand that will
satisfy all consumers. Moreover, mass marketers often have trouble competing with more focused
firms that do a better job of satisfying the needs of specific segments and niches.
b) Differentiated Marketing
Using a differentiated marketing strategy, a firm decides to target several market segments or
niches and designs separate offers for each. General Motors tries to produce a car for every "purse,
purpose, and personality." Nike offers athletic shoes for a dozen or more different sports, from
running, fencing, and aerobics to bicycling and baseball. By offering product and marketing
variations, these companies hope for higher sales and a stronger position within each market
segment. Developing a stronger position within several segments creates more total sales than
undifferentiated marketing across all segments. Procter & Gamble gets more total market share
with eight brands of laundry detergent than it could with only one. But differentiated marketing
also increases the costs of doing business. A firm usually finds it more expensive to develop and
produce, say, 10 units of 10 different products than 100 units of one product. Developing separate
marketing plans for the separate segments requires extra marketing research, forecasting, sales
analysis, promotion planning, and channel management. Trying to reach different market segments
with different advertising increases promotion costs. Thus, the company must weigh increased
sales against increased costs when deciding on a differentiated marketing strategy.
c) Concentrated Marketing
A third market-coverage strategy, concentrated marketing, is especially appealing when company
resources are limited. Instead of going after a small share of a large market, the firm goes after a
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large share of one or a few segments or niches. Today, the low cost of setting up shop on the
Internet makes it even more profitable to serve seemingly minuscule niches. Concentrated
marketing provides an excellent way for small new businesses to get a foothold against larger, more
resourceful competitors. Through concentrated marketing, firms achieve strong market positions
in the segments or niches they serve because of their greater knowledge of the segments' needs and
the special reputations they acquire. They also enjoy many operating economies because of
specialization in production, distribution, and promotion. If the segment is well chosen, firms can
earn a high rate of return on their investments.
At the same time, concentrated marketing involves higher-than-normal risks. The particular market
segment can turn sour. Or larger competitors may decide to enter the same segment.
d) Choosing a Market-Coverage Strategy
Many factors need to be considered when choosing a market-coverage strategy. Which strategy is
best depends on company resources. When the firm's resources are limited, concentrated marketing
makes the most sense. The best strategy also depends on the degree of product variability.
Undifferentiated marketing is more suited for uniform products such as grapefruit or steel.
Products that can vary in design, such as cameras and automobiles, are more suited to
differentiation or concentration. The product's life-cycle stage also must be considered.
When a firm introduces a new product, it is practical to launch only one version and
undifferentiated marketing or concentrated marketing makes the most sense. In the mature stage
of the product life cycle, however, differentiated marketing begins to make more sense. Another
factor is market variability. If most buyers have the same tastes, buy the same amounts, and react the
same way to marketing efforts, undifferentiated marketing is appropriate. Finally, competitors'
marketing strategies are important. When competitors use differentiated or concentrated marketing,
undifferentiated marketing can be suicidal. Conversely, when competitors use undifferentiated
marketing, a firm can gain an advantage by using differentiated or concentrated marketing.
e) Socially Responsible Target Marketing
Smart targeting helps companies to be more efficient and effective by focusing on the segments
that they can satisfy best and most profitably. Targeting also benefits consumers—companies
reach specific groups of consumers with offers carefully tailored to satisfy their needs. However,
target marketing sometimes generates controversy and concern. Issues usually involve the targeting
of vulnerable or disadvantaged consumers with controversial or potentially harmful products. In
market targeting, the issue is not really who is targeted but rather how and for what. Controversies
arise when marketers attempt to profit at the expense of targeted segments—when they unfairly
target vulnerable segments or target them with questionable products or tactics. Socially
responsible marketing calls for segmentation and targeting that serve not just the interests of the
company but also the interests of those targeted.
f) Positioning for Competitive Advantage
Once a company has decided which segments of the market it will enter, it must decide what
positions it wants to occupy in those segments. A product's position is the way the product is
defined by consumers on important attributes—the place the product occupies in consumers' minds
relative to competing products. Positioning involves implanting the brand's unique benefits and
differentiation in customers' minds. Thus, Tide is positioned as a powerful, all-purpose family
detergent; In the automobile market, Toyota and Subaru are positioned on economy, Mercedes
and Cadillac on luxury Consumers are overloaded with information about products and services.
They cannot re evaluate products every time they make a buying decision. To simplify the buying
process, consumers organize products into categories—they "position" products, services, and
companies in their minds. A product's position is the complex set of perceptions, impressions, and
feelings that consumers have for the product compared with competing products. Consumers
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position products with or without the help of marketers. But marketers do not want to leave their
products' positions to chance. They must plan positions that will give their products the greatest
advantage in selected target markets, and they must design marketing mixes to create these planned
positions.
b) Choosing a Positioning Strategy
Some firms find it easy to choose their positioning strategy. For example, a firm well known for
quality in certain segments will go for this position in a new segment if there are enough buyers
seeking quality. But in many cases, two or more firms will go after the same position. Then, each
will have to find other ways to set itself apart. Each firm must differentiate its offer by building a
unique bundle of benefits those appeals to a substantial group within the segment.
The positioning task consists of three steps: identifying a set of possible competitive advantages
upon which to build a position, choosing the right competitive advantages, and selecting an overall
positioning strategy. The company must then effectively communicate and deliver the chosen
position to the market.
c) Identifying Possible Competitive Advantages
The key to winning and keeping customers is to understand their needs and buying processes
better than competitors do and to deliver more value. To the extent that a company can position
itself as providing superior value to selected target markets it gains competitive advantage. But
solid positions cannot be built on empty promises. If a company positions its product as offering the
best quality and service, it must then deliver the promised quality and service. Thus, positioning
begins with actually differentiating the company's marketing offer so that it will give consumers more
value than competitors' offers do.
To find points of differentiation, marketers must think through the customer's entire experience
with the company's product or service. An alert company can find ways to differentiate itself at
every point where it comes in contact with customers. In what specific ways can a company
differentiate its offer from those of competitors? A company or market offer can be differentiated
along the lines of product, services, channels, people, or image.
Companies can gain a strong competitive advantage through people differentiation—hiring and
training better people than their competitors do. Thus, Disney people are known to be friendly and
upbeat. Singapore Airlines enjoys an excellent reputation largely because of the grace of its flight
attendants.
d) Choosing the Right Competitive Advantages
Suppose a company is fortunate enough to discover several potential competitive advantages. It
now must choose the ones on which it will build its positioning strategy. It must decide how many
differences to promote and which ones.
I. How Many Differences to Promote?
Many marketers think that companies should aggressively promote only one benefit to the target
market. Each brand should pick an attribute and tout itself as "number one" on that attribute.
Thus, Crest toothpaste consistently promotes its anti cavity protection. A company that hammers
away at one of these positions and consistently delivers on it probably will become best known and
remembered for it.
Other marketers think that companies should position themselves on more than one
differentiating factor. This may be necessary if two or more firms are claiming to be the best on
the same attribute. Today, in a time when the mass market is fragmenting into many small
segments, companies are trying to broaden their positioning strategies to appeal to more segments.
In general, a company needs to avoid three major positioning errors. The first is under positioning—
failing to ever really position the company at all. Some companies discover that buyers have only a
vague idea of the company or that they do not really know anything special about it. The second
error is over positioning—giving buyers too narrow a picture of the company.
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II. Which Differences to Promote?
Not all brand differences are meaningful or worthwhile; not every difference makes a good
differentiator. Each difference has the potential to create company costs as well as customer
benefits. Therefore, the company must carefully select the ways in which it will distinguish itself
from competitors. A difference is worth establishing to the extent that it satisfies the following
criteria:
• Important: The difference delivers a highly valued benefit to target buyers.
• Distinctive: Competitors do not offer the difference, or the company can offer it in a
more distinctive way.
• Superior: The difference is superior to other ways that customers might obtain the same
benefit.
• Communicable: The difference is communicable and visible to buyers.
• Preemptive: Competitors cannot easily copy the difference.
• Affordable: Buyers can afford to pay for the difference.
• Profitable: The company can introduce the difference profitably.
Many companies have introduced differentiations that failed one or more of these tests.
e) Selecting an Overall Positioning Strategy
Consumers typically choose products and services that give them the greatest value. Thus,
marketers want to position their brands on the key benefits that they offer relative to competing
brands. The full positioning of a brand is called the brand's value proposition—the full mix of
benefits upon which the brand is positioned. It is the answer to the customer's question "Why
should I buy your brand?" Volvo's value proposition hinges on safety but also includes reliability,
roominess, and styling, all for a price that is higher than average but seems fair for this mix of
benefits.
f) Communicating and Delivering the Chosen Position
Once it has chosen a position, the company must take strong steps to deliver and communicate the
desired position to target consumers. All the company's marketing mix efforts must support the
positioning strategy. Positioning the company calls for concrete action, not just talk. If the
company decides to build a position on better quality and service, it must first deliver that position.
