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Chapter 11

Principals of Marketing
Learning Goals
1. Explain how marketing's role in the exchange process creates utility. 2. Identify the major functions of marketing. 3. Define the marketing concept. 4. Discuss how a marketing strategy is developed. 5. Explain the five environmental forces that influence marketing decision making. 6. Discuss the concept of a market. 7. Outline why the study of consumer behavior is important to marketing. 8. Explain the marketing research function. 9. Outline and explain the bases used to segment markets.

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Marketing Strategy
Chapter Overview

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marketing Planning and executing the conception, pricing, promotion, and distribution of ideas goods, and services to create exchanges that satisfy individual and organizational objectives.

Marketing covers every aspect of a business; it is business as a function and includes everything from conception to consumption. Marketing links the firm with the consumer and includes all three levels of productivityprimary, secondary and tertiary. For any business to succeed it must serve the needs of the consumer, this is true for profit and nonprofit organizations alike. For any business to be successful it only needs to find a need and fill it. Following the process of finding the need assures success, but it does not guarantee profitability. Market planning helps with profitability. For any business to remain in the marketplace, it must be profitable. If there is no profit, entrepreneurs will turn to other profitable activities. And the business needs to deal with repeat customers to assure their success. John Cash Penney would tell his store managers: "Either you or your replacement will greet the customer within the first 60 seconds." Sam Walton, founder of Wal-Mart stores, got trained with J.C. Penney and instituted customer greeting as an on-going service in Wal-Mart stores. Daton-Hudson, the parent company of Target stores, seeing the effectiveness of store greetings, instituted the greeting policy to be competitive with Wal-Mart. When people hear the term marketing many immediately think of advertising on billboards, the radio and television, and periodicals. Some think of the selling processes as marketing, describing it as the process of selling you something that you really did not want or refer to the advocacy that takes place to promote ideas as with public service advertising (see Figure 11.1). Of course these are important parts, but not the whole of marketing. The American Marketing Association defines marketing as the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives. This chapter present an overview of basic marketing concepts: that marketing adds value in the exchange process, utility in marketing, the marketing function, and how firms utilize the environmental factors that influence market planning and strategies such as consumer behavior and market research.

Marketing adds value the Exchange Process

exchange Process by which two or more parties give something of value to one another to satisfy felt needs.

EXCHANGE PROCESS

Gives money, credit, labor, time, trade

Marketing begins when the exchange becomes important to society. Exchange becomes important when people recognize that they cannot produce or supply everything that they need, and in that realization they also recognize that they can produce some goods or services more efficiently and profitably than other goods that they may need. In efficient production, they can over produce and then begin to trade (exchange). Exchange is the process by which two or more parties give something of value to one another to satisfy a determined need.1 For example, a consumer Bus iness offers to writes a check to Sears for s ell products or $541.24 to purchase an s ervices Good service and Industrial Shop Vaccum; customer satisfaction obviously the exchange is the money for the vacuum. So where does marketing fit in? To simplify the explanation, consider a society with only two family units and each Cons um ers have needs capable of producing their own and will give s om ething in exchange food, clothing, and shelter. Are there any unique qualities or skills that these family

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production units posses? That is are there any expertise that gives one unit an advantage over the other, or are they better at producing products than the other. In our example assume that one of the families is an expert at weaving clothing and that the others are skilled farmers. Without exchange, each family must satisfy all of its own food, clothing, and shelter needs, even though the members excel in only one of these areas. The exchange process allows the families to concentrate production on their strengths and then to trade clothing for food and vice versa. This specialization and concentration of labor leads to increased total production and a higher standard of living for both families. Unless each family markets its over-production the exchange process would not occur. By concentrating in specialized abilities and engaging in exchange, the standard of living for all is raised.

Figure 11.1 Using Marketing to Advocate a Viewpoint

Marketing Adds Value, it Creates Utility

Through the activities that enable exchange to take place, marketing adds value to products. This added value is termed utility, the want-satisfying power of a good or service. For example, through the use of raw materials, labor and other inputs, confectioners produce ice cream, which possesses utility. By making ice cream available in a consumable form and when the consumer wants an ice cream, the function of marketing creates utility. The consumer will make buying decisions based on how well the ice cream meets their demands. In this process form utility is produced by converting the raw materials and other inputs into finished goods and Source: Courtesy of American Lung Association services. The marketing function also creates three other utilities: time, place, and ownership. Time utility is created by having a good or service available when the consumer form utility wants to purchase it. The modern society easily achieves time utility. To have milk Converting raw and butter available, one need not have a milk cow and milk her twice a day. materials and other Instead one need only make a quick trip to the local grocery store pick up a gallon inputs into finished of milk and a pound of butter, and that need is met. Go to any drive-through goods and services. restaurant and order hamburger, such as at McDonalds, place your order, pay your money, proceed to the next window and your order is delivered to you in a paper time utility bag. Fully prepared and ready to eat. Need film processed, take 35mm film to Utility created by making MotoPhoto Inc., they create time utility by providing one-hour film processing, goods and services digital film processing to DVD and a video studio in which customers can prepare a available when the video message in just 30 minutes. consumer wants to Place utility is created by having goods or service available in a convenient purchase them. location, easily accessible, when the consumer wants to purchase it. A symphony place utility performance in a park illustrates this utility. Burger King, Wendy's, Taco Bell, and Utility created by making other fast-food restaurants create place utility by opening franchises in locations goods and services convenient to their customers. Coca-Cola has in its marketing plan that no consumer available where the will be more than 100 feet away from a Coca-Cola, place utility is a part of their consumer wants to marketing plan. purchase them. Whenever one deals with the ownership of goods and services one is dealing with ownership utility. It includes the pride of ownership as with real estate, and ownership utility firms are organized to arranging for an orderly transfer of ownership, selling and Utility created by arranging for transfer of creating ownership utility. Retailers create ownership utility by accepting currency ownership at the time of or credit-card payments in the transfer of goods. Marketing adds to the wantpurchase. satisfying power of goods and services by performing eight basic functions.

