Chapter 10 Understanding Marketing Processes and Consumer Behavior

Chapter Overview According to the American Marketing Association, marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives. The external marketing environment has a significant influence on marketing strategy and decision-making. The five key elements of the external environment are: Political-Legal Environment Socio-Cultural Environment Technological Environment Economic Environment Competitive Environment Market segmentation is the process of dividing the market into mutually exclusive categories of customers using geographic, demographic, or psychographic variables. In order to increase the effectiveness of marketing, most businesses focus their efforts on target markets: groups of customers with similar wants and needs. Consumer behavior is the study of why people choose to consume products. Key influences on consumer behavior include personal, psychological, social, and cultural factors. When making buying decisions, consumers recognize a problem or need and then collect as much information as they think necessary before making a purchase. After making a purchase, their post-purchase evaluations play a critical role in future buying decisions. Organizational markets fall into three categories: industrial market, reseller market, and the government/institutional market. Organizational buyers differ from consumer in that they are more likely to be professionals, specialists, and experts. Across every type of market, products are an organizations reason for being. Products must include relevant features and benefits to succeed. Consumer products are designed for direct sale to individual consumers and can be classified as convenience goods, shopping goods, or specialty goods. Industrial goods are designed for sale to other firms and can be classified as expense items or capital items.

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Branding and packaging help to create a products identity, with the goal of generating brand loyalty consumer preference for a product with a particular brand name. There are national brands, licensed brands, and private brands. Chapter Objectives 1. Explain the concept of marketing and describe the five forces that constitute the external marketing environment. 2. Explain the purpose of a marketing plan and identify the four components of the marketing mix. 3. Explain market segmentation and show how it is used in target marketing. 4. Describe the key factors that influence the consumer buying process. 5. Discuss the three categories of organizational markets. 6. Explain the definition of a product as a value package. 7. Explain the importance of branding and packaging.

REFERENCE OUTLINE
Opening Case: XBox Spots the Market I. What Is Marketing? A. Providing Value and Satisfaction 1. Value and Benefits 2. Value and Utility B. Goods, Services, and Ideas C. Relationship Marketing D. The Marketing Environment 1. Political and Legal Environment 2. Social and Cultural Environment 3. Technological Environment 4. Economic Environment 5. Competitive Environment E. Strategy: The Marketing Mix 1. Product 2. Pricing 3. Place 4. Promotion a. Advertising b. Personal Selling c. Sales Promotion d. Public Relations Target Marketing and Market Segmentation A. Identifying Market Segments 1. Geographic Variables 2. Demographic Variables 3. Psychographic Variables
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Understanding Consumer Behavior A. Influences on Consumer Behavior B. The Consumer Buying Process C. Data Warehousing and Data Mining 1. The Use of Data Mining Organizational Marketing and Buying Behavior A. Organizational Markets 1. Industrial Market 2. Reseller Market 3. Government and Institutional Market B. Organizational Buying Behavior 1. Differences in Buyers 2. Differences in the Buyer-Seller Relationship What Is a Product? A. The Value Package B. Classifying Goods and Services 1. Classifying Consumer Products a. Convenience Goods b. Shopping Goods c. Specialty Goods 2. Classifying Industrial Products a. Expense Items b. Capital Items C. The Product MixProduct Lines Developing New Products A. The New-Product Development Process B. Product Mortality Rates C. Speed to Market D. The Product Life CycleStages in the Product Life Cycle Identifying Products A. Branding Products 1. E-Business Branding 2. Types of Brand Names a. National Brands b. Licensed Brands c. Private Brands B. Packaging Products The International Marketing Mix A. International Products B. International Pricing C. International Distribution D. International Promotion

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Small Business and the Marketing Mix A. Small-Business Products B. Small-Business Pricing C. Small-Business Distribution D. Small-Business Promotion

LECTURE OUTLINE
I. What Is Marketing? (Use PowerPoint 10.3.) Marketing is the process of planning and implementing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives. A. Providing Value and Satisfaction Limited financial resources force most of us to be selective in our goods and services purchases. 1. Value and Benefits. Value compares a products benefits with its costs; benefits include the products functions and emotional satisfactions associated with owning, experiencing, or possessing it. 2. Value and Utility. Products provide utility, which is the products ability to satisfy a human want or need. B. Goods, Services, and Ideas (Use PowerPoint 10.4.) Consumer goods are products that consumers purchase for final consumption; firms that sell these goods are engaged in consumer marketing. Industrial goods are products that are purchased by companies to be used in further production of goods; firms that sell products to other businesses are engaged in industrial marketing. C. Relationship Marketing Relationship marketing focuses on long-lasting relationships between customers and suppliers. D. The Marketing Environment (Use PowerPoint 10.5, 10.6.) Marketing decisions are affected by various influences in the external environment.