Designing the marketing mix—product, price, place, and promotion—essentially involves working
out the tactical details of the positioning strategy. Thus, a firm that seizes on a "for more" position
knows that it must produce high-quality products, charge a high price, distribute through highquality
dealers, and advertise in high-quality media. It must hire and train more service people, find
retailers who have a good reputation for service, and develop sales and advertising messages that
broadcast its superior service. This is the only way to build a consistent and believable "more for
more" position. Companies often find it easier to come up with a good positioning strategy than to
implement it. Establishing a position or changing one usually takes a long time. In contrast,
positions that have taken years to build can quickly be lost. Once a company has built the desired
position, it must take care to maintain the position through consistent performance and
communication. It must closely monitor and adapt the position over time to match changes in
consumer needs and competitors' strategies. However, the company should avoid abrupt changes
that might confuse consumers. Instead, a product's position should evolve gradually as it adapts to
the ever-changing marketing environment.
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Re: =$$===MARKETING CONCEPTS=====$$ - February 27th, 2007

Lesson – 19
Lesson overview and learning objectives:
In this chapter we commence an examination of the marketing mix elements the so-called 4P's of
marketing, or if considering the extended marketing mix, the 7P's of marketing. 1st p of these 4PS
is Product is a complex concept that must be defined carefully.
A. 4PS
o Product
a. Marketing Mix
Marketing is a process that revolves around the customers and in order to meet the requirements
of the customer marketers formulate and design the marketing mix that is also known as 4Ps (–
Four marketing activities—product, Price, Place and Promotion—that a firm can control to meet
the needs of customers within its target market ). The marketing mix variables are: Product:
Goods, services, or ideas that satisfy customer needs, Price: Decisions and actions that establish
pricing objectives and policies
and set product prices. Place:
The ready, convenient, and
timely availability of products
and finally the Promotion:
Promotion can be defined as
activities that are used to inform
customers about the
organization and its products.
These elements of the
marketing mix and strategies
related to these elements or the
variables are designed by
keeping in view all the
environmental factors either
macro or micro that can
influence the marketing in any
context. Today is the era of
value driven marketing, Value can be defined as a customer’s subjective assessment of benefits
relative to the costs in determining the worth of a product. Customer is ready to pay the cost of
given product if that product is of some value. This value can be determined as a capability of the
product to satisfy the customer’s needs and wants.
When ever customer or the consumer makes the purchasing decisions they (Consumers) don’t buy
products; they buy benefits that can be functional benefits( relating to the practical purpose a
product serves) or the Psychological benefits (relating to how a product makes one feel) for the
reason being products are always purchased in order to fulfill certain needs that are definitely
fulfilled through acquiring certain benefits of the product. Today, as products and services become
more and more commoditized, many companies are moving to a new level in creating value for
their customers. To differentiate their offers, they are developing and delivering total customer
experiences. Whereas products are tangible and services are intangible, experiences are memorable.
Whereas products and services are external, experiences are personal and take place in the minds
of individual consumers. Companies that market experiences realize that customers are really
Marketing is the involved
process of determining the 4
P’s of the Marketing Mix
–Product
–Price
–Promotion
–Place (Distribution)
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buying much more than just products and services. They are buying what those offers will do for
them—the experiences they gain in purchasing and consuming these products and services.
b. WHAT IS A PRODUCT?
A product is anything that can be offered to a market for attention, acquisition, use, or
consumption and that might satisfy a want or need. It includes physical objects, services, persons,
places, organizations, and ideas.’ Pure' Services are distinguished from 'physical' products on the
basis of intangibility, inseparability, variability and perish ability. Services are a form of product that
consist of activities, benefits, or satisfactions offered for sale that are essentially intangible and do
not result in the ownership of anything.
Product is a complex concept that must be carefully defined. As the first of the four marketing mix
variables, it is often where strategic planning begins. Product strategy calls for making coordinated
decisions on individual products, product lines, and the product mix.
a) Levels of Product and Services
As shown in the fig each product item offered to customers can be viewed on three levels.
Therefore product planners need to think about products and services on three levels:
1). The core product is the core, problem solving benefits that consumers are really buying
when they obtain a product or service. It answers the question what is the buyer really buying?
2). The actual product may have as many as five characteristics that combine to deliver
core product benefits. They are:
a). Quality level.
b). Features.
c). Design.
d). Brand name.
e). Packaging.
3). The augmented
product includes any additional
consumer services and benefits
built around the core and actual
products.
Therefore, a product is more
than a simple set of tangible
features. Consumers tend to
see products as complex
bundles of benefits that satisfy
their needs. When
developing products, marketers
must: 1). Identify the core consumer needs that the product will satisfy. 2). Design the actual
product and finally 3). Find ways to augment the product in order to create the bundle of
benefits that will best satisfy consumer’s desires for an experience. The product. For example, a
Sony camcorder is an actual product. Its name, parts, styling, features, packaging, and other
attributes have all been combined carefully to deliver the core benefit—a convenient, high-quality
way to capture important moments. Sony must offer more than just a camcorder. It must provide
consumers with a complete solution to their picture-taking problems. Thus, when consumers buy a
Sony camcorder, Sony and its dealers also might give buyers a warranty on parts and workmanship,
instructions on how to use the camcorder, quick repair services when needed, and a toll-free
telephone number to call if they have problems or questions (augmented level).
Brand
Name
Quality
Level
Packaging
Design
Features
Delivery
& Credit
Installation
Warranty
After-
Sale
Service
Core
Benefit or
Service
Core
Benefit or
Service
Actual
Product
Actual
Product
Core
Product
Core
Product
Augmented
Product
Augmented
Product
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Therefore, a product is more than a simple set of tangible features. Consumers tend to see
products as complex bundles of benefits that satisfy their needs. When developing products,
marketers first must identify the core consumer needs the product will satisfy. They must then
design the actual product and find ways to augment it in order to create the bundle of benefits that
will best satisfy consumers.
b) Product Classification
There are three basic types of product classifications. Durable products are used to over an
extended period of time. Nondurable products are more quickly consumed, usually in a single use
or a few usage occasions. 'Pure' Services are activities or benefits offered for sale which are
intangible, inseparable from the consumer, perishable in that they are experiential and do not result
in ownership of anything. Either consumer or industrial customers can buy each of these
products. Consumer products are sold to the final end-user for personal consumption.
Individuals and other organizations to use in their administrative or processing operations buy
business-to-business products. Industrial products are the most widely used of these products and
consist of consumables such as paper clips or raw materials that are converted to finished
products. Lets discuss these classifications in detail:
I. Consumer Products
Consumer products are those bought by final consumers for personal consumption. Marketers
usually classify these goods further based on how consumers go about buying them. Consumer
products include convenience products, shopping products, specialty products, and unsought products. These
products differ in the ways consumers buy them and therefore in how they are marketed
• Convenience products are consumer products and services that the customer
usually buys frequently, immediately, and with a minimum of comparison and
buying effort. Examples include soap, candy, newspapers, and fast food.
Convenience products are usually low priced, and marketers place them in many
locations to make them readily available when customers need them.
• Shopping products are less frequently purchased consumer products and services
that customers compare carefully on suitability, quality, price, and style. When
buying shopping products and services, consumers spend much time and effort in
gathering information and making comparisons. Examples include furniture,
clothing, used cars, major appliances, and hotel and motel services.
• Shopping products marketers usually distribute their products through fewer
outlets but provide deeper sales support to help customers in their comparison
efforts.
• Specialty products are consumer products and services with unique characteristics
or brand identification for which a significant group of buyers is willing to make a
special purchase effort. Examples include specific brands and types of cars, highpriced
photographic equipment, designer clothes, and the services of medical or
legal specialists. A Lamborghini automobile, for example, is a specialty product
because buyers are usually willing to travel great distances to buy one. Buyers
normally do not compare specialty products. They invest only the time needed to
reach dealers carrying the wanted products.
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• Unsought products are consumer products that the consumer either does not
know about or knows about but does not normally think of buying. Most major
new innovations are unsought until the consumer becomes aware of them through
advertising. Classic examples of known but unsought products and services are life
insurance and blood donations to the Red Cross. By their very nature, unsought
products require a lot of advertising, personal selling, and other marketing efforts.
II. Industrial Products
Industrial products are those purchased for further processing or for use in conducting a business.
Thus, the distinction between a consumer product and an industrial product is based on the
purpose for which the product is bought. If a consumer buys a lawn mower for use around home,
the lawn mower is a consumer product. If the same consumer buys the same lawn mower for use
in a landscaping business, the lawn mower is an industrial product.
The three groups of industrial products and services include materials and parts, capital items, and
supplies and services. Materials and parts include raw materials and manufactured materials and
parts. Raw materials consist of farm products (wheat, cotton, livestock, fruits, vegetables) and
natural products (fish, lumber, crude petroleum, iron ore). Manufactured materials and parts
consist of component materials (iron, yarn, cement, wires) and component parts (small motors,
tires, castings). Most manufactured materials and parts are sold directly to industrial users. Price
and service are the major marketing factors; branding and advertising tend to be less important.
The demand for industrial products is derived from the demand for consumer products. This is
known as "derived demand." Capital items are industrial products that aid in the buyer's
production or operations, including installations and accessory equipment. Installations consist of
major purchases such as buildings (factories, offices) and fixed equipment (generators, drill presses,
large computer systems, elevators). Accessory equipment includes portable factory equipment and
tools (hand tools, lift trucks) and office equipment (fax machines, desks). They have a shorter life
than installations and simply aid in the production process.
The final group of business products is supplies and services. Supplies include operating supplies
(lubricants, coal, paper, pencils) and repair and maintenance items (paint, nails, brooms). Supplies
are the convenience products of the industrial field because they are usually purchased with a
minimum of effort or comparison. Business services include maintenance and repair services
(window cleaning, computer repair) and business advisory services (legal, management consulting,
advertising). Such services are usually supplied under contract.