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Marketing Strategy
Figure 11.2 The Functions of Marketing

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Exhange Functions: Buying Selling

Facilitating Functions: Standardization and Grading Financing Risk Taking Marketing Information

Physical Distribution Functions: Transporting Storing

Eight Functions of Marketing

Marketing entails a lot more than just advertising and selling, it is the whole spectrum of business from conception to consumption. The neophyte thinks of marketing as beginning with the product they want to produce and sell. However, thinking from that locus of thought generally leads to failure, for marketing actually needs to being with the consumer and becomes a complex activity that reaches into many aspects of an organization. Marketing actually involves eight functions: buying, selling, transporting, storing, standardization and grading, financing, risk taking, and market information. These eight marketing functions add to the utility created by marketing with some performed by manufacturers, some by wholesalers, and others by retailers. These functions are grouped as exchange functions, physical distribution functions, and facilitating functions. Exchange functions of marketing is buying and selling. Buying is important as marketers study purchasing habits of consumers for goods and services. Knowing consumer purchasing behavior is critical to a firms success because they firm is able to best decide how to meet the needs of their customers. Retail outlets will buy for the fall season in March and the Christmas season in July. This amount of lead time requires that they have an understanding of their buyers to make their own purchase decisions. The Industrial market purchases replacement machinery, raw materials and equipment upgrades to complete production deadlines and meet their customers needs. Obviously, to succeed, these firms must sell their goods and services to someone. Their selling is accomplished through their promotional strategy; advertising, promotions, sales representatives to the client are the standard sales methods. Physical distribution functions include transportion and storing. Physically moving the product from manufacturer to outlet is transportation. This can occur at all levels of productivity; from primary producer (farmer) to secondary producer (food processor Green Giant canary); from secondary producer to tertiary producer (retail outlet A&P grocery store). In industrial production the retailer cannot store all of the production, so warehousing of goods until the retail consumer/ultimate consumer will take the goods becomes a factor. Storing is accomplished at all three levels of productivity. Facilitating functions is a term that is used to describe those acts that facilitate the market place. Facilitating functions include financing, risk taking, securing market information, standardization and grading. These functions assist the market place perform the exchange function and the physical distribution function. Extending credit to consumers, wholesalers, and retailers is the financing function. Sales always increases the ability to produce more goods and services.

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GRADE: AA

GRADE: A

GRADE: B

How a cracked out egg spreads on the plate via grade.

When the manufacturer receives funds from the wholesaler then the manufacturer can produce additional goods. When retailers extend credit to their customers, they may increase total sales through credit arrangements. Risk taking is dealing with the uncertainties of future market forces and consumer behavior. Farmers grow soybeans without the guarantee that their will be a market for their crop and with the hope that their crop will be able to be harvested without damage or loss. Wholesalers and retailers acquire inventory for resale on the basis of their research of what retail consumers will buy. This action removes the manufacturer's risk and gives it to marketing intermediaries. There is no guarantee for the automotive industry that their new car model will sell in quantity or as rapidly as they manufacture. Manufacturers accept risk when they schedule production of a product speculatively before consumers have entered orders. Standardization and grading deals with standardizing the products in terms of use, size, and form. Many industries standardize their products with modifications to differentiate their product from the competition. There are many different tire manufacturers from which one may select the same size, shape and functionality of tire for an automobile. Grading standards deals with the quality of the product. Eggs are sold in grocery stores by standardized size (weight) and grade. These standards, grades, and weight classes have been developed and are promulgated pursuant to the authorities contained in the Agricultural Marketing Act of 1946, as amended, (7 U.S.C. 1621 et seq.) and are now maintained by the Agricultural Marketing Service, U.S. Department of Agriculture. To illustrate: the standard size of eggs are X-Large, Large, Medium, Small and Pee-Wee, though one generally does not purchase the small and Pee-Wee in grocery stores. Egg grades that may be sold in retail outlets include AA, A, and B. The size of an egg is established by its weight and the grade of the egg is established by its shell characteristics, clarity in candling, and freedom from defects and diseases. Marketers collect and analyze market information to determine what will sell and who will buy it. Marketers are concerned with the buyer behavior and consumer patterns. Organizations that focus on discovering consumer needs and then

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developing goods and services to fill those needs have adopted a managerial approach referred to as the marketing concept.

The Marketing Concept

When people engage in marketing activities, they have consumer needs and desires clearly in mind. Beginning with the Industrial Revolution of the 19th century and the evolved ability to mass produce products, business emphasized production. New manufactured goods were such a novelty, demand was present, and managers concerned themselves with increased production and production efficiency rather than consumer preferences. During this period marketing concerned itself with taking orders and shipping goods. Into the 20th century, manufacturers discovered that their supply was catching up with consumer demand and in some cases an overabundance of goods. Overabundance was especially prevalent after World War I, when European producers could go back to production, and this affected production in the United States. Needing to sell their products where consumers had increasing choices and their demand was declining, business had to change their emphasis from production (as it was mastered) to a sales emphasis. Companies began using sophisticated advertising and sales techniques to increase demand for existing products. The shift from a seller's market to a buyer's market occured in the immediate post-World War II era. Industry shifted from wartime production to consumer goods to meet pent up demand because supplies were directed to war efforts and consumers increased savings. This required a change in the way firms conducted their business. Firms began to develop a consumer orientation and the marketing concept had started to evolve. In the 1950s, General Electric was one of the first companies to state a policy of customer satisfaction. In its 1952 annual report of that year gave one of the clearest statements of the new approach to focus on customer satisfaction being integrated into each phase of business: (The concept) introduces the marketing man at the beginning rather than at the end of the production cycle, and integrates marketing into each phase of the business. Thus, marketing, through its studies and research, will establish for the engineer, the design and manufacturing man, what the consumer wants in a given product, what price he is willing to pay, and where and when it will be wanted. Marketing will have authority in product planning, production, scheduling, and inventory control, as well as in sales, distribution, and servicing of the product.2 The policy of customer satisfaction has become known as the marketing concept. The marketing concept can be defined as an organizationwide consumer orientation with the objective of achieving long-run success. Both profit-oriented

marketing concept Organizationwide consumer orientation with the objective of achieving long-run success.

