Fundamentals of Marketing Management PDF

Fundamentals of marketing management FUNDAMENTALS OF MARKETING AND CONSUMER BEHAVIOR MODULES Exit Exam Supporting Documents Department of Marketing Management By: Department of marketing management Fundamentals of marketing management D...

Fundamentals of marketing management FUNDAMENTALS OF MARKETING AND CONSUMER BEHAVIOR MODULES Exit Exam Supporting Documents Department of Marketing Management By: Department of marketing management Fundamentals of marketing management Definition of Marketing Marketing is defined in various ways. Let us consider the following definitions for our purpose. Definition 1 Marketing is the performance of business and other organizations that directs the flow of products (goods, services and ideas) from producers to consumers or users. Resource inputs like human, financial, material and informational resources will be converted to outputs (goods and services) passing through managerial and operational process. They are distributed to the environment, which in turn bring money (revenue) and information (feedback) to the input phase of the organizational process to complete the cycle. Here marketing plays a crucial role in disseminating goods and services to the external environment (the consumers) and bringing back financial resources and information into the organization. Hence, we can conclude that marketing is a two-way link between the organization and the environment and the vice versa. Definition 2 Marketing is typically seen as the task of creating, promoting and delivering goods and services to consumers and businesses. Marketers are skilled in stimulating demand for a company‟s products, but this is too limited view of the tasks marketers perform. Just as production and logistics professionals are responsible for supply management, marketers are responsible for demand management. Core Concepts of Marketing Needs Needs are basis for motivation of people and they constitute basic human requirements. People need food, water, air, and shelter to survive. People also do have strong needs for recreation, education, and entertainment. Each and every one of us act the way we do, like purchase of goods and services, in order to satisfy our needs. Needs can be physical (food, clothing etc.), social needs (belongingness), individual needs (knowledge) etc. A human need is a state of deprivation of basic satisfaction. When we are deprived or deficient for something, we strive or act to fulfill the deficiency. By: Department of marketing management Fundamentals of marketing management Marketers recognize that while need recognition is often a basic simple process, the way a consumer perceives a need, and becomes motivated to satisfy it, will influence the remainder of the decision process. A marketer must try to understand the need of the target market. Needs may be stated or unstated. Stated needs are those which the consumer (i.e. the market) itself is well aware of and are dealt with by the customer driven marketing. The seller a particular good or service straightforward detects such needs and the customers‟ interest itself is used as a guiding tool to design the right marketing program. Unstated needs are those, which the buyer has but may not be well conscious about, and need some level of trigger or initiator from the seller side. Companies sometimes need to work on awareness strategies to convince the customers that the product is worth using or consuming. The appropriate marketing approach for such need category is customer-driving marketing. This is a strategy where producers identify that there are some sorts of needs that should be made clear to the user and later provide offerings that would serve the needs. Wants Wants are desires for specific satisfiers of needs. Needs become wants when they are directed to specific objects that might satisfy the need. An American needs food but wants hamburger, French fries and soft drinks. A person in Mauritius needs food but wants mango, rice, lentils, and beans. Wants are shaped by ones society. Wants are many and are subjected to cultural shifts and technological dynamism, whereas needs are few and are innate or inborn. Marketers strive not to create needs but identify them and develop products (wants) that would satisfy the needs. Marketers do not create needs: needs pre-exist marketers. Marketers, for example, might promote the idea that a Mercedes would satisfy a person‟s need for social status. They do not, however, create the need for social status. By: Department of marketing management Fundamentals of marketing management Needs Possible need satisfying wants Food Hamburger (American), Injera (Ethiopian), Rice (Indian) Transportation Horseback, personal automobile, bus, airplane, trains, ship, etc. Note: There are several alternative wants to satisfy a single need. A seller always makes concerted efforts to make his offering/s one of the objects consumers use to satisfy their needs. E.g., an airline company has to promote its services so that customers use aircrafts to satisfy their intrinsic needs for transportation, and other sectors also do the same etc. Demands Another core concept that you should understand is demand. Demands are wants for specific products that are backed by an ability and willingness to buy them. Wants become demand when they are supported by purchasing power. In the following example, you will be able to distinguish demands from wants. Many people want a Mercedes or other luxuries personal automobiles, but only few are able and willing to buy one. From the above statement, you can clearly understand that demand is different from want by two major points, i.e. the purchasing power or financial capacity to purchase the product and the willingness to buy it. Marketers should measure not only how many people want their products, but also how many would actually be willing and able to buy it. Marketers influence demand by making the product more attractive and appropriate, affordable and easily available to target markets. These activities are collectively named as marketing mix elements. Demand = Wants Exhibited + Ability to Buy + Willingness to Buy Products or Offerings The definition of a product is also an important and core point to understand the essence of marketing. A product may be defined as a set of tangible and intangible attributes including color, packaging, price manufacturer‟s prestige, and retailer‟s prestige and manufacturer‟s services, which satisfy the needs and wants of customers. The key idea in this definition is that the consumers are buying more than a set of physical attributes. Fundamentally, they are buying want satisfaction. Moreover, a wise firm sells product benefits rather than just products. In fact, though the product features such as packaging, branding, color etc. add new dimensions to the product, the core of a product is the benefit of basic services. A product is anything that can be offered to the market for attention, By: Department of marketing management Fundamentals of marketing management acquisition, use or consumption that might satisfy a need and includes at least the following types of entities: goods, services, experiences, events, persons, places, properties, organizations, information, and ideas. Marketing starts with the identification of human needs and culminates with the satisfaction of those needs. It is by offering something, that the marketing man achieves this. And this offering is the product. Products can be physical goods (offered for direct consumption or for utilizing the services), services or ideas. Value, Cost and Satisfaction In the currently hyper competitive and information overloaded markets, consumers may have varieties of product types to choose from and satisfy their needs and wants. A producer in this situation would logically ask herself the following question. How do consumers choose among several products that might satisfy a particular need? The major guiding concepts here are value and satisfaction. Value is the consumer‟s estimate of the product‟s overall capacity to satisfy his or her needs. The product or offering will be successful if it delivers value and satisfaction to the target buyer. The buyer chooses between different offerings based on which is perceived to deliver the most value. Value can be seen as primarily a combination of quality, service and price (QSP), called the customer value triad. Value increases with quality and service, but decreases with price. More specifically, we can define value as a ratio between what the customer gets and what he gives. The customer gets benefits and assumes costs. The benefits include functional benefits and emotional benefits. The costs include monetary costs, time costs, energy costs, and psychic costs. Thus, value is given by: Benefits Functional Benefits  Emotional Benefits Value   Costs Monetary costs  Time costs  Energy costs  Psychic costs The marketer can increase the value of the customer offering in several ways, such as by raising the benefits, reducing costs, raising the benefits and reduce the costs all together, raising the benefits more than the raise in the costs, and lowering the benefits by less than the reduction in costs. At this point, you come to note cost of a particular offering is an important factor in value determination. By: Department of marketing management Fundamentals of marketing management Satisfaction is the result of the comparison of perceived (actual) performances and expectations. A product or offering is said to have satisfied the needs of the target market if and only if it meets the minimum consumer expectations. The following cases will clarify the meaning of customer satisfaction with better understanding. Quality is highly linked to the satisfaction that one derives from the products. Most companies, therefore, apply the Total Quality Management (TQM), which calls for participation of all members of an organization in improving quality from time to time. Quality, as opposed to the current connotations, was viewed as „free from defect‟. This was purely a very narrow definition that did not give sufficient emphasis to the customers. Nowadays, quality has a broader definition - “satisfaction of customers.” This is meant to recognize the very fact that customer is the king. Exchange and Transaction There are four ways for people to obtain a product. Exchange is one of the four ways in which a person can obtain a product. Let us see the nature of the following ways of obtaining a product and compare it with exchange mode. i. Self-production: One way of obtaining a product or service is producing it by oneself. For instance, people can possibly relieve hunger through hunting, fishing, or fruit gathering. These are ways of self-production. In this case, there is no market and no marketing at all. ii. Coercion: This involves the use of force to get something from someone, where no benefit is offered to the other. For instance, a hungry person can snatch food from another person. Here, the former gets the food, whereas, the latter obviously gets no benefit. iii. Begging: This is another way of obtaining a product. Hungry people can approach others and beg for food. They have nothing tangible to offer to others, except appreciation and thankfulness. iv. Exchange: Exchange is the fourth possible way of obtaining a product. Hungry people can offer a resource in return for food, such as money, a good, or service. Marketing emerges when people decide to satisfy needs and wants through exchange. Exchange, which is one of the core concepts of marketing, is the process of obtaining a desired product from someone by offering something in return. For exchange potential to exist, five conditions must be satisfied:  There are at least two parties. By: Department of marketing management Fundamentals of marketing management  Each party has something that might be of value to the other party.  