Marketing PDF

06793 - 09 – Marketing Chapter 1 (04/09): Intro to Marketing Defining marketing (4) Brings in customers, and customers bring in money Build brand equity and the company’s reputation Engage the customer and the company learns from its customer relationship Help companies stay ah...

06793 - 09 – Marketing Chapter 1 (04/09): Intro to Marketing Defining marketing (4) Brings in customers, and customers bring in money Build brand equity and the company’s reputation Engage the customer and the company learns from its customer relationship Help companies stay ahead of competitors Marketing as an exchange relationship Definition of marketing: marketers try to figure out what customers want and how to provide it profitably. What can be marketed? “Everything” o Goods: bags, computers,… / Services: message,… o Experiences: interactive museums, concerts,… / Events: sports events o People: celebrities, political candidates o Places, Information, Ideas: ideas of having milk for breakfast, Companies Marketing is a process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return Evolution of Modern Marketing 1. Product/production orientation: focus on building a better gadget a. Production concept: EFFICIENCY o Favor products that are widely available and highly affordable o Focus on improving production and distribution efficiency o Oldest but still a useful philosophy in some situations o May lead to marketing myopia: losing sight of the real objective -> only focus on the productions and not satisfying needs and build customer relationships b. Product concept: PRODUCT IMPROVEMENT  o Favor products that offer the best quality, performance, and features o Focus on continuous product improvements o May also lead to marketing myopia 2. Sales orientation (selling concept): focus on convincing the customer that your product is for them o The aim is often to sell what the company makes rather than making what the market wants o Consumers will not buy enough of the firm’s products unless the firm undertakes a large-scale selling and promotion effort o Risk: create one-time sale transactions instead of long-term profitable customer relationships è Profit from sales volume: INSIDE OUT approach 3. Customer orientation (marketing concept): focus on identifying customers’ wants BEFORE formulating attractive solutions o Knowing the needs and wants and delivering the desired satisfaction better than competitors o Not a product-centered make-and-sell philosophy o Rather a customer-centered sense-and-respond philosophy è Profits from customer satisfaction: OUTSIDE IN approach 4. Societal marketing concept: considering human welfare, society’s long-run interests as well Who is responsible for marketing? All departments in the company -> Cannot deliver satisfaction without collaboration Chief marketing officer (CMO) carries as much weight as the CEO, CFO, or COO Measuring marketing success Quantify when possible: e.g., coupons lead to sales increase, mail campaign increases web usage through the number of web visits, etc. However, it’s sometimes not easy to quantify: e.g., did the ads campaign increase sales. Sometimes, it’s about long-term brand building, not short-term results Return on marketing investment (Marketing ROI) Net return from a marketing investment is divided by the costs of the investment Measurement of the profits generated by investments in marketing activities Performance measures used in assessing marketing ROI:  o Standard marketing performance: market share, brand awareness, sales o Customer-centered measures: new customer acquisition, customer retention, lifetime value, or customer equity -> an important feature Customer lifetime value: the value of the entire stream of purchases that the customer would make over a lifetime of patronage Customer equity: the total combined customer lifetime values of all customers o A measure of the future value of the company’s customer base o Better measure of a firm’s performance than current sales or market share o Cadilac: old customers that may buy their last car so the customer equity is not so high -> BMW’s customers are more loyal -> a measure of the future value Share of customer: the portion of the customers’ purchasing that a company gets in its product categories -> increase by offering greater variety to current customers and creating programs to cross-sell & up-sell to existing customers Marketing management framework STP: Segmentation: grouping customers with similar needs: because we cannot satisfy everyone with one single product Targeting: which segment makes the most sense for the firm Positioning: what you can offer, what you want to be for those selected customers. Communicate the benefits clearly to the target. Developed through the 4Ps Considerations: The situation facing the company changes over time (customer preferences, competitors, government’s new laws,…) Firms must consistently monitor the 5Cs 