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1. Political and Legal Environment. Political activities may result in favorable laws and regulations that may open new international business opportunities. 2. Social and Cultural Environment. Elements from this segment of the external environment include changing demographics, values and religion, buying behaviors, preferences, and activities as well as many other factors. 3. Technological Environment. Technological change happens so quickly in some industries that existing products become obsolete very quickly, while newproduct introductions replace them. 4. Economic Environment. Economic conditions affect many facets of marketing, including consumer spending patterns and marketers plans for product offerings, pricing, and promotional strategies. 5. Competitive Environment. All marketers compete for the purchasing power of consumers. This sometimes occurs through product differentiation and consumer segmentation. Substitute products are dissimilar from those of competitors but can fulfill the same need; brand competition occurs between similar products; international competition matches domestic products against foreign products. E. Strategy: The Marketing Mix (Use PowerPoint 10.7, 10.8.) The marketing mix consists of the four Ps of marketing: product, pricing, place, and promotion. 1. Product. The product is a good, service, or idea designed to fill a consumer need. Meeting consumer needs often requires that marketers change existing products. Product differentiation is the development of a product or the creation of a product image that differs from existing products to attract consumers. 2. Pricing. Pricing must be set to support a variety of costs, yet prices cannot be so high that consumers turn to competing products. 3. Place. Distribution activities are concerned with getting the product from the producer to the consumer.

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4. Promotion. Promotion refers to techniques of communicating information about products. Promotion includes a combination of personal selling and/or nonpersonal selling, including advertising, sales promotion, and public relations. a. Advertising. Advertising is any paid form of nonpersonal communication that persuades or informs consumers. b. Personal Selling. Personal selling involves faceto-face, person-to-person sales. c. Sales Promotions. These include any premiums, coupons, contests, games, etc. d. Public Relations. Public Relations includes all efforts directed at goodwill-building. Notes: _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ ___ II. Target Marketing and Market Segmentation (Use PowerPoint 10.9.) Target markets are groups of people with similar wants and needs and/or similar buying behaviors. Market segmentation divides a market into categories of consumer types, based on geographic, demographic, and psychographic variables. A. Identifying Market Segments (Use PowerPoint 10.10.) Members of a market segment must share common traits that will affect their purchasing decisions. 1. Geographic Variables. Consumers in certain geographic regions exhibit characteristics and buying patterns that are typical of those regions. 2. Demographic Variables. Demographic variables describe populations, including such traits as age,

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income, gender, ethnic background, marital status, race, religion, and social class. 3. Psychographic Variables. Psychographic variables include life styles, opinions, interests, and attitudes. Notes: _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ ___ III. Understanding Consumer Behavior (Use PowerPoint 10.11.) Consumer behavior focuses on why people buy. A. Influences on Consumer Behavior Influences on consumer behavior can include psychological, personal, social, and/or cultural elements. When consumers exhibit brand loyalty, they regularly purchase products because they are satisfied with the products performance or benefits. B. The Consumer Buying Process (Use PowerPoint 10.12.) Various models have been constructed to help marketers understand how consumers come to purchase products; marketers eventually use this information to develop marketing plans. A typical model includes: (a) problem/need recognition, when the consumer recognizes a problem or need; (b) information seeking, in which consumer seek information from personal sources, marketing sources, public sources, and experience; (c) evaluation of alternatives; (d) purchase decision, based on rational motives which involve the logical evaluation of product attributes, and/or emotional motives, which involve non-objective factors and lead to irrational decisions; and (e) post-purchase evaluations, in which consumers are satisfied, dissatisfied, or dissonant. C. Data Warehousing and Data Mining The collection, storage, and retrieval of large groups of data pertaining to individuals is data warehousing. Data mining involves the processing and use of consumer data. Notes: _________________________________________________________________ _________________________________________________________________

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_________________________________________________________________ ___ IV. Organizational Marketing and Buying Behavior Organizational markets and buying behaviors are quite different from consumer markets and consumer behaviors. A. Organizational Markets (Use PowerPoint 10.13.) Organizational markets fall into three categories: industrial, reseller, and government/institutional markets. 1. Industrial Market. The industrial market includes businesses that buy goods that are either converted into other products or goods that are used up during production. 2. Reseller Market. The reseller market consists of marketing intermediaries, such as wholesalers and retailers that buy products and resell them. 3. Government/Institutional Market. In addition to federal and state governments, the institutional market consists of non-government organizations, such as hospitals, churches, and museums that also comprise a substantial market for goods and services. B. Organizational Buying Behavior (Use PowerPoint 10.14.) Demand for industrial products is stimulated by differences in buyers and buyer-seller relationships. 1. Differences in Buyers. Organizational buyers are professional, specialized, and expert. 2. Differences in the Buyer-Seller Relationship. Industrial buying situations often involve frequent, enduring buyer-seller relationships. Notes: _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ ___