Each party is capable of communication and delivery.  Each party is free to accept or reject the exchange offer.  Each party believes it is appropriate or desirable to deal with the other party. Whether exchange actually takes place or not depends upon whether the two parties can agree on terms that will leave both better off (or at least worse off not) than before. Exchange is normally viewed as a value-creating process as it leaves both parties better off. Transaction is a trade of values between two or more parties: A gives X to B and receives Y in return. A transaction can be of a classic monetary mode or barter one. A barter transaction involves trading goods or services for other goods or services. E.g. A gives salt to B and B gives soap to A. A transaction differs from a transfer. In a transfer, A gives X to B but does not receive any thing tangible in return. Gifts, subsidies, and charitable contributions are all transfers. To make successful exchanges, marketers analyze what each party expects from the transaction. Consumer Markets Companies selling mass consumer goods and services such as soft drinks, toothpaste, television sets, and air travel spend a great deal of time trying to establish a superior brand image. This requires getting a clear sense of their target customers and what need(s) their product will meet, and communicating brand positioning forcefully and creatively. Much of a brand‟s strength depends on developing a superior product and packaging and backing it with promotion and reliable service. Consumer marketers decide on the features, quality level, and distribution coverage and promotion expenditures that will help their brand a number-one-or- two position in their target market. Business Markets Companies selling business goods and services face well-trained and well-informed professional buyers who are skilled in evaluating competitive offerings. Business buyers buy goods for their utility in enabling them to make or resell a product to others, and they purchase products to make profits. Business marketers must demonstrate how their products will help customers achieve higher revenue or lower costs. Advertising plays a role, but a stronger role is played by sales force, price, and the company‟s reputation or reliability and quality. By: Department of marketing management Fundamentals of marketing management Global Markets Companies selling goods and services in the global marketplace face additional decisions and challenges. They must decide which countries to enter; how to enter each country (as an exporter, licenser, joint venture partner, contract manufacturer, or solo manufacturer etc); how to adapt their product and service features to each country; how to price their products in different countries in a narrow enough band to avoid creating a gray market for their goods; and how to adapt their communications to fit the cultural practices of each country. These decisions must be made in the face of a different legal system; different styles of negotiation: different requirements for buying, owning, and disposing of a property; a currency that might fluctuate in value; a different language; and conditions of corruption and political favoritism. Nonprofit and Governmental Markets Companies selling their goods to non-profit organizations such as churches, universities, charitable organizations, or government agencies, need to price carefully because these organizations have limited purchasing power. Lower prices affect the features and quality that the seller can build into the offering. Much government purchasing calls for bids, with the lowest bid being favored, in the absence of extenuating factors. Values Added by Marketing Function: Utility Creation Marketing is typically a function responsible for creation of various types of utilities. The range of utilities created by marketing is an indication of its importance in socio-economic system. Utility may be defined, as the attitude in an item that made it capable of satisfying human wants. Marketing creates six types of utilities-place, time, possession, form, information, and image utilities. i. Place Utility: It is created when a product is made readily available (accessible) to potential customers at the location where they want it. The role of distribution in marketing is mostly attached with creating place utility, i.e. people between the producers and end users make the products easily accessible to the end users regardless of where the items are produced. ii. Time Utility: It is created when products are available to customers, as they want them, i.e. marketers analyze the needs and wants of customers in relation to the time in which the By: Department of marketing management Fundamentals of marketing management customers need the product. iii. Possession Utility: As selling, is one major activity in marketing, it creates possession utility by selling the products to the customers. Think of all the items (products) you own now. Almost all the products you own are the results of the marketing activity. A person/an organization become the owner or possessor of some property because of marketing exchanges in most cases. iv. Form Utility: Form entails the physical or chemical changes that take place through production. Changing the form of one material into another (for example cotton into textile) is mainly the task of the production department than the marketing department. However, marketers help the change of form by suggesting design, quality, composition, etc. As it is mostly the marketing people who are in close contact with the ultimate customers, they are in a better position to suggest the quality and design requirements of the customers. v. Information Utility: The marketing function adds a tremendous value by providing the bulk of information about a firms offering to the target market. This is usually accomplished through the promotional mix elements such as advertising, public relation, sales promotion etc. You are equipped with pieces of information related to companies‟ products, their after sales services or their general future program in a particular target market because of the information utility firms provide. vi. Image Utility: It involves the emotional and psychological values that a person attaches to the product or a brand, because of the reputation; prestige or high social standing that the product creates. Marketing, especially advertising and other forms of promotion, often contribute most to the creation of image utility. Different Demand States and Their Respective Marketing Tasks Negative Demand This is a type of demand in which a major part of the market dislikes the product and may even pay a price to avoid it. Included in this category are vaccinations, dental work, vasectomies, and gallbladder operations etc. Employers have a negative demand for ex-convicts and alcoholics as employees. Do not you think that people have a strong fear of surgeries, because of the numerous associated risks? They prefer to use tablets at a higher price when there is such an alternative. Consider the following example. Most people prefer to pay higher price (e.g. more than Br. 10, 000) for tablets to avoid kidney surgery. Assume that a well-equipped hospital By: Department of marketing management Fundamentals of marketing management charges Br. 5000 for the surgery. If more number of people still prefer the tablet option that would mean a negative demand for kidney surgery service. In this case, patients are ready to pay extra 5000 or more to avoid (not using) the surgery. Marketing Task: Conversational Marketing: the marketing task is to analyze why the market dislikes the product and whether a marketing program consisting of product redesign, lower prices, and more positive promotion can change beliefs and attitudes. No Demand This is a demand situation when the target consumers may be unaware or uninterested in the product. Farmers may not be interested in new farming methods, and college students may not be interested in foreign language courses. Marketing Task: The marketing task is to find ways to connect the benefits of the product with people‟s natural needs and interests. The marketer should strive to convince that consumption of such products eases the user‟s day-t-day life. It is when they are convinced that they develop a reasonable level of interest towards the product. Latent (Hidden) Demand Consumers may share a strong need that cannot be satisfied by any existing product. There is a strong demand for harmless cigarettes, safer neighborhoods, better schools, and more fuel- efficient cars. Marketing Task: The appropriate marketing task is to measure the size of the market and develop goods and services to satisfy the demand. Declining Demand Every organization, eventually, faces declining demand for one or more of its products. Churches have seen membership decline; private colleges have seen applications fall; airliners have seen declining demand in passengers or cargos etc. Marketing Task: The marketer must analyze the causes of the decline and determine whether demand can be re-stimulated by new target markets, and by changing product features, or by more effective communication styles. The marketing task is then generally to reverse declining demand through creative remarketing. By: Department of marketing management Fundamentals of marketing management Irregular Demand Many organizations face demand that varies on a seasonal, daily, or even hourly basis. Consider the demand of woolen and fur made clothes during a hot season, the demand of mass transit equipments in an airline during peak travel hours etc. Museums are under visited on weekdays, and overcrowded on weekends. A very high demand or very low demands are both not favorable for firms. The former causes too much stretching in that a firm may be forced to assume part time payment expenses or need to subcontract some of the jobs etc and the later( very low demand) causes idle capacity which is not efficient. Marketing Task: Synchro-marketing is to find ways to alter the pattern of demand through flexible pricing, promotion, and other incentives. Full Demand Organizations face full demand when they are pleased with their volume of business. It is a demand situation where the actual demand is equal or at least proportional to what the firm can assume with its existing resources. Marketing Task: The marketing task is to maintain the current level of demand in the face of changing consumer preferences and increasing competition. The organization must maintain or improve its quality and continually measure consumer satisfaction. Overfull Demand Some organizations face a demand level that is higher than they can or want to handle. Overfull demand is not a favorable demand pattern for most firms as it results in more work pressure and even dissatisfaction for some of the buyers. Marketing Task: The marketing task, called de-marketing, requires finding ways to reduce demand temporarily or permanently. General de-marketing seeks to discourage overall demand and includes such steps as raising prices and reducing promotion and service. Selective de-marketing consists of trying to reduce demand from those parts of the market that are less profitable. Unwholesome Demand By: Department of marketing management Fundamentals of marketing management Unwholesome products will attract organized efforts to discourage their consumption. Campaigns have been conducted against cigarettes, alcohol, hard drugs, handguns, X-rated movies, and large families. Summary 1. Marketing is a social and managerial process by which individuals and groups obtain what they need and want through creating, offering, and exchanging products of value with others. 2. Some of the core concepts in marketing include needs, wants, demands, products, value, cost, customer satisfaction, exchange, transaction, relationships, networks, marketing channels, supply chain, competition, marketing program, markets, marketers and prospects etc. A company cannot be successful without clearly understanding all these concepts and their marketing implications. 