5Cs, STP, 4Ps are interdependent Chapter 2: Consumer behavior Patterns that comprise consumer behavior (4) The phases consumers go through when making a purchase The different kinds of purchases that consumers make How consumers sense, perceive, become motivated, form attitudes, make decisions The cultural differences that influence the customers The purchase process: The most complicated process when the involvement is high 1. Pre-purchase phase: Customers recognize a need/desire o Some are heavily marketer-influenced; some or not o Internal stimuli: the need – to restock, to eat, to fulfill the need o External stimuli: marketer-driven – having trendy clothes Customers search and evaluate products: online search, ask friends,… Customers create a consideration set: all brands are the candidates for purchasing (compare alternatives in the consideration set) 2. Purchase phase: Customers narrow the consideration set and make a choice o May delay the purchase or decide not to purchase Customers decide on retail channel è Marketers should study buyers to find out how they evaluate brand alternatives è Know how evaluative processes occur to influence the buyer’s decision 3. Post-purchase phase: Customers assess the purchase and the purchase process Customers determine satisfaction: did the customer get what was expected? Customers’ level of satisfaction leads to: o Repeat purchases o Negative or positive word of mouth o Product returns, etc. Cognitive dissonance: buyer’s discomfort caused by post-purchase psychological conflict -> inherent in the choice context because they would give up on a product to buy the other option -> marketers should help customers reduce cognitive dissonance and feel good about the product The Buyer Decision Process for New Innovative Products Adoption process: the mental process as an individual goes through from first learning about an innovation to final regular use Characteristics influence the rate of adoption: (5) Relative advantage: the degree to which the innovation appears superior to existing products Compatibility: the degree to which the innovation fits the values and experiences of potential consumers (e.g., lack of parking & charging spots for electric cars) Complexity: the degree to which the innovation is difficult to understand or use (high complexity means low adoption) Divisibility: the degree to which the innovation may be tried on a limited basis (high divisibility decreases the rate of adoption) (e.g., give out samples to experience the products) Communicability: the degree to which the results of using the innovation can be observed or described to others (e.g., Tesla: make it more aware and observed; Apple logos on Macbook even when you open or close the laptop) Different kinds of purchases 1. Types of consumer purchases Convenience purchases: o Low involvement (beverages, tissues,…) o Cheap, standard, frequently consumed goods o Consumers don’t spend much time thinking or planning the purchase Shopping purchases: o Medium involvement (clothes, furniture,…) o Not as frequently purchased o Consumers spend time and effort prior to purchase Specialty purchases: o High involvement, occasional purchases, often more expensive, require more thought o Customers put much effort into the purchase 2. Types of business purchases Straight rebuy: low involvement; purchase that was purchased last time with little or no thought Modified rebuy: medium involvement; something about the purchased is altered, required some thought New buy: High involvement; purchase smt that hasn’t been purchased before; requiring much thought and planning Low involvement vs high-involvement purchases For low-involvement products -> focus more on prices and distribution availability Anatomy of a grocery store (5) Group similar products Group products to form consideration sets Group complementary products Place common purchases far from the entrance Place high-profit and impulse-purchase items at the end of aisles and checkout lanes The process of perception 1. Exposure Occurs when a stimulus comes within range of someone’s sensory receptors Without it, there is no opportunity to process Exposure accomplishes: o FAMILIARITY: through frequent exposure -> SLIGHTLY POSITIVE FEELING o Mere exposure effects: demonstrate a causal relationship between exposure and liking ( we tend to like things we are often exposed to) Consumers select their exposure to stimuli while marketers try hard to expose consumers (a tension here since being exposed a lot may cause annoying) 2. Attention The process by which we devote mental activity to a stimulus: necessary for information to be consciously processed Limited therefore must be selective Sensory overload: consumers exposed to far more info than they can process è Marketers need to break through the clutter and capture their attention: Through individual factors (individually relevant) & stimulus factors (shocking, smt big) 