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and nonprofit organizations have adopted the marketing concept as a guide to operating their enterprises. The basic goal is to target all of the organization's efforts by satisfying consumer needs. How did the marketing concept evolve? Originally, most organizations are production oriented; their primary concern is just being able to supply their product or service. This situation is known as a seller's market: one characterized by shortages. Later, as production meets and exceeds buyers needs, a buyer's market evolves; this situation is characterized by adequate or even excess supplies. Marketing is then required to implement the exchange process. Tennant Company, is a 130-year-old floor care equipment manufacturer that started out as a lumber company. They made wood floors, formulated the waxes to be put on the floors and developed mechanized methods to take the old waxes off. As Janet Dolan, CEO, and the 25th woman to head a New York Stock Exchange company says that their machine, almost like the razor blade and the razor, was really only a vehicle to sell more wax. The firm's consumer orientation extends to its customer service and promotional strategies. Consumers are encouraged to use a toll-free telephone number to ask questions and suggest product improvements. In this business are there fears of a slowing economy or recession? Of course, nobody likes to do business in a slowing economy. Theres is less cyclical than at any time in the past because of the new segments they ventured into. They engage in more business outside North America, with more business coming from direct service, and after-market. They have become a very responsive company. 3

seller's market Market situation characterized by shortages. buyer's market Market situation characterized by adequate or even excess supplies.

Marketing in Nonprofit Organizations

Adopting the marketing concept has become as important to nonprofit organizations as it has to profit-seeking businesses. Increased competition and cutbacks in government funding prompt many nonprofit groups to conduct marketing research and study consumer behavior. Fund-raising groups such as United Way of America have studied the giving habits of baby boomers, people born between 1946 and 1964, because this group represents a source of significant growth in charitable giving in the next two decades. Research indicates baby

Figure 11.4 Organization Marketing

Source: Courtesy of the United Performing Arts Fund of Milwaukee, and Kloppenburg, Sitzer & Teich, Inc.

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person marketing Marketing efforts designed to cultivate the attention, interest, and preference of a target market toward a person. place marketing Marketing efforts designed to attract people to a particular geographical area.

idea marketing Marketing efforts designed to promote a cause or social issue.

organization marketing Marketing efforts designed to influence others to accept the goals of, receive the services of, or contribute in some way to an organization.

boomers prefer to support causes related to individual needs, such as homelessness and battered women, and want to know specific information about how their contributions are spent. To gain the support of this group, United Way is funding more agencies that deal with homelessness, day care, and women's centers. United Way also prepares newspaper stories that give detailed information about how funds are allocated and benefit specific agencies.4 The nonprofit sector consists of some 900,000 organizations. They include museums, colleges and universities, symphony orchestras, churches and synagogs, government agencies, political parties, labor unions and service clubs. Nonprofit groups may be classified as either public or private. San Francisco State University is a public, nonprofit organization, while the University of San Francisco, a Jesuit institution, is a private, nonprofit organization that is open to the public. Like profit-seeking firms, nonprofit organizations may market a tangible good or an intangible service. The U.S. Postal Service, for example, offers stamps (a tangible good) and mail delivery (an intangible service). Four types of nonprofit marketing are person marketing, place marketing, idea marketing, and organization marketing. Person marketing refers to efforts designed to cultivate the attention, interest, and preference of a target market toward a person.5 The marketing of a political candidate is an example. Campaign managers conduct marketing research to identify voters and financial supporters and then design promotions such as advertising, fund-raising dinners, and political rallies to reach the voters and donors. Place marketing refers to attempts to attract people to a particular area such as a city, state, or country. Several states, for example, have developed marketing campaigns to attract foreign tourists. Illinois launched a television advertising campaign in Great Britain with the theme "America's best kept secret: Chicago" and developed a fly-and-drive package to attract British tourists to the state. Florida spent $1 million on television advertising campaigns in Argentina, Mexico, and Venezuela to attract Spanish-speaking tourists.6 Idea marketing refers to the marketing of a cause or social issue. Idea marketing covers a wide range of issues, including birth defects, child abuse, physical fitness, an armed citizenry is a safe citizenry, overeating, and drunken driving. Kiwanis International is a nonprofit community service group that promotes civic participation in ones community though various charitable activites. Kiwanis groups around the country sponsor Boys and Girls Scout troups, local educational scholarships, the American Red Cross, Salvation Army and numerous other community activities. Organization marketing attempts to influence others to accept the goals of, receive the services of, or contribute in some way to an organization. For example, through advertisements such as the one in Figure 11.4, the United Performing Arts Fund of Milwaukee tries to persuade people to contribute funds to several performing-arts groups.

Developing a Marketing Strategy

All organizations, whether profit-oriented or nonprofit, need to develop a marketing strategy to effectively reach consumers. This two-step process involves: 1. 2. Studying, analyzing, and eventually selecting a firm's target market. Developing a marketing mix to satisfy the chosen target market.

Selecting a Target Market

target market Group of consumers toward which a firm decides to direct its marketing efforts.

Consumer needs and wants vary considerably, and no single organization has the resources to satisfy the desires of all consumers. Therefore, the first decision marketers make when developing a marketing strategy is to select a target market. A target market is a group of consumers toward which a firm decides to direct its marketing efforts. Consider the following examples:

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Approaches to Selecting a Target Market Market segmentation approach Chicken Tyson Foods Total make approach Automobiles Ford Motor Co.

Intermediate Cars

Sports Cars

Compact Cars

Luxury Cars

RollsRoyce

Nestle targets its Oh Henry! candy bar at teens and young adults 12 to 24 years old, but its Alpine White brand is targeted at upscale men and women 18 to 34 years old. Pier 1 Imports, a retailer of wicker furniture and home furnishings, targets 25to 44-year-old women who are well traveled, have some college education, and have an annual income of $35,000. The Saab target market consists of well-educated, 30- to 40-year-old professionals and managers with household incomes of $50,000 to $100,000.

marketing mix Combination of a firm's product, pricing, distribution, and promotional strategies focused on selected consumer segments. product strategy Element of marketing decision making that deals with developing goods and services, package design, trademarks, warranties, and product life cycles. pricing strategy Element of marketing decision making that deals with methods of setting profitable and justifiable prices. distribution strategy Element of marketing decision making involving the physical distribution of goods and the selection of distribution channels.