3. A marketer is someone seeking a response (attention, a purchase, a vote, a donation) from one or more prospects that might engage in exchange of values. A prospect is someone whom the marketer identifies as potentially willing and able to engage in an exchange. 4. Marketer may generally serve one or more of the four market types. They are, Consumer markets, Business markets, Global markets, and Non-profit and governmental markets. 5. Marketing people are involved in marketing ten types of entities: goods, services, experiences, events, persons, places, properties, organizations, information, and ideas. 6. Marketing is generally a value creating and value delivering process. The collection of tasks involved in marketing serve the purpose of value delivery. They actually form a sequence leading to value delivery. 7. Marketing is generally of tremendous importance to individual‟s life, organizational operations, and a socio-economic system‟s healthy functioning, and to the global economy at large as well. 8. Marketing management is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services, to create exchanges that satisfy individual and organizational goals. It is essentially demand management 9. Marketers may face different states of demand and they should be ready to handle each one of them by applying the most appropriate marketing tasks. 10. Marketing management orientations are the basic orientations that help a given By: Department of marketing management Fundamentals of marketing management organization market its products and achieve its objectives. 11. There are six alternative concepts under which organizations conduct their marketing activities: the production, product, selling, and marketing, societal marketing concept technological superiority alternative. SELF TEST QUESTIONS Part I Multiple Choice Questions Instruction: Choose the best answer from the alternatives provided. Write the letter of your answer on your own separate sheet. 1. When target buyers are uninterested or unaware of the product or service in the market, the demand state is: a. Latent demand b. Negative demand c. No demand d. Full demand 2. In which one of the following philosophies was more concern given to product features, quality and performances? a. Production b. Product c. Selling d. Marketing 3. Identify a demand state which does not require a marketing task. a. Overfull demand b. Full demand c. Unwholesome demand d. Irregular demand e. None 4. In which one of the following marketing philosophies was more value given to the needs of the consumers? a. Production b. Selling c. Product d. Marketing 5. By making the products available when the customers need them, marketers are creating: a. Place Utility b. Time Utility By: Department of marketing management Fundamentals of marketing management c. Image Utility d. Possession Utility 6. Marketers are: a. Collection of buyers b. Collection of buyers and sellers c. Collection of sellers d. Collection of people 7. The collection of activities or efforts marketers deploy to influence demand is termed as: a. Customer satisfaction b. Marketing mix elements c. Customer retention d. Value proposition 8. Identify the wrong match a. Physical needs-clothing None b. Individual needs-knowledge c. Social needs-love/affection d. Physical needs-shelter 9. A company fixes a very attractive price and owns conveniently located distribution outlets when it follows a. Production concept b. Social marketing concept c. Product philosophy d. Marketing concept 10. Mr. “X” is the owner of a product “Y” after a marketing exchange because a. Producers make form conversions b. Marketing adds information value c. Exchange is usually initiated by the buyer d. Marketers offer possession utility Part II True or False Questions Instruction: Write true if the statement is correct, and false if the statement is incorrect. _____1. Marketing is an activity undertaken by business firms only. By: Department of marketing management Fundamentals of marketing management _____2. Marketing is an activity that creates a linkage between the organization and the external environment. _____3. Psychological needs are needs for friendships, affection, and acceptance. _____4. Like human wants, human needs are created and shaped by lots of factors. _____5. Similar to exchange, the other ways of obtaining a product provides returns for all the parties involved. Part III Fill in the blank spaces. Instruction: Fill in the blank spaces with appropriate word(s) or phrases. 1. A demand state where there is a demand but no product to satisfy it is ________. 2. Identify the four methods of obtaining a product. ____________, ____________, ____________, _____________ 3. The ________________concept calls upon marketers to build social and ethical considerations in their marketing practices. 4. Marketing creates __________ utility when it creates emotional and psychological satisfaction to the customer. 5. ____________is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services, to create exchanges that satisfy individual and organizational goals. ENVIRONMENTAL MONITORING Environmental monitoring – also called environmental scanning – is the process of gathering information regarding a company‟s external environment, analyzing it, and forecasting the impact of whatever trends the analysis suggests. The term environment has a much broader sense. The organization operates with in an external environment that it cannot control. At the same time, there are marketing and non-marketing resources within the organization that generally can be controlled by executives. Successful marketing depends largely on a company‟s ability to manage its marketing programs within its environment. To do this, a firm‟s marketing executives must determine what makes up the firm‟s environment and then monitor it in a systematic, ongoing fashion. They must be alert to spot environmental trends that could be opportunities or problems for their organization. Then the marketing executives must be able to respond to these trends with the resources they control. By: Department of marketing management Fundamentals of marketing management Core point is „how important is environmental monitoring to business success?‟ In a word „very.‟ One study of about 100 large companies concluded, “Firms having advanced systems to monitor events in the external environment exhibited higher growth and greater profitability than firms that did not have such systems.” EXTERNAL MACROENVIRONMENT The company and all of the other actors operate in a larger macro environment of forces that shape opportunities and pose threats to the company. It is called macro influence because the elements in it affect all firms. The following external forces have considerable influence on any organization‟s marketing opportunities and activities. Therefore, they are macro environmental forces: A change in one of the elements / of components / of can cause changes in one or more of the others. Hence, they are interrelated. One thing they have in common is that they are dynamic forces that they are subjected to change and at an increasing rate! These forces are largely uncontrollable by management; yet it is possible for a company to influence its external environment to some extent. For example, in international marketing a company can improve its competitive position by joint venture with a foreign firm that makes a complementary product. A company could influence its political-legal environment by lobbying or by contributing to a legislator‟s campaign fund. In technological aspect, new-product research and development can strengthen a firm‟s competitive position. For instance, the Merck pharmaceutical company enjoyed a blockbuster success with two new products, Vasotec for treating high blood pressure and Mevacor for reducing cholesterol levels. At the same time, Merck‟s own technology became an external competitive force that affected other pharmaceutical companies. Demographic Environment Demography is the study of human populations in terms of size, density, location, age, gender, race, occupation, growth and other statistics. Because people constitute markets, demographics are of special interest to marketing executives. The characteristics in this environment are important to marketers because they are closely related to the demand for many products. Economic Environment By: Department of marketing management Fundamentals of marketing management People alone do not make a market. They must have money to spend and be willing to spend it. Consequently, the economic environment is a significant force that affects the marketing activities of just about any organization. The environment consists of factors that affect consumer purchasing power and spending patterns. A marketing program is affected especially by such economic factors as the current and anticipated stage of the business cycle, inflation, unemployment, interest rates, and income. Changes in major economic variables have a significant impact on the market place. People spend, save, invest and try to create personal wealth with differing amounts of money. How people deal with their money is important to marketers. Technological Environment Technology has tremendous impact on our life-styles, our consumption patterns, and our economic well-being. The technological environment refers to new technologies, which create new technologies, which create new product and market opportunities. Just think of the effects of technological development such as the airplane, plastics, television, computers, antibiotics, lasers, and of course video games. Except perhaps for the airplane, all these technologies reached their major markets in your life lifetime. Social and Cultural Forces The task facing marketing executives is becoming more complex because our socio-cultural patterns – life-styles, values, beliefs – are changing much more quickly than they use to on top of this, socio-cultural forces are the most difficult uncontrollable variables to predict. The social and cultural environment is made up to forces that affect society‟s basic values, perceptions, preferences, and behaviors. Political and Legal Forces Marketing decisions are strongly affected by developments in the political and legal environment. Organizations must operate within a framework of governmental regulation and legislation. Government relationships with organizations encompass subsidies, tariffs, import quotas, and deregulation of industries. The political environment consists of laws, government By: Department of marketing management Fundamentals of marketing management agencies, and pressure groups that influence or limit various organization and individuals in a given society (Kotler and Armstrong, 2004). EXTERNAL MICROENVIRONMENT The external microenvironment consists of forces that are part of an organization‟s marketing process but are external to the organization. These microenvironment forces include the organization‟s market, its producer-suppliers, and its marketing intermediaries. While, these are external, the organization is capable of exerting more influence over these than forces in the microenvironment. SUMMARY Various environmental forces influence an organization‟s marketing activities. Thus, it is essential to identify and then respond to numerous environmental forces. Some of these forces are external to the firm and are largely uncontrollable by the organization. Other forces are within the firm and are generally controllable by management. Successful marketing requires that a company develop and implement marketing programs that take into account its environment. As such, marketing managers should set up a system for environmental monitoring –gathering and