Booklet 2015

North Hills School
Business Studies
4th. Secondary School
M Dolores Ibarlucea
01/01/2015
Chapter 6
It's the Economy
In This Chapter
> The structure of the economy
> Understanding GNP and GDP
> The causes of recessions and recoveries
V The effects of inflation and unemployment
V The difference between fiscal policy and monetary policy
The national economy is the total of all of the financial transactions that go on in the
nation. This includes everything: a kid buying candy with the quarter in his sweaty hand,
one megacorporation acquiring another in an international transaction, the government
opening (or closing) a military base. An economy includes every exchange of money that
takes place in a city, state, nation, or region.
Business operates in an economy the way a fish swims in water. That's why business
people follow the economic news. To be sure, businesses can affect the economy; for
example, when some large corporations moved their headquarters out of New York in the
iy70s, it hurt the city's economy. However, as we will see, the economy has an even
greater affect on business.
Parti
>
How It All Operates
This chapter gives you an overview of the economy and a summary of economic concepts
you should know. More important, it will help you understand the economic news and
the effect the economy has on your business. You may notice that this chapter uses the
U.S. economy as a specific example from time to time. Please understand that these
economic concepts are universal and apply to all countries.
Our National Economy: As Easy as C + I + G

Prom the various economic data issued by the government agencies and other institutions, economists have found that certain statistics point to the current or future state of
the economy. These data, called economic indicators because they indicate the state of the
economy, can help you as a business person steer your company through periods of
economic change.
MBA Lingo
Gross domestic
product, or GDP, is
the total value of
all goods and
services produced
within a nation's
borders. That includes goods
and services produced by
foreign-owned companies in
that nation. (In contrast, gross
national product includes the
value of all goods and services
produced by a nation's
companies, including those
companies and facilities
located outside the country.}
Because an economy is the total of all financial transactions

in an area, you can measure the size of an area's economy by
adding up the transactions. The dollar value of all goods and
services produced in a country, for example, is measured by
the gross domestic product, or GDP. GDP measures the size of
a national economy.
Here is the formula for GDP:
GDP = C + 1 + G + (Ex - Im)
The parts of this formula are simple:
C = total spending by consumers
I = total investment (spending by businesses)
G = total spending by government (federal, state,
and local)
(Ex - lm) = net exports (exports minus imports)
The U.S. economy is now over $7 trillion. That means that the United States produces
more than $7,000,000,000,000 worth of goods and services within its borders every year.
The U.S. economy is the world's largest national economy.
What Happened to Gross National Product?

Economists now discuss the economy in terms of GDP instead of gross national product, or
GNP. Here's why: GDP refers to all goods and services produced within a nation's borders.
GNP refers to all goods and services produced by a nation, including the overseas production of its companies.
Chapter 6 ,".-- It's the Economy

For example, U.S. companies do a lot of production
overseas, and foreign companies (especially foreign
auto makers) do a lot of production in the United
States. The CNF would include the monies generated
by these companies, even though they are not generated in the U.S. The GDP tells economists what's
actually happening in the U.S.
If you look at the GDI' formula, you'll see that if any
one component increases, then the total GDP increases. For example:
> If consumer spending growsif people buy more
clothing and cars and homesthen the economy
grows.
> If business investment growsif companies
invest in buildings and equipment and hire new
workersthen the economy grows.
> If government spending growsif money is
poured into space programs and roads and police
officersthen the economy grows.
MBA Lingo
Exports are goods
shipped oat of the
country in which
they are made to be
consumed in another
nation. Imports are goods
shipped into the country that
will consume them. The goods
were made by the exporting
nation. One country's exports
are another country's imports.
Net exports are a nation's total
exports minus total imports
during a certain period, for
example a calendar year. Net
imports are a nation's total
imports minus its total exports
during a period.
By the same token, if any one component of the GDI' decreases, then the total GDP
decreases.
You'll look at the dynamics of the economy in a bit, but first let's examine exports and
imports.
Imports and Exports: Eosy Come, Easy Go

When a country exports goods, it sells them to a foreign market; to consumers, businesses, or governments in another country. Those exports bring money into the country,
and that increases the GDP. However, when a country imports goods, it buys them from
foreign producers. The money spent on imports leaves the economy, and the GDP
decreases.
The term net exports assumes that exports are greater than imports. If a nation exports,
say, $100 billion dollars' worth of goods and imports $80 billion, it has net exports of $20
billion. That amount gets added to the country's GDP.
But if imports are greater than exports, net exports are negative. For example, if that same
nation exported $80 billion of goods and imported $100 billion, net exports would be
-$20 billion. That amount would be subtracted from the GDP and the economy would
be that much smaller.
Conceivably, net exports could be zero, with exports equal to imports.
Parti
>
How It All Operates
If net exports are positive, the nation has a positive balance of trade. If they are negative,
the nation has a negative trade balance. Virtually every nation in the world wants its
economy to be bigger rather than smaller, and to be growing (we'll see why in a minute).
That means that no nation wants a negative trade balance.
Case in Point
A nation's balance of trade is calculated for a country in relation to the
rest of the world, and in relation to other individual nations. It can
even be calculated for a specific industry.
For example, the U.S. usually has a negative balance of trade with the
rest of the world. That means the U.S. imports more than it exports.
The U.S. also has a negative balance of trade with Japan. The U.S. imports more
from Japan than it exports to Japan. However, the U.S. exports more fruits, grain,
and vegetables to Japan than it imports from Japan. So the U.S. has a positive
agricultural trade balance with Japan.
Because no nation wants a negative trade balance, some countries try to protect their own
markets. This policy, called (logically enough) protectionism, uses barriers to keep out
imports, fhese barriers include high tariffs (taxes or surcharges on imported goods) and
strict rules about what products can be imported.
Despite some nations' attempts at protectionism, free tradetrade unencumbered by
barriershas been the dominant trend for most countries for most of this century.
Economists usually favor free trade because it tends to give
consumers the greatest choice of products at the lowest
prices. That occurs because some nations are better at
MBA Lingo
producing certain products than others.
Protectionism refers
to government
policies designed
Can Exports Move an Economy?
to restrict imports
from coming into
In most economies, exports and imports are less important
the nation. A tariff,
in the business cycle than the other three sectors. But there
also called a duty, is a tax on
are exceptions.
imports as they come into the
country. Free trade means
Suppose a nation that exports a lot of oil experiences a
international trade that is
sudden fall-off in foreign demand for its oil. that nation
unrestricted by tariffs or other
could quickly skid into recession. Similarly, if that nation
forms of protectionism.
saw a sudden surge in demand for its oil, it could well move
into recovery. (I'll talk more about recession and recovery
later in the chapter.)

An economy that depends heavily on exports, particularly a single export, can be quite
vulnerable to recession. An economy like that lives and dies by trade policyand by its
major export, whatever it is.
Growth Is Good
What's the importance of economics? Why should anyone care about this stuff? What
does it have to do with anyone's job or business?
Plenty!
An economy is a dynamic system for supplying
people's wants and needs. Like any dynamic system, it
doesn't stand still. It is either growing or contracting.
If the economy is growing, that's good. It's good for
two reasons: first, in most economies the population is
growing and new people have needs that must be met.
If the population gets larger, the economy has to get
larger to meet those needs.
Second, even if the population were not growing,
people always want and need more goods and services.
They want a rising standard of living. Only an economy
that grows most of the time can give people a rising
standard of living.
GDP: It's All Connected

There's an important aspect of the GDI' formula that
we haven't discussed: The elements are all interconnected.
When the state police buy cars from Ford Motor
company, it increases G, government spending. When
Ford pays its advertising agency it increases I, investment or business spending. When a copywriter at that
ad agency goes out and buys a bottle of French champagne, she increases lm, imports. When her wine
merchant has excess inventory of California
Chardonnay that he sells to a merchant in Canada, he
increases Ex, exports. And so on.
MBA Lingo
The standard of
living is the total
quality of life
supplied by an
J economy. It includes
\ the availability and
1 quality of jobs, housing, food,
\ education, transportation,
sanitation, recreation, and
health care in a city, nation,
or region.
MBA Lingo
The business cycle

is the recurring
pattern of expansions and contractions in an economy.
The expansions are called
recoveries and the contractions
are called recessions. Officially,
a recession is two consecutive
quarters of contraction; that
is, GDP growth of less than
zero.
Conversely, if the state closes down an agency, it reduces G. Those ex-workers without
paychecks will then decrease their spending; for example, they'll postpone buying a new
Ford, thus reducing C. When Ford sees its business decrease, it will cancel factory expansion plans, thus reducing I, investment. And so on.
P a r t i > How It All Operates

In an economy, everythingevery activity, transaction, person, and organizationis
directly or indirectly connected. So when the economy expands or contracts, everyone is
affected. That is why everyone is concerned about the economy's expansions and contractions, or the business cycle.
What Goes Up, Must Come Down

The business cycle exists because of fluctuations in demand. (Demand here is just another
word for spending.) C + I + G + (Ex- Im) represents total demand. Consumer spending is
consumer demand. Business spending is investment demand. Government spending is
government demand. Exports represent foreign demand for a country's goods. Imports
represent domestic demand for foreign goods.
Fluctuations in demand tend to be unpredictable in both their timing and intensity.
Some economists spend their lives trying to predict recessions and recoveries, but as a
group their record is fairly poor. The one thing they, and we, do know is that a recession
always follows a recovery, and a recovery always follows a recession. We just don't know
when and with what strength. The business cycle never stops.
Tracking the Business Cycle

Here's what happens in a typical business cycle. During a recovery, things steam along
nicely. Consumers are buying, which means that spending, or demand, is increasing, in
the GDI1 formula, C increases.
To meet this increased demand, industry expands its productive capacity. Businesses lease
new space and buy new equipment and hire new workers so they can expand their
capacity and increase production. This increases I, investment. During a recovery, most
businesses want to "make hay while the sun shines," so they expand vigorously.
As long as consumers keep buying and businesses keep investing, the recovery continues
and everything is fine. The business cycle stays on an upswing. GDP growth continues.
Yet, inevitably, consumer demand eventually decreases. This can occur because consumers have finally been satisfiedmeaning that we get to a point where enough of us have
new cars, clothes, and homes for spending to slow downor because some event, such as
a war, causes consumers to hunker down, cut spending, and start saving.
When this happens, business as a whole simply cannot react swiftly enough. While
individual businesses do better or worse at adjusting to a fall-off in demand, as a group
they wind up with excess capacity. They have too much productive capacity and too
many workers for the new, lower level of demand.
What do they do?
Hirst, they lay off workers. Although that helps companies adjust, it cuts consumer
spending further because a laid-off consumer can't spend his pay. He's not getting paid!

Second, business stops expanding its plant and equipment. Why add to capacity when
you have excess capacity? So after consumers cut spending, businesses cut spending, and
this begins a downswing in the business cycle.
Vicious and Virtuous Cycles

A recession is a great example of what's known as a vicious cycle. Consumers cut spending, businesses lay off workers (who are, of course, also consumers) and reduce investment. This causes consumers to cut spending further, which decreases demand even
further, causing businesses to lay off more workers and further cut investment.
In contrast, a recovery is a virtuous cycle. It begins when consumers finally cannot get
along with the cars, clothes, and homes they have. They start spending again. Business
responds to the increased demand by hiring workers. This puts money in consumers'
pockets. Business also invests in new capacity to meet that demand. That gets more
money moving in the economy. All of this starts an
upswing in the business cycle that lasts until the next
fall-off in demand and excess-capacity situation, which
MBA Mastery
ignites the next recession.
As a manager,
you should
Fortunately, recoveries usually last a lot longer on
understand
average than recessions. In the 1990s, a fairly mild
how economic
recession of about two years, from 1991 into 1993, was
cycles can affect your business.
followed by a strong recovery that began in 1994 and
For example, if you sell goods
continues as I write. Most of the 1980s were one long
or services to consumers, you
recovery.
may get stuck with excess
inventory when consumer
Even more fortunately, a depressiona collapse in
spending slows because
demand, huge excesses of capacity, and widespread
demand fell off and you didn't
unemploymentis very rare. The Great Depression of
see it coming.
the 1930s was the only one to occur in the United
States and Europe this century, but it had worldwide
repercussions.
The Government's Role

I've described the business cycle in terms of consumer
and business behavior. But what about the government?
The government can only spend money that it gets
from two sources: taxes or borrowing.
Most of the government's spending money comes
from taxes onguess who?consumers and businesses. During a recession, consumer and business
MBA Lingo
Income equals
spending. Because
the economy is
interconnected,
what one person or
business spends,
another collects as income.
Total spending, total income,
and GDP are essentially the
same thing.
Parti
>
How It All Operates
spending, and thus consumer and business income, decrease. Since federal (and many
state) taxes are based on income, tax receipts also decrease. Similarly, during a recovery,
consumer and business spending, and thus income, increase and so do tax receipts.
Now all of this is what happens if the government does nothing to try to affect the
business cycle. But in fact the government plays an active role in most modern economies, including ours. Let's spend some time examining that role.
What Does the Government Want?

Essentially, the government wants order in the economy. The government wants a sound
currency, low unemployment, and sustained economic growth.
More specifically, the government wants a currency with minimal inflation (rapid price
increases that erode the value of the dollar). It wants sustained growth, at a long-term
average of about 3 percent a year, which is about what's possible without inflation getting
out of hand. And it wants low unemployment, as close to 4
percent as possibleit can't go much lower.
MBA Lingo
four percent is generally recognized as the lower limit
Inflation in this
because
some small portion of the work force will always be
context refers to
officially out of work because they are between jobs. Most of
rapid price increases
that erode the value
the people between jobs have just been fired or laid off and
of currency.
have not yet found another job. Or they were fired or laid off
and are still counted as unemployed, although they are not
really looking for work and want to take some time off.
MBA Lingo
Economic policy is
the means by which
the federal government stimulates or
reigns in economic
growth. There are
two kinds of economic policy:
fiscal policy and monetary
policy. Fiscal policy is the use
of government spending and
taxation to affect the
economy. (The term fiscal
refers to budgetary matters.)
Monetary policy refers to
measures aimed at affecting
the amount of money in the
economy.
The Inflation-Unemployment Trade-Off

Since the economy is a dynamic system, it can go out of
whack. It is often growing too slowly to provide full employment or too fast to keep inflation low. Indeed, that is the
traditional trade-off in managing the economy: You either
get low inflation and high unemployment or high unemployment and low inflation.
Here's why.
An economy is said to be "overheating" when the increased
demand in a recovery pushes up the price of everything. This
is inflation, defined as too many dollars (too much demand)
chasing too few goods. When demand outstrips capacity,
consumers "bid up" the price of goods. Also, businesses know
they can charge higher prices when demand is high.
However, the bright side of this is that unemployment is
low because businesses have hired all those workers to
Chapter 6
It's the Economy
In This Chapter
> The structure of the economy
> Understanding GNP and GDP
> The causes of recessions and recoveries
V The effects of inflation and unemployment
V The difference between fiscal policy and monetary policy
The national economy is the total of all of the financial transactions that go on in the
nation. This includes everything: a kid buying candy with the quarter in his sweaty hand,
one megacorporation acquiring another in an international transaction, the government
opening (or closing) a military base. An economy includes every exchange of money that
takes place in a city, state, nation, or region.
Business operates in an economy the way a fish swims in water. That's why business
people follow the economic news. To be sure, businesses can affect the economy; for
example, when some large corporations moved their headquarters out of New York in the
iy70s, it hurt the city's economy. However, as we will see, the economy has an even
greater affect on business.
Parti
>
How It All Operates
This chapter gives you an overview of the economy and a summary of economic concepts
you should know. More important, it will help you understand the economic news and
the effect the economy has on your business. You may notice that this chapter uses the
U.S. economy as a specific example from time to time. Please understand that these
economic concepts are universal and apply to all countries.
Our National Economy: As Easy as C + I + G

Prom the various economic data issued by the government agencies and other institutions, economists have found that certain statistics point to the current or future state of
the economy. These data, called economic indicators because they indicate the state of the
economy, can help you as a business person steer your company through periods of
economic change.
MBA Lingo
Gross domestic
product, or GDP, is
the total value of
all goods and
services produced
within a nation's
borders. That includes goods
and services produced by
foreign-owned companies in
that nation. (In contrast, gross
national product includes the
value of all goods and services
produced by a nation's
companies, including those
companies and facilities
located outside the country.}
Because an economy is the total of all financial transactions

in an area, you can measure the size of an area's economy by
adding up the transactions. The dollar value of all goods and
services produced in a country, for example, is measured by
the gross domestic product, or GDP. GDP measures the size of
a national economy.
Here is the formula for GDP:
GDP = C + 1 + G + (Ex - Im)
The parts of this formula are simple:
C = total spending by consumers
I = total investment (spending by businesses)
G = total spending by government (federal, state,
and local)
(Ex - lm) = net exports (exports minus imports)
The U.S. economy is now over $7 trillion. That means that the United States produces
more than $7,000,000,000,000 worth of goods and services within its borders every year.
The U.S. economy is the world's largest national economy.
What Happened to Gross National Product?

Economists now discuss the economy in terms of GDP instead of gross national product, or
GNP. Here's why: GDP refers to all goods and services produced within a nation's borders.
GNP refers to all goods and services produced by a nation, including the overseas production of its companies.

For example, U.S. companies do a lot of production
overseas, and foreign companies (especially foreign
auto makers) do a lot of production in the United
States. The CNF would include the monies generated
by these companies, even though they are not generated in the U.S. The GDP tells economists what's
actually happening in the U.S.
If you look at the GDI' formula, you'll see that if any
one component increases, then the total GDP increases. For example:
> If consumer spending growsif people buy more
clothing and cars and homesthen the economy
grows.
> If business investment growsif companies
invest in buildings and equipment and hire new
workersthen the economy grows.
> If government spending growsif money is
poured into space programs and roads and police
officersthen the economy grows.
MBA Lingo
Exports are goods
shipped oat of the
country in which
they are made to be
consumed in another
nation. Imports are goods
shipped into the country that
will consume them. The goods
were made by the exporting
nation. One country's exports
are another country's imports.
Net exports are a nation's total
exports minus total imports
during a certain period, for
example a calendar year. Net
imports are a nation's total
imports minus its total exports
during a period.
By the same token, if any one component of the GDI' decreases, then the total GDP
decreases.
You'll look at the dynamics of the economy in a bit, but first let's examine exports and
imports.
Imports and Exports: Eosy Come, Easy Go

When a country exports goods, it sells them to a foreign market; to consumers, businesses, or governments in another country. Those exports bring money into the country,
and that increases the GDP. However, when a country imports goods, it buys them from
foreign producers. The money spent on imports leaves the economy, and the GDP
decreases.
The term net exports assumes that exports are greater than imports. If a nation exports,
say, $100 billion dollars' worth of goods and imports $80 billion, it has net exports of $20
billion. That amount gets added to the country's GDP.
But if imports are greater than exports, net exports are negative. For example, if that same
nation exported $80 billion of goods and imported $100 billion, net exports would be
-$20 billion. That amount would be subtracted from the GDP and the economy would
be that much smaller.
Conceivably, net exports could be zero, with exports equal to imports.
Parti
>
How It All Operates
If net exports are positive, the nation has a positive balance of trade. If they are negative,
the nation has a negative trade balance. Virtually every nation in the world wants its
economy to be bigger rather than smaller, and to be growing (we'll see why in a minute).
That means that no nation wants a negative trade balance.
Case in Point
A nation's balance of trade is calculated for a country in relation to the
rest of the world, and in relation to other individual nations. It can
even be calculated for a specific industry.
For example, the U.S. usually has a negative balance of trade with the
rest of the world. That means the U.S. imports more than it exports.
The U.S. also has a negative balance of trade with Japan. The U.S. imports more
from Japan than it exports to Japan. However, the U.S. exports more fruits, grain,
and vegetables to Japan than it imports from Japan. So the U.S. has a positive
agricultural trade balance with Japan.
Because no nation wants a negative trade balance, some countries try to protect their own
markets. This policy, called (logically enough) protectionism, uses barriers to keep out
imports, fhese barriers include high tariffs (taxes or surcharges on imported goods) and
strict rules about what products can be imported.
Despite some nations' attempts at protectionism, free tradetrade unencumbered by
barriershas been the dominant trend for most countries for most of this century.
Economists usually favor free trade because it tends to give
consumers the greatest choice of products at the lowest
prices. That occurs because some nations are better at
MBA Lingo
producing certain products than others.
Protectionism refers
to government
policies designed
Can Exports Move an Economy?
to restrict imports
from coming into
In most economies, exports and imports are less important
the nation. A tariff,
in the business cycle than the other three sectors. But there
also called a duty, is a tax on
are exceptions.
imports as they come into the
country. Free trade means
Suppose a nation that exports a lot of oil experiences a
international trade that is
sudden fall-off in foreign demand for its oil. that nation
unrestricted by tariffs or other
could quickly skid into recession. Similarly, if that nation
forms of protectionism.
saw a sudden surge in demand for its oil, it could well move
into recovery. (I'll talk more about recession and recovery
later in the chapter.)

An economy that depends heavily on exports, particularly a single export, can be quite
vulnerable to recession. An economy like that lives and dies by trade policyand by its
major export, whatever it is.
Growth Is Good
What's the importance of economics? Why should anyone care about this stuff? What
does it have to do with anyone's job or business?
Plenty!
An economy is a dynamic system for supplying
people's wants and needs. Like any dynamic system, it
doesn't stand still. It is either growing or contracting.
If the economy is growing, that's good. It's good for
two reasons: first, in most economies the population is
growing and new people have needs that must be met.
If the population gets larger, the economy has to get
larger to meet those needs.
Second, even if the population were not growing,
people always want and need more goods and services.
They want a rising standard of living. Only an economy
that grows most of the time can give people a rising
standard of living.
GDP: It's All Connected

There's an important aspect of the GDI' formula that
we haven't discussed: The elements are all interconnected.
When the state police buy cars from Ford Motor
company, it increases G, government spending. When
Ford pays its advertising agency it increases I, investment or business spending. When a copywriter at that
ad agency goes out and buys a bottle of French champagne, she increases lm, imports. When her wine
merchant has excess inventory of California
Chardonnay that he sells to a merchant in Canada, he
increases Ex, exports. And so on.
MBA Lingo
The standard of
living is the total
quality of life
supplied by an
J economy. It includes
\ the availability and
1 quality of jobs, housing, food,
\ education, transportation,
sanitation, recreation, and
health care in a city, nation,
or region.
MBA Lingo
The business cycle

is the recurring
pattern of expansions and contractions in an economy.
The expansions are called
recoveries and the contractions
are called recessions. Officially,
a recession is two consecutive
quarters of contraction; that
is, GDP growth of less than
zero.
Conversely, if the state closes down an agency, it reduces G. Those ex-workers without
paychecks will then decrease their spending; for example, they'll postpone buying a new
Ford, thus reducing C. When Ford sees its business decrease, it will cancel factory expansion plans, thus reducing I, investment. And so on.
P a r t i > How It All Operates

In an economy, everythingevery activity, transaction, person, and organizationis
directly or indirectly connected. So when the economy expands or contracts, everyone is
affected. That is why everyone is concerned about the economy's expansions and contractions, or the business cycle.
What Goes Up, Must Come Down

The business cycle exists because of fluctuations in demand. (Demand here is just another
word for spending.) C + I + G + (Ex- Im) represents total demand. Consumer spending is
consumer demand. Business spending is investment demand. Government spending is
government demand. Exports represent foreign demand for a country's goods. Imports
represent domestic demand for foreign goods.
Fluctuations in demand tend to be unpredictable in both their timing and intensity.
Some economists spend their lives trying to predict recessions and recoveries, but as a
group their record is fairly poor. The one thing they, and we, do know is that a recession
always follows a recovery, and a recovery always follows a recession. We just don't know
when and with what strength. The business cycle never stops.
Tracking the Business Cycle

Here's what happens in a typical business cycle. During a recovery, things steam along
nicely. Consumers are buying, which means that spending, or demand, is increasing, in
the GDI1 formula, C increases.
To meet this increased demand, industry expands its productive capacity. Businesses lease
new space and buy new equipment and hire new workers so they can expand their
capacity and increase production. This increases I, investment. During a recovery, most
businesses want to "make hay while the sun shines," so they expand vigorously.
As long as consumers keep buying and businesses keep investing, the recovery continues
and everything is fine. The business cycle stays on an upswing. GDP growth continues.
Yet, inevitably, consumer demand eventually decreases. This can occur because consumers have finally been satisfiedmeaning that we get to a point where enough of us have
new cars, clothes, and homes for spending to slow downor because some event, such as
a war, causes consumers to hunker down, cut spending, and start saving.
When this happens, business as a whole simply cannot react swiftly enough. While
individual businesses do better or worse at adjusting to a fall-off in demand, as a group
they wind up with excess capacity. They have too much productive capacity and too
many workers for the new, lower level of demand.
What do they do?
Hirst, they lay off workers. Although that helps companies adjust, it cuts consumer
spending further because a laid-off consumer can't spend his pay. He's not getting paid!

Second, business stops expanding its plant and equipment. Why add to capacity when
you have excess capacity? So after consumers cut spending, businesses cut spending, and
this begins a downswing in the business cycle.
Vicious and Virtuous Cycles

A recession is a great example of what's known as a vicious cycle. Consumers cut spending, businesses lay off workers (who are, of course, also consumers) and reduce investment. This causes consumers to cut spending further, which decreases demand even
further, causing businesses to lay off more workers and further cut investment.
In contrast, a recovery is a virtuous cycle. It begins when consumers finally cannot get
along with the cars, clothes, and homes they have. They start spending again. Business
responds to the increased demand by hiring workers. This puts money in consumers'
pockets. Business also invests in new capacity to meet that demand. That gets more
money moving in the economy. All of this starts an
upswing in the business cycle that lasts until the next
fall-off in demand and excess-capacity situation, which
MBA Mastery
ignites the next recession.
As a manager,
you should
Fortunately, recoveries usually last a lot longer on
understand
average than recessions. In the 1990s, a fairly mild
how economic
recession of about two years, from 1991 into 1993, was
cycles can affect your business.
followed by a strong recovery that began in 1994 and
For example, if you sell goods
continues as I write. Most of the 1980s were one long
or services to consumers, you
recovery.
may get stuck with excess
inventory when consumer
Even more fortunately, a depressiona collapse in
spending slows because
demand, huge excesses of capacity, and widespread
demand fell off and you didn't
unemploymentis very rare. The Great Depression of
see it coming.
the 1930s was the only one to occur in the United
States and Europe this century, but it had worldwide
repercussions.
The Government's Role

I've described the business cycle in terms of consumer
and business behavior. But what about the government?
The government can only spend money that it gets
from two sources: taxes or borrowing.
Most of the government's spending money comes
from taxes onguess who?consumers and businesses. During a recession, consumer and business
MBA Lingo
Income equals
spending. Because
the economy is
interconnected,
what one person or
business spends,
another collects as income.
Total spending, total income,
and GDP are essentially the
same thing.
Parti
>
How It All Operates
spending, and thus consumer and business income, decrease. Since federal (and many
state) taxes are based on income, tax receipts also decrease. Similarly, during a recovery,
consumer and business spending, and thus income, increase and so do tax receipts.
Now all of this is what happens if the government does nothing to try to affect the
business cycle. But in fact the government plays an active role in most modern economies, including ours. Let's spend some time examining that role.
What Does the Government Want?

Essentially, the government wants order in the economy. The government wants a sound
currency, low unemployment, and sustained economic growth.
More specifically, the government wants a currency with minimal inflation (rapid price
increases that erode the value of the dollar). It wants sustained growth, at a long-term
average of about 3 percent a year, which is about what's possible without inflation getting
out of hand. And it wants low unemployment, as close to 4
percent as possibleit can't go much lower.
MBA Lingo
four percent is generally recognized as the lower limit
Inflation in this
because
some small portion of the work force will always be
context refers to
officially out of work because they are between jobs. Most of
rapid price increases
that erode the value
the people between jobs have just been fired or laid off and
of currency.
have not yet found another job. Or they were fired or laid off
and are still counted as unemployed, although they are not
really looking for work and want to take some time off.
MBA Lingo
Economic policy is
the means by which
the federal government stimulates or
reigns in economic
growth. There are
two kinds of economic policy:
fiscal policy and monetary
policy. Fiscal policy is the use
of government spending and
taxation to affect the
economy. (The term fiscal
refers to budgetary matters.)
Monetary policy refers to
measures aimed at affecting
the amount of money in the
economy.
The Inflation-Unemployment Trade-Off

Since the economy is a dynamic system, it can go out of
whack. It is often growing too slowly to provide full employment or too fast to keep inflation low. Indeed, that is the
traditional trade-off in managing the economy: You either
get low inflation and high unemployment or high unemployment and low inflation.
Here's why.
An economy is said to be "overheating" when the increased
demand in a recovery pushes up the price of everything. This
is inflation, defined as too many dollars (too much demand)
chasing too few goods. When demand outstrips capacity,
consumers "bid up" the price of goods. Also, businesses know
they can charge higher prices when demand is high.
However, the bright side of this is that unemployment is
low because businesses have hired all those workers to
Chapter 1
The Meaning of
Management
In This Chapter
> A (very) brief history of management
> A manager's responsibility and role
> The "Big Five" principles every manager must know
Imagine an army with no general, a team with no coach, or a nation with no government. How could the army beat the enemy? How could the team win games? How could
the nation avoid complete anarchy?
They couldn't. And an organization can't succeed without a manager. In fact, any sizable
organization needs a lot more than one manager. Managers make sure that an organization stays, well...organized. Organizing and directing the work of others is the work of
the manager. 1'eople need organization and direction if they are to work effectively and
managers provide that.
Management is generally defined as the art and science of getting things done through
others. This definition emphasizes that a manager plans and guides the work of other
people. Some (cynical) individuals think that this means managers don't have any work
to do themselves. As you'll learn in this book (if you don't already know it), managers
have an awful lot of work to do.
Part 1
>
The Manager's Toolbox
MBA Lingo
Management is the
art and science of
getting things done
through others,
generally by
organizing and
directing their activities on the
job. A manager is therefore
someone who defines, plans,
guides, assists, and assesses the
work of others, usually people
for whom the manager is
responsible in an organization.
MBA Lingo
Business admin titration means organizing and directing
the activities of a
business. An MBA,
or Master of Business Administration degree, is
a post-undergraduate degree
from a college or university
with a graduate program that
teaches people how to manage a
business. Essentially, the program covers the structure and
purpose of a business and its
various functions, and the tools
needed to manage these
functionsjust as this book
does.
All of this organizing and directing the work of others is

known as administration. In a business it is called business
administration. (In a hospital, it is called health care administration. In a government agency, it is called public administration.) Thus, business administration means managing a
business, and an MBAmaster of business administration
degree prepares a person to manage a business. In an MBA
program, which is a graduate school program, you learn
about the structure, parts, and purpose of a business, and
about the tools you need in order to manage the business.
These tools include budgets and financial statements as well
as methods of analyzing business decisions.
This chapter will introduce you to management by touching
on the development and role of management and by
covering the key principles of managing any business.
What Makes a Good Manager?