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What Is a Product? In order to develop the marketing mix and plan their strategies effectively, marketers must consider what consumers buy when they purchase products; marketers must begin by understanding product features and benefits. A. The Value Package Product features are the tangible and intangible qualities that are built into products; product benefits include what products can do emotionally or physically for consumers. B. Classifying Goods and Services (Use PowerPoint 10.15.) Goods and services may be classified according to their prospective buyers; buyers may be classified as buyers of consumer products or buyers of industrial products. 1. Classifying Consumer Products. a. Convenience Goods. These goods are consumed rapidly and regularly; they are relatively inexpensive and are purchased frequently. b. Shopping Goods. These goods are more expensive and purchased less frequently; consumers often compare brands and evaluate alternatives. c. Specialty Goods. These goods are purchased infrequently and are expensive; consumers are very specific about what they want and will accept no substitutes. 2. Classifying Industrial Products. a. Expense Items. These are materials and services consumed within one year by other suppliers of services or producers of goods. b. Capital Items. These items are permanent, longlasting goods and services that have expected lives of more than one year. C. The Product Mix (Use PowerPoint 10.16.)

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The product mix is the total assortment of all goods and/or services that a marketer makes available for sale. The product mix consists of a number of product lines, which are groups of similar products intended for specific purpose for a similar group of buyers. Notes: _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ ___ VI. Developing New Products (Use PowerPoint 10.17.) To expand or diversify to survive, marketers must develop and successfully introduce streams of new products. Competition and shifting consumer preferences cause marketers to continually monitor and frequently change their offerings. A. The New-Product Development Process Product development is a long, complex process. New products usually involve carefully planned and sometimes risky commitments of time and resources. B. Product Mortality Rates Estimates indicate that it takes 50 new product ideas to generate one product that reaches the marketplace; only a few of the survivors become successful. C. Speed to Market The more quickly a product enters the marketplace, the more likely it is to survive. Introducing new products ahead of competitors allows companies to become market leaders. D. The Product Life Cycle Every product passes through a series of stages during its limited profit-producing life. 1. Stages in the Product Life Cycle. The product life cycle is a natural process in which products are born, grow, mature, decline, and die. The stages include:

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introduction, which begins when the product enters the marketplace; growth, when sales and profits climb; maturity, when sales growth begins to slow; and decline, when sales and profits continue to fall. Notes: _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ ___ VII. Identifying Products Branding and packaging are two tools that allow consumers to identify products in the marketplace. A. Branding Products (Use PowerPoint 10.18.) Brand names are symbols for characterizing products and distinguishing them from one another; branding is the process of using symbols to communicate the features and qualities of products. 1. E-Business Branding. Reliability and innovation are the keys to global brand recognition; costs are often prohibitive. 2. Types of Brand Names. a. National Brands. These are brand-name products produced by, widely distributed by, and carrying the name of a manufacturer. b. Licensed Brands. These are brand-name products that carry the name of an organization or individual. c. Private Brands. These are brand-name products that a wholesaler or retailer has commissioned from a manufacturer. B. Packaging Products (Use PowerPoint 10.19.) A products package serves several purposes; the package can serve as an in-store advertisement, a display for the brand name, an identifier of product features and benefits, and can reduce the risk of damage and increase the difficulty of stealing.

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Notes: _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ ___ VIII. The International Marketing Mix (Use PowerPoint 10.20.) Foreign consumers differ from domestic buyers in language, customs, business practices, and consumer behavior. Marketing products internationally means mounting a strategy to support global business operations. A. International Products Some products can be marketed internationally without modifications, whereas, some products need to be modified to fit the needs of a local market. B. International Pricing Many factors that affect domestic pricing also affect international pricing; additional factors affecting global market pricing are the costs of transportation and selling abroad. C. International Distribution Distribution networks in other countries may be costly. Many domestic marketers hire foreign agents to assist with selling, advertising, and providing information about local markets. D. International Promotion Many American promotional tactics do not succeed in other countries. Marketers must consider differences in language and culture when promoting products abroad. Notes: _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ ___ IX. Small Business and the Marketing Mix (Use PowerPoint 10.21.)