evaluating environmental information. Marketers track changes in the external environment which generally cannot be controlled by an organization. Among six variables of such forces, the first is demographic factor. Demographic factors involve the study of human population in terms of size, density, location, age, gender, race, occupation, and other statistics. Second factor of concern to marketers should match for is competition- its types and the competitive structure with in which the firm operates. Fourthly, social and cultural which includes, change in lifestyle, values beliefs, preferences, and behaviors must be considered in marketing program development. Political and legal forces, in the fifth factor, it involves monetary and fiscal policies, to legislations that affect marketing activities. The last but not the least factor is technology which concern itself with forces that create new technologies, creating new product and market opportunities. By: Department of marketing management Fundamentals of marketing management The other set of environmental factors such as supplies, the market, marketing intermediaries are also external to the firm but they can be controlled to some extent by the firm. These micro environmental forces are different from microenvironment forces such as demography and technology. Not only external environmental do matter in marketing activity. At the same lime, a set of non-marketing resources within the firm like production faculties, human resource, finance, research and development, and the company image – affects the marketing effort. These factors are generally are controllable by management. Self Test Questions Part I: Multiple Choice Questions Instruction: Choose the best answer from the alternatives provided. Write the letter of your answer on your own separate sheet. 1. All of the following would be considered as a company‟s microenvironment except; a. Customers c. Economic forces b. Marketing intermediaries d. Suppliers 2. ____________ are an important link in the company‟s overall “Value delivery system” since they provide the resources needed by the company to produce its goods and service. a. Marketing intermediaries c. Suppliers b. Competitor networks d. Service representatives e. None 3. All of the following would be considered to be a part of a company‟s macro-environment except. a. Demographic forces c. Technological forces b. Marketing channel forces d. Natural forces 4. All of the following are considered to be a type of customer market except a. Business market c. Government market b. Competitor market d. Reseller market e. None 5. Whenever possible, smart marketing managers will take _______ rather than ________ approach to the marketing environment. (Choose the best combination available) a. Reactive/proactive c. Conciliatory/proactive b. Proactive/reactive d. Commanding/submissive Part II Discussion Questions By: Department of marketing management Fundamentals of marketing management 1. Using industry of your choice as an example, explain the role or importance of an environmental analysis, and how it might help a firm within the industry. 2. Identify the main forces to be considered in a company‟s microenvironment. Explain why it is important for a firm to consider these forces when developing their marketing strategy. 3. Discuss the effects that competitive forces can have on the firm ability to serve its target market. 4. The cultural environment is composed of the values, perceptions, and preferences of the institutions and people in a society. Select two society of your own choice whose predominant cultural values differ from societies each other compare and contrast the cultural characteristics of the two societies. How may the differing values affect marketing decisions? 5. Environmental management perspective takes aggressive actions to affect the public and forces in their marketing environments. If you are marketing manager, what are the ways that you might proactively influence in marketing environment? CONSUMER BEHAVIOUR Consumer Behavior defined as the decision process where individuals engage in evaluating, while acquiring, using, or disposing of goods and services. Consumer behavior is a study about how or why individuals spend their time, energy and resource while making purchase decisions. Consumer behavior examines how individuals acquire, use and dispose of company offerings. Who is the consumer? We usually think of the consumer as the person who identifies a need or desire, searches for a product to satisfy this need, buys the product and then consumes the product in order to satisfy the need. However, in many cases, different individuals may be involved in this chain of events. For instance, in the case of a laptop the purchaser may be a parent and the user a teenage son or daughter. Companies must account for all of the different individuals involved in the acquisition and consumption process. It is also important to note that the study of consumer behavior is not limited to how a person purchases tangible products such as a bottle of water or a new camera. Consumer behavior also examines the acquisition of services such as a contract for a broadband Internet service. It also includes how consumers pursue activities such as attending a gym or booking a holiday. By: Department of marketing management Fundamentals of marketing management Consumer behavior is actually a subset of human behavior. That is, factors affecting individuals in their daily lives also influence their purchase activities. Internal influences, such as learning and motives, and external factors, such as social expectations and constraints, affect our role as consumers. The fact that consumer behavior is a subset of human behavior advantageous. Several disciplines, collectively referred to as the behavioral sciences have studied human behavior for some time, and we can draw their contributions to understanding consumer. In addition, it included: 1. Psychology – which is the study of the behavior and mental process of individuals 2. Sociology – the study of the collective behavior of people in groups. 3. Social psychology – the study of how individuals influence and are influenced by groups 4. Economics – study of people‟s production, exchange, and consumption of goods and services. 5. Anthropology – study of people in relation to their culture. The starting point for understanding buyer behavior is the stimulus- response model shown in Figure 3.1 above. Marketing and environmental stimuli enter the buyer‟s consciousness. The buyer‟s characteristic and decision process lead to certain purchase decisions. The marketer‟s task is to understand what happens in the buyer‟s consciousness between the arrival of outside stimuli and the buyer‟s purchase decisions. They must answer two questions: 1. How do the buyer‟s characteristics – cultural, social, personal, and psychological factors influence buying behavior? 2. How does the buyer make purchasing decisions? Marketing Management Orientations (Philosophies) Marketing management orientations are the basic orientations that help a given organization market its products and achieve its objectives. There are six alternative concepts under which organizations conduct their marketing activities: the production, product, selling, and marketing, societal marketing concept technological superiority alternative. A. The Production Concept The production concept holds that consumers will favor products that are available and highly affordable. Therefore, management should focus on improving production and distribution By: Department of marketing management Fundamentals of marketing management efficiently. The concept is the oldest orientations that guide sellers. The production concept is still a useful philosophy in two types of situations. It is ideal when demand for a product exceeds the supply. Here management should look ways to increase production. It is also ideal in situations when a product cost is too high and improved productivity is needed to bring it down. Marketing myopia to cussing for narrowly on their own operations and losing sight of the seal objective satisfying customer needs. B. The Product Concept The product concept holds that consumers will favor the most in quality, performance, and innovative features. Thus, an organization should devote energy to making continuous product improvements. The product concept also can lead to marketing myopia. C. The Selling Concept Many companies follow the selling concept, which holds that consumers will not buy enough of the firm‟s products unless it undertakes a large scale and promotion effort. The concept is typically practiced with unsought goods-those that buyers do not normally think of buying, such as insurance or blood donation. These industries must be good at tacking down prospects and selling to them on product benefits. Most firms practice the selling concept when they face over capacity. Their aim is to sell what they make rather than make what the market wants. Such marketing carries high risks. It focuses on creating sales transaction rather than on building long- term, profitable customer relationships. D. The Marketing Concept The marketing concept holds that achieving organizational goals depends on knowing the needs and wants of target markets and delivering the desired satisfaction better than competitors do. Under the marketing concept, customer focus and value are the paths to sales and profits. E. The Societal Marketing Concept The societal-marketing concept holds that the organization should determine the needs, wants, and interests of target markets; it should then deliver superior value to customers in a way that maintains or improves the consumer‟s and society will being. It questions whether the pure By: Department of marketing management Fundamentals of marketing management marketing concept overlooks possible conflict between consumer short-run wants and consumer long-run welfare Major Factors Influencing Buying Behavior Consumers buying behavior is influenced by many factors as cultural, social, personal, and psychological factors. Cultural Factors Cultural factors exert the broadest and deepest influence on consumer behavior. The roles played by the buyers culture, subculture, and social class are particularly important. 1. Culture: is the most fundamental determinant of a person‟s wants and behavior. The growing child acquires a set of values, perceptions, preferences, and behaviors through his or her family and other key institutions. 2. Subculture: Each culture consists of smaller subcultures that provide more specific identification and socialization for its members. 3. Social Class: Virtually all-human societies exhibit social stratification. Social classes are relatively, homogeneous, and enduring divisions in a society. Which are hierarchically ordered and whose members share stimuli values, interests, and behavior. Social classes do not reflect income alone but also other indicators such as occupation education, and area of residence. Social classes differ in their dress, speech patterns, recreational preferences, and many other characteristics. Social classes show distinct product and brand preferences in many areas. 4. Social Factors In addition to cultural factors, a consumer‟s behavior is influenced by social factors as reference groups, family, and roles and statuses. 