Sometimes an organization chooses several target markets for a given good or service. A college or university might select several target markets for its $10 million fund-raising campaign: alumni, wealthy individuals, foundations, and local businesses. Target marketing requires considerable research and analysis.

Developing a Marketing Mix

The second step in the development of a marketing strategy is creating a marketing mix to satisfy the needs of the organization's target market. The marketing mix is a combination of the firm's product, pricing, distribution, and promotion strategies. Marketers focus all of these strategies on the selected consumer segments. Product strategy includes decisions about package, design, brand name, trademark, warranty, guarantee, product life cycle, and new-product developments. Pricing strategy is one of the most difficult parts of marketing decision making. It deals with the methods of setting profitable and justifiable prices. Both government regulations and public opinion must be considered in pricing decisions. Distribution strategy involves the physical distribution of goods and the selection of distribution channels, the organization of wholesaling

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Figure 11.5 The Marketing Environment

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Competitive Environment

Product Political/ Legal Enviroment

Price Social/ Cultural Environment

Target Market

Distribution

Promotion

Economic Environment

Technological

promotional strategy Element of marketing decision making involving the blending of personal selling, advertising, and sales promotion tools to produce effective communication between the firm and the marketplace.

intermediaries and/or retailers who handle the product's distribution. Promotional strategy involves personal selling, advertising, and sales promotion tools. These elements must be skillfully blended to produce effective communication between the firm and the marketplace. The marketing mix is the mechanism that allows organizations to match consumer needs with product offerings. To illustrate how marketing mix elements are combined to satisfy the needs of the target market, consider the marketing strategy developed by Chuck Bennett, president and founder of Zymol Car Care Products. Several years ago, Bennett introduced the world's most expensive car wax, a product targeted at "lovers of cars and fanatics." The wax is a natural,

Figure 11.6 Advertisement Appealing to a Current Social Trend

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nonabrasive compound containing expensive oils and a coconut scent. It is produced in small batches and packaged in a high-tech container imported from Sweden. The price$22.95 for a 9-ounce containerreflects the product's prestige image and expensive ingredients. Zymol is sold at automobile supply stores and through directresponse advertisements placed in publications read by target customers, such as BMW's Roundel, Mercedes' Star, and Porsche's Panorama, as well as Autoweek and Import Parts & Accessories. Advertisements are designed to appeal to owners of expensive cars. In one ad, headlined "Not for the masses," the Zymol container rests in a brandy warmer next to a mound of caviar on a crystal plate. The advertising copy communicates a simple message"Collected and enjoyed by the owners of the best loved automobiles in the world.''7

The Marketing Environment

In selecting a target market and developing a marketing mix, marketers must consider certain environmental forces. The five dimensions of the marketing environment are competitive, political/legal, economic, technological, and social/ cultural. As Figure 11.5 illustrates, these external forces provide the framework within which marketers plan product, pricing, distribution, and promotion strategies aimed at the target market. The Competitive Environment. Marketers must continually monitor the marketing activities of competing organizations. Analyzing the competition enables an organization to devise a strategy that will give it a competitive edge. When Roadway Package Service decided to enter the small-package delivery field in the mid-1980s, the firm's marketers studied the system used by United Parcel Service, the leader in national small-package delivery. As a result, RPS invested $43 million in high-technology equipment that would provide customers with services not offered by UPS, such as itemized computer billing, bar code scanners for package tracing, and a toll-free telephone number for package tracking and claims processing. RPS set prices similar to those of UPS, but offered a volume discount of up to 8 percent to attract new business, something the competition had never done. Bram Johnson, the marketing vice-president of RPS, said, "We thought that if we could put together a better product, we had a chance to compete."8 The Political/Legal Environment. Governments at the federal, state, and local levels have enacted laws that regulate many marketing activities, ranging from package labeling to product safety. Most laws are designed to maintain a competitive environment and protect consumers. Marketers must not only be aware of the many laws, but they must also comply with them. Noncompliance could result in fines, negative publicity, and expensive civil damage suits. Two telemarketing firms were assessed fines and also barred from doing business in the state of New York because they violated a federal law that prohibits deceptive trade practices and misleading advertising. Consumers complained that the firms misled them by promising expensive prizes, such as a Mercedes-Benz car or a fur coat, in return for vitamin purchases, but that the telemarketers never delivered the promised prizes.9 The Economic Environment. Economic factors such as inflation, unemployment, and business cycles influence how much consumers are willing and able to spend and what they buy. Marketers' understanding of how economic factors influence consumer buying behavior allows them to adjust their marketing mix strategies. For example, during a recession, consumers are more apt to buy basic products with low prices. Marketers might respond by lowering prices and increasing promotional spending to stimulate demand. During times of properity, consumers are more willing to purchase higher-priced goods and services, therefore, different marketing strategies are constructed. Marketers might then consider raising prices, expanding distribution, and expanding product lines.

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The Technological Environment. Changes in technology have a significant impact on how marketers design, produce, price, distribute, and promote their goods and services. New technology can make a product obsolete; for example, calculators wiped out the market for slide rules. Adapting new technology can give an organization a competitive advantage and create new marketing opportunities. The new technology of interactive television, which allows viewers to alter programs, gives marketers the chance to advertise to very specific market segments.10 The Social/Cultural Environment. Because consumer values change, marketers must keep abreast of these changes to ensure that their marketing strategies are effective. The line of exercise clothing shown in the advertisement in Figure 11.6 reflects a current social trendAmericans' concern with health and fitness. Like Puma, many other organizations have developed goods and services for our healthand fitness-conscious society. Supermarket shelves are lined with low-salt, lowcholesterol, and vitamin-fortified products. Weight-loss centers and aerobics classes have sprouted up across the country, and many offer special programs for all ages, ranging from tots to seniors. Some firms target busy professionals by marketing exercise equipment for the home. All organizations are affected by the external forces in the marketing environment to some extent. And in many cases marketing managers have little or no control over them. But marketers must still monitor the forces and assess the impact they have on their goods and services and marketing practices. In the following sections, we will discuss how marketers assess consumer needs and segment consumer and industrial markets.