3. Interpretation The meaning that we assign to sensory stimuli: same event but different interpretations because people have different scheme Schema: a set of associations linked to a concept or category (e.g., prior experience with the category) Learning, memory, and emotions Sensory and perceptual impressions can become brand associations -> in customers’ brain, they have certain attributes attached to a brand Learning: the process by which associations get past the sensory and perception stages into short-term memory and then, with repetition, into long-term memory o Classical and operant conditioning 1. Classical conditioning Pavlov’s dog A stimulus that elicits a response is paired with another stimulus that initially does not elicit a response on its own. Over time, the second stimulus causes a similar response because we associate it with the first stimulus o First stimulus: meat (initially stimuli to dogs) / music, celebrity, scenery o Second stimulus: bell (neutral stimuli) / brand o Any stimulus that can elicit positive feelings and pair it with a logo/service/product/name 2. Operant conditioning Skinner used pigeons to show learning occurs by positively reinforcing behavior by giving rewards once something is done o Fixed ratio reward: reward is given every time or every 4th time, etc. § The behavior is more predictable § E.g., after 10 purchases get one free, a deal-of-the-day § Should add unpredictable rewards sometimes -> PERFECT o Variable ratio reward: reward timing varies unpredictably § Pushing customers more, tend to be MORE EFFECTIVE § E.g., an extra item for random customers, spin the lucky wheel, surprise sales for your next purchase, 2-for-1 items at random times) è IMPORTANT because the unpredictability of the variability drives humans. Fixed interval rewards: monthly sales / Variable interval rewards: surprise sales Interval rewards are not based on your previous actions, it’s for everyone; -> Better for getting more NEW CUSTOMERS instead of LOYALTY CUSTOMERS Motivation: Hierarchy of Needs (Maslows) Lower levels: more basic needs (food for the table, bed to sleep before we think of buying nice clothes) Higher levels: driven by more abstract motivations that begin to define humanity Highest levels: the achievement of our ultimate ideal self Marketers use this to identify their products with a certain level of needs. o They use imagery to appeal to those motivations (e.g., vehicle brands use crash advertisements to show the need of safety) o Brands try to heighten the level of belonging or create social acceptance for the products (e.g., if your friends use high-brand cars then would they accept you with your SUV) Marketers may identify products with aspiration groups Marketers may offer an extended brand line for customers at different levels in Maslow’s hierarchy  (e.g., Mercedes has a lower-end C model, then upwards to E, S, and finally CL models Distinguishing motivations Utilitarian vs hedonic (e.g., need suit for interviews or need an Armani suit) Conformity vs individuality (e.g., we want to fit in but we also want to be unique): may vary over a lifetime or in different situations Risk-seeking vs risk-averse: risk tolerance may vary with product knowledge in different product categories Attitudes and decision-making Affect the extent to which consumers: o Buy a brand o Repeatedly purchase it o Become loyal o Recommend it to others, etc. Attitudes are a mix of beliefs and importance weights o Beliefs: opinions about a certain attribute of a product (e.g., customers think BMW is good to look at, Sprite has caffeine,…) o Importance (even if the customer thinks BMW is good-looking, it is still not that attractive to her because that’s not a decent attribute when considering cars) o Customers may differ on both importance and beliefs Multi-attribute models of attitude o To order the brand attitude toward brand J, here is 4 steps to do § Identify relevant attributes used to evaluate products (e.g., cars: physical appearance, interior design, price,…) § Determine importance weights (w) for those attributes (very important?) § Determine perceptions about the brand on those attributes (x) § Sum the product of importance weights and perceptual positions Decision making With a few choices, consumers easily compare brands to make decisions With many choices, consumers use two stages: o Stage 1: determine the consideration set (engage in a less complicated process) § Non-compensatory set: if brands don’t have important attributes, it is cut E.g., Lexicographic method: compare all brands on the most important attribute; cut brands that don’t have it; move on to the next important attribute and compare and cut,… o Stage 2: compare brands to make a purchase decision (become more detailed about the strengths & weaknesses of those brands in the consideration set) § Compensatory model (cost/benefits): 1 excellent attribute can compensate for a poor