1. Reference Groups: Many groups influence a person‟s behavior. A person‟s Reference Groups consist of all the groups that have a direct (face-to-face) or indirect influence on the person‟s attitudes or behavior. Groups having a direct influence on a person are called membership groups. Some membership groups are primary groups, such as family, friends, neighbors, and coworkers, with whom the person interacts, fairly, continuously and informally. People also belong to secondary groups, such as religious, professional, and trade union groups, which tend to be more formal and require less continuous interaction. People are significantly influenced by their reference groups in at least three ways. Reference groups expose an individual to new behaviors and lifestyles. They also By: Department of marketing management Fundamentals of marketing management influence the person‟s attitudes and self-concept. And they create pressures for conformably that may affect the person‟s actual product and brand choices. People are also influenced by groups in which they are not members. Groups to which a person would like to belong are called inspirational groups. A dissociative group is one whose values or behavior an individual rejects. Marketers try to identify their customers‟ reference groups. Group influence is strong for products that are visible to other whom the buyer respects. Manufactures of products and brands where group influence is strong must determine how to reach and influence the opinion leaders in these reference groups. An opinion leader is the person in informal product related communications who offers advice or information about a specific product or product category; such as which of several brands is best or how a particular product may be used! Opinion leaders are found in all strata of society, and a person can be an opinion leader in certain product areas and an opinion follower in other areas. 2. Family: the family is the most important consumer-buying organization in society. Family members constitute the most influential primary reference group. We can distinguish between two families in the buyer‟s life. The family of orientation consists of one‟s parents and siblings. From parents a person acquires an orientation toward religion, politics, and economics and a sense of personal ambition, self-worth, and love. Even if the buyer no longer interacts very much with his or her parents, the parents‟ influence on the buyer‟s behavior can be significant. A more direct influence on everyday buying behavior is one‟s family or procreation namely, one‟s spouse and children. Marketers are interested in the roles and relative influence of the husband, wife and children in the purchase of a large variety of products and services. These roles vary widely in different countries and social classes. 3. Roles and Statuses: A person participates in many groups throughout life – family, clubs, and organizations. The Person‟s position in each group can be defined in terms of role and status. A role consists of the activities that a person is expected to perform. Each role carries a status. People choose products that communicate their role and status in society. Marketers are aware of the status symbol potential of products and brands. Personal Factors By: Department of marketing management Fundamentals of marketing management A buyer‟s decisions are also influenced by personal characteristics. These include the buyer‟s age and stage in the cycle, occupation, economic circumstances, lifestyle, and personality and self-concept. 1. Age and stage in the life cycle: People buy different goods and services, over their lifetime. They eat baby food in the early years, most foods in the growing and mature years, and special diets in the later years. People‟s taste in clothes, furniture, and recreation is also age related. Consumption is also shaped by the family life cycle. Marketers often choose life- cycle groups as their target market. But, it should be added that target households are not always family based. Markets are also targeting single households and cohabiter households. 2. Occupation: A person‟s occupation also influences his or her consumption pattern. A company president will buy expensive suits, air travel, and services are big hotels. Marketers try to identify the occupational groups that have above-average interest in their products and services. A company can even specialize its products for certain occupational groups. Thus, computer software companies will design different computer software for brand managers, engineers, lawyers, and physicians. 3. Economic circumstances: Product choice is greatly affected by one‟s economic circumstances. People‟s economic circumstances consist of their spendable income (its level, stability, and time pattern), savings and assets (including the percentage that is liquid), debts borrowing power, and attitude toward spending versus saving. Marketers of income- sensitive goods pay constant attention to trends in personal income, savings, and interest rates. If economic indicators point to recession, marketers can take steps to redesign, reposition, and reprise their products so they continue to offer value to target customers. 4. Lifestyle: People coming from the same subculture, social class, and occupation may lead quite different lifestyles. A person‟s life style is the person‟s pattern of living in the world as expressed in the person‟s activities, interests, and opinions. Lifestyle portrays the “whole person “interacting with his or her environment. Marketers search for relationships between their products and lifestyle groups. For example, a computer manufacturer might find that most computer buyers are achievement –oriented. The marketer may then aim the brand more clearly at the achiever lifestyle. And copywriters can then employ words and symbols that appeal to achievers. By: Department of marketing management Fundamentals of marketing management 5. Personality and self-concept: Each person has a distinct personality that influences his or her buying behavior. By personality, we mean a person‟s distinguishing psychological characteristics that lead to relatively consistent and enduring responses to his or her environment. Personality is usually described in terms of such traits as self-confidence, dominance autonomy, deference, sociability, defensiveness and adaptability. Personality can be a useful variable in analyzing consumer behavior, provided that personality types can be classified accurately and that strong correlations exist between certain personality types and product or brand choices. For example, a computer company might discover that many prospects have high self-confidence, dominance, and autonomy. This suggests designing computer advertisements to appeal to these traits. Related to personality is a person‟s self-concept (or self-image). A person‟s self- image has an impact in his/her choice of brands. Marketers try to develop brand images that match the target market‟s self-image. It is possible that a person‟s actual self-concept (how he views himself) differs from his ideal self-concept – how he would life to view himself – and from his other-self-concept – how he thinks others see him. Which self will he try to satisfy in choosing a brand? Because it is difficult to answer this question, self- concept theory has had a mixed record to success in predicting consumer responses to brand images. Psychological Factors A person‟s buying choices are influenced by four major psychological factors – motivation, perception, learning, and beliefs and attitudes. 1. Motivation: A person has many needs at any given time. Some needs are biogenic; they arise from physiological states of tension such as hunger, thirst, and discomfort. Other needs are psychogenic; they arise from psychological states of tension such as the need for recognition, esteem, or belonging. Most psychogenic needs are not intense enough to motivate the person to act on them immediately. A need becomes a motive when it is aroused to a sufficient level of intensity. A motive is a need that is sufficiently pressing to drive the person to act. Satisfying the need reduces the felt tension. Psychologists have developed theories of human motivation. Three of the best-known theories of Sigmund Freud, Abraham Maslow, and Frederick Hertzberg carry quite different implications for consumer analysis and marketing strategy. By: Department of marketing management Fundamentals of marketing management 2. Perception: A motivated person is ready to act. How the motivated person actually acts is influenced by his or her perception of the situation. Perception is the process by which an individual selects organizes, and interprets information inputs to create a meaningful picture of the world. Perception depends not only on the physical stimuli but also on the stimuli relation to the surrounding fields and on conditions within the individual. The key word in the definition of perception is “individual.” Why do people perceive the same situation differently? People can emerge with different perceptions of the same object because of three perceptual processes: selective attention, selective distortion, and selective retention. As a result, people may not necessarily see or hear the message that a marketer wants to send. Marketers must therefore be careful to take these perceptual processes into account in designing their marketing campaigns. 3. Learning: when people act, they learn. Learning involves changes in an individual‟s behavior arising from experience. Most human behavior is learned. Learning theorists believe that learning is produced through the interplay of drives, stimuli, cues, responses, and reinforcement. A drive is a strong internal stimulus impelling action. Learning theory teaches marketers that they can build up demand for a product by associating it with strong drives. Using motivating cues, and providing positive reinforcement, a new company can enter the market by appealing to the same arrives that competitor‟s use and providing similar cue configurations because buyers are more likely to transfer loyalty to similar brands than to dissimilar brands (generalization). Or the company might design its brand to appeal to a different set of drives and offer strong cue inducements to switch (discrimination). 4. Beliefs and Attitudes: through doing and learning, people acquire beliefs and attitudes. These in turn influence their buying behavior. A belief is descriptive thought that a person holds about something. Manufacturers are very interested in the beliefs that people carry in their heads about their products and services. These beliefs make up product and brand images, and people act on their images. If some beliefs are wrong and inhibit purchase, the manufacturers will launch a campaign to correct these beliefs. An attitude is a person‟s enduring favorable or unfavorable evaluations, emotional feelings, and action tendencies towards some object or idea. People have attitudes toward almost everything: religion, politics, clothes, music, food, and so on. Attitudes put them into a frame of mind of liking or disliking an object, moving towards or away from it. By: Department of marketing management Fundamentals of marketing management Attitudes lead people to behave in fairly consistent way toward similar objects. People do not have to interpret and react to every object in a fresh way. Attitudes economize on energy and thought. For this reason, attitudes are very difficult to change. A person‟s attitudes settle into a consistent pattern and to change a single attitude may require major adjustments in other attitudes. Thus, a company would be well advised to fit its product into existing attitudes rather than to try to change people‟s attitudes. Of course, there are exceptions where the great cost of trying to change attitudes might payoff. The Buying Process To be successful, marketers have to go beyond the various influences on buyers and develop an understanding of how consumers actually make their buying decisions. Specifically, marketers must identify who makes the buying decision and the steps in the buying process. The Stages of the Buying Decision Process Figure 2 shows a “stage model” of the typical buying process. The consumer passes through five stages: problem recognition, information search, evaluation of alternatives, purchase decision, and post purchase behavior. Clearly the buying process starts long before