III. Organizations, Persons, Places, and Ideas
In addition to tangible products and services, in recent years marketers have broadened the
concept of a product to include other "marketable entities” namely, organizations, persons, places,
and ideas. Organizations often carry out activities to "sell" the organization itself. Organization
marketing consists of activities undertaken to create, maintain, or change the attitudes and
behavior of target consumers towards an organization. Both profit and nonprofit organizations
practice organizational marketing. People can also be thought of as products. Person marketing
consists of activities undertaken to create, maintain, or change attitudes or behavior toward
particular people. All kinds of people and organizations practice person marketing. Ideas can also
be marketed. In one sense, all marketing is the marketing of an idea, whether it is the general idea
of brushing your teeth or the specific idea that Crest provides the most effective decay prevention
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Re: =$$===MARKETING CONCEPTS=====$$ - February 27th, 2007

Lesson – 20
Lesson overview and learning objectives:
In last Lesson we discussed the concept of the marketing mix elements. We had a detailed view
about the classification of the product today we will continue with same topic i.e. Product.
o PRODUCT
A. Individual product decisions
We will focus on the important decisions in the development and marketing of individual products
and services. These decisions are about product attributes, branding, packaging, labeling, and
product support services. Companies have to develop strategies for the items of their product
lines. Marketers make individual product decisions for each product including: product attributes
decisions, brand, packaging, labeling, and product-support services decisions. Product attributes
deliver benefits through tangible aspects of the product including features, and design as well as
through intangible features such as quality and experiential aspects. A brand is a way to identify
and differentiate goods and services through use of a name or distinctive design element, resulting
in long-term value known as brand equity. The product package and labeling are also important
elements in the product decision mix, as they both carry brand equity through appearance and
affect product performance with functionality. The level of product-support services provided can also
have a major effect on the appeal of the product to a potential buyer.
Individual product decisions
a) Product Attributes
Developing a product or service involves defining the benefits that it will offer. These benefits are
communicated to and delivered by product attributes such as quality, features, style and design.
i. Product Quality
Quality is one of the marketer's major positioning tools. Product quality has two dimensions—
level and consistency. In developing a product, the marketer must first choose a quality level that will
support the product's position in the target market. Here, product quality means performance
quality—the ability of a product to perform its functions beyond quality level, high quality also can
mean high levels of quality consistency. Here, product quality means conformance quality—freedom
from defects and consistency in delivering a targeted level of performance. All companies should
strive for high levels of conformance quality.
ii. Product Features
A product can be offered with varying features. A stripped-down model, one without any extras, is
the starting point. The company can create higher-level models by adding more features. Features
are a competitive tool for differentiating the company's product from competitors' products. Being
the first producer to introduce a needed and valued new feature is one of the most effective ways
to compete.
How can a company identify new features and decide which ones to add to its product? The
company should periodically survey buyers who have used the product and ask these questions:
How do you like the product? Which specific features of the product do you like most? Which
features could we add to improve the product? The answers provide the company with a rich list
of feature ideas. The company can then assess each feature's value to customers versus its cost to the
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company. Features that customers value little in relation to costs should be dropped; those that
customers value highly in relation to costs should be added.
iii. Product Style and Design
Another way to add customer value is through distinctive product style and design. Some companies
have reputations for outstanding style and design. Design is a larger concept than style. Style simply
describes the appearance of a product. Styles can be eye catching or yawn producing. A sensational
style may grab attention and produce pleasing aesthetics, but it does not necessarily make the
product perform better. Unlike style, design is more than skin deep—it goes to the very heart of a
product. Good design contributes to a product's usefulness as well as to its looks.
Good style and design can attract attention, improve product performance, cut production costs,
and give the product a strong competitive advantage in the target market
b) Branding
Perhaps the most distinctive skill of professional marketers is their ability to create, maintain,
protect, and enhance brands of
their products and services. A
brand is a name, term, sign,
symbol, or design, or a
combination of these, that
identifies the maker or seller of
a product or service.
Consumers view a brand as an
important part of a product,
and branding can add value to
a product. For example, most
consumers would perceive a
bottle of White Linen perfume
as a high-quality, expensive
product. But the same perfume
in an unmarked bottle would
likely be viewed as lower in
quality, even if the fragrance
were identical. Branding has
become so strong that today hardly anything goes unbranded. Branding helps buyers in many ways.
Brand names help consumers identify products that might benefit them. Brands also tell the buyer
something about product quality. Buyers who always buy the same brand know that they will get
the same features, benefits, and quality each time they buy. Branding also gives the seller several
advantages. The brand name becomes the basis on which a whole story can be built about a
product's special qualities. The seller's brand name and trademark provide legal protection for
unique product features that otherwise might be copied by competitors. Branding also helps the
seller to segment markets.
i. Brand:
A brand is a name, sign, symbol, or design, or a combination of these that identifies the
maker or seller of a product or service.
ii. Brand equity
is the value of a brand, based on the extent to which it has high brand loyalty, name awareness,
perceived quality, strong brand associations, and other assets such as patents, trademarks, and
channel relationships. Powerful brand names command strong consumer preference and are
BET on Jazz
Children’s
Cable Net
Knowledge
TV
Mus eum
Channel
Booknet
Arena
Clas s ical
Mus ic
Travel
Channel
DIY
Classic Arts
Showcase
Animal
Planet
New Science
Network
BLOOMBERG
NEWS INFORMATION
C-SPAN
Noggin
Theater
Channel
Anthropology
P&E
Ovation Ovation
Arts & Antiques
SCIENCE
KIDS
CIVILIZATION
EOP
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powerful assets. Perhaps the most distinctive skill of professional marketers is their ability to
create, maintain, protect, and enhance brands. Measuring the actual equity of a brand name is
difficult. However, the advantages of having it include:
1). High consumer awareness and loyalty.
2). Easier to launch brand extensions because of high brand credibility.
3). A good defense against fierce price competition.
4). It is believed to be the company’s most enduring asset. Customer equity tends to aid
marketing planning in assuring loyal customer lifetime value.
iii. Selecting The Brands Name:
Selecting a brand name is an important step. The brand name should be carefully chosen since a
good name can add greatly to a product’s success. Desirable qualities of a good brand name
include:
1). It should suggest something about the product’s benefits and qualities.
2). It should be easy to pronounce, recognize, and remember.
3). It should be distinctive.
4). It should translate easily into foreign languages.
5). It should be capable of registration and legal protection. Once chosen, the brand name
must be protected.
iv. Sponsorship options for Branding:
A manufacturer has four sponsorship options:
1). A manufacturer’s brand (or national brand) is a brand created and owned by the
producer of a product or service (Examples include IBM and Kellogg).
2). A private brand (or middleman, distributor, or store brand) is a brand created and
owned by a reseller of a product or service.
3). A licensed brand (a company sells it’s output under another brand name).
4). Co-branding occurs when two companies go together and manufacture one product
(General Mills and Hershey’s make Reese’s’ Peanut Butter Puffs cereal).
Combined brands create broader customer appeal and greater brand equity.
It may allow a company to expand its existing brand into a category it might otherwise have
difficulty entering alone. But at the same time there are certain disadvantages of combine branding
like:
�� Complex legal contracts and licenses are involved.
�� Coordination efforts are often difficult.
�� Trust is essential between partners. It is often hard to come by.
At one time manufacturer’s brands were the most popular and profitable. Today, however, an
increasing number of private brands are doing well. Though hard to establish and maintain,
private brands can yield higher profit margins. “The battle of the brands” (the competition
between manufacturer’s and private brands) causes resellers to have advantages, and they charge
manufacturer’s slotting fees (payments demanded by retailers from producers before they will
accept new products and find “slots” for them on the shelves). As store brands are improving in
quality, they are posing a stronger threat to the manufacturer’s brands. This is especially true in
supermarkets.
v. Branding Strategy:
A company has four choices when it comes to brand strategy. It can:
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1). Introduce line extensions. Existing brand names are extended to new forms, sizes, and
flavors of an existing product category. A company might introduce line extensions as a low-cost,
low-risk way of introducing new products in order to:
a). Meet consumer desires for variety.
b). Meet excess manufacturing capacity.
c). simply command more shelf space.
Risks include:
a). An overextended brand might lose its specific meaning.
b). Can cause consumer frustration or confusion.
2). Introduce brand extensions. Existing brand names are extended to new or modified
product categories. Advantages include:
a). Helps a company enter new product categories more easily.
b). Aids in new product recognition.
c). Saves on high advertising cost.
3). Introduce multibrands. New brand names are introduced in the same product
category. Advantages include:
a). They gain more shelf space.
b). Offering several brands to capture “brand switchers.” The company can establish
flanker or fighter brands to protect its major brand.
c). It helps to develop healthy competition within the organization.
Drawbacks include:
a). Each brand may only obtain a small market share and be unprofitable.
4). Introduce new brands. New brand names in new categories are introduced.
Advantage include:
a). Helps move away from a brand that is failing.
b). Can get new brands in new categories by corporate acquisitions. Some companies
are now pursuing mega brand strategies.