As in politics or sports, some people seem more naturally
suited to being managers than others. In our society people
often believe that men and women with a certain personality or appearance are best qualified to be managers. However, it doesn't often work that way. Management isn't
about personality or appearance. I've known many managers with the so-called right image who were "empty suits."
It takes dedication to avoid being an "empty suit" or
someone who enjoys being a manager but shirks the actual
work of managing. And it is work. A manager must think
ahead several moves; planning is central to good management. A manager must deal skillfully with people, giving
positive feedback for solid performance, helping those with
performance problems, and, occasionally, terminating those
who cannot improve their performance. Managers must
keep financial considerations, as well as customer service,
front and center because a business exists to make money
by serving a customer need.
Nonetheless, despite these "musts" some managers try to avoid stepping up to the real
work of managing. There are managers who fail to plan realistically, who don't develop
their interpersonal skills, and who lose sight of financial considerations and customer
needs. Such managers not only make it tough for their employees, superiors, and customers, they also give the entire discipline of management a bad name and give people the
idea that a manager is someone "paid to do nothing" or who "watches while we work."
Managers who are worthy of the name take their responsibilities and roles seriously.
Chapter 1 ...- The Meaning of Management

A manager has an area of responsibility, that is, an activity or a function that he or she is
responsible for running. A financial manager is responsible for some area of finance. In
Sales, an account manager is responsible for a set of accounts. A departmental manager or
branch manager is responsible for a specific department or branch.
A manager's role is to run his or her function properly. It may be as large as the entire
company, as is the case for the CEO (chief executive officer). It may be as small as the
mail room. Whatever the area of responsibility, a manager must usually get things done
through other people, a subject we take up in later chapters.
In reality, management represents the sum of a set of tasks. Being a manager comes down
to doing these tasks well and consistently. Before we look at these tasks, let's view the role
of the manager in historical context.
The Professional Manager

How can "being the boss" be a profession? A profession has its own principles, tasks, and
standards, and it requires a course of study. (Think of the traditional professions: medicine, law, engineering, architecture, and accounting.) Does management share any of
these characteristics?
The answer is "yes," and it has been for most of this century. When factories became
large and complex enough to demand skills beyond those of a simple owner-boss, management grew out of economics and engineering to become a distinct discipline.
The need to apply concepts from economics and engineering became apparent as businesses grew beyond relatively small, simple craft operations and farms into larger, more
complex operations capable of higher production.
Economics enabled managers to analyze ways to drive
costs down and produce the most money. Engineering
MBA Lingo
helped managers think of ways to best handle the
The Industrial
physical (as opposed to financial) aspects of producRevolution was a
period of rapid,
tion. These include decisions regarding the layout of
major improvement
the factory, methods for dividing job functions, and
in business productivways to handle and distribute finished products.
ity in the economies of
The need for professional management arose when
certain nations as they
adopted power-driven machinlarger factories and the new machines of the Industrial
ery. This development began
Revolution were adopted. A mere "boss" in the sense of
in England in the late 1700s
someone who basically just told others what do to was
and, during the following
not equal to the demands of managing such operacentury, spread to other major
tions. Therefore, the professional manager stepped up
European nations, North
to the task.
America, and bevond.
In the early 1900s, the professional status of management got a big boost from the concept of scientific
management Frederick Taylor was "The Father of
Part 1
>
Scientific Management." (It's on his gravestone.) Taylor believed that managers could
improve the productivity of factory workers if they understood workers' tasks and then
properly planned each task for each worker.
MBA Lingo
Scientific management applies
scientific tools
(such as research,
analysis, and
objectivity) to
business to improve productivity. A time-and-motion study
breaks work down into subtasks to discover how long
each task takes. The goal is to
understand the job and
improve the way it is done in
order to improve efficiency.
MBA Lingo
Efficiency expert is
an outdated term
for someone who
uses scientific
management
principles to
improve business processes.
Today this work usually falls to
management consultants, who
work either as hired independent professionals or as
employees within the company (as internal consultants).
"Taylorism," as scientific management came to be called, led

to legions of efficiency experts doing time-and-motion studies
in organizations. These studies led to the redesign of factory
work. Some experts credit Taylorism with helping the U.S.
win the Allied victory in World War II. U.S. factories were
able to quickly gear up production of arms, ammunition,
vehicles, airplanes, uniforms, equipment, and other materials needed for the war effort, and to establish and maintain
high levels of quality while doing so. This was largely
thanks to modern management methods, many of which
were either introduced by Taylor or others who extended his
work.
The professional standing of management was enhanced
when management associations and business education
flourished in the first half of the iy()Os. Of course, graduate
schools offering MBA degrees also boosted management as a
profession.
Today, the quest for better management practices continues
with as much intensity as everwith more intensity than in
many eras in fact. Business now occurs on a more international scale than in the past, so competition is tougher than
ever. Customers around the world become more sophisticated and demanding with each passing year. Technology
creates (and destroys) companies and even entire industries
more quickly than ever. So managers face challenges as great
or greater than they did in any other time.
You may have heard that companies on cost-cutting sprees
have gotten rid of many managers. You may read stories
about economic uncertainty, rapid change, and new technological demands making life tough for managers. There is
some truth to these stories. However, three facts remain
unchanged:
> Business will always need managers because no business can manage itself.
> Economic and competitive conditions will always present challenges (a business
must always do better no matter how well it's doing).
> Those who understand the job of the professional manager and dedicate themselves
to doing it well will always have a business to manage and will be prepared to deal
with the challenges.
Case in Point
Professional management principles made the U.S. auto industry a
productivity machine. Ford Motor Company's assembly line, in
which a car moves along a conveyor belt so workers can perform
individual tasks in a certain sequence, grew directly out of scientific
management.
The professional manager, like any other professional, understands certain principles,
performs certain tasks, and upholds certain standards. These elements are what makes a
manager a professional.
The Five Business Principles Every Manager

Must Know
The following five concepts are the reasons a business exists and the reasons it needs
managers:
> Value for customers
V Organization
> Competitive advantage
> Control
> Profitability
I'll describe each concept in more detail over the following pages.
Value: What Customers Pay For

A business exists to create value of some kind. It takes raw materials or activities and
increases their value in some way, transforming them into products or services that
customers will buy. Value is what customers pay for. Customers buy things that they
value.
For example, McDonald's creates value by setting up places where people can eat inexpensively away from home. The company builds restaurants, hires cooks and counterpeople, buys food, and prepares meals. The customers value the convenience of location
(you don't have to go home to eat), the speed of service (it's not called "fast food" for
nothing), and the tastiness of the meals (most people like hamburgers, chicken, soft
drinks, and fries).
Part 1
>
A businessand its managersmust create value for customers. This can be done in
almost limitless ways because human desires are limitless. But a single business cannot
serve limitless desires. Instead, it must create a specific kind of value in a specific way. In
other words, management must decide what the business will do, and then organize itself
accordingly.
Let's Get Organized

An organization must be...well, organized! It must have goals and the resources (human,
material, and financial) to meet those goals. It must keep track of what it does and how
well it does it. Each department has to perform its function properly. Employees must be
assigned specific tasks that move the outfit toward its goals.
Management is responsible for keeping the company organized. As you'll see in Chapter
4, "Managing People Effectively," this mostly involves getting things done through
othersthe employees. However, other resources of the business, such as equipment,
floor space, and money, must also be organized.
Managers achieve organization by means of structure. The overall structure can be represented in an organization chart like the one you'll see in Chapter 3, "Anatomy of a
Business." But managers have other structures for achieving organization. For example,
the company's financial structure organizes the way it handles money. The sales force can
be divided into sales teams by geography, by products represented, or both.
Companies achieve organization in various ways. Some take a highly structured, almost
military approach, with strict hierarchies, sharply defined duties, and formal protocol.
Other outfits take a more informal approach, which allows
people greater leeway and creates a more unstructured
MBA Lingo
environment.
Structure refers to
The nature of the business can determine how structured or
the way a company
or department is
unstructured a company will be. For example, smaller firms
organized. A
(those with fewer than 50 employees) tend to be less struccompany's structured than large ones. Companies in heavy manufacturing
ture includes
are usually more structured than those in creative fields,
elements such as the corporate
such
as advertising or entertainment.
hierarchy, the number and
kinds of departments, number
Regardless of how tightly or loosely structured a company is,
of locations, and the scope of
managers must keep it organized. Even a highly structured
operations (for example,
company will become disorganized if management fails to
domestic or international).
manage properly. And even a very loosely structured company will be organized as long as management does its job.
Competitive Advantage: The Winner's Edge

To succeed in a particular market, a company must do something better than other
companies in that business. Doing something better creates a competitive advantage. That
"something" may be only one aspect of the product or service, as long as customers value
it highly. For example, a company can gain a competitive advantage by offering the
widest selection of products. Or rock-bottom prices. Or high quality. Or great service. But
it can't do all of those things.
Managers decide what basis the company will compete on, and they must be quite clear
about this. For example, despite advertising claims, no company can really provide both
the highest quality and the lowest price, at least not
for long. (It can offer the highest quality in a certain
MBA Lingo
price range, but not at the lowest price.) So manageCompetitive advanment must decide whether it wants to compete on
tage refers to the
quality or on price. Or on service. Or on conveelements in a comnience of location. Then it has to manage the
pany
that enable it to
company so that it does compete on that basis by
succeed in the marketdelivering that advantage to customers.
place. As the name
implies, it is whatever gives the
By this I mean that a company must consistently
company
an advantage over the
present a certain advantage to its customers. John's
competition.
This may be low
Bargain Stores does not pretend to be Bergdorf
costs that the company can
Goodman, and vice-versa. John's competes on price
achieve through manufacturing
and pulls in bargain-hunters. Bergdorf's competes on
efficiency. It might be wide
quality and service and attracts customers motivated
selection, or high quality, or
by those considerations, rather than price concerns.
fabulous service. Whatever it is
it will probably soon be
If John's displayed designer clothing and $400
matched
by one or more
fountain pens, customers would laugh. If Bergdorf's
competitors,
because most
carried no-name clothing and Bic pens, customers
developments
in a business can
would turn up their noses.
be quickly copied. For this
reason many companies seek
Customers who can afford high quality will buy
elements that will give the
from the high-quality company; those who want low
sustainable or long-term
prices will buy from the low-price company. Cuscompetitive advantage.
tomers can figure this out. But sometimes managers
cannot.
Part 1
>
Case in Point
In the late 1970s, the Cadillac division of General Motors introduced
a relatively low-priced, "sporty" Cadillac called the Cimarron. The
product failed miserably. Why? Because it departed from what had
always been Cadillac's competitive advantage: big, plush, luxury cars
with status-symbol appeal. This is a good example of a company that
temporarily forgot the source of its competitive advantage.
Control Means Never Having to Say You Lost It

After management decides how to create value, organize the business, and establish a
competitive advantage, it must control the outfit. This does not mean ruling with an iron
fist (although some managers believe it does). Rather, it means that everyone must know
the company's goals and be assigned tasks that will move everyone toward those goals.
Controls ensure that the right manager knows what's going on at all times. These controls are based mostly on information. For example, every company needs financial
controls. Managers have budgets so they can control their department's spending. They
receive regular information about the amount their department has spent and what it was
spent on. Financial controls ensure that the company spends what it needs to spendno
more, no lessto do business and meet its goals.
A business is made up of many processes, so "process control" is something you may hear
about. A manufacturing process, a hiring process, and a purchasing process all require
controls. In these examples the controls ensure, respectively, that product quality is
maintained, that the right people are hired at the right time, and that the right materials
are purchased at a reasonable price.
MBA Lingo
A company may
go bankrupt when
it is continually
unable to pay its
bills for an extended time. After
a company declares bankruptcy, it goes through a legal
process either to reorganize
itself so it can become
profitable or to close down
completely.
Controls, and the information that supports them, enable

managers to manage.
Profitability: You Gotta Have It

A business is set up to make money. As you will see in Part 3,
"All About Money," the money a business earns can be
measured in various ways. But no matter how it is measured, a
business has to make moneyearn a profiton its operations.
If, during a certain period of time, a business takes in more
money for its products than it spends making those products, it makes a profit for that period. If not, it has a loss for
the period. Losses cannot continue for long or the company
will go bankrupt.

The most basic goal of management is to make money for the business owners. Regardless
of how well they do anything else, managers who lose money for the owners will not keep
their jobs for long. Whatever else a business does, its overall goal must be profitability.
Remember The Big Five

Remember the five concepts summarized in this chapter, fhink of them as "The Big Five"
because they underlie everything a manager does. That is, all the activities of management have one collective aim: to make these concepts real for the company and its
customers. To do this, managers must:
>
>
>
>
>
Help the company create value for customers.

Keep the company organized.
Help the company achieve a competitive advantage in the marketplace.
Exercise control over the business and its operations.
Ensure that the firm earns a profit.
As you probably know, managers vary widely in their ability to do these things. The most
successful managers can do at least some of them most of the time. The few managers
who can be called great can do all of them consistently. They do this by applying the
knowledge, skills, and tools that you will get from this book.
The Least You Need to Know

> Managers must monitor "The Big Five" business principles: value for customers,
organization, competitive advantage, control, and profitability.
> A businessand its managersmust create a specific value for customers.
> Management is responsible for keeping the company organized.
> Managers decide what basis the company will compete on.
> Managers are responsible for control. They must know the company's goals and
assign tasks that will move everyone toward those goals.
> The most basic goal of management is to make money for the business owners.
Case Study
SOUTHWEST AIRLINES: PROFILE OF A LEADER
Airlines have faced economic difficulties with rising fuel costs and increased
security standards. Whereas many airlines have faced bankruptcy and corporate restructuring, Southwest Airlines has consistently maintained a high
level of success.
The mission of Southwest Airlines is dedication to the highest quality
of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit. The airlines mission statement has always
governed the way the corporation conducts business. It highlights the
companys desire to serve customers and gives direction for service-related
decisions. Southwest Airlines wants customers and investors to have confidence in the airline and its employees. The airline has a strong commitment
to providing customers with safe, affordable, reliable, timely, courteous,
and efficient air transportation and baggage handling on every flight it
operates. Southwest is equally concerned with providing a fair return on its
shareholders investments. Southwests mission statement has led the way
to the best cumulative consumer satisfaction record in the airline industry.
Southwest Airlines is also committed to providing employees a stable
work environment with equal opportunity for learning and personal
growth. Since 1971, the airline has developed a culture that encourages
an entrepreneurial spirit in its employees. It emphasizes personal responsibility, initiative, creativity, innovation, and the use of independent judgment. Southwest Airlines is firmly committed to providing employees the
same concern, respect, and caring attitude within the organization that
they are expected to share externally with every Southwest customer.
Southwest is widely recognized as an outstanding corporate citizen. It
has been included on the List of the Worlds Most Socially Responsible
Companies by Global Finance magazine. Fortune magazine has named
it one of the most admired companies in the United States and the world.
T H I N K C R I T I C A L LY
1. Which groups of people are addressed by the Southwest mission
statement?
2. Why is it important for a company to have a sound reputation for
community service?
3. Why does Southwest Airlines pay so much attention to its employees?
4. What aspects do consumers rank when considering the value of an
airline?
384

The most basic goal of management is to make money for the business owners. Regardless
of how well they do anything else, managers who lose money for the owners will not keep
their jobs for long. Whatever else a business does, its overall goal must be profitability.
Remember The Big Five

Remember the five concepts summarized in this chapter, fhink of them as "The Big Five"
because they underlie everything a manager does. That is, all the activities of management have one collective aim: to make these concepts real for the company and its
customers. To do this, managers must:
>
>
>
>
>
Help the company create value for customers.

Keep the company organized.
Help the company achieve a competitive advantage in the marketplace.
Exercise control over the business and its operations.
Ensure that the firm earns a profit.
As you probably know, managers vary widely in their ability to do these things. The most
successful managers can do at least some of them most of the time. The few managers
who can be called great can do all of them consistently. They do this by applying the
knowledge, skills, and tools that you will get from this book.

> Managers must monitor "The Big Five" business principles: value for customers,
organization, competitive advantage, control, and profitability.
> A businessand its managersmust create a specific value for customers.
> Management is responsible for keeping the company organized.
> Managers decide what basis the company will compete on.
> Managers are responsible for control. They must know the company's goals and
assign tasks that will move everyone toward those goals.
> The most basic goal of management is to make money for the business owners.
Case Study
SOUTHWEST AIRLINES: PROFILE OF A LEADER
Airlines have faced economic difficulties with rising fuel costs and increased
security standards. Whereas many airlines have faced bankruptcy and corporate restructuring, Southwest Airlines has consistently maintained a high
level of success.
The mission of Southwest Airlines is dedication to the highest quality
of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit. The airlines mission statement has always
governed the way the corporation conducts business. It highlights the
companys desire to serve customers and gives direction for service-related
decisions. Southwest Airlines wants customers and investors to have confidence in the airline and its employees. The airline has a strong commitment
to providing customers with safe, affordable, reliable, timely, courteous,
and efficient air transportation and baggage handling on every flight it
operates. Southwest is equally concerned with providing a fair return on its
shareholders investments. Southwests mission statement has led the way
to the best cumulative consumer satisfaction record in the airline industry.
Southwest Airlines is also committed to providing employees a stable
work environment with equal opportunity for learning and personal
growth. Since 1971, the airline has developed a culture that encourages
an entrepreneurial spirit in its employees. It emphasizes personal responsibility, initiative, creativity, innovation, and the use of independent judgment. Southwest Airlines is firmly committed to providing employees the
same concern, respect, and caring attitude within the organization that
they are expected to share externally with every Southwest customer.
Southwest is widely recognized as an outstanding corporate citizen. It
has been included on the List of the Worlds Most Socially Responsible
Companies by Global Finance magazine. Fortune magazine has named
it one of the most admired companies in the United States and the world.
1. Which groups of people are addressed by the Southwest mission
statement?
2. Why is it important for a company to have a sound reputation for
community service?
3. Why does Southwest Airlines pay so much attention to its employees?
4. What aspects do consumers rank when considering the value of an
airline?
384
Part One
Confirming Pages
INTRODUCTION
External
Inuences
ien
Exper
ces and
ns
Acquisitio
Culture
Subculture
Demographics
Social Status
Reference Groups
Family
Marketing Activities
Self-Concept
and
Lifestyle
Internal
Inuences
Perception
Learning
Memory
Motives
Personality
Emotions
Attitudes
Experi
ences a
nd A
cquisitions
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Confirming Pages
What is consumer behavior? Why should we

study it? Do marketing managers, regulators,
and consumer advocates actually use knowledge about consumer behavior to develop
strategies and policy? How? Will a sound
knowledge of consumer behavior help you in
your career? Will it enable you to be a better
citizen? How does consumer behavior impact
the quality of all of our lives and of the environment? How can we organize our knowledge
of consumer behavior to understand and use
it more effectively?
Decision
Process
Needs
Desires
Chapter 1 addresses these and a number

of other interesting questions, describes the
Situations
importance and usefulness of the material
Problem
Recognition
to be covered in this text, and provides an
Information
Search
the logic of the model of consumer behav-
Alternative Evaluation
and Selection
overview of the text. Chapter 1 also explains

ior shown here, which is presented again in
Figure 13 and discussed toward the end of
the chapter.
Outlet Selection
and Purchase
Postpurchase
Processes
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Chapter
p One
Confirming Pages
Consumer Behavior
andMarketing Strategy
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Confirming Pages
LEARNING OBJECTIVES
LO1
Define consumer behavior
LO4
Explain the components that constitute a conceptual model of consumer behavior
LO2
Summarize the applications of consumer behavior
LO5
Discuss issues involving consumption meanings

and firm attempts to influence them
LO3
Explain how consumer behavior can be used to

develop marketing strategy
Marketers face exciting and daunting challenges as

the forces that drive and shape consumer behavior
rapidly evolve. Domestic firms confront the challenges of international competition but also the
opportunities of vast emerging markets such as
China and India. In the United States, companies
are responding to increased diversity; and retailers
face the challenges and opportunities of technology
such as online shopping. Marketers and regulators
struggle with tough ethical and social aspects of
marketing, including marketing to children. And this
only scratches the surface! Lets take a closer look
at a few of these areas.
Online marketingMarketers are using the
Internet to make their offerings more personalized and convenient. Historically, we havent
thought about buying fast food online. That has
all changed. Papa Johns recently hit the $2 billion
mark through online, text message, and mobile
options, which represents more than 25 percent
of its overall sales. Several factors are driving this
trend. One is increased Internet access, recently
estimated at about 77 percent of U.S. adults.
Papa Johns is taking advantage of social media
as well. Its Facebook fan page has over a million
fans and provides a link to online ordering. Another
factor is the growing mobility trend, particularly
among younger consumers. Roughly a quarter of U.S. adults are active mobile apps users.
Food, entertainment, and retail are substantial and
growing mobile app categories. Papa Johns, not

surprisingly, has an iPhone app for mobile ordering. A final and critical aspect is consumer desire
for convenience. Consider the following quote of
one busy mother:
Im so into the Internet and the ease of doing things
that way. Being able to log in and [order] versus trying to talk over a baby crying or a 2-year-old thats
running around the house is probably one of the main
reasons I like to order that way.
To further build in convenience, Papa Johns offers

consumers the opportunity to order ahead of time.
Competitors are in the mix as well, with Dominos
offering online pizza tracking.1
Global marketingChinas massive population,
rising income, and emerging youth market make
that country very attractive to marketers around the
world. Consider the following:
Urban Chinese teens download hip-hop tunes to
trendy Nokia cell phones, guzzle icy Cokes after
shooting hoops in Nike shoes and munch fries at
McDonalds after school.
If this sounds like an American marketers dream,

you are partly right. However, there are challenges
to marketing to this segment. Chinese history, values, and culture are factors that cannot be ignored.
They create a unique teen market that U.S. marketers must understand and adapt to. As one marketing expert puts it:
5
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Part One
Introduction
Successful advertising for youth brands carefully navigates the respect young consumers feel for their family, peer groups and country with their cautious desire
to express individuality.
Still, key passion points existmusic, fashion,

sports, and technology. Although these passion
points are similar for teens around the globe, U.S.
companies must adapt to the Chinese culture by
identifying specific trends among urban Chinese
teens. For example:
this market. As a consequence, OLPC has had to

employ numerous marketing concepts. Starting with
the product, OLPC has designed a computer specifically for developing countries. It is inexpensive (target price is $100) and durable, uses little power, and
runs on free Linux software. Although these features
are important, compatibility is still a driving factor,
which has OLPC considering a dual operating system including Windows. According to Negroponte:
When I went to Egypt for the first time, I met separately
Coke ... has combined its partnerships with a popu-
with the minister of communications, the minister of
lar girl band in China called S.H.E.; athletes like Liu
education, and the minister of science and technology,
Xiang; and the current video game hit in China, World
and the prime minister, and each one of them, within
of Warcraft, to hit two or three passion points at the
the first three sentences, said, Can you run Windows?
same time.
Social marketingOLPC, or One Laptop Per Child,

is a nonprofit created by Nicholas Negroponte of
MIT. The mission of OLPC is to empower the children of developing countries to learn by providing
one connected laptop to every school-age child.
OLPC is in a tough battle with for-profit firms for
LO1
Promotional activities include efforts aimed at gaining donations so that OLPC can provide the computers for free. OLPCs website is one tool, which uses
facts and emotions to persuade. It even provides a
direct benefit by giving each donor one years free
access to T-Mobile HotSpot. Finally, social influence
is used, including testimonials and viral marketing.3
The field of consumer behavior is the study of individuals, groups, or organizations and the
processes they use to select, secure, use, and dispose of products, services, experiences, or
ideas to satisfy needs and the impacts that these processes have on the consumer and society.
This view of consumer behavior is broader than the traditional one, which focused more narrowly on the buyer and the immediate antecedents and consequences of the purchasing process.
Our broader view will lead us to examine more indirect influences on consumption decisions
as well as far-reaching consequences that involve more than just the purchaser and the seller.
The opening examples above summarize some attempts to apply an understanding of
consumer behavior to develop an effective marketing strategy or to influence socially desirable behavior. Throughout this text, we explore the factors and trends shaping consumer
behavior and the ways marketers and regulators can use this information. The examples
cited above reveal four key aspects regarding consumer behavior.
Consumer behavior is a complex, multidimensional process. Consumer decisions
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often involve numerous steps and are influenced by a host of factors including demographics, lifestyle, and cultural values. Consumer decisions are further complicated
when the needs and wants of multiple individuals or groups are considered, as when
families must make decisions about where to eat dinner or where to go on vacation.
Successful marketing decisions by firms, nonprofit organizations, and regulatory agencies require an understanding of the processes underlying consumer behavior. This
relates to understanding theories about when and why consumers act in certain ways.
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Chapter One
Consumer Behavior andMarketing Strategy
Whether they realize it or not, organizations are making decisions every day based on
explicit or implicit assumptions about what processes drive consumer behavior. Examine Illustration 11. What assumptions about consumer behavior underlie each ad?
Which approach is best? Why?
Successful marketing decisions require organizations to collect information about the
specific consumers involved in the marketing decision at hand. Consumer decisions are
heavily influenced by situation and product category. Thus, consumer research is necessary to understand how specific consumers will behave in a specific situation for a
given product category. Appendix A examines various consumer research approaches.
Marketing practices designed to influence consumer behavior involve ethical issues
that affect the firm, the individual, and society. The issues are not always obvious and
many times involve trade-offs at different levels. The fast-food industry is currently
dealing with such issues. While the products of fast-food businesses are highly desirable to many consumers in terms of taste and affordability, they also tend to be high
in calories, fat, and sodium. These health-related issues have gotten the attention of
government and consumer groups.
ILLUSTRATION 11
These advertisements are targeting

the same consumers with very similar
products, yet they
use two very different
approaches. Why?
They are based on
different assumptions
about consumer
behavior and how to
influence it.
Sufficient knowledge of consumer behavior exists to provide usable guidelines. However, applying these guidelines effectively requires monitoring the environment for
changes and factoring those changes into marketing decisions. It also requires practice. We
provide a variety of such opportunities in the form of (a) questions and exercises at the end
of each chapter, (b) short cases at the end of each main part of the text, and (c) a consumer
behavior audit for developing marketing strategy (Appendix B) at the end of the text.
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APPLICATIONS OF CONSUMER BEHAVIOR

Marketing Strategy
LO2
Marketing decisions based on explicit consumer behavior theory, assumptions, and

research are more likely to be successful than those based on hunches or intuition, and thus
they create a competitive advantage. An accurate understanding of consumer behavior can
greatly reduce the odds of failures such as:
S.C. Johnson pulled the plug on its Ziploc TableTops, a line of semi-disposable plates. TableTops was one of the companys most expensive launches with $65 million spent on marketing.
A number of factors appear to have contributed to the failure including relatively high prices
(which made consumers less likely to throw them away) and the fact that the products really
werent all that disposable. As one retailer explained, There are no repeat purchases. The things
last forever.4
Thus, a primary goal of this book is to help you obtain a usable managerial understanding of consumer behavior to help you become a more effective marketing manager. Before
we take a look at marketing strategy and consumer behavior, lets examine regulatory
policy, social marketing, and the importance of being an informed individual.
Regulatory Policy
Various regulatory bodies exist to develop, interpret, and/or implement policies designed
to protect and aid consumers. For example, the Food and Drug Administration (FDA)
administers the Nutrition Labeling and Education Act (NLEA). Among other things,
NLEA requires that packaged foods prominently display nutrition information in the form
of the Nutrition Facts panel.
Has NLEA succeeded? A recent study suggests that it depends. For example, the Nutrition Facts panel is of most benefit to highly motivated consumers who are low in nutritional
knowledge. Demonstrating such benefits is important in light of the estimated $2billion in
compliance costs. However, such cost-benefit comparisons are complicated since placing
a dollar value on individual and societal benefits is often difficult.5
Clearly, effective regulation of many marketing practices requires an extensive knowledge of consumer behavior. We discuss this issue throughout the text and provide a
detailed treatment in Chapter 20.
Social Marketing
Social marketing is the application of marketing strategies and tactics to alter or create
behaviors that have a positive effect on the targeted individuals or society as a whole.6 Social
marketing has been used in attempts to reduce smoking; to increase the percentage of children receiving their vaccinations in a timely manner; to encourage environmentally sound
behaviors such as recycling; to reduce behaviors potentially leading to AIDS; to enhance
support of charities; to reduce drug use; and to support many other important causes.
Just as for commercial marketing strategy, successful social marketing strategy requires
a sound understanding of consumer behavior. For example, the Partnership for a Drug-Free
America uses a fear-based campaign in its efforts to educate parents about the alarming
increase in teen abuse of prescription drugs. Illustration 12 shows one such ad. In Chapter
11, we will analyze the conditions under which such campaigns are likely to succeed.
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Chapter One
ILLUSTRATION 12
Nonprofits as well
as commercial firms
attempt to influence
consumption patterns. Both types of
organizations must
base their efforts
on knowledge of
consumer behavior
to maximize their
chances of success.
Informed Individuals
Most economically developed societies are legitimately referred to as consumption societies. Most individuals in these societies spend more time engaged in consumption than in
any other activity, including work or sleep (both of which also involve consumption). In
addition, marketers spend billions to influence consumer decisions. These attempts occur
in ads, in websites, on packages, as product features, in sales pitches, and in store environments. They also occur in the content of many TV shows, in the brands that are used in
movies, and in the materials presented to children in schools.
It is important that consumers accurately understand the strategies and tactics being
used so they can be more effective consumers. It is equally important that, as citizens, we
understand the consumer behavior basis of these strategies so we can set appropriate limits
when required. That is, an understanding of consumer behavior can establish a foundation
for reasoned business ethics.
MARKETING STRATEGY
AND CONSUMER BEHAVIOR
The applications of consumer behavior involve the development, regulation, and effects of
marketing strategy. We now examine marketing strategy in more depth.
Marketing strategy, as described in Figure 11, is conceptually very simple. It begins with
an analysis of the market the organization is considering. On the basis of the consumer analysis undertaken in this step, the organization identifies groups of individuals, households, or
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LO3
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10
FIGURE
Part One
1-1
Introduction
Marketing Strategy and Consumer Behavior

Outcomes
Individual
Firm
Society
Consumer decision process

Problem recognition
Information search
Alternative evaluation
Purchase
Use
Evaluation
Marketing strategy
Product, Price, Distribution,
Promotion, Service
Market segmentation
Identify product-related need sets
Group customers with similar need sets
Describe each group
Select attractive segment(s) to target
Market analysis
Company
Competitors
Conditions
Consumers
firms with similar needs. These market segments are described in terms of demographics,
media preferences, geographic location, and so forth. Management then selects one or more
of these segments as target markets on the basis of the firms capabilities relative to those of
its competition (given current and forecasted economic and technological conditions).
Next, marketing strategy is formulated. To survive in a competitive environment, an organization must provide its target customers more value than is provided to them by its competitors. Customer value is the difference between all the benefits derived from a total product
and all the costs of acquiring those benefits. It is critical that a firm consider value from the
customers perspective. Ziplocs TableTops failed because consumers felt the benefit of the
products being semidisposable did not outweigh the cost of the product itself or the guilt
they felt about eventually throwing it away. Thus, marketing strategy seeks to provide the
customer with more value than the competition while still producing a profit for the firm.
Marketing strategy is formulated in terms of the marketing mix; that is, it involves
determining the product features, price, communications, distribution, and services that
will provide customers with superior value. This entire set of characteristics is often
referred to as the total product. The total product is presented to the target market, which
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11
ILLUSTRATION 13
What do you buy

when you go to a
restaurant or coffee
shop? The experience is the product
as much as or more
than the actual food
and beverage.
is consistently engaged in processing information and making decisions designed to maintain or enhance its lifestyle (individuals and households) or performance (businesses and
other organizations).
Look at Illustration 13. What is the total product? Clearly, it is much more than food and
beverages. It also involves an experience. Increasingly, marketers sell experiences as much as or
more than actual products and services. An experience occurs when a company intentionally
creates a memorable event for customers. While products and services are to a large extent external to the customer, an experience is largely internal to each customer. The experience exists in
the mind of an individual who has been engaged on an emotional, physical, intellectual, or even
spiritual level.
Outcomes based on the execution of a marketing strategy occur for the firm, the individual, and society. Firms expect to establish an image or position in the marketplace
among target customers, generate sales, and ultimately create satisfied customers who are
the key to long-term profits. For the individual, the process results in some level of need
satisfaction, financial expenditure, attitude creation or change, and/or behavioral changes.
Note that some of these behaviors may involve injurious consumption. For society, the
cumulative effect of the marketing process affects economic growth, pollution, and social
welfare, the latter of which create many ethical implications.
We detail each phase of Figure 11 next.
MARKET ANALYSIS COMPONENTS

Market analysis requires a thorough understanding of the consumption process of potential customers, the organizations own capabilities, the capabilities of current and future
competitors, and the economic, physical, and technological environment in which these
elements will interact.
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Part One
Introduction
The Consumers
It is not possible to anticipate and react to customers needs and desires without a
complete understanding of consumer behavior. Discovering customers needs is a
complex process, but it can often be accomplished by marketing research. For example, Target wanted to tap into the $210 billion college market. In particular, Target was looking at the furnishings and accessories market and was interested in the
specific needs and motivations of students making the transition from home to college dorm life. Jump Associates conducted the research for Target and took a unique
approach:
[Jump Associates] sponsored a series of game nights at high school grads homes, inviting
incoming college freshmen as well as students with a year of dorm living under their belts. To get
teens talking about dorm life, Jump devised a board game that involved issues associated with
going to college. The game naturally led to informal conversationsand questionsabout college life. Jump researchers were on the sidelines to observe, while a video camera recorded the
proceedings.
On the basis of this research (which is a variation of focus groupssee Appendix A),
Target successfully launched the Todd Oldham Dorm Room line, which included such
products as Kitchen in a Box and Bath in a Boxall-in-one assortments of the types of
products needed by college freshmen.7 Target continues to appeal to the college market
with logo merchandise and other dorm products.
Knowing the consumer requires understanding the behavioral principles that guide consumption behaviors. These principles are covered in depth in the remainder of this text.
The Company
A firm must fully understand its own ability to meet customer needs. This involves
evaluating all aspects of the firm, including its financial condition, general managerial skills, production capabilities, research and development capabilities, technological sophistication, reputation, and marketing skills. Marketing skills would include
new-product development capabilities, channel strength, advertising abilities, service
capabilities, marketing research abilities, market and consumer knowledge, and so forth.
Failure to fully understand strengths and weaknesses can cause serious problems.
IBMs first attempt to enter the home computer market, with the PC Jr., was a failure in
part for that reason. Although IBM had an excellent reputation with large business customers and a very strong direct sales force for serving them, these strengths were not relevant
to the household consumer market. Its more recent move into high-end business consulting, through IBM Global Business Services, has been a major success and, interestingly,
moves IBM back to a focus on its earlier core strengths.
The Competitors
It is not possible to consistently do a better job than the competition of meeting customer
needs without a thorough understanding of the competitions capabilities and strategies.
This understanding requires the same level of knowledge of a firms key competitors
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13
that is required of ones own firm. In addition, for any significant marketing action, the
following questions must be answered:
1
2
3
4
If we are successful, which firms will be hurt (lose sales or sales opportunities)?
Of those firms that are injured, which have the capability (financial resources, marketing strengths) to respond?
How are they likely to respond (reduce prices, increase advertising, introduce a new
product)?
Is our strategy (planned action) robust enough to withstand the likely actions of our
competitors, or do we need additional contingency plans?
The Conditions
The state of the economy, the physical environment, government regulations, and technological developments affect consumer needs and expectations as well as company and
competitor capabilities. The deterioration of the physical environment has produced not
only consumer demand for environmentally sound products but also government regulations affecting product design and manufacturing.
International agreements such as NAFTA (North American Free Trade Agreement)
have greatly reduced international trade barriers and raised the level of both competition
and consumer expectations for many products. And technology is changing the way people
live, work, deal with disease, and so on. Corporate websites, social media such as Twitter
and Facebook, and mobile apps are just some of the ways technology is changing the way
consumers communicate and access media.
Clearly, a firm cannot develop a sound marketing strategy without anticipating the conditions under which that strategy will be implemented.
MARKET SEGMENTATION
Perhaps the most important marketing decision a firm makes is the selection of one or
more market segments on which to focus. A market segment is a portion of a larger
market whose needs differ somewhat from the larger market. Since a market segment has
unique needs, a firm that develops a total product focused solely on the needs of that segment will be able to meet the segments desires better than a firm whose product or service
attempts to meet the needs of multiple segments.
To be viable, a segment must be large enough to be served profitably. However, it
should be noted that technology advances such as flexible manufacturing and customized media are allowing for mass customization such that firms can target smaller segments and even individuals profitably. Behavioral targeting, in which consumers online
activity is tracked and specific banner ads are delivered based on that activity, is another
example of how technology is making individualized communication increasingly cost
effective.
Market segmentation involves four steps:
1.
2.
3.
4.
Identifying product-related need sets.