What Is a Market?
A market consist of people, buyers and sellers, with purchasing power and the authority to buy. A market also consists of sellers ready to deliver goods and services. A market consists of people; whether they are consumers, procurement officers for local, state, or federal governments, or the purchasing department of a nearby plant. But people do not make a market. Many college students may desire a new Porsche 944 Turbo, but few have the funds needed to complete this transaction. A market consists of people with purchasing power and the authority to buy. One of the first rules the successful salesman learns is to determine which person in a firm has the authority to make purchase decisions. Salespeople have wasted hours convincing the director of purchasing about the merits of a particular product or group of products, only to discover that the ultimate buying decision actually rests with the design engineer.

market People with the authority, financial ability, and willingness to purchase goods and services.

consumer goods Goods and services purchased by the ultimate consumer for their own use.

Consumer and Industrial Markets

Markets can be classified by the types of products they handle. The two major categories of products are consumer and industrial goods. Consumer goods are those goods and services purchased by the ultimate consumer for their own use. Most of the products you buytoilet paper, toothpaste, shoes, and hamburgers are consumer goods. Industrial goods are products purchased to be used, either directly or indirectly, in the production of other goods for resale. Cattle Feed, fertilizer, and steel are industrial products. Hercules Inc. is a firm that markets a variety of industrial goods that other firms purchase to make their own products. The advertisement in Figure 11.7 points out how firms that make adhesives can benefit by using a Hercules resin. Services can be classified as either consumer or industrial. Sometimes the same product has different uses, creating a classification dilemma. The bottle of ketchup purchased by the home shopper at the supermarket clearly is classified as a consumer good; yet ketchup purchased by McDonald's is

industrial goods Goods purchased to be used directly or indirectly in the production of other goods for resale.

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considered an industrial good. Proper classification of products should be based on the purchaser and the reasons for buying the item. A calculator purchased as a back-toschool gift is a consumer good, but a calculator used by the manager of the nearby Dairy Queen store is an industrial good. Marketers must be familiar with a market's buying patterns and the purchasing behavior of those involved. This knowledge is critical when marketers deal with consumer and industrial goods and services.

THE WRONG ADHESIVE CAN RUIN A COMPANYS IMAGE OVERNIGHT.

Consumer Behavior
Consumer behavior can be defined as "those acts of individuals directly involved in obtaining, using, and disposing of economic goods and services, including the decision processes that precede and determine these acts.''11 Both consumers and industrial purchasers are included in this definition. The study of consumer behavior allows marketers to identify the critical segments in their marketplace and to develop appropriate marketing strategies for reaching these people. Canada Dry Corporation studied the behavior of people age 30 and older, the target market for its ginger ale, because this segment is crucial to the soft drink's sales growth. The studies revealed that adults stay home more, are less interested in appearances, do not follow fads, value family life, and search for things that are simple and uncomplicated. The analysis helped Canada Dry marketers develop advertising that appeals to these values. One television commercial features a woman who admits she sought excitement as a youth but now enjoys quiet evenings at home. Another showed a couple in their thirties turning down a night on the town for a relaxing at-home dinner of Chinese take-out food and ginger ale. The campaign reversed a declining sales trend and increased the ginger ale's market share. The study of consumer behavior also prompted Canada Dry to reformulate its diet ginger ale, making it less sweet and more gingery, because older drinkers prefer a drier, less sweet flavor.12

consumer behavior The acts of individuals in obtaining and using economic goods and services, including the decision processes that precede and determine these acts.

Influences on Consumer Buying Behavior

Both personal and interpersonal factors influence consumer behavior. The personal influences on consumer behavior are needs and motives, perceptions, attitudes, learned experiences, and self-concept. Marketers frequently use psychological techniques to understand what motivates people to buy and to study consumers' emotional reactions to goods and services. McCann-Erickson, the advertising agency for the American Express Gold Card account, wanted to find out how consumers' perceptions of gold-card users and green-card users differed. Consumers were asked to draw stick figures of each type of cardholder. One set of sketches showed the gold-card user as a person with broad shoulders in an active stance and the green-card user as a "couch potato" watching television. Based on these drawings and other research, the agency decided to market the premium gold card as "a symbol of responsibility for people who have control over their lives and finances.''13 The interpersonal determinants of consumer behavior include cultural influences, social influences, and family influences. The marketing approach used by Polaroid Corporation in promoting its Cool Cam instant camera for children age

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Figure 11.8

Marketing Strategy
Social and Family Influences on Buying Behavior

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Source: Courtesy of Polaroid Corporation.

9 and older recognizes how both social and family influences affect buying decisions. The advertisement in Figure 11.8 explains that children would want the Cool Cam for social reasons, because it "will make them the envy of all their friends" and "help them look cool." Parents, however, would buy the camera because they see it as "a learning tool that can help children view their surroundings in ways they never thought of." Cultural characteristics also affect buying decisions. Many marketers are aware of the important role the family plays in the cultures of Hispanics and Asian-Americans and use family-oriented themes in targeting these groups. For example; American Telephone & Telegraph commercials using the theme "This closeonly with AT&T" show Hispanics longing for their relatives in their homeland and then picking up the phone and calling them.14 Industrial purchasers also face a variety of organizational influences. Many people play a role in an industrial purchase. A design engineer may be instrumental in setting the specifications that potential vendors must satisfy. A purchasing manager invites selected companies to bid on the purchase. A production supervisor is responsible for evaluating the operational aspects of the proposals that are received. And the vicepresident of manufacturing makes the final purchase decision.

Consumer Decision Making

Consumer decision making follows a sequential process, shown in Figure 11.9. The sequence begins with the recognition that a consumer behavior problem or opportunity exists. An example could be a consumer who needs a new pair of shoes. The second step is search, during which the consumer seeks out information about the contemplated purchase. The alternatives (such as different brands) are delineated and evaluated. The consumer attempts to get the best response to their perceived problem or opportunity. Finally a decision is reached and the transaction is completed. Later, consumers evaluate their experience with the purchase. This postmortem then becomes the feedback that is considered in repeat purchase decisions. Both interpersonal and personal determinants of consumer behavior affect the various steps in the sequence.

Marketing Research
marketing research The information function that links the marketer to the marketplace.