the actual purchase and has consequences long afterward. Problem Informatio Evaluation Purchase Post Purchase Recognitio n Search of Decision Behavior n Alternatives Figure 3.2 The Buying Process ORGANIZATIONAL BUYER BEHAVIOR Organizational buyers include individual involved in purchasing products for business, government agencies, and other institutions and agencies. Those who purchase for business include-industrial buyers who purchase goods and services to aid them in producing other goods and services for sale and resellers who purchase goods and services to resell at a profit. Government agencies, purchase products and services to carry out their responsibilities to society, and other institutions and agencies, such as churches and schools, purchase to fulfill their organizational missions. By: Department of marketing management Fundamentals of marketing management 3.2.1 Buying Situations The business buyer faces many decisions in making a purchase. The number of decisions depends on the type of buying situation. Three types of organizational purchase based on their degree of complexity include the straight rebuy, the modified rebuy, and the new task purchase. Straight Rebuy: The straight rebuy is a buying situation in which the purchase department reorders on a routine basis (e.g. office supplies, bulk chemicals). The buyer chooses from suppliers on its “approved list” giving weight to its past buying satisfaction with the various suppliers. The “in-suppliers" make an effort to maintain product and service quality. The "out- suppliers" attempt to offer something new or to exploit dissatisfaction with a current supplier. Out-suppliers try to get a small order and then enlarge their purchase share over time. Modified Rebuy: The modified rebuy is a situation in which the buyer wants to modify product specifications, prices, delivery requirements, or other term. The modified rebuy usually involves additional decision participants on both the buyer and seller sides. The in-suppliers become nervous and have to protect the account. The out-suppliers see an opportunity to propose a better offer to gain some business. New Task Purchase: The new task is buying situation in which a purchaser buys a product or service for the first time (e.g. office building, new security system). The greater the cost and/or risk, the larger the number of decision participants and the greater their information gathering – and therefore the longer the time to decision completion. The new task situation is the marketer‟s greatest opportunity and challenge. Major Influences on Organizational Buyers Organizational buyers are subject to many influences when they make their buying decisions. Some marketers assume that the most important influences are economic; others see buyers as responding to personal factors such as favors, attention, or risk avoidance. In reality, business buyers respond to both economic and personal factors. Where there is substantial similarity in supplier offers, organizational buyers have little basis for rational choice. Since they can satisfy the purchasing requirements with any supplier, they will place more weight on the personal treatment they receive. Where competing offers differ substantially, organizational buyers are more accountable for their choice and pay more attention to economic factors. In general, the influences on organizational buyers can be classified into four main groups environmental, organizational, and individual. By: Department of marketing management Fundamentals of marketing management Environmental factors Organizational buyers are heavily influenced by factors in the current and expected economic environment, such as the level of demand for their product, the economic outlook, and the interest rate. In a recession economy, business buyers reduce their investment in plant, equipment, and inventories. Marketers can do little to stimulate total demand in this environment. They can only fight harder to increase or maintain their share of demand. Organizational buyers are also affected by technological, political regulatory and competitive developments in the environment. The marketer has to monitor all of these forces, determine how they will affect buyers, and try to turn problems into opportunities. Organizational factors Each buying organization has specific objectives, policies, procedures, organizational structures, and systems. The marketer has to be familiar with all of these. This is because, every item purchased is to satisfy and implement organization objectives. Interpersonal factors The buying center usually includes several participants with differing interests, authority, status, empathy, and persuasiveness. The marketer is not likely to know what kind of group dynamics take place during the buying decision process, although whatever information she or he can discover about the personalities and interpersonal factors would be useful. Information about customer‟s relationships with other companies‟ sales reps can be of particular importance. Individual factors Each participant in the buying process has personal motivations, perceptions and preferences. These are influenced by the participant‟s age, income, education, job, position, personality, attitudes toward risk, and culture. Buyers definitely exhibit different buying style. There are “Keep-it-simple” buyers, “own-expert” buyers, "want-the-best" buyers, and "want-everything done" buyers. Some younger, highly educated buyers are computer experts who conduct rigorous analyses of competitive proposals for choosing a supplier. Other buyers are “toughies" from the old school and pit the competing sellers against one another. By: Department of marketing management Fundamentals of marketing management What is motivation? Motivation can be defined as the driving force within individuals that leads them to action. This driving force is produced by a state of tension, or because of an unfulfilled need. Individuals strive both consciously and unconsciously to reduce this tension through behavior that they think or feel will fulfill their needs and thus reduce the stress they feel. Some Concepts about Motivation Needs: Every individual has needs: some are innate, others are acquired. Innate needs are physiological (biogenic); they include the need for food, water, air, clothing, shelter, and sex. Because they are needed to sustain biological life, the biogenic needs are considered primary needs or motives. Acquired needs are needs that we learn in responses to our culture or environment. These may include needs for self-esteem, prestige, action, power and learning. Because acquired needs are generally psychological (i.e. psychogenic), they are considered as secondary needs or motives. They result from the individual‟s subjective psychological state and from relationship with others. Goals: Goals are the sought-after results of motivated behavior. All behavior is goal oriented. Generic goals are the general classes or categories of goals that consumers select to fulfill needs. Marketers are even more concerned with consumers. Interdependence of needs and goals Needs and goals are interdependent; neither exists without the other. However, people are often not aware of their needs as they are of their goals. Individuals are usually somewhat more aware of their physiological needs than they are of their psychological needs. Most people know when they are hungry, thirsty, or cold, and they take appropriate steps to satisfy these needs. The same people may not be conscious of their needs for acceptance, self-esteem, and status. They may, however, subconsciously engage in behavior that satisfies these psychological (acquired). Positive and Negative Motivation Motivation can be positive or negative in direction. We may feel a driving force toward some object or condition, or a driving force that directs away from some object or condition. Some psychologists refer to positive drive as needs, wants, or desires, and to negative drives as fears or aversion. Although positive and negative motivational forces seem to differ dramatically in terms of physical (and sometimes emotional) activity, they are similar in that both serve to By: Department of marketing management Fundamentals of marketing management initiate and sustain human behavior. For this reason, researchers often refer to both kinds of drives or motives as needs, wants and desires. Rational versus emotional motives What do we mean by rational motive? Some consumer behaviorists distinguish between rational motives and emotional (non- rational) motives. They use the term rationality in the traditional economic sense, which assumes that consumers behave rationally when they carefully consider all alternatives and choose those that give them the greatest utility. In a marketing context, the term rationally implies that consumersselect goals based on total objectivity. Emotional motive implies the selection of goals according to personal or subjective criteria (e.g. the desire for individuality, pride, fear, affection, status). The assumption underlying this distinction is that subjective or emotional criteria do not maximize utility or satisfaction. However, it is reasonable to assume that consumers always attempt to select alternatives that, in their view, serve to maximize satisfaction. Needs are never fully satisfied: Most human needs are never fully or permanently satisfied. New needs emerge as old needs are satisfied. Some motivational theorists believe that a hierarchy of needs exists and that new, higher-order needs emerge as lower-order needs are fulfilled. SUMMARY The main objective of marketing is to meet and satisfy target customers needs and wants. Understanding customers‟ buying behavior is, therefore, a crucial point. In this unit, we have considered such important points. To summarize our lesson, firstly, we have discussed four factors that influence the consumers‟ buying behavior namely; social factor, cultural, psychological and personal factors. Each of these factors has their own contribution in influencing buyers. Hence, marketers need to understand them carefully and use them effectively. In continuation, the unit also has presented the buying process that involves about five steps: problem/need recognition, information search, evaluation decision and post purchase behavior. Organizational buyers are also those who purchase goods and services to aid them in producing By: Department of marketing management Fundamentals of marketing management other goods and services for sale and resellers who purchase goods and services to resale at profit. Business buyers and other institutions purchase goods and services to fulfill organizational missions. There are three buying situations for these organizational buyers – straight rebuy, modified rebuy and new task purchase. The basic factors that influence the organizational buying behaviors are environmental factors, organizational factors, interpersonal factors and individual factors. Closely related to consumer buyer, the organizational buying process involves six important steps that range from problem recognition to performance review. SELF TEST REVIEW QUESTIONS Part I: Multiple Choice Questions Instruction: Choose the best answer from the alternatives provided write the letter of your answer on your own separate sheet. 1. One of the following is not element of social factors: A. Reference group B. Social class C. Family D. Roles and Status E. None 2. _________ is the person‟s pattern of living in the world as expressed in the person‟s activities, interests, and opinions. A. Lifestyle B. Family C. Social factor D. Personality E. Self-concept 3. If the customer‟s expectation is less than the actual performance of the product then the customers will be A. Satisfied B. Delighted C. Dissatisfied D. A and B E. None 4. Buying situation in which the purchasing department reorders on routine basis is______. A. New task purchase B. Modified Rebuy C. Modified Rebuy D. Consumer buyers E. None 5. Among the buying center those who will use the product or service are ___________ A. Initiators B. Users C. Influencers D. Buyers E. Approvers 6. One of the following is a not environmental factor which influence the organizations buying behavior. A. Objectives of the organization B. Level of demand C. Interest rate D. Social responsibility E. Economic out look By: Department of marketing management Fundamentals of marketing management Part II: Discussion Questions 1. Discuss the buying behavior. 