Grouping customers with similar need sets.
Describing each group.
Selecting an attractive segment(s) to serve.
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ILLUSTRATION 14
Both ads are for the

same basic product.
Yet, as these ads
show, the products
are designed to
meet different sets of
needs beyond their
basic function.
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Part One
Introduction
Product-Related Need Sets

Organizations approach market segmentation with a set of current and potential capabilities. These capabilities may be a reputation, an existing product, a technology, or some
other skill set. The first task of the firm is to identify need sets that the organization is
capable, or could become capable, of meeting. The term need set is used to reflect the fact
that most products in developed economies satisfy more than one need. Thus, a watch can
meet more needs than just telling time. Some customers purchase watches to meet status
needs, while others purchase them to meet style needs, and so on. Illustration 14 shows
two ads for the same product. What needs are these different ads appealing to?
Identifying the various need sets that the firms current or potential product might satisfy typically involves consumer research, particularly focus groups and depth interviews,
as well as logic and intuition. These need sets are often associated with other variables
such as age, stage in the household life cycle, gender, social class, ethnic group, or lifestyle, and many firms start the segmentation process focusing first on one or more of the
groups defined by one of these variables. Thus, a firm might start by identifying various
ethnic groups and then attempt to discover similarities and differences in consumptionrelated needs across these groups. While better-defined segments will generally be discovered by focusing first on needs and then on consumer characteristics associated with
those needs, both approaches are used in practice and both provide a useful basis for
segmentation.
Need sets exist for products and services and can include needs related to various
shopping venues. Consumer Insight 11 examines the need sets of mall and factory
outlet shoppers.
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CONSUMER INSIGHT
1-1
Need Sets of Mall and Factory Outlet Shoppers

What do you look for in a retail experience? Entertainment? Branded merchandise? Convenient parking? It
turns out that all these are important, but not all of them
are important to every consumer. Thus, retailers must
know what need sets exist and what segments exist
around those need sets. One research study that gives
some insight into this found four basic need sets for traditional malls and factory outlets:8
1.
Mall Essentialsbasic requirements including:

Cleanliness
Dcor
Employee service and friendliness
Safety and security
Parking
2.
Entertainmentfun extras such as:

Fast food
Movie theaters
Other services such as banks and hair specialists
Friends who shop the retailer
3.
4.
Conveniencefactors that make shopping easier

including:
Close to work and/or home
Accessible to home and/or work
Brand-Name Merchandisebrand availability as
follows:
Brand-name stores
Current fashions
New products
More stores
As you can see, each need set represents a related

cluster of characteristics. In addition, however, consumers can be grouped (segmented) in terms of their
similarity regarding the importance they place on the
different need sets. For example, there is the Basic
shopper segment that only cares about mall essentials;
an Enthusiast shopper segment that cares about
all the need sets with a particularly high emphasis on
entertainment; a Serious shopper who cares about
brand-name merchandise and convenience; a Destination shopper who cares about mall essentials and
brand-name merchandise; and a Brand shopper who
only cares about brand-name merchandise. Clearly all
shoppers are not the same, and retailers must work
hard to adapt to the differing need sets of different
shopper segments.
Critical Thinking Questions

1. Think of various retailers you are aware of. Can you
match these different retailers to the different shopper segments?
2. Can you characterize the different shopper segments
in terms of various demographic traits such as age,
gender, income, family role, and so on?
3. What do you think the need sets are for online
retailers?
Customers with Similar Need Sets

The next step is to group consumers with similar need sets. For example, the need for moderately priced, fun, sporty automobiles appears to exist in many young single individuals, young
couples with no children, and middle-aged couples whose children have left home. These consumers can be grouped into one segment as far as product features and perhaps even product
image are concerned despite sharply different demographics. Consumer Insight 11 provides an
additional example of clustering or grouping consumers with similar need sets. For example,
those who are basic shoppers are all similar in that their most critical need set is mall essentials.
This step generally involves consumer research, including focus group interviews, surveys, and product concept tests (see Appendix A). It could also involve an analysis of current consumption patterns.
15
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Description of Each Group

Once consumers with similar need sets are identified, they should be described in terms
of their demographics, lifestyles, and media usage. Designing an effective marketing program requires having a complete understanding of the potential customers. It is only with
such a complete understanding that we can be sure we have correctly identified the need
set. In addition, we cannot communicate effectively with our customers if we do not understand the context in which our product is purchased and consumed, how it is thought about
by our customers, and the language they use to describe it. Thus, while many young single
individuals, young couples with no children, and middle-aged couples whose children have
left home may want the same features in an automobile, the media required to reach each
group and the appropriate language and themes to use with each group would likely differ.
Attractive Segment(s) to Serve

Once we are sure we have a thorough understanding of each segment, we must select our
target marketthe segment(s) of the larger market on which we will focus our marketing effort. This decision is based on our ability to provide the selected segment(s) with
superior customer value at a profit. Thus, the size and growth of the segment, the intensity
of the current and anticipated competition, the cost of providing the superior value, and
so forth are important considerations. Table 11 provides a simple worksheet for use in
evaluating and comparing the attractiveness of various market segments.
As Table 11 indicates, segments that are sizable and growing are likely to appear attractive. However, profitability cannot be ignored. After all, a large unprofitable segment is still
TABLE
1-1
Market Segment Attractiveness Worksheet

Criterion
Score
Segment size
____________
Segment growth rate
____________
Competitor strength
____________
Customer satisfaction with existing products
____________
Fit with company image
____________
Fit with company objectives
____________
Fit with company resources
____________
Distribution available
____________
Investment required
____________
Stability/predictability
____________
Cost to serve
____________
Sustainable advantage available
____________
Communications channels available
____________
Risk
____________
Segment profitability
____________
Other (___________)
____________
*Score on a 110 scale, with 10 being most favorable.
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17
unprofitable. Finding profitable segments means identifying a maximal fit between customer needs and the firms offerings. This means that some customers and segments will be
unprofitable to serve and may need to be fired. While firing customers may be difficult, it can
lead to greater profits, as ING Direct has found. ING Direct is a bare-bones bank. It has limited
offerings (no checking) and does most of its transactions online. ING Direct wants lowmaintenance customers who are attracted by its higher interest rates. As their CEO notes:
The difference between ING Direct and the rest of the financial industry is like the difference
between take-out food and a sit-down restaurant. The business isnt based on relationships; its
based on a commodity product thats high-volume and low-margin. We need to keep expenses
down, which doesnt work when customers want a lot of empathetic contact.9
ING Direct keeps costs lower and profits higher by identifying high-cost customers and
(nicely) letting them go by suggesting they might be better served by a high-touch community bank. Can you think of any potential risks of firing customers?
It is important to remember that each market segment requires its own marketing strategy. Each element of the marketing mix should be examined to determine if changes are
required from one segment to another. Sometimes each segment will require a completely
different marketing mix, including the product. At other times, only the advertising message or retail outlets may need to differ.
MARKETING STRATEGY
It is not possible to select target markets without simultaneously formulating a general
marketing strategy for each segment. A decisive criterion in selecting target markets is the
ability to provide superior value to those market segments. Since customer value is delivered by the marketing strategy, the firm must develop its general marketing strategy as it
evaluates potential target markets.
Marketing strategy is basically the answer to the question, How will we provide superior
customer value to our target market? The answer to this question requires the formulation
of a consistent marketing mix. The marketing mix is the product, price, communications,
distribution, and services provided to the target market. It is the combination of these elements that meets customer needs and provides customer value. For example, in the opening
illustration, Papa Johns promises superior value in terms of quality and ingredients.
The Product
A product is anything a consumer acquires or might acquire to meet a perceived need.
Consumers are generally buying need satisfaction, not physical product attributes.10 As the
former head of Revlon said, in the factory we make cosmetics, in the store we sell hope.
Thus, consumers dont purchase quarter-inch drill bits but the ability to create quarter-inch
holes. Federal Express lost much of its overnight letter delivery business not to UPS or
Airborne but to fax machines and the Internet because these technologies could meet the
same consumer needs faster, cheaper, or more conveniently.
We use the term product to refer to physical products and primary or core services. Thus,
an automobile is a product, as is a transmission overhaul or a ride in a taxi. Packaged goods
alone (food, beverages, pet products, household products) account for over 30,000 new product introductions each year.11 Obviously, many of these will not succeed. To be successful, a
product must meet the needs of the target market better than the competitions product does.
Product-related decisions also include issues of packaging, branding, and logos,
which have functional and symbolic dimensions. Starbucks recently changed its logo by
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Part One
Introduction
eliminating the words Starbucks Coffee and the circle around their emblematic Siren.
There was some consumer backlash on social media against this new logo. Do you think
Starbucks new logo is effective? What factors underlie your judgment?
Communications
Marketing communications include advertising, the sales force, public relations, packaging, and any other signal that the firm provides about itself and its products. An effective communications strategy requires answers to the following questions:
1.
2.
3.
4.
With whom, exactly, do we want to communicate? While most messages are aimed
at the target-market members, others are focused on channel members, or those who
influence the target-market members. For example, pediatric nurses are often asked
for advice concerning diapers and other nonmedical infant care items. A firm marketing such items would be wise to communicate directly with the nurses.
Often it is necessary to determine who within the target market should receive the
marketing message. For a childrens breakfast cereal, should the communications be
aimed at the children or the parents or both? The answer depends on the target market
and varies by country.
What effect do we want our communications to have on the target audience? Often a
manager will state that the purpose of advertising and other marketing communications is to increase sales. While this may be the ultimate objective, the behavioral
objective for most marketing communications is often much more immediate. That
is, it may seek to have the audience learn something about the product, seek more
information about the product, like the product, recommend the product to others, feel
good about having bought the product, or a host of other communications effects.
What message will achieve the desired effect on our audience? What words, pictures, and
symbols should we use to capture attention and produce the desired effect? Marketing messages can range from purely factual statements to pure symbolism. The best approach depends
on the situation at hand. Developing an effective message requires a thorough understanding
of the meanings the target audience attaches to words and symbols, as well as knowledge of
the perception process. Consider Illustration 15. Many older consumers may not relate to
the approach of this ad. However, it communicates clearly to its intended youth market.
What means and media should we use to reach the target audience? Should we use
personal sales to provide information? Can we rely on the package to provide needed
information? Should we advertise in mass media, use direct mail, or rely on consumers to find us on the Internet? If we advertise in mass media, which media (television, radio, magazines, newspapers, Internet) and which specific vehicles (television
programs, specific magazines, websites, banner ads, and so forth) should we use? Is
it necessary or desirable to adjust the language used? With respect to the media and
language issues, MasterCards approach is instructive. They indicate that:
Hispanics are the largest and fastest growing ethnic group in the U.S. ... As we continue to
bring value to Hispanic consumers, it is important for MasterCard to be speaking their language in the channels that are relevant to them.12
5.
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When should we communicate with the target audience? Should we concentrate our
communications near the time that purchases tend to be made or evenly throughout
the week, month, or year? Do consumers seek information shortly before purchasing
our product? If so, where? Answering these questions requires knowledge of the decision process used by the target market for this product.
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19
ILLUSTRATION 15
All aspects of the

marketing mix should
be designed around
the needs and characteristics of the target audience. Many
segments would not
appreciate this ad,
but it works with the
targeted segment.
Price
Price is the amount of money one must pay to obtain the right to use the product. One can
buy ownership of a product or, for many products, limited usage rights (i.e., one can rent or
lease the product, as with a video). Economists often assume that lower prices for the same
product will result in more sales than higher prices. However, price sometimes serves as
a signal of quality. A product priced too low might be perceived as having low quality.
Owning expensive items also provides information about the owner. If nothing else, it
indicates that the owner can afford the expensive item. This is a desirable feature to some
consumers. Starbucks charges relatively high prices for its coffee. Yet it understands that
the Starbucks brand allows consumers to trade up to a desired image and lifestyle without breaking the bank. Therefore, setting a price requires a thorough understanding of the
symbolic role that price plays for the product and target market in question.
It is important to note that the price of a product is not the same as the cost of the product to
the customer. Consumer cost is everything the consumer must surrender in order to receive
the benefits of owning/using the product. The cost of owning/using an automobile includes
insurance, gasoline, maintenance, finance charges, license fees, parking fees, time and discomfort while shopping for the car, and perhaps even discomfort about increasing pollution,
in addition to the purchase price. One of the ways firms seek to provide customer value is to
reduce the nonprice costs of owning or operating a product. If successful, the total cost to the
customer decreases while the revenue to the marketer stays the same or even increases.
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Part One
Introduction
Distribution
Distribution, having the product available where target customers can buy it, is essential to success. Only in rare cases will customers go to much trouble to secure a particular
brand. Obviously, good channel decisions require a sound knowledge of where target
customers shop for the product in question. Todays distribution decisions also require
an understanding of cross-channel options. Savvy retailers are figuring out ways to let
each distribution channel (e.g., online versus offline) do what it does best. For example,
Coldwater Creek keeps retail inventories low by having in-store Internet kiosks where
consumers can shop and get free shipping. Barnes and Noble bookstores use a similar
approach. Obviously, retailers who adopt this approach have to choose an appropriate
merchandising strategy where fast-moving, high-profit, seasonal items are in-store to
attract customers while other merchandise is available online.13 Finally, retailer characteristics such as those examined in Consumer Insight 11 need to be understood and
delivered upon. Disney is in the process of renovating its stores to be more interactive, and this has driven increased store visits and sales. The remodel seems to focus on
entertainment, which is especially appropriate in light of Disneys brand and customer.
Specifically,
The new [Disney] retail format sports more features to entertain shoppers, such as a table where
kids can assemble cars from the popular Disney-Pixar Cars movie to a two-story princess castle
that kids can enter.14
Service
Earlier, we defined product to include primary or core services such as haircuts, car
repairs, and medical treatments. Here, service refers to auxiliary or peripheral activities that are performed to enhance the primary product or primary service. Thus, we
would consider car repair to be a product (primary service), while free pickup and
delivery of the car would be an auxiliary service. Although many texts do not treat
service as a separate component of the marketing mix, we do because of the critical role it plays in determining market share and relative price in competitive markets. A firm that does not explicitly manage its auxiliary services is at a competitive
disadvantage.
Auxiliary services cost money to provide. Therefore, it is essential that the firm furnish only those services that provide value to the target customers. Providing services that
customers do not value can result in high costs and high prices without a corresponding
increase in customer value.
CONSUMER DECISIONS
As Figure 11 illustrated, the consumer decision process intervenes between the marketing strategy (as implemented in the marketing mix) and the outcomes. That is,
the outcomes of the firms marketing strategy are determined by its interaction with
the consumer decision process. The firm can succeed only if consumers see a need that
its product can solve, become aware of the product and its capabilities, decide that it is
the best available solution, proceed to buy it, and become satisfied with the results of the
purchase. A significant part of this text is devoted to the understanding of the consumer
decision process.
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ILLUSTRATION 16
This ad positions the

brand as fun.
OUTCOMES
Firm Outcomes
Product Position The most basic outcome of a firms marketing strategy is its product
positionan image of the product or brand in the consumers mind relative to competing
products and brands. This image consists of a set of beliefs, pictorial representations, and
feelings about the product or brand. It does not require purchase or use for it to develop.
It is determined by communications about the brand from the firm and other sources, as
well as by direct experience with it. Most marketing firms specify the product position they
want their brands to have and measure these positions on an ongoing basis. This is because
a brand whose position matches the desired position of a target market is likely to be purchased when a need for that product arises.
The ad in Illustration 16 is positioning the brand as a fun brand. This image and personality is facilitated and enhanced by the color and imagery used.
Sales and Profits Sales and profits are critical outcomes, as they are necessary for
the firm to continue in business. Therefore, virtually all firms evaluate the success of
their marketing programs in terms of sales revenues and profits. As we have seen, sales
and profits are likely to occur only if the initial consumer analysis was correct and if the
marketing mix matches the consumer decision process.
Customer Satisfaction Marketers have discovered that it is generally more profitable
to maintain existing customers than to replace them with new customers. Retaining current
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Part One
FIGURE
1-2
Our total
product
Competitors
total productss
Introduction
Creating Satisfied Customers
Consumerr
C
Co
de
d
decision
pr
p
process
Superior
S
Su
vvalue
ex
e
expected
d
S
Sales
Perceived
P
Pe
d
vvalue
de
d
delivered
Cu
C
Customer
sa
satisfaction
ati
customers requires that they be satisfied with their purchase and use of the product. Thus,
customer satisfaction is a major concern of marketers.
As Figure 12 indicates, convincing consumers that your brand offers superior value
is necessary in order to make the initial sale. Obviously, one must have a thorough understanding of the potential consumers needs and of their information acquisition processes to
succeed at this task. However, creating satisfied customers, and thus future sales, requires
that customers continue to believe that your brand meets their needs and offers superior
value after they have used it. You must deliver as much or more value than your customers
initially expected, and it must be enough to satisfy their needs. Doing so requires an even
greater understanding of consumer behavior.
Individual Outcomes
Need Satisfaction The most obvious outcome of the consumption process for an individual, whether or not a purchase is made, is some level of satisfaction of the need that
initiated the consumption process. This can range from no satisfaction (or even a negative
level if a purchase increases the need rather than reduces it) to complete satisfaction. Two
key processes are involvedthe actual need fulfillment and the perceived need fulfillment.
These two processes are closely related and are often identical. However, at times they
differ. For example, people might take food supplements because they believe the supplements are enhancing their health while in reality they could have no direct health effects
or even negative effects. One objective of government regulation and a frequent goal of
consumer groups is to ensure that consumers can adequately judge the extent to which
products are meeting their needs.
Injurious Consumption Although we tend to focus on the benefits of consumption, we must remain aware that consumer behavior has a dark side. Injurious
consumption occurs when individuals or groups make consumption decisions that have
negative consequences for their long-run well-being. Examples can include (a) overspending due to aggressive marketing efforts and cheap credit, (b) consumption of products that
are not healthy including fast foods, cigarettes, alcohol, and so on, and (c) engaging in
activities such as gambling that can have devastating financial consequences for some.
One product that has recently caught the attention of the FDA is caffeinated alcohol
beverages. They tend to be large in volume and also contain high levels of alcohol and
caffeine. It is estimated that one can of these new caffeinated alcohol beverages has
the same impact on people as drinking five or six beers. These beverages also increase
the chances that people engage in dangerous behaviors such as driving under the influence, in part because the caffeine causes them to misgauge how intoxicated they are.15
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23
Although these are issues we should be concerned with, and we address them
throughout this text, we should also note that alcohol consumption seems to have arisen
simultaneously with civilization, and evidence of gambling is nearly as old. Consumers smoked and chewed tobacco long before mass media or advertising as we know it
existed, and illegal drug consumption continues to grow worldwide despite the absence
of large-scale marketing, or at least advertising. Thus, though marketing activities based
on knowledge of consumer behavior undoubtedly exacerbate some forms of injurious
consumption, they are not the sole cause and, as we will see shortly, such activities may
be part of the cure.
Society Outcomes
Economic Outcomes The cumulative impact of consumers purchase decisions,
including the decision to forgo consumption, is a major determinant of the state of a given
countrys economy. Consumers decisions on whether to buy or to save affect economic
growth, the availability and cost of capital, employment levels, and so forth. The types of
products and brands purchased influence the balance of payments, industry growth rates,
and wage levels. Decisions made in one society, particularly large, wealthy societies such
as those of the United States, Western Europe, and Japan, have a major impact on the economic health of many other countries.
Physical Environment Outcomes Consumers make decisions that have a major
impact on the physical environments of both their own and other societies. The cumulative effect of U.S. consumers decisions to rely on relatively large private cars rather
than mass transit results in significant air pollution in American cities as well as the
consumption of nonrenewable resources from other countries. The decisions of people
in most developed and in many developing economies to consume meat as a primary
source of protein result in the clearing of rain forests for grazing land, the pollution
of many watersheds due to large-scale feedlots, and an inefficient use of grain, water,
and energy to produce protein. It also appears to produce health problems for many
consumers. Similar effects are being seen as ethanol (made from corn, sugar cane, or
rice) becomes a more popular alternative to oil as a source of fuel for automobiles.
The high cost of fuel, along with the diversion of grain from food to fuel, is driving up
food costs and threatens to increase poverty levels around the world.16 Such outcomes
attract substantial negative publicity. However, these resources are being used because
of consumer demand, and consumer demand consists of the decisions you and I and our
families and our friends make!
As we will see in Chapter 3, many consumers now recognize the indirect effects of
consumption on the environment and are altering their behavior to minimize environmental harm.
Social Welfare Consumer decisions affect the general social welfare of a society.
Decisions concerning how much to spend for private goods (personal purchases) rather
than public goods (support for public education, parks, health care, and the like) are generally made indirectly by consumers elected representatives. These decisions have a major
impact on the overall quality of life in a society.
Injurious consumption, as described above, affects society as well as the individuals
involved. The social costs of smoking-induced illnesses, alcoholism, and drug abuse are
staggering. To the extent that marketing activities increase or decrease injurious consumption, they have a major impact on the social welfare of a society. Consider the following:
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Part One
Introduction
According to the U.S. Public Health Service, of the 10 leading causes of death in the United
States, at least 7 could be reduced substantially if people at risk would change just 5 behaviors:
compliance (e.g., use of antihypertensive medication), diet, smoking, lack of exercise, and alcohol and drug abuse. Each of these behaviors is inextricably linked with marketing efforts and the
reactions of consumers to marketing campaigns. The link between consumer choices and social
problems is clear.17
However, the same authors conclude: Although these problems appear daunting, they
are all problems that are solvable through altruistic [social] marketing. Thus, marketing
and consumer behavior can both aggravate and reduce serious social problems.
THE NATURE OF CONSUMER BEHAVIOR

LO4
Figure 13 is the model that we use to capture the general structure and process of consumer
behavior and to organize this text. It is a conceptual model. It does not contain sufficient
detail to predict particular behaviors; however, it does reflect our beliefs about the general
nature of consumer behavior. Individuals develop self-concepts (their view of themselves)
and subsequent lifestyles (how they live) based on a variety of internal (mainly psychological
and physical) and external (mainly sociological and demographic) influences. These selfconcepts and lifestyles produce needs and desires, many of which require consumption decisions to satisfy. As individuals encounter relevant situations, the consumer decision process is
activated. This process and the experiences and acquisitions it produces in turn influence the
consumers self-concept and lifestyle by affecting their internal and external characteristics.
Of course life is rarely as structured as Figure 13 and our discussion of it so far may
seem to suggest. Consumer behavior is hardly ever so simple, structured, conscious,
mechanical, or linear. A quick analysis of your own behavior and that of your friends
will reveal that on the contrary, consumer behavior is frequently complex, disorganized,
nonconscious, organic, and circular. RememberFigure 13 is only a model, a starting
point for our analysis. It is meant to aid you in thinking about consumer behavior. As you
look at the model and read the following chapters based on this model, continually relate
the descriptions in the text to the rich world of consumer behavior that is all around you.
The factors shown in Figure 13 are given detailed treatment in the subsequent chapters of this book. Here we provide a brief overview so that you can initially see how they
work and fit together. Our discussion here and in the following chapters moves through the
model from left to right.
External Influences (Part Two)

Dividing the factors that influence consumers into categories is somewhat arbitrary. For
example, we treat learning as an internal influence despite the fact that much human learning involves interaction with, or imitation of, other individuals. Thus, learning could also
be considered a group process. In Figure 13, the two-directional arrow connecting internal and external influences indicates that each set interacts with the other.
We organize our discussion of external influences from large-scale macrogroups to
smaller, more microgroup influences. Culture is perhaps the most pervasive influence on
consumer behavior. We begin our consideration of culture in Chapter 2 by examining differences in consumption patterns across cultures. In Chapters 3 through 7, we focus on American
culture in detail. In Chapter 3, we examine cultural values. As we will see, while Americans share many values and consumption behaviors, there is also rich diversity and ongoing
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Chapter One
FIGURE
Overall Model of Consumer Behavior
External
Inuences
25
erien
Ex p
1-3
ces and Acquisitions
Decision
Process
Culture
Subculture
Demographics
Social Status
Reference Groups
Family
Situations
Problem
Recognition
Self-Concept
and
Lifestyle
Needs
Desires
Internal
nternal
Inuences
Information
Search
and Selection
Outlet Selection
and Purchase
Perception
Learning
Memory
Motives
Personality
Emotions
Attitudes
Postpurchase
Processes
Exp
erienc
es and Acquisitions
change in this society that create both marketing opportunities and unique social energy.
Illustration 17 shows how marketers are embracing this diversity in their advertisements.
Chapter 4 continues our examination of American society by analyzing its demographics
(the number, education, age, income, occupation, and location of individuals in a society)
and social stratification. Chapter 5 considers ethnic, religious, and regional subcultures.
Chapter 6 analyzes families, households, and household decision making. Finally, in Chapter 7, we look at the processes by which groups influence consumer behavior and group
communication, including the role of groups in the acceptance of new products and technologies. Taken together, Chapters 2 through 7 provide a means of comparing and contrasting the various external factors that influence consumer behavior in Americaand around
the world. Cross-cultural variations are highlighted when possible throughout the text.
Internal Influences (Part Three)

Internal influences begin with perception, the process by which individuals receive and
assign meaning to stimuli (Chapter 8). This is followed by learningchanges in the content
or structure of long-term memory (Chapter 9). Chapter 10 covers three closely related topics:
motivationthe reason for a behavior; personalityan individuals characteristic response
tendencies across similar situations; and emotionstrong, relatively uncontrolled feelings
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ILLUSTRATION 17
America is increasingly diverse. Ads

such as this one
reflect and embrace
such diversity.
Part One
Introduction
that affect our behavior. We conclude our

coverage of internal influences by examining attitudes in Chapter 11. An attitude is an
enduring organization of motivational, emotional, perceptual, and cognitive processes
with respect to some aspect of our environment. In essence an attitude is the way a
person thinks, feels, and acts toward some
aspect of his or her environment, such as a
retail store, television program, or product.
As such, our attitudes are heavily influenced
by the external and internal factors that we
will have discussed in the preceding chapters.
Self-Concept and Lifestyle

Chapter 12 concludes Part Three with a
detailed discussion of the key concepts of selfconcept and lifestyle around which our model
revolves. As a result of the interaction of the
internal and external variables described earlier, individuals develop a self-concept that is reflected in a lifestyle. Self-concept is the totality of an individuals thoughts and feelings about him- or herself. Lifestyle is, quite simply,
how one lives, including the products one buys, how one uses them, what one thinks about
them, and how one feels about them. Lifestyle is the manifestation of the individuals selfconcept, the total image the person has of him- or herself as a result of the culture he or she
lives in, and the individual situations and experiences that comprise his or her daily existence.
It is the sum of the persons past decisions and future plans.
Both individuals and families exhibit distinct lifestyles. We often hear of career-oriented
individuals, outdoor families, or devoted parents. Ones lifestyle is determined by both
conscious and unconscious decisions. Often we make choices with full awareness of their
impact on our lifestyle, but generally we are unaware of the extent to which our decisions
are influenced by our current or desired lifestyle. Our model shows that consumers selfconcepts and lifestyles produce needs and desires that interact with the situations in which
consumers find themselves to trigger the consumer decision process.
We do not mean to imply that consumers think in terms of lifestyle. None of us consciously thinks, Ill have an Evian bottled water in order to enhance my lifestyle. Rather,
we make decisions consistent with our lifestyles without deliberately considering lifestyle.
Most consumer decisions involve very little effort or thought on the part of the consumer.
They are what we call low-involvement decisions. Feelings and emotions are as important
in many consumer decisions as logical analysis or physical product attributes. Nonetheless, most consumer purchases involve at least a modest amount of decision making, and
most are influenced by the purchasers current and desired lifestyle.
Consumer Decision Process (Part Four)

Consumer decisions result from perceived problems (Im thirsty) and opportunities (That
looks like it would be fun to try). We will use the term problem to refer both to problems
and to opportunities. Consumer problems arise in specific situations and the nature of the
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Chapter One
27
situation influences the resulting consumer behavior. Therefore, we provide a detailed discussion of situational influences on the consumer decision process in Chapter 13.
As Figure 13 indicates, a consumers needs/desires may trigger one or more levels of
the consumer decision process. It is important to note that for most purchases, consumers
devote very little effort to this process, and emotions and feelings often have as much or
more influence on the outcome as do facts and product features. Despite the limited effort
that consumers often devote to the decision process, the results have important effects on
the individual consumer, the firm, and the larger society. Therefore, we provide detailed
coverage of each stage of the process: problem recognition (Chapter 14), information
search (Chapter 15), alternative evaluation and selection (Chapter 16), outlet selection and
purchase (Chapter 17), and use, disposition, and purchase evaluation (Chapter 18). The
increasing role of technology, particularly the Internet, in consumer decision making is
highlighted throughout these chapters.
Organizations (Part Five) and Regulation (Part Six)