How should a firm collect information about potential target markets that could be used in designing effective marketing mixes? For most organizations, the answer is marketing researchthe information function that links the marketer to the marketplace. Marketers conduct research to: 1. identify marketing opportunities and problems 2. analyze competitors' strategies 3. assess consumer behavior

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Figure 11.9 Steps in the Consumer Decision-Making Process

The Consumer Decision Process

Problem or Opportunity Recognition

Interpersonal determinants
Family influences Social influences Cultural influences

Search

Personal Determinants Evaluate Alternatives

Needs and motives Perception Attitudes Learning Self-Concept

Purchase Decision

Purchase

Postpurchase Evaluation Buyers Remorse

Feedback

Source: James F. Engle, Roger D. Blackwell, and Paul W. Miniard, Consumer Behavior, 6th. ed. (Hinsdale, Il.; The Dryden Press, 1990).

4. gauge the performance of existing products and package designs and assess the potential of new ones 5. develop price, promotion, and distribution plans Marketing research involves more than just collecting information. Researchers must decide how to collect the information, interpret the results of research findings, and communicate the results to managers for their use in decision making.

Obtaining Marketing Research Data

Marketing researchers are concerned with both internal and external data. Internal data is generated within the organization. A tremendous amount of useful information is available from financial records. Data can be obtained on changes in accounts receivable, inventory levels, customers, product lines, profitability of particular divisions, or comparisons of sales by territories, sales staff, customers, or product lines. External data is generated outside the firm and can be obtained from previously published data. Trade associations, for example, publish reports on activities in particular industries. Advertising agencies collect information on the audiences
internal data Data generated within the organization.

external data Data generated outside the organization.

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reached by various media. National marketing research firms offer information to organizations on a subscription basis. For example, Information Resources Inc. offers a national scanning service that tracks consumer purchases of every supermarket product sold with a Universal Product Code. The service integrates store sales and household purchase data, giving marketers information on their brand's buyers, store loyalty, and general shopping behavior. Federal, state, and local government publications are the marketing researcher's most important data source. The most frequently used government statistics are census data. Data is available on population characteristics such as age, gender, race, education levels, household size and composition, occupation, employment status, and income. Such data enables marketers to assess certain segments of the population, anticipate changes in their markets, and identify markets with growth potential. In addition to using published data, marketing researchers also gather information by conducting observational studies and surveys. In observational studies, researchers actually view the actions of the respondents, either directly or through mechanical devices. Traffic counts are used to determine the best location for a new fast-food restaurant. Researchers use people meters to observe television audience viewership. People meters are electronic, remote control devices that record the viewing habits of each household member. The viewer information is used to measure a program's success and to set advertising rates. Some information cannot be obtained through observation. When information is needed about attitudes, opinions, and motives, the researchers must ask questions by conducting a survey. Survey methods include telephone interviews, mail surveys, personal interviews, and focus group interviews. In a focus group interview, 8 to 12 individuals are brought together in one location to discuss a subject of interest. Focus groups are an important research tool because they provide marketers with insights into why consumers buy or do not buy their goods

Janet Patterson, the research director of WBZ-TV in Boston, conducts a focus group interview on the set of Rap-Around, a talk show for teenagers. Such interviews help the station develop news, entertainment, and public service programming that responds to viewers' interests and needs.

Photo source: Courtesy of Westinghouse Electric Corporation.

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and services. Ideas generated during focus group interviews are especially helpful to marketers in developing new products, improving existing products, and creating effective advertising campaigns.

Applying Marketing Research Data

The information collected by researchers is valuable only when it can be used to make decisions that conform to an overall corporate plan. All marketing research should be done within the framework of the organization's strategic plan. The marketing research activities of General Motors, for example, are directed toward implementing a new corporate strategy of designing cars for specific market segments rather than for the mass market. To determine which features and accessories each targeted segment desires, GM conducts focus group interviews with consumers and dealers and mail and telephone surveys with GM car owners and owners of competing models. GM uses the information it collects by creating a market-research model that enables its engineers to apply the research findings to the design of new cars. GM's research efforts resulted in about 75 improvements in its GM10 line of midsize cars. One improvement came from a focus group session that showed consumers wanted a device more convenient than a small lever to adjust the front seats of a car. GM engineers responded to this desire by designing a long metal bar that permits simple access for seat movement.15

Market Segmentation
It is important to be able to clearly define who one's customers are or are intended to be. Market segmentation allows marketers to determine how and why people buy products and services. Market segmentation is the process of dividing the total market into several relatively homogeneous groups. Both profit-oriented and nonprofit organizations use market segmentation to help define their target markets. Figure 11.10 shows that markets can be segmented on a variety of bases. Consumer marketers can use demographic, geographic, psychographic, and benefit segmentation. By contrast, industrial marketers use geographic segmentation, product segmentation, and segmentation by end-use application.

market segmentation Process of dividing the total market into several relatively homogeneous groups.

Segmenting Consumer Markets

Factors like age, income, place of residence, life-style, and relative product use have all been used to segment consumer markets. The most common basis for segmenting consumer markets is the demographic approach. Geographic segmentation has been used for centuries, but more recently marketers have turned to psychographic and benefit segmentation. Demographic Segmentation. Demographic segmentation divides markets on the basis of demographic, or socioeconomic, characteristics. Gender, income, age, occupation, household size, education, and family life-cycle stage have all been used in demographic segmentation. A great amount of data is available for assisting marketers in segmenting potential markets on a demographic basis. Recent studies indicate children are expanding their roles as consumers. About 32 million consumers are children with an estimated purchasing power of $4.2 billion for 5- to 12-year-olds and $30.5 billion for 13- to 18-year-olds. Children's influence on their parents' buying decisions has also increased. The rise in the number of working couples and single-parent households gives children more responsibility in purchasing groceries. Firms in many industries are creating products and developing promotions targeted at this demographic group. Kmart launched Walden Kids, a chain of bookstores for children in preschool to age 12. Oral-B Laboratories targets its Muppets and Sesame Street line of toothpastes at 2-

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Figure 11.10 Bases for Market Segmentation

