Set 1 Marketing

Q.1 Briefly explain the cultural factors that affect consumer behavior, with relevant
examples. What are the implications of cultural factors for marketing strategy?

Ans.

Consumer behavior refers to the selection, purchase and consumption of goods and
services for the satisfaction of their wants. There are different processes involved in
the consumer behavior. Initially the consumer tries to find what commodities he
would like to consume, then he selects only those commodities that promise greater
utility. After selecting the commodities, the consumer makes an estimate of the
available money which he can spend. Lastly, the consumer analyzes the prevailing
prices of commodities and takes the decision about the commodities he should
consume. Meanwhile, there are various other factors influencing the purchases of
consumer such as social, cultural, personal and psychological. The explanation of
these factors is given below.

1. Cultural Factors

Consumer behavior is deeply influenced by cultural factors such as: buyer culture,
subculture, and social class.

• Culture

Basically, culture is the part of every society and is the important cause of person
wants and behavior. The influence of culture on buying behavior varies from
country to country therefore marketers have to be very careful in analyzing the
culture of different groups, regions or even countries.

• Subculture

Each culture contains different subcultures such as religions, nationalities,

geographic regions, racial groups etc. Marketers can use these groups by
segmenting the market into various small portions. For example marketers can
design products according to the needs of a particular geographic group.

• Social Class

Every society possesses some form of social class which is important to the
marketers because the buying behavior of people in a given social class is similar.
In this way marketing activities could be tailored according to different social
classes. Here we should note that social class is not only determined by income but
there are various other factors as well such as: wealth, education, occupation etc.

2. Social Factors
Social factors also impact the buying behavior of consumers. The important social
factors are: reference groups, family, role and status.

• Reference Groups

Reference groups have potential in forming a person attitude or behavior. The

impact of reference groups varies across products and brands. For example if the
product is visible such as dress, shoes, car etc then the influence of reference
groups will be high. Reference groups also include opinion leader (a person who
influences other because of his special skill, knowledge or other characteristics).

• Family

Buyer behavior is strongly influenced by the member of a family. Therefore

marketers are trying to find the roles and influence of the husband, wife and
children. If the buying decision of a particular product is influenced by wife then the
marketers will try to target the women in their advertisement. Here we should note
that buying roles change with change in consumer lifestyles.

• Roles and Status

Each person possesses different roles and status in the society depending upon the
groups, clubs, family, organization etc. to which he belongs. For example a woman
is working in an organization as finance manager. Now she is playing two roles, one
of finance manager and other of mother. Therefore her buying decisions will be
influenced by her role and status.

3. Personal Factors

Personal factors can also affect the consumer behavior. Some of the important
personal factors that influence the buying behavior are: lifestyle, economic
situation, occupation, age, personality and self concept.

• Age

Age and life-cycle have potential impact on the consumer buying behavior. It is
obvious that the consumers change the purchase of goods and services with the
passage of time. Family life-cycle consists of different stages such young singles,
married couples, unmarried couples etc which help marketers to develop
appropriate products for each stage.

• Occupation

The occupation of a person has significant impact on his buying behavior. For
example a marketing manager of an organization will try to purchase business suits,
whereas a low level worker in the same organization will purchase rugged work
clothes.
• Economic Situation

Consumer economic situation has great influence on his buying behavior. If the
income and savings of a customer is high then he will purchase more expensive
products. On the other hand, a person with low income and savings will purchase
inexpensive products.

• Lifestyle

Lifestyle of customers is another import factor affecting the consumer buying

behavior. Lifestyle refers to the way a person lives in a society and is expressed by
the things in his/her surroundings. It is determined by customer interests, opinions,
activities etc and shapes his whole pattern of acting and interacting in the world.

• Personality

Personality changes from person to person, time to time and place to place.
Therefore it can greatly influence the buying behavior of customers. Actually,
Personality is not what one wears; rather it is the totality of behavior of a man in
different circumstances. It has different characteristics such as: dominance,
aggressiveness, self-confidence etc which can be useful to determine the consumer
behavior for particular product or service.

4. Psychological Factors

There are four important psychological factors affecting the consumer buying
behavior. These are: perception, motivation, learning, beliefs and attitudes.