Organizations or businesses can also be consumers, as when Mercedes-Benz purchases
dashboard subcomponents from a supplier. This type of marketing is often termed
business-to-business (B2B) marketing to differentiate it from business-to-consumer
(B2C) marketing that is the focus of much of this text. The special nature of organizations and how they behave warrants special attention. In Chapter 19, we show how our
model of individual and household consumer behavior can be modified to help understand the consumer behavior of organizations.
Regulation is an aspect of consumer behavior that permeates marketer actions relating
to all parts of our model and it warrants special attention as well. Chapter 20 focuses our
attention on the regulation of marketing activities, especially those targeting children. We
pay particular attention to the role that knowledge of consumer behavior plays or could
play in regulation.
THE MEANING OF CONSUMPTION

As we proceed through this text, we will describe the results of studies of consumer behavior, discuss theories about consumer behavior, and present examples of marketing programs
designed to influence consumer behavior. While reading this material, however, do not lose
sight of the fact that consumer behavior is not just a topic of study or a basis for developing marketing or regulatory strategy. Consumption frequently has deep meaning for the consumer.18
Consider Consumer Insight 12. Andre, just escaping homelessness, is clearly proud
that he was able to save for and buy a pair of Nikes. He could undoubtedly have purchased
a different brand that would have met his physical needs just as well as the Nikes for much
less money. Although he does not say why he bought the more expensive Nikes, a reasonable interpretation is that they serve as a visible symbol that Andre is back as a successful
member of society. In fact, Nike is sometimes criticized for creating, through its marketing activities, symbols of success or status that are unduly expensive. What do you think?
Does Nike manipulate people like Andre into spending more than necessary for a product
because of its symbolism? If ads were banned or restricted to showing only product features, would products and brands still acquire symbolic meaning?
Perhaps some insight into the questions in Consumer Insight 12 can be found in the
following description of the attitudes of several goatherders in a narrow mountain valley
in northeastern Mexico in 1964. Modern advertising was not part of their environment.
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LO5
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CONSUMER INSIGHT
1-2
The Meaning of Consumption

I (Andre Hank) worked eight-hour shifts at one restaurant, then drove to the other one for another eight-hour
shift. One day I came home and my girlfriend and our
six-year-olds were gone. When she left, I fell apart.
I stopped going to work, stopped sleeping. I wasnt
doing anything, just going crazy . . . they took me to
the hospital where I got a shot to help me sleep. I woke
up in a psych ward. After three or four months, they
released me.
When I came out of the hospital I didnt have anything. I wanted to get my old job back, but they wouldnt
give me a second chance. I tried to get another job but
its hard when you dont have a phone, or an answering
machine, or a pager. And I was sleeping in abandoned
buildings, then on the El for a long time.
One day more than three years ago I was hungry
and didnt have any money and I saw a guy selling
newspapers. I asked him what he was selling and he
told me about StreetWise (a nonprofit, independent
newspaper sold by the homeless, formerly homeless,
and economically disadvantaged men and women of
Chicago). So I [began to sell StreetWise] ... I dont
make a lot of money but Im good at saving it. Right
now Im saving for a coat for next winter.
Im no longer homeless. Ive got a nice little room
in a hotel ... I can buy food ... I even saved for [and
bought] Nikes.
Andre is not unique among low-income consumers

in wanting and buying items such as Nike shoes. As one
expert says: These people (low-income consumers)
want the same products and services other consumers
want. He suggests that marketing efforts reflect those
desires. Another expert states: Theres this stereotype
that they dont have enough money for toothpaste, and
thats just not true. There has to be some significance
to them being called lower-income, but they do buy
things.
The working poor are forced to spend a disproportionate percentage of their income on housing, utilities,
and medical care (because of a lack of insurance). They
generally rely on public transportation. They spend a
smaller portion of their relatively small incomes on meals
away from home and on all forms of entertainment
such as admissions, pets, and toys. They spend very
little on their own financial security. However, as Andre
illustrated, they spend the same percentage of their
income (though a smaller dollar amount) on apparel and
accessories.19

1 What does the consumption of a product
like Nikes mean to Andre?
2 What does this story say about our society
and the impact and role of marketing?
I asked Juan what were his major economic concerns. He answered very quickly, food and
clothes, he said. How about housing? I asked. That is never a problem, he said, for I can
always make a house. For Juan and the others, a house is not a prestige symbol but simply a
place to sleep, a place to keep dry in, a place for family privacy, and a place in which to store
things. It is not a place to live, as the word is so meaningfully used in the United States. It seems
difficult to overestimate the importance of clothing. A clean set of clothes is for a pass into town
or a fiesta. Clothes are the mark of a mans self-respect, and the ability of a man to clothe his family is in many ways the measure of a man.20
Thus, as you read the chapters that follow, keep in mind that we are dealing with real
people with real lives, not mere abstractions.
28
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Chapter One
29
SUMMARY
LO1: Define consumer behavior

The field of consumer behavior is the study of individuals, groups, or organizations and the processes
they use to select, secure, use, and dispose of products, services, experiences, or ideas to satisfy needs
and the impacts that these processes have on the consumer and society.
LO2: Summarize the applications of consumer

behavior
Consumer behavior can be applied in four areas,
namely (a) marketing strategy, (b) regulatory policy,
(c) social marketing, and (d) creating informed individuals. Developing marketing strategy involves
setting levels of the marketing mix based on an understanding of the market and segments involved to create
desirable outcomes. Developing regulatory guidelines
involves developing policies, guidelines, and laws to
protect and aid consumers. Social marketing is the
application of marketing strategies and tactics to alter
or create behaviors that have a positive effect on the
targeted individuals or society as a whole. Creating
more informed individuals involves educating consumers about their own consumption behaviors as well as
marketers efforts to influence it in such a way as to
create a more sound citizenship, effective purchasing
behavior, and reasoned business ethics.
LO3: Explain how consumer behavior can be

used to develop marketing strategy
The interplay between consumer behavior and marketing strategy involves five stages. First is market analysis, which involves gathering data and tracking trends
related to the company, competitors, conditions, and
consumers. Second is market segmentation. A market
segment is a portion of a larger market whose needs
differ somewhat from the larger market. Firms segment their markets and choose a segment or segments
that best fit their capabilities and market conditions.
Third is marketing strategy, which involves setting
appropriate levels for the marketing mix as a function
of the segments being targeted and the market conditions that exist. Fourth is the consumer decision process, which is a series of steps starting with problem
recognition and moving through information search,
alternative evaluation, purchase, use, and postpurchase
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evaluation. Marketing efforts can be targeted to these

different stages. Fifth is outcomes at the individual,
firm, and societal level. And while profit maximization is often a goal at the firm level, possible adverse
effects at the individual and societal level are of
importance to firms, government organizations, and
regulators. An understanding of consumer behavior
theory and concepts is critical at each stage as marketers gather information, develop marketing strategies to
influence consumer decisions, and evaluate the effects
of their marketing efforts.
LO4: Explain the components that constitute a

conceptual model of consumer behavior
The conceptual model of consumer behavior developed here can be broken into four interrelated parts.
External and internal influences affect the consumers
self-concept and lifestyle which, in turn, affects the
decision process. External influences (Part Two of the
text) include culture, reference groups, demographics, and marketing activities. Internal influences (Part
Three) include perception, emotions, attitudes, and personality. Self-concept is the totality of an individuals
thoughts and feelings about him- or herself. Lifestyle
is, quite simply, how one lives, including the products
one buys, how one uses them, what one thinks about
them, and how one feels about them. External and
internal factors operate to influence self-concept and
lifestyle that, in turn, influence the decision process
(Part Four). Overlaying these basic components is
organizations (Part Five) and regulation (Part Six).
Organizations or businesses can also be consumers as
when Mercedes-Benz purchases dashboard subcomponents from a supplier. This type of marketing is often
termed business-to-business (B2B) marketing to differentiate it from business-to-consumer (B2C) marketing
that is the focus of much of this text. The special nature
of organizations and how they behave warrants special
attention. Regulation is an aspect of consumer behavior
that permeates marketer actions relating to all parts of
our model and it warrants special attention as well.
LO5: Discuss issues involving consumption

meanings and firm attempts to influence them
Consumption has meaning beyond the satisfaction of
minimum or basic consumer needs. Thus, consumers
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30
Part One
Introduction
might purchase Nike sneakers not only to satisfy the

functional needs associated with safety and support,
but also for symbolic needs associated with status,
identity, and group acceptance. Some criticize marketers for their attempts to instill in, or amplify, consumer
desires for products beyond minimum functional
aspects. And while this criticism may hold true, it also

seems likely that such desires and symbolic meanings
are naturally assigned to objects even in the relative
absence of marketing. Nonetheless, the ethical implications of marketers actions in this regard are important
to consider.
KEY TERMS
Conceptual model 24
Consumer behavior 6
Consumer cost 19
Customer satisfaction 22
Customer value 10
Distribution 20
Injurious consumption 22
Lifestyle 26
Marketing communications 18
Marketing mix 17
Marketing strategy 17
Market segment 13
Need set 14
Price 19
Product 17
Product position 21
Self-concept 26
Service 20
Social marketing 8
Target market 16
Total product 11
INTERNET EXERCISES
1. Market segmentation is one of the most important
parts of developing a marketing strategy. Many
commercial firms provide information and services
to help define and/or describe market segments.
One is Yankelovich. Visit its website (www
.yankelovich.com). Prepare a report on the various
tools the company has available to segment
consumers. How valuable do you think this service
would be to a marketer?
2. Visit the Global Media Monitor at (lass.calumet
.purdue.edu/cca/gmm). What information can you
find that is relevant to understanding consumer
behavior?
3. Marketers are increasingly looking at the
opportunities offered by older consumers. How will
the number of adults 65 and over change between
2015 and 2020? What about 2015 and 2025? (Hint:
visit www.census.gov and look under statistical
abstract.)
4. Examine magazine ads for a product category that
interests you. Visit two websites identified in the
ads. Which is most effective? Why? What beliefs
about consumer behavior are reflected in the ads?
a Federal Trade Commission (www.ftc.gov)

b Better Business Bureau (www.bbb.org)
6. Visit the FDAs Center for Food Safety and
Applied Nutrition (www.cfsan.fda.gov). What
food-related issues are currently of concern?
While there visit the food labeling and nutrition
section on food labeling (go to www.cfsan
.fda.gov/label.html and click on Consumer
Information/label information tools). The site
provides YouTube videos and informational
brochures for various age groups from tweens
to older adults. How important do you feel the
NLEAs Nutrition Facts Panel is in helping
consumers make better food choices? Can this
information still be misleading?
7. Evaluate several of PETAs websites (www.peta.org,
www.circuses.com, www.nofishing.net,
www.taxmeat.com, and www.furisdead.com).
How is social marketing used to influence
consumption patterns?
8. Evaluate Apples website (www.apple.com). What
assumptions about consumer behavior are reflected
in this website?
5. What ethical and legal issues involving the

interaction of consumers and marketing
are currently the concern of the following?
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Chapter One
31
DDB LIFE STYLE STUDY DATA ANALYSES

1. Examine the DDB data in Tables 1A through 7A
for differences among heavier consumers of the
following. Why do you think these differences
exist? How would you use these insights to develop
marketing strategy?
a. Gourmet coffee bar
b. DVD rental
c. Sports drinks
d. Mail order catalog
2. Some people are more prone to be influenced

by nutritional labels than others. Use the DDB
data (Tables 1B through 7B) to examine possible
characteristics of these consumers. How might this
information be used by the FDA in developing
marketing campaigns related to nutrition?
REVIEW QUESTIONS
1. How is the field of consumer behavior defined?
2. What conclusions can be drawn from the examples
at the beginning of this chapter?
3. What are the four major uses or applications of an
understanding of consumer behavior?
4. What is social marketing?
5. What is customer value, and why is it important to
marketers?
6. What is required to provide superior customer
value?
7. What is a total product?
8. What is involved in the consumer analysis phase
of market analysis in Figure 11?
9. What is involved in the company analysis phase of
market analysis in Figure 11?
10. What is involved in the competitor analysis phase
11. What is involved in the conditions analysis phase
12. Describe the process of market segmentation.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
What is marketing strategy?

What is a marketing mix?
What is a product?
What does an effective communications strategy
require?
What is a price? How does the price of a
product differ from the cost of the product to the
consumer?
How is service defined in the text?
What is involved in creating satisfied customers?
What are the major outcomes for the firm of the
marketing process and consumers responses to it?
What are the major outcomes for the individual of the
What are the major outcomes for society of the
What is product position?
What is meant by injurious consumption?
What is meant by consumer lifestyle?
Describe the consumer decision process.
DISCUSSION QUESTIONS
27. Why would someone shop on the Internet? Buy an
iPod? Eat at TGI Fridays frequently?
a. Why would someone else not make those
purchases?
b. How would you choose one outlet, brand, or
model over the others? Would others make the
same choice in the same way?
28. Respond to the questions in Consumer Insight 11.
haw30042_ch01_002-033.indd 31
29. Of what use, if any, are models such as the one in

Figure 13 to managers?
30. What changes would you suggest in the model in
Figure 13? Why?
31. Describe your lifestyle. How does it differ from
your parents lifestyle?
32. Do you anticipate any changes in your lifestyle
in the next five years? What will cause these
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32
33.
34.
35.
36.
Part One
Introduction
changes? What new products or brands will you

consume because of these changes?
Describe a recent purchase you made. To what
extent did you follow the consumer decisionmaking process described in this chapter? How
would you explain any differences?
Describe several total products that are more than
their direct physical features.
Describe the needs that the following items might
satisfy and the total cost to the consumer of
obtaining the benefits of the total product.
a. Digital video recorder (e.g., TiVo)
b. Lasik eye surgery
c. Motorcycle
d. SUV
How would you define the product that the Hard
Rock Cafe provides? What needs does it meet?
37. To what extent, if any, are marketers

responsible for injurious consumption
involving their products?
38. How could social marketing help
alleviate some of societys problems?
39. Respond to the questions in Consumer Insight 12.
40. Is the criticism of Nike for creating a shoe that
is symbolic of success to some groups (see
Consumer Insight 12) valid? Why or why not?
41. Roberts American gourmet snack foods produces
herbal-based snacks such as Spirulina Spirals and
St. Johns Wort Tortilla Chips. According to the
company president, Were selling like crazy. We
dont do research. We react as sort of a karma
thing.21 How would you explain the firms
success? What are the advantages and risks of this
approach?
APPLICATION ACTIVITIES
42. Interview the manager or marketing manager
of a retail firm. Determine how this individual
develops the marketing strategy. Compare this
persons process with the approach described in
the text.
43. Interview the managers of a local charity.
Determine what their assumptions about the
consumer behavior of their supporters are. To
what extent do they use marketing strategy
to increase support for the organization or
compliance with its objectives?
44. Interview five students. Have them describe the
last three restaurant meals they consumed and the
situations in which they were consumed. What
can you conclude about the impact of the situation
on consumer behavior? What can you conclude
about the impact of the individual on consumer
behavior?
45. Visit one or more stores that sell the following
items. Report on the sales techniques used (pointof-purchase displays, store design, salesperson
comments, and so forth). What beliefs concerning
consumer behavior appear to underlie these
techniques? It is often worthwhile for a male and
haw30042_ch01_002-033.indd 32
a female student to visit the same store and talk

to the same salesperson at different times. The
variation in salesperson behavior is sometimes
quite revealing.
a. Books and magazines
b. Cellular phones
c. Pet supplies
d Expensive art
e. Expensive jewelry
f. Personal computers
46. Interview individuals who sell the items listed
below. Try to discover their personal models of
consumer behavior for their products.
a. Expensive jewelry
b. Pets
c. Golfing equipment
d. Plants and garden supplies
e. Flowers
f. Car insurance
47. Interview three individuals who recently made
a major purchase and three others who made
a minor purchase. In what ways were their
decision processes similar? How were they
different?
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Chapter One
33
REFERENCES
1. Sources for Online marketing section: Whos Online, Pew
Internet & American Life Project, 2010, www.pewinternet.org;
Online Ordering Leader Papa Johns First to Surpass $2 Billion
in Online Sales, Business Wire, May 3, 2010; and The Rise of
Apps Culture (Washington, DC: Pew Internet & American Life
Project, September 2010).
2. Source for Global marketing section: N. Madden, Report
from China, AdAge.com, May 31, 2005, www.adage.com.
3. Sources for Social marketing section: Excerpts from OLPCs
website (www.laptopgiving.org), accessed May 20, 2008, as well
as J. Markoff, For $150, Third-World Laptop Stirs Big Debate,
The New York Times, November 30, 2006, www.nytimes.com,
accessed May 20, 2008; B. Einhorn, Intel Inside the Third
World, BusinessWeek, July 9 and 16, 2007, pp. 3840; and
D.Talbot, $100 Laptop Programs New President, Technology
Review, May 2, 2008, www.technologyreview.com, accessed May
20, 2008.
4. J. Neff, S. C. Johnson Likely to Bag Ziploc TableTops, Advertising
Age, November 25, 2002, p. 3; and J. Neff, S.C.Johnson Faces a
Clean-up Job, Advertising Age, November 29, 2004, p. 8.
5. See W. I. Ghani and N. M. Childs, Wealth Effects of the Passage
of the Nutrition Labeling and Education Act of 1990 for Large U.S.
Multinational Food Corporations, Journal of Public Policy and
Marketing, Fall 1999, pp. 14758; and S.K.Balasubramanian and
C. Cole, Consumers Search and Use of Nutrition Information,
Journal of Marketing, July 2002, pp. 11227.
6. See A. R. Andreasen, Social Marketing, Journal of Public
Policy & Marketing, Spring 1994, pp. 10814; and P. Kotler,
N. Roberto, and N. Lee, Social Marketing (Thousand Oaks, CA:
Sage, 2002).
7. A. S. Wellner, The New Science of Focus Groups, American
Demographics, March 2003, pp. 2933.
8. Insight based on K. E. Reynolds, J. Ganesh, and M. Luckett,
Traditional Malls vs. Factory Outlets, Journal of Business
Research 55 (2002), pp. 687696.
haw30042_ch01_002-033.indd 33
9. E. Esfahani, How to . . . Get Tough with Bad Customers,

Business 2.0, October 2004, p. 52.
10. T. F. McMahon, What Buyers Buy and Sellers Sell, Journal of
Professional Services Marketing 2 (1996), pp. 316.
11. Build a Better Mousetrap 2004 New Product Innovations of
the Year, Productscan Online (press release), December 27,
2004 (www.productscan.com).
12. MasterCard Launches Marketing, Education Campaign for
Hispanics, Payment News, May 18, 2009.
13. This site is based on J. Weber and A. T. Palmer, How the Net is
Remaking the Mall, BusinessWeek Online, May 9, 2005.
14. Disney Hits New Markets with Retail Makeover, Reuters,
January 11, 2011.
15. P. Wingert, Why Its So Risky, Newsweek, November 22,
2010, p. 14.
16. Price Rises Threaten Progress on Poverty, Financial Times,
April 10, 2008, p. 8.
17. R. E. Petty and J. T. Cacioppo, Addressing Disturbing and
Disturbed Consumer Behavior, Journal of Marketing Research,
February 1996, pp. 18.
18. See M. L. Richins, Special Possessions and the Expression of
Material Values, Journal of Consumer Research, December
1994, pp. 52233.
19. C. Miller, The Have-Nots, Marketing News, August 1, 1994,
pp. 12; P. Mergenhagen, What Can Minimum Wage Buy?
American Demographics, January 1996, pp. 3236; and A.
Hank, Hank Finds Two Families, StreetWise, May 1631,
1996, p. 7. See also R. P. Hill, Disadvantaged Consumers,
Journal of Business Ethics 80 (2008), pp. 7783.
20. J. F. Epstein, A Shirt for Juan Navarro, in Foundations for a
Theory of Consumer Behavior, ed. W. T. Tucker (New York:
Holt, Rinehart & Winston, 1967), p. 75.
21. M. W. Fellman, New Age Dawns for Product Niche,
Marketing News, April 27, 1998, p. 1.
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Part One
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INTRODUCTION
External
Inuences
ien
Exper
ces and
ns
Acquisitio
Culture
Subculture
Demographics
Social Status
Reference Groups
Family
Self-Concept
and
Lifestyle
Internal
Inuences
Perception
Learning
Memory
Motives
Personality
Emotions
Attitudes
Experi
ences a
nd A
cquisitions
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What is consumer behavior? Why should we

study it? Do marketing managers, regulators,
and consumer advocates actually use knowledge about consumer behavior to develop
strategies and policy? How? Will a sound
knowledge of consumer behavior help you in
your career? Will it enable you to be a better
citizen? How does consumer behavior impact
the quality of all of our lives and of the environment? How can we organize our knowledge
of consumer behavior to understand and use
it more effectively?
Decision
Process
Needs
Desires
Chapter 1 addresses these and a number

of other interesting questions, describes the
Situations
importance and usefulness of the material
Problem
Recognition
to be covered in this text, and provides an
Information
Search
the logic of the model of consumer behav-
and Selection
overview of the text. Chapter 1 also explains

ior shown here, which is presented again in
Figure 13 and discussed toward the end of
the chapter.
Outlet Selection
and Purchase
Postpurchase
Processes
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Chapter
p One
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Consumer Behavior
andMarketing Strategy
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LEARNING OBJECTIVES
LO1
Define consumer behavior
LO4
Explain the components that constitute a conceptual model of consumer behavior
LO2
Summarize the applications of consumer behavior
LO5
Discuss issues involving consumption meanings

and firm attempts to influence them
LO3
Explain how consumer behavior can be used to

develop marketing strategy
Marketers face exciting and daunting challenges as

the forces that drive and shape consumer behavior
rapidly evolve. Domestic firms confront the challenges of international competition but also the
opportunities of vast emerging markets such as
China and India. In the United States, companies
are responding to increased diversity; and retailers
face the challenges and opportunities of technology
such as online shopping. Marketers and regulators
struggle with tough ethical and social aspects of
marketing, including marketing to children. And this
only scratches the surface! Lets take a closer look
at a few of these areas.
Online marketingMarketers are using the
Internet to make their offerings more personalized and convenient. Historically, we havent
thought about buying fast food online. That has
all changed. Papa Johns recently hit the $2 billion
mark through online, text message, and mobile
options, which represents more than 25 percent
of its overall sales. Several factors are driving this
trend. One is increased Internet access, recently
estimated at about 77 percent of U.S. adults.
Papa Johns is taking advantage of social media
as well. Its Facebook fan page has over a million
fans and provides a link to online ordering. Another
factor is the growing mobility trend, particularly
among younger consumers. Roughly a quarter of U.S. adults are active mobile apps users.
Food, entertainment, and retail are substantial and
growing mobile app categories. Papa Johns, not

surprisingly, has an iPhone app for mobile ordering. A final and critical aspect is consumer desire
for convenience. Consider the following quote of
one busy mother:
Im so into the Internet and the ease of doing things
that way. Being able to log in and [order] versus trying to talk over a baby crying or a 2-year-old thats
running around the house is probably one of the main
reasons I like to order that way.
To further build in convenience, Papa Johns offers

consumers the opportunity to order ahead of time.
Competitors are in the mix as well, with Dominos
offering online pizza tracking.1
Global marketingChinas massive population,
rising income, and emerging youth market make
that country very attractive to marketers around the
world. Consider the following:
Urban Chinese teens download hip-hop tunes to
trendy Nokia cell phones, guzzle icy Cokes after
shooting hoops in Nike shoes and munch fries at
McDonalds after school.
If this sounds like an American marketers dream,

you are partly right. However, there are challenges
to marketing to this segment. Chinese history, values, and culture are factors that cannot be ignored.
They create a unique teen market that U.S. marketers must understand and adapt to. As one marketing expert puts it:
5
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Part One
Introduction
Successful advertising for youth brands carefully navigates the respect young consumers feel for their family, peer groups and country with their cautious desire
to express individuality.
Still, key passion points existmusic, fashion,

sports, and technology. Although these passion
points are similar for teens around the globe, U.S.
companies must adapt to the Chinese culture by
identifying specific trends among urban Chinese
teens. For example:
this market. As a consequence, OLPC has had to

employ numerous marketing concepts. Starting with
the product, OLPC has designed a computer specifically for developing countries. It is inexpensive (target price is $100) and durable, uses little power, and
runs on free Linux software. Although these features
are important, compatibility is still a driving factor,
which has OLPC considering a dual operating system including Windows. According to Negroponte:
When I went to Egypt for the first time, I met separately
Coke ... has combined its partnerships with a popu-
with the minister of communications, the minister of
lar girl band in China called S.H.E.; athletes like Liu
education, and the minister of science and technology,
Xiang; and the current video game hit in China, World
and the prime minister, and each one of them, within
of Warcraft, to hit two or three passion points at the
the first three sentences, said, Can you run Windows?
same time.
Social marketingOLPC, or One Laptop Per Child,

is a nonprofit created by Nicholas Negroponte of
MIT. The mission of OLPC is to empower the children of developing countries to learn by providing
one connected laptop to every school-age child.
OLPC is in a tough battle with for-profit firms for
LO1
Promotional activities include efforts aimed at gaining donations so that OLPC can provide the computers for free. OLPCs website is one tool, which uses
facts and emotions to persuade. It even provides a
direct benefit by giving each donor one years free
access to T-Mobile HotSpot. Finally, social influence
is used, including testimonials and viral marketing.3
The field of consumer behavior is the study of individuals, groups, or organizations and the
processes they use to select, secure, use, and dispose of products, services, experiences, or
ideas to satisfy needs and the impacts that these processes have on the consumer and society.
This view of consumer behavior is broader than the traditional one, which focused more narrowly on the buyer and the immediate antecedents and consequences of the purchasing process.
Our broader view will lead us to examine more indirect influences on consumption decisions
as well as far-reaching consequences that involve more than just the purchaser and the seller.
The opening examples above summarize some attempts to apply an understanding of
consumer behavior to develop an effective marketing strategy or to influence socially desirable behavior. Throughout this text, we explore the factors and trends shaping consumer
behavior and the ways marketers and regulators can use this information. The examples
cited above reveal four key aspects regarding consumer behavior.
Consumer behavior is a complex, multidimensional process. Consumer decisions
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often involve numerous steps and are influenced by a host of factors including demographics, lifestyle, and cultural values. Consumer decisions are further complicated
when the needs and wants of multiple individuals or groups are considered, as when
families must make decisions about where to eat dinner or where to go on vacation.
Successful marketing decisions by firms, nonprofit organizations, and regulatory agencies require an understanding of the processes underlying consumer behavior. This
relates to understanding theories about when and why consumers act in certain ways.
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Chapter One
Whether they realize it or not, organizations are making decisions every day based on
explicit or implicit assumptions about what processes drive consumer behavior. Examine Illustration 11. What assumptions about consumer behavior underlie each ad?
Which approach is best? Why?
Successful marketing decisions require organizations to collect information about the
specific consumers involved in the marketing decision at hand. Consumer decisions are
heavily influenced by situation and product category. Thus, consumer research is necessary to understand how specific consumers will behave in a specific situation for a
given product category. Appendix A examines various consumer research approaches.
Marketing practices designed to influence consumer behavior involve ethical issues
that affect the firm, the individual, and society. The issues are not always obvious and
many times involve trade-offs at different levels. The fast-food industry is currently
dealing with such issues. While the products of fast-food businesses are highly desirable to many consumers in terms of taste and affordability, they also tend to be high
in calories, fat, and sodium. These health-related issues have gotten the attention of
government and consumer groups.
ILLUSTRATION 11
These advertisements are targeting

the same consumers with very similar
products, yet they
use two very different
approaches. Why?
They are based on
different assumptions
about consumer
behavior and how to
influence it.
Sufficient knowledge of consumer behavior exists to provide usable guidelines. However, applying these guidelines effectively requires monitoring the environment for
changes and factoring those changes into marketing decisions. It also requires practice. We
provide a variety of such opportunities in the form of (a) questions and exercises at the end
of each chapter, (b) short cases at the end of each main part of the text, and (c) a consumer
behavior audit for developing marketing strategy (Appendix B) at the end of the text.
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Part One
Introduction
APPLICATIONS OF CONSUMER BEHAVIOR

Marketing Strategy
LO2
Marketing decisions based on explicit consumer behavior theory, assumptions, and

research are more likely to be successful than those based on hunches or intuition, and thus
they create a competitive advantage. An accurate understanding of consumer behavior can
greatly reduce the odds of failures such as:
S.C. Johnson pulled the plug on its Ziploc TableTops, a line of semi-disposable plates. TableTops was one of the companys most expensive launches with $65 million spent on marketing.
A number of factors appear to have contributed to the failure including relatively high prices
(which made consumers less likely to throw them away) and the fact that the products really
werent all that disposable. As one retailer explained, There are no repeat purchases. The things
last forever.4
Thus, a primary goal of this book is to help you obtain a usable managerial understanding of consumer behavior to help you become a more effective marketing manager. Before
we take a look at marketing strategy and consumer behavior, lets examine regulatory
policy, social marketing, and the importance of being an informed individual.
Regulatory Policy
Various regulatory bodies exist to develop, interpret, and/or implement policies designed
to protect and aid consumers. For example, the Food and Drug Administration (FDA)
administers the Nutrition Labeling and Education Act (NLEA). Among other things,
NLEA requires that packaged foods prominently display nutrition information in the form
of the Nutrition Facts panel.
Has NLEA succeeded? A recent study suggests that it depends. For example, the Nutrition Facts panel is of most benefit to highly motivated consumers who are low in nutritional
knowledge. Demonstrating such benefits is important in light of the estimated $2billion in
compliance costs. However, such cost-benefit comparisons are complicated since placing
a dollar value on individual and societal benefits is often difficult.5
Clearly, effective regulation of many marketing practices requires an extensive knowledge of consumer behavior. We discuss this issue throughout the text and provide a
detailed treatment in Chapter 20.
Social Marketing
Social marketing is the application of marketing strategies and tactics to alter or create
behaviors that have a positive effect on the targeted individuals or society as a whole.6 Social
marketing has been used in attempts to reduce smoking; to increase the percentage of children receiving their vaccinations in a timely manner; to encourage environmentally sound
behaviors such as recycling; to reduce behaviors potentially leading to AIDS; to enhance
support of charities; to reduce drug use; and to support many other important causes.
Just as for commercial marketing strategy, successful social marketing strategy requires
a sound understanding of consumer behavior. For example, the Partnership for a Drug-Free
America uses a fear-based campaign in its efforts to educate parents about the alarming
increase in teen abuse of prescription drugs. Illustration 12 shows one such ad. In Chapter
11, we will analyze the conditions under which such campaigns are likely to succeed.
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Chapter One
ILLUSTRATION 12
Nonprofits as well
as commercial firms
attempt to influence
consumption patterns. Both types of
organizations must
base their efforts
on knowledge of
consumer behavior
to maximize their
chances of success.
Informed Individuals
Most economically developed societies are legitimately referred to as consumption societies. Most individuals in these societies spend more time engaged in consumption than in
any other activity, including work or sleep (both of which also involve consumption). In
addition, marketers spend billions to influence consumer decisions. These attempts occur
in ads, in websites, on packages, as product features, in sales pitches, and in store environments. They also occur in the content of many TV shows, in the brands that are used in
movies, and in the materials presented to children in schools.
It is important that consumers accurately understand the strategies and tactics being
used so they can be more effective consumers. It is equally important that, as citizens, we
understand the consumer behavior basis of these strategies so we can set appropriate limits
when required. That is, an understanding of consumer behavior can establish a foundation
for reasoned business ethics.
MARKETING STRATEGY
AND CONSUMER BEHAVIOR
The applications of consumer behavior involve the development, regulation, and effects of
marketing strategy. We now examine marketing strategy in more depth.
Marketing strategy, as described in Figure 11, is conceptually very simple. It begins with
an analysis of the market the organization is considering. On the basis of the consumer analysis undertaken in this step, the organization identifies groups of individuals, households, or
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LO3
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10
FIGURE
Part One
1-1
Introduction
Marketing Strategy and Consumer Behavior