Consumer Markets Industrial Markets

Demographic

Geographic Geographic Product

Psychographic

Benefit End-Use

to 8-year-olds and creates television commercials aimed at this age group. Marketing aimed at children not only emphasizes their current roles as consumers, but is also intended to build loyalty. First Women's Bank in New York opened a bank for children in the F.A.O. Schwartz toy store. The president of First Women's says, "What better way to build loyalty to a bank than to get them while they are young." A similar strategy inspired the U.S. Army, Marines, and Air Force to place ads in children's magazines such as Boys' Life and Scholastic.16 Geographic Segmentation. Marketers often study population data in their efforts to segment markets. In fact, geographic segmentation is one of the oldest segmentation bases available. It can be extremely useful when consumer preferences and purchase patterns for a product or service differ along regional lines. But one of the problems marketers face is that marketplaces keep shifting. For instance, there has been a decided movement in the U.S. population to the Sunbelt and coastal areas and westward. Campbell Soup Company is an example of a consumer products firm that segments markets by geographic location. Campbell divides the country into 22 geographic regions and develops products and promotions targeted at each defined area. Region-specific products include creole soup, which is sold only in the South, and red-bean soup, which is marketed in areas with large populations of Hispanics. Because beer drinkers' tastes vary considerably in different parts of the country, G. Heileman Brewing Company markets a number of regional brands and develops advertising for each region. In Pittsburgh, Heileman promotes its Iron City beer with the campaign theme "You Can't Keep an Iron Man Down." Heileman takes a different approach in the southern half of Texas, an area hard-hit by recession, by using the theme "The Lone Star Is on the Rise Again" to promote its Lone Star brand.17 Psychographic Segmentation. Psychographic segmentation uses behavioral and life-style profiles to segment markets. Psychographic analysis seeks to further define the various groups of individuals in American society. This enables firms to tailor their marketing approach to a carefully chosen market segment. SRI International, a marketing research firm, conducted a study to identify lifestyle

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categories that would be useful in market segmentation. The resulting Values and Lifestyles Program (VALS) categorizes individuals into nine life-styles: survivors, sustainers, belongers, emulators, achievers, I-am-me, experiential, societally conscious, and integrated.18 St. Rose Hospital of Hayward, California, decided to use the VALS concept of segmentation when consumer research indicated advertisements for its new emergency-room services were ineffective. The hospital learned that the ads, which focused on the speed and cost of service, meant little to potential customers. St. Rose's market is dominated by "belongers," people who have traditional values and are intensely patriotic and sentimental. They respond to ads that soothe their anxiety and emphasize the predictability of health-care service. Armed with this knowledge, St. Rose developed a direct-mail advertising campaign that emphasized how many years the hospital had been in business and used the reassuring theme of the hospital's ability to keep "small worries from growing into big ones." The new campaign appealed to the target audience and quickly improved the hospital's business and enhanced its image.19 Benefit Segmentation. Market segments may also be identified by the benefits buyers may expect to derive from a good or service. In recent years, socks have become a fashion item, and many sock makers now market their goods as a fashion accessory. But Foot-Joy's brand of Joy Walker Socks offers a benefit that targets a market segment more concerned about foot comfort than fashion. In the advertisement in Figure 11.11, the company admits its socks are ugly but explains how they are designed to improve circulation, thus promising consumers the benefit of foot comfort. When differences among competing goods or services are slight, firms may tailor their promotions to highlight benefits that appeal to a certain market segment. Advertising by U.S. airlines takes this approach. In targeting business travelers, American Airlines created advertisements promoting its dependable, on-time performance. In the ads, American refers to itself as the "on-time machine" and reports it has the fewest delayed flights of all major airlines. By contrast, United Air Lines targets business travelers with a campaign theme focusing on customer service "Rededicated to giving you the service you deserve." The benefit that US Air offers to business travelers is frequent Figure 11.11 Segmenting Markets by scheduling of flights to key destinations.20 Product Benefits

Segmenting Industrial Markets

It is also possible to use market segmentation in industrial markets. The procedure is similar to that employed in consumer markets, where the bulk of the research has been conducted. The three approaches to industrial market segmentation are geographic segmentation, product segmentation, and segmentation by end-use application. Geographic segmentation would be useful in geographically concentrated industries like aircraft manufacturing. Product segmentation refers to developing products to meet specific buyer requirements, such as the purchase of police cars. Segmentation by end-use application considers how the buyer will use the product or service. For instance, Northrop's F-20 was designed for export to nations that wanted a low-cost, general-purpose fighter aircraft. Unfortunately for the manufacturer, the F-20 did not find any overseas customers. Segmentation is a market tool of growing importance in industrial markets.

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Summary of Learning Goals
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Explain how marketing's role in the exchange process creates utility. Exchange is the process by which two or more parties give something of value to one another to satisfy felt needs. Marketing is closely linked with the exchange process. It creates utilitythe want-satisfying power of a good or serviceby having the product available when and where the consumer wants to buy it and by arranging for an orderly transfer of ownership. While production creates form utility, marketing creates time, place, and ownership utility. Identify the major functions of marketing. Marketing is more than just selling. In fact, there are eight basic functions of marketing: buying, selling, transporting, storing, standardization and grading, financing, risk taking, and acquiring market information. Define the marketing concept. The marketing concept is a managerial philosophy that requires an organizationwide consumer orientation with the objective of achieving long-run success. Both profit-oriented and nonprofit organizations use the marketing concept. Discuss how a marketing strategy is developed. The development of a marketing strategy is a two-step process: (1) studying, analyzing, and eventually selecting the organization's target marketthe group of customers toward which a firm decides to direct its marketing efforts, and (2) developing a marketing mix that will reach the organization's target market. The marketing mix is a combination of the firm's product, pricing, distribution, and promotional strategies. Explain the five environmental forces that influence marketing decision making. The five environmental forces influencing marketing decision making are competitive, political/legal, economic, technological, and social/ cultural. Marketers must monitor these forces and assess the impact they may have on their goods and services and marketing practices. Discuss the concept of a market. A market consists of people with purchasing power and the authority to buy. Markets can be classified on the basis of the types of products they handle. Consumers goods are those goods and services purchased by the ultimate consumer for their own use. Industrial goods are products purchased to be used, directly or indirectly, in the production of other goods for resale. Outline why the study of consumer behavior is important to marketing. Consumer behavior deals with why and how people buy things. This information is crucial to marketers if they are to successfully market a product or service. Marketers must understand the personal and interpersonal influences on consumer behavior as well as the organizational influences that affect industrial purchasers. It is also important that marketers understand the steps involved in consumer decision making: problem or opportunity recognition, search, evaluation, buying decision, transaction, and feedback. Explain the marketing research function. Marketing research is the information function that links the marketers to the marketplace. It involves collecting information, interpreting the results of research findings, and communicating the results to managers for their use in decision making. Information can be obtained from internal data, such as financial records, and external data published by the government, trade associations, and research firms. Researchers also gather information by conducting observational studies, telephone interviews, mail surveys, personal interviews, and focus group interviews. Marketing research enables organizations to identify marketing problems and opportunities, to assess