attribute § Some websites aid this process by allowing users to view a side-by-side comparison of attributes Behavioral economics principle: differences in system 1 and system 2 thinking A field where researchers try to apply theoretical principles to behavioral economics  System 1: o Automatic, unconscious (repeated purchasing without consideration) o Efficient, heuristics (the most accessible items to have) o Routine decisions o May optimize a consumer’s time System 2: o Effortful, conscious o Reasoned, thought through o Complex decisions o May optimize certain product features Important because marketers try to identify which system customers are most likely to choose to engage with the brand The psychology of prospect theory The reference point (center): the price tag On the right: describes the gain – on the left: describes the loss Losses loom larger than gains: psychological behavior because the impact of loss is bigger than gain -> the graph in loss is much deeper than the graph in gain Cultural differences Sociocultural differences (social class, age, gender, ethnicity, and nationality) influence consumer impressions and preferences and produce shopping patterns o Social class: e.g., old-monied people seek exclusivity; nouveau indulge in conspicuous consumption o Age: e.g., young people buy furniture; as they get older, they buy diapers and minivans, then college, and finally healthcare Chapter 3: Segmentation Why segment? For psychologists: consumers have different motivations that drive their purchases For economists: imperfect competition exists; consumers have unique needs For marketers: the market is comprised of different segments Segmentation: breaking the market into more homogeneous consumer groups A single product, price, or promotion is unlikely to satisfy all consumers’ needs Market segments: a group of customers who share similar inclinations toward a brand (e.g., one segment might purchase a car to get from A to B while another segment may purchase a car to impress their friends Marketers’ goal: create marketing mixes that meet the segment’s needs Types of segment Mass marketing o All customers are treated the same o Is usually more efficient but may not meet customer needs (e.g., Pepsi seems to be mass marketed but it is not with diet pepsi, pepsi, caffein-free pepsi,…) One-to-one marketing o Each customer serves a segment o Product is tailored for each person’s desires o Is usually more effective in meeting customer’s needs but hard to achieve efficiently and may involve quality issues (e.g., Dell alows customers to build their own computers but options are limited) Segmentation falls between one-to-one and mass marketing o As segment size increases, segments become more heterogeneous o As segment size decreases, segments become less profitable o Marketers need the ‘optimal’ segment size -> take the trade-off or not Niche: targeting small markets that firm serves well Bases for segmenting in B2C  Demographic: the easiest way to get variables, variables are clear and easy to recognize but may lead to simplistic stereotypes. Can used in combination with different variables Geographic: urban living is different from a small town (e.g., NYC residents want smaller dishwashers); hot climates require different products than cold climates o Pay attention to geographical differences in needs & wants o Localize their products, advertising, promotion, and sales efforts to fit the needs è Combining geographic and demographic information can be powerful Psychological: any variables that try to get inside the head & heart of customers o Attitudes (favorable toward ‘green’ products( o Knowledge and awareness (about the product) o Wants & needs o Affiliations (members of any associations) o Traits (extrovert vs introvert) o Expertise & Involvement o Brand attitudes sought (specific attributes that customers often look for) o Risk orientation o Aspirations (their most influential motivations at the time) Segmentation: VALS o VALS: psychographic segmentation tool based on 3 consumer motivations § Ideals: guided by knowledge and principles § Achievement: guided by the need to demonstrate their success to peers § Self-expression: express personality to others o Try to match people with these 8 types to have the most suitable marketing campaign for them Behavioral: o Product-related behaviors people engage in: § Attitudes can’t be observed but behaviors can § Intentions do not always = behaviors § Past & current behaviors help predict future behaviors  Types of behaviors: § Benefits sought: require finding the major benefits people look for in a product class, the kinds of people who look for each benefit § Occasions: identify segments based on occasions that customers associate with the use of the product when consumers get the idea to buy, actually make their purchase, or use the purchased item (Christmas- themed items?) § Loyalty status: hardcore loyal, split