Outcomes
Individual
Firm
Society
Consumer decision process

Problem recognition
Information search
Alternative evaluation
Purchase
Use
Evaluation
Marketing strategy
Product, Price, Distribution,
Promotion, Service
Market segmentation
Identify product-related need sets
Group customers with similar need sets
Describe each group
Select attractive segment(s) to target
Market analysis
Company
Competitors
Conditions
Consumers
firms with similar needs. These market segments are described in terms of demographics,
media preferences, geographic location, and so forth. Management then selects one or more
of these segments as target markets on the basis of the firms capabilities relative to those of
its competition (given current and forecasted economic and technological conditions).
Next, marketing strategy is formulated. To survive in a competitive environment, an organization must provide its target customers more value than is provided to them by its competitors. Customer value is the difference between all the benefits derived from a total product
and all the costs of acquiring those benefits. It is critical that a firm consider value from the
customers perspective. Ziplocs TableTops failed because consumers felt the benefit of the
products being semidisposable did not outweigh the cost of the product itself or the guilt
they felt about eventually throwing it away. Thus, marketing strategy seeks to provide the
customer with more value than the competition while still producing a profit for the firm.
Marketing strategy is formulated in terms of the marketing mix; that is, it involves
determining the product features, price, communications, distribution, and services that
will provide customers with superior value. This entire set of characteristics is often
referred to as the total product. The total product is presented to the target market, which
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Chapter One
11
ILLUSTRATION 13
What do you buy

when you go to a
restaurant or coffee
shop? The experience is the product
as much as or more
than the actual food
and beverage.
is consistently engaged in processing information and making decisions designed to maintain or enhance its lifestyle (individuals and households) or performance (businesses and
other organizations).
Look at Illustration 13. What is the total product? Clearly, it is much more than food and
beverages. It also involves an experience. Increasingly, marketers sell experiences as much as or
more than actual products and services. An experience occurs when a company intentionally
creates a memorable event for customers. While products and services are to a large extent external to the customer, an experience is largely internal to each customer. The experience exists in
the mind of an individual who has been engaged on an emotional, physical, intellectual, or even
spiritual level.
Outcomes based on the execution of a marketing strategy occur for the firm, the individual, and society. Firms expect to establish an image or position in the marketplace
among target customers, generate sales, and ultimately create satisfied customers who are
the key to long-term profits. For the individual, the process results in some level of need
satisfaction, financial expenditure, attitude creation or change, and/or behavioral changes.
Note that some of these behaviors may involve injurious consumption. For society, the
cumulative effect of the marketing process affects economic growth, pollution, and social
welfare, the latter of which create many ethical implications.
We detail each phase of Figure 11 next.
MARKET ANALYSIS COMPONENTS

Market analysis requires a thorough understanding of the consumption process of potential customers, the organizations own capabilities, the capabilities of current and future
competitors, and the economic, physical, and technological environment in which these
elements will interact.
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Part One
Introduction
The Consumers
It is not possible to anticipate and react to customers needs and desires without a
complete understanding of consumer behavior. Discovering customers needs is a
complex process, but it can often be accomplished by marketing research. For example, Target wanted to tap into the $210 billion college market. In particular, Target was looking at the furnishings and accessories market and was interested in the
specific needs and motivations of students making the transition from home to college dorm life. Jump Associates conducted the research for Target and took a unique
approach:
[Jump Associates] sponsored a series of game nights at high school grads homes, inviting
incoming college freshmen as well as students with a year of dorm living under their belts. To get
teens talking about dorm life, Jump devised a board game that involved issues associated with
going to college. The game naturally led to informal conversationsand questionsabout college life. Jump researchers were on the sidelines to observe, while a video camera recorded the
proceedings.
On the basis of this research (which is a variation of focus groupssee Appendix A),
Target successfully launched the Todd Oldham Dorm Room line, which included such
products as Kitchen in a Box and Bath in a Boxall-in-one assortments of the types of
products needed by college freshmen.7 Target continues to appeal to the college market
with logo merchandise and other dorm products.
Knowing the consumer requires understanding the behavioral principles that guide consumption behaviors. These principles are covered in depth in the remainder of this text.
The Company
A firm must fully understand its own ability to meet customer needs. This involves
evaluating all aspects of the firm, including its financial condition, general managerial skills, production capabilities, research and development capabilities, technological sophistication, reputation, and marketing skills. Marketing skills would include
new-product development capabilities, channel strength, advertising abilities, service
capabilities, marketing research abilities, market and consumer knowledge, and so forth.
Failure to fully understand strengths and weaknesses can cause serious problems.
IBMs first attempt to enter the home computer market, with the PC Jr., was a failure in
part for that reason. Although IBM had an excellent reputation with large business customers and a very strong direct sales force for serving them, these strengths were not relevant
to the household consumer market. Its more recent move into high-end business consulting, through IBM Global Business Services, has been a major success and, interestingly,
moves IBM back to a focus on its earlier core strengths.
The Competitors
It is not possible to consistently do a better job than the competition of meeting customer
needs without a thorough understanding of the competitions capabilities and strategies.
This understanding requires the same level of knowledge of a firms key competitors
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Chapter One
13
that is required of ones own firm. In addition, for any significant marketing action, the
following questions must be answered:
1
2
3
4
If we are successful, which firms will be hurt (lose sales or sales opportunities)?
Of those firms that are injured, which have the capability (financial resources, marketing strengths) to respond?
How are they likely to respond (reduce prices, increase advertising, introduce a new
product)?
Is our strategy (planned action) robust enough to withstand the likely actions of our
competitors, or do we need additional contingency plans?
The Conditions
The state of the economy, the physical environment, government regulations, and technological developments affect consumer needs and expectations as well as company and
competitor capabilities. The deterioration of the physical environment has produced not
only consumer demand for environmentally sound products but also government regulations affecting product design and manufacturing.
International agreements such as NAFTA (North American Free Trade Agreement)
have greatly reduced international trade barriers and raised the level of both competition
and consumer expectations for many products. And technology is changing the way people
live, work, deal with disease, and so on. Corporate websites, social media such as Twitter
and Facebook, and mobile apps are just some of the ways technology is changing the way
consumers communicate and access media.
Clearly, a firm cannot develop a sound marketing strategy without anticipating the conditions under which that strategy will be implemented.
MARKET SEGMENTATION
Perhaps the most important marketing decision a firm makes is the selection of one or
more market segments on which to focus. A market segment is a portion of a larger
market whose needs differ somewhat from the larger market. Since a market segment has
unique needs, a firm that develops a total product focused solely on the needs of that segment will be able to meet the segments desires better than a firm whose product or service
attempts to meet the needs of multiple segments.
To be viable, a segment must be large enough to be served profitably. However, it
should be noted that technology advances such as flexible manufacturing and customized media are allowing for mass customization such that firms can target smaller segments and even individuals profitably. Behavioral targeting, in which consumers online
activity is tracked and specific banner ads are delivered based on that activity, is another
example of how technology is making individualized communication increasingly cost
effective.
Market segmentation involves four steps:
1.
2.
3.
4.
Identifying product-related need sets.

Grouping customers with similar need sets.
Describing each group.
Selecting an attractive segment(s) to serve.
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CHAPTER 20 ASSESSMENT
CASE IN POINT
CASE 20-1: Computer Life Cycle
The personal-computer market has become very competitive, and it is
more and more difficult for computer manufacturers to make a profit.
Technology changes rapidly, so if a company has not sold its inventory of
one model when a competitor introduces a newer, faster, more powerful
model, it often has to sell its older model at a loss. Many computer purchasers are not brand-loyal and either look for a lower price or expect
the manufacturer to include related products, such as a monitor, printer,
scanner, or several types of software with the new computer.
Online computer sellers have created considerable competition for
traditional store outlets. Many consumers today do not feel they need
much technical help with computers. Businesses are also buying online
because they can configure computers to meet their needs.
Newer computer products are entering the market. These include
wireless portable computers and personal digital assistants. Even cellular
telephones are gaining computer functionality.
One computer manufacturer began a new marketing program that
offered customers a free computer. The computer was not the manufacturers latest model, however. The offer also did not include a large
monitor or additional equipment or software. Instead, the manufacturer
required the customer to sign a contract to use the manufacturers Internet service for at least three years, at a cost of $24.95 a month. Typically,
consumers could buy the same service for as little as $14.95 a month
from other companies.
1. Which stage of the product life cycle do you believe computers are
in, based on the case information? Why?
2. Explain how this stage affects the price of computers.
3. Are computers industrial or consumer products? Explain your
answer.
4. In which consumer product category do you believe consumers
classify computers, based on the case information? Why?
5. How does your product category choice in question #4 fit with
companies ability to sell computers on the Internet? Explain your
answer.
6. Describe the target market that you believe might be attracted to the
manufacturers offer of a free computer.
7. Explain why a consumer may or may not find the Internet/computer
package an appealing offer.
8. What are the advantages and disadvantages of offering consumers a
computer that is not the companys latest model?
556
pocket- or desk-sized and be capable of special

mathematical functions. Also, it might come in a
variety of colors and include a protective case and
an instruction manual. Given the combination of
features, the price of the calculator could range
from a few dollars to as much as $50 or more. If
you were the person responsible for designing a
calculator to sell, what combination of design features would you include? This example shows that
product planning can be very complex. Businesses
have many choices in designing products. In developing their product strategy, marketers pay close
attention to their customers needs and wishes.
PRODUCT DESIGN LEVELS
PHOTO: GETTY IMAGES/PHOTODISC.
Chapter 21 Product Development and Distribution
There are three levels of product designa basic

product, an enhanced product, and an extended
product. The basic product is the physical product
in its simplest form. It should be easy for consumers
to understand and see how it can meet a need. The
basic product of one company is usually similar to that of its competitors.
The basic product will meet an important consumer need. However, most
consumers are attempting to satisfy several needs at one time with a purchase,
or they have very specific needs different from those of other consumers. In that
case, the basic product will not be satisfactory. Therefore, a business develops
an enhanced product. An enhanced product offers different features and options
for the consumer. For example, a basic computer can be produced in desktop or
notebook form. It can have different screen and hard-drive sizes and offer DVD,
an advanced speaker system, and many other features. If you visit the Web site
of an online computer manufacturer, you can see the many options available to
prospective purchasers. Choices are grouped by categories of customers, such
as business, home office, education, and family, making it easier for customers
to design the computer system they need.
The third level of product development is to plan extended products. An
extended product includes additional features that are not part of the physical
product but increase its usability. Examples are customer service, information
on effective use of the products, and even additional products that improve the
use of the original purchase. If you purchase a new digital video camera, you
will need tapes to begin filming. In addition, a tripod may be helpful to make
sure the video images are not shaky. Editing software, instructional videotapes,
and even lens filters to create special effects may be useful to some but not all
customers. The right combination of choices allows customers to get just the
right product to meet very specialized needs.
Companies may offer a warranty (a statement from the seller about the
products qualities or performance) or a guarantee (an assurance from the seller
that a product will perform to your satisfaction for a certain period of time).
This can help reassure the customer about the product.
Why should a company make

product development decisions
very carefully?
CHECKPOINT
List and define the three levels of product design.
561
Unit 6
Product Selection
After designing the product, companies must make another set of decisions to
plan the product mix element. The first decision is whether to offer a product
line. A product line is a group of similar products with obvious variations in the
design and quality to meet the needs of distinct customer groups. New and small companies may begin by offering only one category of product to its
customers. That product may have choices of features, options, and enhancements, but the basic
product is the same for all customers. With more
It is often difficult to identify the total number
experience and resources, the company may decide
of product lines a store carries by walking through
to expand its product line.
the store. But product lines are often used to
One of the obvious ways to expand a product
organize a customers online shopping experiline is to offer different sizes of the product. That
ence. Point your browser to www.thomsonedu.
can be done with the serving sizes of food items, as
comschoolbpmxtra. Look at the tabs in the Web
well as with the sizes of automobiles. As an
site. How do these indicate product lines? Click
example, when sports utility vehicles (SUVs) were
on the See All tab. Describe how this shows
first introduced, most manufacturers produced
Wal-Marts online product assortment. Based on
one midsize model, such as the Chevy Blazer or
your research, how does the online site differ
Ford Explorer. As the popularity of SUVs grew,
from Wal-Marts you have visited?
manufacturers began to appeal to other market
segments with smaller models, such as the Toyota
www.thomsonedu.com/school/bpmxtra
RAV4, and then very large models, including the
Mercury Mountaineer and Cadillac Escalade. Rising
gas prices opened a market for fuel-efficient SUVs,
such as Hondas CR-V. Some companies offer only one model size, but others
have a model in each size category for a full product line.
Another way to develop a product line is to offer variations in quality and
price. If you visit an appliance store, you will usually find low-, mid-, and highpriced choices for each type of appliance, such as refrigerators, dishwashers, and
microwaves. The price differences are based on the construction, quality of materials, and available features and options. A person buying a microwave for a
college dorm room probably does not want the most expensive, full-featured
choice, and so will be drawn to the lower-priced end of the product line. On the
other hand, a gourmet chef making a purchase for a new kitchen may want only
the highest quality and latest features.
Once a company has made decisions about a product line, it continues planning by determining the product assortment. A product assortment is the complete set of all products a business offers to a market. A product assortment can
have depth, breadth, or both. A company offering a deep product assortment
carries a large number of choices of features for each product category it handles.
Walk into a Bath and Body Works store and look at the variety of fragrances,
colors, bottle sizes, and packages for any of the major products sold there. That
is an example of a deep assortment. Compare that to the choices of bath lotions
that you might find in a small drugstore, where the assortment would be limited.
With a broad product assortment, a business offers a large number of different but often related products to its customers. If you visit a garden center, you
may find many different types of products for lawns and gardens, ranging from
plants, shrubs, and trees to lawn mowers, hoses, and patio furniture. There may
not be a wide range of choices within every product category, but customers
should be able to satisfy most of their outdoor home needs at one location.
As shown in Figure 21-1, businesses can choose any combination of depth and
breadth for their product assortment. Some will be very small and specialized,
562

and others will offer a wide variety of many
different products.
Figure 21-1 Businesses build product assortment to meet

their customers needs.
PACKAGING
PRODUCT BREADTH
Less
More
More
Two important product mix decisions are

packaging and branding. Neither decision is
directly related to the actual physical product
A BROAD VARIETY OF
itself, but each can be an important influence
MANY PRODUCTS
on purchase decisions.
Most companies package their products
before selling them. The package can serve
four different purposes. First, it protects the
product while it is being shipped and stored.
Products can easily be damaged when they are
grouped together for shipment from the factory to the retail store. Boxes and containers
MANY PRODUCTS WITH
are needed for protection. The actual conLIMITED VARIETY
tainer or wrapping in which the individual
product is packaged also offers protection on
the store shelf and may provide security to
keep the product from being lost or stolen.
Second, the package can provide important information to customers on product
composition, special features, and proper use. Boxes and containers also provide
information to shippers on appropriate handling, storage, and delivery.
A package can be designed to make the product easier to use. A plastic bottle
of soda is less likely to be broken if dropped. An easy-opening lid or a container
that fits the hands of the consumer makes product handling easier. Window cleaner
that is premixed in a spray bottle is much more convenient than one that must
be poured into a bucket and applied with a sponge.
Finally, especially for consumer products, the package is often an
important promotional tool. A well-designed, attractive package calls attention to itself on the store shelf, helps the customer recall previously seen advertising, and provides a reminder of the needs that the product will satisfy if
purchased.
A LARGE VARIETY IN
PRODUCT DEPTH
FEW PRODUCT CHOICES
LIMITED PRODUCT CHOICES
Less
AND VARIETY
What different purposes could

the packaging of this product
serve?
Can you name the brands of clothing, pizza, and toothpaste you prefer? Do you
and your friends regularly shop at certain stores but not others? Product and store
brands play a major role in buying decisions. A brand is a name, symbol, word, or
design that identifies a product, service, or company.
Why are brands so important to consumers? Have you ever shopped in a store
that had generic (nonbranded) products or that sold only unfamiliar brands? With
no information to guide you, it is difficult to make a product selection with which
you are comfortable. You and people you trust have had experiences with various
brands. If a particular companys products consistently meet your needs, you will
likely buy from that company again. If you have a negative experience, however,
you are likely to avoid similar purchases in the future. If you are satisfied with one
product from a company, you are likely to have confidence in a different product
sold under the same brand. Businesses recognize that brand recognition is an
important influence in increasing sales. The levels of consumer brand awareness
are shown in Figure 21-2 (see p. 564).
PHOTO: COMSTOCK IMAGES.
BRANDING
563
Unit 6
facts
&figures
Corporate identity refers to a

companys name or logoits
visual expression or its look.
Corporate image is the publics
perception of a company. Corporate branding, by contrast, is
a business processone that is
planned, strategically focused,
and integrated throughout the
organization.
FIGURE 21-2 The Five Levels of Consumer Brand Awareness
Consumers are unable to identify the brand.
Consumers can identify the brand but it has little influence on their
purchase decision.
Consumers can identify the brand but will not purchase it because
of its brand.
Consumers easily recognize the brand and will choose it if it is available.
Consumers view the brand as the most satisfying and will not purchase
a different brand.
CHECKPOINT
Name four purposes of packaging.
21.1
Assessment
UNDERSTAND MANAGEMENT CONCEPTS

Circle the best answer for each of the following questions.
1. A(n) ________ product offers different features and options for the
consumer.
a. augmented
b. basic
c. enhanced
d. extended
2. A group of similar products with obvious variations in design and
quality to meet the needs of distinct customer groups is called a
a. product assortment
b. product mix
c. product line
d. product design
THINK CRITICALLY
Answer the following questions as completely as possible.
3. Describe the different perceptions of a product that are usually
held by businesspeople and consumers.
4. Explain how a business can expand its product line.
thomsonedu.com/school/bpmxtra
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ILLUSTRATION 14
Both ads are for the

same basic product.
Yet, as these ads
show, the products
are designed to
meet different sets of
needs beyond their
basic function.
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Part One
Introduction
Product-Related Need Sets

Organizations approach market segmentation with a set of current and potential capabilities. These capabilities may be a reputation, an existing product, a technology, or some
other skill set. The first task of the firm is to identify need sets that the organization is
capable, or could become capable, of meeting. The term need set is used to reflect the fact
that most products in developed economies satisfy more than one need. Thus, a watch can
meet more needs than just telling time. Some customers purchase watches to meet status
needs, while others purchase them to meet style needs, and so on. Illustration 14 shows
two ads for the same product. What needs are these different ads appealing to?
Identifying the various need sets that the firms current or potential product might satisfy typically involves consumer research, particularly focus groups and depth interviews,
as well as logic and intuition. These need sets are often associated with other variables
such as age, stage in the household life cycle, gender, social class, ethnic group, or lifestyle, and many firms start the segmentation process focusing first on one or more of the
groups defined by one of these variables. Thus, a firm might start by identifying various
ethnic groups and then attempt to discover similarities and differences in consumptionrelated needs across these groups. While better-defined segments will generally be discovered by focusing first on needs and then on consumer characteristics associated with
those needs, both approaches are used in practice and both provide a useful basis for
segmentation.
Need sets exist for products and services and can include needs related to various
shopping venues. Consumer Insight 11 examines the need sets of mall and factory
outlet shoppers.
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CONSUMER INSIGHT
1-1
Need Sets of Mall and Factory Outlet Shoppers

What do you look for in a retail experience? Entertainment? Branded merchandise? Convenient parking? It
turns out that all these are important, but not all of them
are important to every consumer. Thus, retailers must
know what need sets exist and what segments exist
around those need sets. One research study that gives
some insight into this found four basic need sets for traditional malls and factory outlets:8
1.
Mall Essentialsbasic requirements including:

Cleanliness
Dcor
Employee service and friendliness
Safety and security
Parking
2.
Entertainmentfun extras such as:

Fast food
Movie theaters
Other services such as banks and hair specialists
Friends who shop the retailer
3.
4.
Conveniencefactors that make shopping easier

including:
Close to work and/or home
Accessible to home and/or work
Brand-Name Merchandisebrand availability as
follows:
Brand-name stores
Current fashions
New products
More stores
As you can see, each need set represents a related

cluster of characteristics. In addition, however, consumers can be grouped (segmented) in terms of their
similarity regarding the importance they place on the
different need sets. For example, there is the Basic
shopper segment that only cares about mall essentials;
an Enthusiast shopper segment that cares about
all the need sets with a particularly high emphasis on
entertainment; a Serious shopper who cares about
brand-name merchandise and convenience; a Destination shopper who cares about mall essentials and
brand-name merchandise; and a Brand shopper who
only cares about brand-name merchandise. Clearly all
shoppers are not the same, and retailers must work
hard to adapt to the differing need sets of different
shopper segments.

1. Think of various retailers you are aware of. Can you
match these different retailers to the different shopper segments?
2. Can you characterize the different shopper segments
in terms of various demographic traits such as age,
gender, income, family role, and so on?
3. What do you think the need sets are for online
retailers?
Customers with Similar Need Sets

The next step is to group consumers with similar need sets. For example, the need for moderately priced, fun, sporty automobiles appears to exist in many young single individuals, young
couples with no children, and middle-aged couples whose children have left home. These consumers can be grouped into one segment as far as product features and perhaps even product
image are concerned despite sharply different demographics. Consumer Insight 11 provides an
additional example of clustering or grouping consumers with similar need sets. For example,
those who are basic shoppers are all similar in that their most critical need set is mall essentials.
This step generally involves consumer research, including focus group interviews, surveys, and product concept tests (see Appendix A). It could also involve an analysis of current consumption patterns.
15
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Part One
Introduction
Description of Each Group

Once consumers with similar need sets are identified, they should be described in terms
of their demographics, lifestyles, and media usage. Designing an effective marketing program requires having a complete understanding of the potential customers. It is only with
such a complete understanding that we can be sure we have correctly identified the need
set. In addition, we cannot communicate effectively with our customers if we do not understand the context in which our product is purchased and consumed, how it is thought about
by our customers, and the language they use to describe it. Thus, while many young single
individuals, young couples with no children, and middle-aged couples whose children have
left home may want the same features in an automobile, the media required to reach each
group and the appropriate language and themes to use with each group would likely differ.
Attractive Segment(s) to Serve

Once we are sure we have a thorough understanding of each segment, we must select our
target marketthe segment(s) of the larger market on which we will focus our marketing effort. This decision is based on our ability to provide the selected segment(s) with
superior customer value at a profit. Thus, the size and growth of the segment, the intensity
of the current and anticipated competition, the cost of providing the superior value, and
so forth are important considerations. Table 11 provides a simple worksheet for use in
evaluating and comparing the attractiveness of various market segments.
As Table 11 indicates, segments that are sizable and growing are likely to appear attractive. However, profitability cannot be ignored. After all, a large unprofitable segment is still
TABLE
1-1
Market Segment Attractiveness Worksheet

Criterion
Score
Segment size
____________
Segment growth rate
____________
Competitor strength
____________
Customer satisfaction with existing products
____________
Fit with company image
____________
Fit with company objectives
____________
Fit with company resources
____________
Distribution available
____________
Investment required
____________
Stability/predictability
____________
Cost to serve
____________
Sustainable advantage available
____________
Communications channels available
____________
Risk
____________
Segment profitability
____________
Other (___________)
____________
*Score on a 110 scale, with 10 being most favorable.
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Chapter One
17
unprofitable. Finding profitable segments means identifying a maximal fit between customer needs and the firms offerings. This means that some customers and segments will be
unprofitable to serve and may need to be fired. While firing customers may be difficult, it can
lead to greater profits, as ING Direct has found. ING Direct is a bare-bones bank. It has limited
offerings (no checking) and does most of its transactions online. ING Direct wants lowmaintenance customers who are attracted by its higher interest rates. As their CEO notes:
The difference between ING Direct and the rest of the financial industry is like the difference
between take-out food and a sit-down restaurant. The business isnt based on relationships; its
based on a commodity product thats high-volume and low-margin. We need to keep expenses
down, which doesnt work when customers want a lot of empathetic contact.9
ING Direct keeps costs lower and profits higher by identifying high-cost customers and
(nicely) letting them go by suggesting they might be better served by a high-touch community bank. Can you think of any potential risks of firing customers?
It is important to remember that each market segment requires its own marketing strategy. Each element of the marketing mix should be examined to determine if changes are
required from one segment to another. Sometimes each segment will require a completely
different marketing mix, including the product. At other times, only the advertising message or retail outlets may need to differ.
MARKETING STRATEGY
It is not possible to select target markets without simultaneously formulating a general
marketing strategy for each segment. A decisive criterion in selecting target markets is the
ability to provide superior value to those market segments. Since customer value is delivered by the marketing strategy, the firm must develop its general marketing strategy as it
evaluates potential target markets.
Marketing strategy is basically the answer to the question, How will we provide superior
customer value to our target market? The answer to this question requires the formulation
of a consistent marketing mix. The marketing mix is the product, price, communications,
distribution, and services provided to the target market. It is the combination of these elements that meets customer needs and provides customer value. For example, in the opening
illustration, Papa Johns promises superior value in terms of quality and ingredients.
The Product
A product is anything a consumer acquires or might acquire to meet a perceived need.
Consumers are generally buying need satisfaction, not physical product attributes.10 As the
former head of Revlon said, in the factory we make cosmetics, in the store we sell hope.
Thus, consumers dont purchase quarter-inch drill bits but the ability to create quarter-inch
holes. Federal Express lost much of its overnight letter delivery business not to UPS or
Airborne but to fax machines and the Internet because these technologies could meet the
same consumer needs faster, cheaper, or more conveniently.
We use the term product to refer to physical products and primary or core services. Thus,
an automobile is a product, as is a transmission overhaul or a ride in a taxi. Packaged goods
alone (food, beverages, pet products, household products) account for over 30,000 new product introductions each year.11 Obviously, many of these will not succeed. To be successful, a
product must meet the needs of the target market better than the competitions product does.
Product-related decisions also include issues of packaging, branding, and logos,
which have functional and symbolic dimensions. Starbucks recently changed its logo by
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18
Part One
Introduction
eliminating the words Starbucks Coffee and the circle around their emblematic Siren.
There was some consumer backlash on social media against this new logo. Do you think
Starbucks new logo is effective? What factors underlie your judgment?
Communications
Marketing communications include advertising, the sales force, public relations, packaging, and any other signal that the firm provides about itself and its products. An effective communications strategy requires answers to the following questions:
1.
2.
3.
4.
With whom, exactly, do we want to communicate? While most messages are aimed
at the target-market members, others are focused on channel members, or those who
influence the target-market members. For example, pediatric nurses are often asked
for advice concerning diapers and other nonmedical infant care items. A firm marketing such items would be wise to communicate directly with the nurses.
Often it is necessary to determine who within the target market should receive the
marketing message. For a childrens breakfast cereal, should the communications be
aimed at the children or the parents or both? The answer depends on the target market
and varies by country.
What effect do we want our communications to have on the target audience? Often a
manager will state that the purpose of advertising and other marketing communications is to increase sales. While this may be the ultimate objective, the behavioral
objective for most marketing communications is often much more immediate. That
is, it may seek to have the audience learn something about the product, seek more
information about the product, like the product, recommend the product to others, feel
good about having bought the product, or a host of other communications effects.
What message will achieve the desired effect on our audience? What words, pictures, and
symbols should we use to capture attention and produce the desired effect? Marketing messages can range from purely factual statements to pure symbolism. The best approach depends
on the situation at hand. Developing an effective message requires a thorough understanding
of the meanings the target audience attaches to words and symbols, as well as knowledge of
the perception process. Consider Illustration 15. Many older consumers may not relate to
the approach of this ad. However, it communicates clearly to its intended youth market.
What means and media should we use to reach the target audience? Should we use
personal sales to provide information? Can we rely on the package to provide needed
information? Should we advertise in mass media, use direct mail, or rely on consumers to find us on the Internet? If we advertise in mass media, which media (television, radio, magazines, newspapers, Internet) and which specific vehicles (television
programs, specific magazines, websites, banner ads, and so forth) should we use? Is
it necessary or desirable to adjust the language used? With respect to the media and
language issues, MasterCards approach is instructive. They indicate that:
Hispanics are the largest and fastest growing ethnic group in the U.S. ... As we continue to
bring value to Hispanic consumers, it is important for MasterCard to be speaking their language in the channels that are relevant to them.12
5.
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When should we communicate with the target audience? Should we concentrate our
communications near the time that purchases tend to be made or evenly throughout
the week, month, or year? Do consumers seek information shortly before purchasing
our product? If so, where? Answering these questions requires knowledge of the decision process used by the target market for this product.
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19
ILLUSTRATION 15
All aspects of the

marketing mix should
be designed around
the needs and characteristics of the target audience. Many
segments would not
appreciate this ad,
but it works with the
targeted segment.
Price
Price is the amount of money one must pay to obtain the right to use the product. One can
buy ownership of a product or, for many products, limited usage rights (i.e., one can rent or
lease the product, as with a video). Economists often assume that lower prices for the same
product will result in more sales than higher prices. However, price sometimes serves as
a signal of quality. A product priced too low might be perceived as having low quality.
Owning expensive items also provides information about the owner. If nothing else, it
indicates that the owner can afford the expensive item. This is a desirable feature to some
consumers. Starbucks charges relatively high prices for its coffee. Yet it understands that
the Starbucks brand allows consumers to trade up to a desired image and lifestyle without breaking the bank. Therefore, setting a price requires a thorough understanding of the
symbolic role that price plays for the product and target market in question.
It is important to note that the price of a product is not the same as the cost of the product to
the customer. Consumer cost is everything the consumer must surrender in order to receive
the benefits of owning/using the product. The cost of owning/using an automobile includes
insurance, gasoline, maintenance, finance charges, license fees, parking fees, time and discomfort while shopping for the car, and perhaps even discomfort about increasing pollution,
in addition to the purchase price. One of the ways firms seek to provide customer value is to
reduce the nonprice costs of owning or operating a product. If successful, the total cost to the
customer decreases while the revenue to the marketer stays the same or even increases.
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Part One
Introduction
Distribution
Distribution, having the product available where target customers can buy it, is essential to success. Only in rare cases will customers go to much trouble to secure a particular
brand. Obviously, good channel decisions require a sound knowledge of where target
customers shop for the product in question. Todays distribution decisions also require
an understanding of cross-channel options. Savvy retailers are figuring out ways to let
each distribution channel (e.g., online versus offline) do what it does best. For example,
Coldwater Creek keeps retail inventories low by having in-store Internet kiosks where
consumers can shop and get free shipping. Barnes and Noble bookstores use a similar
approach. Obviously, retailers who adopt this approach have to choose an appropriate
merchandising strategy where fast-moving, high-profit, seasonal items are in-store to
attract customers while other merchandise is available online.13 Finally, retailer characteristics such as those examined in Consumer Insight 11 need to be understood and
delivered upon. Disney is in the process of renovating its stores to be more interactive, and this has driven increased store visits and sales. The remodel seems to focus on
entertainment, which is especially appropriate in light of Disneys brand and customer.
Specifically,
The new [Disney] retail format sports more features to entertain shoppers, such as a table where
kids can assemble cars from the popular Disney-Pixar Cars movie to a two-story princess castle
that kids can enter.14
Service
Earlier, we defined product to include primary or core services such as haircuts, car
repairs, and medical treatments. Here, service refers to auxiliary or peripheral activities that are performed to enhance the primary product or primary service. Thus, we
would consider car repair to be a product (primary service), while free pickup and
delivery of the car would be an auxiliary service. Although many texts do not treat
service as a separate component of the marketing mix, we do because of the critical role it plays in determining market share and relative price in competitive markets. A firm that does not explicitly manage its auxiliary services is at a competitive
disadvantage.
Auxiliary services cost money to provide. Therefore, it is essential that the firm furnish only those services that provide value to the target customers. Providing services that
customers do not value can result in high costs and high prices without a corresponding
increase in customer value.
CONSUMER DECISIONS
As Figure 11 illustrated, the consumer decision process intervenes between the marketing strategy (as implemented in the marketing mix) and the outcomes. That is,
the outcomes of the firms marketing strategy are determined by its interaction with
the consumer decision process. The firm can succeed only if consumers see a need that
its product can solve, become aware of the product and its capabilities, decide that it is
the best available solution, proceed to buy it, and become satisfied with the results of the
purchase. A significant part of this text is devoted to the understanding of the consumer
decision process.
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ILLUSTRATION 16
This ad positions the