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competitors' strategies, to understand consumer buying behavior, and to develop effective marketing mixes. 9. Outline and explain the bases used to segment markets. Consumer markets may be divided on four bases: demographic, geographic, psychographic, or benefit segmentation. Demographic segmentation divides the market into groups based on characteristics such as gender, age, income, occupation, and household composition. Geographic segmentation divides the overall market into groups on the basis of population location. Psychographic segmentation uses behavioral and life-style profiles to segment markets. Benefit segmentation divides a market on the basis of benefits consumers expect to derive from a good or service. Bases for segmenting industrial markets include geographic segmentation, product segmentation, and segmentation by end-use application.

Questions for Discussion and Review

1. What type of utility is created by the following? a. Emery Air Freight's shipment of a fast-selling fad item b. A Giant supermarket c. The finishing department of a furniture factory d. An escrow company that handles the details of a property transfer List various examples of marketers who are performing each of the eight basic functions of marketing. What, if anything, does this list suggest? Swanson's Le Menu frozen food line is targeted at 25- to 54-year-olds with a salary of $30,000 or more in one- or two-person households. What type of segmentation strategy is being employed for this product? Discuss. How successfully do you think the following organizations have adopted the marketing concept? a. Procter & Gamble b. The college you are attending c. Texaco d. Florida Power & Light Identify the likely target markets of each of the following: a. Washington Redskins b. Midas Muffler c. H&R Block tax service d. Cadillac DeVille e. Supercuts hair salons Develop a marketing strategy for a Western Bar-B-Que restaurant in your community. Defend your marketing strategy decisions. Explain how the competitive, political/legal, economic, technological, and social/cultural environments influence marketing strategy. What is meant by a market? Distinguish between consumer and industrial markets.

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9. Outline the steps in the consumer decision-making process.

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10. Describe the various methods of gathering survey data. 11. Match the four bases of consumer market segmentation(1) geographic segmentation, (2) demographic segmentation, (3) psychographic segmentation, and (4) benefit segmentationwith the following segmentation variables: ____ a. Life-style ____ b. Gender ____ c. Urban/suburban/rural ____ d. The social contacts provided by a private country club

END NOTES
1. Richard B. Bagozzi, "Marketing as an Organizational System of Exchange," Journal of Marketing, October 1974, p. 77. Further work by Bagozzi on this subject appears in "Marketing as Exchange," Journal of Marketing, October 1975, pp. 32 - 39, and "Marketing as Exchange: A Theory of Transactions in the Marketplace," American Behavioral Scientist, March-April 1978, pp. 535-536. General Electric 1952 Annual Report, p. 21. CMM Staff, Giving customers what they want, CM Exclusive Q&A with Janet Dolan; Cleaning & Maintenance Management magazine; http://www.cmmonline.com/article.asp?IndexID=6631540, March 2001 Mary-Paige Royer, "Please Give Generously, Okay?" American Demographics, June 1988, pp. 35 - 37, 58, 60. "Selling of Self," Marketing News, August 15, 1987, pp. 4, 11. Jamet Meyers, "States Lure Foreign Tourists," Advertising Age, March 14, 1988, p. 38. Amy Zipkin, "Car Lovers Take a Shine to Beauty Treatment," Advertising Age, May 16, 1988, pp. S-12S-13. Len Strazewski, "Path Clear for Roadway Expansion," Advertising Age, June 20, 1988 pp. S-9S-10. "Telemarketing Firms Barred from New York," Marketing News, October 24, 1988, p. 5. Otis Port, Katherine M. Hafner, and Robert Block, "TV That Lets the Viewer Call the Shots," Business Week, May 2, 1988, pp. 100-104. James F. Engel, Roger D. Blackwell, and Paul W. Miniard, Consumer Behavior, 5th ed. (Hinsdale, Ill.: The Dryden Press, 1986), p. 5. Patricia Winters, "Using Pop Psychology?" Advertising Age, June 6, 1988, p. 70. Ronald Alsop, "Advertisers Put Consumers on the Couch," The Wall Street Journal, May 13, 1988, p. 19. Pete Engardio, Walecia Konrad, Ronald Grover, Jo Ellen Davis, and Lois Therrien, "Fast Times on Avenida Madison," Business Week, June 6, 1988, pp. 62-67. David Kiley, "At Long Last, Detroit Gives Consumers the Right of Way," Adweek's Marketing Week, June 6, 1988, pp. 26 - 28. Horst H. Stipp, "Children as Consumers, " American Demographics, February 1988, pp. 27 - 32; Joe Agnew, "Children Come of Age as Consumers," Marketing News, December 4,1987, pp.8-9; and Laurie Freeman, "Colgate Makes Play for Kids' Market," Advertising Age, September 12, 1988, p.24. Quote is from Ellen Graham, "As Kids Gain Power of Purse, Marketing Takes Aim at Them," The Wall Street Journal, January 19, 1988, pp. 1, 23. Ira Teinowitz, "Heileman Focuses on Regional Brands," Advertising Age, May 2, 1988, p. 81; and Christine Donahue, "Campbell Soup May Restructure in Favor of Regional Marketing," Adweek's Marketing Week, May 4, 1987, pp. 1, 8. Aimee Stern, "Tired of Playing Mind Games," Adweek's Marketing Week July 13, 1987, pp. 1, 6. Michael Hiestand, "Value Judgment Cures Hospital's Image," Adweek's Marketing Week, February 29, 1988, p. 50. David Martindale, "Segmenting the Market," Adweek, September 12, 1988, p. F.P. 76.

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