loyal, shifting loyal, switchers § Usage rate: non-user, light user, medium user, heavy user -> heavy users account for a small % of the market but account for a high % of buying § User status: non-users, potential users, first-time users, regular users; To reinforce and retain regular users, attract targeted nonusers, and reinvigorate relationships with ex-users oCurrent users, nonusers § Nonusers may use competitors or don’t buy § 80-20 rule: 80% of sales come from 20% of customers § It costs 6 times more to acquire a new customer than to retain a loyal one o Patterns of co-purchasing § Purchase a new house, usually purchase new appliances, curtains, etc § Create opportunities for cross-selling è No single way to segment a market: marketers should try different segmentation variables, alone and in combination to find the best way to view the market structure. WHY? Rich segmentation provides a powerful tool for marketers: can help identify and better understand key customer segments, reach them more efficiently, and tailor market offerings and messages to their specific needs How to segment the market Iterate between 2 approaches: o Managerial: top-down ideation ( does the company have enough resources to offer the customers or win over the competitors in the segment?) o Customer-based: bottom-up customers need assessment (needs & wants) Begin with understanding the marketplace and then gather information on the customer’s perspectives (competition & consistency with firm goals) Doing both approaches is important How to evaluate segmentation schemes: Does the segmentation scheme have: 1. Data to identify segments Census data: available but may not be useful Commercial data through VALS or Prizm: expensive Specific surveys may not be available Databases to access segments: databases that give access to the specific people within your chosen segments 2. Profitability Size matters but so do frequency and depth of purchase, price sensitivity, segment stability, growth potential, competitive intensity, and supplier power,.. Be careful not to segment too narrowly: determine what matters to your product 3. Fit with corporate goals Consider your firm’s goals and image (e.g., subzero does not ‘fit’ with the low-end refrige/rator market) Actionable: marketers should focus on the right criteria Segmentation strategies Breadth strategy: reaching multiple segments (e.g., selling package that serves the needs of more than one segment) Depth strategy: serving one segment well (e.g., high-end products segment) Tailored strategy: customizing for segments (e.g., Coca-Cola & diet coke; macho beer & light beer) Requirements for Effective Segmentation Measurable: the size, purchasing power, and profiles of the segments can be measured Accessible: the market segments can be easily reached and served Substantial: the market segments are large or profitable enough to serve Differentiable: the segments are distinguishable and respond differently to different marketing mix elements and program Actionable: effective programs can be designed for attracting & serving the segments Managerial recap Marketers create segments because customers vary in preferences Market segments are groups of customers with similar reactions to the company’s brand Segments can be formed on nearly any kind of differentiating information Chapter 4: Targeting Targeting: select one or more market segments to purchase because it is difficult to be all things to people Evaluating market segments Bottom-up: profitability (how profitable will this segment be?) o Segment size & growth: basically the larger the better but it has to be bounded by the company’s resources -> the largest, fastest growing segments are not always the most attractive ones for every company o Segment structural attractiveness: the long-term attractiveness § Strong & aggressive competitors already in the segment? New entrants coming in the same segment? Substitute products that are going to be the indirect competitors § Power of buyers relative to sellers? Powerful suppliers who control prices, quality, or quantity of ordered products -> then you don’t have a lot of power Top-down: strategic fit (does this market fit with who you are?) o Evaluate fit with the company’s long-run objectives o Understand the firm’s resources, SW, and brand personalities Strategic criteria for targeting “Go for it” & “Avoid” are relatively easy strategic decisions “Hmms” are dilemma scenarios E.g., your strength is thumb drives, but the market is unattractive -> is there any segment that sees value in thumb drives? Can we redesign the product to give it value? How much will this cost? SWOT Opportunities & threats are external factors and are usually driven by changes in one of the 5Cs (e.g., internet access, new competitors, new offerings from existing competitors, lack of competition, aging baby boomers,…) Competitive perceptual maps The competitive perceptual maps: show