brand as fun.
OUTCOMES
Firm Outcomes
Product Position The most basic outcome of a firms marketing strategy is its product
positionan image of the product or brand in the consumers mind relative to competing
products and brands. This image consists of a set of beliefs, pictorial representations, and
feelings about the product or brand. It does not require purchase or use for it to develop.
It is determined by communications about the brand from the firm and other sources, as
well as by direct experience with it. Most marketing firms specify the product position they
want their brands to have and measure these positions on an ongoing basis. This is because
a brand whose position matches the desired position of a target market is likely to be purchased when a need for that product arises.
The ad in Illustration 16 is positioning the brand as a fun brand. This image and personality is facilitated and enhanced by the color and imagery used.
Sales and Profits Sales and profits are critical outcomes, as they are necessary for
the firm to continue in business. Therefore, virtually all firms evaluate the success of
their marketing programs in terms of sales revenues and profits. As we have seen, sales
and profits are likely to occur only if the initial consumer analysis was correct and if the
marketing mix matches the consumer decision process.
Customer Satisfaction Marketers have discovered that it is generally more profitable
to maintain existing customers than to replace them with new customers. Retaining current
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Part One
FIGURE
1-2
Our total
product
Competitors
total productss
Introduction
Creating Satisfied Customers
Consumerr
C
Co
de
d
decision
pr
p
process
Superior
S
Su
vvalue
ex
e
expected
d
S
Sales
Perceived
P
Pe
d
vvalue
de
d
delivered
Cu
C
Customer
sa
satisfaction
ati
customers requires that they be satisfied with their purchase and use of the product. Thus,
customer satisfaction is a major concern of marketers.
As Figure 12 indicates, convincing consumers that your brand offers superior value
is necessary in order to make the initial sale. Obviously, one must have a thorough understanding of the potential consumers needs and of their information acquisition processes to
succeed at this task. However, creating satisfied customers, and thus future sales, requires
that customers continue to believe that your brand meets their needs and offers superior
value after they have used it. You must deliver as much or more value than your customers
initially expected, and it must be enough to satisfy their needs. Doing so requires an even
greater understanding of consumer behavior.
Individual Outcomes
Need Satisfaction The most obvious outcome of the consumption process for an individual, whether or not a purchase is made, is some level of satisfaction of the need that
initiated the consumption process. This can range from no satisfaction (or even a negative
level if a purchase increases the need rather than reduces it) to complete satisfaction. Two
key processes are involvedthe actual need fulfillment and the perceived need fulfillment.
These two processes are closely related and are often identical. However, at times they
differ. For example, people might take food supplements because they believe the supplements are enhancing their health while in reality they could have no direct health effects
or even negative effects. One objective of government regulation and a frequent goal of
consumer groups is to ensure that consumers can adequately judge the extent to which
products are meeting their needs.
Injurious Consumption Although we tend to focus on the benefits of consumption, we must remain aware that consumer behavior has a dark side. Injurious
consumption occurs when individuals or groups make consumption decisions that have
negative consequences for their long-run well-being. Examples can include (a) overspending due to aggressive marketing efforts and cheap credit, (b) consumption of products that
are not healthy including fast foods, cigarettes, alcohol, and so on, and (c) engaging in
activities such as gambling that can have devastating financial consequences for some.
One product that has recently caught the attention of the FDA is caffeinated alcohol
beverages. They tend to be large in volume and also contain high levels of alcohol and
caffeine. It is estimated that one can of these new caffeinated alcohol beverages has
the same impact on people as drinking five or six beers. These beverages also increase
the chances that people engage in dangerous behaviors such as driving under the influence, in part because the caffeine causes them to misgauge how intoxicated they are.15
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23
Although these are issues we should be concerned with, and we address them
throughout this text, we should also note that alcohol consumption seems to have arisen
simultaneously with civilization, and evidence of gambling is nearly as old. Consumers smoked and chewed tobacco long before mass media or advertising as we know it
existed, and illegal drug consumption continues to grow worldwide despite the absence
of large-scale marketing, or at least advertising. Thus, though marketing activities based
on knowledge of consumer behavior undoubtedly exacerbate some forms of injurious
consumption, they are not the sole cause and, as we will see shortly, such activities may
be part of the cure.
Society Outcomes
Economic Outcomes The cumulative impact of consumers purchase decisions,
including the decision to forgo consumption, is a major determinant of the state of a given
countrys economy. Consumers decisions on whether to buy or to save affect economic
growth, the availability and cost of capital, employment levels, and so forth. The types of
products and brands purchased influence the balance of payments, industry growth rates,
and wage levels. Decisions made in one society, particularly large, wealthy societies such
as those of the United States, Western Europe, and Japan, have a major impact on the economic health of many other countries.
Physical Environment Outcomes Consumers make decisions that have a major
impact on the physical environments of both their own and other societies. The cumulative effect of U.S. consumers decisions to rely on relatively large private cars rather
than mass transit results in significant air pollution in American cities as well as the
consumption of nonrenewable resources from other countries. The decisions of people
in most developed and in many developing economies to consume meat as a primary
source of protein result in the clearing of rain forests for grazing land, the pollution
of many watersheds due to large-scale feedlots, and an inefficient use of grain, water,
and energy to produce protein. It also appears to produce health problems for many
consumers. Similar effects are being seen as ethanol (made from corn, sugar cane, or
rice) becomes a more popular alternative to oil as a source of fuel for automobiles.
The high cost of fuel, along with the diversion of grain from food to fuel, is driving up
food costs and threatens to increase poverty levels around the world.16 Such outcomes
attract substantial negative publicity. However, these resources are being used because
of consumer demand, and consumer demand consists of the decisions you and I and our
families and our friends make!
As we will see in Chapter 3, many consumers now recognize the indirect effects of
consumption on the environment and are altering their behavior to minimize environmental harm.
Social Welfare Consumer decisions affect the general social welfare of a society.
Decisions concerning how much to spend for private goods (personal purchases) rather
than public goods (support for public education, parks, health care, and the like) are generally made indirectly by consumers elected representatives. These decisions have a major
impact on the overall quality of life in a society.
Injurious consumption, as described above, affects society as well as the individuals
involved. The social costs of smoking-induced illnesses, alcoholism, and drug abuse are
staggering. To the extent that marketing activities increase or decrease injurious consumption, they have a major impact on the social welfare of a society. Consider the following:
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Part One
Introduction
According to the U.S. Public Health Service, of the 10 leading causes of death in the United
States, at least 7 could be reduced substantially if people at risk would change just 5 behaviors:
compliance (e.g., use of antihypertensive medication), diet, smoking, lack of exercise, and alcohol and drug abuse. Each of these behaviors is inextricably linked with marketing efforts and the
reactions of consumers to marketing campaigns. The link between consumer choices and social
problems is clear.17
However, the same authors conclude: Although these problems appear daunting, they
are all problems that are solvable through altruistic [social] marketing. Thus, marketing
and consumer behavior can both aggravate and reduce serious social problems.
THE NATURE OF CONSUMER BEHAVIOR

LO4
Figure 13 is the model that we use to capture the general structure and process of consumer
behavior and to organize this text. It is a conceptual model. It does not contain sufficient
detail to predict particular behaviors; however, it does reflect our beliefs about the general
nature of consumer behavior. Individuals develop self-concepts (their view of themselves)
and subsequent lifestyles (how they live) based on a variety of internal (mainly psychological
and physical) and external (mainly sociological and demographic) influences. These selfconcepts and lifestyles produce needs and desires, many of which require consumption decisions to satisfy. As individuals encounter relevant situations, the consumer decision process is
activated. This process and the experiences and acquisitions it produces in turn influence the
consumers self-concept and lifestyle by affecting their internal and external characteristics.
Of course life is rarely as structured as Figure 13 and our discussion of it so far may
seem to suggest. Consumer behavior is hardly ever so simple, structured, conscious,
mechanical, or linear. A quick analysis of your own behavior and that of your friends
will reveal that on the contrary, consumer behavior is frequently complex, disorganized,
nonconscious, organic, and circular. RememberFigure 13 is only a model, a starting
point for our analysis. It is meant to aid you in thinking about consumer behavior. As you
look at the model and read the following chapters based on this model, continually relate
the descriptions in the text to the rich world of consumer behavior that is all around you.
The factors shown in Figure 13 are given detailed treatment in the subsequent chapters of this book. Here we provide a brief overview so that you can initially see how they
work and fit together. Our discussion here and in the following chapters moves through the
model from left to right.
External Influences (Part Two)

Dividing the factors that influence consumers into categories is somewhat arbitrary. For
example, we treat learning as an internal influence despite the fact that much human learning involves interaction with, or imitation of, other individuals. Thus, learning could also
be considered a group process. In Figure 13, the two-directional arrow connecting internal and external influences indicates that each set interacts with the other.
We organize our discussion of external influences from large-scale macrogroups to
smaller, more microgroup influences. Culture is perhaps the most pervasive influence on
consumer behavior. We begin our consideration of culture in Chapter 2 by examining differences in consumption patterns across cultures. In Chapters 3 through 7, we focus on American
culture in detail. In Chapter 3, we examine cultural values. As we will see, while Americans share many values and consumption behaviors, there is also rich diversity and ongoing
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Chapter One
FIGURE
Overall Model of Consumer Behavior
External
Inuences
25
erien
Ex p
1-3
ces and Acquisitions
Decision
Process
Culture
Subculture
Demographics
Social Status
Reference Groups
Family
Situations
Problem
Recognition
Self-Concept
and
Lifestyle
Needs
Desires
Internal
nternal
Inuences
Information
Search
and Selection
Outlet Selection
and Purchase
Perception
Learning
Memory
Motives
Personality
Emotions
Attitudes
Postpurchase
Processes
Exp
erienc
es and Acquisitions
change in this society that create both marketing opportunities and unique social energy.
Illustration 17 shows how marketers are embracing this diversity in their advertisements.
Chapter 4 continues our examination of American society by analyzing its demographics
(the number, education, age, income, occupation, and location of individuals in a society)
and social stratification. Chapter 5 considers ethnic, religious, and regional subcultures.
Chapter 6 analyzes families, households, and household decision making. Finally, in Chapter 7, we look at the processes by which groups influence consumer behavior and group
communication, including the role of groups in the acceptance of new products and technologies. Taken together, Chapters 2 through 7 provide a means of comparing and contrasting the various external factors that influence consumer behavior in Americaand around
the world. Cross-cultural variations are highlighted when possible throughout the text.
Internal Influences (Part Three)

Internal influences begin with perception, the process by which individuals receive and
assign meaning to stimuli (Chapter 8). This is followed by learningchanges in the content
or structure of long-term memory (Chapter 9). Chapter 10 covers three closely related topics:
motivationthe reason for a behavior; personalityan individuals characteristic response
tendencies across similar situations; and emotionstrong, relatively uncontrolled feelings
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ILLUSTRATION 17
America is increasingly diverse. Ads

such as this one
reflect and embrace
such diversity.
Part One
Introduction
that affect our behavior. We conclude our

coverage of internal influences by examining attitudes in Chapter 11. An attitude is an
enduring organization of motivational, emotional, perceptual, and cognitive processes
with respect to some aspect of our environment. In essence an attitude is the way a
person thinks, feels, and acts toward some
aspect of his or her environment, such as a
retail store, television program, or product.
As such, our attitudes are heavily influenced
by the external and internal factors that we
will have discussed in the preceding chapters.
Self-Concept and Lifestyle

Chapter 12 concludes Part Three with a
detailed discussion of the key concepts of selfconcept and lifestyle around which our model
revolves. As a result of the interaction of the
internal and external variables described earlier, individuals develop a self-concept that is reflected in a lifestyle. Self-concept is the totality of an individuals thoughts and feelings about him- or herself. Lifestyle is, quite simply,
how one lives, including the products one buys, how one uses them, what one thinks about
them, and how one feels about them. Lifestyle is the manifestation of the individuals selfconcept, the total image the person has of him- or herself as a result of the culture he or she
lives in, and the individual situations and experiences that comprise his or her daily existence.
It is the sum of the persons past decisions and future plans.
Both individuals and families exhibit distinct lifestyles. We often hear of career-oriented
individuals, outdoor families, or devoted parents. Ones lifestyle is determined by both
conscious and unconscious decisions. Often we make choices with full awareness of their
impact on our lifestyle, but generally we are unaware of the extent to which our decisions
are influenced by our current or desired lifestyle. Our model shows that consumers selfconcepts and lifestyles produce needs and desires that interact with the situations in which
consumers find themselves to trigger the consumer decision process.
We do not mean to imply that consumers think in terms of lifestyle. None of us consciously thinks, Ill have an Evian bottled water in order to enhance my lifestyle. Rather,
we make decisions consistent with our lifestyles without deliberately considering lifestyle.
Most consumer decisions involve very little effort or thought on the part of the consumer.
They are what we call low-involvement decisions. Feelings and emotions are as important
in many consumer decisions as logical analysis or physical product attributes. Nonetheless, most consumer purchases involve at least a modest amount of decision making, and
most are influenced by the purchasers current and desired lifestyle.
Consumer Decision Process (Part Four)

Consumer decisions result from perceived problems (Im thirsty) and opportunities (That
looks like it would be fun to try). We will use the term problem to refer both to problems
and to opportunities. Consumer problems arise in specific situations and the nature of the
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Chapter One
27
situation influences the resulting consumer behavior. Therefore, we provide a detailed discussion of situational influences on the consumer decision process in Chapter 13.
As Figure 13 indicates, a consumers needs/desires may trigger one or more levels of
the consumer decision process. It is important to note that for most purchases, consumers
devote very little effort to this process, and emotions and feelings often have as much or
more influence on the outcome as do facts and product features. Despite the limited effort
that consumers often devote to the decision process, the results have important effects on
the individual consumer, the firm, and the larger society. Therefore, we provide detailed
coverage of each stage of the process: problem recognition (Chapter 14), information
search (Chapter 15), alternative evaluation and selection (Chapter 16), outlet selection and
purchase (Chapter 17), and use, disposition, and purchase evaluation (Chapter 18). The
increasing role of technology, particularly the Internet, in consumer decision making is
highlighted throughout these chapters.
Organizations (Part Five) and Regulation (Part Six)

Organizations or businesses can also be consumers, as when Mercedes-Benz purchases
dashboard subcomponents from a supplier. This type of marketing is often termed
business-to-business (B2B) marketing to differentiate it from business-to-consumer
(B2C) marketing that is the focus of much of this text. The special nature of organizations and how they behave warrants special attention. In Chapter 19, we show how our
model of individual and household consumer behavior can be modified to help understand the consumer behavior of organizations.
Regulation is an aspect of consumer behavior that permeates marketer actions relating
to all parts of our model and it warrants special attention as well. Chapter 20 focuses our
attention on the regulation of marketing activities, especially those targeting children. We
pay particular attention to the role that knowledge of consumer behavior plays or could
play in regulation.
THE MEANING OF CONSUMPTION

As we proceed through this text, we will describe the results of studies of consumer behavior, discuss theories about consumer behavior, and present examples of marketing programs
designed to influence consumer behavior. While reading this material, however, do not lose
sight of the fact that consumer behavior is not just a topic of study or a basis for developing marketing or regulatory strategy. Consumption frequently has deep meaning for the consumer.18
Consider Consumer Insight 12. Andre, just escaping homelessness, is clearly proud
that he was able to save for and buy a pair of Nikes. He could undoubtedly have purchased
a different brand that would have met his physical needs just as well as the Nikes for much
less money. Although he does not say why he bought the more expensive Nikes, a reasonable interpretation is that they serve as a visible symbol that Andre is back as a successful
member of society. In fact, Nike is sometimes criticized for creating, through its marketing activities, symbols of success or status that are unduly expensive. What do you think?
Does Nike manipulate people like Andre into spending more than necessary for a product
because of its symbolism? If ads were banned or restricted to showing only product features, would products and brands still acquire symbolic meaning?
Perhaps some insight into the questions in Consumer Insight 12 can be found in the
following description of the attitudes of several goatherders in a narrow mountain valley
in northeastern Mexico in 1964. Modern advertising was not part of their environment.
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LO5
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CONSUMER INSIGHT
1-2
The Meaning of Consumption

I (Andre Hank) worked eight-hour shifts at one restaurant, then drove to the other one for another eight-hour
shift. One day I came home and my girlfriend and our
six-year-olds were gone. When she left, I fell apart.
I stopped going to work, stopped sleeping. I wasnt
doing anything, just going crazy . . . they took me to
the hospital where I got a shot to help me sleep. I woke
up in a psych ward. After three or four months, they
released me.
When I came out of the hospital I didnt have anything. I wanted to get my old job back, but they wouldnt
give me a second chance. I tried to get another job but
its hard when you dont have a phone, or an answering
machine, or a pager. And I was sleeping in abandoned
buildings, then on the El for a long time.
One day more than three years ago I was hungry
and didnt have any money and I saw a guy selling
newspapers. I asked him what he was selling and he
told me about StreetWise (a nonprofit, independent
newspaper sold by the homeless, formerly homeless,
and economically disadvantaged men and women of
Chicago). So I [began to sell StreetWise] ... I dont
make a lot of money but Im good at saving it. Right
now Im saving for a coat for next winter.
Im no longer homeless. Ive got a nice little room
in a hotel ... I can buy food ... I even saved for [and
bought] Nikes.
Andre is not unique among low-income consumers

in wanting and buying items such as Nike shoes. As one
expert says: These people (low-income consumers)
want the same products and services other consumers
want. He suggests that marketing efforts reflect those
desires. Another expert states: Theres this stereotype
that they dont have enough money for toothpaste, and
thats just not true. There has to be some significance
to them being called lower-income, but they do buy
things.
The working poor are forced to spend a disproportionate percentage of their income on housing, utilities,
and medical care (because of a lack of insurance). They
generally rely on public transportation. They spend a
smaller portion of their relatively small incomes on meals
away from home and on all forms of entertainment
such as admissions, pets, and toys. They spend very
little on their own financial security. However, as Andre
illustrated, they spend the same percentage of their
income (though a smaller dollar amount) on apparel and
accessories.19

1 What does the consumption of a product
like Nikes mean to Andre?
2 What does this story say about our society
and the impact and role of marketing?
I asked Juan what were his major economic concerns. He answered very quickly, food and
clothes, he said. How about housing? I asked. That is never a problem, he said, for I can
always make a house. For Juan and the others, a house is not a prestige symbol but simply a
place to sleep, a place to keep dry in, a place for family privacy, and a place in which to store
things. It is not a place to live, as the word is so meaningfully used in the United States. It seems
difficult to overestimate the importance of clothing. A clean set of clothes is for a pass into town
or a fiesta. Clothes are the mark of a mans self-respect, and the ability of a man to clothe his family is in many ways the measure of a man.20
Thus, as you read the chapters that follow, keep in mind that we are dealing with real
people with real lives, not mere abstractions.
28
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Chapter One
29
SUMMARY
LO1: Define consumer behavior

The field of consumer behavior is the study of individuals, groups, or organizations and the processes
they use to select, secure, use, and dispose of products, services, experiences, or ideas to satisfy needs
and the impacts that these processes have on the consumer and society.
LO2: Summarize the applications of consumer

behavior
Consumer behavior can be applied in four areas,
namely (a) marketing strategy, (b) regulatory policy,
(c) social marketing, and (d) creating informed individuals. Developing marketing strategy involves
setting levels of the marketing mix based on an understanding of the market and segments involved to create
desirable outcomes. Developing regulatory guidelines
involves developing policies, guidelines, and laws to
protect and aid consumers. Social marketing is the
application of marketing strategies and tactics to alter
or create behaviors that have a positive effect on the
targeted individuals or society as a whole. Creating
more informed individuals involves educating consumers about their own consumption behaviors as well as
marketers efforts to influence it in such a way as to
create a more sound citizenship, effective purchasing
behavior, and reasoned business ethics.
LO3: Explain how consumer behavior can be

used to develop marketing strategy
The interplay between consumer behavior and marketing strategy involves five stages. First is market analysis, which involves gathering data and tracking trends
related to the company, competitors, conditions, and
consumers. Second is market segmentation. A market
segment is a portion of a larger market whose needs
differ somewhat from the larger market. Firms segment their markets and choose a segment or segments
that best fit their capabilities and market conditions.
Third is marketing strategy, which involves setting
appropriate levels for the marketing mix as a function
of the segments being targeted and the market conditions that exist. Fourth is the consumer decision process, which is a series of steps starting with problem
recognition and moving through information search,
alternative evaluation, purchase, use, and postpurchase
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evaluation. Marketing efforts can be targeted to these

different stages. Fifth is outcomes at the individual,
firm, and societal level. And while profit maximization is often a goal at the firm level, possible adverse
effects at the individual and societal level are of
importance to firms, government organizations, and
regulators. An understanding of consumer behavior
theory and concepts is critical at each stage as marketers gather information, develop marketing strategies to
influence consumer decisions, and evaluate the effects
of their marketing efforts.
LO4: Explain the components that constitute a

conceptual model of consumer behavior
The conceptual model of consumer behavior developed here can be broken into four interrelated parts.
External and internal influences affect the consumers
self-concept and lifestyle which, in turn, affects the
decision process. External influences (Part Two of the
text) include culture, reference groups, demographics, and marketing activities. Internal influences (Part
Three) include perception, emotions, attitudes, and personality. Self-concept is the totality of an individuals
thoughts and feelings about him- or herself. Lifestyle
is, quite simply, how one lives, including the products
one buys, how one uses them, what one thinks about
them, and how one feels about them. External and
internal factors operate to influence self-concept and
lifestyle that, in turn, influence the decision process
(Part Four). Overlaying these basic components is
organizations (Part Five) and regulation (Part Six).
Organizations or businesses can also be consumers as
when Mercedes-Benz purchases dashboard subcomponents from a supplier. This type of marketing is often
termed business-to-business (B2B) marketing to differentiate it from business-to-consumer (B2C) marketing
that is the focus of much of this text. The special nature
of organizations and how they behave warrants special
attention. Regulation is an aspect of consumer behavior
that permeates marketer actions relating to all parts of
our model and it warrants special attention as well.
LO5: Discuss issues involving consumption

meanings and firm attempts to influence them
Consumption has meaning beyond the satisfaction of
minimum or basic consumer needs. Thus, consumers
21/10/11 10:51 PM
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Part II: Leveraging Your Marketing Skills
Table 5-2
Examining Elements of the Worlds Ten Top Brands
Brand
Style
Coloring
Coca-Cola
Flowing, classic script
Red
IBM
Strong block letters
Blue with white
Microsoft
Strong, clean, conservative

lettering
Black
General
Electric
Elegant, traditional monogram

of initials (GE)
Blue with white
Nokia
Modern block lettering
Blue
Toyota
Clean block lettering combined

with elegant modern logo of
elliptical forms
Red in print, often silver

on vehicles
Intel
Lowercase modern letters in an

energetic circle
Blue
McDonalds
Curving, archlike M
Yellow
Disney
Whimsical scripted letters, often

combined with iconic image of
castle from amusement park
Usually black lettering
Google
Unusual lettering
Mix of colors that often

changes from day to day
The goal of this formula (which combines simple, word-based designs and
simple, strong, conservative colors) is to create a design thats highly readable and clear to anyone, anywhere, whether shown large or small, in print,
on a product, or on the Web. Although exceptions exist to every good formula, I suggest you start forming your brand identity by following this formula and seeing how it works for you.
Although great brands usually stick to simple, clear lettering and a conservative color palate, they build their value through creative advertising, creative
product designs, and creative distribution to make sure consumers are excited
about them. Keep your creativity on a fairly short leash when designing your
brand identity, but let your imagination have a good run when it comes to
designing other elements of your marketing program.
Generating Rich Ideas

Okay, time to be creative. Ready, set, go. Come up with any good ideas yet?
No? Okay, try again. Now do you have some good ideas? What? No?
Chapter 5: Engaging Your Marketing Imagination

If you cant be creative at will, dont be alarmed. Most people face this problem, whether in or out of the marketing field. Artists practice creativity every
day, but people in business generally dont. As a result, most people have
remarkably few creative ideas in a day, or even in a year. So when theres a
need to be creative in marketing, many people find that they require some
help. How do you act creative? Whats involved in generating unusually creative ideas? No worries. The sections that follow can help you develop new
ideas in all sorts of ways you may never have imagined.
First and foremost, give yourself permission to be creative in your work.
Creativity requires you to let the minds engine sit in idle. You cant be creative
if youre busy returning e-mails and phone calls or rushing to finish the days
paperwork. If the hands are busy, the mind is distracted from creativity, and
your imagination may not be able to work. So, for starters, I must ask you to
budget time for creativity. How much time? Well, if creativity is the most powerful and profitable of the marketing skills, how often do you think you should
use it? One hour a month? One hour a week? One hour a day? One day a week?
You have to figure out exactly how much creativity time you need based on
what your product or company demands. Budget some creative time and use
it to open yourself up through new and different ways of working, asking questions, and exploring your marketing problems and opportunities.
Coming up with new ideas

from simple activities
Creativity isnt a science; its a habit involving the use of a loose collection of
flaky behaviors. Like soaking up information, questioning the problem, tossing ideas back and forth with an associate, and then setting the whole issue
aside to incubate in the back of your mind while you do something else. So
plan to work in different ways when exercising your creativity.
Heres a list of great activities that spur you to engage your imagination in new
and unusual ways (when I lead creative retreats for marketers and ad agencies, I use dozens of ideas like these to get us going):
Seek ways to simplify. Can you come up with a simpler way to explain
your product or your business and its mission? Can you cut your twopage brochure down to ten words? Can you reduce the length of a
headline in your print ad from eight words to one? Most marketing and
advertising is too complicated and can stand to be simplified. Creative
insight can help simplify and clarify all aspects of your marketing.
Simple is good because simple helps make your message bold, attracting attention and zapping the key idea immediately into the customers
mind.
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Think of a famous person from history and imagine that he or she
is your spokesperson. How would this person change your packaging, advertising, Web site, and so on? For example, what would George
Washington do to sell more of your product? Can you tie your brand into
Washington in some way? Might his famous crossing of the Delaware
River become a metaphor for competitors customers who need to
be led over to your new and better product? Follow me, customers.
Victory awaits us on the other side of the river, where the new XYZ
Brand has set up a more comfortable camp for you! (Yes, thats a silly
idea, but youd be amazed how often great marketing starts with silly
ideas.)
Cut out faces from magazine ads and look for one that expresses an
appealing new personality for your product. See whether you can use
that personality in packaging and advertising or on the Web.
Come up with ways to advertise or communicate to customers with
really small messages. This constraint forces you to clarify and codify
your message in interesting ways. Try designing stamps, stickers, onesecond TV or radio commercials, lapel pins, bumper stickers, or a miniature book that comes with a magnifying glass. See what else you can
imagine. One of these ideas may actually prove useful for you. Even if
you dont use any of them, the exercise may get you thinking in fresh
ways about marketing communications.
Brainstorm ways to advertise or communicate to customers with
really big messages. Forcing yourself to change the scale of your thinking can free creative ideas, and if you communicate in unusual ways,
you may attract more attention from customers. Could you advertise
with dirigibles, oversized billboards or murals, or a message in which
each word appears on a separate sign, spread along a one-mile stretch of
road? (You can adapt this old-fashioned concept to e-mail with a series
of one-word messages.) How about renting a large truck or bus and
covering it with a marketing message or your brand name? Or maybe
something simpler and zanier like sponsoring a contest for who can
bake and eat the largest cookie and then inviting the media to cover the
event? Wait, Ive got it! Why not make the largest alligator in the world
into your mascot? Think big. You want to have a big impact, right?
Come up with interesting but inexpensive gifts you can give customers. Everyone gets pens with the company name on them thats
boring. But what if your branded pens are different and better? Perhaps
theyre the only ones that glow in the dark? Or maybe they have riddles
on them and consumers can win a contest by entering their answers
on your Web site? Try to think of some novel gift ideas. Focus on items
that make the customer say, Wow! or Hey, thats cool, I can really use
that.

Find new places to advertise. Can you think of places to put messages
to your customers that nobody in your industry has used before? An
auto insurance agency could run an infomercial on the televisions that
have been installed at some gas pumps. A mens health clinic could put
up hanging cases containing its business cards in mens public restrooms. A computer repair service could offer a free laptop clinic under a
tent in an urban park as a way to build awareness of its brand and abilities. The possibilities are practically endless.
Think of at least ten ways to get a famous person to use your product.
Go ahead, give this one a try. Maybe you can come up with an idea good
enough to actually pitch to the celebrity. Celebrities can bring media
attention to a new product if they decide they like it.
Cut out five stunningly beautiful, strange, or otherwise eye-catching
pictures from an issue of National Geographic magazine. Write a
headline for each one that relates that picture to your product. This
exercise may lead you to a great new ad concept that you can then turn
into a finished design by obtaining the rights to use a similar photograph
from a stock photography company. (If you want to use nice images like
these in your advertising, you need to purchase the rights. See Marketing
Kit For Dummies, 3rd Edition [Wiley], for my starter collection of photographs you can use in your advertising.)
Making creativity a group activity

Most groups of people when confined to a conference room for a morning do
little more than argue about stale old ideas. Or even worse, somebody suggests an absolutely terrible new idea, and the rest of the group jumps on it
and insists the suggestion is great . . . thus eliminating the need for them to
think. If you hope to get a group to actually be creative, use structured group
processes. That means you need to talk the group into going along with an
activity such as brainstorming.
In the following sections, I include some of the best group creativity techniques. I know that all of these techniques work because Ive used them often
with a wide variety of groups. Note that these techniques generally produce
a list of ideas. Ideally its a long and varied list, but its still just a list. So be
sure to schedule some time for analyzing the list in order to identify the most
promising ideas and then develop those ideas into full-blown action plans.
Brainstorming
The goal of brainstorming is to generate a long list of crazy ideas, some of
which may be surprisingly helpful. Brainstorming gets people to do out-ofthe-box thinking in which they generate unusual ideas beyond their normal
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thought patterns. Dont let your group just go through the motions of brainstorming. To really get into the spirit of it, people must free associate allow
their minds to wander from current ideas to whatever new ideas first pop up,
no matter what the association between the old and new idea may be.
You may need to encourage your group by example. If youve stated the problem as Think of new ideas for our trade show booth, you can brainstorm a
half-dozen ideas to start with, just to illustrate what youre asking the group
to do: a booth like a circus fun-house, a booth shaped like a giant cave, a
booth in the form of one of your products, a booth decorated on the inside
to look like an outdoor space complete with blue sky and white clouds overhead, a booth like the Space Shuttle launchpad featuring hourly launches of
a scale-model of the Shuttle, a booth that revolves, or a booth that offers free
fresh-popped popcorn and fresh-baked cookies to visitors.
These ideas arent likely to be adopted by the average company, but they do
illustrate the spirit of brainstorming, which is to set aside your criticisms and
have some fun generating ideas. The rules (which you must tell the group
beforehand) are as follows:
Quantity, not quality. Generate as many ideas as possible.
No member of the group can criticize another members suggestion.
No idea is too wild to not write down.
No ownership of ideas. Everyone builds off of each others ideas.
After you share the rules, set up a flip chart and start listing everyones crazy
ideas for the next trade show booth, catalog mailing, Web-based promotion,
or whatever else you want your brainstorming session to focus on.
Question brainstorming
Question brainstorming involves generating novel questions that can provoke
your group into thinking more creatively. This technique follows the same
rules as brainstorming, but you instruct the group to think of questions
rather than ideas.
So if you need to develop a new trade show booth that draws more prospects, then the group may think of the following kinds of questions:
Do bigger booths draw much better than smaller ones?
Which booths drew the most people at the last trade show?
Are all visitors equal, or do we want to draw only certain types of
visitors?
Will the offer of a resting place and free coffee do the trick?