2. Explain the basic factors that influence the buying behavior of consumers. 3. Discuss the following concepts: Motivation Social class Perception Post purchase action Subculture Belief 4. Compare and contrast between consumer buying behavior and organizational buying behavior. 5. What are the three basic situations in which organizations purchase the items the need? 6. Discuss the factors that influence organizational buying behavior. AROUSAL (stimuli) MOTIVES Most of an individual‟s specific needs are dormant much of the time. The arousal of any particular set of needs at a specific point in time may be caused by internal stimuli found in the individual‟s physiological condition, emotional or cognitive processes, or by stimuli in the outside environment.  Physiological arousal: Bodily needs at any one specific moment are rooted in an individual‟s physiological condition at that moment. Most of these physiological conditioning are involuntary; however, they arouse related needs that cause uncomfortable tensions until they are satisfied.  Emotional arousal: Sometimes day dreaming results in the arousal or stimulation of latent needs. People who are bored or frustrated in attempts to achieve their goals often engage in daydreaming, in which they imagine themselves in all sorts of desirable situation. These thoughts tend to arouse dormant needs, which may produce uncomfortable tensions that “push” them into goal-oriented behavior.  Cognitive Arousal: Sometimes, random thoughts or personal achievements can lead to a cognitive awareness of needs. A telephone cord advertisement that provides reminders of home might trigger instant desire to speak with one‟s parents. By: Department of marketing management Fundamentals of marketing management  Environmental Arousal: The set of needs activated at a particular time are often determined by specific cues in the environment. Without these cues, the needs might remain dormant Hierarchy of Needs: Dr. Abraham Maslow, a clinical psychologist, formulated a widely accepted theory of human motivation based on the notion of a universal hierarchy of human needs. Maslow‟s theory postulates five basic levels of human needs, which rank in order of importance from lower-level (biogenic) needs to higher-level (psychogenic) needs. Factor Influencing Consumer Behavior As consumers go through their day, buying, using and disposing of companies‟ offerings, what are the various factors that affect their decisions? What forces are operating to lead them to purchase the product and brand that they finally choose? Several factors can influence consumer behavior. These factors can be grouped into three conceptual domains:  External influences (PESTL)  Internal processes (including consumer decision making)  Post-decision processes. External influences: External influences focus on the various factors that impact upon consumers as they identify which needs to satisfy and which products and services to use to satisfy those needs. These forces fall into two major categories: the efforts of the firm; and the various factors that make up the consumer‟s culture. Culture: Culture is a shared, learned, symbolic system of values, beliefs and attitudes that shapes and influences perception and behavior an abstract „mental blueprint‟ or „code‟. It leads to a set of expected behaviors and norms for a specific group of people. Religious and ethnic influences: Religion provides individuals with a structured set of beliefs and values that guide their behavior and help them make choices. Age and gender Many consumers no longer watch shows at the time they are initially run; instead, they take advantage of technologies, which let them view their favorite shows long after they have been Due to age and gender mater the consumption habit. A reference group is a set of people with whom individual consumers compare themselves in developing their own attitudes and behavior. By: Department of marketing management Fundamentals of marketing management Reference groups have a significant impact on consumption of products and services. They convey information to an individual about which products and services they should or should not be consuming. This is especially true for individuals who consider themselves very similar to their peers or reference groups. A reference group is any person or group that serves as a point of comparison (reference) for an individual in forming either general or specific values, attitudes, or behavior. Family is defined as two or more persons related by blood, marriage, or adoption and live (reside) together. In a more dynamic sense, the individuals who constitute a family might be described as members of the most basic social group who live together and interact to satisfy their personal and mutual needs. Membership group: Based on membership or degree of involvement with a group, be it positive or negative influences on values, attitudes and behavior, reference groups could be divided into the following four kinds.  Contractual group - is one in which a person holds membership or has regular face-to- face contact with. Example: school, working place, family  Aspirational group -could be a person who does not have membership and do not have face to face contact but wants to be a member of that group  Disclaiming group -a group in which a person holds membership and has face-to-face contact but disapproves the group‟s values attitudes, and behavior  Avoidance group - a group in which a person neither holds membership nor has face to face contact and disapproves the group‟s values, attitudes and behavior where he/she dissociate himself/herself. Personality, thus traditionally, referred to how people influence others through their external appearances (actions). However, for an academician personality includes (i) external appearance and behavior, (ii) the inner awareness of self as permanent organizing force and (iii) the particular organization of measurable traits, both inner and outer. Personality is a broad, amorphous designation relating to fundamental approaches of persons to others and themselves. To most psychologists and students of behavior, this term refers to the study of the characteristic traits of an individual, relationships between these traits and the way in which a person adjusts to other people and situations. Nature of consumer personality By: Department of marketing management Fundamentals of marketing management Personality has the following characters.  Personality reflects individual differences because the inner characteristics that constitute an individual‟s personality are a unique combination of factors; no two individuals are exactly alike. Nevertheless, many individuals tend to be similar in terms of a single personality characteristic.  Personality is consistent and enduring (stability). Even though an individual‟s personality may be consistent, consumption behavior often varies considerably because of psychological, sociocultural and environmental factors that affect behavior.  Personality can change. Although personality tends to be consistent and enduring, it may still change under certain circumstances Attitudes Attitudes do not always predict behavior.. For example, many consumers may have a positive attitude towards the iPhone, but this positivity may not necessarily result in their making a purchase. Additionally, consumer attitudes may change over time and as they gain access to additional information. This positive attitude would mean that he would be more likely to purchase the phone. Memory: Consumer memory is a great store of knowledge that people have acquired over time. Memory holds information about products, services, shopping and product usage experiences. Retrieval is the act of remembering the information that we have stored in memory. Definition of Market Segmentation Market segmentation is the process of dividing the total market for a good or service in to several smaller, internally homogenous groups. It is activity of dividing a market into distinct groups with distinct needs, characteristics, or behavior who might require separate products or marketing mixes. The essence of segmentation is that members of each group are similar with respect to the factors that influence demand. A major element in a company's success is the ability to segment its markets effectively. In segmenting, one first identifies the wants of the customers within sub market and then decides if it is practical to develop a marketing mix to satisfy those wants. Levels of Segmentation By: Department of marketing management Fundamentals of marketing management The starting point for discussing segmentation is mass marketing. In mass marketing, the seller engages in the mass production, mass distribution and mass promotion of one product for all buyers. The argument for mass marketing is that it creates the largest potential market, which leads to the lowest costs, which in turn can lead to lower prices or higher margins. However, many critics point to the increasing splintering of market, which makes mass marketing more difficult. The proliferation of advertising media and distribution channel is making it difficult and increasingly expensive to reach a mass audience. Some claim that mass marketing is dying. Not surprisingly, many companies are turning to micro marketing at one of four levels segments, niches, local areas, and individuals. Segment marketing A market segment consists of group customers who share a similar set of wants. Thus, we distinguish between car buyers who are primarily seeking low-cost basic transportation and choose seeking a luxuries driving experience. We must be careful not to confuse a segment and a sector. A car company might say that it will target young middle-income car buyers. The problem is that young middle-income car buyers will differ about what they want in a car. Some will want a low cost car and others will want an expensive car. Young middle-income car buyers are a sector, not a segment. The marketer does not create the segments; the marketer‟s task is to identify the segments and decide which one(s) to target. Segment marketing offers several benefits over mass marketing. The company can create a more fine-tuned product or service offering and price it appropriately for the target segment. The company can more easily select the best distribution and communication channels, and it will have a clear picture of its competitors, which are the companies going after the same segment. However, even a segment is partly a fiction, in that not everyone wants exactly the same thing. Some scholars urged marketers to present flexible marketing offering instead of a standard offering to all members of a segment. A flexible market offering consists of two parts: a naked solution containing the product and service elements that all segment members‟ value, and discretionary options that some segment members‟ value. Each option might carry an additional charge. By: Department of marketing management Fundamentals of marketing management Niche marketing A niche is a more narrowly defined group seeking a distinctive mix of benefits. Marketers usually identify niches by dividing a segment into sub segments. For example, the segment of heavy smokers includes two niches: those who are trying to stop smoking and those who do not care. An attractive niche