Drawbacks can include:
a). Spreading resources too thin.
c) Packaging
Packaging involves designing and producing the container or wrapper for a product. The package
may include the product's primary container (the tube holding Colgate toothpaste); a secondary
package that is thrown away when the product is about to be used (the cardboard box containing
the tube of Colgate); and the shipping package necessary to store, identify, and ship the product (a
corrugated box carrying six dozen tubes of Colgate toothpaste). Labeling, printed information
appearing on or with the package, is also part of packaging.
Traditionally, the primary function of the package was to contain and protect the product. In
recent times, however, numerous factors have made packaging an important marketing tool.
Increased competition and clutter on retail store shelves means that packages must now perform
many sales tasks—from attracting attention, to describing the product, to making the sale.
Companies are realizing the power of good packaging to create instant consumer recognition of
the company or brand. Developing a good package for a new product requires making many
decisions. First, the company must establish the packaging concept, which states what the package
should be or do for the product. Should it mainly offer product protection, introduce a new
dispensing method, suggest certain qualities about the product, or something else? Decisions then
must be made on specific elements of the package, such as size, shape, materials, color, text, and
brand mark. These elements must work together to support the product's position and marketing
strategy. The package must be consistent with the product's advertising, pricing, and distribution.
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d) Labeling
Labels may range from simple tags attached to products to complex graphics that are part of the
package. They perform several functions. At the very least, the label identifies the product or
brand, such as the name Sunkist stamped on oranges. The label might also describe several things
about the product—who made it, where it was made, when it was made, its contents, how it is to
be used, and how to use it safely. Finally, the label might promote the product through attractive
graphics.
e) Product Support Services
Customer service is another element of product strategy. A company's offer to the marketplace
usually includes some services, which can be a minor or a major part of the total offer. Later in the
chapter, we will discuss services as products in themselves. Here, we discuss product support services—
services that augment actual products. More and more companies are using product support
services as a major tool in gaining competitive advantage.
A company should design its product and support services to profitably meet the needs of target
customers. The first step is to survey customers periodically to assess the value of current services
and to obtain ideas for new ones. For example, Cadillac holds regular focus group interviews with
owners and carefully watches complaints that come into its dealerships. From this careful
monitoring, Cadillac has learned that buyers are very upset by repairs that are not done correctly
the first time.
Once the company has assessed the value of various support services to customers, it must next
assess the costs of providing these services. It can then develop a package of services that will both
delight customers and yield profits to the company.
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Re: =$$===MARKETING CONCEPTS=====$$ - February 27th, 2007

Lesson – 21
Lesson overview and learning objectives:
In last Lesson we discussed the concept regarding some individual decisions about the product like
product attributes, labeling and packaging. Today we will continue the same topic and will discuss
the process of new product development again as well.
o PRODUCT
o NEW PRODUCT DEVELOPMENT PROCESS
A. Product Line Strategies
We have looked at product strategy decisions such as branding, packaging, labeling, and support
services for individual products and services. But product strategy also calls for building a product
line. A product line is a group of products that are closely related because they function in a similar
manner, are sold to the same customer groups, are marketed through the same types of outlets, or
fall within given price ranges. For example, Nike produces several lines of athletic shoes and
Motorola produces several lines of telecommunications products. In developing product line
strategies, marketers face a
number of tough decisions.
The major product line
decision involves product
line length—the number of
items in the product line.
The line is too short if the
manager can increase profits
by adding items; the line is
too long if the manager can
increase profits by dropping
items. Company objectives
and resources influence
product line length. Product
lines tend to lengthen over
time. The sales force and
distributors may pressure the
product manager for a more complete line to satisfy their customers. Or, the manager may want to
add items to the product line to create growth in sales and profits. However, as the manager adds
items, several costs rise: design and engineering costs, inventory costs, manufacturing changeover
costs, transportation costs, and promotional costs to introduce new items. Eventually top
management calls a halt to the mushrooming product line. Unnecessary or unprofitable items will
be pruned from the line in a major effort to increase overall profitability. This pattern of
uncontrolled product line growth followed by heavy pruning is typical and may repeat itself many
times.
The company must manage its product lines carefully. It can systematically increase the length of
its product line in two ways: by stretching its line and by filling its line. Product line stretching
stretches its line downward, upward, or both ways.
Many companies initially locate at the upper end of the market and later stretch their lines
downward. A company may stretch downward to plug a market hole that otherwise would attract a
new competitor or to respond to a competitor's attack on the upper end. Or it may add low-end
products because it finds faster growth taking place in the low-end segments.
Product Line Extensions Product Line Extensions Product Line Extensions
Stretching Stretching
Adding new
items to line
Filling Filling
Adding sizes or
styles
Downward
Upward
Contracting a
Product Line
Dropping items
Contracting a Contracting a
Product Line Product Line
Dropping items
Two-way
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B. New-product development
Given the rapid changes in consumer tastes, technology, and competition, companies must
develop a steady stream of new products and services. A firm can obtain new products in two
ways. One is through acquisition—by buying a whole company, a patent, or a license to produce
someone else's product. The other is through new-product development in the company's own
research and development department. By new products we mean original products, product
improvements, product modifications, and new brands that the firm develops through its own
research and development efforts. In this chapter, we concentrate on new-product development.
New products continue to fail at a disturbing rate. One source estimates that new consumer
packaged goods (consisting mostly of line extensions) fail at a rate of 80 percent. Moreover, failure
rates for new industrial products
may be as high as 30 percent.3Why
do so many new products fail?
There are several reasons.
Although an idea may be good, the
market size may have been
overestimated. Perhaps the actual
product was not designed as well
as it should have been. Or maybe
it was incorrectly positioned in the
market, priced too high, or
advertised poorly. A high-level
executive might push a favorite
idea despite poor marketing
research findings. Sometimes the
costs of product development are
higher than expected, and
sometimes competitors fight back harder than expected.
Because so many new products fail, companies are anxious to learn how to improve their odds of
new-product success. One way is to identify successful new products and find out what they have
in common. Another is to study new-product failures to see what lessons can be learned. Various
studies suggest that new-product success depends on developing a unique superior product, one
with higher quality, new features, and higher value in use. Another key success factor is a welldefined
product concept prior to development, in which the company carefully defines and
assesses the target market, the product requirements, and the benefits before proceeding. Other
success factors have also been suggested—senior management commitment, relentless innovation,
and a smoothly functioning new-product development process. In all, to create successful new
products, a company must understand its consumers, markets, and competitors and develop
products that deliver superior value to customers.
So companies face a problem—they must develop new products, but the odds weigh heavily
against success. The solution lies in strong new-product planning and in setting up a systematic
new-product development process for finding and growing new products. Figure shows the eight
major steps in this process.
a) Idea generation
New-product development starts with idea generation—the systematic search for new-product
ideas. A company typically has to generate many ideas in order to find a few good ones. Major
sources of new-product ideas include internal sources, customers, competitors, distributors and
suppliers, and others. Using internal sources, the company can find new ideas through formal
research and development. It can pick the brains of its executives, scientists, engineers,
Idea
Generation
Idea
Screening
Concept
Development
and Testing
Marketing
Strategy
Business
Analysis
Product
Development
Test
Marketing
Commercialization
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manufacturing, and salespeople. Some companies have developed successful "entrepreneurial"
programs that encourage employees to think up and develop new-product ideas. Good newproduct
ideas also come from watching and listening to customers. The company can analyze
customer questions and complaints to find new products that better solve consumer problems.
The company can conduct surveys or focus groups to learn about consumer needs and wants. Or
company engineers or salespeople can meet with and work alongside customers to get suggestions
and ideas. Finally, consumers often create new products and uses on their own, and companies can
benefit by finding these products and putting them on the market. Customers can also be a good
source of ideas for new product uses that can expand the market for and extend the life of current
products. Competitors are another good source of new-product ideas. Companies watch
competitors' ads and other communications to get clues about their new products. They buy
competing new products, take them apart to see how they work, analyze their sales, and decide
whether they should bring out a new product of their own. Finally, distributors and suppliers
contribute many good new-product ideas. Resellers are close to the market and can pass along
information about consumer problems and new-product possibilities. Suppliers can tell the
company about new concepts, techniques, and materials that can be used to develop new products.
Other idea sources include trade magazines, shows, and seminars; government agencies; newproduct
consultants; advertising agencies; marketing research firms; university and commercial
laboratories; and inventors.
The search for new-product ideas should be systematic rather than haphazard. Otherwise, few new
ideas will surface and many good ideas will sputter in and die. Top management can avoid these
problems by installing an idea management system that directs the flow of new ideas to a central point
where they can be collected, reviewed, and evaluated. In setting up such a system, the company can
do any or all of the following:
• Appoint a respected senior person to be the company's idea manager.
• Create a multidisciplinary idea management committee consisting of people from R&D,
engineering, purchasing, operations, finance, and sales and marketing to meet regularly and
evaluate proposed new-product and service ideas.
• Set up a toll-free number for anyone who wants to send a new idea to the idea manager.
• Encourage all company stakeholders—employees, suppliers, distributors, dealers— to send
their ideas to the idea manager.
• Set up formal recognition programs to reward those who contribute the best new ideas.