customers’ perceptions of the firm’s strengths/weaknesses relative to competitors (in many product categories, price and quality are key; quality is defined by the industry) Market targeting strategies (from broad target or narrow target) 1. Undifferentiated marketing: targets the whole market with one offer Mass marketing Focus on common needs rather than what’s different 2. Differentiated marketing: targets several different market segments and designs separate offers for each (e.g., P&G with 7 different detergent brands) The goal is to achieve higher sales and a stronger position More expensive than undifferentiated marketing Must weigh increased sales against increased cost Launching multiple brands should all bring benefits 3. Concentrated marketing: targets a large share of smaller market Limited company resources (much lower cost)  Knowledge of the market More effective and efficient But, involves higher-than-normal risks: will suffer greatly if the segment turns sour (customers’ taste or trends change suddenly) or if larger competitors decide to enter the same segment with greater resources 4. Micromarketing: the practice of tailoring products and marketing programs to suit the tastes of specific individuals and locations (E.g., local marketing, individual marketing) Local marketing: involves tailoring brands and promotion to the needs and wants of local customer segments o Increasingly, location-based marketing is going mobile, reaching on-the-go consumers as they come and go in key local market areas (thanks to GPS on smartphones, companies can now track consumers’ whereabouts and gear their offers accordingly -> Privacy issues) o Drawbacks: costs, dilution of overall brand image Individual marketing: involves tailoring products and marketing programs to the needs and preferences of individual customers (also known as one-to-one marketing or mass customization) Selecting target market segments (5) Company resources: limited? Product variability Product life-cycle stage: mature? Infants? Market variability: most buyers have the same taste? Competitor’s marketing strategies Sizing markets The more precisely defined the segment, the easier the numbers are to estimate Each estimate should be as precise as possible Some estimates are less firm than others Use secondary data (e.g., demographics) Use customer survey data on attitudes and preferences and use behavioral data to smooth out the size estimation Sensitivity analysis: conduct on the harder-to-verify numbers. This process determines o Which numbers have the biggest impact -> conduct more research to ensure accuracy  o The upper and lower bounds of the market, which will help in planning Additional factors: estimate growth: obtain sales data for previous years and extrapolate using a moving average Formula: population x the expected purchases generated from that population Chapter 5: Positioning Positioning: who your brand or company is in the marketplace, the competition and in the eyes of the customer Positioning is determined by the marketing mix: o Product: design a product with benefits that the target segment will value o Price: pricing your product so it’s profitable yet seen as valuable o Place: building distributor relationships to make the market offering available o Promotion: communicating all of this to the customer through an array of promotional activities Positioning via perceptual maps Perceptual maps show graphical decisions of how the brands and their competitors are perceived in the minds of customers o Brands close together are seen as similar o Brands further apart are viewed as different Maps for competitive analysis Compares overall perceived strengths and weaknesses with competitors (limited to 2 dimensions) A bar chart provides the perceptual mapping of more than two dimensions among several competitors (provides more detailed information) Single provider perceptual map: positioning various qualities on a perceptual map reveals a company’s strengths and weaknesses The positioning matrix Companies usually can’t be great at everything due to resources Marketers need to determine the ‘best’ position for the firm Product quality by price Low-low and high-high make sense Overpriced and good-value products don’t make sense Promotion by distribution Heavy-wide and light-exclusive make sense Unadvertised and hard-to-get products don’t make sense Optimal matches: the positioning matrix is reduced to two strategies: Low price, low quality, widely available, heavy promotions High price, high quality, exclusive availability, light promotions Writing a positioning statement Address the target market Expresses a USP (unique selling point) o If a ‘real’ attribute difference does not exist, create a ‘perceived’ image difference Make sure the statement is succinct. o Prioritize your brand benefits and choose the most important, compelling differentiator -> Think about what benefits the customer