• Motivation

The level of motivation also affects the buying behavior of customers. Every person
has different needs such as physiological needs, biological needs, social needs etc.
The nature of the needs is that, some of them are most pressing while others are
least pressing. Therefore a need becomes a motive when it is more pressing to
direct the person to seek satisfaction.

• Perception

Selecting, organizing and interpreting information in a way to produce a meaningful

experience of the world is called perception. There are three different perceptual
processes which are selective attention, selective distortion and selective retention.
In case of selective attention, marketers try to attract the customer attention.
Whereas, in case of selective distortion, customers try to interpret the information
in a way that will support what the customers already believe. Similarly, in case of
selective retention, marketers try to retain information that supports their beliefs.

• Beliefs and Attitudes

Customer possesses specific belief and attitude towards various products. Since
such beliefs and attitudes make up brand image and affect consumer buying
behavior therefore marketers are interested in them. Marketers can change the
beliefs and attitudes of customers by launching special campaigns in this regard.

Culture is part of the external influences that impact the consumer. That is, culture
represents influences that are imposed on the consumer by other individuals. The
definition of culture offered one text is “That complex whole which includes
knowledge, belief, art, morals, custom, and any other capabilities and habits
acquired by man person as a member of society.” From this definition, we make the
following observations: •Culture, as a “complex whole,” is a system of
interdependent components. •Knowledge and beliefs are important parts. In the
U.S., we know and believe that a person who is skilled and works hard will get
ahead. In other countries, it may be believed that differences in outcome result
more from luck. “Chunking,” the name for China in Chinese, literally means “The
Middle Kingdom.” The belief among ancient Chinese that they were in the center of
the universe greatly influenced their thinking. •Other issues are relevant. Art, for
example, may be reflected in the rather arbitrary practice of wearing ties in some
countries and wearing turbans in others. Morality may be exhibited in the view in
the United States that one should not be naked in public. In Japan, on the other
hand, groups of men and women may take steam baths together without perceived
as improper. On the other extreme, women in some Arab countries are not even
allowed to reveal their faces. Notice, by the way, that what at least some countries
view as moral may in fact be highly immoral by the standards of another country.
Culture has several important characteristics: (1) Culture is comprehensive. This
means that all parts must fit together in some logical fashion. For example, bowing
and a strong desire to avoid the loss of face are unified in their manifestation of the
importance of respect. (2) Culture is learned rather than being something we are
born with. We will consider the mechanics of learning later in the course. (3) Culture
is manifested within boundaries of acceptable behavior. For example, in American
society, one cannot show up to class naked, but wearing anything from a suit and
tie to shorts and a T-shirt would usually be acceptable. Failure to behave within the
prescribed norms may lead to sanctions, ranging from being hauled off by the police
for indecent exposure to being laughed at by others for wearing a suit at the beach.
(4) Conscious awareness of cultural standards is limited. One American spy was
intercepted by the Germans during World War II simply because of the way he held
his knife and fork while eating. (5) Cultures fall somewhere on a continuum between
static and dynamic depending on how quickly they accept change. For example,
American culture has changed a great deal since the 1950s, while the culture of
Saudi Arabia has changed much less. Dealing with culture. Culture is a problematic
issue for many marketers since it is inherently nebulous and often difficult to
understand. One may violate the cultural norms of another country without being
informed of this, and people from different cultures may feel uncomfortable in each
other’s presence without knowing exactly why (for example, two speakers may
unconsciously continue to attempt to adjust to reach an incompatible preferred
interpersonal distance). Warning about stereotyping. When observing a culture, one
must be careful not to over-generalize about traits that one sees. Research in social
psychology has suggested a strong tendency for people to perceive an “outgroup”
as more homogenous than an “ingroup,” even when they knew what members had
been assigned to each group purely by chance. When there is often a “grain of
truth” to some of the perceived differences, the temptation to over-generalize is
often strong. Note that there are often significant individual differences within
cultures. Cultural lessons. We considered several cultural lessons in class; the
important thing here is the big picture. For example, within the Muslim tradition, the
dog is considered a “dirty” animal, so portraying it as “man’s best friend” in an
advertisement is counter-productive. Packaging, seen as a reflection of the quality
of the “real” product, is considerably more important in Asia than in the U.S., where
there is a tendency to focus on the contents which “really count.” Many cultures
observe significantly greater levels of formality than that typical in the U.S., and
Japanese negotiator tend to observe long silent pauses as a speaker’s point is
considered. Cultural characteristics as a continuum. There is a tendency to
stereotype cultures as being one way or another (e.g., individualistic rather than
collectivist). Note, however, countries fall on a continuum of cultural traits.
Hofstede’s research demonstrates a wide range between the most individualistic
and collectivistic countries, for example—some fall in the middle.