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Far more small businesses fail than succeed. The successful small businesses have learned skillful application of the marketing mix and careful consideration of each element in the marketing mix. A. Small-Business Products Understanding the target market and the targeted groups wants is critical. B. Small-Business Pricing Profits are often determined by accurately assessing costs from the start. C. Small-Business Distribution The most critical aspect of distribution for small businesses is facility location. D. Small-Business Promotion Understanding promotional costs, as well as benefits of chosen promotional tools, may be the most critical steps involved. Notes: _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ ___ Answers to Questions and Exercises Questions for Review 1. What are the key similarities and differences between consumer buying behavior and organizational buying behavior? Both deal with the way people purchase and consume products. However, organizational buyers are professional, specialized, and expert, relying less on product image. Buyer-seller relationships tend to be longer lasting. 2. Why and how is market segmentation used in target marketing? Market segmentation is a method of breaking consumers into mutually exclusive groups based on similar characteristics that are likely to affect consumption. By identifying and targeting segments that are most likely to purchase its products, an organization can tailor its marketing efforts in

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terms of product features and benefits, pricing, packaging, promotion, and distribution. 3. How are data mining and data warehousing useful in finding new information for marketing to consumers? These processes involve the collection and storage of vast amounts of consumer information, including demographic, psychographic, and geographic information. That information can, in turn, be used to determine where future needs and wants of consumers may fall. In addition, storage of such data may allow a researcher to monitor trends in behavioral changes among a specific market niche. 4. What are the various classifications of consumer and industrial products? Give an example of a good and a service for each category other than those in the text. Consumer Products Convenience goods and services candy, ATM services Shopping goods and services clothing, car repair Specialty goods and services houses, interior design Industrial Products Expense items inventory, repair bills Capital items computer servers, long-term maintenance contracts Questions for Analysis 5. Select an everyday product. Show how different versions of your product are aimed toward different market segments. Explain how the marketing mix differs for each segment. Answers will vary, but students should focus on product and package characteristics, price levels, promotional tools, and distribution options. They should also discuss demographics and psychographics of the target market and the way they influence marketing mix decisions. 6. Select a second everyday product and describe the consumer buying process that typically goes into its purchase. Answers will vary but should include need recognition, search for information, evaluation of information, purchase decision, and postpurchase evaluation.

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7. If you were starting your own small business, which of the forces in the external marketing environment would you believe to have the greatest potential impact on your success? Answers will vary. 8. How would you expect the branding and packaging of convenience, shopping, and specialty goods to differ? Why? Give examples to illustrate your answers. Convenience goods, such as candy bars, should have very prominent branding and packaging elements in order to spur impulse purchases. Shopping goods, such as computers and clothing, should be branded and packaged to clearly communicate their unique features and benefits since shoppers engage in comparisons. Specialty goods, such as high-end cosmetics in top department stores, should be branded and packaged in a way that reinforces their mystique. Application Exercises 9. Interview the marketing manager of a local business. Identify the degree to which this persons job is focused toward each element in the marketing mix. Answers will vary, but students should address how the persons job relates to product, price, promotion, and place, and how the person monitors decisions in each area to determine when change is necessary. 10. Select a product made by a foreign company and sold in the United States. What is the products target market? What is the basis on which the target market is segmented? Do you think that this basis is appropriate? How might another approach, if any, be beneficial? Why? Answers will vary based on the nature of the product and the business. Answers to Exercising Your Ethics 1. Given the factors involved in the consumer buying process, how would you characterize the particular ethical issues in this situation? The key ethical issues are integrity and communication. Matthew has invested enormous effort in information collecting and evaluating alternatives, expecting that once he had made the purchase decision the dealer would come through on its end of the bargain. One possibility is that the sales representative and the sales manager simply had not communicated, but this becomes an ethical issue when the sales

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representative has the responsibility to establish contracts without the authority to deliver results. 2. From an ethical standpoint, what are the obligations of the sales representative and the sales manager regarding the pricing of the product in this situation? Since the contract has been signed, the minimal obligation of the car company is to offer the 2002 model at the 2001 price. 3. If you were responsible for maintaining good customer relations at the dealership, how would you handle this matter? Answers will vary. Answers to Building Your Business Skills 1. Which location did you choose? Describe the market segmentation factors that influenced your decision. Answers will vary, but students should have specific information for each of the market segmentation factors. 2. Identify the two most important variables that you believe will have the greatest impact on the dealerships success. Why are these factors so important? Answers will vary. 3. Which factors were least important? Why? Answers will vary. 4. When equipment manufacturers advertise residential H/AC products, they often show them in different climate situations. Which market segments are these ads targeting? Describe these segments in terms of demographic and psychographic characteristics. These ads are likely targeted to middle-to-higher income owners of older homes who need to replace heating or air conditioning systems or are willing to pay for upgraded equipment for greater comfort. They may also target affluent buyers who are building a home. Classroom Activities

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1. Break the class into small groups and assign each group a specific industry. Have each group discuss the marketing strategies that they believe important to the effective marketing of products in that industry. 2. Divide the class into three-member groups. Ask each group to bring three similar products (or packages of those products) to class. Examples might include breakfast cereals, soft drinks, or laundry detergent. Ask each group to analyze the target market for each of their three products. Then, based on who they have identified as the target market for each product, ask each group to discuss each element of the marketing mix explaining how the marketing mix was built for each product.

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