These questions stimulate good research and thinking, and their answers
may help you create a new and successful trade show booth.
Wishful thinking
Wishful thinking is a technique suggested by Hanley Norins of ad agency
Young & Rubicam and one that he has used to train employees in his
Traveling Creative Workshop. The technique follows the basic rules of brainstorming, but with the requirement that all statements start with the words I
wish.
The sorts of statements you get from this activity often prove useful for developing advertising or other marketing communications. If you need to bring
some focus to the list to make it more relevant to your marketing, just state a
topic for people to make wishes about. For example, you can say, Imagine that
the Web Site Fairy told you that all your wishes can come true as long as
they have to do with the companys Web site.
Analogies
Analogies are a great creativity-inspiring device. You dont think Im serious, I
know, because the idea sounds so trivial. But many experts define creativity
as making unobvious combinations of ideas. A good analogy is just that.
I once saw a great example of an analogy in a drug companys print ad. The ad
showed a painting of a person about to put a huge, old-fashioned key into a
keyhole in the wall. The caption next to this illustration read: Imagine intelligent drugs that could tell sick cells from healthy ones, and then selectively
destroy the targeted ones. Illustrations often use metaphors or analogies
when trying to communicate a complex topic such as selective drug therapies.
To put analogies to work for you, ask your group to think of things similar to
the subject or problem youre thinking about. At first, group members come
up with conventional ideas. But they soon run out of these obvious answers
and must create fresh analogies to continue. For example, you may ask a
group to brainstorm analogies for your product as a source of inspiration for
creating new advertisements about that product.
In ads and Web site copy describing its FreeMotion line of highly padded
exercise treadmills, NordicTrack compares using its treadmills to riding a
snowboard an effective analogy that helps convey the idea that the product is fun to use.
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Pass-along
Pass-along is a simple game that helps a group break through its mental barriers to reach free association and collaborative thinking. You can read the
instructions here, in case youve never heard of the game:
One person writes something about the topic in question on the top line
of a sheet of paper and passes it to the next person, who writes a second
line beneath the first.
Go around the table or group as many times as you think necessary.
This game can be done with any number of people, from 3 to 20. In general,
youre trying to fill up a full page of lined paper, so bigger groups need fewer
cycles. If people get into the spirit of the game, a line of thought emerges
and dances on the page. Each previous phrase suggests something new until
you have a lot of good ideas and many ways of thinking about your problem.
Players keep revealing new aspects of the subject as they build on or add
new dimensions to the preceding lines.
Say a team of marketing and salespeople meets to generate concepts for the
product development department of a bank. Sure, that sounds like a tough
assignment what in the world can be new about banking? But you, the creative marketer, pick a subject and pass the paper around:
Subject: How can we make our customers personal finances run better?
Pass-along ideas:
Help them win the lottery.
Help them save money by putting aside 1 percent each month.
Help them save for their childrens college tuition.
Help them keep track of their finances.
Give them a checkbook that balances itself.
Notify them in advance of financial problems, like bouncing checks, so
they can prevent those problems.
One idea leads to another. So even if the first idea isnt helpful, associating
new ideas from the first one can produce useful thoughts. A bank probably
cant get into the lottery ticket business (Im sure theres a law against that).
But after the members of this group thought along those lines, they came up
with some practical ways of increasing their customers wealth, like plans
that can transfer money to savings whenever theres a surplus after regular
bills have been paid.

Heres another fun pass-along idea: Ask people to help you find 20 words that
rhyme with your company or brands name in the hope that this list may lead
you to a clever idea for a new radio jingle or print ad headline.
Managing the Creative Process

If you think of creativity as generating wild and crazy ideas, youre right but
only one-fourth right. Yes, you have to do some open-minded thinking to come
up with creative concepts. But to actually make any money from your creativity, you need to have a mix of activities that includes exploring for new ideas
and developing the best of them into practical applications in your ads, products, sales presentations, or other marketing activities.
In my creativity workshops, I show people how creativity needs to follow a fourstep process to actually be of practical use in business. Heres the process:
1. Initiate.
In this step, you recognize a need or opportunity and ask questions that
launch a focused creative process. For example, you may take a look at
your brochure(s) and ask yourself whether you can use an illustration
and a catchy headline to make the brochure more exciting and powerful.
Or if you run a womens clothing store, you may recognize the need for
a January sale to clear out fall and winter styles and make room for new
spring fashions. Thoughts like these stimulate creative thinking and give
it a practical focus. A creative brief (see the earlier Writing a creative
brief section) is useful at this stage of the process.
2. Imagine.
In this step of the creative process, you engage in the imaginative, wildand-crazy thinking that taps into your artistic side. The brainstorming
techniques I cover in the earlier Brainstorming section are good for
this stage; your goal is to see how many wild ideas you can generate. Its
a good idea to assemble a group to help you at this stage.
3. Invent.
Now you need to get more practical. Take a critical look at all of the wild
ideas you imagined and choose one or a few that seem most promising.
Work on them to see how to make them more practical and feasible for
your application. For example, if youre working on a way to announce a
40-percent storewide discount at a womens clothing outlet, one of your
creative ideas from Step 2 may have been have nude models stand in
the window, waving to passersby to attract public attention to the sale.
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Its an impractical idea, but can you use it as raw material for inventing
a good promotion? One store I know of did by putting three full-sized
mannequins in the window, each wearing only a poster board on a string
around the neck. The first poster said 40%, the second one said OFF,
and the third said EVERYTHING. It was an eye-catching display, and it
communicated the message forcefully but it took an inventors persistence and practicality to translate a crazy idea into a good marketing
communication.
4. Implement.
Finally, you need to complete the creative process by pursuing successful adoption or implementation of your new idea or design. You may
have a great design for a new brochure, but you cant make money from
it until you carefully select a printing method and find a way to distribute that brochure to prospects. Or if youre designing a window display
for a retail store, implementation may mean finding the right mannequins, signs, lighting, and so on and setting up the display according to
the creative concept or plan.
You may need different sets of talents to imagine wild ideas and to implement
them in a practical way. In fact, each of the four steps in the creative process
(initiating, imagining, inventing, and implementing) requires different types
of behavior. By knowing this fact, you can discipline yourself to change your
style as you move through a round of creativity that follows the four steps of
the creative process.
Alternately, you may want to tap into the different creative styles of multiple
people in order to take advantage of those who are particularly well suited for
one or another of the steps in the creative process. When I work on creative
projects in marketing, Im particularly good at bringing imagination to the project, so I usually try to team up with someone who complements me by being
really good at implementation.
Harnessing All Creative Types

Creative ideas are wonderful, but to profit from your imagination, you need to
figure out ways to actually make those ideas work. Inventing practical ways
to implement what you imagine, what I like to refer to as taking creativity to
the bank, requires a focused effort on your part.

The creative process includes four steps (as explained in the preceding section) that rely on different types of behaviors. You may be especially suited to
one or two of the steps, but you probably arent suited to all of them. I recommend you figure out which steps youre best and worst at and then find people
to help you fill your creative gaps. Read the following list of styles to see
which suits your temperament best:
Entrepreneur: The entrepreneur senses a need or problem and asks
tough questions to initiate the creative process. (Why do we do it this
way? It seems so inefficient.) The entrepreneur proves valuable in the
first step of the creative process, the Initiate Step.
Artist: The artist is highly imaginative and a free thinker. When given a
focus for her imagination by the entrepreneurs initiating question, the
artist can easily dream up many alternatives and fresh approaches from
which to choose. (We could do this, or this, or this, or . . .) The artist
comes to the fore in the second step of the creative process, the Imagine
Step.
Inventor: The inventor has a more practical sort of imagination and
loves to develop and refine a single good idea until she makes it work.
(Lets see. If we adjust this, and add that, itll work much better.) The
inventor is most productive in the third step of the creative process, the
Invent Step.
Engineer: The engineer is practical and businesslike; shes also particularly good at getting closure by taking an untested or rough invention
the rest of the way and making it work smoothly and well. (Great ideas,
but lets come up with a firm plan and budget so we can get this thing
started.) The engineer makes sure the creative process reaches its
essential fourth step, the Implement Step.
Whichever one of these creative roles most closely represents your approach
to work, recognize that one role alone cant make great creative marketing
happen. Be prepared to adjust your style by wearing some of the other creative hats at times or team up with others whose styles differ from your own.
That way you have the range of approaches necessary for harnessing the
power of creativity for all of your marketing efforts.
Head to my Web site, www.insightsformarketing.com, to download a
sample copy of the Creative Roles Analysis (CRA) activity my firm publishes.
With this activity, you can design more effective and productive creative
teams. The CRA helps you make sure that you not only initiate but also complete the creative process often enough to keep your marketing innovative
and new.
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The case of the singing card

A simple creative idea can take a lot of time and
care to implement well. Consider the following
example: The owners of a cleaning service felt
they were invisible to their customers because
they entered offices at night to clean them
when nobody was working. How to reach out
and forge a more personal relationship? One
idea they came up with was to collect information on the birthdays of their main contacts at
these client companies and to leave them nice
gifts or cards on the eve of their birthdays
to be discovered when the contacts came in to
work the next day.
Getting even more creative, they thought about
giving their customers personalized singing cards, containing a message that says,
Because we arent there during your workday
to sing to you, we put our song into this card!
A nice way to add a human touch, but imagining this idea and making it happen were two
different things. The cleaning service owners

had to find a source of spring-operated musical
chips they could put into a card. Then they had
to work with a designer at their local print shop
to perfect the card and make sure it worked
well (they found they needed a heavy paper to
keep the music chip in place). Finally, they had
to track down the birth dates of the individuals
in their customer database and figure out which
desk belonged to which customer. Obtaining
this information took several weeks of subtle
questioning and snooping around. Finally, three
months after the owners came up with their
simple, creative idea, the singing cards were
implemented to rave reviews from customers, many of whom left thank-you notes for
the cleaning service to find. The cards helped
create a personal relationship with customers
that increased customer loyalty and referrals. It
was worth the effort to implement this creative
idea.
Chapter 3
Writing a Marketing Plan

In This Chapter
Reviewing planning rules, as well as some dos and donts
Crafting an executive summary and refining your strategic objectives
Getting the whole perspective with a situation analysis
Defining your marketing program, including the details
Forecasting and controlling revenues and expenses
f you have a very simple business that makes more sales than it needs to
and is already growing as fast as it can, then you dont need a marketing
plan. However, most businesses are a tad more complex and therefore do
require a marketing plan. A marketing plan is basically just a description, in
words and numbers, of how you plan to run your marketing program. Having
this plan is important because it helps you identify, execute, and control the
marketing activities that will produce a successful year. You should write one
if you
Have a big enough business that organizing, controlling, and budgeting all your marketing activities is difficult without a formal structure:
Most businesses are too complex for the marketer to hold all the variables in his or her head. A plan helps you identify the best practices,
eliminate the unprofitable ones, and keep everything on schedule and
on budget.
Face any challenges or uncertainties that can affect sales or profits:
The planning process helps you think through what needs to be changed
in order to improve your results.
Dont already know exactly what the best way is to handle your businesss branding, pricing, communications, sales, and other marketing
matters: Planning helps clarify and control all the elements of your marketing plan.
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Part I: Designing a Great Marketing Program

Naturally, planning takes time and energy. Yet less than a quarter of all businesses go to the effort of developing a careful marketing plan. Thats too bad,
because they miss the benefits, which save so much time and money later
on that the extra, upfront effort required to create the plan always has big
returns.
Another big benefit of planning is that it gets you thinking creatively about
your marketing program. As you plan, you find yourself questioning old
assumptions and practices and thinking about new and better ways to boost
your brand and optimize sales and profits.
If your business doesnt have a marketing plan, or even if it does and you
want to improve that plan, this chapter is here to help. It shows you how
to draft your own plan or revise your current plan so you can improve your
bottom line.
Reviewing the Contents of a Good Plan

Before you can write a successful marketing plan for your business, you need
to know the ins and outs of what a marketing plan includes. Marketing plans
vary significantly in format and outline, but all of them have sections about
the following:
Your current position: This is in terms of your product, customers,
competition, and broader trends in your market.
What results you got in the previous period (if youre an established
business, that is): You need to look at sales, market share, and possibly also profits, customer satisfaction, or other measures of customer
attitude and perception. You may also want to include measures of
customer retention, size and frequency of purchase, or other indicators
of customer behavior, because theyre often helpful in thinking about
where to focus your marketing efforts in the future. Identifying the key
things that customers desire and how your product matches up with
those attributes are also important considerations.
Lessons learned: A postmortem on the previous period helps identify
any mistakes to avoid, insights to take advantage of, or major changes
that may present threats or opportunities.
Your strategy: This is the big focus of your plan and the way youll grow
your revenues and profits. Keep the strategy statement to a few sentences so that everyone who reads it gets it at once and can remember
what the strategy is.
Chapter 3: Writing a Marketing Plan

The details of your program: You want to cover all your companys specific activities in this section. Group them by area or type, with explanations of how these activities fit the companys strategy and reflect the
current situation.
The numbers: These definitely include sales projections and costs but
may also include market share projections, sales to your biggest customers or distributors, costs and returns from any special offers you plan
to use, sales projections and commissions by territory, and any other
details that help you quantify your specific marketing opportunities and
activities.
Your experimentation plans: If you have a new business or product, or
if youre experimenting with a new or risky marketing activity, set up a
plan (or pilot) for how to test the waters on a small scale first. You need
to determine what positive results you want to see before committing to
a higher level. After all, wisdom is knowing what you dont know and
planning how to figure it out.
By the time you think through and write down all these elements of a good
plan, you may feel quite invested in your plan. Be careful! You mustnt think
of your plan as written in stone. In fact, your plan is just a starting point. As
you implement it throughout the coming year, youll discover that some things
work out the way you planned, and others dont. Good marketers revisit their
plans and adjust them as they go. The idea is to use a plan to help you be an
intelligent, flexible marketer, not a stubborn one who refuses to learn from
experience.
Starting with baby steps

The more unfamiliar you are with writing a marketing plan, the more flexibility
and caution your plan needs, so make flexibility your first objective if youre
creating a marketing plan for the first time. Consider crafting a gradual plan
that includes a pilot phase with a timeline and alternatives or options in case
of problems. For example, instead of taking advantage of cheaper bulk printing
with a vendor you dont know for a marketing piece youve never tested, use
short runs of marketing materials at the local copy shop.
Optimizing your plan for flexibility means preserving your freedom of choice,
avoiding commitments of resources, and spending in small increments so you
can change the plan as you go. Ultimately, you need to decide how much flexibility you need and build it into the schedule and budget. You may want to
consider milestones achieved as the mechanism to release additional activities or budget funds.
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Maximizing efficiencies
If your business has been around the marketing block before and your plan
builds on years of experience, you can more safely favor economies of scale
over flexibility. (Economies of scale are the cost savings from doing things on
a larger scale.) But always leave yourself at least a little wiggle room, because
reality never reflects your plans and projections 100 percent of the time.
Adjust your marketing plan to favor economies of scale if you feel confident
that you can make sound judgments in advance. Advertising is cheaper and
more efficient if you do it on a large scale, because you get deeper discounts
on the design of ads and purchasing of ad space or air time. If you know a
media investment is likely to produce leads or sales, go ahead and buy media
in larger chunks to get good rates. And dont be as cautious about testing mailing lists with small-scale mailings of a few hundred pieces. A good in-house list
supplemented by 20 percent or fewer newly purchased names probably warrants a major mailing without as much emphasis on advance testing.
Understanding the Dos and

Donts of Planning
Marketing programs end up like leaky boats very easily. Each activity seems
worthy at the time, but too many of them fail to produce a positive return
ending up as holes in the bottom of your businesss boat. Get too many of
those holes, and the water inside the boat starts rising. The next sections share
some of the common ways marketers lose money (so you can try to avoid
them), plus two effective strategies for using your cash wisely.
Dont ignore the details

Good marketing plans are built from details such as customer-by-customer,
item-by-item, or territory-by-territory sales projections. Generalizing about
an entire market is hard and dangerous. Your sales and cost projections are
easier to get right if you break them down into their smallest natural units
(such as individual territory sales or customer orders), do estimates for each
of these small units, and then add up those estimates to get your totals.
Dont imitate the competitors

You may be tempted to just do what your bigger competitors are doing, but
dont fall into that trap. You need to have some fresh ideas that make your
brand and plan unique. Remember: Imitation isnt a winning strategy in the
long run.
Do find your own formulas for success

Start by building on whatever successes youve had in the past. For instance,
if you ran an ad this year that got a good response, double or triple the
number of ads of this kind in next years plan.
Dont feel confined by last

periods budget and plan
When putting together your marketing plan, dont allow past results to trap
you in what you want to do. Repeat or improve the best-performing elements
of the past plans and cut back on any elements that didnt produce high
returns. Every plan includes some activities and spending that arent necessary and can be cut out (or reworked) when you do it all over again next year.
Be ruthless with any underperforming elements of last years plan! (If youre
starting a new business, at least this is one problem you dont have to worry
about. Yet.) Also, monitor your plan over the business cycle and adjust it as
you go so you can catch problems early and avoid wasting too much time
and money on underperforming activities.
Dont engage in unnecessary spending

Always think through any spending and run the numbers before signing a
contract or writing a check. Many of the people you deal with to execute your
marketing activities are salespeople themselves. Their goal is to get you to buy
their ad space, use their design or printing services, or spend money on fancy
Web sites. They want your marketing money and may care less whether you
get a good return on it or not. So keep them on a tight financial rein.
47
48

One of the biggest areas of waste is advertising agencies. Sure, sometimes you
need a good agency, like when you want to design and run a large ad campaign. But if youre placing fewer than a thousand ads, you probably cant
afford the typical agency with its big upfront fees for consultation and design.
A local, independent graphic designer who has created successful ads in your
industry before is a more affordable alternative. In terms of placing the ads,
you may need to be the one who negotiates good rates, so be prepared to roll
up your sleeves and do some of the work yourself.
Do break down your plan

into simple subplans
If your marketing activities are consistent and clearly of one kind, you can go
with a single plan. But what if you sell services (like consulting or repair) and
also products? You may find that you need to work up one plan for selling
products (perhaps this plan aims at finding new customers) and another plan
for convincing product buyers to also use your services.
If your plan seems too complicated, simply divide and conquer! Then total
everything up to get the big picture for your overall projection and budget.
For example, if you have 50 products in five different product categories, writing your plan becomes much easier if you come up with 50 sales projections
for each product and five separate promotional plans for each category of
product. (This method may sound harder, but it really is much simpler.)
Every type of marketing activity in your plan has a natural and appropriate level
of breakdown. Find the right level, and your planning will be simpler and easier
to do. Following are some methods to help you break down your planning:
Analyze, plan, and budget sales activities by sales territory and region
(or by major customer if youre a business-to-business marketer with a
handful of dominant companies as your clients).
Project revenues and promotions by individual product and by industry
(if you sell into more than one).
Plan your advertising and other promotions by product line or other
broad product category, as promotions often have a generalized effect
on the products within the category.
Plan and budget publicity for your company as a whole. Only budget and
plan publicity for an individual product if you introduce it or modify it in
some way that may attract media attention. (Of course, exceptions exist
for every rule. If you have a single bestselling product that carries your
company, you need a publicity plan for it. You should also plan activities
on the Web such as blogs and fun videos that go viral, so as to keep a
buzz going about your star product.)

Plan and budget for brochures, Web sites, and other informational materials. Be sure to remain focused in your subject choices: Stick to one brochure per topic. Multipurpose brochures or Web sites never work well.
If a Web site sells cleaning products to building maintenance professionals, dont also plan for it to broker gardening and lawn-mowing services
to suburban homeowners. Different products and customers need separate plans.
Writing a Powerful Executive Summary

A carefully crafted executive summary is an essential component of every
marketing plan. An executive summary is a one-page plan that conveys essential information about your companys planned year of programs and activities in a couple hundred well-chosen words or less. If you ever get confused
or disoriented in the rough-and-tumble play of sales and marketing, this clear,
one-page summary can guide you back to the correct strategic path. A good
executive summary actually keeps everyone across the entire team (operations, sales, marketing, and outside contractors) on the same page. Its a
powerful advertisement for your program, communicating the purpose and
essential activities of your plan in such a compelling manner that everyone
who reads it eagerly leaps into action and takes the right steps to make your
vision come true.
Draft a very rough executive summary early in the planning process as a guide
to your thinking and planning. Then revise it (or, if necessary, rewrite it completely) after finishing all the other sections of your plan, because the summary (no surprise here) needs to summarize everything. When summarizing
the main points of your plan, make it clear whether the plan is
Efficiency oriented: A focus on efficiency means youll be scaling up
known success formulas and aiming to increase the volume of business. For example, your summary may open with high sales goals and
then review the various improvements over last year that you think will
help achieve the new higher goals. If you have a pretty good marketing
formula already, then the plan should help you refine and scale up that
formula in order to achieve higher sales and profits.
Effectiveness oriented: This means a focus on testing and developing
one or more new ways of marketing. For example, say your plan identifies a major opportunity or problem and a new strategy to respond to
it. If you need to make major changes in your marketing program, then
the plan is a tool for finding new, more effective marketing methods. It
should include a wider range of marketing activities, along with ways of
testing to see which ones work best.
49
50

If your plan has to help you overcome a problem, such as shrinking sales due
to a large new competitor, state the problem clearly in the summary and also
point out any links to other aspects of the business. Will the marketing plan
have to be coordinated with a business plan that includes cost controls and
layoffs? If so, state this fact upfront in your executive summary and make
sure the rest of your business is working on the necessary changes so you
arent stuck with a problem you dont have full control over.
At the end of your executive summary, describe the bottom-line results: what
your projected revenues will be (by product or product line, unless you have
too many to list on one page) and what the costs are. Also, show how these
figures differ from last years figures. Keep the whole summary under one
page if you possibly can.
If you have too many products to keep the summary under one page, you can
list them by product line. But a better option is to create more than one plan
because you probably havent clearly thought out any plan that cant be summarized in a page. Ive worked with many businesses in which marketing prepares a separate plan for each product. Dividing and conquering is always key.
Preparing a Situation Analysis

A situation analysis is the one tool every marketer needs to ensure her marketing tactics are taking advantage of opportunities and solving for problems.
In other words, it provides the context you need to move forward with your
planning. Your situation analysis helps you define the context for your marketing plan by looking at trends, customer preferences, competitor strengths
and weaknesses, and anything else that may impact sales. The question your
situation analysis must answer is, Whats happening? To answer this question, you should analyze the most important market changes affecting your
company. These changes can be the sources of problems or opportunities.
(See Chapter 4 for formal research techniques and sources.)
To prepare a situation analysis, you must consider challenges and trends
that can affect your marketing program, be prepared for economic cycles,
and review your competitions current status. After you identify these threats
and opportunities, you need to give some serious thought to how to respond
to them. Your marketing strategies are basically your responses to your
strengths, weaknesses, opportunities, and threats, so your situation analysis
feeds naturally into your strategies and plans.
Knowing what to include in your analysis

One good (and very traditional) way to organize a situation analysis is to
write something for each of these four categories:
Strengths: Identify the strong points of your products, brand image, and
marketing programs so you know what to build on in your plan. Your
strengths are the keys to your future success. For example, if your Web
site is a strength, then your plan should focus on making it even better,
and your objectives should include increased Web sales.
Weaknesses: Pinpoint the areas in which your products, brand image,
and marketing programs are relatively weak. For example, perhaps you
have several older products that are losing to hot new competitors, or
maybe you rely too heavily on newspaper advertising (which is a weakness, because newspaper readership is dropping). Your plan should propose changes that shore up or eliminate weak products and practices.
Opportunities: Your situation analysis needs to look for opportunities,
such as a hot new growth market you can participate in (see Chapter 2
for help finding growth markets) or an exciting new way to reach prospective customers (see Part IV for a variety of ways).
Threats: A threat is any external trend or change that can reduce your
sales or profits, or make it hard to achieve your growth goals. Common
threats include new technologies that create new competitors, large
competitors that can outspend you, and economic or demographic
shifts that cut into the size or growth rate of your customer base. Your
plan needs to respond to threats effectively, so identify the main ones as
accurately and honestly as you can.
Table 3-1 shows you some of the typical marketing challenges and opportunities to get you thinking.
Table 3-1
Common Marketing Threats versus Opportunities
Common Threats
Common Opportunities
New, tough competitors
New products
Economic problems or trends
New ways to promote or sell
Aging or loss of a customer base
New types of customers to pursue
51
52

You also want to make sure you review trends in your situation analysis,
because trends can have a big impact on your business for better or for
worse. Identify the trends that can hurt you and plan how to respond to them;
similarly, note the trends that can help you and plan how to take advantage of
them. Check on the economic growth rate of the population to which you sell
(the cities in which you operate if youre a regional operation, for example).
Also check the growth rate of the demographic group you sell to. Are there
going to be more or less people in the age range of your typical customer?
Then look at technological and social trends. Is the technology you use going
out of date, or is it increasing in popularity? What new lifestyle choices or
trends in fashion might affect your customers buying habits?
Being prepared for economic cycles

When preparing your businesss situation analysis, you need to be in close
contact with the pulse of the economy. Watch the leading published economic indicators and regularly monitor the numbers. If you notice a decline
for more than two months in a row, look closely for any signs of sales slowdowns in your own industry and be prepared to take action.
Try to avoid being lulled into a false sense of security. Even though the economy in the United States (and many other countries) grew at a fairly steady
rate for most of the 1990s, the majority of marketers forgot to keep an eye
on the economic weather. When economic growth suddenly began to slow in
December 2007, those same marketers faced major problems.
The Conference Board (www.conference-board.org), a nonprofit in New
York City, compiles an index of leading economic indicators that has successfully predicted the last half dozen recessions. However, it has also predicted
five recessions that didnt occur, so if you slavishly cut back every time the
economists publish negative forecasts, your marketing plans will be too gunshy and conservative. You have to take some risk in order to grow, but if you
watch the economic weather closely, you can scale back sooner than most
marketers when it becomes obvious that economic growth is slowing.
When your own sales are weak and economic forecasts are poor, assume the
worst and cut back aggressively to weather the coming storm. To do so, I suggest you
Avoid large marketing commitments. Expensive and/or long-term contracts for advertising, store rentals, and large inventories are dangerous in
down times. For example, dont purchase a full year of expensive advertising. Instead, buy month to month, even though doing so may cost you a
bit more. The flexibility is well worth a slightly lower discount.
104

Its an impractical idea, but can you use it as raw material for inventing
a good promotion? One store I know of did by putting three full-sized
mannequins in the window, each wearing only a poster board on a string
around the neck. The first poster said 40%, the second one said OFF,
and the third said EVERYTHING. It was an eye-catching display, and it
communicated the message forcefully but it took an inventors persistence and practicality to translate a crazy idea into a good marketing
communication.
4. Implement.
Finally, you need to complete the creative process by pursuing successful adoption or implementation of your new idea or design. You may
have a great design for a new brochure, but you cant make money from
it until you carefully select a printing method and find a way to distribute that brochure to prospects. Or if youre designing a window display
for a retail store, implementation may mean finding the right mannequins, signs, lighting, and so on and setting up the display according to
the creative concept or plan.
You may need different sets of talents to imagine wild ideas and to implement
them in a practical way. In fact, each of the four steps in the creative process
(initiating, imagining, inventing, and implementing) requires different types
of behavior. By knowing this fact, you can discipline yourself to change your
style as you move through a round of creativity that follows the four steps of
the creative process.
Alternately, you may want to tap into the different creative styles of multiple
people in order to take advantage of those who are particularly well suited for
one or another of the steps in the creative process. When I work on creative
projects in marketing, Im particularly good at bringing imagination to the project, so I usually try to team up with someone who complements me by being
really good at implementation.
Harnessing All Creative Types

Creative ideas are wonderful, but to profit from your imagination, you need to
figure out ways to actually make those ideas work. Inventing practical ways
to implement what you imagine, what I like to refer to as taking creativity to
the bank, requires a focused effort on your part.