The idea manager approach yields two favorable outcomes. First, it helps create an innovationoriented
company culture. It shows that top management supports, encourages, and rewards
innovation. Second, it will yield a larger number of ideas among which will be found some
especially good ones. As the system matures, ideas will flow more freely. No longer will good ideas
wither for the lack of a sounding board or a senior product advocate
b) Idea Screening
The purpose of idea generation is to create a large number of ideas. The purpose of the succeeding
stages is to reduce that number. The first idea-reducing stage is idea screening, which helps spot
good ideas and drop poor ones as soon as possible. Product development costs rise greatly in later
stages, so the company wants to go ahead only with the product ideas that will turn into profitable
products. As one marketing executive suggests, "Three executives sitting in a room can get 40
good ideas ricocheting off the wall in minutes. The challenge is getting a steady stream of good
ideas out of the labs and creativity campfires, through marketing and manufacturing, and all the
way to consumers."
Many companies require their executives to write up new-product ideas on a standard form that
can be reviewed by a new-product committee. The write-up describes the product, the target
market, and the competition. It makes some rough estimates of market size, product price,
development time and costs, manufacturing costs, and rate of return. The committee then
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evaluates the idea against a set of general criteria such as these: Is the product truly useful to
consumers and society? Is it good for our particular company? Does it mesh well with the
company's objectives and strategies? Do we have the people, skills, and resources to make it
succeed? Does it deliver more value to customers than do competing products? Is it easy to
advertise and distribute? Many companies have well-designed systems for rating and screening
new-product ideas.
c) Concept Development and Testing
An attractive idea must be developed into a product concept. It is important to distinguish
between a product idea, a product concept, and a product image. A product idea is an idea for a
possible product that the company can see itself offering to the market. A product concept is a
detailed version of the idea stated in meaningful consumer terms. A product image is the way
consumers perceive an actual or potential product.
Concept testing calls for testing new-product concepts with groups of target consumers. The
concepts may be presented to consumers symbolically or physically For some concept tests, a
word or picture description might be sufficient. However, a more concrete and physical
presentation of the concept will increase the reliability of the concept test. Today, some marketers
are finding innovative ways to make product concepts more real to consumer subjects. For
example, some are using virtual reality to test product concepts. Virtual reality programs use
computers and sensory devices (such as gloves or goggles) to simulate reality.
d) Marketing strategy Development
The next step is marketing strategy development, designing an initial marketing strategy for
introducing this car to the market.
The marketing strategy statement consists of three parts. The first part describes the target market; the
planned product positioning; and the sales, market share, and profit goals for the first few years.
The second part of the marketing strategy statement outlines the product's planned price,
distribution, and marketing budget for the first year. The third part of the marketing strategy
statement describes the planned long-run sales, profit goals, and marketing mix strategy:
e) Business Analysis
Once management has decided on its product concept and marketing strategy, it can evaluate the
business attractiveness of the proposal. Business analysis involves a review of the sales, costs, and
profit projections for a new product to find out whether they satisfy the company's objectives. If
they do, the product can move to the product development stage.
To estimate sales, the company might look at the sales history of similar products and conduct
surveys of market opinion. It can then estimate minimum and maximum sales to assess the range
of risk. After preparing the sales forecast, management can estimate the expected costs and profits
for the product, including marketing, R&D, operations, accounting, and finance costs. The
company then uses the sales and costs figures to analyze the new product's financial attractiveness.
f) Product Development
So far, for many new-product concepts, the product may have existed only as a word description, a
drawing, or perhaps a crude mock-up. If the product concept passes the business test, it moves
into product development. Here, R&D or engineering develops the product concept into a
physical product. The product development step, however, now calls for a large jump in
investment. It will show whether the product idea can be turned into a workable product.
The R&D department will develop and test one or more physical versions of the product concept.
R&D hopes to design a prototype that will satisfy and excite consumers and that can be produced
quickly and at budgeted costs. Developing a successful prototype can take days, weeks, months, or
even years. Often, products undergo rigorous functional tests to make sure that they perform
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safely and effectively. The prototype must have the required functional features and also convey
the intended psychological characteristics.
g) Test Marketing
If the product passes functional and consumer tests, the next step is test marketing, the stages at
which the product and marketing program are introduced into more realistic market settings. Test
marketing gives the marketer experience with marketing the product before going to the great
expense of full introduction. It lets the company test the product and its entire marketing
program—positioning strategy, advertising, distribution, pricing, branding and packaging, and
budget levels.
The amount of test marketing needed varies with each new product. Test marketing costs can be
enormous, and it takes time that may allow competitors to gain advantages. When the costs of
developing and introducing the product are low, or when management is already confident about
the new product, the company may do little or no test marketing. Companies often do not testmarket
simple line extensions or copies of successful competitor products.
h) Commercialization
Test marketing gives management the information needed to make a final decision about whether
to launch the new product. If the company goes ahead with commercialization—introducing the
new product into the market—it will face high costs. The company will have to build or rent a
manufacturing facility. The company launching a new product must first decide on introduction
timing Next, the company must decide where to launch the new product—in a single location, a
region, the national market, or the international market. Few companies have the confidence,
capital, and capacity to launch new products into full national or international distribution. They
will develop a planned market rollout over time. In particular, small companies may enter attractive
cities or regions one at a time. Larger companies, however, may quickly introduce new models into
several regions or into the full national market.
Speeding Up New-Product Development
Many companies organize their new-product development process into the orderly sequence of
steps starting with idea generation and ending with commercialization. Under this sequential
product development approach, one company department works individually to complete its stage
of the process before passing the new product along to the next department and stage. This
orderly, step-by-step process can help bring control to complex and risky projects. But it also can
be dangerously slow. In fast-changing, highly competitive markets, such slow-but-sure product
development can result in product failures, lost sales and profits, and crumbling market positions.
"Speed to market" and reducing new-product development cycle time have become pressing
concerns to companies in all industries.
In order to get their new products to market more quickly, many companies are adopting a faster,
team-oriented approach called simultaneous (or team-based) product development. Under this
approach, company departments work closely together, overlapping the steps in the product
development process to save time and increase effectiveness. Instead of passing the new product
from department to department, the company assembles a team of people from various
departments that stay with the new product from start to finish. Such teams usually include people
from the marketing, finance, design, manufacturing, and legal departments, and even supplier and
customer companies.
Top management gives the product development team general strategic direction but no clear-cut
product idea or work plan. It challenges the team with stiff and seemingly contradictory goals—
"turn out carefully planned and superior new products, but do it quickly"—and then gives the team
whatever freedom and resources it needs to meet the challenge. In the sequential process, a
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bottleneck at one phase can seriously slow the entire project. In the simultaneous approach, if one
functional area hits snags, it works to resolve them while the team moves on.
KEY TERMS
New-product development: The development of original products, product improvements,
product modifications, and new brands through the firm's own R&D efforts.
Idea generation: The systematic search for new-product ideas.
Idea screening: screening new-product ideas in order to spot good ideas and drop poor ones as
soon as possible.
Product concept: A detailed version of the new-product idea stated in meaningful consumer
terms.
Concept testing: Testing new-product concepts with a group of target consumers to find out if
the concepts have strong consumer appeal.
Business analysis: A review of the sales, costs, and profit projections for a new product to find
out whether these factors satisfy the company's objectives.
Product development: A strategy for company growth by offering modified or new products to
current market segments. Developing the product concept into a physical product in order to
ensure that the product idea can be turned into a workable product.
Commercialization: Introducing a new product into the market.
Test marketing: The stage of new-product development in which the product and marketing
program are tested in more realistic market settings.
Sequential
product
development A
new-product
development
approach in which
one company
department works
to complete its
stage of the process
before passing the
new product along
to the next
department and
stage.
T ime
Product
Developm ent
Stage
Introduction
Profits
Sales
Grow th Matu rity Decline
Sales and
Profits ($)
Sales and Profits O ver
the Product’s L ife F rom
Inception to Demise
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Re: =$$===MARKETING CONCEPTS=====$$ - February 27th, 2007

Lesson – 22
Lesson overview and learning objectives:
In last Lesson we discussed the process of new product development in detail today we will discuss
the types of new products new product development process and strategies and stages of Product
life cycle.
A. NEW PRODUCT DEVELOPMENT
B. PRODUCT LIFE- CYCLE STAGES AND STRATEGIES
A. Types of New Products Include
Types of the new products include mainly two categories either to introduce totally new product
like entirely new product for the world or increasing the product line second way is sometimes
modifications in the existing product are adopted like existing product is repositioned or strategies
are formulated to improve the products.
B. Consumer Adoption Process
a) Stages in the Adoption Process
1. Awareness. In this stage the consumer is aware of the new product but lacks further
information about it.
2. Interest. The consumer is motivated to seek information about the new product.
3. Evaluation. The consumer determines whether or not to try the new product.
4. Trial. The consumer tries the new product on a small scale to test its efficacy in meeting
his or her needs. Trial can be imagined use of the product in some cases.
5. Adoption. The consumer decides to make use of the product on a regular basis.
b) Individual differences in the adoption of innovations
1. Innovators. Innovators help get the product exposure but are not often perceived by the
majority of potential buyers as typical consumers.
2. Early Adopters. This group serves as opinion leaders to the rest of the market.
3. Early Majority. Some 34% of the market that is the "typical consumer" but likely to
adopt innovations a little sooner.
4. Late Majority. This group is skeptical and adopts innovations only after most of the
market has accepted the product.
5. Laggards. This group is suspicious of change and adopts only after the product is no
longer considered an innovation.
C. Product Life-Cycle Strategies
After launching the new product, management wants the product to enjoy a long and happy life.