Q.2 Explain in what respects the channels of distribution for industrial products
are different from the channels of distribution for consumer products.

Ans.

A distribution channel is the method a company uses to get their products into the
marketplace for consumer use

The two types of distribution channels are indirect and direct.

The indirect channel is used by companies who do not sell their goods directly to
consumers. Distributors, wholesalers and retailers are the indirect channels.

A direct distribution channel is where a company sells their products direct to

consumers. Selling agents and Internet sales are two types of direct distribution
channels.

Market balance: It is essential that different firms in the same business not attempt
to compete on exactly the same variables. If they do, competition will invariably
degenerate into price—there is nothing else that would differentiate the firms.
Thus, for example, in the retail food market, there are low price supermarkets such
as Food 4 Less that provide few if any services, intermediate level markets like
Ralph’s, and high-end markets such as Vons’ Pavillion that charge high prices and
claim to carry superior merchandise and offer exceptional service

Risk: In general, firms that attempt riskier ventures—and their stockholders—

expect a higher rate of return. Risks can come in many forms, including immediate
loss of profit due to lower sales and long term damage to the brand because of a
poor product being released or because of distribution through a channel perceived
to carry low quality merchandise.

Brand level objectives: Ultimately, brand level profit centers are expected to
contribute to the overall maximization of the firm’s profits. However, when a firm
holds several different brands, different marketing and distribution plans may be
required for each. Several variables come into play in maximizing value. Profits
can be maximized in the short run, or an investment can be made into future
earnings. Product profit can be measured in several ways. If you sell a computer
that cost $950 to make for $1,000, you are making only a 5% gross profit.
However, selling a product that cost $5 to make for $10 will result in a much higher
percentage profit, but a much lower absolute margin. A decision that is essential at
the brand level is positioning. Options here may range from a high quality,
premium product to a lower priced value product. Note here that the same answer
will not be appropriate for all firms in the same market since this will result in
market imbalance—there should be some firms perceiving each strategy, with
others being intermediate.

Distribution issues come into play heavily in deciding brand level strategy. In order
to secure a more exclusive brand label, for example, it is usually necessary to
sacrifice volume—it would do no good, for Mercedes-Benz to create a large number
of low priced automobiles. Some firms can be very profitable going for quantity
where economies of scale come into play and smaller margins on a large number of
units add up—e.g., McDonald’s survives on much smaller margins than upscale
restaurants, but may make larger profits because of volume. Some firms choose to
engage in a niching strategy where they forsake most customers to focus on a small
segment where less competition exists (e.g., clothing for very tall people).

In order to maintain one’s brand image, it may be essential that retailers and other
channel members provide certain services, such as warranty repairs, providing
information to customers, and carrying a large assortment of accessories. Since not
all retailers are willing to provide these services, insisting on them will likely reduce
the intensity of distribution given to the product.

Product line objectives: Firms make money on the totality of products and services
that they sell, and sometimes, profit can be maximized by settling for small margins
on some, making up on others. For example, both manufacturers and retailers
currently tend to sell inkjet printers at low prices, hoping to make up by selling high
margin replacement cartridges. Here again, it may be important for the
manufacturer that the retailer carry as much of the product line as possible.

Objectives: A firm’s distribution objectives will ultimately be highly related—some

will enhance each other while others will compete. For example, as we have
discussed, more exclusive and higher service distribution will generally entail less
intensity and lesser reach. Cost has to be traded off against speed of delivery and
intensity (it is much more expensive to have a product available in convenience
stores than in supermarkets, for example).

Narrow vs. wide reach: The extent to which a firm should seek narrow (exclusive)
vs. wide (intense) distribution depends on a number of factors. One issue is the
consumer’s likelihood of switching and willingness to search. For example, most
consumers will switch soft drink brands rather than walking from a vending machine
to a convenience store several blocks away, so intensity of distribution is essential
here. However, for sewing machines, consumers will expect to travel at least to a
department or discount store, and premium brands may have more credibility if
they are carried only in full service specialty stores.