is characterized by;  The customers in the niche have a distinct set of needs;  They will pay a premium to the firm that best satisfies their needs;  The niche is not likely to attract other competitors;  The nicher gains certain economies through specialization; and  The niche has size, profit and growth potential. Whereas segments are fairly large and normally attract several competitors, niches are fairly small and normally attract only one or two. Positioning: How Many Ideas to Promote? A company must decide how many ideas (e.g. benefits, features) to convey in its positioning to its target customers. Many marketers advocate promoting only one central benefit. One central benefit positioning makes it easier for communication to the target market; it results in employees being clearer about what counts; and it makes it easier to align the whole organization with the central positioning. The brand should advertize itself as “number one,” on the benefit it selects. Number-one positioning include” best quality”, “best performance”, best service”, “best styling,” “best value”, “lowest prices,” ”safest,” “fastest,” “most convenient,” etc. If a company consistently hammers away at one positioning and delivers on it, it will probably be best known and recalled for this benefit. It should, however, be noted that single-benefit positioning is not always best for all companies. What if the market tires of the benefit or believes that most competitors now deliver it? For example, in developed economies today, most cars are safe and most cars have pretty good quality. Double-benefit positioning may be more distinctive. For instance, a seller may position its offerings as “best on-time delivery,” and “best installation support.” Volvo for example, double positions its products as “safest” and “most durable.” There are even cases of triple- By: Department of marketing management Fundamentals of marketing management benefit positioning. Aqua fresh, toothpaste, for example is promoted as offering three benefits: anti-cavity protection, better breath, and whiter teeth. The challenge is to convince consumers that the brand delivers all three benefits optimally. In general, as companies increase the number of claimed benefits for their brand, they risk disbelief and a loss of clear positioning. The positioning idea (difference) to be promoted is worth promoting to the extent that it satisfies the following criteria.  Important: The difference delivers a highly valued benefit to target buyers.  Distinctive: Competitors do not offer the difference, or the company can offer it in a more distinctive way.  Superior: The difference is superior to other ways that customers obtain the same benefit.  Communicable: The difference is communicable and visible to buyers.  Preemptive: Competitors cannot easily copy the difference.  Affordable: Buyers can afford to pay for the difference. Producers should not try to deliver something that is not affordable in an attempt to create differences.  Profitable: The Company can introduce the difference profitably. And a company must avoid four major positioning errors.  Under positioning: Some companies discover that buyers have only a vague idea of the brand. The brand is seen as just another entry in a crowded marketplace.  Over positioning: Buyers may have too narrow image of the brand. Thus, a consumer might think that the offering is very expensive and something unachievable when in fact it may be affordable for an average consumer. Market segmentation is the process of dividing the total market for a good or service in to several smaller, internally homogenous groups. It is activity of dividing a market into distinct groups with distinct needs, characteristics, or behavior who might require separate products or marketing mixes. The essence of segmentation is that members of each group are similar with respect to the factors that influence demand. Levels of market segmentation vary from a market to the other depending on the nature of the product to be offered. The most common levels of segmentation include segments, niches, local areas, and individuals. Marketers usually use segmentation bases like demographic, geographic, By: Department of marketing management Fundamentals of marketing management psychographics and behavioral ones, which are believed to be core consumption and usage determinants in most marketplaces. Effective market segmentation usually calls for criteria such as measurability, accessibility, significance, action driving, and differentiability of the markets to be grouped and marketers must be very certain that these criteria are well met in segmentation. Targeting is an important marketing concept because not all market segments have equal profit potential for firms and not all of them can be profitable at all sometimes. And the most commonly available target market selection strategies for firms are, single segment concentration, selective specialization, market specialization, and product specialization and aggregation strategy. Positioning is the act of designing the company's offering and image to occupy a distinctive place in the mind of the target market. A company‟s positioning strategy may be more for more, more for the same, the same for less, less for much less or more for less. Self Test Questions Part I: Multiple Choice Questions Instruction: Choose the best answer from the alternatives provided write the letter of your answer on your own separate sheet. 1. Multiple segmentation refers to A. Exploring two or more segments in an attempt to increase market share B. Identifying more than a single segment to diversify the risk exposures C. Using more than a single segmentation base to get a more refined target market D. Combining two or more segments to decrease marketing costs 2. Targeting should necessarily follow market segmentation because A. Most companies do have the capacity to serve more than a single segment B. Not all segments may be compatible with a firm‟s strategic marketing planning C. The process of segmentation process does not wholly include segment evaluation schemes which are quite important D. B and C 3. Market specialization strategy could be quite comfortable if A. A company can maintain product leadership B. Niche market to be served can maintain consistent purchasing power for longer periods By: Department of marketing management Fundamentals of marketing management C. The company has the policy of risk diversification D. The company has specialized production people 4. Identify a different entry A. User status C. Occasion B. Usage rate D. Personality 5. Which one of the following arguments specifically justifies the importance of positioning? A. The presence of competing firms in a market for the same target buyers B. The fact that there is really no company which can maintain superior performance in all product benefits C. The existence of lots of substitute goods in the same target market D. All are possible arguments 6. Jote PLC is a fast food company currently informing about the ISO (International Organization for Standardization) prize it won for its quality products and such promotion is closely related to: A. Market segmentation C. Surveying B. Targeting D. Positioning 7. Which of the following is not true about the positioning? A. Positioning helps to make the market recognize the company‟s distinctive offerings B. Positioning involves the activity of creating brand‟s unique benefits and differentiations in customer‟s mind C. The end outcome of positioning includes creations of reasons why the target market buys the products D. Positioning is what markets do to the product 8. The market segmentation strategy, which focuses on serving a market with variety of products, is: A. Full market coverage B. Market specialization C. Product specialization D. Selective specialization 9. Accessibility criterion in market segmentation refers to A. The expected differences between the various segments B. The size of that the segment that marketers decide to serve By: Department of marketing management Fundamentals of marketing management C. The possibility of reaching the segments using available distribution and promotion channels D. The general buying differences of the segments 10. The bases of market segmentation which divides buyers into groups based on their knowledge of, usage pattern and consumption of the product is A. Demographic segmentation B. Behavioral segmentation C. Geographic segmentation D. Psycho graphic segmentation Part II Fill in the blank spaces. Instruction: Fill in the blank spaces with appropriate word(s) or phrases. 1. The stage in segmentation where the producer identifies the major characteristic behavior differences of the buyers is__________________. 2. ______________is the basis for dividing a market in to different geographical units such as nations, states, regions, counties, cities where people live and work. 3. _______________is the act of designing the company's offering and image to occupy a distinctive place in the mind of the target market. 4. _______________is the process of dividing the total market for a good or service in to several smaller, internally homogenous groups. 5. A set of buyers sharing common needs or characteristics that the company decides to serve is_______________. Marketing Research and Marketing Information System Marketing research is defined as the systematic and objectives process of generating information to aid in making marketing decisions. This process includes specifying what information is required, designed the method for collecting information, managing and implementing the collection of data, analyzing the results, and communicating the findings and their implications. Some companies conduct marketing research independently for the 4P‟s (Marketing mix elements). These researches help managers in making specific decisions about virtually any aspect of the marketing mix. Marketing Research Process The marketing research process is a five-step application that includes: By: Department of marketing management Fundamentals of marketing management Step 1. Define the research topic Step 2. Designing the research project Step 3. Collecting Data Step 4. Data analysis and interpretation Step 5. Conclusion and report writing MARKETING INFORMATION SYSTEMS A marketing information system (MIS) is an organized way of continually gathering and analyzing data to provide marketing managers with information they need to make decisions. The input of marketing managers is important in the design of an MIS they know what data they have routinely needed in the past and can foresee what types of data might be useful in the future. Basic marketing information system concepts are not very different today than they were 20 year ago. However, recent developments in information technology are having a radical impact on what information is available to marketing managers and how quickly. A big difference today is how easy it is to set up and use a basic marketing information system. A short time ago, connecting remote computers or exchanging data over net works was very difficult. Now, it is standard and almost automatic. And even a manager with a little computer experience can quickly learn to use a basic marketing information system. As a result, mangers everywhere could have access to more information. It is instantly available, and often just a mouse-click away. Equally important, the type of information available is changing dramatically. As recently as 1995, most marketing managers with information needs relied on computers mainly for “number crunching.” The multimedia revolution in computing has quickly lifted that limitation. Now it does not matter whether marketing information takes the form of a marketing plan, report memo, spreadsheet, database, presentations, photographic, or table of statistics. It is all being created on computer. So, it can be easily stored and acc