Although it does not expect the product to sell forever, the company wants to earn a decent profit
to cover all the effort and risk that went into launching it. Management is aware that each product
will have a life cycle, although the exact shape and length is not known in advance. Figure shows a
typical product life cycle (PLC), the course that a product's sales and profits take over its lifetime.
The product life cycle has five distinct stages:
a) Product development begins when the company finds and develops a new-product idea.
During product development, sales are zero and the company's investment costs mount.
b) Introduction is a period of slow sales growth as the product is introduced in the market.
Profits are nonexistent in this stage because of the heavy expenses of product introduction.
c) Growth is a period of rapid market acceptance and increasing profits.
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d) Maturity is a period of slowdown in sales growth because the product has achieved
acceptance by most potential buyers. Profits level off or decline because of increased
marketing outlays to defend the product against competition.
e) Decline is the period when sales fall off and profits drop.
Not all products follow this product life cycle. Some products are introduced and die quickly;
others stay in the mature stage for a long, long time. Some enter the decline stage and are then
cycled back into the growth stage through strong promotion or repositioning.
a) Product development
Product development begins when the company finds and develops a new-product idea. During
product development, sales are zero and the company's investment costs mount.
b) Introduction stage
The introduction stage starts when the new product is first launched. Introduction takes time, and
sales growth is apt to be slow. In this stage, as compared to other stages, profits are negative or low
because of the low sales and high distribution and promotion expenses. Much money is needed to
attract distributors and build their inventories. Promotion spending is relatively high to inform
consumers of the new product and get them to try it. Because the market is not generally ready for
product refinements at this stage, the company and its few competitors produce basic versions of
the product. These firms focus their selling on those buyers who are the readiest to buy.
A company, especially the market pioneer, must choose a launch strategy that is consistent with the
intended product positioning. It should realize that the initial strategy is just the first step in a
grander marketing plan for the product's entire life cycle. If the pioneer chooses its launch strategy
to make a "killing," it will be sacrificing long-run revenue for the sake of short-run gain. As the
pioneer moves through later stages of the life cycle, it will have to continuously formulate new
pricing, promotion, and other marketing strategies. It has the best chance of building and retaining
market leadership if it plays its cards correctly from the start.
c) Growth Stage
If the new product satisfies the market, it will enter a growth stage, in which sales will start
climbing quickly. The early adopters will continue to buy, and later buyers will start following their
lead, especially if they hear favorable word of mouth. Attracted by the opportunities for profit, new
competitors will enter the market. They will introduce new product features, and the market will
expand. The increase in competitors leads to an increase in the number of distribution outlets, and
sales jump just to build reseller inventories. Prices remain where they are or fall only slightly.
Companies keep their promotion spending at the same or a slightly higher level. Educating the
market remains a goal, but now the company must also meet the competition.
Profits increase during the growth stage, as promotion costs are spread over a large volume and as
unit manufacturing costs fall. The firm uses several strategies to sustain rapid market growth as
long as possible. It improves product quality and adds new product features and models. It enters
new market segments and new distribution channels. It shifts some advertising from building
product awareness to building product conviction and purchase, and it lowers prices at the right
time to attract more buyers.
In the growth stage, the firm faces a trade-off between high market share and high current profit.
By spending a lot of money on product improvement, promotion, and distribution, the company
can capture a dominant position. In doing so, however, it gives up maximum current profit, which
it hopes to make up in the next stage.
d) Maturity Stage
At some point, a product's sales growth will slow down, and the product will enter a maturity
stage. This maturity stage normally lasts longer than the previous stages, and it poses strong
challenges to marketing management. Most products are in the maturity stage of the life cycle, and
therefore most of marketing management deals with the mature product.
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The slowdown in sales growth results in many producers with many products to sell. In turn, this
overcapacity leads to greater competition. Competitors begin marking down prices, increasing their
advertising and sales promotions, and upping their R&D budgets to find better versions of the
product. These steps lead to a drop in profit. Some of the weaker competitors start dropping out,
and the industry eventually contains only well-established competitors.
Although many products in the mature stage appear to remain unchanged for long periods, most
successful ones are actually evolving to meet changing consumer needs. Product managers should
do more than simply ride along with or defend their mature products—a good offense is the best
defense. They should consider modifying the market, product, and marketing mix.
In modifying the market, the company tries to increase the consumption of the current product. It
looks for new users and market segments, as when Johnson & Johnson targeted the adult market
with its baby powder and shampoo. The manager also looks for ways to increase usage among
present customers. Campbell does this by offering recipes and convincing consumers that "soup is
good food." Or the company may want to reposition the brand to appeal to a larger or fastergrowing
segment, as Arrow did when it introduced its new line of casual shirts and announced,
"We're loosening our collars."
The company might also try modifying the product—changing characteristics such as quality,
features, or style to attract new users and to inspire more usage. It might improve the product's
quality and performance—its durability, reliability, speed, or taste. Or it might add new features
that expand the product's usefulness, safety, or convenience. For example, Sony keeps adding new
styles and features to its Walkman and Discman lines, and Volvo adds new safety features to its
cars. Finally, the company can improve the product's styling and attractiveness. Thus, car
manufacturers restyle their cars to attract buyers who want a new look. The makers of consumer
food and household products introduce new flavors, colors, ingredients, or packages to revitalize
consumer buying.
Finally, the company can try modifying the marketing mix—improving sales by changing one or
more marketing mix elements. It can cut prices to attract new users and competitors' customers. It
can launch a better advertising campaign or use aggressive sales promotions—trade deals, centsoff,
premiums, and contests. The company can also move into larger market channels, using mass
merchandisers, if these channels are growing. Finally, the company can offer new or improved
services to buyers.
e) Decline Stage
The sales of most product forms and brands eventually dip. The decline may be slow, as in the
case of oatmeal cereal, or rapid, as in the case of phonograph records. Sales may plunge to zero, or
they may drop to a low level where they continue for many years. This is the decline stage.
Sales decline for many reasons, including technological advances, shifts in consumer tastes, and
increased competition. As sales and profits decline, some firms withdraw from the market. Those
remaining may prune their product offerings. They may drop smaller market segments and
marginal trade channels, or they may cut the promotion budget and reduce their prices further.
Carrying a weak product can be very costly to a firm, and not just in profit terms. There are many
hidden costs. A weak product may take up too much of management's time. It often requires
frequent price and inventory adjustments. It requires advertising and sales force attention that
might be better used to make "healthy" products more profitable. A product's failing reputation
can cause customer concerns about the company and its other products. The biggest cost may well
lie in the future. Keeping weak products delays the search for replacements, creates a lopsided
product mix, hurts current profits, and weakens the company's foothold on the future.
For these reasons, companies need to pay more attention to their aging products. The firm's first
task is to identify those products in the decline stage by regularly reviewing sales, market shares,
costs, and profit trends. Then, management must decide whether to maintain, harvest, or drop
each of these declining products. Management may decide to harvest the product, which means
reducing various costs (plant and equipment, maintenance, R&D, advertising, sales force) and
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hoping that sales hold up. If successful, harvesting will increase the company's profits in the short
run. Or management may decide to drop the product from the line. It can sell it to another firm or
simply liquidate it at salvage value. If the company plans to find a buyer, it will not want to run
down the product through harvesting.
the Product Life Cycle can be extended by two ways either by modifying the target market by
finding and adding new users etc or by modifying the product Adding new features, variations,
model varieties will change the consumer reaction - create more demand therefore you attract
more users To prevent the product going into decline you modify the product
KEY TERMS
Introduction stage The product life-cycle stage in which the new product is first distributed
and made available for purchase.
Growth stage The product life-cycle stage in which a product's sales start climbing quickly.
Maturity stage The stage in the product life cycle in which sales growth slows or levels off.
Decline stage The product life-cycle stage in which a product's sales decline.
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Re: =$$===MARKETING CONCEPTS=====$$ - February 27th, 2007

Lesson – 23
Lesson overview and learning objectives:
Today’s Lesson is devoted to revision of the first p of the marketing mix which is Product.
KEY TERMS
New-product development The development of original products, product
improvements, product modifications, and new brands
through the firm's own R&D efforts.
Idea generation The systematic search for new-product ideas.
Idea screening Screening new-product ideas in order to spot good ideas
and drop poor ones as soon as possible.
Product concept A detailed version of the new-product idea stated in
meaningful consumer terms.
Concept testing Testing new-product concepts with a group of target
consumers to find out if the concepts have strong consumer
appeal.
Business analysis A review of the sales, costs, and profit projections for a new
product to find out whether these factors satisfy the
company's objectives.
Product development A strategy for company growth by offering modified or new
products to current market segments. Developing the
product concept into a physical product in order to ensure
that the product idea can be turned into a workable product.
Commercialization Introducing a new product into the market.
Test marketing The stage of new-product development in which the
product and marketing program are tested in more realistic
market settings.
Sequential product development A new-product development approach in which one
company department works to complete its stage of the
process before passing the new product along to the next
department and stage.
Introduction stage The product life-cycle stage in which the new product is
first distributed and made available for purchase.
Growth stage The product life-cycle stage in which a product's sales start
climbing quickly.
Maturity stage The stage in the product life cycle in which sales growth
slows or levels off.
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Decline stage The product life-cycle stage in which a product's sales decline.
Innovators Innovators help get the product exposure but are not often
perceived by the majority of potential buyers as typical consumers.
Early Adopters This group serves as opinion leaders to the rest of the market.
Early Majority Some 34% of the market that is the "typical consumer" but likely to
adopt innovations a little sooner.