Retailers involved in a more exclusive distribution arrangement are likely to be

more “loyal”—i.e., they will tend to

Recommend the product to the customer and thus sell large quantities;

Carry larger inventories and selections;

Provide more services

Thus, for example, Compaq in its early history instituted a policy that all computers
must be purchased through a dealer. On the surface, Compaq passed up the
opportunity to sell large numbers of computers directly to large firms without
sharing the profits with dealers. On the other hand, dealers were more likely to
recommend Compaq since they knew that consumers would be buying these from
dealers. When customers came in asking for IBMs, the dealers were more likely to
indicate that if they really wanted those, they could have them—“But first, let’s
show you how you will get much better value with a Compaq.”

Distribution opportunities: Distribution provides a number of opportunities for the

marketer that may normally be associated with other elements of the marketing
mix. For example, for a cost, the firm can promote its objective by such activities
as in-store demonstrations/samples and special placement (for which the retailer is
often paid). Placement is also an opportunity for promotion—e.g., airlines know that
they, as “prestige accounts,” can get very good deals from soft drink makers who
are eager to have their products offered on the airlines. Similarly, it may be useful
to give away, or sell at low prices, certain premiums (e.g., T-shirts or cups with the
corporate logo.) It may even be possible to have advertisements printed on the
retailer’s bags (e.g., “Got milk?”)

Other opportunities involve “parallel” distribution (e.g., having products sold both
through conventional channels and through the Internet or factory outlet stores).
Partnerships and joint promotions may involve distribution (e.g., Burger King sells
clearly branded Hershey pies).

Deciding on a strategy. In view of the need for markets to be balanced, the same
distribution strategy is unlikely to be successful for each firm. The question, then, is
exactly which strategy should one use? It may not be obvious whether higher
margins in a selective distribution setting will compensate for smaller unit sales.
Here, various research tools are useful. In focus groups, it is possible to assess
what consumers are looking for an which attributes are more important. Scanner
data, indicating how frequently various products are purchased and items whose
sales correlate with each other may suggest the best placement strategies. It may
also, to the extent ethically possible, be useful to observe consumers in the field
using products and making purchase decisions. Here, one can observe factors such
as (1) how much time is devoted to selecting a product in a given category, (2) how
many products are compared, (3) what different kinds of products are compared or
are substitutes (e.g., frozen yogurt vs. cookies in a mall), (4) what are
“complementing” products that may cue the purchase of others if placed nearby.
Channel members—both wholesalers and retailers—may have valuable information,
but their comments should be viewed with suspicion as they have their own
agendas and may distort information.

Direct Marketing

We consider direct marketing early in the term as a “contrast” situation against

which later channels can be compared. In general, you cannot save money by
“eliminating the middleman” because intermediaries specialize in performing
certain tasks that they can perform more cheaply than the manufacturer. Most
grocery products are most efficiently sold to the consumer through retail stores that
take a modest mark-up—it would not make sense for manufacturers to ship their
grocery products in small quantities directly to consumers.

Intermediaries perform tasks such as

Moving the goods efficiently (e.g., large quantities are moved from factories or
warehouses to retail stores);

Breaking bulk (manufacturers sell to a modest number of wholesalers in large

quantities—quantities are then gradually broken down as they make their way
toward the consumer);
Consolidating goods (retail stores carry a wide assortment of goods from different
manufacturers—e.g., supermarkets span from toilet paper to catsup); and

Adding services (e.g., demonstrations and repairs).

Direct marketers come in a variety of forms, but their categorization is somewhat

arbitrary. The main thing to consider here is each firm’s functions and intentions.
Some firms sell directly to consumers with the express purpose of eliminating
retailers that supposedly add cost (e.g., Dell Computer). Others are in the business
not so much to save on costs, but rather to reach groups of consumes that are not
easily reached through the stores. Others—e.g., online travel agents or check
printers—provide heavily customized services where the user can perform much of
the services. Telemarketers operate by making the promotion in integral part of
the process—you are explained the benefits of the program in an advertisement or
infomercial and you then order directly in response to the promotion. Finally, some
firms combine these roles—e.g., Geico is a customizer, but also claims, in principle,
to cut out intermediaries.