The creative process includes four steps (as explained in the preceding section) that rely on different types of behaviors. You may be especially suited to
one or two of the steps, but you probably arent suited to all of them. I recommend you figure out which steps youre best and worst at and then find people
to help you fill your creative gaps. Read the following list of styles to see
which suits your temperament best:
Entrepreneur: The entrepreneur senses a need or problem and asks
tough questions to initiate the creative process. (Why do we do it this
way? It seems so inefficient.) The entrepreneur proves valuable in the
first step of the creative process, the Initiate Step.
Artist: The artist is highly imaginative and a free thinker. When given a
focus for her imagination by the entrepreneurs initiating question, the
artist can easily dream up many alternatives and fresh approaches from
which to choose. (We could do this, or this, or this, or . . .) The artist
comes to the fore in the second step of the creative process, the Imagine
Step.
Inventor: The inventor has a more practical sort of imagination and
loves to develop and refine a single good idea until she makes it work.
(Lets see. If we adjust this, and add that, itll work much better.) The
inventor is most productive in the third step of the creative process, the
Invent Step.
Engineer: The engineer is practical and businesslike; shes also particularly good at getting closure by taking an untested or rough invention
the rest of the way and making it work smoothly and well. (Great ideas,
but lets come up with a firm plan and budget so we can get this thing
started.) The engineer makes sure the creative process reaches its
essential fourth step, the Implement Step.
Whichever one of these creative roles most closely represents your approach
to work, recognize that one role alone cant make great creative marketing
happen. Be prepared to adjust your style by wearing some of the other creative hats at times or team up with others whose styles differ from your own.
That way you have the range of approaches necessary for harnessing the
power of creativity for all of your marketing efforts.
Head to my Web site, www.insightsformarketing.com, to download a
sample copy of the Creative Roles Analysis (CRA) activity my firm publishes.
With this activity, you can design more effective and productive creative
teams. The CRA helps you make sure that you not only initiate but also complete the creative process often enough to keep your marketing innovative
and new.
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106
The case of the singing card

A simple creative idea can take a lot of time and
care to implement well. Consider the following
example: The owners of a cleaning service felt
they were invisible to their customers because
they entered offices at night to clean them
when nobody was working. How to reach out
and forge a more personal relationship? One
idea they came up with was to collect information on the birthdays of their main contacts at
these client companies and to leave them nice
gifts or cards on the eve of their birthdays
to be discovered when the contacts came in to
work the next day.
Getting even more creative, they thought about
giving their customers personalized singing cards, containing a message that says,
Because we arent there during your workday
to sing to you, we put our song into this card!
A nice way to add a human touch, but imagining this idea and making it happen were two
different things. The cleaning service owners

had to find a source of spring-operated musical
chips they could put into a card. Then they had
to work with a designer at their local print shop
to perfect the card and make sure it worked
well (they found they needed a heavy paper to
keep the music chip in place). Finally, they had
to track down the birth dates of the individuals
in their customer database and figure out which
desk belonged to which customer. Obtaining
this information took several weeks of subtle
questioning and snooping around. Finally, three
months after the owners came up with their
simple, creative idea, the singing cards were
implemented to rave reviews from customers, many of whom left thank-you notes for
the cleaning service to find. The cards helped
create a personal relationship with customers
that increased customer loyalty and referrals. It
was worth the effort to implement this creative
idea.
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Current Entrepreneurial Trends
Learning to Recognize Opportunity
Thinking Creatively About
Opportunity
Challenges to Creativity
Creative Sources of Ideas
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One way to identify business
opportunities is to study current
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entrepreneurs.
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Internet businesses
corporate ventures
service businesses
strategic alliances
home-based businesses
technology
socially-responsible non-profit
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outsourcing
Section 3.1 Understanding Entrepreneurial Trends
Chapter 5 V Managing Yourself on the job

> Unless you are interested, get rid of telemarketers
and job seekers politely, but quickly.
> If the switchboard keeps directing the wrong type
of incoming call to the company to your phone,
speak with the operators and tell them where
those calls should go.
Powerful Presentations
In a large organization, the opportunity to make a
presentation can represent an opportunity to help or
hurt your reputation. People who make good presentations get to make more presentations. Those who don't
"present well" often are not asked to present anything
again.
MBA Mastery
If you know
someone who
makes a good
living on the
telephone, such as a salesperson, agent, or headhunter, try
to observe them on the job
some time. There is a combination of courtesy and
persistence, and a way of
pacing the conversation,
asking questions, and allowing
for silences, that some of these
peopleand some skilled
executiveshave mastered.
Tisten for it, and you'll hear
what I mean.
Speaking before groups ranks among the most anxietyproducing events in adult life. That's because everyone
knows that something is at stake: You are either going
to knock 'em dead or go down in flames. (In reality,
most presentations fall somewhere in between, but that's not how you feel beforehand.)
So there are three things you must do: prepare, prepare, and prepare.
Prepare Your Material

The key thing is to have a point. Or to have two or three points. But if you don't have a
point to make, why are you getting up in front of people?
You've probably seen it. A guy talks for 45 minutes. You can hear what he's saying, so
that's not the problem. And what he's saying may even make sense at the time. But you
walk away saying, "What was his point?" or "Why did he tell us all that?"
Once you have a point or two or three, you're halfway there, (tew people can remember
more than three points. In fact, the more points you have, the fewer they'll remember.)
Try using this simple formula to structure your presentation around your main points:
1. Introduce yourself and your main point or points.
2. Support your points.
3. Repeat or sum up your points and then close.
Here are the most common mistakes in structuring a presentation:
> Throwing in too many details
> Broadening the topic or getting off the subject
Part 1
>
MBA Mastery
Humor can
get the
audience on
your side, but
be careful. Not every speaker,
including some very good
ones, can handle humor. If
you have a knowing audience, "in" jokes about shared
problems, common enemies
(the IRS or a major competitor, for example), or the
difficulty in parking can
work. Witty observations
tend to work better than
long stories. Avoid making
fun of yourself, anyone else,
or the company. Forget offcolor or politically incorrect
humor. Even if you think it's
funny, it's not corporate.
MBA Mastery
Graphics
software,
such as
Microsoft
PowerPoint and Lotus 1-2-3,
enables you to create
chartssuch as bar, pie, and
line chartsfrom data in a
spreadsheet. If presentations
are an important part of your
job, you should learn how to
use such software.
> Hailing to support the points with solid evidence

> Not sticking with the structure
The fact is that unless people are exceptionally bright and
motivated and take copious notes, they will not remember
most of what you've said. The details blow past them, or
worse, bore them. If you get off the topic, you are basically
wasting everyone's time.
If you have a good structure, stick with it. Don't decide to
start ad-libbing, unless there is a good reason and you can
handle it. The same goes for humor.
By the way, don't mention that you are tired or sick (unless
you must apologize for your voice). Don't offer complaints.
Be upbeat and positive.
Visual ffids
Many business presentations call for visual display of
information. Depending on the presentation, this can
include tables of numbers, financial highlights, organization
charts, graphs, and bullet points of information. The right
visual aids can enhance your presentation, maintain audience attention, and keep you on track.
The first major ruleand the one most often brokenfor
visual aids is: Keep them simple. Complex exhibits communicate very little, yet many presenters insist on using them.
Audiences refer to these complex exhibits as "eye charts"
because they feel as if their eyes are being tested in a doctor's
office.
Use simple illustrations, bar charts, pie charts, very brief
tables, and no more than five bullets (preferably fewer) on a
single exhibit. In this situation, less is definitely more.
The second major ruleand it's broken as often as the first

oneis to not use too many exhibits. The mark of an
amateur is to try to get through 40 slides in 45 minutes.
Figure about two minutes per slide, which would indicate
that a 45-minute talk would call for about 20 or so slides.
Two minutes per slide may seem like too long to you, but
you should be using the slides as talking points and have something to say about each
one. Plus you usually have some introductory comments at the beginning and maybe
some questions and answers at the end. It works out.
58
Chapter 5 Managing Yourself on the job

Given today's extensive publishing technology, there are a number of ways you can
present materials: as handouts, overhead transparencies, slides, or computer-based files.
The following table lists the pros and cons of each type.
Presentation Materials
Material
Pros
Cons
Handouts
Easy to construct.
No visuals up on a screen in
front for you to refer to.
Some audience members
will look ahead to later parts
of the presentation.
No need for equipment

(other than the copier).
Overhead
transparencies
Audience can make notes

on your exhibits.
Best for short presentations
with fewer than five exhibits.
Easy to construct
without training.
Can be done in color for
relatively low extra cost
(if you have a color printer).
You can write on the
transparency to make a point.
35mm slides
Very professional-looking.
Handle easily.
Computer-based
slides
Can be done in color.

Very professional-looking,
Easy to use during
the presentation.
Not considered very spiffy.

Transparencies are awkward
to handle during the
presentation. Need an overhead projector.
Not considered very spiffy.
Require special equipment to

create the film.
Film must be sent out to
photoshop to be developed.
Can be expensive.
Requires a personal computer,
software, and some training.
Requires you to bring a
laptop computer to the
presentation site.
Inexpensive to make, once

you have the equipment.
Whatever form of visual aid you use, triple-check your exhibits for accuracy and number
them so you'll know they are in the right order. If at all possible, do a "dry run" through
the presentation with the exhibits, with one or two people looking on. That's the best
way to ensure accuracy.
Part 1
>
Prepare Yourself
Prepare yourself by realizing that once you know your material, you have expert power
over your audience. You know more about the subject than they do. Also (except for
those who want your job), the audience wants you to succeed. They're rooting for you
because nobody wants to attend a dull, boring presentation.
Before the presentation:
> Put your notes on index cards for ready reference, but don't plan to read the speech
(a sure-fire bore).
> Practice the presentation several times, but don't exhaust yourself.
'> Get plenty of rest the night before.
> Dress your best. Arrange your clothing and shine your shoes the night before.
> Plan to arrive at least one-half hour before your scheduled time.
In front of the audience, plan to:
> Project your voice to the back of the room, especially if your voice doesn't carry. If
your voice is too soft, get a microphone and use it, but not too close to your mouth.
> Hold your hands comfortably up in front of you. You'll automatically start using
them to gesture. Don't stuff them into your pockets and rattle your change around.
> Use a podium if you wish, but 1 think speakers relate to an audience better without
one. Also, you create visual interest if you walk around a bit (but not too much).
> Move your eyes around the room from person to person, alighting on one person at
a time. But don't stare.
> If people start annoying side conversations, politely say, "Excuse me," or ask, "Are
you with us?" or just be quiet until they realize what's going on.
> Announce that you will take questions at the end of your presentation. In most
situations, this works far better than taking them as they occur. Or you can say that
you will periodically ask if there are any questions before you move to new material.
Prepare the Room and Equipment

Arrive early and make sure the room is set up properly. Anyone who has done enough
presentations can tell you about the time they showed up with 35mm slides and the
room was equipped with an overhead projector.
The only way to cope with this is to call the person in charge of the room in advance (if
the presentation is on unfamiliar ground, for example, at a hotel) and then still get there
early.
Chapter 5 V Managing Yourself on the job

Final tip: Be sure there's a glass of water nearby during
your presentation, just in case your mouth gets dry.
fill About Meetings

Meetings are like the weather: Everyone talks about
them, but nobody does anything about them. Most
managers feel that they have to spend far too much
time in meetings. Actually, what they are saying is that
they are spending too much time in unproductive
meetings. Truly effective meetings are so rare that
people actually comment on them when they occur.
Follow these practices, and you will hear the compliments yourself:
> invite only those who must attend. The more people,
the more talk, and the less action. So invite only
those with a stake in the decision or plan. (If the
meeting is just to make a general announcement,
that's different; you may need to invite your
entire staff or company.)
> Have both a starting time and a dosing time for the
meeting. Mention the closing time in the memo
announcing the meeting. During the meeting,
you can refer to the closing time to move things
along.
Also, make the closing time as soon as possible. If
you need an hour or three, by all means schedule
that amount of time. But realize that people tend
to use the allotted time, whether they need it or
not. Shorter is better.
> Have a written agenda. You don't necessarily have
to distribute it before the meeting, although that
may be useful if people have to prepare beforehand. The key thing is to have an agenda and to
distribute it at the meeting. It not only inspires
confidence in the attendees, but will help you
move the meeting along.
MBA Alert
Although
most people
want fewer
meetings, there;
those who want to be at any
meeting where they may have
even a remote stake. This is
usually a personality issue, so
when you know someone like
that, invite them. Or don't
and have a good reason ready
when they ask, "Why wasn't 1
invited to...?"
MBA Mastery
Useful phrases
when chairing
a meeting
include: "Are
you with us?" or "We can't
have stereo conversations" (to
people talking among themselves); "We're not going to
settle that here today" (to
people who can't get off a
topic); and "I'm sorry, but
Mary has the floor" (to
someone interrupting). Don't
be afraid to assert your
authority as the chairperson.
At one time or another,
everyone will appreciate the
order that results.
> Chair the meeting (or have someone else chair it). The person who runs the meeting
should have the authority, either by rank or knowledge, to maintain order and
efficiency in the meeting.
Part 1
>
Ask someone to kike notes and compile the minutes of the meeting. Although nobody
enjoys taking notes and writing up the minutes, it creates a record and helps those
who did not get to attend. It's a secretary's or administrative assistant's job, so if you
have one, great. If not, rotate the task among the
eligible candidates, who will usually be junior
MBA Lingo
people.
The minutes of a
> Always try for a clear outcomea decision or next steps
meeting are the
before closing the meeting. The problem with so many
official record of
meetings is that they have no clear conclusion. Bring
the proceedings.
When a series of
the meeting to a close with a simple phrase such as,
meetings is being
"We're going to have to stop now," and add, "But 1
held, it is customary to read
just want to recap what we've accomplished this
the minutes of the previous
morning." If you don't know or don't remember what
meeting to bring everyone
was
accomplished (or nothing was), ask, "What have
up to date. You should review
the minutes before they
we accomplished here this morning?" or "What does
are distributed. Things that
the group believe makes sense for our next steps?"
are not for publication are
sometimes said in meetings,
Recapping what was decided or planned and laying
so make sure they don't
out next steps, and particularly who will be responappear in the minutes.
sible for what, is essential. It gets into the minutes
and helps move things along.
Some people, particularly those new to organizational life, feel that they are supposed to
put on some kind of performance or to somehow "shine" at a meeting. Rather than worry
about that, the best thing you can do is prepare for the meeting. You can do this by
reading past memos or reports on the topic or through informal conversations.
In the meeting itself, try to do your part to illuminate the issues and find workable
solutions to the problems at hand. Often the less you say, the better, as long as what you
say is lucid and worthwhile.

> Time management is the essential skill if you are to be productive and reach your
goals. The whole key is to relate your daily activities to your most important goals.
> Use the phone consciously, not mindlessly. Many people in business may know you
mainly by the way you come across on the phone. Be courteous and friendly, but
businesslike.
> The key step in delivering a presentation is to prepare to the point where you feel
completely confident about the material. When you first start doing presentations,
you will probably over-prepare, but that will give you confidence in front of the
audience.
Chapter 5 Managing Yourself on the job

> Always do the best possible job preparing your visual aids, and try to do a dry run.
Arriving early at the presentation site can help you avert disaster.
> Effective meetings call for inviting only those who must attend; having a starting
time, closing time, and a written agenda; and chairing the meeting properly.
> Always end a meeting by reviewing what was decided or the next steps and how
follow-up will occur.
63
Unit 6
Product Selection
After designing the product, companies must make another set of decisions to
plan the product mix element. The first decision is whether to offer a product
line. A product line is a group of similar products with obvious variations in the
design and quality to meet the needs of distinct customer groups. New and small companies may begin by offering only one category of product to its
customers. That product may have choices of features, options, and enhancements, but the basic
product is the same for all customers. With more
It is often difficult to identify the total number
experience and resources, the company may decide
of product lines a store carries by walking through
to expand its product line.
the store. But product lines are often used to
One of the obvious ways to expand a product
organize a customers online shopping experiline is to offer different sizes of the product. That
ence. Point your browser to www.thomsonedu.
can be done with the serving sizes of food items, as
comschoolbpmxtra. Look at the tabs in the Web
well as with the sizes of automobiles. As an
site. How do these indicate product lines? Click
example, when sports utility vehicles (SUVs) were
on the See All tab. Describe how this shows
first introduced, most manufacturers produced
Wal-Marts online product assortment. Based on
one midsize model, such as the Chevy Blazer or
your research, how does the online site differ
Ford Explorer. As the popularity of SUVs grew,
from Wal-Marts you have visited?
manufacturers began to appeal to other market
segments with smaller models, such as the Toyota
www.thomsonedu.com/school/bpmxtra
RAV4, and then very large models, including the
Mercury Mountaineer and Cadillac Escalade. Rising
gas prices opened a market for fuel-efficient SUVs,
such as Hondas CR-V. Some companies offer only one model size, but others
have a model in each size category for a full product line.
Another way to develop a product line is to offer variations in quality and
price. If you visit an appliance store, you will usually find low-, mid-, and highpriced choices for each type of appliance, such as refrigerators, dishwashers, and
microwaves. The price differences are based on the construction, quality of materials, and available features and options. A person buying a microwave for a
college dorm room probably does not want the most expensive, full-featured
choice, and so will be drawn to the lower-priced end of the product line. On the
other hand, a gourmet chef making a purchase for a new kitchen may want only
the highest quality and latest features.
Once a company has made decisions about a product line, it continues planning by determining the product assortment. A product assortment is the complete set of all products a business offers to a market. A product assortment can
have depth, breadth, or both. A company offering a deep product assortment
carries a large number of choices of features for each product category it handles.
Walk into a Bath and Body Works store and look at the variety of fragrances,
colors, bottle sizes, and packages for any of the major products sold there. That
is an example of a deep assortment. Compare that to the choices of bath lotions
that you might find in a small drugstore, where the assortment would be limited.
With a broad product assortment, a business offers a large number of different but often related products to its customers. If you visit a garden center, you
may find many different types of products for lawns and gardens, ranging from
plants, shrubs, and trees to lawn mowers, hoses, and patio furniture. There may
not be a wide range of choices within every product category, but customers
should be able to satisfy most of their outdoor home needs at one location.
As shown in Figure 21-1, businesses can choose any combination of depth and
breadth for their product assortment. Some will be very small and specialized,
562

and others will offer a wide variety of many
different products.
Figure 21-1 Businesses build product assortment to meet

their customers needs.
PACKAGING
PRODUCT BREADTH
Less
More
More
Two important product mix decisions are

packaging and branding. Neither decision is
directly related to the actual physical product
A BROAD VARIETY OF
itself, but each can be an important influence
MANY PRODUCTS
on purchase decisions.
Most companies package their products
before selling them. The package can serve
four different purposes. First, it protects the
product while it is being shipped and stored.
Products can easily be damaged when they are
grouped together for shipment from the factory to the retail store. Boxes and containers
MANY PRODUCTS WITH
are needed for protection. The actual conLIMITED VARIETY
tainer or wrapping in which the individual
product is packaged also offers protection on
the store shelf and may provide security to
keep the product from being lost or stolen.
Second, the package can provide important information to customers on product
composition, special features, and proper use. Boxes and containers also provide
information to shippers on appropriate handling, storage, and delivery.
A package can be designed to make the product easier to use. A plastic bottle
of soda is less likely to be broken if dropped. An easy-opening lid or a container
that fits the hands of the consumer makes product handling easier. Window cleaner
that is premixed in a spray bottle is much more convenient than one that must
be poured into a bucket and applied with a sponge.
Finally, especially for consumer products, the package is often an
important promotional tool. A well-designed, attractive package calls attention to itself on the store shelf, helps the customer recall previously seen advertising, and provides a reminder of the needs that the product will satisfy if
purchased.
A LARGE VARIETY IN
PRODUCT DEPTH
FEW PRODUCT CHOICES
LIMITED PRODUCT CHOICES
Less
AND VARIETY
What different purposes could

the packaging of this product
serve?
Can you name the brands of clothing, pizza, and toothpaste you prefer? Do you
and your friends regularly shop at certain stores but not others? Product and store
brands play a major role in buying decisions. A brand is a name, symbol, word, or
design that identifies a product, service, or company.
Why are brands so important to consumers? Have you ever shopped in a store
that had generic (nonbranded) products or that sold only unfamiliar brands? With
no information to guide you, it is difficult to make a product selection with which
you are comfortable. You and people you trust have had experiences with various
brands. If a particular companys products consistently meet your needs, you will
likely buy from that company again. If you have a negative experience, however,
you are likely to avoid similar purchases in the future. If you are satisfied with one
product from a company, you are likely to have confidence in a different product
sold under the same brand. Businesses recognize that brand recognition is an
important influence in increasing sales. The levels of consumer brand awareness
are shown in Figure 21-2 (see p. 564).
PHOTO: COMSTOCK IMAGES.
BRANDING
563
Unit 6
facts
&figures
Corporate identity refers to a

companys name or logoits
visual expression or its look.
Corporate image is the publics
perception of a company. Corporate branding, by contrast, is
a business processone that is
planned, strategically focused,
and integrated throughout the
organization.
FIGURE 21-2 The Five Levels of Consumer Brand Awareness
Consumers are unable to identify the brand.
Consumers can identify the brand but it has little influence on their
purchase decision.
Consumers can identify the brand but will not purchase it because
of its brand.
Consumers easily recognize the brand and will choose it if it is available.
Consumers view the brand as the most satisfying and will not purchase
a different brand.
CHECKPOINT
Name four purposes of packaging.
21.1
Assessment
UNDERSTAND MANAGEMENT CONCEPTS

Circle the best answer for each of the following questions.
1. A(n) ________ product offers different features and options for the
consumer.
a. augmented
b. basic
c. enhanced
d. extended
2. A group of similar products with obvious variations in design and
quality to meet the needs of distinct customer groups is called a
a. product assortment
b. product mix
c. product line
d. product design
THINK CRITICALLY
Answer the following questions as completely as possible.
3. Describe the different perceptions of a product that are usually
held by businesspeople and consumers.
4. Explain how a business can expand its product line.
thomsonedu.com/school/bpmxtra
564
96
Table 5-2
Examining Elements of the Worlds Ten Top Brands
Brand
Style
Coloring
Coca-Cola
Flowing, classic script
Red
IBM
Strong block letters
Blue with white
Microsoft
Strong, clean, conservative

lettering
Black
General
Electric
Elegant, traditional monogram

of initials (GE)
Blue with white
Nokia
Modern block lettering
Blue
Toyota
Clean block lettering combined

with elegant modern logo of
elliptical forms
Red in print, often silver

on vehicles
Intel
Lowercase modern letters in an

energetic circle
Blue
McDonalds
Curving, archlike M
Yellow
Disney
Whimsical scripted letters, often

combined with iconic image of
castle from amusement park
Usually black lettering
Google
Unusual lettering
Mix of colors that often

changes from day to day
The goal of this formula (which combines simple, word-based designs and
simple, strong, conservative colors) is to create a design thats highly readable and clear to anyone, anywhere, whether shown large or small, in print,
on a product, or on the Web. Although exceptions exist to every good formula, I suggest you start forming your brand identity by following this formula and seeing how it works for you.
Although great brands usually stick to simple, clear lettering and a conservative color palate, they build their value through creative advertising, creative
product designs, and creative distribution to make sure consumers are excited
about them. Keep your creativity on a fairly short leash when designing your
brand identity, but let your imagination have a good run when it comes to
designing other elements of your marketing program.
Generating Rich Ideas

Okay, time to be creative. Ready, set, go. Come up with any good ideas yet?
No? Okay, try again. Now do you have some good ideas? What? No?

If you cant be creative at will, dont be alarmed. Most people face this problem, whether in or out of the marketing field. Artists practice creativity every
day, but people in business generally dont. As a result, most people have
remarkably few creative ideas in a day, or even in a year. So when theres a
need to be creative in marketing, many people find that they require some
help. How do you act creative? Whats involved in generating unusually creative ideas? No worries. The sections that follow can help you develop new
ideas in all sorts of ways you may never have imagined.
First and foremost, give yourself permission to be creative in your work.
Creativity requires you to let the minds engine sit in idle. You cant be creative
if youre busy returning e-mails and phone calls or rushing to finish the days
paperwork. If the hands are busy, the mind is distracted from creativity, and
your imagination may not be able to work. So, for starters, I must ask you to
budget time for creativity. How much time? Well, if creativity is the most powerful and profitable of the marketing skills, how often do you think you should
use it? One hour a month? One hour a week? One hour a day? One day a week?
You have to figure out exactly how much creativity time you need based on
what your product or company demands. Budget some creative time and use
it to open yourself up through new and different ways of working, asking questions, and exploring your marketing problems and opportunities.
Coming up with new ideas

from simple activities
Creativity isnt a science; its a habit involving the use of a loose collection of
flaky behaviors. Like soaking up information, questioning the problem, tossing ideas back and forth with an associate, and then setting the whole issue
aside to incubate in the back of your mind while you do something else. So
plan to work in different ways when exercising your creativity.
Heres a list of great activities that spur you to engage your imagination in new
and unusual ways (when I lead creative retreats for marketers and ad agencies, I use dozens of ideas like these to get us going):
Seek ways to simplify. Can you come up with a simpler way to explain
your product or your business and its mission? Can you cut your twopage brochure down to ten words? Can you reduce the length of a
headline in your print ad from eight words to one? Most marketing and
advertising is too complicated and can stand to be simplified. Creative
insight can help simplify and clarify all aspects of your marketing.
Simple is good because simple helps make your message bold, attracting attention and zapping the key idea immediately into the customers
mind.
97
98

Think of a famous person from history and imagine that he or she
is your spokesperson. How would this person change your packaging, advertising, Web site, and so on? For example, what would George
Washington do to sell more of your product? Can you tie your brand into
Washington in some way? Might his famous crossing of the Delaware
River become a metaphor for competitors customers who need to
be led over to your new and better product? Follow me, customers.
Victory awaits us on the other side of the river, where the new XYZ
Brand has set up a more comfortable camp for you! (Yes, thats a silly
idea, but youd be amazed how often great marketing starts with silly
ideas.)
Cut out faces from magazine ads and look for one that expresses an
appealing new personality for your product. See whether you can use
that personality in packaging and advertising or on the Web.
Come up with ways to advertise or communicate to customers with
really small messages. This constraint forces you to clarify and codify
your message in interesting ways. Try designing stamps, stickers, onesecond TV or radio commercials, lapel pins, bumper stickers, or a miniature book that comes with a magnifying glass. See what else you can
imagine. One of these ideas may actually prove useful for you. Even if
you dont use any of them, the exercise may get you thinking in fresh
ways about marketing communications.
Brainstorm ways to advertise or communicate to customers with
really big messages. Forcing yourself to change the scale of your thinking can free creative ideas, and if you communicate in unusual ways,
you may attract more attention from customers. Could you advertise
with dirigibles, oversized billboards or murals, or a message in which
each word appears on a separate sign, spread along a one-mile stretch of
road? (You can adapt this old-fashioned concept to e-mail with a series
of one-word messages.) How about renting a large truck or bus and
covering it with a marketing message or your brand name? Or maybe
something simpler and zanier like sponsoring a contest for who can
bake and eat the largest cookie and then inviting the media to cover the
event? Wait, Ive got it! Why not make the largest alligator in the world
into your mascot? Think big. You want to have a big impact, right?
Come up with interesting but inexpensive gifts you can give customers. Everyone gets pens with the company name on them thats
boring. But what if your branded pens are different and better? Perhaps
theyre the only ones that glow in the dark? Or maybe they have riddles
on them and consumers can win a contest by entering their answers
on your Web site? Try to think of some novel gift ideas. Focus on items
that make the customer say, Wow! or Hey, thats cool, I can really use
that.
100

thought patterns. Dont let your group just go through the motions of brainstorming. To really get into the spirit of it, people must free associate allow
their minds to wander from current ideas to whatever new ideas first pop up,
no matter what the association between the old and new idea may be.
You may need to encourage your group by example. If youve stated the problem as Think of new ideas for our trade show booth, you can brainstorm a
half-dozen ideas to start with, just to illustrate what youre asking the group
to do: a booth like a circus fun-house, a booth shaped like a giant cave, a
booth in the form of one of your products, a booth decorated on the inside
to look like an outdoor space complete with blue sky and white clouds overhead, a booth like the Space Shuttle launchpad featuring hourly launches of
a scale-model of the Shuttle, a booth that revolves, or a booth that offers free
fresh-popped popcorn and fresh-baked cookies to visitors.
These ideas arent likely to be adopted by the average company, but they do
illustrate the spirit of brainstorming, which is to set aside your criticisms and
have some fun generating ideas. The rules (which you must tell the group
beforehand) are as follows:
Quantity, not quality. Generate as many ideas as possible.
No member of the group can criticize another members suggestion.
No idea is too wild to not write down.
No ownership of ideas. Everyone builds off of each others ideas.
After you share the rules, set up a flip chart and start listing everyones crazy
ideas for the next trade show booth, catalog mailing, Web-based promotion,
or whatever else you want your brainstorming session to focus on.
Question brainstorming
Question brainstorming involves generating novel questions that can provoke
your group into thinking more creatively. This technique follows the same
rules as brainstorming, but you instruct the group to think of questions
rather than ideas.
So if you need to develop a new trade show booth that draws more prospects, then the group may think of the following kinds of questions:
Do bigger booths draw much better than smaller ones?
Which booths drew the most people at the last trade show?
Are all visitors equal, or do we want to draw only certain types of
visitors?
Will the offer of a resting place and free coffee do the trick?

These questions stimulate good research and thinking, and their answers
may help you create a new and successful trade show booth.
Wishful thinking
Wishful thinking is a technique suggested by Hanley Norins of ad agency
Young & Rubicam and one that he has used to train employees in his
Traveling Creative Workshop. The technique follows the basic rules of brainstorming, but with the requirement that all statements start with the words I
wish.
The sorts of statements you get from this activity often prove useful for developing advertising or other marketing communications. If you need to bring
some focus to the list to make it more relevant to your marketing, just state a
topic for people to make wishes about. For example, you can say, Imagine that
the Web Site Fairy told you that all your wishes can come true as long as
they have to do with the companys Web site.
Analogies
Analogies are a great creativity-inspiring device. You dont think Im serious, I
know, because the idea sounds so trivial. But many experts define creativity
as making unobvious combinations of ideas. A good analogy is just that.
I once saw a great example of an analogy in a drug companys print ad. The ad
showed a painting of a person about to put a huge, old-fashioned key into a
keyhole in the wall. The caption next to this illustration read: Imagine intelligent drugs that could tell sick cells from healthy ones, and then selectively
destroy the targeted ones. Illustrations often use metaphors or analogies
when trying to communicate a complex topic such as selective drug therapies.
To put analogies to work for you, ask your group to think of things similar to
the subject or problem youre thinking about. At first, group members come
up with conventional ideas. But they soon run out of these obvious answers
and must create fresh analogies to continue. For example, you may ask a
group to brainstorm analogies for your product as a source of inspiration for
creating new advertisements about that product.
In ads and Web site copy describing its FreeMotion line of highly padded
exercise treadmills, NordicTrack compares using its treadmills to riding a
snowboard an effective analogy that helps convey the idea that the product is fun to use.
101
102

Pass-along
Pass-along is a simple game that helps a group break through its mental barriers to reach free association and collaborative thinking. You can read the
instructions here, in case youve never heard of the game:
One person writes something about the topic in question on the top line
of a sheet of paper and passes it to the next person, who writes a second
line beneath the first.
Go around the table or group as many times as you think necessary.
This game can be done with any number of people, from 3 to 20. In general,
youre trying to fill up a full page of lined paper, so bigger groups need fewer
cycles. If people get into the spirit of the game, a line of thought emerges
and dances on the page. Each previous phrase suggests something new until
you have a lot of good ideas and many ways of thinking about your problem.
Players keep revealing new aspects of the subject as they build on or add
new dimensions to the preceding lines.
Say a team of marketing and salespeople meets to generate concepts for the
product development department of a bank. Sure, that sounds like a tough
assignment what in the world can be new about banking? But you, the creative marketer, pick a subject and pass the paper around:
Subject: How can we make our customers personal finances run better?
Pass-along ideas:
Help them win the lottery.
Help them save money by putting aside 1 percent each month.
Help them save for their childrens college tuition.
Help them keep track of their finances.
Give them a checkbook that balances itself.
Notify them in advance of financial problems, like bouncing checks, so
they can prevent those problems.
One idea leads to another. So even if the first idea isnt helpful, associating
new ideas from the first one can produce useful thoughts. A bank probably
cant get into the lottery ticket business (Im sure theres a law against that).
But after the members of this group thought along those lines, they came up
with some practical ways of increasing their customers wealth, like plans
that can transfer money to savings whenever theres a surplus after regular
bills have been paid.

Heres another fun pass-along idea: Ask people to help you find 20 words that
rhyme with your company or brands name in the hope that this list may lead
you to a clever idea for a new radio jingle or print ad headline.
Managing the Creative Process

If you think of creativity as generating wild and crazy ideas, youre right but
only one-fourth right. Yes, you have to do some open-minded thinking to come
up with creative concepts. But to actually make any money from your creativity, you need to have a mix of activities that includes exploring for new ideas
and developing the best of them into practical applications in your ads, products, sales presentations, or other marketing activities.
In my creativity workshops, I show people how creativity needs to follow a fourstep process to actually be of practical use in business. Heres the process:
1. Initiate.
In this step, you recognize a need or opportunity and ask questions that
launch a focused creative process. For example, you may take a look at
your brochure(s) and ask yourself whether you can use an illustration
and a catchy headline to make the brochure more exciting and powerful.
Or if you run a womens clothing store, you may recognize the need for
a January sale to clear out fall and winter styles and make room for new
spring fashions. Thoughts like these stimulate creative thinking and give
it a practical focus. A creative brief (see the earlier Writing a creative
brief section) is useful at this stage of the process.
2. Imagine.
In this step of the creative process, you engage in the imaginative, wildand-crazy thinking that taps into your artistic side. The brainstorming
techniques I cover in the earlier Brainstorming section are good for
this stage; your goal is to see how many wild ideas you can generate. Its
a good idea to assemble a group to help you at this stage.
3. Invent.
Now you need to get more practical. Take a critical look at all of the wild
ideas you imagined and choose one or a few that seem most promising.
Work on them to see how to make them more practical and feasible for
your application. For example, if youre working on a way to announce a
40-percent storewide discount at a womens clothing outlet, one of your
creative ideas from Step 2 may have been have nude models stand in
the window, waving to passersby to attract public attention to the sale.
103

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North Hills School

It's the Economy

How It All Operates

Our National Economy: As Easy as C + I + G

Because an economy is the total of all financial transactions

What Happened to Gross National Product?

Chapter 6 ,".-- It's the Economy

Imports and Exports: Eosy Come, Easy Go

How It All Operates

Chapter 6 ,".-- It's the Economy

GDP: It's All Connected

The business cycle

P a r t i > How It All Operates

What Goes Up, Must Come Down

Tracking the Business Cycle

Chapter 6 ,".-- It's the Economy

Vicious and Virtuous Cycles

The Government's Role

How It All Operates

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The Inflation-Unemployment Trade-Off

It's the Economy

How It All Operates

Our National Economy: As Easy as C + I + G

Because an economy is the total of all financial transactions

What Happened to Gross National Product?

Chapter 6 ,".-- It's the Economy

Imports and Exports: Eosy Come, Easy Go

How It All Operates

Chapter 6 ,".-- It's the Economy

GDP: It's All Connected

The business cycle

P a r t i > How It All Operates

What Goes Up, Must Come Down

Tracking the Business Cycle

Chapter 6 ,".-- It's the Economy

Vicious and Virtuous Cycles

The Government's Role

How It All Operates

What Does the Government Want?

The Inflation-Unemployment Trade-Off

The Manager's Toolbox

All of this organizing and directing the work of others is

What Makes a Good Manager?

Chapter 1 ...- The Meaning of Management

The Professional Manager

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The Five Business Principles Every Manager

Value: What Customers Pay For

The Manager's Toolbox

Let's Get Organized

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Competitive Advantage: The Winner's Edge

The Manager's Toolbox

Control Means Never Having to Say You Lost It

Controls, and the information that supports them, enable

Profitability: You Gotta Have It

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Remember The Big Five

Help the company create value for customers.

The Least You Need to Know

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