Late Majority This group is skeptical and adopts innovations only after most of
the market has accepted the product.
Laggards This group is suspicious of change and adopts only after the
product is no longer considered an innovation.
Core product Is the core, problem solving benefits that consumers are really
buying when they obtain a product or service. It answers the
question is what is the buyer really buying?
Actual product May have as many as five characteristics that combine to deliver
core product benefits.
Augmented product Includes any additional consumer services and benefits built around
the core and actual products.
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Re: =$$===MARKETING CONCEPTS=====$$ - February 27th, 2007

Lesson – 24
Lesson overview and learning objectives:
Price goes by many names in our economy. In the narrowest sense, price is the amount of money
charged for a product or service. Price is the only element in the marketing mix that produces
revenue; all other elements represent costs. Price is also one of the most flexible elements of the
marketing mix. Unlike product features and channel commitments, price can be changed quickly.
At the same time, pricing and price competition is the number-one problem facing many
marketing executives. Yet, many companies do not handle pricing well. The most common
mistakes are pricing that is too cost oriented rather than customer-value oriented; prices that are
not revised often enough to reflect market changes; pricing that does not take the rest of the
marketing mix into account; and prices that are not varied enough for different products, market
segments, and purchase occasions. This Lesson looks at the factors marketers must consider when
setting prices so our today’s topic is:
Price the 2nd P of Marketing Mix.
A. Introduction
All profit and nonprofit organizations must set prices on their products and services. Price goes by
many names (rent, tuition, fee, fare, rate, interest, toll, premium, et cetera). Price is the amount of
money charged for a product or service or the sum of the values that consumers exchange for the
benefits of having or using the product or service. Historically, price has been the major factor
affecting buyer choice. Recently, however, nonprice factors have become increasingly important in
buyer-choice behavior. Throughout history, prices were set by negotiation between buyers and
sellers. Fixed price policies--setting one price for all buyers--is a relatively modern idea that arose
with the development of large-scale retailing at the end of the nineteenth century. Today, we may
be returning to dynamic pricing--charging different prices depending on the individual customers
and situations. The Internet is helping to tailor products and prices. It should be remembered that
price is the only element in the marketing mix that produces revenue; all other elements represent
costs. Price is also one of the most flexible of elements of the marketing mix. It has been stated
that pricing and price competition is the number-one problem facing many marketing executives.
Many companies do not handle pricing well. Common mistakes that they make are:
1. Pricing is too cost-oriented.
2. Prices are not revised often enough to reflect market changes.
3. Prices do not take into account the other elements of the marketing mix.
4. Prices are not varied for different products, market segments, and purchase occasions.
All profit organizations and many nonprofit organizations must set prices on their products or
services. Price goes by many names Price is all around us. You pay rent for your apartment, tuition
for your education, and a fee to your physician or dentist. The airline, railway, taxi, and bus
companies charge you a fare; the local utilities call their price a rate; and the local bank charges you
interest for the money you borrow.
In the narrowest sense, price is the amount of money charged for a product or service. More
broadly, price is the sum of all the values that consumers exchange for the benefits of having or
using the product or service. Historically, price has been the major factor affecting buyer choice.
This is still true in poorer nations, among poorer groups, and with commodity products. However,
non-price factors have become more important in buyer-choice behavior in recent decades.
Throughout most of history, prices were set by negotiation between buyers and sellers. Fixed price
policies—setting one price for all buyers—is a relatively modern idea that arose with the
development of large-scale retailing at the end of the nineteenth century. Now, some one hundred
years later, the Internet promises to reverse the fixed pricing trend and take us back to an era of
Principles of Marketing
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Internal
Factors
��Marketing
Objectives
��Marketing Mix
Strategy
��Costs
��Organizational
�� considerations
Internal
Factors
��Marketing
Objectives
��Marketing Mix
Strategy
��Costs
��Organizational
�� considerations
External
Factors
��Nature of the
market and
demand
��Competition
��Other
environmental
factors (economy,
resellers,
government)
External
Factors
��Nature of the
market and
demand
��Competition
��Other
environmental
factors (economy,
resellers,
government)
Pricing
Decisions
Pricing
Decisions
dynamic pricing—charging different prices depending on individual customers and situations. The
Internet, corporate networks, and wireless setups are connecting sellers and buyers as never before.
New technologies allow sellers to collect detailed data about customers' buying habits,
preferences—even spending limits—so they can tailor their products and prices.
B. Factors to Consider When Setting Prices
A company's
pricing decisions
are affected by
both internal
company factors
and external
environmental
factors
a) Internal Factors Affecting Pricing Decision
Internal factors affecting pricing include the company's marketing objectives, marketing mix
strategy, costs, and organizational considerations.
I. Marketing Objectives
Before setting price, the company must decide on its strategy for the product. If the company has
selected its target market and positioning carefully, then its marketing mix strategy, including price,
will be fairly straightforward. Pricing strategy is largely determined by decisions on market
positioning. At the same time, the company may seek additional objectives. The clearer a firm is
about its objectives, the easier it is to set price. Examples of common objectives are survival,
current profit maximization, market share leadership, and product quality leadership.
Companies set survival as their major objective if they are troubled by too much capacity, heavy
competition, or changing customers’ wants. To keep a plant going, a company may set a low price,
hoping to increase demand. In this case, profits are less important than survival. As long as their
prices cover variable costs and some fixed costs, they can stay in business. However, survival is
only a short-term objective. In the long run, the firm must learn how to add value that consumers
will pay for or face extinction.
Many companies use current profit maximization as their pricing goal. They estimate what
demand and costs will be at different prices and choose the price that will produce the maximum
current profit, cash flow, or return on investment. In all cases, the company wants current financial
results rather than long-run performance. Other companies want to obtain market share
leadership. They believe that the company with the largest market share will enjoy the lowest costs
and highest long-run profit. To become the market share leader, these firms set prices as low as
possible.
A company might decide that it wants to achieve product quality leadership. This normally
calls for charging a high price to cover higher performance quality and the high cost of R&D. A
company might also use price to attain other, more specific objectives. It can set prices low to
prevent competition from entering the market or set prices at competitors' levels to stabilize the
market. Prices can be set to keep the loyalty and support of resellers or to avoid government
intervention. Prices can be reduced temporarily to create excitement for a product or to draw more
Principles of Marketing
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customers into a retail store. One product may be priced to help the sales of other products in the
company's line. Thus, pricing may play an important role in helping to accomplish the company's
objectives at many levels.
Nonprofit and public organizations may adopt a number of other pricing objectives. A university
aims for partial cost recovery, knowing that it must rely on private gifts and public grants to cover
the remaining costs. A nonprofit hospital may aim for full cost recovery in its pricing. Marketing
Mix Strategy: Price is only one of the marketing mix tools that a company uses to achieve its
marketing objectives. Price decisions must be coordinated with product design, distribution, and
promotion decisions to form a consistent and effective marketing program. Decisions made for
other marketing mix variables may affect pricing decisions. For example, producers using many
resellers who are expected to support and promote their products may have to build larger reseller
margins into their prices. The decision to position the product on high-performance quality will
mean that the seller must charge a higher price to cover higher costs.
Companies often position their products on price and then base other marketing mix decisions on
the prices they want to charge. Here, price is a crucial product-positioning factor that defines the
product's market, competition, and design. Many firms support such price-positioning strategies
with a technique called target costing, a potent strategic weapon. Target costing reverses the usual
process of first designing a new product, determining its cost, and then asking, "Can we sell it for
that?" Instead, it starts with an ideal selling price based on customer considerations, and then
targets costs that will ensure that the price is met.
Other companies de emphasize price and use other marketing mix tools to create nonprice
positions. Often, the best strategy is not to charge the lowest price, but rather to differentiate the
marketing offer to make it worth a higher price. Thus, the marketer must consider the total
marketing mix when setting prices. If the product is positioned on nonprice factors, then decisions
about quality, promotion, and distribution will strongly affect price. If price is a crucial positioning
factor, then price will strongly affect decisions made about the other marketing mix elements.
However, even when featuring price, marketers need to remember that customers rarely buy on
price alone. Instead, they seek products that give them the best value in terms of benefits received
for the price paid. Thus, in most cases, the company will consider price along with all the other
marketing-mix elements when developing the marketing program.
II. Costs
Costs set the floor for the price that the company can charge for its product. The company wants
to charge a price that both covers all its costs for producing, distributing, and selling the product
and delivers a fair rate of return for its effort and risk. A company's costs may be an important
element in its pricing strategy. Companies with lower costs can set lower prices that result in
greater sales and profits.
• Types of Costs
A company's costs take two forms, fixed and variable. Fixed costs (also known as overhead) are
costs that do not vary with production or sales level. For example, a company must pay each
month's bills for rent, heat, interest, and executive salaries, whatever the company's output.
Variable costs vary directly with the level of production. Each personal computer produced
involves a cost of computer chips, wires, plastic, packaging, and other inputs. These costs tend to
be the same for each unit produced. They are called variable because their total varies with the
number of units produced. Total costs are the sum of the fixed and variable costs for any given
level of production. Management wants to charge a price that will at least cover the total
production costs at a given level of production. The company must watch its costs carefully. If it
costs the company more than competitors to produce and sell its product, the company will have
to charge a higher price or make less profit, putting it at a competitive disadvantage.