There are certain circumstances when direct marketing may be more useful—e.g.,
when absolute margins are very large (e.g., computers) or when a large inventory
may be needed (e.g., computer CDs) or when the customer base is widely dispersed
(e.g., bee keepers).

Direct marketing offers exceptional opportunities for segmentation because

marketers can buy lists of consumer names, addresses, and phone-numbers that
indicate their specific interests. For example, if we want to target auto enthusiasts,
we can buy lists of subscribers to auto magazines and people who have bought auto
supplies through the mail. We can also buy lists of people who have particular auto
makes registered.

No one list will contain all the consumers we want, and in recent years technology
has made it possible, through the “merge-purge” process, to combine lists. For
example, to reach the above-mentioned auto-enthusiasts, we buy lists of
subscribers to several different car magazines, lists of buyers from the Hot Wheels
and Wiring catalog, and registrations of Porsche automobiles in several states. We
then combine these lists (the merge part). However, there will obviously be some
overlap between the different lists—some people subscribe to more than one
magazine, for example. The purge process, in turn, identifies and takes out as
many duplicates as possible. This is not as simple task as it may sound up front.
For example, the address “123 Main Street, Apartment 45” can be written several
ways—e.g., 123 Main St., #123, or 123-45 Main Str. Similarly, John J. Jones could
also be written as J. J. Jones, or it could be misspelled Jon J. Jonnes. Software thus
“standardizes” addresses (e.g., all street addresses would be converted into the
format “123 Main St #45” and even uses phonetic analysis to identify a likely
alternative spelling of the same name.
Response rates for “good” lists—lists that represent a logical reason why consumer
would be interested in a product—are typically quite low, hovering around 2-3%.
Simply picking a consumer out of the phone-book would yield even lower responses
—much less than one percent. Keep in mind that a relevant comparison here is to
conventional advertising. The response rate to an ad placed in the newspaper or on
television is usually well below one percent (frequently more like one-tenth of one
percent). (More than one percent of people who see an ad for Coca Cola on TV will
buy the product, but most of these people would have bought Coke anyway, so the
marginal response is low).

Q.3.What is the differences between sales promotion and advertising? What are
their relative advantages and disadvantages?

Ans.

Advertising and promotion are two marketing tools and they are both used in the
modern marketing. At first sight it is very hard to see the exact difference between
advertising and promotion. Both advertising and promotion use the same
techniques and the gained results are basically the same.

However, there are a few things that highlight the difference between advertising
and promotion. These differences are the following :

• amount of time spent ( advertising need more time for results, while
promotions have instant effects )

• impact on overall sales ( advertising can produce greater profits, promotion

lower profits )

• overall costs

• general purpose

• company type

The advertising techniques are often used by middle level and large level
companies. The goals of these companies are the strengthening of their brand and
the building of long term sales. The most popular types of advertising are the
television and radio adverts, national or local press advertisements, large billboards
and posters.

The main power of advertising is creating strong brands and making long term
sales. Beside the long term sales advertising also helps to improve short term and
middle term sales too. Building and the strengthening of the consumer loyalty is the
ultimate goal of advertising.
After starting an advertising campaign we must wait a longer period of time before
we can see any substantial results. This time period can be from months to even
years. Because of this time frame and the high initial costs, advertising is suitable
for large companies and corporations only.

On contrary to advertising, promotion is more focused towards the short term

results. Although promotion is also participating in the process of brand building this
is not its goal. The only major goal of the promotion is to build the sales in the short
time period. The most popular ways of promotion are the discount coupons in the
local press, two for one special promotions, free product samples and other special
events held in stores.

The creation of promotions is very easy and they can result in very good short term
gains. The cost of the promotion is significantly lower than advertising and because
of this fact promotions are more suitable for small companies. The cost efficiency
and the required time frame do not exclude medium companies or large companies
to organize promotions. On the contrary, medium and large corporations also set up
promotions, the everyday example is the daily or weekly product promotions in
large national store chains.

Of course, there is a number of similarities in advertising and promotions. These two

marketing tools are sometimes support each other and it is not rare that advertising
campaigns use promotions too. During advertising campaigns, promotions are used
to make the overall success of the campaign greater.