Principles of Marketing
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• Costs at Different Levels of Production
To price wisely, management needs to know how its costs vary with different levels of production.
This is because fixed costs are spread over more units, with each one bearing a smaller share of the
fixed cost.
III. Organizational Considerations
Management must decide who within the organization should set prices. Companies handle pricing
in a variety of ways. In small companies, prices are often set by top management rather than by the
marketing or sales departments. In large companies, pricing is typically handled by divisional or
product line managers. In industrial markets, salespeople may be allowed to negotiate with
customers within certain price ranges. Even so, top management sets the pricing objectives and
policies, and it often approves the prices proposed by lower-level management or salespeople. In
industries in which pricing is a key factor (aerospace, railroads, oil companies), companies often
have a pricing department to set the best prices or help others in setting them. This department
reports to the marketing department or top management. Others who have an influence on pricing
include sales managers, production managers, finance managers, and accountants.
b) External Factors Affecting Pricing Decisions
External factors that affect pricing decisions include the nature of the market and demand,
competition, and other environmental elements.
I. The Market and Demand
Whereas costs set the lower limit of prices, the market and demand set the upper limit. Both
consumer and industrial buyers balance the price of a product or service against the benefits of
owning it. Thus, before setting prices, the marketer must understand the relationship between price
and demand for its product. In this section, we explain how the price–demand relationship varies
for different types of markets and how buyer perceptions of price affect the pricing decision. We
then discuss methods for measuring the price–demand relationship.
• Pricing in Different Types of Markets
The seller's pricing freedom varies with different types of markets. Economists recognize four
types of markets, each presenting a different pricing challenge.
Under pure competition, the market consists of many buyers and sellers trading in a uniform
commodity such as wheat, copper. No single buyer or seller has much effect on the going market
price. A seller cannot charge more than the going price because buyers can obtain as much as they
need at the going price. Nor would sellers charge less than the market price because they can sell
all they want at this price. If price and profits rise, new sellers can easily enter the market. In a
purely competitive market, marketing research, product development, pricing, advertising, and
sales promotion play little or no role. Thus, sellers in these markets do not spend much time on
marketing strategy.
Under monopolistic competition, the market consists of many buyers and sellers who trade over a
range of prices rather than a single market price. A range of prices occurs because sellers can
differentiate their offers to buyers. Either the physical product can be varied in quality, features, or
style, or the accompanying services can be varied. Buyers see differences in sellers' products and
will pay different prices for them. Sellers try to develop differentiated offers for different customer
segments and, in addition to price, freely use branding, advertising, and personal selling to set their
offers apart. Because there are many competitors in such markets, each firm is less affected by
competitors' marketing strategies than in oligopolistic markets.
Under oligopolistic competition, the market consists of a few sellers who are highly sensitive to
each other's pricing and marketing strategies. The product can be uniform (steel, aluminum) or
differentiated (cars, computers). There are few sellers because it is difficult for new sellers to enter
the market. Each seller is alert to competitors' strategies and moves. If a steel company slashes its
Principles of Marketing
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price by 10 percent, buyers will quickly switch to this supplier. The other steelmakers must respond
by lowering their prices or increasing their services. An oligopolist is never sure that it will gain
anything permanent through a price cut. In contrast, if an oligopolist raises its price, its
competitors might not follow this lead. The oligopolist then would have to retract its price increase
or risk losing customers to competitors.
In a pure monopoly, the market consists of one seller. Pricing is handled differently in each case. A
government monopoly can pursue a variety of pricing objectives. It might set a price below cost
because the product is important to buyers who cannot afford to pay full cost. Or the price might
be set either to cover costs or to produce good revenue. It can even be set quite high to slow down
consumption. In a regulated monopoly, the government permits the company to set rates that will
yield a "fair return," one that will let the company maintain and expand its operations as needed.
Unregulated monopolies are free to price at what the market will bear. However, they do not
always charge the full price for a number of reasons: a desire to not attract competition, a desire to
penetrate the market faster with a low price, or a fear of government regulation.
• Consumer Perceptions of Price and Value
In the end, the consumer will decide whether a product's price is right. Pricing decisions, like other
marketing mix decisions, must be buyer oriented. When consumers buy a product, they exchange
something of value (the price) to get something of value (the benefits of having or using the
product). Effective, buyer-oriented pricing involves understanding how much value consumers
place on the benefits they receive from the product and setting a price that fits this value.
A company often finds it hard to measure the values customers will attach to its product. For
example, calculating the cost of ingredients in a meal at a fancy restaurant is relatively easy. But
assigning a value to other satisfactions such as taste, environment, relaxation, conversation, and
status is very hard. These values will vary both for different consumers and different situations.
Still, consumers will use these values to evaluate a product's price. If customers perceive that the
price is greater than the product's value, they will not buy the product. If consumers perceive that
the price is below the product's value, they will buy it, but the seller loses profit opportunities.
• Analyzing the Price–Demand Relationship
Each price the company might charge will lead to a different level of demand. The relationship
between the price charged and the resulting demand level is shown in the demand curve in Figure.
The demand curve shows the number of units the market will buy in a given time period at
different prices that might be charged. In the normal case, demand and price are inversely related;
that is, the higher the price, the lower the demand. Thus, the company would sell less if it raised its
price from P1 to P2. In short, consumers with limited budgets probably will buy less of something
if its price is too high.
In the case of prestige goods, the
demand curve sometimes slopes
upward. Consumers think that
higher prices mean more quality.
Most companies try to measure their
demand curves by estimating
demand at different prices. The type
of market makes a difference. In a
monopoly, the demand curve shows
the total market demand resulting
from different prices. If the
company faces competition, its
The Demand Determinant of Price
D
D
Quantity
Price
Principles of Marketing
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demand at different prices will depend on whether competitors' prices stay constant or change
with the company's own prices.
In measuring the price–demand relationship, the market researcher must not allow other factors
affecting demand to vary. For example, if any company increases its advertising at the same time
that it lowers its product prices, we would not know how much of the increased demand was due
to the lower prices and how much was due to the increased advertising. Economists show the
impact of nonprice factors on demand through shifts in the demand curve rather than movements
along it.
• Price Elasticity of Demand
Marketers also need to know price elasticity—how responsive demand will be to a change in price.
Consider the two demand curves in Figure. In Figure, a price increase from P1 to P2 leads to a
relatively small
drop in demand
from Q1 to Q2. In
Figure b, however,
the same price
increase leads to a
large drop in
demand from Q′1
to Q′2. If demand
hardly changes
with a small change
in price, we say the
demand is inelastic.
If demand changes
greatly, we say the
demand is elastic.
The price elasticity
of demand is given
by the following formula:
Price Elasticity of Demand= %change in Quantity demanded / % change in Price
Suppose demand falls by 10 percent when a seller raises its price by 2 percent. Price elasticity of
demand is therefore –5 (the minus sign confirms the inverse relation between price and demand)
and demand is elastic. If demand falls by 2 percent with a 2 percent increase in price, then elasticity
is –1. In this case, the seller's total revenue stays the same: The seller sells fewer items but at a
higher price that preserves the same total revenue. If demand falls by 1 percent when price is
increased by 2 percent, then elasticity is –½ and demand is inelastic. The less elastic the demand,
the more it pays for the seller to raise the price.
What determines the price elasticity of demand? Buyers are less price sensitive when the product
they are buying is unique or when it is high in quality, prestige, or exclusiveness. They are also less
price sensitive when substitute products are hard to find or when they cannot easily compare the
quality of substitutes. Finally, buyers are less price sensitive when the total expenditure for a
product is low relative to their income or when the cost is shared by another party.
If demand is elastic rather than inelastic, sellers will consider lowering their price. A lower price will
produce more total revenue. This practice makes sense as long as the extra costs of producing and
selling more do not exceed the extra revenue. At the same time, most firms want to avoid pricing
that turns their products into commodities. In recent years, forces such as deregulation and the
instant price comparisons afforded by the Internet and other technologies have increased
consumer price sensitivity, turning products ranging from telephones and computers to new
automobiles into commodities in consumers' eyes. Marketers need to work harder than ever to
Price
Quantity Demanded per Period
A. Inelastic Demand -
Demand Hardly Changes With
a Small Change in Price.
P2
P1
Q1 Q2
Price
Quantity Demanded per Period
P’2
P’1
Q1 Q2
B. Elastic Demand -
Demand Changes Greatly With
a Small Change in Price.
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differentiate their offerings when a dozen competitors are selling virtually the same product at a
comparable or lower price. More than ever, companies need to understand the price sensitivity of
their customers and prospects and the trade-offs people are willing to make between price and
product characteristics.
II. Competitors' Costs, Prices, and Offers
Another external factor affecting the company's pricing decisions is competitors' costs and prices
and possible competitor reactions to the company's own pricing moves. When setting prices, the
company also must consider other factors in its external environment. Economic conditions can
have a strong impact on the firm's pricing strategies. Economic factors such as boom or recession,
inflation, and interest rates affect pricing decisions because they affect both the costs of producing
a product and consumer perceptions of the product's price and value. The company must also
consider what impact its prices will have on other parties in its environment. How will resellers
react to various prices? The company should set prices that give resellers a fair profit, encourage
their support, and help them to sell the product effectively. The government is another important
external influence on pricing decisions. Finally, social concerns may have to be taken into account.
In setting prices, a company's short-term sales, market share, and profit goals may have to be
tempered by broader societal considerations.
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